##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
    Form 10-K
  ANNUAL REPORT PURSUANT TO
    SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
  For the fiscal year ended December 31, 2006
  Commission file number
    000-28401
  MAXYGEN, INC.
 (Exact name of registrant as
    specified in its charter)
  Delaware

77-0449487(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer Identification
    No.)  515 Galveston Drive
 Redwood City, California 94063
 (Address of principal executive
    offices)
  Registrants telephone number, including area code:
 (650) 298-5300
    Securities registered pursuant to Section 12(b) of the
    Act:
   Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, $0.0001 par
    value

The NASDAQ Stock Market LLC   Securities registered pursuant to Section 12(g) of the
    Act:
 None
      o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
  o þ o
  Rule 12b-2 o þ
      DOCUMENTS INCORPORATED BY REFERENCE




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##### 



TABLE OF
    CONTENTS
  
  Part IItem 1:


Business


1Item 1A:


Risk
    Factors


14Item 1B:


Unresolved Staff
    Comments


25Item 2:


Properties


25Item 3:


Legal
    Proceedings


26Item 4:


Submission of
    Matters to a Vote of Security Holders


26Part IIItem 5:


Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


27Item 6:


Selected Financial
    Data


29Item 7:


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


32Item 7A:


Quantitative and
    Qualitative Disclosures About Market Risk


44Item 8:


Financial
    Statements and Supplementary Data


45Item 9:


Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


79Item 9A:


Controls and
    Procedures


79Item 9B:


Other
    Information


82Part IIIItem 10:


Directors,
    Executive Officers and Corporate Governance


82Item 11:


Executive
    Compensation


82Item 12:


Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


82Item 13:


Certain
    Relationships and Related Transactions, and Director
    Independence


82Item 14:


Principal
    Accounting Fees and Services


82Part IVItem 15:


Exhibits, Financial
    Statement Schedules


83SIGNATURES


86EXHIBIT 10.25EXHIBIT 10.27EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1          ® ® tm
 i




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




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##### Table of Contents



PART I  Item 1
    BUSINESS  Overview
    
    MAXY-G34, a granulocyte colony stimulating factor, or G-CSF, for
    the treatment of neutropenia;
    MAXY-alpha, an interferon alpha product for the treatment of
    hepatitis C virus, or HCV, infection;
    MAXY-VII, a factor VII product for the treatment of uncontrolled
    bleeding in trauma, intracerebral hemorrhage and other
    indications; and
    MAXY-gamma, an interferon gamma product for the treatment of
    idiopathic pulmonary fibrosis and other indications.  2006
    Highlights
    
    We initiated a Phase I clinical trial in the United States
    to evaluate Maxy-G34.
    F. Hoffmann-La Roche Ltd., or Roche, initiated a
    Phase Ia clinical trial in New Zealand to evaluate
    MAXY-alpha and we received a $2 million milestone payment
    from Roche for the commencement of the trial.
    We achieved a manufacturing process development milestone in our
    MAXY-VII program and received a $5 million milestone
    payment from Roche for the achievement of the milestone.
    We received a $17.8 million cash payment for our equity
    interests in Avidia, Inc., which was acquired by Amgen Inc.
    We expanded the scope of exclusive licenses previously granted
    to Codexis, Inc. to our MolecularBreeding directed evolution
    platform for certain applications relating to energy, including
    biofuels, in exchange for the right to receive a percentage of
    revenues received by Codexis for the sale of energy products and
    the use of processes in the energy field.  Business
    Strategy
    
    Advance the Development of Our Lead Product
    Candidates.  Our primary focus is the advancement
    of our lead product candidate, MAXY-G34, through clinical
    development. We initiated a Phase I clinical trial in the
    United States for our lead MAXY-G34 product candidate in the
    third quarter of 2006 and plan to commence Phase IIa
    clinical trials in the first half of 2007. Roche has an
    exclusive license to develop and commercialize our MAXY-alpha
    product candidates for the treatment of HCV infection. Roche
    initiated a Phase Ia clinical trial of MAXY-alpha in New
    Zealand at the end of 2006 and has informed us that a
    Phase Ib clinical trial of MAXY-alpha in HCV patients will
    begin in 2007. In December 2005, we entered into an agreement
    with Roche relating to the co-development and commercialization
    of our MAXY-VII product candidates for acute bleeding
    indications. In March 2007, we received notice from Roche that
    Roche has elected to terminate this agreement, effective
    April 12, 2007.
    Create Value with Improved Next-Generation Protein
    Drugs.  Our research and development efforts focus
    on seeking to make improved and proprietary versions of
    currently marketed therapeutic proteins that address significant
    market opportunities. We identify currently marketed or
    clinically validated protein products that require or could
    benefit from improvements to address existing medical needs in
    the treatment 1




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of disease and serious medical conditions, and use our
    proprietary MolecularBreeding directed molecular evolution
    platform and other technologies to improve these products. We
    commit resources to only those product candidates that we
    believe are commercially viable.  
    Increase Value, Reduce Risk.  By using our
    technologies to improve the properties of currently marketed or
    clinically validated therapeutic proteins that have significant
    commercial value, we believe we can potentially create novel and
    proprietary
    best-in-class
    products that take advantage of known utility, development paths
    and markets. We believe that this approach may result in reduced
    risk and enhanced chances of commercial success as compared to
    the development of novel pharmaceutical products directed at
    unvalidated targets.
    Establish a Portfolio of Next-Generation Therapeutic
    Proteins.  In addition to our existing product
    candidates, we have an ongoing discovery effort focused on
    next-generation protein or protein subunit pharmaceuticals. Our
    goal is to leverage discoveries in our research programs or
    in-licensed product candidates to extend and expand our product
    pipeline. By broadening our product portfolio, we hope to
    increase the probability of clinical and commercial success and
    reduce our exposure to the impact of any one product failure.
    Establish Strategic Collaborations to Advance our Product
    Pipeline and Leverage Our Development
    Resources.  Part of our strategy has been to
    establish strategic collaborations that enable us to retain a
    large portion of the eventual value from our product candidates.
    We may enter into strategic collaborations at various stages in
    our research and development process that will allow us to
    further diversify our product development risks, reduce costs,
    access the complementary skills and infrastructure possessed by
    our partners and accelerate the development and
    commercialization of our product candidates.
    Manage Our Financial Resources.  Fiscal
    discipline and pragmatic allocation of our resources are key
    components of our strategy. We focus our financial resources on
    those functions that should enhance our ability to generate
    improved next-generation product candidates and rapidly advance
    these new product candidates through pre-clinical and clinical
    development.  Product
    Pipeline
    Development

CommercializationProduct Candidate

Indication

Responsibilities

Rights

StatusMAXY-G34

Neutropenia

Maxygen

Maxygen

Phase I; plan to commence
    Phase IIa clinical trial in first half of 2007.MAXY-alpha

Hepatitis C

Roche

Roche

Phase Ia; Roche expects to
    commence a Phase Ib clinical trial in 2007.MAXY-VII

Uncontrolled bleeding

Maxygen*

Maxygen*

Pre-clinical**MAXY-gamma

Idiopathic Pulmonary Fibrosis

InterMune

InterMune

Pre-clinical     *
    
    Maxygen and Roche are currently parties to an agreement relating
    to the co-development and commercialization of our MAXY-VII
    product candidates for acute bleeding indications. On
    March 13, 2007, we received notice from Roche that Roche
    has elected to terminate this agreement, effective
    April 12, 2007. Upon termination of the agreement, all
    rights to our MAXY-VII product candidates will revert to Maxygen.**
    
    Pre-clinical means process development, product
    scale-up,
    formulation and further testing in animals, including
    toxicology, pharmacokinetics and pharmacodynamics. 2




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MAXY-G34
        Market Opportunity. G-CSF
  Development Status. follow-up 21-day
        MAXY-alpha
     3




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Market Opportunity.
  Development Status.
    MAXY-VII
       4




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Market Opportunity.
  Development Status.
      MAXY-gamma
        Market Opportunity.
  Development Status.
 5




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Other
    Assets and Areas of Research
    Vaccines
      Investment
    in Codexis, Inc.
    Investment
    in Avidia Inc.
   6




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Our
    Technologies
  MolecularBreeding
    The
    MolecularBreeding Directed Evolution Process
  
 7




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Step One:
    DNAShuffling Recombination Technologies
      Step Two:
    MaxyScan Screening
        Other
    Technologies
   8




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Our
    Strategic Collaborations
  Roche
  MAXY-alpha.
  MAXY-VII.
  InterMune
  MAXY-gamma.
  Intellectual
    Property and Technology Licenses
   9




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
    methods for template-based gene recombination to produce
    chimeric genes, including use of single or double-stranded
    templates;
    methods for recombining nucleic acid segments produced by
    incomplete nucleic acid chain extension reactions to produce
    chimeric genes, including the staggered extension process (StEP);
    methods utilizing reiterative screening or only a single cycle
    of screening;
    methods of combining any mutagenesis technique with DNA
    recombination methods to produce new chimeric genes;
    methods using synthesized nucleic acid fragments;
    in vivo and in vitro recombination methods of the above, in
    a variety of formats;
    methods of screening directed evolution libraries;
    methods for ligation- and single-stranded template-based
    recombination and reassembly;
    mutagenesis, including codon and gene site saturation
    mutagenesis, used in conjunction with recombination and
    reassembly;
    cell-based recombination methods; and
    fluorescence-, bioluminescence-, and nutrient-based screening
    methods, including the use of ultra-high throughput FACS-based
    methods for screening diverse variants.         10




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Product
    Patents
    
    For our MAXY-G34 product candidates, we have three
    U.S. patents, 16 pending U.S. applications, six
    foreign patents and 30 pending foreign or international
    applications.
    For our MAXY-alpha product candidates, we have 20 pending
    U.S. applications and 47 pending foreign or international
    applications. Certain of these applications are jointly held by
    us and our collaborative partner, Roche.
    For our MAXY-VII product candidates, we have one
    U.S. patent, 21 pending U.S. applications, three
    foreign patents and 40 pending foreign or international
    applications. We also have exclusive licenses to two
    U.S. patents, ten pending U.S. applications and four
    pending foreign or international applications.
    For our MAXY-gamma product candidates, we have two
    U.S. patents, six pending U.S. applications, six
    foreign patents and 37 pending foreign or international
    applications.  Manufacturing
      Competition
     11




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
    developing products;
    undertaking pre-clinical testing and clinical trials;
    obtaining FDA and other regulatory approvals of
    products; and
    manufacturing and marketing products.      Research
    and Development Expenses
    Geographic
    Distribution
    Segment
    Reporting
    Government
    Regulation
   12




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
    Phase I:  Studies are conducted on normal,
    healthy human volunteers to determine safety, dosage tolerance,
    absorption, metabolism, distribution and excretion. If possible,
    Phase I studies may also be designed to gain early evidence
    of effectiveness.
    Phase II:  Studies are conducted on small
    groups of patients afflicted with a specific disease to
    determine dosage tolerance and optimal dosage, to gain
    preliminary evidence of efficacy, and to determine the common
    short-term side effects and risks associated with the substance
    being tested.
    Phase III:  Involves large-scale studies
    conducted on disease-afflicted patients to provide statistical
    evidence of efficacy and safety and to provide an adequate basis
    for physician labeling.          Environmental
    Regulation
   13




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Employees
    Corporate
    Background and History
  (650) 298-5300.
      Available
    Information
    Item 1A
    RISK
    FACTORS  This report contains forward-looking statements that involve
    risks and uncertainties. Our actual results could differ
    materially from those anticipated in these forward-looking
    statements as a result of factors both in and out of our
    control, including the risks faced by us described below and
    elsewhere in this report.
  You should carefully consider the risks described below,
    together with all of the other information included in this
    report, in considering our business and prospects. The risks and
    uncertainties described below are not the only ones facing our
    company. Additional risks and uncertainties not presently known
    to us or that we currently deem immaterial also may impair our
    business operations. If any of the following risks actually
    occur, our business could be harmed. In such case, the trading
    price of our common stock could decline, and you may lose all or
    part of your investment.
  We
    have a history of net losses. We expect to continue to incur net
    losses and may not achieve or maintain
    profitability.
   14




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We are
    an early stage company deploying unproven technologies. If we do
    not develop commercially successful products, we may be forced
    to cease operations.
    Drug
    development is a long, expensive and uncertain process and may
    not result in the development of any commercially successful
    products.
       15




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Our
    revenues, expenses and operating results are subject to
    fluctuations that may cause our stock price to
    decline.
    
    termination of research and development contracts with
    collaborators or government research grants, which may not be
    renewed or replaced;
    the success rate of our development or discovery efforts leading
    to milestones and royalties;
    timing of licensing fees or the achievement of milestones under
    new or existing licensing and collaborative arrangements;
    timing of expenses, particularly with respect to contract
    manufacturing, pre-clinical studies and clinical trials;
    the timing and willingness of collaborators to commercialize our
    products, which would result in royalties to us; and
    general and industry specific economic conditions, which may
    affect our collaborators research and development
    expenditures.    quarter-to-quarter
  Our
    revenues are substantially dependent on a limited number of
    collaborative arrangements and government grants, and our
    inability to establish or maintain collaborations or grants
    would adversely impact our revenues, financial position and
    results of operation.
   16




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Our
    potential products are subject to a lengthy and uncertain
    regulatory process. If our potential products are not approved,
    we will not be able to commercialize those
    products.
        Our
    current and future product candidates could take a long time to
    gain regulatory approval, or may never gain approval, which
    could reduce or eliminate our revenue by delaying or terminating
    the potential commercialization of our product
    candidates.
     17




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
    deficiencies in the conduct of the clinical trials;
    negative or inconclusive results from the clinical trials that
    necessitate additional clinical studies;
    difficulties or delays in identifying and enrolling patients who
    meet trial eligibility criteria;
    delays in obtaining or maintaining required approvals from
    institutions, review boards or other reviewing entities at
    clinical sites;
    inadequate supply or deficient quality of product candidate
    materials necessary for the conduct of the clinical trials;
    the occurrence of unacceptable toxicities or unforeseen adverse
    side effects, especially as compared to currently approved drugs
    intended to treat the same indications;
    our lack of financial resources to continue the development of a
    product candidate;
    future legislation or administrative action or changes in FDA
    policy or the policy of foreign regulatory agencies during the
    period of product development, clinical trials and FDA
    regulatory review; or
    other reasons that are internal to the businesses of our
    collaborative partners, which they may not share with us.    and/or
  Our
    manufacturing strategy, which relies on third-party
    manufacturers, exposes us to additional risks.
     18




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The
    manufacturing of our product candidates presents technological,
    logistical and regulatory risks, each of which may adversely
    affect our potential revenues.
    
    before we can obtain approval of any of our products or product
    candidates for the treatment of a particular disease or
    condition, we must demonstrate to the satisfaction of the FDA
    and other governmental authorities that the drug manufactured
    for commercial use is comparable to the drug manufactured for
    clinical trials and that the manufacturing facility complies
    with applicable laws and regulations;
    it may not be technically feasible to scale up an existing
    manufacturing process to meet demand or such
    scale-up may
    take longer than anticipated; and
    failure to comply with strictly enforced GMP regulations and
    similar foreign standards may result in delays in product
    approval or withdrawal of an approved product from the market.    If our
    collaborations are not successful, we may not be able to
    effectively develop and market some of our
    products.
       19




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We
    conduct proprietary research programs, and any conflicts with
    our collaborators or any inability to commercialize products
    resulting from this research could harm our
    business.
          Any
    inability to adequately protect our proprietary technologies
    could harm our competitive position.
     20




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Litigation
    or other proceedings or third party claims of intellectual
    property infringement could require us to spend time and money
    and could require us to shut down some of our
    operations.
        Budget
    or cash constraints may force us to delay or terminate our
    efforts to develop certain products and could prevent us from
    executing our business plan, meeting our stated timetables and
    commercializing our potential products as quickly as
    possible.
   21




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We may
    need additional capital in the future. If additional capital is
    not available, we may have to curtail or cease
    operations.
      Many
    potential competitors who have greater resources and experience
    than we do may develop products and technologies that make ours
    obsolete.
       22




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Legislative
    actions, recent and potential new accounting pronouncements and
    higher compliance costs are likely to adversely impact our
    future financial position and results of
    operations.
      If we
    do not attract and retain key employees, our business could be
    impaired.
    The
    operation of international locations may increase operating
    expenses and divert management attention.
    
    regulatory requirements that may limit or prevent the offering
    of our products in local jurisdictions; 23




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
    local legal and governmental limitations on company-wide
    employee benefit practices, such as the operation of our
    employee stock option plan in local jurisdictions;
    government limitations on research
    and/or
    research involving genetically engineered products or processes;
    difficulties in staffing and managing foreign operations;
    currency exchange risks; and
    potentially adverse tax consequences.  Acquisitions
    could result in dilution, operating difficulties and other
    harmful consequences.
    
    diversion of management time (both ours and that of the acquired
    company) from focus on operating the businesses to issues of
    integration during the period of negotiation through closing and
    further diversion of such time after closing;
    decline in employee morale and retention issues resulting from
    changes in compensation, reporting relationships, future
    prospects, or the direction of the business;
    the need to integrate each companys accounting, management
    information, human resource and other administrative systems to
    permit effective management and the lack of control if such
    integration is delayed or not implemented; and
    the need to implement controls, procedures and policies
    appropriate for a larger public company in companies that before
    acquisition had been smaller, private companies.      Our
    stock price has been, and may continue to be, extremely
    volatile, and an investment in our stock could decline in
    value.
    
    our failure to meet our publicly announced revenue
    and/or
    expense projections
    and/or
    product development timetables;
    adverse or inconclusive results or delays in pre-clinical
    development or clinical trials;
    any material amendment or termination of our collaborative
    agreements;
    any decisions to discontinue or delay development programs or
    clinical trials; 24




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
    announcements of new technological innovations or new products
    by us or our competitors;
    conditions or trends in the biotechnology and life science
    industries;
    changes in the market valuations of other biotechnology or life
    science companies;
    developments in domestic and international governmental policy
    or regulations;
    announcements by us or our competitors of significant
    acquisitions, strategic partnerships, joint ventures or capital
    commitments;
    changes in general economic, political and market conditions,
    such as recessions, interest rate changes, terrorist acts and
    other factors;
    developments in or challenges relating to patent or other
    proprietary rights; and
    sales of our common stock or other securities in the open market.    Substantial
    sales of shares may adversely impact the market price of our
    common stock.
    Some
    of our existing stockholders can exert control over us, and may
    not make decisions that are in the best interests of all
    stockholders.
    Item 1B
    UNRESOLVED
    STAFF COMMENTS    Item 2
    PROPERTIES   25




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Item 3
    LEGAL
    PROCEEDINGS  In re Initial Public
    Offering Securities Litigation
  In re Initial
    Public Offering Securities Litigation.
      Item 4
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   26




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Part II  Item 5
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES  Market
    Information
    High


LowYear ended December 31, 2006First Quarter

$
8.95


$
7.45Second Quarter


8.44



7.01Third Quarter


8.78



6.78Fourth Quarter


10.98



7.97Year ended December 31, 2005First Quarter

$
12.64


$
8.15Second Quarter


8.87



6.49Third Quarter


9.25



6.85Fourth Quarter


8.85



6.91   Holders
    Dividends
   27




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Company
    Stock Price
    Performance1
    COMPARISON
    OF 5 YEAR CUMULATIVE TOTAL RETURN*
    Among Maxygen, Inc., The NASDAQ Composite Index
    And The NASDAQ Biotechnology Index
  
  *
    $100 invested on 12/31/01 in stock or index-including
    reinvestment of dividends.
    Fiscal year ending December 31.  Total
    Return Analysis
  12/31/2001


12/31/2002


12/31/2003


12/31/2004


12/31/2005


12/31/2006Maxygen, Inc.


100.00



43.37



60.50



72.79



42.74



61.30Nasdaq Composite Index


100.00



71.97



107.18



117.07



120.50



137.02Nasdaq Biotechnology Index


100.00



62.08



90.27



99.08



111.81



110.06     1
 28




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Item 6
    SELECTED
    FINANCIAL DATA    Year Ended December 31,2002


2003


2004


2005


2006(In thousands, except per share data)Consolidated Statement of
    Operations Data:Collaborative research and
    development revenue

$
24,818


$
20,573


$
14,333


$
11,594


$
20,544Grant revenue


3,879



2,282



1,942



2,907



4,477Total revenues


28,697



22,855



16,275



14,501



25,021Operating expenses:Research and development


54,328



45,949



53,586



41,904



49,130General and administrative


12,381



11,831



14,435



13,221



17,559Amortization of goodwill and other
    intangible assets


1,144



698











Total operating expenses


67,853



58,478



68,021



55,125



66,689Loss from operations


(39,156
)


(35,623
)


(51,746
)


(40,624
)


(41,668
)Interest income and other income
    (expense), net


7,981



5,253



4,055



5,572



8,524Equity in net loss of minority
    investee






(500
)


(1,395
)






(1,000
)Gain on sale of equity investment(1)


















17,662Loss from continuing operations


(31,175
)


(30,870
)


(49,086
)


(35,052
)


(16,482
)Discontinued operations:Loss from discontinued operations


(2,771
)


(1,586
)


(2,769
)






Gain on sale of discontinued
    operations (net of taxes and transaction costs)










61,197







Income (loss) from discontinued
    operations


(2,771
)


(1,586
)


58,428







Cumulative effect adjustment(2)














16,616



Net income (loss)


(33,946
)


(32,456
)


9,342



(18,436
)


(16,482
)Subsidiary preferred stock accretion






(1,279
)


(1,000
)


(167
)


Income (loss) applicable to common
    stockholders

$
(33,946
)

$
(33,735
)

$
8,342


$
(18,603
)

$
(16,482
)Basic and diluted income (loss) per
    share:Continuing operations

$
(0.93
)

$
(0.89
)

$
(1.40
)

$
(0.98
)

$
(0.46
)Discontinued operations

$
(0.08
)

$
(0.05
)

$
1.66


$



$
Cumulative effect adjustment

$



$



$



$
0.46


$
Applicable to common stockholders

$
(1.01
)

$
(0.98
)

$
0.24


$
(0.52
)

$
(0.46
)Shares used in basic and diluted
    per share calculations


33,582



34,519



35,176



35,765



36,046     (1)
    
    The gain on sale of equity investment in the year ended
    December 31, 2006 resulted from the net gain on the
    disposal of our investment in Avidia (see Note 1 of Notes
    to Consolidated Financial Statements).(2)
    
    The cumulative effect adjustment in the year ended
    December 31, 2005 resulted from the deconsolidation of
    Codexis, Inc. as of February 28, 2005 (see Note 1 of
    Notes to Consolidated Financial Statements).  29




---



##### Table of Contents



December 31,2002


2003


2004


2005


2006(In thousands)Consolidated Balance Sheet
    Data:Cash, cash equivalents and
    investments

$
219,138


$
191,868


$
232,893


$
188,323


$
182,876Working capital


209,712



115,724



211,999



152,230



175,356Total assets


269,764



234,069



263,105



214,523



205,647Non-current portion of equipment
    financing


55







1,751







Minority interest


20,000



21,210



32,180







Accumulated deficit


(162,672
)


(195,128
)


(185,786
)


(204,222
)


(220,704
)Total stockholders equity


229,199



198,224



211,341



197,344



189,799   QUARTERLY
    FINANCIAL DATA
  Quarter EndedMarch 31,


June 30,


Sept. 30,


Dec. 31,(In thousands, except per share data)(Unaudited)2006Collaborative research and
    development revenue

$
4,067


$
7,950


$
3,201


$
5,326Grant revenue


898



1,355



1,040



1,184Total revenues


4,965



9,305



4,241



6,510Operating expenses:Research and development


13,262



10,212



12,020



13,636General and administrative


4,318



4,065



4,547



4,629Total operating expenses


17,580



14,277



16,567



18,265Loss from operations


(12,615
)


(4,972
)


(12,326
)


(11,755
)Interest income and other income
    (expense), net


1,893



1,931



2,267



2,433Equity in net loss of minority
    investee






(342
)


(658
)


Gain on sale of equity
    investment(1)














17,662Income(loss) applicable to common
    stockholders

$
(10,722
)

$
(3,383
)

$
(10,717
)

$
8,340Basic and diluted income (loss)
    per share:Applicable to common stockholders

$
(0.30
)

$
(0.09
)

$
(0.30
)

$
0.23Shares used in basic and diluted
    per share calculations


35,973



36,024



36,078



36,109     (1)
    
    The gain on sale of equity investment in the year ended
    December 31, 2006 resulted from the net gain on the
    disposal of our investment in Avidia (see Note 1 of Notes
    to Consolidated Financial Statements).  30




---



##### Table of Contents



Quarter EndedMarch 31,


June 30,


Sept. 30,


Dec. 31,(In thousands, except per share data)2005(1)Collaborative research and
    development revenue

$
4,957


$
1,446


$
106


$
5,085Grant revenue


592



500



629



1,186Total revenues


5,549



1,946



735



6,271Operating expenses:Research and development


11,184



9,920



9,986



10,814General and administrative


3,775



3,372



2,997



3,077Total operating expenses


14,959



13,292



12,983



13,891Loss from operations


(9,410
)


(11,346
)


(12,248
)


(7,620
)Interest income and other income
    (expense), net


672



1,477



1,659



1,764Loss from continuing operations


(8,738
)


(9,869
)


(10,589
)


(5,856
)Cumulative effect adjustment(2)


16,616











Net income (loss)


7,878



(9,869
)


(10,589
)


(5,856
)Subsidiary preferred stock
    accretion


(167
)










Income (loss) applicable to common
    stockholders

$
7,711


$
(9,869
)

$
(10,589
)

$
(5,856
)Basic and diluted income (loss)
    per share:Continuing operations

$
(0.25
)

$
(0.28
)

$
(0.30
)

$
(0.16
)Cumulative effect adjustment

$
0.47


$



$



$
Applicable to common stockholders

$
0.22


$
(0.28
)

$
(0.30
)

$
(0.16
)Shares used in basic and diluted
    per share calculations


35,658



35,702



35,812



35,888     (1)
    
    Includes the consolidated operations of Codexis, Inc. through
    February 28, 2005. After that date, we account for Codexis,
    Inc. under the equity method of accounting.(2)
    
    The cumulative effect adjustment in the quarter ended
    March 31, 2005 resulted from the deconsolidation of
    Codexis, Inc. as of February 28, 2005 (see Note 1 of
    Notes to Consolidated Financial Statements). 31




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##### Table of Contents



Item 7
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  The following discussion should be read in conjunction with
    our consolidated financial statements and the related notes and
    other financial information appearing elsewhere in this report.
    This report contains forward-looking statements that involve
    risks and uncertainties. Our actual results may differ
    materially from those indicated in forward-looking statements.
    See Forward-Looking Statements and Risk
    Factors.
  Executive
    Summary
      Hoffman-La
         32




---



##### Table of Contents



Critical
    Accounting Policies and Estimates
  General
   33




---



##### Table of Contents



Consolidation
    96-16,
    Goodwill
    and Intangible Impairment
     34




---



##### Table of Contents



Source
    of Revenue and Revenue Recognition Policy
        No. 00-21,
     35




---



##### Table of Contents



Stock-Based
    Compensation Expense
          2004


2005


2006Research and development

$
178


$



$
General and administrative


59







  36




---



##### Table of Contents



Results
    of Operations
  Revenues
         37




---



##### Table of Contents



Year Ended December 31,2004


2005


2006Human therapeutics

$
11,555


$
12,991


$
25,021Chemicals (through
    February 28, 2005)


4,720



1,510



Total revenue

$
16,275


$
14,501


$
25,021       Research
    and Development Expenses
         38




---



##### Table of Contents



Year Ended December 31,2004


2005


2006Collaborative projects funded by
    third parties(1)

$
9,444


$
4,146


$
9,906Government grants


1,973



2,369



4,215Internal projects


42,169



35,389



35,009Total

$
53,586


$
41,904


$
49,130     (1)
    
    Research and development expenses related to collaborative
    projects funded by third parties may be less than the reported
    revenues due to the amortization of non-refundable up-front
    payments, as well as a portion of the collaborative research and
    development revenue that is charged for general and
    administrative expenses.     39




---



##### Table of Contents



General
    and Administrative Expenses
        Interest
    Income and Other Income (Expense), Net
    Equity
    in Losses of Minority Investee
    Gain
    on Sale of Equity Investment
   40




---



##### Table of Contents



Discontinued
    Operations
    Cumulative
    Effect Adjustment
    Subsidiary
    Preferred Stock Accretion
    Provision
    for Income Taxes
     41




---



##### Table of Contents



New
    Accounting Pronouncements
        Liquidity
    and Capital Resources
     42




---



##### Table of Contents



available-for-sale available-for-sale
          Payments Due by PeriodLess








MoreThan 1


1-3


4-5


Than 5Contractual Obligations

Total


Year


Years


Years


YearsOperating lease obligations

$
2,957


$
1,585


$
1,372


$



$
Purchase obligations


7,152



5,591



1,561







Total

$
10,109


$
7,176


$
2,933


$



$
      43




---



##### Table of Contents



Item 7A
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    Interest
    Rate Risk
      Expected Maturity2007


2008Cash and cash equivalents

$
46,504


$
Average interest rates


4.79
%


Short-term investments

$
133,384


$
Average interest rates


4.60
%


Long-term investments

$



$
2,988Average interest rates






5.25
%     Foreign
    Currency Exchange Risk
     44




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##### Table of Contents



Item 8
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM              Ernst &
    Young LLP
    45




---



##### Table of Contents



MAXYGEN,
    INC.
 CONSOLIDATED
    BALANCE SHEETS  December 31,2005


2006(In thousands, except share and per share data)ASSETSCurrent assets:Cash and cash equivalents

$
26,940


$
46,504Short-term investments


127,336



133,384Accounts receivable and other
    receivables


6,076



4,099Prepaid expenses and other current
    assets


3,530



3,133Total current assets


163,882



187,120Property and equipment, net


4,068



3,262Goodwill


12,192



12,192Long-term investments


34,047



2,988Deposits and other long-term assets


334



85Total assets

$
214,523


$
205,647LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
1,540


$
2,435Accrued compensation


4,323



4,708Other accrued liabilities


3,121



2,954Deferred revenue


2,668



1,527Taxes payable






140Total current liabilities


11,652



11,764Non-current deferred revenue


5,517



4,066Other long-term liabilities


10



18Commitments and contingencies
    (Notes 7 and 11)Stockholders equity:Preferred stock, $0.0001 par
    value, 5,000,000 shares authorized, no shares issued and
    outstanding at December 31, 2005 and 2006






Common stock, $0.0001 par
    value, 100,000,000 shares authorized, 35,922,178 and
    36,157,910 shares issued and outstanding at
    December 31, 2005 and 2006, respectively


3



4Additional paid-in capital


403,120



411,195Accumulated other comprehensive
    loss


(1,557
)


(696
)Accumulated deficit


(204,222
)


(220,704
)Total stockholders equity


197,344



189,799Total liabilities and
    stockholders equity

$
214,523


$
205,647    46




---



##### Table of Contents



MAXYGEN,
    INC.  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Year Ended December 31,2004


2005


2006(In thousands, except per share data)Collaborative research and
    development revenue

$
14,333


$
11,594


$
20,544Grant revenue


1,942



2,907



4,477Total revenues


16,275



14,501



25,021Operating expenses:Research and development


53,586



41,904



49,130General and administrative


14,435



13,221



17,559Total operating expenses


68,021



55,125



66,689Loss from operations


(51,746
)


(40,624
)


(41,668
)Interest income and other income
    (expense), net


4,055



5,572



8,524Equity in net loss of minority
    investee


(1,395
)






(1,000
)Gain on sale of equity investment










17,662Loss from continuing operations


(49,086
)


(35,052
)


(16,482
)Discontinued operations:Loss from discontinued operations


(2,769
)






Gain on sale of discontinued
    operations (net of taxes and transaction costs)


61,197







Income (loss) from discontinued
    operations


58,428







Cumulative effect adjustment






16,616



Net income (loss)


9,342



(18,436
)


(16,482
)Subsidiary preferred stock
    accretion


(1,000
)


(167
)


Income (loss) applicable to common
    stockholders

$
8,342


$
(18,603
)

$
(16,482
)Basic and diluted income (loss)
    per share:Continuing operations

$
(1.40
)

$
(0.98
)

$
(0.46
)Discontinued operations

$
1.66







Cumulative effect adjustment

$



$
0.46



Applicable to common stockholders

$
0.24


$
(0.52
)

$
(0.46
)Shares used in basic and diluted
    per share calculations


35,176



35,765



36,046    47




---



##### Table of Contents



MAXYGEN,
    INC.
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY
  AccumulatedAdditional





Other





TotalCommon Stock


Paid-In


Deferred Stock


Comprehensive


Accumulated


StockholdersShares


Amount


Capital


Compensation


Income (Loss)


Deficit


Equity(In thousands, except share and per share data)Balance at January 1, 2004


34,909,799


$
3


$
394,966


$
(251
)

$
(1,366
)

$
(195,128
)

$
198,224Issuance of common stock upon
    exercise of options for cash and for services rendered


631,372







4,382















4,382Issuance of common stock under
    employee stock purchase plan


62,700







411















411Issuance of common stock under
    401(k) employer matching contribution


39,241







443















443Stock compensation expense for
    consultant options, and fully vested stock options for services
    rendered










117















117Repurchase of common stock


(6,779
)






(5
)














(5
)Subsidiary preferred stock accretion










(1,000
)














(1,000
)Amortization of deferred
    compensation














251











251Components of comprehensive income:Net income






















9,342



9,342Currency translation adjustment


















(126
)






(126
)Change in unrealized gain (loss) on
    available-for-sale
    securities


















(698
)






(698
)Comprehensive income


























8,518Balance at December 31, 2004


35,636,333



3



399,314







(2,190
)


(185,786
)


211,341Issuance of common stock upon
    exercise of options for cash and for services rendered


198,487







805















805Issuance of common stock under
    employee stock purchase plan


37,966







299















299Issuance of common stock under
    401(k) employer matching contribution


49,392







350















350Stock compensation expense for
    consultant options, and fully vested stock options for services
    rendered










102















102Subsidiary preferred stock accretion










(167
)














(167
)Modification of employee stock
    options










81















81Deconsolidation of Codexis,
    Inc.










2,336















2,336Components of comprehensive loss:Net loss






















(18,436
)


(18,436
)Currency translation adjustment


















645







645Change in unrealized gain(loss) on
    available-for-sale
    securities


















(12
)






(12
)Comprehensive loss


























(17,803
)Balance at December 31, 2005


35,922,178



3



403,120







(1,557
)


(204,222
)


197,344Issuance of common stock upon
    exercise of options for cash and for services rendered


150,985



1



698















699Issuance of common stock under
    employee stock purchase plan


46,815







309















309Issuance of common stock under
    401(k) employer matching contribution


37,932







325















325Stock compensation expense for
    consultant options, and fully vested stock options for services
    rendered










914















914Stock based compensation expense
    under SFAS 123(R)










5,829















5,829Components of comprehensive loss:


























Net loss






















(16,482
)


(16,482
)Currency translation adjustment


















331







331Change in unrealized gain (loss) on
    available-for-sale
    securities


















530







530Comprehensive loss


























(15,621
)Balance at December 31, 2006


36,157,910


$
4


$
411,195


$



$
(696
)

$
(220,704
)

$
189,799    48




---



##### Table of Contents



MAXYGEN,
    INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2004


2005


2006(In thousands)Operating activitiesNet income (loss)

$
9,342


$
(18,436
)

$
(16,482
)Loss from discontinued operations


2,769







Cumulative effect adjustment






(16,616
)


Gain on sale of discontinued
    operations


(61,197
)






Loss from continuing operations


(49,086
)


(35,052
)


(16,482
)Adjustments to reconcile loss from
    continuing operations to net cash used in operating activities:Depreciation and amortization


6,160



3,530



2,294Equity in losses of minority
    investee


1,395







1,000Gain on sale of equity investment










(17,662
)Non-cash stock compensation


696



423



6,154Common stock issued and stock
    options granted to consultants for services rendered and for
    certain technology rights


567



110



914Changes in operating assets and
    liabilities:Accounts receivable and other
    receivables


1,793



(5,003
)


1,977Prepaid expenses and other current
    assets


(1,482
)


17



783Deposits and other assets


(216
)


25



249Accounts payable


113



902



895Accrued compensation


2,885



(583
)


385Accrued program termination costs


2,209



(2,209
)


Other accrued liabilities


234



1,342



(159
)Taxes payable


921



(921
)


140Deferred revenue


(538
)


7,542



(2,592
)Net cash used in operating
    activities


(34,349
)


(29,877
)


(22,104
)Investing activitiesPurchases of
    available-for-sale
    securities


(166,482
)


(188,635
)


(146,046
)Maturities of
    available-for-sale
    securities


143,813



209,767



171,587Investment in minority investee


(1,395
)






(1,000
)Acquisition of property and
    equipment


(2,559
)


(2,240
)


(1,488
)Cash used in acquisition, net of
    cash acquired






(2,617
)


Proceeds from the sale of Verdia


61,197







Proceeds from the sale of Avidia










17,662Net cash provided by investing
    activities


34,574



16,275



40,715Financing activitiesRepayments under equipment
    financing obligation


(445
)


(115
)


Borrowings under equipment
    financing obligation


2,696



1,229



Minority investment


9,970







Proceeds from issuance of common
    stock


4,335



1,102



1,008Net cash provided by financing
    activities


16,556



2,216



1,008Cash provided by discontinued
    operations


2,863







Codexis related net adjustment






(2,365
)


Effect of exchange rate changes on
    cash and cash equivalents


(582
)


276



(55
)Net increase (decrease) in cash and
    cash equivalents


19,062



(13,475
)


19,564Cash and cash equivalents at
    beginning of period


21,353



40,415



26,940Cash and cash equivalents at end of
    period

$
40,415


$
26,940


$
46,504Supplemental Cash Flow
    InformationNon-cash transactions:Codexis common stock issued in
    acquisition

$



$
(188
)

$
Cash paid during the period for
    interest

$
135


$
41


$
15Cash paid during the period for
    income taxes

$
2


$
912


$
    49




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  1.
    Summary
    of Significant Accounting Policies  Organization
    and Principles of Consolidation
        96-16, (EITF 96-16)
     50




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Cumulative
    Effect Adjustment
  EITF 96-16 EITF 96-16,
  Foreign
    Currency Translation
    Use of
    Estimates
    Reclassifications
   51




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Cash,
    Cash Equivalents and Investments
    available-for-sale other-than-temporary,
  Derivatives
    and Financial Instruments
             52




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Concentration
    of Credit Risk
    Property
    and Equipment
    Goodwill
    and Other Intangible Assets
     53




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Long-Lived
    Assets
    Revenue
    Recognition
  No. 00-21,
     54




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Research
    and Development Expenses
     55




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Year Ended December 31,2004


2005


2006Collaborative projects funded by
    third parties(1)

$
9,444


$
4,146


$
9,906Government grants


1,973



2,369



4,215Internal projects


42,169



35,389



35,009Total

$
53,586


$
41,904


$
49,130     (1)
    
    Research and development expenses related to collaborative
    projects funded by third parties are less than the reported
    revenues due to the amortization of non-refundable up-front
    payments, as well as a portion of the collaborative research and
    development revenue that is charged for general and
    administrative expenses.  Stock-Based
    Compensation
  and/or
       56




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Stock
    Options
      Year Ended December 31, 2006U.S. Employees

Danish EmployeesExpected dividend yield

0%

0%Risk-free interest rate
    range  Options

4.30% to 5.11%

4.34% to 5.17%Risk-free interest rate
    range  ESPP

3.20% to 5.05%

Expected life  Options

5.13 years

2.4 yearsExpected life  ESPP

0.48 years to 0.92 years

Expected
    volatility  Options

52.43% to 56.42%

44.38% to 45.78%       Weighted-Weighted-


AverageAverage


RemainingExercise


Contractual


AggregatePrice Per


Term


IntrinsicShares


Share


(In Years)


Value(In thousands)Options outstanding at
    December 31, 2005


9,401,599


$
16.13Granted


2,157,836



7.81Exercised


(150,903
)


4.62Canceled


(722,072
)


38.13Options outstanding at
    December 31, 2006


10,686,460



13.13



6.19


$
19,858Options exercisable at
    December 31, 2006


7,375,273


$
15.22



5.13


$
11,602  57




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Options OutstandingWeighted-Average





Options ExercisableNumber of


Remaining


Weighted-


Number of


Weighted-Shares


Contractual Life


Average


Shares


AverageRange of Exercise Prices

Outstanding


(In Years)


Exercise Price


Outstanding


Exercise Price$ 0.20 - $ 7.00


1,352,723



6.27


$
5.53



907,673


$
4.82$ 7.08 - $ 7.40


1,481,231



5.83


$
7.33



1,334,223


$
7.35$ 7.47 - $ 7.89


1,800,732



8.52


$
7.73



144,610


$
7.54$ 7.92 - $10.33


1,215,972



7.47


$
9.17



732,299


$
9.46$10.41 - $10.76


1,274,608



5.75


$
10.58



1,154,639


$
10.59$10.80 - $12.44


1,221,348



6.66


$
12.02



761,983


$
11.95$12.99 - $17.20


1,116,255



4.02


$
13.80



1,116,255


$
13.80$17.41 - $53.75


793,925



3.92


$
36.19



793,925


$
36.19$56.88 - $59.81


429,666



3.50


$
57.17



429,666


$
57.1710,686,460



6.19


$
13.13



7,375,273


$
15.22   Employee
    Stock Purchase Plan
   58




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Pro
    Forma Information under SFAS 123 for Periods Prior to
    2006
    Year Ended


Year EndedDecember 31,


December 31,2004


2005(In thousands)Net income (loss), as reported

$
9,342


$
(18,436
)Add: Stock based employee
    compensation cost included in the determination of net loss, as
    reported


236



Deduct: Total stock based employee
    compensation expense determined under the fair value-based
    method for all awards, net of related tax effects


(10,240
)


(5,867
)Pro forma net loss

$
(662
)

$
(24,303
)Net income (loss) per common share:Basic and diluted  as
    reported

$
0.27


$
(0.52
)Basic and diluted  pro
    forma

$
(0.02
)

$
(0.68
)     Year Ended

Year EndedDecember 31, 2004

December 31, 2005Expected dividend yield

0%

0%Risk-free interest rate
    range  Options

2.75% to 3.51%

3.71% to 4.39%Risk-free interest rate
    range  ESPP

2.75% to 4.45%

1.23% to 3.38%Expected life  Options

4 years

4 yearsExpected life  ESPP

0.9 years

0.7 yearsExpected volatility

0.6

0.5    59




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Valuation
    and Expense Information under SFAS 123(R)
    Year EndedDecember 31, 2006Research and development

$
2,128General and administrative


4,615Stock-based compensation expense
    before income taxes


6,743Income tax benefit


Total stock-based compensation
    expense after income taxes

$
6,743     Income
    (Loss) Per Common Share
      Year Ended December 31,2004


2005


2006Income (loss) applicable to common
    stockholders

$
8,342


$
(18,603
)

$
(16,482
)Basic and diluted:Weighted-average shares of common
    stock outstanding


35,177



35,765



36,046Less: weighted-average shares
    subject to repurchase


(1
)






Weighted-average shares used in
    computing basic and diluted income (loss) per share


35,176



35,765



36,046Basic and diluted income (loss)
    per common share

$
0.24


$
(0.52
)

$
(0.46
)    60




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Accumulated
    Other Comprehensive Income (Loss)
  available-for-sale
  December 31,2004


2005


2006Unrealized gain on
    available-for-sale
    securities

$
5


$



$
46Unrealized losses on
    available-for-sale
    securities


(585
)


(592
)


(108
)Foreign currency translation
    adjustments


(2,306
)


(579
)


(634
)Changes in foreign currency
    contracts


696



(386
)


Accumulated other comprehensive
    loss

$
(2,190
)

$
(1,557
)

$
(696
)   Recent
    Accounting Pronouncements
       61




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   2.
    Cash
    Equivalents and Investments    Gross


GrossAmortized


Unrealized


Unrealized


EstimatedCost


Gains


Losses


Fair ValueMoney market funds

$
26,940


$



$



$
26,940Corporate debt obligations


116,563







(286
)


116,277U.S. government agency
    securities


45,412







(306
)


45,106Total


188,915







(592
)


188,323Less amounts classified as cash
    equivalents


(26,940
)










(26,940
)Total investments

$
161,975


$



$
(592
)

$
161,383     Gross


GrossAmortized


Unrealized


Unrealized


EstimatedCost


Gains


Losses


Fair ValueMoney market funds

$
45,258


$



$



$
45,258Corporate debt obligations


20,082



2



(7
)


20,077U.S. government agency
    securities


57,459



16



(101
)


57,374Commercial paper


60,139



28







60,167Total


182,938



46



(108
)


182,876Less amounts classified as cash
    equivalents


(46,504
)










(46,504
)Total investments

$
136,434


$
46


$
(108
)

$
136,372   available-for-sale available-for-sale
    Amortized


EstimatedCost


Fair ValueDue within one year

$
133,434


$
133,384Due after one year through two
    years


3,000



2,988$
136,434


$
136,372  62




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  other-than-temporarily
  In Loss Position for Less Than 12 Months


In Loss Position for 12 Months or Greater


TotalGross





Gross





GrossUnrealized





Unrealized





UnrealizedFair Value


Losses


Fair Value


Losses


Fair Value


LossesCorporate debt obligations

$
5,462


$
2


$
3,588


$
5


$
9,050


$
7U.S. government agency
    securities


10,545



15



30,725



86



41,270



101Total

$
16,007


$
17


$
34,313


$
91


$
50,320


$
108   3.
    Collaborative
    Agreements      December 31,2004


2005


2006Partner A


35.0
%


69.4
%


82.0
%Partner B


13.4
%






   and/or
  Human
    Therapeutics
  Roche
    (MAXY-VII)
     63




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Roche
    (MAXY-alpha)
      Aventis
    Pasteur
    Other
    Chemicals
    (Codexis)
  and/or
 64




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   4.
    Technology
    Licenses and Research Agreements    5.
    Properties
    and Equipment    December 31,2005


2006Leasehold improvements

$
3,688


$
3,982Machinery and laboratory equipment


14,033



15,592Computer equipment and software


2,527



2,806Furniture and fixtures


1,211



1,21821,459



23,598Less accumulated depreciation and
    amortization


(17,391
)


(20,336
)Property and equipment, net

$
4,068


$
3,262   6.
    Equipment
    Financing    7.
    Commitments      Year Ending December 31,2007

$
7,1762008


2,7342009


199Thereafter


$
10,109    65




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   8.
    Stockholders
    Equity  Codexis
    Redeemable Convertible Preferred Stock
    Codexis
    Convertible Preferred Stock
    Maxygen
    Preferred Stock
    401(k)
    Savings Plan
    2006
    Equity Incentive Plan
   66




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    1997
    Stock Option Plan
    1999
    Nonemployee Directors Stock Option Plan
    2000
    International Stock Option Plan
  non-U.S. subsidiaries
 67




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   2000
    Non-Officer Employee Stock Option Plan
      Options OutstandingWeighted-AverageExerciseShares


Number of


Price PerAvailable


Shares


ShareBalance at December 31, 2003


4,928,759



9,563,265


$
17.79Shares authorized


1,855,849







Options granted


(1,567,791
)


1,567,791


$
10.07Options exercised






(700,831
)

$
7.12Options canceled


1,519,344



(1,519,344
)

$
18.40Balance at December 31, 2004


6,736,161



8,910,881


$
17.19Shares authorized


1,889,270







Options granted


(2,132,290
)


2,132,290


$
9.34Options exercised






(198,487
)

$
4.06Options canceled


1,443,085



(1,443,085
)

$
14.31Balance at December 31, 2005


7,936,226



9,401,599


$
16.13Shares authorized


1,903,875







Options granted


(2,157,836
)


2,157,836


$
7.81Options exercised






(150,903
)

$
4.62Options canceled


708,422



(709,922
)

$
38.57Options expired


12,150



(12,150
)

$
12.18Balance at December 31, 2006


8,402,837



10,686,460


$
13.13  68




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  1999
    Employee Stock Purchase Plan
    Fair
    value disclosures
  EITF 96-18
    Common
    Stock
    2006 Equity Incentive Plan


6,041,9492000 Non-Officer Employee Stock
    Option Plan


4,043,7462000 International Stock Option
    Plan


2,991,8291999 Employee Stock Purchase Plan


1,048,1871999 Nonemployee Directors Stock
    Option Plan


300,0001997 Stock Option Plan


5,711,77320,137,484  69




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  9.
    Intangible
    Assets    10.
    Income
    Taxes    Year Ended December 31,2004


2005


2006United States

$
(27,303
)

$
(7,445
)

$
1,807Foreign


(21,783
)


(27,607
)


(18,289
)Loss from continuing operations

$
(49,086
)

$
(35,052
)

$
(16,482
)    70




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     December 31,2005


2006Net operating loss carryforwards

$
12,757


$
15,104Research credits


5,000



5,575Capitalized research


5,297



1,776Investment in subsidiary


3,979



4,014Stock based compensation






5,065Other


4,181



5,316Total deferred tax assets


31,214



36,850Valuation allowance


(31,214
)


(36,850
)Net deferred tax assets

$



$
          71




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     December 31,2004


2005


2006U.S. federal taxes (benefit)At statutory rate

$
(17,180
)

$
(12,269
)

$
(5,720
)State taxes (net of federal)


(2,893
)


(1,965
)


(533
)Alternative minimum taxes










140Stock related deductions










(208
)Unbenefited foreign losses


7,624



10,120



5,610Other


(1,149
)


(801
)


(232
)Unbenefited losses


13,598



4,915



1,083Total

$



$



$
140   11.
    Litigation  In re Initial Public Offering Securities
    Litigation
  In
    re Initial Public Offering Securities Litigation.
       72




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     12.
    Segment
    Information    Segment
    Earnings
  Human


Chemicals


Maxygen, Inc.Therapeutics


(Codexis)


Consolidated(In thousands)2004Segment loss

$
(38,113
)

$
(13,278
)

$
(51,391
)Stock compensation


(325
)


(30
)


(355
)Interest income and other income
    (expense), net


3,943



112



4,055Equity in losses of minority
    investee


(1,395
)






(1,395
)Loss from continuing operations


(35,890
)


(13,196
)


(49,086
)Subsidiary preferred stock
    accretion






(1,000
)


(1,000
)Loss applicable to common
    stockholders  continuing operations

$
(35,890
)

$
(14,196
)

$
(50,086
)2005Segment loss

$
(39,116
)

$
(1,325
)

$
(40,441
)Stock compensation


(183
)






(183
)Interest income and other income
    (expense), net


5,552



20



5,572Loss from continuing operations


(33,747
)


(1,305
)


(35,052
)Cumulative effect of change in
    accounting principle


16,616







16,616Subsidiary preferred stock
    accretion






(167
)


(167
)Loss applicable to common
    stockholders

$
(17,131
)

$
(1,472
)

$
(18,603
)2006Segment loss

$
(41,668
)

$



$
(41,668
)Interest income and other income
    (expense), net


8,524







8,524Equity in losses of minority
    investee


(1,000
)






(1,000
)Gain on sale of equity investment


17,662







17,662Loss applicable to common
    stockholders

$
(16,482
)

$



$
(16,482
)  73




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Segment
    Revenue
    Year Ended December 31,2004


2005


2006(In thousands)Human therapeutics

$
11,555


$
12,991


$
25,021Chemicals (through
    February 28, 2005)


4,720



1,510



Total revenue

$
16,275


$
14,501


$
25,021   Identifiable
    Assets and Acquisition of Property and Equipment
    December 31,2005


2006(In thousands)Human therapeutics

$
214,523


$
205,647Chemicals






Total assets

$
214,523


$
205,647     December 31,2005


2006(In thousands)Human therapeutics

$
1,430


$
1,488Chemicals (through
    February 28, 2005)


810



Total acquisitions

$
2,240


$
1,488  74




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Human
    Therapeutics
    Year Ended December 31,2004


2005


2006(In thousands)RevenuesCollaborative research and
    development revenue

$
9,613


$
10,084


$
20,544Grant revenue


1,942



2,907



4,477Total revenues


11,555



12,991



25,021Operating Expenses:Research and development


38,096



39,370



49,130General and administrative


11,897



12,920



17,559Total operating expenses


49,993



52,290



66,689Loss from operations


(38,438
)


(39,299
)


(41,668
)Interest income and other income
    (expense), net


3,943



5,552



8,524Equity in losses of minority
    investee


(1,395
)






(1,000
)Gain on sale of equity investment










17,662Loss from continuing operations


(35,890
)


(33,747
)


(16,482
)Income (loss) from discontinued
    operations


(2,769
)






Gain on sale of discontinued
    operations


61,197







Cumulative effect adjustment






16,616



Net income (loss)

$
22,538


$
(17,131
)

$
(16,482
)   Geographic
    Information
    Year Ended December 31,2004


2005


2006(In thousands)RevenuesUnited States

$
12,220


$
13,768


$
25,021Denmark


390



86



France


2,182







Austria


1,065







Australia


244



513



Other foreign countries


174



134



Total revenue

$
16,275


$
14,501


$
25,021   75




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  December 31,2005


2006(In thousands)Long-Lived AssetsUnited States

$
39,726


$
40,055Denmark


7,911



9,721Total long-lived assets

$
47,637


$
49,776   Major
    Customers
    2004


2005


2006Human TherapeuticsPartner A


35.0
%


69.4
%


82.0
%Partner B


13.4
%






   13.
    Avidia
    Inc. (formerly Avidia Research Institute)      14.
    Sale of
    Verdia and Discontinued Operations     76




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Cash
    received from sale

$
64,000Less:
    Basis in Verdia


(1,419
)Less:
    Income tax expense


(921
)Less:
    Transaction costs:Compensation
    related expense


(325
)Legal,
    accounting and other fees and expenses


(138
)Gain
    on sale of discontinued operations

$
61,197   15.
    Guarantees
    and Indemnifications  
     77




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   16.
    Restructuring
    Charges    ChargesSeverance costsResearch and development

$
471General and administrative


336Total

$
807   17.
    Related
    Party Transactions   78




---



##### Table of Contents



Item 9
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    Item 9A
    CONTROLS
    AND PROCEDURES    Controls Evaluations.
  CEO and CFO Certifications. Rule 13a-14
  Definition of Disclosure Controls.
  Definition of Internal Control.
  Limitations on the Effectiveness of
    Controls.
  Scope of the Controls Evaluation.
 79




---



##### Table of Contents



Quarterly
    Reports
  Quarterly Evaluation of Disclosure
    Controls.
  Quarterly Evaluation of Changes in Internal
    Control.
  Annual
    Report Pursuant to Section 404 of the Sarbanes-Oxley Act of
    2002
  Annual Report on Internal Control Over Financial
    Reporting:
   80




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                 Ernst &
    Young LLP
    81




---



##### Table of Contents



Item 9B
    OTHER
    INFORMATION  Form 8-K
 PART III  Item 10
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE  Form 8-K
    Item 11
    EXECUTIVE
    COMPENSATION    Item 12
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS    Item 13
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE    Item 14
    PRINCIPAL
    ACCOUNTING FEES AND SERVICES    Pre-Approval
    of Non-Audit Services
   82




---



##### Table of Contents



PART IV  Item 15
    EXHIBITS,
    FINANCIAL STATEMENT SCHEDULES  15(a)(1) Financial Statements.
  PageReport of
    Independent Registered Public Accounting Firm


45Consolidated
    Balance Sheets


46Consolidated
    Statements of Operations


47Consolidated
    Statements of Stockholders Equity


48Consolidated
    Statements of Cash Flows


49Notes to
    Consolidated Financial Statements


50   15(a)(2) Financial Statement
    Schedules.
  15(a)(3)
    Exhibits.
  ExhibitNumber

Description of Exhibit2
.1

Exchange Agreement, dated as of
    April 12, 2000, by and among Maxygen, Inc., Maxygen
    Holdings Ltd., ProFound Pharma A/S and the shareholders of
    ProFound Pharma A/S(1)2
.2

Amendment No. 1 to the
    Exchange Agreement, dated as of July 31, 2000, by and among
    Maxygen, Inc., Maxygen Holdings Ltd., ProFound Pharma A/S and
    the shareholders of ProFound Pharma A/S(1)2
.3

Agreement and Plan of Merger,
    dated June 2, 2004, by and among Pioneer Hi-Bred
    International, Inc., Tango Merger Sub, Inc., Maxygen, Inc. and
    Verdia, Inc.(2)3
.1

Amended and Restated Certificate
    of Incorporation(3)3
.2

Amended and Restated Bylaws(3)4
.1

Specimen Common Stock Certificate
    (Exhibit 4.1 to Amendment No. 1)(4)*10
.1

Form of Executive Officer and
    Director Indemnification Agreement (Exhibit 10.7)(4)*10
.2

Form of Executive Officer Change
    of Control Plan (Exhibit 10.1)(5)*10
.3

Form of Amendment No. 1 to
    Executive Officer Change of Control Plan (Exhibit 10.3)(6)*10
.4

Form of Amendment No. 2 to
    Executive Officer Change of Control Plan (Exhibit 10.3)(7)*10
.5

1997 Stock Option Plan, as
    amended, with applicable option agreement(8)*10
.6

Form of Amendment to Stock Option
    Agreements (Exhibit 10.2)(7)*10
.7

1999 Nonemployee Directors Stock
    Option Plan, as amended, with applicable option agreement
    (Exhibit 10.3)(5)*10
.8

1999 Employee Stock Purchase Plan,
    as amended (Exhibit 10.11)(9)*10
.9

2000 International Stock Option
    Plan, as amended, with applicable option agreement (10)*10
.10

2000 Non-Officer Stock Option
    Plan, as amended, with applicable option agreement (11)*10
.11

2006 Equity Incentive Plan
    (including related form of stock option agreement)
    (Exhibit 10.4)(7)*10
.12

Form of Restricted Stock Unit
    Award Agreement under 2006 Equity Incentive Plan (12)10
.13

Lease, dated as of
    October 21, 1998, between Metropolitan Life Insurance
    Company and Maxygen, Inc. (Exhibit 10.4)(4)10
.14

First Amendment to Lease, dated as
    of February 26, 1999, by and between Metropolitan Life
    Insurance Company and Maxygen, Inc. (Exhibit 10.5)(4)10
.15

Second Amendment to Lease, dated
    as of October 24, 2000, by and between Metropolitan Life
    Insurance Company and Maxygen, Inc. (Exhibit 10.6)(9)10
.16

Third Amendment to Lease, dated
    October 22, 2003, by and between Metropolitan Life
    Insurance Company and Maxygen, Inc. (Exhibit 10.15) (13) 83




---



##### Table of Contents



ExhibitNumber

Description of Exhibit10
.17

Fourth Amendment to Lease dated
    December 15, 2004 by and between Metropolitan Life
    Insurance Company and Maxygen, Inc. (Exhibit 10.13) (14)10
.18

Fifth Amendment to Lease dated as
    of August 24, 2006, by and between Metropolitan Life
    Insurance Company and Maxygen, Inc. (Exhibit 10.2) (15)10
.19

Lease, dated December 15,
    2004, between Metropolitan Life Insurance Company and Maxygen,
    Inc. (Exhibit 10.14) (14)10
.20

First Amendment to Lease, dated as
    of August 24, 2006, by and between Metropolitan Life
    Insurance Company and Maxygen, Inc. (Exhibit 10.1) (15)10
.21

Lease Agreement, dated May 5,
    2000, between ProFound Pharma A/S and The Science Park in
    Horsholm (16)10
.22+

Technology Transfer Agreement,
    dated March 14, 1997 (effective March 1, 1998), among
    Maxygen, Inc., Affymax Technologies N.V. and Glaxo Group
    Limited, as amended (Exhibit 10.3 to Amendment
    No. 2)(4)*10
.23

Description of 2006 Executive
    Officer Cash Bonus Plan (Exhibit 10.1)(7)*10
.24

Description of Goldstein
    Reimbursement Arrangement (17)*10
.25

Letter Agreement (re tax
    equalization payments), dated November 20, 2006, between
    Elliot Goldstein and Maxygen, Inc.10
.26+

Co-Development and
    Commercialization Agreement, dated as of December 9, 2005,
    among
    Hoffman-La Roche,
    Inc., F. Hoffman-La Roche Ltd. and Maxygen Holdings Ltd.
    (Exhibit 10.23) (18)10
.27+

Cross License Agreement, dated as
    of July 16, 2003, between Maxygen, Inc. and Amgen Mountain
    View Inc. (as successor to Avidia, Inc.)10
.28+

Amended and Restated Exclusive
    License Agreement, dated July 10, 2006 (effective as of
    April 1, 2006), between Regents of the University of
    Minnesota and Maxygen, Inc. (19)*10
.29

Consulting Agreement, dated as of
    January 12, 2006 (effective January 1, 2006), between
    Balkrishan Gill and Maxygen, Inc. (Exhibit 10.24) (18)*10
.30

Consulting Agreement, between the
    Company and Waverley Associates, Inc., dated as of April 1,
    2006 (20)21
.1

List of Subsidiaries23
.1

Consent of Independent Registered
    Public Accounting Firm24
.1

Power of Attorney (included on
    signature page)31
.1

Certification of Chief Executive
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 200231
.2

Certification of Chief Financial
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 200232
.1

Certification of Chief Executive
    Officer and Chief Financial Officer pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002     *
    
    Management contract or compensatory plan or arrangement.+
    
    Confidential treatment has been granted, or requested, with
    respect to portions of the exhibit. A complete copy of the
    agreement, including the redacted terms, has been separately
    filed with the Securities and Exchange Commission.(1)
    
    Incorporated by reference to the corresponding exhibit to
    Maxygens Current Report on
    Form 8-K
    (File
    No. 000-28401)
    filed with the Securities and Exchange Commission on
    August 15, 2000.(2)
    
    Incorporated by reference to Exhibit 2.1 to Maxygens
    Current Report on
    Form 8-K
    (File
    No. 000-28401)
    filed with the Securities and Exchange Commission on
    July 2, 2004.(3)
    
    Incorporated by reference to the corresponding exhibit to
    Maxygens Quarterly Report on
    Form 10-Q
    (File
    No. 000-28401)
    for the quarter ended June 30, 2000, filed with the
    Securities and Exchange Commission on August 14, 2000.(4)
    
    Incorporated by reference to the indicated exhibit to
    Maxygens Registration Statement on
    Form S-1,
    as amended
    (No. 333-89413)
    initially filed with the Securities and Exchange Commission on
    October 20, 1999. 84




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##### Table of Contents



(5)
    
    Incorporated by reference to the indicated exhibit to
    Maxygens Quarterly Report on
    Form 10-Q
    (File
    No. 000-28401)
    for the quarter ended June 30, 2001, filed with the
    Securities and Exchange Commission on August 14, 2001.(6)
    
    Incorporated by reference to the indicated exhibit to
    Maxygens Annual Report on
    Form 10-K
    (File
    No. 000-28401)
    for the year ended December 31, 2002, filed with the
    Securities and Exchange Commission on March 27, 2003.(7)
    
    Incorporated by reference to the indicated exhibit to
    Maxygens Current Report on
    Form 8-K
    (File
    No. 000-28401)
    filed with the Securities and Exchange Commission on
    June 30, 2006).(8)
    
    Incorporated by reference to exhibit 10.1 to Maxygens
    Quarterly Report on
    Form 10-Q
    (File
    No. 000-28401)
    for the quarter ended June 30, 2002, filed with the
    Securities and Exchange Commission on August 14, 2002.(9)
    
    Incorporated by reference to the indicated exhibit to
    Maxygens Annual Report on
    Form 10-K
    (File
    No. 000-28401)
    for the year ended December 31, 2000, filed with the
    Securities and Exchange Commission on March 21, 2001.(10)
    
    Incorporated by reference to exhibit 10.6 to Maxygens
    Annual Report on
    Form 10-K
    (File
    No. 000-28401)
    for the year ended December 31, 2001, filed with the
    Securities and Exchange Commission on March 25, 2002.(11)
    
    Incorporated by reference to the exhibit 99.3 to
    Maxygens Registration Statement on
    Form S-8
    (No. 333-57486)
    filed with the Securities and Exchange Commission on
    March 23, 2001.(12)
    
    Incorporated by reference to the exhibit 4.2 to
    Maxygens Registration Statement on
    Form S-8
    (No. 333-138898)
    filed with the Securities and Exchange Commission on
    November 22, 2006.(13)
    
    Incorporated by reference to the indicated exhibit to
    Maxygens Annual Report on
    Form 10-K
    (File
    No. 000-28401)
    for the year ended December 31, 2003, filed with the
    Securities and Exchange Commission on March 12, 2004.(14)
    
    Incorporated by reference to the indicated exhibit to
    Maxygens Annual Report on
    Form 10-K
    (File
    No. 000-28401)
    for the year ended December 31, 2004, filed with the
    Securities and Exchange Commission on March 14, 2005.(15)
    
    Incorporated by reference to the indicated exhibit to
    Maxygens Current Report on
    Form 8-K
    (File
    No. 000-28401)
    filed with the Securities and Exchange Commission on
    August 25, 2006.(16)
    
    Incorporated by reference to exhibit 10.1 to Maxygens
    Quarterly Report on
    Form 10-Q
    (File
    No. 000-28401)
    for the quarter ended September 30, 2000, filed with the
    Securities and Exchange Commission on November 14, 2000.(17)
    
    Incorporated by reference to Exhibit 10.1 to Maxygens
    Current Report on
    Form 8-K
    (File
    No. 000-28401)
    filed with the Securities and Exchange Commission on
    February 7, 2005.(18)
    
    Incorporated by reference to the indicated exhibit to
    Maxygens Annual Report on
    Form 10-K
    (File
    No. 000-28401)
    for the year ended December 31, 2005, filed with the
    Securities and Exchange Commission on March 15, 2006.(19)
    
    Incorporated by reference to Exhibit 10.6 to Maxygens
    Quarterly Report on
    Form 10-Q
    (File
    No. 000-28401)
    for the quarter ended June 30, 2006, filed with the
    Securities and Exchange Commission on August 7, 2006.(20)
    
    Incorporated by reference to Exhibit 10.1 to Maxygens
    Current Report on
    Form 8-K
    (File
    No. 000-28401)
    filed with the Securities and Exchange Commission on
    April 4, 2006. 85




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##### Table of Contents



SIGNATURES      By:
    /s/  Russell
    J. Howard       POWER OF
    ATTORNEY
  attorneys-in-fact Form 10-K, attorneys-in-fact attorneys-in-fact
    Signature

Title

Date/s/  Russell
    J. HowardRussell
    J. Howard

Chief Executive Officer and
    Director (Principal Executive Officer)

March 14, 2007/s/  Lawrence
    W. BriscoeLawrence
    W. Briscoe

Chief Financial Officer (Principal
    Financial and Accounting Officer)

March 14, 2007/s/  Isaac
    SteinIsaac
    Stein

Chairman of the Board

March 14, 2007/s/  M.R.C.
    GreenwoodM.R.C.
    Greenwood

Director

March 14, 2007/s/  Louis
    G. LangeLouis
    G. Lange

Director

March 14, 2007/s/  Ernest
    MarioErnest
    Mario

Director

March 14, 2007/s/  Gordon
    RingoldGordon
    Ringold

Director

March 14, 2007/s/  James
    R. SulatJames
    R. Sulat

Director

March 14, 2007  86




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##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber

Description of Exhibit2
.1

Exchange Agreement, dated as of
    April 12, 2000, by and among Maxygen, Inc., Maxygen
    Holdings Ltd., ProFound Pharma A/S and the shareholders of
    ProFound Pharma A/S(1)2
.2

Amendment No. 1 to the
    Exchange Agreement, dated as of July 31, 2000, by and among
    Maxygen, Inc., Maxygen Holdings Ltd., ProFound Pharma A/S and
    the shareholders of ProFound Pharma A/S (1)2
.3

Agreement and Plan of Merger,
    dated June 2, 2004, by and among Pioneer Hi-Bred
    International, Inc., Tango Merger Sub, Inc., Maxygen, Inc. and
    Verdia, Inc.(2)3
.1

Amended and Restated Certificate
    of Incorporation(3)3
.2

Amended and Restated Bylaws(3)4
.1

Specimen Common Stock Certificate
    (Exhibit 4.1 to Amendment No. 1) (4)*10
.1

Form of Executive Officer and
    Director Indemnification Agreement (Exhibit 10.7)(4)*10
.2

Form of Executive Officer Change
    of Control Plan (Exhibit 10.1)(5)*10
.3

Form of Amendment No. 1 to
    Executive Officer Change of Control Plan (Exhibit 10.3)(6)*10
.4

Form of Amendment No. 2 to
    Executive Officer Change of Control Plan (Exhibit 10.3)(7)*10
.5

1997 Stock Option Plan, as
    amended, with applicable option agreement(8)*10
.6

Form of Amendment to Stock Option
    Agreements (Exhibit 10.2)(7)*10
.7

1999 Nonemployee Directors Stock
    Option Plan, as amended, with applicable option agreement
    (Exhibit 10.3)(5)*10
.8

1999 Employee Stock Purchase Plan,
    as amended (Exhibit 10.11)(9)*10
.9

2000 International Stock Option
    Plan, as amended, with applicable option agreement(10)*10
.10

2000 Non-Officer Stock Option
    Plan, as amended, with applicable option agreement(11)*10
.11

2006 Equity Incentive Plan
    (including related form of stock option agreement)
    (Exhibit 10.4)(7)*10
.12

Form of Restricted Stock Unit
    Award Agreement under 2006 Equity Incentive Plan(12)10
.13

Lease, dated as of
    October 21, 1998, between Metropolitan Life Insurance
    Company and Maxygen, Inc. (Exhibit 10.4)(4)10
.14

First Amendment to Lease, dated as
    of February 26, 1999, by and between Metropolitan Life
    Insurance Company and Maxygen, Inc. (Exhibit 10.5)(4)10
.15

Second Amendment to Lease, dated
    as of October 24, 2000, by and between Metropolitan Life
    Insurance Company and Maxygen, Inc. (Exhibit 10.6)(9)10
.16

Third Amendment to Lease, dated
    October 22, 2003, by and between Metropolitan Life
    Insurance Company and Maxygen, Inc. (Exhibit 10.15)(13)10
.17

Fourth Amendment to Lease dated
    December 15, 2004 by and between Metropolitan Life
    Insurance Company and Maxygen, Inc. (Exhibit 10.13)(14)10
.18

Fifth Amendment to Lease dated as
    of August 24, 2006, by and between Metropolitan Life
    Insurance Company and Maxygen, Inc. (Exhibit 10.2)(15)10
.19

Lease, dated December 15,
    2004, between Metropolitan Life Insurance Company and Maxygen,
    Inc. (Exhibit 10.14)(14)10
.20

First Amendment to Lease, dated as
    of August 24, 2006, by and between Metropolitan Life
    Insurance Company and Maxygen, Inc. (Exhibit 10.1)(15)10
.21

Lease Agreement, dated May 5,
    2000, between ProFound Pharma A/S and The Science Park in
    Horsholm (16)10
.22+

Technology Transfer Agreement,
    dated March 14, 1997 (effective March 1, 1998), among
    Maxygen, Inc., Affymax Technologies N.V. and Glaxo Group
    Limited, as amended (Exhibit 10.3 to Amendment No.
    2) (4)*10
.23

Description of 2006 Executive
    Officer Cash Bonus Plan (Exhibit 10.1)(7)*10
.24

Description of Goldstein
    Reimbursement Arrangement(17) 87




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##### Table of Contents



ExhibitNumber

Description of Exhibit*10
.25

Letter Agreement (re tax
    equalization payments), dated November 20, 2006, between
    Elliot Goldstein and Maxygen, Inc.10
.26+

Co-Development and
    Commercialization Agreement, dated as of December 9, 2005,
    among
    Hoffman-La Roche,
    Inc., F. Hoffman-La Roche Ltd. and Maxygen Holdings Ltd.
    (Exhibit 10.23)(18)10
.27+

Cross License Agreement, dated as
    of July 16, 2003, between Maxygen, Inc. and Amgen Mountain
    View Inc. (as successor to Avidia, Inc.)10
.28+

Amended and Restated Exclusive
    License Agreement, dated July 10, 2006 (effective as of
    April 1, 2006), between Regents of the University of
    Minnesota and Maxygen, Inc.(19)*10
.29

Consulting Agreement, dated as of
    January 12, 2006 (effective January 1, 2006), between
    Balkrishan Gill and Maxygen, Inc. (Exhibit 10.24)(18)*10
.30

Consulting Agreement, between the
    Company and Waverley Associates, Inc., dated as of April 1,
    2006 (20)21
.1

List of Subsidiaries23
.1

Consent of Independent Registered
    Public Accounting Firm24
.1

Power of Attorney (included on
    signature page)31
.1

Certification of Chief Executive
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 200231
.2

Certification of Chief Financial
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 200232
.1

Certification of Chief Executive
    Officer and Chief Financial Officer pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002     *
    
    Management contract or compensatory plan or arrangement.+
    
    Confidential treatment has been granted, or requested, with
    respect to portions of the exhibit. A complete copy of the
    agreement, including the redacted terms, has been separately
    filed with the Securities and Exchange Commission.(1)
    
    Incorporated by reference to the corresponding exhibit to
    Maxygens Current Report on
    Form 8-K
    (File
    No. 000-28401)
    filed with the Securities and Exchange Commission on
    August 15, 2000.(2)
    
    Incorporated by reference to Exhibit 2.1 to Maxygens
    Current Report on
    Form 8-K
    (File
    No. 000-28401)
    filed with the Securities and Exchange Commission on
    July 2, 2004.(3)
    
    Incorporated by reference to the corresponding exhibit to
    Maxygens Quarterly Report on
    Form 10-Q
    (File
    No. 000-28401)
    for the quarter ended June 30, 2000, filed with the
    Securities and Exchange Commission on August 14, 2000.(4)
    
    Incorporated by reference to the indicated exhibit to
    Maxygens Registration Statement on
    Form S-1,
    as amended
    (No. 333-89413)
    initially filed with the Securities and Exchange Commission on
    October 20, 1999.(5)
    
    Incorporated by reference to the indicated exhibit to
    Maxygens Quarterly Report on
    Form 10-Q
    (File
    No. 000-28401)
    for the quarter ended June 30, 2001, filed with the
    Securities and Exchange Commission on August 14, 2001.(6)
    
    Incorporated by reference to the indicated exhibit to
    Maxygens Annual Report on
    Form 10-K
    (File
    No. 000-28401)
    for the year ended December 31, 2002, filed with the
    Securities and Exchange Commission on March 27, 2003.(7)
    
    Incorporated by reference to the indicated exhibit to
    Maxygens Current Report on
    Form 8-K
    (File
    No. 000-28401)
    filed with the Securities and Exchange Commission on
    June 30, 2006).(8)
    
    Incorporated by reference to exhibit 10.1 to Maxygens
    Quarterly Report on
    Form 10-Q
    (File
    No. 000-28401)
    for the quarter ended June 30, 2002, filed with the
    Securities and Exchange Commission on August 14, 2002.(9)
    
    Incorporated by reference to the indicated exhibit to
    Maxygens Annual Report on
    Form 10-K
    (File
    No. 000-28401)
    for the year ended December 31, 2000, filed with the
    Securities and Exchange Commission on March 21, 2001.(10)
    
    Incorporated by reference to exhibit 10.6 to Maxygens
    Annual Report on
    Form 10-K
    (File
    No. 000-28401)
    for the year ended December 31, 2001, filed with the
    Securities and Exchange Commission on March 25, 2002. 88




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##### Table of Contents



(11)
    
    Incorporated by reference to the exhibit 99.3 to
    Maxygens Registration Statement on
    Form S-8
    (No. 333-57486)
    filed with the Securities and Exchange Commission on
    March 23, 2001.(12)
    
    Incorporated by reference to the exhibit 4.2 to
    Maxygens Registration Statement on
    Form S-8
    (No. 333-138898)
    filed with the Securities and Exchange Commission on
    November 22, 2006.(13)
    
    Incorporated by reference to the indicated exhibit to
    Maxygens Annual Report on
    Form 10-K
    (File
    No. 000-28401)
    for the year ended December 31, 2003, filed with the
    Securities and Exchange Commission on March 12, 2004.(14)
    
    Incorporated by reference to the indicated exhibit to
    Maxygens Annual Report on
    Form 10-K
    (File
    No. 000-28401)
    for the year ended December 31, 2004, filed with the
    Securities and Exchange Commission on March 14, 2005.(15)
    
    Incorporated by reference to the indicated exhibit to
    Maxygens Current Report on
    Form 8-K
    (File
    No. 000-28401)
    filed with the Securities and Exchange Commission on
    August 25, 2006.(16)
    
    Incorporated by reference to exhibit 10.1 to Maxygens
    Quarterly Report on
    Form 10-Q
    (File
    No. 000-28401)
    for the quarter ended September 30, 2000, filed with the
    Securities and Exchange Commission on November 14, 2000.(17)
    
    Incorporated by reference to Exhibit 10.1 to Maxygens
    Current Report on
    Form 8-K
    (File
    No. 000-28401)
    filed with the Securities and Exchange Commission on
    February 7, 2005.(18)
    
    Incorporated by reference to the indicated exhibit to
    Maxygens Annual Report on
    Form 10-K
    (File
    No. 000-28401)
    for the year ended December 31, 2005, filed with the
    Securities and Exchange Commission on March 15, 2006.(19)
    
    Incorporated by reference to Exhibit 10.6 to Maxygens
    Quarterly Report on
    Form 10-Q
    (File
    No. 000-28401)
    for the quarter ended June 30, 2006, filed with the
    Securities and Exchange Commission on August 7, 2006.(20)
    
    Incorporated by reference to Exhibit 10.1 to Maxygens
    Current Report on
    Form 8-K
    (File
    No. 000-28401)
    filed with the Securities and Exchange Commission on
    April 4, 2006. 89