##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, 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, 2007
  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
  Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller reporting
    company 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


15Item 1B:

Unresolved Staff Comments


30Item 2:

Properties


30Item 3:

Legal Proceedings


30Item 4:

Submission of Matters to a Vote of Security
    Holders


30PART IIItem 5:

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


31Item 6:

Selected Financial Data


33Item 7:

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


35Item 7A:

Quantitative and Qualitative Disclosures About
    Market Risk


49Item 8:

Financial Statements and Supplementary Data


51Item 9:

Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


85Item 9A:

Controls and Procedures


85Item 9B:

Other Information


87PART IIIItem 10:

Directors, Executive Officers and Corporate
    Governance


87Item 11:

Executive Compensation


87Item 12:

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


87Item 13:

Certain Relationships and Related Transactions,
    and Director Independence


87Item 14:

Principal Accounting Fees and Services


87PART IVItem 15:

Exhibits, Financial Statement Schedules


88SIGNATURES


89EXHIBIT 10.18.1EXHIBIT 10.19EXHIBIT 10.19.1EXHIBIT 10.19.2EXHIBIT 10.19.3EXHIBIT 10.20EXHIBIT 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 and jurisdiction of
    any regulatory filing or submission relating to the clinical
    development of any product candidate, the timing of any
    commencement of clinical trials of any product candidate and the
    progress or status 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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PART I  Item 1
    BUSINESS  Overview
    
    MAXY-G34, a pegylated, granulocyte colony stimulating factor
    (G-CSF) product for the treatment of neutropenia;
    MAXY-VII, a factor VIIa product for the treatment of hemophilia
    and possibly acute bleeding conditions; and
    MAXY-4, a CTLA-4-Ig product for the treatment of rheumatoid
    arthritis and other immune or autoimmune diseases.      Major
    Developments in 2007
      MAXY-4, in
    vivo
      MAXY-VII
 1




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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 and the commencement of clinical development for our
    MAXY-VII product candidate for hemophilia. 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 commenced a
    Phase IIa clinical trial in breast cancer patients in July 2007.
    We currently plan to file our first clinical trial application
    (CTA) for our lead MAXY-VII product candidate in the first half
    of 2008 and expect to commence clinical trials in hemophilia
    patients in 2008. We also plan to conduct in vivo
    proof-of-concept preclinical studies with our MAXY-4 product
    candidates and select one or more lead product candidates in
    2008.
    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 continue to identify new product
    opportunities based upon currently marketed or clinically
    validated protein products that require or could benefit from
    improvements to address existing medical needs in the treatment
    of disease and serious medical conditions, and use our
    proprietary MolecularBreeding directed molecular evolution
    platform and other technologies in an effort to improve these
    products. We commit resources to only those product candidates
    that we believe are scientifically and 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 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 the
    risks arising from 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 with leading
    biopharmaceutical corporations 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. 2




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
    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 preclinical and clinical
    development.  Product
    Pipeline
    DevelopmentResponsibilities/Commercialization

CommercializationProduct Candidate

Indication

Rights

Rights

StatusMAXY-G34

Neutropenia

Maxygen

Maxygen

Phase IIaMAXY-VII

Hemophilia

Maxygen

Maxygen

Preclinical;* plan to file clinical trial application (CTA) in
    the first half of 2008MAXY-4

Rheumatoid Arthritis

Maxygen

Maxygen

Preclinical;* plan to conduct in vivo proof-of-concept
    preclinical studies and select lead candidate(s) in 2008     *
    
    Preclinical means candidate selection, process
    development, product
    scale-up,
    formulation and further testing in animals, including
    toxicology, pharmacokinetics and pharmacodynamics.  MAXY-G34
        Market Opportunity.
  Development Status.
 3




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21-day
        
    Patients in the initial 10 μg/kg MAXY-G34 cohort met the
    safety criterion for duration of neutropenia (less than or equal
    to five days of severe neutropenia), and, as a result, none of
    the MAXY-G34 treated patients needed to be switched to Neulasta.
    In breast cancer patients receiving TAC chemotherapy without
    G-CSF support, severe neutropenia has been reported to last
    approximately seven days.
    No serious adverse events or immunogenicity issues were noted
    for the initial cohort of patients on 10 μg/kg of MAXY-G34.
    Data available from multiple patients after multiple doses
    revealed no binding antibodies, and drug response in all
    patients had been sustained.
    The DSMB overseeing the trial approved escalation to the second
    dose level of 30 μg/kg MAXY-G34. The first cohort of
    patients at this level has been enrolled and commenced treatment.
    No serious adverse events or drug-related grade 3 or 4 adverse
    events were reported in any patient receiving MAXY-G34. A total
    of 23 doses of MAXY-G34 had been delivered to patients in the 10
    μg/kg and 30 μg/kg cohorts.     4




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MAXY-VII
          Market Opportunity.
  Development Status. MAXY-VII
  MAXY-VII
    MAXY-4
   5




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Market Opportunity.
  Development Status. in
    vivo
    Other
    Assets and Areas of Research
    Vaccines
       6




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Codexis,
    Inc.
        Avidia
    Inc.
     7




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and/or country-by-country
    MAXY-alpha
      MAXY-gamma
   8




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Our
    Technologies
  MolecularBreeding
    Directed Evolution Technologies
    The
    MolecularBreeding Directed Evolution Process
  
  Step One:
    DNAShuffling Recombination Technologies
   9




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Step Two:
    MaxyScan Screening
        Other
    Technologies
    Intellectual
    Property and Technology Licenses
   10




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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.         11




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Product
    Patents
    
    For our MAXY-G34 product candidates, we have three
    U.S. patents, 16 pending U.S. applications, 10 foreign
    patents and 42 pending foreign applications.
    For our MAXY-VII product candidates, we have one
    U.S. patent, 21 pending U.S. applications, eight
    foreign patents and 49 pending foreign applications. We also
    have exclusive licenses to two U.S. patents, ten pending
    U.S. applications and four pending foreign applications.
    For our MAXY-4 product candidates, we have one pending
    U.S. application.  Manufacturing
      Competition
     12




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Research
    and Development Expenses
    Geographic
    Distribution
    Segment
    Reporting
    Government
    Regulation
     13




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
    Phase I:  Studies are conducted in normal,
    healthy human volunteers or patients 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 in 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 in disease-afflicted patients to provide statistical
    evidence of efficacy and safety and to provide an adequate basis
    for physician labeling.          Environmental
    Regulation
    Employees
   14




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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.
   15




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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.
    The
    prospects of our current product candidates are highly
    uncertain. In particular, ongoing clinical trials of our lead
    MAXY-G34 product candidate may produce negative or inconclusive
    results, and we may decide, or regulators may require us, to
    conduct additional clinical and/or preclinical testing for this
    product candidate or cease our trials, which could adversely
    affect our business and cause a significant drop in our stock
    price.
    MAXY-G34,
   16




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Drug
    development is a long, expensive and uncertain process and may
    not result in the development of any commercially successful
    products.
        The
    development of our product candidates, which is based on
    modifications to natural human proteins, may be subject to
    substantial delays, increased development costs, reduced market
    potential for any resulting product or the termination of the
    affected development program by us or a collaborator, each of
    which could adversely affect our business.
   17




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Our
    clinical development strategy, which relies on third party
    contract research organizations, exposes us to additional
    risk.
    Our
    revenues, expenses and operating results are subject to
    fluctuations that may cause our stock price to
    decline.
    
    the termination of research and development contracts with
    collaborators or government research grants, which may not be
    renewed or replaced;
    the success rate of our development or discovery efforts leading
    to milestones and royalties under future collaboration
    arrangements, if any;
    the timing of licensing fees or the achievement of milestones
    under new or existing licensing and collaborative arrangements;
    the timing of expenses, particularly with respect to contract
    manufacturing, preclinical studies and clinical trials;
    the timing and willingness of any future collaborators to
    commercialize our products, which would result in royalties to
    us; and
    general and industry specific economic conditions, which may
    affect the research and development expenditures of any future
    collaborator. 18




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Our
    current and future product candidates could take a long time to
    complete clinical development, may fail in clinical development,
    or may never gain approval, which could reduce or eliminate our
    revenue by delaying or terminating the potential
    commercialization of our product candidates.
          
    deficiencies in the conduct of the clinical trials;
    negative or inconclusive results from the clinical trials that
    necessitate additional clinical studies;
    difficulties or delays in identifying and enrolling patients who
    meet trial eligibility criteria;
    delays in obtaining or maintaining required approvals from
    institutions, review boards or other reviewing entities at
    clinical sites;
    inadequate supply or deficient quality of product candidate
    materials necessary for the conduct of the clinical trials;
    the occurrence of unacceptable toxicities or properties or
    unforeseen adverse 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; 19




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
    future legislation or administrative action or changes in FDA
    policy or the policy of foreign regulatory agencies during the
    period of product development, clinical trials and FDA
    regulatory review; or
    other reasons that are internal to the business of a
    collaborative partner, which it may not share with us.    Our
    potential products are subject to a lengthy and uncertain
    regulatory process and may never gain approval. If our potential
    products are not approved, we will not be able to commercialize
    those products.
        
    a drug candidate may not be safe or effective;
    regulatory officials may not find the data from preclinical
    testing and clinical trials sufficient;
    the FDA and other regulatory agencies might not approve our
    third-party manufacturers processes or facilities; or
    the FDA or other regulatory agencies may change its approval
    policies or adopt new regulations.   20




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Our
    manufacturing strategy, which relies on third-party
    manufacturers, exposes us to additional risks.
          The
    manufacturing of our product candidates presents technological,
    logistical and regulatory risks, each of which may adversely
    affect our potential revenues.
   21




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
    before we can obtain approval of any of our product candidates
    for the treatment of a particular disease or condition, we must
    demonstrate to the satisfaction of the FDA and other
    governmental authorities that the drug manufactured for
    commercial use is comparable to the drug manufactured for
    clinical trials and that the manufacturing facility complies
    with applicable laws and regulations;
    it may not be technically feasible to scale up an existing
    manufacturing process to meet demand or such
    scale-up may
    take longer than anticipated; and
    failure to comply with strictly enforced GMP regulations and
    similar foreign standards may result in delays in product
    approval or withdrawal of an approved product from the market.    We may
    need additional capital in the future. If additional capital is
    not available, we may have to curtail or cease
    operations.
      If we
    are unable to enter into or maintain future collaboration
    arrangements for any of our product candidates, we may not be
    able to effectively develop and market some of our
    products.
     22




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Any
    conflicts with a collaborator could harm our
    business.
      Any
    inability to adequately protect our proprietary technologies
    could harm our competitive position.
     23




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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.
       24




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Budget
    or cash constraints may force us to delay or terminate our
    efforts to develop certain products and could prevent us from
    executing our business plan, meeting our stated timetables and
    commercializing our potential products as quickly as
    possible.
      Our
    revenues are primarily derived from government grants and
    license agreements, and our inability to maintain these grants
    and agreements or establish and maintain new collaborations,
    license agreements or grants would adversely impact our
    revenues, financial position and results of
    operation.
    Other
    biological products may compete with our products.
         25




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Many
    potential competitors who have greater resources and experience
    than we do may develop products and technologies that make ours
    obsolete.
         26




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Legislative
    actions, new accounting pronouncements and higher compliance
    costs may adversely impact our future financial position and
    results of operations.
      If we
    do not attract and retain key employees, our business could be
    impaired.
    The
    operation of international locations may increase operating
    expenses and divert management attention.
     27




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Acquisitions
    could result in dilution, operating difficulties and other
    harmful consequences.
    
    diversion of management time (both ours and that of the acquired
    company) from focus on operating the businesses to issues of
    integration during the period of negotiation through closing and
    further diversion of such time after closing;
    decline in employee morale and retention issues resulting from
    changes in compensation, reporting relationships, future
    prospects, or the direction of the business;
    the need to integrate each companys accounting, management
    information, human resource and other administrative systems to
    permit effective management and the lack of control if such
    integration is delayed or not implemented; and
    the need to implement controls, procedures and policies
    appropriate for a larger public company in companies that before
    acquisition had been smaller, private companies.      Our
    stock price has been, and may continue to be, extremely
    volatile, and an investment in our stock could decline in
    value.
    
    our failure to meet our publicly announced revenue
    and/or
    expense projections
    and/or
    product development timetables;
    adverse or inconclusive results or delays in preclinical
    development or clinical trials;
    any entry into or material amendment or termination of a
    collaborative or license agreement;
    any decisions to discontinue or delay development programs or
    clinical trials;
    announcements of new technological innovations or new products
    by us or our competitors;
    conditions or trends in the biotechnology and life science
    industries;
    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; 28




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
    developments in or challenges relating to our patent or other
    proprietary rights, including lawsuits or proceedings alleging
    patent infringement based on the development, manufacturing or
    commercialization of our product candidates; and
    sales of our common stock or other securities in the open market.    Substantial
    sales of shares may adversely impact the market price of our
    common stock.
    If we
    or a collaborator receives regulatory approval for one of our
    drug candidates, we will be subject to ongoing FDA obligations
    and continued regulatory review, and we may also be subject to
    additional FDA post-marketing obligations, all of which may
    result in significant expense and limit our ability to
    commercialize our potential drugs.
  follow-up
  We may
    be subject to costly product liability claims and may not have
    adequate insurance.
    We
    currently have no product marketing capabilities.
    The
    coverage and reimbursement status of newly approved drugs is
    uncertain and failure to obtain adequate coverage and
    reimbursement could limit our ability to market any drugs we may
    develop and decrease our ability to generate
    revenue.
   29




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Some
    of our existing stockholders can exert control over us, and may
    not make decisions that are in the best interests of all
    stockholders.
    Our
    facilities in California are located near an earthquake fault,
    and an earthquake or other types of natural disasters or
    resource shortages could disrupt our operations and adversely
    affect our results.
    Item 1B
    UNRESOLVED
    STAFF COMMENTS    Item 2
    PROPERTIES      Item 3
    LEGAL
    PROCEEDINGS    Item 4
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   30




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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, 2007First Quarter

$
12.41


$
10.00Second Quarter


11.94



8.33Third Quarter


9.56



6.49Fourth Quarter


8.94



6.12Year ended December 31, 2006First Quarter

$
8.95


$
7.45Second Quarter


8.44



7.01Third Quarter


8.78



6.78Fourth Quarter


10.98



7.97   Holders
    Dividends
   31




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Company
    Stock Price Performance(1)
    COMPARISON
    OF 5 YEAR CUMULATIVE TOTAL RETURN* Among
    Maxygen, Inc., The NASDAQ Composite Index
    And The NASDAQ Biotechnology Index
  
 *
    $100 invested on 12/31/02 in stock or index-including
    reinvestment of dividends.   Total Return Analysis12/31/2002

12/31/2003

12/31/2004

12/31/2005

12/31/2006

12/31/2007Maxygen, Inc.


100.00



139.50



167.85



98.56



141.34



105.38Nasdaq Composite Index


100.00



149.75



164.64



168.60



187.83



205.22Nasdaq Biotechnology Index


100.00



146.95



164.05



185.29



183.09



186.22     (1)
    
    The material in this section is not soliciting
    material, is not deemed filed with the SEC and
    is not to be incorporated by reference in any of our filings
    under the Securities Act or the Exchange Act whether made before
    or after the date hereof and irrespective of any general
    incorporation language in any such filing. 32




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Item 6
    SELECTED
    FINANCIAL DATA    Year Ended December 31,2003


2004


2005


2006


2007(In thousands, except per share data)Consolidated Statements of Operations Data:Collaborative research and development revenue

$
20,573


$
14,333


$
11,594


$
20,544


$
10,232Revenue from related party


















8,286Grant revenue


2,282



1,942



2,907



4,477



4,639Total revenues


22,855



16,275



14,501



25,021



23,157Operating expenses:Research and development


45,949



53,586



41,904



49,130



59,851General and administrative


11,831



14,435



13,221



17,559



14,951Restructuring charge


















5,212Amortization of goodwill and other intangible assets


698















Total operating expenses


58,478



68,021



55,125



66,689



80,014Loss from operations


(35,623
)


(51,746
)


(40,624
)


(41,668
)


(56,857
)Interest income and other income (expense), net


5,253



4,055



5,572



8,524



7,542Equity in net loss of minority investee


(500
)


(1,395
)






(1,000
)


Gain on sale of equity investment(1)














17,662



Loss from continuing operations


(30,870
)


(49,086
)


(35,052
)


(16,482
)


(49,315
)Discontinued operations:Loss from discontinued operations


(1,586
)


(2,769
)










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






61,197











Income (loss) from discontinued operations


(1,586
)


58,428











Cumulative effect adjustment(2)










16,616







Net income (loss)


(32,456
)


9,342



(18,436
)


(16,482
)


(49,315
)Subsidiary preferred stock accretion


(1,279
)


(1,000
)


(167
)






Income (loss) applicable to common stockholders

$
(33,735
)

$
8,342


$
(18,603
)

$
(16,482
)

$
(49,315
)Basic and diluted income (loss) per share:Continuing operations

$
(0.89
)

$
(1.40
)

$
(0.98
)

$
(0.46
)

$
(1.34
)Discontinued operations

$
(0.05
)

$
1.66


$



$



$
Cumulative effect adjustment

$



$



$
0.46


$



$
Applicable to common stockholders

$
(0.98
)

$
0.24


$
(0.52
)

$
(0.46
)

$
(1.34
)Shares used in basic and diluted per share calculations


34,519



35,176



35,765



36,046



36,787     (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).  33




---



##### Table of Contents



December 31,2003


2004


2005


2006


2007(In thousands)Consolidated Balance Sheet Data:Cash, cash equivalents and investments

$
191,868


$
232,893


$
188,323


$
182,876


$
145,813Working capital


115,724



211,999



152,230



175,356



138,171Total assets


234,069



263,105



214,523



205,647



172,709Non-current portion of equipment financing






1,751











Minority interest


21,210



32,180











Accumulated deficit


(195,128
)


(185,786
)


(204,222
)


(220,704
)


(270,019
)Total stockholders equity


198,224



211,341



197,344



189,799



153,494   QUARTERLY
    FINANCIAL DATA
  Quarter EndedMarch 31,


June 30,


Sept. 30,


Dec. 31,(In thousands, except per share data)(Unaudited)2007Collaborative research and development revenue

$
7,597


$
874


$
5


$
1,756Revenue from related party


556







34



7,696Grant revenue


939



1,207



964



1,529Total revenues


9,092



2,081



1,003



10,981Operating expenses:Research and development


14,600



16,343



13,570



15,338General and administrative


4,331



3,528



3,951



3,141Restructuring charge














5,212Total operating expenses


18,931



19,871



17,521



23,691Loss from operations


(9,839
)


(17,790
)


(16,518
)


(12,710
)Interest income and other income (expense), net


2,174



2,118



1,814



1,436Net income (loss)

$
(7,665
)

$
(15,672
)

$
(14,704
)

$
(11,274
)Basic and diluted income (loss) per share

$
(0.21
)

$
(0.43
)

$
(0.40
)

$
(0.31
)Shares used in basic and diluted per share calculations


36,586



36,791



36,872



36,898 34




---



##### Table of Contents



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)














17,662Net income (loss)

$
(10,722
)

$
(3,383
)

$
(10,717
)

$
8,340Basic and diluted income (loss) per share

$
(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).  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.
  Overview
       35




---



##### Table of Contents



Major
    Developments in 2007
      MAXY-4, in
    vivo
       36




---



##### Table of Contents



Background
         37




---



##### Table of Contents



Critical
    Accounting Policies and Estimates
  General
    Goodwill
    and Intangible Impairment
     38




---



##### Table of Contents



Source
    of Revenue and Revenue Recognition Policy
        No. 00-21,
       39




---



##### Table of Contents



Accounting
    for Clinical Trial Costs
  Accounting for Research and
    Development Costs.
  
    start-up 
    initial setting up of the trial;
    enrollment of patients in the trial; and
    close down and reporting of the trial.  start-up,
    Restructuring
    Charge
  Accounting
    for Costs Associated with Exit or Disposal Activities Employers Accounting for Postemployment
    Benefits
   40




---



##### Table of Contents



Stock-Based
    Compensation Expense
           41




---



##### Table of Contents



Results
    of Operations
  Revenues
               42




---



##### Table of Contents



Year Ended December 31,2005


2006


2007Human therapeutics

$
12,991


$
25,021


$
23,157Chemicals (through February 28, 2005)


1,510







Total revenue

$
14,501


$
25,021


$
23,157     Research
    and Development Expenses
         43




---



##### Table of Contents



Year Ended December 31,2005


2006


2007Collaborative projects funded by third parties(1)

$
4,146


$
9,906


$
2,713Government grants


2,369



4,215



5,106Internal projects


35,389



35,009



52,032Total

$
41,904


$
49,130


$
59,851     (1)
    
    Research and development expenses related to collaborative
    projects funded by third parties may be less than the reported
    revenues due to the amortization of non-refundable upfront
    payments, as well as a portion of the collaborative research and
    development revenue that is charged for general and
    administrative expenses.      General
    and Administrative Expenses
   44




---



##### Table of Contents



Restructuring
    Charge
    Interest
    Income and Other Income (Expense), Net
    Equity
    in Losses of Minority Investee
    Gain
    on Sale of Equity Investment
   45




---



##### Table of Contents



Cumulative
    Effect Adjustment
    Subsidiary
    Preferred Stock Accretion
    Provision
    for Income Taxes
       46




---



##### Table of Contents



Recent
    Accounting Pronouncements
  No. 07-3, (EITF 07-3). EITF 07-3 EITF 07-3 EITF 07-3 EITF 07-3 EITF 07-3. EITF 07-3
      Liquidity
    and Capital Resources
     47




---



##### Table of Contents



Payments Due by PeriodLess








Morethan 1


1-3


4-5


than 5Contractual Obligations

Total


Year


Years


Years


YearsOperating lease obligations

$
1,863


$
1,664


$
199


$



$
Purchase obligations


6,583



5,043



1,540







Total

$
8,446


$
6,707


$
1,739


$



$
      48




---



##### Table of Contents



Item 7A
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    Interest
    Rate and Market Risk
      Expected Maturity2008


2009Cash and cash equivalents

$
77,130


$
Average interest rates


4.85
%


Short-term investments

$
68,683


$
Average interest rates


4.31
%


Long-term investments

$



$
Average interest rates






      49




---



##### Table of Contents



Foreign
    Currency Exchange Risk
     50




---



##### Table of Contents



Item 8
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM               
    51




---



##### Table of Contents



MAXYGEN,
    INC.



CONSOLIDATED
    BALANCE SHEETS  December 31,2006


2007(In thousands, except share and per share data)ASSETSCurrent assets:Cash and cash equivalents

$
46,504


$
77,130Short-term investments


133,384



68,683Related party receivable






7,493Accounts receivable and other receivables


4,099



1,383Prepaid expenses and other current assets


3,133



2,683Total current assets


187,120



157,372Property and equipment, net


3,262



3,060Goodwill


12,192



12,192Long-term investments


2,988



Deposits and other long-term assets


85



85Total assets

$
205,647


$
172,709LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
2,435


$
2,871Accrued compensation


4,708



6,880Accrued restructuring charges






4,413Accrued project costs


1,407



3,787Other accrued liabilities


1,547



1,250Deferred revenue


1,527



Taxes payable


140



Total current liabilities


11,764



19,201Non-current deferred revenue


4,066



Other long-term liabilities


18



14Commitments and contingencies (Notes 7 and 10)Stockholders equity:Preferred stock, $0.0001 par value, 5,000,000 shares
    authorized, no shares issued and outstanding at
    December 31, 2006 and 2007






Common stock, $0.0001 par value, 100,000,000 shares
    authorized, 36,157,910 and 36,926,566 shares issued and
    outstanding at December 31, 2006 and 2007, respectively


4



4Additional paid-in capital


411,195



423,541Accumulated other comprehensive loss


(696
)


(32
)Accumulated deficit


(220,704
)


(270,019
)Total stockholders equity


189,799



153,494Total liabilities and stockholders equity

$
205,647


$
172,709    52




---



##### Table of Contents



MAXYGEN,
    INC.



CONSOLIDATED
    STATEMENTS OF OPERATIONS  Year Ended December 31,2005


2006


2007(In thousands, except per share data)Collaborative research and development revenue

$
11,594


$
20,544


$
10,232Revenue from related party










8,286Grant revenue


2,907



4,477



4,639Total revenues


14,501



25,021



23,157Operating expenses:Research and development


41,904



49,130



59,851General and administrative


13,221



17,559



14,951Restructuring charge










5,212Total operating expenses


55,125



66,689



80,014Loss from operations


(40,624
)


(41,668
)


(56,857
)Interest income and other income (expense), net


5,572



8,524



7,542Equity in net loss of minority investee






(1,000
)


Gain on sale of equity investment






17,662



Cumulative effect adjustment


16,616







Net loss


(18,436
)


(16,482
)


(49,315
)Subsidiary preferred stock accretion


(167
)






Loss applicable to common stockholders

$
(18,603
)

$
(16,482
)

$
(49,315
)Basic and diluted net loss per share:Continuing operations

$
(0.98
)

$
(0.46
)

$
(1.34
)Cumulative effect adjustment

$
0.46







Applicable to common stockholders

$
(0.52
)

$
(0.46
)

$
(1.34
)Shares used in basic and diluted net loss per share calculations


35,765



36,046



36,787    53




---



##### Table of Contents






MAXYGEN,
    INC.



CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY  AccumulatedOtherAdditional


Comprehensive





TotalCommon Stock


Paid-In


Income


Accumulated


StockholdersShares


Amount


Capital


(Loss)


Deficit


Equity(In thousands, except share and per share data)Balance at January 1, 2005


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










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
)


189,799Issuance of common stock upon exercise of options for cash and
    for services rendered


670,018







4,755











4,755Issuance of common stock under employee stock purchase plan


54,383







387











387Issuance of common stock under 401(k) employer matching
    contribution


44,255







368











368Stock compensation expense for consultant options










560











560Stock based compensation expense under SFAS 123(R)










6,171











6,171Modification of a term of an employee stock option










105











105Components of comprehensive loss:Net loss


















(49,315
)


(49,315
)Currency translation adjustment














382







382Change in unrealized gain (loss) on available-for-sale securities














282







282Comprehensive loss






















(48,651
)Balance at December 31, 2007


36,926,566


$
4


$
423,541


$
(32
)

$
(270,019
)

$
153,494    54




---



##### Table of Contents





MAXYGEN,
    INC.



CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Year Ended December 31,2005


2006


2007(In thousands)Operating activitiesNet loss

$
(18,436
)

$
(16,482
)

$
(49,315
)Cumulative effect adjustment


(16,616
)






Net loss from continuing operations


(35,052
)


(16,482
)


(49,315
)Adjustments to reconcile net loss from continuing operations to
    net cash used in operating activities:Depreciation and amortization


3,530



2,294



1,671Equity in losses of minority investee






1,000



Gain on sale of equity investment






(17,662
)


Non-cash stock compensation


423



6,154



6,644Common stock issued and stock options granted to consultants for
    services rendered and for certain technology rights


110



914



560Changes in operating assets and liabilities:Related party receivable










(7,493
)Accounts receivable and other receivables


(5,003
)


1,977



2,716Prepaid expenses and other current assets


17



783



450Deposits and other assets


25



249



Accounts payable


902



895



436Accrued compensation


(583
)


385



2,172Accrued restructuring charges










4,413Accrued program termination costs


(2,209
)






Accrued project costs


1,183



224



2,380Other accrued liabilities


159



(383
)


(301
)Taxes payable


(921
)


140



(140
)Deferred revenue


7,542



(2,592
)


(5,593
)Net cash used in operating activities


(29,877
)


(22,104
)


(41,400
)Investing activitiesPurchases of available-for-sale securities


(188,635
)


(146,046
)


(179,619
)Maturities of available-for-sale securities


209,767



171,587



247,590Investment in minority investee






(1,000
)


Acquisition of property and equipment


(2,240
)


(1,488
)


(1,469
)Cash used in acquisition, net of cash acquired


(2,617
)






Proceeds from the sale of Avidia






17,662



Net cash provided by investing activities


16,275



40,715



66,502Financing activitiesRepayments under equipment financing obligation


(115
)






Borrowings under equipment financing obligation


1,229







Proceeds from issuance of common stock


1,102



1,008



5,142Net cash provided by financing activities


2,216



1,008



5,142Codexis related net adjustment


(2,365
)






Effect of exchange rate changes on cash and cash equivalents


276



(55
)


382Net increase (decrease) in cash and cash equivalents


(13,475
)


19,564



30,626Cash and cash equivalents at beginning of period


40,415



26,940



46,504Cash and cash equivalents at end of period

$
26,940


$
46,504


$
77,130Supplemental Cash Flow InformationNon-cash transactions:Codexis common stock issued in acquisition

$
(188
)

$



$
Cash paid during the period for interest

$
41


$
15


$
Cash paid during the period for income taxes

$
912


$



$
140    55




---



##### 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)
     56




---



##### 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
   57




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Reclassifications
    Cash,
    Cash Equivalents and Investments
      Derivatives
    and Financial Instruments
           58




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Concentration
    of Credit Risk
    Property
    and Equipment
      Goodwill
    and Other Intangible Assets
   59




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Long-Lived
    Assets
    Revenue
    Recognition
  No. 00-21,
   60




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
              Research
    and Development Expenses
     61




---



##### Table of Contents



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


2006


2007Collaborative projects funded by third parties(1)

$
4,146


$
9,906


$
2,713Government grants


2,369



4,215



5,106Internal projects


35,389



35,009



52,032Total

$
41,904


$
49,130


$
59,851     (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 upfront
    payments, as well as a portion of the collaborative research and
    development revenue that is charged for general and
    administrative expenses.  Accounting
    for Clinical Trial Costs
  Accounting for Research and
    Development Costs.
  
    start-up 
    initial setting up of the trial;
    enrollment of patients in the trial; and
    close down and reporting of the trial.  start-up,
   62




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Restructuring
    Charge
  Accounting
    for Costs Associated with Exit or Disposal Activities Employers Accounting for
    Post-employment Benefits
  Stock-Based
    Compensation
  and/or
     63




---



##### Table of Contents



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

2007Danish



DanishU.S. Employees

Employees

U.S. Employees

EmployeesExpected dividend yield

0%

0%

0%

0%Risk-free interest rate range  Options

4.30% to 5.11%

4.34% to 5.17%

3.81% to 4.90%

4.76% to 4.97%Risk-free interest rate range  ESPP

3.20% to 5.05%



4.74% to 5.09%

Expected life  Options

5.13 years

2.4 years

5.70 years

2.4 yearsExpected life  ESPP

0.48 years to 0.92 years



0.50 years to 0.94 years

Expected volatility  Options

52.43% to 56.42%

44.38% to 45.78%

50.93% to 52.96%

44.88% to 45.99%Expected volatility  ESPP

42.97% to 51.05%



44.76% to 48.31%

    64




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Weighted-Weighted-


AverageAverage


RemainingExercise


Contractual


AggregatePrice per


Term


IntrinsicShares


Share


(In Years)


Value(In thousands)Options outstanding at December 31, 2006


10,686,460


$
13.13Granted


1,960,730



10.00Exercised


(670,018
)


7.10Canceled


(1,035,651
)


10.59Expired


(49,751
)


8.11Options outstanding at December 31, 2007


10,891,770


$
13.20



5.81


$
4,003Options vested and expected to vest at December 31, 2007


10,666,320


$
13.28



5.76


$
3,958Options exercisable at December 31, 2007


7,899,125


$
14.66



4.83


$
3,445       Options Outstanding


Options ExercisableWeighted-AverageNumber of


Remaining





Number ofRange of

Shares


Contractual Life


Weighted-Average


Shares


Weighted-AverageExercise Prices

Outstanding


(In Years)


Exercise Price


Outstanding


Exercise Price$ 0.30 - $ 7.00


1,220,881



5.79


$
5.80



950,262


$
5.48$ 7.08 - $ 7.40


1,136,207



5.25


$
7.33



1,106,207


$
7.34$ 7.47 - $ 7.89


1,495,890



7.29


$
7.72



781,461


$
7.71$ 7.92 - $10.33


1,686,565



7.54


$
8.97



906,666


$
9.24$10.41 - $10.76


1,512,245



6.23


$
10.59



1,057,844


$
10.57$10.94 - $12.44


1,698,123



6.46


$
11.90



954,826


$
11.95$12.99 - $17.20


933,191



3.28


$
13.86



933,191


$
13.86$17.41 - $53.75


779,002



2.79


$
35.88



779,002


$
35.88$56.88 - $59.81


429,666



2.40


$
57.17



429,666


$
57.1710,891,770



5.81


$
13.20



7,899,125


$
14.66   Employee
    Stock Purchase Plan
   65




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Pro
    Forma Information under SFAS 123 for Periods Prior to
    2006
    Year EndedDecember 31,2005(In thousands)Net loss, as reported

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


Deduct: Total stock based employee compensation expense
    determined under the fair value-based method for all awards


(5,867
)Pro forma net loss

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

$
(0.52
)Basic and diluted  pro forma

$
(0.68
)     Year EndedDecember 31,2005Expected dividend yield

0%Risk-free interest rate range  Options

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

1.23% to 3.38%Expected life  Options

4 yearsExpected life  ESPP

0.7 yearsExpected volatility

0.5    66




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Valuation
    and Expense Information under SFAS 123(R)
    Year Ended


Year EndedDecember 31,


December 31,2006


2007Research and development

$
2,128


$
3,000General and administrative


4,615



3,550Restructuring charge






287Stock-based compensation expense before income taxes


6,743



6,837Income tax benefit






Total stock-based compensation expense after income taxes

$
6,743


$
6,837     Income
    (Loss) Per Common Share
      Year Ended December 31,2005


2006


2007Loss applicable to common stockholders

$
(18,603
)

$
(16,482
)

$
(49,315
)Basic and diluted:Weighted-average shares of common stock outstanding


35,765



36,046



36,787Less: weighted-average shares subject to repurchase










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


35,765



36,046



36,787Basic and diluted net loss per common share

$
(0.52
)

$
(0.46
)

$
(1.34
)    67




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Accumulated
    Other Comprehensive Income (Loss)
    December 31,2005


2006


2007Unrealized gain on available-for-sale securities

$



$
46


$
220Unrealized losses on available-for-sale securities


(592
)


(108
)


Foreign currency translation adjustments


(579
)


(634
)


(252
)Changes in foreign currency contracts


(386
)






Accumulated other comprehensive loss

$
(1,557
)

$
(696
)

$
(32
)   Recent
    Accounting Pronouncements
  No. 07-3, (EITF 07-3). EITF 07-3 EITF 07-3 EITF 07-3 EITF 07-3 EITF 07-3. EITF 07-3
     68




---



##### 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

$
77,130


$



$



$
77,130Commercial paper


43,704



211







43,915Corporate bonds


13,569



5







13,574U.S. government agency securities


11,190



4







11,194Total


145,593



220







145,813Less amounts classified as cash equivalents


(77,130
)










(77,130
)Total investments

$
68,463


$
220


$



$
68,683     Gross


GrossAmortized


Unrealized


Unrealized


EstimatedCost


Gains


Losses


Fair ValueMoney market funds

$
45,258


$



$



$
45,258Commercial paperCorporate bonds


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       Amortized


EstimatedCost


Fair ValueDue within one year

$
68,463


$
68,683Due after one year through two years






$
68,463


$
68,683   3.
    Collaborative
    Agreements   69




---



##### Table of Contents



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


2006


2007Partner A


69.4
%


82.0
%


37.0
%   and/or
  Human
    Therapeutics
  Roche
    (MAXY-VII)
        Roche
    (MAXY-alpha)
      Chemicals
    (Codexis)
   70




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  and/or
  4.
    Technology
    Licenses and Research Agreements    5.
    Properties
    and Equipment    December 31,2006


2007Leasehold improvements

$
3,982


$
4,158Machinery and laboratory equipment


15,592



16,645Computer equipment and software


2,806



2,973Furniture and fixtures


1,218



1,24423,598



25,020Less accumulated depreciation and amortization


(20,336
)


(21,960
)Property and equipment, net

$
3,262


$
3,060   6.
    Equipment
    Financing    7.
    Commitments      Year Ending December 31,2008

$
6,7072009


1,7162010


23Thereafter


$
8,446    71




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  8.
    Stockholders
    Equity  Codexis
    Redeemable Convertible Preferred Stock
    Maxygen
    Preferred Stock
    401(k)
    Savings Plan
    2006
    Equity Incentive Plan
   72




---



##### 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
  2000
    Non-Officer Employee Stock Option Plan
   73




---



##### Table of Contents



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


Number of


Price perAvailable


Shares


ShareBalance at January 1, 2005


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


$
13.13Shares authorized


469,752







Options granted


(1,960,730
)


1,960,730


$
10.00Options exercised






(670,018
)

$
7.10Options canceled


1,035,651



(1,035,651
)

$
10.59Options expired


49,751



(49,751
)

$
8.11Balance at December 31, 2007


7,997,261



10,891,770


$
13.20   1999
    Employee Stock Purchase Plan
   74




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fair
    value disclosures
  No. 96-18, Black-Scholes-Merton
  Common
    Stock
    2006 Equity Incentive Plan


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


3,993,0032000 International Stock Option Plan


3,168,3691999 Employee Stock Purchase Plan


1,193,8041999 Nonemployee Directors Stock Option Plan


300,0001997 Stock Option Plan


5,385,71020,082,835   9.
    Income
    Taxes    Year Ended December 31,2005


2006


2007United States

$
(7,445
)

$
1,807


$
(15,155
)Foreign


(27,607
)


(18,289
)


(34,160
)Loss from continuing operations

$
(35,052
)

$
(16,482
)

$
(49,315
)    75




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        December 31,2006


2007Net operating loss carryforwards

$
15,104


$
17,824Research credits


5,575



5,335Capitalized research


1,776



2,067Investment in subsidiary


4,014



4,119Stock based compensation


5,065



7,406Other


5,316



5,587Total deferred tax assets


36,850



42,338Valuation allowance


(36,850
)


(42,338
)Net deferred tax assets

$



$
          76




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  non-U.S. subsidiaries
    December 31,2005


2006


2007U.S. federal taxes (benefit)At statutory rate

$
(12,269
)

$
(5,720
)

$
(17,260
)State taxes (net of federal)


(1,965
)


(533
)


(1,850
)Alternative minimum taxes






140



Stock related deductions






(208
)


(33
)Unbenefited foreign losses


10,120



5,610



14,314Other


(801
)


(232
)


(242
)Unbenefited losses


4,915



1,083



5,071Total

$



$
140


$
   Accounting for Uncertainty in Income Taxes 
    an interpretation of FASB Statement No. 109
     77




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007Balance at January 1, 2007

$
5,590Increases (decrease) related to prior year tax positions


Increases related to current year tax positions


Settlements


Reductions due to lapse of applicable statute of limitations


Balance at December 31, 2007

$
5,590   10.
    Litigation  In re Initial Public Offering Securities
    Litigation
  In
    re Initial Public Offering Securities Litigation
       78




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        11.
    Segment
    Information    Segment
    Earnings
  Human


Chemicals


Maxygen, Inc.Therapeutics


(Codexis)


Consolidated(In thousands)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
)2007Segment loss

$
(56,857
)

$



$
(56,857
)Interest income and other income (expense), net


7,542







7,542Loss applicable to common stockholders

$
(49,315
)

$



$
(49,315
)    79




---



##### Table of Contents



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


2006


2007(In thousands)Human therapeutics

$
12,991


$
25,021


$
23,157Chemicals (through February 28, 2005)


1,510







Total revenue

$
14,501


$
25,021


$
23,157   Identifiable
    Assets and Acquisition of Property and Equipment
    Human
    Therapeutics
   80




---



##### Table of Contents



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


2006


2007(In thousands)RevenuesCollaborative research and development revenue

$
10,084


$
20,544


$
10,232Revenue from related party










8,286Grant revenue


2,907



4,477



4,639Total revenues


12,991



25,021



23,157Operating Expenses:Research and development


39,370



49,130



59,851General and administrative


12,920



17,559



14,951Restructuring charge










5,212Total operating expenses


52,290



66,689



80,014Loss from operations


(39,299
)


(41,668
)


(56,857
)Interest income and other income (expense), net


5,552



8,524



7,542Equity in losses of minority investee






(1,000
)


Gain on sale of equity investment






17,662



Loss from continuing operations


(33,747
)


(16,482
)


(49,315
)Cumulative effect adjustment


16,616







Net loss

$
(17,131
)

$
(16,482
)

$
(49,315
)   Geographic
    Information
    Year Ended December 31,2005


2006


2007(In thousands)RevenuesUnited States

$
13,768


$
25,021


$
22,904Denmark


86







Australia


513







Other foreign countries


134







253Total revenue

$
14,501


$
25,021


$
23,157   81




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  December 31,2006


2007(In thousands)Long-Lived AssetsUnited States

$
40,055


$
40,593Denmark


9,721



11,238Total long-lived assets

$
49,776


$
51,831   Major
    Customers
    2005


2006


2007Human TherapeuticsPartner A


69.4
%


82.0
%


37.0
%   12.  Avidia
    Inc. (formerly Avidia Research Institute)
      13.
    Guarantees
    and Indemnifications     82




---



##### Table of Contents



MAXYGEN,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      14.
    Restructuring
    Charges    As at December 31,Fiscal Year


Fiscal Year





Balance at


20072007 Cash


2007 Non-Cash


Cash


December 31,


Total Costs to


Total ExpectedCharges


Charges


Payments


2007


Date


CostsEmployee severance and other benefits charges

$
5,212


$
287


$
(512
)

$
4,413


$
5,212


$
5,212Contract termination and other associated costs






















1,000$
5,212


$
287


$
(512
)

$
4,413


$
5,212


$
6,212    83




---



##### Table of Contents



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

$
471General and administrative


336Total

$
807   15.
    Related
    Party Transactions     84




---



##### Table of Contents



Item 9
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    Item 9A
    CONTROLS
    AND PROCEDURES  Evaluation
    of Controls and Procedures
  Rules 13a-15(e) 15d-15(e)
  Changes
    in Internal Control
  Rules 13a-15(f) 15d-15(f)
  Annual
    Report on Internal Control Over Financial Reporting
      Limitations
    on the Effectiveness of Controls
   85




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                 Ernst &
    Young LLP
    86




---



##### Table of Contents



Item 9B
    OTHER
    INFORMATION   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   87




---



##### Table of Contents



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


51Consolidated Balance Sheets


52Consolidated Statements of Operations


53Consolidated Statements of Stockholders
    Equity


54Consolidated Statements of Cash Flows


55Notes to Consolidated Financial Statements


56   15(a)(2)  Financial Statement
    Schedules.
  Exhibits.
   88




---



##### Table of Contents



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

Title

Date/s/  Russell
    J. HowardRussell
    J. Howard

Chief Executive Officer and Director (Principal Executive
    Officer)

March 7, 2008/s/  Lawrence
    W. BriscoeLawrence
    W. Briscoe

Chief Financial Officer (Principal Financial and Accounting
    Officer)

March 7, 2008/s/  Isaac
    SteinIsaac
    Stein

Chairman of the Board

March 7, 2008/s/  M.R.C.
    GreenwoodM.R.C.
    Greenwood

Director

March 7, 2008/s/  Louis
    G. LangeLouis
    G. Lange

Director

March 7, 2008/s/  Ernest
    MarioErnest
    Mario

Director

March 7, 2008/s/  Gordon
    RingoldGordon
    Ringold

Director

March 7, 2008/s/  James
    R. SulatJames
    R. Sulat

Director

March 7, 2008  89




---



##### Table of Contents



EXHIBIT INDEX
  Incorporation by Reference

FiledExhibit No.

Description of Exhibit

Form

SEC File No.

Exhibit

Filing Date

Herewith3
.1

Amended and Restated Certificate of Incorporation


10-Q



000-28401



3
.1


8/14/20003
.2

Amended and Restated Bylaws


8-K



000-28401



3
.1


9/07/20074
.1

Specimen Common Stock Certificate


S-1



333-89413



4
.1


11/22/1999*10
.1

Form of Executive Officer and Director


S-1



333-89413



10
.7


10/20/1999Indemnification Agreement*10
.2

Form of Executive Officer Change of Control Agreement


10-Q



000-28401



10
.1


8/14/2001*10
.2.1

Form of Amendment No. 1 to Executive Officer Change of
    Control Agreement


10-K



000-28401



10
.3


3/27/2003*10
.2.2

Form of Amendment No. 2 to Executive Officer Change of
    Control Agreement


8-K



000-28401



10
.3


6/30/2006*10
.3

1997 Stock Option Plan, as amended, with applicable option
    agreement


10-Q



000-28401



10
.1


8/14/2002*10
.4

Form of Amendment to Stock Option Agreements


8-K



000-28401



10
.2


6/30/2006*10
.5

1999 Nonemployee Directors Stock Option Plan, as amended, with
    applicable option agreement


10-Q



000-28401



10
.3


8/14/2001*10
.5

1999 Employee Stock Purchase Plan, as amended


10-K



000-28401



10
.11


3/21/2001*10
.6

2000 International Stock Option Plan, as amended, with
    applicable option agreement


10-K



000-28401



10
.6


3/25/200210
.7

2000 Non-Officer Stock Option Plan, as amended, with applicable
    option agreement


S-8



333-57486



99
.3


3/23/2001*10
.8

2006 Equity Incentive Plan (including related form of stock
    option agreement)


8-K



000-28401



10
.4


6/30/2006*10
.8.1

Form of Restricted Stock Unit Award Agreement under 2006 Equity
    Incentive Plan


S-8



333-138898



4
.2


11/22/200610
.9

Lease, dated as of October 21, 1998, between Metropolitan
    Life Insurance Company and Maxygen, Inc.


S-1



333-89413



10
.4


10/20/199910
.9.1

First Amendment to Lease, dated as of February 26, 1999, by
    and between Metropolitan Life Insurance Company and Maxygen, Inc.


S-1



333-89413



10
.5


10/20/199910
.9.2

Second Amendment to Lease, dated as of October 24, 2000, by
    and between Metropolitan Life Insurance Company and Maxygen, Inc.


10-K



000-28401



10
.6


3/21/200110
.9.3

Third Amendment to Lease, dated October 22, 2003, by and
    between Metropolitan Life Insurance Company and Maxygen, Inc.


10-K



000-28401



10
.15


3/12/2004 90




---



##### Table of Contents



Incorporation by Reference

FiledExhibit No.

Description of Exhibit

Form

SEC File No.

Exhibit

Filing Date

Herewith10
.9.4

Fourth Amendment to Lease dated December 15, 2004 by and
    between Metropolitan Life Insurance Company and Maxygen, Inc.


10-K



000-28401



10
.13


3/15/200510
.9.5

Fifth Amendment to Lease dated as of August 24, 2006, by
    and between Metropolitan Life Insurance Company and Maxygen, Inc.


8-K



000-28401



10
.2


8/25/200610
.10

Lease, dated December 15, 2004, between Metropolitan Life
    Insurance Company and Maxygen, Inc.


10-K



000-28401



10
.14


3/15/200510
.10.1

First Amendment to Lease, dated as of August 24, 2006, by
    and between Metropolitan Life Insurance Company and Maxygen, Inc.


8-K



000-28401



10
.1


8/25/200610
.11

Lease Agreement, dated May 5, 2000, between ProFound Pharma
    A/S and The Science Park in Horsholm


10-Q



000-28401



10
.1


11/14/200010
.12+

Technology Transfer Agreement, dated March 14, 1997
    (effective March 1, 1998), among Maxygen, Inc., Affymax
    Technologies N.V. and Glaxo Group Limited, as amended


S-1



333-89413



10
.3


12/15/1999*10
.13

Description of 2006 Executive Officer Cash Bonus Plan


8-K



000-28401



10
.1


6/30/2006*10
.14

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


10-K



000-28401



10
.25


3/14/200710
.15+

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


10-K



000-28401



10
.27


3/14/200710
.16+

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.


10-Q



000-28401



10
.6


8/07/2006*10
.17

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


8-K



000-28401



10
.1


4/04/2006*10
.18

Consulting Agreement, between the Company and Michael Rabson,
    effective as of April 1, 2008


8-K



000-28401



10
.1


3/04/2008*10
.18.1

Letter Agreement (re extension of Consulting Agreement), between
    the Company and Waverley Associates, Inc., dated as of
    December 19, 2007


















X10
.19+

License Agreement, dated as of March 28, 2002, between the
    Company and Codexis, Inc.


















X 91




---



##### Table of Contents



Incorporation by Reference

FiledExhibit No.

Description of Exhibit

Form

SEC File No.

Exhibit

Filing Date

Herewith10
.19.1+

Amendment No. 1 to License Agreement, dated as of
    September 13, 2002, between the Company and Codexis, Inc.


















X10
.19.2

Amendment No. 2 to License Agreement, dated as of
    October 1, 2002, between the Company and Codexis, Inc.


















X10
.19.3+

Amendment No. 3 to License Agreement, dated as of
    August 22, 2006, between the Company and Codexis, Inc.


















X*10
.20

Description of Non-Employee Director Compensation


















X21
.1

List of Subsidiaries


















X23
.1

Consent of Independent Registered Public Accounting Firm


















X24
.1

Power of Attorney (included on signature page)


















X31
.1

Certification of Chief Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002


















X31
.2

Certification of Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002


















X32
.1

Certification of Chief Executive Officer and Chief Financial
    Officer pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002


















X     *
    
    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. 92