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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549


FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2003.

|  |  |                                                                                                                             
|- |  | ----------------------------------------------------------------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM      TO

Commission file number 0-22170

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, WA 98021(Address of principal executive office, including zip code)

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

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports to be filed by Section 13 or
15(d) of the Exchange Act 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 o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

YES o      NO x

As of June 30, 2003, the aggregate market value of voting stock held by
non-affiliates, computed by reference to the price at which the stock was sold
on such date, was approximately $60,348,673.

26,053,011 shares of Common Stock were outstanding at August 1, 2003.





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TABLE OF CONTENTS



|                              |                                                                                               |  |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|Part I. Financial Information
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                              | Item 4. Disclosure Controls and Procedures                                                   
|Part II. Other Information   
|                              | Item 1. Legal Proceedings                                                                    
|                              | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|Signatures                   
|EXHIBIT 31.1                 
|EXHIBIT 31.2                 
|EXHIBIT 32.1                 
|EXHIBIT 32.2                 



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##### Table of Contents



Epoch Biosciences, Inc.

Index To Form 10-Q

|                              |                                                                                               |  |             |    | 
|----------------------------- | --------------------------------------------------------------------------------------------- |  | ----------- | -- | 
|                              |                                                                                               |  | Page Number
|                              |                                                                                               |  |            
|Part I. Financial Information |                                                                                               |  |             |   
|                              | Item 1. Financial Statements                                                                  |  |             | 3  | 
|                              | Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations |  |             | 9  | 
|                              | Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  |             | 19 | 
|                              | Item 4: Disclosure Controls and Procedures                                                    |  |             | 20 | 
|Part II. Other Information    |                                                                                               |  |             |   
|                              | Item 1. Legal Proceedings                                                                     |  |             | 20 | 
|                              | Item 4. Submission of Matters to a Vote of Security Holders                                   |  |             | 21 | 
|                              | Item 6. Exhibits and Reports on Form 8-K                                                      |  |             | 22 | 
|Signature                     |                                                                                               |  | 23          |   

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Part I. Financial Information

Epoch Biosciences, Inc.

Balance Sheets
(unaudited)

|                                            |                                                                                                 |                                                                 |           |              |            |          |           |             |            | 
|------------------------------------------- | ----------------------------------------------------------------------------------------------- | --------------------------------------------------------------- | --------- | ------------ | ---------- | -------- | --------- | ----------- | ---------- | 
|                                            |                                                                                                 |                                                                 |           | December 31, |            | June 30,
|                                            |                                                                                                 |                                                                 |           | 2002         |            | 2003    
|                                            |                                                                                                 |                                                                 |           |              |            |         
|Assets                                      |                                                                                                 |                                                                 |           |              |            |          |           |            
|Current assets:                             |                                                                                                 |                                                                 |           |              |            |          |           |            
|                                            | Cash and cash equivalents                                                                       |                                                                 | $         | 3,507,645    |            |          | $         | 4,608,457   |           
|                                            | Accounts receivable, net                                                                        |                                                                 |           | 2,031,600    |            |          |           | 1,292,503   |           
|                                            | Inventory                                                                                       |                                                                 |           | 461,381      |            |          |           | 197,513     |           
|                                            | Prepaid expenses and other assets                                                               |                                                                 |           | 348,778      |            |          |           | 280,721     |           
|                                            |                                                                                                 |                                                                 |           |              |            |          |           |             |           
|                                            |                                                                                                 | Total current assets                                            |           |              | 6,349,404  |          |           |             | 6,379,194  | 
|Property and equipment, net                 |                                                                                                 |                                                                 | 3,947,995 |              |            |          | 2,844,945 |            
|Identifiable intangible assets, net         |                                                                                                 |                                                                 | 1,967,632 |              |            |          | 1,340,225 |            
|Goodwill                                    |                                                                                                 |                                                                 | 2,151,846 |              |            |          |          |            
|Restricted cash                             |                                                                                                 |                                                                 | 614,739   |              |            |          | 634,071   |            
|Other assets                                |                                                                                                 |                                                                 | 24,550    |              |            |          | 16,000    |            
|                                            |                                                                                                 |                                                                 |           |              |            |          |           |             |           
|                                            |                                                                                                 | Total assets                                                    |           | $            | 15,056,166 |          |           | $           | 11,214,435 | 
|                                            |                                                                                                 |                                                                 |           |              |            |          |           |             |           
|Liabilities and Stockholders Equity        |                                                                                                 |                                                                 |           |              |            |          |           |            
|Current liabilities:                        |                                                                                                 |                                                                 |           |              |            |          |           |            
|                                            | Current portion of long term obligations                                                        |                                                                 | $         | 282,451      |            |          | $         | 418,590     |           
|                                            | Accounts payable and accrued liabilities                                                        |                                                                 |           | 2,033,575    |            |          |           | 1,647,592   |           
|                                            | Current portion of deferred revenue                                                             |                                                                 |           | 877,258      |            |          |           | 800,449     |           
|                                            |                                                                                                 |                                                                 |           |              |            |          |           |             |           
|                                            |                                                                                                 | Total current liabilities                                       |           |              | 3,193,284  |          |           |             | 2,866,631  | 
|Long term obligations, less current portion |                                                                                                 |                                                                 | 511,731   |              |            |          | 528,501   |            
|Deferred revenue, less current portion      |                                                                                                 |                                                                 | 2,324,744 |              |            |          | 2,404,354 |            
|Deferred rent                               |                                                                                                 |                                                                 | 245,582   |              |            |          | 289,557   |            
|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:      |                                                                 |           |              |            |          |           |             |           
|                                            |                                                                                                 | 25,683,589 at December 31, 2002 and 26,053,011
at June 30, 2003 |           |              | 256,836    |          |           |             | 260,530    | 
|                                            | Additional paid-in capital                                                                      |                                                                 |           | 82,743,658   |            |          |           | 83,018,695  |           
|                                            | Accumulated deficit                                                                             |                                                                 |           | (74,219,669  | )          |          |           | (78,153,833 | )         
|                                            |                                                                                                 |                                                                 |           |              |            |          |           |             |           
|                                            |                                                                                                 | Total stockholders equity                                      |           |              | 8,780,825  |          |           |             | 5,125,392  | 
|                                            |                                                                                                 |                                                                 |           |              |            |          |           |             |           
|                                            |                                                                                                 | Total liabilities and stockholders equity                      |           | $            | 15,056,166 |          |           | $           | 11,214,435 | 
|                                            |                                                                                                 |                                                                 |           |              |            |          |           |             |           

See accompanying notes to financial statements.

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Epoch Biosciences, Inc.Statements of Operations
(unaudited)

|                                                                         |                                      |                          |            |                    |            |                  |            |           |            |      |            |           |            |   |            |           |            |  
|------------------------------------------------------------------------ | ------------------------------------ | ------------------------ | ---------- | ------------------ | ---------- | ---------------- | ---------- | --------- | ---------- | ---- | ---------- | --------- | ---------- | - | ---------- | --------- | ---------- | -
|                                                                         |                                      |                          |            | Three Months Ended |            | Six Months Ended
|                                                                         |                                      |                          |            | June 30,           |            | June 30,        
|                                                                         |                                      |                          |            |                    |            |                 
|                                                                         |                                      |                          |            | 2002               |            | 2003             |            | 2002      |            | 2003
|                                                                         |                                      |                          |            |                    |            |                  |            |           |            |     
|Revenue:                                                                 |                                      |                          |            |                    |            |                  |            |           |            |      |            |           |            |   |            |          
|                                                                         | Product sales                        |                          | $          | 1,700,397          |            |                  | $          | 688,616   |            |      | $          | 3,224,591 |            |   | $          | 1,437,045 |           
|                                                                         | License fees and royalty income      |                          |            | 255,909            |            |                  |            | 1,371,685 |            |      |            | 432,998   |            |   |            | 2,689,754 |           
|                                                                         | Contract research revenue            |                          |            | 531,757            |            |                  |            | 392,000   |            |      |            | 1,112,430 |            |   |            | 741,000   |           
|                                                                         |                                      |                          |            |                    |            |                  |            |           |            |      |            |           |            |   |            |           |           
|                                                                         |                                      | Total revenue            |            |                    | 2,488,063  |                  |            |           | 2,452,301  |      |            |           | 4,770,019  |   |            |           | 4,867,799  |  
|Operating expenses:                                                      |                                      |                          |            |                    |            |                  |            |           |            |      |            |           |            |   |            |          
|                                                                         | Cost of product sales                |                          |            | 1,194,831          |            |                  |            | 642,820   |            |      |            | 2,294,196 |            |   |            | 1,382,557 |           
|                                                                         | Research and development             |                          |            | 1,118,933          |            |                  |            | 1,086,277 |            |      |            | 2,185,871 |            |   |            | 2,343,484 |           
|                                                                         | Selling, general and administrative  |                          |            | 1,400,563          |            |                  |            | 981,973   |            |      |            | 2,770,380 |            |   |            | 2,282,103 |           
|                                                                         | Loss on sale of San Diego operations |                          |            |                   |            |                  |            | 2,804,862 |            |      |            |          |            |   |            | 2,804,862 |           
|                                                                         |                                      |                          |            |                    |            |                  |            |           |            |      |            |           |            |   |            |           |           
|                                                                         |                                      | Total operating expenses |            |                    | 3,714,327  |                  |            |           | 5,515,932  |      |            |           | 7,250,447  |   |            |           | 8,813,006  |  
|                                                                         |                                      |                          |            |                    |            |                  |            |           |            |      |            |           |            |   |            |           |           
|                                                                         |                                      | Operating loss           |            |                    | (1,226,264 | )                |            |           | (3,063,631 | )    |            |           | (2,480,428 | ) |            |           | (3,945,207 | )
|                                                                         | Interest income, net                 |                          |            | 24,680             |            |                  |            | 3,895     |            |      |            | 62,092    |            |   |            | 11,043    |           
|                                                                         |                                      |                          |            |                    |            |                  |            |           |            |      |            |           |            |   |            |           |           
|                                                                         |                                      | Net loss                 |            |                    | (1,201,584 | )                |            |           | (3,059,736 | )    |            |           | (2,418,336 | ) |            |           | (3,934,164 | )
|                                                                         |                                      |                          |            |                    |            |                  |            |           |            |      |            |           |            |   |            |          
|Net loss per share  basic and diluted                                   |                                      | $                        | (0.05      | )                  |            | $                | (0.12      | )         |            | $    | (0.09      | )         |            | $ | (0.15      | )        
|                                                                         |                                      |                          |            |                    |            |                  |            |           |            |      |            |           |            |   |            |          
|Weighted average number of common shares
outstanding  basic and diluted |                                      |                          | 25,655,649 |                    |            |                  | 25,949,689 |           |            |      | 25,654,590 |           |            |   | 25,840,243 |          

See accompanying notes to financial statements.

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Epoch Biosciences, Inc.

Statements of Cash Flows
(unaudited)

|                                      |                                                                             |                                                |                                          |                                                     |          |                           |            |            |           |          |         |  
|------------------------------------- | --------------------------------------------------------------------------- | ---------------------------------------------- | ---------------------------------------- | --------------------------------------------------- | -------- | ------------------------- | ---------- | ---------- | --------- | -------- | ------- | -
|                                      |                                                                             |                                                |                                          |                                                     |          | Six Months Ended June 30,
|                                      |                                                                             |                                                |                                          |                                                     |          |                          
|                                      |                                                                             |                                                |                                          |                                                     |          | 2002                      |            | 2003      
|                                      |                                                                             |                                                |                                          |                                                     |          |                           |            |           
|Cash flows from operating activities: |                                                                             |                                                |                                          |                                                     |          |                           |            |           
|                                      | Net loss                                                                    |                                                | $                                        | (2,418,336                                          | )        |                           | $          | (3,934,164 | )        
|                                      | Adjustments to reconcile net loss to net
cash used in operating activities: |                                                |                                          |                                                     |          |                           |            |            |          
|                                      |                                                                             | Depreciation and amortization:                 |                                          |                                                     |          |                           |            |            |           |         
|                                      |                                                                             |                                                | Property and equipment                   |                                                     |          | 410,022                   |            |            |           | 461,782  |        
|                                      |                                                                             |                                                | Identifiable intangible assets           |                                                     |          | 147,749                   |            |            |           | 131,083  |        
|                                      |                                                                             | Issuance of common stock warrants for services |                                          |                                                     | 19,177   |                           |            |            | 1,421     |         
|                                      |                                                                             | Loss on sale of San Diego operations           |                                          |                                                     |         |                           |            |            | 2,804,862 |         
|                                      |                                                                             | Interest accrued on restricted cash            |                                          |                                                     | (20,441  | )                         |            |            | (19,332   | )       
|                                      |                                                                             | Deferred revenue                               |                                          |                                                     | (406,355 | )                         |            |            | 2,801     |         
|                                      |                                                                             | Deferred rent                                  |                                          |                                                     | 52,791   |                           |            |            | 43,975    |         
|                                      | Changes in operating assets and liabilities net of assets
sold:             |                                                |                                          |                                                     |          |                           |            |            |          
|                                      |                                                                             |                                                | Accounts receivable                      |                                                     |          | (207,112                  | )          |            |           | 714,097  |        
|                                      |                                                                             |                                                | Inventory                                |                                                     |          | (144,402                  | )          |            |           | 158,833  |        
|                                      |                                                                             |                                                | Prepaid expenses and other assets        |                                                     |          | (115,813                  | )          |            |           | (6,278   | )      
|                                      |                                                                             |                                                | Accounts payable and accrued liabilities |                                                     |          | 321,963                   |            |            |           | (385,983 | )      
|                                      |                                                                             |                                                |                                          |                                                     |          |                           |            |            |          
|                                      |                                                                             |                                                |                                          | Net cash used in operating activities               |          |                           | (2,360,757 | )          |           |          | (26,903 | )
|                                      |                                                                             |                                                |                                          |                                                     |          |                           |            |            |          
|                                      | Cash flows from investing activities:                                       |                                                |                                          |                                                     |          |                           |            |            |          
|                                      |                                                                             | Release of security deposit on facilities      |                                          |                                                     | 100,000  |                           |            |            |          |         
|                                      |                                                                             | Acquisition of property and equipment          |                                          |                                                     | (269,634 | )                         |            |            | (384,065  | )       
|                                      |                                                                             | Proceeds from sale of assets, net              |                                          |                                                     |         |                           |            |            | 1,081,561 |         
|                                      |                                                                             |                                                |                                          |                                                     |          |                           |            |            |          
|                                      |                                                                             |                                                |                                          | Net cash provided by (used in) investing activities |          |                           | (169,634   | )          |           |          | 697,496 |  
|                                      |                                                                             |                                                |                                          |                                                     |          |                           |            |            |          
|                                      | Cash flows from financing activities:                                       |                                                |                                          |                                                     |          |                           |            |            |          
|                                      |                                                                             | Repayment of long term obligations             |                                          |                                                     | (5,342   | )                         |            |            | (255,509  | )       
|                                      |                                                                             | Proceeds from bank loan                        |                                          |                                                     |         |                           |            |            | 408,418   |         
|                                      |                                                                             | Proceeds from exercise of warrants             |                                          |                                                     |         |                           |            |            | 212,250   |         
|                                      |                                                                             | Proceeds from exercise of stock options        |                                          |                                                     | 1,212    |                           |            |            | 65,060    |         
|                                      |                                                                             |                                                |                                          |                                                     |          |                           |            |            |          
|                                      |                                                                             |                                                |                                          | Net cash provided by (used in) financing activities |          |                           | (4,130     | )          |           |          | 430,219 |  
|                                      |                                                                             |                                                |                                          |                                                     |          |                           |            |            |          
|                                      | Net increase (decrease) in cash and cash equivalents                        |                                                |                                          | (2,534,521                                          | )        |                           |            | 1,100,812  |          
|                                      | Cash and cash equivalents at beginning of period                            |                                                |                                          | 7,489,399                                           |          |                           |            | 3,507,645  |          
|                                      |                                                                             |                                                |                                          |                                                     |          |                           |            |            |          
|                                      | Cash and cash equivalents at end of period                                  |                                                | $                                        | 4,954,878                                           |          |                           | $          | 4,608,457  |          
|                                      |                                                                             |                                                |                                          |                                                     |          |                           |            |            |          
|                                      | Supplemental disclosure of cash flow information -
Interest payments        |                                                | $                                        | 1,025                                               |          |                           | $          | 17,545     |          
|                                      |                                                                             |                                                |                                          |                                                     |          |                           |            |            |          

See accompanying notes to financial statements.

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Epoch Biosciences, Inc.
Notes to Financial Statements
June 30, 2003
(unaudited)

1. Summary of Significant Accounting Policies

(a) Nature of Business

Epoch Biosciences, Inc. is a biotechnology company developing technologies
and 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 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
susceptibility to 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 and that 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.

Our technologies are useful in genetic research, diagnostics, drug
development, infectious disease detection, prenatal testing, and population
screening to assess our risk of disease or to predict our response to drugs.
Epochs products also have application in forensics, food testing, and
environmental testing, including biowarfare and bioterrorism.

(b) Basis of Presentation

The unaudited financial statements have been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required to be
presented for complete financial statements. The accompanying financial
statements include all adjustments (consisting only of normal recurring
accruals), which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. Certain 2002
balances have been reclassified to conform with the 2003 presentation.

The financial statements and related disclosures have been prepared with
the presumption that users of the interim financial information have read or
have access to the audited financial statements for the preceding fiscal year.
Accordingly, these financial statements should be read in conjunction with the

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audited financial statements and the related notes included in Epochs
2002 Annual Report on Form 10-K as filed with the Securities and Exchange
Commission.

(c) Sale of San Diego Operations

On May 30, 2003, we sold the assets and customer base of our
non-proprietary specialty oligonucleotide operations located in San Diego,
California to Eurogentec S.A., a Belgium based supplier of products and
services to life sciences companies for $1.4 million in cash. The assets sold
included manufacturing and other equipment, inventory, prepaid maintenance
contracts, and a non-compete agreement from our acquisition of the business in
November 2000. In addition, goodwill of $2,151,846 related to our original
acquisition was written-off in the transaction. The sale resulted in a loss of
$2,804,862. Net cash proceeds from the transaction were approximately $1.1
million.

(d) 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 loss and net loss per share as if
compensation cost had been determined consistent with Statement of Financial
Accounting Standard (SFAS) 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 SFAS 123 and Emerging Issues Task Force 96-18.

Had we determined compensation cost based on the fair value of our stock
options on the grant date under SFAS 123, our net loss and net loss per share
would have been the pro forma amounts indicated below:

|                                        |                                                                                                   |  |                    |           |                  |  |      |           |      |  |   |            |   |  |   |            |  
|--------------------------------------- | ------------------------------------------------------------------------------------------------- |  | ------------------ | --------- | ---------------- |  | ---- | --------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                        |                                                                                                   |  | Three months ended |           | Six months ended
|                                        |                                                                                                   |  | June 30,           |           | June 30,        
|                                        |                                                                                                   |  |                    |           |                 
|                                        |                                                                                                   |  | 2002               |           | 2003             |  | 2002 |           | 2003
|                                        |                                                                                                   |  |                    |           |                  |  |      |           |     
|Net loss:                               |                                                                                                   |  |                    |           |                  |  |      |           |      |  |   |            |   |  |   |           
|                                        | As reported                                                                                       |  | $                  | 1,201,584 |                  |  | $    | 3,059,736 |      |  | $ | (2,418,336 | ) |  | $ | (3,934,164 | )
|                                        | Add: Stock-based employee
compensation expense included in
reported net loss                      |  |                    |          |                  |  |      |          |      |  |   |           |   |  |   |           |  
|                                        | Deduct: Stock-based employee
compensation determined under
fair value based method for all
awards |  |                    | 317,593   |                  |  |      | 262,804   |      |  |   | 646,293    |   |  |   | 498,270    |  
|                                        |                                                                                                   |  |                    |           |                  |  |      |           |      |  |   |            |   |  |   |            |  
|                                        | Pro forma                                                                                         |  | $                  | 1,519,177 |                  |  | $    | 3,322,540 |      |  | $ | (3,064,629 | ) |  | $ | (4,432,434 | )
|                                        |                                                                                                   |  |                    |           |                  |  |      |           |      |  |   |            |   |  |   |            |  
|Net loss per share  basic and diluted: |                                                                                                   |  |                    |           |                  |  |      |           |      |  |   |            |   |  |   |           
|                                        | As reported                                                                                       |  | $                  | (0.05     | )                |  | $    | (0.12     | )    |  | $ | (0.09      | ) |  | $ | (0.15      | )
|                                        |                                                                                                   |  |                    |           |                  |  |      |           |      |  |   |            |   |  |   |            |  
|                                        | Pro forma                                                                                         |  | $                  | (0.06     | )                |  | $    | (0.13     | )    |  | $ | (0.12      | ) |  | $ | (0.17      | )
|                                        |                                                                                                   |  |                    |           |                  |  |      |           |      |  |   |            |   |  |   |            |  

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|                                                                                           |  |                    |         |                  |  |      |         |      |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------------------ |  | ------------------ | ------- | ---------------- |  | ---- | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                           |  | Three months ended |         | Six months ended
|                                                                                           |  | June 30,           |         | June 30,        
|                                                                                           |  |                    |         |                 
|                                                                                           |  | 2002               |         | 2003             |  | 2002 |         | 2003
|                                                                                           |  |                    |         |                  |  |      |         |     
|Weighted average fair value of
option granted using the
Black-Scholes option pricing
model |  | $                  | 1.38    |                  |  | $    | 1.67    |      |  | $ | 1.74    |   |  | $ | 1.67    |  
|Options granted during the period                                                          |  |                    | 327,500 |                  |  |      | 172,500 |      |  |   | 479,231 |   |  |   | 172,500 |  
|Expected dividend yield                                                                    |  |                    | 0.0     | %                |  |      | 0.0     | %    |  |   | 0.0     | % |  |   | 0.0     | %
|Risk-free interest rate                                                                    |  |                    | 4.39    | %                |  |      | 2.57    | %    |  |   | 4.43    | % |  |   | 2.74    | %
|Expected volatility                                                                        |  |                    | 131     | %                |  |      | 126     | %    |  |   | 133     | % |  |   | 126     | %
|Expected life in years                                                                     |  |                    | 5       |                  |  |      | 5       |      |  |   | 5       |   |  |   | 5       |  

(e) Loss Per Share

Basic loss per share is computed based on weighted average shares
outstanding during the reporting period and excludes any potential dilution.
Diluted per share amounts reflect potential dilution from the exercise or
conversion of securities into common stock or from other contracts to issue
common stock. Our capital structure includes common stock options and common
stock warrants, all of which have been excluded from net loss per share
calculations as they are antidilutive, as follows:

|                     |  |             |           |      |  |  |           | 
|-------------------- |  | ----------- | --------- | ---- |  |  | --------- | 
|                     |  | At June 30,
|                     |  |            
|                     |  | 2002        |           | 2003
|                     |  |             |           |     
|Outstanding options  |  |             | 2,760,229 |      |  |  | 2,620,963 | 
|Outstanding
warrants |  |             | 398,333   |      |  |  | 90,000    | 

(f) Concentration of Credit Risk

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.

The table below summarizes the revenue and approximate accounts receivable
of our customers where our risk is significantly concentrated.

|         |  |                     |    |                     |  |              |    |          |  |  |    |   |  |  |    |   |  |   |         |  |  |   |         | 
|-------- |  | ------------------- | -- | ------------------- |  | ------------ | -- | -------- |  |  | -- | - |  |  | -- | - |  | - | ------- |  |  | - | ------- | 
|Customer |  | Percent of Revenues |    | Accounts Receivable
|         |  |                     |    |                    
|         |  | Three months        |    | Six months          |  | December 31, |    | June 30,
|         |  | ended June 30       |    | ended June 30,      |  | 2002         |    | 2003    
|         |  |                     |    |                     |  |              |    |         
|         |  | 2002                |    | 2003                |  | 2002         |    | 2003     |  |  |    |   |  |  |    |  
|         |  |                     |    |                     |  |              |    |          |  |  |    |   |  |  |    |  
|A        |  |                     | 56 | %                   |  |              | 50 | %        |  |  | 58 | % |  |  | 48 | % |  | $ | 875,000 |  |  | $ | 880,000 | 
|B        |  |                     | 0  | %                   |  |              | 21 | %        |  |  | 0  | % |  |  | 21 | % |  |   | 795,000 |  |  |   | 17,000  | 
|C        |  |                     | 15 | %                   |  |              | 3  | %        |  |  | 9  | % |  |  | 4  | % |  |   | 11,000  |  |  |   | 8,000   | 

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(g) 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 in 2001, alleging the breach of a 1996 letter agreement between us
and David Blech, allegedly resulting in damages to Blech and/or the Harbor
Trust of at least $10 million.

In July 2002, the Court granted our motion to dismiss without leave to
file an amended complaint and the Harbor Trust appealed the Courts dismissal
of its case to the United States Court of Appeal for the Second Circuit. On
May 14, 2003, the Second Circuit affirmed the dismissal.




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

This Quarterly Report on Form 10-Q includes forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
That Act provides a safe harbor for forward-looking statements to encourage
companies to provide prospective information about themselves so long as they
identify these statements as forward-looking and provide meaningful, cautionary
statements identifying important factors that could cause actual results to
differ from the projected results.

Other than statements of historical fact, all statements in this Quarterly
Report on Form 10-Q and, in particular, any projections of or statements as to
our expectations or beliefs concerning our future financial performance or
financial position or as to future trends in our business or in our markets,
are forward-looking statements. Forward-looking statements reflect our current
expectations and are inherently uncertain and our actual results in future
periods may differ materially from our expectations concerning our projections
of those results or of future business trends described in this Quarterly
Report on Form 10-Q. The sections below entitled Certain Factors that May
Affect Our Business and Future Results under Item 2, Managements Discussion
and Analysis of Financial Condition and Results of Operations, describe some,
but not all, of the factors, risks and uncertainties that could cause these
differences, including but not limited to the possibility that potential
products utilizing the Companys technology may be ineffective or, although
effective, may be uneconomical to market; that third parties hold proprietary
rights that preclude Epoch or its licensees from marketing its products; or
that third parties may market superior products. Readers of this Quarterly
Report on Form 10-Q are urged to read those sections in their entirety. 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 our objectives
or plans will be achieved. The forward-looking statements contained in this
Quarterly Report on Form 10-Q are made only as of the date of this Quarterly
Report on Form 10-Q and Epoch undertakes no obligation to update or revise the
forward-looking statements, whether as a result of new information, future
events or otherwise.

The following discussion of Epochs financial condition and results of
operations should be read in conjunction with the financial statements and the
related notes thereto included elsewhere in this Quarterly Report on Form 10-Q
and other documents Epoch files from time to time with the Securities and
Exchange Commission, including subsequent Current Reports on Form 8-K,
Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K.

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Results of Operations

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
and sell chemical intermediates to companies, thereby allowing them to
incorporate our technology into their products and we generate product revenue
and earn license fees and royalties from those companies. We also sell our
products to end-users through our direct sales force and through distributors
that provide worldwide reach. We also earn revenues through contract research
activities, whereby third parties pay for specific research and development
activities carried out by our scientists, and through research grants.

We expect to incur operating losses for at least the current fiscal year
as we continue funding research and development to apply our technology to
genomic analysis for the research markets and other fields, and as we incur
costs to commercialize the resultant products through various channels.

Critical Accounting Policies

Our accounting policies are more fully described in Note 1 to our annual
financial statements for the year ended December 31, 2002. Our critical
accounting policy is revenue recognition. In applying this policy, our
management uses its judgment to determine the appropriate assumptions to be
used in the determination of the 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.

Revenue recognition. We earn revenues from product 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 and distributors 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 receive royalties upon ultimate sales
of products that incorporate our technology by our partners.



| |  |  | Revenues from product sales that require no ongoing
obligations are recognized when shipped to the customer and title
has passed. To the extent that sales are made to end distributors
and not sold through to end users our future sales could decline.                                                                                                                                                                                               
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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. These
up front fees are generally nonrefundable regardless of future
performance. Deferred revenue principally represents license fees
received in advance and prepayments for product purchases.
|
| |  |  | Contract research revenues are recognized as 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                                                                                                                                                                                                                                                                                 

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| |  |  | products. To the extent our partners no longer use our component
products or sales of their products are less than expected, our
royalty revenues could decrease in the future.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Revenues

Revenues for the second quarter ended June 30, 2003, decreased 1% from the
comparable period of 2002 to $2,452,000 primarily due to reductions in product
sales and contract research, offset by a significant increase in royalties.
Revenues for the six month period ended June 30, 2003, increased 2% over the
comparable period of 2002 to $4,868,000 again primarily due to a significant
increase in royalties offset by reductions in product sales and contract
research revenue.

Product Sales. Product sales include sales of specialty oligonucleotides
to end users and distribution partners in the research market and sales of
chemical intermediates and dyes, quencher, and modified bases to collaborative
partners and distributors. Product sales decreased 60% to $689,000 in the
second quarter of 2003 from $1,700,000 in the comparable period of 2002, and
for the six month period ended June 30, 2003, decreased 55% to $1,437,000 from
$3,225,000 in the comparable period of 2002. The decrease in product revenues
was the result of decreased revenues from Applied Biosystems for MGB TaqMan
probe manufacturing, a decrease in the sales of non-proprietary specialty
oligonucleotides from our San Diego operations, and a decrease in revenues from
the sale of chemical intermediates.

In October 2002 payments received from Applied Biosystems (in return for
manufacturing rights) which had previously been characterized as product sales
were recharacterized as royalties in accordance with the most recent amendment
to the Licensing and Supply Agreement between the companies. Accordingly,
product sales decreased and royalty revenue increased when comparing the
current periods with the comparable periods of 2002. The reduction of 73% in
the current quarter and 57% for the six month period in sales of our
non-proprietary specialty oligonucleotides reflects: 1) a general reduction of
sales and marketing resources directed towards the non-proprietary
oligonucleotide product line in 2003, 2) a reduction in shipments to one
customer that were unusually high in the second quarter of 2002, and 3) the
fact that the current year periods had one less month of shipments due to the
sale of the San Diego operations on May 30, 2003. See note (c) Sale of San
Diego Operations.

Chemical intermediate revenues represent component chemistries that we
supply on cost-plus terms for incorporation in our partners products and sales
of dyes, quencher, and modified bases through distributors. These revenues
decreased 72% in the quarter and similarly decreased 79% in the six month
period ended June 30, 2003 from the comparable periods of 2002 as a result of
reduced shipments to Applied Biosystems. In the first half of 2002 Applied
Biosystems was actively building an initial inventory of finished goods as well
as inventory of component materials in support of their Assays-on-Demand and
Assays-by-Design product launches. The inventory levels have been
established, the products launched, and shipments to Applied Biosystems in 2003
were lower than in 2002, as expected.

License Fees and Royalty Income. License fees reflect the amortization of
initial payments for transfers of technology and know-how. These amounts are
amortized over the life of the contract. Royalty income represents amounts due
under license agreements for sales of other companies products that include
our technologies and/or for contractual minimum amounts. License fees and
royalty income increased to $1,372,000 in the second quarter of 2003 from
$256,000 in the comparable period of 2002 and similarly increased to $2,690,000
in the six month period ended June 30, 2003 from $433,000 in the comparable
period of 2002. These increases are the result of higher contractual minimums
due to an amended agreement with Applied Biosystems that, among other things,
provides for quarterly rather than annual minimum royalties and to a lesser
extent technology access fees from new collaborations with

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QIAGEN and Amersham Biosciences. In 2003, Amersham Biosciences paid us
technology access fees for a specified period that expired in June 2003. We
are in discussions with Amersham whether that term will be extended and
additional technology access fees will be paid. It is not currently possible
to predict the outcome of these discussions.

Contract Research Revenue. Contract research revenue primarily reflects
payments for contract research and development performed for our corporate
partners. Contract research revenues decreased from $532,000 in the second
quarter of 2002 to $392,000 in the second quarter of 2003 and similarly
decreased from $1,112,000 in the six month period ended June 30, 2002 to
$741,000 in the comparable period of 2003. These decreases were primarily due
to completion of the Applied Biosystems research contract in August 2002 and
termination of contract research by Third Wave Technologies.

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 of the company, in which
case additional license and royalty fees would be due to us. We received an
initial license fee that is being amortized over the life of the contract and
we receive royalties on sales of Third Wave products which include the licensed
technology. Included in the agreement with Third Wave was a collaborative
research effort to be funded by Third Wave through December 31, 2003, subject
to joint approval of annual research plans. In May 2002, Third Wave informed
us that it was ceasing funding development activities with us. We instituted
arbitration proceedings against Third Wave and in March 2003 held a mediation
hearing with Third Wave at which the parties agreed to the terms of a
settlement that was finalized in May 2003. The settlement provides that Third
Wave will no longer be obligated to fund research activities. In exchange,
Third Wave paid us $300,000 in two equal installations in May and July 2003, of
which $85,000 had been accrued as contract research revenue in 2002. In the
second quarter of 2003, we recognized $40,000 in contract research revenue and
$175,000 as a reduction of selling, general, and administrative expenses as an
offset against arbitration expenses incurred by us. Third Wave also agreed to
annual minimum royalties under its license from us for dye and quencher
technologies through 2006, subject to amended license termination provisions.

Operating Expenses

Cost of Product Sales. The cost of product sales represents the costs of
material, labor and overhead allocations associated with product sales. Also
included is the cost of outside manufacturers that we use to produce some of
our chemical intermediates. The cost of product sales decreased to $643,000 in
the second quarter of 2003 compared to $1,195,000 in the comparable period of
the prior year. The cost of product sales also decreased in the six month
period ended June 30 from $2,294,000 in the 2002 period to $1,383,000 in the
current year period. Costs as a percentage of product sales increased from 70%
in the second quarter of 2002 to 93% in the second quarter of the current year.
Similarly, costs as a percentage of product sales increased from 71% in the
six month period ended June 30, 2002 to 96% in the comparable period of 2003.

Generally, decreases in costs of product sales are tied to the decreases
in revenues, while the changes in costs as a percentage of product sales are
generally impacted by the product mix and economies of scale resulting from
changes in volume. The selling prices of our chemical intermediates, for
example, are determined by contracts and are tied to fully burdened
manufacturing costs, which means our gross margin is fixed at levels below
those generally found in the commercial marketplace.

The increases in costs as a percentage of product sales experienced in the
2003 periods are primarily the result of the loss of economies of scale driven
by the decrease in product sales. Many of

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the costs of our non-proprietary specialty oligonucleotide manufacturing
operations in San Diego were fixed within a wide range of capacity output. As
a result, significant decreases in volume like we experienced in 2003 did not
result in a proportional decrease in costs and can have a significant impact on
our costs as a percentage of product sales. While we reduced our manufacturing
staff in San Diego early in 2003, we retained the core staff competencies and
all of the equipment until we sold the assets and customer base in May 2003.
As a result, we experienced very poor gross margins on our non-proprietary
specialty oligonucleotide sales. Additionally payments received from Applied
Biosystems which had been recognized as product sales in 2002 were reclassified
as royalties beginning in October 2002.

Research and Development. Research and development costs of $1,086,000 in
the second quarter of 2003 decreased $33,000, or 3%, compared to the comparable
period of 2002. For the six month period ended June 30, research and
development costs of $2,343,000 increased $158,000, or 7%, over the comparable
period of 2002. Significant changes in research and development costs were:



| |  |  | Lower utilization of our research and development personnel
in manufacturing due primarily to lower chemical intermediate
revenues. The use of research and development personnel in
manufacturing was $307,000 lower in the second quarter of 2003, and
$662,000 lower for the six month period ended June 30, 2003,
compared to the comparable periods of 2002, causing an increase in
reported R&D costs. The use of research and development personnel
in manufacturing will fluctuate depending on the time and
availability of personnel to conduct such activities.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Reductions in professional fees of $43,000 for the quarter,
and $110,000 for the six month period of the current year compared
to the prior year periods.                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  |  | Reductions in facility charges of $55,000 in the quarter and
$111,000 in the six month period of 2003, compared to comparable
periods of 2002 as a result of lower research and development
headcount.                                                                                                                                                                                                                                                                                                                                                                    
|
| |  |  | Reduced payroll expenses in the quarter and for the six month
period, as the result of fewer personnel in the 2003 periods
compared to the comparable periods of 2002 as we continue to focus
on controlling costs.                                                                                                                                                                                                                                                                                                                                                       

Selling, General and Administrative. Selling, general and administrative
expenses of $982,000 in the second quarter of 2003 decreased $419,000, or 30%,
compared to the comparable period of 2002 and decreased $488,000, or 18%, for
the six month period ended June 30, 2003 to $2,282,000 compared to the
comparable period of 2002. The decreases in 2003 were primarily the result of:



| |  |  | Decreases in selling and marketing expenses of $189,000 and
$435,000 in the second quarter of 2003 and the six month period
ended June 30, 2003, respectively, compared to the comparable period
of 2002. These decreases were primarily the result of reduced
expenditures on print advertising and a decision on our part to
reduce sales efforts on our specialty oligonucleotide business.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The sale of our specialty oligonucleotide assets in May 2003
resulted in the elimination of our administrative functions which
supported those operations and reduced administrative expenses by
approximately $94,000 and $76,000 in the second quarter and the six
months ended June 30, 2003, respectively, compared to the similar
periods of 2002.                                       
|
| |  |  | Recovery of $175,000 in arbitration expenses incurred by us
in our dispute with Third Wave which was formally settled in the
second quarter of 2003 and was applied against legal expenses
recognized in earlier periods.                                                                                                                                                                     

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Loss on Sale of San Diego Operations. On May 30, 2003, we sold the assets
and customer base of our specialty oligonucleotide operations located in San
Diego, California to Eurogentec S.A., a Belgium based supplier of products and
services to life sciences companies for $1,400,000 in cash. The assets sold
included manufacturing and other equipment, inventory, prepaid maintenance
contracts, and a non-compete agreement from our acquisition of the business in
November 2000. In addition, goodwill of $2,151,846 related to our original
acquisition was written-off in the transaction. The sale resulted in a loss of
$2,804,862.

Interest Income, net. Interest income, net, throughout 2003 has been
lower than the comparable periods of 2002 due to reduced cash balances
available for investment, lower interest rates, and higher interest expense as
a result of our term loan facility we entered into with Silicon Valley Bank in
late 2002.

Liquidity and Capital Resources

Cash and cash equivalents amounted to $4,608,000 at June 30, 2003, a
$1,101,000 increase from December 31, 2002 balances, primarily as a result of
net cash proceeds from the sale of our non-proprietary specialty
oligonucleotide operations located in San Diego.

Cash used in operations during the six month period ended June 30, 2003
amounted to $27,000 primarily as a result of our net loss of $3,934,000
adjusted for the loss on the sale of our San Diego operations of $2,805,000 and
for certain non-cash reconciling items and fluctuations in working capital
accounts. The most significant changes in working capital accounts that
impacted cash used in operations were decreases in accounts receivable of
$714,000 and inventories of $159,000 reflecting our decreased product sales,
offset by a net decrease in accounts payable and accrued liabilities of
$386,000, due primarily to payment of 2002 incentive compensation amounts.
Changes in deferred revenue, representing up front license and technology
access payments subject to recognition over the terms of the underlying
agreements, also impacts cash flow from operations. During 2003, we received a
portion of the technology access fee from QIAGEN as part of our license and
distribution agreement. No such fees were received in the six months ended
June 30, 2002.

Cash provided by investing activities of $697,000 in the six months ended
June 30, 2003 consisted of $1,082,000 received from the sale of our San Diego
operations offset by the purchase of $384,000 of equipment required for
manufacturing operations in Bothell. Future capital expenditures will likely
include increased manufacturing capacity for our Bothell facility and other
investments to support our operational growth. We may also require a larger
inventory of raw materials and products to provide better service to our
customers. We may finance these purchases from our cash and cash equivalents
on hand, cash generated from our operations, borrowings, equity offerings, or a
combination thereof.

Cash provided by financing activities in the six months ended June 30,
2003 of $430,000 was the result of $408,000 in proceeds from the term loans,
and $277,000 received from the exercise of stock options and warrants, offset
by repayments on term loans of $256,000. Included in the repayment of term
loans is the early repayment of $108,000 which was secured by assets sold with
our San Diego operations.

As of June 30, 2003, we had $750,000 of available financing under a
working capital line of credit which may be used through August 2004. Our
ability to draw additional funds against our term loan facility expired June
30, 2003. We have had preliminary discussions with the commercial lender about
renewal of the term loan facility. There can be no assurance that such
discussion will lead to a

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renewal of that facility on acceptable terms, or at all.

We anticipate that existing cash balances, projected cash from operations
and unused borrowing capacity under existing bank loans, will be sufficient to
meet our anticipated working capital and capital expenditure needs through at
least the next 12 months. However, it is possible that we may need to raise
additional capital to fund our activities and/or to consummate acquisitions of
other businesses, products or technologies. We may be able to raise such funds
by selling more stock to the public or to selected investors, or by borrowing
money. In addition, even though we may not need additional funds, we may still
elect to sell additional equity securities or obtain credit facilities for
other reasons. We may not be able to obtain additional funds on terms that
would be favorable to our shareholders and us, or at all. If we raise
additional funds by issuing additional equity or convertible debt securities,
the ownership percentages of existing shareholders would be reduced. In
addition, the equity or debt securities that we issue may have rights,
preferences or privileges senior to those of the holders of our common stock.

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 been profitable in only one quarter and anticipate future losses, and
we may require additional capital

Since our formation in 1985, we have generated limited revenues and
realized only one profitable quarter, which was the quarter ended December 31,
2002. As of June 30, 2003, we had an accumulated deficit of approximately $78
million. While we are commercializing our products and technologies, and prior
to adequate revenues being generated from these activities, we expect to incur
additional losses as we expand our manufacturing capacity, continue our
research and development activities and fund our 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.

As of June 30, 2003 we had approximately $4.6 million in cash and cash
equivalents and have a working capital line of credit of $750,000 available
through August 2004. We currently anticipate that our current cash balances,
cash from operations, and unused borrowing capacity will be sufficient to meet
our cash needs through at least the next twelve months. 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 or all of our programs or products.

There is a risk that our technology may be non-competitive or might not work

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The science and technology of synthetic DNA-based products is rapidly
evolving. While we have begun to produce and supply products to customers for
commercial use, the majority of our products are in the early stages of
commercialization and future products are in the discovery or early development
stage. These 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.

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 at relatively small scales, our experience in manufacturing
other chemical reagent products is relatively limited. 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 Bothell, acquire additional manufacturing capacity,
or utilize costly third-party manufacturing vendors, as necessary. Any delay
or inability to expand our manufacturing capacity could materially adversely
affect our manufacturing ability.

We may be unable to maintain our listing on Nasdaq, which could cause our stock
price to fall materially and decrease the liquidity of our common stock

Our common stock is currently listed on The Nasdaq SmallCap Market. To
maintain the listing, we must continue to satisfy the ongoing Nasdaq compliance
requirements, including that our common stock have a minimum bid price of $1.00
per share. In the third and fourth quarters of 2002 our stock traded below the
$1 minimum for a few days.

If our common stock is delisted from trading on The Nasdaq SmallCap Market
and is not relisted thereon we would likely seek listing of our common stock on
the over-the-counter market, which is viewed by many investors as a less liquid
marketplace. As a result, the price per share of our common stock would likely
decrease materially and, the trading market for our common stock, our ability
to issue additional securities and our ability to secure additional financing
would likely be materially and adversely affected.

There is a risk that we do not own exclusive rights to our technology, or that
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 July 2020. 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 covered by our issued patents or pending applications will be
free from challenges by competitors.

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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
analyze genes and diagnose conditions based on a number of technologies and are
developing additional products. 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, the 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.

We will be dependent upon our agreement with Applied Biosystems for a
significant portion of our revenues for 2003, 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
(TaqMan® is a registered trademark of Roche Molecular Systems, Inc.) for the
research market. In July 1999, we licensed our proprietary software, which
speeds the design of oligonucleotide probes used in the study of genes, to
Applied Biosystems. In August 2000, we amended the agreement to, among other
things, provide for the manufacturing of product by Epoch for Applied
Biosystems. In July 2002 we further amended the agreement to discontinue
Epochs manufacturing obligations effective October 2002, redefine product
categories, increase the minimum royalties and royalty rates, and establish
that minimum royalties are measured and paid quarterly. 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 in 2003
and future periods.

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.

We will be dependent on our agreements with Amersham Biosciences and QIAGEN
N.V. for the distribution of our MGB Eclipse products and the resultant
revenues. Lower than expected sales, or early termination of these agreements
would seriously harm our projected revenues and operating results and would
likely cause our stock price to decline.

In July 2002, Epoch and Amersham Biosciences entered into an agreement
under which Amersham became the exclusive worldwide sales, marketing and
distribution partner to the research field

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of our MGB Eclipse Probe Systems for SNPs, and the co-exclusive worldwide
sales and marketing partner to the research field for gene expression.
End-user sales of custom and catalog MGB Eclipse Probe Systems through Amersham
Biosciences have not grown as rapidly as was expected. Our agreement with
Amersham provides for a minimum level of end-user sales which, at the current
rate of sales, are not likely to be achieved. We are in discussions with
Amersham about the rate of end-user sales growth and the related contractual
terms. It is not currently possible to predict the outcome of those
discussions.

In October 2002, Epoch and QIAGEN entered into a license and supply
agreement under which QIAGEN became the co-exclusive worldwide sales, marketing
and distribution partner to the research field of our MGB Eclipse probe
products for gene expression.

We will depend upon product sales to Amersham and QIAGEN under these
agreements for a significant portion of our revenues in future periods. In the
event that either of these agreements is terminated, or either partner is
unsuccessful at commercializing our technologies, our revenues, financial
condition and operating results would be adversely affected and our stock price
would likely decline.

Some of our customers may experience financial difficulties, which could
adversely impact our collection of accounts receivable

Although historically we have experienced limited credit losses from our
trade receivables, our experience is limited. At June 30, 2003, our allowance
for doubtful accounts was $58,000. We regularly review the collectibility and
credit worthiness of our customers and the receivables to determine an
appropriate allowance for doubtful accounts, however future uncollectible
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 last year 2003 our stock traded as high as $3.30 in July 2003,
and as low as $0.70 in October 2002. The rapid price changes Epoch has
experienced recently, and throughout our history, place your investment in our
common stock at risk of substantial loss over a short period of time. We are
in the biotechnology industry and the market price of 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.

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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 3. Quantitative and Qualitative Disclosures About Market Risk

Our financial instruments include cash and short-term investment grade
debt securities. We also have term loans on capital equipment through a
commercial bank. At December 31, 2002 and June 30, 2003 the carrying values of
our financial instruments approximated their fair values based on current
market prices and rates. We do not believe that fluctuations in interest rates
would have a material impact on us. 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 significant exposure to foreign currency exchange
rate risk at June 30, 2003. In the future, under the terms of the QIAGEN
agreement, we will be conducting some of our business in Euros for QIAGEN sales
in Europe and in Yen for QIAGEN sales in Japan. We do not anticipate that
these transactions will create significant exposure to foreign currency
exchange rate risk.

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Item 4. Disclosure Controls and Procedures

The Company carried out an evaluation, under the supervision and with the
participation of the Companys management, including the Companys Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
Companys disclosure controls and procedures as of the end of the period
covered by this report, pursuant to Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended. Based on that evaluation, the
Companys Chief Executive Officer and Chief Financial Officer have concluded
that the Companys disclosure controls and procedures, as of the end of the
period covered by this report, were effective in timely alerting them to
material information relating to the Company required to be included in the
Companys periodic SEC filings.

There has been no change in the Companys internal control over financial
reporting during the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the Companys internal
control over financial reporting.




Part II. Other Information




Item 1. 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 in 2001, alleging the breach of a 1996 letter agreement between us
and David Blech, allegedly resulting in damages to Blech and/or the Harbor
Trust of at least $10 million.

In July 2002, the Court granted our motion to dismiss without leave to
file an amended complaint and the Harbor Trust appealed the Courts dismissal
of its case to the United States Court of Appeal for the Second Circuit. On
May 14, 2003, the Second Circuit affirmed the dismissal.

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



| | (a) |  | An Annual Meeting of Stockholders was held on May 22, 2003.                  
| | --- |  | -----------------------------------------------------------------------------
|
| | (b) |  | The following persons were duly elected to serve as directors
of the Company.
|



| |  |  | Frederick B. Craves, Ph.D.
| |  |  | --------------------------
|
| |  |  | Richard L. Dunning        
|
| |  |  | William G. Gerber, M.D.   
|
| |  |  | Herbert L. Heyneker, Ph.D.
|
| |  |  | Michael Y. Lucero         
|
| |  |  | Riccardo Pigliucci        
|
| |  |  | Sanford S. Zweifach       
|



| | (c) |  | Purpose of the Annual Stockholders Meeting:
| | --- |  | -------------------------------------------
|



| | (1) |  | Election of Directors. To elect the
following seven nominees to serve as directors until the
next annual meeting to stockholders or until their
successors are elected and have qualified. The
following is a tabulation of votes for each of the
proposed seven nominees for election as directors of the
company.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                           |  |     |            |          |  |  |         | 
|-------------------------- |  | --- | ---------- | -------- |  |  | ------- | 
|                           |  | For |            | Withheld
|                           |  |     |            |         
|Frederick B. Craves, Ph.D. |  |     | 20,200,252 |          |  |  | 53,457  | 
|Richard L. Dunning         |  |     | 20,200,252 |          |  |  | 53,457  | 
|William G. Gerber, M.D.    |  |     | 20,200,252 |          |  |  | 53,457  | 
|Herbert L. Heyneker, Ph.D. |  |     | 20,200,252 |          |  |  | 53,457  | 
|Michael Y Lucero           |  |     | 20,200,252 |          |  |  | 53,457  | 
|Riccardo Pigliucci         |  |     | 20,200,252 |          |  |  | 53,457  | 
|Sanford S. Zweifach        |  |     | 20,150,322 |          |  |  | 103,387 | 



| | (2) |  | To approve the 2003 Stock Incentive
Plan whereby the Company is initially authorized to
grant options and/or rights to purchase up to an
aggregate of 1,000,000 shares of the Common Stock of
Epoch. Additionally, on the first day of each fiscal
year of the Company for a period of nine (9) years, the
aggregate number of shares available for issuance by the
Company may be increased by a number of shares
determined by the Board of Directors, such number being
no greater than the lesser of (1) 2.5% of the Companys
outstanding stock on such date, or (2) 750,000 shares of
common stock. The following is the tabulation of the
votes.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|           |  |         |         |         |  |  |        | 
|---------- |  | ------- | ------- | ------- |  |  | ------ | 
|For        |  | Against |         | Abstain
|           |  |         |         |        
|19,624,291 |  |         | 614,418 |         |  |  | 15,000 | 



| | (3) |  | To ratify the appointment of KPMG LLP
as independent auditors of the company for the fiscal
year ending December 31, 2003. The following is the
tabulation of the votes.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|           |  |         |         |         |  |  |        | 
|---------- |  | ------- | ------- | ------- |  |  | ------ | 
|For        |  | Against |         | Abstain
|           |  |         |         |        
|20,071,669 |  |         | 151,775 |         |  |  | 30,265 | 

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Item 6. Exhibits and Reports on Form 8-K



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

|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.35          |  | Asset Purchase Agreement, dated as of May 22, 2003, by and
between Epoch Biosciences, Inc. and Eurogentec North
America, Inc. (incorporated by reference to Exhibit 2.1 of
Epochs current report on Form 8-K filed on June 16, 2003).
(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.)
|31.1           |  | Certification of Chief Executive Officer Pursuant to Rule
13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                  
|31.2           |  | Certification of Chief Financial Officer Pursuant to Rule
13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                  
|32.1           |  | Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, As Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                    
|32.2           |  | Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, As Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                    



| | (b) |  | Reports on Form 8-K                                                                                                                                                                                                                    
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | On June 16, 2003, Epoch filed a report on Form 8-K regarding Epochs sale of
the assets and customer base of its non-proprietary specialty oligonucleotide
operation located in San Diego, California to Eurogentec North America, Inc.
|
| |     |  | On May 6, 2003, Epoch filed a report on Form 8-K regarding a press release
issued by Epoch to announce Epochs first quarter 2003 results.                                                                                             

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Signatures

In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

|                    |  |                         |  |                                                         
|------------------- |  | ----------------------- |  | --------------------------------------------------------
|                    |  | Epoch Biosciences, Inc.
|                    |  |                         |  |                                                         
|Date: August 6,2003 |  | By:                     |  | /s/ Bert W. Hogue                                       
|                    |  |                         |  |                                                         
|                    |  |                         |  | Bert W. Hogue
Vice President and Chief Financial Officer

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EXHIBIT INDEX

|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.35          |  | Asset Purchase Agreement, dated as of May 22, 2003, by and
between Epoch Biosciences, Inc. and Eurogentec North
America, Inc. (incorporated by reference to Exhibit 2.1 of
Epochs current report on Form 8-K filed on June 16, 2003).
(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.)
|31.1           |  | Certification of Chief Executive Officer Pursuant to Rule
13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                  
|31.2           |  | Certification of Chief Financial Officer Pursuant to Rule
13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                  
|32.1           |  | Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, As Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                    
|32.2           |  | Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, As Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.