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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

|    |  |                                                                                     
|--- |  | ------------------------------------------------------------------------------------
|[X] |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001

OR

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

Commission file number 0-22170



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EPOCH BIOSCIENCES, INC.(Exact name of Registrant as Specified in its charter)

|                                                                                       |  |                                               
|-------------------------------------------------------------------------------------- |  | ----------------------------------------------
|Delaware(State or other jurisdiction of incorporation or organization)                 |  | 91-1311592(I.R.S. Employer Identification No.)
|                                                                                      
|21720 23rd Drive SE, #150, Bothell, Washington(Address of principal executive offices) |  | 98021(Zip Code)                               

(425) 482-5555(Issuers telephone number, including area code)

|                                                            |  |                                                            
|----------------------------------------------------------- |  | -----------------------------------------------------------
|Securities registered pursuant to Section 12(g) of the Act: |  | Common Stock
Common Stock Purchase Warrants(Title of class)

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such reports); and (2) has been subject to such filing requirements for the
past 90 days. YES [X]     NO [   ]

Check if disclosure of delinquent filers pursuant to Item 405 of
Regulation K is not contained in this form, and no disclosure will be
contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [   ]

As of March 19, 2002, the aggregate market value of the voting stock held
by non-affiliates, computed by reference to the price at which the stock was
sold on such date, was approximately $47,462,694.

25,655,510 shares of Common Stock were outstanding at March 19, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

Information required under Items 10, 11, 12, and 13 of Part III hereof are
incorporated by reference to portions of the registrants definitive Proxy
Statement to be filed in connection with the solicitation of proxies for its
Annual Meeting of Stockholders to be held May 23, 2002.





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TABLE OF CONTENTS



|                |                                                                                               |                                              |  |  |  |  |  | 
|--------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------- |  |  |  |  |  | 
|PART I         
|                | ITEM 1. Business                                                                             
|                | ITEM 2. Properties                                                                           
|                | ITEM 3. Legal Proceedings                                                                    
|                | ITEM 4. Submission of Matters to a Vote of Security Holders                                  
|PART II        
|                | ITEM 5. Market for Common Equity and Related Stockholder Matters                             
|                | ITEM 6. Selected Financial Data                                                              
|                | ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                | ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|                | ITEM 8. Financial Statements and Supplementary Data                                          
|                | ITEM 9. Changes in And Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III       
|                | ITEM 10. Directors, and Executive Officers of Epoch.                                         
|                | ITEM 11. Executive Compensation                                                              
|                | ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Matters  
|                | ITEM 13. Certain Relationships and Related Transactions                                      
|PART IV        
|                | ITEM 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K                   
|Signatures     
|                |                                                                                               | Balance Sheets                              
|                |                                                                                               | Statements of Operations                    
|                |                                                                                               | Statements of Stockholders Equity (Deficit)
|                |                                                                                               | Statements of Cash Flows                    
|                |                                                                                               | Notes To Financial Statements               
|EXHIBIT INDEX  
|EXHIBIT 10.21.1
|EXHIBIT 10.21.2
|EXHIBIT 10.24  
|EXHIBIT 10.26.1
|EXHIBIT 10.27.1
|EXHIBIT 10.28.1
|EXHIBIT 10.29  
|EXHIBIT 23.1   



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INTRODUCTORY NOTE

This Annual Report on Form 10-K contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 and we intend that these
forward-looking statements be subject to the safe harbors created thereby.
These forward-looking statements include, without limitation, the development
and commercialization of the companys technology.

The forward-looking statements included in this document are based on
current expectations that involve a number of risks and uncertainties. These
forward-looking statements are based on assumptions that Epochs technology
will continue to be developed, and will not be replaced by new technology, that
we will retain key technical and management personnel, and that there will be
no material adverse change in our operations or business. Assumptions relating
to the foregoing involve judgments with respect to, among other things, future
technology, economic, competitive and market conditions, and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond our control. Although we believe that the assumptions
underlying the forward-looking statements are reasonable, any of the
assumptions could prove inaccurate and, therefore, there can be no assurance
that the results contemplated in forward-looking statements will be realized.
In addition, our business and operations are subject to substantial risks which
increase the uncertainty inherent in these forward-looking statements. Epoch
undertakes no obligation to revise or publicly release the results of any
revision to these forward-looking statements. In light of the significant
uncertainties inherent in the forward-looking information included in this
document, the inclusion of information should not be regarded as a
representation by us or any other person that the objectives or plans of Epoch
will be achieved. Readers should carefully review the risk factors described
in this document as well as in other documents the company files from time to
time with the Securities and Exchange Commission, including the Quarterly
Reports on Form 10-Q to be filed by the company in fiscal year 2002.





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PART I




ITEM 1. Business

The Company

Epoch Biosciences, Inc. is a biotechnology company developing technologies
and making products to help scientists around the world perform genetic
research to improve our lives and our environment. Genetic analysis has become
a pervasive activity in academic, biopharmaceutical, clinical, agricultural,
veterinary and forensic laboratories. Our technologies facilitate rapid,
accurate and cost-effective genetic analysis at the scale necessary to generate
the massive amounts of genetic information being studied today.

As the human genome and other animal and plant genomes are sequenced, the
task of understanding the structure and function of genes lies before us
(genomics). Researchers want to know when and why a gene switches on and
begins producing its protein (gene expression) and what the genes protein does
in the body (proteomics). Finally, researchers want to know what peoples
genetic similarities and differences mean for their health and susceptibility
to disease. For example, single nucleotide polymorphisms, or SNPs, are tiny
differences in our DNA that make humans different from one another. SNPs have
been linked to good and bad traits, including hereditary and acquired diseases,
and to peoples response to medications.

Because of the implications of understanding gene function on human health
and disease, institutions have moved quickly to design and manufacture
automated genetic analysis systems. We develop patented technologies that
improve the output of these systems. Our technologies are compatible with many
of the genetic analysis systems currently in use or in development. Just as
microprocessors are found in essentially all electronic appliances, our
chemistries and technologies have the potential to be incorporated in nearly
all genetic analysis systems.

We earn revenues through a variety of sources. We license our technology
for incorporation into other companies products and earn license fees and
royalties from those companies and generate product revenue from sales of our
chemistries to them. We also sell our products to end-users; both through our
direct sales force and through distributors that provide worldwide reach. We
also earn revenues through contract research activities, whereby third party
companies pay for specific research and development activities carried out by
our scientists.

The following table summarizes our revenues by major category, for the
last three years ($ in thousands):

|        |                                 |               |   |      |     |      |  |      |     |   |   |     |       |   |  |    |     |   |   |       |       |  |  |    |     |  
|------- | ------------------------------- | ------------- | - | ---- | --- | ---- |  | ---- | --- | - | - | --- | ----- | - |  | -- | --- | - | - | ----- | ----- |  |  | -- | --- | -
|        |                                 |               |   | 1999 |     | 2000 |  | 2001
|        |                                 |               |   |      |     |      |  |     
|        |                                 |               |   | $    |     | %    |  | $    |     | % |   | $   |       | %
|        |                                 |               |   |      |     |      |  |      |     |   |   |     |       |  
|Revenue |                                 |               |   |      |     |      |  |      |     |   |   |     |       |   |  |    |     |   |   |       |       |  |  |   
|        | Product sales                   |               | $ |     |     |      |  |     | %   |   | $ | 923 |       |   |  | 68 | %   |   | $ | 4,461 |       |  |  | 59 | %  
|        | License fees and royalty income |               |   | 72   |     |      |  | 40   | %   |   |   | 74  |       |   |  | 5  | %   |   |   | 936   |       |  |  | 13 | %  
|        | Contract research revenue       |               |   | 109  |     |      |  | 60   | %   |   |   | 370 |       |   |  | 27 | %   |   |   | 2,124 |       |  |  | 28 | %  
|        |                                 |               |   |      |     |      |  |      |     |   |   |     |       |   |  |    |     |   |   |       |       |  |  |    |    
|        |                                 | Total revenue |   | $    | 181 |      |  |      | 100 | % |   | $   | 1,367 |   |  |    | 100 | % |   | $     | 7,521 |  |  |    | 100 | %
|        |                                 |               |   |      |     |      |  |      |     |   |   |     |       |   |  |    |     |   |   |       |       |  |  |    |    

We incorporated in Delaware on August 14, 1985, under the name MicroProbe
Corporation. We changed our name to Epoch Pharmaceuticals, Inc. in December
1995, and to Epoch Biosciences, Inc. on

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August 22, 2000. Our principal office is located at 21720 23rd Drive SE,
#150, Bothell, Washington, and our telephone number is (425) 482-5555.

Background

Nucleic acids are found in all living organisms and are the sole carriers
of the genetic code that specifies an organisms makeup. There are two types
of closely related nucleic acids: deoxyribonucleic acid, or DNA, and
ribonucleic acid, or RNA. DNA carries the permanent genetic information for
construction of all proteins in higher living organisms, while RNA carries a
temporary copy of this information to direct protein synthesis. Proteins
perform most of the normal physiological functions of living organisms, and
aberrant production or activity of proteins may cause numerous diseases.

(FIGURE 1.)

DNA is comprised of two linear strands that are formed in a double helix.
Each strand is a sequential array of four nucleotide bases: adenine (A),
guanine (G), thymine (T) and cytosine (C), which are linked together in DNA by
a sugar and phosphate backbone. Every gene contains a unique sequence of these
bases and it is these unique sequences that constitute the genetic code which
guides all cellular processes. The two chains, or strands, normally comprising
DNA are held together by chemical attractions between opposing paired bases
according to the following rules: A always pairs with T, G always pairs with C.
Figure 1 is a schematic diagram of double-stranded DNA showing this highly
specific interaction between the bases in the two strands. This process of
base pairing, called hybridization, can occur between DNA strands of any size,
as long as the paired segments are matched correctly. RNA occurs in several
forms in cells, and each of these forms has a different function. Messenger
RNA, or mRNA, is copied from the gene and carries the genetic code which is
translated into the proteins synthesized by the cell. This process is called
gene expression.

Synthetic DNA strands can be designed to bind selectively to unique
sequences of bases in order to measure the activity of genes, to identify
infectious organisms, or to identify genetic differences between species or
individuals. Our expertise in the chemistry, design and synthesis of synthetic
DNA forms the basis of our research and development activities on compounds and
techniques for genetic analysis.

Overview

Genetic analysis has become the most important laboratory technique in the
life sciences. The massive effort to sequence the human genome is paralleled
by projects to sequence the genomes of infectious organisms, research animals
including fruit flies, worms and rats, and important food crops. It is
estimated that over $3.5 billion was spent worldwide in 2001 on industrial and
academic research to understand human gene function. This research effort is
revolutionizing the pharmaceutical and diagnostic industries, as well as the
fields of crop science, animal breeding and veterinary medicine. In the area
of human health, genetic analysis promises to identify the mutations that cause
hereditary diseases, to elucidate the genetic events that lead to cancer and
determine the relative malignancy of tumors, and to identify our individual
risk for developing chronic illnesses like heart disease and arthritis.

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This future promise of genetic analysis and a rapid surge in research
activity has created a demand for new technologies and systems to accelerate
the pace and accuracy of genetic research. Techniques to study gene expression
levels and detect differences in gene sequences are rapidly evolving. As the
amount of data being generated grows, the demand for simple, accurate, high
throughput formats is increasing. New technologies are generating great
interest, such as MGB TaqMan® systems from Applied Biosystems, Primer
Extension, a DNA analysis system being developed by Orchid BioSciences,
Sequenom and others, the Invader assay being commercialized by Third Wave
Technologies, microarray technologies being developed by Affymetrix and others,
and microfluidic platforms under development at Caliper Technologies, Aclara
Biosciences and others.

We have developed chemical compounds that broadly facilitate genetic
analysis. Our chemistries include minor groove binders, modified bases, novel
fluorescent molecules and non-fluorescent quenchers, and a unique chemistry to
attach synthetic DNA strands to solid surfaces. When these chemical compounds
are attached to or incorporated into DNA probes, they enhance methods to
measure gene expression and to detect a difference of a single base in the DNA
of different individuals, called a single nucleotide polymorphism, or SNP. Our
compounds are compatible with multiple technologies, including polymerase chain
reaction, or PCR, and alternative nucleic acid amplification technologies. Our
technologies are used in multiple formats, including high throughput systems
and microtiter plate formats, and they can be used in solution or on solid
surfaces, including microarrays.

The commercialization of our technologies has led to our current
proprietary products which include MGB Eclipse Probe Systems and DNAnchor
Microarray Systems.

We are collaborating with companies that are interested in improving the
speed, accuracy, and simplicity of their tests and applications by using our
proprietary chemistries. We have a strategic partnership with Applied
Biosystems, where our technology is incorporated into all their TaqMan®
real-time PCR systems. And we have licensed our technology to Third Wave
Technologies for use in their Invader system. We anticipate forming business
relationships with other companies to commercialize products for genetic
analysis that incorporate our technologies.

Genetic analysis

As of June 2000, the Human Genome Project and Celera announced that they
had sequenced the entire human genome of over 3 billion base pairs. At the
same time, Incyte Genomics and Human Genome Sciences have identified partial
sequences for the majority of human genes.

Sequencing the human genome has been likened to the discovery of the
elements and their arrangement in the periodic table: it only reveals the
underlying structure and order of the system. With the human genome completely
sequenced, we know approximately how many genes our chromosomes contain and
where the genes are located on the chromosomes. However, that information
generates many more questions than it answers. Searching for the answers to
those questions will result in a rapid growth in the field of genetic analysis,
with a parallel growth in technologies and products that facilitate that
effort.

Among the most important issues that genetic research will address in the
next few decades are:



| |  |  | How does our genetic diversity  the differences in the
sequence of the four bases that make up our DNA  affect our
response to drugs, and contribute to our susceptibility to chronic
diseases, including cancer and cardiovascular disease?
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | How do differences in the expression of genes in our various
tissues affect development and contribute to health and illness?
| | - |  | -----------------------------------------------------------------------------------------------------------------------------

SNP detection

The sequence of the four nucleotides (A,G,T,C) in our DNA determines our
genetic makeup. Differences in this sequence, in large part, determine the
uniqueness of each individual. Sites in the sequence which differ due to
inheritance are called polymorphisms. One type of polymorphism is due to a
change in a single base in the genetic DNA sequence. These single base
polymorphisms, or SNPs, occur frequently enough along our DNA so that they can
be used as markers on a map of the genome. Such a map can be used to
localize traits such as hypertension, diabetes or sensitivity to therapeutic
drugs by identifying SNPs that occur at a higher frequency in individuals with
the trait than those without the trait. Knowing where the SNPs associated with
the trait occur, one can look for nearby genes responsible for the trait, thus
leading to a genetic understanding of the trait and directing efforts for
treatment. Some SNPs have been shown to cause disease, or to be associated
with risk for disease or adverse drug response. Presumably, a high proportion
of genetically controlled disease will be caused by or associated with SNPs.
Research on SNPs has proceeded in two phases, (1) discovery by comparing DNA
sequences of different individuals and (2) analysis by studying populations
with or without a given trait. The second phase requires testing thousands of
SNPs in hundreds of individuals and requires accurate, high throughput
automated systems. The performance of these systems is enhanced by the
compounds we have developed.

Gene Expression

Scientists study how gene expression affects development and contributes
to health and illness by comparing the level of expression of genes in
different tissues, in healthy versus diseased tissues, and at different points
in embryonic development. This approach has been accelerated by the
development of DNA microarrays, or biochips, which contain hundreds or
thousands of sites on their surface to which messenger RNAs expressed by
different genes will bind, allowing their relative levels to be tested and
measured.

Today, genetic analysis is primarily a research activity carried out in
thousands of academic, industrial, and government laboratories. Within a few
years, these analyses will be used not only in research, but also in doctors
offices and clinics, on farms and ranches, at food-processing plants, in
factories, at crime scenes, and on the battlefield. Simple, inexpensive DNA
tests have a future in almost every aspect of everyday life.

Hybridization Tests

Essentially all of the technologies and products useful for genetic
analysis rely on hybridization, a process in which a synthetic DNA strand,
called a probe, binds to a DNA target that is being detected. If the sequences
of the two strands are perfectly complementary, the probe remains bound to its
target at an elevated temperature. If they are not, the probe separates, or
dissociates from its target. A hybridization assay is designed to detect the
presence of the bound, or hybridized, probe to its nucleic acid target.

One of the greatest challenges facing scientists in developing
hybridization tests is that the sequence of the target DNA can complicate the
design of the probe. The process of choosing the optimum region on the target
strand to which to attach the probe can be time-consuming and tedious. In

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multiplex formats, where multiple targets are being probed in the same
test, designing probes that bind to their target at similar temperatures can
further complicate the problem.

Our technologies facilitate genetic analysis by making the process of
hybridization more efficient, hybridization tests simpler to design, and
detection of the hybridized product easier.

Oligonucleotide Probes

A DNA probe is synthesized on an automated instrument and is designed to
be complementary to a unique sequence of bases in the DNA or RNA of the target
cell or organism. However, short DNA probes do not bind to their target very
tightly, and longer DNA probes bind so tightly that they can hybridize to an
incorrect sequence, or a mismatch. The ability to overcome these problems is
the key to our technology.

We believe that the ability of DNA probes to precisely bind to matching
DNA sequences will have broad use in the developing fields of molecular
diagnostics and the study of genes. Applications that could benefit from
improved hybridization sensitivity include:



| |  |  | Accurate detection of mutations;                                                                                                                                                   
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Identifying infectious organisms, including measuring the
level of HIV viruses in an individuals bloodstream, and genotyping
the virus to determine its resistance to therapy; and
|
| |  |  | Diagnosing and determining the prognosis of cancers and their
optimum therapies.                                                                                                   

Epoch Technologies

We are an innovative biotechnology company that focuses on the development
and manufacture of unique molecular tools for genetic analysis. Our expertise
in nucleic acid chemistries has led to the development of patented compounds
and methods that make the design, hybridization, and detection of DNA sequences
easier and more accurate.

More specifically, our technologies enhance the performance of synthetic
DNA probes used extensively in genomic research and fall into the following
categories:



| |  |  | Minor Grove Binders (MGB)  A crescent shaped molecule that
is attached to the ends of synthetic DNA to make MGB Probes.
After hybridization, the MGB molecule folds into the minor groove of
DNA to stabilize the duplex structure and enable greater flexibility
in experimental design. The tight-binding MGB probes are especially
useful for DNA detection using real-time PCR assay formats and has
been adopted by Applied Biosystems, the leading provider of this
technology.                                                                                         
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Modified Bases Natures four nucleotide bases  A, G, T,
and C  and their sequence within DNA guide all cellular processes.
Unfortunately the A-T and G-C base pairs can cause problems for
genetic analysis. A/T rich sequences are inherently unstable, and
to study A/T rich regions of the genome, researchers must use long
primers and probes that are less sensitive to mismatches. G-rich
sequences tend to clump together and are troublesome for scientists
to work with. Weve developed modified A, T, and G bases to solve
these inherent problems for researchers.
|
| |  |  | Fluorescent Dyes and Quenchers To enable detection of DNA
probes bound to their intended target, a variety of fluorescent dyes
are used as probe labels. Weve developed                                                                                                                                                                                                                                                                                                                                                                                                         

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| |   |  | a selection of dyes for researchers to choose as labels for their
custom probes. In addition, to prevent fluorescence of labeled,
but unbound probes, weve developed a proprietary quencher thats
widely used in the commercial marketplace.                                                                                                                                                                                                                                                                                                  
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Attachment Chemistry DNA microarrays are another powerful
technology platform for genetic analysis. Arrays of thousands of
DNA probes on glass or plastic slides can be used to measure gene
expression on a large scale. Although potentially powerful, current
technology is highly variable and methods for array-making need
improvement. Weve developed attachment chemistry that enhances the
binding of probes on glass or plastic slides and enables higher
signal intensities for gene expression or SNP applications on
microarrays.
|
| |  |  | Design Software Each of the above technologies impact the
performance characteristics of DNA probes and sophisticated
algorithms are needed to drive the design and use of probes
incorporating them. Weve developed and are enhancing proprietary
software to aid customers in the design, ordering, and use of
certain of our products.                                                                                                                                                                                                     

Epoch Products

We manufacture and sell high quality, modified and purified custom
synthetic oligonucleotides, or oligos. We offer most standard modifications
including biotin, fluorescent dyes, amine-linkers and phosphates. In addition,
we offer more specialized modifications such as AP, HRP, Molecular Beacons,
dual-labeled probes, RNA and 2-O-methyl RNA.

In July 2001, we introduced the MGB Eclipse Probe System that incorporate
the performance advantages of our unique Minor Groove Binder (MGB) and
Eclipse Dark Quencher technologies. Eclipse Probe assays are compatible with
all currently manufactured real-time PCR systems, and provide highly effective
and reproducible results for academic, biotech, diagnostic, and pharmaceutical
researchers. This initial release of Eclipse Probe Systems consisted of the
following four products:



| |  |  | Eclipse Probe Gene Expression System, which allows the
researcher to determine relative concentrations of expressed genes;                                                                                 
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Eclipse Probe Viral Load Detection, for determination of
viral titer in a real-time PCR format;                                                                                                            
|
| |  |  | Eclipse Probe Allelic Discrimination System, which allows the
use of short DNA probes to unambiguously discriminate single
nucleotide polymorphisms (SNPs) or mutations with the ease of
real-time PCR; and
|
| |  |  | Eclipse Probe Custom System, which can be customized to meet
unique requirements of customers who seek specific modifications
other than those in the basic product line.                                  

In late 2001, we introduced DNAnchor Microarray systems for entry into
the fast growing microarray market. DNAnchor systems, which incorporate our
proprietary attachment chemistry and modified bases, provide enhanced
hybridization with higher signal intensities on glass and plastic slides.

We also distribute our fluorescent dyes and Eclipse Dark Quencher,
modified nucleotides and other proprietary technologies through distributors.

For our collaborative partners, we manufacture chemical intermediates in
our Bothell facility for incorporation into their products.

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Sales and Marketing

We market and sell our products through a combination of direct sales
personnel, which are focused primarily on the research market, distributors,
and through collaborative relationships. We market and sell our specialty
oligonucleotides through our direct sales force that currently operates in the
United States. We market these products through advertisements in trade
journals, direct mail, participation at industry trade shows, through our
website, and through cooperative marketing and supply programs with partners.
As an example, in September 2001, we entered into an alliance with Incyte
Genomics that, among other things, identifies us as Incytes preferred third
party provider of unique, custom oligonucleotide probes and other proprietary
hybridization probes to Incytes database users and provides for our supply of
Epoch Eclipse Probe Systems to Incyte for Incytes internal development
purposes.

We sell our fluorescent dyes and quencher, modified nucleotides and other
proprietary technologies through distributors that have worldwide reach.

We currently have a small sales force and limited experience in marketing
our products. Accordingly, we anticipate that we will enter into further
distribution agreements with current and future product offerings to expand the
geographical availability of our products.

We sell our chemical intermediates to collaborative partners for
incorporation in their products pursuant to contractual supply agreements. For
instance, we have granted licenses to use some of our genetic analysis
technology to the Applied Biosystems division of Applera Corporation and also
to Third Wave Technologies.

We are currently working with many companies and institutions to apply our
products to their systems and projects. The companies include those engaged in
developing automated research platforms for genetic analysis and those
developing systems to be used in clinical diagnostic laboratories. Our
corporate development personnel target leading pharmaceutical and biotech
companies and research and academic institutions with the objective of entering
into collaborative agreements. We also appear at industry trade shows and
advertise in trade publications in connection with our marketing efforts.
There can be no assurance that we will be able to enter into any additional
collaborative arrangements on favorable terms or at all.

Our two largest customers in 2001 were Applied Biosystems, which accounted
for 56% of our revenues, and Third Wave Technologies, which accounted for 18%
of revenues. See Certain factors that may effect our business and future
results and the Notes to Financial Statements for more information. Our
current business plan relies on the continuation of our relationship with these
customers and our business would be adversely affected if these relationships
did not continue.

Currently, sales of our products are primarily to customers in the United
States. International sales are immaterial at this time.

Manufacturing and Supply

We manufacture specialty oligonucleotides at our facility in San Diego,
California, and produce chemical reagent products and small quantities of
oligonucleotide products in our facility in Bothell, Washington. Additionally,
we use contract manufacturers to synthesize chemical reagents when appropriate.

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We purchase raw materials essential to our business in the ordinary course
of business from numerous suppliers. Substantially all the raw materials used
for our commercial manufacturing of oligonucleotides, assay systems and other
reagent products are available from multiple sources; however, other raw
materials for supply contract and OEM manufacturing are proprietary products of
other companies. Raw materials may be rejected if they do not meet
manufacturing specifications, are contaminated and/or have other failures. A
material shortage, contamination, or failure could adversely impact the
commercial manufacturing of our products and related revenues.

We have sufficient manufacturing capacity to meet current customer needs.
Anticipated increases in customer demand over the next year may require us to
expand our manufacturing capacity in San Diego or Bothell, or both, acquire
additional manufacturing capacity, or utilize costly third-party manufacturing
vendors, as necessary. We are currently evaluating opportunities to expand our
manufacturing capacity in the San Diego area, however we cannot provide
assurance that we will be able to find new facilities, that well manage the
relocation successfully, or that the relocation will not significantly disrupt
our operations.

Research and Development

We conduct the majority of our research and development activities through
our own staff and facilities. Our goal is to improve DNA technology thereby
making biotechnology, molecular biology and diagnostics more robust. We have
assembled a scientific staff with a variety of complementary skills in a broad
range of advanced research technologies, representing molecular biology,
biochemistry, physical chemistry, and synthetic chemistry. As of December 31,
2001, we had 24 employees engaged in developing our technology and applying it
to genetic analysis, including 14 with Ph.D.s. Our in-house research and
development efforts are focused primarily on the development of improvements in
DNA synthetic chemistry, hybridization reproducibility and ease of use, and
detection technologies. This research and development focus will lead to our
efforts to commercialize DNA probes, DNA bases, probe labeling, detection
techniques and reagent chemistries. In addition to our in-house research
programs, we collaborate with academic and research institutions to support
research in areas of interest to us.

Our research and development expenses were $2,858,000 in 1999, $3,468,000
in 2000, and $4,834,000 in 2001.

Patents and Proprietary Technology

As of March 11, 2002, our core technologies were covered by nine issued
patents, and we have filed nineteen additional patent applications. To our
knowledge, there are no competing patents on our technology. The expiration
dates of these patents range from January 2010 to November 2019.

The patent position of biomedical companies, including our own, is
uncertain and may involve complex legal and factual issues. Consequently, we
do not know whether any of our patent applications will result in the issuance
of any further patents, or whether issued patents will provide significant
proprietary protection or will not be circumvented or invalidated. We cannot
be certain that we were the first creator of inventions covered by pending
patent applications or that we were the first to file patent applications for
such inventions, largely because patent applications in the U.S. are maintained
in secrecy until the patents issue, and because publications of discoveries in
the scientific or patent literature tend to lag behind actual discoveries by
several months. Moreover, we may have to participate in interference
proceedings declared by the U.S. Patent and Trademark Office to determine the
priority of inventions, which could result in substantial costs. We cannot
provide assurance that our patent applications will

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result in further issued patents or that our issued patents will offer
protection against competitors with similar technology. Additionally, we
cannot provide assurance that any manufacture, use or sale of our technology or
products will not infringe on patents or proprietary rights of others, and we
may be unable to obtain licenses or other rights to these other technologies
that may be required for the commercialization of our proposed products.

We require our employees, consultants and advisors to execute
confidentiality agreements upon the commencement of an employment or consulting
relationship with us. Each agreement provides that all confidential
information developed or made known to the individual during the course of the
relationship will be kept confidential and not disclosed to third parties
except in specified circumstances. In the case of employees, the agreements
provide that all inventions conceived by an individual shall be our exclusive
property, other than inventions unrelated to our business and developed
entirely on the employees own time. We cannot provide assurance, however,
that these agreements will provide meaningful protection or adequate remedies
for misappropriation of trade secrets in the event of unauthorized use or
disclosure of this information.

Competition

There are more than 20 competitors in the development, marketing and
manufacturing of diagnostics and genomics, including the detection of
infectious diseases using a variety of technologies and specialty
oligonucleotides, all of which are larger than us. Competition is this field
is intense. There are many pharmaceutical, diagnostic and biotechnology
companies, public and private universities and research organizations engaged
in the research and development of diagnostic products. Most of these
organizations have financial, manufacturing, marketing and human resources
greater than ours.

Regulation

We currently sell our products to researchers or to partners where the end
customers are researchers. As such, our current products are not subject to
regulation by the United States Food and Drug Administration. However, Epoch
is subject to the regulations of various other federal and state agencies. We
believe we are in compliance in all material respects with the regulations
promulgated by the agencies which govern us, and that such compliance has not
had, and is not expected to have, a material adverse effect on our business.

We also believe that our operations comply in all material respects with
applicable environmental laws and regulations. Such compliance has not had,
and is not expected to have, a material adverse effect on our capital
expenditures, results of operations or competitive position.

Insurance

We carry property and general liability insurance, product liability
insurance, and director and officers liability insurance in amounts and on
terms deemed adequate by management. Future claims could, however, exceed our
applicable insurance coverage.

Employees

As of December 31, 2001, we had 53 full-time employees, of which 16 were
devoted to manufacturing, 24 were devoted to research and development
activities, 3 to sales and marketing, and 10 were devoted to general and
administrative activities. At December 31, 2001, 31 employees worked in our
Bothell facility and 22 worked in our San Diego facility. We believe we have
been successful in

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attracting skilled employees with experience in the biomedical industry,
but we cannot provide assurance that we will continue to do so in the future.
None of our employees are covered by a collective bargaining agreement, and
management considers relations with its employees to be good.

Certain factors that may affect our business and future results

Forward Looking Statements

Some of the information included herein contains forward-looking
statements. These statements can be identified by the use of forward-looking
terms such as may, will, expect, anticipates, estimate, continue,
or other similar words. These statements discuss future expectations,
projections or results of operations or of financial condition or state other
forward-looking information. When considering these forward-looking
statements, you should keep in mind the risk factors and other cautionary
statements we make. These risk factors could cause our actual results to
differ materially from those contained in any forward-looking statement. If
any of the following risks actually occur, our business could be harmed and the
trading price of our common stock could decline.

We have never been profitable and anticipate future losses, and we may require additional capital

We have never been profitable. Since our formation in 1985, we have
generated limited revenues. As of December 31, 2001, we had an accumulated
deficit of approximately $71 million. We expect to incur additional losses as
we expand our manufacturing capacity, and our research and development
activities and related product commercialization efforts. There is no
assurance that we will ever become profitable or that we will sustain
profitability if we do become profitable. Should we experience continued or
unforeseen operating losses, our capital requirements would increase and our
stock price would likely decline.

Additionally, as of December 31, 2002 we had $7,489,000 in cash and cash
equivalents. We currently anticipate that current cash balances and cash from
operations will be sufficient to meet our cash needs through at least 2002.
However, we may need to seek additional equity and/or debt capital, and there
can be no assurance that such capital will be available to us on favorable
terms, or at all. If additional funds are not available, we would be required
to delay, reduce, or eliminate expenditures for some of all of our programs or
products.

There is a risk that our technology may not be effective or might not work

The science and technology of synthetic DNA-based products is rapidly
evolving. While we are beginning to produce and supply products to customers
for commercial use, the majority of our products and proposed products are in
the discovery or early development stage. The proposed products will require
significant further research, development, and testing. We face the risk that
any or all of our products and proposed products could prove to be ineffective
or unsafe, or be an inferior product to products marketed by others because our
products are based on new and unproven innovative technologies. Some of our
current research and development activities may not result in any commercially
viable products. If we do not have commercially viable products, we will not
be able to sell our products, we will not be able to attract partners, and we
will not be able to generate funds internally to support operations.

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We have limited manufacturing experience

While we have experience in researching and developing unique, proprietary
technologies to enhance the study of genes, and in manufacturing
oligonucleotides, our experience in manufacturing other chemical reagent
products is relatively limited. While we are producing and supplying products
to customers for commercial use, we do not currently have the capacity for
high-volume production of our reagents, nor do we currently have the capacity
to meet our projected sales of specialty oligonucleotides. We will need to
expand our reagent and oligonucleotide manufacturing capacity in connection
with the continued development and commercialization of our products. Any
delay or inability to expand our manufacturing capacity could materially
adversely affect our manufacturing ability.

There is a risk that we do not own exclusive rights to our technology and our
competition may have access to our technology, which may prevent us from
selling our products

We attempt to protect our proprietary technology by relying on several
methods including United States patents. We also have international patent
applications that correspond to many of the U.S. patents and patent
applications. The issued patents and pending patent applications cover
inventions relating to the components of our core technologies. The expiration
dates of these patents range from January 2010 to November 2019. We make no
guarantee that any issued patents will provide us with significant proprietary
protection, that pending patents will be issued, or that products incorporating
the technology from our issued patents or pending applications will be free
from challenges by competitors. Further, third parties may hold proprietary
rights, which precede our claims and, therefore, could prohibit us from
marketing the proposed products.

Some of our technology might infringe on the rights of others, which may
prevent us from selling our products

There is a great deal of litigation regarding patents and other
intellectual property rights in the biomedical industry. We were defendants in
one action of this kind, which we settled prior to 1997. Although patent and
intellectual property disputes in the biomedical area are sometimes settled
through licensing or similar arrangements, this kind of solution can be
expensive, if a license can be obtained at all. An adverse determination in a
judicial or administrative proceeding or our failure to obtain necessary
licenses could prevent us from manufacturing and selling our products. This
would substantially hurt our business.

We face numerous competitors and changing technologies which could make our
products obsolete

Many companies do research and development and market products designed to
diagnose conditions based on a number of technologies and are developing
additional products using gene-based technologies. Many of these companies
have substantially greater capital resources, larger research and development
and marketing staffs and facilities and greater experience in developing
products than we have. Furthermore, our specific field in which we operate is
subject to significant and rapid technological change. Even if we successfully
introduce our products or proposed products, our technologies could be replaced
by new technologies or our products or proposed products might be obsolete or
non-competitive.

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We will be dependent upon our Agreement with Applied Biosystems for a
significant portion of our revenues for 2002, and a reduction of sales under or
early termination of this Agreement would seriously harm our revenues and
operating results and would likely cause our stock price to decline

In January 1999, Epoch and Applied Biosystems entered into a License and
Supply Agreement pursuant to which we licensed some of our technology to
Applied Biosystems for use in its TaqMan® 5'-nuclease real-time PCR assays, or
tests (TaqMan® is a registered trademark of Roche Molecular Systems, Inc.). In
July 1999, we licensed our proprietary software, which speeds the design of
chemical tools used in the study of genes, to Applied Biosystems. In August
2000, the agreement was amended to include Epoch manufacturing product for
Applied Biosystems. In October 2001, we further amended our agreement with
Applied Biosystems, Under the terms of this amendment, Applied Biosystems will
either purchase a specified minimum number of probes from us each quarter at a
specified price, or pay us a lesser amount per probe for any probes not ordered
below the minimum. This agreement is effective from October 2001, through
December 2002. We will depend upon product sales and royalties from Applied
Biosystems sales of its TaqMan® assays under this agreement for a significant
portion of our revenues for 2002 and future periods. In addition, we have
incurred significant expenditures to date to equip our facilities for the
development of the assays we are developing under this agreement.

Either party may terminate the agreement upon 180 days written notice. In
the event that this agreement is terminated, our revenues, financial condition
and operating results would be adversely affected and our stock price would
likely decline.

Credit

Some of our customers may experience financial difficulties, which could
adversely impact our collection of accounts receivable. Although historically
we have not experienced credit losses from our trade receivables, our
experience is limited. At December 31, 2001, our allowance for doubtful
accounts was approximately $19,000. We regularly review the collectibility and
credit worthiness of our customers and the receivables to determine an
appropriate allowance for doubtful accounts, however future uncollectable
accounts could exceed our current or future allowances.

The loss of key personnel could adversely affect operations by impairing our
research and our efforts to commercialize and license our products

Our performance is greatly dependent upon our key management including our
Chief Executive Officer, Dr. William Gerber, and technical personnel and
consultants. Our future success will depend in part upon our ability to retain
these people and to recruit additional qualified personnel. We must compete
with other companies, universities, research entities and other organizations
in order to attract and retain highly qualified personnel. Although we have
entered into agreements with our key executive officers, we make no guarantee
that we will retain these highly qualified personnel or hire additional
qualified personnel. We currently maintain no key man life insurance on any of
our management or technical personnel.

The value of our common stock could change significantly in a very short time

The market price of our common stock may fluctuate significantly. For
example, in the year 2001, our stock traded as high as $6.31 and as low as
$1.46. The rapid price changes Epoch has experienced recently, and throughout
our history, place your investment in our common stock at risk of total loss
over a short period of time. We are in the biotechnology industry and the
market price of

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securities of biotechnology companies have fluctuated significantly and
these fluctuations have often been unrelated to the companies operating
performance. Announcements by us or our competitors concerning technological
innovations, new products, proposed governmental regulations or actions,
developments or disputes relating to patents or proprietary rights, and other
factors that affect the market generally could significantly impact our
business and the market price of our securities.

Public opinion regarding ethical issues surrounding the use of genetic
information may adversely affect demand for our products

Public opinion regarding ethical issues related to the confidentiality and
appropriate use of genetic testing results may influence governmental
authorities to call for limits on, or regulation of the use of, genetic
testing. In addition, these authorities could prohibit testing for genetic
predisposition to certain conditions, particularly for those that have no known
cure. Furthermore, adverse publicity of public opinion relating to genetic
research and testing, even in the absence of any governmental regulation, could
harm our business. Any of these scenarios could reduce the potential markets
for our products and technologies, which could materially and adversely affect
our revenues.

Government regulation of genetic research or testing may adversely affect the
demand for our products and impair our business and operations

Federal, state and local governments may adopt regulations relating to the
conduct of genetic research and genetic testing. These regulations could limit
or restrict genetic research activities as well as genetic testing for research
or clinical purposes. In addition, if state and local regulations are adopted,
these regulations may be inconsistent with, or in conflict with, regulations
adopted by other state or local governments. Regulations relating to genetic
research activities could adversely affect our ability to conduct our research
and development activities. Regulations restricting genetic testing could
adversely affect our ability to market and sell our products and our
technologies. Accordingly, any regulations of this nature could harm our
business.

Health care cost containment initiatives could limit the adoption of genetic
testing as a clinical tool, which would harm our revenues and prospects

In recent years, health care payers as well as federal and state
governments have focused on containing or reducing health care costs. We
cannot predict the effect that any of these initiatives may have on our
business, and it is possible that they will adversely affect our business. In
particular, gene-based therapeutics, if successfully developed and
commercialized, are likely to be costly compared to currently available drug
therapies. Health care cost containment initiatives focused either on
gene-based therapeutics or on genetic testing could cause the growth in the
clinical market for genetic testing to be curtailed or slowed. In addition,
health care cost containment initiatives could also cause pharmaceutical
companies to reduce research and development spending. In either case, our
business and our operating results would be harmed.




ITEM 2. Properties

Our principal administrative office and research laboratories are located
in Bothell, Washington, where we lease and occupy approximately 25,000 square
feet. The current lease was initiated in February 2000 when we entered into a
12-year non-cancelable lease for space within a multi-tenant property which we
occupied in November 2000.

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Our principal manufacturing facility is located in San Diego, California,
where we lease and occupy approximately 7,200 square feet. The current lease
term on this property expires in November 2002 after which we will be required
to negotiate a lease extension or be forced to move to an alternate location.
We are currently evaluating opportunities in the San Diego area with an intent
to relocate to a larger facility. We cannot provide assurance that we will be
able to relocate to new facilities in San Diego, to manage the relocation
successfully or that the relocation will not significantly disrupt our
operations.




ITEM 3. Legal Proceedings

Mordecai Jofen, as Trustee of the Harbor Trust, f/k/a The Edward Blech
Trust v. Epoch Biosciences, Inc., United States District Court for the Southern
District of New York, Case No. 01 CV 4129

The Harbor Trust (formerly the Edward Blech Trust) filed a complaint
against us on May 16, 2001, alleging the breach of a March 29, 1996 letter
agreement between us and David Blech. Pursuant to the letter agreement, upon
payment of a pre-existing debt owed to us by Blech (the Ribonetics Debt), we
were to release to Blech from escrow warrants to purchase 500,000 shares of our
stock. Blech assigned all of his rights under the letter agreement to the
Harbor Trust. The Harbor Trusts claim is based on our alleged failure to
timely register the common stock underlying the warrants, allegedly resulting
in damages to Blech and/or the Trust of at least $10 million, based on the peak
trading value of our stock.

We filed a motion to dismiss the complaint based on, among other things,
the positions that: (1) Blech and the Harbor Trust have never had rights to
receive or exercise the warrants because Blech failed to perform a condition
precedent, i.e., payment of the Ribonetics Debt; and (2) we had no obligation
to register the stock unless and until Blech was entitled to the warrants.
Further, the warrants expired pursuant to the letter agreement in June 2000.
The Court granted our motion to dismiss in November 2001, but gave the Harbor
Trust leave to file an amended complaint.

The Harbor Trust filed an amended complaint in December 2001, again
claiming breach of the letter agreement but adding theories of modification,
waiver, estoppel, breach of the covenant of good faith and fair dealing, unjust
enrichment and novation. We filed a motion to dismiss the amended complaint in
January 2002, and are awaiting a hearing and decision on our motion.

No trial has been scheduled in the case. While we believe we have a
strong position, it is not possible at this time to state the likelihood of an
unfavorable outcome because of the inherent uncertainties of litigation.




ITEM 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth
quarter of 2001.

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PART II




ITEM 5. Market for Common Equity and Related Stockholder Matters

The table below presents information on the high and low sales and bid
prices of our common stock. On May 10, 2000, our common stock began trading on
The Nasdaq National Market under the symbol EBIO. The information for trades
on The Nasdaq National Market are based on the high and low sales prices of our
common stock. Prior to May 10, 2000, our common stock traded on the OTC
Bulletin Board under the symbol EPPH. Information on the high and low bid
prices on the OTC Bulletin Board, which reflects inter-dealer prices, without
retail mark-up, mark down or commission, may not represent actual transactions.

|                                               |  |      |      |     |  |   |      | 
|---------------------------------------------- |  | ---- | ---- | --- |  | - | ---- | 
|Fiscal year ended December 31, 2001            |  | High |      | Low
|                                               |  |      |      |    
|Fourth quarter (October 1 through December 31) |  | $    | 2.73 |     |  | $ | 1.46 | 
|Third quarter (July 1 through September 30)    |  |      | 4.40 |     |  |   | 1.50 | 
|Second quarter (April 1 through June 30)       |  |      | 5.38 |     |  |   | 3.51 | 
|First quarter (January 1 through March 31)     |  |      | 6.31 |     |  |   | 3.37 | 

|                                               |  |      |       |     |  |   |      | 
|---------------------------------------------- |  | ---- | ----- | --- |  | - | ---- | 
|Fiscal year ended December 31, 2000            |  | High |       | Low
|                                               |  |      |       |    
|Fourth quarter (October 1 through December 31) |  | $    | 11.13 |     |  | $ | 5.38 | 
|Third quarter (July 1 through September 30)    |  |      | 13.50 |     |  |   | 8.25 | 
|Second quarter (April 1 through June 30)       |  |      | 11.19 |     |  |   | 4.31 | 
|First quarter (January 1 through March 31)     |  |      | 25.00 |     |  |   | 2.88 | 

On March 19, 2002, the last reported sale price for our common stock on
the Nasdaq National Market was $1.85 per share. As of March 19, 2002, there
were approximately 3,700 stockholders of record of our common stock. We have
not paid any dividends on our common stock since our inception and do not
anticipate paying any dividends in the foreseeable future. Any earnings
generated in the foreseeable future will be used for the further expansion of
the business.

Recent Sales of Unregistered Securities

There were no transactions involving sales of our securities during 2001.

The following is a summary of our transactions during 2000 involving sales
of our securities that were not registered under the Securities Act. Exemption
from the registration requirements of the Securities Act for the sales of the
securities described below was claimed under Section 4(2) of the Securities
Act, among others, on the basis that such transactions did not involve any
public offering and the purchasers were sophisticated with access to the kind
of information registration would provide. No underwriting or brokers
commissions were paid in connection with the following transactions.

In February 2000, we received $10 million of private equity financing from
the sale of 1,428,577 shares of common stock at $7.00 per share.

In February 2000, we exercised the redemption provision on outstanding
warrants that were issued in a private placement in 1996 and a warrant exchange
in 1997, representing 3,801,812 shares of our common stock. Warrants
representing approximately 3,798,762 shares of our common stock were exercised
generating $9,497,000 in cash.

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In addition to the warrant call, the exercise of other warrants to
purchase 218,249 shares of our common stock in 2000 generated $109,030 in cash.

In May 2000 we issued three year fully vested warrants to purchase 25,000
shares of our common stock to our public relations firm. The warrants have
strike prices of $8.00 for 5,000 shares, $10.00 for 5,000 shares, $12.00 for
5,000 shares, $14.00 for 5,000 shares, and $16.00 for 5,000 shares. We
recognized $94,000 in expenses related to this warrant issuance.

In September 2000 we issued five year fully vested warrants to purchase
25,000 shares of our common stock at $7.00 per share for investment banking
services related to the private placement and warrant call described above. We
recognized $293,000 in expenses for the issuance of this warrant.

In November 2000, we issued fully vested five year warrants to purchase
40,000 shares of our common stock at $10.19 per share to a Bay City Capital
entity managed by Bay City Capital, LLC in lieu of cash fees for investment
banking and consulting services. Bay City Capital, a merchant banking
partnership that was formed by The Craves Group and The Pritzker Family
business interests, has an 11.4% equity interest in Epoch at December 31, 2001.
The Chairman of Epochs Board of Directors, Fred Craves, Ph.D., is a founding
partner of The Craves Group and is the Chairman and a Manager of Bay City
Capital, LLC. Sanford S. Zweifach, a member of Epochs Board of Directors, is
a Managing Director and Chief Financial Officer of Bay City Capital, LLC. We
recognized $373,000 in expenses relative to the issuance of this warrant.

In December 2000, we issued five-year warrants to purchase 10,000 shares
of our common stock at $6.69 per share to a consultant to the company. The
shares vest monthly over four years. We recognized $1,000 in expenses in 2000
and $9,000 in expenses in 2001 related to this warrant.

The following is a summary of our transactions during 1999 involving sales
of our securities that were not registered under the Securities Act. Exemption
from the registration requirements of the Securities Act for the sales of the
securities described above was claimed under Section 4(2) of the Securities
Act, among others, on the basis that such transactions did not involve any
public offering and the purchasers were sophisticated with access to the kind
of information registration would provide. No underwriting or brokers
commissions were paid in connection with the following transactions.

In November 1999, we concluded $7 million of private equity financing.
The financing included:



| |  |  | The sale of 1,200,000 shares of common stock for $3,000,000
in cash at $2.50 per share.                                                                                                                                                                
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The conversion by Bay City Capital of $1.2 million of its $3
million loan to Epoch into 480,000 shares of our common stock at
$2.50 per share.                                                                                                         
|
| |  |  | The application by Bay City Capital of $1.8 million of its $3
million loan to Epoch to the purchase of 2 million shares of our
common stock at $0.90 per share pursuant to a warrant issued to Bay
City Capital in connection with the $3 million loan.
|
| |  |  | The conversion of $1 million of prepayments under the license
agreement with Applied Biosystems, to 400,000 shares of common stock
at $2.50 per share.                                                                                                 

The $2.50 price per share of common stock received by us in the private
equity financing represented a premium to the trading price of our common stock
as of the close of the transaction. Investors who purchased the 1,200,000
shares included Applera Corporation the parent company of Applied Biosystems,
Bay City Capital, Grace Brothers Ltd. and Hilspen Capital Management.

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ITEM 6. Selected Financial Data

The information set forth below should be read in conjunction with Item 7
Managements Discussion and Analysis of Financial Condition and Results of
Operations and the financial statements and notes thereto included elsewhere
in this report.

|                              |                                                               |  |                                       |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |        |  
|----------------------------- | ------------------------------------------------------------- |  | ------------------------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | - |  | - | ------ | -
|                              |                                                               |  | Years ended December 31,             
|                              |                                                               |  |                                      
|                              |                                                               |  | 1997                                  |        | 1998 |  | 1999 |        | 2000 |  | 2001
|                              |                                                               |  |                                       |        |      |  |      |        |      |  |     
|                              |                                                               |  | (in thousands, except per share data)
|Statement of operations data: |                                                               |  |                                       |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |       
|                              | Revenue                                                       |  | $                                     | 188    |      |  | $    | 160    |      |  | $    | 181    |   |  | $ | 1,367  |   |  | $ | 7,521  |  
|                              | Cost of product sales                                         |  |                                       |       |      |  |      |       |      |  |      |       |   |  |   | 317    |   |  |   | 3,092  |  
|                              | Research and development                                      |  |                                       | 3,163  |      |  |      | 3,184  |      |  |      | 2,858  |   |  |   | 3,468  |   |  |   | 4,834  |  
|                              | Selling, general and administrative                           |  |                                       | 1,034  |      |  |      | 1,590  |      |  |      | 1,102  |   |  |   | 3,390  |   |  |   | 4,601  |  
|                              |                                                               |  |                                       |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |       
|                              | Operating loss                                                |  |                                       | (4,009 | )    |  |      | (4,614 | )    |  |      | (3,779 | ) |  |   | (5,808 | ) |  |   | (5,006 | )
|                              | Interest income, net                                          |  |                                       | 153    |      |  |      | (622   | )    |  |      | (991   | ) |  |   | 913    |   |  |   | 430    |  
|                              | Other income                                                  |  |                                       | 121    |      |  |      | 23     |      |  |      |       |   |  |   |       |   |  |   |       |  
|                              |                                                               |  |                                       |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |       
|                              | Loss from continuing operations                               |  |                                       | (3,735 | )    |  |      | (5,213 | )    |  |      | (4,770 | ) |  |   | (4,895 | ) |  |   | (4,576 | )
|                              | Discontinued operations                                       |  |                                       | 130    |      |  |      | 110    |      |  |      | 70     |   |  |   |       |   |  |   |       |  
|                              |                                                               |  |                                       |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |       
|                              | Net loss                                                      |  |                                       | (3,605 | )    |  |      | (5,103 | )    |  |      | (4,700 | ) |  |   | (4,895 | ) |  |   | (4,576 | )
|                              |                                                               |  |                                       |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |       
|                              | Loss per share, basic and diluted,
from continuing operations |  |                                       | (0.25  | )    |  |      | (0.35  | )    |  |      | (0.31  | ) |  |   | (0.20  | ) |  |   | (0.18  | )
|                              | Loss per share, basic and diluted                             |  |                                       | (0.24  | )    |  |      | (0.34  | )    |  |      | (0.30  | ) |  |   | (0.20  | ) |  |   | (0.18  | )
|Balance sheet data:           |                                                               |  |                                       |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |       
|                              | Cash and cash equivalents                                     |  | $                                     | 1,485  |      |  | $    | 658    |      |  | $    | 1,772  |   |  | $ | 12,122 |   |  | $ | 7,489  |  
|                              | Total assets                                                  |  |                                       | 1,813  |      |  |      | 970    |      |  |      | 2,266  |   |  |   | 20,935 |   |  |   | 17,306 |  
|                              | Long term liabilities                                         |  |                                       |       |      |  |      | 3,000  |      |  |      | 1,316  |   |  |   | 2,059  |   |  |   | 3,174  |  
|                              | Stockholders equity                                          |  |                                       | 1,349  |      |  |      | (3,201 | )    |  |      | 175    |   |  |   | 16,060 |   |  |   | 11,940 |  




ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the financial condition and results of our
operations should be read in conjunction with the financial statements and
related notes included elsewhere in this report. This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results may differ materially from those anticipated in the forward-looking
statement as a result of factors including, but not limited to, those set forth
in Certain factors that may affect our business and future results and
elsewhere in this report.

Overview

Epoch develops technology and products that enable and accelerate genomic
analysis. The foundation of our business strategy is the continued funding of
innovative research and development and commercialization of the resultant
products through a number of channels.

We earn revenues through a variety of sources. We license our technology
for incorporation into other companies products and generate product revenue
and earn license fees and royalties from those companies. We also sell our
products to end-users; both through our direct sales force and through

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distributors that provide worldwide reach. We also earn revenues through
contract research activities, whereby third party companies pay for specific
research and development activities carried out by our scientists.

In January 1999, Epoch and Applied Biosystems entered into a License and
Supply Agreement pursuant to which we licensed some of our technology to
Applied Biosystems for use in TaqMan® 5-nuclease real-time PCR assays, or
tests. Under the terms of the agreement, Applied Biosystems made payments to
us of initial fees for licensed technology and proprietary know how, and will
make ongoing payments for purchases of chemical compounds as well as royalties
on sales of product which use the licensed technology.

In July 1999, we licensed our proprietary software, which speeds the
design of chemical tools used in the study of genes, to Applied Biosystems.
This agreement increased the scope of the licensing agreement entered into in
January 1999 with Applied Biosystems to include software that allows for the
efficient custom design of Taqman® probes, which are chemical compounds which
seek out, or probe for a specific location on a gene, by the end user. The
software is incorporated into Applied Biosystems Primer Express software
which is sold with its 7700 Sequence Detection System. In addition to license
fees, we receive royalties on all products that Applied Biosystems sells which
incorporate the software.

In November 1999, Applied Biosystems converted $1,000,000 of prepayments
made by it pursuant to the License and Supply Agreement into 400,000 shares of
our common stock. In order to secure any unused portion of the purchased
product prepayments (up to $450,000), we continued to grant to Applied
Biosystems a security interest in the patents related to the technology under
the terms of a security agreement. The security interest automatically
terminates when any unused portion of the purchased product prepayments is
$50,000 or less. Although no security interest was granted with respect to the
royalty prepayments, if the royalty payments do not become due under the
agreement, we will also be required to refund any unused prepayments to Applied
Biosystems.

In August 2000, the agreement was amended to include research and
development funding of $1,000,000 per year, subject to adjustment under terms
of the agreement. The amended agreement also calls for Epoch to receive
royalty payments based on percentages of sales of defined products by Applied
Biosystems, subject to annual minimums.

Under the terms of the agreement, if Applied Biosystems terminates the
agreement upon 180 days written notice to us, or if we terminate the agreement
following a material breach by Applied Biosystems, Applied Biosystems will
release its security interest in the patents and forfeit any unused portion of
the prepayments. However, if we and Applied Biosystems mutually agree to
terminate the agreement, or if Applied Biosystems terminates the agreement as a
result of a material breach by us, then we must reimburse Applied Biosystems
the difference between the unused portion of the purchased product prepayments
and $50,000.

In October 2000, we entered into a Development, License and Supply
Agreement with Third Wave Technologies whereby we licensed our proprietary
fluorescent dye and quencher technologies to Third Wave. Third Wave also has
the option to license other proprietary chemistries we have, in which case
additional license and royalty fees would be due to us. We received an initial
license fee which is being amortized over the life of the contract and we will
receive a royalty on future sales of Third Wave products which include the
licensed technology. Included in the agreement with Third Wave was a two-year
collaborative research effort which is funded by Third Wave at $1,000,000 per
year.

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In November 2000 we acquired the assets of Synthetic Genetics, a San
Diego, California manufacturer of specialty oligonucleotides for approximately
$3,788,000 including $3,425,000 in cash paid, the direct costs of the
acquisition, and the assumption of liabilities. The acquisition provided us
with manufacturing capacity to meet anticipated order volumes generated by the
Applied Biosystems contract. The acquisition was accounted for as a purchase
of a business and resulted in the recognition of goodwill of approximately
$2,321,000 and other intangibles of approximately $1,119,000.

In July 2001, we launched our Eclipse Probe Systems, that incorporate the
performance advantages of our unique Minor Grove Binder (MGB) and Eclipse Dark
Quencher technologies. Eclipse probe assays are compatible with all currently
manufactured real-time PCR systems, and provide highly effective and
reproducible results for academic, biotech, diagnostic and pharmaceutical
researchers. The initial release consisted of MGB Eclipse probes for gene
expression, viral detection, and allelic discrimination for single nucleotide
polymorphisms (SNPs).

In October 2001, we entered into a license, development, and supply
alliance with Incyte Genomics, Inc. The alliance consists of three elements.
First, we will receive access to the gene sequence content from Incytes
LifeSeq Gold® and ZooSeq® databases for use in the design, manufacture, and
sale of Eclipse probe products. Second, under the alliance we will be
identified as the preferred provider of custom oligonucleotides and other
proprietary hybridization probes to Incytes users of LifeSeq Gold. Third, we
will supply Incyte with Eclipse Probe Systems for their internal development
purposes.

In October 2001, we further amended our agreement with Applied Biosystems.
Under the terms of this amendment, Applied Biosystems will either purchase a
specified minimum number of probes from us at a specified price each quarter,
or pay us a lesser amount per probe for any probes not ordered below the
minimum. This agreement is effective from October 2001 through December 2002.

We expect to incur operating losses for the next year as we continue
research and development spending in applying our synthetic DNA-based
technology to the expanding areas of the study of genes, or genomics, and
molecular diagnostics and incur increased costs commercializing the resultant
products through various channels.

Critical Accounting Policies

Our accounting policies are more fully described in Note 1 to our
financial statements. However, certain of our accounting policies are
particularly important to the portrayal of our financial position and results
of operations and require the application of significant judgment by our
management. As a result they are subject to an inherent degree of uncertainty.
In applying those policies, our management uses its judgment to determine the
appropriate assumptions to be used in the determination of certain estimates.
Those estimates are based on our historical experience, terms of existing
contracts, our observance of trends in the industry, information provided by
our customers and information available from other outside sources, as
appropriate. Our critical accounting policies are as follows:



| |  |  | revenue recognition; and    
| | - |  | ----------------------------
|
| |  |  | accounting for income taxes.

Revenue recognition. We earn product revenues through sales of chemical
products and reagents to manufacturers for incorporation into their products,
from the sale of specialty oligonucleotides and value added reagents to end
users in the research fields of genomics and molecular diagnostics, from

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license fees for the use of our proprietary technology and know-how, and
by providing services to third parties for performing research and development
on their behalf. We also have product royalty agreements that result in
royalties to us upon ultimate sales of products by our partners.

Revenues from product sales that require no ongoing obligations are
recognized when shipped to the customer and title has passed.

Up front license fees are recognized over the term of the agreement to
which the license fees correspond, which may extend to the expiration of the
underlying patents, and based on the terms and future performance obligations
in the underlying agreements. Deferred revenue principally represents license
fees received in advance and prepayments for product purchases.

Contract research revenues are recognized as the research and development
activities are performed under the terms of commercial collaboration and supply
agreements and government grants. Direct costs related to these contracts and
grants are reported as research and development expenses.

Royalty revenues are recognized when earned under the terms of the related
agreements, which is generally upon sale of products by our partner containing
our component products.

Accounting for income taxes. Deferred income taxes are provided based on
the estimated future tax effects of carryforward and temporary differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those carryforwards and temporary differences are
expected to be recovered or settled. The effect on the deferred tax assets and
liabilities of a change in tax rates is recognized in the period that includes
the enactment date. A valuation allowance is recorded for deferred tax assets
when it is more likely than not that such deferred tax assets will not be
realized.

The gross deferred tax assets as of December 31, 2001 were approximately
$26 million, and have been fully reserved based on our history of operating
losses.

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Results of Operations

The following discussion of results of operations reflects Epochs
diagnostics division as discontinued operations.

|        |                                     |               |   |                          |     |      |   |        |       |  |   |        |       | 
|------- | ----------------------------------- | ------------- | - | ------------------------ | --- | ---- | - | ------ | ----- |  | - | ------ | ----- | 
|        |                                     |               |   | Years ended December 31,
|        |                                     |               |   |                         
|        |                                     |               |   | 1999                     |     | 2000 |   | 2001  
|        |                                     |               |   |                          |     |      |   |       
|        |                                     |               |   | (in thousands)          
|Revenue |                                     |               |   |                          |     |      |   |        |       |  |   |       
|        | Product sales                       |               | $ |                         |     |      | $ | 923    |       |  | $ | 4,461  |      
|        | License fees and royalty income     |               |   | 72                       |     |      |   | 74     |       |  |   | 936    |      
|        | Contract research revenue           |               |   | 109                      |     |      |   | 370    |       |  |   | 2,124  |      
|        |                                     |               |   |                          |     |      |   |        |       |  |   |       
|        |                                     | Total revenue |   |                          | 181 |      |   |        | 1,367 |  |   |        | 7,521 | 
|        | Cost of product sales               |               |   |                         |     |      |   | 317    |       |  |   | 3,092  |      
|        | Research and development            |               |   | 2,858                    |     |      |   | 3,468  |       |  |   | 4,834  |      
|        | Selling, general and administrative |               |   | 1,102                    |     |      |   | 3,390  |       |  |   | 4,601  |      
|        | Interest income, net                |               |   | (991                     | )   |      |   | 913    |       |  |   | 430    |      
|        |                                     |               |   |                          |     |      |   |        |       |  |   |       
|        | Loss from continuing operations     |               |   | (4,770                   | )   |      |   | (4,895 | )     |  |   | (4,576 | )    
|        | Discontinued operations             |               |   | 70                       |     |      |   |       |       |  |   |       |      
|        |                                     |               |   |                          |     |      |   |        |       |  |   |       
|        | Net loss                            |               | $ | (4,700                   | )   |      | $ | (4,895 | )     |  | $ | (4,576 | )    
|        |                                     |               |   |                          |     |      |   |        |       |  |   |       

2001 vs. 2000

Product Sales. Product sales began in 2000 and represent the sale of
chemical intermediates and probes, primarily to collaborative partners, and the
sale of specialty oligonucleotides to the research market from our San Diego
facility.

Chemical intermediate revenues, primarily to Applied Biosystems and Third
Wave Technologies, represent component chemistries that we supply on cost-plus
terms for incorporation in our partners products. These revenues increased in
2001 as a result of growth in our shipments to Applied Biosystems, and the
start of shipments to Third Wave.

Revenue growth in our specialty oligonucleotide business grew
significantly in 2001 for two primary reasons. First, revenues from the MGB
TaqMan probes and other products manufactured for Applied Biosystems pursuant
to our license and Supply Agreement, as amended, began in early 2001. Second,
because of the acquisition of Synthetic Genetics in November 2000, calendar
2001 results include a complete twelve month year while 2000 results includes
only six weeks of operations.

License Fees and Royalty Income. License fees reflect the amortization of
initial payments for technology and know how transfers. These amounts are
amortized over the life of the contract. Royalty income represents the
royalties received under license agreements. Royalties in 2001 increased
significantly over the prior year as a result of increased sales of products
incorporating our technologies by our licensees and receipt of contractual
minimum payments during the year.

Contract Research Revenue. Contract research revenue in 2000 reflects
payments for contract research and development performed under the Applied
Biosystems agreement for four months of the year. In 2001 research contract
revenue primarily reflects contract research under our agreements with Applied
Biosystems and Third Wave Technologies for the full year.

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Cost of Product Sales. The cost of product sales represents the direct
manufacturing costs of material, labor and overhead allocations associated with
product sales. Also included is the cost of outside manufacturers which we use
to produce some of our chemical intermediates. The increased costs in 2001 are
attributable to the increase in product revenue and changes in the product mix
due to the addition of our San Diego operations and increased volumes of
chemical intermediates at contractual margins.

Research and Development. Research and development costs increased
$1,366,000, or 39% in 2001 over 2000. This increase was primarily driven by:



| |  |  | An increase of $476,000 in facility costs as we occupied our
new laboratory space in late 2000.                                                                                                                                                                                                                                                                                                                                           
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | An increase in payroll expenses of $584,000 which primarily
resulted from increased staffing over 2000 levels.                                                                                                                                                                                                                                                                                                                            
|
| |  |  | Expenses of $171,000 incurred for the recruitment and
relocation of senior scientific personnel.                                                                                                                                                                                                                                                                                                                                          
|
| |  |  | We also incurred an increase of $153,000 in research and
development expenses in our San Diego operation as it was functional
for a full year in 2001 compared to six weeks of the prior year.                                                                                                                                                                                                                                            
|
| |  |  | Increased research and development costs of $680,000 in 2001
included in the cost of product sales for personnel and other costs
related to product manufacturing. This amount will fluctuate
depending on the time and availability of personnel to conduct
research and development activities. This amount was offset by
increased purchases of raw materials which were primarily
attributable to chemical intermediate manufacturing.

Selling, General and Administrative.Selling, general and administrative
expenses increased $1,212,000, or 36%, in 2001 over the 2000. The increases in
2001 were primarily the result of:



| |  |  | $439,000 in selling and marketing expenses associated with
our entry into the specialty oligonculeotide field and the addition
of sales and marketing personnel.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The addition of a full year of operations in San Diego which
added $600,000 to general and administrative expenses.                                             
|
| |  |  | Approximately $375,000 in compensation expenses related to
additional executive personnel.                                                                      

Interest Income, net. Interest income in 2001 is lower than 2000 due to
reduced cash balances available for investment coupled with lower interest
rates in 2001. Interest expense in 2000 and 2001 are minimal and represent the
interest payments under capital leases which were assumed as part of the
Synthetic Genetics acquisition.

2000 vs. 1999

Product Sales. Product sales began in 2000 and represent the sale of
chemical intermediates to Applied Biosystems and probes as well as six weeks of
sales of specialty oligonucleotides from our San Diego facility.

License Fees and Royalty Income. Amounts in 1999 and 2000 primarily
represent license fees earned from collaborative partners.

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Contract Research Revenue. Contract research revenue in 1999 reflects
revenue from U.S. government grants. In 2000, research contract revenue
reflected payments for contract research and development performed under the
Applied Biosystems agreement.

Research and Development.Research and development expenses increased by
$610,000 in 2000 over 1999. This increase was primarily the result of
additional staffing in 2000 over 1999 levels, the move to new facilities in
November 2000, which resulted in additional laboratory costs, and increased
patent and intellectual property expenses of $145,000. Equity financing
received in early 2000 allowed us to replace positions lost to attrition in
1999 as well as to increase our research and development effort overall.
Patent expenses increased over 1999 levels as we continued to improve and
strengthen our patent portfolio.

Selling, General and Administrative.Selling, general and administrative
expenses increased $2,288,000 in 2000 over 1999. The increase in 2000 was
primarily the result of:



| |  |  | $443,000 in expenses incurred in connection with consulting
services related to a warrant call and private placement of common
stock. $293,000 of this was a non-cash expense related to the
issuance of a fully vested five-year warrant for 25,000 shares of
Epochs common stock at a price of $7.00 per share.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | $373,000 in non-cash expenses related to the issuance to Bay
City Capital of a fully vested five year warrant to purchase 40,000
shares of our common stock at a price of $10.19 per share. This
warrant was issued in lieu of a cash retainer for investment banking
services.                                   
|
| |  |  | $253,000 in compensation related to additional executive
personnel.                                                                                                                                                                                                                                               
|
| |  |  | Additional investor relations services of $171,000, of which
$94,000 was a non-cash expense related to the issuance of a fully
vested three-year warrant to purchase 25,000 shares of our common
stock.                                                                                                           
|
| |  |  | Fees of $164,000 paid for executive searches for the Vice
President of Corporate Development and the Chief Financial Officer
who were ultimately hired in 2001, as well as searches for other
management personnel.                                                                                               
|
| |  |  | Increased facility rent expenses of $147,000.                                                                                                                                                                                                                                                                     
|
| |  |  | A $112,000 increase in outside services, most of which was
incurred as a result of our move to new office and laboratory
facilities in Bothell, Washington.                                                                                                                                                       
|
| |  |  | Filing and membership fees paid to The Nasdaq National Market
in the amount of $109,000 in connection with our re-listing in May,
2000.                                                                                                                                                                           

Interest Income, Net. In 2000, as a result of the proceeds from the
private equity financing and warrant redemption early in 2000, we were able to
invest the proceeds and earn interest on the invested balances. Interest and
financing expense in 1999 reflected the amortization of $818,000 of deferred
financing expense, including the charge off of all remaining unamortized
amounts when the underlying loan was converted to equity in November 1999.
Interest and financing expense in 2000 was minimal and represented the interest
payments under capital leases which were assumed as part of the Synthetic
Genetics acquisition.

Discontinued Operations. The gain on disposal of discontinued operations
represents only that portion of the gain for which cash payments were received
in 1999. No payments were received in 2000.

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Liquidity and Capital Resources

At December 31, 2001 we had operating cash and cash equivalents of
$7,489,000, compared to the $12,122,000 at December 31, 2000, a decrease of
$4,633,000.

In 2001, cash used in operations amounted to $2,019,000. Our net loss of
$4,576,000 was offset by non-cash depreciation and amortization charges of
$1,291,000, and by an increase in deferred revenue caused by receipt of new
license fees and advance payments from customers of $1,268,000. Cash used in
investing activities was $2,963,000 in 2001, consisting of the license rights
of $1,000,000, $1,605,000 in facilities and equipment, including $1,013,000 of
December 2000 purchases, and $358,000 of costs associated with the Synthetic
Genetics acquisition. The increase in accounts receivable balances from 2000
to 2001 is the result of increased product sales in 2001. The reduction in
accounts payable in 2001 is primarily the result of the payout of $1,013,000 in
the equipment and leasehold improvements related to the Synthetic Genetics
acquisition in late 2000. Accrued liabilities increased in 2001 over 2000
primarily as a result of payroll and employee benefit costs, the majority of
which were paid in January and February 2002.

In February 2000 we received $10 million of private equity financing from
the sale of 1,428,577 shares of common stock at $7.00 per share. The $7.00 per
share price was determined based upon the 20 day trailing average of the
closing price of the stock.

Also in February 2000, we exercised the redemption provision on
outstanding warrants, which were issued in a private placement in 1996 and a
warrant exchange in 1997, representing 3,801,812 shares of our common stock.
Warrants to purchase 3,798,762 shares of our common stock were exercised
generating $9,497,000 in cash.

Cash increased by $10,350,000 during 2000 primarily as a result of the net
proceeds of $10,000,000 received from the private placement described above,
$9,606,000 from the exercise of warrants, including the February 2000 warrant
call described above, and $1,370,000 received from new or amended collaboration
and supply agreements with Applied Biosystems and Third Wave, offset by normal
expenditures on operations, cash payments for the acquisition of Synthetic
Genetics of $3,425,000, cash payments for the acquisition of equipment of
$307,000 and net expenditures of $2,000,000 on leasehold improvements on new
facilities.

Variances in accounts receivables, accounts payable and accrued
liabilities in 2000 versus 1999 are the result of the acquisition of Synthetic
Genetics with its ongoing trade payables and receivables, accounts payable
associated with the purchase of approximately $1,013,000 in equipment and
leasehold improvements in December 2000 which was paid in 2001, and normal
business fluctuations.

At December 31, 2001, our largest cash commitments are non-cancelable
operating leases for facilities in the amount of $8,005,000 that expire in
2012. In addition, we have commitments to supply products to customers in the
amount of $1,266,000 which have been paid for in advance.

Capital expenditures were significantly higher in 2001 than historical
levels, and further investments in capital expenditures may be necessary to
facilitate our anticipated growth in operations. We anticipate the need for
additional space for our manufacturing operation in San Diego in 2002 and we
are currently evaluating options. We may also require a larger inventory of
raw materials and products to provide better service to our customers. Any
such increases can be expected to reduce cash and cash equivalents.

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We currently anticipate that existing cash balances and cash from
operations will be sufficient to meet our anticipated working capital and
capital expenditures through at least 2002. Our future capital requirements
depend on numerous factors, including but not limited to:



| |  |  | magnitude of our future losses;                                                                                                                   
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | timing and terms of new technology licensing agreements or
other strategic relationships that may provide up front license fees
or other payments;
|
| |  |  | resources that we devote to research and development and
sales and marketing in support of our business strategy; and                             
|
| |  |  | capital expenditures necessary to expand manufacturing
capacity.                                                                                  

In the event that we need to seek additional equity and/or debt capital in
the public or private markets, there can be no assurance that such financing
will be available to us on favorable terms, or at all.

Recent Accounting Pronouncements

In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities, which
was amended by FAS 138 Accounting for Certain Derivative Instruments and
Certain Hedging Activity. These statements require that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in
the fair value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and, if it is, the type of hedge transaction. The
company does not use derivative instruments, therefore the adoption of these
statements did not have any effect on the Companys results of operations or
its financial position upon adoption January 1, 2001.

In July 2001, the FASB issued Statement No. 141, Business Combinations,
and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all purchase method
business combinations completed after June 30, 2001. Statement 141 also
specifies the criteria intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill, noting
that any purchase price allocable to an assembled workforce may not be
accounted for separately. Statement 142 will require that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of Statement 142. Statement 142 will also require that intangible
assets with definite useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of.

Epoch was required to adopt the provisions of Statement 141 immediately
and Statement 142 effective January 1, 2002. Furthermore, any goodwill and any
intangible asset determined to have an indefinite useful life that are acquired
in a purchase business combination completed after June 30, 2001 will not be
amortized, but will continue to be evaluated for impairment in accordance with
the appropriate pre-Statement 142 accounting literature. Goodwill and
intangible assets acquired in business combinations completed before July 1,
2001 continued to be amortized until the adoption of Statement 142.

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As of the date of adoption, Epoch had unamortized goodwill in the amount
of $2,132,000 and unamortized identifiable intangible assets in the amount of
$2,366,000 all of which will be subject to the transition provisions of
Statements 141 and 142. Amortization expense related to goodwill was $15,000
for the year ended December 31, 2000 and $155,000 for the year ended December
31, 2001.

We currently do not expect to record an impairment charge upon completion
of the initial impairment review. However, there can be no assurance that at
the time the review is completed a material impairment charge will not be
recorded.

Long-lived assets including goodwill, other intangible assets, property
and equipment, and investment balances are reviewed for possible impairment
whenever significant events or changes in circumstances, including changes in
our business strategy and plans, indicate a potential impairment may have
occurred. An impairment is recorded when the sum of the expected future
undiscounted net cash flows identifiable to that asset or group of assets is
less than book value. Impairment losses are determined based on net realizable
values or projections of net cash flows. Interest is not accrued on impaired
loans unless the estimated recovery amounts justify such accruals.

In October 2001, the FASB issues SFAS No. 144, Accounting for Impairment
or Disposal of Long-Lived Assets, to be effective for fiscal years beginning
after December 15, 2001. SFAS No. 144 supercedes SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets to Be Disposed Of. Other than extending
discontinued operations treatment, previously applied only to operating
segments, SFAS No. 144 does not fundamentally alter the provisions of SFAS No.
121. As this statement will be implemented prospectively the Company cannot
determine the effect to its financial statements as a result of adopting this
standard.




ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

Our financial instruments include cash and short-term investment grade
debt securities. At December 31, 2000 and 2001 the carrying values of our
financial instruments approximated their fair values based on current market
prices and rates. It is our policy not to enter into derivative financial
instruments. We do not currently have material foreign currency exposure as
our international transactions are minimal and the majority of our
international transactions are denominated in U.S. currency. Accordingly, we
do not have a significant currency exposure at December 31, 2001.




ITEM 8. Financial Statements and Supplementary Data

The financial statements required by this item begin on Page F-1 of this Report.




ITEM 9. Changes in And Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

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PART III




ITEM 10. Directors, and Executive Officers of Epoch.

The information required hereunder is incorporated by reference from the
information contained in the sections entitled Directors, Other Executive
Officers and Section 16(a) Beneficial Ownership Reporting Compliance in the
Companys definitive Proxy Statement for its 2002 Annual Meeting of the
Stockholders to be held on May 23, 2002 to be filed with the Securities and
Exchange Commission.




ITEM 11. Executive Compensation

The information required hereunder is incorporated by reference from the
information contained in the sections entitled Compensation of Executive
Officers, Option Matters, Employment and Severance Agreements and
Directors Fees in the Companys definitive Proxy Statement for its 2002
Annual Meeting of the Stockholders to be held on May 23, 2002 to be filed with
the Securities and Exchange Commission.




ITEM 12. Security Ownership of Certain Beneficial Owners and Management and
Related Matters

The information required hereunder is incorporated by reference from the
information contained in the section entitled Security Ownership of Certain
Beneficial Owners and Management in Epochs definitive Proxy Statement for its
2002 Annual Meeting of the Stockholders to be held on May 23, 2002 to be filed
with the Securities and Exchange Commission.




ITEM 13. Certain Relationships and Related Transactions

The information required hereunder is incorporated by reference from the
information contained in the section entitled Certain Relationships and
Related Transactions in Epochs definitive Proxy Statement for its 2002 Annual
Meeting of the Stockholders to be held on May 23, 2002 to be filed with the
Securities and Exchange Commission.

27



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##### Table of Contents






PART IV




ITEM 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K

The following documents are filed as part of this Form 10-K:



| | (a) |  | Documents filed as part of this report:
| | --- |  | ---------------------------------------

|    |  |                                                                                                                                      
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Financial Statements. The financial statements
required to be filed hereunder are listed on page F-1.                                
|   
|(2) |  | Financial Statement Schedules. Not applicable.                                                                                       
|   
|(3) |  | Exhibits. An exhibit index has been filed as
part of this Report beginning on page F-20 and is incorporated
herein by this reference.



| | (b) |  | Reports on Form 8-K:
| | --- |  | --------------------
|
| |     |  | None                

28



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##### Table of Contents



Power Of Attorney

Each person whose signature appears below hereby authorizes Bert W. Hogue
and/or William G. Gerber, as attorney-in-fact, to sign in his behalf and in
each capacity stated below, and to file, all amendments and/or supplements to
this Annual Report on Form 10-KSB.




Signatures

In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



|Dated: March 28, 2002 | EPOCH BIOSCIENCES, INC.
(Registrant)
|--------------------- | ------------------------------------



| | By: | /s/ Bert W. Hogue
Bert W. Hogue
Vice President, Secretary, and ChiefFinancial Officer
| | --- | -------------------------------------------------------------------------------------

In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons of the registrant in the capacities
and on the dates indicated.

|                           |  |                                                           |  |                |  | 
|-------------------------- |  | --------------------------------------------------------- |  | -------------- |  | 
|Signature                  |  | Title                                                     |  | Date          
|                           |  |                                                           |  |               
|                           |  |                                                           |  |               
|/s/ Frederick B. Craves    |  |                                                           |  |               
|                           |  |                                                           |  |               
|Frederick B. Craves, Ph.D. |  | Chairman of the Board of Directors                        |  | March 28, 2002
|                           |  |                                                           |  |               
|/s/ William G. Gerber      |  |                                                           |  |               
|                           |  |                                                           |  |               
|William G. Gerber, M.D.    |  | Chief Executive Officer,
President and
          Director |  | March 28, 2002
|                           |  |                                                           |  |               
|/s/ Sanford S. Zweifach    |  |                                                           |  |               
|                           |  |                                                           |  |               
|Sanford S. Zweifach        |  | Director                                                  |  | March 28, 2002
|                           |  |                                                           |  |               
|/s/ Richard L. Dunning     |  |                                                           |  |               
|                           |  |                                                           |  |               
|Richard L. Dunning         |  | Director                                                  |  | March 28, 2002





---



##### Table of Contents



|                           |  |                                                                 |  |                |  | 
|-------------------------- |  | --------------------------------------------------------------- |  | -------------- |  | 
|Signature                  |  | Title                                                           |  | Date          
|                           |  |                                                                 |  |               
|                           |  |                                                                 |  |               
|/s/ Herbert L. Heyneker    |  |                                                                 |  |               
|                           |  |                                                                 |  | March 28, 2002
|Herbert L. Heyneker, Ph.D. |  | Director                                                        |  |               
|                           |  |                                                                 |  |               
|/s/ Michael Ybarra Lucero  |  |                                                                 |  | March 28, 2002
|                           |  |                                                                 |  |               
|Michael Ybarra Lucero      |  | Director                                                        |  |               
|                           |  |                                                                 |  |               
|/s/ Kenneth L. Melmon      |  |                                                                 |  | March 28, 2002
|                           |  |                                                                 |  |               
|Kenneth L. Melmon, M.D.    |  | Director                                                        |  |               
|                           |  |                                                                 |  |               
|/s/ Riccardo Pigliucci     |  |                                                                 |  | March 28, 2002
|                           |  |                                                                 |  |               
|Riccardo Pigliucci         |  | Director                                                        |  |               
|                           |  |                                                                 |  |               
|/s/ Bert W. Hogue          |  |                                                                 |  | March 28, 2002
|                           |  | Vice President, Secretary and Chief Financial
          Officer |  |               
|Bert Hogue                 |  | (Principal Financial and Accounting Officer)                    |  |               





---



##### Table of Contents



Epoch Biosciences, Inc.
Index to Financial Statements and
Financial Statement Schedules
(Item 14(a)(1) and 14(a)(2)

|                     |                                                                          |  |     |                    
|-------------------- | ------------------------------------------------------------------------ |  | --- | -------------------
|                     |                                                                          |  |     | Page
        Number
|                     |                                                                          |  |     |                    
|Financial Statements |                                                                          | 
|                     |                                                                          |  |    
|                     | Independent Auditors Report                                             |  | F-1
|                     |                                                                          |  |    
|                     | Balance Sheets as of December 31,
        2000 and 2001.                 |  | F-2
|                     |                                                                          |  |    
|                     | Statements of Operations for the years
        ended                     |  |    
|                     | December 31, 1999, 2000 and 2001.                                        |  | F-3
|                     |                                                                          |  |    
|                     | Statements of Stockholders Equity
        (Deficit) for the years ended |  |    
|                     | December 31, 1999, 2000 and 2001.                                        |  | F-4
|                     |                                                                          |  |    
|                     | Statements of Cash Flows for the years
        ended                     |  |    
|                     | December 31, 1999, 2000 and 2001.                                        |  | F-5
|                     |                                                                          |  |    
|                     | Notes to Financial Statements                                            |  | F-6





---



##### Table of Contents



Independent Auditors Report



The Board of Directors and Stockholders
Epoch Biosciences, Inc.

We have audited the accompanying balance sheets of Epoch Biosciences, Inc. as
of December 31, 2000 and 2001, and the related statements of operations,
stockholders equity (deficit), and cash flows for each of the years in the
three-year period ended December 31, 2001. These financial statements are the
responsibility of the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects the financial position of Epoch Biosciences, Inc. as of
December 31, 2000 and 2001, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States
of America.

KPMG LLP

Seattle, Washington
January 18, 2002

F-1



---



##### Table of Contents



Epoch Biosciences, Inc.




Balance Sheets


Assets

|                                                        |                                                                                                 |                                                                     |           |              |            |              |           |             |            | 
|------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | --------- | ------------ | ---------- | ------------ | --------- | ----------- | ---------- | 
|                                                        |                                                                                                 |                                                                     |           | December 31, |            | December 31,
|                                                        |                                                                                                 |                                                                     |           | 2000         |            | 2001        
|                                                        |                                                                                                 |                                                                     |           |              |            |             
|Current assets:                                         |                                                                                                 |                                                                     |           |              |            |              |           |            
|                                                        | Cash and cash equivalents                                                                       |                                                                     | $         | 12,122,461   |            |              | $         | 7,489,399   |           
|                                                        | Restricted cash                                                                                 |                                                                     |           |             |            |              |           | 98,891      |           
|                                                        | Accounts receivable, net of allowance of $0 and
$19,235                                         |                                                                     |           | 197,686      |            |              |           | 353,590     |           
|                                                        | Inventory                                                                                       |                                                                     |           | 77,201       |            |              |           | 157,700     |           
|                                                        | Prepaid expenses and other assets                                                               |                                                                     |           | 340,782      |            |              |           | 338,288     |           
|                                                        |                                                                                                 |                                                                     |           |              |            |              |           |            
|                                                        |                                                                                                 | Total current assets                                                |           |              | 12,738,130 |              |           |             | 8,437,868  | 
|Property and equipment, net                             |                                                                                                 |                                                                     | 3,596,652 |              |            |              | 3,852,359 |            
|Intangible assets, net                                  |                                                                                                 |                                                                     | 3,938,453 |              |            |              | 4,414,976 |            
|Restricted cash                                         |                                                                                                 |                                                                     | 629,622   |              |            |              | 575,755   |            
|Other assets                                            |                                                                                                 |                                                                     | 31,905    |              |            |              | 25,265    |            
|                                                        |                                                                                                 |                                                                     |           |              |            |              |           |            
|                                                        |                                                                                                 | Total assets                                                        |           | $            | 20,934,762 |              |           | $           | 17,306,223 | 
|                                                        |                                                                                                 |                                                                     |           |              |            |              |           |            
|                                                       
|Liabilities and Stockholders Equity                   
|Current liabilities:                                    |                                                                                                 |                                                                     |           |              |            |              |           |            
|                                                        | Accounts payable                                                                                |                                                                     | $         | 1,651,173    |            |              | $         | 226,686     |           
|                                                        | Accrued liabilities                                                                             |                                                                     |           | 793,506      |            |              |           | 1,332,331   |           
|                                                        | Deferred revenue  current portion                                                              |                                                                     |           | 337,611      |            |              |           | 620,043     |           
|                                                        | Obligations under capital leases  current portion                                              |                                                                     |           | 32,889       |            |              |           | 12,732      |           
|                                                        |                                                                                                 |                                                                     |           |              |            |              |           |            
|                                                        |                                                                                                 | Total current liabilities                                           |           |              | 2,815,179  |              |           |             | 2,191,792  | 
|Deferred revenue  less current portion                 |                                                                                                 |                                                                     | 2,040,578 |              |            |              | 3,026,012 |            
|Deferred rent                                           |                                                                                                 |                                                                     |          |              |            |              | 143,503   |            
|Obligations under capital leases  less current portion |                                                                                                 |                                                                     | 18,602    |              |            |              | 4,613     |            
|Stockholders equity:                                   |                                                                                                 |                                                                     |           |              |            |              |           |            
|                                                        | Preferred stock, par value $.01; 10,000,000 shares
authorized; no shares issued and outstanding |                                                                     |           |             |            |              |           |            |           
|                                                        | Common stock, par value $.01; 50,000,000 shares
authorized; shares issued and outstanding:      |                                                                     |           |              |            |              |           |             |           
|                                                        |                                                                                                 | 24,969,118 at December 31, 2000 and 25,651,677
at December 31, 2001 |           |              | 249,691    |              |           |             | 256,517    | 
|                                                        | Additional paid-in capital                                                                      |                                                                     |           | 82,302,448   |            |              |           | 82,687,749  |           
|                                                        | Deferred compensation                                                                           |                                                                     |           | (63,922      | )          |              |           |            |           
|                                                        | Accumulated deficit                                                                             |                                                                     |           | (66,427,814  | )          |              |           | (71,003,963 | )         
|                                                        |                                                                                                 |                                                                     |           |              |            |              |           |            
|                                                        |                                                                                                 | Total stockholders equity                                          |           |              | 16,060,403 |              |           |             | 11,940,303 | 
|                                                        |                                                                                                 |                                                                     |           |              |            |              |           |            
|                                                        |                                                                                                 | Total liabilities and stockholders equity                          |           | $            | 20,934,762 |              |           | $           | 17,306,223 | 
|                                                        |                                                                                                 |                                                                     |           |              |            |              |           |            

See accompanying notes to financial statements.

F-2



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##### Table of Contents



Epoch Biosciences, Inc.




Statements of Operations


|                                                                         |                                     |                                        |            |                          |            |      |            |           |            |   |            |           |            |  
|------------------------------------------------------------------------ | ----------------------------------- | -------------------------------------- | ---------- | ------------------------ | ---------- | ---- | ---------- | --------- | ---------- | - | ---------- | --------- | ---------- | -
|                                                                         |                                     |                                        |            | Years Ended December 31,
|                                                                         |                                     |                                        |            |                         
|                                                                         |                                     |                                        |            | 1999                     |            | 2000 |            | 2001     
|                                                                         |                                     |                                        |            |                          |            |      |            |          
|Revenues:                                                                |                                     |                                        |            |                          |            |      |            |           |            |   |            |          
|                                                                         | Product sales                       |                                        | $          |                         |            |      | $          | 923,110   |            |   | $          | 4,461,349 |           
|                                                                         | License fees and royalty income     |                                        |            | 71,942                   |            |      |            | 73,943    |            |   |            | 935,768   |           
|                                                                         | Contract research revenue           |                                        |            | 109,152                  |            |      |            | 370,000   |            |   |            | 2,123,984 |           
|                                                                         |                                     |                                        |            |                          |            |      |            |           |            |   |            |          
|                                                                         |                                     | Total revenue                          |            |                          | 181,094    |      |            |           | 1,367,053  |   |            |           | 7,521,101  |  
|Operating expenses:                                                      |                                     |                                        |            |                          |            |      |            |           |            |   |            |          
|                                                                         | Cost of product sales               |                                        |            |                         |            |      |            | 317,359   |            |   |            | 3,092,057 |           
|                                                                         | Research and development            |                                        |            | 2,858,402                |            |      |            | 3,467,502 |            |   |            | 4,833,926 |           
|                                                                         | Selling, general and administrative |                                        |            | 1,101,768                |            |      |            | 3,389,931 |            |   |            | 4,601,617 |           
|                                                                         |                                     |                                        |            |                          |            |      |            |           |            |   |            |          
|                                                                         |                                     | Total operating expenses               |            |                          | 3,960,170  |      |            |           | 7,174,792  |   |            |           | 12,527,600 |  
|                                                                         |                                     |                                        |            |                          |            |      |            |           |            |   |            |          
|                                                                         |                                     | Operating loss                         |            |                          | (3,779,076 | )    |            |           | (5,807,739 | ) |            |           | (5,006,499 | )
|Interest income (expense), net                                           |                                     |                                        | (990,878   | )                        |            |      | 912,696    |           |            |   | 430,350    |          
|                                                                         |                                     |                                        |            |                          |            |      |            |           |            |   |            |          
|                                                                         |                                     | Loss from continuing operations        |            |                          | (4,769,954 | )    |            |           | (4,895,043 | ) |            |           | (4,576,149 | )
|Discontinued operations 
gain on disposal of diagnostics division       |                                     |                                        | 70,000     |                          |            |      |           |           |            |   |           |          
|                                                                         |                                     |                                        |            |                          |            |      |            |           |            |   |            |          
|                                                                         |                                     | Net loss                               |            | $                        | (4,699,954 | )    |            | $         | (4,895,043 | ) |            | $         | (4,576,149 | )
|                                                                         |                                     |                                        |            |                          |            |      |            |           |            |   |            |          
|Loss per share from continuing operations 
basic and diluted            |                                     | $                                      | (0.31      | )                        |            | $    | (0.20      | )         |            | $ | (0.18      | )        
|Income per share from discontinued operations
 basic and diluted        |                                     |                                        | 0.01       |                          |            |      |           |           |            |   |           |          
|                                                                         |                                     |                                        |            |                          |            |      |            |           |            |   |            |          
|                                                                         |                                     | Net loss per share  basic and
diluted |            | $                        | (0.30      | )    |            | $         | (0.20      | ) |            | $         | (0.18      | )
|                                                                         |                                     |                                        |            |                          |            |      |            |           |            |   |            |          
|Weighted average number of common shares
outstanding  basic and diluted |                                     |                                        | 15,607,934 |                          |            |      | 24,037,130 |           |            |   | 25,588,856 |          

See accompanying notes to financial statements.

F-3



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##### Table of Contents



Epoch Biosciences, Inc.




Statements of Stockholders Equity (Deficit)


|                                           |  |              |            |            |  |                 |         |              |  |             |            |               |  |                  |          |   |  |       |          |   |  |  |             |   |  |  |            |  
|------------------------------------------ |  | ------------ | ---------- | ---------- |  | --------------- | ------- | ------------ |  | ----------- | ---------- | ------------- |  | ---------------- | -------- | - |  | ----- | -------- | - |  |  | ----------- | - |  |  | ---------- | -
|                                           |  | Common Stock |            |            |  |                 |         |              |  |             |            | Deferred      |  |                  |          |   |  | Total
|                                           |  |              |            | Additional |  | Deferred        |         | Financing    |  | Accumulated |            | Stockholders'
|                                           |  | Shares       |            | Amount     |  | Paid-In Capital |         | Compensation |  | Expense     |            | Deficit       |  | Equity (Deficit)
|                                           |  |              |            |            |  |                 |         |              |  |             |            |               |  |                 
|Balance at December 31, 1998               |  |              | 14,824,227 |            |  | $               | 148,242 |              |  |             | 54,460,706 |               |  |                  | (159,826 | ) |  |       | (817,794 | ) |  |  | (56,832,817 | ) |  |  | (3,201,489 | )
|Exercise of stock options                  |  |              | 117,342    |            |  |                 | 1,174   |              |  |             | 74,442     |               |  |                  |          |   |  |       |          |   |  |  |             |   |  |  | 75,616     |  
|Exercise of warrants                       |  |              | 2,360,841  |            |  |                 | 23,608  |              |  |             | 1,911,642  |               |  |                  |          |   |  |       |          |   |  |  |             |   |  |  | 1,935,250  |  
|Private placement of stock                 |  |              | 1,600,000  |            |  |                 | 16,000  |              |  |             | 3,984,000  |               |  |                  |          |   |  |       |          |   |  |  |             |   |  |  | 4,000,000  |  
|Exchange of debt for equity                |  |              | 480,000    |            |  |                 | 4,800   |              |  |             | 1,195,200  |               |  |                  |          |   |  |       |          |   |  |  |             |   |  |  | 1,200,000  |  
|Amortization of deferred compensation      |  |              |            |            |  |                 |         |              |  |             |            |               |  |                  | 47,952   |   |  |       |          |   |  |  |             |   |  |  | 47,952     |  
|Amortization of deferred financing expense |  |              |            |            |  |                 |         |              |  |             |            |               |  |                  |          |   |  |       | 817,794  |   |  |  |             |   |  |  | 817,794    |  
|Net loss                                   |  |              |            |            |  |                 |         |              |  |             |            |               |  |                  |          |   |  |       |          |   |  |  | (4,699,954  | ) |  |  | (4,699,954 | )
|                                           |  |              |            |            |  |                 |         |              |  |             |            |               |  |                  |          |   |  |       |          |   |  |  |             |   |  |  |            |  
|Balance at December 31, 1999               |  |              | 19,382,410 |            |  | $               | 193,824 |              |  |             | 61,625,990 |               |  |                  | (111,874 | ) |  |       |         |   |  |  | (61,532,771 | ) |  |  | 175,169    |  
|Exercise of stock options                  |  |              | 91,120     |            |  |                 | 911     |              |  |             | 57,121     |               |  |                  |          |   |  |       |          |   |  |  |             |   |  |  | 58,032     |  
|Exercise of warrants                       |  |              | 4,017,011  |            |  |                 | 40,170  |              |  |             | 9,565,860  |               |  |                  |          |   |  |       |          |   |  |  |             |   |  |  | 9,606,030  |  
|Private placement of stock                 |  |              | 1,428,577  |            |  |                 | 14,286  |              |  |             | 9,985,753  |               |  |                  |          |   |  |       |          |   |  |  |             |   |  |  | 10,000,039 |  
|Issuance of stock for license rights       |  |              | 50,000     |            |  |                 | 500     |              |  |             | 305,750    |               |  |                  |          |   |  |       |          |   |  |  |             |   |  |  | 306,250    |  
|Issuance of warrant in lieu of fees        |  |              |            |            |  |                 |         |              |  |             | 760,581    |               |  |                  |          |   |  |       |          |   |  |  |             |   |  |  | 760,581    |  
|Issuance of warrant to consultant          |  |              |            |            |  |                 |         |              |  |             | 1,393      |               |  |                  |          |   |  |       |          |   |  |  |             |   |  |  | 1,393      |  
|Amortization of deferred compensation      |  |              |            |            |  |                 |         |              |  |             |            |               |  |                  | 47,952   |   |  |       |          |   |  |  |             |   |  |  | 47,952     |  
|Net Loss                                   |  |              |            |            |  |                 |         |              |  |             |            |               |  |                  |          |   |  |       |          |   |  |  | (4,895,043  | ) |  |  | (4,895,043 | )
|                                           |  |              |            |            |  |                 |         |              |  |             |            |               |  |                  |          |   |  |       |          |   |  |  |             |   |  |  |            |  
|Balance at December 31, 2000               |  |              | 24,969,118 |            |  | $               | 249,691 |              |  |             | 82,302,448 |               |  |                  | (63,922  | ) |  |       |         |   |  |  | (66,427,814 | ) |  |  | 16,060,403 |  
|Exercise of stock options                  |  |              | 51,143     |            |  |                 | 512     |              |  |             | 50,381     |               |  |                  |          |   |  |       |          |   |  |  |             |   |  |  | 50,893     |  
|Exercise of warrants                       |  |              | 631,416    |            |  |                 | 6,314   |              |  |             | 326,061    |               |  |                  |          |   |  |       |          |   |  |  |             |   |  |  | 332,375    |  
|Issuance of warrant to consultant          |  |              |            |            |  |                 |         |              |  |             | 8,859      |               |  |                  |          |   |  |       |          |   |  |  |             |   |  |  | 8,859      |  
|Amortization of deferred compensation      |  |              |            |            |  |                 |         |              |  |             |            |               |  |                  | 63,922   |   |  |       |          |   |  |  |             |   |  |  | 63,922     |  
|Net Loss                                   |  |              |            |            |  |                 |         |              |  |             |            |               |  |                  |          |   |  |       |          |   |  |  | (4,576,149  | ) |  |  | (4,576,149 | )
|                                           |  |              |            |            |  |                 |         |              |  |             |            |               |  |                  |          |   |  |       |          |   |  |  |             |   |  |  |            |  
|Balance at December 31, 2001               |  |              | 25,651,677 |            |  | $               | 256,517 |              |  |             | 82,687,749 |               |  |                  |         |   |  |       |         |   |  |  | (71,003,963 | ) |  |  | 11,940,303 |  
|                                           |  |              |            |            |  |                 |         |              |  |             |            |               |  |                  |          |   |  |       |          |   |  |  |             |   |  |  |            |  

See accompanying notes to financial statements.

F-4



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##### Table of Contents



Epoch Biosciences, Inc.




Statements of Cash Flows


|                                      |                                                                             |                                                                                      |                                           |                                           |           |                          |            |            |            |          |            |            |            |          |            |  
|------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ----------------------------------------- | ----------------------------------------- | --------- | ------------------------ | ---------- | ---------- | ---------- | -------- | ---------- | ---------- | ---------- | -------- | ---------- | -
|                                      |                                                                             |                                                                                      |                                           |                                           |           | Years ended December 31,
|                                      |                                                                             |                                                                                      |                                           |                                           |           |                         
|                                      |                                                                             |                                                                                      |                                           |                                           |           | 1999                     |            | 2000       |            | 2001    
|                                      |                                                                             |                                                                                      |                                           |                                           |           |                          |            |            |            |         
|Cash flows from operating activities: |                                                                             |                                                                                      |                                           |                                           |           |                          |            |            |            |          |            |           
|                                      | Net loss                                                                    |                                                                                      | $                                         | (4,699,954                                | )         |                          | $          | (4,895,043 | )          |          | $          | (4,576,149 | )         
|                                      | Adjustments to reconcile net loss to net
cash used in operating activities: |                                                                                      |                                           |                                           |           |                          |            |            |            |          |            |            |           
|                                      |                                                                             | Depreciation and amortization:                                                       |                                           |                                           |           |                          |            |            |            |          |            |            |            |         
|                                      |                                                                             |                                                                                      | Property and equipment                    |                                           |           | 110,200                  |            |            |            | 239,129  |            |            |            | 694,761  |           
|                                      |                                                                             |                                                                                      | Intangible assets                         |                                           |           |                         |            |            |            | 36,366   |            |            |            | 472,095  |           
|                                      |                                                                             |                                                                                      | Deferred financing expense                |                                           |           | 817,794                  |            |            |            |         |            |            |            |         |           
|                                      |                                                                             |                                                                                      | Deferred stock compensation               |                                           |           | 47,952                   |            |            |            | 47,952   |            |            |            | 63,922   |           
|                                      |                                                                             |                                                                                      | Stock compensation charge                 |                                           |           |                         |            |            |            | 1,393    |            |            |            | 8,859    |           
|                                      |                                                                             |                                                                                      | License rights                            |                                           |           |                         |            |            |            | 21,394   |            |            |            | 51,382   |           
|                                      |                                                                             | Issuance of common stock warrants for services                                       |                                           |                                           |          |                          |            |            | 760,581    |          |            |            |           |         
|                                      |                                                                             | Interest accrued on restricted cash                                                  |                                           |                                           |          |                          |            |            | (36,729    | )        |            |            | (45,024    | )       
|                                      |                                                                             | Deferred revenue                                                                     |                                           |                                           | 1,498,871 |                          |            |            | 784,318    |          |            |            | 1,267,866  |         
|                                      |                                                                             | Deferred rent                                                                        |                                           |                                           |          |                          |            |            |           |          |            |            | 143,503    |         
|                                      |                                                                             | Changes in operating assets and liabilities, net
of acquisition:                     |                                           |                                           |           |                          |            |            |            |          |            |            |            |         
|                                      |                                                                             |                                                                                      | Accounts receivable                       |                                           |           | 18,230                   |            |            |            | (7,935   | )          |            |            | (155,904 | )         
|                                      |                                                                             |                                                                                      | Inventory                                 |                                           |           |                         |            |            |            | (37,547  | )          |            |            | (80,499  | )         
|                                      |                                                                             |                                                                                      | Prepaid expenses and other assets         |                                           |           | 26,174                   |            |            |            | (276,673 | )          |            |            | 9,134    |           
|                                      |                                                                             |                                                                                      | Accounts payable                          |                                           |           | (112,929                 | )          |            |            | 320,512  |            |            |            | (412,116 | )         
|                                      |                                                                             |                                                                                      | Accrued interest on note to related party |                                           |           | (208,804                 | )          |            |            |         |            |            |            |         |           
|                                      |                                                                             |                                                                                      | Accrued expenses for canceled relocation  |                                           |           | (391,042                 | )          |            |            |         |            |            |            |         |           
|                                      |                                                                             |                                                                                      | Accrued liabilities                       |                                           |           | 37,627                   |            |            |            | 392,211  |            |            |            | 538,825  |           
|                                      |                                                                             |                                                                                      |                                           |                                           |           |                          |            |            |            |          |            |           
|                                      |                                                                             |                                                                                      |                                           | Net cash used in operating activities     |           |                          | (2,855,881 | )          |            |          | (2,650,071 | )          |            |          | (2,019,345 | )
|                                      |                                                                             |                                                                                      |                                           |                                           |           |                          |            |            |            |          |            |           
|                                      | Cash flows from investing activities:                                       |                                                                                      |                                           |                                           |           |                          |            |            |            |          |            |            |           
|                                      |                                                                             | Security deposit on new facilities                                                   |                                           |                                           |          |                          |            |            | (592,893   | )        |            |            |           |         
|                                      |                                                                             | Investment in license rights                                                         |                                           |                                           |          |                          |            |            | (250,000   | )        |            |            | (1,000,000 | )       
|                                      |                                                                             | Acquisition of property and equipment                                                |                                           |                                           | (241,074  | )                        |            |            | (2,307,288 | )        |            |            | (1,605,147 | )       
|                                      |                                                                             | Acquisition of Synthetic Genetics                                                    |                                           |                                           |          |                          |            |            | (3,424,874 | )        |            |            | (357,692   | )       
|                                      |                                                                             |                                                                                      |                                           |                                           |           |                          |            |            |            |          |            |           
|                                      |                                                                             |                                                                                      |                                           | Net cash used in investing activities     |           |                          | (241,074   | )          |            |          | (6,575,055 | )          |            |          | (2,962,839 | )
|                                      |                                                                             |                                                                                      |                                           |                                           |           |                          |            |            |            |          |            |           
|                                      | Cash flows from financing activities:                                       |                                                                                      |                                           |                                           |           |                          |            |            |            |          |            |            |           
|                                      |                                                                             | Repayment of capital leases                                                          |                                           |                                           |          |                          |            |            | (4,200     | )        |            |            | (34,146    | )       
|                                      |                                                                             | Repayment of note payable                                                            |                                           |                                           |          |                          |            |            | (84,588    | )        |            |            |           |         
|                                      |                                                                             | Proceeds from sale of common stock                                                   |                                           |                                           | 4,000,000 |                          |            |            | 10,000,039 |          |            |            |           |         
|                                      |                                                                             | Proceeds from exercise of warrants                                                   |                                           |                                           | 135,250   |                          |            |            | 9,606,030  |          |            |            | 332,375    |         
|                                      |                                                                             | Proceeds from exercise of stock options                                              |                                           |                                           | 75,616    |                          |            |            | 58,032     |          |            |            | 50,893     |         
|                                      |                                                                             |                                                                                      |                                           |                                           |           |                          |            |            |            |          |            |           
|                                      |                                                                             |                                                                                      |                                           | Net cash provided by financing activities |           |                          | 4,210,866  |            |            |          | 19,575,313 |            |            |          | 349,122    |  
|                                      |                                                                             |                                                                                      |                                           |                                           |           |                          |            |            |            |          |            |           
|                                      | Net increase (decrease) in cash and cash equivalents                        |                                                                                      |                                           | 1,113,911                                 |           |                          |            | 10,350,187 |            |          |            | (4,633,062 | )         
|                                      | Cash and cash equivalents at beginning of year                              |                                                                                      |                                           | 658,363                                   |           |                          |            | 1,772,274  |            |          |            | 12,122,461 |           
|                                      |                                                                             |                                                                                      |                                           |                                           |           |                          |            |            |            |          |            |           
|                                      | Cash and cash equivalents at end of year                                    |                                                                                      | $                                         | 1,772,274                                 |           |                          | $          | 12,122,461 |            |          | $          | 7,489,399  |           
|                                      |                                                                             |                                                                                      |                                           |                                           |           |                          |            |            |            |          |            |           
|                                      | Supplemental disclosure of cash flow information                           |                                                                                      |                                           |                                           |           |                          |            |            |            |          |            |            |           
|                                      |                                                                             | Issuance of common stock in exchange for license rights                              |                                           | $                                         |          |                          |            | $          | 306,250    |          |            | $          |           |         
|                                      |                                                                             | Interest payments                                                                    |                                           | $                                         | 433,956   |                          |            | $          | 153        |          |            | $          | 9,156      |         
|                                      | Supplemental disclosure of non-cash investing and
financing activities:     |                                                                                      |                                           |                                           |           |                          |            |            |            |          |            |            |           
|                                      |                                                                             | Acquisition of property and equipment financed through
accounts payable              |                                           | $                                         |          |                          |            | $          | 1,012,371  |          |            | $          |           |         
|                                      |                                                                             | Acquisition of Synthetic Genetics financed through
accounts payable                  |                                           | $                                         |          |                          |            | $          | 357,692    |          |            | $          |           |         
|                                      |                                                                             | Debts extinguished through the issuance of common
stock and the exercise of warrants |                                           | $                                         | 3,000,000 |                          |            | $          |           |          |            | $          |           |         
|                                      |                                                                             | Equipment received pursuant to a license and supply
agreement                        |                                           | $                                         | 95,000    |                          |            | $          |           |          |            | $          |           |         
|                                      |                                                                             |                                                                                      |                                           |                                           |           |                          |            |            |            |          |            |           

See accompanying notes to financial statements.

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Epoch Biosciences, Inc.




Notes To Financial Statements


December 31, 2001

(1) Nature of Business and Summary of Significant Accounting Policies

Nature of Business

Epoch Biosciences, Inc. is developing and commercializing proprietary
technologies to enhance the study of genes. Our scientists are applying their
expertise in nucleic acid chemistry to develop products that improve current
methods of studying the genetic sequence, or genomes, of humans, animals and
plants. Our technology is based on our expertise in DNA chemistry, which
allows us to design, synthesize and modify synthetic DNA strands, or probes,
that selectively bind to the gene being studied. Using our DNA technology, we
are developing molecular tools and chemical compounds for improved genetic
analysis. We also manufacture and distribute specialty oligonucleotides
through our San Diego facility, including the recently launched Eclipse Probe
System which incorporates the performance advantages of some of our
technologies.

Discontinued Operations

In 1996, we sold the remaining assets of our discontinued diagnostics
division receiving a $1.1 million note. Collections on the note have been
sporadic, and, due to uncertainties regarding ultimate collectibility, we have
fully reserved the note and recognized gain only to the extent of cash
received. Amounts received are reported as discontinued operations in the
accompanying statements of operations.

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.

Cash Equivalents

All highly liquid investments with a maturity of three months or less at
the date of purchase are considered to be cash equivalents. Cash equivalents
consist of money market accounts and treasury bills.

Financial Instruments and Concentrations of Credit Risk

The Companys financial instruments consist of cash, cash equivalents,
accounts receivable, accounts payable and accrued liabilities. The fair value
of these instruments approximates their financial statement carrying amounts
due to their short maturities.

Credit is extended based on an evaluation of a customers financial
condition and collateral is generally not required. The majority of revenues
are derived from private and public companies and public enterprises in the
research market in the United States.

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One customer accounted for approximately 56% of revenues in 2001, 85% of
revenues in 2000, and 40% of revenues in 1999. There were no amounts due from
this customer at December 31, 2001.

Another customer accounted for approximately 18% of revenues in 2001.
Revenues from this customer were not material in the prior years. There was
$46,000 due from this customer at December 31, 2001.

In 1999, approximately 60% of revenues, or $109,000, were from research
grants from the Federal Government. No grant revenue was recognized in 2000.
Epoch was awarded a grant in 2001 and recognized $114,000 in grant revenue in
2001. As of December 31, 2001, we had one open grant with approximately
$758,000 remaining to be earned.

Inventory

Inventories are stated at the lower of cost, measured by the first-in and
first-out method, or market value. Principally all of the inventory balance
represents raw materials and finished goods.

Property and Equipment

Property and equipment are stated at cost. Depreciation of equipment is
provided on the straight-line method over the assets estimated useful lives,
generally three to five years. Amortization of leasehold improvements and
capital leases is provided on the straight-line method over the lesser of the
estimated useful life or the term of the lease.

Intangible Assets

Intangible assets are stated at cost. Amortization of intangible assets
is provided on the straight-line method over the life of the asset.

The excess of the aggregate purchase price over the fair value of the net
tangible and specifically identifiable intangible assets of businesses acquired
in purchase transactions is recorded as goodwill. Goodwill from acquisitions
completed prior to July 1, 2001 has been amortized over 15 years using the
straight-line method. Business acquisition costs allocated to covenants not to
compete are amortized over the terms of the agreement, five years, using the
straight-line method.

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets. Under SFAS No. 142, goodwill and other indefinite-lived
intangible assets, including any such intangibles recorded in past business
combinations, will not be amortized beginning January 1, 2002. SFAS No. 142
specifies that there was to be no amortization recorded for goodwill and other
indefinite-lived intangible assets resulting from business combinations
completed during the last six months of 2001. SFAS No. 142 also requires the
assets to be written down with a goodwill impairment charge against current
earnings whenever the recorded values exceed their fair values. If this
standard had been implemented as of January 1, 2001, amortization expense would
have been reduced by $154,797 in 2001.

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Impairment of Long-Lived Assets

For long-lived assets, including property and equipment and intangible
assets, we evaluate the carrying value of the assets by comparing the estimated
future cash flows generated from the use of the assets and their eventual
disposition with the assets reported net book value. The carrying value of
assets are evaluated for impairment when events or changes in circumstances
occur which may indicate the carrying amount of the asset may not be
recoverable.

Restricted Cash

Restricted cash represents long-term certificates of deposit and one short
term certificate of deposit pledged under a security agreement, in lieu of a
cash deposit, on a facility subject to an operating lease.

Revenue Recognition

We earn product revenues through sales of chemical products and reagents
to manufacturers for incorporation into their products, from the sale of
specialty oligonucleotides to end users in the research fields of genomics and
molecular diagnostics, from license fees for the use of our proprietary
technology and know-how, and by providing services to third parties for
performing research and development on their behalf. We also have product
royalty agreements that result in royalties to us upon ultimate sales of
products by our partners.

Revenues from product sales that require no ongoing obligations are
recognized when shipped to the customer and title has passed. The company
provided an allowance of $19,000 in 2001 related to collectibility of product
sales.

Up front license fees are recognized over the term of the agreement to
which the license fees correspond, which may extend to the expiration of the
underlying patents, and based on the terms and future performance obligations
in the underlying agreements. Deferred revenue principally represents license
fees received in advance and prepayments for product purchases.

Contract research revenues are recognized as the research and development
activities are performed under the terms of commercial collaboration and supply
agreements and government grants. Direct costs related to these contracts and
grants are reported as research and development expenses.

Royalty revenues are recognized when earned under the terms of the related
agreements, which is generally upon sale by our partner of products containing
our component products.

Income Taxes

Deferred income taxes are provided based on the estimated future tax
effects of carryforwards and temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those carryforwards and temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in the period that includes the enactment date. A
valuation allowance is

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recorded for deferred tax assets when it is more likely than not that such
deferred tax assets will not be realized.

Research and Development Costs

Research and development costs are expensed as incurred.

Stock-Based Compensation

Epoch applies APB Opinion No. 25, Accounting for Stock Issued to Employees
and related interpretations in measuring compensation costs for its employee
stock option plans. We disclose proforma net income (loss) and net income
(loss) per share as if compensation cost had been determined consistent with
Statement of Financial Accounting Standard (FAS) No. 123,Accounting for
Stock-Based Compensation. Stock options and warrants issued to non-employees
are accounted for using the fair value method prescribed by FAS 123 and EITF
96-18.

Net Loss Per Share

Basic earnings (loss) per share (EPS) is computed based on weighted
average shares outstanding during the period and excludes any potential
dilution. Diluted EPS reflects potential dilution from the exercise or
conversion of securities into common stock or from other contracts to issue
common stock. Our capital structure includes stock options and stock warrants.
The assumed conversion and exercise of these securities has been excluded from
diluted EPS as their effect would be anti-dilutive. See note 7.

(2) Synthetic Genetics Acquisition

The Company acquired Synthetic Genetics, a provider of specialty
oligonucleotides in San Diego California, on November 15, 2000 in a transaction
accounted for as a purchase business combination. Accordingly, the assets and
liabilities of Synthetic Genetics recorded at their estimated fair values at
the acquisition date, and the results of Synthetic Genetics operations included
in the Companys results from the acquisition date. The purchase price
consisted of the following:

|                                               |  |   |           | 
|---------------------------------------------- |  | - | --------- | 
|Cash paid to seller                            |  | $ | 3,067,180 | 
|Direct costs of acquisition                    |  |   | 357,694   | 
|Assumption of obligations under capital leases |  |   | 55,691    | 
|Assumption of note payable                     |  |   | 84,588    | 
|Other liabilities assumed                      |  |   | 223,041   | 
|                                               |  |   |           | 
|                                               |  | $ | 3,788,194 | 
|                                               |  |   |           | 
|The purchase price was allocated as follows:   |  |   |           | 
|Accounts receivable                            |  | $ | 169,678   | 
|Other current assets                           |  |   | 62,136    | 
|Property and equipment                         |  |   | 116,417   | 
|Goodwill                                       |  |   | 2,321,347 | 
|Non-compete agreement                          |  |   | 1,000,000 | 
|Trademarks and patents                         |  |   | 118,616   | 
|                                               |  |   |           | 
|Total                                          |  | $ | 3,788,194 | 
|                                               |  |   |           | 

Goodwill represents the excess of the purchase price over the fair value
of identifiable tangible and intangible assets acquired and liabilities
assumed, and was being amortized over 15 years. In compliance with the
issuance of SFAS No. 142, effective January 1, 2002, we no longer amortize

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goodwill, see note (1). Amounts allocated to the non-compete agreement
are being amortized over its term of 5 years.

Direct acquisition costs incurred in the Synthetic Genetics acquisition
include $250,000 cash paid to Bay City Capital for investment banking services.
Bay City Capital, a merchant banking partnership that was formed by The Craves
Group and The Pritzker Family business interests, has an 11.4% equity interest
in Epoch at December 31, 2001. The Chairman of Epochs Board of Directors,
Fred Craves, Ph.D., is a founding partner of The Craves Group, and is the
Chairman and a Manager of Bay City Capital, LLC. Sanford S. Zweifach, a member
of Epochs Board of Directors, is a Managing Director and Chief Financial
Officer of Bay City Capital, LLC.

The following summary, prepared on a pro forma basis presents the combined
results of operations as if the acquisition had been consummated as of January
1, 2000, after including the impact of certain adjustments such as depreciation
and amortization on assets acquired.

|                   |  |      |            |  
|------------------ |  | ---- | ---------- | -
|                   |  | 2000
|                   |  |     
|Revenues           |  | $    | 2,729,073  |  
|Net loss           |  | $    | (5,032,880 | )
|Net loss per share |  | $    | (0.21      | )

The unaudited pro forma results are not necessarily indicative of what
actually might have occurred if the acquisition had been completed as of the
beginning of the periods presented. In addition, they are not intended to be a
projection of future results of operations and do not reflect any of the
synergies that might be achieved from combined operations.

(3) Property and Equipment

Property and equipment consists of the following:

|                              |  |      |           |      |  |   |           | 
|----------------------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                              |  | 2000 |           | 2001
|                              |  |      |           |     
|Machinery and equipment       |  | $    | 3,030,839 |      |  | $ | 3,904,579 | 
|Furniture and fixtures        |  |      | 222,954   |      |  |   | 242,332   | 
|Leasehold improvements        |  |      | 1,999,878 |      |  |   | 2,057,228 | 
|                              |  |      |           |      |  |   |           | 
|                              |  | $    | 5,253,671 |      |  | $ | 6,204,139 | 
|Less accumulated depreciation |  |      | 1,657,019 |      |  |   | 2,351,780 | 
|                              |  |      |           |      |  |   |           | 
|Property and equipment, net   |  | $    | 3,596,652 |      |  | $ | 3,852,359 | 
|                              |  |      |           |      |  |   |           | 

Assets under capital leases, included above:

|                         |  |      |        |      |  |   |        | 
|------------------------ |  | ---- | ------ | ---- |  | - | ------ | 
|                         |  | 2000 |        | 2001
|                         |  |      |        |     
|Machinery and equipment  |  | $    | 52,586 |      |  | $ | 32,055 | 
|Accumulated depreciation |  | $    | 4,380  |      |  | $ | 14,710 | 

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(4) Intangible assets

Intangible assets consists of the following:

|                              |  |      |           |      |  |   |           | 
|----------------------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                              |  | 2000 |           | 2001
|                              |  |      |           |     
|Goodwill                      |  | $    | 2,321,347 |      |  | $ | 2,321,347 | 
|Non-compete agreement         |  |      | 1,000,000 |      |  |   | 1,000,000 | 
|Trademarks and patents        |  |      | 118,616   |      |  |   | 118,616   | 
|License rights                |  |      | 556,250   |      |  |   | 1,556,250 | 
|                              |  |      |           |      |  |   |           | 
|                              |  | $    | 3,996,213 |      |  | $ | 4,996,213 | 
|Less accumulated amortization |  |      | 57,760    |      |  |   | 581,237   | 
|                              |  |      |           |      |  |   |           | 
|Intangible assets, net        |  | $    | 3,938,453 |      |  | $ | 4,414,976 | 
|                              |  |      |           |      |  |   |           | 

(5) Accrued Liabilities

Accrued liabilities consist of the following:

|                              |  |      |         |      |  |   |           | 
|----------------------------- |  | ---- | ------- | ---- |  | - | --------- | 
|                              |  | 2000 |         | 2001
|                              |  |      |         |     
|Payroll and employee benefits |  | $    | 222,154 |      |  | $ | 705,145   | 
|Other                         |  |      | 571,352 |      |  |   | 627,186   | 
|                              |  |      |         |      |  |   |           | 
|Total accrued liabilities     |  | $    | 793,506 |      |  | $ | 1,332,331 | 
|                              |  |      |         |      |  |   |           | 

(6) Retirement Savings Plan

Epoch has a profit sharing plan which is qualified under Section 401(k) of
the United States Internal Revenue Code. The plan allows eligible employees to
contribute up to 20% of their salary. The Company, at its discretion, makes
matching contributions to the plan. No matching contributions were made to the
plan in 1999, 2000 or 2001.

(7) Equity

Options to Purchase Common Stock

Epoch has two stock option plans (Stock Option Plans) pursuant to which
an aggregate of 3,691,980 shares of common stock have been reserved for grants.
The Stock Option Plans provide for incentive stock options and non-qualified
options to be granted to employees, directors, and other non-employee
individuals responsible for the management, growth, and financial success of
the Company. The option price is determined by the Board of Directors at the
time the option is granted, and, in the case of incentive options, must be at
least equal to the fair market value of the common stock at the time of the
grant. Options granted to employees generally vest over a 4-year period of
continuous employment while options granted to non-employee members of the
Board of Directors vest over one year.

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##### Table of Contents



A summary of the stock option plans follows.

|                                      |  |        |           |       |  |          |      |       |  |        |           |          |  |   |      |  |  |          |           |   |  |   |      | 
|------------------------------------- |  | ------ | --------- | ----- |  | -------- | ---- | ----- |  | ------ | --------- | -------- |  | - | ---- |  |  | -------- | --------- | - |  | - | ---- | 
|                                      |  | 1999   |           | 2000  |  | 2001    
|                                      |  |        |           |       |  |         
|                                      |  |        |           |       |  | Weighted |      |       |  |        |           | Weighted |  |   |      |  |  | Weighted
|                                      |  |        |           |       |  | -Average |      |       |  |        |           | -Average |  |   |      |  |  | -Average
|                                      |  |        |           |       |  | Exercise |      |       |  |        |           | Exercise |  |   |      |  |  | Exercise
|                                      |  | Shares |           | Price |  | Shares   |      | Price |  | Shares |           | Price   
|                                      |  |        |           |       |  |          |      |       |  |        |           |         
|Outstanding at beginning of year      |  |        | 1,242,316 |       |  | $        | 2.11 |       |  |        | 1,635,370 |          |  | $ | 2.14 |  |  |          | 1,887,777 |   |  | $ | 3.44 | 
|Granted                               |  |        | 697,513   |       |  |          | 1.74 |       |  |        | 351,527   |          |  |   | 8.77 |  |  |          | 637,000   |   |  |   | 4.38 | 
|Exercised                             |  |        | (117,342  | )     |  |          | 0.64 |       |  |        | (91,120   | )        |  |   | 0.64 |  |  |          | (51,143   | ) |  |   | 3.41 | 
|Forfeited or cancelled                |  |        | (187,117  | )     |  |          | 0.73 |       |  |        | (8,000    | )        |  |   | 3.77 |  |  |          | (85,125   | ) |  |   | 7.58 | 
|                                      |  |        |           |       |  |          |      |       |  |        |           |          |  |   |      |  |  |          |           |   |  |   |      | 
|Outstanding at end of year            |  |        | 1,635,370 |       |  | $        | 2.14 |       |  |        | 1,887,777 |          |  | $ | 3.44 |  |  |          | 2,388,509 |   |  | $ | 3.59 | 
|                                      |  |        |           |       |  |          |      |       |  |        |           |          |  |   |      |  |  |          |           |   |  |   |      | 
|Options exercisable at year end       |  |        | 957,299   |       |  | $        | 2.48 |       |  |        | 1,241,386 |          |  | $ | 2.65 |  |  |          | 1,481,166 |   |  | $ | 3.13 | 
|Average fair value of options granted |  |        |           |       |  | $        | 1.57 |       |  |        |           |          |  | $ | 8.02 |  |  |          |           |   |  | $ | 4.38 | 

The following table summarizes information about stock options at December
31, 2001:

|                |               |             |                     |                  |                     |                |          |             |        |                |           |       |  |  |  |           |  |  |   |       | 
|--------------- | ------------- | ----------- | ------------------- | ---------------- | ------------------- | -------------- | -------- | ----------- | ------ | -------------- | --------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                |               |             | Options Outstanding |                  | Options Exercisable
|                |               |             |                     |                  |                    
|                |               |             | Number              |                  | Weighted-Average    |                | Weighted |             | Number |                | Weighted-
|Range of        |               | outstanding |                     | Remaining Years  |                     | Average        |          | Exercisable |        | Average       
|Exercise Prices |               | at 12/31/01 |                     | Contractual Life |                     | Exercise Price |          | at 12/31/01 |        | Exercise Price
|                |               |             |                     |                  |                     |                |          |             |        |               
|$               | 0.30    0.60 |             |                     | 252,565          |                     |                |          | 4.0         |        |                | $         | 0.53  |  |  |  | 252,565   |  |  | $ | 0.53  | 
|                | 0.72    0.88 |             |                     | 56,963           |                     |                |          | 5.5         |        |                |           | 0.76  |  |  |  | 55,275    |  |  |   | 0.76  | 
|                | 1.00    1.31 |             |                     | 235,557          |                     |                |          | 7.4         |        |                |           | 1.27  |  |  |  | 146,857   |  |  |   | 1.25  | 
|                | 1.88    2.31 |             |                     | 583,022          |                     |                |          | 7.8         |        |                |           | 1.95  |  |  |  | 346,875   |  |  |   | 1.93  | 
|                | 3.12    5.00 |             |                     | 737,000          |                     |                |          | 4.7         |        |                |           | 4.23  |  |  |  | 470,000   |  |  |   | 4.11  | 
|                | 5.38    6.25 |             |                     | 218,000          |                     |                |          | 8.7         |        |                |           | 5.44  |  |  |  | 27,875    |  |  |   | 5.74  | 
|                | 6.94    8.13 |             |                     | 256,902          |                     |                |          | 8.6         |        |                |           | 7.85  |  |  |  | 160,075   |  |  |   | 7.78  | 
|                | 9.50  14.63  |             |                     | 48,500           |                     |                |          | 8.5         |        |                |           | 12.65 |  |  |  | 21,644    |  |  |   | 12.44 | 
|                |               |             |                     |                  |                     |                |          |             |        |                |           |       |  |  |  |           |  |  |   |      
|                | 0.30  14.63  |             |                     | 2,388,509        |                     |                |          | 6.5         |        |                | $         | 3.59  |  |  |  | 1,481,166 |  |  | $ | 3.13  | 
|                |               |             |                     |                  |                     |                |          |             |        |                |           |       |  |  |  |           |  |  |   |      

Warrants to Purchase Common Stock

In June 1996, Epoch announced that it intended to exchange for every two
Redeemable Common Stock Purchase Warrants, which were issued in conjunction
with Epochs public offering in September 1993 at $6.50 per share (the Public
Warrants), one new warrant to purchase one share of common stock until June
20, 2001, that is exercisable at $2.50 per share (the Exchange Warrants). In
June 1997 this exchange of warrants was completed, with 2,603,825 Public
Warrants being exchanged for 1,301,912 Exchange Warrants.

In June 1996, Epoch completed a private placement of units, each unit
consisting of one share of common stock and one warrant (the Unit Warrants)
to purchase 0.5 shares of common stock. We sold a total of 5 million units,
for an aggregate purchase price of $5 million to institutional and accredited
individual investors. The term of the Unit Warrants is five years, and they
are exercisable at $2.50 per share ( or $1.25 per 0.5 shares).

In February 2000, Epoch exercised the redemption provision on outstanding
Exchange Warrants and Unit Warrants, representing 3,801,812 shares of common
stock. Warrants representing 3,798,762

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shares of common stock were exercised generating $9,497,000 in cash. In
addition to the warrant redemption, 218,249 other warrants were exercised in
2000 generating $109,030 in cash.

In May 2000 we issued three year fully vested warrants to purchase 25,000
shares of our common stock for public relations services. The warrants have
strike prices of $8.00 for 5,000 shares, $10.00 for 5,000 shares, $12.00 for
5,000 shares, $14.00 for 5,000 shares, and $16.00 for 5,000 shares. This
warrant was valued using the Black Scholes option pricing model.

In September 2000 we issued five year fully vested warrants to purchase
25,000 shares of common stock at $7.00 per share for consulting services
related to the private placement and warrant call. This warrant was valued
using the Black Scholes option pricing model.

In November 2000, we issued five year fully vested warrants to purchase
40,000 shares of common stock at $10.19 per share to a Bay City Capital entity
managed by Bay City Capital, LLC in lieu of cash fees for investment banking
and consulting services. Bay City Capital, a merchant banking partnership that
was formed by The Craves Group and The Pritzker Family business interests, has
an 11.4% equity interest in Epoch at December 31, 2001. The Chairman of
Epochs Board of Directors, Fred Craves, Ph.D., is a founding partner of The
Craves Group, and is the Chairman and a Manager of Bay City Capital, LLC.
Sanford S. Zweifach, a member of Epochs Board of Directors, is a Managing
Director and Chief Financial Officer of Bay City Capital, LLC. This warrant
was valued using the Black Scholes option pricing model.

In December 2000, we issued a five-year warrant to purchase 10,000 shares
of common stock at $6.69 per share to a consultant to the company. The shares
vest monthly over four years. This warrant is variable and is being valued
using the Black Scholes option pricing model.

Non-cash charges of $760,581 were recognized as a result of warrants
issued in 2000 and are reported as selling, general, and administrative
expenses on the accompanying statements of operations. There were no similar
charges in 1999 or 2001, although we did recognize charges of $1,393 in 2000
and $8,859 in 2001 reported as research and development expense as a result of
warrants issued to a consultant in 2000.

In November 1999, we concluded $7 million of private equity financing.
The financing included:



| |  |  | The sale of 1,200,000 shares of common stock for $3,000,000
in cash at $2.50 per share.                                                                                                                                                                
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The conversion by Bay City Capital of $1.2 million of its $3
million loan to Epoch into 480,000 shares of our common stock at
$2.50 per share.                                                                                                         
|
| |  |  | The application by Bay City Capital of $1.8 million of its $3
million loan to Epoch to the purchase of 2 million shares of our
common stock at $0.90 per share pursuant to a warrant issued to Bay
City Capital in connection with the $3 million loan.
|
| |  |  | The conversion of $1 million of prepayments under the license
agreement with Applied Biosystems to 400,000 shares of common stock
at $2.50 per share.                                                                                                  

The $2.50 price per share of common stock received by us in the private
equity financing represented a premium to the trading price of our common stock
as of the close of the transaction. Investors who purchased the 1,200,000
shares included Applera Corporation, the parent company of Applied Biosystems,
Bay City Capital, Grace Brothers Ltd. and Hilspen Capital Management.

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A summary of our outstanding warrants follows.

|                                           |  |        |            |             |  |          |             |             |  |        |            |             |  |   |               |  |  |          |           |   |  |   |               | 
|------------------------------------------ |  | ------ | ---------- | ----------- |  | -------- | ----------- | ----------- |  | ------ | ---------- | ----------- |  | - | ------------- |  |  | -------- | --------- | - |  | - | ------------- | 
|                                           |  | 1999   |            | 2000        |  | 2001    
|                                           |  |        |            |             |  |         
|                                           |  |        |            |             |  | Exercise |             |             |  |        |            | Exercise    |  |   |               |  |  | Exercise
|                                           |  | Shares |            | Price Range |  | Shares   |             | Price Range |  | Shares |            | Price Range
|                                           |  |        |            |             |  |          |             |             |  |        |            |            
|Outstanding
          at beginning of year |  |        | 7,798,875  |             |  | $        | 0.30  9.21 |             |  |        | 5,434,910  |             |  | $ | 0.50    2.50 |  |  |          | 1,514,749 |   |  | $ | 0.50  16.00  | 
|Granted                                    |  |        |           |             |  |          | 0.00  0.00 |             |  |        | 100,000    |             |  |   | 6.69  16.00  |  |  |          |          |   |  |   | 0.00    0.00 | 
|Exercised                                  |  |        | (2,360,841 | )           |  |          | 0.30  2.50 |             |  |        | (4,017,011 | )           |  |   | 0.50    2.50 |  |  |          | (631,416  | ) |  |   | 0.50    0.75 | 
|Expired                                    |  |        | (3,124     | )           |  |          | 9.21  9.21 |             |  |        | (3,150     | )           |  |   | 2.50    2.50 |  |  |          | 500,000   |   |  |   | 1.00    1.00 | 
|                                           |  |        |            |             |  |          |             |             |  |        |            |             |  |   |               |  |  |          |           |   |  |   |               | 
|Outstanding
          at end of year       |  |        | 5,434,910  |             |  | $        | 0.50 2.50  |             |  |        | 1,514,749  |             |  | $ | 0.50  16.00  |  |  |          | 383,333   |   |  | $ | 0.75  16.00  | 
|                                           |  |        |            |             |  |          |             |             |  |        |            |             |  |   |               |  |  |          |           |   |  |   |               | 
|Warrants
          exercisable at year end |  |        | 5,330,044  |             |  | $        | 0.50  2.50 |             |  |        | 1,410,644  |             |  | $ | 0.50  16.00  |  |  |          | 376,021   |   |  | $ | 0.75  16.00  | 
|Weighted
          average exercise price  |  |        |            |             |  | $        | 1.99        |             |  |        |            |             |  | $ | 1.32          |  |  |          |           |   |  | $ | 3.03          | 

All warrants are fully vested at December 31, 2001 with the exception of
7,312 warrants issued to consultants that vest monthly through 2004. The
warrants have expiration dates that range to 2005.

Stock Based Compensation

Had compensation cost for stock options issued to employees been
determined consistent with FAS No. 123, Epochs net loss and loss per share
would have been increased to the pro forma amounts shown in the table below.
The fair value of each stock option and warrant grant is estimated on the date
of grant using the Black Scholes option-pricing model and the weighted average
assumptions listed below.

|                                                    |             |  |   |            |   |          |      |            |   |         |      |            |   |  |      |  
|--------------------------------------------------- | ----------- |  | - | ---------- | - | -------- | ---- | ---------- | - | ------- | ---- | ---------- | - |  | ---- | -
|                                                    |             |  |   |            |   | 1999     |      | 2000       |   | 2001   
|                                                    |             |  |   |            |   |          |      |            |   |        
|Loss from
          continuing operations           | As reported |  | $ | (4,769,954 | ) |          | $    | (4,895,043 | ) |         | $    | (4,576,149 | )
|                                                    | Pro forma   |  | $ | (5,320,568 | ) |          | $    | (6,320,499 | ) |         | $    | (6,191,654 | )
|                                                    |             |  |   |            |   |          |      |            |   |         |      |            |  
|Loss per
          share from continuing operations | As reported |  | $ | (0.31      | ) |          | $    | (0.20      | ) |         | $    | (0.18      | )
|                                                    | Pro forma   |  | $ | (0.34      | ) |          | $    | (0.26      | ) |         | $    | (0.24      | )
|                                                    |             |  |   |            |   |          |      |            |   |         |      |            |  
|Net loss                                            | As reported |  | $ | (4,699,954 | ) |          | $    | (4,895,043 | ) |         | $    | (4,576,149 | )
|                                                    | Pro forma   |  | $ | (5,250,568 | ) |          | $    | (6,320,499 | ) |         | $    | (6,191,654 |  
|                                                    |             |  |   |            |   |          |      |            |   |         |      |            |  
|Net loss
          per share  basic and diluted    | As reported |  | $ | (0.30      | ) |          | $    | (0.20      | ) |         | $    | (0.18      | )
|                                                    | Pro forma   |  | $ | (0.34      | ) |          | $    | (0.26      | ) |         | $    | (0.24      | )
|                                                    |             |  |   |            |   |          |      |            |   |         |      |            |   |  |      |  
|Dividend
          yield                            |             |  |   |            |   |          | 0.0  | %          |   |         | 0.0  | %          |   |  | 0.0  | %
|                                                    |             |  |   |            |   |          |      |            |   |         |      |            |   |  |      |  
|Expected
          volatility                       |             |  |   |            |   |          | 108  | %          |   |         | 143  | %          |   |  | 182  | %
|                                                    |             |  |   |            |   |          |      |            |   |         |      |            |   |  |      |  
|Risk free
          interest rate                   |             |  |   |            |   |          | 5.59 | %          |   |         | 5.58 | %          |   |  | 4.72 | %
|                                                    |             |  |   |            |   |          |      |            |   |        
|Expected
          life                             |             |  |   |            |   | 10 years |      | 5 years    |   | 5 years

(8) Income Taxes

There was no income tax benefit recognized for our net losses in 1999,
2000 and 2001. The difference between taxes computed by applying the U.S.
Federal corporate tax rate of 34% and the actual income tax provision in 1999,
2000 and 2001 is primarily the result of limitations on utilizing net operating
losses.

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The tax effects of temporary differences and carryforwards that give rise
to significant portions of the deferred tax assets at December 31, 2000 and
2001 are presented below:

|                                              |  |      |            |      |  |   |            | 
|--------------------------------------------- |  | ---- | ---------- | ---- |  | - | ---------- | 
|                                              |  | 2000 |            | 2001
|                                              |  |      |            |     
|Net operating loss carryforwards              |  | $    | 15,754,499 |      |  | $ | 16,070,180 | 
|Research and development credit
carryforwards |  |      | 1,963,770  |      |  |   | 2,317,433  | 
|Capitalized research and development          |  |      | 3,278,701  |      |  |   | 4,012,125  | 
|Bad debt write-off                            |  |      | 1,117,270  |      |  |   | 1,117,270  | 
|Deferred revenue                              |  |      | 857,169    |      |  |   | 945,972    | 
|Other                                         |  |      | 833,804    |      |  |   | 1,239,665  | 
|                                              |  |      |            |      |  |   |            | 
|Total gross deferred tax assets               |  |      | 23,805,213 |      |  |   | 25,702,645 | 
|Less deferred tax asset valuation allowance   |  |      | 23,805,213 |      |  |   | 25,702,645 | 
|                                              |  |      |            |      |  |   |            | 
|Net deferred tax assets                       |  | $    |           |      |  | $ |           | 
|                                              |  |      |            |      |  |   |            | 

The net change in the valuation allowance for 1999, 2000 and 2001 was an
increase of approximately $1,675,000, $1,805,000 and $1,898,000 respectively,
due primarily to the inability to utilize net operating losses and research and
development credits.

At December 31, 2001, we had net operating loss carryforwards for income
tax purposes of approximately $47,266,000 and unused research and development
tax credits of approximately $2,317,000 available to offset future taxable
income and income taxes, respectively, expiring through 2020. Our ability to
utilize net operating loss and credit carryforwards is limited pursuant to the
Tax Reform Act of 1986, due to cumulative changes in stock ownership in excess
of 50%.

(9) Leases

In February of 2000, we entered into a 12-year non-cancelable operating
lease for 25,000 square feet of office and laboratory space in Bothell,
Washington, which we occupied in November 2000.

We also lease office and manufacturing space in San Diego under an
operating lease that expires in November 2002 and manufacturing equipment under
capital leases that expire through 2003. Future minimum cash payments under
non-cancelable leases are as follows:

|                                       |            |         |        |           |        |   |           |           |         | 
|-------------------------------------- | ---------- | ------- | ------ | --------- | ------ | - | --------- | --------- | ------- | 
|Year ending December 31,               |            | Capital |        | Operating
|                                       |            | Leases  |        | Leases   
|                                       |            |         |        |           |        |  
|                                       |            | 2002    |        | $         | 14,032 |   |           | $         | 664,902 | 
|                                       |            | 2003    |        |           | 4,958  |   |           |           | 625,655 | 
|                                       |            | 2004    |        |           |       |   |           |           | 647,553 | 
|                                       |            | 2005    |        |           |       |   |           |           | 670,217 | 
|                                       |            | 2006    |        |           |       |   |           |           | 693,674 | 
|                                       | Thereafter |         |        |          |        |   |           | 4,702,699 |        
|                                       |            |         |        |           |        |   |           |          
|                                       |            | $       | 18,990 |           |        | $ | 8,004,700 |          
|                                       |            |         |        |           |        |   |           |          
|Less amounts representing interest     |            | $       | 1,645  |           |        |   |           |          
|                                       |            |         |        |           |        |   |           |          
|Total obligations under capital leases |            | $       | 17,345 |           |        |   |           |          
|                                       |            |         |        |           |        |   |           |          

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Rental expense is recognized on the straight-line method over the term of
the leases. Rent expense on operating leases was $224,346 in 1999, $377,153 in
2000, and $793,019 in 2001.

(10) Legal Proceedings

The Harbor Trust (formerly the Edward Blech Trust) has filed a complaint
against us alleging the breach of a 1996 letter agreement between us and David
Blech. Pursuant to the letter agreement, upon payment of a pre-existing debt
owed to us by Blech (the Ribonetics Debt), we were to release to Blech from
escrow warrants to purchase 500,000 shares of our stock. Blech assigned all of
his rights under the letter agreement to the Harbor Trust. The Harbor Trusts
claim is based on our alleged failure to timely register the common stock
underlying the warrants, allegedly resulting in damages to Blech and/or the
Harbor Trust of at least $10 million, based on the peak trading value of our
stock.

We filed a motion to dismiss the complaint based on, among other things,
the positions that: (1) Blech and the Harbor Trust have never had rights to
receive or exercise the warrants because Blech failed to perform a condition
precedent, i.e., payment of the Ribonetics Debt; and (2) we had no obligation
to register the stock unless and until Blech was entitled to the warrants.
Further, the warrants expired pursuant to the letter agreement in June 2000.
The Court granted our motion to dismiss in November 2001, but gave the Harbor
Trust leave to file an amended complaint, which they filed in December 2001.
We filed a motion to dismiss the amended complaint in January 2002, and are
awaiting a hearing and decision on our motion.

No trial has been scheduled in the case. While we believe we have a
strong position, it is not possible at this time to state the likelihood of an
unfavorable outcome because of the inherent uncertainties of litigation.

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EXHIBIT INDEX

|            |  |                                                                                                                                                                                                                                                                                                                                                                                               |  |  |  | 
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                   |  |  |  | 
|            |  |                                                                                                                                                                                                                                                                                                                                                                                               |  |  |  | 
|3.1         |  | Amended and Restated Certificate
        of Incorporation (incorporated by reference to Exhibit 3 of Epochs
        quarterly report on Form 10-QSB for the quarter ended June 30,
        1998).                                                                                                                                                                                           
|            |  |                                                                                                                                                                                                                                                                                                                                                                                              
|3.2*        |  | Bylaws of Epoch, as currently
        in effect.                                                                                                                                                                                                                                                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                                                                                                                              
|10.1*       |  | Epoch Biosciences Incentive
        Stock Option, Nonqualified Stock Option And Restricted Stock Purchase
        Plan1991, as amended.                                                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                                                                              
|10.2*       |  | Form of Indemnification Agreement
        entered into with officers and directors of Epoch.                                                                                                                                                                                                                                                                                                 
|            |  |                                                                                                                                                                                                                                                                                                                                                                                              
|10.4        |  | Form of Common Stock Warrant
        issued December 31, 1991 (incorporated by reference to Exhibit 10.22
        of Epochs Registration Statement on Form SB-2, Registration
        No. 33-66742, effective on September 29, 1993).                                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                                                              
|10.6        |  | Common Stock and Warrant Purchase
        Agreement, dated April 28, 1992 as amended June 30, 1992 and July 31,
        1992 (with form of warrant) among Epoch and the investors set forth in
        the agreement (incorporated by reference to Exhibit 10.26 of Epochs
        Registration Statement on Form SB-2, Registration No. 33-66742,
        effective on September 29, 1993).
|            |  |                                                                                                                                                                                                                                                                                                                                                                                              
|10.7        |  | Form of Registration Agreement,
        dated February 12, 1993 among Epoch and the investors set forth in
        the agreement (incorporated by reference to Exhibit 10.30 of Epochs
        Registration Statement on Form SB-2, Registration No. 33-66742,
        effective on September 29, 1993).                                                                                    
|            |  |                                                                                                                                                                                                                                                                                                                                                                                              
|10.8        |  | Epoch Biosciences Incentive
        Stock Option, Nonqualified Stock Option and Restricted Stock Purchase
        Plan1993 (incorporated by reference to Exhibit 10.39 of Epochs
        Registration Statement on Form SB-2, Registration No. 33-66742,
        effective on September 29, 1993).                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                                                                                                              
|10.9        |  | Epoch Biosciences Non-Employee
        Directors Stock Option Plan (incorporated by reference to Exhibit 10.40
        of Epochs Registration Statement on Form SB-2, Registration
        No. 33-66742, effective on September 29, 1993).                                                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                                                                                                                                              
|10.11       |  | Purchase Agreement dated as
        of November 30, 1993, by and among Epoch, Animal Biotechnology Cambridge
        Limited, and Herbert Stradler (without exhibits) (incorporated by reference
        to Exhibit 10.47 of Epochs Registration Statement on Form SB-2,
        Registration No. 33-76446, effective on July 7,
1994).                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                                                                              
|10.12       |  | Put Agreement relating to
        Ribonetics GmbH dated as of December 1, 1993 between Epoch and David
        Blech, as amended December 3, 1993 and February 18, 1994 (incorporated
        by reference to Exhibit 10.48 of Epochs Annual Report on Form 10-KSB
        for the year ended December 31, 1993).                                                                           
|            |  |                                                                                                                                                                                                                                                                                                                                                                                              
|10.13       |  | Registration Rights Agreement
        dated October 12, 1994 (incorporated by reference to Exhibit 10.57
        of Epochs Quarterly Report on Form 10-QSB for the quarter ended
        September 30, 1994).                                                                                                                                                                               





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##### Table of Contents



|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |  |  | 
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |  |  | 
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |  |  | 
|10.16       |  | Consulting Agreement with
        David Blech dated March 29, 1996 (incorporated by reference to Exhibit 10.65
        of Epochs Quarterly Report on Form 10-QSB for the quarter ended
        June 30, 1996).                                                                                                                                                                                                                                                                                                                                   
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.19       |  | Bridge Financing Agreement
        dated as of February 25, 1998, with form of note and warrant, between
        Epoch and Bay City Capital, LLC (incorporated by reference to Exhibit 10.69
        of Epochs Annual Report on Form 10-KSB for the year ended December
        31, 1997).                                                                                                                                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.21       |  | Amended and Restated License
        and Supply Agreement between Epoch and Applera Corporation (formerly
        PE Corporation) dated November 1, 1999 (incorporated by reference
        to Exhibit 10.22 of Epochs quarterly report on form 10-QSB
        for the period ending September 30, 1999). (Portions of this exhibit
        are omitted and were filed separately with the Secretary of the SEC pursuant
        to the Registrants application requesting confidential treatment
        under Rule 406 of the Securities Act).
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.21.1     |  | Second Amended and
Restated Collaboration, License and Supply
Agreement between Epoch and Applera Corporation (formerly
PE Corporation) dated August 17, 2000. (Portions of this
exhibit are omitted and were filed separately with the Secretary of
the SEC pursuant to the Registrant's application requesting
confidential treatment under Rule 406 of the Securities Act).                                                                                                                                                                    
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.21.2     |  | First Side Agreement dated
        October 31, 2001 by and between Epoch and Applera Corporation (formerly
        PE Corporation). (Portions of this Exhibit are omitted and were filed
        separately with the SEC pursuant to Rule 406 of the
Securities Act).                                                                                                                                                                                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.22       |  | Stock Purchase Agreement dated
        November 1, 1999 by and between Epoch and the purchasers named in
        the agreement (incorporated by reference to Exhibit 10.22 of Epochs
        Annual Report on Form 10-KSB for the year ended December 31,
        1999).                                                                                                                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.23       |  | Stock Purchase Agreement dated
        February 14, 2000 by and between Epoch and the purchasers named in
        the agreement (incorporated by reference to Exhibit 10.23 of Epochs
        Annual Report on Form 10-KSB for the year ended December 31,
        1999).                                                                                                                                                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.24       |  | Second Amended and Restated
        Employment Agreement dated January 10, 2002 by and between Epoch
        and William G. Gerber, M.D.                                                                                                                                                                                                                                                                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.25       |  | Lease Agreement dated February
        2000, by and between Epoch Biosciences and Nexus Canyon Park LLC (incorporated
        by reference to Exhibit 10.1 of Epochs quarterly report on
        form 10-QSB for the period ending September 30, 2000).                                                                                                                                                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.26       |  | Letter Agreement dated November 7,
        2000 between Epoch Biosciences and Bay City Capital BD LLC (incorporated
        by reference to Exhibit 10.26 of Epochs Annual Report on Form 10-KSB
        for the year ended December 31, 2001). (Portions of this Exhibit
        are omitted and were filed separately with the SEC pursuant to Rule 406
        of the Securities Act).                                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.26.1     |  | Extension of Letter Agreement
        dated November 13, 2001, between Epoch Biosciences and Bay City Capital
        BD LLC.                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.27       |  | Employment Agreement dated
        March 8, 2001 by and between Epoch and Merl F. Hoekstra (incorporated
        by reference to Exhibit 10.27 of Epochs quarterly report on
        form 10-Q for the period ending June 30, 2001).                                                                                                                                                                                                                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.27.1     |  | First Amendment to Employment
        Agreement dated February 12, 2002, by and between Epoch and Merl
        F. Hoekstra.                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.28       |  | Employment Agreement dated
        February 28, 2001 by and between Epoch and Bert W. Hogue (incorporated
        by reference to Exhibit 10.28 of Epochs quarterly report on
        form 10-Q for the period ending June 30, 2001).                                                                                                                                                                                                                                                                                                            





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##### Table of Contents



|            |  |                                                                                                                          |  |  |  | 
|----------- |  | ------------------------------------------------------------------------------------------------------------------------ |  |  |  | 
|Exhibit No. |  | Description                                                                                                              |  |  |  | 
|            |  |                                                                                                                          |  |  |  | 
|10.28.1     |  | First Amendment to Employment
        Agreement dated February 12, 2002, by and between Epoch and Bert
        W. Hogue.
|            |  |                                                                                                                         
|10.29       |  | Employment Agreement dated
        January 7, 2002 by and between Epoch and Walter Mahoney.                             
|            |  |                                                                                                                         
|23.1        |  | Consent of KPMG LLP.                                                                                                    
|            |  |                                                                                                                         
|24.1        |  | Power of Attorney (included
        on the signature page).                                                             



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|* |  | Incorporated by reference to the same numbered exhibit of Epochs registration statement
on Form SB-2, No. 33-667742, effective on September 19, 1993.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------