SEQUENOM INC, S-1/A, 2000-01-24

SEQUENOM INC
S-1/A, 2000-01-24
COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 24, 2000.
REGISTRATION NO. 333-91665
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SEQUENOM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 8731 77-0365889
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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11555 SORRENTO VALLEY ROAD
SAN DIEGO, CALIFORNIA 92121
(858) 350-0345
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
DR. HUBERT KOSTER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SEQUENOM, INC.
11555 SORRENTO VALLEY ROAD
SAN DIEGO, CALIFORNIA 92121
(858) 350-0345
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
<TABLE>
<S> <C>
FAYE H. RUSSELL, ESQ. ALAN F. DENENBERG, ESQ.
THOMAS E. HORNISH, ESQ. SHEARMAN & STERLING
ROBERT H. CUTLER, ESQ. 1550 EL CAMINO REAL, SUITE 100
BROBECK, PHLEGER & HARRISON LLP MENLO PARK, CALIFORNIA 94025
550 WEST C STREET, SUITE 1300 (650) 330-2200
SAN DIEGO, CALIFORNIA 92101
(619) 234-1966
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]

CALCULATION OF REGISTRATION FEE

<TABLE>
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<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (1) PER UNIT OFFERING PRICE(2) FEE(3)
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<S> <C> <C> <C> <C>
$28,304(5)
Common Stock, no par value(4)........... 5,817,826 shares $25.00 $145,445,650 11,074(6)
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</TABLE>

(1) Includes 750,000 shares of Common Stock that the Underwriters have the
option to purchase to cover over-allotments, if any, and 67,826 shares of
Common Stock to be sold by selling stockholders.
(2) The proposed maximum offering price per share is estimated solely for the
purpose of computing the amount of the registration fee.
(3) Calculated pursuant to Rule 457(a).
(4) The amount of shares registered also includes any shares initially offered
or sold outside the United States that are thereafter sold or resold in
the United States. Offers and sales of shares outside the United States
are being made pursuant to the exemption afforded by Rule 901 of
Regulation S and this Registration Statement shall not be deemed effective
with respect to such offers and sales.
(5) Previously paid.

(6) Paid herewith.

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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.

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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY +
+NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN +
+OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE +
+SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

PRELIMINARY PROSPECTUS Subject to completion
January 24, 2000
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5,067,826 Shares

[LOGO OF SEQUENOM INDUSTRIAL GENOMICS]
Common Stock

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We are selling 5,000,000 shares of our common stock. This is our initial public
offering of shares of our common stock. No public market currently exists for
our common stock. We expect the public offering price to be between $23.00 and
$25.00 per share.

This prospectus also relates to the public offering of up to 67,826 shares of
our common stock by two of our stockholders, ALPHA Beteiligungsverwaltungs GbR
and Halford Enterprises Ltd. We refer to them as selling stockholders in this
prospectus. The prices at which the selling stockholders may sell the shares
will be determined by the prevailing market price for the shares. We will not
receive any of the proceeds from the sale of these shares by the selling
stockholders.

We have applied to have our common stock listed on the Nasdaq National Market
under the symbol "SQNM."

Before buying any shares you should read the discussion of material risks of
investing in our common stock in "Risk factors" beginning on page 7.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

<TABLE>
<CAPTION>
PER
SHARE TOTAL
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<S> <C> <C>
Public offering price $ $
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Underwriting discounts and commissions $ $
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Proceeds, before expenses, to Sequenom $ $
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</TABLE>

The underwriters may also purchase up to 750,000 shares of common stock from us
at the public offering price, less the underwriting discounts and commissions,
within 30 days from the date of this prospectus. The underwriters may exercise
this option to only cover over-allotments, if any. If the underwriters exercise
this option in full, the total underwriting discounts and commissions will be
$ , and the total proceeds, before expenses, to Sequenom, Inc. will be
$ .

The underwriters are offering the common stock as set forth under
"Underwriting." Delivery of the shares will be made on or about .

WARBURG DILLON READ LLC

ROBERTSON STEPHENS

SG COWEN
<PAGE>

PERSONALIZED MEDICINE

DRUG DEVELOPMENT

AGRICULTURE

DIAGNOSTICS

SEQUENOM ADDRESSES MARKETS WITH AN IMMEDIATE OR EMERGING NEED FOR LARGE-SCALE
ANALYSES OF SNPS, THE MOST COMMON GENETIC VARIATIONS.

<PAGE>

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[PICTURES OF COMPONENTS OF MASSARRAY SYSTEM]

THE TOTAL
SNP
SOLUTION

ACCURACY

Direct measurement of molecules with a high level of accuracy

HIGH THROUGHPUT

20,000 samples per day; multiple tests per sample

FLEXIBILITY

Rapidly reconfigure tests based on new genetic information; analysis of DNA
and other molecules of medical relevance

AUTOMATION

Highly automated; no manual data interpretation

COST-EFFECTIVENESS

Low labor, reduced quantities of reagents or chemicals; minimal data
processing

INDUSTRIAL GENOMICS

Large-scale commercial use of the knowledge of DNA variations for improving
health, agriculture and livestock

[REPRESENTATION OF DNA SEQUENCE; PHOTOGRAPH OF COMPONENTS OF MASSARRAY
SYSTEMS]

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<PAGE>

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Until , 2000 (25 days after the date of this prospectus), all
dealers selling shares of our common stock, whether or not participating in
this offering, may need to deliver a prospectus. This delivery requirement is
in addition to the obligation of dealers to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.

TABLE OF CONTENTS

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<TABLE>
<S> <C>
Prospectus summary........................................................ 3
The offering.............................................................. 5
Summary consolidated financial and operating data......................... 6
Risk factors.............................................................. 7
Forward-looking information............................................... 17
Use of proceeds........................................................... 18
Dividend policy........................................................... 18
Capitalization............................................................ 19
Dilution.................................................................. 21
Selected consolidated financial data...................................... 23
Management's discussion and analysis of financial condition and results of
operations............................................................... 25
</TABLE>
<TABLE>
<S> <C>
Business.................................................................... 32
Management.................................................................. 48
Related party transactions.................................................. 60
Principal stockholders...................................................... 63
Description of securities................................................... 65
Shares eligible for future sale............................................. 70
Underwriting................................................................ 72
Selling stockholders........................................................ 74
Plan of distribution........................................................ 75
Legal matters............................................................... 76
Experts..................................................................... 76
Where you can find more information......................................... 77
Index to Consolidated Financial Statements F-1
</TABLE>
Sequenom, MassArray, Industrial Genomics, SpectroCHIP, SpectroJET,
BiomassPROBE, BioMASS and Genolyzer are trademarks of Sequenom, Inc. This
prospectus also refers to trade names and trademarks of other organizations.

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<PAGE>

Prospectus summary

This summary highlights information contained elsewhere in this prospectus. You
should read the entire prospectus carefully, especially the risks of investing
in our common stock discussed under "Risk factors." Our principal executive
offices are located at 11555 Sorrento Valley Road, San Diego, CA 92121. Our
telephone number is (858) 350-0345. Our web site is http://www.sequenom.com. We
do not intend the information found on our web site to be a part of this
prospectus.

OUR BUSINESS

We are a pioneer in the new field of industrial genomics. Industrial genomics
is the large scale commercial use of the knowledge of DNA variations for
improving health, agriculture and livestock. These variations are the origin of
most differences between individuals, including disease predispositions and
variations in drug responses. Single nucleotide polymorphisms, or SNPs, are the
most common variations. SNPs represent the smallest possible genetic change,
and occur where the DNA molecules of different persons vary at a single
location. We believe that SNP analysis will play an essential role in the
development of drugs, diagnostics and other life science applications in the
immediate future. Our goal is to be the leader in the commercialization of
industrial-scale SNP analysis.

We have developed the MassArray system, a highly accurate, cost-effective
technology that is capable of high throughput SNP analysis at high speeds. Our
strategy is to capitalize on the quickly emerging demand for SNP analysis in
the areas of drug discovery and development, DNA diagnostics, patient
stratification by genetic traits, clinical trials, seed development and
livestock breeding. Six centers, including several academic and governmental
sites, diagnostic laboratories and a leading biotechnology company, are using
our MassArray system, assessing its performance in the field, and providing us
with information regarding its performance.

THE SNP ANALYSIS MARKET

The SNP analysis market represents a significant portion of both the biochip,
or miniaturized chips containing DNA or other substances, and the DNA
sequencing markets and can be divided into three segments:

. confirmation of new sites of genetic variation in DNA, which typically
requires the analysis of a SNP in up to a hundred people;

. determination of the medical importance of SNPs, which typically requires the
analysis of a SNP in a few thousand diseased and healthy people; and

. utilization of SNPs in genomics-based drug development, disease
predisposition determination and diagnostic test development, which could
eventually require the analysis of multiple SNPs in millions of people.

Current methods of SNP analysis are inaccurate, non-automated, inflexible,
expensive or slow and are therefore primarily effective only as research tools.
To compensate for deficiencies in accuracy, current methods require either
repetitive testing of each sample or the use of a larger test population, which
makes current methods impractical for most commercial applications.

OUR SOLUTION

Our MassArray system directly analyzes SNPs by improving on a technology called
mass spectrometry. By using mass spectrometry to measure molecular weight, our
MassArray system is capable of characterizing molecules with a high level of
accuracy. This is done at a competitive price and in a single reading. Our
technology is also extremely versatile and can be rapidly reconfigured for
different types of analyses. In addition, the MassArray system is capable of
reading up to 20,000 SNPs per day, which we believe is a throughput that can
meet commercial needs.

3
<PAGE>

Our MassArray system has three components--hardware, software and disposables.
The hardware components include a mass spectrometer and liquid dispensing
units, which are off-the-shelf instruments modified to accommodate our
MassArray technology. Our proprietary Genolyzer bioinformatics software
automatically calculates, records, compares and reports genotypes at a rate of
three seconds per sample. Our disposables consist of MassArray kits for SNP
sample preparation, including the proprietary SpectroCHIP on which we place
samples in a 96 spot array for reading by the mass spectrometer.

COMMERCIALIZATION PLAN

We are seeking to penetrate the SNP analysis market by identifying areas of
potential widespread interest and establishing commercial relationships with
opinion leaders. We have initiated this effort by selecting six highly visible
academic, government and commercial centers as collaborators to validate our
MassArray system in pre-launch testing. These centers are Genzyme Corporation,
the US Department of Agriculture, the National Institutes of Health, the
National Cancer Institute, the University of Munster and GLE Medicon in
Germany. In October 1999, we contracted for the first sale of a MassArray
system. We commenced a commercial launch of our MassArray system during the
fourth quarter of 1999.

We intend to develop proprietary disposable SNP tests, called assays, and
software products that are useful initially as research tools to confirm the
association of particular SNPs with particular diseases and subsequently as
diagnostic kits that can be sold for SNP profiling. In addition, we will seek
to retain commercial rights to assays that we develop on behalf of or together
with our customers. Over time, with our customers, we intend to develop
knowledge-based genomic products that combine pharmaceutical, medical and
genetic information, such as validated SNP sets for specific diseases. Also, in
addition to DNA, we believe our MassArray technology can serve as a platform
for the analysis of many other biomolecules. We therefore intend to develop new
products for applications other than DNA and SNP analysis.

4
<PAGE>

The offering

The following information assumes that the underwriters do not exercise the
over-allotment option we granted to them to purchase additional shares in the
offering.

<TABLE>
<C> <S>
Common stock we are offering............... 5,000,000 shares
Common stock to be outstanding after the
offering.................................. 22,601,477 shares
Proposed Nasdaq National Market symbol..... SQNM
For general corporate purposes,
including hiring additional sales
and customer support personnel,
expansion of our facilities,
continued development and
manufacturing of existing
products, research and
development of additional
products, expenses for filing and
pursuing patent applications,
working capital and potential
acquisitions of products,
technologies or companies and
repayment of long-term debt of
approximately $3.3 million.
Use of proceeds............................ Please see "Use of proceeds."
</TABLE>

Except as otherwise indicated, you should assume the following when analyzing
information in this prospectus:

. the conversion of 14,842,757 outstanding shares of our preferred stock into
14,842,757 shares of our common stock on a one-for-one basis upon the closing
of this offering;

. the sale of approximately $1,560,000 in shares of common stock to two German
consulting firms in a private sale to be completed immediately prior to this
offering, or 65,000 shares assuming an initial public offering price of
$24.00 per share;

. the conversion of debt owed to Technologie Beteiligungs Gesellschaft, or TBG,
in the amount of DEM4 million, approximately $2.1 million, into 272,108
shares of our common stock upon the closing of this offering at an assumed
price of $24.00 per share;

. the issuance of 24,792 shares of our common stock upon the closing of this
offering in satisfaction of accrued interest of approximately DEM1.7 million
or $930,625 payable to TBG; and

. no exercise of the underwriters' over-allotment option.

We have an obligation to issue shares of common stock upon exercise of options
and warrants outstanding at December 27, 1999, in addition to the shares of
common stock to be outstanding after this offering. These shares, when issued,
will include:

. 750,000 shares issuable upon exercise of the underwriters' over-allotment
option;

. 1,287,049 shares issuable upon the exercise of options outstanding as of
December 27, 1999, at a weighted average exercise price of $1.66 per share.
This share amount consists of 2,475,250 shares issuable upon the exercise of
options outstanding at September 30, 1999 and 335,250 shares issuable upon
the exercise of options granted during October 1999, less 1,523,451 shares
issued upon exercise of options during the period October 1, 1999 through
December 27, 1999;

. 176,503 shares issuable upon the exercise of warrants outstanding as of
December 27, 1999 at a weighted average exercise price of $2.10 per share;
and

. 248,750 additional shares available for future grant as of December 27, 1999
under our 1998 stock plan, and an additional 850,000 shares made available
for future grant under our stock plans to be adopted at the close of this
offering. For a description of our stock option and stock purchase plans,
please see "Management--Employee benefit plans."

We base our calculation of the number of shares of common stock outstanding
after the offering on shares outstanding as of December 27, 1999. Please see
"Capitalization."

5
<PAGE>

Summary consolidated financial and operating data

The pro forma balance sheet data reflects the conversion of long-term debt into
common stock, which will occur upon the closing of this offering, and stock
option activity from October 1, 1999 through December 27, 1999. The pro forma
as adjusted balance sheet data reflects the receipt of the net proceeds from
the sale of 5,000,000 shares of our common stock at an assumed price to the
public of $24.00 per share, after deducting the underwriting discounts and
commissions and estimated offering expenses, and the repayment of long-term
debt and accrued interest.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
1994 1995 1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF (In thousands, except per share
OPERATIONS DATA data)
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Research and development
grants................. $-- $-- $893 $527 $351 $126 $81
Costs and expenses:
Research and
development.......... 922 1,274 3,136 3,532 6,188 3,550 7,138
General and
administrative....... 230 420 1,032 1,861 4,218 2,640 5,363
Amortization of
deferred stock
compensation......... -- -- -- -- -- -- 3,615
----------- ------- ------- ------- -------- ------- --------
Total costs and
expenses............... 1,152 1,694 4,168 5,393 10,406 6,190 16,116
----------- ------- ------- ------- -------- ------- --------
Loss from operations.... (1,152) (1,694) (3,275) (4,866) (10,055) (6,064) (16,035)
Other income (expense):
Interest income....... 3 2 73 57 397 291 1,225
Interest expense...... -- (28) (275) (308) (613) (230) (576)
----------- ------- ------- ------- -------- ------- --------
Net loss................ $(1,149) $(1,720) $(3,477) $(5,117) $(10,271) $(6,003) $(15,386)
=========== ======= ======= ======= ======== ======= ========
Net loss per share,
basic and diluted...... $(1,149,498) $(65.87) $(23.45) $(22.62) $(33.33) $(20.12) $(39.41)
Shares used in computing
net loss per share,
basic and diluted...... -- 26 148 226 308 298 390
Pro forma net loss per
share, basic and
diluted................ $(1.02) $(1.03)
Shares used in computing
pro forma net loss per
share basic and
diluted................ 9,749 14,714
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA (In thousands)
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Cash, cash equivalents and short-term invest-
ments.......................................... $28,069 $29,562 $136,742
Working capital................................. 24,771 26,264 133,444
Total assets.................................... 34,632 36,125 143,305
Total long-term obligations..................... 7,690 5,512 1,313
Total stockholders' equity...................... 22,967 21,633 133,017
</TABLE>

Please see Note 2 to our consolidated financial statements for an explanation
of the method used to calculate the net loss per share and the number of shares
used in the computation of per share amounts.

6
<PAGE>

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Risk factors

You should carefully consider the risks described below together with all of
the other information included in this prospectus before making an investment
decision. If any of the following risks actually occurs, our business,
financial condition or results of operations could be harmed. In that case,
the trading price of our common stock could decline, and you may lose all or
part of your investment.

RISKS RELATED TO OUR BUSINESS

WE ARE AT AN EARLY STAGE OF DEVELOPMENT AND MAY NOT SUCCEED OR BECOME
PROFITABLE.

We commenced operations in 1994 and are at an early stage of development. We
have incurred significant losses to date and our revenues have been limited to
grants from governmental bodies. Our initial products are in testing at a
number of sites and will not be commercially launched until late 1999. As a
result, our business is subject to all of the risks inherent in the
development of a new business enterprise, such as the need:

. to obtain substantial capital to support the expenses of developing our
technology and commercializing our products;

. to develop a market for our products;

. to successfully transition from a company with a research focus to a company
capable of supporting commercial activities; and

. to attract and retain qualified management, sales, technical and scientific
staff.

Our operations also may be affected by problems frequently encountered with
the use of new technologies and by the competitive environment in which we
operate, as well as the risks detailed below.

IF WE INCUR LOSSES IN THE FUTURE, AS WE EXPECT TO DO, THE VALUE OF OUR STOCK
COULD DECREASE.

Since inception, we have recognized no revenue from product sales. Our
expenses have exceeded revenue in each of the years since our inception. It is
uncertain when, if ever, we will become profitable. As of September 30, 1999,
our accumulated deficit was $37.1 million. Our expenses have consisted
principally research and development and of general and administrative
expenses incurred while building our business infrastructure. We expect to
continue to experience significant operating losses in the future as we
continue our research and development efforts, further develop our
manufacturing capabilities and expand our marketing and sales force in an
effort to commercialize our products. Our net operating loss and credit
carryforwards may be limited due to a cumulative change in ownership of more
than 50%, which occurred during 1998 and which is anticipated to occur with
the offering.

IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDS, AS WE EXPECT, WE WOULD HAVE TO
REDUCE OR CEASE OPERATIONS, ATTEMPT TO SELL SOME OR ALL OF OUR OPERATIONS OR
MERGE WITH ANOTHER ENTITY.

Based on our current plans, we believe our existing cash, cash equivalents and
short-term investments, together with the net proceeds of this offering will
be sufficient to fund our operating expenses, debt obligations and capital
requirements through at least the next 24 months. However, the actual amount
of funds that we will need during or after the next 24 months will be
determined by many factors, some of which are beyond our control, and we may
need funds sooner than currently anticipated. These factors include:

. the level of our success in selling our MassArray system and associated
technologies;

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7
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RISK FACTORS

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. our progress with research and development;

. our ability to introduce and sell new products;

. the level of our sales and marketing expenses;

. the level of our expenses associated with unforeseen litigation;

. the costs and timing of obtaining new patent rights; and

. regulatory changes and competition and technological developments in the
market.

If additional funds are required and we are unable to obtain them on terms
favorable to us, we may be required to cease or reduce further
commercialization of our products, to sell some or all of our technology or
assets or to merge with another entity. If we raise additional funds by
selling additional shares of our capital stock, the ownership interest of our
stockholders will be diluted.

WE MUST DEVELOP AND COMMERCIALIZE OUR NEXT GENERATION PRODUCTS AT REDUCED
COSTS FOR US TO BE PROFITABLE.

Our current products do not provide sufficient gross margin for us to become
profitable. We intend to develop and manufacture our next generation products
at a lower cost than the cost of our current products. We may not be
successful in doing so. In addition, our gross margin and profitability may be
negatively impacted if we are unable to achieve market acceptance or
appropriate pricing for our next generation products.

WE MAY NOT BE ABLE TO SUCCESSFULLY ADAPT OUR PRODUCTS FOR COMMERCIAL
APPLICATIONS.

We have completed the initial development of our MassArray technology for
applications in the genetic aspects of drug development and life science
research. We may not be able to successfully adapt our products to the
commercial requirements of these fields. A number of potential applications of
our technology in these fields will require significant enhancements in our
core technology, including adaptation of our software and further
miniaturization. In addition, we need to enhance our population-based DNA
bank, establish databases for determining the medical importance of SNPs and
rapidly design assays for SNP analysis in sufficient quantity to meet the high
throughput that we expect our future customers will require. If we are unable,
for technological or other reasons, to complete the development, introduction
or scale-up of the manufacturing of any product, or if any product does not
achieve a significant level of market acceptance, our business, financial
condition and results of operations could be seriously harmed. Market
acceptance will depend on many factors, including demonstrating to customers
that our technology is superior to other technologies and products which are
available now or which may become available in the future. We believe that our
revenue growth and profitability will substantially depend on our ability to
overcome significant technological challenges and successfully introduce our
products into the marketplace.

OUR SYSTEM AND RELATED DISPOSABLE SALES MAY BE LIMITED IF OUR MASSARRAY SYSTEM
IS USED BELOW ITS CAPACITY AS A RESULT OF THE SPEED OF SAMPLE PREPARATION AND
THE NEED FOR ASSAY DESIGN.

The need to design a unique assay for each newly discovered SNP can
substantially delay the commencement of the analysis of that SNP. In addition,
the extraction of DNA from biological material is time consuming. MassArray
system users who need to develop assays or who lack sufficient sample
preparation resources therefore may be unable to use our system to its full
capacity. Customers who are unable to use our MassArray system to full
capacity may share MassArray systems, which would result in lower system
sales. Therefore, customers may not purchase sufficient quantities of
disposables for us to become profitable.

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8
<PAGE>

RISK FACTORS

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WE DEPEND ON OUR CUSTOMERS TO PURCHASE SUFFICIENT QUANTITIES OF SPECTROCHIPS
AND OTHER DISPOSABLES FOR US TO BE PROFITABLE.

Our customers may not generate sufficient throughput using our MassArray
system. This may limit their purchases of SpectroCHIPs and other disposables.
Factors which may limit the use of SpectroCHIPs and other disposables include:
the acceptance of our technology by our customers, the ability to analyze more
than one SNP simultaneously on a single spot and the training of customer
personnel. If our customers are slow to, or never, achieve sufficient
throughput, we may never achieve profitability.

IF OUR CUSTOMERS ARE UNABLE TO ADEQUATELY PREPARE SAMPLES AS REQUIRED BY OUR
SYSTEM, THE OVERALL MARKET DEMAND FOR OUR PRODUCTS MAY DECLINE.

Before using our MassArray system, customers must prepare samples by following
several steps that are prone to human error, including DNA isolation and DNA
segment amplification. If DNA samples are not prepared appropriately, our
MassArray system will not generate a reading. If our customers experience
similar difficulties, they may achieve lower levels of throughput than those
for which our system was designed. If our customers are unable to generate
expected levels of throughput, they may not continue to purchase our
disposables, they may express their discontent with our products in the
marketplace, potentially driving down demand for our products, or they may
collaborate with others to jointly use our products. Any or all of these
actions would reduce the overall market demand for our products.

IF ETHICAL AND OTHER CONCERNS SURROUNDING THE USE OF GENETIC INFORMATION BE-
COME WIDESPREAD, WE MAY HAVE LESS DEMAND FOR OUR PRODUCTS.

Genetic testing has raised ethical issues regarding confidentiality and the
appropriate uses of the resulting information. For these reasons, governmental
authorities may call for limits on or regulation of the use of genetic testing
or prohibit testing for genetic predisposition to certain conditions,
particularly for those that have no known cure. Any of these scenarios could
reduce the potential markets for our products, which could seriously harm our
business, financial condition and results of operations.

WE DEPEND ON THIRD-PARTY PRODUCTS AND SERVICES AND SOLE OR LIMITED SOURCES OF
SUPPLY TO DEVELOP AND MANUFACTURE SOME COMPONENTS OF OUR PRODUCTS.

We rely to a substantial extent on outside vendors to manufacture many of the
components and subassemblies used in our products. Some of these components
and subassemblies are obtained from a single supplier or a limited group of
suppliers. Our reliance on outside vendors generally, and a sole or a limited
group of suppliers in particular, involves several risks, including:

. the inability to obtain an adequate supply of required components due to
manufacturing capacity constraints, a discontinuance of a product by a
third-party manufacturer or other supply constraints;

. reduced control over quality and pricing of components; and

. delays and long lead times in receiving materials from vendors.

WE HAVE LIMITED COMMERCIAL MANUFACTURING CAPABILITY AND EXPERIENCE AND MAY EN-
COUNTER MANUFACTURING PROBLEMS OR DELAYS WHICH COULD RESULT IN LOWER REVENUE.

We have not yet produced our SpectroCHIP in commercial quantities. We may not
be able to maintain acceptable quality standards while producing commercial
quantities. Our customers also require that we comply with current good
manufacturing practices that we may not be able to meet. To achieve the

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production levels necessary for successful commercialization of our products,
we will need to scale-up our manufacturing facilities, establish more
automated manufacturing capabilities and maintain adequate levels of
inventory. We may not be able to manufacture sufficient quantities to meet
market demand. If we cannot achieve the required level and quality of
production, we may need to outsource production or rely on licensing and other
arrangements with third parties who possess sufficient manufacturing
facilities and capabilities. This could reduce our gross margins and expose us
to the risks inherent in relying on others. We may not be able to successfully
outsource our production or enter into licensing or other arrangements with
these third parties, which could adversely affect our business.

WE HAVE A LIMITED SALES FORCE AND LIMITED EXPERIENCE IN COMMERCIALIZING OUR
PRODUCTS WHICH MAY CAUSE SIGNIFICANT DIFFICULTIES IN COMMERCIALIZING OUR PROD-
UCTS.

Our direct sales force may not be sufficiently large or knowledgeable to
successfully penetrate the market. We may not be able to expand our direct
sales force to meet our commercial objectives. In addition, our sales force
may not be able to address complex scientific and technical issues raised by
our customers. Our customer support personnel may also lack the broad range of
technical expertise required to adequately service and support our products in
the field.

OUR ABILITY TO COMPETE IN THE MARKET MAY DECLINE IF WE LOSE SOME OF OUR INTEL-
LECTUAL PROPERTY RIGHTS DUE TO BECOMING INVOLVED IN EXPENSIVE LAWSUITS TO PRO-
TECT OR ENFORCE OUR PATENTS.

Our success will depend on our ability to obtain and protect patents on our
technology and to protect our trade secrets. Our patents, which have been or
may be issued, may not afford meaningful protection for our technology and
products. Others may challenge our patents and, as a result, our patents could
be narrowed, invalidated or unenforceable. In addition, our current and future
patent applications may not result in the issue of patents in the United
States or foreign countries. Competitors may develop products similar to ours
that do not conflict with our patents. In addition, others may develop
products for use in the MassArray system in violation of our patents that may
reduce sales of disposables. In order to protect or enforce our patent rights,
we may initiate patent litigation against third parties, such as infringement
suits or interference proceedings. These lawsuits could be expensive, take
significant time and divert management's attention from other business
concerns. We may also provoke these third parties to assert claims against us.
The patent position of biotechnology firms generally is highly uncertain,
involves complex legal and factual questions, and has recently been the
subject of much litigation. No consistent policy has emerged from the US
Patent and Trademark Office or the courts regarding the breadth of claims
allowed or the degree of protection afforded under biotechnology patents. In
addition, there is a substantial backlog of biotechnology patent applications
at the US Patent and Trademark Office, and the approval or rejection of patent
applications may take several years.

THE RIGHTS WE RELY UPON TO PROTECT OUR INTELLECTUAL PROPERTY UNDERLYING OUR
PRODUCTS MAY NOT BE ADEQUATE, WHICH COULD ENABLE THIRD PARTIES TO USE OUR
TECHNOLOGY AND WOULD REDUCE OUR ABILITY TO COMPETE IN THE MARKET.

We require our employees, consultants and advisors to execute confidentiality
agreements. However, we cannot guarantee that these agreements will provide us
with adequate protection against improper use or disclosure of confidential
information. In addition, in some situations, these agreements may conflict
with, or be subject to, the rights of third parties with whom our employees,
consultants or advisors have prior employment or consulting relationships.
Further, others may independently develop substantially equivalent proprietary
information and techniques, or otherwise gain access to our trade secrets.

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OUR SUCCESS WILL DEPEND PARTLY ON OUR ABILITY TO OPERATE WITHOUT INFRINGING ON
OR MISAPPROPRIATING THE PROPRIETARY RIGHTS OF OTHERS.

We may be sued for infringing on the patent rights of others. Intellectual
property litigation is costly, and, even if we prevail, the cost of such
litigation could adversely affect our business, financial condition and
results of operations. In addition, litigation is time consuming and could
divert management attention and resources away from our business. If we do not
prevail in any litigation, in addition to any damages we might have to pay, we
could be required to stop the infringing activity or obtain a license. Any
required license may not be available to us on acceptable terms, or at all. In
addition, some licenses may be non-exclusive, and therefore, our competitors
may have access to the same technology licensed to us. If we fail to obtain a
required license or are unable to design around a patent, we may be unable to
sell some of our products, which could have a material adverse affect on our
business, financial condition and results of operations. From time to time, we
receive letters from companies regarding their issued patents and patent
applications alleging possible infringement. For example, we have received
correspondence from a company informing us of its recently issued patent
concerning a diagnostic method relying upon a specific manner for comparing
mass spectra, upon which it believes we may be infringing. We do not believe
that we infringe this patent.

IF WE DO NOT SUCCEED IN OBTAINING DEVELOPMENT AND MARKETING RIGHTS FOR SOME OF
THE ASSAYS DEVELOPED IN COLLABORATION WITH OUR CUSTOMERS, OUR REVENUE AND
PROFITABILITY COULD BE REDUCED.

Our business strategy includes the development of assays in collaboration with
customers, and we intend to obtain commercialization rights for those assays.
If we are unable to obtain rights to those assays, our revenue and
profitability could be reduced. To date, we have not initiated significant
activities with respect to the exploitation of any commercialization rights or
products developed in collaboration with third parties. Even if we obtain
commercialization rights, commercialization of products may require resources
that we do not currently possess and may not be able to develop or obtain.

WE MAY BE UNABLE TO OBTAIN LICENSES TO PATENTED SNPS WHICH COULD PREVENT US
FROM OBTAINING SIGNIFICANT REVENUE OR BECOMING PROFITABLE.

The US Patent and Trademark Office has issued at least one patent to a third
party relating to a SNP. If important SNPs are patented, we will need to
obtain rights to those SNPs in order to develop, use and sell related assays.
Required licenses may not be available on commercially acceptable terms, or at
all. If we fail to obtain licenses to important patented SNPs, we may never
achieve significant revenue or become profitable.

BECAUSE OUR PRODUCTS CURRENTLY DEPEND ON COMPONENTS LICENSED FROM THIRD PAR-
TIES, A BREACH BY US OF ANY OF THE TERMS OF THESE LICENSES COULD RESULT IN THE
LOSS OF ACCESS TO THESE COMPONENTS AND COULD DELAY OR SUSPEND OUR COMMERCIAL-
IZATION EFFORTS.

Some aspects of our technology have been acquired or licensed from third
parties. A failure by us to maintain the right to use these components could
seriously harm our business, financial condition and results of operations. In
addition, changes to or termination of our agreements with these third parties
could result in the loss of access to these aspects of our technology and
could delay or suspend our commercialization efforts.

Our grants from the government give the government certain license rights to
inventions resulting from funded work in the event that we fail to
commercialize the technology developed using government funds. Our business
could be harmed if the government exercises those rights.

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OUR ACADEMIC ARRANGEMENTS ARE AN IMPORTANT PART OF OUR BUSINESS AND FAILURE TO
MAINTAIN EXISTING RELATIONSHIPS OR ESTABLISH ADDITIONAL RELATIONSHIPS COULD
ADVERSELY AFFECT OUR RESEARCH AND PRODUCT DEVELOPMENT EFFORTS.

We have relationships with scientists and consultants at academic and other
institutions who conduct research at our request. Our existing relationships
may not be successful. These researchers are not employed by us and may have
commitments to, or consulting or advisory contracts with, other entities that
may limit their availability to work on our projects. As a result, we have
limited control over their activities and, except as otherwise required by our
agreements with these persons, we can expect only limited amounts of their
time to be dedicated to our projects. Our ability to make new discoveries and
to commercialize products based on those discoveries may depend in part on
continued arrangements with researchers at academic and other institutions. We
may not be able to negotiate acceptable arrangements with academic or other
institutions or individuals.

FAILURE TO EXPAND OUR INTERNATIONAL SALES AS WE INTEND WOULD REDUCE OUR ABIL-
ITY TO BECOME PROFITABLE.

We expect that a significant portion of our sales will be made outside the
United States. A successful international effort will require us to develop
relationships with international customers and partners. We may not be able to
identify, attract or retain suitable international customers and partners. As
a result, we may be unsuccessful in our international expansion efforts.
Furthermore, expansion into international markets will require us to continue
to establish and grow foreign operations, hire additional personnel to run
these operations and maintain good relations with our foreign customers and
partners.

International operations involve a number of risks not typically present in
domestic operations, including:

. currency fluctuation risks;

. changes in regulatory requirements;

. costs and risks of deploying systems in foreign countries;

. licenses, tariffs and other trade barriers;

. political and economic instability;

. difficulties in staffing and managing foreign operations;

. potentially adverse tax consequences; and

. the burden of complying with a wide variety of complex foreign laws and
treaties.

Our international operations will also be subject to the risks associated with
the imposition of legislation and regulations relating to the import or export
of high technology products. We cannot predict whether tariffs or restrictions
upon the importation or exportation of our products will be implemented by the
United States or other countries.

WE MAY LOSE MONEY WHEN WE EXCHANGE FOREIGN CURRENCY RECEIVED FROM INTERNA-
TIONAL SALES INTO US DOLLARS.

A significant portion of our business is expected to be conducted in
currencies other than the US dollar. We recognize foreign currency gains or
losses arising from our operations in the period incurred. As a result,
currency fluctuations between the US dollar and the currencies in which we do
business will cause foreign currency translation gains and losses. We cannot
predict the effects of exchange rate fluctuations upon our future operating
results because of the number of currencies involved, the variability of

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currency exposure and the potential volatility of currency exchange rates. We
do not currently engage in foreign exchange hedging transactions to manage our
foreign currency exposure.

THE SALES CYCLE FOR OUR PRODUCTS IS LENGTHY. WE MAY EXPEND SUBSTANTIAL FUNDS
AND MANAGEMENT EFFORT WITH NO ASSURANCE OF SUCCESSFULLY SELLING OUR PRODUCTS
OR SERVICES.

Our ability to obtain customers for our products and services depends in
significant part upon the perception that our products and services can help
accelerate efforts in genomics. The sales cycle is typically lengthy. Our
sales effort requires the effective demonstration of the benefits of our
products and services to and significant training of many different
departments within a potential customer. These departments might include
research and development personnel and key management. In addition, we may be
required to negotiate agreements containing terms unique to each customer. We
may expend substantial funds and management effort with no assurance that we
will successfully sell our products or services.

OUR INDUSTRY IS HIGHLY COMPETITIVE AND WE MAY NOT HAVE THE RESOURCES REQUIRED
TO SUCCESSFULLY COMPETE.

The biotechnology industry is highly competitive. We compete with companies in
the United States and abroad that are engaged in the development and
production of products that analyze genetic information. They include:

. biotechnology, pharmaceutical, chemical and other companies;

. academic and scientific institutions;

. governmental agencies; and

. public and private research organizations.

Many of our competitors have much greater financial, technical, research,
marketing, sales, distribution, service and other resources than we do.
Moreover, our competitors may offer broader product lines and have greater
name recognition than we do, and may offer discounts as a competitive tactic.
In addition, several development stage companies are currently making or
developing products that compete with or will compete with our products. Our
competitors may develop or market technologies or products that are more
effective or commercially attractive than our current or future products, or
that may render our technologies and products obsolete.

WE ARE HIGHLY DEPENDENT ON PRINCIPAL MEMBERS OF OUR MANAGEMENT AND SCIENTIFIC
STAFF, THE LOSS OF WHOM WOULD IMPAIR OUR ABILITY TO COMPETE.

We are highly dependent on the principal members of our management and
scientific staff. The loss of the services of any of these persons could delay
or reduce our product development and commercialization efforts. In addition,
we will require additional personnel in the areas of scientific research,
diagnostic testing, manufacturing and marketing. We may not be able to attract
and retain qualified personnel, which could seriously harm our business,
financial condition and results of operations.

WE MAY NOT HAVE ADEQUATE INSURANCE AND IF WE BECOME SUBJECT TO PRODUCT LIABIL-
ITY CLAIMS, WE MAY EXPERIENCE REDUCED DEMAND FOR OUR PRODUCTS OR BE REQUIRED
TO PAY DAMAGES THAT EXCEED OUR INSURANCE LIMITATIONS.

Our business exposes us to potential product liability claims that are
inherent in the life science field. Any product liability claim in excess of
our insurance coverage would have to be paid out of our cash-

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reserves which would have a detrimental effect on our financial condition. It
is difficult to determine whether we have obtained sufficient insurance to
cover potential claims. Also, we cannot assure you that we can or will
maintain our insurance policies on commercially acceptable terms, or at all.

RESPONDING TO CLAIMS RELATING TO IMPROPER HANDLING, STORAGE OR DISPOSAL OF
HAZARDOUS CHEMICALS AND RADIOACTIVE AND BIOLOGICAL MATERIALS WHICH WE USE,
COULD BE TIME CONSUMING AND COSTLY.

We use controlled hazardous and radioactive materials in our business. The
risk of accidental contamination or injury from these materials cannot be
completely eliminated. If an accident with these substances occurs, we could
be liable for any damages that result, which could seriously harm our
business. Additionally, an accident could damage our research and
manufacturing facilities and operations, resulting in delays and increased
costs.

IF OUR MANUFACTURING FACILITY IS DAMAGED, WE COULD EXPERIENCE LOST REVENUE AND
OUR BUSINESS WOULD BE SERIOUSLY HARMED.

Our only manufacturing facility is located in San Diego, California. Damage to
our facility due to fire, natural disaster, power loss, communications
failure, unauthorized entry or other events could cause us to cease
development and manufacturing of our products. We have limited insurance to
protect against business interruption; however, there can be no assurance this
insurance will be adequate or will continue to be available to us on
commercially reasonable terms, or at all.

IF WE OR OUR SUPPLIERS FAIL TO BE YEAR 2000 OR Y2K COMPLIANT IT COULD CAUSE
INTERRUPTIONS IN OUR SUPPLY OF PRODUCTS AND GENERATE SUBSTANTIAL EXPENSES FOR
OUR BUSINESS.

The Y2K issue is a situation that results from computer systems and software
products being coded using two digits rather than four digits to define the
applicable year. Computer systems and software products often utilize embedded
technology that is time-sensitive and may recognize a date falling in the year
2000 as falling in the year 1900 which could cause computer system failures
and errors leading to a disruption of our business operations. The Y2K issue
could affect not only our operations but also the operations of our business
partners, customers and suppliers among others. If we or our suppliers fail to
be Y2K compliant, our business, financial condition and results of operations
could be materially disrupted. Please see "Management's discussion and
analysis of financial condition and results of operations--Impact of the year
2000" for additional information regarding the Y2K issue.

IF WE DO NOT EFFECTIVELY MANAGE OUR GROWTH, IT COULD AFFECT OUR ABILITY TO
PURSUE BUSINESS OPPORTUNITIES AND EXPAND OUR BUSINESS.

Growth in our business has placed, and will continue to place, a significant
strain on our management systems and resources. We will need to continue to
improve our operational and financial systems and managerial controls and
procedures and expand, train and manage our workforce. We will have to
maintain close coordination among our technical, accounting, marketing, sales
and research departments. If we fail to effectively manage our growth and
address the above concerns, it could affect our ability to pursue business
opportunities and expand our business.

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RISKS RELATED TO THIS OFFERING

CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK AMONG OUR EXISTING EXECUTIVE
OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS MAY PREVENT NEW INVESTORS FROM
INFLUENCING SIGNIFICANT CORPORATE DECISIONS.

Upon completion of this offering, our executive officers, directors and
beneficial owners of 5% or more of our common stock and their affiliates will,
in aggregate, beneficially own approximately % of our outstanding common
stock or % if the underwriters' over-allotment option is exercised in full.
As a result, these persons, acting together, will have the ability to
determine the outcome of all matters submitted to our stockholders for
approval, including the election and removal of directors and any merger,
consolidation or sale of all or substantially all of our assets. In addition,
such persons, acting together, will have the ability to control the management
and affairs of our company. Accordingly, this concentration of ownership may
harm the market price of our common stock by:

. delaying, deferring or preventing a change in control of our company;

. impeding a merger, consolidation, takeover or other business combination
involving our company; or

. discouraging a potential acquirer from making a tender offer or otherwise
attempting to obtain control of our company.

Please see "Principal stockholders" for additional information on
concentration of ownership of our common stock.

THERE MAY NOT BE AN ACTIVE, LIQUID TRADING MARKET FOR OUR COMMON STOCK.

We cannot assure you that an active trading market for our common stock will
develop following this offering. You may not be able to sell your shares
quickly or at the market price if trading in our stock is not active. The
initial public offering price will be determined by negotiations between us
and the representatives of the underwriters based upon a number of factors.
The initial public offering price may not be indicative of prices that will
prevail in the trading market. Please see "Underwriting" for more information
regarding our arrangement with the underwriters and the factors considered in
setting the initial public offering price.

OUR STOCK PRICE COULD BE VOLATILE AND YOUR INVESTMENT COULD SUFFER A DECLINE
IN VALUE, WHICH IN TURN COULD AFFECT OUR ABILITY TO RAISE ADDITIONAL CAPITAL
TO FUND THE COMMERCIALIZATION OF OUR PRODUCTS.

The trading price of our common stock is likely to be highly volatile and
could be subject to wide fluctuations in price in response to various factors,
many of which are beyond our control, including:

. actual or anticipated variations in quarterly operating results;

. announcements of technological innovations by us or our competitors;

. new products or services introduced or announced by us or our competitors;

. changes in financial estimates by securities analysts;

. conditions or trends in the biotechnology, pharmaceutical and genomics
industries;

. changes in the market valuations of other similar companies;

. announcements by us of significant acquisitions, strategic partnerships,
joint ventures or capital commitments;

. additions or departures of key personnel; and

. sales of our common stock.

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In addition, the stock market in general, and the Nasdaq National Market and
the market for technology companies in particular, has experienced extreme
price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of those companies. Further,
there has been particular volatility in the market prices of securities of
biotechnology and life sciences companies. These broad market and industry
factors may seriously harm the market price of our common stock, regardless of
our operating performance. In the past, following periods of volatility in the
market price of a company's securities, securities class-action litigation has
often been instituted against that company. Such litigation, if instituted
against us, could result in substantial costs and a diversion of management's
attention and resources, which could seriously harm our business, financial
condition and results of operations.

WE MAY HAVE TO RETURN THE MONEY WE RECEIVE FROM THE SELLING STOCKHOLDERS AFTER
THEY COMPLETE THE PURCHASE OF APPROXIMATELY 65,000 SHARES BECAUSE OF A
POSSIBLE VIOLATION OF SECTION 5 OF THE SECURITIES ACT OF 1933.

In March 1999, we entered into a consulting agreement with two German
consulting firms for services to be provided to us in connection with our
initial public offering. Under this agreement we offered and committed
ourselves to sell an equivalent of DEM3 million worth of shares, based on our
initial public offering price, to these consulting firms. This equates to
approximately 65,000 shares of our common stock, assuming an initial offering
price of $24.00 per share, or a total of approximately $1.6 million worth of
shares. At the time we offered and committed ourselves to issue these shares,
we did not deliver a preliminary prospectus to these consulting firms. We may
have a contingent liability arising out of a possible violation of Section 5
of the Securities Act of 1933 in connection with the offer and commitment to
sell these shares being made in March 1999. If we violated Section 5 of the
Securities Act of 1933, these consulting firms may have the right to have us
repurchase any shares sold to them.

THE LARGE NUMBER OF SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD
CAUSE OUR STOCK PRICE TO DECLINE.

Sales of substantial amounts of our common stock in the public market after
this offering could seriously harm prevailing market prices for our common
stock. These sales might make it difficult or impossible for us to sell
additional securities when we need to raise capital. The number of additional
shares available for sale in the public market will be affected by
restrictions imposed by:

. the Securities Act and related rules, including the volume and other
restrictions of Rule 144; and

. lock-up agreements between us and selected stockholders or between
stockholders and the underwriters.

Please see "Shares eligible for future sale" for a description of the number
of shares which may be sold by existing stockholders in the future.

ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD MAKE
A THIRD-PARTY ACQUISITION OF US DIFFICULT. THIS COULD LIMIT THE PRICE INVEST-
ORS MIGHT BE WILLING TO PAY IN THE FUTURE FOR OUR COMMON STOCK.

The anti-takeover provisions in our certificate of incorporation, our bylaws
and Delaware law could make it more difficult for a third party to acquire us
without approval of our board of directors. As a result of these provisions,
we could delay, deter or prevent a takeover attempt or third party acquisition
that our stockholders consider to be in their best interests, including a
takeover attempt that results in a premium over the market price for the
shares held by our stockholders. Please see "Description of securities" for
more information on these anti-takeover provisions.

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Forward-looking information

This prospectus may contain forward-looking statements. When used in this
prospectus, the words "anticipate," "believe," "estimate," "will," "intend"
and "expect" and similar expressions identify forward-looking statements.
Although we believe that our plans, intentions and expectations reflected in
any such forward-looking statements are reasonable, we can give no assurance
that these plans, intentions or expectations will be achieved. Actual results,
performance or achievements could differ materially from those contemplated,
expressed or implied, by any such forward-looking statements contained in this
prospectus. Important factors that could cause actual results to differ
materially from our forward-looking statements are set forth in this
prospectus, including under the heading "Risk factors." All forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the cautionary statements set forth in this
prospectus. We are under no obligation to update any forward-looking
statement, whether as a result of new information, future events or otherwise.

You should rely only on the information contained in this prospectus. Neither
we nor the selling stockholders have authorized anyone to provide you with
information different from that contained in this prospectus. We are offering
to sell and seeking offers to buy shares of Sequenom, Inc. common stock only
in jurisdictions where offers and sales are permitted. The information
contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any
sale of Sequenom, Inc. common stock.

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Use of proceeds

We estimate that the net proceeds from the sale of the 5,000,000 shares of
common stock that we are selling in this offering will be approximately $110.3
million, or approximately $127.0 million if the underwriter's over-allotment
option is exercised in full, based on an assumed initial public offering price
of $24.00 per share and after deducting the underwriting discounts and
commissions and estimated offering expenses payable by us. We will not receive
any proceeds from the sale of shares by the selling stockholders.

We anticipate using the net proceeds from the offering for general corporate
purposes, including hiring additional sales and customer support personnel,
expansion of our facilities, continued development and manufacturing of
existing products, research and development of additional products, expenses
for filing and pursuing patent applications, and working capital. We expect,
if the opportunity arises, to use an unspecified portion of the net proceeds
to acquire or invest in products, technologies or companies. While we
periodically engage in preliminary discussions with respect to acquisitions,
we are not currently a party to any agreements or commitments and have no
understandings with respect to any acquisitions.

We expect to use approximately $3.3 million of the proceeds of this offering
for the repayment of long-term debt and accrued interest owed to TBG. This
debt, which originated in 1995 and 1997, is denominated in German deutsche
marks, DEM, and totals DEM6 million or approximately $3.3 million as of
September 30, 1999. Interest is payable semi-annually on the loans. The 1995
loans began accruing nominal interest at a rate of 6% per year on March 31,
1997 and payments commenced in June 1997. The effective nominal interest rate
over the life of the 1995 loans is 4.8%. The 1997 loan bears interest at 7%
per year and payments commenced in 1998. We are also required to pay
additional interest equal to 9% of our German subsidiary's annual profits, to
the extent that such profits exceed DEM100,000 per year. The combined annual
interest rate, consisting of nominal interest and additional interest, may not
exceed 7% per year through December 31, 2000. Commencing January 1, 2001 and
January 1, 2003, any amounts still outstanding will accrue additional interest
at the rates of 6% and 7% per year for the 1995 loans and the 1997 loan,
respectively. In addition, at the end of the loan term, which is the earlier
of repayment or December 31, 2005 and December 31, 2007 for the 1995 loans and
the 1997 loan, respectively, our German subsidiary is obligated to pay
terminal interest equal to 25%, 30% and 35% of the amounts loaned under DEM1
million, DEM3 million and DEM2 million agreements, respectively, estimated to
be $1.2 million at the end of the loan term. We have accrued interest of
$930,625 relating to the terminal interest representing approximately 75% of
the terminal interest to be paid at the end of the loan term. TBG has elected
to accept 24,792 shares of our common stock upon the closing of this offering
in total satisfaction of the terminal interest. The number of shares are based
on an assumed initial public offering price of $24.00 per share, and will
increase or decrease based on the final price.

The amounts and timing of our actual expenditures depend on several factors,
including future sales growth, the progress of our product development efforts
and the amount of cash generated or used by our operations. Other than the
$3.3 million debt repayment, we have not determined the amount or timing of
the expenditures in the areas listed above. Pending utilization, we will
invest the net proceeds in short-term, investment grade, interest bearing
instruments.

Dividend policy

We have never declared or paid any cash dividends on our common stock. We
currently intend to retain all available funds for use in our business, and do
not anticipate paying any cash dividends in the foreseeable future. Any future
determination relating to dividend policy will be made at the discretion of
our board of directors and will depend on a number of factors, including
future earnings, capital requirements, financial condition and future
prospects and other factors the board of directors may deem relevant.

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Capitalization

The following table shows our capitalization as of September 30, 1999:

. On an actual basis; and

. On a pro forma basis to give effect to:

. the automatic conversion of 14,842,757 shares of our preferred stock
outstanding as of the date of this prospectus into 14,842,757 shares of
our common stock on a one-for-one basis;

. the sale of approximately $1,560,000 in shares of common stock to two
German consulting firms in a private sale to be completed immediately
prior to this offering, or 65,000 shares assuming an initial public
offering price of $24.00 per share;

. the conversion of debt owed to TBG in the amount of DEM4 million,
approximately $2.1 million, into 272,108 shares of our common stock upon
the closing of this offering assuming an initial public offering of
$24.00 per share, including a charge to interest expense of $4.2 million
for the beneficial conversion price of such debt and the recognition of
$107,000 of foreign translation losses on such debt from October 1, 1999
through December 27, 1999;

. the issuance of 1,523,451 shares of common stock upon the exercise of
stock options from October 1, 1999 through December 27, 1999;

. the increase in notes receivable for common stock of $1,545,185 from
October 1, 1999 through December 27, 1999 related to the exercise of
stock options by our executives; and

. the net increase in deferred compensation related to stock options of
$1,451,440 resulting from $2,212,650 from deferred compensation recorded
in connection with October 1999 grants less $761,210 in amortization from
October 1, 1999 through December 27, 1999.

. On a pro forma as adjusted basis to give effect to:

. the receipt of the estimated net proceeds from this sale of 5,000,000
shares of stock offered by this prospectus at an assumed initial public
offering price of $24.00 per share;

. the repayment of debt owed to TBG in the amount of DEM6 million,
approximately $3.3 million, upon the closing of this offering, and the
recognition of $148,000 of foreign translation gains on such debt from
October 1, 1999 through December 27, 1999; and

. the issuance of 24,792 shares of our common stock upon the closing of
this offering in satisfaction of accrued interest of $930,625, including
recognition of a $336,000 gain on the transaction.

<TABLE>
<CAPTION>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
- -------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of capital lease
obligations................................. $441 $441 $441
====== ====== ======
Capital lease obligations, less current
portion..................................... $1,313 $1,313 $1,313
Long-term debt commitments................... 5,446 3,268 --
Accrued long-term interest payable........... 931 931 --
------ ------ ------
Total long-term obligations................ 7,690 5,512 1,313
Convertible preferred stock, par value
$0.001;
Authorized shares--14,842,757 actual,
5,000,000 pro forma and pro forma as
adjusted
Issued and outstanding shares--14,842,757
actual, none pro forma and pro forma as
adjusted................................... 15 -- --
Common stock, par value $0.001;
Authorized shares--19,500,000 actual,
75,000,000 pro forma and pro forma as
adjusted
</TABLE>

- -------------------------------------------------------------------------------
19
<PAGE>

CAPITALIZATION

- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Issued and outstanding shares--873,369 actual,
17,576,685 pro forma and 22,601,477 pro forma
as adjusted................................... 1 18 23
Additional paid-in capital...................... 62,533 70,069 180,964
Notes receivable for common stock............... (511) (2,056) (2,056)
Deferred compensation related to stock options.. (2,167) (4,380) (4,380)
Accumulated other comprehensive income.......... 216 108 257
Deficit accumulated during the development
stage.......................................... (37,120) (42,126) (41,791)
------- ------- --------
Total stockholders' equity.................... 22,967 21,633 133,017
------- ------- --------
Total capitalization.......................... $30,657 $27,145 $134,330
======= ======= ========
</TABLE>

The table above excludes:

. 1,287,049 shares issuable upon the exercise of options outstanding as of
December 27, 1999 at a weighted average exercise price of $1.66 per share.
This share amount consists of 2,475,250 shares issuable upon the exercise of
options outstanding at September 30, 1999 and 335,250 shares issuable upon
the exercise of options granted during October 1999, less 1,523,451 shares
issued upon exercise of options during the period October 1, 1999 through
December 27, 1999;

. 176,503 shares issuable upon the exercise of warrants outstanding as of
December 27, 1999 at a weighted average exercise price of $2.10 per share;
and

To the extent that these options or warrants are exercised, there will be
further dilution to new investors. Please see "Management--Employee benefit
plans" for further information regarding our stock option plan and stock
purchase plan.

- -------------------------------------------------------------------------------
20
<PAGE>

- -------------------------------------------------------------------------------

Dilution

Our historical net tangible book value as of September 30, 1999 was
approximately $23.0 million, or $26.30 per share, based on the number of
common shares outstanding as of September 30, 1999. Historical net tangible
book value per share is equal to the amount of our total tangible assets less
total liabilities, divided by the number of shares of common stock outstanding
as of September 30, 1999.

Our pro forma net tangible book value as of September 30, 1999 was
approximately $21.6 million, or $1.23 per share, based on the pro forma number
of shares outstanding as of September 30, 1999 of 17,576,685, calculated after
giving effect to:

. the automatic conversion of 14,842,757 shares of our preferred stock
outstanding at September 30, 1999 into 14,842,757 shares of our common stock
on a one-for-one basis;

. the issuance of 1,523,451 shares of common stock upon exercise of stock
options from October 1, 1999 through December 27, 1999.

Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of our
common stock in this offering, and the private sale and the net tangible book
value per share of our common stock immediately afterwards, after giving
effect to the sale of 5,000,000 shares in this offering, the issuance of
24,792 shares of our common stock in satisfaction of accrued interest of
$930,625, and the repayment of $3.3 million of long-term debt from the net
proceeds. This represents an immediate increase in pro forma net tangible book
value of $4.66 per share to existing stockholders and an immediate dilution in
pro forma net tangible book value of $18.11 per share to new investors. The
following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................................... $24.00
------
Historical net tangible book value per share as of September 30, 1999............. $26.30
Decrease attributable to conversion of preferred stock, debt and accrued interest,
and exercise of stock options subsequent to September 30, 1999................... (25.07)
------
Pro forma net tangible book value per share as of September 30, 1999.............. 1.23
Increase attributable to the offering and private sale............................ 4.66
------
Net tangible book value per share after the offering and private sale............... 5.89
------
Dilution per share to new investors................................................. $18.11
======
</TABLE>

The following table summarizes, on a pro forma basis as of September 30, 1999,
after giving effect to this offering, the total number of shares of common
stock purchased from us and the total consideration and the average price per
share paid by existing stockholders and by new investors:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 17,601,477 77.9% $62,776,356 34.3% $3.57
New investors........... 5,000,000 22.1 120,000,000 65.7 $24.00
---------- ----- ------------ -----
Total................... 22,601,477 100.0% $182,776,356 100.0%
========== ===== ============ =====
</TABLE>

- -------------------------------------------------------------------------------
21
<PAGE>

DILUTION

- -------------------------------------------------------------------------------

The tables and calculations above assume no exercise of outstanding options or
warrants. At December 27, 1999, there were:

. 1,287,049 shares issuable upon the exercise of options outstanding as of a
weighted average exercise price of $1.66 per share. This share amount
consist of 2,475,250 shares issuable upon the exercise of options
outstanding at September 30, 1999 and 335,250 shares issuable upon the
exercise of options granted during October 1999, less 1,523,451 shares
issued upon exercise of options during the period October 1, 1999 through
December 27, 1999;

. 176,503 shares issuable upon the exercise of warrants outstanding as of
December 27, 1999 at a weighted average exercise price of $2.10 per share;
and

If the underwriters exercise their over-allotment option in full, the
following will occur:

. the number of shares of our common stock held by existing stockholders will
decrease to approximately 75.4% of the total number of shares of our common
stock outstanding after this offering;

. the number of shares of our common stock held by new public investors will
increase to 5,750,000, or approximately 24.6% of the total number of shares
of our common stock outstanding after this offering; and

. an increase in pro forma net tangible book value to $5.18 per share to
existing stockholders and an immediate dilution in pro forma net tangible
book value of $17.59 per share to new investors.

- -------------------------------------------------------------------------------
22
<PAGE>

- -------------------------------------------------------------------------------
Selected consolidated financial data

The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the notes to such
statements and "Management's discussion and analysis of financial condition
and results of operations" included elsewhere in this prospectus. The
consolidated statement of operations data for the years ended December 31,
1996, 1997 and 1998 and the nine-month period ended September 30, 1999, and
the consolidated balance sheet data at December 31, 1997 and 1998 and
September 30, 1999, are derived from our consolidated financial statements
which have been audited by Ernst & Young LLP, independent auditors, and are
included elsewhere in this prospectus. The consolidated statement of
operations data for the years ended December 31, 1994 and 1995 and the
consolidated balance sheet data at December 31, 1994, 1995, and 1996 are
derived from audited consolidated financial statements not included in this
prospectus. The consolidated statement of operations data for the nine-month
period ended September 30, 1998 is derived from our unaudited financial
statements included elsewhere in this prospectus. These unaudited financial
statements have been prepared on the same basis as our audited financial
statements, and, in our opinion, include all material adjustments, consisting
only of normal recurring adjustments necessary to present fairly this
unaudited financial information. Historical results are not necessarily
indicative of the results to be expected in the future.

The pro forma net loss per share is calculated as if our convertible preferred
stock and DEM4 million long-term debt owed to TBG as of September 30, 1999,
both convertible into common stock upon the closing of this offering, were
converted into shares of our common stock on the date of their issuance.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
1994 1995 1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF (In thousands, except per share data)
OPERATIONS DATA
- -------------------------------------------------------------------------------------------------------------
Research and development
grants....................... $-- $-- $893 $527 $351 $126 $81
Costs and expenses:
Research and development.... 922 1,274 3,136 3,532 6,188 3,550 7,138
General and administrative.. 230 420 1,032 1,861 4,218 2,640 5,363
Amortization of deferred
compensation............... -- -- -- -- -- 3,615
----------- ------- -------- -------- -------- -------- --------
Total costs and expenses...... 1,152 1,694 4,168 5,393 10,406 6,190 16,116
----------- ------- -------- -------- -------- -------- --------
Loss from operations.......... (1,152) (1,694) (3,275) (4,866) (10,055) (6,064) (16,035)
Other income (expense):
Interest income............. 3 2 73 57 397 291 1,225
Interest expense............ -- (28) (275) (308) (613) (230) (576)
----------- ------- -------- -------- -------- -------- --------
Net loss...................... $(1,149) $(1,720) $(3,477) $(5,117) $(10,271) $(6,003) $(15,386)
=========== ======= ======== ======== ======== ======== ========
Net loss per share
attributable to common
stockholders, basic and
diluted...................... $(1,149,498) $(65.87) $(23.45) $(22.62) $(33.33) $(20.12) $(39.41)
Shares used in computing net
loss per share attributable
to common stockholders, basic
and diluted.................. -- 26 148 226 308 298 390
Pro forma net loss per share,
basic and diluted............ $(1.02) $(1.03)
Shares used in computing pro
forma net loss per share
basic and diluted............ 9,749 14,714
</TABLE>

- -------------------------------------------------------------------------------
23
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA
- ------------------------------------------------------------------------------
Cash, cash equivalents
and short-term
investments............ $168 $1,877 $1,326 $833 $28,497 $28,069
Working capital......... (455) 1,379 820 (125) 26,014 24,771
Total assets............ 230 2,911 2,714 2,273 32,777 34,632
Total long-term
obligations............ -- 891 2,872 3,772 7,408 7,690
Total stockholders'
equity (deficit) ...... (397) 1,354 (1,206) (2,747) 22,635 22,967
</TABLE>

- --------------------------------------------------------------------------------
24
<PAGE>

- -------------------------------------------------------------------------------
Management's discussion and analysis of financial condition and results of
operations

The following discussion of our financial condition and results of operations
should be read in conjunction with the financial statements and the notes to
those statements included elsewhere in this prospectus. This discussion may
contain forward-looking statements that involve risks and uncertainties. As a
result of many factors, such as those set forth under "Risk factors" and
elsewhere in this prospectus, our actual results may differ materially from
those anticipated in these forward-looking statements.

We are a pioneer in the new field of industrial genomics. Since we began
operations in 1994, we have been primarily involved in the research and
development of high definition DNA analysis tools for industrial biomedical
and life science applications.

We are a development stage company. Since our inception, we have incurred
significant losses and, as of September 30, 1999, we had an accumulated
deficit of $37.1 million. To date, our revenues have been solely from research
grants. We began placing MassArray systems at beta sites and with pre-launch
users in July 1999. Information received from these sites is being used to
optimize our product offerings. We expect revenues generated from our
commercial launch to begin during the first quarter of 2000.

We expect to recognize revenues from the sale of both MassArray systems at the
time of placement and disposable products, including SpectroCHIPs. We expect
that each system placed in the field will generate a recurring revenue stream
from the sale of disposables. We also expect the volume of disposables
purchased from each site will increase over time as the customer becomes
familiar with the technology and incorporates MassArray into a broad range of
SNP analysis programs. In addition, we may generate revenue from the sale of
proprietary assays and software products and other services provided to the
customer. In some cases we may retain some rights to assays developed in
collaborations with third parties. This may allow us to offer an expanded line
of products to a broader market. Our sales will be initially driven by the
need for SNP validation and later could expand into the areas of genomic drug
development, diagnostics and agricultural genomics.

Our expenses have consisted primarily of costs incurred in research and
development, manufacturing scale-up, business development and from general and
administrative costs associated with our operations. We expect our research
and development expenses to increase in the future as we continue to improve
and develop products. Our selling expenses will increase as we commercialize
our products. Expansion of our facilities and the additional obligations of a
public reporting entity will also add to our expenses. As a result, we expect
to incur losses for the foreseeable future.

Our current products do not provide sufficient gross margin for us to become
profitable. To become profitable, we will need to develop and introduce new
higher margin products and generate significant sales of disposables.

We have a limited history of operations and we anticipate that our quarterly
results of operations will fluctuate for the foreseeable future due to several
factors, including market acceptance of current or new products, patent
conflicts, the introduction of new products by our competitors, the timing and
extent of our research and development efforts, and the timing of significant
orders. Our limited operating history makes accurate prediction of future
operations difficult or impossible.

- -------------------------------------------------------------------------------
25
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OP-
ERATIONS

- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

REVENUE
Research and development grant revenue decreased to approximately $81,000 in
the first nine months of 1999 from approximately $126,000 in the first nine
months of 1998. As we have approached the commercial launch of our products,
we have not actively pursued grants, and accordingly, revenue from grants has
decreased.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses increased to $7.1 million in the first nine
months of 1999 from $3.6 million in the first nine months of 1998. These
expenses consist primarily of salaries and related personnel costs, materials
costs and costs related to completion of our product development. The increase
resulted from the expansion of our research and development efforts and was
comprised of a $1.6 million increase in salaries & related personnel costs,
additional material costs of $1.2 million and approximately $700,000 of
additional costs directly related to the scale-up of manufacturing for our
SpectoCHIPs.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses increased to $5.4 million in the first
nine months of 1999 from $2.6 million in the first nine months of 1998. These
expenses consist primarily of salaries and related costs for executive,
finance and other administrative personnel, general and patent related legal
expenses, and business development expenses. Expenses relating to filing and
pursuing patent applications represented the single largest increase at
approximately $800,000, while continued expansion of administrative resources
to support our growth accounted for the remainder.

AMORTIZATION OF DEFERRED STOCK COMPENSATION

Deferred stock compensation represents the difference between the estimated
fair value of our common stock and the exercise price of options at the date
of grant. During the nine months ended September 30, 1999, we recorded
amortization of deferred stock compensation totaling $3.6 million, including
$1.6 million related to a remeasurement of options originally granted to an
officer in 1997. We anticipate that additional deferred compensation totaling
$3.8 million will be recorded for options granted in October 1999. These
amounts are being amortized over the vesting periods of the individual stock
options using the graded vesting method. We expect to record amortization for
deferred compensation approximately as follows: $761,000 during the quarter
ended December 31, 1999, $3.7 million during 2000, $924,000 during 2001,
$459,000 during 2002, and $214,000 during 2003.

INTEREST INCOME
Interest income increased to $1.2 million in the first nine months of 1999
from approximately $291,000 in the first nine months of 1998. This increase
resulted from higher average balances of cash and cash equivalents and short-
term investments in 1999 from investment of the proceeds from the sale of
Series D Convertible Preferred Stock in late 1998 and early 1999.

INTEREST EXPENSE
Interest expense increased to approximately $576,000 in the first nine months
of 1999 from approximately $230,000 in the first nine months of 1998. The
increase was due to higher average debt levels resulting from additional
indebtedness under our capital lease financing arrangement.

- -------------------------------------------------------------------------------
26
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OP-
ERATIONS

- -------------------------------------------------------------------------------

INCOME TAXES
As of September 30, 1999, we had federal and state net operating loss
carryforwards of approximately $24.8 million and $13.1 million. We also have
federal and state research and development tax credit carryforwards of
approximately $410,000 and $200,000 and German net operating loss
carryforwards of approximately $7.2 million. The federal and state net
operating loss and credit carryforwards expire on various dates through 2018.
The German net operating losses may be carried forward indefinitely. Pursuant
to Internal Revenue Code Sections 382 and 388, our net operating loss and
credit carryforwards may be limited due to a cumulative change in ownership of
more than 50%, which occurred during 1998 and which is anticipated to occur
with the offering. However, we do not believe these limitations will
materially impact the use of the net operating loss and credit carryforwards.

YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

REVENUE

Research and development grant revenue decreased to $351,000 in 1998 from
approximately $527,000 in 1997 and from $893,000 in 1996. As we have
approached the commercial launch of our products, we have received funding
from private equity financings and have not pursued grant funding.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses increased to $6.2 million in 1998 from $3.5
million in 1997 and $3.1 million in 1996. The $2.7 million increase from 1997
to 1998 resulted from an additional $1.3 million in personnel costs and
approximately $1.4 million in additional supplies related to the development
of our MassArray system. The increase from 1996 to 1997 resulted primarily
from an increase in the number of personnel and their related costs.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses increased to $4.2 million in 1998 from
$1.9 million in 1997 and $1.0 million in 1996. Expenses relating to filing and
pursuing patent applications represented the single largest increase in 1998
at approximately $800,000. These expenses increased because a higher number of
patents were filed worldwide. Expenses related to employing more personnel
represented the remainder of the increase. The increase from 1996 to 1997
resulted primarily from increases in the number of personnel and expansion of
facilities.

INTEREST INCOME

Interest income increased to approximately $397,000 in 1998 from approximately
$57,000 in 1997. The increase was due to higher average balances of cash and
cash equivalents and short-term investments in 1998, resulting from the
investment of the proceeds from the sale of Series C convertible preferred
stock in February 1998. Interest income decreased to $57,000 in 1997 from
$73,000 in 1996 due to slightly lower average cash and cash equivalents during
1997.

INTEREST EXPENSE

Interest expense increased to approximately $613,000 in 1998 from
approximately $308,000 in 1997 and $275,000 in 1996. Interest expense
increased in 1998 due to an increase in borrowings under a capital lease
agreement and from proceeds received from convertible debt funding. The 1997
increase in interest expense resulted from DEM2 million of additional debt
funding.

LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations with $55.6 million of private equity financings,
$6.0 million in loans and convertible loans, and $2.2 million from equipment
financing arrangements. At September 30, 1999,

- -------------------------------------------------------------------------------
27
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OP-
ERATIONS

- -------------------------------------------------------------------------------
cash, cash equivalents and short-term investments totaled $28.0 million
compared to $28.5 million at December 31, 1998. Our cash reserves are held in
a variety of interest-bearing instruments including high-grade corporate
bonds, commercial paper and money market accounts.

Cash used in operations for the nine months ended September 30, 1999 was $9.4
million compared with $5.5 million for the same period in 1998. A net loss of
$15.4 million for the first nine months of 1999 was partially offset by non-
cash charges of $3.6 million for amortization of deferred compensation, $1.3
million for depreciation and amortization expense and an increase of $1.2
million in accounts payable and accrued expenses. Investing activities, other
than the changes in our short-term investments, consumed $3.3 million in cash
during the first nine months in 1999 due to leasehold improvements and
equipment expenditures.

Cash provided by financing activities was $12.5 million for the nine months
ended September 30, 1999 compared to $14.2 million for the same period in
1998. Financing activities included the receipt of net proceeds of $11.8
million from the sale of preferred stock to investors in the nine month period
ended September 30, 1999 and $11.0 million in the nine month period ended
September 30, 1998.

Working capital decreased to $24.8 million at September 30, 1999 from $26.0
million at December 31, 1998. The decrease in working capital was due to our
use of cash in operations, higher accounts payable and accrued liabilities as
a result of increased product and business development, expenses, and payment
of capital lease obligations, offset in part by higher inventory and prepaid
expenses.

As of September 30, 1999, we had an aggregate of $7.2 million in future
obligations of principal payments under capital leases and long-term debt, of
which $0.4 million is to be paid within the next year. We expect to use
approximately $4.2 million of the proceeds of this offering for the repayment
of long-term bank debt and accrued interest. This debt, which originated in
1995 and 1997, is denominated in German deutsche marks, DEM, and totals DEM6
million. For a more detailed description of this bank debt, please see "Use of
Proceeds."

We believe our existing cash, cash equivalents and short-term investments,
together with the net proceeds of this offering will be sufficient to fund our
operating expenses, debt obligations and capital requirements through at least
the next 24 months. Our future capital uses and requirements depend on
numerous factors, including:

. our success in selling our MassArray system and associated technologies;

. our progress with research and development;

. our ability to introduce and sell new products;

. our sales and marketing expenses;

. expenses associated with unforeseen litigation;

. costs and timing of obtaining new patent rights; and

. regulatory changes and competition and technological developments in the
market.

Therefore, our capital requirements may increase in future periods. As a
result, we may require additional funds and may attempt to raise additional
funds through equity or debt financings, collaborative arrangements with
corporate partners or from other sources.

We have a $5.0 million bank line of credit, all of which is available for
borrowing. We have no commitments for any additional financings, and we cannot
assure you that additional funding will be available to finance our operations
when needed or, if available, that the terms for obtaining such funds will be
favorable or will not result in dilution to our stockholders.

- -------------------------------------------------------------------------------
28
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OP-
ERATIONS

- -------------------------------------------------------------------------------

We could possibly be required to repurchase approximately 65,000 shares sold
to two German consulting firms in a private sale scheduled to close
immediately prior to this offering, and repay the purchase price of their
shares of approximately $1.6 million if we are deemed to have violated Section
5 of the Securities Act of 1933.

IMPACT OF THE YEAR 2000

The computer systems and software programs of many companies and governmental
agencies are currently coded to accept or recognize only two digit entries in
the date code field. These systems may recognize a date using "00" as the year
1900 rather than the year 2000. As a result, these computer systems and/or
software programs may need to be upgraded to comply with such year 2000
requirements or risk system failure or miscalculations causing disruptions of
normal business activities.

STATE OF READINESS
We have made an assessment of the year 2000 readiness of our technology
systems, including our hardware and software in our products and our non-
information technology systems. We intend to revise our proprietary software
to improve our year 2000 compliance, if necessary. We have been informed by
our vendors who provide the hardware in our products that the hardware we use
is year 2000 compliant. We believe that substantially all of our applications,
databases and infrastructure are year 2000 compliant. We have been informed by
many of our vendors of material hardware and software components of our
information technology systems that substantially all of the products we use
are currently year 2000 compliant. We have requested vendors of the material
hardware and software components of our information technology systems to
provide assurances of their year 2000 compliance. We plan to complete this
process prior to the end of 1999. We are currently assessing our material non-
information technology systems and will seek assurances of year 2000
compliance from providers of these systems. Until such testing is complete and
these vendors and providers have replied to our requests, we will not be able
to completely evaluate whether our information technology systems or non-
information technology systems will need to be revised or replaced.

COSTS
We have not identified any internally used capital equipment or software or
any components of our products that will require an additional material
expenditure. As of September 30, 1999, we have expensed approximately $25,000
for assessing our state of readiness and making upgrades for year 2000
compliance.

RISKS
We are not currently aware of any year 2000 compliance problems relating to
our proprietary software and other products or our information technology or
non-information technology systems that would have a material adverse effect
on our business. We cannot assure you that we will not discover year 2000
compliance problems in our proprietary software and other products that will
require substantial revisions. In addition, we cannot assure you that third-
party software, hardware or services incorporated into our material
information technology and non-information technology systems will not need to
be revised or replaced, all of which could be time consuming and expensive.
Our failure to fix our proprietary software and other products or to fix or
replace third-party software, hardware or services on a timely basis could
result in lost revenues, increased operating costs, the loss of customers and
other business interruptions, any of which could have a material adverse
effect on our business. Moreover, the failure to adequately address year 2000
compliance issues in our proprietary software and other products and our
information technology and non-information technology systems could result in
claims of mismanagement, misrepresentation or breach of contract and related
litigation, which could be costly and time-consuming to defend. In addition,
we cannot assure you that governmental agencies, utility companies, third-
party service providers and others outside our control will be year 2000
compliant. The

- -------------------------------------------------------------------------------
29
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OP-
ERATIONS

- -------------------------------------------------------------------------------
failure by these entities to be year 2000 compliant could result in a systemic
failure beyond our control, such as a prolonged telecommunications or
electrical failure, which could have a material adverse effect on our
business.

CONTINGENCY PLAN
In the event that year 2000-related problems materialize, we maintain
relationships with several suppliers of services and products to mitigate the
risks associated with using suppliers which are not year 2000 compliant.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

SHORT-TERM INVESTMENTS
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we invest
in may have market risk. This means that a change in prevailing interest rates
may cause the fair value of the principal amount of the investment to
fluctuate. For example, if we hold a security that was issued with a fixed
interest rate at the then-prevailing rate and the prevailing interest rate
later rises, the fair value of the principal amount of our investment will
probably decline. To minimize this risk in the future, we intend to maintain
our portfolio of cash equivalents and short-term investments in a variety of
securities, including commercial paper, money market funds, government and
non-government debt securities. The average duration of all of our investments
has generally been less than one year. Due to the short term nature of these
investments, we believe we have no material exposure to interest rate risk
arising from our investments. Therefore, no quantitative tabular disclosure is
required.

LONG-TERM DEBT

Our long-term debt is denominated in German deutsche marks. We intend to
convert approximately half of this debt into common stock upon the closing of
this offering, and to repay the rest of this debt in cash from the proceeds of
the offering. If the German deutsche mark increases in value relative to the
US dollar before the conversion or repayment, we will have to issue more
shares or cash to retire the debt. A 1% increase in the value of German
deutsche marks relative to the US dollar would result in a $55,000 unrealized
foreign translation loss.

FOREIGN CURRENCY RATE FLUCTUATIONS

The functional currency for our German subsidiary is the deutsche mark. The
German subsidiary's accounts are translated from the German deutsche mark to
the US dollar using the current exchange rate in effect at the balance sheet
date, for balance sheet accounts, and using the average exchange rate during
the period for revenues and expense accounts. The effects of translation are
recorded as a separate component of stockholders' equity. Our German
subsidiary conducts its business with customers in local European currencies.
Exchange gains and losses arising from these transactions are recorded using
the actual exchange differences on the date of the transaction. We have not
taken any action to reduce our exposure to changes in foreign currency
exchange rates, such as options or futures contracts, with respect to
transactions with our German subsidiaries or transactions with our European
customers. The net tangible assets of our German subsidiary, without regard to
the long-term debt, were $4.6 million at September 30, 1999. A 1% decrease in
the value of German deutsche marks relative to the US dollar would result in a
$46,000 unrealized foreign translation loss.

INFLATION
We do not believe that inflation has had a material adverse impact on our
business or operating results during the periods presented.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OP-
ERATIONS

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RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
changes the previous accounting definition of derivative--which focused on
freestanding contracts such as options and forwards, including futures and
swaps--expanding it to include embedded derivatives and many commodity
contracts. Under the statement, every derivative is recorded in the balance
sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivatives fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
No. 133 is effective for fiscal years beginning after June 15, 2000. We do not
anticipate that the adoption of SFAS No. 133 will have a material impact on
our financial position or results of operations.

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Business

BACKGROUND

DNA, GENES AND THE HUMAN GENOME PROJECT
Deoxyribonucleic acid, or DNA, is present in all living cells and is
responsible for determining the inherited characteristics of all living
organisms. Each DNA molecule contains two complementary strands comprised of
four different types of nucleotide bases, commonly known as G, C, A and T. The
order of these letters is called the DNA sequence. Each G on one strand pairs
with a C on the complementary strand, and similarly each A pairs with a T. The
entire DNA content of an organism is called its genome.

The human genome is organized into 46 chromosomes, or two sets of 23
chromosomes, one set inherited from each parent. Each chromosome is one
continuous double-stranded DNA molecule. The DNA contributed by one parent is
called the haploid genome. The DNA content of one haploid genome is
approximately 4 billion bases, which is organized into more than 100,000
distinct genes. Genes are segments of DNA located throughout the chromosomes.
Since parents are not identical, each individual has two similar but slightly
different copies of each chromosome and therefore two copies of each gene.
Genes comprise approximately 5% of the DNA in a human cell. Some additional
amount is used to regulate DNA function. More than 90% of the DNA has no known
function.

All cells contain a full copy of DNA, but each cell type expresses only those
genes necessary for its specific function. When a gene is expressed, a copy of
its DNA sequence, called messenger RNA, is used as a template to direct the
synthesis of a protein. Proteins are composed of 20 different constituents
called amino acids. Three adjacent letters of DNA, known as a codon, direct
the position and identity of one amino acid in a protein. Cells use proteins
to carry out their functions. For example, blood cells use the protein
hemoglobin to transport oxygen and muscle cells use the protein myoglobin to
store oxygen. Likewise, pancreatic islet cells secrete the protein insulin to
regulate blood sugar levels. DNA sequences referred to as regulatory elements
help to determine where a protein is made and in what quantities. For an
individual to be healthy, the correct proteins must be produced at the right
time in the appropriate amounts in the correct cells. DNA variations can
change the properties of a protein, or where, when or how much of a protein is
produced.

In order to develop new medical treatments and diagnostics based on genetic
information, efforts to sequence human DNA began in the mid-1980s when the
technology for sequencing became available. Efforts funded by governments and
foundations began in earnest by the end of the 1980s. These efforts came to be
known as the Human Genome Project. This project is expected to produce a rough
draft of the human DNA sequence by March 2000, with a complete draft expected
in several years. The overall public sector expenditure is expected to
approach $3 billion. In parallel with the public sector effort, a large
private sector effort emerged in the early 1990s. Unlike the public effort
that targets the entire genome, commercial efforts have focused on sequencing
the genes themselves. This private effort claims to have identified many human
genes some of which have been made available for a variety of biological and
biomedical studies.

GENETIC VARIABILITY AND SINGLE NUCLEOTIDE POLYMORPHISMS, OR SNPS
Each individual has two identical copies of many genes, but some genes
inherited from the mother will be different from their counterpart inherited
from the father. A difference in one or more letters of a DNA sequence,
referred to as a genetic variation, can modify the way a gene functions.
Genetic variations lead to a spectrum of observable differences, such as eye
and hair color. Genetic variations are

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also a major component of nearly all diseases, including cancer, diabetes and
cardiovascular disease. Many chronic diseases are affected by multiple genetic
variations.

Single nucleotide polymorphisms, or SNPs, are the most common type of genetic
variation. SNPs are a change in a single letter of DNA text, such as replacing
a G with a T in one location and on the complementary DNA strand replacing a C
with an A. Another common variation is the insertion or deletion of one or
several letters. A third common variation is an increase or decrease in the
length of simple repeating DNA sequences. Nearly every person carries numerous
examples of each of these three kinds of variations, some of which can result
in disease.

GENETIC ANALYSIS OR GENOTYPING
The process of determining the SNPs present in an individual is called
genotyping. It is estimated that there are 3 million to 10 million SNPs
inherited from each parent. Some SNPs are a major cause of inherited diseases
and are responsible for most individual differences in drug responsiveness;
however, most SNPs are of no medical consequence. For example, if the third
letter of a codon varies, the result is usually to produce the same amino acid
or one with similar properties. However, to date, thousands of SNPs have been
identified as medically relevant. Many genes exist in highly redundant sets so
that even if one is totally removed, there are no functional consequences. We
believe that only one SNP in a thousand may be medically relevant to disease
susceptibility or responsiveness to disease therapy. To capture this
information, tens of thousands of SNPs will have to be measured in each
individual.

Existing DNA sequence databases with samples from multiple individuals contain
many clues about potential sites in the human genome where SNPs occur.
Sequence variation between these individuals may suggest the presence of a
SNP. Ongoing sequencing efforts promise to increase the amount of available
sequence data tremendously and should discover most human SNPs within the next
few years.

After a SNP is discovered, its potential relevance for human health must be
validated by determining how common the variation is in different segments of
the population. To identify the small subset of SNPs that occur with the
greatest frequency in human disease or are responsible for variations in drug
responsiveness, hundreds of millions of SNP measurements must be made and
correlated with health and other physical and mental features of interest.
SNPs with a validated medical relevance may be used for drug development and
human medical diagnostics. Identification of these SNPs will require a highly
accurate, high throughput DNA analysis technology at a competitive cost.

PERSONALIZED MEDICINE OR PHARMACOGENOMICS
It has long been known that people respond differently to the same drug. The
field of pharmacogenomics studies these variations in drug response based on
genetic differences. The emerging ability to correlate drug responses with
SNPs promises to enable doctors to prescribe appropriate drugs to patients
with the goal of maximizing drug response and minimizing side effects. For
example, a test that could distinguish poor responders from good responders to
drugs in which more than one therapeutic alternative exists could
significantly reduce health care costs. In addition, pharmacogenomics may
allow pharmaceutical companies to include a genetic component in the design of
clinical trials so that the candidate drug is targeted to individuals with a
specific genotype. Genetic variations shown to correlate with poor efficacy
could be used as a basis for excluding non-responders from clinical trials
thereby potentially improving results and reducing the costs of clinical
trials.

SNPS IN AGRICULTURE AND LIVESTOCK
As living organisms, plants and animals are composed of cells that contain
DNA. As with humans, genetic variations in plants and animals result in
differences in species characteristics. For example, plants

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may have SNPs responsible for differences in resistance to insects and
herbicides or agricultural yields. Likewise, animals may have SNPs responsible
for traits such as variations in milk production, fat content of meat or
fertility. Plant and animal SNPs can be exploited through selective breeding
to develop plants and animals with desired quality traits.

SNP MARKET
The SNP genotyping market represents a significant portion of both the biochip
market and the DNA sequencing market. The SNP genotyping market can be divided
into three segments:

. confirmation of new sites of genetic variation in DNA, which typically
requires the analysis of a SNP in up to a hundred people;

. determination of the medical importance of SNPs, which typically requires
the analysis of a SNP in a few thousand diseased and healthy people; and

. utilization of SNPs in genomics-based drug development, disease
predisposition determination and diagnostic test development, which may
require the analysis of multiple SNPs in millions of people.

Several companies claim to have identified, in the aggregate, more than 50,000
SNPs, and The SNP Consortium, comprised of drug companies and public entities,
has announced a group effort to discover 300,000 more. If The SNP Consortium
successfully identifies 300,000 SNPs and seeks to discover the associated
disease genes, they would have to conduct a case study involving several
thousand people, which would require the analysis of hundreds of millions of
SNPs.

CURRENT GENOMICS ANALYSIS TOOLS AND LIMITATIONS

Current DNA analysis technologies have been developed primarily to conduct DNA
research including DNA sequencing and expression profiling. Presently, the two
leading methods are gel electrophoresis and hybridization.

Gel electrophoresis measures how far a DNA fragment migrates through the pores
of gels in response to an applied electrical field over a fixed time interval.
DNA can be sequenced by using enzymes to copy a DNA sequence. The enzymes
begin at a fixed point and then terminate at all positions where an A occurs.
Gel electrophoresis is then used to measure the lengths of the terminated
sequences and thereby the location of all As. When this process is repeated
three more times for C, T and G, the resulting information can be lined up to
generate a complete sequence. In order to make this method totally accurate,
the same experiment must be repeated multiple times. In a single run,
commercial DNA sequencers using this gel-based method can measure up to 600
bases with a statistically significant error-rate.

Hybridization arrays, or biochips, use single stranded DNA fragments
immobilized on a flat surface in known positions. These are powerful tools for
the analysis of gene expression, but can also be used for gene sequencing.
When used for gene sequencing, DNA fragments of varying lengths labeled with a
fluorescent tag are washed over the surface of the biochip. These DNA
fragments then specifically interact, or hybridize, with a complementary
sequence immobilized on the biochip and can be detected using a fluorescent
microscope. Because the position of the complementary sequence on the biochip
is known, the sequence of the target DNA fragment can be determined by reading
the biochip. However, because DNA fragments sometimes bind to strands that are
not fully complementary, hybridization arrays do not correctly detect all of
the sequence information in a target sample.

Gel electrophoresis and hybridization play an interim role in determining SNP
function and analysis as these methods are well accepted and established for
research applications. However, neither of these two

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methods is ideally suited to the analysis of sequence variations. In both
cases, the analytical process examines many nucleotides of a sequence even
though the target variation may occur at a single site. This increases the
cost, complexity and time involved in the analytical process. In order to be
able to measure thousands of SNPs in thousands of samples, one must focus on
the SNPs themselves with methods that are cost-effective, accurate and fully
automated.

At the site of any SNP, one must analyze simultaneously the variant inherited
from each parent. If each parent has a different SNP at the same position, the
difficulty of detecting those variations is magnified because only one-half of
the DNA from each parent is available to generate a signal. In addition, in
practice, one SNP variant may be present at a lower concentration than the
other and therefore may be undetectable or generate an ambiguous signal using
conventional methods. Using gel electrophoresis and hybridization, the
detection of these multiple SNP variants is therefore often unreliable.

To reduce costs, many users of SNP assays are trying to perform two or more
assays in a single tube and read the results simultaneously. This may involve
different SNPs in the same individual or the same SNP in different
individuals. Current gel technology limits this process to four available
dyes, and simultaneous assays involving multiple individuals are impossible on
biochips. However, biochips are theoretically capable of simultaneously
analyzing many SNPs for a single individual, but their utility is limited by
low accuracy. The large quantity of reagents and labor-intensive data
processing needed to achieve useable results are also cost limitations when
using current technologies for large-scale genotyping. Reagent costs represent
most of the sample preparation costs. Data analysis costs associated with
current gel or hybridization-based assays using fluorescent detection are
estimated to be most of the overall costs.

Errors in SNP analysis have serious consequences. In studies to correlate
identified SNPs with disease conditions, it has been estimated that to
compensate for a 1% error rate in individual measurements, the study
population would have to increase by a factor of three. This significantly
increases the cost of a SNP study. In addition, in order to accurately
identify a real SNP from a sequencing error when the sequencing error occurs
with a frequency of 1%, a suspected SNP has to be verified through repetitive
sequencing. When identifying 10,000 SNPs in an individual, 100 SNPs may be
incorrectly determined using gel electrophoresis, with no ability to determine
where the errors occurred. Therefore, the value of using gel electrophoresis
as a SNP analysis tool is dramatically reduced unless the test is repeated
several times. As a result, when genotyping SNPs on an industrial scale, a 1%
error rate becomes cost-prohibitive.

THE SEQUENOM SOLUTION--INDUSTRIAL GENOMICS

We are a pioneer in the new field of industrial genomics. To draw conclusions
from huge data sets associated with genotyping, we have developed a highly
accurate, high throughput and cost-effective technology that addresses the
demand for large-scale SNP analysis. Our MassArray system represents a novel
approach to genotyping by combining our proprietary enzymology and software
processing of biological data, or bioinformatics, in a miniaturized chip-based
format with the proven technology of mass spectrometry. The accuracy, high
throughput, miniaturization and automation to minimize labor represent major
cost savings potentials.

ACCURACY
The MassArray system analyzes molecules directly and accurately by determining
their molecular weight, an intrinsic property. Our technology eliminates the
use of labels, such as fluorescent labels, which is an indirect way of
analyzing molecules and is a common source of ambiguous results. Therefore,
because

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we capture direct information about molecules, we are able to obtain a high
level of accuracy and eliminate the need to do repetitive testing of each
sample.

THROUGHPUT
Our MassArray system can analyze a sample in three seconds, which is
significantly faster than currently available gel electrophoresis and
hybridization processes. These processes can require minutes to hours to
analyze a sample. In addition, our system eliminates the need for repetitive
testing of every sample, thereby increasing throughput, or the number of
different samples that can be analyzed in a given time period. Throughput
using the MassArray system can be further enhanced by full automation and also
by running more than one experiment simultaneously.

FLEXIBILITY
MassArray can be rapidly reconfigured for new analyses. A test to analyze a
newly discovered SNP can be designed in several days. In addition to SNPs,
simple sequence repeats, short DNA sequencing reads, and the analysis of
proteins and metabolites can all be carried out using the same MassArray
technology.

COST
Our MassArray system significantly reduces the costs associated with SNP
analysis by reducing reaction volume and reagent requirements, enhancing data
processing and eliminating repetitive testing of every sample to verify
results. Our proprietary SpectroCHIP is capable of working with nanoliters,
which is one thousandth of the sample volume generally used with other
technologies. This ability to miniaturize the sample volume significantly
reduces reagent costs. Our proprietary bioinformatics reduce expensive data
interpretation time and labor by rendering raw data points directly
interpretable without extensive data processing and allowing for significant
data compression.

SEQUENOM STRATEGY

Our goal is to become the leader in the emerging markets of industrial
genomics and diagnostics by making our MassArray system the market standard
for industrial scale SNP analysis. Our strategy is to capitalize on the
quickly emerging demand for genotyping in the areas of drug target discovery,
drug development, DNA diagnostics, patient stratification by genetic traits,
clinical trials, seed development and livestock breeding. Key elements of our
strategy consist of the following:

DEVELOP RECURRING REVENUE STREAM THROUGH DISPOSABLE PRODUCT SALES
We seek to establish an installed base of instruments that require the use of
various disposables, including our BiomassPROBE kits and single-use
SpectroCHIPs. As our installed base of MassArray systems grows, we expect the
majority of our ongoing revenue stream will consist of sales of these
disposables.

FOCUS ON KEY ACCOUNTS AND PRODUCT AREAS
We are seeking to penetrate the genotyping market by establishing commercial
relationships with opinion leaders and identifying areas of potential
widespread interest. We have initiated this effort by selecting highly visible
academic, government and commercial centers to validate our MassArray system
in beta site testing. In addition, we intend to develop proprietary disposable
assays and software products that are useful for popular areas of scientific
investigation--first as research tools to confirm the association of
particular SNPs with particular diseases and subsequently as diagnostic kits
that can be sold for basic SNP profiling.

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RETAIN COMMERCIAL RIGHTS
We will seek to retain commercial rights to tests that we develop on behalf of
or together with third parties in exchange for providing our assay development
capacity and expertise. By obtaining commercial rights to assays that we
initially develop for key accounts, we will seek to develop a broad product
offering that will appeal to a large group of potential customers. We intend
to identify in collaboration with these customers SNP sets for which genetic
function has been determined and validated to enable the multi-dimensional
understanding of the medical and environmental components of disease. Together
with our customers, we intend to develop knowledge-based genomic products that
combine pharmaceutical, medical and genetic information, such as validated SNP
sets for specific diseases.

ADDRESS MULTIPLE MARKET SEGMENTS
We are introducing our technology into existing markets that have an immediate
need for SNP validation and high throughput genotyping. We will seek to expand
our marketing efforts as additional SNP analysis becomes necessary for genomic
drug development, clinical DNA diagnostics, pharmacogenomics and agricultural
genomics.

EXPAND APPLICATIONS FOR MASSARRAY TECHNOLOGY
Because molecular weight is an intrinsic property of all molecules, our
MassArray technology can serve as a platform for the analysis of many
biomolecules, such as proteins, carbohydrates and metabolites. This leads to
the understanding of the multidimensional aspects of genetic diversity,
including how DNA, RNA, proteins and resulting metabolites contribute to
traits, such as drug response and disease susceptibility. We intend to use
this flexibility to develop new products for applications in areas other than
DNA and SNP analysis.

MASSARRAY TECHNOLOGY

The starting point for SNP analysis using the MassArray system is genomic DNA
that is easily accessed in a sample of biological material such as blood. A
small amount of blood provides sufficient material to allow tens of thousands
of SNPs to be analyzed in one individual. DNA is prepared by standard
procedures that break open the blood cells, release the DNA and discard other
material. Next, specific DNA regions, about 200 base pairs in length, are
amplified by enzymatic reactions into multiple copies to produce more
concentrated samples for easier analysis. The amplified fragments are then
attached by one strand to a solid surface and the non-immobilized strands are
removed by standard denaturation conditions. The immobilized single strand
then serves as a template for additional automated enzymatic reactions that
produce the analytical samples. The products of these reactions are removed
from the solid surface prior to mass spectrometry. All these steps are
performed in the same reaction tube lending the entire process to full
automation. Very small quantities of the products, typically five to ten
nanoliters, are transferred with the SpectroJET nanoliter dispensing system
onto the SpectroCHIP for subsequent automatic analysis with the SpectroSCAN
mass spectrometer. Because the four different text letters have different
weights, measuring the weights reveals the identity of the letters. The
Genolyzer software then calculates, records, compares and reports the
genotypes at the rate of three seconds per sample.

Our fundamental proprietary technology is based on the integration of four
components:

. mass spectrometry;

. chips as miniaturized launching pads;

. MassArray applications and assays; and

. bioinformatics.

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MASS SPECTROMETRY
Our MassArray system has enabled the use of mass spectrometry for high
throughput automated SNP analysis. Using mass spectrometry to measure
relatively small molecules is a proven technology because it directly and
accurately determines molecular weight. While mass spectrometry has existed in
many variations for several decades, it could not be used for larger
biomolecules because they were fragmented during the process and therefore
could not be measured as whole molecules.

Our MassArray system uses technology called MALDI-TOF, or Matrix-Assisted-
Laser-Desorption/ Ionization-Time-of-Flight, mass spectrometry. Through the
combination of MALDI-TOF and our proprietary SpectroCHIP and enzymology, we
are now capable of effectively analyzing biomolecules in an automated mode. In
the MALDI-TOF process, the target molecules are mixed with light-absorbing
molecules to form a crystalline matrix on the surface of our SpectroCHIP. In a
process known as desorption, this matrix is hit with a pulse of laser beam.
The laser energy vaporizes the matrix molecules that then carry the target
molecules aloft. During the process, some of the molecules acquire a charge,
or become ionized. Next an electrical field pulse launches the charged
molecules down a flight tube toward a detector. The time between the
electrical field pulse and collision with the detector is measured, and is
referred to as time-of-flight. Time-of-flight is directly correlated to
molecular weight because large molecules fly slower than small molecules. All
the steps in the MALDI-TOF process are accomplished in less than a thousandth
of a second.

CHIPS AS MINIATURIZED LAUNCHING PADS
SpectroCHIPs are flat silicon wafers with an array of 96 small, evenly spaced
water-attracting spots surrounded by water-repelling surface areas. Because
biomolecules are water soluble, they migrate to the water-attracting spots.
These spots are treated with the light-absorbing matrix that makes the mass
spectrometry of biomolecules possible. As such, our proprietary SpectroCHIPs
serve as a launching pad for vaporizing a variety of biomolecules
appropriately prepared for use with the MassArray system. In addition, the
SpectroCHIPs are essential for the miniaturization and automation of the
MALDI-TOF process. A SpectroCHIP's high precision surface structure allows
very small samples to be accurately positioned and distributed uniformly into
an array format which serves as an effective launching pad for the automated
MALDI-TOF process.

The DNA samples are transferred from a microtiter plate to the spots on the
chip using our SpectroJET nanoliter dispensing unit. Ten chips then can be
positioned on a cartridge and transferred to the SpectroSCAN array reading
mass spectrometer. The mass spectrometer utilizes our proprietary Genolyzer
software and sequentially scans the positions on the array in a fully
automated mode, completing each scan within three seconds. This proprietary
technology to shrink the scale of samples from microliter to nanoliter volumes
is the key element for highly accurate and automatic data acquisition.

ASSAYS AND ENZYMATIC REACTIONS
A key element of the MassArray system is the BioMASS assay. An assay is a test
that provides analytical information about a reaction of interest, such as the
weight of a biomolecule. In order to use our MassArray system, the user must
prepare the sample using the BioMASS assay. The central components of any
BioMASS assay are ingredients such as beads for immobilization and buffer
solutions for conditioning the sample necessary for mass spectrometry
analysis. Every SNP analysis using our MassArray system requires the use of a
BioMASS assay. Prior to the BioMASS assay, DNA must be extracted from cells
and a specific segment must be amplified using commercially available kits.
The BioMASS assay includes all of the ingredients required to prepare a DNA
fragment for SNP analysis, except the enzymes and nucleotide building blocks
which are necessary for the primer extension reaction. The primer extension
reaction known as a BiomassPROBE assay is the step where a known sequence of

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DNA, known as a primer, binds to a specific region of DNA in which a SNP is
located. Users of the MassArray system can prepare their own primer extension
reaction, or we can collaborate with customers to develop a customized primer
extension reaction by way of assay design. When we develop primer extension
reactions for the analysis of specific SNPs, customers can purchase a specific
BiomassPROBE assay from us that contains the customized primer extension
reaction for the SNP of interest. We currently offer a generic BiomassPROBE
assay kit and are collaborating with our beta site and pre-launch users on a
variety of SNP-specific BiomassPROBE assays. In the future, we intend to
develop chips that allow the performance of BiomassPROBE reactions in a
miniaturized format on the surface of the chip.

BIOINFORMATICS
The Genolyzer software calculates, records, compares and reports the genotypes
at the rate of three seconds per sample. It includes advanced digital signal
processing, data compression and interpretation to achieve full automation of
the analysis and archiving of molecular weight signals as SNP genotypes. This
software distinguishes between signal and noise, identifies patterns that
correspond to assays and interprets the signals as SNP genotypes without
labor-intensive data processing.

PRODUCTS

We have developed a suite of products that we collectively call the MassArray
system. The MassArray system consists of the SpectroSCAN array-scanning mass
spectrometer, SpectroJET nanoliter-dispensing unit, a MassArray kit and the
Genolyzer MassArray workstation. The MassArray kit contains the BiomassPROBE
assay including the SpectroCHIP, buffer solutions and enzymes. The hardware
components, including the mass spectrometer and the dispensing unit, are off-
the-shelf instruments modified to run our MassArray technology.

We are currently in beta site testing of our system for high throughput,
highly accurate SNP analysis. We commenced a commercial launch during the
fourth quarter of 1999. To date, our MassArray system has been installed at
six sites, all of which are beta testing our product. Current sites include
Genzyme, USDA, National Institutes of Health and National Cancer Institute in
the United States and University of Munster and GLE Medicon in Germany.

MASSARRAY SYSTEM
Our MassArray system consists of hardware, software and disposable components:

HARDWARE COMPONENTS
The MassArray system is a series of integrated hardware components that
processes prepared DNA samples for SNP reading and analysis. The 96-well
microtiter plates contain prepared samples of extended DNA fragments. Samples
from each well are then transferred by the dispensing unit onto an array of
individual water-attracting spots that are located on the surface of the
SpectroCHIPs. The SpectroCHIPs are then run through the mass spectrometer for
SNP reading and analysis.

Sample preparation system and automation
The MassArray system has been designed to be either partially automated using
a customized 96-channel microliter dispenser or fully automated with the
addition of our automated process line for users with industrial-scale
throughput needs. Our process line links several liquid-handling modules using
a robot to fully automate the DNA sample preparation process including
amplification, enzymatic extension and conditioning for SNP analysis. The
process line has been designed for a capacity of up to 100-microtiter plates
per 24 hours.

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SpectroJET nanoliter-dispensing unit
The SpectroJET nanoliter-dispensing unit is a liquid-handling module that
transfers samples from microtiter plates to the SpectroCHIP. The SpectroJET
dispenses nanoliter volumes of DNA samples onto precise locations on the
SpectroCHIP's surface.

The reading system
The SpectroSCAN array mass spectrometer is the analytical component of the
MassArray system adapted specifically for the analysis of our SpectroCHIPs. We
have adapted the mass spectrometer to analyze interchangeable cartridges
holding 10 SpectroCHIPs in the SpectroSCAN. This dramatically improves the
automation and throughput of our MassArray system because all the positions on
the 10 chips can be analyzed in a single, automated, unattended run. The
SpectroSCAN separates, detects and characterizes the SNPs according to their
different molecular weights.

SOFTWARE COMPONENT

Interpretation software
Our suite of software products, called the MassArray Genolyzer, incorporates
proprietary modules for molecular weight recognition and data compression and
interpretation. The software correlates a reading from the SpectroSCAN with a
genotype in the SNP sample. The MassArray technology allows the Genolyzer
software to interpret raw data without extensive processing. This reduces the
amount of time and computer resources necessary and increases the reliability
for SNP analysis. The MassArray Genolyzer runs on Windows NT and uses an
Oracle database.

DISPOSABLE COMPONENTS

The SpectroCHIP
The key component of our MassArray system is our SpectroCHIP, a small,
approximately 2x3 cm, silicon chip. The SpectroCHIP allows for reliable and
automated scanning of samples of the array and substantially increases the
capacity of MALDI-TOF mass spectrometry. Additional throughput can be obtained
by simultaneously preparing DNA fragments for multiple SNP analysis, a process
referred to as multiplexing. Samples are placed on the surface of the
SpectroCHIP using our SpectroJET nanoliter- dispenser. SpectroCHIPs are
designed for single-use only and we expect their consumption to generate a
recurring revenue stream.

MassArray kit
The MassArray kit consists of a BiomassPROBE assay including the SpectroCHIP,
buffer solutions and enzymes. Each kit can be used to read and analyze 10
SpectroCHIPs for a total of 960 reactions. We have in-house expertise to
design specific assays in collaboration with our customers that deliver highly
accurate results. In addition, our assays serve a wide range of applications
and can be designed for simultaneous analyses.

POPULATION-BASED DNA BANK
We have established a population-based DNA bank as a value-added universal
reference tool for demonstrating the medical importance of genetic variances
potentially involved in the development of diseases. We intend to sell access
or license subscriptions to this resource to pharmaceutical and genomics
companies to validate the existence of potential SNPs. Our bank complements
the patient-based DNA banks collected by these potential customers, which are
typically disease specific. We believe the data sets derived will represent
essential tools for decision making in genomic drug development and the
interpretation of diagnostic and genetic profiling results.

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Our DNA bank currently consists of approximately 7,000 individual samples
collected from the North American continent. These samples were collected
using stringent criteria and are sorted by age, sex and ethnicity. We have the
capacity to increase the size of our bank to include tens of thousands of
samples.

Future product development
Our product development efforts will seek to provide value-added applications
for a broader customer base and advanced MassArray systems that offer reduced
cost and higher throughput.

384 SpectroCHIP
We intend to introduce a SpectroCHIP with 384 sample spots on the chip
surface. The size of the silicon chip will remain the same. This chip may
significantly increase sample throughput and reduce reagent consumption per
sample.

Future-generation functionalized SpectroCHIP
We intend to further miniaturize by moving some of the DNA sample preparation
steps onto the chip surface. With the functionalized SpectroCHIP, the
enzymatic reactions will take place on the surface of the chip thereby
eliminating the need for the microtiter plate, providing a significant
reduction in reaction volumes.

The MassArray integrated system and bioinformatics
The implementation of the functionalized chip should allow us to integrate all
steps of the DNA analysis process, including sample preparation, into one
automated system. We intend for the MassArray integrated system and
bioinformatics to be compatible with all leading commercial and public domain
genetic database formats so customers will be able to integrate the MassArray
system seamlessly into whichever downstream analytical processes they prefer.

Future applications
Our MassArray system is not restricted to DNA analysis. It can analyze a broad
range of molecules of medical and biological importance, such as proteins,
carbohydrates and metabolites. We intend to make enhancements to our MassArray
system for the analysis of additional medically relevant biomolecules.

COMMERCIAL LAUNCH PLAN

We are a development stage company. To date, we have received no revenue from
our commercial operations.

Pre-launch and beta testing program

In July 1999 we started the implementation of our pre-launch and beta testing
program with the placement of six MassArray systems. All six of our pre-launch
sites are part of our beta testing program. Our beta test program agreements
generally include a time period of 6 to 18 months in which the users receive a
MassArray system, SpectroCHIPs and site support free of charge. In exchange
for their participation in the program, the user must provide us with
information regarding system performance and assay results. One of our beta
test site customers has agreed to purchase our MassArray system. In addition,
some of our agreements require the user to make one or more payments during
the beta test period. Amounts received under these arrangements are recorded
as customer advances and total $100,000 as of September 30, 1999. Costs
related to these arrangements totaled approximately $700,000 through December
31, 1999, and are not expected to exceed $3 million for the remaining term of
the arrangements. We believe these arrangements have the following value:

. customer feedback has enabled us to enhance our products;

. our association with these beta sites is expected to provide validation
of our system since these collaborators are highly visible; and

. we will eventually derive revenue if the customers accept our products.

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Product design, which includes feedback from our customers, has progressed to
a stage where we are able to commercially launch our product. The pre-launch
users were selected based on the following criteria:

. those entities within the genomic community with high visibility, proven
expertise and which generally adopt new technologies before others;

. coverage of diverse programs in basic genomic research, agricultural
genomics, human DNA diagnostics and genomic drug discovery and development;

. substantial genotyping demands in terms of both sample volumes and
number/complexity of assays to be designed;

. willingness and ability to provide beta testing feedback; and

. potential for conversion into a commercial customer.

We have placed MassArray systems with:

. United States Department of Agriculture Meat Animal Research Center;

. Genzyme Corporation;

. National Cancer Institute;

. National Institutes of Health--Centers for Disease Control and Prevention;

. University of Munster, Institute for Clinical Chemistry and Laboratory
Medicine; and

. GLE Medicon GmbH, Hamburg.

KEY ACCOUNT PRODUCT LAUNCH
We commercially launched the MassArray system through a key account strategy
during the fourth quarter of 1999. We have initiated this effort by selecting
highly visible academic, government and commercial centers to validate our
MassArray system in beta site testing. We intend to focus on these users in
order to establish our MassArray system as the method of choice in SNP
analysis.

SALES AND MARKETING
Our sales strategy is to initially place systems and then promote ongoing
disposables and assay sales and system upgrades. The initial placement is
executed by a business development team with expertise in the pharmaceutical
industry, drug development and contract marketing. Identification and active
development of lead customer contacts is based on a thorough knowledge of the
marketplace and supported by highly visible scientists employed by or
associated with us. The sales and marketing team, which has core competencies
in molecular biology, biochemistry, microfluidics and mass spectrometry,
focuses on ongoing disposables and new product sales. These teams collectively
consist of 12 people and are based out of our San Diego, Boston and Hamburg
offices. We expect to add additional business development and sales and
marketing team members to commercialize our MassArray system.

All our facilities have MassArray systems available for demonstration and
customer training purposes. Fully automated high throughput process lines have
been installed in San Diego and Hamburg for large-scale assay design projects
and high value marker function programs.

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OPERATIONS

We manufacture SpectroCHIPs, required reagents and Genolyzer software at our
San Diego facility. Total current capacity of this facility is estimated at
100,000 SpectroCHIPs a year with the ability to double our manufacturing
capacity at the existing facility.

The manufacturing area is designed to optimize material flow and personnel
movement with all the manufacturing and quality control operations located in
one area. Critical components are produced in an environmentally controlled
clean room and isolated from the rest of the facility in compliance with
quality system requirements, or QSRs, and ISO 9001 registration standards.
Access and safety features are designed to meet federal, state and local
health ordinances.

We have established some and intend to develop additional alternate/multiple
sources of system components other than those produced in-house. Current major
equipment suppliers are Bruker Datonik GmbH and PE Biosystems for mass
spectrometers, GeSIM GmbH for the nanoliter-dispensing unit, Beckman
Instruments, Inc. for the 96-channel dispenser, and Robocon Incorporated for
the robotic components of the automated process line.

We utilize a company-wide enterprise resource planning system to manage and
control our material and product inventories. This system encompasses product
costing, materials procurement, production planning and scheduling, inventory
tracking and control, product engineering and configuration control, with
links to document control for all manufacturing, quality control, quality
assurance and regulatory compliance procedures.

INTELLECTUAL PROPERTY

To establish and protect our proprietary technologies and products, we rely on
a combination of patent, copyright, trademark and trade secret laws, as well
as confidentiality provisions in our contracts.

We have implemented an aggressive patent strategy designed to provide us with
freedom to operate and facilitate commercialization of our current and future
products. Focusing on a global economy, our patent portfolio reflects our
transatlantic nature and includes 47 pending patent applications in the United
States and corresponding international and foreign filings in major industrial
nations. We currently own nine and license five issued patents in the United
States and have received notices of allowances for five additional patent
applications. We also own two foreign issued patents.

Our patent strategy uniquely positions us by providing patent protection for
systems and technology that allows the direct detection of biomolecules
without labels using mass spectrometry in a manner amenable to high throughput
genotyping.

The issued, allowed and pending patents distinguish us from competitors by
claiming proprietary methods for directly genotyping DNA and other
biomolecules by measuring the mass of the molecules without requiring labels
for detection. Claims to these novel methods include protection for carrying
out biopolymer purification and diagnostic methods in solution or directly by
immobilization on solid supports such as beads or chip surfaces. These methods
also allow multiplexing or analysis of more than one sample both in a single
reaction and as arrays of compounds allowing the system to be easily amenable
to high throughput genotyping. Industrial genomics is possible because mass
spectrometric analysis can be miniaturized and therefore automated. We have
extensive patent protection for novel nanoliter liquid dispensing systems and
pending claims to multifunctional solid surfaces containing nanoliter sized
elements including our SpectroCHIP. Generally, US patents have a term of 17
years from the date of issue for patents issued from applications filed with
the US Patent Office prior to June 8,

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1995, and 20 years from the application filing date or earlier claimed
priority date in the case of patents issued from applications filed on or
after June 8, 1995. Patents in most other countries have a term of 20 years
from the date of filing the patent application. Our issued United States
patents will expire between 2013 and 2017. Our success depends to a
significant degree upon our ability to develop proprietary products and
technologies. We intend to continue to file patent applications as we develop
new products and technologies.

Patents provide some degree of protection for our intellectual property.
However, the assertion of patent protection involves complex legal and factual
determinations and is therefore uncertain. In addition, the laws governing
patentability and the scope of patent coverage continue to evolve,
particularly in the areas of molecular biology of interest to us. As a result,
there can be no assurance that patents will issue from any of our patent
applications or from applications licensed to us. The scope of any of our
issued patents may not be sufficiently broad to offer meaningful protection.
In addition, our issued patents or patents licensed to us may be successfully
challenged, invalidated, circumvented or unenforceable so that our patent
rights would not create an effective competitive barrier. Moreover, the laws
of some foreign countries may not protect our proprietary rights to the same
extent as do the laws of the United States and Canada. In view of these
factors, our intellectual property positions bear some degree of uncertainty.

We also rely in part on trade secret protection of our intellectual property.
We attempt to protect our trade secrets by entering into confidentiality
agreements with third parties, employees and consultants. Our employees and
consultants also sign agreements requiring that they assign to us their
interests in patents and copyrights arising from their work for us. All
employees sign an agreement not to compete unfairly with us during their
employment and upon termination of their employment, through the misuse of
confidential information, soliciting employees, soliciting customers, and the
like. However, it is possible that these agreements may be breached or
invalidated and if so, there may not be an adequate corrective remedy
available. Despite the measures we have taken to protect our intellectual
property, we cannot assure you that third parties will not breach the
confidentiality provisions in our contracts or infringe or misappropriate our
patents, copyrights, trademarks, trade secrets and other proprietary rights.
In addition, we cannot assure you that third parties will not independently
discover or invent competing technologies or reverse engineer our trade
secrets, or other technology. Therefore, the measures we are taking to protect
our proprietary rights may not be adequate.

Although we are not a party to any material legal proceedings, in the future,
third parties may file claims asserting that our technologies or products
infringe on their intellectual property. We cannot predict whether third
parties will assert such claims against us or against the licensors of
technology licensed to us, or whether those claims will harm our business. If
we are forced to defend against such claims, whether they are with or without
any merit, whether they are resolved in favor of or against us or our
licensors, we may face costly litigation and diversion of management's
attention and resources. As a result of such disputes, we may have to develop
costly non-infringing technology, or enter into licensing agreements. These
agreements, if necessary, may be unavailable on terms acceptable to us, or at
all, which could seriously harm our business or financial condition.

COLLABORATION AND LICENSE AGREEMENTS

We have a collaboration agreement with Bruker-Franzen Analytik GmbH under
which we cooperate in the manufacture, marketing and customer service of a
product designed for the exclusive processing of our SpectroCHIPs under a
joint Bruker-Franzen-Sequenom label. Under the agreement, Bruker-Franzen
designs, manufactures and supplies the product to the market. We provide
nucleic acid analysis services to customers and to corporate partners using
our MassArray system and develop, manufacture and market SpectroCHIPs for
various applications. Either party may terminate this agreement upon 12
months' notice.

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We have entered into a patent and know-how license agreement with the Trustees
of Boston University under which Boston University granted to us a worldwide
license to some of its patents as well as technical assistance, and we agreed
to make royalty payments. Boston University may license the patents to others
under specified circumstances if we fail to put the technology to commercial
use or make it available to the public. We may terminate this agreement upon
written notice to the university. In any event, this agreement will expire
when the last licensed patent expires.

We have entered into a license agreement with The Johns Hopkins University
under which the university granted to us a worldwide license to some of its
patents related to mass spectrometer instruments. Johns Hopkins also agreed to
provide related technical assistance. We agreed to pay a processing fee,
maintenance fee and to make royalty payments. Johns Hopkins reserves specified
rights to the patents in the event that we fail to put the technology to
commercial use or make it available to the public. We may terminate this
agreement upon written notice to the university. In any event, this agreement
will expire when the last licensed patent expires.

We also entered into a license agreement with Prof. Dr. Franz Hillenkamp, a
member of our scientific advisory board, under which Dr. Hillenkamp granted us
licenses to specified present and future patents in exchange for royalty
payments. We agreed to refund all of Dr. Hillenkamp's expenses that he had
incurred or will incur in connection with applying for, maintaining and
defending the licensed patents. This agreement terminates at the end of the
tenth calendar year after the first calendar year for which licenses are paid.

As of December 31, 1999, we had incurred costs of approximately $1.5 million
in connection with these collaboration and license agreements. As of that
date, we had received no revenue from the agreements.

COMPETITION

The markets for our products are very competitive, and we expect the intensity
of competition to increase. Currently, we compete primarily with other
companies performing similar tasks using alternative technologies. Many of our
competitors have greater financial, operational, sales and marketing
resources, and more experience in research and development than we have. These
competitors and other companies may have developed or could in the future
develop new technologies that compete with our products or which could render
our products obsolete.

In the SNP genotyping marketplace, MassArray competes with alternative
technology concepts which differ in the areas of sample amplification,
analysis process, sample separation or SNP detection and are all based on
indirect detection of the molecule hybridization and/or labeling. Such
technologies include:

. Gel-based fluorescent sequencing as offered by PE Corporation, Amersham
Pharmacia Biotech, Visible Genetics, Inc. and others and primarily developed
for DNA analysis, such as DNA sequencing;

. Single base primer extensions and colormetric detection offered by the
genetic bit analysis of Orchid Biocomputer Inc.;

. Fluorescence resonance energy transfer, or FRET, offering real-time PCR-
based fluorescent detection and incorporated in PE Corporation's TaqMan
product line;

. Invader and Invader Squared SNP detection, an alternative linear
amplification technology including structure-based hybridization and enzyme
cleavage developed by Third Wave Technologies, Inc.;

. Hybridization methods, such as those used by Affymetrix, Inc., Hyseq, Inc.,
Nanogen, Inc., Protogene Laboratories Inc. and others with miniaturized chip
formats and those offered by Genometrix in microtiter plate arrays; and

. Bead-based capture technologies involving hybridization and fluorescent
detection as developed by Illumina, Inc., which uses fiber optics, or
Luminex Corporation, which uses flow cytometry.

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The number of entities applying mass spectrometry in DNA analysis is
increasing continuously. PE Corporation and GeneTrace Systems Inc. have
implemented analysis concepts that involve direct analysis of enzymatically-
generated nucleic acid fragments by MALDI-TOF. Rapigene Inc. and Genetrace
Systems Inc. use a mass spectrometry approach that incorporates mass labels
and therefore is an indirect analysis of the molecule.

GOVERNMENT REGULATION

We are not subject to direct governmental regulation other than the laws and
regulations generally applicable to businesses in the jurisdictions in which
we operate.

SCIENTIFIC ADVISORY BOARD

We have established a scientific advisory board made up of leading scholars in
the field of mass spectrometry, molecular medicine, proteonomics and molecular
microbiology. Members of our scientific advisory board consult with us on
matters relating to the development of our products described elsewhere in
this prospectus. Members of our Scientific Advisory Board are reimbursed for
the reasonable expenses of attending meetings of the scientific advisory
board. Some of the members may also receive options to purchase shares of our
common stock. The members of the scientific advisory board are as follows:

<TABLE>
<CAPTION>
ADVISOR INSTITUTION
- -----------------------------------------------------------------------------
<S> <C>
Charles R. Cantor, PhD, Chairman Sequenom, Inc.
Robert Cotter, PhD Johns Hopkins University School of Medicine
Catherine Fenselau, PhD University of Maryland
Ulf Goebel, PhD Charite University Clinic, Berlin, Germany
Franz Hillenkamp, PhD University of Munster, Germany
Ulf Landegren, PhD Uppsala University, Sweden
Peter Roepstorff, PhD University of Odense, Denmark
</TABLE>

EMPLOYEES

As of December 31, 1999, we employed 103 persons, of whom 31 hold PhD or MD
degrees and 18 hold other advanced degrees. Approximately 55 employees are
engaged in research and development, 13 in business development, sales and
marketing, 10 in manufacturing and 25 in intellectual property, finance and
other administrative functions. Our success will depend in large part upon our
ability to attract and retain employees. We face competition in this regard
from other companies, research and academic institutions, government entities
and other organizations. We believe that we maintain good relations with our
employees.

FACILITIES

We currently lease an approximately 31,000 square foot facility in San Diego,
California for our headquarters and as the base for marketing and product
support operations, research and development and manufacturing activities.
Under this lease we will add approximately 14,000 square feet through fiscal
2001. We will need to make improvements to the additional space to make it
suitable for our needs. The lease expires in September 2004. We also lease an
approximately 3,000 square foot facility in Sudbury, Massachusetts for product
and customer support. In addition, we lease an approximately 15,000 square
foot facility in Hamburg, Germany to support sales and distribution in Europe.
Under the terms of these leases, we presently pay rent of approximately
$53,000 per month. We believe that our current facilities will be adequate to
meet our near-term space requirements. We also believe that suitable
additional space will be available to us, when needed, on commercially
reasonable terms.

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ORGANIZATION

We were incorporated in the state of Delaware in 1994.

LEGAL PROCEEDINGS

We are not currently a party to any material legal proceedings.

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Management

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

Set forth below is the name, age, position and a brief account of the business
experience of each of our executive officers, directors and key employees.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Executive Officers & Directors
Hubert Koster, PhD............... 59 President, Chief Executive Officer and Director
Charles R. Cantor, PhD........... 57 Chief Scientific Officer
Stephen L. Zaniboni.............. 42 Senior Vice President and Chief Financial Officer
Antonius Schuh, PhD.............. 36 Executive Vice President, Business Development
and Marketing
Delbert F. Foit, Jr. ............ 53 Chief Operating Officer
Andreas Braun, PhD, MD........... 43 Chief Medical Officer
Karsten Schmidt, PhD............. 38 Managing Director, Sequenom GmbH
Helmut Schuhsler, PhD(1)......... 40 Chairman of the Board of Directors
Ernst-Gunter Afting, PhD, MD(2).. 57 Director
John E. Lucas(1)(2).............. 68 Director
Peter Reinisch, PhD.............. 59 Director
Key Employees
Charles P. Rodi, PhD............. 47 Vice President, Molecular Biology
Paul J. Heaney, PhD.............. 40 Vice President, Advanced Systems
</TABLE>
- --------

(1) Member of the compensation committee.

(2) Member of the audit committee.

Hubert Koster, PhD Dr. Koster is our founder, President, Chief Executive
Officer and a member of our board of directors and our scientific advisory
board. In 1978, Dr. Koster was appointed tenured professor of organic
chemistry and biochemistry at Hamburg University. Dr. Koster founded
Biosyntech, GmbH, the first biotech company in Germany in 1981 and served on
its board of directors and scientific advisory board. In 1987, he co-founded
MilliGen/Biosearch, the biotech division of Millipore Corporation in Bedford,
MA, and served as Vice President of Science and Technology. Dr. Koster
currently holds more than 20 patents and authored more than 110 publications
prior to founding Sequenom in 1994. Dr. Koster studied chemistry at Hamburg
University, completed doctoral research at the Max Planck Institute for
Experimental Medicine in Gottingen, and completed post-doctoral research work
at the Max Planck Institute for Virus Research in Tubingen.

Charles R. Cantor, PhD Dr. Cantor joined us as our Chief Scientific Officer
and Chairman of our scientific advisory board in August 1998. From 1992 until
joining us, Dr. Cantor served as the chair of, and as a professor in the
department of biomedical engineering and biophysics, and Director of the
Center for Advanced Biotechnology at Boston University. Prior to that time,
Dr. Cantor held positions at Columbia University and the University of
California, Berkeley. He was also Director of the Human Genome Center of the
Department of Energy at Lawrence Berkeley Laboratory. Dr. Cantor published the
first textbook on genomics: The Science and Technology of the Human Genome
Project and remains active in the Human Genome Project through his membership
in a number of the project's advisory committees and review boards. He is a
scientific advisor to 16 biotech and life science companies and

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two venture capital firms. He is also a member of the National Academy of
Sciences. Dr. Cantor earned his PhD from the University of California,
Berkeley.

Stephen L. Zaniboni Mr. Zaniboni joined us as our Chief Financial Officer in
April 1997. From 1994 until joining us, Mr. Zaniboni served as Vice President,
Finance for Aspect Medical Systems, Inc. Prior to joining Aspect, Mr. Zaniboni
was Corporate Controller for Behring Diagnostics from 1988 to 1994 where he
implemented financial systems during a dramatic growth period. Before joining
Behring, he held various financial management positions at Boston Scientific
Corp. Mr. Zaniboni began his career with Arthur Andersen & Co. He earned his
MBA from Boston College and he is a Certified Public Accountant.

Antonius Schuh, PhD Dr. Schuh joined our German subsidiary as Managing
Director in December 1996 and was promoted to Executive Vice President,
Business Development and Marketing, in 1998 when he moved to our headquarters
in San Diego, California. From 1993 until joining us, Dr. Schuh was with Helm
AG, an international pharma/chemical trading and distribution corporation.
While at Helm AG, he established and headed the Pharma Business Development
Group and the associated technical and regulatory affairs department. Prior to
that, from 1992 to 1993, he was with Fisons Pharmaceuticals. Dr. Schuh is a
co-founder of BIOND, Heidelberg, a board member of Austrian Orphan
Pharmaceuticals AG, Vienna, and an advisor to Juelich Enzyme Products,
Juelich, Federal Republic Germany. Dr. Schuh earned his PhD in pharmaceutical
chemistry from the University of Bonn, in Germany.

Delbert F. Foit, Jr. Mr. Foit joined us as our Chief Operating Officer in
March 1999. From 1996 until joining us, Mr. Foit served as Vice President of
North American Operations for the Laboratory Systems Division of Boehringer
Mannheim Inc. He also served in various other positions, beginning in 1992,
where he implemented a number of successful productivity initiatives first
with Microgenics then with Boehringer Mannheim's North American Laboratory
Systems. After the acquisition of Boehringer Mannheim by Hoffmann-La Roche,
Mr. Foit assumed overall responsibility for the combined Laboratory Systems
Operations of Roche and Boehringer in North America. Prior to his tenure with
Boehringer, Mr. Foit held positions as Director of Operations and Director of
Manufacturing for Ortho Diagnostics Systems, a Johnson and Johnson Company.
Mr. Foit earned his MBA from Rider University.

Andreas Braun, PhD, MD Dr. Braun joined us in 1995 and was promoted from Vice
President, Genomics to Chief Medical Officer in September 1999. From 1992
until joining us, Dr. Braun served as Deputy Head of the Clinical Laboratory
at the Childrens Hospital, University of Munich. Dr. Braun has published more
than 45 peer-reviewed scientific publications. His research work in functional
pharmacogenomics targeting the human bradykin receptor was recognized in 1996
with the Garbor Szasz Award which was granted by the German Society of
Clinical Chemistry. Dr. Braun earned doctorate degrees in biology and medical
science from the University of Munich.

Karsten Schmidt, PhD Dr. Schmidt joined our German subsidiary as Director,
Business Development in January 1999 and was appointed as Managing Director in
May of 1999. From 1996 until joining us, Dr. Schmidt served in a senior
management position at Rhone-Poulenc Rorer, Germany, where he was responsible
for all drug regulatory affairs for asthma and allergies. From 1994 to 1996,
Mr. Schmidt served as a manager in charge of regulatory affairs, for Fisons
Araneimittel, GmbH. As a member of the International Pharmaceutical Aerosol
Consortium, Dr. Schmidt was involved in the joint activities of five prominent
pharmaceutical companies in this field to develop inhaled asthma therapies
with ozone-friendly propellants. Dr. Schmidt is a trained pharmacist and has a
broad scientific background in biochemistry and molecular biology. Dr. Schmidt
earned his PhD in pharmaceutical biology from the University in Bonn.

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Helmut Schuhsler, PhD Dr. Schuhsler joined us as the Chairman of our Board of
Directors in 1996. Since 1998, Dr. Schuhsler has served as a managing partner
at TVM Techno Venture Management, a German and US venture capital firm. He has
been with TVM since 1990 and has been responsible for over 25 healthcare
investments of the firm. He is currently a Director of several biotechnology
and instrumentation companies. Dr. Schuhsler earned a PhD in the Social and
Economic Sciences from the University of Economics in Vienna.

Ernst-Gunter Afting, PhD, MD Dr. Afting joined us as a Director in 1996. Since
1995, Dr. Afting has served as the Managing Director of Gesellschaft fur
Strahlenforschung, one of the largest German research organizations. From 1993
to 1995, he served as President and Chief Executive Officer of Roussel UCLAF,
Paris. He also headed the pharmaceutical division of Hoechst Group and was
Chairman of the Divisional Pharma Board of Hoechst. Dr. Afting earned a PhD
and an MD in Chemistry from the University of Freiburg/Breisgau.

John E. Lucas Mr. Lucas joined us as a Director in 1998. Mr. Lucas currently
serves as a management consultant to six biomedical companies. From 1994 to
1996, he was Founder, President and CEO of American Scientific Resources,
Ltd., a manufacturer of blood testing materials. From 1991 to 1994, he held
the positions of President, CEO and Chairman at Oxigene, Inc. and held similar
positions from 1974 to 1991 at Luconex, Mast ImmunoSystems, Xoma, Millipore
Ventures, Chemetrics and Oxford Laboratories. Mr. Lucas serves as a Director
of InSite Vision Incorporated. Mr. Lucas earned an MBA from Harvard
University.

Peter Reinisch, PhD Dr. Reinisch joined us as a Director in 1998. Dr. Reinisch
has served as an advisor to the general partners of Global Life Sciences LP
located in Guernsey, Channel Islands, a position he has held since 1996. Dr.
Reinisch is on the board of directors or has board visitation rights for eight
companies. From 1994 to 1998, he advised companies in the Corange Group and
played a key role in the co-establishment of Global Life Sciences LP. Prior to
that time, Dr. Reinisch held various senior management positions with
Corange/Boehringer Mannheim primarily in the area of business development of
the Diagnostics division. Dr. Reinisch earned a PhD in Business Administration
from the Technical University of Vienna.

Charles P. Rodi, PhD Dr. Rodi joined us as our Vice President, Molecular
Biology in May 1999. From 1998 until joining us, Dr. Rodi was Director of the
Genome Sequencing Center at Monsanto Company. He began at Monsanto in 1984
where he was involved in exploiting and developing molecular biological
technologies such as plasmid and library construction, expression profiling
and SNP discovery. Dr. Rodi earned his PhD in Cellular and Developmental
Biology from the University of Minnesota and pursued postdoctoral research on
molecular virology at the National Institutes of Health.

Paul J. Heaney, PhD Dr. Heaney joined us as our Vice President, Advanced
Systems in May 1999. From 1997 until joining us, Dr. Heaney served as Senior
Director of New Technologies and Applications at Orchid Biocomputer. From 1995
to 1997, he was Head of Bioelectronics at the Sarnoff Corporation in
Princeton, New Jersey, where he developed microfabricated fluidic systems for
combinatorial chemistry and DNA diagnostics--a core technology that led to the
formation of Orchid. Dr. Heaney was Vice President of R&D in the early days of
Genometrix and also worked at Amersham International and Kodak Clinical
Diagnostics in the United Kingdom. Dr. Heaney earned his PhD in Bio-Organic
Chemistry from University of Glasgow and was a Research Fellow at the Imperial
Cancer Research Fund in London.

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CLASSES OF THE BOARD

Our board currently has five members. Under our bylaws to be adopted upon the
closing of this offering, beginning at our next annual meeting of
stockholders, our board will be divided into three classes of directors
serving staggered three-year overlapping terms, with one class of directors to
be elected at each annual meeting of stockholders.

BOARD COMMITTEES

The audit committee of the board of directors was established in November 1999
and reviews, acts on and reports to the board of directors with respect to
various auditing and accounting matters, including the recommendation of our
auditors, the scope of the annual audits, the fees to be paid to the auditors,
the performance of our independent auditors and our accounting practices. The
members of the audit committee are Messrs. Afting and Lucas.

The compensation committee of the board of directors was established in
November 1999 and recommends, reviews and oversees the salaries, benefits and
stock plans for our employees, consultants, directors and other individuals
compensated by us. The compensation committee also administers our
compensation plans. The members of the compensation committee are
Messrs. Lucas and Schuhsler.

DIRECTOR COMPENSATION

Certain outside directors receive cash compensation. One outside director
receives $2,500 per quarter for his services as a director to the Company.
Another outside director currently receives $4,000 per month for advisory
services in connection with our initial public offering. All directors are
reimbursed for the reasonable expenses of attending the meetings of the board
of directors or committees. Under our 1999 Stock Incentive Plan, each
individual who first becomes a non-employee member of the board of directors
at any time after the completion of this offering will receive an option to
purchase 15,000 shares of our common stock on the date the individual joins
the board of directors, provided the individual has not previously been
employed by us or any parent or subsidiary corporation. In addition, on the
date of each annual stockholders meeting held after the effective date of this
offering beginning in 2000, each non-employee member of the board of directors
will automatically be granted an option to purchase 3,000 shares of common
stock, provided such individual has served as a non-employee member of the
board of directors for at least six months. For a further description of our
benefit plans, please see "Employee benefit plans."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Our compensation committee currently consists of Messrs. Lucas and Schuhsler.
Neither member of the compensation committee has been an officer or employee
of ours at any time. None of our executive officers serves as a member of the
board of directors or compensation committee of any other company that has one
or more executive officers serving as a member of our board of directors or
compensation committee. Prior to the formation of the compensation committee
in November 1999, the board of directors as a whole made decisions relating to
compensation of our executive officers.

EMPLOYMENT AND SEVERANCE ARRANGEMENTS

All of our current employees have entered into agreements with us which
contain restrictions and covenants. These provisions include covenants
relating to the protection of our confidential information, the assignment of
inventions, and restrictions on competition and soliciting our clients,
employees, or independent contractors.

None of our employees is employed for a specified term, and each employee's
employment with us is subject to termination at any time by either party for
any reason, with or without cause.

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Dr. Koster's employment agreement provides for a salary of $240,000 per year,
subject to periodic increases by our board of directors at its discretion. In
connection with his employment with us, Dr. Koster was granted an option to
purchase 300,000 shares of our common stock under our 1994 and 1998 stock
plans. Dr. Koster has exercised these options. We recorded deferred
compensation as a result of a remeasurement of these options originally
granted in 1997. Dr. Koster was also reimbursed for expenses he incurred in
relocating from Hamburg, Germany to our corporate offices in San Diego,
California, in connection with his employment agreement. If Dr. Koster's
employment is terminated involuntarily or without cause, Dr. Koster will be
entitled to receive his annual salary in periodic payments, until he secures
other full-time employment with another company or until one year has elapsed
after termination, whichever is earlier.

Mr. Zaniboni's employment agreement provides for a salary of $195,000 per
year, subject to periodic increases by our board of directors at its
discretion. Mr. Zaniboni is also entitled to receive a bonus of $10,000 per
year. In connection with his employment with us, Mr. Zaniboni was granted
options to purchase 210,000 shares of our common stock under our 1994 and 1998
stock plans. Mr. Zaniboni has exercised these options. If Mr. Zaniboni's
employment is terminated involuntarily or without cause, Mr. Zaniboni will be
entitled to receive his annual salary in periodic payments, until he secures
other full-time employment with another company or until six months have
elapsed after termination, whichever is earlier.

Dr. Schuh's employment agreement provides for a salary of $195,000 per year,
subject to periodic increases by our board of directors at its discretion. Dr.
Schuh is also entitled to receive a bonus of $10,000 per year. In connection
with his employment with us, Dr. Schuh was granted options to purchase 280,000
shares of our common stock under our 1994 and 1998 stock plans. Dr. Schuh has
exercised these options. If Dr. Schuh's employment is terminated involuntarily
or without cause, Dr. Schuh will be entitled to receive his annual salary in
periodic payments, until he secures other full-time employment with another
company or until six months have elapsed after termination, whichever is
earlier.

Dr. Cantor's employment agreement provides for a salary of $180,000 per year,
subject to periodic increases by our board of directors at its discretion. Dr.
Cantor is also entitled to receive a bonus of $21,000 per year. In addition,
Dr. Cantor will be paid $30,000 in connection with his service as the Chairman
of our scientific advisory board. Moreover, we will pay for up to 12 visits
per year to Boston University that Dr. Cantor is required to make in
connection with his leave of absence from his positions at the university. In
connection with his employment with us, Dr. Cantor was granted options to
purchase 280,000 shares of our common stock under our 1994 and 1998 stock
plans. Dr. Cantor has exercised these options. If Dr. Cantor's employment is
terminated involuntarily or without cause, Dr. Cantor will be entitled to
receive his annual salary in periodic payments, until he secures other full-
time employment with another company or until six months have elapsed after
termination, whichever is earlier.

Mr. Foit's employment agreement provides for a salary of $180,000 per year,
subject to periodic increases by our board of directors at its discretion. Mr.
Foit is also entitled to receive a bonus of $10,000 per year. We also agreed
to pay reasonable expenses, up to a maximum of $50,000, associated with
Mr. Foit's relocation to our corporate offices in San Diego, California. Mr.
Foit was also granted an additional $1,000 monthly housing allowance during
his first twelve months of service with us. In connection with his employment
with us, Mr. Foit was granted options to purchase 100,000 shares of our common
stock under our 1998 Stock Option/Stock Issuance Plan. Mr. Foit has exercised
a portion of these options. If Mr. Foit's employment is terminated
involuntarily or without cause, Mr. Foit will be entitled to receive his
annual salary in periodic payments, until he secures other full-time
employment with another company or until six months have elapsed after
termination, whichever is earlier.

The compensation committee, as plan administrator of our 1999 Stock Incentive
Plan, will have the authority to grant options and to structure repurchase
rights under that plan so that the shares subject

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to those options or repurchase rights will immediately vest in connection with
a change in control of us, whether by merger, asset sale, successful tender
offer for more than 50% of the outstanding voting stock or by a change in the
majority of the board by reason of one or more contested elections for board
membership. Vesting of these options will occur either at the time of the
change in control or upon the subsequent involuntary termination of the
individual's service within a designated period not to exceed 18 months
following the change in control.

EXECUTIVE COMPENSATION

SUMMARY OF CASH AND OTHER COMPENSATION
The following table shows all compensation received during the year ended
December 31, 1999 and December 31, 1998 by our Chief Executive Officer and our
other five executive officers whose salary and bonus exceeded $100,000 in 1999
for services rendered in all capacities to us during 1999.

Other annual compensation for Dr. Koster includes, for 1998, $94,266 paid in
connection with his relocation to our corporate headquarters in San Diego from
Hamburg, Germany, $3,900 for use of a company automobile and $1,000 paid in
connection with various tax services and, for 1999, $6,923 paid in connection
with his relocation, and $5,702 for use of a company automobile. Other annual
compensation for Mr. Zaniboni includes, for 1998, $12,098 paid in connection
with his relocation to San Diego, California and $1,275 paid for various tax
services and, for 1999, amounts paid for various tax services. Other annual
compensation for Dr. Shuh and Andreas Braun for both years reflects the amount
paid for various tax services. Other annual compensation for Dr. Cantor during
1999 represents payment for his services as chief of our scientific advisory
board. Other annual compensation for Mr. Foit represents the amount paid in
connection with his relocation to our corporate headquarters in San Diego.
Other annual compensation for all officers listed represents income from the
exercise of non-qualified stock options.

SUMMARY COMPENSATION

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING OTHER
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Hubert Koster........... 1998 $252,000 $10,000 $99,166 255,000 --
President and 1999 $279,334 $10,000 $12,625 155,000 450,688
Chief Executive Officer

Stephen L. Zaniboni..... 1998 132,500 10,000 13,373 140,000 --
Senior Vice President
and 1999 185,208 10,000 1,650 50,000 17,084
Financial Officer

Antonius Schuh.......... 1998 150,426 10,000 -- 130,000 --
Executive Vice
President, 1999 187,223 10,000 750 50,000 23,126
Business Development
and
Marketing

Charles R. Cantor....... 1999 180,000 21,000 30,000 100,000 207,200
Chief Scientific
Officer

Andreas Braun........... 1998 136,000 10,000 350 50,000 --
Chief Medical Officer 1999 145,917 10,000 1,150 130,000 --

Delbert F. Foit, Jr. ... 1999 126,000 7,432 10,460 100,000 --
(from April 1, 1999)
Chief Operating Officer
</TABLE>

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OPTIONS
The following table shows information regarding options granted to the
executive officers listed in the summary compensation table above during the
fiscal years ended December 31, 1998 and 1999. We have not granted any stock
appreciation rights.

Each option represents the right to purchase one share of our common stock.
The options generally become vested over four years. To the extent not already
vested, some of these options may also accelerate and become exercisable in
the event of a merger in which we are not the surviving corporation or upon
the sale of substantially all of our assets. Please see "Management--Employee
benefit plans" for more details regarding these options. In the years ended
December 31, 1998 and 1999, we granted options to purchase an aggregate of 1.3
million and 1.1 million shares of common stock, respectively, to various
officers, employees, directors and consultants.

The potential realizable value at assumed annual rates of stock price
appreciation for the option term represents hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. The 5% and 10% assumed annual rates of compounded stock price
appreciation are required by rules of the Securities and Exchange Commission
and do not represent our estimate or projection of our future common stock
prices. These amounts represent assumed rates of appreciation in the value of
our common stock from the fair market value on the date of grant. Actual
gains, if any, on stock option exercises are dependent on the future
performance of our common stock and overall stock market conditions. The
amounts reflected in the table may not necessarily be achieved.

OPTION GRANTS IN LAST TWO FISCAL YEARS
<TABLE>
- ------------------------------------------------------------------------------------------------
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
% OF TOTAL
NUMBER OPTIONS VALUE AT ASSUMED
OF SECURITIES GRANTED TO EXERCISE ANNUAL RATES OF
UNDERLYING EMPLOYEES PRICE APPRECIATION OF STOCK
OPTIONS IN 1998 & PER EXPIRATION PRICE FOR OPTION TERM
NAME YEAR GRANTED 1999 SHARE DATE 5% 10%
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Hubert Koster........... 1998 75,000 6% $0.55 09/18/08 $ 25,942 $ 65,742
72,656 6 1.10 12/11/08 50,262 127,374
107,344 9 1.00 12/11/08 67,508 171,079
1999 8,420 * 3.30 01/29/09 17,474 44,284
36,580 3 3.00 01/29/09 69,015 174,897
60,000 6 3.00 07/09/09 113,201 286,874
50,000 5 3.00 10/21/09 94,334 239,062

Stephen L. Zaniboni..... 1998 20,000 2 0.50 04/02/08 6,289 15,937
20,000 2 0.50 06/24/08 6,289 15,937
100,000 8 1.00 12/11/08 62,889 159,374
1999 50,000 5 3.00 10/21/09 94,334 239,062

Antonius Schuh.......... 1998 30,000 2 0.50 09/18/08 9,433 23,906
100,000 8 1.00 12/11/08 62,889 159,374
1999 50,000 5 3.00 10/21/09 94,334 239,062

Charles R. Cantor....... 1998 5,000 * 0.50 04/02/08 1,572 3,984
180,000 15 0.50 06/24/08 56,601 143,433
1999 100,000 9 3.00 01/29/09 188,668 478,124

Andreas Braun........... 1998 50,000 4 1.00 12/11/08 31,444 79,687
1999 30,000 3 3.00 01/29/09 56,600 143,437
100,000 9 3.00 10/21/09 188,668 478,124

Delbert F. Foit, Jr. ... 1999 100,000 9 3.00 04/09/09 188,668 478,124
</TABLE>
- --------
* Less than 1%.

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The following table shows information at December 31, 1999 concerning the
number and value of unexercised options held by each of the executive officers
listed in the summary compensation table above. Options shown as exercisable
in the table below are immediately exercisable. However, we have rights to
repurchase shares of the common stock underlying some of these options upon
termination of the holder's employment with us. There was no public trading
market for the common stock as of December 31, 1999. Accordingly, the value of
unexercised in-the-money options listed below has been calculated on the basis
of the assumed initial public offering price of $24.00 per share, less the
applicable exercise price per share, multiplied by the number of shares
underlying such options.

AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 1999 AND YEAR-END
OPTION VALUES
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED OPTIONS AT IN-THE-MONEY OPTIONS
UPON VALUE DECEMBER 31, 1999 AT DECEMBER 31, 1999
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Hubert Koster........... 790,000 1,589,984 -- -- -- --
Stephen L. Zaniboni..... 260,000 492,500 -- -- -- --
Antonius Schuh.......... 330,000 687,500 -- -- -- --
Charles R. Cantor....... 351,000 657,200 -- -- -- --
Andreas Braun........... 120,000 317,500 130,000 -- 2,730,000 --
Delbert F. Foit, Jr. ... 25,000 -- 75,000 -- 1,575,000 --
</TABLE>

EMPLOYEE BENEFIT PLANS

1999 STOCK INCENTIVE PLAN

INTRODUCTION
Our 1999 Stock Incentive Plan is intended to serve as the successor program to
our 1998 Stock Option/Stock Issuance Plan. The 1999 plan was adopted by our
board of directors on November 6, 1999 and approved by the stockholders in
November 1999. The 1999 plan will become effective at the close of this
offering. At that time, all outstanding options under our existing 1998 Stock
Option/Stock Issuance Plan will be transferred to the 1999 plan, and no
further option grants will be made under the 1998 plan. Prior to the 1998 plan
being adopted, we granted options under our 1994 Stock Plan. All options
granted under our 1994 Stock Plan were transferred to our 1998 Stock
Option/Stock Issuance Plan. The transferred options will continue to be
governed by their existing terms, unless our compensation committee decides to
extend one or more features of the 1999 plan to those options. Except as
otherwise described below, the transferred options have substantially the same
terms as will be in effect for grants made under the discretionary option
grant program of our 1999 plan.

SHARE RESERVE
We have reserved 4,750,000 shares of our common stock for issuance under our
1999 Stock Incentive Plan. This share reserve consists of the number of shares
we estimate will be carried over from our 1998 plan plus an additional 850,000
shares. The share reserve under our 1999 plan will automatically increase on
the first trading day in January each calendar year, beginning with calendar
year 2001, by an amount equal to 4% of the total number of shares of our
common stock outstanding on the last trading day of December in the prior
calendar year, but in no event will this annual increase exceed 2,000,000
shares. In addition, no participant in our 1999 plan may be granted stock
options or direct stock issuances for more than 1,000,000 shares of common
stock in total in any calendar year.

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PROGRAMS
Our 1999 plan has five separate programs:

. the discretionary option grant program, under which eligible individuals may
be granted options to purchase shares of our common stock at an exercise
price not less than the fair market value of those shares on the grant date;

. the stock issuance program, under which eligible individuals may be issued
shares of common stock directly, upon the attainment of performance
milestones or the completion of a specified period of service or as a bonus
for past services;

. the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the opportunity
to apply a portion of their base salary each year to the acquisition of
special below market stock option grants;

. the automatic option grant program, under which option grants will
automatically be made at periodic intervals to eligible non-employee board
members to purchase shares of common stock at an exercise price equal to the
fair market value of those shares on the grant date; and

. the director fee option grant program, under which our non-employee board
members may be given the opportunity to apply a portion of any retainer fee
otherwise payable to them in cash each year to the acquisition of special
below market option grants.

ELIGIBILITY
The individuals eligible to participate in our 1999 plan include our officers
and other employees, our board members and any consultants we use.

ADMINISTRATION
The discretionary option grant and stock issuance programs will be
administered by our compensation committee. This committee will determine
which eligible individuals are to receive option grants or stock issuances
under those programs, the time or times when the grants or issuances are to be
made, the number of shares subject to each grant or issuance, the status of
any granted option as either an incentive stock option or a nonstatutory stock
option under the federal tax laws, the vesting schedule to be in effect for
the option grant or stock issuance and the maximum term for which any granted
option is to remain outstanding. The compensation committee will also have the
authority to select the executive officers and other highly compensated
employees who may participate in the salary investment option grant program if
the program is put into effect for one or more calendar years.

PLAN FEATURES
Our 1999 plan will include the following features:

. the exercise price for any options granted under the plan may be paid in
cash or in shares of our common stock valued at fair market value on the
exercise date. The option may also be exercised through a same-day sale
program without any cash outlay by the optionee;

. our compensation committee will have the authority to cancel outstanding
options under the discretionary option grant program, including any
transferred options from our 1998 plan, in return for the grant of new
options for the same or different number of option shares with an exercise
price per share based upon the fair market value of our common stock on the
new grant date; and

. stock appreciation rights may be issued under the discretionary option grant
program. These rights will provide the holders with the election to
surrender their outstanding options for a payment from us equal to the fair
market value of the shares subject to the surrendered options less the
exercise price payable for those shares. We may make the payment in cash or
in shares of our common stock. None of the options under our 1998 plan have
any stock appreciation rights.

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CHANGE IN CONTROL
Our 1999 plan will include the following change in control provisions which
may result in the accelerated vesting of outstanding option grants and stock
issuances if:

. we are acquired by merger or asset sale, each outstanding option under the
discretionary option grant program which is not to be assumed by the
successor corporation will immediately become exercisable for all the option
shares, and all outstanding unvested shares will immediately vest, except to
the extent our repurchase rights with respect to those shares are to be
assigned to the successor corporation;

. our compensation committee will have complete discretion to grant one or
more options which will become exercisable for all the option shares in the
event those options are assumed in the acquisition but the optionee's
service with us or the acquiring entity is subsequently terminated. The
vesting of any outstanding shares under our 1999 plan may be accelerated
upon similar terms and conditions; and

. our compensation committee may grant options and structure repurchase rights
so that the shares subject to those options or repurchase rights will
immediately vest in connection with a successful tender offer for more than
50% of our outstanding voting stock or a change in the majority of our board
through one or more contested elections. Such accelerated vesting may occur
either at the time of such transaction or upon the subsequent termination of
the individual's service.

SALARY INVESTMENT OPTION GRANT PROGRAM
If our compensation committee decides to put this program into effect for one
or more calendar years, each of our executive officers and other highly
compensated employees may elect to reduce his or her base salary for the
calendar year by an amount not less than $10,000 nor more than $50,000. Each
individual who makes such an election will automatically be granted, on the
first trading day in January of the calendar year for which his or her salary
reduction is to be in effect, an option to purchase that number of shares of
common stock determined by dividing the salary reduction amount by two-thirds
of the fair market value per share of our common stock on the grant date. The
option will have an exercise price per share equal to one-third of the fair
market value of the option shares on the grant date. As a result, the option
will be structured so that the fair market value of the option shares on the
grant date less the exercise price payable for those shares will be equal to
the amount of the salary reduction. The option will become exercisable in a
series of twelve equal monthly installments over the calendar year for which
the salary reduction is to be in effect.

AUTOMATIC OPTION GRANT PROGRAM
Each individual who first becomes a non-employee board member at any time
after the effective date of this offering will receive an option grant to
purchase 15,000 shares of our common stock on the date such individual joins
the board. In addition, on the date of each annual stockholders meeting held
after the effective date of this offering, each non-employee board member who
is to continue to serve as a non-employee board member, including each of our
current non-employee board members, will automatically be granted an option to
purchase 3,000 shares of our common stock, provided such individual has served
on the board for at least six months.

Each automatic grant will have an exercise price per share equal to the fair
market value per share of our common stock on the grant date and will have a
term of 10 years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid
per share, any shares purchased under the option which are not vested at the
time of the optionee's cessation of board service. The shares subject to each
initial 15,000 share automatic option grant will vest in a series of three
successive annual

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installments upon the optionee's completion of each year of board service over
the three year period measured from the grant date. The shares subject to each
3,000 share annual option grant will vest upon the optionee's completion of
one year of board service measured from the grant date. The shares subject to
each option will immediately vest in full upon various changes in control or
ownership or upon the optionee's death or disability while a board member.

DIRECTOR FEE OPTION GRANT PROGRAM
If this program is put into effect in the future, then each non-employee board
member may elect to apply all or a portion of any cash retainer fee for the
year to the acquisition of a below-market option grant. The option grant will
automatically be made on the first trading day in January in the year for
which the non-employee board member would otherwise be paid the cash retainer
fee in the absence of his or her election. The option will have an exercise
price per share equal to one-third of the fair market value of the option
shares on the grant date, and the number of shares subject to the option will
be determined by dividing the amount of the retainer fee applied to the
program by two-thirds of the fair market value per share of our common stock
on the grant date. As a result, the option will be structured so that the fair
market value of the option shares on the grant date less the exercise price
payable for those shares will be equal to the portion of the retainer fee
applied to that option. The option will become exercisable in a series of
twelve equal monthly installments over the calendar year for which the
election is in effect. However, the option will become immediately exercisable
for all the option shares upon the death or disability of the optionee while
serving as a board member. Currently our directors do not have any cash
retainer fee.

ADDITIONAL PLAN FEATURES
Our 1999 plan will also have the following features:

. Outstanding options under the salary investment and director fee option
grant programs will immediately vest if we are acquired by a merger or asset
sale or if there is a successful tender offer for more than 50% of our
outstanding voting stock or a change in the majority of our board through
one or more contested elections.

. Limited stock appreciation rights will automatically be included as part of
each grant made under the salary investment option grant program and the
automatic and director fee option grant programs, and these rights may also
be granted to one or more officers as part of their option grants under the
discretionary option grant program. Options with this feature may be
surrendered to us upon the successful completion of a hostile tender offer
for more than 50% of our outstanding voting stock. In return for the
surrendered option, the optionee will be entitled to a cash distribution
from us in an amount per surrendered option share based upon the highest
price per share of our common stock paid in that tender offer.

. Our board of directors may amend or modify our 1999 plan at any time,
subject to any required stockholder approval. Our 1999 plan will terminate
no later than November 6, 2009.

1999 EMPLOYEE STOCK PURCHASE PLAN

INTRODUCTION
Our 1999 Employee Stock Purchase Plan was adopted by our board of directors on
November 6, 1999 and approved by our stockholders in November 1999. The plan
will become effective immediately upon the signing of the underwriting
agreement for this offering. The plan is designed to allow our eligible
employees and the eligible employees of our participating subsidiaries to
purchase shares of common stock, at semi-annual intervals, with their
accumulated payroll deductions.

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SHARE RESERVE
We have reserved 250,000 shares of our common stock for issuance under our
1999 Employee Stock Purchase Plan. The reserve will automatically increase on
the first trading day in January each calendar year, beginning in calendar
year 2001, by an amount equal to 1% of the total number of outstanding shares
of our common stock on the last trading day in December in the prior calendar
year. In no event will any such annual increase exceed 500,000 shares.

OFFERING PERIODS
Our 1999 Employee Stock Purchase Plan will have a series of concurrent
offering periods, each with a maximum duration of 24 months. The initial
offering period will start on the date the underwriting agreement for the
offering covered is signed and will end on the last business day in January
2002. Additional offering periods of up to 24 months duration will begin on
the first day of February and August each year. However, no employee may
participate in more than one offering period at a time.

ELIGIBILITY
Individuals scheduled to work more than 20 hours per week for more than five
calendar months per year are eligible to participate in the plan and may join
the plan on the start date of any offering period.

PAYROLL DEDUCTIONS
A participant may contribute up to 15% of his or her base salary through
payroll deductions, and the accumulated deductions will be applied to the
purchase of shares on each semi-annual purchase date. The purchase price per
share in effect for each participant will be equal to 85% of the fair market
value per share on the start date of the offering period in which he or she is
participating or, if lower, 85% of the fair market value per share on the
semi-annual purchase date. Semi-annual purchase dates will occur on the last
business day of January and July each year. However, a participant may not
purchase more than 1,000 shares on any purchase date, and not more than
62,500 shares may be purchased in total by all participants on any purchase
date. Our compensation committee will have the authority to change these
limitations for any subsequent offering period.

RESET FEATURE
If the fair market value per share of our common stock on any purchase date
within a particular offering period is less than the fair market value per
share on the start date of that offering period, then that offering period
will automatically terminate, and a new offering period of up to 24 months
duration will begin on the next business day. All eligible participants in the
terminated offering will be transferred to the new offering period.

CHANGE IN CONTROL
If we are acquired by merger or a sale of substantially all of our assets or
more than 50% of our voting securities, then all outstanding purchase rights
will automatically be exercised immediately prior to the effective date of the
acquisition. The purchase price in effect for each participant will be equal
to 85% of the market value per share on the start date of the particular
offering period in which he or she is participating at the time of the
acquisition or, if lower, 85% of the fair market value per share immediately
prior to the acquisition.

PLAN FEATURES
The following features will also be in effect under the plan:

. our plan will terminate no later than the last business day of January 2010;
and

. our board may at any time amend, suspend or discontinue our plan; however,
certain amendments may require stockholder approval.

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Related party transactions

SALES OF SECURITIES

Since January 1996 through December 27, 1999, we have issued the following
securities in private placement transactions:

. 643,330 shares of our Series B convertible preferred stock for an aggregate
price of $964,995 in March 1996;

. warrants to purchase 70,000 shares of our Series A convertible preferred
stock in connection with the Comdisco lease arrangement;

. 4,573,331 shares of our Series C convertible preferred stock for an
aggregate price of $14,405,993 in May 1997 and January 1998;

. warrants to purchase 106,503 shares of our Series C convertible preferred
stock in connection with the sale of our Series C preferred stock;

. 5,712,763 shares of our Series D convertible preferred stock for an
aggregate price of $37,132,959 in December 1998 and March 1999;

. 2,364,200 shares of our common stock issued upon the exercise of options to
purchase such stock for an aggregate consideration of $2,511,218; and

. 6,349 shares of our common stock issued to one of our executive officers for
an aggregate consideration of $20,000.

All preferred stock was issued to various venture capital and other
institutional investors in reliance upon exemption from registration under
Section 4(2) of the Securities Act. All shares issued upon exercise of options
were issued to employees and consultants in reliance upon exemption from
registration under Rule 701 of the Securities Act. All shares of common stock
issued to one of our executive officers was issued in reliance upon exemption
from registration under Section 4(2) of the Securities Act.

The purchasers of more than $60,000 of these securities include, among others,
the following executive officers, directors and holders of more than 5% of our
outstanding stock and their affiliates:

<TABLE>
<CAPTION>
PREFERRED STOCK
EXECUTIVE OFFICERS, DIRECTORS TOTAL
AND 5% STOCKHOLDERS COMMON STOCK SERIES B SERIES C SERIES D CONSIDERATION
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Hubert Koster.................. 790,000 100,000 -- -- $ 782,542
Stephen L. Zaniboni............ 260,000 -- -- -- 287,500
Antonius Schuh................. 330,000 -- -- -- 302,500
Charles R. Cantor.............. 357,349 -- -- -- 395,800
Ernst-Gunter Afting............ -- 30,000 -- 15,018 142,617
TVM Group...................... -- 1,094,666 388,571 726,768 7,589,990
Alpinvest International B.V. .. -- 666,667 317,460 461,538 4,999,997
Lombard Odier & Cie............ -- -- 952,381 -- 3,000,000
</TABLE>

For additional information regarding the ownership of securities by executive
officers, directors and stockholders who beneficially own 5% or more of our
outstanding common stock, please see "Principal stockholders."

- -------------------------------------------------------------------------------
60
<PAGE>

RELATED PARTY TRANSACTIONS

- -------------------------------------------------------------------------------

EMPLOYMENT AGREEMENTS

We have entered into employment agreements with each of Dr. Koster, Mr.
Zaniboni, Dr. Schuh, Dr. Cantor and Mr. Foit. For information regarding these
agreements, please see "Management-- Employment and severance arrangements."
In addition to these agreements, we have also entered into employment
agreements with each of Dr. Karsten Schmidt, the Managing Director of our
subsidiary, Dr. Paul J. Heaney, our Vice President, Advanced Systems and Dr.
Charles R. Rodi, our Vice President, Molecular Biology.

Dr. Schmidt's employment agreement provides for a salary of DEM160,000 per
year, subject to periodic increases. We also paid, during the first six months
of 1999, housing expenses for Dr. Schmidt's use of an apartment in Hamburg. We
also paid, during that time period, reasonable travel expenses relating to Mr.
Schmidt's travel to his former place of residence on a weekly basis. In
connection with his employment with us, Dr. Schmidt was granted options to
purchase 30,000 shares of our common stock under our 1998 Stock Option/Stock
Issuance Plan. Dr. Schmidt has not exercised these options.

Dr. Rodi's employment agreement provides for a salary of $140,000 per year,
subject to periodic increases by our board of directors at its discretion. Dr.
Rodi was also entitled to a bonus of $30,000 payable upon execution of his
employment agreement. In addition, Dr. Rodi is entitled to receive a bonus of
$10,000 per year. We also agreed to pay reasonable expenses, up to a maximum
of $50,000, associated with Dr. Rodi's relocation to our corporate offices in
San Diego, California. Dr. Rodi was also granted an additional $1,500 monthly
housing allowance during his first three months of service with us. In
connection with his employment with us, Dr. Rodi was granted options to
purchase 50,000 shares of our common stock under our 1998 Stock Option/Stock
Issuance Plan. Dr. Rodi has not exercised these options. If Dr. Rodi's
employment is terminated involuntarily or without cause, Dr. Rodi will be
entitled to receive his annual salary in periodic payments, until he secures
other full-time employment with another company or until six months have
elapsed after termination, whichever is earlier.

Dr. Heaney's employment agreement provides for a salary of $175,000 per year,
subject to periodic increases by our board of directors at its discretion. Dr.
Heaney was also entitled to a bonus of $15,000 payable upon execution of his
employment agreement. In addition, Dr. Heaney is also entitled to receive a
bonus of $10,000 per year. We also agreed to pay reasonable expenses, up to a
maximum of $50,000, associated with Dr. Heaney's relocation to our corporate
offices in San Diego, California. In connection with his employment with us,
Dr. Heaney was granted options to purchase 100,000 shares of our common stock
under our 1998 Stock Option/Stock Issuance Plan. Dr. Heaney has not exercised
these options. If Dr. Heaney's employment is terminated involuntarily or
without cause, Dr. Heaney will be entitled to receive his annual salary in
periodic payments, until he secures other full-time employment with another
company or until six months have elapsed after termination, whichever is
earlier.

INDEBTEDNESS OF MANAGEMENT

We have loaned money to some of our executive officers under the terms of
promissory notes and stock pledge agreements, whereby the executive officers
pledge shares of our common stock issued upon the exercise of options to
purchase such common stock. These loans were used by the executive officers
upon the exercise of these options to acquire the underlying shares of common
stock. Each loan is required to be repaid on the earlier of two years after
its execution or the completion of a secondary public offering by us, in which
the officer making the note is allowed to sell his shares of our common stock.
The amount outstanding at December 31, 1999 on each loan shown below
represents the largest aggregate

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61
<PAGE>

RELATED PARTY TRANSACTIONS

- -------------------------------------------------------------------------------
amount of indebtedness outstanding at any time during the term of each such
loan. The executive officers to whom we have made these loans and the
principal terms of the loans are shown in the following table:

<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT OUTSTANDING INTEREST RATE
EXECUTIVE OFFICER POSITION AT DECEMBER 31, 1999 PER ANNUM
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Hubert Koster............. President and Chief Executive Officer $953,266 6%
Charles R. Cantor......... Chief Scientific Officer 477,391 6
Antonius Schuh............ Executive Vice President, Business Development 312,956 6
and Marketing
Stephen L. Zaniboni....... Senior Vice President, Chief Financial Officer 295,743 6
</TABLE>

INDEMNIFICATION AGREEMENTS

We have entered into indemnification agreements with each of our directors and
officers containing provisions that may require us to indemnify them against
liabilities that may arise by reason of their status or service as directors
or officers and to advance their expenses incurred as a result of any
proceeding against them. However, we will not indemnify directors or officers
with respect to liabilities arising from willful misconduct of a culpable
nature. For more information concerning these agreements, see "Description of
securities--limitation of liabilities and indemnification matters."

CONSULTING AGREEMENT

During the period beginning when we were organized in 1994 until July 1997,
Dr. Hubert Koster worked for us as a consultant. We paid Dr. Koster $5,000 per
month until September 1996 at which time we increased his consulting
compensation to $12,500 per month, in consideration for his services to us.
Dr. Koster's consulting arrangement was terminated when he was appointed as
our President and Chief Executive Officer in 1997.

INTELLECTUAL PROPERTY ASSIGNMENTS

Since our inception, Dr. Koster has assigned several personal patents and
other intellectual property rights to us that are key in the development of
our products and technology. As partial consideration for these assignments,
we reimbursed Dr. Koster for patent application costs and prior to 1996 we
issued shares of our Series A convertible preferred stock to Dr. Koster. We
have paid no additional consideration to Dr. Koster except for those amounts
paid in connection with his employment or consulting services to us since
January 1996.

Dr. Cantor is named as an inventor on a number of patents which we have
licensed from Boston University. If we are commercially successful and are
required to make royalty payments to Boston University under our license
arrangements, Dr. Cantor could receive additional compensation from Boston
University. In addition, we fund research at Boston University; however, Dr.
Cantor receives no direct compensation from Boston University as a result of
this funding.

- -------------------------------------------------------------------------------
62
<PAGE>

- -------------------------------------------------------------------------------
Principal stockholders

The following table shows information known to us with respect to the
beneficial ownership of our common stock as of December 27, 1999, and as
adjusted to reflect the sale of the shares of common stock offered under this
prospectus, by

. each person (or group of affiliated persons) who owns beneficially 5% or
more of our common stock;

. each of our directors;

. our executive officers listed in the "summary compensation" table above; and

. all of our directors and executive officers as a group.

Except as indicated in the footnotes to this table and subject to community
property laws where applicable, the persons named in the table have sole
voting and investment power with respect to all shares of our common stock
shown as beneficially owned by them. Beneficial ownership and percentage
ownership are determined in accordance with the rules of the SEC. The table
below includes the number of shares underlying options and warrants which are
exercisable within 60 days from the date of this offering. In addition, the
table below assumes the conversion of all shares of our preferred stock into
shares of our common stock on a one-for-one basis prior to this offering, and
is therefore based on 17,601,477 shares of our common stock outstanding prior
to this offering and 22,601,477 shares outstanding immediately after this
offering. The address for those individuals for which an address is not
otherwise indicated is: 11555 Sorrento Valley Road, San Diego, California
92121.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THIS OFFERING OWNED AFTER THIS OFFERING
NUMBER OF
SHARES NUMBER OF
NUMBER OF UNDERLYING NUMBER OF SHARES
SHARES OPTIONS OR SHARES UNDERLYING
BENEFICIAL OWNER OUTSTANDING WARRANTS PERCENT OUTSTANDING OPTIONS PERCENT
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Five percent stockholders
Funds affiliated with TVM Techno
Venture Management(1)............ 2,536,405 38,854 14.7% 2,536,405 38,854 11.4%
Maximilianstrasse 35
Einang C
80539 Munich
Germany

Alpinvest International B.V.(2) .. 1,445,665 31,746 8.4 1,445,665 31,746 6.6
De Gooise Poort
Gooimeer 3 NL 1410 AB
Nararden
The Netherlands

Lombard Odier & Cie(3)............ 952,381 -- 5.5 952,381 -- 4.2
Todistrass 36
8027 Zurich
Switzerland
</TABLE>

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63
<PAGE>

PRINCIPAL STOCKHOLDERS

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THIS OFFERING OWNED AFTER THIS OFFERING
NUMBER OF
SHARES NUMBER OF
NUMBER OF UNDERLYING NUMBER OF SHARES
SHARES OPTIONS OR SHARES UNDERLYING
BENEFICIAL OWNER OUTSTANDING WARRANTS PERCENT OUTSTANDING OPTIONS PERCENT
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Directors and named executive officers
Hubert Koster, PhD............. 2,010,001 -- 11.4% 2,010,001 -- 8.9%
Helmut Schuhsler, PhD.......... 2,606,405 38,854 15.0 2,606,405 38,854 11.7
Ernst-Gunter Afting, PhD, MD .. 45,018 60,000 0.6 45,018 60,000 0.3
John E. Lucas.................. 40,000 -- 0.2 40,000 -- 0.2
Peter Reinisch, PhD(4)......... 832,111 10,000 4.8 832,111 10,000 3.7
Stephen L. Zaniboni............ 260,000 -- 1.5 260,000 -- 1.2
Antonius Schuh, PhD............ 330,000 -- 1.9 330,000 -- 1.5
Charles R. Cantor, PhD......... 357,349 -- 2.0 357,349 -- 1.6
Andreas Braun, PhD, MD......... 120,000 130,000 1.4 120,000 130,000 1.1
Delbert F. Foit, Jr. .......... 25,000 75,000 0.6 25,000 75,000 0.4
All directors and executive
officers as a group
(10 persons).................. 6,625,884 313,854 39.4% 6,625,884 313,854 30.6%
</TABLE>
- --------

(1) Includes 834,902 shares owned by TVM Zweite Beteiligung-US L.P; 538,461
shares owned by TVM Medical Ventures; 474,957 shares owned by TVM Eurotech
L.P.; 388,749 shares owned by TVM Techno Venture Enterprises No. II L.P.;
259,168 shares owned by TVM Intertech L.P.; and 40,168 shares owned by TVM
Techno Venture Investors No. 1 L.P. Dr. Schuhsler is a Managing Director
of TVM Techno Venture Management and a member of the Board of Management
of TVM Medical Ventures GmbH & Co. KG. Dr. Schuhsler disclaims beneficial
ownership of all shares issued or issuable to the foregoing entities,
except to the extent of his pecuniary interest, but exercises shared
voting and investment power with respect to some of these shares.

(2) There is no single person at Alpinvest that exercises voting control over
shares held by Alpinvest. Voting requires the signature of two of the
authorized signatories. Mr. Stan Vermeulen and Mr. Jaap Vermeulen are two
natural persons authorized to sign on behalf of Alpinvest.

(3) There is no single person at Lombard Odier that exercises voting control
over shares held by Lombard Odier. Voting requires two or more of
designated employees sign on behalf of Lombard Odier. In addition, any one
of the eight managing partners could sign on behalf of Lombard Odier alone
or in connection with the two designated employees.

(4) Represents shares owned by GLS LP Investments III Limited. Dr. Reinisch is
affiliated with GLS LP Investments III Limited. Dr. Reinisch disclaims
beneficial ownership of all shares issued or issuable to the foregoing
entities, except to the extent of his pecuniary interest, but exercises
shared voting and investment power with respect to some of these shares.

- -------------------------------------------------------------------------------
64
<PAGE>

- -------------------------------------------------------------------------------
Description of securities

The following information describes our common stock and preferred stock, as
well as options and warrants to purchase our common stock, and provisions of
our certificate of incorporation and our bylaws, all as will be in effect upon
the closing of this offering. This description is only a summary. You should
also refer to the certificate and bylaws which have been filed with the SEC as
exhibits to our registration statement, of which this prospectus forms a part.
The descriptions of the common stock and preferred stock, as well as options
and warrants to purchase our common stock, reflect changes to our capital
structure that will occur upon the closing of this offering in accordance with
the terms of the certificate.

Our authorized capital stock consists of 75,000,000 shares of common stock,
par value $0.001 per share, and 5,000,000 shares of preferred stock, par value
$0.001 per share.

COMMON STOCK

As of December 27, 1999, there were 2,396,800 shares of common stock
outstanding and held of record by 48 stockholders. There will be 22,601,477
shares of common stock outstanding upon the closing of this offering, which
gives effect to the issuance of 5,000,000 shares of common stock offered by us
under this prospectus, the issuance of up to 67,826 shares of common stock to
the selling stockholders immediately prior to this offering and the conversion
of preferred stock discussed below and also to the conversion of long-term
debt into 272,108 shares of common stock and the issuance of 24,792 shares of
common stock in satisfaction of accrued interest payable.

Holders of our common stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of common
stock entitled to vote in any election of directors may elect all of the
directors standing for election, subject to the rights of any outstanding
preferred stock. Holders of common stock are entitled to receive dividends on
a pro rata basis, if any, as may be declared by the board of directors out of
funds legally available therefor, subject to any preferential dividend rights
of any outstanding preferred stock. Holders of common stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of common stock are, and the shares offered by us in this offering will
be, when issued and paid for, fully paid and nonassessable. The rights,
preferences and privileges of holders of common stock are subject to, and may
be materially adversely affected by, the rights of the holders of shares of
any series of preferred stock which we may designate and issue in the future.
Upon the closing of this offering, there will be no shares of preferred stock
outstanding.

PREFERRED STOCK

As of December 27, 1999, there were 14,842,757 shares of convertible preferred
stock outstanding. All outstanding shares of convertible preferred stock will
be converted into 14,842,757 shares of our common stock upon the closing of
this offering and these shares of convertible preferred stock will no longer
be authorized, issued or outstanding.

Upon the closing of this offering, the board of directors will be authorized,
without further stockholder approval, to issue from time to time up to an
aggregate of 5,000,000 shares of preferred stock in one or more series. Our
board of directors may also designate the powers, preferences, rights and any
qualifications, limitations or restrictions of the shares of each such series
thereof, including the dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption (including sinking fund provisions),
redemption price or prices and liquidation preferences, any or all of which
may be superior

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65
<PAGE>

DESCRIPTION OF SECURITIES

- -------------------------------------------------------------------------------
to the rights of our common stock, and the number of shares constituting any
series or designations of such series. We have no present plans to issue any
shares of preferred stock. Please see "Description of securities--Anti-
takeover effects of provisions of Delaware law and our certificate of
incorporation and bylaws."

OPTIONS

As of December 27, 1999, options to purchase a total of 1,287,049 shares of
common stock were outstanding at a weighted average exercise price of $1.66.
Options to purchase a total of 4,750,000 shares of common stock may be granted
under the 1999 Stock Incentive Plan. Please see "Management--Employee benefit
plans" and "Shares eligible for future sale."

WARRANTS

We have outstanding warrants to purchase a total of 176,503 shares of our
capital stock, at a weighted average exercise price of $2.10 per share. The
warrants contain anti-dilution provisions providing for adjustments of the
exercise price and the number of shares underlying the warrants upon the
occurrence of certain events, including any recapitalization,
reclassification, stock dividend, stock split, stock combination or similar
transaction. The warrants grant to the holders registration rights with
respect to the common stock issuable upon their exercise, which are described
below. All of these warrants will be exercisable immediately before this
offering.

REGISTRATION RIGHTS

Under the terms of an agreement with some of our stockholders, after the
closing of this offering the holders of 14,842,757 shares of common stock will
be entitled to demand the registration of their shares under the Securities
Act of 1933. The holders of 50% of such shares are entitled to demand that we
register their shares under the Securities Act of 1933 subject to limitations
described in the relevant agreement. We are not required to effect more than
two registrations for such holders pursuant to these demand registration
rights. These demand rights expire on December 21, 2001. In addition, after
the closing of this offering these holders will be entitled to piggyback
registration rights with respect to the registration of their shares of common
stock. If we propose to register any shares of common stock either for our
account or for the account of other security holders, the holders of shares
having piggyback rights are entitled to receive notice of the registration and
are entitled to include their shares in the registration, subject to some
limitations. Further, at any time after we become eligible to file a
registration statement on Form S-3, the holders of 25% of the shares held by
all holders of registration rights may require us to file registration
statements under the Securities Act of 1933 on Form S-3 with respect to their
shares of our common stock. These registration rights are subject to
conditions and limitations, among which is the right of the underwriters of an
offering to limit the number of shares of common stock held by security
holders with registration rights to be included in such registration. We are
generally required to bear all of the expenses of all these registrations,
including the reasonable fees of a single counsel acting on behalf of all
selling stockholders, except underwriting discounts and selling commissions.
Registration of any of the shares of our common stock held by security holders
with registration rights would result in such shares becoming freely tradable
without restriction under the Securities Act of 1933 immediately upon
effectiveness of such registration.

ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND OUR CERTIFI-
CATE OF INCORPORATION AND BYLAWS

We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Subject to exceptions, Section 203 prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the

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66
<PAGE>

DESCRIPTION OF SECURITIES

- -------------------------------------------------------------------------------
transaction in which the person became an interested stockholder, unless the
interested stockholder attained such status with the approval of the board of
directors or unless the business combination is approved in a prescribed
manner. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to exceptions, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years did own, 15% or
more of the corporation's voting stock. This statute could prohibit or delay
the accomplishment of mergers or other takeover or change in control attempts
with respect to us and, accordingly, may discourage attempts to acquire us.

In addition, provisions of our certificate of incorporation and bylaws, which
will be in effect upon the closing of this offering and are summarized in the
following paragraphs, may have an anti-takeover effect and may delay, defer or
prevent a tender offer or takeover attempt that a stockholder might consider
in its best interest, including those attempts that might result in a premium
over the market price for the shares held by stockholders.

BOARD OF DIRECTORS VACANCIES

Our bylaws authorize the board of directors to fill vacant directorships or
increase the size of the board of directors. This may deter a stockholder from
removing incumbent directors and simultaneously gaining control of the board
of directors by filling the vacancies created by such removal with its own
nominees.

STAGGERED BOARD

Our bylaws provide that our board will be classified into three classes of
directors beginning at the next annual meeting of stockholders. Please see
"Management--Classes of the board" for more information regarding our
staggered board. This may inhibit a stockholder from nominating and electing
directors and gaining control of the board of directors.

STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS

Our certificate of incorporation provides that our stockholders may not take
action by written consent, and may only act at a duly called annual or special
meetings of our stockholders. Our bylaws further provide that special meetings
of our stockholders may be called only by the President, Chief Executive
Officer or Chairman of the board of directors or a majority of the board of
directors.

ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS

Our bylaws provide that stockholders seeking to bring business before our
annual meeting of stockholders, or to nominate candidates for election as
directors at our annual meeting of stockholders, must provide timely notice of
their intent in writing. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, our principal executive offices not
less than 120 days before the first anniversary of the date of our notice of
annual meeting provided with respect to the previous year's annual meeting of
stockholders; provided, that if no annual meeting of stockholders was held in
the previous year or the date of the annual meeting of stockholders has been
changed to be more than 30 calendar days earlier than such anniversary, notice
by the stockholder, to be timely, must be so received a reasonable time before
the solicitation is made. Our bylaws also contain specific requirements as to
the form and content of a stockholder's notice. These provisions may inhibit
our stockholders from bringing matters before our annual meeting of
stockholders or from making nominations for directors at our annual meeting of
stockholders.

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67
<PAGE>

DESCRIPTION OF SECURITIES

- -------------------------------------------------------------------------------
AUTHORIZED BUT UNISSUED SHARES

Our authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval, subject to
limitations imposed by the Nasdaq National Market. These additional shares may
be utilized for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate acquisitions and employee
benefit plans. The existence of authorized but unissued and unreserved common
stock and preferred stock could render more difficult or discourage an attempt
to obtain control of us by means of a proxy contest, tender offer, merger or
otherwise.

Delaware law provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws requires a greater percentage.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

Our certificate of incorporation provides that, except to the extent
prohibited by Delaware law, our directors shall not be personally liable to us
or our stockholders for monetary damages for any breach of fiduciary duty as
our directors. Under Delaware law, our directors have a fiduciary duty to us
which is not eliminated by this provision of the certificate and, in
appropriate circumstances, equitable remedies such as injunctive or other
forms of nonmonetary relief will remain available. In addition, each of our
directors will continue to be subject to liability under Delaware law for
breach of the director's duty of loyalty to us for acts or omissions which are
found by a court of competent jurisdiction to be not in good faith or which
involve intentional misconduct, or knowing violations of law, for actions
leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are prohibited
by Delaware law. This provision also does not affect the directors'
responsibilities under any other laws, such as the Federal securities laws or
state or Federal environmental laws.

Section 145 of the Delaware General Corporation Law empowers a corporation to
indemnify its directors and officers and to purchase insurance with respect to
liability arising out of their capacity or status as directors and officers,
provided that this provision shall not eliminate or limit the liability of a
director for the following:

. any breach of the director's duty of loyalty to us or our stockholders;

. acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law;

. unlawful payments of dividends or unlawful stock purchases or redemptions;
or

. for any transaction from which the director derived an improper personal
benefit.

Delaware law provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under our bylaws, any agreement, a vote of
stockholders or otherwise. The certificate eliminates the personal liability
of directors to the fullest extent permitted by Delaware law. In addition, the
certificate provides that we may fully indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative
or investigative) by reason of the fact that such person is or was one of our
directors or officers or is or was serving at our request as a director or
officer of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding.

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68
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DESCRIPTION OF SECURITIES

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We have also entered into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in our bylaws. We
believe that these provisions and agreements are necessary to attract and
retain qualified directors and executive officers. Our bylaws also permit us
to secure insurance on behalf of any officer, director, employee or other
agent for any liability arising out of his or her actions, regardless of
whether Delaware law would permit indemnification. We have applied for
liability insurance for our officers and directors.

At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under our certificate of incorporation or otherwise. We
are not aware of any threatened litigation or proceeding that may result in a
claim for such indemnification.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the common stock is American Stock
Transfer and Trust Company.

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69
<PAGE>

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Shares eligible for future sale

Prior to this offering, there has been no public offering for our stock. The
market price of our common stock could decline as a result of sales of a large
number of shares of our common stock in the market after this offering, or the
perception that such sales could occur. Such sales also could make it more
difficult for us to sell equity securities in the future at a time and price
that we deem appropriate. After this offering, we will have outstanding
22,601,477 shares of common stock. Of these shares, the 5,000,000 shares being
offered by us and the 67,826 shares being offered by the selling stockholders
in this offering are freely tradable. This leaves 17,536,477 shares eligible
for sale in the public market as follows:

<TABLE>
<CAPTION>
NUMBER OF
SHARES DATE
- -------------------------------------------------------------------------------
<C> <S>
49,583 After the date of this prospectus

116,701 At various times after 90 days from the date of this prospectus
under Rules 701 and 144

17,370,193 At various times after 180 days from the date of this prospectus,
subject, in some cases, to volume limitations under Rule 144
</TABLE>

Our directors and officers and some of our stockholders who hold 15,110,424
shares in the aggregate, together with the holders of options to purchase
272,108 shares of common stock and the holders of warrants to purchase 106,503
shares of common stock, have entered into lock-up agreements under which they
have agreed that they will not sell, directly or indirectly, any shares of
common stock without the prior written consent of Warburg Dillon Read LLC for
a period of 180 days from the date of this prospectus.

In general, under Rule 144 of the Securities Act of 1933, as currently in
effect, a person or persons whose shares are required to be aggregated,
including an affiliate, who has beneficially owned shares for at least one
year is entitled to sell, within any three-month period after the date of this
prospectus, a number of shares that does not exceed the greater of 1% of the
then outstanding shares of common stock--approximately 225,000 shares
immediately after this offering--or the average weekly trading volume in our
common stock during the four calendar weeks preceding the date on which notice
of such sale is filed, subject to certain restrictions. In addition, a person
who is not deemed to have been an affiliate of ours at any time during the 90
days preceding a sale and who has beneficially owned the shares proposed to be
sold for at least two years would be entitled to sell such shares under
Rule 144(k) without regard to the requirements described above. To the extent
that shares were acquired from one of our affiliates, such person's holding
period for the purpose of effecting a sale under Rule 144 commences on the
date of transfer from the affiliate.

Following 90 days after the date of this prospectus, shares issued upon
exercise of options that we granted prior to the date of this offering will
also be available for sale in the public market pursuant to Rule 701 under the
Securities Act of 1933. Rule 701 permits resales of such shares in reliance
upon Rule 144 under the Securities Act of 1933 but without compliance with the
restrictions, including the holding-period requirement, imposed under Rule
144. As of December 27, 1999, options to purchase a total of 1,287,049 shares
of common stock were outstanding, all of which were currently exercisable, but
some of which are subject to repurchase by us. Of these 1,287,049 shares,
484,457 shares may be eligible for sale in the public market at various times
after 90 days from the date of this prospectus.

Upon the closing of this offering, we intend to file a registration statement
to register for resale the 2,385,819 shares of common stock reserved for
issuance under our stock option plans. We expect the

- -------------------------------------------------------------------------------
70
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

- -------------------------------------------------------------------------------
registration statement to become effective immediately upon filing. Shares
issued upon the exercise of stock options granted under our stock option plans
will be eligible for resale in the public market from time to time subject to
vesting and, in the case of certain options, the expiration of the lock-up
agreements referred to above.

Stockholders holding approximately 14,842,757 shares of common stock have the
right, subject to various conditions and limitations, to include their shares
in registration statements relating to our securities. By exercising their
registration rights and causing a large number of shares to be registered and
sold in the public market, these holders may cause the price of the common
stock to fall. In addition, any demand to include such shares in our
registration statements could have a material adverse effect on our ability to
raise needed capital. Please see "Management--Benefit plans," "Principal
stockholders," "Description of securities--Registration rights," "Shares
eligible for future sale" and "Underwriting."

- -------------------------------------------------------------------------------
71
<PAGE>

- -------------------------------------------------------------------------------
Underwriting

Sequenom and the underwriters for the offering named below have entered into
an underwriting agreement concerning the shares being offered. Subject to
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Warburg Dillon Read LLC, FleetBoston
Robertson Stephens Inc. and SG Cowen Securities Corporation are the
representatives of the underwriters.

<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- -------------------------------------------------------------------------------
<S> <C>
Warburg Dillon Read LLC........................................
FleetBoston Robertson Stephens Inc.............................
SG Cowen Securities Corporation................................
----
Total........................................................
====
</TABLE>

If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have a 30-day option to buy from us up to an
additional 750,000 shares at the initial public offering price less the
underwriting discounts and commissions to cover these sales. If any shares are
purchased under this option, the underwriters will severally purchase shares
in approximately the same proportion as set forth in the table above.

The following table shows the per share and total underwriting discounts and
commissions we will pay to the underwriters. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase up
to an additional 750,000 shares.

<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
- --------------------------------------------------------------------------------
<S> <C> <C>
Per share............................................. $ $
Total............................................... $ $
</TABLE>

We estimate that the total expenses of the offering payable by us, excluding
underwriting discounts and commissions, will be approximately $ .

Shares sold by the underwriters to the public will initially be offered at the
initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price.
Any of these securities dealers may resell any shares purchased from the
underwriters to other brokers or dealers at a discount of up to $ per
share from the initial public offering price. If all the shares are not sold
at the initial public offering price, the representatives may change the
offering price and the other selling terms.

The underwriters have informed us that they do not expect discretionary sales
to exceed 5% of the shares of common stock to be offered.

Sequenom, its directors, officers and certain of its stockholders have agreed
with the underwriters not to offer, sell, contract to sell, hedge or otherwise
dispose of, directly or indirectly, or file with the SEC a registration
statement under the Securities Act relating to, any of its common stock or
securities convertible into or exchangeable for shares of common stock during
the period from the date of this prospectus continuing through the date 180
days after the date of this prospectus, without the prior written consent of
Warburg Dillon Read LLC. This agreement does not apply to any securities
issued under existing employee benefit plans.

- -------------------------------------------------------------------------------
72
<PAGE>

UNDERWRITING

- -------------------------------------------------------------------------------

The underwriters have reserved for sale, at the initial public offering price,
up to shares of our common stock being offered for sale to our
customers and business partners. At the discretion of our management, other
parties, including our employees, may participate in the reserved shares
program. The number of shares available for sale to the general public in the
offering will be reduced to the extent these persons purchase reserved shares.
Any reserved shares not so purchased will be offered by the underwriters to
the general public on the same terms as the other shares.

Pursuant to a settlement and release relating to a consulting agreement for
advisory services rendered in connection with this offering between ACXIT
Capital Management GmbH and Value Management & Research AG and Sequenom,
Sequenom will pay those entities an aggregate amount of approximately DEM
789,000 or approximately $410,000.

Prior to this offering, there has been no public market for our common stock.
The initial public offering price will be negotiated by us and the
representatives. The principal factors to be considered in determining the
initial public offering price include:

. the information set forth in this prospectus and otherwise available to the
representatives;

. the history and the prospects for the industry in which we compete;

. the ability of our management;

. our prospects for future earnings, the present state of our development, and
our current financial position;

. the general condition of the securities markets at the time of this
offering; and

. the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.

In connection with the offering, the underwriters may purchase and sell shares
of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock
while the offering is in progress.

The underwriters also may impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the representatives have repurchased shares sold by or
for the account of that underwriter in stabilizing or short covering
transactions.

These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by
the underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.

We have agreed to indemnify the several underwriters against some liabilities,
including liabilities under the Securities Act of 1933 and to contribute to
payments that the underwriters may be required to make in respect thereof.

- -------------------------------------------------------------------------------
73
<PAGE>

- -------------------------------------------------------------------------------

Selling stockholders

The following table shows the number of shares owned by each of the selling
stockholders. This registration statement also shall cover any additional
shares of common stock which become issuable to the selling stockholders in
connection with the 67,826 shares registered for sale under this prospectus by
reason of any stock dividend, stock split, recapitalization or other similar
transaction effected without the receipt of consideration which results in an
increase in the number of our outstanding shares of common stock.

Although neither of the selling stockholders has had a material relationship
with us within the past three years, ALPHA Beteiligungsverwaltungs GbR is
associated with AXCIT Capital Mgmt. GmbH and Halford Enterprises Limited is
associated with Value Management & Research AG. Beginning in March 1999, we
had a consulting agreement with ACXIT Capital Mgmt. GmbH and Value Management
& Research AG. This agreement provided that these two companies would provide
advice and services to us in connection with this offering. We are selling to
ALPHA Beteiligungsverwaltungs GbR and Halford Enterprises Limited up to 67,826
shares as part of a settlement and full payment of the fees payable under the
agreement with AXCIT Capital Mgmt. GmbH and Value Management & Research AG for
these services.

Any estimate that we give regarding the number of shares that will be held by
the selling stockholders after completion of this offering may prove to be
inaccurate because the selling stockholders may offer all or some of the
shares they hold and because there currently are no agreements, arrangements
or understandings with respect to the sale of any of the shares. The shares
offered by this prospectus may be offered from time to time by the selling
stockholders named below. Unless otherwise indicated, each person has sole
power to invest and vote the shares listed in the table, subject to community
property laws, where applicable. For purposes of this table, a person or group
of persons is deemed to have "beneficial ownership" of any shares which that
person has the right to acquire within 60 days. Percentage ownership is based
on 17,601,477 shares of our common stock outstanding on December 27, 1999. For
purposes of computing the percentage of outstanding shares held by each person
or group of persons named below, any security which such person or group of
persons has the right to acquire within 60 days is deemed to be outstanding
for the purpose of computing the percentage ownership for such person or
persons, but is not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person.

<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER THE
THE OFFERING OFFERING
----------------- SHARES TO -----------------
NUMBER PERCENTAGE BE SOLD NUMBER PERCENTAGE
------ ---------- --------- ------ ----------
<S> <C> <C> <C> <C> <C>
ALPHA Beteiligungsverwaltungs
GbR............................ 33,913 * 33,913 0 0%
Halford Enterprises Limited..... 33,913 * 33,913 0 0%
TOTAL......................... 67,826 * 67,826
</TABLE>
- --------

* Represents beneficial ownership of less than 1%

- -------------------------------------------------------------------------------
74
<PAGE>

- -------------------------------------------------------------------------------

Plan of distribution

The selling stockholders may sell the shares from time to time. The selling
stockholders will act independently of us in making decisions regarding the
timing, manner and size of each sale. The sales may be made on one or more
exchanges or in the over-the-counter market or otherwise, at prices and at
terms then prevailing or at prices related to the then current market price,
or in negotiated transactions. The selling stockholders may effect such
transactions by selling the shares to or through broker-dealers. The shares
may be sold by one or more of, or a combination of, the following:

. a block trade in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as principal
to facilitate the transaction,

. purchases by a broker-dealer as principal and resale by such broker-
dealer for its account under this prospectus,

. an exchange distribution in accordance with the rules of such exchange,

. ordinary brokerage transactions and transactions in which the broker
solicits purchasers, and

. in privately negotiated transactions.

To the extent required, this prospectus may be amended or supplemented from
time to time to describe a specific plan of distribution. In effecting sales,
broker-dealers engaged by the selling stockholders may arrange for other
broker-dealers to participate in the resales.

The selling stockholders may enter into hedging transactions with broker-
dealers in connection with distributions of the shares or otherwise. In these
transactions, broker-dealers may engage in short sales of the shares in the
course of hedging the positions they assume with selling stockholders. The
selling stockholders also may sell shares short and redeliver the shares to
close out such short positions. The selling stockholders may enter into option
or other transactions with broker-dealers which require the delivery to the
broker-dealer of the shares. The broker-dealer may then resell or otherwise
transfer such shares under this prospectus. The selling stockholders also may
loan or pledge the shares to a broker-dealer. The broker-dealer may sell the
shares so loaned, or upon a default the broker-dealer may sell the pledged
shares under this prospectus.

Broker-dealers or agents may receive compensation in the form of commissions,
discounts or concessions from selling stockholders. Broker-dealers or agents
may also receive compensation from the purchasers of the shares for whom they
act as agents or to whom they sell as principals, or both. Compensation as to
a particular broker-dealer might be in excess of customary commissions and
will be in amounts to be negotiated in connection with the sale. Broker-
dealers or agents and any other participating broker-dealers or the selling
stockholders may be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act of 1933, the Securities Act, in connection
with sales of the shares. Accordingly, any such commission, discount or
concession received by them and any profit on the resale of the shares
purchased by them may be deemed to be underwriting discounts or commissions
under the Securities Act. Because selling stockholders may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act, the
selling stockholders will be subject to the prospectus delivery requirements
of the Securities Act. In addition, any securities covered by this prospectus
which qualify for sale to comply with Rule 144 promulgated under the
Securities Act may be sold under Rule 144 rather than under this prospectus.
The selling stockholders have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters or broker-
dealers regarding the sale of their securities. There is no underwriter or
coordinating broker acting in connection with the proposed sale of shares by
the selling stockholders.

- -------------------------------------------------------------------------------
75
<PAGE>

PLAN OF DISTRIBUTION

- -------------------------------------------------------------------------------

The shares will be sold only through registered or licensed brokers or dealers
if required under applicable state securities laws. In addition, in certain
states the shares may not be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is complied with.

Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the shares may not simultaneously engage in
market making activities with respect to our common stock for a period of two
business days prior to the commencement of such distribution. In addition,
each selling stockholder will be subject to applicable provisions of the
Exchange Act and the associated rules and regulations under the Exchange Act,
including Regulation M, which provisions may limit the timing of purchases and
sales of shares of our common stock by the selling stockholders. We will make
copies of this prospectus available to the selling stockholders and have
informed them of the need to deliver copies of this prospectus to purchasers
at or prior to the time of any sale of the shares.

We will file a supplement to this prospectus, if required, to comply with Rule
424(b) under the Securities Act upon being notified by a selling stockholder
that any material arrangements have been entered into with a broker-dealer for
the sale of shares through a block trade, special offering, exchange
distribution or secondary distribution or a purchase by a broker or dealer,
such supplement will disclose:

. the name of each such selling stockholder and of the participating broker-
dealer(s),

. the number of shares involved,

. the price at which such shares were sold,

. the commissions paid or discounts or concessions allowed to such broker-
dealer(s), where applicable,

. that such broker-dealer(s) did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus, and

. other facts material to the transaction.

In addition, upon being notified by a selling stockholder that a donee or
pledgee intends to sell more than 500 shares, we will file a supplement to
this prospectus.

We will bear all costs, expenses and fees in connection with the registration
of the shares. The selling stockholders will bear all commissions and
discounts, if any, attributable to the sales of the shares. The selling
stockholders may agree to indemnify any broker-dealer or agent that
participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act.

Legal matters

The validity of the shares of common stock offered hereby will be passed upon
for us by Brobeck, Phleger & Harrison LLP, San Diego, California and for the
underwriters by Shearman & Sterling, Menlo Park, California.

Experts

Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1997 and 1998 and September 30, 1999 and
for each of the three years in the period ended December 31, 1998 and the nine
months ended September 30, 1999, and the period from February 14, 1994
(inception) to September 30, 1999, as set forth in their report. We have
included our financial statements in this prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.

- -------------------------------------------------------------------------------
76
<PAGE>

- -------------------------------------------------------------------------------
Where you can find more information

We have filed with the SEC a registration statement on Form S-1, including the
exhibits, schedules and amendments to the registration statement, under the
Securities Act of 1933 with respect to the shares of common stock to be sold
in this offering. This prospectus does not contain all the information set
forth in the registration statement. For further information with respect to
Sequenom and the shares of common stock to be sold in this offering, please
refer to the registration statement. Statements contained in this prospectus
as to the contents of any contract, agreement or other document referred to
are not necessarily complete, and in each instance reference is made to the
copy of such contract, agreement or other document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
such reference.

You may read and copy all or any portion of the registration statement or any
other information we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can request copies of these
documents, upon payment of a duplicating fee, by writing to the SEC. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the
public reference room. Our SEC filings, including the registration statement,
are also available to you on the SEC's Web site (http://www.sec.gov).

As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the SEC. Upon approval of the common stock for quotation on
the Nasdaq National Market, such reports, proxy and information statements and
other information may also be inspected at the offices of Nasdaq Operations,
1735 K Street, N.W., Washington, D.C. 20006.

We intend to furnish our stockholders with annual reports containing audited
financial statements.

- -------------------------------------------------------------------------------
77
<PAGE>

SEQUENOM, INC. (A DEVELOPMENT STAGE COMPANY)

- --------------------------------------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
- ------------------------------------------------------------------------------
<S> <C>
Report of Ernst & Young LLP, independent auditors........................ F-2
Consolidated balance sheets as of December 31, 1997 and 1998 and Septem-
ber 30, 1999............................................................ F-3
Consolidated statements of operations for the years ended December 31,
1996, 1997 and 1998, the nine months ended September 30, 1999, the nine
months ended September 30, 1998 (unaudited) and the period February 14,
1994 (inception) to September 30, 1999.................................. F-4
Consolidated statements of stockholders' equity (deficit) for the period
February 14, 1994 (inception) to September 30, 1999..................... F-5
Consolidated statements of cash flows for the years ended December 31,
1996, 1997 and 1998, the nine months ended September 30, 1999, the nine
months ended September 30, 1998 (unaudited) and the period February 14,
1994 (inception) to September 30, 1999.................................. F-7
Notes to consolidated financial statements............................... F-8
</TABLE>

- --------------------------------------------------------------------------------
F-1
<PAGE>

- -------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors
Sequenom, Inc.

We have audited the accompanying consolidated balance sheets of Sequenom, Inc.
(a development stage company) as of December 31, 1997 and 1998 and September
30, 1999 and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for each of the three years in the period
ended December 31, 1998, the nine month period ended September 30, 1999 and
the period from February 14, 1994 (inception) to September 30, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sequenom,
Inc. (a development stage company) at December 31, 1997 and 1998 and September
30, 1999, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, the nine month period ended
September 30, 1999 and the period from February 14, 1994 (inception) to
September 30, 1999, in conformity with generally accepted accounting
principles.

/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP

San Diego, California

January 23, 2000

- -------------------------------------------------------------------------------
F-2
<PAGE>

SEQUENOM, INC. (A DEVELOPMENT STAGE COMPANY)

- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
PRO FORMA
BALANCE SHEET
INFORMATION AT
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999 1999
- ------------------------------------------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents......................... $832,782 $8,559,612 $3,046,600
Short-term investments, available-for-sale........ -- 19,937,876 25,022,660
Grant receivable.................................. 181,350 -- --
Inventories....................................... -- -- 242,829
Other current assets and prepaid expenses......... 108,442 251,596 434,057
----------- ------------ ------------
Total current assets............................... 1,122,574 28,749,084 28,746,146
Equipment and leasehold improvements, net......... 1,002,197 3,941,888 5,810,844
Other assets...................................... 147,802 86,312 74,636
----------- ------------ ------------
Total assets....................................... $2,272,573 $32,777,284 $34,631,626
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............. $1,121,971 $2,385,254 $3,534,003
Unearned revenue.................................. 126,000 -- --
Current portion of capital lease obligations...... -- 349,489 441,446
----------- ------------ ------------
Total current liabilities.......................... 1,247,971 2,734,743 3,975,449
Capital lease obligations, less current portion.... -- 730,064 1,312,713
Long-term debt..................................... 3,348,000 5,964,000 5,446,000 $3,267,600
Accrued long-term interest payable on long-term
debt.............................................. 424,000 713,500 930,625

Commitments

Stockholders' equity:
Convertible preferred stock, par value $0.001;
Authorized shares--14,842,757 at September 30,
1999; 5,000,000 pro forma
Issued and outstanding shares--5,621,742 and
12,973,694 at December 31, 1997 and 1998 and
14,842,757 at September 30, 1999; no shares
pro forma
Aggregate liquidation preference--$8,609,994 and
$44,645,038 at December 31, 1997 and
1998 and $56,793,947 at September 30, 1999...... 5,622 12,974 14,843 $--
Common stock, par value $0.001;
Authorized shares--19,500,000 at September 30,
1999; 75,000,000 pro forma
Issued and outstanding shares--292,260 and
331,010 at December 31, 1997 and 1998 and
873,369 at September 30, 1999; 16,053,234 shares
pro forma....................................... 292 331 873 16,053
Additional paid-in capital........................ 8,569,705 46,798,743 62,533,274 66,375,651
Notes receivable for stock........................ -- -- (511,281) (511,281)
Deferred compensation related to stock options.... -- (2,420,150) (2,167,162) (2,167,162)
Accumulated other comprehensive income (loss)..... 140,683 (22,649) 216,602 256,888
Deficit accumulated during the development stage.. (11,463,700) (21,734,272) (37,120,310) (41,029,567)
----------- ------------ ------------ -----------
Total stockholders' equity......................... (2,747,398) 22,634,977 22,966,839 $38,977,763
----------- ------------ ------------ -----------
Total liabilities and stockholders' equity......... $2,272,573 $32,777,284 $34,631,626
=========== ============ ============
</TABLE>

See accompanying notes.

- --------------------------------------------------------------------------------
F-3
<PAGE>

SEQUENOM, INC. (A DEVELOPMENT STAGE COMPANY)

- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE PERIOD
FROM FEBRUARY
14, 1994
NINE MONTHS ENDED (INCEPTION) TO
YEARS ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998 1998 1999 1999
- -------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Research and development
grants................. $892,903 $526,573 $351,067 $126,000 $80,653 $1,851,196
Costs and expenses:
Research and
development............ 3,136,205 3,531,558 6,187,572 3,550,263 7,137,677 22,189,265
General and
administrative......... 1,032,005 1,860,629 4,218,453 2,639,877 5,363,295 13,124,367
Amortization of deferred
compensation
($3,047,127 and
$568,023 related to
general and
administrative and
research and
development,
respectively).......... -- -- -- -- 3,615,150 3,615,150
----------- ----------- ------------ ----------- ------------ ------------
4,168,210 5,392,187 10,406,025 6,190,140 16,116,122 38,928,782
----------- ----------- ------------ ----------- ------------ ------------
Loss from operations.... (3,275,307) (4,865,614) (10,054,958) (6,064,140) (16,035,469) (37,077,586)
Interest income......... 72,918 56,986 397,361 290,929 1,225,696 1,758,021
Interest expense........ (274,793) (308,191) (612,975) (229,947) (576,265) (1,800,745)
----------- ----------- ------------ ----------- ------------ ------------
Net loss................ $(3,477,182) $(5,116,819) $(10,270,572) $(6,003,158) $(15,386,038) $(37,120,310)
=========== =========== ============ =========== ============ ============
Historical net loss per
share, basic and
diluted................ $(23.45) $(22.62) $(33.33) $(20.12) $(39.41)
=========== =========== ============ =========== ============
Weighted average shares
outstanding, basic and
diluted................ 148,251 226,251 308,121 298,375 390,486
Pro forma net loss per
share, basic and
diluted................ $(1.02) $(1.03)
============ ============
Pro forma weighted
average shares
outstanding, basic and
diluted................ 9,748,992 14,714,027
</TABLE>

See accompanying notes.

- --------------------------------------------------------------------------------
F-4
<PAGE>

SEQUENOM, INC. (A DEVELOPMENT STAGE COMPANY)

- --------------------------------------------------------------------------------

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
DEFERRED DEFICIT
NOTES COMPENSATION ACCUMULATED ACCUMULATED
CONVERTIBLE ADDITIONAL RECEIVABLE RELATED TO OTHER DURING THE
PREFERRED STOCK COMMON STOCK PAID-IN FROM STOCK COMPREHENSIVE DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL OFFICERS OPTIONS INCOME (LOSS) STAGE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net loss........ -- $-- -- $-- $-- $-- $-- $-- $(1,149,498)
Translation
adjustment..... -- -- -- -- -- -- -- (1,703) --
Comprehensive
loss........... -- -- -- -- -- -- -- -- --
Issuance of
common stock... -- -- 1 -- 1 -- -- -- --
Issuance of
Series A
Convertible Preferred
Stock, net of
issuance costs
of $35,484..... 442,000 442 -- -- 185,074 -- -- -- --
Issuance of
Series A
Convertible Preferred
Stock for
services....... 38,000 38 -- -- 18,962 -- -- -- --
Issuance of
Series A
Convertible Preferred
Stock for
assets......... 1,100,000 1,100 -- -- 548,900 -- -- -- --
--------- ------ ------- ------ ---------- --- ------- -------- -----------
Balance at
December 31,
1994............ 1,580,000 1,580 1 -- 752,937 -- -- (1,703) (1,149,498)
Net loss........ -- -- -- -- -- -- -- -- (1,720,201)
Translation
adjustment..... -- -- -- -- -- -- -- (3,222) --
Comprehensive
loss........... -- -- -- -- -- -- -- -- --
Issuance of
Series B
Convertible Preferred
Stock, net of
issuance costs
of $32,940..... 2,333,333 2,333 -- -- 3,464,727 -- -- -- --
Issuance of
common stock... -- -- 26,250 26 1,287 -- -- -- --
Exercise of
stock options.. -- -- 122,000 122 5,978 -- -- -- --
--------- ------ ------- ------ ---------- --- ------- -------- -----------
Balance at
December 31,
1995............ 3,913,333 3,913 148,251 148 4,224,929 -- -- (4,925) (2,869,699)
Net loss........ -- -- -- -- -- -- -- -- (3,477,182)
Translation
adjustment..... -- -- -- -- -- -- -- (63,554) --
Comprehensive
loss........... -- -- -- -- -- -- -- -- --
Issuance of
Series B
Convertible Preferred
Stock, net of
issuance costs
of $10,592..... 643,330 644 -- -- 953,647 -- -- -- --
Issuance of
warrants....... -- -- -- -- 18,000 -- -- -- --
Deferred
compensation... -- -- -- -- 33,000 -- (25,000) -- --
--------- ------ ------- ------ ---------- --- ------- -------- -----------
Balance at
December 31,
1996............ 4,556,663 4,557 148,251 148 5,229,576 -- (25,000) (68,479) (6,346,881)
Net loss........ -- $-- -- $-- $-- $-- $-- $-- $(5,116,819)
Translation ad-
justment....... -- -- -- -- -- -- -- 209,162 --
Comprehensive
loss........... -- -- -- -- -- -- -- -- --
Exercise of
stock options.. -- -- 144,009 144 35,856 -- -- -- --
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
Net loss........ $(1,149,498)
Translation
adjustment..... (1,703)
-------------
Comprehensive
loss........... (1,151,201)
Issuance of
common stock... 1
Issuance of
Series A
Convertible Preferred
Stock, net of
issuance costs
of $35,484..... 185,516
Issuance of
Series A
Convertible Preferred
Stock for
services....... 19,000
Issuance of
Series A
Convertible Preferred
Stock for
assets......... 550,000
-------------
Balance at
December 31,
1994............ (396,684)
Net loss........ (1,720,201)
Translation
adjustment..... (3,222)
-------------
Comprehensive
loss........... (1,723,423)
Issuance of
Series B
Convertible Preferred
Stock, net of
issuance costs
of $32,940..... 3,467,060
Issuance of
common stock... 1,313
Exercise of
stock options.. 6,100
-------------
Balance at
December 31,
1995............ 1,354,366
Net loss........ (3,477,182)
Translation
adjustment..... (63,554)
-------------
Comprehensive
loss........... (3,540,736)
Issuance of
Series B
Convertible Preferred
Stock, net of
issuance costs
of $10,592..... 954,291
Issuance of
warrants....... 18,000
Deferred
compensation... 8,000
-------------
Balance at
December 31,
1996............ (1,206,079)
Net loss........ $(5,116,819)
Translation ad-
justment....... 209,162
-------------
Comprehensive
loss........... (4,907,657)
Exercise of
stock options.. 36,000
</TABLE>

- --------------------------------------------------------------------------------
F-5
<PAGE>

SEQUENOM, INC. (A DEVELOPMENT STAGE COMPANY)

- --------------------------------------------------------------------------------

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

<TABLE>
<CAPTION>
DEFERRED DEFICIT
NOTES COMPENSATION ACCUMULATED ACCUMULATED
CONVERTIBLE ADDITIONAL RECEIVABLE RELATED TO OTHER DURING THE
PREFERRED STOCK COMMON STOCK PAID-IN FROM STOCK COMPREHENSIVE DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL OFFICERS OPTIONS INCOME (LOSS) STAGE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
Series C
Convertible
Preferred
Stock, net of
issuance costs
of $49,661..... 1,065,079 1,065 -- -- 3,304,273 -- -- -- --
Amortization of
deferred
compensation... -- -- -- -- -- -- 25,000 -- --
---------- ------- ------- ---- ----------- --------- ----------- -------- ------------
Balance at
December 31,
1997............ 5,621,742 5,622 292,260 292 8,569,705 -- -- 140,683 (11,463,700)
Net loss........ -- -- -- -- -- -- -- -- (10,270,572)
Unrealized gain
on available-
for-sale
securities..... -- -- -- -- -- -- -- 23,326 --
Translation
adjustment..... -- -- -- -- -- -- -- (186,658) --
Comprehensive
loss........... -- -- -- -- -- -- -- -- --
Exercise of
stock options.. -- -- 38,750 39 7,086 -- -- -- --
Issuance of
Series C
Convertible
Preferred
Stock, net of
issuance costs
of $47,370..... 3,508,252 3,508 -- -- 11,000,115 -- -- -- --
Issuance of
Series D
Convertible
Preferred
Stock, net of
Issuance costs
of $188,519.... 3,843,700 3,844 -- -- 24,791,687 -- -- -- --
Deferred
compensation... -- -- -- -- 2,420,150 -- (2,420,150) -- --
---------- ------- ------- ---- ----------- --------- ----------- -------- ------------
Balance at
December 31,
1998............ 12,973,694 12,974 331,010 331 46,798,743 (2,420,150) (22,649) (21,734,272)
Net loss........ -- -- -- -- -- -- -- -- (15,386,038)
Unrealized loss
available-for-
sale
securities..... -- -- -- -- -- -- -- (48,083) --
Translation
adjustment..... -- -- -- -- -- -- -- 287,334 --
Comprehensive
loss........... -- -- -- -- -- -- -- -- --
Exercise of
stock options.. -- -- 542,359 542 495,008 (511,281) -- -- --
Issuance of
stock options
to
consultants.... -- -- -- -- 102,527 -- -- -- --
Issuance of
Series D
Convertible
Preferred
stock, net of
issuance costs
of $372,206.... 1,869,063 1,869 -- -- 11,774,834 -- -- -- --
Deferred
compensation... -- -- -- -- 3,362,162 -- (3,362,162) -- --
Amortization of
deferred
compensation... -- -- -- -- -- -- 3,615,150 -- --
---------- ------- ------- ---- ----------- --------- ----------- -------- ------------
Balance at
September 30,
1999............ 14,842,757 $14,843 873,369 $873 $62,533,274 $(511,281) $(2,167,162) $216,602 $(37,120,310)
========== ======= ======= ==== =========== ========= =========== ======== ============
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
Issuance of
Series C
Convertible
Preferred
Stock, net of
issuance costs
of $49,661..... 3,305,338
Amortization of
deferred
compensation... 25,000
-------------
Balance at
December 31,
1997............ (2,747,398)
Net loss........ (10,270,572)
Unrealized gain
on available-
for-sale
securities..... 23,326
Translation
adjustment..... (186,658)
-------------
Comprehensive
loss........... (10,433,904)
Exercise of
stock options.. 7,125
Issuance of
Series C
Convertible
Preferred
Stock, net of
issuance costs
of $47,370..... 11,003,623
Issuance of
Series D
Convertible
Preferred
Stock, net of
Issuance costs
of $188,519.... 24,795,531
Deferred
compensation... --
-------------
Balance at
December 31,
1998............ 22,634,977
Net loss........ (15,386,038)
Unrealized loss
available-for-
sale
securities..... (48,083)
Translation
adjustment..... 287,334
-------------
Comprehensive
loss........... (15,146,787)
Exercise of
stock options.. (15,731)
Issuance of
stock options
to
consultants.... 102,527
Issuance of
Series D
Convertible
Preferred
stock, net of
issuance costs
of $372,206.... 11,776,703
Deferred
compensation... --
Amortization of
deferred
compensation... 3,615,150
-------------
Balance at
September 30,
1999............ $22,966,839
=============
</TABLE>

- --------------------------------------------------------------------------------
F-6
<PAGE>

SEQUENOM, INC. (A DEVELOPMENT STAGE COMPANY)

- --------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
FEBRUARY 14,
1994
YEARS ENDED NINE MONTHS ENDED (INCEPTION) TO
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998 1998 1999 1999
- -------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................ $(3,477,182) $(5,116,819) $(10,270,572) $(6,003,158) $(15,386,038) $(37,120,310)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Amortization of deferred
compensation........... -- -- -- -- 3,615,149 3,615,149
Warrants issued in
conjunction with lease
financing.............. 18,000 -- -- -- -- 18,000
Options issued to
consultants............ 8,000 25,000 10,000 -- 102,527 145,527
Stock issued for
technology and
services............... -- -- -- -- -- 569,000
Depreciation and
amortization........... 314,195 351,173 961,051 797,599 1,285,789 3,060,173
Changes in operating
assets and liabilities:
Inventories............. -- -- -- -- (243,036) (243,036)
Other current assets.... (247,711) 75,364 47,305 (238,993) (263,499) (556,508)
Other assets............ 10,213 (107,427) 56,085 59,405 4,829 (16,160)
Accounts payable and
accrued expenses....... 256,235 356,155 1,237,892 (29,252) 1,217,450 3,733,659
Unearned revenue........ 251,000 (125,000) (126,000) (126,000) -- --
Other liabilities....... 149,000 149,500 289,500 74,750 217,125 805,125
----------- ----------- ------------ ----------- ------------ ------------
Net cash used in
operating activities... (2,718,250) (4,392,054) (7,794,739) (5,465,649) (9,449,704) (25,989,381)
INVESTING ACTIVITIES
Purchase of equipment
and leasehold
improvements........... (429,896) (490,891) (3,830,666) (2,613,514) (3,275,247) (8,997,999)
Purchases of marketable
securities............. -- -- (19,914,550) -- (22,655,545) (42,570,095)
Maturities of marketable
securities............. -- -- -- -- 17,476,703 17,476,703
----------- ----------- ------------ ----------- ------------ ------------
Net cash used in
investing activities... (429,896) (490,891) (23,745,216) (2,613,514) (8,454,089) (34,091,391)
FINANCING ACTIVITIES
Proceeds from issuance
of Convertible
Preferred Stock........ 954,291 3,305,338 35,799,154 11,009,967 11,776,703 53,908,061
Proceeds from long-term
debt................... 1,706,592 1,165,000 2,276,560 2,233,200 -- 6,039,160
Borrowings under capital
lease obligations...... -- -- 1,306,312 1,074,549 912,149 2,218,461
Payments on capital
lease obligations...... -- -- (226,758) (132,286) (237,542) (464,300)
Proceeds from issuance
of convertible term
notes to stockholders.. -- -- -- -- -- 1,580,000
Proceeds from issuance
of Common Stock........ -- 36,000 7,125 36 37,721 88,260
----------- ----------- ------------ ----------- ------------ ------------
Net cash provided by
financing activities... 2,660,883 4,506,338 39,162,393 14,185,466 12,489,031 63,369,642
----------- ----------- ------------ ----------- ------------ ------------
Net increase (decrease)
in cash and cash
equivalents............ (424,078) (376,607) 7,622,438 6,106,303 (5,414,762) 3,288,870
Effect of exchange rate
change on cash and cash
equivalents............ (126,739) (116,748) 104,392 120,775 (98,250) (242,270)
Cash and cash
equivalents at
beginning of period.... 1,876,954 1,326,137 832,782 832,782 8,559,612 --
----------- ----------- ------------ ----------- ------------ ------------
Cash and cash
equivalents at end of
period................. $1,326,137 $832,782 $8,559,612 $7,059,860 $3,046,600 $3,046,600
=========== =========== ============ =========== ============ ============
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING AND
FINANCING ACTIVITIES:
Conversion of
convertible term notes
to Series B Convertible
Preferred Stock........ $-- $-- $-- $-- $-- $1,580,000
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Interest paid........... $-- $158,691 $323,475 $155,197 $359,140 $841,306
</TABLE>

See accompanying notes.

- --------------------------------------------------------------------------------
F-7
<PAGE>

SEQUENOM, INC. (A DEVELOPMENT STAGE COMPANY)

- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF THE BUSINESS
Sequenom, Inc. (the "Company") was incorporated on February 14, 1994 in the
State of Delaware. Since inception, the Company has been primarily involved in
the research and development of high definition DNA analysis tools for
industrial biomedical and life science applications, and has not yet generated
revenues from its planned commercial operations. Accordingly, through the date
of these financial statements, the Company is considered to be a development
stage company.

Since inception, the Company has incurred significant losses and, as of
September 30, 1999, has an accumulated deficit of $37.1 million. Revenues to
date have been solely from research grants. The Company began placing
MassArray systems at beta sites and pre-launch partners in July 1999.
Information received from these sites is being used to optimize product
offerings. The Company expects to generate revenue from the commercial launch
of its MassArray system in the first quarter of 2000.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Sequenom GmbH. All significant
intercompany transactions have been eliminated in consolidation.

CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original maturities
when purchased of less than three months.

SHORT-TERM INVESTMENTS AND CONCENTRATION OF CREDIT RISK

In accordance with Statement of Financial Accounting Standards ("SFAS") No.
115, Accounting for Certain Investments in Debt and Equity Securities, the
Company's investment securities are classified as available-for-sale and
unrealized holding gains or losses are included in comprehensive income
(loss.) Realized gains or losses, calculated based on the specific
identification method, were not material for the years ended December 31,
1996, 1997 and 1998, or the nine-month period ended September 30, 1999.

At December 31, 1998, short-term investments consisted of the following:

<TABLE>
<CAPTION>
AMORTIZED MARKET UNREALIZED
COST VALUE GAIN
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Obligations of U.S. government agencies..... $ 6,829,729 $ 6,830,085 $ 356
Corporate debt securities................... 13,084,821 13,107,791 22,970
----------- ----------- -------
Total short-term investments................ $19,914,550 $19,937,876 $23,326
=========== =========== =======
</TABLE>

Approximately 75% and 25% of these securities mature within one and two years
of December 31, 1998, respectively.

- -------------------------------------------------------------------------------
F-8
<PAGE>

SEQUENOM, INC. (A DEVELOPMENT STAGE COMPANY)

- -------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

At September 30, 1999, short-term investments consisted of the following:

<TABLE>
<CAPTION>
AMORTIZED MARKET UNREALIZED
COST VALUE GAIN
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Obligations of U.S. government agencies..... $ 8,484,336 $ 8,459,315 $25,021
Corporate debt securities................... 16,609,057 16,563,345 45,712
----------- ----------- -------
Total short-term investments................ $25,093,393 $25,022,660 $70,733
=========== =========== =======
</TABLE>

Approximately 76% and 24% of these securities mature within one and two years
of September 30, 1999, respectively.

INVENTORIES
Inventories consist principally of raw materials and are stated at the lower
of cost or market. Cost is determined by the first-in, first-out (FIFO)
method.

EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment is stated at cost and depreciated using the straight-line method
over the estimated useful lives of the assets, generally 3 to 5 years, or the
lease term, whichever is shorter. Leasehold improvements are amortized using
the straight-line method over the estimated useful life of the improvement or
the remaining term of the lease, whichever is shorter.

SOFTWARE COSTS

Purchased software is capitalized at cost and amortized over the estimated
useful life, generally three years. Software developed for use in the
Company's products is expensed as incurred until both (i) technological
feasibility for the software has been established, and (ii) all research and
development activities for the other components of the system have been
completed. The Company believes this will occur after the Company has received
evaluations from the beta sites and has concluded any resulting modifications
to the products. Expenditures to date have been classified as research and
development expense.

IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of, if indicators of
impairment exist, the Company assesses the recoverability of the affected
long-lived assets by determining whether the carrying value of such assets can
be recovered through undiscounted future operating cash flows. If impairment
is indicated, the Company measures the amount of such impairment by comparing
the carrying value of the asset to the present value of the expected future
cash flows associated with the use of the asset. While the Company's current
and historical operating and cash flow losses are indicators of impairment,
the Company believes the future cash flows to be received from the long-lived
assets will exceed the assets' carrying value, and accordingly the Company has
not recognized any impairment losses through September 30, 1999.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial instruments, including cash and cash equivalents, accounts
receivable, accounts payable, and accrued liabilities are carried at cost,
which management believes approximates fair value because of the short-term
maturity of these instruments.

The long-term debt and related accrued interest is not scheduled to be repaid
until 2005 and 2007. However, in connection with this offering, the Company
intends to extinguish the aggregate of $5,446,000 in long-term debt and
$930,625 in accrued interest through the issuance of 296,900 shares of common
stock (with a fair value of $7,125,600 at an assumed initial public offering
price of $24.00 per share) and cash of approximately $3,267,000.

- -------------------------------------------------------------------------------
F-9
<PAGE>

SEQUENOM, INC. (A DEVELOPMENT STAGE COMPANY)

- -------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

REVENUE RECOGNITION

Grant revenue is recorded as the research expenses relating to the grants are
incurred, provided that the amounts received are not refundable if the
research is not successful. Amounts received that are refundable if the
research is not successful would be recorded as deferred revenue and
recognized as revenue upon the grantor's acceptance of the success of the
research results.

The Company's product shipments through September 30, 1999 have been under
arrangements whereby the customer is performing beta testing on the MassArray
product and may elect to purchase the product following the completion of an
evaluation period. Revenue under these arrangements will be recognized upon
the completion of the evaluation period and upon the customer's definitive
acceptance of the product. Certain of these arrangements require the customer
to make one or more payments during the testing and evaluation period. Amounts
received under these arrangements ($100,000 at September 30, 1999) are
recorded as customer advances, which are included in accounts payable and
accrued expenses in the accompanying balance sheet.

RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed in the period incurred.

INCOME TAXES
In accordance with SFAS No. 109, Accounting for Income Taxes, a deferred tax
asset or liability is determined based on the difference between the financial
statement and tax basis of assets and liabilities as measured by the enacted
tax rates which will be in effect when these differences reverse. The Company
provides a valuation allowance against net deferred tax assets unless, based
upon the available evidence, it is more likely than not that the deferred tax
assets will be realized.

PATENT COSTS

Costs related to filing and pursuing patent applications are expensed as
incurred as recoverability of such expenditures is uncertain.

FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The financial statements of the Company's German subsidiary are measured using
the German Deutsche Mark (DEM) as the functional currency. Assets and
liabilities of this subsidiary are translated at the rates of exchange at the
balance sheet date. Income and expense items are translated at the average
daily rate of exchange during the reporting period. The resulting translation
adjustments are included as a separate component of other comprehensive income
(loss). Transactions denominated in currencies other than the local currency
are recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transaction gains and losses
which are reflected in income as unrealized (based on period-end translations)
or realized upon settlement of the transactions.

STOCK-BASED COMPENSATION
As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the
Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, ("APB 25") and related
Interpretations in accounting for stock-based employee compensation. Under APB
25, if the exercise price of the Company's employee and director stock options
equals or exceeds the estimated fair value of the underlying stock on the date
of grant, no compensation expense is recognized.

- -------------------------------------------------------------------------------
F-10
<PAGE>

SEQUENOM, INC. (A DEVELOPMENT STAGE COMPANY)

- -------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

When the exercise price of the employee or director stock options is less than
the fair value of the underlying stock on the grant date, the Company records
deferred compensation for the difference and amortizes this amount to expense
in accordance with FASB Interpretation No. 28, or FIN 28, over the vesting
period of the options. Options or stock awards issued to non-employees are
recorded at their fair value as determined in accordance with SFAS No. 123 and
recognized over the related service period.

COMPREHENSIVE INCOME (LOSS)
As of January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 requires unrealized gains or losses on the
Company's available-for-sale securities and foreign currency translation
adjustments, which prior to adoption were reported separately in stockholders'
equity, to be included in other comprehensive income (loss).

SEGMENT REPORTING
The Company adopted SFAS No. 131, Disclosures About Segments of an Enterprise
and Related Information, during 1998. SFAS No. 131 requires the use of a
management approach in identifying segments of an enterprise. Management has
determined that the Company operates in one business segment.

INTERIM FINANCIAL DATA
The consolidated statements of operations and cash flows for the nine months
ended September 30, 1998 are unaudited. The unaudited consolidated financial
statements have been prepared on the same basis as the audited consolidated
financial statements and, in the opinion of management, include all
adjustments, consisting of only normal recurring adjustments, necessary to
state fairly therein, in accordance with generally accepted accounting
principles.

NET LOSS PER SHARE
In accordance with SFAS No. 128, Earnings Per Share, and SEC Staff Accounting
Bulletin (or SAB) No. 98, basic net income (loss) per share is computed by
dividing the net income (loss) for the period by the weighted average number
of common shares outstanding during the period. Diluted net income (loss) per
share is computed by dividing the net income (loss) for the period by the
weighted average number of common and common equivalent shares outstanding
during the period. Potentially dilutive securities composed of incremental
common shares issuable upon the exercise of stock options and warrants, and
common shares issuable on conversion of preferred stock, were excluded from
historical diluted loss per share because of their anti-dilutive effect.

Under the provisions of SAB No. 98, common shares issued for nominal
consideration, if any, would be included in the per share calculations as if
they were outstanding for all periods presented. No common shares have been
issued for nominal consideration.

Pro forma net loss per share has been computed as described above and also
gives effect to common equivalent shares arising from preferred stock and
long-term debt that will automatically convert upon the closing of the initial
public offering contemplated by this prospectus (using the as-if converted
method from the original date of issuance) and reflects the elimination of
interest expense on the debt to be converted.

UNAUDITED PRO FORMA BALANCE SHEET INFORMATION

The unaudited pro forma balance sheet information at September 30, 1999
reflects the conversion of the convertible preferred stock and convertible
long-term debt into 14,842,757 and 272,108 shares of

- -------------------------------------------------------------------------------
F-11
<PAGE>

SEQUENOM, INC. (A DEVELOPMENT STAGE COMPANY)

- -------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

common stock, respectively, including the related recognition of
(i) $4,244,884 of interest expense for the beneficial conversion of the debt,
and (ii) the recognition of $147,600 of related foreign translation gains on
such debt from October 1, 1999 through December 27, 1999. The pro forma
balance sheet information does not reflect (i) the issuance of 1,523,451
shares of common stock from October 1, 1999 through December 27, 1999 pursuant
to the exercise of stock options, and the related issuance of loans to certain
executives of $1,545,185, resulting in a net decrease in cash of $66,993, or
(ii) $2,212,650 of additional deferred compensation recorded from October 1,
1999 through December 27, 1999.

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

RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been reclassified
to conform to current year presentation.

NEW ACCOUNTING PRONOUNCEMENTS
The Company expects to adopt SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, effective January 1, 2001. SFAS No. 133
will require the Company to recognize all derivatives on the balance sheet at
fair value. The Company does not anticipate that the adoption of the SFAS
No. 133 will have a significant effect on its results of operations or
financial position.

3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements and related accumulated depreciation and
amortization are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1998 1999
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Laboratory equipment.................. $1,248,735 $3,982,149 $4,906,210
Leasehold improvements................ 119,061 1,044,891 1,392,927
Office furniture and equipment........ 238,418 417,990 1,875,083
---------- ---------- ----------
1,606,214 5,445,030 8,174,220
Less accumulated depreciation and
amortization......................... 604,017 1,503,142 2,363,376
---------- ---------- ----------
$1,002,197 $3,941,888 $5,810,844
========== ========== ==========
</TABLE>

Total depreciation and amortization expense amounted to $314,195, $351,173 and
$961,051 for the years ended December 31, 1996, 1997 and 1998, respectively,
and $1,285,789 for the nine month period ended September 30, 1999.
Depreciation expense for the period from inception (February 14, 1994) through
September 30, 1999 was $3,060,173.

4. LONG-TERM DEBT
In 1995, the Company entered into agreements with Technologie Beteiligungs
Gesellschaft ("TBG") for two unsecured loans, one for DEM1 million
(approximately $700,000) and the other for DEM3 million

- -------------------------------------------------------------------------------
F-12
<PAGE>

SEQUENOM, INC. (A DEVELOPMENT STAGE COMPANY)

- -------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(approximately $2.0 million). In 1997, the Company's subsidiary entered into
another agreement with the same German bank for an additional unsecured loan
of DEM2 million (approximately $1.2 million).

Interest is payable semi-annually on the loans. The 1995 loans began accruing
interest at 6% per annum commencing March 31, 1997 and payments commenced in
June 1997. The effective nominal interest rate over the life of the 1995 loans
is 4.8%. The 1997 loan bears interest at 7% and payments commenced in 1998.
The subsidiary is also required to pay additional interest equal to 9% of the
subsidiary's annual profits, to the extent that such profits exceed DEM100,000
per year (the subsidiary has not earned any such profits through September 30,
1999). The combined annual interest rate (nominal interest and additional
interest) may not exceed 7% per year through December 31, 2000. Commencing
January 1, 2001 and January 1, 2003, any amounts still outstanding will accrue
additional interest at 6% and 7% per annum for the 1995 loans and 1997 loan,
respectively.

In addition, at the end of the loan term (earlier of repayment or December 31,
2005 and December 31, 2007 for the 1995 loans and 1997 loan, respectively),
the subsidiary is obligated to pay terminal interest equal to 25%, 30% and 35%
of the amounts loaned under the DEM1 million, DEM3 million and DEM2 million
agreements, respectively, estimated to be approximately $1.2 million at the
end of the loan term. The Company has accrued interest in the amount of
$930,625 relating to the terminal interest representing approximately 75% of
the terminal interest to be paid at the end of the loan term. The Company's
accrual has been recorded on a straight-line basis, based upon the assumption
that the entire success fee would be paid in 2000, when the Company has been
expecting it would be able to repay the debt. The bank may elect to forego
collection of such amounts in certain situations. In December 1999, TBG agreed
to accept shares of the Company's common stock with an aggregate value of
$595,000, contingent upon completion of this offering, in full satisfaction of
the Company's obligation for interest payable to TBG. Assuming completion of
the initial public offering, the Company's ultimate interest cost will be
$595,000. The difference between the ultimate interest cost and accrued
interest liability will be recorded as a reduction of, interest expense upon
completion of the offering.

Under certain conditions, the Company may exercise a put option to sell its
shares of capital stock in the subsidiary to TBG for an amount equal to 50% of
the Company's equity contribution to the subsidiary pursuant to the DEM3
million loan. Through December 31, 1998, the Company had made capital
contributions to the subsidiary under the DEM3 million loan agreement of DEM3
million; therefore, the potential amount recoverable under this put option was
approximately DEM1.5 million at December 31, 1998. If the Company exercises
such put option, then the Series B Preferred Stockholders have a right to
demand redemption of their Series B Preferred Stock in the amount of $1.50 per
share. At the present time, the Company has no intention of exercising the put
option.

In January 1998, the Company entered into an agreement with TBG for debt of
DEM4 million (approximately $2.3 million) which is convertible into Common
Stock. Interest is payable at 6% of the subsidiary's annual profits. However,
the combined annual interest rate on all loans granted by TBG may not exceed
9% of the subsidiary's annual profits or 7% of the principal outstanding. The
Company may call for conversion in the event of a triggering event, as defined
in the agreement (generally a change in control or an initial public
offering). TBG may call for conversion at any time. The conversion ratio is
calculated as the arithmetic mean between $3.15 per share and a current
valuation of the Common Stock at the time of conversion, not to exceed $8.40
per share. The loan must be repaid by December 31, 2007, if not previously
converted. The Company intends to call for conversion of the loan upon
completion of this offering, and the conversion ratio is likely to be $8.40
per share, resulting in the issuance of approximately 272,108 shares of Common
Stock. Upon conversion, the Company will record additional

- -------------------------------------------------------------------------------
F-13
<PAGE>

SEQUENOM, INC. (A DEVELOPMENT STAGE COMPANY)

- -------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

interest expense equal to the difference between the offering price and $8.40
per share. Assuming an initial public offering price of $24.00 per share, the
amount of such charge would be approximately $4,244,884.

In 1999, the Company established a $5 million revolving line of credit with a
bank. The Company may borrow under this agreement through June 2000. Payments
of principal and interest would be made over a 48 month period, commencing
October 31, 2001. Payments prior to that date would consist of interest only.
Borrowings bear interest at LIBOR plus 1.75%. Any amounts borrowed will be
secured by short-term investments maintained at the bank. No borrowings had
been made under this agreement as of September 30, 1999.

5. STOCKHOLDERS' EQUITY

CONVERTIBLE PREFERRED STOCK
At September 30, 1999, convertible Preferred Stock outstanding is as follows:

<TABLE>
<CAPTION>
PRICE PER NUMBER OF LIQUIDATION
DATE ISSUED SERIES SHARE SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March-August 1995....................... A $0.50 1,580,000 $790,000
December 1995........................... B $1.50 2,333,333 3,500,000
February-March 1996..................... B $1.50 643,330 964,995
May 1997................................ C $3.15 1,065,079 3,354,999
January 1998............................ C $3.15 3,508,252 11,050,994
December 1998........................... D $6.50 3,843,700 24,984,050
February-March 1999..................... D $6.50 1,869,063 12,148,909
---------- -----------
14,842,757 $56,793,947
========== ===========
</TABLE>

Each share of Preferred Stock is convertible into one share of Common Stock at
the option of the holder. In addition, each share of Preferred Stock will
automatically convert to Common Stock upon the closing of the initial public
offering contemplated by this prospectus. A particular series of Preferred
Stock may be converted upon at least a two-thirds vote of the related holders
of such series of Preferred Stock.

No dividends shall be declared or paid to the holders of Series A Preferred
Stock or Common Stock unless the holders of Series B, Series C and Series D
Preferred Stock have been paid in full for all of the dividends to which they
are entitled. No dividends can be declared or paid to the holders of Series A
Preferred Stock or Common Stock at a rate greater than the rate paid to the
holders of Series B and Series C Preferred Stock.

The Series D Preferred Stock has preference as to the assets of the Company
upon liquidation over all other classes of capital stock. In liquidation, the
holders of Series A, Series B, Series C, and Series D Preferred Stock are
entitled to the greater of (i) $0.50, $1.50, $3.15 or $6.50 per share of
Series A, Series B, Series C, or Series D Preferred Stock, respectively
(subject to certain adjustments), plus declared but unpaid dividends, or (ii)
the amount per share of the Series D Preferred Stock as would have been
payable had all shares been converted to Common Stock immediately prior to a
liquidation event, plus declared but unpaid dividends. If the assets of the
Company are insufficient to permit payment in full, the entire assets of the
Company available for distribution will be distributed ratably first among the
holders of the Series D Preferred Stock and then the Series C, Series B,
Series A and Common Stock, respectively.

- -------------------------------------------------------------------------------
F-14
<PAGE>

SEQUENOM, INC. (A DEVELOPMENT STAGE COMPANY)

- -------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The holders of Series B Preferred Stock have redemption rights under certain
limited conditions as discussed in Note 4.

In February 1998, a German bank purchased 2,700 shares or approximately 5% of
Sequenom GmbH common stock for DM3 million (approximately $1.7 million). The
German bank's ownership interest in the subsidiary was convertible, at the
option of the Company, into Series C Preferred Stock. Later in 1998, the
Company effected the conversion of the minority interest into 540,000 shares
of Series C Preferred Stock at $3.15 per share. Due to the Company's ability
and intention to convert the minority interest, which existed from the date of
the original transaction, the Company accounted for the transaction as a sale
of Series C Preferred Stock and has not reflected any minority interest in its
losses during the time the German bank held the 5% minority interest.

WARRANTS
In 1994, the Company entered into a $1 million equipment lease. Under the
terms of this agreement, the Company issued warrants to purchase 70,000 shares
of Series A Preferred Stock at an exercise price of $0.50 per share. In
connection with those warrants, the Company recorded $18,000 of additional
interest expense.

In connection with the Series C Preferred Stock issued in May 1997, the
Company issued warrants to purchase 106,503 shares of Series C Preferred Stock
at an exercise price of $3.15 per share.

NOTES RECEIVABLE

In 1999, the Board of Directors authorized the issuance of approximately $3.0
million in loans to executive officers, related to the exercise of their stock
options. The notes are full recourse and are also secured by the underlying
stock. The notes bear interest at the applicable federal rate in existence
when the notes were made (approximately 6%). The principal amount of the notes
and the related interest are required to be repaid on the earlier of two years
from the origination date of the loans or in the event of a secondary public
offering, if the executive officers making the note are allowed to sell their
stock. An aggregate of $511,281 of such loans were issued as of September 30,
1999. An additional $1,545,185 of such loans were issued from October 1, 1999
through December 27, 1999 in connection with the exercise of options to
purchase 1,523,451 shares of common stock, which options had been outstanding
as of September 30, 1999. The remainder of the loans are expected to be issued
through early 2000.

STOCK COMPENSATION PLANS

In December 1998, the Company adopted the 1998 Stock Option/Stock Issuance
Plan ("1998 Plan"). The Plan provides for the grant to directors, employees
and consultants of options to purchase Common Stock. The Plan also provides
for the issuance of shares of Common Stock, subject to the Company's right to
repurchase the shares at the original purchase price in the event the employee
terminates prior to vesting. Prior to the 1998 Plan, the Company granted
options under the 1994 Stock Plan ("1994 Plan"). All options previously
granted under the 1994 Plan were transferred to the 1998 Plan in 1999. The
number of shares of Common Stock issuable under the plans was 1,700,000 and
2,700,000 in 1997 and 1998, respectively. At September 30, 1999 the number of
shares issuable under the 1998 Plan was 3,400,000. In October 1999 the number
of shares issuable under the 1998 plan was increased to 3,900,000. Options
granted under the 1998 Plan generally vest over a four-year period.

In November 1999, the Company adopted the Stock Incentive Plan ("the 1999
Plan"). The 1999 Plan provides for the grant of 4,750,000 shares of common
stock, which consists of the number of shares

- -------------------------------------------------------------------------------
F-15
<PAGE>

SEQUENOM, INC. (A DEVELOPMENT STAGE COMPANY)

- -------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

estimated to carryover from the 1998 Plan, plus an increase of approximately
850,000 shares. Beginning in 2001, the amount of authorized shares available
under the 1999 Plan will automatically increase each January 1st by an amount
equal to 4% of the outstanding common stock on the prior December 31st,
subject to an annual increase limitation of 2,000,000 shares. Officers,
employees, board members and consultants are eligible to participate in the
1999 Plan. To date, no options have been granted under the 1999 Plan.

In November 1999, the Company adopted the 1999 Employee Stock Purchase Plan
("1999 ESPP"). The Company has reserved 250,000 shares of common stock for
issuance under the 1999 ESPP. Beginning in 2001, the amount of authorized
shares available under the 1999 ESPP will automatically increase each January
1st by an amount equal to 1% of the outstanding common stock on the prior
December 31st, subject to an annual increase limitation of 500,000. The 1999
ESPP will have a series of concurrent offering periods, each with a maximum
duration of 24 months, however, no employee may participate in more than one
offering period at a time.

The stock option activity is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1996................................ 683,000 $0.18
Granted.................................................... 731,000 $0.25
Cancelled.................................................. (50,000) $0.25
Exercised.................................................. (144,000) $0.25
---------
Balance at December 31, 1997................................ 1,220,000 $0.21
Granted.................................................... 1,268,500 $0.71
Cancelled.................................................. (71,250) $0.28
Exercised.................................................. (38,750) $0.18
--------- -----
Balance at December 31, 1998................................ 2,378,500 $0.47
Granted.................................................... 685,250 $3.00
Cancelled.................................................. (52,500) $0.60
Exercised.................................................. (536,000) $0.89
---------
Balance at September 30, 1999............................... 2,475,250 $1.09
=========
</TABLE>

At September 30, 1999, 84,000 shares were available for future option grants
and 2,559,250 shares of Common Stock were reserved for issuance of all
options. The weighted average grant-date fair value of options granted in
1996, 1997 and 1998 and for the nine month period ended September 30, 1999 was
$0.06, $0.07, $0.17 and $2.86, respectively.

The following table summarizes information about options outstanding at
September 30, 1999:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WEIGHTED
RANGE OF AVERAGE WEIGHTED NUMBER WEIGHTED
EXERCISE NUMBER REMAINING AVERAGE EXERCISABLE AVERAGE
PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE AND VESTED EXERCISE PRICE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.05-$0.25 977,000 7.4 $0.22 951,451 $0.18
$0.50-$1.10 913,000 9.0 $0.79 371,884 $0.67
$3.00-$3.30 585,250 8.9 $3.00 49,625 $3.00
--------- ---------
$0.05-$3.30 2,475,250 8.3 $1.09 1,372,960 $0.42
========= =========
</TABLE>

- -------------------------------------------------------------------------------
F-16
<PAGE>

SEQUENOM, INC. (A DEVELOPMENT STAGE COMPANY)

- -------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Had compensation cost for these option grants been determined consistent with
the fair value method prescribed in SFAS No. 123, the Company's net loss would
have been changed to the following pro forma amounts:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER
1996 1997 1998 30, 1999
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pro forma net loss...... $(3,479,642) $(5,122,653) $(10,325,893) $(15,812,155)
Net loss as reported.... $(3,477,182) $(5,116,819) $(10,270,572) $(15,386,038)
Pro forma net loss per
share, basic and
diluted................ $ (23.51) $ (22.64) $ (33.51) $ (40.50)
Net loss per share,
basic and diluted, as
reported............... $ (23.45) $ (22.62) $ (33.33) $ (39.41)
</TABLE>

The fair value of these options was estimated at the date of grant using the
minimum value pricing model with the following weighted average assumptions
for 1996, 1997 and 1998 and for the nine months ended September 30, 1999:
risk-free interest rate of 5%, 6%, 6%, 6%; dividend yield of 0%; and a
weighted-average life of the options of four years.

The minimum value pricing model is similar to the Black-Scholes option
valuation model which was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully transferable,
except that it excludes the factor for volatility. In addition, option
valuation models require the input of highly subjective assumptions. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.

DEFERRED COMPENSATION
The Company has recorded deferred compensation totalling $2,420,150 in
December 1998 and $1,689,662 in the nine months ended September 30, 1999 in
connection with the grants of stock options to employees. In addition, the
Company recorded deferred compensation of $1,672,500 in July 1999 related to a
remeasurement of certain options originally granted to an officer in 1997.
Amortization of deferred compensation totalled $3,615,150 during the nine
months ended September 30, 1999.

In October 1999, the Company granted options to purchase 335,250 shares of
stock at $3.00 per share and recorded additional deferred compensation of
$2,212,650. In January 2000, the Company granted options to purchase 76,000
shares of stock at $3.00 per share and expects to record additional deferred
compensation of approximately $1.6 million.

CONSULTING ARRANGEMENT RELATED TO INITIAL PUBLIC OFFERING

In March 1999, the Company engaged two German consulting firms to assist the
Company in completing an initial public offering (IPO) of its common stock.
The Company agreed to pay the consulting firms an aggregate amount of
DEM150,000, or approximately $78,000, plus a percentage of the amount of
capital raised attributable to their efforts. The Company also offered and
committed to sell the firms an aggregate of DEM3 million, or approximately
$1,560,000, of freely tradeable common shares at the IPO price in conjunction
with the completion of an IPO.

In January 2000, the Company was advised that its March 1999 offer and
commitment to sell the shares may have been in violation of Section 5 of the
Securities Act of 1933. Such a violation would provide the consulting firms
with a "put right" pursuant to which they could demand that the Company

- -------------------------------------------------------------------------------
F-17
<PAGE>

SEQUENOM, INC. (A DEVELOPMENT STAGE COMPANY)

- -------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

repurchase their shares at the original purchase price. In January 2000, the
consulting firms signed an agreement waiving any "put right" to which they
otherwise would have been entitled and assigning their stock purchase rights
to third parties. The Company agreed to register such shares with the
Registration Statement of which this Prospectus forms a part. The consulting
firms also agreed that the total advisory fee due to them under the original
agreement would be DEM789,000, or approximately $410,000.

The Company intends to net the $410,000 advisory fee against the proceeds of
the offering, as the Company considers the fee to be a specific incremental
cost directly attributable to the offering. The Company expects the third
party assignees designated by the consulting firms will purchase an aggregate
of approximately 65,000 shares, assuming an initial public offering price of
$24.00 per share, immediately prior to the completion of this offering.
Despite the signing of the waiver, the consulting firms may still attempt to
exercise the "put right." In this event, if the Company is compelled to
repurchase their shares, the Company will record the excess of the repurchase
price over the then-current fair market value of the stock as a general and
administrative expense.

6. INCOME TAXES
Deferred income taxes reflect the net effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets are shown below. A valuation allowance of
$15,091,000 has been recorded as realization of such assets is uncertain.

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1998 1999
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...... $3,383,000 $7,495,000 $13,178,000
Research and development credits...... 193,000 521,000 541,000
Capitalized research expenses......... 981,000 1,028,000 1,222,000
Other, net............................ 64,000 150,000 150,000
---------- ----------- ------------
Total deferred tax assets.............. 4,621,000 9,194,000 15,091,000
Valuation allowance.................... (4,621,000) (9,194,000) (15,091,000)
---------- ----------- ------------
Net deferred tax assets................ $-- $-- $--
========== =========== ============
</TABLE>

At September 30, 1999, the Company has federal and state tax net operating
loss carryforwards of approximately $24,800,000 and $13,100,000, respectively.
The difference between the federal and state tax loss carryforwards is
attributable to the capitalization of research and development expenses for
state tax purposes. The federal tax loss carryforwards will begin to expire in
2008, unless previously utilized.

Approximately $278,000 of the state tax loss carryforwards expired in 1998,
and the state tax loss carryforwards will continue to expire in 1999 unless
previously utilized. The Company also has German net operating loss
carryforwards of approximately $7,200,000, which may be carried forward
indefinitely. The Company also has federal and state research and development
tax credit carryforwards of approximately $410,000 and $200,000, respectively,
which will begin to expire in 2011 unless previously utilized.

Pursuant to Internal Revenue Code Sections 382 and 383, use of the Company's
net operating loss and credit carryforwards may be limited due to a cumulative
change in ownership of more than 50% which occurred in January 1998, as a
result of the issuance of Series C Preferred Stock, and which is anticipated
to occur with the offering. However, the Company does not believe these
limitations will materially impact the use of the net operating loss and
credit carryforwards.

- -------------------------------------------------------------------------------
F-18
<PAGE>

SEQUENOM, INC. (A DEVELOPMENT STAGE COMPANY)

- -------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. COMMITMENTS

LEASES

The Company leases facilities in both the United States and Germany. In
September 1999, the Company amended its lease of office and research
development space to extend through September 2004. Prior to that date, the
Company had been subject to a short-term lease agreement that commenced in
October 1996. The Company's subsidiary entered into a lease of office and
research and development space in 1995 that extends through June 2001. Total
rent expense under these leases was approximately $102,000 in 1996, $250,000
in 1997, $446,000 in 1998, and $411,000 for the nine month period ended
September 30, 1999. Total rent expense under these leases was approximately
$1,154,000 for the period from February 14, 1994 (inception) to September 30,
1999.

During 1998, the Company entered into a master equipment lease agreement
providing for borrowings up to $2,100,000. Under the agreement, the lessor
will purchase equipment that the Company will lease for a 42-month period. At
September 30, 1999, the Company had borrowed the full amount available under
the agreement.

Property under capital leases is included in equipment and leasehold
improvements, as follows:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1998 1999
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Laboratory equipment.................. $-- $957,323 $1,571,537
Leasehold improvements................ -- 33,211 34,357
Office furniture and equipment........ -- 115,701 354,223
---------- ---------- ----------
-- 1,106,235 1,960,117
Less accumulated amortization......... -- 174,270 658,174
---------- ---------- ----------
$-- $931,965 $1,301,943
========== ========== ==========

The following is a schedule by year of future minimum lease payments at
September 30, 1999:

<CAPTION>
CAPITAL OPERATING
YEAR LEASES LEASES
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 (three months)................... $181,026 $176,392
2000.................................. 724,102 858,570
2001.................................. 870,743 917,422
2002.................................. 508,276 712,974
2003.................................. 18,055 684,420
2004.................................. -- 533,109
---------- ----------
2,302,202 $3,882,887
==========
Less amount representing interest..... 548,043
----------
Present value of minimum lease
payments............................. 1,754,159
Less current portion.................. 441,446
----------
Long-term capital lease obligations... $1,312,713
==========
</TABLE>

CONSULTING AGREEMENTS
The Company has entered into consulting agreements with a number of
individuals for scientific advisory services. Each individual receives a
certain number of nonqualified stock options. In certain cases, the options
vest upon the later of the achievement of milestones or ten years. In other
cases, the options vest

- -------------------------------------------------------------------------------
F-19
<PAGE>

SEQUENOM, INC. (A DEVELOPMENT STAGE COMPANY)

- -------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

ratably over a specified period, generally two years. Compensation expense is
measured either upon the achievement of the milestones or ratably over the
service period, in accordance with EITF 96-18, and aggregated $24,000, $10,000
and $102,527 in the years ended December 31, 1997, 1998 and the nine months
ended September 30, 1999, respectively.

DEVELOPMENT AGREEMENTS
In August 1994, the Company entered into a development agreement with a
university for the design and construction of a prototype DNA sequencing mass
spectrometer. In September 1997, the Company extended the agreement through
September 30, 1999. Through September 30, 1999, the Company has paid
approximately $592,000 under this agreement and is committed to pay
approximately $21,000 in the remainder of 1999.

In September 1994, the Company entered into a development agreement with
another university for the design of a system for preparation of DNA samples.
In September 1998, the agreement was extended to September 30, 1999. Through
September 30, 1999, the Company has paid approximately $677,000 under this
agreement and is committed to pay approximately $55,000 in the remainder of
1999.

LICENSE AGREEMENTS
The Company has entered into license agreements allowing the Company to
utilize certain patents. If these patents are used in connection with a
commercial product sale, the Company will pay royalties ranging from 1%-5% on
the related product revenues. As of September 30, 1999, the Company has not
made any commercial sales related to these agreements.

8. SAVINGS PLAN
In 1998, the Company initiated a 401(k) savings plan covering most United
States employees. Individual employees may make contributions to the plan,
which can be matched by the Company in an amount determined by the Board of
Directors. The Company may also make profit sharing contributions as
determined by the Board of Directors. As of September 30, 1999, the Company
has not made any contributions to the plan.

9. GERMAN GOVERNMENT GRANTS

The Company's wholly owned subsidiary, Sequenom GmbH, has been the recipient
of three grants from German government authorities. The first grant, received
in 1996 from the City/State of Hamburg, is for DEM 800,000 (approximately
$475,000). This grant reimburses the subsidiary for the cost of certain
equipment to be used in a three-year research project. If the equipment is not
used for the grant's express purpose the equipment must be relinquished to the
City/State of Hamburg. Through December 31, 1998, approximately DEM 704,000
(approximately $420,000) of such equipment had been purchased under the grant
program and was being used for the grant's express purpose. The Company has
collected such amount from the grantor agency and no additional amounts are
expected to be expended or received related to this grant.

The second grant, also received in 1996, is from the German Federal Ministry
of Research and Development and amounts to DEM 2.2 million (approximately $1.3
million). This grant reimburses the Company for certain materials, personnel,
travel and development costs. Through December 31, 1998, approximately DEM 2.1
million (approximately $1.2 million) had been expended and recovered under
this grant program. The Company has collected such amount from the grantor
agency and no additional amounts are expected to be expended or received
related to this grant.

- -------------------------------------------------------------------------------
F-20
<PAGE>

SEQUENOM, INC. (A DEVELOPMENT STAGE COMPANY)

- -------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A third grant, received in 1998, is also from the German Federal Ministry of
Research and Development and amounts to DEM 1.4 million (approximately
$860,000). This grant reimburses the Company for certain materials, personnel,
travel and development costs. Through September 30, 1999, approximately DEM
296,000 (approximately $160,000) had been expended and recognized under this
grant program.

10. GEOGRAPHIC INFORMATION

The Company has a wholly-owned subsidiary located in Germany. The following
table presents information about the Company by geographic area. There were no
material amounts of transfers between geographic areas. Included in the
consolidated balance sheets are the following domestic and foreign components
at December 31, 1997, 1998 and for the years then ended and at September 30,
1999 and for the nine months then ended:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1998 1999
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets:
Domestic........................... $319,295 $26,828,538 $28,478,929
Foreign............................ 803,279 1,920,546 267,217
----------- ------------ ------------
$1,122,574 $28,749,084 $28,746,146
=========== ============ ============
Equipment and leasehold
improvements, net:
Domestic........................... $594,979 $2,805,418 $4,221,833
Foreign............................ 407,218 1,136,470 1,589,011
----------- ------------ ------------
$1,002,197 $3,941,888 $5,810,844
=========== ============ ============
Other assets:
Domestic........................... $91,881 $12,550 $28,331
Foreign............................ 55,921 73,762 46,305
----------- ------------ ------------
$147,802 $86,312 $74,636
=========== ============ ============
Total assets:
Domestic........................... $1,006,155 $29,646,506 $32,729,093
Foreign............................ 1,266,418 3,130,778 1,902,533
----------- ------------ ------------
$2,272,573 $32,777,284 $34,631,626
=========== ============ ============
Net loss:
Domestic........................... $(2,870,823) $(7,929,395) $(13,274,509)
Foreign............................ (2,245,996) (2,341,177) (2,111,529)
----------- ------------ ------------
$(5,116,819) $(10,270,572) $(15,386,038)
=========== ============ ============
</TABLE>

- -------------------------------------------------------------------------------
F-21
<PAGE>

INSIDE BACK PANEL:

[PICTURES OF COMPONENTS OF MASSARRAY SYSTEM]

DNA SAMPLE PREPARATION

SPECTROCHIP(TM)

SPECTROJET(TM)

GENOLYZER(TM) SOFTWARE

SPECTROSCAN(TM)

MASSARRAY(TM) PRINCIPLE

SEQUENOM has developed powerful investigative tools that industrialize the
process of analyzing genetic diversity, thus ushering in a new level of
genetic analysis--INDUSTRIAL GENOMICS.

SEQUENOM's MassArray system represents a novel approach to genetic analysis by
combining its proprietary enzymatic chemistry, software and miniaturized
silicon chip with the proven technology of mass spectrometry, which measures
molecular weight using a laser.

IBC
<PAGE>

[LOGO OF SEQUENOM INDUSTRIAL GENOMICS]
<PAGE>

- -------------------------------------------------------------------------------
PART II

Information not required in prospectus

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The expenses to be paid by the Registrant are as follows. All amounts other
than the SEC registration fee, the NASD filing fees and the Nasdaq National
Market listing fee are estimates.

<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
- -------------------------------------------------------------------------------
<S> <C>
SEC registration fee................................................ $ 39,378
NASD filing fee..................................................... 7,500
Nasdaq National Market listing fee.................................. 94,000
Legal fees and expenses............................................. 280,000
Accounting fees and expenses........................................ 200,000
Printing and engraving.............................................. 220,000
Blue Sky fees and expenses (including legal fees)................... 10,000
Transfer agent fees................................................. 10,000
Miscellaneous....................................................... 439,122
----------
Total............................................................. $1,300,000
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933.

As permitted by the Delaware General Corporation Law, the registrant's Second
Amended and Restated Certificate of Incorporation includes a provision that
eliminates the personal liability of its directors for monetary damages for
breach of fiduciary duty as a director, except for liability (1) for any
breach of the director's duty of loyalty to the registrant or its
stockholders, (2) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (3) under section 174 of
the Delaware General Corporation Law (regarding unlawful dividends and stock
purchases) or (4) for any transaction from which the director derived an
improper personal benefit.

As permitted by the Delaware General Corporation Law, the bylaws of the
registrant provide that (1) the registrant is required to indemnify its
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law, subject to certain very limited exceptions, (2) the
registrant may indemnify its other employees and agents as set forth in the
Delaware General Corporation Law, (3) the registrant is required to advance
expenses, as incurred, to its directors and executive officers in connection
with a legal proceeding to the fullest extent permitted by the Delaware
General Corporation Law, subject to certain very limited exceptions and (4)
the rights conferred in the bylaws are not exclusive.

The registrant has entered into indemnification agreements with each of its
directors and executive officers to give such directors and officers
additional contractual assurances regarding the scope of the

- -------------------------------------------------------------------------------
II-1
<PAGE>

PART II

- -------------------------------------------------------------------------------
indemnification set forth in the registrant's Second Amended and Restated
Certificate of Incorporation and to provide additional procedural protections.
At present, there is no pending litigation or proceeding involving a director,
officer or employee of the registrant regarding which indemnification is
sought, nor is the registrant aware of any threatened litigation that may
result in claims for indemnification.

Reference is also made to Section 9 of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling
persons of the registrant against certain liabilities. The indemnification
provision in the registrant's Second Amended and Restated Certificate of
Incorporation, bylaws and the indemnification agreements entered into between
the registrant and each of its directors and executive officers may be
sufficiently broad to permit indemnification of the registrant's directors and
executive officers for liabilities arising under the Securities Act of 1933.

The registrant has applied for liability insurance for its officers and
directors.

Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere in this prospectus:

<TABLE>
<CAPTION>
EXHIBIT
DOCUMENT NUMBER
- ------------------------------------------------------------------------------
<S> <C>
Underwriting Agreement (draft dated January 20, 2000)................. 1.1
Form of Second Amended and Restated Certificate of Incorporation of
Registrant........................................................... 3.2
Form of Restated Bylaws of Registrant................................. 3.4
Form of Indemnification Agreement..................................... 10.48
Form of Indemnification Agreement..................................... 10.49
</TABLE>

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The Registrant has sold and issued the following securities since January
1996:

A. The Registrant from time to time has granted stock options to employees and
consultants in reliance upon exemption from registration pursuant to either
(1) Section 4(2) of the Securities Act of 1933 or (2) Rule 701 promulgated
under the Securities Act of 1933. The following table sets forth certain
information regarding such grants:

<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICES
- --------------------------------------------------------------------------------
<S> <C> <C>
January 1, 1996 to December 31, 1996...................... 435,000 $0.25
January 1, 1997 to December 31, 1997...................... 731,000 $0.25
January 1, 1998 to December 31, 1998...................... 1,268,500 $0.50-$1.10
January 1, 1999 to December 27, 1999...................... 1,020,500 $3.00-$3.30
</TABLE>

For additional information concerning these transactions, please see
"Management--Employee benefit plans" in the prospectus included in this
registration statement.

B. On December 23, 1996, we issued a warrant to purchase 70,000 shares of
Series A preferred stock to Comdisco, Inc. in consideration of entering into a
certain rental agreement.

C. On May 8, 1997, we issued 1,065,079 shares of Series C preferred stock and
warrants to purchase 106,503 shares of Series C preferred stock to various
venture capitalists and individuals for an aggregate consideration of
$3,354,999.

D. On January 12, 1998, we issued 3,508,252 shares of Series C preferred stock
to various venture capitalists for an aggregate consideration of $11,050,994.

E. On December 21, 1998, we issued 3,843,700 shares of Series D preferred
stock to various venture capitalists and individuals for an aggregate
consideration of $24,984,050.

- -------------------------------------------------------------------------------
II-2
<PAGE>

PART II

- -------------------------------------------------------------------------------

F. On February 28, 1999, we issued 900,303 shares of Series D preferred stock
to various venture capitalists and individuals for an aggregate consideration
of $5,851,970.

G. On March 30, 1999, we issued 968,760 shares of Series D preferred stock to
various venture capitalists, insiders, and individuals for an aggregate
consideration of $6,296,939.

H. From January 1, 1996 through December 27, 1999, we issued 2,386,538 shares
of common stock upon exercise of options for an aggregate consideration of
$2,488,973.

I. On March 23, 1999, we issued 6,349 shares of common stock to a consultant
for consideration of $20,000.

J. On March 31, 1999, we offered and committed ourselves to sell approximately
65,000 shares of common stock to two German consulting firms for an aggregate
consideration of approximately $1,600,000.

K. The above securities were offered and sold by the Registrant in reliance
upon exemptions from registration pursuant to either (1) Section 4(2) of the
Securities Act of 1933 as transactions not involving any public offering, or
(2) Rule 701 promulgated under the Securities Act of 1933. No underwriters
were involved in connection with the sales of securities referred to in this
Item 15.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.

3.1++ Restated Certificate of Incorporation of the Registrant, as amended.

3.2++ Form of Second Amended and Restated Certificate of Incorporation of
the Registrant to become effective immediately prior to the Offering.

3.3++ Bylaws of Registrant, as amended.

3.4++ Form of Restated Bylaws to be in effect upon the completion of the
Offering.

4.1 Specimen common stock certificate.

5.1++ Opinion of Brobeck, Phleger & Harrison LLP.

10.1+++ Series B Convertible Preferred Stock Purchase Agreement, dated
December 22, 1995.

10.2+++ Series C Convertible Preferred Stock Purchase Agreement, dated May 8,
1997.
10.3++ Form of Warrant Agreement between the Registrant and holders of the
Series C Preferred Stock warrants.

10.4+++ Series D Convertible Preferred Stock Purchase Agreement, dated
December 21, 1998.

10.5++ Amended and Restated Registration Rights Agreement, dated December 21,
1998.

10.6++ Amended and Restated Voting Agreement, dated December 21, 1998.

10.7++ Amended and Restated Stock Restriction Agreement, dated December 21,
1998.

10.8++ Amended and Restated Amendment Agreement to the Series D Convertible
Preferred Stock Purchase Agreement, dated March 1, 1999.

10.9++ Warrant Agreement, dated December 23, 1996, between the Registrant and
Comdisco, Inc.

10.10++ Form of Note Secured by Stock Pledge Agreement between the Registrant
and the individuals listed on Schedule A thereto.

10.11++ Form of Stock Pledge Agreement between the Registrant and the
individuals listed on Schedule A thereto.

10.12** Investment Contract, dated May 18, 1995, between the Registrant's
subsidiary and TBG.

10.13** Cooperation Agreement, dated May 1995, between the Registrant and TBG.

10.14** Investment Contract, dated December 14, 1995, between the Registrant's
subsidiary and TBG.

</TABLE>

- -------------------------------------------------------------------------------
II-3
<PAGE>

PART II

- --------------------------------------------------------------------------------

<TABLE>
<C> <S>
10.15** Cooperation Agreement, dated December 14, 1995, between the
Registrant and TBG.

10.16** Investment Contract, dated September 22, 1997, between the
Registrant's subsidiary and TBG.

10.17 Cooperation Agreement, dated October 7, 1997, between the
Registrant and TBG.

10.18++ Security Agreement, dated April 29, 1999, between the Registrant
and Union Bank of California.

10.19++ Promissory Note, dated April 29, 1999, between the Registrant and
Union Bank of California.

10.20++ Business Loan Agreement, dated May 25, 1999, between the Registrant
and Union Bank of California.

10.21+++ Beta Test Agreement, dated March 1, 1999, between the Registrant
and GLE Medicon, GmbH.

10.22+++ Beta Test Agreement, dated April 21, 1999, between the Registrant
and Universitat Munster.

10.23+++ Beta Test Agreement, dated July 15, 1999, between the Registrant
and Genzyme Corporation.

10.24+++ Sponsored Research Agreement, dated September 15, 1994, between the
Registrant and the Trustees of Boston University extended by Letter
Agreements dated February 5, 1997 and September 6, 1998.

10.25+++ Patent and Know-How License Agreement, dated June 1, 1996, between
the Registrant and the Trustees of Boston University.

10.26+++ License Agreement, dated July 3, 1997 between the Registrant and
Johns Hopkins University.

10.27+++ Agreement, dated July 8, 1997, between the Registrant's subsidiary
and Dr. Bertram Muller-Myhsok.

10.28+++ Letter Agreement, dated October 8, 1997, between the Registrant and
Community Technology Fund, Office of Technology Transfer of
Community Technology Fund and Center for Advanced Biotechnology
(BU).

10.29+++ Collaboration Agreement, dated November 24, 1997, between the
Registrant and Bruker-Franzen Analytik, GmbH.

10.30+++ Contractual Agreement, dated October 1, 1998, between the
Registrant and GeSIM.

10.31+++ License Agreement, dated January 14, 1999, and Addendum to License
Agreement and Patent Assignment, dated September 29, 1999, between
the Registrant and Franz Hillenkamp.

10.32+++ Supply Agreement, dated April 1, 1999, between the Registrant and
Tactical Fabs, Inc.

10.33+++ OEM Supply and License Agreement, dated June 15, 1999, between the
Registrant and PerSeptive Biosystems, Inc.

10.34+++ Specific Cooperative Research Agreement No. 58-5438-9-120, dated
June 15, 1999, between the Registrant and US Department of
Agriculture (US Meat Animal Research Center).

10.35+++ OEM Supply Agreement, dated June 24, 1999, between the Registrant
and Beckman Coulter.

10.36+++ Cooperative Research and Development Agreement, dated September 17,
1999, between the Registrant and Public Health Service.

10.37++*** Employment Agreement, dated July 1, 1997, between the Registrant
and Hubert Koster.
</TABLE>

- --------------------------------------------------------------------------------
II-4
<PAGE>

PART II

- --------------------------------------------------------------------------------

<TABLE>
<C> <S>
10.38++*** Form of Employment Agreement between the Registrant and the
employees listed on Schedule A thereto.

10.39+++ Consulting Services Agreement, dated October 4, 1996, between the
Registrant and Franz Hillenkamp.

10.40+++ Consulting Services Agreement, dated January 30, 1997, between the
Registrant and Peter Roepstorff.

10.41+++ Consulting Services Agreement, dated February 17, 1997, between the
Registrant and Ulf B. Gobel.

10.42+++ Consulting Services Agreement, dated March 1, 1999, between the
Registrant and John Cashman.

10.43+++ Consulting Services Agreement, dated March 1, 1999, between the
Registrant and Lindsay Farrer.

10.44++ Standard Industrial Gross Lease, dated December 12, 1996, between
Registrant and Sorrento Business Complex, L.P., as amended.

10.45++ Master Equipment Lease Agreement No. 0135 and Letter extending the
equipment lease, dated October 22, 1998, between Registrant and
Phoenix Leasing Incorporated, as amended.

10.46++ Standard Form Commercial Lease, dated June 24, 1999, between
Registrant and Cummings Properties, LLC, as amended.

10.47 Agreement for office space in Hamburg, dated May 1996, between the
Registrant and Fiszman-Steinriede, GbR, as amended.

10.48++ Form of Indemnification Agreement between the Registrant and each
of its directors.

10.49++ Form of Indemnification Agreement between the Registrant and each
of its officers.

10.50++ 1994 Stock Plan.

10.51 1994 Stock Plan Form of Non-Qualified Stock Option Grant.

10.52 1994 Stock Plan Form of Incentive Stock Option Grant.

10.53 1994 Stock Plan Form of Stock Restriction Agreement.

10.54++ 1998 Stock Option/Stock Issuance Plan.

10.55++ 1998 Stock Option/Stock Issuance Plan Form of Notice of Grant of
Stock Option.

10.56++ 1998 Stock Option/Stock Issuance Plan Form of Stock Option
Agreement.

10.57++ 1998 Stock Option/Stock Issuance Plan Form of Stock Purchase
Agreement.

10.58++ 1998 Stock Option/Stock Issuance Plan Form of Stock Issuance
Agreement.

10.59 1999 Stock Incentive Plan.

10.60 1999 Employee Stock Purchase Plan.

10.61 1999 Stock Incentive Plan Form of Notice of Grant of Stock Option

10.62 1999 Stock Incentive Plan Form of Stock Option Agreement

10.63 * Employment Agreement between the Registrant and Dr. Andreas Braun
***

23.1 Consent of Ernst & Young LLP, Independent Auditors.

23.2++ Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit
5.1).
</TABLE>

- --------------------------------------------------------------------------------
II-5
<PAGE>

PART II

- -------------------------------------------------------------------------------

<TABLE>
<C> <S>
24.1++ Powers of Attorney (See Signature Page on Page II-6).

27.1++ Financial Data Schedule.
</TABLE>
- --------

**German language version filed herewith. English language translation
previously filed.

***Management contract or compensatory plan.
+ Certain confidential portions of this Exhibit were omitted by means of
redacting a portion of the text (the "Mark"). This Exhibit has been filed
separately with the Secretary of the Commission without the Mark pursuant
to the Company's Application Requesting Confidential Treatment under Rule
406 under the Securities Act.
++ Previously filed.

(b) Financial Statement Schedules.

All financial statement schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission
have been omitted because they are not required under the related instructions
or are inapplicable as the information has been provided in the consolidated
financial statements or related notes thereto.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes to provide to the underwriter at
the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of 1933
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act of
1933 each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.

- -------------------------------------------------------------------------------
II-6
<PAGE>

PART II

- -------------------------------------------------------------------------------
PART II

- -------------------------------------------------------------------------------

The Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.

(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.

- -------------------------------------------------------------------------------
II-7
<PAGE>

PART II

- -------------------------------------------------------------------------------
Signatures

Pursuant to the requirements of the Securities Act of 1933 the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in San Diego, California, on this 24th
day of January, 2000.

SEQUENOM, INC.

/s/ Stephen Zaniboni
By: _________________________________
Name: Stephen Zaniboni
Title: Senior Vice President and
Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933 this Registration
Statement has been signed by the following persons in the capacities indicated
on January 24, 2000:

<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
- -----------------------------------------------------------------------------------

<S> <C> <C>
*/s/ Hubert Koster President and Chief January 24, 2000
____________________________________ Executive Officer
HUBERT KOSTER (principal executive
officer) and Director

/s/ Stephen Zaniboni Senior Vice President and January 24, 2000
____________________________________ Chief Financial Officer
STEPHEN ZANIBONI (principal financial and
accounting officer)
*/s/ Helmut Schuhsler Director January 24, 2000
____________________________________
HELMUT SCHUHSLER
*/s/ Ernst-Gunter Afting Director January 24, 2000
____________________________________
ERNST-GUNTER AFTING
*/s/ John Lucas Director January 24, 2000
____________________________________
JOHN LUCAS
*/s/ Peter Reinisch Director January 24, 2000
____________________________________
PETER REINISCH
*By: /s/ Stephen Zaniboni
____________________________________
STEPHEN ZANIBONI
ATTORNEY-IN-FACT
</TABLE>

- -------------------------------------------------------------------------------
II-8
<PAGE>

- --------------------------------------------------------------------------------
Index to exhibits

<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.

3.1++ Restated Certificate of Incorporation of the Registrant, as amended.

3.2++ Form of Second Amended and Restated Certificate of Incorporation of
the Registrant to become effective immediately prior to the Offering.

3.3++ Bylaws of Registrant, as amended.

3.4++ Form of Restated Bylaws to be in effect upon the completion of the
Offering.

4.1 Specimen common stock certificate.

5.1++ Opinion of Brobeck, Phleger & Harrison LLP.

10.1+++ Series B Convertible Preferred Stock Purchase Agreement, dated
December 22, 1995.

10.2+++ Series C Convertible Preferred Stock Purchase Agreement, dated May 8,
1997.
10.3++ Form of Warrant Agreement between the Registrant and holders of the
Series C Preferred Stock warrants.

10.4+++ Series D Convertible Preferred Stock Purchase Agreement, dated
December 21, 1998.

10.5++ Amended and Restated Registration Rights Agreement, dated December
21, 1998.

10.6++ Amended and Restated Voting Agreement, dated December 21, 1998.

10.7++ Amended and Restated Stock Restriction Agreement, dated December 21,
1998.

10.8++ Amended and Restated Amendment Agreement to the Series D Convertible
Preferred Stock Purchase Agreement, dated March 1, 1999.

10.9++ Warrant Agreement, dated December 23, 1996, between the Registrant
and Comdisco, Inc.

10.10++ Form of Note Secured by Stock Pledge Agreement between the Registrant
and the individuals listed on Schedule A thereto.

10.11++ Form of Stock Pledge Agreement between the Registrant and the
individuals listed on Schedule A thereto.

10.12** Investment Contract, dated May 18, 1995, between the Registrant's
subsidiary and TBG.

10.13** Cooperation Agreement, dated May 1995, between the Registrant and
TBG.

10.14** Investment Contract, dated December 14, 1995, between the
Registrant's subsidiary and TBG.

10.15** Cooperation Agreement, dated December 14, 1995, between the
Registrant and TBG.

10.16** Investment Contract, dated September 22, 1997, between the
Registrant's subsidiary and TBG.

10.17 Cooperation Agreement, dated October 7, 1997, between the Registrant
and TBG.

10.18++ Security Agreement, dated April 29, 1999, between the Registrant and
Union Bank of California.

10.19++ Promissory Note, dated April 29, 1999, between the Registrant and
Union Bank of California.

10.20++ Business Loan Agreement, dated May 25, 1999, between the Registrant
and Union Bank of California.

10.21+++ Beta Test Agreement, dated March 1, 1999, between the Registrant and
GLE Medicon, GmbH.
</TABLE>

- --------------------------------------------------------------------------------
<PAGE>

INDEX TO EXHIBITS

- --------------------------------------------------------------------------------

<TABLE>
<C> <S>
10.22+++ Beta Test Agreement, dated April 21, 1999, between the Registrant
and Universitat Munster.