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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 001-33775
 Nanosphere, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    36-4339870(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)4088 Commercial Avenue
    
    Northbrook, Illinois 60062(Address of principal executive offices)
    
    (Zip Code)
 847) 400-9000
  (Title of Each Class)
    
    (Name of Each Exchange on Which Registered)Common Stock, par value $0.01
    
    NASDAQ Global Market
 None
 o Yes
þ No
 o Yes
þ No
 þ o
 o o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



NANOSPHERE, INC.
 INDEX
 PagePart I.Item 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    13Item 1B. Unresolved Staff Comments
    
    
    24Item 2. Properties
    
    
    24Item 3. Legal Proceedings
    
    
    24Item 4. (Removed and Reserved)
    
    
    24Part II.Item 5. Market for Registrants Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities
    
    
    25Item 6. Selected Financial Data
    
    
    27Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 8. Financial Statements and Supplementary Data
    
    
    38Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    55Item 9A. Controls and Procedures
    
    
    55Item 9B. Other Information
    
    
    56Part III.Item 10. Directors, Executive Officers and Corporate Governance
    
    
    57Item 11. Executive Compensation
    
    
    57Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
    
    
    57Item 13. Certain Relationships and Related Transactions and Director Independence
    
    
    57Item 14. Principal Accounting Fees and Services
    
    
    57Part IV.Item 15. Exhibits and Financial Statement Schedules
    
    
    58SignaturesExhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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Forward-Looking Statements
 This Annual Report on Form 10-K contains forward-looking statements about us and our industry
that involve substantial risks and uncertainties. All statements, other than statements of
historical facts, included in this Annual Report on Form 10-K regarding our strategy, future
operations, future financial position, future net sales, projected expenses, prospects and plans
and objectives of management are forward-looking statements. These statements involve known and
unknown risks, uncertainties and other factors that may cause our actual results, levels of
activity, performance or achievement to be materially different from those expressed or implied by
the forward-looking statements.
 In some cases, you can identify forward-looking statements by terms such as anticipate,
believe, estimate, expect, intend, may, might, plan, project, will, would,
should, could, can, predict, potential, continue, objective, or the negative of these
terms, and similar expressions intended to identify forward-looking statements. However, not all
forward-looking statements contain these identifying words. These forward-looking statements
reflect our current views about future events and are based on assumptions and subject to risks and
uncertainties. Given these uncertainties, you should not place undue reliance on these
forward-looking statements. Actual events or results could differ materially from those expressed
or implied by these forward-looking statements as a result of various factors.
 These forward-looking statements represent our estimates and assumptions only as of the date
of this Annual Report on Form 10-K . Unless required by U.S. federal securities laws, we do not
intend to update any of these forward-looking statements to reflect circumstances or events that
occur after the statement is made or to conform these statements to actual results. The following
discussion should be read in conjunction with the consolidated financial statements and notes
thereto appearing elsewhere in this Annual Report on Form 10-K . Our actual results may differ
materially from those anticipated in these forward-looking statements as a result of various
factors, including those set forth under Item 1A  Risk Factors and elsewhere in this Annual
Report on Form
10-K.
 
 PART I.
 
 Item 1. Business.
  Overview
    1




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1)
    
    the conversion of microbiology to molecular methods to more rapidly pinpoint infectious
diseases;2)
    
    point-of-care pharmacogenetics to ensure that appropriate therapies are prescribed; and3)
    
    earlier detection of life threatening disease through ultra-sensitive protein assays.
 SP SP, SP
 Our Applications
  Assay
    

FDA Status(1)
    

CE IVD Mark Status(2)Infectious Disease AssaysRespiratory Virus
    
    510(k) clearedRespiratory Virus with Sub-Typing
    
    510(k) cleared
    
    CE IVD MarkedBlood Infection Panels
    
    In development
    
    In developmentHuman and Pharmacogenetic AssaysWarfarin Metabolism
    
    510(k)
cleared(3)
    
    CE IVD MarkedHyper-Coagulation
    
    510(k)
cleared(3)
    
    PendingPlavix® Metabolism (2C19)
    
    Premarket approval filing submitted third quarter 2010
    
    PendingUltra-Sensitive Protein AssaysCardiac Troponin I
    
    In development

    
    In developmentProstate-Specific Antigen (PSA)
    
    Research use only
 (1)
    
    For further description of our FDA regulatory requirements, please refer to the section
Regulation by the United States Food and Drug Administration within this Annual Report on Form
10-K.(2)
    
    For further description of our CE IVD Mark regulatory
requirements, please refer to the section Foreign Government Regulationwithin this Annual Report
on Form 10-K.(3)
    
    Currently cleared only for use with the Original Processor. Infectious Disease Assays
 SP
  2




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SP SP SP
   C. difficile C.
difficile Enterobacteriaceae
 Human and Pharmacogenetic Assays
  ® SP
   3




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SP
 Ultra-Sensitive Protein Assays
  SP
  The Verigene System
   Our Technology
  Our Gold Nanoparticle Molecular Probes
   4




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
    
    High Signal-to-Noise Ratio.Our nanoparticle probes deliver
significantly stronger signals than the fluorescent probes, or
fluorophores, used in most diagnostic platforms today. Nanoparticles
are typically 10-100 nm in diameter and therefore significantly larger
than conventional fluorophores. This size difference enables
nanoparticles to produce up to 10,000 times more signal via light
scattering than a fluorophore. A single nanoparticle can be detected
with simple optical instrumentation with very high sensitivity, thus
eliminating the need to employ our amplification techniques.
    
    Orders of Magnitude Greater Sensitivity and Lower Detection Limits.
The sensitivity and limits of detection of our technology are further
enhanced by a silver-staining step, which effectively amplifies the
signal from each nanoparticle bound to a target molecule. In this
process, silver is coated onto the gold nanoparticle surface,
producing larger particles with enhanced optical properties. Whereas
the leading technologies today can detect molecules at the picomolar
range (10-12), our technology is capable of up to a million
times higher sensitivity at the attomolar (10-18) range,
enabling the unprecedented analysis of rarely expressed genes or low
abundance proteins for early disease detection and diagnosis.
    
    Unparalleled Specificity.A key property of the oligonucleotide-linked
gold nanoparticle is an extremely sharp melting curve. The melting
curve is the temperature range during which the capture
oligonucleotide dissociates with the complementary target
oligonucleotide in the sample. Our nanoparticles exhibit dissociation
transitions of less than one degree in Celsius temperature, whereas
most alternative products are based on polymerase chain reaction, or
PCR, which exhibits melt transitions typically in the 15-30 degree
range. The narrow band of temperature in which binding and
dissociation occurs, creates a significantly higher signal to noise
ratio resulting in greater specificity. These qualities eliminate
errors caused by mismatched nucleotide pairs, thereby allowing genomic
targets differing by a single nucleotide (base pair) to be
distinguished with unprecedented selectivity. Sharp melting curves
are a proprietary feature of our nanoparticles and our patent
portfolio includes issued patents protecting the methods and product
performance related to melt transition curves.
    
    High Count Multiplexing.Our core technology enables high count
multiplexing, or simultaneous multiple target identification in a
single sample, using a simple low-density microarray. A sample and
probe mixture is introduced simultaneously into a single
self-contained reaction chamber pre-printed with multiple reaction
spots, each containing capture strand oligonucleotides or proteins
that are complementary to a specific target molecule of interest. By
utilizing the sharp melt transition of the nanoparticle probes,
multiple targets can be discretely identified in a single sample. This
methodology eliminates the need for complex and costly means of
physically isolating individual target molecules.
    
    Detection of Genomic and Protein Molecules Simultaneously.We are able
to synthesize our gold nanoparticle probes for the simultaneous
multiplexed detection of both protein and genomic targets in the same
assay.
    
    Superior Reaction Kinetics.The sharp melt transition curves in our
gold nanoparticles increase binding affinity thereby leading to
improved assay kinetics and efficiency.
    
    Long-Term Stability.The high density of oligonucleotides per
nanoparticle, serves both as a protective and recognition layer on the
nanoparticle surface and ensures the long-term stability of our
nanoparticles. We have patented approaches using localized salt and
buffer concentrations that deliver long-shelf life for our technology
and reagent set.
  5




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Assay Format
   Schematic of Microarray Based Detection Using Nanoparticle Probes
 
   6




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Intellectual Property
    Research and Development
  
    
    Expanding and Enhancing the Capabilities of Our Instrument
Platform.Design elements and components of our current instrument
platform will serve as the foundation for future
generation development. The Processor SPincorporates sample preparation
into our system. By adding this step, labs can now process a raw sample
material, in most cases whole blood, in a single step. This feature is
critical for analyzing infectious diseases and will further simplify the
processing of clinical samples from swab, cerebrospinal fluid and serum.We are also developing a fully automated instrument with increased high
throughput and sample preparation for both infectious disease and human
genetic tests for larger hospital based laboratories. By basing future
generations of our instrument platform on existing design elements, each
new generation of development will process assays developed for previous
generations.
    
    Developing Additional Genomic and Protein Assays.We
are in various phases of developing and commercializing new assays for
detecting protein biomarkers, infectious diseases and human genetic
markers. Currently, we are researching additional human genetic,
infectious disease and ultra-sensitive protein assays.
    
    Validating and Commercializing New Biomarkers.We have a
dedicated team of protein scientists and assay developers who conduct
assay development to support feasibility testing and new protein
biomarker validation. This team is collaborating with clinical
researchers in academic and private settings to apply our ultra-sensitive
protein detection technology to the researchers efforts to create
diagnostic methods with greater clinical sensitivity and specificity. We
are also applying our ultra-sensitivity methods to the development of
established protein biomarkers that may lead to earlier detection of
medical conditions including cancer, neurodegenerative disorders
including Alzheimers disease, sepsis and mad cow disease, as well as for
blood screening and veterinary applications.
    
    Enhancing Performance of Established Product Systems and
Developing New Applications.Our license agreement with Northwestern
provides us with an exclusive license to certain patents and patent
applications related to the application of nanotechnology to
biodiagnostics and to biobarcode technology. This license covers all
discoveries from the International Institute for Nanotechnology at
Northwestern in the field of biodiagnostics through January 1, 2013.
Nanosphere also has the right of first negotiation for an exclusive
license on inventions after such date. Our research team utilizes the
research and patents developed at Northwestern to develop diagnostic
applications including additional genomic and protein testing assays for
use in the Verigene System.
  7




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Employees
  Government Grants and Contracts
    Manufacturing
     Sales and Marketing
   8




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Competition
    Regulation by the United States Food and Drug Administration
   5 10(k) Clearance
   9




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Premarket Approval
     Clinical Investigations
    10




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Obtaining FDA Clearance for Our Products
    Regulation After FDA Approval or Clearance
     11




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Export of Our Products
  Clinical Laboratory Improvement Amendments of 1988
  Foreign Government Regulation
  Other Information
   12




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Item 1A. Risk Factors.
  Risks Related to Our Business
 We have a history of losses and we may never achieve or maintain profitability.
  Our financial results depend on commercial acceptance of the Verigene System, its array of tests,
and the development of additional tests.
   The regulatory approval process is expensive, time consuming and uncertain and the failure to
obtain such approvals will prevent us from commercializing our future products.
   13




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We and our customers are subject to various governmental regulations, and we may incur significant
expenses to comply with, and experience delays in our product commercialization as a result of,
these regulations.
     If third-party payors do not reimburse our customers for the use of our clinical diagnostic
products or if they reduce reimbursement levels, our ability to sell our products will be harmed.
     14




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We may fail to receive positive clinical results from the diagnostic tests currently in development
that require clinical trials, and even if we receive positive clinical results, we may still fail
to receive the necessary clearances or approvals to market our products.
  Our operating results may be variable and unpredictable.
  If we do not achieve significant product revenue, we may not be able to meet our cash requirements
without obtaining additional capital from external sources, and if we are unable to do so, we may
have to curtail or cease operations.
  
    
    the level of research and development investment required to maintain and improve our technology;
    
    the amount and growth rate, if any, of our revenues;
    
    changes in product development plans needed to address any difficulties in manufacturing or commercializing
the Verigene System and enhancements to our system;
    
    the costs of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights;
    
    competing technological and market developments;
    
    our need or decision to acquire or license complementary technologies or acquire complementary businesses;
    
    the expansion of our sales force; and
    
    changes in regulatory policies, practices or laws that affect our
operations, including clearance to market our products.
   15




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The adverse capital and credit market conditions could affect our liquidity.
  If our products do not perform as expected or the reliability of the technology on which our
products are based is questioned, we could experience lost revenue, delayed or reduced market
acceptance of our products, increased costs and damage to our reputation.
   We rely on third-party license agreements for patents and other technology related to our products,
and the termination of these agreements could delay or prevent us from being able to commercialize
our products.
    If we are unable to obtain, maintain and enforce intellectual property protection covering our
products, others may be able to make, use, or sell our products, which could adversely affect our
ability to compete in the market.
   16




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Our products could infringe patent rights of others, which may require costly litigation and, if we
are not successful, could cause us to pay substantial damages or limit our ability to commercialize
our products.
   17




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We have limited experience in sales and marketing and may be unable to successfully commercialize
our Verigene System, or it may be difficult to build brand loyalty.
  
    
    our ability to attract and retain the skilled support team, marketing staff and sales
force necessary to commercialize and gain market acceptance for our technology and
our products;
    
    the ability of our sales and marketing team to identify and penetrate the potential
customer base including hospitals, research institutions, and independent diagnostic
laboratories;
    
    the time and cost of establishing a support team, marketing staff and sales force; and
    
    the difficulty of establishing brand recognition and loyalty for our products.
  We may be unsuccessful in our long-term goal of expanding our product offerings outside the United
States.
   Manufacturing risks and inefficiencies may adversely affect our ability to produce products.
    18




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We will need to develop manufacturing capacity by ourselves or with third parties.
  Our business and future operating results may be adversely affected by events outside of our
control.
  We face intense competition from established and new companies in the molecular diagnostics field.
  Our success may depend upon how we and our competitors anticipate and adapt to market conditions.
   19




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We may not be able to manage our anticipated growth, and we may experience constraints or
inefficiencies caused by unanticipated acceleration and deceleration of customer demand.
   We use hazardous chemicals, biological materials, and infectious diseases in our business. Any
claims relating to improper handling, storage or disposal of these materials could be time
consuming and costly.
  If we are unable to recruit and retain key executives and scientists, we may be unable to achieve
our goals.
    20




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Healthcare reform and restrictions on reimbursement may adversely affect our profitability.
   Risks Related to Our Common Stock
 The market price of our common stock may be volatile and fluctuate significantly, which could
result in substantial losses for investors and subject us to securities class action litigation.
  
    
    fluctuations in our quarterly operating results or the operating results of our competitors;
    
    changes in estimates of our financial results or recommendations by securities analysts;
    
    variance in our financial performance from the expectations of securities analysts;
    
    changes in the estimation of the future size and growth rate of our markets;
    
    changes in accounting principles or changes in interpretations of existing principles, which could affect our
financial results;
    
    failure of our products to achieve or maintain market acceptance or commercial success;
    
    conditions and trends in the markets we serve;
    
    changes in general economic, industry and market conditions;
    
    success of competitive products and services;
    
    changes in market valuations or earnings of our competitors;
    
    changes in our pricing policies or the pricing policies of our competitors;
    
    announcements of significant new products, contracts, acquisitions or strategic alliances by us or our competitors;
    
    changes in legislation or regulatory policies, practices, or actions;
    
    the commencement or outcome of litigation involving our company, our general industry or both;
    
    recruitment or departure of key personnel;
    
    changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;
    
    actual or expected sales of our common stock by our stockholders; and
    
    the trading volume of our common stock.
  21




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If equity research analysts do not publish research or reports about our business or if they issue
unfavorable commentary or downgrade our common stock, the price of our common stock could decline.
  Certain provisions of our corporate governing documents could make an acquisition of our company
more difficult.
  
    
    authorize the issuance of preferred stock that can be created and
issued by our board of directors without prior stockholder approval,
commonly referred to as blank check preferred stock, with rights
senior to those of our common stock;
    
    limit the persons who can call special stockholder meetings;
    
    provide that a majority vote of our stockholders is required to amend
our amended and restated certificate of incorporation and amended and
restated by-laws;
    
    establish advance notice requirements to nominate persons for election
to our board of directors or to propose matters that can be acted on
by stockholders at stockholder meetings;
    
    not provide for cumulative voting in the election of directors; and
    
    provide for the filling of vacancies on our board of directors by
action of a majority of the directors and not by the stockholders.
    22




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Our 2007 Long-Term Incentive Plan includes an automatic share replenishment, or evergreen,
provision that, unless our board of directors takes action to the contrary, will automatically
increase the number of shares of our common stock reserved for issuance under this plan each year.
Issuances of awards under this Plan would cause further dilution to existing stockholders.
     We do not currently intend to pay dividends on our capital stock and, consequently, your ability to
achieve a return on your investment will depend on appreciation in the price of our common stock.
  We will continue to incur costs and demands upon management as a result of complying with the laws
and regulations affecting public companies, which may adversely affect our operating results and
failure to achieve and maintain effective internal controls in accordance with Section 404 of the
Sarbanes-Oxley Act could cause investors to lose confidence in our operating results and in the
accuracy of our financial reports and could have a material adverse effect on our business and on
the price of our common stock.
   23




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Concentration of ownership among some of our stockholders, including directors and management may
limit your ability to influence corporate matters.
  
 Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
   
 Item 3. Legal Proceedings.
  
 Item 4. (Removed and Reserved).
  24




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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
    
    
    LowFiscal year ended December 31, 2010First Quarter
    
    $
    6.80
    
    
    $
    3.15Second Quarter
    
    
    6.46
    
    
    
    4.20Third Quarter
    
    
    5.09
    
    
    
    2.91Fourth Quarter
    
    
    5.95
    
    
    
    4.16Fiscal year ended December 31, 2009First Quarter
    
    $
    6.26
    
    
    $
    2.71Second Quarter
    
    
    5.58
    
    
    
    2.95Third Quarter
    
    
    8.61
    
    
    
    3.94Fourth Quarter
    
    
    7.85
    
    
    
    5.60
 Stockholders
  Dividend Policy
   25




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Stock Performance Graph
  
 November
    
    
    December
    
    
    December
    
    
    December
    
    
    DecemberInvestment Return Analysis
    
    2007
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010Nanosphere
    
    $
    100.00
    
    
    $
    99.93
    
    
    $
    34.00
    
    
    $
    46.00
    
    
    $
    31.14NASDAQ Composite
    
    $
    100.00
    
    
    $
    93.55
    
    
    $
    55.63
    
    
    $
    80.04
    
    
    $
    93.58NASDAQ Biotechnology
    
    $
    100.00
    
    
    $
    94.07
    
    
    $
    82.19
    
    
    $
    95.04
    
    
    $
    109.30
   26




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Equity Compensation Plan Information
  Equity Compensation Plan Information
 Number of securitiesremaining available forfuture issuance underequity compensationNumber of securities to
    
    
    Weighted Average
    
    
    plans (excludingbe issued upon exercise
    
    
    exercise price of
    
    
    securities reflected inof outstanding awards
    
    
    outstanding awards
    
    
    column(a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation plans approved by stockholders
    
    
    4,208,830
    
    
    $
    5.60
    
    
    
    1,309,736Equity compensation plans not approved by stockholders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    4,208,830
    
    
    $
    5.60
    
    
    
    1,309,736
  
 Item 6. Selected Financial Data.
  As of December 31,Statements of Operations Data:
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006(in thousands, except per share data)Total revenue
    
    $
    2,026
    
    
    $
    2,214
    
    
    $
    1,367
    
    
    $
    1,167
    
    
    $
    1,138Research and development expense
    
    
    18,821
    
    
    
    18,608
    
    
    
    23,675
    
    
    
    21,446
    
    
    
    18,186Sales, general and administrative expense
    
    
    22,007
    
    
    
    14,472
    
    
    
    13,616
    
    
    
    13,443
    
    
    
    5,416Net loss
    
    
    (40,612
    )
    
    
    (33,949
    )
    
    
    (37,042
    )
    
    
    (53,199
    )
    
    
    (24,270
    )Net loss attributable to common stock
    
    
    (40,612
    )
    
    
    (33,949
    )
    
    
    (37,042
    )
    
    
    (59,284
    )
    
    
    (46,421
    )Net loss per common share:basic and diluted
    
    
    (1.46
    )
    
    
    (1.46
    )
    
    
    (1.67
    )
    
    
    (14.18
    )
    
    
    (53.63
    )Weighted average number of common shares:basic and diluted (1)(2)
    
    
    27,755
    
    
    
    23,302
    
    
    
    22,213
    
    
    
    4,181
    
    
    
    866
 As of December 31,Balance Sheet Data:
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006(in thousands)Cash and cash equivalents (1)(2)
    
    $
    39,628
    
    
    $
    76,689
    
    
    $
    75,357
    
    
    $
    114,313
    
    
    $
    29,112Working capital (1)(2)
    
    
    37,426
    
    
    
    71,152
    
    
    
    69,027
    
    
    
    107,685
    
    
    
    27,332Total assets (1)(2)
    
    
    51,375
    
    
    
    88,669
    
    
    
    86,896
    
    
    
    125,964
    
    
    
    37,968Long-term debt
    
    
    
    
    
    
    
    
    
    
    3,352
    
    
    
    7,462
    
    
    
    59Convertible preferred stock (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    108,868Stockholders equity (deficit) (1)(2)
    
    
    44,524
    
    
    
    79,082
    
    
    
    74,541
    
    
    
    109,200
    
    
    
    (108,308
    )
 (1)
    
    In October 2009, we completed our underwritten public offering of 5,405,000 shares of
common stock at $7.00 per share. We received approximately $35.4 million of net proceeds from the
offering.(2)
    
    In November 2007, we completed our initial public offering of 8,050,000 shares of common
stock at $14.00 per share. We received approximately $102 million of net proceeds from the
offering. All shares of convertible preferred stock were converted to common stock upon the
closing of the initial public offering.  27




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Business Overview
    1)
    
    the conversion of microbiology to molecular methods to more rapidly pinpoint infectious
diseases;2)
    
    point-of-care pharmacogenetics to ensure that appropriate therapies are prescribed; and3)
    
    earlier detection of life threatening disease through ultra-sensitive protein assays.
 SP SP, SP
  28




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Our Applications
  Assay
    
    FDA Status
    
    CE IVD Mark StatusInfectious Disease AssaysRespiratory Virus
    
    510(k) clearedRespiratory Virus with Sub-Typing
    
    510(k) cleared
    
    CE IVD MarkedBlood Infection Panels
    
    In development
    
    In developmentHuman and Pharmacogenetic AssaysWarfarin Metabolism
    
    510(k) cleared(1)
    
    CE IVD MarkedHyper-Coagulation
    
    510(k) cleared(1)
    
    PendingPlavix® Metabolism (2C19)
    
    Premarket approval filing
submitted third quarter 2010
    
    PendingUltra-Sensitive Protein AssaysCardiac Troponin I
    
    In development
    
    In developmentProstate-Specific Antigen (PSA)
    
    Research use only
 (1)
    
    Currently cleared only for use with the Original Processor. Infectious Disease Assays
 SP
  SP SP SP
   29




---



##### Table of Contents



C. difficile C.
difficile Enterobacteriaceae
 Human and Pharmacogenetic Assays
  ® SP
  SP
 Ultra-Sensitive Protein Assays
  SP
  30




---



##### Table of Contents



Intellectual Property
      Financial Operations Overview
 Revenue
   31




---



##### Table of Contents



Cost of Sales
  Research and Development Expenses
  Sales, General and Administrative Expenses
  Interest Income
  Interest Expense
  Fiscal 2010 Compared to 2009
 Revenues
  Cost of Sales
 SP SP
  32




---



##### Table of Contents



Research and Development Expenses
  Sales, General and Administrative Expenses
  U.S. Treasury Grant
  Interest Expense
  Interest Income
  Fiscal 2009 Compared to 2008
 Revenues
  Cost of Sales
  Research and Development Expenses
 SP
 Sales, General and Administrative Expenses
   33




---



##### Table of Contents



Interest Expense
  Interest Income
  Liquidity and Capital Resources
       34




---



##### Table of Contents




    
    the level of research and development investment required to maintain and improve our
technology;
 
    
    the amount and growth rate of our revenues;
 
    
    changes in product development plans needed to address any difficulties in manufacturing
or commercializing the Verigene System and enhancements to our system;
 
    
    the costs of filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights;
 
    
    competing technological and market developments;
 
    
    our need or decision to acquire or license complementary technologies or acquire
complementary businesses; and
 
    
    changes in regulatory policies or laws that affect our operations.
  Income Taxes
   35




---



##### Table of Contents



Contractual Obligations and Commitments
  Payments Due by PeriodContractual Obligations
    
    Total
    
    
    Less than 1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    More than 5 YearsOperating lease
    
    $
    1,507
    
    
    $
    427
    
    
    $
    890
    
    
    $
    190
    
    
    $
    Obligations under license agreements
    
    
    3,280
    
    
    
    526
    
    
    
    1,731
    
    
    
    423
    
    
    
    600Total
    
    $
    4,787
    
    
    $
    953
    
    
    $
    2,621
    
    
    $
    613
    
    
    $
    600
  License Agreements
   Off-Balance Sheet Arrangements
  Critical Accounting Policies and Significant Judgments and Estimates
    36




---



##### Table of Contents



Revenue Recognition
   Stock-Based Compensation Expense
  Recent Accounting Pronouncements
  
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
   37




---



##### Table of Contents



Item 8. Financial Statements and Supplementary Data.
  PageReports of Independent Registered Public Accounting Firm
    
    
    39Balance Sheets as of December 31, 2010 and 2009
    
    
    41Statements of Operations for the years ended December 31, 2010, 2009 and 2008
    
    
    42Statements of Stockholders Equity (Deficit) for the years ended December 31, 2010, 2009 and 2008
    
    
    43Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008
    
    
    44Notes to Financial Statements
    
    
    45-54
  38




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal ControlIntegrated Framework
  
  39




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal Control  Integrated Framework
    Internal Control
 Integrated Framework
   
  40




---



##### Table of Contents



Nanosphere, Inc.
 
 Balance Sheets
 (dollars in thousands)
 As of December 31,2010
    
    
    2009CURRENT ASSETS:Cash and cash equivalents
    
    $
    39,628
    
    
    $
    76,689Accounts receivable
    
    
    198
    
    
    
    735Inventories
    
    
    2,428
    
    
    
    2,941Other current assets
    
    
    673
    
    
    
    374Total current assets
    
    
    42,927
    
    
    
    80,739PROPERTY AND EQUIPMENT  Net
    
    
    5,142
    
    
    
    6,145INTANGIBLE ASSETS  Net of accumulated amortization
    
    
    3,231
    
    
    
    1,710OTHER ASSETS
    
    
    75
    
    
    
    75TOTAL
    
    $
    51,375
    
    
    $
    88,669CURRENT LIABILITIES:Accounts payable
    
    $
    3,352
    
    
    $
    2,509Accrued compensation
    
    
    794
    
    
    
    955Other current liabilities
    
    
    1,355
    
    
    
    2,304Long-term debt  current portion
    
    
    
    
    
    
    3,819Total current liabilities
    
    
    5,501
    
    
    
    9,587LONG-TERM LIABILITIES:Other noncurrent liabilities
    
    
    1,350
    
    
    
    Total liabilities
    
    
    6,851
    
    
    
    9,587COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Common stock, $0.01 par value; 100,000,000 shares authorized; 28,408,506 shares
and 28,422,461 shares issued and outstanding as of December 31, 2010 and 2009,
respectively
    
    
    284
    
    
    
    284Preferred stock, $0.01 par value; 10,000,000 shares authorized; no shares issued
    
    
    
    
    
    
    Additional paid-in capital
    
    
    318,714
    
    
    
    312,660Warrants to acquire common stock
    
    
    5,424
    
    
    
    5,424Accumulated deficit
    
    
    (279,898
    )
    
    
    (239,286
    )Total stockholders equity
    
    
    44,524
    
    
    
    79,082TOTAL
    
    $
    51,375
    
    
    $
    88,669
   41




---



##### Table of Contents



Nanosphere, Inc.
 
 Statements of Operations
 (dollars and shares in thousands except per share data)
 Years Ended December 31,2010
    
    
    2009
    
    
    2008REVENUE:Grant and contract revenue
    
    $
    610
    
    
    $
    1,090
    
    
    $
    346Product sales
    
    
    1,416
    
    
    
    1,124
    
    
    
    1,021Total revenue
    
    
    2,026
    
    
    
    2,214
    
    
    
    1,367COSTS AND EXPENSES:Cost of sales
    
    
    2,597
    
    
    
    2,175
    
    
    
    1,464Research and development
    
    
    18,821
    
    
    
    18,608
    
    
    
    23,675Sales, general, and administrative
    
    
    22,007
    
    
    
    14,472
    
    
    
    13,616Total costs and expenses
    
    
    43,425
    
    
    
    35,255
    
    
    
    38,755Loss from operations
    
    
    (41,399
    )
    
    
    (33,041
    )
    
    
    (37,388
    )OTHER INCOME (EXPENSE):Foreign exchange gain (loss)
    
    
    4
    
    
    
    (4
    )
    
    
    (23
    )U.S. Treasury grant
    
    
    978
    
    
    
    
    
    
    
    Interest expense
    
    
    (274
    )
    
    
    (1,258
    )
    
    
    (2,081
    )Interest income
    
    
    79
    
    
    
    354
    
    
    
    2,450Total other income (expense)
    
    
    787
    
    
    
    (908
    )
    
    
    346NET LOSS
    
    $
    (40,612
    )
    
    $
    (33,949
    )
    
    $
    (37,042
    )Net loss per common share  basic and diluted
    
    $
    (1.46
    )
    
    $
    (1.46
    )
    
    $
    (1.67
    )Weighted average number of common shares
outstanding  basic and diluted
    
    
    27,755
    
    
    
    23,302
    
    
    
    22,213
   42




---



##### Table of Contents



Nanosphere, Inc.
 
 Statements of Stockholders Equity (Deficit)
 (dollars and shares in thousands)
 WarrantsAdditional
    
    
    To AcquireCommon Stock
    
    
    Paid-In
    
    
    Common
    
    
    AccumulatedShares
    
    
    Par Value
    
    
    Capital
    
    
    Stock
    
    
    Deficit
    
    
    TotalBALANCE  January 1, 2008
    
    
    22,192
    
    
    $
    305
    
    
    $
    271,765
    
    
    $
    5,425
    
    
    $
    (168,295
    )
    
    $
    109,200Share-based compensation
    
    
    
    
    
    
    
    
    
    
    2,218
    
    
    
    
    
    
    
    
    
    
    
    2,218Exercise of stock options on common stock
    
    
    36
    
    
    
    
    
    
    
    164
    
    
    
    
    
    
    
    
    
    
    
    164Exercise of warrants
    
    
    1
    
    
    
    
    
    
    
    3
    
    
    
    (1
    )
    
    
    
    
    
    
    2Other
    
    
    
    
    
    
    (83
    )
    
    
    82
    
    
    
    
    
    
    
    
    
    
    
    (1
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,042
    )
    
    
    (37,042
    )BALANCE  December 31, 2008
    
    
    22,229
    
    
    
    222
    
    
    
    274,232
    
    
    
    5,424
    
    
    
    (205,337
    )
    
    
    74,541Share-based compensation
    
    
    672
    
    
    
    7
    
    
    
    2,528
    
    
    
    
    
    
    
    
    
    
    
    2,535Exercise of stock options on common stock
    
    
    116
    
    
    
    1
    
    
    
    521
    
    
    
    
    
    
    
    
    
    
    
    522Issuance of common stock from public
offering, net of offering expenses
    
    
    5,405
    
    
    
    54
    
    
    
    35,379
    
    
    
    
    
    
    
    
    
    
    
    35,433Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,949
    )
    
    
    (33,949
    )BALANCE  December 31, 2009
    
    
    28,422
    
    
    
    284
    
    
    
    312,660
    
    
    
    5,424
    
    
    
    (239,286
    )
    
    
    79,082Share-based compensation
    
    
    
    
    
    
    
    
    
    
    6,019
    
    
    
    
    
    
    
    
    
    
    
    6,019Exercise of stock options on common stock
    
    
    9
    
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    35Forfeiture of restricted stock
    
    
    (22
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,612
    )
    
    
    (40,612
    )BALANCE  December 31, 2010
    
    
    28,409
    
    
    $
    284
    
    
    $
    318,714
    
    
    $
    5,424
    
    
    $
    (279,898
    )
    
    $
    44,524
   43




---



##### Table of Contents



Nanosphere, Inc.
 
 Statements of Cash Flows
 (dollars in thousands)
 Years Ended December 31,2010
    
    
    2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (40,612
    )
    
    $
    (33,949
    )
    
    $
    (37,042
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    3,343
    
    
    
    3,067
    
    
    
    3,170Amortization of financing costs and accretion of debt discount
    
    
    119
    
    
    
    499
    
    
    
    762Loss from write-off of intangible assets
    
    
    292
    
    
    
    
    
    
    
    245Loss from disposal of fixed assets
    
    
    21
    
    
    
    3
    
    
    
    326Share-based compensation
    
    
    6,019
    
    
    
    2,534
    
    
    
    2,218Changes in operating assets and liabilities:Accounts receivable
    
    
    537
    
    
    
    (349
    )
    
    
    (285
    )Inventories
    
    
    (865
    )
    
    
    (1,335
    )
    
    
    (1,079
    )Other current assets
    
    
    (318
    )
    
    
    205
    
    
    
    111Other assets
    
    
    
    
    
    
    
    
    
    
    3Accounts payable
    
    
    1,036
    
    
    
    519
    
    
    
    (209
    )Accrued and other current liabilities
    
    
    (1,199
    )
    
    
    856
    
    
    
    (195
    )Net cash used in operating activities
    
    
    (31,627
    )
    
    
    (27,950
    )
    
    
    (31,975
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (710
    )
    
    
    (1,327
    )
    
    
    (2,332
    )Investments in intangible assets
    
    
    (865
    )
    
    
    (507
    )
    
    
    (401
    )Other
    
    
    23
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (1,552
    )
    
    
    (1,834
    )
    
    
    (2,733
    )CASH FLOWS FROM FINANCING ACTIVITIES:Repayment of long-term debt
    
    
    (3,917
    )
    
    
    (4,818
    )
    
    
    (3,598
    )Payments on capital lease obligation
    
    
    
    
    
    
    (21
    )
    
    
    (37
    )Proceeds from the issuance of common stock, net of offering expenses
    
    
    
    
    
    
    35,433
    
    
    
    (779
    )Proceeds from warrant redemptions
    
    
    
    
    
    
    
    
    
    
    2Proceeds from stock option exercises
    
    
    35
    
    
    
    522
    
    
    
    164Net cash (used in) provided by financing activities
    
    
    (3,882
    )
    
    
    31,116
    
    
    
    (4,248
    )NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (37,061
    )
    
    
    1,332
    
    
    
    (38,956
    )CASH AND CASH EQUIVALENTS  Beginning of year
    
    
    76,689
    
    
    
    75,357
    
    
    
    114,313CASH AND CASH EQUIVALENTS  End of year
    
    $
    39,628
    
    
    $
    76,689
    
    
    $
    75,357NONCASH INVESTING AND FINANCING ACTIVITIES:Capital expenditures included in accounts payable
    
    $
    
    
    
    $
    206
    
    
    $
    License costs capitalized and included in other current liabilities
    
    
    350
    
    
    
    278
    
    
    
    225License costs capitalized and included in other noncurrent liabilities
    
    
    1,350
    
    
    
    
    
    
    
    Reclassification of inventory to property and equipment
    
    
    1,378
    
    
    
    252
    
    
    
    1,254
   44




---



##### Table of Contents



Nanosphere, Inc.
 
 Notes to Financial Statements
As of December 31, 2010 and 2009, and
For the years ended December 31, 2010, 2009 and 2008
 1. Description of Business
  Basis of Presentation
 2. Liquidity and Capital Resources
  3. Summary of Significant Accounting Policies
 Cash and Cash Equivalents
 Receivables
 Inventories
 Property and Equipment
 Equipment with customers
    
    
    3-5 yearsComputers and office equipment
    
    
    3 yearsEngineering and laboratory equipment, including tooling
    
    
    3-5 yearsFurniture and fixtures
    
    
    7 yearsManufacturing equipment
    
    
    5-7 years
    45




---



##### Table of Contents



Nanosphere, Inc.
 Notes to Financial Statements  (Continued)
 Intangible Assets
 Deferred Financing Costs
 Impairment of Long-Lived Assets
 Use of Estimates
 Revenue Recognition
   Research and Development Costs
 U.S. Treasury Grant
 Income Taxes
  46




---



##### Table of Contents



Nanosphere, Inc.
 Notes to Financial Statements  (Continued)
 Share-Based Compensation
 Fair Value of Financial Instruments
 New Accounting Standards
 Net Loss Per Common Share  ,
   Year ended December 31,2010
    
    
    2009
    
    
    2008Restricted stock
    
    
    650,000
    
    
    
    672,500
    
    
    
    Stock options
    
    
    4,208,830
    
    
    
    4,338,695
    
    
    
    3,362,721Common stock warrants
    
    
    1,300,119
    
    
    
    1,300,119
    
    
    
    1,300,1196,158,949
    
    
    
    6,311,314
    
    
    
    4,662,840
 4. Intangible Assets
  December 31, 2010
    
    
    December 31, 2009Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedCost
    
    
    Amortization
    
    
    Net
    
    
    Cost
    
    
    Amortization
    
    
    NetIntellectual property  licenses
    
    $
    4,036
    
    
    $
    (1,241
    )
    
    $
    2,795
    
    
    $
    2,438
    
    
    $
    (728
    )
    
    $
    1,710Patents
    
    
    455
    
    
    
    (19
    )
    
    $
    436
    
    
    
    
    
    
    
    
    
    
    
    $
    4,491
    
    
    $
    (1,260
    )
    
    $
    3,231
    
    
    $
    2,438
    
    
    $
    (728
    )
    
    $
    1,710
   47




---



##### Table of Contents



Nanosphere, Inc.
 Notes to Financial Statements  (Continued)
   Years Ending December 312011
    
    $
    1762012
    
    
    1762013
    
    
    1762014
    
    
    1762015
    
    
    171Thereafter
    
    
    522
  5. Related Party Transactions
   6. Equity Incentive Plans
     48




---



##### Table of Contents



Nanosphere, Inc.
 Notes to Financial Statements  (Continued)
  2010
    
    
    2009
    
    
    2008Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    100
    %
    
    
    97
    %
    
    
    68
    %Risk free interest rate
    
    
    2.46
    %
    
    
    2.42
    %
    
    
    3.02
    %Weighted-average expected option life
    
    
    6.1 years
    
    
    
    6.1 years
    
    
    
    6.4 yearsEstimated weighted-average fair value on the
date of grant based on the above assumptions
    
    $
    3.99
    
    
    $
    4.59
    
    
    $
    6.97Estimated forfeiture rate for unvested options
    
    
    11.9
    %
    
    
    4.4
    %
    
    
    4.6
    %
    WeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Exercise
    
    
    Contractual
    
    
    IntrinsicOptions
    
    Shares
    
    
    Price
    
    
    Term
    
    
    Value of OptionsOutstanding  January 1, 2010
    
    
    4,338,695
    
    
    $
    5.75Granted
    
    
    155,945
    
    
    $
    5.07Exercised
    
    
    (8,545
    )
    
    $
    4.13Expired
    
    
    (115,603
    )
    
    $
    9.69Forfeited
    
    
    (161,662
    )
    
    $
    6.30Outstanding  December 31, 2010
    
    
    4,208,830
    
    
    $
    5.60
    
    
    
    6.99
    
    
    $
    2,500Exercisable  December 31, 2010
    
    
    1,892,369
    
    
    $
    5.57
    
    
    
    6.14
    
    
    $
    938Vested and Expected to Vest  December 31, 2010
    
    
    4,102,273
    
    
    $
    5.60
    
    
    
    6.98
    
    
    $
    2,428
    49




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##### Table of Contents



Nanosphere, Inc.
 Notes to Financial Statements  (Continued)
  7. Income Taxes
    2010
    
    
    2009Deferred tax assets:Net operating losses
    
    $
    74,125
    
    
    $
    60,449Research and development credits
    
    
    9,100
    
    
    
    8,033Share-based compensation
    
    
    1,549
    
    
    
    777Amortization of intangible assets
    
    
    1,169
    
    
    
    1,202Other
    
    
    542
    
    
    
    56686,485
    
    
    
    71,027Valuation allowance
    
    
    (86,137
    )
    
    
    (70,476
    )Net deferred tax assets after valuation allowance
    
    
    348
    
    
    
    551Deferred tax liabilities:Depreciation on property and equipment
    
    
    (348
    )
    
    
    (551
    )Deferred tax assets  net
    
    $
    
    
    
    $
    
  Years Ended December 31,2010
    
    
    2009
    
    
    2008Tax provision at the statutory federal rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State income taxes, net of federal income tax benefit
    
    
    4.8
    %
    
    
    4.8
    %
    
    
    4.8
    %Other
    
    
    (6.7
    )%
    
    
    (5.5
    )%
    
    
    (5.8
    )%Valuation allowance
    
    
    (32.1
    )%
    
    
    (33.3
    )%
    
    
    (33.0
    )%0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
  50




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##### Table of Contents



Nanosphere, Inc.
 Notes to Financial Statements  (Continued)
   8. License Agreements
   9. Stockholders Equity
 Common Stock
   Registration Rights
  
    
    Long-Form Registrations.Stockholders holding at least 20% of the then
outstanding shares of the Companys common stock that are subject to
the registration rights agreement, which are referred to as
registrable securities, have the right to demand that the Company file
a registration statement under the Securities Act on Form S-1 or any
similar long-form registration covering their registrable securities.
However, the Company is not obligated to file a long-form registration
statement on more than three occasions upon the request of the
stockholders.
    
    Short-Form Registrations.Stockholders holding at least 10% of the
then outstanding registrable securities have the right to demand that
the Company file a registration statement on Form S-3 or any similar
short-form registration covering their registrable securities,
provided that such short-form registration is then available to the
Company under applicable law. Such stockholders are entitled to
request an unlimited number of short-form registrations.
  51




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##### Table of Contents



Nanosphere, Inc.
 Notes to Financial Statements  (Continued)
   Expenses of Registration.
 Transferability.
 Warrants
  Series of Stock to
    
    Number of
    
    
    Expirationwhich the Warrant is Exercisable
    
    Warrants
    
    
    DateCommon  exercise price of $17.50 per share
    
    
    1,135,194
    
    
    April 2011Common  exercise price of $8.75 per share
    
    
    164,925
    
    
    April 2013
  10. Commitments and Contingencies
    52




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Nanosphere, Inc.
 Notes to Financial Statements  (Continued)
  OperatingYears Ending December 31
    
    Lease2011
    
    $
    4272012
    
    
    4392013
    
    
    4512014
    
    
    190Total minimum lease payments
    
    $
    1,507
  11. Long-Term Debt
   12. Supplemental Financial Information
 2010
    
    
    2009(in thousands)Inventories:Raw materials
    
    $
    760
    
    
    $
    1,062Work-in-process
    
    
    69
    
    
    
    Finished goods
    
    
    1,599
    
    
    
    1,879Total
    
    $
    2,428
    
    
    $
    2,941
 SP
  53




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Nanosphere, Inc.
 Notes to Financial Statements  (Continued)
 2010
    
    
    2009(in thousands)Property and Equipment  Net:Equipment with customers
    
    $
    2,164
    
    
    $
    1,568Computer equipment and software
    
    
    935
    
    
    
    1,016Laboratory equipment
    
    
    5,725
    
    
    
    4,721Furniture and fixtures
    
    
    269
    
    
    
    269Leasehold improvements
    
    
    2,878
    
    
    
    2,869Manufacturing equipment
    
    
    4,298
    
    
    
    4,143Office equipment
    
    
    67
    
    
    
    67Tooling
    
    
    1,423
    
    
    
    1,377Total property and equipment  at cost
    
    
    17,759
    
    
    
    16,030Less accumulated depreciation
    
    
    (12,617
    )
    
    
    (9,885
    )Property and Equipment  Net
    
    $
    5,142
    
    
    $
    6,145
 2010
    
    
    2009(in thousands)Other Current Liabilities:Accrued clinical trial expenses
    
    $
    603
    
    
    $
    940All other
    
    
    752
    
    
    
    1,364Total
    
    $
    1,355
    
    
    $
    2,304
 13. Selected Quarterly Financial Data (Unaudited)
 2010 Quarters(in thousands, except per share data)First
    
    
    Second
    
    
    Third
    
    
    FourthTotal revenue
    
    $
    826
    
    
    $
    517
    
    
    $
    373
    
    
    $
    310Loss from operations
    
    $
    (8,416
    )
    
    $
    (13,689
    )
    
    $
    (10,920
    )
    
    $
    (8,374
    )Net loss
    
    $
    (8,551
    )
    
    $
    (13,759
    )
    
    $
    (10,919
    )
    
    $
    (7,383
    )Per share data:Net loss per common share  basic and diluted
    
    $
    (0.31
    )
    
    $
    (0.50
    )
    
    $
    (0.39
    )
    
    $
    (0.27
    )
 2009 Quarters(in thousands, except per share data)First
    
    
    Second
    
    
    Third
    
    
    FourthTotal revenue
    
    $
    255
    
    
    $
    402
    
    
    $
    729
    
    
    $
    828Loss from operations
    
    $
    (7,982
    )
    
    $
    (8,131
    )
    
    $
    (7,996
    )
    
    $
    (8,932
    )Net loss
    
    $
    (8,193
    )
    
    $
    (8,384
    )
    
    $
    (8,242
    )
    
    $
    (9,130
    )Per share data:Net loss per common share  basic and diluted
    
    $
    (0.37
    )
    
    $
    (0.38
    )
    
    $
    (0.37
    )
    
    $
    (0.34
    )
 14. Subsequent Events
 RV+ SP RV+ RV+
  54




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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
     (1)
    
    Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the
assets of the Company;(2)
    
    Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and(3)
    
    Provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the Companys
assets that could have a material effect on the financial statements.
 Internal Control  Integrated Framework Internal Control  Integrated Framework
    55




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Item 9B. Other Information.
   56




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PART III.
 
 Item 10. Directors and Executive Officers of the Registrant.
  
 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.
   57




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##### Table of Contents



PART IV.
 
 Item 15. Exhibits, Financial Statement Schedules.
 (a)(1)
    
    Financial Statements
 Reports of Independent Registered Public Accounting FirmBalance Sheets as of December 31, 2010 and 2009Statements of Operations for the years ended December 31, 2010, 2009 and 2008Statements of Stockholders Equity (Deficit) for the years ended December 31, 2010, 2009 and 2008Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008Notes to Financial Statements(a)(2) Financial Statement SchedulesNone(a)(3) Exhibits required by Item 601 of Regulation S-K.
 Exhibit Number
    
    Exhibit Description3.1
    
    
    Second Amended and Restated Certificate of Incorporation of Nanosphere, Inc. (3) (Exhibit 3.1)3.2
    
    
    Amended and Restated Bylaws of Nanosphere, Inc. (3) (Exhibit 3.2)4.1
    
    
    Specimen of common stock certificate (4) (Exhibit 4.3)10.1
    
    
    Nanosphere, Inc. 2000 Equity Incentive Plan (1) (Exhibit 10.1)10.2
    
    
    Form of Nanosphere, Inc. 2000 Equity Incentive Plan Non-Qualified Stock Option Award Agreement, as
amended (1) (Exhibit 10.2)10.3
    
    
    Form of Nanosphere, Inc. 2000 Equity Incentive Plan Option Award Agreement (1) (Exhibit 10.3)10.4
    
    
    Nanosphere, Inc. 2007 Long-Term Incentive Plan, as amended and restated (4) (Exhibit 10.4)10.5
    
    
    Form of Nanosphere, Inc. 2007 Long-Term Incentive Plan Incentive Stock Option Award Agreement (Time
Vested) (1) (Exhibit 10.5)10.6
    
    
    Form of Nanosphere, Inc. 2007 Long-Term Incentive Plan Non-Qualified Stock Option Award Agreement
(Time Vested) (1) (Exhibit 10.6)10.7
    
    
    Form of Nanosphere, Inc. 2007 Long-Term Incentive Plan Option Award Agreement (Cliff-vested,
performance-accelerated) (1) (Exhibit 10.7)10.8
    
    
    Employment Agreement, dated as of July 19, 2004, by and between Nanosphere, Inc. and William P.
Moffitt III, as amended (1) (Exhibit 10.8)10.9
    
    
    Restricted Stock Purchase Agreement, dated as of March 16, 2006, by and between Nanosphere, Inc. and
William P. Moffitt III (3) (Exhibit 10.9)10.10
    
    
    Employment Agreement, dated January 2, 2001, by and between Nanosphere, Inc. and William Cork (4)
(Exhibit 10.10)10.11
    
    
    Employment Agreement, dated May 13, 2005, by and between Nanosphere, Inc. and Gregory Shipp (1)
(Exhibit 10.11)10.12
    
    
    Employment Agreement, dated September 5, 2005, by and between Nanosphere, Inc. and Michael McGarrity
(1) (Exhibit 10.12)10.13
    
    
    Employment Agreement, dated April 25, 2007, by and between Nanosphere, Inc. and J. Roger Moody, Jr.
(1) (Exhibit 10.13)10.14
    
    
    Employment Agreement, dated May 31, 2007, by and between Nanosphere, Inc. and Winton Gibbons (1)
(Exhibit 10.14)10.15
    
    
    Severance Agreement, dated as of June 4, 2007, by and between Nanosphere, Inc. and Stephen Wasko (1)
(Exhibit 10.15)
  58




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##### Table of Contents



Exhibit Number
    
    Exhibit Description10.16
    
    
    License Agreement, dated as of January 1, 2006, by and between Northwestern University and Nanosphere,
Inc. (2)# (Exhibit 10.16)10.17
    
    
    Non-Exclusive License Agreement, dated as of December 20, 2002, by and between Nanosphere, Inc. and
Abbott Laboratories (2)# (Exhibit 10.17)10.18
    
    
    Lease with Motorola, Inc., dated as of March 24, 2003, as amended (1) (Exhibit 10.18)10.19
    
    
    Loan and Security Agreement, dated as of February 7, 2007, by and between Nanosphere, Inc. and Venture
Lending & Leasing IV, Inc. (1) (Exhibit 10.19)10.20
    
    
    Loan and Security Agreement, dated as of February 21, 2007, by and between Nanosphere, Inc. and
Venture Lending & Leasing V, Inc. (1) (Exhibit 10.20)10.21
    
    
    Consulting and Non-Competition Agreement, dated as of October 31, 2002, by and between Nanosphere,
Inc. and Chad A. Mirkin, as amended (1) (Exhibit 10.21)10.22
    
    
    Bonus Agreement, dated as of March 16, 2006, by and between Nanosphere, Inc. and William P. Moffitt
III, as amended (2) (Exhibit 10.22)10.23
    
    
    Series D Preferred Stock and Warrant Purchase Agreement, dated as of April 12, 2006 (2) (Exhibit 10.24)10.24
    
    
    Note Purchase Agreement, dated as of March 15, 2006, by and between Nanosphere, Inc. and Lurie
Investment Fund, L.L.C. (2) (Exhibit 10.28)10.25
    
    
    Form of Indemnification Agreement (3) (Exhibit 10.29)10.26
    
    
    Non-Exclusive Financial Advisory Services Engagement Letter, dated as of August 8, 2007, by and
between Nanosphere, Inc. and Allen & Company LLC (4) (Exhibit 10.30)10.27
    
    
    Amended and Restated Employment Agreement dated as of January 1, 2009, between Nanosphere, Inc. and
Mr. William P. Moffitt (5) (Exhibit 10.31)10.28
    
    
    Second Amended and Restated Registration Rights Agreement, dated August 19, 2009 (6) (Exhibit 10.1)10.29
    
    
    Lease Agreement, dated August 28, 2009, between Nanosphere, Inc. and Northbrook Commercial Properties,
LLC (7) (Exhibit 10.1)10.30
    
    
    License Agreement, dated July 9, 2010, between Nanosphere, Inc. and Accelr8 Technology Corporation (8)
(Exhibit 10.1)10.31
    
    
    Settlement Agreement and Intellectual Property Purchase Agreement, dated August 18, 2010, between
Nanosphere, Inc. and Eppendorf AG (9) (Exhibit 10.1)23.1
    
    
    Consent of Deloitte & Touche LLP*31.1
    
    
    Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *31.2
    
    
    Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *32.1
    
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 *32.2
    
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 *
 
 *
    
    Filed herewith#
    
    Confidential treatment has been requested with respect to certain provisions of this
agreement. Omitted portions have been filed separately with the SEC.(1)
    
    Incorporated by reference from the Companys Registration Statement on Form S-1 as filed with
the Securities and Exchange Commission on August 13, 2007. The exhibit reference in
parentheses indicates the corresponding exhibit number in such Registration Statement.(2)
    
    Incorporated by reference from the Companys Amendment No. 1 to Form S-1 as filed with the
Securities and Exchange Commission on September 27, 2007. The exhibit reference in parentheses
indicates the corresponding exhibit number in such Amendment.(3)
    
    Incorporated by reference from the Companys Amendment No. 2 to Form S-1 as filed with the
Securities and Exchange Commission on October 17, 2007. The exhibit reference in parentheses
indicates the corresponding exhibit number in such Amendment.  59




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##### Table of Contents



(4)
    
    Incorporated by reference from the Companys Amendment No. 3 to Form S-1 as
filed with the Securities and Exchange Commission on October 29, 2007. The
exhibit reference in parentheses indicates the corresponding exhibit number in
such Amendment.(5)
    
    Incorporated by reference from the Companys Current Report on Form 8-K as
filed with the Securities and Exchange Commission on March 5, 2009. The exhibit
reference in parentheses indicates the corresponding exhibit number in such
Current Report.(6)
    
    Incorporated by reference from the Companys Quarterly Report on Form 10-Q as
filed with the Securities and Exchange Commission on November 5, 2009. The
exhibit reference in parentheses indicates the corresponding exhibit number in
such Quarterly Report.(7)
    
    Incorporated by reference from the Companys Current Report on Form 8-K as
filed with the Securities and Exchange Commission on September 1, 2009. The
exhibit reference in parentheses indicates the corresponding exhibit number in
such Current Report.(8)
    
    Incorporated by reference from the Companys Current Report on Form 8-K as filed with the
Securities and Exchange Commission on July 15, 2010. The exhibit reference in parentheses indicates
the corresponding exhibit number in such Current Report.(9)
    
    Incorporated by reference from
the Companys Current Report on Form 8-K as filed with the Securities and Exchange Commission on
August 24, 2010. The exhibit reference in parentheses indicates the corresponding exhibit number in
such Current Report.  60




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##### Table of Contents



SIGNATURES
  NANOSPHERE, INC.By:
    /s/ William P. MoffittWilliam P. MoffittDate: February 16, 2011
    
    President and Chief Executive Officer  Signature
    
    Title(s)
    
    Date/s/ William P. Moffitt

William P. Moffitt
    
    President, Chief Executive Officer, Director
(principal executive officer)
    
    February 16, 2011/s/ Roger Moody

Roger Moody
    
    Chief Financial Officer, Treasurer (principal
financial officer and principal accounting officer)
    
    February 16, 2011/s/ Mark Slezak

Mark Slezak
    
    Chairman of the board of directors
    
    February 16, 2011/s/ Jeffrey R. Crisan

Jeffrey R. Crisan
    
    Director
    
    February 16, 2011/s/ André de Bruin

André de Bruin
    
    Director
    
    February 16, 2011/s/ Chad A. Mirkin

Chad A. Mirkin
    
    Director
    
    February 16, 2011/s/ James J. Nahirny

James J. Nahirny
    
    Director
    
    February 16, 2011/s/ Sheli Z. Rosenberg

Sheli Z. Rosenberg
    
    Director
    
    February 16, 2011/s/ Lorin J. Randall

Lorin J. Randall
    
    Director
    
    February 16, 2011
  61