3401 Masons Mill Road, Suite 100
Huntingdon Valley, Pennsylvania 19006
(215) 830-0777

(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

Edward L. Erickson
Chairman, President and Chief Executive Officer
Immunicon Corporation
3401 Masons Mill Road, Suite 100
Huntingdon Valley, Pennsylvania 19006
(215) 830-0777
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

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. / /

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. / /

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 or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

The information in this preliminary 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 preliminary 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.

This is the initial public offering of our common stock. No public market currently exists for our common stock. We are offering all of the 6,000,000 shares of common stock offered by this prospectus. We expect the public offering price to be $8.00 per share.

Our common stock has been approved for quotation on The Nasdaq National Market, subject to official notice of issuance, under the symbol "IMMC."

Investing in our common stock involves a high degree of risk. Before buying any shares, you should carefully read the discussion of material risks of investing in our common stock in "Risk factors" beginning on page 8 of this prospectus.

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.

The underwriters may also purchase up to an additional 900,000 shares of our common stock at the public offering price, less the underwriting discounts and commissions payable by us, to cover over-allotments, if any, within 30 days from the date of this prospectus. If the underwriters exercise this option in full, the total underwriting discounts and commissions will be $ and our total proceeds, before expenses, will be $ .

The underwriters are offering the common stock as set forth under "Underwriting." Delivery of the shares will be made on or about , 2004.

You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide you with additional information or information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of our 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 shares of our common stock.

Immunicon is a registered trademark of Immunicon Corporation. The Immunicon logo is a registered stylized trademark of Immunicon Corporation. CellTracks EasyCount, EasyCount, CellTracks MagNest, CellPrep, CellSave, CellSpotter, CellTracks, AutoPrep and IMMC are trademarks of Immunivest Corporation, a wholly owned subsidiary of Immunicon Corporation. The CellTracks Analyzer logo, CellTracks AutoPrep logo, CellTracks MagNest logo, CellSave Preservative Tube logo, CellSave Tube Cap logo, and CellSpotter Analyzer logo are stylized trademarks of Immunivest Corporation. CellSearch is a registered trademark of Johnson & Johnson. All other trademarks appearing in this prospectus are the property of their respective holders.

This summary highlights selected information appearing elsewhere in this prospectus. While this summary highlights what we consider to be the most important information about us, you should carefully read this prospectus and the registration statement of which this prospectus is a part in their entirety before investing in our common stock, especially the risks of investing in our common stock, which we discuss under "Risk factors", and our financial statements and related notes beginning on page F-1.

Unless the context requires otherwise, the words "Immunicon," "we," "Company," "us" and "our" refer to Immunicon Corporation and its subsidiaries.

We are developing and commercializing proprietary cell-based research and diagnostic products with an initial focus on cancer. We believe that our products can provide significant clinical benefits by giving physicians better information to understand, diagnose, treat and monitor cancer. Our technologies, which we brand as CellTracks, can identify, count and characterize a small number of tumor cells present in a blood sample from a patient. Our collaborator, Veridex, LLC, or Veridex, a Johnson & Johnson company, received 510(k) clearance from the US Food and Drug Administration, or FDA, in January 2004 for use of the CellSearch Epithelial Cell Kit, which incorporates our technologies, in the management of metastatic breast cancer (breast cancer that has spread beyond the primary tumor). We expect that the CellSearch Epithelial Cell Kit, which is currently available for sale for research purposes only, will be the initial diagnostic product launched by Veridex based on our technologies. We believe that our products and underlying technology platforms have other applications in cancer diagnostics, in the clinical development of cancer drugs and in cancer research, which we would commercialize under the terms of our agreement with Veridex. In addition, we believe that our proprietary technologies may have applications in other fields of medicine, such as cardiovascular and infectious diseases, which we could pursue on our own or with a commercial partner.

Our products are intended for use as an integrated system, consisting of kits containing reagents (chemically active substances) for use with our instruments and other system components that enable scientists, physicians and laboratories to collect, isolate, label, count and analyze tumor cells in the blood, known as circulating tumor cells, or CTCs. CTCs can appear in extremely low number, sometimes as few as one or two CTCs in a test tube of blood that contains billions of cells of various types. Our clinical trials results suggest that the presence of even a few CTCs in a blood sample is biologically and clinically important, as it predicts whether a therapy is likely to offer benefit to the patient.

Based on findings from our pivotal clinical trial and research studies, we believe that our products can enable physicians to predict the likely time to disease progression and survival in cancer patients more accurately and earlier than existing methods. As a result, the physician may be able to:

Moreover, we believe that our products address many of the limitations of currently available cancer diagnostic and research methods and provide physicians and patients with the following benefits:

Our research studies suggest that our technologies can detect CTCs in certain solid tumor cancers in addition to breast cancer, specifically prostate, colorectal, lung and ovarian cancers. Based on these results, we are conducting or planning additional research studies and clinical trials designed to verify prior studies and support additional regulatory submissions. Based on the results from our internal research, we are also now in the early stages of developing a product based on our existing platforms that is designed to detect and analyze endothelial cells in blood. Endothelial cells, which are types of cells that make up the inner lining of blood vessels, are believed to play an important role and have diagnostic utility not only in cancer, but also in autoimmune disorders (diseases caused by the body's own immune system) and cardiovascular diseases. We are also exploring the potential of our technologies to develop products that can detect pathogens in the blood, such as fungi, that may be useful in the diagnosis of certain infectious diseases.

To support commercialization of our products, we entered into a development, license and supply agreement with Veridex, under which Veridex has exclusive worldwide rights in the field of cancer to make and commercialize any cellular analysis products based on our technologies. Under the agreement with Veridex, Veridex is obligated to pay us approximately 30% of their net sales from the sale of reagents, test kits and certain other consumable and disposable items incorporating our technologies. Unless earlier terminated, this agreement has an initial term of 20 years and will be automatically renewed for three-year terms. There are various conditions that allow either party to terminate the agreement, including a material breach by either party or by mutual agreement. Veridex may terminate this agreement with or without reason at any time with 24 months' prior written notice. In addition, prior to shipment for commercial sale of the first diagnostic product resulting from this agreement, Veridex may terminate this agreement by providing us with 180 days' prior written notice. If a major competitor in the in vitro diagnostic, or IVD, field acquires us, Veridex also may terminate this agreement.

We and Veridex are currently marketing the following products, initially for research use only, or RUO, as a system and not as stand-alone products:

We and Veridex plan to launch these products for IVD use in the third quarter of 2004. This launch is subject to the clearance of a 510(k) for the CellSearch Epithelial Cell Control, which consists of two levels of controls required to be run daily to ensure our integrated system is operating properly. Veridex submitted the 510(k) for these controls in April 2004. In addition, we expect that the CellSearch Profile Kit, consisting of reagents and supplies for isolating epithelial cells (cells that cover external and internal body surfaces and give rise to the majority of solid tumors) for molecular analysis, will be available for RUO in the second quarter of 2004. We also expect that the CellTracks Large Volume Sample Preparation System, or LVSP System, for pre-processing large blood samples, consisting of an instrument, reagents, and proprietary disposables, will be available for sale in the second half of 2004. We believe that this system is necessary to develop certain clinical indications for our products in early stages of cancer, detection of cancer recurrence, cancer risk assessment and screening applications.

In connection with the 510(k) clearance for the CellSearch Epithelial Cell Kit using our CellSpotter Analyzer, the FDA established a new classification of medical devices under its "de novo", or new, device review process. We anticipate that most of our initial products will be covered under this classification, which will be incorporated into the Code of Federal Regulations. This classification includes systems for selecting and counting CTCs, which are intended for use in conjunction with other diagnostic methods for monitoring or predicting cancer disease progression, response to therapy and the detection of recurrent disease. We believe this classification will cover most of our anticipated future cancer products, with the exception of products for cancer screening. Any future products covered by this new classification would be designated as Class II versus Class III devices by the FDA, and therefore, may be reviewed through the 510(k) submission process, as opposed to the more expensive and lengthy pre-market approval, or PMA, process for Class III devices.

We believe that the ability to predict survival in metastatic breast cancer with our technologies represents a potential breakthrough in cancer disease management. We believe that our products will help to address the following clinical needs:

Additionally, we believe that our products will provide pharmaceutical and biotechnology companies working on new cancer drugs with timely information on the performance of these drugs, which may shorten the drug development process. For instance, in early drug trials, we believe that the analysis of CTCs will help drug companies to select the right patient population in which to test a new drug and provide early and reliable information on the efficacy of this drug. The FDA evaluates efficacy of new drugs or drug combinations based on patient survival and/or certain accepted surrogate endpoints, such as a significant decrease in tumor burden (the total amount of tumor mass in the patients body) as assessed by imaging studies. Although we believe additional clinical data will be required to validate CTCs as a surrogate endpoint to the satisfaction of the FDA, we believe that CTCs may serve as an alternative to survival or costly imaging studies as a drug trial endpoint. Such a surrogate endpoint may permit shorter and less costly late-stage drug trials, and potentially bring new cancer therapies to the market sooner.

Our goal is to be a leader in the development and commercialization of proprietary cell analysis products that deliver high impact clinical and scientific information for use in human diagnostics, life science research and pharmaceutical development. The key elements of our strategy are to optimize the value of our proprietary technologies and maximize long-term profitability by:

We are a development-stage company. Accordingly, our business plan is subject to numerous risks and obstacles, including those that we highlight under "Risk factors." In particular, we have a limited operating history and have incurred substantial losses since inception. We incurred net losses of approximately $17.6 million for the year ended December 31, 2003, and our total deficit incurred from our inception in 1983 through December 31, 2003 was approximately $63.6 million. Our revenue to date has been derived principally from license revenue rather than from product sales or other revenue sources. From the inception of our agreement with Veridex in August 2000 through December 31, 2003, we recognized license revenue of $4.0 million in milestone receipts from Veridex. For the years ended December 31, 2002 and 2003, we recognized $311,000 and $338,000, respectively, as other revenue from certain government-sponsored research grants and from the sale of miscellaneous products to research and other organizations. We have very limited sales of commercial products, and we anticipate that we will incur substantial losses in the future and we may never achieve and maintain profitability. Moreover, we are dependent on the efforts of Veridex, which we do not control, for marketing of the cancer products based on our technologies. We do not know whether Veridex will market these products effectively, whether adequate levels of third-party reimbursement will be available for these products, or whether these products will sell well in the marketplace.

We incorporated in the Commonwealth of Pennsylvania as Immunicon Corporation in August 1983. In December 2000, we merged with and into Immunicon Corporation, a Delaware corporation. Our principal executive offices are located at 3401 Masons Mill Road, Suite 100, Huntingdon Valley, Pennsylvania 19006, and our telephone number is (215) 830-0777. Our web site address is www.immunicon.com. We do not intend for the information contained on our website to be incorporated by reference into, or to form any part of, this prospectus.

Common stock we are offering		6,000,000 shares
Common stock to be outstanding after this offering		21,933,633 shares
Use of proceeds after expenses		We estimate that the net proceeds from this offering will be approximately $42.9 million, or approximately $49.6 million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $8.00 per share. We expect to use the net proceeds from this offering for commercialization of our research and diagnostic products, including manufacturing, clinical trials, other research and development activities, capital expenditures, and working capital and other general corporate purposes.
Nasdaq National Market Symbol		IMMC

The number of shares of our common stock outstanding immediately after the closing of this offering is based on 15,933,633 shares of our common stock outstanding as of December 31, 2003 after giving effect to the conversion of all 51,390,552 shares of preferred stock outstanding as of December 31, 2003 into 15,447,813 shares of our common stock, which will become effective at the closing of this offering.

The number of shares of our common stock outstanding immediately after this offering excludes:

The following summary financial data for the years ended December 31, 1999, 2000, 2001, 2002 and 2003 have been derived from our audited consolidated financial statements. The summary consolidated financial data set forth below should be read together with the financial statements and the related notes to those statements, as well as "Management's discussion and analysis of financial condition and results of operations," appearing elsewhere in this prospectus.

The following table contains a summary of our consolidated balance sheet as of December 31, 2003:

	As of December 31, 2003
Balance sheet data:	Actual		Pro forma		Pro forma as adjusted

	(in thousands)
Cash and cash equivalents	$	30,601	$	30,601	$	73,541
Working capital		23,836		23,836		66,776
Total assets		35,734		35,734		78,674
Long-term obligations, less current portion		3,792		3,792		3,792
Convertible preferred stock		85,115		—		—
Total stockholders' equity		24,665		24,665		67,605

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below with all of the other information included in this prospectus before deciding to invest in our common stock. If any of the following risks actually occur, they may materially harm our business and our financial condition and results of operations. In this event, the market price of our common stock could decline and you could lose part or all of your investment.

We have a history of operating losses, expect to continue to incur substantial losses, and might never achieve or maintain profitability.

We are a development-stage company with limited operating history. We have incurred significant net losses since we began operations in 1983, including net losses of $12.0 million for the year ended December 31, 2001, $18.3 million for the year ended December 31, 2002 and $17.6 million for the year ended December 31, 2003. As of December 31, 2003, we had a deficit accumulated during our development stage of $63.6 million. These losses have resulted principally from costs incurred in our research and development programs and from our general and administrative expenses. Because our operating expenses are likely to increase significantly in the near term, we will need to generate significant additional revenue to achieve profitability. We do not expect to have any operating revenue from the sales of our products until at least the first quarter of 2004 with respect to products for RUO, and until at least the second half of 2004 with respect to IVD products. Even after we begin selling our products, we expect our losses to continue to increase as a result of ongoing research and development and clinical trial expenses, as well as increased manufacturing, sales and marketing expenses. These losses, among other things, have had and will continue to have an adverse effect on our working capital, total assets and stockholders' equity. Because of the numerous risks and uncertainties associated with our product development efforts, we are unable to predict when we will become profitable, and we may never become profitable. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we are unable to achieve and then maintain profitability, the market value of our common stock will decline.

If our relationship with Veridex is terminated, we may be unable to commercialize effectively certain of our products based on our technologies in the field of cancer.

We entered into a development, license and supply agreement with Veridex, under which we granted to Veridex a worldwide exclusive license in the field of cancer to commercialize cell analysis products based on our technologies. We also appointed Veridex as our exclusive sales, invoicing and collection agent for our cell analysis instrumentation in cancer. Prior to shipment for commercial sale of the first product resulting from this agreement, Veridex may terminate this agreement with or without reason by providing us with 180 days' prior written notice. Thereafter, Veridex may terminate this agreement with or without reason at any time by providing us with 24 months' prior written notice. Veridex also may terminate this agreement if we are in material breach or are acquired by a competitor in the IVD field. In addition, while we have granted Veridex the exclusive right to market, distribute and conduct field, technical, customer service and certain manufacturing finishing operations for these products, this agreement provides that Veridex has very limited obligations to perform these functions. For example, the agreement does not require Veridex to meet any minimum levels with respect to sales, marketing personnel or other marketing expenditures. If Veridex were to terminate, fail to meet its obligations under this agreement or fail to deploy adequate resources to commercialize products under this agreement:

Any of these outcomes could result in delays in our ability to generate revenues from the sales of these products, an increase in our expenses and a resulting adverse impact on our operations and financial results, and the value of our common stock would likely decline.

Following commercialization, if we and Veridex are able to generate product sales under our agreement, we are required to invest an amount ranging from between 8.5% and 10% of total net product sales by Veridex, excluding revenue from cell analysis system sales, in research and development for cancer-related cell analysis products.

If our products and Veridex's products do not achieve market acceptance, we will be unable to generate significant revenues from them.

The future commercial success of our products and of Veridex's products based on our technologies will depend primarily on:

To accomplish this, we and Veridex will need to convince oncologists, primary care physicians, surgeons, laboratory professionals and other members of the medical and biotechnology communities of the benefits of these products through published papers, presentations at scientific conferences and additional clinical trials. If we and Veridex are not successful in these efforts, the market acceptance for these products could be limited. Additionally, if ongoing or future clinical trials result in unfavorable or inconsistent results, these products may not achieve market acceptance. Other factors that might influence market acceptance of these products include the following:

If these products are unable to gain broad market acceptance, our business will suffer.

If we or Veridex are not able to obtain all of the regulatory approvals and clearances required to commercialize our products, our business would be significantly harmed.

The products based on our technologies are generally regulated as medical devices by the FDA and comparable agencies of other countries. In particular, FDA regulations govern, among other things, the activities that we and Veridex perform, including product development, product testing, product labeling, product storage, pre-market clearance or PMA approval, manufacturing, advertising, promotion, product sales, reporting of certain product failures and distribution.

Most of the products that we plan to develop and commercialize in the US will require either pre-market notification, or 510(k) clearance, or PMA approval from the FDA prior to marketing. The 510(k) clearance process usually takes from two to twelve months from submission, but can take longer. The PMA process is much more costly, lengthy, uncertain and generally takes from one to two years or longer from submission. We do not know whether we or Veridex will be able to obtain the clearances or approvals required to commercialize these products. Prior to commercialization of our products for IVD use, we will need to obtain 510(k) clearance from the FDA for the CellSearch Epithelial Cell Control, which consists of two levels of controls required to be run daily to ensure our integrated system is operating property. Veridex submitted the 510(k) for these controls in April 2004.

All of the products that we or Veridex intend to submit for FDA clearance or approval will be subject to substantial restrictions, including, among other things, restrictions on the indications for which we and Veridex may market these products, which could result in lower revenues. The marketing claims we and Veridex will be permitted to make in labeling or advertising regarding our cancer diagnostic products, if cleared or approved by the FDA, will be limited to those specified in any clearance or approval. We expect that initially many of these products will be limited to RUO. In addition, both we and Veridex are subject to inspection and marketing surveillance by the FDA to determine our compliance with regulatory requirements. If the FDA finds that we or Veridex have failed to comply with these requirements, it can institute a wide variety of enforcement actions, ranging from a public warning letter to more severe sanctions, including:

Any of these enforcement actions could affect our ability or Veridex's ability to commercially distribute our products in the US and may also harm our ability to conduct the clinical trials necessary to support the marketing, clearance or approval of these products.

If the third-party manufacturers we rely on either refuse or are unable to successfully manufacture certain of our products, we may be unable to commercialize these products.

We have limited commercial manufacturing experience and capabilities. We currently assemble, test and release the CellSpotter and CellTracks Analyzers, as well as bulk reagents and other associated products used with the CellTracks AutoPrep System, at our facility located in Huntingdon Valley,

Pennsylvania. We currently have adequate manufacturing capacity to meet anticipated demand for 2004 and 2005. However, in order to meet anticipated demand thereafter, we will have to expand our manufacturing processes and facilities or increase our reliance on third-party manufacturers. Under our agreement with Veridex, we might be required to establish a second manufacturing facility or qualify a contract manufacturer in the future. We might encounter difficulties in expanding our manufacturing processes and facilities or in expanding our relationships with third-party manufacturers and might be unsuccessful in overcoming these difficulties. In that event, our ability to meet product demand could be impaired or delayed.

We face additional risks inherent in operating a single manufacturing facility for those products we manufacture ourselves. We do not have alternative production plans in place or alternative facilities available at this time. If there are unforeseen shutdowns to our facility, we will be unable to satisfy customer orders on a timely basis with respect to these products.

We rely currently and intend to continue to rely significantly in the future on third-party manufacturers to produce many of our products. For example, we are dependent on a small, private, contract design, engineering and manufacturing company, Astro Instrumentation, LLC, or Astro, for our CellTracks AutoPrep System. If Astro loses key personnel or encounters financial or other difficulties, they may be unable to continue to manufacture this system and provide ongoing design and engineering support for commercialization and future enhancements of this system, and we may have difficulty replacing them. In addition, we currently use a third-party manufacturer for our CellSave Preservative Tube. We are dependent on these third-party manufacturers to perform their obligations in a timely and effective manner and in compliance with FDA and other regulatory requirements. If these third-party manufacturers fail to perform their obligations, our competitive position and ability to generate revenue could be adversely affected in a number of ways, including:

Any failures in manufacturing these products may also result in a breach of our agreement with Veridex.

If third-party payors do not reimburse customers for our products and Veridex's products, they might not be used or purchased, which would adversely affect our revenues.

The majority of the sales of our products and Veridex's products based on our technologies in the US and other markets will depend, in large part, on the availability of adequate reimbursement to users of these products from government insurance plans, including Medicare and Medicaid in the US, managed care organizations, private insurance plans and other third-party payors. Because these products have not yet been commercially introduced, third-party payors have no history of reimbursing for the cost of these products. Third-party payors are often reluctant to reimburse healthcare providers for the use of medical diagnostic products incorporating new technology. In addition, third-party payors are increasingly limiting reimbursement coverage for medical diagnostic products and, in many instances, are exerting pressure on medical products suppliers to reduce their prices. Consequently, third-party reimbursement might not be consistently available or adequate to cover the cost of our products. This could limit our ability or Veridex's ability to commercialize and sell these products or cause the prices of these products to be reduced, which would adversely affect our operating results.

Because each third-party payor individually approves reimbursement, obtaining these approvals is a time-consuming and costly process that will require us and Veridex to provide scientific and clinical support for the use of each of these products to each third-party payor separately with no assurance that approval will be obtained. This process could delay the market acceptance of new products and could have a negative effect on our revenues and operating results.

If we or any of our third-party manufacturers do not maintain high standards of manufacturing in accordance with Quality System Regulations, our ability to develop, and Veridex's and our ability to commercialize our products, could be delayed or curtailed.

We and any third-party manufacturers that we currently rely on or will rely on in the future, including those we rely on to produce our CellTracks AutoPrep System and CellSave Preservative Tube, must continuously adhere to the current good manufacturing practices, or cGMP, set forth in the FDA's Quality System Regulations, or QSR, and enforced by the FDA through its facilities inspection program. In complying with QSR, we and any of our third-party manufacturers must expend significant time, money and effort in design and development, testing, production, record-keeping and quality control to assure that our products meet applicable specifications and other regulatory requirements. The failure to comply with these specifications and other requirements could result in an FDA enforcement action, including the seizure of products and shutting down production. We or any of these third-party manufacturers also may be subject to comparable or more stringent regulations of foreign regulatory authorities. In addition, we and Veridex will need to complete validation of some of the manufacturing processes for the products we plan to launch for IVD use in the third quarter of 2004 and would be unable to launch these products until this validation is completed. If we or any of our third-party manufacturers fail to comply with these regulations, we might be subject to regulatory action, which could delay or curtail our ability to develop, and Veridex's and our ability to commercialize, products based on our technologies.

If we fail to obtain necessary funds for our operations, we will be unable to continue to develop and commercialize new products and technologies.

We expect capital outlays and operating expenditures to increase over the next several years as we expand our infrastructure, commercialization, manufacturing, clinical trials and research and development activities. Specifically, we will need to raise additional capital to, among other things:

To date, we have raised capital primarily through private equity and debt financings, license and milestone revenues from corporate collaborations, capital equipment and leasehold financing, government grants and interest earned on cash and investments. We believe the net proceeds of this

offering, together with our cash, cash equivalents and investments, will be sufficient to meet our operating and capital requirements for at least the next 18 months. However, our present and future funding requirements will depend on many factors, including, among other things:

We do not know whether additional financing will be available on commercially acceptable terms when needed. If adequate funds are not available or are not available on commercially acceptable terms, our ability to fund our operations, develop products or technologies or otherwise respond to competitive pressures could be significantly delayed or limited, and we might need to downsize or halt our operations.

If we raise additional funds by issuing equity securities, further dilution to our stockholders could result, and new investors could have rights superior to those of holders of the shares issued in this offering. Any equity securities issued also may provide for rights, preferences or privileges senior to those of holders of our common stock. If we raise additional funds by issuing debt securities, these debt securities would have rights, preferences and privileges senior to those of holders of our common stock, and the terms of the debt securities issued could impose significant restrictions on our operations. If we raise additional funds through collaborations and licensing arrangements, we might be required to relinquish significant rights to our technologies or products, or grant licenses on terms that are not favorable to us. If adequate funds are not available, we may have to delay or may be unable to continue to develop our products.

If the third parties we intend to contract with for clinical trials do not perform in an acceptable manner, or if we suffer setbacks in these clinical trials, our business may suffer.

We do not have the ability to independently conduct the clinical trials required to obtain regulatory clearances for our products. We intend to rely on third-party expert clinical investigators and clinical research organizations to perform these functions. If we cannot locate and enter into favorable agreements with acceptable third parties, or if these third parties do not successfully carry out their contractual obligations, meet expected deadlines or follow regulatory requirements, including clinical laboratory, manufacturing and good clinical practice guidelines, then we may be the subject of an enforcement action by the FDA or some other regulatory body, and may be unable to obtain clearances for our products or to commercialize them on a timely basis, if at all.

The completion of clinical trials of our products may be delayed by many other factors, including the rate of enrollment of patients. Neither we nor any third-party clinical investigators and clinical research organizations can control the rate of patient enrollment, and this rate might not be consistent with our expectations or sufficient to enable clinical trials of our products to be completed in a timely

manner or to be completed at all. In addition, regulatory authorities might not permit us to undertake additional clinical trials for one or more of these products. If we suffer any significant delays in, setbacks or negative results in or termination of, clinical trials for our products, we may be unable to generate product sales from these products in the future.

If we lose key management or scientific personnel, scientific collaborators or other advisors, our business would suffer.

Our success depends, in large part, on the efforts and abilities of Edward L. Erickson, who is our Chairman, President and Chief Executive Officer, Leon W.M.M. Terstappen, who is our Senior Vice President of Research and Development and Chief Scientific Officer, and James G. Murphy, who is our Senior Vice President of Finance and Administration and Chief Financial Officer, as well as the other members of our senior management and our scientific and technical personnel. Given that the pool of individuals with relevant experience in biotechnology and diagnostic products in particular is limited, it would be costly and time-consuming to replace any of our senior management or scientific personnel. Although we maintain key-person life insurance on Mr. Erickson and Dr. Terstappen, we do not maintain key-person life insurance on any of our other officers, employees or consultants. We also depend on our scientific collaborators and other advisors, particularly with respect to our research and development efforts. If we lose the services of one or more of our key officers, employees or consultants, or are unable to retain the services of our scientific collaborators and other advisors, our research and development and product development efforts could be delayed or curtailed.

If Veridex and the other third parties we intend to rely on to perform marketing, sales and distribution services for our products do not successfully perform these services, our business will be harmed.

We have limited marketing, sales and distribution experience and capabilities. In order to commercialize any of our products, we must either internally develop sales, marketing and distribution capabilities or make arrangements with third parties to perform these services. We intend to rely for the foreseeable future on sales, marketing and distribution arrangements with third parties for the commercialization of our products. Specifically, we will rely on Veridex for the commercialization of the initial cancer diagnostic products based on our technologies. We may be unable to enter into sales, marketing and distribution agreements with third parties on acceptable terms, if at all. Also, the sales, marketing, and distribution efforts of these third parties might not be successful. Any sales through these third parties might be less profitable to us than direct sales.

If we decide to perform any sales, marketing and distribution functions ourselves, we might face a number of risks, including:

If the limited number of suppliers we rely on fail to supply the raw materials we use in the manufacturing of our reagent products, we might be unable to satisfy product demand, which would negatively impact our business.

Several raw materials used in the manufacturing of our reagent products used in several of our platforms and instruments currently are available only from a limited number of suppliers. We acquire all of these raw materials on a purchase-order basis, which means that the supplier is not required to supply us with specified quantities of these raw materials over a certain period of time or to set aside part of its inventory for our forecasted requirements. Additionally, for certain of these raw materials, we have not arranged for alternative suppliers, and it might be difficult to find alternative suppliers in a timely manner and on terms acceptable to us. Consequently, as we begin our commercialization efforts, if we do not forecast properly, or if our suppliers are unable or unwilling to supply us in sufficient quantities or on commercially acceptable terms, we might not have access to sufficient quantities of these raw materials on a timely basis and might not be able to satisfy product demand.

In addition, if any of these components and raw materials are no longer available in the marketplace, we will be forced to further develop our technologies to incorporate alternate components and to do so in compliance with QSR. If we incorporate new components or raw materials into our products we might need to seek and obtain additional approvals or clearances from the FDA or foreign regulatory agencies, which could delay the commercialization of these products.

If our competitors develop and market technologies or research and diagnostic products faster than we or Veridex do or if those products are more effective than our products, our commercial opportunities will be reduced or eliminated.

The extent to which any of our technologies and products achieve market acceptance will depend on many competitive factors, many of which are beyond our control. Competition in the pharmaceutical and biotechnology industries, and the medical devices and diagnostic products segments in particular, is intense and has been accentuated by the rapid pace of technological development. Our competitors include large diagnostics and life sciences companies. Most of these entities have substantially greater research and development capabilities and financial, scientific, manufacturing, marketing, sales and service resources than we do. Some of them also have more experience than we do in research and development, clinical trials, regulatory matters, manufacturing, marketing and sales. These organizations also compete with us to:

If we or Veridex cannot successfully compete with new or existing products or technologies, sales of our products will suffer and we may never achieve profitability. Because of their greater experience with commercializing their technologies and larger research and development capabilities, our competitors might succeed in developing and commercializing technologies or products earlier and obtaining regulatory approvals and clearances from the FDA more rapidly than Veridex or us. Our competitors also might develop more effective technologies or products that are more predictive, more highly automated or more cost-effective, which may render our technologies or products obsolete or non-competitive.

If we experience delays in the development of new products or delays in planned improvements to our products, our commercial opportunities will be reduced.

To improve our competitive position, we believe that we will need to develop new products as well as improve our existing instruments, reagents and ancillary products. Improvements in automation and throughput (the number of tests that can be performed in a specified period of time) of our products will be important to the competitive position of our products as we market to a broader, perhaps less technically proficient, group of customers. Our ability to develop new products and make improvements in our products may face difficult technological challenges leading to development delays. For example, we are experiencing delays in connection with the development of our CellTracks Analyzer cell analysis instrument for use in cancer diagnostic testing. These delays are the result of technical problems associated with reliability of the system to detect cancer cells. In response, we are implementing enhancements to our CellSpotter Analyzer, such as adding the ability to detect and evaluate cellular markers using analyte specific reagents, or ASRs. We are also continuing to develop our CellTracks Analyzer because we believe that some of the planned features, such as the ability to quantify cellular markers using ASRs, may be required to address future potential research and clinical applications and to remain competitive. If we are unable to successfully complete development of new products or if we are unable to successfully complete the planned enhancements to our products, in each case without significant delays, our future competitive position may be adversely affected.

If product liability lawsuits are successfully brought against us, we might incur substantial liabilities and could be required to limit the commercialization of our products.

Our business exposes us to potential product liability risks that are inherent in the testing, manufacturing, marketing and sale of diagnostic products. We might be unable to avoid product liability claims. Product liability insurance generally is expensive for our industry. If we are unable to maintain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims, we may be unable to commercialize our products. A successful product liability claim brought against us in excess of any insurance coverage we have at that time could cause us to incur substantial liabilities and our business to fail.

If we use biological and hazardous materials in a manner that causes injury, we could be liable for damages.

Our research and development activities sometimes involve the controlled use of potentially harmful biological materials, hazardous materials, chemicals and various radioactive compounds. We cannot completely eliminate the risk of accidental contamination or injury to third parties from the use, storage, handling or disposal of these materials. In the event of contamination or injury, we could be held liable for any resulting damages, and any liability could exceed our resources or any applicable insurance coverage we may have. Additionally, we are subject on an ongoing basis to federal, state and local laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. The cost of compliance with these laws and regulations might be significant and could negatively affect our profitability.

If we are unable to manage growth in connection with our transition from an early-stage development company to a company that commercializes research and diagnostic products, our operations will suffer.

We will need to add a significant number of new personnel and expand our capabilities in order to successfully pursue our commercialization strategy for our initial IVD products as well as our research and development efforts. Certain aspects of our operations must be scaled up, for example, to increase the batch sizes of antibodies and other bulk components that we will need to provide for use in the test kits manufactured by Veridex and the number of instrument systems we can manufacture per quarter. Organizational growth and scale-up of operations could strain our existing managerial, operational, financial and other resources. If we fail to manage this growth effectively, we may not be able to achieve our research and development and commercialization goals.

If we are unable to protect our proprietary rights, we may not be able to compete effectively.

We have obtained patents in the US and in foreign countries relating to many of the technologies that are the basis of our products, such as the basic technologies relating to the separation and isolation of cells for the detection of cancer and the various aspects of the reagents, methods and instrument platforms that we plan to commercialize. In addition, we maintain trade secrets, especially where we believe patent protection is not appropriate or obtainable, on various aspects of our technologies and that we do not wish to become publicly known. However, obtaining, defending and enforcing our patents and other intellectual property rights involve complex legal and factual questions. For example, many of our key patents relating to our basic technologies for the separation and isolation of cells for the detection of cancer contain claims covering our processes for manufacturing and using our magnetic separation particles, or ferrofluids. If a competitor were to practice or use these processes without our knowledge or consent, these patents may be particularly difficult to defend or enforce because it may not be apparent from examination of the competitor's products that the competitor is using our patented processes. In particular, if we were not able successfully to defend or enforce our patents that cover our ferrofluids, which are utilized as a key component of our CellTracks AutoPrep System, competitors could more easily produce systems that might be able to perform separation of CTCs from blood samples in a manner substantially equivalent to our CellTracks AutoPrep System without compensating us, resulting in substantial damage to our business.

Because the issuance of a patent is not conclusive of its validity or enforceability and can be challenged, we do not know how much protection, if any, our patents will provide to us if we attempt to enforce them or if others challenge their validity or enforceability in court. For example, if our patents relating to the separation of CTCs from blood samples were challenged and invalidated, we would not be able to prevent others from utilizing these key aspects of our technologies, which would substantially harm our business. Moreover, our patent applications may not result in issued patents, and even if issued, our patents may not contain claims that are sufficiently broad to prevent others from practicing our technologies or developing competing products. Accordingly, we cannot assure you that we will be able to obtain, defend or enforce our patent rights covering our technologies in the US or in foreign countries. In addition, if others discover or misappropriate the technologies that we have chosen to maintain as trade secrets, we may not be able to effectively maintain our technologies as unpatented trade secrets. Although we have taken measures to protect our unpatented trade secrets and other non-public information such as know-how, including the use of confidentiality and invention assignment agreements with our employees, consultants and some of our contractors, it is possible that these persons may unintentionally or willingly breach the agreements or that our competitors may independently develop or otherwise discover our trade secrets and know-how.

A challenge to one or more of our pending patent applications, or issued patents, may result in limiting the coverage of our patents so that a competitor can effectively avoid our patent claims. In addition, competitors may avoid our patents by using technologies that perform substantially as our technologies, but avoid infringing our patent claims. For example, if a competitor were to use a cell separation technology that performs as well, or nearly as well, as our patented ferrofluids, the competitor may be able to market products that may be functionally equivalent and perform as well or nearly as well as our products, thereby diminishing the competitive advantage afforded by our issued patents.

Although we may initiate litigation to stop the infringement of our patent claims or to attempt to force an unauthorized user of our patented inventions or trade secrets to compensate us for the infringement or unauthorized use, patent and trade secret litigation is complex and often difficult and expensive, and would consume the time of our management and other significant resources. If the outcome of litigation is adverse to us, third parties may be able to use our technologies without payments to us. Moreover, some of our competitors may be better able to sustain the costs of litigation because they have substantially greater resources. Because of these factors relating to litigation, we may be unable effectively to prevent misappropriation of our patent and other proprietary rights.

If the use of our technologies conflicts with the intellectual property rights of third-parties, we may incur substantial liabilities and we may be unable to commercialize products based on these technologies in a profitable manner, if at all.

Our competitors or others may have or acquire patent rights that they could enforce against us. If they do so, we may be required to alter our technologies, pay licensing fees or cease activities. If our technologies conflict with patent rights of others, third parties could bring legal action against us or our licensees, suppliers, customers or collaborators, claiming damages and seeking to enjoin manufacturing and marketing of the affected products. If these legal actions are successful, in addition to any potential liability for damages, we might have to obtain a license in order to continue to manufacture or market the affected products. A required license under the related patent may not be available on acceptable terms, if at all.

We may be unaware of issued patents that our technologies infringe. Because patent applications can take many years to issue, there may be currently pending applications, unknown to us, that may later result in issued patents upon which our technologies may infringe. There could also be existing patents of which we are unaware upon which our technologies may infringe. In addition, if third parties file patent applications or obtain patents claiming technology also claimed by us in pending applications, we may have to participate in interference proceedings in the US Patent and Trademark Office to determine priority of invention. If third parties file oppositions in foreign countries, we may also have to participate in opposition proceedings in foreign tribunals to defend the patentability of the filed foreign patent applications. We may have to participate in interference proceedings involving our issued patents or our pending applications.

If a third party claims that we infringe upon its proprietary rights, any of the following may occur:

If any of these events occurs, our business will suffer and the market price of our common stock will likely decline.

Our rights to use technologies licensed to us by third parties are not within our control, and we may not be able to implement our products without these technologies.

We have licensed patents and other rights that are necessary to commercialize our products. Our business will significantly suffer if these licenses terminate, if the licensors fail to abide by the terms of the license or fail to prevent infringement by third parties or if the licensed patents or other rights are found to be invalid.

We have exclusively in-licensed significant intellectual property, including patents and know-how, related to our cell analysis instrumentation and cell isolation and enrichment products. In April 1997 we entered into a license agreement with the University of Twente, or Twente, under which we were granted exclusive rights to technology developed at Twente relating to optical analysis of particles similar to cells and cell particles. This technology and the underlying patents and know-how contribute significantly to our CellTracks Analyzer. This agreement will terminate upon the later of April 2007 or the expiration date of the last to expire of the patents licensed under this agreement. In addition, Twente may unilaterally terminate this agreement if we are in material breach or if we become bankrupt or insolvent. Twente also may unilaterally terminate the license granted under this agreement if we do not maintain sufficient general and product liability insurance coverage once we have begun clinical trials and commercialization of our products. In addition, in June 1999, we entered into a license agreement with the University of Texas, or Texas, under which we were granted exclusive rights to technology, including patents and know-how, which we developed in collaboration with Texas, relating to the isolation, enrichment and characterization of circulating epithelial cells. Epithelial cells are cells that cover external and internal body surfaces and give rise to the majority of solid tumors. This technology and the underlying patents and know-how contribute significantly to our cell analysis products in the field of cancer diagnostics. We are responsible for making royalty payments of 1% of our sales of reagents incorporating the intellectual property licensed to us under this agreement. This agreement terminates when all of Texas's rights to the licensed technologies expire. In addition, Texas also may unilaterally terminate this agreement if we are in material breach or become bankrupt or insolvent. Texas also may unilaterally terminate the license granted under this agreement, or the exclusivity of such license, in any national political jurisdiction if we fail to provide written evidence satisfactory to Texas, within 90 days of receiving written notice from Texas that it intends to terminate this license, that we or our sublicensees have commercialized or are actively attempting to commercialize a licensed invention in these jurisdictions. In addition, in July 2002, we entered into a license agreement with Streck Laboratories, Inc., or Streck. Under this agreement, Streck granted to us a non-exclusive, worldwide, royalty-bearing license to practice certain of Streck's cell preservative technology, including patents and know-how, for the research, development, manufacture and sale of our CellSave Preservative Tube to test for the presence of epithelial cells or CTCs in a sample of fluid from a patient. This agreement will terminate upon the expiration date of the last to expire of the patents licensed under this agreement. In addition, either party also may terminate this agreement if the other party is in material breach or becomes involved in financial difficulties, including bankruptcy and insolvency.

If we violate the terms of our licenses, or otherwise lose our rights to these patents or patent applications, we may be unable to continue development of our products. Our licensors or others may dispute the scope of our rights under any of these licenses. Additionally, the licensors under these licenses might breach the terms of their respective agreements or fail to prevent infringement of the licensed patents by third parties. Loss of any of these licenses for any reason could materially harm our financial condition and operating results.

If we cannot obtain additional licenses to intellectual property owned by third parties that we desire to incorporate into new products we plan to develop, we may not be able to develop or commercialize these future products.

We are developing products designed to identify and characterize additional types of cells other than CTCs and epithelial cells, such as endothelial cells. We also plan to develop cell profile products using reagents that are fluorescently tagged antibodies designed to characterize target cells, which are classified by the FDA as analyte-specific reagents, or ASRs. ASRs can be used in research as an aid in evaluating new therapies in clinical trials, and we plan to develop a family of ASRs for profiling of each rare cell type of interest. However, many, if not all, of the target-specific and other reagents, including antibodies, that we ultimately may use in the development and commercialization of these future cell profile products and in our future products for identifying additional types of cells may be protected by patent and other intellectual property rights owned by third parties. If we are unable to obtain rights to use this third party intellectual property under commercially reasonable terms, or at all, we may be unable to develop these products, and this could harm our ability to expand our commercial products offerings and to generate additional revenue from these products.

We expect the initial public offering price of our shares to be substantially higher than the book value per share of our outstanding common stock. Accordingly, investors purchasing shares of common stock in this offering, assuming an initial public offering price of $8.00 per share of common stock, will:

To the extent outstanding stock options, warrants or the underwriters' over-allotment option are exercised after this offering, there will be further dilution to new investors. See "Dilution."

If our principal stockholders, executive officers and directors choose to act together, they may be able to control our management and operations, which may prevent us from taking actions that may be favorable to you.

Our executive officers, directors and principal stockholders, and entities affiliated with them, will beneficially own in the aggregate approximately 39% of our common stock following this offering. This significant concentration of share ownership may adversely affect the trading price of our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. These stockholders, acting together, will have the ability to exert substantial influence over all matters requiring approval by our stockholders, including the election and removal of directors and any proposed merger, consolidation or sale of all or substantially all of our assets. In addition, they could dictate the management of our business and affairs. This concentration of ownership could have the effect of delaying, deferring or preventing a change in control of us or impeding a merger or consolidation, takeover or other business combination that could be favorable to you.

The future sale of our common stock could negatively affect our stock price.

After this offering, we will have approximately 21.9 million shares of common stock outstanding, or 22.8 million shares if the underwriters exercise their over-allotment option in full. The 6,000,000 shares sold in this offering, or 6,900,000 shares if the underwriters exercise their over-allotment option in full, will be freely tradable without restriction under the federal securities laws unless purchased by our affiliates. The remaining shares of common stock outstanding after this offering will be available for public sale subject in some cases to volume and other limitations. See "Shares eligible for future sale." Substantially all of our shares outstanding after this offering (excluding the shares sold in this offering) will be subject to the lock-up agreements with the underwriters described under "Underwriting."

If our common stockholders sell substantial amounts of common stock in the public market, or the market perceives that such sales may occur, the market price of our common stock could fall. After this offering, the holders of approximately 14,597,151 shares of our common stock, the holders of options to purchase 55,334 shares of our common stock and the holders of warrants to purchase 182,017 shares of our common stock will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. Furthermore, if we were to include in a company-initiated registration statement shares held by those holders pursuant to the exercise of their registrations rights, the sale of those shares could impair our ability to raise needed capital by depressing the price at which we could sell our common stock.

In addition, we will need to raise substantial additional capital in the future to fund our operations. If we raise additional funds by issuing equity securities, our stock price may decline and our existing stockholders may experience significant dilution.

If an active, liquid trading market for our common stock does not develop, you may be unable to sell your shares quickly or at the market price.

Prior to this offering, there was no public market for our common stock. An active trading market for our common stock may not 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 may not be indicative of prices that will prevail in the trading market. See "Underwriting" for more information regarding the factors considered in determining the initial public offering price.

If the price and volume of our common stock experience extreme fluctuations, this could lead to costly litigation for us.

Because we are a development-stage company with limited operating history and operate within the medical devices and diagnostic products segments of the pharmaceutical and biotechnology industries, our stock price is likely to be volatile. The market price of our common stock may fluctuate substantially due to a variety of factors, including:

The market prices of the securities of biotechnology and diagnostic companies, particularly companies like ours without consistent product revenues and earnings, have been highly volatile and are likely to remain highly volatile in the future. This volatility has often been unrelated to the operating performance of particular companies. Moreover, market prices for stocks of biotechnology-related companies, particularly following an initial public offering, frequently reach levels that bear no relationship to the operating performance of these companies. These market prices generally are not sustainable and are highly volatile. In the past, companies that experience volatility in the market price of their securities have often faced securities class action litigation. Whether or not meritorious, litigation brought against us could result in substantial costs, divert our management's attention and resources and harm our ability to grow our business.

We have reserved discretion in how we allocate our use of the net proceeds of this offering and if we do not use these proceeds effectively, our stock price could decline.

We will have flexibility in applying the net proceeds of this offering among the categories of identified uses described in the "Use of proceeds" section of this prospectus. Although we expect to use the net proceeds in the approximate allocations described elsewhere in this prospectus, if we use the net proceeds for corporate purposes that do not yield a significant return or any return at all for our stockholders, our stock price could decline, and you may also not agree with how we allocate the net proceeds of this offering.

Anti-takeover provisions in our certificate of incorporation and bylaws and under Delaware law could inhibit a change in control or a change in management that you consider favorable.

Provisions in our certificate of incorporation and bylaws could delay or prevent a change of control or change in management that would provide you with a premium to the market price of your common stock. These provisions include those:

In addition, Section 203 of the Delaware General Corporation Law limits business combination transactions with 15% stockholders that have not been approved by our board of directors. These provisions and others could make it difficult for a third party to acquire us, or for members of our board of directors to be replaced, even if doing so would be beneficial to our stockholders. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt to replace the current management team. If a change of control or change in management is delayed or prevented, you may lose an opportunity to realize a premium on your shares of common stock or the market price of our common stock could decline.

We do not expect to pay dividends in the foreseeable future. As a result, you must rely on stock appreciation for any return on your investment.

We do not anticipate paying cash dividends on our common stock in the foreseeable future. Certain of our existing credit agreements prohibit the payment of cash dividends without lender consent. Any payment of cash dividends will also depend on our financial condition, results of operations, capital requirements and other factors and will be at the discretion of our board of directors. Accordingly, you will have to rely on capital appreciation, if any, to earn a return on their investment in our common stock. Furthermore, we may in the future become subject to contractual restrictions on, or prohibitions against, the payment of dividends.

Arthur Andersen LLP has not consented to the inclusion of their report in this prospectus, and your ability to recover damages from Arthur Andersen may be limited.

Arthur Andersen audited our consolidated financial statements for, among other periods, the period from August 25, 1983 (date of inception) to December 31, 2000, and issued a report thereon on April 11, 2001, which report is included in this prospectus. The report of Deloitte & Touche LLP included in this prospectus notes that with respect to its opinion, insofar as the opinion relates to the

amounts included for the prior periods expressed in the report of Arthur Andersen, this opinion is based solely on the report of Arthur Andersen.

On March 14, 2002, Arthur Andersen was indicted on federal obstruction of justice charges arising from the government's investigation of the Enron Corporation. On June 15, 2002, Arthur Andersen was convicted of those charges and the firm ceased practicing before the SEC on August 31, 2002. On September 15, 2002, a federal judge upheld this conviction. Since our former engagement partner and audit manager have left Arthur Andersen and Arthur Andersen has ceased its SEC practice, we have not been able to obtain the consent of Arthur Andersen to the inclusion of its report in this prospectus and will not be able to obtain Arthur Andersen's consent in the future.

Our inability to obtain the consent of Arthur Andersen to the inclusion of its report in this prospectus may limit any recovery to which you might be entitled against Arthur Andersen under federal and state securities laws, including under Section 11 of the Securities Act. It is also likely that because of the events arising out of the conviction of Arthur Andersen, as a practical matter, it may not be able to satisfy any claims arising from the provision of auditing or other services to us, including any claims you may have that are available to securities holders under federal and state securities laws.

This prospectus, including the sections titled "Prospectus summary," "Risk factors," "Management's discussion and analysis of financial condition and results of operations" and "Business," contains forward-looking statements. Forward-looking statements convey our current expectations or forecasts of future events. All statements contained in this prospectus other than statements of historical fact are forward-looking statements. Forward-looking statements include statements regarding our future financial position, business strategy, budgets, projected costs, plans and objectives of management for future operations. The words "may," "continue," "estimate," "intend," "plan," "will," "believe," "project," "expect," "anticipate" and similar expressions may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. These forward-looking statements include, among other things, statements about:

Any or all of our forward-looking statements in this prospectus may turn out to be inaccurate. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. They may be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including the risks, uncertainties and assumptions described in "Risk factors." In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur as contemplated, and actual results could differ materially from those anticipated or implied by the forward-looking statements.

You should not unduly rely on these forward-looking statements, which speak only as of the date of this prospectus. Unless required by law, we undertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this prospectus. See "Where you can find additional information."

We estimate that the net proceeds to us from the sale of the 6,000,000 shares of common stock we are offering will be approximately $42.9 million, assuming an initial public offering price of $8.00 per share, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us. If the underwriters exercise their over-allotment option in full, we estimate the net proceeds to us from this offering will be approximately $49.6 million.

The principal purposes of this offering are to obtain additional working capital to fund anticipated operating losses, establish a public market for our common stock and facilitate our future access to public markets. We intend to use the net proceeds of this offering as follows:

As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds from this offering. The amounts and timing of our actual expenditures may vary significantly from our expectations depending upon numerous factors, including the progress of our research, development and commercialization efforts, the progress of our clinical trials, and our operating costs and capital expenditures. Accordingly, we will retain the discretion to allocate the net proceeds of this offering among the identified uses described above, and we reserve the right to change the allocation of the net proceeds among the uses described above as a result of contingencies such as the progress and results of our clinical trials and our research and development activities, the results of our commercialization efforts, competitive developments and our manufacturing requirements.

Pending use of the proceeds from this offering, we intend to invest the proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments.

We have never declared or paid any cash dividends on our capital stock and we do not currently anticipate declaring or paying cash dividends on our capital stock in the foreseeable future. In addition, certain of our existing credit agreements prohibit the payment of dividends without lender consent. We currently intend to retain all of our future earnings, if any, to finance operations. Any future determination relating to our 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 conditions, future prospects, contractual restrictions and covenants and other factors that our board of directors may deem relevant.

The following table sets forth our cash and capitalization as of December 31, 2003:

The table above should be read in conjunction with our financial statements and related notes appearing elsewhere in this prospectus. This table is based on 15,933,633 shares of our common stock outstanding as of December 31, 2003 and excludes:

If you invest in our common stock, your interest will be diluted immediately to the extent of the difference between the public offering price per share you will pay in this offering and the pro forma net tangible book value per share of our common stock immediately after this offering.

Our net tangible book value as of December 31, 2003 was approximately $24.7 million, or $50.77 per share of common stock. Net tangible book value per share is equal to our total tangible assets minus total liabilities, all divided by the number of shares of common stock outstanding as of December 31, 2003.

Our pro forma net tangible book value per share as of December 31, 2003 was approximately $1.55 per share. Pro forma net tangible book value per share gives effect to the conversion of all outstanding shares of our preferred stock as of December 31, 2003 into 15,447,813 shares of our common stock, which will become effective at the closing of this offering.

After giving effect to the sale of the 6,000,000 shares of common stock we are offering at an assumed initial public offering price of $8.00 per share, and after deducting underwriting discounts and commissions and our estimated offering expenses, our pro forma as adjusted net tangible book value as of December 31, 2003 would have been approximately $67.6 million, or $3.08 per share. This represents an immediate increase in pro forma net tangible book value of $1.53 per share and an immediate dilution of $4.92 per share to new investors. The following table illustrates this calculation on a per share basis:

If the underwriters exercise their over-allotment option in full, pro forma as adjusted net tangible book value will increase to $3.25 per share, representing an increase to existing holders of $1.70 per share, and there will be an immediate dilution of $4.75 per share to new investors.

The following table summarizes, on a pro forma as adjusted basis as of December 31, 2003, after giving effect to this offering at an estimated initial public offering price of $8.00 per share, and the pro forma adjustments referred to above, the total number of shares of our common stock purchased from us and the total consideration and average price per share paid by existing stockholders and by new investors:

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

The tables and calculations above are based on 15,933,633 shares of our common stock outstanding as of December 31, 2003 and exclude:

If all of our outstanding options and warrants as of December 31, 2003 were exercised, the pro forma as adjusted net tangible book value per share after this offering would be $3.02 per share, representing an increase to existing holders of $1.47 per share, and there will be an immediate dilution of $4.98 per share to new investors.

The following selected consolidated financial data as of and for the years ended December 31, 1999, 2000, 2001, 2002 and 2003 have been derived from our audited consolidated financial statements. The selected consolidated financial data set forth below should be read together with the financial statements and the related notes to those financial statements, as well as "Management's discussion and analysis of financial condition and results of operations," appearing elsewhere in this prospectus.

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 our consolidated financial statements and the notes to those financial statements appearing elsewhere in this prospectus. This discussion contains forward-looking statements that involve significant 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 developing and commercializing proprietary cell-based research and diagnostic products with an initial focus on cancer. We believe that our products and underlying technology platforms also have applications in the development of cancer drugs and cancer research. Furthermore, we believe that our proprietary technologies also have applications in fields of medicine outside of cancer.

We were incorporated in 1983. Since our inception, we focused our activities on life science research and product development. In March 1999, we obtained $10.6 million in financing from the sale of our convertible preferred stock. As a result, we substantially increased investment in our cancer related products and technologies, hired additional key management team members and redefined our business strategy. Since 1999, we have devoted substantially all of our efforts to the development of our cell analysis platforms and diagnostic tools for application in cancer. We are a development-stage company and have incurred losses in the last five fiscal years and had an accumulated deficit of $63.6 million as of December 31, 2003. We expect to incur substantial losses, which may increase, over the next several years as we:

We are highly dependent on our collaboration with Veridex. In addition, we expect to continue to generate substantial losses for at least the next two years. We will need to obtain additional funding to support the activities described above, including completion of the initial public offering of our common shares as described elsewhere herein.

We expect that substantially all of our revenues from product sales for at least the years 2004 and 2005 will be derived from our relationship with Veridex. We have a development, license and supply agreement with Veridex, which provides Veridex with exclusive worldwide rights to commercialize cell analysis products based on our technologies in the field of cancer. Veridex submitted a 510(k) to the FDA in May 2003 for the use of the CellSearch Epithelial Cell Kit in the management of metastatic breast cancer. Veridex received clearance from the FDA for this use on January 21, 2004. We are

responsible for all cellular research and development, including the costs of clinical development. Upon any sale by Veridex of these products, such as reagents, test kits, consumable products and disposable items, Veridex is obligated to pay us approximately 30% of net sales for such products. Beginning with commercialization of the first product under this agreement, we are obligated to invest in certain research and development activities an amount equal to at least 10% of Veridex's net sales, excluding revenues from instrument sales, from these products. However, beginning with the first calendar year after the amount of these net sales exceeds $250 million, we are only required to invest an amount equal to at least 8.5% of these net sales. We are also responsible for manufacturing reagents in bulk and delivering them to Veridex. We are responsible for all instrument manufacturing and certain ancillary products. We believe that we have manufacturing capacity available at our existing facilities to satisfy commercial demand through 2005. Veridex is responsible for filling and packaging costs for the reagents, as well as sales, marketing, distribution, customer and technical support and field service of our cancer products, including instrumentation. We have retained worldwide commercialization rights to all non-cancer applications of our technologies.

The pace and outcome of both our commercialization efforts and clinical development programs are difficult to predict. As a result, we anticipate that our quarterly results will fluctuate for the foreseeable future. In view of this variability and of our limited operating history, we believe that period-to-period comparisons of our operating results are not meaningful and you should not rely on them as indicative of our future performance.

We have not generated any significant product revenues since our inception. We initiated sales activities for instrument platforms and reagent kits for RUO in the first quarter of 2004. Subject to the clearance of a 510(k) for the CellSearch Epithelial Cell Control submitted by Veridex in April 2004, we currently expect that we and Veridex will launch products for IVD use in the third quarter of 2004. Since August 2000, we have received $4.0 million in license and milestone payments from Veridex, which we recognized as license revenue over the initial development period, which ended on December 31, 2003.

During the initial development period, we recognized license revenue from Veridex of $183,000, $575,000, $621,000 and $2.6 million in 2000, 2001, 2002 and 2003, respectively. We earned this license revenue for completing research and development related milestones defined in our agreement with Veridex. We can earn up to an additional $6.5 million in license revenue from Veridex for research-related milestones. We estimate that we will earn these license revenues from research milestones over the next three to five years. Therefore, we do not expect the trend of increasing license revenue to continue. Also, we expect to continue to invest significant amounts in research and development, particularly in clinical trials and manufacturing development, and therefore we do not believe that these expenses will fluctuate in relation to when we expect to earn the milestone revenue referred to above.

Under the Veridex agreement, we also can earn up to $10.0 million in revenue for achieving defined sales targets. Our agreement with Veridex provides for payments to us by Veridex of $2.0 million, $3.0 million and $5.0 million in the first year that sales recognized by Veridex of our CellSearch reagent products to third parties, excluding sales of instruments, reach $250 million, $500 million and $1 billion, respectively. We do not estimate that we will reach any of these sales targets until at least 2007 and therefore do not anticipate earning any sales-based milestone revenues until then.

Our research and development expenses consist of expenses incurred in developing reagent kits and instrument platforms and ancillary products, as well as the clinical research and trial costs to test these kits and systems. These expenses consist primarily of:

We are responsible for making royalty payments of 1% of sales of our reagents incorporating intellectual property licensed to us under a license agreement with the University of Texas. No royalty payments have been made to the University of Texas as of December 31, 2003.

We expense research and development costs as incurred. We believe that significant investment in product development is a competitive necessity and plan to continue these investments in order to realize the potential of our product candidates and proprietary technologies. We expect to continue to incur significant costs for clinical research and for trials and to make investments to improve our instrument platforms and reagents. From inception through December 31, 2003, we have incurred $54.5 million in total research and development expenses, the majority of which relate to our cell-based research and diagnostic products.

Our general and administrative expenses consist primarily of salaries and other related costs for personnel in executive, finance, accounting, information technology, legal and human resource functions. Other costs include facility costs not otherwise included in research and development expense and professional fees for legal and accounting services. From inception through December 31, 2003, we have incurred $18.4 million in general and administrative expenses.

Stock-based compensation expense, which is a non-cash charge, results from stock option grants to employees at exercise prices deemed for accounting purposes to be below the fair value of the underlying common stock resulting in our recording stock-based compensation expense associated with such grants. Stock-based compensation expenses is also recorded for stock option and warrant grants to non-employees and for restricted stock grants provided to directors and advisors in lieu of cash compensation. We amortize the deferred stock-based compensation to operating expenses over the vesting periods of the options and grants, subject to adjustment for forfeiture during the vesting period. As of December 31, 2003, we have recognized $4.9 million in deferred stock-based compensation expense and, from inception through December 31, 2003, we have recognized stock-based compensation expense of $1.0 million.

Interest income consists of interest earned on our cash and cash equivalents. Interest expense consists of interest incurred on equipment leases and on debt financings.

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies include:

In accordance with US Securities and Exchange Commission, or the SEC, Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, up-front non-refundable license fees are recorded as deferred revenue and recognized over the estimated development period. From inception through December 31, 2003, we have not generated any significant product revenue. Since August 2000, we have received $4.0 million in license and milestone payments from Veridex. License and milestone payments have been deferred and amortized on a straight-line basis over the initial product development period, which we estimated would end by December 31, 2003. Amounts received for research and development for which we are reimbursed for our expenses are recorded as a reduction in research and development expense as the related costs are incurred.

Our research and development expenses are primarily composed of costs associated with product development for our cancer diagnostic tests. These expenses include the development costs for instrument platforms, clinical trial and development costs and the costs associated with non-clinical support activities such as manufacturing process development and regulatory services. Clinical development costs represent internal costs for personnel, external costs incurred at clinical sites and contracted payments to third party clinical research organizations to perform certain clinical trials. We have a discovery research effort, which is conducted in part on our premises by our scientists and in part through collaborative agreements with academic laboratories. Most of our research and development expenses are the result of the internal costs related directly to our employees. We accrue external costs for clinical trials based on the progress of the clinical trials, including patient enrollment, progress by the enrolled patients through the trial, and contracted costs with clinical research organizations and clinical sites. We record internal costs primarily related to personnel in clinical development and external costs related to non-clinical trials and basic research when incurred. Significant judgments and estimates must be made and used in determining the accrued balance in any accounting period. Actual costs incurred may or may not match the estimated costs for a given accounting period. We expect that expenses in the research and development category will increase for

the foreseeable future as we add personnel, expand our clinical trial activities and increase our discovery research capabilities. The amount of the increase is difficult to predict due to the uncertainty inherent in the timing of clinical trial initiations, progress in our discovery research program, the rate of patient enrollment and the detailed design of future trials. In addition, the results from each of our trials will influence the number, size and duration of both planned and unplanned trials.

We record compensation expense related to options issued to consultants and options issued to employees at less than the fair value. These expenses are based on the fair value of the options and common stock. Because there has been no public market for our common stock, we have estimated the fair value of these equity instruments using various valuation methods, including the minimum value and the Black-Scholes methods. If future market conditions dictate significant changes in the estimates of fair value, or if a public market establishes a value for our common stock that is significantly higher than our estimated value, our financial position and results of operations could be materially impacted. When stock options are granted with an exercise price below the estimated fair value of our common stock at the grant date, the difference between the fair value of our common stock and the exercise price of the stock option is recorded as deferred compensation. Deferred compensation is amortized to compensation expense on a straight-line basis over the vesting period of the stock option.

We must make significant management judgments when determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. At December 31, 2003, we recorded a full valuation allowance of $27.3 million against our net deferred tax asset balance, due to uncertainties related to our deferred tax assets as a result of our history of operating losses. The valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax assets will be recoverable. In the event that actual results differ from these estimates or we adjust these estimates in future periods we may need to change the valuation allowance, which could materially impact our financial position and results of operations.

We segregate revenue into license revenue received from related party and other revenue. License revenue from related parties has increased by $2.0 million to $2.6 million in the year ended December 31, 2003 from $621,000 in the year ended December 31, 2002. Since August 2000, we have received $4.0 million in license and milestone receipts under our agreement with Veridex, including $2.0 million in license and milestone receipts in 2003. We initially recorded these payments as deferred revenue and subsequently amortized these receipts over the initial development period, which we estimated to end by December 31, 2003. In August 2003, we entered into another license and supply agreement with a company whereby we licensed the rights to certain of our technology and sold 80,000 shares of our Series F Convertible Preferred Stock to the same company at $5.00 per share. We recognized $80,000 of the proceeds from this sale as a deferred license fee payment and are amortizing this fee over two years. We amortized $14,999 of this license fee to income in 2003. Other

revenue increased by $27,000 to $338,000 in 2003 from $311,000 in 2002. Other revenue consists principally of funds received from government related grants and are expected to fluctuate from year to year.

Research and development expenses increased $235,000 or by 1.5% to $16.0 million in 2003 from $15.8 million in 2002. Salary and salary related costs were $1.5 million or 24% higher in 2003 as compared to 2002 principally due to more personnel engaged in research activities in 2003 than in 2002 as well as higher stock-based compensation expenses recognized in 2003. We hired additional personnel in 2003 to complete the development of certain instrument platforms and to complete the development of our initial cancer monitoring test. Stock-based compensation expenses were $355,000 higher or $412,000 in 2003 versus $57,000 in 2002. Laboratory supplies and expenses were $838,000 or 60% higher in 2003 than in 2002. We accelerated development and quality control testing of our initial cancer monitoring test as well as continued to expend funds for development of other applications of the company's technology in areas both within and outside of cancer diagnostics. Instrument development costs decreased by $1.0 million or 33%. The principal development work on our CellTracks AutoPrep System and our associated CellSpotter Analyzer was completed by mid-2003 and costs associated with development of the instruments declined thereafter. We anticipate that we will continue to engage in instrument system improvement activities in 2004 and beyond. Therefore it is likely that instrument development costs will be higher in future periods. Clinical trial expenses were lower in 2003 by $1.2 million or 57% from 2002. We completed our initial clinical trial for breast cancer monitoring in early 2003. The majority of effort in this area in 2003 was related to data analysis and preparation of the associated regulatory filing with the FDA, activities which were less costly than the process of performing the actual trial. As a result of receiving the clearance from the FDA described above we anticipate increasing our clinical trial expenditures in 2004 and beyond. Contracted research costs increased by $375,000 or 30% in 2003 over 2002. We employed contracted support to help with certain validation activities related to preparing our manufacturing processes for initial commercialization. We increased our efforts in this area in 2003 as we approached anticipated initial product launch. A summary of the principal components of our research and development costs for the years ended December 31, 2003 and 2002 are shown below:

We expect salary related expenses to increase in future years as we hire additional personnel and continue to invest in research and clinical trial activities. We believe that costs related to laboratory supplies and expenses will be higher in future periods as we develop:

We expect instrument development costs as a percentage of total research and development expenditures generally to be lower in future years because we will have completed the principal development work on our platforms in 2003. We plan to continue to invest in instrument development to improve performance of the various components of the system and to increase the capabilities of the system to process larger sample volumes.

We expect clinical expenses to be higher in future years as we expand our clinical trials to investigate the effectiveness of our cancer diagnostic products on cancers other than breast cancer and in earlier stages of the disease in breast and other cancers, and as we develop other diagnostic tools for use in diseases such as cardiovascular and infectious diseases and for use in tools for drug development.

Each of our research and development programs is subject to risks and uncertainties, including the requirement to obtain regulatory approval, that are outside of our control. As a result of these risks and uncertainties, we are unable to predict the period in which we will achieve profitability. For example, our clinical trials may be subject to delays or rejections for a variety of reasons, such as our inability to obtain applicable clearances from the FDA or institutional or ethical review boards or to enroll patients at the rate that we expect. Moreover, the product candidates we are developing must overcome significant technological and marketing challenges before they can be successfully commercialized.

General and administrative expenses increased by $949,000, or 27%, to $4.5 million in 2003 from $3.6 million in 2002. Salary related costs increased by $516,000 in 2003 due principally to the addition in mid-2002 of a business development professional and to the addition of an attorney to manage patent matters. In addition, we recognized stock-based compensation expense of $230,000 in 2003. Depreciation expense increased by $228,000 to $1.1 million in 2003 from $895,000 in 2002 as a result of an expansion of our manufacturing facility in 2003 at a cost of $1.5 million in preparation for the commercial launch of our products.

In June 2003, we sold all of the rights to a trademark to Johnson & Johnson, the parent company of Veridex, for $250,000.

Interest income declined by $330,000 or 57% in 2003 to $247,000 from $577,000 in 2002. The decrease in interest income was primarily a result of a decrease in average invested cash balances in 2003 and a lower average interest rate on our invested cash balances.

Interest expense increased by $100,000 or 21% to $570,000 for 2003 from $470,000 for 2002. The increase was due to higher average debt outstanding in 2003 versus 2002 principally due to the additional $7.0 million equipment line of credit that we entered into in April 2003.

Stock-based compensation expenses were $642,000 and $57,000 for the years 2003 and 2002, respectively. The increase was due to an increase in the number of options granted to employees and consultants and an increase in the deemed fair value of our common stock as compared to the exercise price at issuance. We recognized these expenses as part of research and development expenses and general and administrative expenses as shown below.

As a result of the above, the net loss of $17.6 million in 2003 was $700,000, or 4%, lower than the loss of $18.3 million in 2002.

The net loss per common share of $37.90 in 2003 was $4.41 per share, or 10%, lower than the loss per common share of $42.31.

Related party license revenue increased by $46,000 or 8% in 2002 to $621,000 from $575,000 in 2001. The increase resulted from higher amortization of the license and milestone receipts from Veridex. Related party license revenue is based on the amortization of license and milestone receipts earned under the Veridex agreement and amortized on a straight line basis over the initial development period, which we estimated would conclude by December 31, 2003. Other revenue increased by $311,000 to $311,000 in 2002 from $-0- in 2001. Other revenue consists principally of funds received from government related grants and are expected to fluctuate from year to year.

Research and development expenses increased by $5.3 million or 50% to $15.8 million in 2002 from $10.5 million in 2001. Costs increased in every major category within research and development expenses as we invested in instrument and reagent development activities. We also incurred increased costs related to clinical research and the clinical trial for monitoring of metastatic breast cancer, which was started in July 2001. We increased staff and retained outside contractors to assist us in both the

instrument development efforts and to help with clinical trials activities. A summary of the principal components of our research and development costs for the years ended December 31, 2002 and 2001 are shown below:

General and administrative expenses increased by $901,000 or 34% to $3.6 million in 2002 from $2.7 million in 2001. The increase in general and administrative expense resulted primarily from the hiring of additional personnel, including strategic marketing and accounting staff, and costs associated with business development, fundraising and travel as well as depreciation costs associated with a facility expansion which was completed in early 2001.

We recorded $57,000 and $36,000 of stock-based compensation expense in the years ended December 31, 2002 and 2001, respectively, and recognized these expenses as part of research and development expenses.

Interest income decreased by $244,000 or 30% to $577,000 in 2002 from $821,000 in 2001. The decrease was the result of significantly lower interest rates earned on our invested cash balances which was somewhat offset by the cash received from the sale of $27.0 million of our Series F preferred stock, net of selling costs, in December 2001.

Interest expense increased by $187,000 or 66% to $470,000 in 2002 from $283,000 in 2001. The increase in interest expense was the result of higher average borrowings under our equipment lines of credit.

As a result of the above, the net loss of $18.3 million in 2002 was $6.3 million, or 52%, higher than the loss of $12.0 million in 2001.

The net loss per common share of $42.31 in 2002 was $13.87 per share, or 49%, higher than the loss per common share of $28.44.

We are a development-stage company. We have financed our operations since inception through private equity and debt financings, license and milestone revenues from corporate collaborations, capital equipment and leasehold financing, government grants and interest earned on cash and investments. Since our inception, we have generated net losses of $63.6 million from operations.

Cash and short term investments increased by $9.1 million to $30.6 million in 2003 from $21.5 million in 2002. The company received $25.0 million in net proceeds from the sale of Series F Convertible Preferred shares in 2003 as well as $2.5 million of proceeds from new borrowings net of principal repayments. This was offset by $18.4 million of cash used in operating and other investing and financing activities.

In 2003, the company has incurred $674,000 in costs related to the filing of its registration statement for the initial public offering of its common stock and has included these costs in the category of assets related to financing activities on the balance sheet.

Long term debt including the current portion of long term debt increased by $2.5 million to $7.2 million in 2003 from $4.7 million in 2002. This is a result of proceeds from new borrowings of $5.5 million which was offset by principal payments of $3.0 million.

Our operating activities used net cash of $16.2 million in 2003, $16.7 million in 2002, $11.8 million in 2001 and $55.4 million from inception through December 31, 2003. During these periods, we recorded increasing expenses caused principally by increases in research and development and expanded clinical trials, which resulted in increasing operating cash outflows, except in 2003, where the net cash used in operating activities was $460,000 lower than in 2002. This was due to the receipt of $2.0 million more in license and milestone receipts from Veridex in 2003 over 2002. The higher milestone receipts in 2003 were partially offset by higher operating expenses which were $1.2 million higher in 2003 than in 2002.

Our investing activities generated net cash of $928,000 in 2003, principally from the proceeds of maturities of investments of $3.0 million, offset by $2.1 million of purchases of property and equipment. Our investing activities generated cash of $29.6 million in 2002 and used $29.8 million in 2001. Maturities of investments, net of purchases of investments, generated $30.1 million in 2002. This was offset by $472,000 in equipment purchases. Of the total of $29.8 million used in investing activities in 2001, $29.2 million resulted from purchases of investments, net. The source of the cash used to purchase these investments was principally the $27.0 million net proceeds from the sale of Series F Preferred Stock completed in December 2001. We have used $8.2 million in investing activities from inception, almost entirely for the purchase of property and equipment.

Our financing activities provided cash of $27.4 million in 2003, $2.7 million in 2002 and $27.1 million in 2001. Cash was generated in 2003 principally from the sale of 6,267,000 shares of Series F Convertible Preferred Stock at $4.00 per share, which provided $25.0 million in net proceeds. We borrowed $5.5 million under our equipment lines of credit and made principal payments of $3.0 million on our outstanding debt.

Since our inception we have raised $1.7 million from the sale of our common stock, including $1.5 million in 1984 from the sale of 10,000 shares of our common stock to three investors, and $85.1 million, net of issuance costs of $2.1 million, from the sale of our preferred stock. Since

March 1999, we also borrowed $15.6 million through equipment lines of credit and received $4.0 million in milestone receipts from Veridex. Our liquidity requirements have arisen primarily from research and development expenditures, capital equipment expenditures and payments on outstanding indebtedness. Sales of our common and preferred stock were as follows:

In May 1999, we entered into a $1.3 million credit facility, or the first credit facility, with a financial institution. From February 2000 to November 2001, the first credit facility was amended to increase the facility to a total of $3.5 million. As of December 31, 2003, we have repaid all of the outstanding balances under the first credit facility and we do not have the right to borrow any additional funds under this first credit facility.

In April 2002, we obtained a second credit facility of $5.0 million, or the second credit facility, from the same financial institution responsible for the first credit facility and borrowed the full amount on May 2, 2002. This facility bears interest at two percentage points above the prime rate or 6.75%, whichever is greater. The loan is payable over the 36 month period ending April 2005. In April 2003, this credit facility was amended to increase the facility to $7.0 million. The $2.0 million supplemental loan was advanced in two tranches. The first tranche was subject to our obtaining equipment financing of $3.0 million from another lending institution. The second tranche was subject to our raising $10 million from the sale of additional shares of our stock to investors. We met these conditions and borrowed the full $2.0 million by July 2003. Collateral for this loan is a first lien on all of our assets except for our intangible intellectual property and except for the assets pledged under the equipment line of credit agreement with another lending institution discussed below. Interest on these supplemental advances is prime plus 4.25% with a minimum of 8.5% and is repayable over 36 months. There are certain covenants associated with this second credit facility including the requirement that we maintain a certain level of earnings or loss before interest, taxes, depreciation and amortization, as defined; maintain a minimum amount of our available funds on deposit with the lender and deliver periodic financial statements and reports within a prescribed timeframe. We were in compliance with each of these provisions as of December 31, 2003. As of December 31, 2003, we had $3,938,000 outstanding under the second credit facility. We cannot borrow any additional funds under this second credit facility.

In April 2003, we obtained $5.0 million in the form of equipment lines of credit, or the third credit facility, from another lending institution. Interest on this loan ranges from 8.25% to 9.25% and is repayable over 36 to 60 months. Collateral for this loan is a first lien on those assets specifically pledged under this line of credit and a subordinated lien on all of our remaining assets except for our intangible intellectual property. The initial advance on this facility was $3.0 million. We obtained the

right to borrow the second advance of $2.0 million in December 2003 upon the filing of our registration statement in connection with this offering. In connection with this second advance, we entered into a security deposit pledge agreement whereby we pledge 50% of any amount borrowed to the lender in the form of a security deposit. This security deposit earns 2% simple interest per annum from the commencement date, as long as we are not in default of our loan. The amount of this security deposit will decrease to 50% of the outstanding principal balance on a calendar biannual basis as long as we are not in default. The security deposit will be returned upon completion of an initial public offering. As of December 31, 2003, this deposit balance was $252,000. As of December 31, 2003 we had $3,212,000 outstanding under the third credit facility. We have the right, as long as we are not in default under any of our loans, to borrow an additional $1.5 million under the third credit facility.

As of December 31, 2003, the Company did not have any off balance sheet financing arrangements.

The following table summarizes our contractual obligations as well as related interest charges on lines of credit at December 31, 2003 and the effects such obligations are expected to have on our liquidity and cash flows in future periods.

We also have contingent obligations for research and development and clinical trial expenditures under our agreement with Veridex. See "Business—Development, license and supply agreement with Veridex." In particular we must pay the first $5.0 million in clinical trial costs for the first cellular analysis product for general population screening for a major cancer, and Veridex is responsible for the next $5.0 million of such clinical trial costs. We have agreed to negotiate in good faith for the allocation of costs in excess of $10.0 million. As of December 31, 2003 we have not incurred any costs related to clinical trials for a product for general population screening, and we do not anticipate spending any funds on clinical trials toward such a product through 2004.

In addition, if we achieve certain levels of sales of our reagents we may receive up to an additional $10.0 million in milestone payments from Veridex although we do not expect to receive any milestone payments related to sales goals until at least 2007.

Our agreement with Veridex provides for a total of up to $10.5 million in non-refundable license and milestone payments related to research and development activities including up to $1.5 million for the initial license and up to $9.0 million related to the completion of certain instrument and clinical trial milestones. We have received $4.0 million to date. We expect to earn the remaining $6.5 million over the next three to five years.

The following table summarizes certain information pertaining to these potential future milestone payments.

Please note that $500,000 of the $1,500,000 milestone payment pertaining to breast cancer therapy monitoring was paid to us by Veridex in February 2004 pursuant to Veridex's receipt of 510(k) clearance from the FDA in January 2004 for use of the CellSearch Epithelial Cell Kit. The remaining $1,000,000 would become payable upon completion of the payment criteria discussed above. In addition, we and Veridex agreed in November 2003 that there would not be a target date for completion of this milestone and that in lieu of a target date, Veridex would only be obligated to pay

us 30.5% of net sales for cell analysis products related to this milestone for the term of this agreement, instead of 31% of net sales for such products.

We do not currently expect that any of the specific milestone payments discussed above will be materially delayed beyond their applicable target dates. However, because these milestone payments are related to the successful completion of the payment criteria summarized above, including completion of clinical trials, development activities and receipt of regulatory clearances, we may be unable to successfully complete the payment criteria in a timely manner, if at all. Veridex is responsible under the agreement for obtaining all regulatory clearances, in consultation with us, for these cell analysis products in the field of cancer.

If we do not successfully complete the payment criteria for a given future milestone, we will not receive the applicable milestone payment. If we do not successfully complete the payment criteria by the target date for a given milestone, we will continue to be entitled to receive the milestone payment in the future upon successful completion of the criteria. However, Veridex's obligation to pay us a percentage of the net sales for the cell analysis product to which the milestone relates would be reduced by 0.5% for the ten-year period beginning with the shipment for commercial sale of the first product resulting from this agreement. In no event, however, would reductions due to missed target dates reduce our proportionate percentage share of net sales that we would otherwise be entitled to receive from Veridex for sales of all cell analysis products by Veridex under this agreement by more than 0.5% in the aggregate.

We have also established a sales agency arrangement with Veridex with respect to our sample preparation and cell analysis systems, such as the CellSpotter Analyzer and CellTracks Analyzer. Under this arrangement, Veridex is our exclusive sales, invoicing and collecting agent and exclusive instrument and technical service provider for these systems in the field of cancer. Veridex is responsible for all expenses for marketing, sales and training, and we are responsible for all software development and validation as well as quality control and quality assurance. We are responsible for shipping systems pursuant to purchase orders received by Veridex. We are obligated to pay Veridex a commission on each sale or lease of these sample preparation and cell analysis systems of up to 15% of the invoice price, subject to a minimum gross profit margin received by us on each system of 27.5%. Some customers may enter into a reagent rental agreement with Veridex, whereby the reagent price also carries an amortized cost of the instrument, based on an agreed test volume. In these cases, Veridex will pay us a percentage of the fully loaded cost of the instrument when it is placed in the account. We are responsible for the costs associated with the one-year warranty period. Veridex has the option under the agreement to convert the sales agency relationship to a sole distributorship arrangement upon 12 months notice.

Under this distributor arrangement, we would be required to supply Veridex based on the forecasts provided to us by Veridex and the actual orders for these systems placed with us by Veridex. The allocation of costs and expenses between us and Veridex would remain substantially the same and we would remain responsible for the costs associated with the one-year warranty period. In addition, instead of Veridex receiving up to a 15% commission after deducting the 27.5% gross profit margin on each sale or lease, these systems would be sold to Veridex at a transfer price that provides a 27.5% gross profit margin to us, and Veridex would retain the proceeds from their sales of these systems, but would be required to remit to us any proceeds from their sales to the extent that the proceeds of such sales, after deducting 15%, exceed the transfer price for these systems.

development activities for cancer-related cell analysis products. These research and development activities may consist of any activities, such as product improvements, product line extensions and clinical trials, conducted to achieve the milestones described below, to advance the development program designed by the steering committee for this agreement, or to enhance the cancer-related cell analysis products or sample preparation and cell analysis systems based on our technologies.

Based on our operating plans, we expect that the net proceeds from this offering, available cash and additional equipment credit lines will be sufficient to finance operations and capital expenditures for at least 18 months from the date of this prospectus. Our future capital requirements include, but are not limited to, supporting our research and development efforts and our clinical trials, although we are not obligated to meet any absolute minimum dollar spending requirements under our current operating agreements. Our future capital requirements will depend on many factors, including the scope and progress made in our research and development activities, our clinical trials and capital requirements related to our commercialization efforts. We had $30.6 million in cash on hand as of December 31, 2003 and we do not currently have access to any unused lines of credit or other committed sources of financing. We plan to use the proceeds from this offering and our cash on hand to continue to develop our cancer diagnostic products beyond breast cancer to other types of solid tissue cancers as well as to explore the uses of our technology in earlier stages of the cancer disease process. Also we plan to explore development of uses for our technology outside of cancer such as in cardiovascular disease. We plan to use the proceeds of this offering, anticipated funds generated from the sales of our products as well as additional equity or debt-related offerings to finance our future development efforts. We may not be successful in generating sufficient product sales or raising sufficient funds from the sale of equity or debt securities to support the research and development expenses necessary to expand the uses of the technology into other cancers and in non-cancer diseases. In addition, if we are unsuccessful in our product development efforts, additional financing may not be available in sufficient amounts or on terms acceptable to us, if at all. If we are unable to obtain additional financing, we may elect to reduce the scope of, delay or eliminate some or all of our planned research, development and commercialization activities, which could harm our financial condition and operating results.

We have incurred net operating losses since our inception and have consequently not paid any federal, state or foreign taxes. As of December 31, 2003, we had approximately $61.1 million of net operating loss carryforwards and approximately $1.7 million in research and development tax credit carryforwards available to offset future regular and alternative taxable income. If not utilized, these net operating loss carryforwards and tax credits will begin to expire in 2005. If we do not achieve profitability, our net operating loss carryforwards may be lost. In addition, the Internal Revenue Code places certain limitations on the annual amount of net operating loss carryforwards that can be utilized if certain changes in our ownership occur. We are currently not subject to these limitations.

We do not use derivative financial instruments in our investment portfolio and have no foreign exchange contracts. Our financial instruments consist of cash, cash equivalents, short-term investments, accounts payable and long-term obligations. We consider investments that, when purchased, have a remaining maturity of 90 days or less to be cash equivalents. We invest in marketable securities in accordance with our investment policy. The primary objectives of our investment policy are to preserve principal, maintain proper liquidity to meet operating needs and maximize yields. Our investment policy specifies credit quality standards for our investments.

As of December 31, 2003, a substantial majority of our cash was in money market accounts. We did not have any cash invested in short-term investment instruments.

In April 2002, the Financial Accounting Standards Board, or FASB, issued SFAS 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS 145 rescinds SFAS 4, Reporting Gains and Losses from Extinguishment of Debt, SFAS 44, Accounting for Intangible Assets of Motor Carriers, and SFAS 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements; SFAS 145 also amends SFAS 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale leaseback transactions. SFAS 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings or describe their applicability under changed conditions. The provisions of SFAS 145 related to the rescission of SFAS 4 are to be applied in fiscal years beginning after May 15, 2002; the provisions related to SFAS 13 are to be effective for transactions occurring after May 15, 2002; all other provisions of SFAS 145 are to be effective for financial statements issued on or after May 15, 2002. Early adoption of SFAS 145 is encouraged. The adoption of SFAS 145 has not had a material impact on our current financial statements.

In June 2002, the FASB issued SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities and replaces Emerging Issues Task Force, or EITF, No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs in a Restructuring). SFAS 146 requires companies to recognize costs associated with exit on disposal activities when they are accrued rather than at the date of a commitment to an exit on disposal plan. The provisions of SFAS 146 are effective for exit or disposal activities that are initiated after December 31, 2002. We believe that SFAS 146 may have a prospective effect on our financial statements for costs associated with future exit or disposal activities we may undertake.

In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. We believe that the adoption of SFAS 150 has not had a material impact on our financial position or results of operations. The FASB is addressing certain implementation issues associated with the application of SFAS No. 150 including those related to mandatorily redeemable financial instruments representing noncontrolling interests in subsidiaries included in consolidated financial statements. We will monitor the actions of the FASB and assess the impact, if any, that these actions may have on our financial statements.

In November 2002, the FASB issued FIN 45, Guarantors, Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002,

irrespective of the guarantor's fiscal year-end. The disclosure requirements are effective for financial statements of periods ending after December 15, 2002. We believe that the adoption of FIN 45 has not had a material impact on our financial position or results of operations.

In November 2002, EITF issued EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. EITF 00-21 addresses the determination of whether an arrangement involving more than one deliverable contains more than one unit of accounting and how the related revenues should be measured and allocated to the separate units of accounting, i.e., the delivery or performance of multiple products, services and rights to use assets. In applying this guidance, separate contracts with the same party, entered into at or near the same time, will be presumed to be a package, and the consideration will be measured and allocated to the separate units based on their relative fair values. EITF 00-21 applies to revenue arrangements entered into after June 30, 2003. We adopted this new accounting guidance effective July 1, 2003 and the adoption did not have a material impact on our financial position, results of operations or cash flows.

In January 2003, the FASB issued Interpretation 46, Consolidation of Variable Interest Entities, or FIN 46, with the objective of improving financial reporting by companies involved with variable interest entities. FIN 46 clarifies the application of Accounting Research Bulletin No. 51 to certain entities, defined as variable interest entities, in which equity investors do not have characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated support from other parties. In December 2003, the FASB issued a revision to FIN 46, or FIN 46R, to clarify some of the provisions of FIN 46. We currently have no entities which have the characteristics of a variable interest entity. Furthermore, we do not expect that the adoption of the remaining provision of FIN 46R in the quarter ending March 31, 2004 will have an impact on our financial statements.

We are developing and commercializing proprietary cell-based research and diagnostic products with an initial focus on cancer. We believe that our products can provide significant clinical benefits by giving physicians better information to understand, diagnose, treat and monitor cancer. Our technologies, which we brand as CellTracks, can identify, count and characterize a small number of tumor cells present in a blood sample from a patient. Our collaborator, Veridex, LLC, or Veridex, a Johnson & Johnson company, received 510(k) clearance from the FDA in January 2004 for use of the CellSearch Epithelial Cell Kit, which incorporates our technologies, in the management of metastatic breast cancer (breast cancer that has spread beyond the primary breast tumor). We expect that the CellSearch Epithelial Cell Kit, which is currently available for sale for RUO, will be the initial diagnostic product launched by Veridex based on our technologies. We believe that our products and underlying technology platforms have other applications in cancer diagnostics, in the clinical development of cancer drugs and in cancer research, which we would commercialize under the terms of our agreement with Veridex. In addition, we believe that our proprietary technologies may have applications in other fields of medicine, such as cardiovascular and infectious diseases, which we could pursue on our own or with a commercial partner.

Our products are intended for use as an integrated system, consisting of kits containing reagents for use with our instruments and other system components that enable scientists, physicians and laboratories to collect, isolate, label, count and analyze CTCs. CTCs can appear in extremely low number, sometimes as few as one or two CTCs in a test tube of blood that contains billions of cells of various types. Our clinical trials suggest that the presence of even a few CTCs in a blood sample is biologically and clinically important, as it predicts whether a therapy is likely to offer benefit to the patient.

Using first-generation components of our integrated system, we conducted a controlled, multi-center pivotal clinical trial (a large trial designed to support a regulatory submission), of 177 metastatic breast cancer patients. In this trial, we found that the number of CTCs in blood samples drawn from patients at various time points predicted disease progression and survival. Based on the data from this pivotal trial, Veridex received 510(k) clearance for the CellSearch Epithelial Cell Kit for use in metastatic breast cancer. Specifically, the indication for use states that "the presence of CTC[s] in the peripheral blood, as detected by the CellSearch™ Epithelial Cell Kit, is associated with decreased progression free survival and decreased overall survival in patients treated for metastatic breast cancer."

To support commercialization of our products, we entered into a development, license and supply agreement with Veridex under which Veridex has exclusive worldwide rights in the field of cancer to make and commercialize any cellular analysis products based on our technologies. However, with respect to cellular analysis products outside of the field of cancer, we retain the exclusive right to develop and commercialize these products, either by ourselves or with a commercial partner. Under our agreement with Veridex, Veridex is obligated to pay us approximately 30% of its net sales from reagents, test kits and certain other consumable products and disposable items incorporating our technologies. Veridex is also our exclusive sales agent for our instruments and will receive commissions on all sales of these instruments. We and Veridex launched the CellSearch Epithelial Cell Kit and related products for RUO in December 2003. We and Veridex expect to launch these products for IVD use in the third quarter of 2004. The IVD launch is subject to the clearance of a 510(k) for the CellSearch Epithelial Cell Control, which consists of two levels of controls required to be run daily to ensure our integrated system is operating properly. Veridex submitted the 510(k) for these controls in April 2004. These controls are intended for routine system quality control of our integrated system

and operator technique. The Clinical Laboratory Improvement Amendments of 1988, or CLIA, requires that for each diagnostic system the clinical laboratory is responsible for running two levels of controls on a daily basis to monitor the accuracy and precision of the complete analytical process. The CellSearch Epithelial Cell Control, if it receives 510(k) clearance, would enable laboratories to meet these CLIA requirements.

Cancer presents the physician with complex challenges for effective disease management. Cancer markers, currently used for testing the blood of cancer patients, provide only limited information and often correlate poorly with disease progression, response to therapy and patient survival. Other diagnostic tools, including techniques such as x-ray, CT and MRI scans, suffer from similar problems and are expensive and potentially harmful to patients. Similar problems exist in clinical trials for new cancer drugs because the same diagnostic tools with their inherent limitations are often used to assess a drug's potential effectiveness, particularly in early stage clinical trials.

Based on findings from our pivotal clinical trial and research studies, we believe that our products will enable physicians to predict the likely time to disease progression and survival in breast cancer more accurately and earlier than existing methods such as imaging. In our pivotal trial, the presence or absence of CTCs was highly predictive, both immediately before initiation of therapy as well as three to four weeks after initiation of therapy. By contrast, to evaluate response to therapy, imaging techniques typically can only provide useful information two to three months after the initiation of therapy. As a result, using the CellSearch Epithelial Cell Kit, physicians may be able to:

Moreover, we believe that our products address many of the limitations of currently available diagnostic and research methods and provide physicians and patients with the following benefits:

We believe that our initial products can be widely applicable in the field of cancer, and that the underlying technologies also have applications in other fields of medicine. Our research studies suggest that our technologies can detect CTCs in certain solid tumor cancers in addition to breast cancer, specifically prostate, colorectal, lung and ovarian cancers, at various stages of disease. Our products can also be used to analyze CTCs for the presence of specific genes and proteins. This information may be useful in the selection of specific therapies. We are also developing a product based largely on our existing platforms and reagent technologies to detect and analyze endothelial cells in blood. Endothelial cells play a key role in the formation of blood vessels, or angiogenesis, and consequently are intimately involved in tumor growth and spread. In addition, endothelial cells are believed to play a role and to have diagnostic utility in autoimmune disorders and cardiovascular diseases. We are also exploring the potential of our technologies to develop products that can detect pathogens in the blood, such as fungi, that may be useful in the diagnosis of certain infectious diseases.

We were incorporated in August 1983 in the Commonwealth of Pennsylvania as Immunicon Corporation. In December 2000, we merged with and into Immunicon Corporation, a Delaware

corporation. Since our inception, we have focused our activities on life science research and product development. In March 1999, we obtained $10.6 million in financing from the sale of our convertible preferred stock. As a result, we substantially increased investment in our cancer related products and technologies, hired additional key management team members and redirected our business strategy. Since 1999, we have devoted substantially all of our efforts to the development of our cell analysis platforms and diagnostic and research tools for applications in cancer. We have three wholly owned subsidiaries, Immunivest Corporation, IMMC Holdings, Inc. and Immunicon Europe, Inc., all of which are Delaware corporations. Immunivest holds substantially all of the intellectual property, such as patents and trademarks that we have developed in connection with our technologies. IMMC Holdings provides cash management and financing services to Immunicon Corporation and its subsidiaries. Immunicon Europe, through a branch office in The Netherlands, provides research and development support to Immunicon Corporation for development for our technologies.

Diagnostic tests are used to inform physicians about the presence of a disease or a disease-causing agent and to provide information that is critical for appropriate treatment. Diseases today are diagnosed based on patient history, physical signs and symptoms and information obtained from diagnostic methods. However, such information often tells the physician little about the underlying mechanism or cause of the disease.

In many cases, conventional diagnostic tests lack the clinical sensitivity and specificity to provide definitive diagnoses and timely information on response to therapy during the various stages of disease. Sensitivity is typically the measure of a test's ability to accurately detect the presence of disease. A false negative test result occurs when a patient who has a disease is given a negative, or normal, diagnosis. Specificity is typically the measure of a test's ability to exclude the possibility of disease when it is truly not present. A false positive test result occurs when a patient who does not have a disease is incorrectly diagnosed as having the disease. We believe sensitivity and specificity can be greatly enhanced by using cellular and gene-based information.

We expect that cellular and gene-based diagnostic tests will create a fundamental shift in both the practice of medicine and the economics of the diagnostics industry. Such diagnostic tests could result in an increased emphasis on preventative medicine and may redefine approaches to risk assessment of a particular disease or condition. We believe that physicians will be able to use these tests for the early detection of disease, for evaluating a patient's propensity for disease and to follow and treat patients on a more personalized basis, allowing them to select the most effective therapy with the fewest side effects.

According to statistics from the National Cancer Institute and the American Cancer Society, carcinomas are the most common types of cancer, accounting for approximately 86% of all cases. Carcinomas include breast, prostate, colorectal, lung and many other organ-specific cancers. The American Cancer Society report "Cancer Facts and Figures 2003" estimates that approximately 8.9 million Americans with a history of cancer were alive in January 1999. The American Cancer Society also estimates that in 2003 over 1.3 million people in the US will be diagnosed with cancer and over 550,000 people will die from the disease.

We have selected breast cancer as the first application of our technologies because it is the most frequently diagnosed cancer among women and there are multiple treatments available for this disease. We believe these treatments need accurate and reliable monitoring tools. The American Cancer Society estimates that approximately 2 million women alive today in the US have been diagnosed with breast cancer and that, in 2003, approximately 200,000 women will be newly diagnosed and approximately 40,000 women will die from the disease.

Carcinomas are malignant tumors that generally grow rapidly and destroy adjacent normal tissue and impair bodily functions. Metastasis of carcinomas occurs when malignant cells detach from the primary tumor mass and travel through the circulatory system and by other mechanisms to invade other tissues in the body. Although the immune system may act to control the spread of tumor cells, some tumor cells may still disseminate to and multiply in various organs and other parts of the body, resulting in metastases. In most cases, death is caused by such metastases rather than by the primary tumor.

The primary objective in the diagnosis of cancer is early detection of the disease. In general, cancer treatments are most effective if the disease is diagnosed at a less advanced stage. The standard of care for newly diagnosed carcinomas is surgical removal of the primary tumor. If the tumor has metastasized, more aggressive follow-up and post-surgical treatment is warranted. Consequently, early diagnosis, accurate staging and effective monitoring of the disease is critical to achieving the best outcome. This objective is often not achieved due to inherent inadequacies of currently used cancer diagnostics.

Screening tests are available for some cancers, such as PSA in prostate cancer, fecal occult blood in colorectal cancer and mammograms for breast cancer. However, well-documented problems with screening tests include false positive results that indicate the possibility of cancer when there is no cancer present and false negative results that miss cancer when it is actually present. In addition, many other cancers, such as lung, pancreatic and ovarian cancer, suffer from a lack of commercially available screening tests. Therefore, a substantial need exists for more effective early detection methods to supplement currently available screening tests.

Diagnosis of cancer is distinguished from screening in that diagnosis refers to cancer detection in patients with symptoms of cancer, such as a lump or chronic unexplained pain. Diagnostic tools for cancer detection are limited in their ability to detect cancer at early and potentially curable stages, and in some cases are very expensive, such as colonoscopy and spiral CAT scans. Staging is a tool used by physicians to determine the prognosis (the likelihood primary therapy will cure this cancer and how long the patient is likely to live) of cancer in a newly diagnosed patient. Current staging methods are based on the size of the tumor, involvement of local lymph nodes, and the degree to which the cancer has spread to distant organs. Although this is a helpful procedure, better ability to predict patient outcome is needed. In addition, many drugs are now available that help improve survival when administered after surgery, and over 400 new drugs are in various stages of development in pharmaceutical companies. Thus, better tests are needed to:

Inadequate tools to monitor effectiveness of post-surgical therapy and recurrence

Once a patient is diagnosed with cancer, he or she is classified based on the original diagnosis and staging of the disease. This medical profile dictates whether a patient will receive drug or radiation therapy following surgery, or both. There are presently only a limited number of tools that are typically used to monitor cancer patients after their surgery, because the visible cancer has been removed. Most physicians select therapies based on published results from clinical trials, the labeling of approved drugs and the physician's assessment of the patient's tolerance to side effects. Sometimes, these treatment decisions are based on the assumption that more potent drugs have a higher chance of eliminating the tumor cells that cause metastasis.

Even when a cancer patient survives the initial treatment and is deemed to be in remission, the disease can recur at any time, even years later. Current tools available to the physician for the detection of disease recurrence are physical examination, imaging techniques and serum tumor markers (biological substances that may be found in the blood of cancer patients). These tools are often limited in their diagnostic application because they lack sensitivity and specificity. According to the National Cancer Institute, levels of tumor markers alone are not sufficient to diagnose disease because:

However, they are currently used because they can sometimes detect recurrence early. Nevertheless, no practice guidelines today recommend initiating therapy based on a rising tumor marker alone.

Limited treatment options are available for patients with most cancers that have metastasized. Breast cancer is an exception to this because new drugs have been introduced in the past few years that provide several lines of therapy. With more effective diagnostic tools, physicians would be able to more rapidly change from ineffective therapies to potentially more effective therapies. However, the selection of the appropriate therapy remains a difficult decision for physicians. First, cancer cells are known to mutate, or change, which means that information from the original, or primary, tumor has limited use for therapy selection. In addition, most chemotherapy agents are toxic drugs with significant side effects, hence the physician must balance the benefits of the chemotherapy with its undesirable effects. Therefore, any tool that can assist the physician in choice of therapy may benefit the patient. Imaging and serum tumor marker tests are used to monitor certain patients, but these tests are limited in their ability to assess the patient's status with confidence. Imaging techniques are also used to monitor patients with metastatic cancers. However, imaging is subject to variable interpretation by different radiologists, and the interval between imaging studies is typically several months because these methods do not reliably detect small changes in tumor burden over short periods of time. Serum tumor markers are present even in healthy individuals in addition to patients with cancer. Conversely, many late-stage cancer patients do not exhibit increased levels of serum tumor markers. Accordingly, serum tumor markers may fail to identify the need to change from an ineffective therapy or may result in indicating that an effective therapy should be changed when it is providing benefit to the patient.

We believe the ability to predict survival in metastatic breast cancer with our integrated system represents a potential breakthrough in cancer disease management. We are developing an integrated portfolio of technologies designed to detect, count and characterize the CTCs that are shed into the blood and ultimately cause the cancer to metastasize, or spread. Our clinical trials in metastatic breast cancer indicate that our products provide quantitative and reproducible results that give physicians predictive information to improve patient management. In contrast, certain existing methods such as imaging need at least two separate measurements, typically months apart, to provide predictive results. Future clinical trials in other cancers and earlier in the disease may yield similar data to support the use of CTCs to monitor patients with other types of carcinomas. Additionally, our products are designed to address many of the limitations discussed above of existing diagnostic tools. We believe that these products can provide the following clinical benefits:

Cancers that are not detectable by current tests may still shed tumor cells into the blood that can be detected by our assays. The earlier the patient is diagnosed, the earlier treatment can be commenced, which may result in improved patient survival. Because our products can detect a small number of CTCs, we believe that our products may enable the physician to diagnose or assess the risk of invasive cancer earlier than existing tools.

Effective tools for more complete diagnosis, staging and selection of primary therapy

A physician's determination that the cancer has metastasized is extremely important in staging the patient to complete the diagnosis and to select the most appropriate treatment. The presence of CTCs detected by our assay may indicate a more aggressive form of cancer, thereby providing physicians with critical information to guide clinical decisions.

The number, trends and characteristics of CTCs during post-surgical treatment may indicate that the disease has not been eliminated and can enable physicians to determine the effectiveness of treatment. Physicians need real-time information to enable them to change from an ineffective therapy earlier and to potentially improve patient survival prospects. The FDA classification of our product includes detection of recurrent disease. We will need to conduct pivotal clinical studies and submit a 510(k) for the detection of recurrence. However, we believe the periodic monitoring of CTCs using our products following post-surgical therapy may allow for the earlier detection of recurrence than current methods, such as clinical signs and symptoms. This may enable the physician to intervene sooner, which may improve the patient survival prospects.

Our pivotal clinical trial demonstrated that quantifying CTCs can be an effective tool in predicting the time to disease progression and survival in patients with metastatic breast cancer. Physicians may select a more appropriate cancer therapy based on the presence or absence of CTCs. Our products can also be used to analyze CTCs for the presence of specific genes and proteins. This "real-time biopsy" information can be used to select therapies, such as Genentech's breast cancer drug, Herceptin, targeted to a specific gene or protein. Today only a few of these treatments exist, but many drug and biotechnology companies are developing these therapies.

We believe that the first product to be marketed by Veridex, the CellSearch Epithelial Cell Kit, offers benefits that other laboratory tests and imaging tools lack. CTCs have high clinical specificity, which means that healthy individuals generally have zero, or a very small number, of detectable CTCs. Also, our products are blood tests and are easier to administer than imaging techniques such as CT scans or MRI scans. We believe that our products are competitively priced compared to MRI, PET, or positron emission tomography, and CT scans, where one set of scans typically costs approximately $1,500, and where more than one set of scans may often be required. Thus, we believe our products may result in a lower overall cost of monitoring and treating patients.

We believe that our products can also be applied effectively in the clinical development of new cancer drugs, particularly in early stage clinical trials where it is essential for the pharmaceutical company to evaluate efficacy prior to embarking on long and expensive pivotal trials. Inaccurate information may result in discontinuing development of a promising drug candidate or wasting millions of dollars on a drug that will fail in late-stage clinical trials. The FDA evaluates efficacy of new drugs or drug combinations based on patient survival and/or certain accepted surrogate endpoints, such as a significant decrease in tumor burden as assessed by imaging studies. Although we believe additional clinical data will be required to validate CTCs as a surrogate endpoint to the satisfaction of the FDA, we believe that CTCs may serve as an alternative to survival or costly imaging studies as a drug trial endpoint. Such a surrogate endpoint may permit shorter and less costly late-stage drug trials as well.

Our goal is to be a leader in the development and commercialization of proprietary cell analysis products that can deliver high impact clinical and scientific information for use in human diagnostics, life science research and pharmaceutical development. The key elements of our strategy include the following:

We are focused primarily on the development and commercialization of products for understanding cancer and diagnosing, staging and monitoring cancer patients. Additionally, we intend to develop diagnostic products to be used alone or in conjunction with current screening methods and for establishing the risk of healthy individuals developing cancer. We have a development, license and supply agreement with Veridex. We and Veridex released the CellSearch Epithelial Cell Kit and related instrumentation for sale for RUO in December 2003. We and Veridex expect to launch these products for IVD use in the third quarter of 2004. This launch is subject to the clearance of a 510(k) for the CellSearch Epithelial Cell Control. Veridex submitted the 510(k) for the CellSearch Epithelial Cell Control in April 2004. In addition, we expect that the CellSearch Profile Kit, consisting of reagents and supplies for isolating epithelial cells for molecular analysis, will be available for RUO in the second quarter of 2004. We also expect that the CellTracks LVSP System, consisting of an instrument, reagents and proprietary disposables for pre-processing large blood samples will be available for sale in the second half of 2004. We believe that this system is necessary for developing clinical indications for our products in early stages of cancer, detection of cancer recurrence and cancer risk assessment and screening applications.

We plan to conduct additional clinical trials using the CellSearch Epithelial Kit in other major cancers including colorectal, prostate, and lung cancer, with the aim of gaining FDA clearance or approval, as

appropriate. An additional objective of these trials is to study cancer in earlier, non-metastatic stages of the disease to determine whether CTCs offer valuable information to aid in the management of these patients. We believe that expanded product labeling would help to increase the adoption of our products by physicians and laboratories.

We intend to develop new reagent kits outside the field of cancer where current diagnostic and research tools are limited and where significant market opportunities exist. For example, we are developing an endothelial cell assay that may have application in the field of cardiovascular and autoimmune diseases in addition to cancer. We also have a research program to develop an assay to detect fungal infections, which can be a life threatening condition in patients with suppressed immune function.

In order to maximize the value of our non-cancer product candidates, we may seek strategic alliances with capable, well-capitalized, multinational companies for marketing and distribution. However, we may consider a direct sales, marketing and service approach, especially when the number of prospective customers is limited or concentrated.

Optimize the value of our proprietary technologies and maximize long-term profitability

Our product portfolio includes instrument systems that are designed to use our reagent kits and disposables exclusively, thus providing recurring revenues from sales of these products. Because our underlying platform technologies are largely developed, we expect that the incremental investment to bring new reagent kits to market will be relatively modest.

Because our products are an integrated system, which includes a number of components, there are multiple opportunities to improve various aspects of the system. We intend to continue to make efforts to improve instrument throughput, assay performance and clinical utility of these products. We also plan to reduce costs through investment in manufacturing processes and product design to improve production yields, reduce material and component cost, and increase product reliability and robustness.

We conduct pre-clinical and clinical research trials to explore whether our technologies can deliver diagnostic value in different diseases. If a research trial is positive and there is a significant market opportunity for a product based on these technologies, we then design trials that enroll larger patient populations. These advanced trials, which we call pivotal trials, are designed to support regulatory submissions for new or expanded product applications or indications for existing products, or potentially a new product offering. To minimize the risk of these development trials failing, we often conduct smaller pilot studies using the same or similar protocol as the larger trial. We expect that pivotal clinical trials will be required to support FDA submissions for the majority of our product candidates.

In 2003, we completed a 177-patient, controlled, multi-center pivotal trial that was statistically powered to determine if CTCs in the blood of women with metastatic breast cancer could provide

information to physicians for monitoring therapy. We sponsored and conducted this trial at 20 geographically dispersed clinical sites across the US, including large, well-known comprehensive cancer centers such as the Cleveland Clinic, Duke University, MD Anderson and the University of Michigan. Results of this trial have been submitted for publication in a peer-reviewed medical journal and for presentation at an international oncology conference and formed the basis of a 510(k) submission that was subsequently cleared. In this trial, blood was drawn and tested from these patients using the CellSearch Epithelial Cell Kit, CellPrep Semi-Automated Sample Preparation System, or CellPrep System, and CellSpotter Analyzer every three to four weeks for up to six months. This trial demonstrated that CTCs could predict if the patient would respond to therapy, how long the patient is likely to respond, and how long the patient may live.

A statistical analysis was used to calculate the probability of survival of metastatic breast cancer patients with less than five (<5) or five-or-more (³5) CTCs in 7.5 ml of blood drawn before initiation of a new line of therapy and at the first follow-up patient examination after initiation of therapy. These statistical analyses are included in the product labeling of the CellSearch Epithelial Cell Kit.

The two graphs above show the significance of the number of CTCs to predict survival of patients undergoing treatment for metastatic breast cancer. Blood samples were drawn just prior to initiation of a new line of therapy, or baseline, and following initiation of the therapy, or first follow-up, which was typically three to five weeks into the study.

The patients shown in the graphs above were separated into two groups based on the level of their CTCs. The graph on the left plots the probability of patient survival over time based on whether they had fewer than five CTCs at baseline or five or more CTCs at baseline. This graph illustrates that these two groups have very different survival prospects. Patients with fewer than five CTCs had a greater than 70% probability of survival for more than 18 months beyond baseline whereas patients with five or more CTCs had only a 50% probability of survival for longer than approximately 10.1 months beyond baseline.

The graph on the right plots the probability of patient survival over time based on whether they had fewer than five CTCs or five or more CTCs at the first follow-up. This graph illustrates that patients so classified again have very different survival prospects. Patients with fewer than five CTCs had a greater than 70% probability of survival for more than 18 months from the day blood was drawn whereas patients with five or more CTCs had a 50% probability of survival for longer than approximately 7.0 months from the day blood was drawn.

Depending on the success of treatment, patients can move between groups. For example, there were only 90 patients in the low CTCs group at baseline, but there were 114 patients in the low CTCs group at the first follow-up, suggesting that therapy was successful in a number of the patients that started with high levels of CTCs. Similarly, patients with low levels of CTCs may not benefit from therapy and move to the group having an elevated number of CTCs.

The data, which we assessed as being statistically significant, suggest that CTCs may be of clinical value in determining initially not only the severity or aggressiveness of metastatic breast cancer, but also whether an individual patient is benefiting from a particular therapy. While survival is clearly the most important endpoint of this trial, similar patterns were also observed when patients were evaluated in terms of time to progression of disease as clinically determined.

The breast cancer research studies summarized below describe the key conclusions that led to the initiation of the pivotal trial described above:

We have initiated further research trials in colorectal and prostate cancer and have completed other research studies that suggest that our technologies may be useful in carcinomas other than breast cancer and further enable assessment of protein and gene expression in CTCs. This information may be useful in helping to understand disease aggressiveness and select the most appropriate therapy for patients diagnosed with cancer.

The following table summarizes the breast cancer trials described above as well as additional clinical research studies we conducted that evaluated the clinical utility of CTCs.

To further assess the value of measuring CTCs and endothelial cells in the blood of patients, we are currently conducting several ongoing clinical trials and are also planning additional trials. These clinical trials will be conducted in conjunction with medical institutions in the U.S. and Europe. The actual start dates for these trials are subject to change based on a variety of factors, including agreement with investigators on protocols, clearance by institutional review boards and product development status. Certain of these ongoing and planned clinical trials are described below:

CTCs in bone-only breast cancer. Several of the centers that participated in our pivotal, multi-center breast cancer trial are continuing to enroll patients who have cancer that has spread to the bone. The objective of this study is to examine the role of CTCs in these patients. Approximately half of all metastatic breast cancer patients have bone metastasis only and cannot be monitored with CT scans or similar imaging techniques, unlike patients with organ metastasis, where imaging is used. Measurement of CTCs may provide physicians with a much needed tool to monitor patients with this form of disease. We estimate that we will complete this trial in the first half of 2005 and estimate that the cost for this trial will not exceed $500,000.

Metastatic colorectal cancer. We initiated a multi-center trial in February 2004 to expand the monitoring indications for the CellSearch Epithelial Cell Kit to metastatic colorectal cancer. We estimate that this trial, based on our current assumptions regarding trial size and design, will extend until at least 2006 and will cost between $2 million and $3 million to complete.

Metastatic prostate cancer. We intend to design a multi-center trial in 2004 to expand the monitoring indications for the CellSearch Epithelial Cell Kit to metastatic prostate cancer. If we are able to develop a satisfactory protocol, we intend to initiate this study in 2005. We estimate that this trial, if initiated in 2005, would take two to three years to complete based on our current assumptions regarding trial size and design. Given the early planning stages of this trial, we are not yet able to estimate the total cost for this trial.

Non-small cell lung cancer. We intend to initiate a multi-center trial in lung cancer in 2004 to determine if CTCs that appear before or after surgery can predict recurrence, time to recurrence, and survival. We estimate that this trial, if initiated in 2004, would extend for approximately five years and would cost between $2 million and $3 million to complete, based on our current assumptions regarding trial size and design.

Breast cancer. We have an ongoing pilot study in breast cancer to determine if CTCs that appear before or after surgery can predict disease recurrence, time to disease recurrence and survival. If the study is successful, we plan to extend it to a multi-center pivotal trial in 2005. Any future trial for the detection of recurrence would be designed based on the results from the pilot study.

Herceptin/Navelbine. We are working with the Southwestern Oncology Group, or SWOG, a large cancer cooperative group comprised of over 300 oncologists, to collect samples and count CTCs during a planned drug trial involving the use of either Herceptin or Navelbine therapy in breast cancer. This trial seeks to improve our understanding of the potential role and behavior of CTCs in conjunction with these drugs. This trial is planned to begin in 2004. Since this trial is still in the planning stages and is likely to be managed by SWOG, we are not yet able to estimate the duration of this trial or our estimated cost for this trial.

Research studies. We believe that the presence of CTCs may indicate the presence of new or recurring cancer. Our earlier research studies suggested that we can detect CTCs in the blood of patients with early stage disease. We are assisting Veridex in the development of molecular tools to determine the organ of origin of circulating epithelial cells in subjects that have not yet been diagnosed with cancer.

If successful, we believe that our technologies will be useful to help physicians diagnose cancer at an early stage when it is most curable. This may lead to the development of products directed specifically for screening applications or assessing the risk that an individual may develop invasive cancer.

Endothelial cells. We are developing an assay to enumerate endothelial cells in blood. After we complete assay development, we intend to determine the number of endothelial cells in blood samples from healthy donors and patients with a variety of diseases, including cardiovascular and autoimmune diseases, or medical conditions caused by the body's own defenses. These studies are planned for initiation in 2004.

To date, we have not initiated any clinical trials in the field of cancer for a general population screening product. As compared to the clinical trials described above that we have conducted, clinical trials for general population screening are more costly and last significantly longer because the FDA requires extensive testing on a broad spectrum of the population. We do not plan to start a general population screening trial for at least the next 12 months. Therefore, our obligation under our agreement with Veridex that requires us to pay certain clinical trial costs associated with the first cell analysis product for general population screening for a major cancer has not yet occurred.

We have developed and integrated our technologies into proprietary cell analysis products, which we brand as CellTracks. Our technologies are used principally as an integrated system. In addition, we believe that the components of the system can be used in various combinations to address a variety of unmet needs in the fields of human diagnostics, pharmaceutical development and life science research.

Alternatively, the CellSearch Profile Kit may be used to isolate CTCs for further analysis using molecular diagnostic tools, such as PCR (polymerase chain reaction, a method of amplifying genetic material for analysis), or for cell analysis on non-Immunicon instruments, such as flow cytometers (instruments that can measure cells). The combination of the CellTracks AutoPrep System and the CellSearch Profile Kit permits reproducible recovery of CTCs along with the flexibility of using well-established commercial or development stage research tools for molecular or cell analysis.

The following table summarizes our products and products incorporating our technology, as well as the design, development, regulatory and marketing status for each of these products. A more detailed description follows immediately after this table.

Our CellSave Preservative Tube is a specialty blood collection device that enables medical professionals to draw blood into an evacuated test tube and preserves the blood samples during shipment to a laboratory and during the sample preparation process itself. CTCs are fragile and extraction of these cells from a large sample can cause cell loss or damage. Our collection device permits blood to be drawn from patients in satellite locations, such as the physician's office, group practice or clinic, and transported to a qualified hospital or reference laboratory for analysis. We believe this tool will help adoption of our products in the market by making them more convenient to use. We have FDA clearance for the CellSave Preservative Tube for IVD use.

The CellTracks AutoPrep System is a proprietary, fully automated clinical laboratory instrument that captures, labels and concentrates cells of interest from a 7.5 ml sample of blood. The processed sample is dispensed into our proprietary sample cartridge, which is used with the CellTracks MagNest Cell Presentation Device, or CellTracks MagNest. We received 510(k) clearance for the CellTracks AutoPrep System for IVD use in March 2004. Our CellTracks AutoPrep System is intended to replace our

CellPrep System, which was the sample preparation system used in some of our clinical trials, including our pivotal metastatic breast cancer trial.

We are developing the CellTracks LVSP System, which consists of an instrument, reagents and proprietary disposables to extract a 7.5 ml blood fraction containing the cells of interest from a 30 ml blood sample. This blood fraction is then processed using the CellTracks AutoPrep System. We believe it is important to be able to process larger volumes of blood in certain applications in order to improve the detection rate of CTCs. We believe that the CellTracks LVSP System is a Class I, 510(k) exempt device.

The CellTracks MagNest is a proprietary product for presenting magnetically labeled cells for analysis on our CellSpotter and CellTracks Analyzers. A proprietary sample cartridge is inserted into the MagNest, exposing the sample to a magnetic field that moves magnetically tagged cells to the upper inside surface of the sample chamber, which is transparent. All cells that are magnetically labeled are available for analysis. Untagged cells tend to move under the influence of gravity to the bottom of the chamber. We believe that this process is a more convenient and elegant approach for cell presentation for analysis than traditional microscope slide preparation. The 510(k) clearance received in March 2004 for the CellTracks AutoPrep System includes the CellTracks MagNest as an accessory.

The CellSpotter Analyzer is cleared for IVD use. The analyzer scans the sample cartridge inside the MagNest device and captures images across the entire sample area. The images of candidate CTCs are compiled and presented to the reviewer for analysis and final selection. We are finalizing validation of certain enhancements to the software that was used in clinical trials to improve its functionality for research and diagnostic use. In the first half of 2005, we plan to introduce a second generation CellSpotter instrument with new software that enables multi-lingual screens, light filters to enable qualitative analysis of multiple tumor profile tests on one sample, and other hardware upgrades.

We are developing the CellTracks Analyzer as our third generation cell analysis platform. The CellTracks Analyzer is a proprietary scanning cell analyzer, or cytometer. The CellTracks Analyzer uses a variation of the cartridge, but it is compatible with the MagNest device and the CellTracks AutoPrep System. This cartridge is made of precision-molded plastic and has a glass cover with nickel lines lithographed on the inside surface of the glass cover. These lines become magnetic when inside the CellTracks MagNest and cause magnetically tagged CTCs to align within the magnetic field between the nickel lines. The CellTracks Analyzer focuses and tracks along these lines. Lasers are used to excite fluorescent labels on the cells, creating a fluorescent signature. Cells with the correct fluorescent signature are imaged and available for review by the user. In addition, graphs for each sample are generated that show various cellular markers, including those labeled by our Tumor Profile Reagents. The CellTracks Analyzer has 510(k) clearance from the FDA as an automated differential cell counter

for CD3/CD4 cells. These are immune system cells, a subset of white blood cells that are important in warding off infection and are often compromised in patients who are diagnosed with AIDS. These cells are used to assess the health of patients with HIV/AIDS. This product is currently under development for counting and characterizing of CTCs.

We have developed and expect to develop a variety of reagent kits for use with our cell analysis systems in various research and diagnostic applications. Our principal cell-capture reagents are based on proprietary, magnetic nano-particles we call ferrofluids. These ferrofluid particles are conjugated to antibodies and are used to capture, or tag, various types of cells. Fluorescently labeled antibodies are then used to identify and differentiate the selected cells. Antibodies are inherently highly specific, and we choose capture antibodies that will bind to specific types of cells, such as CTCs, but not to other cells in the sample. We believe that we will be able to introduce new kits for additional cell types that are implicated in diseases in addition to cancer. We believe that the reagent development programs for new kits will require relatively modest incremental investment because the instrument platforms and basic reagent formulations are largely completed and well characterized.

The CellSearch Epithelial Cell Kit has been cleared for IVD use and is intended for the enumeration of CTCs in whole blood. The presence of five or more CTCs is predictive of shorter progression free survival and overall survival in patients treated for metastatic breast cancer. Thus, it is used for monitoring of patients receiving treatment for this cancer. The kit contains a ferrofluid conjugated with an epithelial cell adhesion molecule, or EpCAM, antibody to capture and permit isolation of CTCs in a blood sample, together with labeling reagents for achieving a high level of specificity. Data from our research studies suggest that this kit can be used to capture CTCs in a variety of other cancers, and we plan to conduct clinical trials to expand our indications.

The CellSearch Profile Kit is a reagent kit used to isolate CTCs for subsequent molecular or cellular analysis and does not contain all of the labeling reagents of the CellSearch Epithelial Cell Kit. We believe that the CellSearch Profile Kit, used in conjunction with our CellTracks AutoPrep System, enables automated and reproducible isolation of rare cells while offering the flexibility to conduct off-line molecular analysis with current or future technologies. This kit is for RUO at this time.

The Cell Profile Reagents are fluorescently labeled antibodies that are used to characterize target cells and are classified by the FDA as ASRs. These reagents can be used in research to evaluate new therapies in clinical trials. For example, approximately 30% of breast cancer patients over-express the protein called HER2/neu, which indicates that treatment with Herceptin, or a similarly acting drug, may be appropriate. The CellSpotter Analyzer can report the presence or absence of such markers, which may aid in the selection of patients for clinical trials involving these drugs and for advanced research applications. The CellTracks Analyzer is being designed to quantitatively report the level of these markers. Ultimately, trials may be conducted to obtain clearance or approval from FDA for direct use of the reagent in conjunction with specific drugs or classes of drugs. We plan to develop a family of Cell Profile Reagents for each rare cell type where we believe there is a commercial opportunity.

The CellTracks Endothelial Cell Kit is a reagent kit under development for use in isolating and counting endothelial cells. Endothelial cells are involved in angiogenesis. This process is important for the growth of tumors and as a transport mechanism for CTCs involved in metastasis. Several anti-angiogenesis drugs are currently in clinical development. The CellTracks Endothelial Cell Kit may have application in clinical trials as a tool to assess efficacy as well as for monitoring cancer patients receiving anti-angiogenesis drugs in the future, subject to regulatory approvals.

In addition to cancer applications, we intend to investigate the role of endothelial cells in cardiovascular and autoimmune diseases. Several independent clinical research studies suggest that endothelial cells are implicated in several aspects of cardiovascular disease. This kit may be used to develop and monitor therapies as well as aid in identifying risk of certain cardiac events, such as a heart attack.

We have a research program to develop an assay for detecting life-threatening fungal infections in immuno-compromised patients, or patients with suppressed immune function. We believe that our technologies may improve the speed of diagnosis in this field from several days to several hours, and may enable earlier, more effective treatment of fungal infections, resulting in lower mortality and reduced costs associated with the treatment of these patients. Immuno-compromised patients, including cancer patients receiving high-dose chemotherapy, transplant patients, burn victims and patients with AIDS, are at especially high risk for acquiring fungal infections. As such, they could benefit from repeated monitoring and could potentially benefit from our assay.

We are developing the CellTracks EasyCount System as a simple, point-of-care analyzer which, with associated reagents, is designed to count specific types of cells in whole blood. The first application under development is for counting of CD4 cells, which are used to monitor HIV/AIDS patients. Target cells are immunomagnetically selected using ferrofluid reagents and counted based on fluorescent labeling of the cells.

In August 2000, we entered into a development, license and supply agreement with Ortho-Clinical Diagnostics, or OCD, a Johnson & Johnson company, which subsequently assigned all rights and obligations under the agreement to Veridex, a Johnson & Johnson company. In November 2003, as a result of data from various clinical research and development trials and the overall status of our product development program, we and Veridex amended the agreement to redefine some of the development and regulatory milestones that had not been completed as of the amendment date.

Under the terms of this agreement, we granted to Veridex a worldwide exclusive license in the field of cancer to commercialize cell analysis products incorporating our technologies.

With respect to the reagents for the products developed under the license to Veridex, we manufacture and provide bulk reagents to Veridex, and Veridex is responsible for the packaging and distribution of these products. Veridex is obligated to reimburse us at our cost for the bulk reagents, consumable products and disposable items we deliver to them. Upon the sale by Veridex of the products, Veridex is obligated to pay us approximately 30% of its net sales less the cost previously reimbursed for these products. We are obligated under the agreement to manufacture the CellSave Preservative Tube as well as certain other ancillary products and to sell these finished products to Veridex for resale in connection with the cancer-related cell analysis products.

We are responsible for developing these cell analysis products as well as our cell analysis systems under a development plan. We are also responsible for managing and administering all clinical trials under the development plan. This plan is subject to the approval of a joint steering committee comprised of members designated by us and Veridex. Veridex has the majority of votes on this committee, although the entire agreement is subject to arbitration provisions in the event of any disputes that may arise. We must pay the first $5 million in clinical trial costs for the first cell analysis product for general population screening for a major cancer, and Veridex is responsible for the next $5 million of such clinical trial costs. We have agreed to negotiate in good faith for the allocation of costs in excess of $10 million. As of December 31, 2003 we have not incurred any costs related to clinical trials for a product for general population screening and we do not anticipate spending any funds on clinical trials toward such a product through 2004.

Beginning with commercialization of the first product under this agreement, we are obligated to invest in certain research and development activities an amount equal to at least 10% of Veridex's net sales, excluding revenues from instrument sales, from these products. These research and development activities may consist of any activities, such as product improvements, product line extensions and

clinical trials, conducted to achieve the milestones described below, to advance the development program designed by the steering committee for this agreement, or to enhance the cancer-related cell analysis products or sample preparation and cell analysis systems based on our technologies. However, beginning with the first calendar year after the amount of these net sales exceeds $250 million we are only required to invest an amount equal to at least 8.5% of these net sales. In addition, if we achieve certain levels of sales of our reagents we may receive up to an additional $10 million in milestone payments from Veridex although we do not expect to receive any milestone payments related to sales goals until at least 2007.

Our agreement with Veridex provides for a total of up to $10.5 million in non-refundable license and milestone payments related to research and development activities, including up to $1.5 million for the initial license and up to $9.0 million related to the completion of certain instrument and clinical trial milestones. We have received $4.0 million to date. We expect to earn the remaining $6.5 million over the next three to five years.

The following table summarizes certain information pertaining to these potential future milestone payments.

The agreement has an initial term of 20 years and is automatically renewed for three-year terms unless earlier terminated. There are various conditions that allow either party to terminate the agreement, including a material breach by either party or by mutual agreement. Veridex may also terminate for additional reasons including upon a change of control of us, as defined in the agreement, at any time prior to commercialization of any cell analysis products under the agreement with or without reason upon 180 days' prior written notice, or at any time following commercialization of the first cell analysis product under the agreement with or without reason upon 24 months' prior written notice. In certain circumstances of termination, Veridex may, at its option, retain certain worldwide rights to sell our cell analysis products if it agrees to pay us any unpaid license and milestone payments and an ongoing net sales royalty.

Johnson & Johnson Development Corporation, a subsidiary of Johnson & Johnson, has invested approximately $11.3 million in our convertible preferred stock to date through various financings since 2000.

In addition to our agreement with Veridex, we entered into a number of license, supply, research, development, manufacturing and marketing agreements relating to our products and technologies.

In August 2003, we entered into a license and supply agreement with Research and Diagnostic Systems, Inc., or R&D Systems, a subsidiary of Techne Corporation. Under this agreement, we granted R&D Systems a non-exclusive license, limited to certain life science research products (in markets not regulated by the FDA) utilizing R&D Systems antibodies in conjunction with our proprietary magnetic particles. This agreement allows R&D Systems to sell and use these products using our magnetic particle technology in certain of their current and planned cell isolation products, for life science RUO. Under this agreement, we will receive payment for the bulk materials they require for these research products and royalties on sales of any of these products that incorporate our technologies. The term of this agreement continues for the life of our patent rights pertaining to the license of our technologies under this agreement to R&D Systems, unless terminated earlier. There are various conditions, which allow either party to terminate the agreement, including for material breach by either party, for financial difficulties involving either party, by mutual agreement or for any reason by either party upon six months' prior notice. Under the terms of a separate agreement entered into in August 2003, R&D Systems purchased 80,000 shares of our Series F Preferred Stock at a purchase price of $5.00 per share.

In February 2003, we entered into a research and development agreement with Pfizer Inc., under which we are collaborating with Pfizer to develop new reagents designed to detect proprietary antigens on CTCs. We believe this project may allow Pfizer to determine the efficacy of their therapeutic products significantly earlier than possible with current methods. We received an initial payment for research support under the agreement and we will receive additional payments upon the completion of certain agreed development goals. This agreement, as amended in April 2004, terminates on February 10, 2005. Pfizer has the right to terminate with or without reason upon five days' prior written notice, in which case Pfizer's only obligation will be to pay for services performed up to the termination date plus payment for any non-cancelable obligations.

In December 2002, we entered into a master services agreement with igeneon, a biopharmaceutical company based in Vienna, Austria, which focuses on cancer immunotherapies designed to prevent or delay the formation of metastases in cancer of epithelial origin. igeneon is using our technologies to aid in evaluating the efficacy of its cancer vaccines. We currently analyze patient samples from igeneon's trials and will be permitted to use this data on completion of the studies. Both parties bear the costs of their respective participation in this clinical trial agreement. The agreement may be terminated by either party for an uncured breach or insolvency, provided that, if igeneon terminates for reasons other than breach or insolvency it must pay certain fees to us upon such termination.

Either party has the right to terminate the agreement, subject to survival of certain provisions, with or without reason, effective immediately upon notice.

In November 2000, we entered into a non-exclusive license and supply agreement with Molecular Probes, Inc., which was subsequently acquired by Invitrogen Corporation, in August 2003. Under the terms of the agreement, we have granted to Molecular Probes a non-exclusive license to certain non-instrumented products incorporating our magnetic particle technology for RUO and to provide magnetic reagents and proprietary magnets to Molecular Probes to be packaged and incorporated by Molecular Probes into these products. We received a payment upon execution of the agreement and we will receive royalties on sales of any of these products that incorporate our technology. The term of this agreement continues for the life of our patent rights pertaining to the license of our technologies under this agreement to Molecular Probes, unless earlier terminated. There are various conditions that allow either party to terminate the agreement, including for material breach by either party, for financial difficulties involving either party, by mutual agreement, for any reason by us upon at least twelve months' prior notice and payment of a termination fee to Molecular Probes, and for any reason by Molecular Probes upon 90 days' prior notice.

Veridex has worldwide sales, marketing, distribution and service responsibilities for all cancer products based on our technologies. We expect that Veridex will use its own marketing team and sales force to sell to commercial reference and qualified hospital laboratories. We anticipate that Veridex will also use additional commercial resources within other Johnson & Johnson companies that have existing relationships with relevant medical professionals to market these products. The products currently available for sale include the CellSave Preservative Tube, CellTracks AutoPrep System, CellSpotter Analyzer and the CellSearch Epithelial Cell Kit. We expect that the CellSearch Profile Kit will be launched in the second quarter of 2004. These products are being sold for RUO in selected academic centers for use by medical scientists in clinical research. Together with Veridex, we plan to complete additional clinical research and marketing studies using these products with opinion leaders in the US and in Europe in 2004 and beyond. The objective of these studies will be to generate publications that support the potential utility of CTCs in various cancers and in earlier stages of the disease and on the overall performance of the products in the hands of customers. With the exception of the CellSearch Profile Kit, we expect that our products will be launched for IVD use in the third quarter of 2004. We plan to commence commercialization in Europe by the end of 2004 for RUO and expect IVD launch in Europe in the first half of 2005. We plan to commence commercialization in Japan in the first half of 2005 for RUO.

The CellSearch Epithelial Cell Kit, our CellSave Preservative Tube, our CellTracks AutoPrep System, our CellSpotter Analyzer and our CellPrep Semi-Automated Cell Preparation System have received clearance through the 510(k) process. We and Veridex expect to launch the CellSearch Epithelial Cell Kit for IVD use in the third quarter of 2004. This launch is subject to the clearance of a 510(k) for the CellSearch Epithelial Cell Control. Veridex submitted the 510(k) for the CellSearch Epithelial Cell Control in April 2004.

We believe that our products can be used to aid pharmaceutical and biotechnology companies with therapeutic development programs. For anti-cancer therapeutic development, we and Veridex will market our cancer products to reference laboratories that service the pharmaceutical market and biotechnology industry and directly to pharmaceutical and biotechnology companies.

The life science research market includes academic centers and other private and public institutions in addition to corporations engaged in research in cell and molecular biology. Our agreements with R&D Systems and Molecular Probes permit these companies to sell and use our magnetic particle technology in cell capture and analysis products. Additional strategies to market to this segment include:

We intend to focus with our marketing partners on obtaining coverage and reimbursement from major national and regional managed care organizations and insurance carriers throughout the US. Most of the third-party payor organizations independently evaluate new diagnostic products by reviewing the published literature or the Medicare coverage and reimbursement policy on the specific diagnostic product. To assist the third-party payors in their respective evaluations of our diagnostic products, we and Veridex intend to provide scientific and clinical data to support our claims of the safety and efficacy of our products. Furthermore, we believe that the FDA's action to establish a new classification for use of our technology in cancer under their de novo review process may assist us and Veridex in obtaining attractive reimbursement rates.

Successful sales of our products in the US and other countries will depend on the availability of reimbursement from third-party payors such as private insurance plans, managed care organizations, and Medicare and Medicaid. There is significant uncertainty concerning third-party reimbursement for the use of any medical device incorporating new technology. Reimbursement by a third-party payor depends on a number of factors, including the level of demand by health care providers and the payor's determination that the use of the product represents a clinical advance compared to current technology and is safe and effective, medically necessary, appropriate for specific patient populations and cost-effective. Since reimbursement approval is required from each payor individually, seeking such approvals is a time-consuming and costly process, which requires us to provide scientific and clinical data to support the use of our products to each payor separately.

In the US, the American Medical Association assigns specific Current Procedural Terminology, or CPT, codes, which are necessary for reimbursement for diagnostic tests. There are several steps for establishing reimbursement for products that use new technologies, including creating a new CPT code, establishing payment levels and securing coverage decisions with payors. Once the CPT code is established, the Centers for Medicare and Medicaid Services, or CMS (formerly the Health Care Financing Administration), establish reimbursement payment levels and coverage rules under Medicaid and Medicare, and private payers establish rates and coverage rules independently. Coding and

coverage activities generally proceed simultaneously. Currently, there are no CPT codes that apply specifically to our products. Although we believe that existing codes may be applicable to provide payment levels that are sufficient to support the planned pricing structure during the early phases of commercialization, we cannot predict the level of reimbursement for our customers.

Healthcare providers are reimbursed by payors based on fee schedules for services and procedures. We believe that the pathology and laboratory fee schedule may be the applicable section for our current and future products. Each lab test on the fee schedule is identified by a unique code and descriptor.

In addition, Veridex has an active internal program for obtaining reimbursement, supplemented by various corporate resources within Johnson & Johnson. This program is aimed at establishing new CPT codes and simultaneously beginning the process of obtaining reimbursement and coverage from major national and regional managed care organizations and insurance carriers throughout the US. Veridex also has conducted research regarding reimbursement in Europe and Japan and is developing programs to address these key international markets.

However, we have no experience in obtaining reimbursement for any products in the US or other countries. In addition, third-party payors are routinely limiting reimbursement coverage for medical devices and in many instances are exerting significant pressure on medical suppliers to lower their prices. Also, outside of the US, health care reimbursement systems vary from country to country, and may not provide adequate reimbursement coverage, if any, for our products. We do not know whether third-party reimbursement will be available for our initial products or any other products that we may develop in the future, or that such third-party reimbursement, if obtained, will be adequate.

Rapid product development, technological advances, intense competition and a strong emphasis on proprietary products characterize the biotechnology, pharmaceuticals and medical device industries. Our products could be rendered obsolete or uneconomical by the introduction and market acceptance of competing products, by technological advances of our current or potential competitors or by other approaches.

The development, FDA approval and commercial marketing of competing products for cell-based diagnostics products could have a material adverse effect on our business, financial condition and results of operations. We face direct competition from a number of publicly traded and privately held companies, including other manufacturers of cancer diagnostics products.

We and Veridex compete on the basis of a number of factors, including product labeling and supporting clinical data, product design, automation and integration, product quality and performance, manufacturing efficiency, marketing and sales capabilities, intellectual property and customer service and support. We do not know if we will be able to compete successfully against current or future competitors or that competition, including the development and commercialization of new products and technologies, will not have a material adverse effect on our business, financial condition or results of operations.

We will experience competition for our IVD products from companies that manufacture and market current diagnostic products, including imaging and serum tumor markers. In addition, several companies have developed automated microscope-based analysis systems to be used for cellular analysis, including large companies such as Leica Camera AG, Olympus Corporation, Nikon Corporation, and Carl Zeiss, Inc. and smaller companies such as ChromaVision Medical Systems, Inc., Applied Imaging Corp., MetaSystems, Inc., Guava Technologies, Inc. and CompuCyte Corp.

In addition, companies offering tumor cell isolation or analysis products in the research market may attempt to develop products that might be functionally similar to ours. However we do not believe they currently have either the stand-alone capability or regulatory clearances to provide the complete commercial package of cell preservation, cell isolation, cell labeling, and cell detection techniques which we believe is required to address some of the current inadequacies of existing diagnostic methods.

For example, several companies offer research products for tumor cell isolation, including Miltenyi Biotec, Inc., Dynal Biotech, Inc. and StemCell Technologies, Inc. Several other companies supply fluorescently labeled antibodies that can be used to characterize tumor cells, including BD Biosciences and Beckman Coulter, Inc.

Given the market opportunity for cancer diagnostic products, many companies, including the competitors listed above, are conducting ongoing research and development activities designed to address the current inadequacies of existing cancer diagnostic methods, but we are not aware of any publicly announced cancer diagnostic procedures currently under development that effectively address all of these inadequacies.

Many of our competitors possess greater financial, managerial and technical resources and have established reputations for successfully developing and marketing diagnostic products, all of which put us at a competitive disadvantage. We may also face competition for the in-licensing of products from other companies that may be able to offer better terms to the licensors. Furthermore, new developments, including new cancer diagnostic methods, can occur rapidly in the industry. These developments may render our products or technologies obsolete or noncompetitive.

Our facilities currently comprise 41,550 square feet, of which 5,440 square feet of space is dedicated to manufacturing of bulk reagents and instruments at our Huntingdon Valley, PA location. Our manufacturing operations are required to be conducted in accordance with the FDA's current Good Manufacturing Practices, or cGMP, requirements in the FDA's QSRs, and our space and manufacturing processes have been designed to comply with these QSRs. QSRs require, among other things, that we maintain documentation and process controls in a prescribed manner with respect to manufacturing, testing and quality control. We are subject to FDA inspections to verify compliance with QSRs. We are currently certified as being in compliance with the ISO 13485 standard, and we intend to obtain the CE mark, which is required for our products to be sold in the European Union.

We manufacture bulk reagents, the disposable components of the CellSearch Epithelial Cell Kit and certain ancillary products. We purchase basic raw materials and perform value-added manufacturing processes such as bulk formulation and in some cases, packaging, at our facility. Certain raw materials used in the manufacturing of our reagent products are available from a limited number of sources, such as Molecular Probes, Inc., Prozyme, Inc., International Specialty Products and Supelco, a subsidiary of Sigma-Aldrich Co. We acquire these raw materials on a purchase order basis. To date, we have not experienced any significant interruption in supply from these vendors. We believe our manufacturing capacity is sufficient for initial commercialization of our IVD products.

We manufacture the CellSpotter Analyzer and prototype CellTracks Analyzer on site from purchased components.

Astro Instrumentation LLC, based in Strongsville, Ohio, manufactures the CellTracks AutoPrep System under contract. We complete final assembly and perform quality control testing and release for this instrument at our facility.

Kendall, a Tyco Healthcare Company, manufactures the CellSave Preservative Tube for us. We manufacture the bulk cell preservative reagent under a non-exclusive license from Streck Laboratories, Inc. We ship this bulk reagent to Kendall for filling and packaging.

Protection of our intellectual property is a strategic priority for our business, and we rely on a combination of patent, trademark, copyright and trade secret laws to protect our interests. Our ability to protect and use our intellectual property rights in the continued development and commercialization of our technologies and products, operate without infringing the proprietary rights of others, and prevent others from infringing our proprietary rights, is crucial to our continued success. We will be able to protect our products and technologies from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents, trademarks or copyrights, or are effectively maintained as trade secrets, know-how or other proprietary information.

We seek US and international patent protection for our processes, reagents and other components of diagnostic products, instrument system platforms and their major components, and all other commercially important technologies we develop. While we own much of our intellectual property, including patents, patent applications, trademarks, copyrights, trade secrets, know-how and proprietary information, we also license related technology of importance to commercialization of our products. For example, to continue developing and commercializing our current and future products, we may license intellectual property from commercial or academic entities to obtain the rights to technology that is required for our research, development and commercialization activities. In connection with the commercial distribution of our products, we also have obtained trademark registrations in the US for "Immunicon" and the Immunicon logo. We have filed a number of trademark registration applications in preparation for commercial distribution activities on future products. Much of the proprietary software and related information utilized in our instrument systems is protected by our copyright rights or by such rights that we have licensed.

We devote significant resources to obtaining, enforcing and defending patents and other intellectual property and protecting our other proprietary information. We have already obtained patents or filed patent applications on a number of our technologies, including important patents and patent applications relating to the use of our cell separation and enrichment technologies and cancer diagnostic methodologies. If valid and enforceable, these patents may give us a means of blocking competitors from using similar or alternative technology to compete directly with our products. We also have certain proprietary trade secrets that are not patentable or for which we have chosen to maintain secrecy rather than file for patent protection. With respect to proprietary know-how that is not patentable, we have chosen to rely on trade secret protection and confidentiality agreements to protect our interests.

We solely own all of the patents and patent applications set forth above relating to our technologies, with the exception of the patents or patent applications related to technologies resulting from our collaboration with Texas, which are jointly owned by Texas and us and are subject to the terms of the exclusive license to us from Texas described below.

We also have exclusively in-licensed significant intellectual property, including patents and know-how, related to our cell analysis instrumentation and cell isolation and enrichment products. In April 1997, we entered into a license agreement with the University of Twente, or Twente. Under this agreement, Twente granted to us an exclusive, worldwide, royalty-bearing license to make, have made, use, lease and/or sell products comprising certain inventions and developments developed at Twente relating to analysis of various particles that are similar to cells and cell particles. This technology and the

underlying patents and know-how contribute significantly to our CellTracks Analyzer. This agreement will terminate upon the later of April 2007 or the expiration date of the last to expire of the patents licensed under this agreement. In addition, Twente may unilaterally terminate this agreement if we are in material breach or if we become bankrupt or insolvent. Twente also may unilaterally terminate the license granted under this agreement if we do not maintain sufficient general and product liability insurance coverage once we have begun clinical trials and commercialization of our products.

In June 1999, we entered into a license agreement with Texas. Under this agreement, Texas granted to us an exclusive, worldwide, royalty-bearing license to use, have used, manufacture, have manufactured, sell and/or have sold products comprising certain technologies, including patents and know-how, that we developed in collaboration with Texas relating to the isolation, enrichment and characterization of circulating epithelial cells and determination of their relationship to cancer disease states. We are responsible for making royalty payments of 1% of reagent sales incorporating the intellectual property licensed to us under this agreement. This agreement terminates when all of Texas's rights to the licensed technologies expire. In addition, Texas also may unilaterally terminate this agreement if we are in material breach or become bankrupt or insolvent. Texas also may unilaterally terminate the license granted under this agreement, or the exclusivity of such license, in any national political jurisdiction if we fail to provide written evidence satisfactory to Texas, within 90 days of receiving written notice from Texas that it intends to terminate this license, that we or our sublicensees have commercialized or are actively attempting to commercialize a licensed invention in these jurisdictions.

In addition, in July 2002, we entered into a license agreement with Streck Laboratories, Inc., or Streck. Under this agreement, Streck granted to us a non-exclusive, worldwide, royalty-bearing license to practice certain of Streck's cell preservation technology, including patents and know-how, for the research, development, manufacture and sale of our CellSave Preservative Tube to test for the presence of epithelial cells or CTCs in a sample of fluid from a patient. This agreement will terminate upon the expiration date of the last to expire of the patents licensed under this agreement or by mutual written agreement by Streck and us. In addition, either party also may terminate this agreement if the other party is in material breach or becomes involved in financial difficulties, including bankruptcy and insolvency.

We have a portfolio of issued patents and patent applications, which we believe provides patent coverage for our proprietary technologies and products. As of March 3, 2004, our intellectual property estate consisted of 154 issued patents or patent applications, as follows:

Each of the foreign filings corresponds in subject matter to a US patent filing. Our patent portfolio as of March 3, 2004 is summarized in the following table:

Category	US patents granted		US applications filed		Foreign patents granted		Foreign applications filed

Methods of Use	9		7		2		14
Material Production-Method	5		6		5		33
Magnetic Separators	6		2		6		5
Platforms/Other Devices	10	*	10	*	7	*	27

Total	30		25		20		79

Our family of patents covering our cancer-related products will expire from February 2019 to February 2023 for issued patents and pending applications when issued, respectively. Our patents relating to our immunomagnetic particle technology will expire from July 2019 to October 2020 for issued patents and pending applications when issued, respectively. Our patents relating to our instrumentation platforms will expire between June 2019 and November 2023 for issued patents and pending applications when issued, respectively. Our group of patent filings covering supportive technology, related to control cells, instrument disposable cartridge designs and apparatus for cellular enrichment, when issued, will expire between August 2019 and November 2023.

Our products are subject to various federal, state and international rules and regulations governing the medical products industry. In the US, we are subject to federal regulation by the FDA pursuant to the Federal Food, Drug and Cosmetic Act. The FDA regulates the clinical testing, manufacture, labeling, sale, distribution and promotion of medical devices. Failure to comply with applicable requirements can lead to sanctions, including withdrawal of products from the market, recalls, refusal to authorize government contracts, product seizures, civil money penalties, injunctions and criminal prosecution.

The FDA classifies medical devices into one of three classes on the basis of the controls deemed necessary to reasonably ensure their safety and effectiveness:

Before being introduced into the market, our products must obtain market clearance through either the 510(k) pre-market notification process or the PMA application process. A 510(k) clearance typically will be granted if a company demonstrates to the FDA that its device is substantially equivalent in intended use, safety and effectiveness to a legally marketed Class I or II medical device or to a Class III device marketed prior to 1976 for which the FDA has not yet required the submission of a PMA. In some cases, clinical trials may be required to support a claim of substantial equivalence. It generally

takes from two to twelve months from the date of submission to obtain clearance of a 510(k) submission, but it may take longer.

After a medical device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a significant change in its intended use, requires a new 510(k) clearance or could require a PMA approval. The FDA requires each manufacturer to make this determination, but the FDA can review the decision. If the FDA disagrees with the manufacturer's decision not to seek FDA authorization, the agency may retroactively require the manufacturer to seek 510(k) clearance or PMA approval. The FDA also can require the manufacturer to cease marketing until clearance or approval is obtained or take other action. Under the Medical Device User Fee and Modernization Act of 2002, or MDUFMA, we are subject to a fee of up to $3,500 for each 510(k) submission.

If a previously unclassified medical device does not qualify for the 510(k) pre-market notification process because there is no predicate device to which it is substantially equivalent, and the device may be adequately regulated through general controls or special controls, the device may be eligible for clearance through what is called the de novo review process. If FDA grants de novo classification, the device will be placed into either Class I or Class II, and allowed to be marketed. In order to use the de novo procedure, the manufacturer must receive a letter from FDA stating that the device has been found not substantially equivalent and placed into Class III, and then within 30 days submit to FDA a request for a new classification. The FDA has 60 days in which to approve or deny the de novo classification request. If a product is reclassified into Class I or II through the de novo process, then that device may serve as a predicate device for subsequent 510(k) pre-market notifications.

If a medical device does not qualify for the 510(k) pre-market notification process and is not eligible for clearance through the de novo review process, a company must file a PMA application. The PMA application process generally requires more extensive pre-filing testing than is required for a 510(k) pre-market notification and is more costly, lengthy and uncertain. The PMA process can take one to two years or more. The PMA application process requires the manufacturer to prove the safety and effectiveness of the device to the FDA's satisfaction through extensive pre-clinical and clinical trial data, as well as information about the device and its components, including, among other things, device design, manufacturing and labeling. Before approving a PMA, the FDA generally also performs an on-site inspection of the applicant's manufacturing facilities to ensure compliance with QSR requirements. The current MDUFMA fee for us to submit a PMA is up to $206,811 per PMA, but we may qualify for a small business reduction in fee. After any PMA approval, a new PMA application or PMA supplement is required in the event of certain modifications to the device, its labeling, intended use or indication, or its manufacturing process.

The CellSearch Epithelial Cell Kit, along with our CellSpotter Analyzer, have received clearance through the de novo review process. Our CellSave Preservative Tube, our CellPrep System, our CellTracks AutoPrep System and our CellTracks Analyzer have received clearance through the 510(k) process. Our CellTracks Analyzer, however, is cleared only as a differential cell analyzer for CD3/CD4 cell analysis, and has not been cleared for cancer applications. Veridex has received 510(k) clearance for the Control Cell Kit, a predicate version of the CellSearch Epithelial Cell Control, and Veridex submitted the 510(k) for the CellSearch Epithelial Cell Control in April 2004. We believe that some of the products we are developing and anticipate will be sold in diagnostic kit form, especially products that may be used for screening, may require PMA approval, if we are unable to demonstrate to the FDA either that these potential products are substantially equivalent to a predicate device or are eligible for clearance through what is called the de novo review process.

Generally, to conduct clinical trials of a medical device, a sponsor must comply with the Investigational Device Exemption, or the IDE regulations. Studies of IVD devices are exempt from the IDE regulations if the testing:

In addition, IVD devices that are exempt from IDE requirements must be labeled that they are for investigational use only and that their performance characteristics have not been established. Whether or not an investigation is subject to the IDE regulations, a clinical investigator's data that may be submitted in connection with a marketing application must comply with the FDA's regulations and scientific standards relating to informed consent, institutional review board, or IRB, oversight of inspections, adherence to investigational protocols, and pertinent reports and recordkeeping. These scientific and regulatory expectations extend to the sponsors when they engage in clinical trials. All of our clinical trials to date have been conducted under the FDA's IDE exemption provisions. Although we typically consult with the FDA regarding the design of our studies prior to initiating them, this does not ensure that the FDA will accept the data from these studies. If the FDA were to determine that we should have complied with the IDE regulations for any of our studies, or if we fail to comply with any of these requirements, the FDA could refuse to grant permission to market our devices or impose other sanctions.

The FDA permits the distribution of products that are intended for research use in a laboratory-based phase of development. A research product may not be promoted for human clinical diagnostic or prognostic use. In addition, tests performed with products intended for research use must be labeled as such. We expect to market certain products, such as the CellSearch Profile Kit, initially for RUO.

The FDA regulates the sale of certain reagents, including some of our reagents, used in laboratory tests. The FDA refers to the reagents used in these tests as ASRs. ASRs react with a biological substance including those intended to identify a specific DNA sequence or protein. ASRs generally do not require FDA PMA approval or clearance if they are sold in compliance with the ASR regulations and are sold to:

Products sold under this exemption must be labeled in accordance with FDA requirements, including a statement that their analytical and performance characteristics have not been established. A similar statement would also be required on all related advertising and promotional materials. The FDA also limits the kind of performance claims that ASR manufacturers may make. Laboratories also are subject to restrictions imposed by the Federal Trade Commission and comparable state agencies on the labeling and marketing of tests that have been developed using ASRs. ASRs also must be manufactured

in accordance with QSRs. The ASR regulatory category is relatively new, and its regulatory boundaries are not well defined. We believe that ASRs that we intend to sell to research or clinical reference laboratories, currently do not require FDA approval or clearance. We cannot be sure, however, that the FDA will not change its policy to require pre-market approval or clearance for one or more of our ASRs. In addition, we cannot be sure that the FDA will not change its position in ways that could negatively affect our operations through regulation, policies or new enforcement initiatives.

Numerous requirements apply to manufacturers and distributors of marketed medical devices. Device manufacturers must be registered and their products listed with the FDA. Certain adverse events, product malfunctions, recalls and corrective actions must be reported to the FDA under post-market surveillance requirements. Manufacturers must comply with the FDA's QSRs, which establish extensive requirements for quality control, documentation and manufacturing procedures. The FDA also regulates product labeling, promotion, and in some cases, advertising, of medical devices. Products may only be promoted by us and any of our distributors for their approved or cleared indications. The FDA has actively enforced regulations prohibiting the marketing of products for unapproved uses. Violations of the FDA regulations may result in agency enforcement action. The FDA periodically inspects facilities to ascertain compliance with these and other requirements.

Our product development and testing activities are also subject to a variety of state laws and regulations. Any applicable state or local regulations may hinder our ability to manufacture or test our products in those states or localities. We are also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control, and disposal of hazardous or potentially hazardous substances. We may incur significant costs to comply with such laws and regulations now or in the future.

Federal and state laws protect the confidentiality of certain patient health information, including patient records, and restrict the use and disclosure of that protected information. In particular, the US Department of Health and Human Services published patient privacy rules under the Health Insurance Portability and Accountability Act of 1996. These privacy rules protect medical records and other personal health information by limiting its use and release, giving patients the right to access their medical records and limiting most disclosures of health information to the minimum amount necessary to accomplish an intended purpose. We believe that we generally have taken all necessary steps to comply with health information privacy and confidentiality statutes and regulations in all jurisdictions, both state and Federal. However, we, or the parties with which we do business, may not be able to maintain compliance in all jurisdictions where we do business. Failure to maintain compliance, or changes in state or Federal laws regarding privacy, could result in civil and/or criminal penalties and could have a material adverse effect on our business.

As of March 1, 2004, we had 113 employees at two facilities, consisting of one facility at our corporate address in Huntingdon Valley, PA and another facility in Enschede, The Netherlands. Eleven of these employees hold Ph.D. degrees and one of these employees holds an M.D. and a Ph.D. degree. Of the 105 full-time and 8 part-time employees, 60 are directly involved in research and development, and 34 are involved in manufacturing operations. Two of our full time employees are employed in The Netherlands. None of our employees is represented by labor unions or covered by collective bargaining agreements. We have not experienced any work stoppages and we consider our relations with our employees to be good.

We currently lease approximately 41,500 square feet of office and laboratory space in Huntingdon Valley, PA. Our current space is adequate to support commercial launch. The lease expires on September 30, 2010 although we can elect to terminate the lease any time after May 10, 2006, subject to an early termination payment.

We also lease approximately 1,400 square feet of office and laboratory research space in Enschede, The Netherlands, used to support our research and development activities. This lease expires on April 1, 2004 and is renewable for two-year periods and can be terminated at any time upon six months notice.

Our scientific advisory board, or SAB, consists of medical, scientific and clinical advisors and collaborators who consult with our scientists. In addition, our SAB members advise us regarding our research and development programs, the design of our research studies and clinical trials, and other medical and scientific matters related to our business. Our SAB consists of the following persons:

Ernest C. Borden, M.D., is a director for the Center of Cancer Drug Discovery and Development at the Cleveland Clinic Foundation.

David R. Dantzker, M.D., is a general partner of Wheatley MedTech Partners L.L.C. and Professor of Medicine at the Albert Einstein College of Medicine. He is the former President of the North Shore—LIJ Health System and chair of the American Board of Internal Medicine.

Jan Greve, Ph.D., is a Professor of Biophysics at the University of Twente and the Institute for Biomedical Technology in The Netherlands.

Daniel F. Hayes, M.D., is a Professor in Medicine and director of the Breast Cancer Program at the University of Michigan Cancer Center.

Paul A. Liberti, Ph.D., is our founder and our former Chief Technical Officer. Dr. Liberti is continuing as a member of the SAB following his recent resignation as our Chief Technical Officer upon reaching the age of 68 in March 2004. Prior to becoming our founder, he was a professor of biochemistry at Thomas Jefferson Medical College.

Seth A. Rudnick, M.D., one of our directors, is a general partner at Canaan Partners and is a Clinical Professor of Medicine, Medical Oncology, at the University of North Carolina.

Jonathan Uhr, M.D., is a Professor of Microbiology and Internal Medicine at the University of Texas Southwestern Medical Center and is also a member of the National Academy of Sciences.

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

Name	Age	Position(s)

Edward L. Erickson	57	Chairman of the Board, President and Chief Executive Officer
Leon W.M.M. Terstappen, M.D., Ph.D.	48	Senior Vice President, Research and Development, and Chief Scientific Officer
James G. Murphy	48	Senior Vice President, Finance and Administration, and Chief Financial Officer
Paul A. Liberti, Ph.D.	68	Founder and former Chief Technical Officer
James L. Wilcox, Esq.	52	Chief Counsel
Katharine Hawes	48	Vice President, Operations
Carrie Mulherin	42	Vice President, Marketing
Peter J. Scott	55	Vice President, Quality Assurance and Regulatory Affairs
Jonathan Cool	45	Director
J. William Freytag, Ph.D.	52	Director
Brian J. Geiger	60	Director
Ann Hanham, Ph.D.	51	Director
Zola P. Horovitz, Ph.D.	69	Director
Allen J. Lauer	66	Director
Marc Ostro, Ph.D.	54	Director
Seth A. Rudnick, M.D.	54	Director
Elizabeth E. Tallett	54	Director

Edward L. Erickson has served as the Chairman of our board of directors since April 1998, as our Chief Executive Officer since March 1999 and as our President since January 2000. From September 1998 to March 1999, he served as our interim Chief Executive Officer. From 1993 to 1998, Mr. Erickson served as President, Chief Executive Officer and as a director of DepoTech Corporation, at that time a publicly-traded pharmaceutical company in the drug delivery field. From 1991 to 1993, he served as President, Chief Executive Officer and as a director of Cholestech Corporation, a publicly-traded diagnostics company in the field of point-of-care testing and screening. From 1990 to 1991, Mr. Erickson served as President of Serono-Baker Diagnostics, Inc., a subsidiary of The Ares-Serono Group, now Serono, a publicly-traded biotechnology company headquartered in the United Kingdom that develops and markets pharmaceutical products in the treatment of infertility, multiple sclerosis, and growth hormone deficiencies. From 1988 to 1990, he served as Vice President, Financial Operations, of The Ares-Serono Group. From 1986 to 1988, Mr. Erickson held various senior executive positions, including General Manager, International Operations, and General Manager, Business Services Group, with Amersham International plc, now Amersham plc, a publicly-traded biotechnology company that specializes in radiopharmaceuticals for nuclear imaging techniques and life science research in genomics and molecular and cellular biology. He also serves as a director of NaPro BioTherapeutics, Inc., a publicly-traded life science-based company that focuses on cancer and genomics. From 1995 to 1998, Mr. Erickson served as a director of Megabios Corporation, a gene therapy company. Mr. Erickson holds a B.S. in Mathematics with a minor in Physics and an M.S. in Mathematics from the Illinois Institute of Technology, and an M.B.A. with high distinction

from Harvard University, where he was elected a Baker Scholar and was awarded the Loeb Rhoades Fellowship in Finance.

Leon W.M.M. Terstappen, M.D., Ph.D., has served as our Senior Vice President, Research and Development, and as our Chief Scientific Officer since 1999. From 1994 to 1998, Dr. Terstappen served as our Vice President, Research and Development. From 1987 to 1994, Dr. Terstappen served in various positions in the Immunocytometry Systems business unit of Becton Dickinson and Company, a publicly-traded company that manufactures and sells a variety of medical supplies and devices and diagnostic systems, including as Associate Scientific Director, Group Leader, and Senior Scientist. From 1983 to 1987, Dr. Terstappen practiced medicine in The Netherlands. He is the inventor or a coinventor of 30 issued US patents. Dr. Terstappen holds a Ph.D. in Applied Physics from Twente University, The Netherlands, and an M.D. from Groningen University Medical School, The Netherlands.

James G. Murphy has served as our Senior Vice President, Finance and Administration, and as our Chief Financial Officer since September 2000. From April 1999 to September 2000, Mr. Murphy served as our Vice President, Finance and Administration. From April 1998 to April 1999, he was a consultant providing financial services to various venture-backed health care companies. From March 1996 to April 1998, Mr. Murphy was Vice President, Finance and Administration, and Chief Financial Officer of Apollon, Inc., a biotechnology company engaged in the development of DNA-based vaccines. From 1987 to 1988, Mr. Murphy was Corporate Controller and Treasurer of American Cellular Network Corporation, a publicly-traded company that operated cellular telephone licenses in New Jersey and Delaware. From 1988 to 1995 Mr. Murphy served as Vice President, Chief Financial Officer and as a director of Infopage, Inc., a publicly-held radio beeper company that operated throughout the United States. He holds a B.S. in Accounting, cum laude, from Villanova University, and is a C.P.A. in Pennsylvania.

Paul A. Liberti, Ph.D. is our founder and has served as a consultant to us since 1999. Dr. Liberti served as our Chief Technical Officer from 1999 until his recent retirement in March 2004, and is continuing on as a consultant and as a member of our Scientific Advisory Board. Dr. Liberti served as our President and Chief Executive Officer from 1986 to 1999, and as our Chief Scientific Officer from 1984 to 1986. Prior to founding us, he was a professor at Thomas Jefferson Medical College. Dr. Liberti holds an A.B. in Chemistry from Columbia University, an M.S. in Biochemistry, with concentration in the basic medical sciences, from Loyola University School of Medicine and a Ph.D. in Physical Chemistry from Stevens Institute of Technology. He pursued postdoctoral studies at New Jersey Medical College, Thomas Jefferson Medical College and The Institute for Medical Research, Mill Hill, London, England.

James L. Wilcox, Esq., will become a full-time employee upon the effectiveness of the registration statement for this offering as our Vice President and Chief Counsel. He has served as a consultant to us and as our Chief Counsel since September 2000. From July 1998 to September 2000, Mr. Wilcox maintained a private law practice and also served as Vice President and General Counsel of Enriched Air Incorporated, a privately-held medical device technology startup company. From November 1995 to July 1998, Mr. Wilcox served as Vice President and General Counsel of Fuisz Technologies Ltd., at that time a publicly-traded development-stage medical products company. From October 1983 to November 1995, Mr. Wilcox held a number of legal and management positions at Abbott Laboratories, a diversified multinational health care company. Mr. Wilcox holds a B.S. in Chemistry and Physics from Bowling Green State University, and a J.D. from The University of Toledo College of Law.

Katharine Hawes has served as our Vice President, Operations, since 2000. From 1999 to 2000, Ms. Hawes served as our Senior Director, Operations. From 1993 to 1999, Ms. Hawes served in various capacities at Ventana Medical Systems, a publicly-traded company specializing in diagnostic instruments

and reagent systems, including as Senior Scientist/Project Manager from 1997 to 1999, Manager, Manufacturing Development and Reagent Formulations, from 1995 to 1997 and Scientist, Research and Development, from 1993 to 1995. From 1985 to 1988, she served as a Senior Associate Scientist at Centocor, a biopharmaceutical company that creates, acquires and markets therapeutic and diagnostic products and services. From 1984 to 1985, she served as a Senior Research Assistant at the Southwestern Foundation for Biomedical Research, a nonprofit institution focused on biomedical research. From 1981 to 1984, she served as a Scientist at DuPont, a science company offering a wide range of products and services to markets including agriculture, nutrition, electronics, communications, safety and protection, home and construction, transportation and apparel. From 1979 to 1981, she served as a Research Assistant at the Wistar Institute, an independent nonprofit biomedical research institute. Ms. Hawes holds a B.S. in Biology from Antioch College, has completed various graduate studies in Immunology and Microbiology at the University of Texas, and holds an M.B.A. from the University of Phoenix.

Carrie Mulherin has served as our Vice President, Marketing, since January 2002. From January 2000 to December 2001, Ms. Mulherin served as Director, Sales and Marketing, of ThauMDx, LLC, a privately held start-up diagnostics company in the cardiovascular disease products field. From October 1997 to January 2000, she was Vice President, Sales and Marketing, of Intracel Corporation, a company selling capital equipment and reagent kits in virology, infectious serology, autoimmune disease and cancer. Prior to 1997, she held various senior marketing management positions in other diagnostic and pharmaceutical companies. Ms. Mulherin received her A.B. in Molecular Biology from Princeton University and an M.B.A. in Marketing from the University of Scranton.

Peter J. Scott has served as our Vice President, Quality Assurance and Regulatory Affairs, since April 2002. From October 1997 to November 2001, he served as Vice President, Quality Assurance and Regulatory Affairs, of Pharmanetics Inc., a company engaged in developing technologies to monitor the effectiveness of coagulation therapies. From 1990 to 1997, he served as Director, Quality Assurance and Regulatory Affairs, of Gaymar Industries, Inc., a company that develops, manufactures, and markets healthcare products and services. From 1982 to 1990, he served in various capacities at C.R. Bard, Inc., a publicly-traded company that designs, manufactures and sells medical, surgical, diagnostic and patient care devices, including as Director, Quality Assurance and Regulatory Affairs, from 1987 to 1990, Manager, Corporate Quality Assurance, from 1985 to 1987 and Quality Control Manager from 1982 to 1985. Prior to his employment with C.R. Bard, Inc., Mr. Scott served as an engineer from 1980 to 1982 and as a Quality Control Supervisor from 1979 to 1980 at Becton Dickinson and Company, a publicly-traded company that manufactures and sells a variety of medical supplies and devices and diagnostic systems. From 1975 to 1979, he served as a Quality Control Supervisor at JT Baker Diagnostics, now Mallinckrodt Baker Inc., a company that produces laboratory, biotechnology and pharmaceutical, specialty industrial and microelectronic chemicals. Mr. Scott holds a B.S. in Biology from Tusculum College and an M.B.A., cum laude, from Mount Saint Mary's College. He is a Certified Quality Engineer, an American Society of Quality certification.

Jonathan Cool has served as one of our directors since January 2002. Mr. Cool is also a general partner of Foundation Medical Partners, a venture capital investment firm, a position he has held since 2001. From 1999 to 2000, he served as President, Chief Executive Officer and as a director of BioDTX, Inc., a privately-held early stage life science company. From 1997 to 1998, he served as the President, Chief Executive Officer and as a director of gene/Networks, Inc., a genomics company that was acquired by Warner-Lambert Company in May 1998. From 1993 to 1997, Mr. Cool served as Director of Business Development and Director of Technology Transfer of Human Genome Sciences, a publicly-traded company that researches and develops proprietary pharmaceutical and diagnostic products. From 1991 to 1993, he served as Director of Business and Market Development of Cygnus Therapeutic Systems, now

Cygnus, Inc., a publicly-traded company engaged in the development of diagnostic and drug delivery systems. From 1985 to 1991, he served in various management positions, and ultimately became the General Manager of Bioanalytical Instrumentation, at Molecular Devices Corporation, a publicly-traded company that develops, manufactures and markets bioanalytical measurement systems. Before his career in biopharmaceuticals, he worked in venture capital with Dillon Reed and in management consulting with Bain & Company. Mr. Cool received a B.A. with Distinction and Honors in Human Biology from Stanford University, and an M.B.A. from Harvard University.

J. William Freytag, Ph.D., has served as one of our directors since 1998. He has also served as President, Chief Executive Officer and as a director of Myogen, Inc., a publicly-held pharmaceutical company, since July 1998, and as Chairman of the board of directors of Myogen, Inc. since December 2000. From October 1994 to May 1998, he served as a Senior Vice President of Somatogen, Inc., a biopharmaceutical company, where he was responsible for corporate and commercial development. From May 1990 to September 1994, Dr. Freytag served as President of Research and Development at Boehringer Mannheim Corporation, an international healthcare company. Prior to joining Boehringer, he worked for ten years in various research and business positions at DuPont Medical Products, Inc., a subsidiary of DuPont, a science company. Dr. Freytag holds a B.S. in biochemistry from Purdue University and a Ph.D. in biochemistry from the University of Kansas Medical Center.

Brian J. Geiger has served as one of our directors since August 2000. Mr. Geiger served as Executive Vice President and Chief Financial Officer of Claneil Enterprises, Inc., a private equity firm, from 1997 through March 2004. From 1995 to 1997, Mr. Geiger served as Vice President, Finance, and Chief Financial Officer of The Liposome Company, Inc., at that time a publicly-traded biotechnology company. From 1972 to 1995, he held various employment positions at several Johnson & Johnson companies, specifically as Vice President, Finance, and as a director of Ortho Pharmaceutical Corporation from 1988 to 1993, and as Vice President, Finance, and Chief Financial Officer of Johnson & Johnson-Merck Consumer Pharmaceuticals Co. from 1993 to 1995. Mr. Geiger is currently a director of FEI, Inc., a privately-held company. Mr. Geiger holds a B.A. in Economics from Rutgers University, an M.B.A. in Finance from Seton Hall University, and has been a C.M.A. since 1986.

Ann Hanham, Ph.D., has served as one of our directors since January 2001. Dr. Hanham is also a Managing Director of Burrill & Company, a life science merchant bank, and serves on the boards of directors of BioMimetic Pharmaceuticals, Inc., Sention, Inc., and Veritas Medicine, Inc. From 1998 to 2000, she served as Vice President of Intermune Pharmaceuticals, Inc., a company that develops and commercializes products for the treatment of serious pulmonary and infectious diseases and cancer. From 1995 to 1998, she served as the Senior Director for Oncology Product Development of Otsuka America Pharmaceuticals, Inc., a company that commercializes innovative pharmaceutical products in the US. From 1991 to 1995, she served as the Director for Medical Affairs of Celtrix Pharmaceuticals, Inc., a biopharmaceutical company that specializes in therapeutics for the treatment of seriously debilitating, degenerative conditions primarily associated with aging, chronic diseases and severe trauma. From 1988 to 1991, she served as the Senior Manager for Medical Affairs for the Immunocytometry Systems division of Becton Dickinson and Company, a publicly-traded company that manufactures and sells a variety of medical supplies and devices and diagnostic systems. In 1988, she also served as the Manager for Regulatory Affairs for the Immunocytometry Systems division of Becton Dickinson. From 1984 to 1988, Dr. Hanham worked as a regulatory toxicologist with the Health Protection Branch (now the Health Products and Food Branch) of Health and Welfare Canada (now Health Canada), the Canadian federal government department responsible for developing health policy, enforcing health regulations and promoting disease prevention. Dr. Hanham holds a Ph.D. from the University of British Columbia, an

M.S.c. from Simon Fraser University, and a B.S.c. from the University of Toronto. She was also Board Certified in Toxicology in 1986.

Zola P. Horovitz, Ph.D., has served as one of our directors since September 1997. Dr. Horovitz has served as a consultant to biotechnology and pharmaceutical companies since 1994. From August 1991 to May 1994, Dr. Horovitz served as Vice President, Business Development and Planning, Pharmaceutical Group of Bristol-Myers Squibb Company, a publicly-traded pharmaceutical company. From 1989 to 1991, Dr. Horovitz served as Vice President, Licensing, of Bristol-Myers Squibb Company, and from 1987 to 1989, Dr. Horovitz served as Vice President, Scientific Liaison, of E.R. Squibb, Inc. Prior to 1987, Dr. Horovitz spent approximately 30 years in various management positions in biological research. Dr. Horovitz is also a director of Avigen, Inc., BioCryst Pharmaceuticals, Inc., Genaera Corporation, Palatin Technologies, Inc., DOV Pharmaceutical, Inc., Paligent, Inc., NitroMed Inc., GenVoc, Inc. and a number of private companies. He is a graduate of, and holds an M.S. and a Ph.D. in Pharmacology from, the University of Pittsburgh.

Allen J. Lauer has served as one of our directors since November 2003. Mr. Lauer also serves as Chairman of Varian, Inc., a publicly-traded supplier of scientific instruments, vacuum technologies and electronic manufacturing solutions. From 2002 to 2003, he served as Chairman and Chief Executive Officer of Varian, Inc. From 1999 to 2002, he served as President and Chief Executive Officer of Varian, Inc. Prior thereto, he was Executive Vice President of Varian Associates, Inc., from which the capital stock of Varian, Inc. was distributed to shareholders in 1999. Mr. Lauer also has been a director of UNOVA, Inc., since February 2003. Mr. Lauer holds a B.S. in electrical engineering from Stanford University and a M.B.A. from University of California, Berkeley.

Marc Ostro, Ph.D., has served as one of our directors since March 2002. Dr. Ostro has been a managing director of TL Ventures, a Pennsylvania-based venture capital firm, since January 2002. From May 2000 to January 2002, he was a private consultant to the biotechnology industry. From November 1997 to May 2000, he served as a Senior Managing Director and Group Leader of KPMG Life Science Corporate Finance, an operating division of KPMG International Consulting Group. From June 1997 to November 1997, Dr. Ostro served as a Senior Vice President at Ross Financial Group, engaged in portfolio management. From May 1994 to June 1997, he was Managing Director and Senior Biotechnology Analyst at UBS Securities. Prior to May 1994, he was a Senior Vice President and Senior Biotechnology Analyst at Mabon Securities. In July 1981, he co-founded The Liposome Company, a previously publicly-traded company that developed, manufactured and marketed liposome- and lipid-based pharmaceuticals for the treatment of cancer and other life-threatening diseases, where he held various positions including President, Vice Chairman and Chief Scientific Officer until May 1993. Dr. Ostro is also a director of several private companies. Dr. Ostro received a B.A. in biology from Lehigh University, a Ph.D. in biochemistry from Syracuse University, and was a postdoctoral fellow and assistant professor at the University of Illinois Medical School.

Seth A. Rudnick, M.D., has served as one of our directors since April 1999 and also serves on our scientific advisory board. Dr. Rudnick is a general partner of Canaan Partners, a venture capital firm concentrating on health care investments. From 1993 to 1998, he served as the Chairman and Chief Executive Officer of CytoTherapeutics, Inc., now Stem Cells Inc., a company specializing in cell-based therapeutics designed to treat diseases and disorders of the central nervous system. From 1988 to 1991, he served as Senior Vice President, Biotechnology Research and Development, of R.W. Johnson Pharmaceutical Research Institute, a division of Johnson & Johnson. Dr. Rudnick currently serves as a director of Genaissance Pharmaceuticals, Inc., a publicly-traded company specializing in the discovery and use of human gene variation for the development of personalized medicines and DNA-based diagnostics, as

well as several private companies. He is a Clinical Professor of Medicine at University of North Carolina at Chapel Hill, where he teaches and advises the faculty on biotechnology issues. Dr. Rudnick received his undergraduate degree from the University of Pennsylvania and an M.D. from Washington University, and pursued post-doctoral studies in Medical Oncology at Yale University.

Elizabeth E. Tallett has served as one of our directors since July 1998. Ms. Tallett has been a Principal of Hunter Partners, LLC, which provides management services to developing life sciences companies, since July 2002. She was also President and Chief Executive Officer of Dioscor, Inc. from April 1996 to July 2003, and of Marshall Pharmaceuticals, Inc. from November 2000 to January 2003, both specialty pharmaceutical companies. Ms. Tallett was President and Chief Executive Officer of Ellard Pharmaceuticals Inc., and Galenor Inc., both biopharmaceutical companies, from 1997 to 2000 and 1999 to 2000, respectively. Ms. Tallett is a director of Coventry Health Care, Inc., IntegraMed America, Inc., Principal Financial Group, Inc., Varian, Inc., and Varian Semiconductor Equipment Associates, Inc. She holds a B.S.c. with First Class Honors in mathematics and economics from the University of Nottingham, England.

Our board of directors is authorized to have eleven members and we currently have ten members. One of our former directors, Ting Pau Oei, Vice President of Johnson & Johnson Development Corporation, submitted his resignation from the board and our audit and compliance committee, effective as of December 8, 2003. Two of our directors, Dr. Hanham and Dr. Ostro, have indicated to us that they intend to resign from the Board effective June 1, 2004. Mr. Cool, another director, has indicated to us that he does not intend to stand for reelection at our 2005 annual meeting of stockholders.

Our board of directors has established an audit and compliance committee, a compensation committee, a nominating and governance committee and a pricing committee. Pursuant to our bylaws, our board of directors may from time to time establish other committees to facilitate the management of our business and operations.

Our audit and compliance committee currently consists of Mr. Geiger (chairman), Dr. Hanham and Ms. Tallett. Our audit and compliance committee is responsible for assuring the integrity of our financial control, audit and reporting functions and reviews with our management and our independent auditors the effectiveness of our financial controls and accounting and reporting practices and procedures. In addition, this committee reviews the qualifications of our independent auditors, is responsible for their appointment, compensation, retention and oversight and reviews the scope, fees and results of activities related to audit and non-audit services. Prior to the formation of this committee, the full board of directors conducted the responsibilities of this committee, which met annually with representatives of our independent auditors, including in executive sessions where members of management were excused.

Our compensation committee consists of Dr. Horovitz (chairman), Dr. Freytag and Dr. Rudnick. The compensation committee's principal responsibility is to administer our stock plans and to set the salary and incentive compensation, including stock option grants, for our Chief Executive Officer and senior staff members.

Our nominating and governance committee consists of Dr. Ostro (chairman), Mr. Cool, Dr. Hanham and Ms. Tallett. The nominating and governance committee is responsible for reviewing and making recommendations on the composition of our board and selection of directors, periodically assessing the functioning of our board of directors and its committees, and making recommendations to our board of directors regarding corporate governance matters and practices.

We strive to operate within a comprehensive plan of corporate governance for the purpose of defining responsibilities, setting high standards of professional and personal conduct and assuring compliance with these responsibilities and standards. We have implemented changes to our corporate governance structure and procedures in response to the Sarbanes-Oxley Act of 2002 and the adopted changes in the Nasdaq National Market's listing standards regarding corporate governance. We believe that our current corporate governance structure and procedures comply with existing corporate governance requirements. We will strive to maintain our board of directors and committees in full compliance with these corporate governance requirements on an ongoing basis. We will also continue to regularly monitor developments in the area of corporate governance.

Each of our directors was entitled to receive $6,000 in annual cash compensation for 2003 and had the option to receive all or any portion of the $6,000 in the form of shares of our common stock instead of cash compensation. In addition, each of our directors who is not affiliated with any of our principal stockholders received an option in 2003 to purchase 8,000 shares of our common stock. Directors who are affiliated with any of our principal stockholders did not receive these options to purchase our common stock. Instead, we granted to the principal stockholders with whom these directors are affiliated warrants to purchase 8,000 shares of our common stock. Each non-employee chairperson of a committee of our board of directors also received an option in 2003 to purchase an additional 2,000 shares. These options and warrants generally become vested over a period of two years.

Commencing with the completion of this offering, we intend to provide the following compensation to each of our non-employee directors:

In addition, we intend to provide to each of our non-employee directors who serve on our committees a $500 fee for each meeting attended and intend to provide to each of our committee chairpersons an additional annual stock option grant to purchase 4,000 shares of our common stock at the then fair market value per share and vesting over four years.

Dr. Horovitz, Dr. Freytag and Dr. Rudnick served on our compensation committee in 2002 and 2003. During 2002 and 2003, none of our executive officers served as a director or member of the compensation committee of any other entity that had any executive officer who served on our board of directors or on our compensation committee.

	Per Share	Total

Public offering price	$	$

Underwriting discounts and commissions	$	$

Proceeds, before expenses, to us	$	$

			Years Ended December 31,
Statement of operations data:			1999			2000			2001			2002			2003

			(in thousands, except share and per share data)

License revenue from related party			$	—		$	183		$	575		$	621		$	2,636
Other revenue				—			—			—			311			338

Total revenue				—			183			575			932			2,974
Expenses:
	Research and development			3,014			5,109			10,493			15,797			16,032
	General and administrative			1,594			2,526			2,662			3,563			4,512

		Total operating expenses		4,608			7,635			13,155			19,360			20,544

Operating loss				(4,608	)		(7,452	)		(12,580	)		(18,428	)		(17,570	)

Other income from related party				—			—			—			—			250
Interest income (expense), net				204			498			538			107			(323	)

Net loss attributable to common stockholders			$	(4,404	)	$	(6,954	)	$	(12,042	)	$	(18,321	)	$	(17,643	)

Net loss per common share - basic and diluted			$	(11.34	)	$	(17.45	)	$	(28.44	)	$	(42.31	)	$	(37.90	)

Weighted average common shares outstanding - basic and diluted				388,422			398,412			423,340			433,014			465,527

Pro forma net loss per common share - basic and diluted (unaudited)(1)															$	(1.28	)

Pro forma weighted average common shares outstanding - basic and diluted (unaudited)(1)																13,824,340

		As of December 31, 2003
		Actual			Pro forma			Pro forma as adjusted
		(in thousands, except share and per share data)

Cash and cash equivalents		$	30,601		$	30,601		$	73,541

Long-term obligations, less current portion		$	3,792		$	3,792		$	3,792

Stockholders' equity (deficit):
	Convertible preferred stock; 51,390,552 shares issued and outstanding, actual; no shares issued and outstanding, pro forma and pro forma as adjusted; $87,756 aggregate preference in liquidation, actual		85,115			—			—
	Common stock, par value $0.001 per share; 25,000,000 shares authorized, actual, 100,000,000 shares authorized, pro forma and pro forma as adjusted; 485,820 shares issued and outstanding, actual; 15,933,633 shares issued and outstanding, pro forma; 21,933,633 shares issued and outstanding, pro forma as adjusted		—			16			22
	Additional paid-in capital		7,033			92,132			135,066
	Deferred stock compensation		(3,858	)		(3,858	)		(3,858	)
	Loan for stock options		(19	)		(19	)		(19	)
	Deficit accumulated during the development stage		(63,606	)		(63,606	)		(63,606	)

	Total stockholders' equity		24,665			24,665			67,605

Total capitalization		$	28,457		$	28,457		$	71,397

Assumed initial public offering price per share					$	8.00
	Net tangible book value per share as of December 31, 2003	$	50.77
	Pro forma decrease in net tangible book value per share attributable to conversion of preferred stock outstanding at December 31, 2003		(49.22	)

	Pro forma net tangible book value per share of common stock as of December 31, 2003		1.55
	Pro forma increase per share attributable to the offering		1.53
Pro forma as adjusted net tangible book value per share of common stock after this offering						3.08

Pro forma dilution per share to new investors					$	4.92

		Total shares			Total consideration
		Total shares			Total consideration				Average price per share
		Number	%		Amount		%		Average price per share

Existing stockholders		15,933,633	72.6	%	$	89,443,567	65.1	%	$	5.61
New investors		6,000,000	27.4			48,000,000	34.9			8.00

	Total	21,933,633	100.0	%	$	137,443,567	100.0	%

Prospectus summary		1
Risk factors		8
Special note regarding forward-looking statements		26
Use of proceeds		27
Dividend policy		28
Capitalization		29
Dilution		31
Selected consolidated financial data		33
Management's discussion and analysis of financial condition and results of operations		34
Business		51
Scientific advisory board		86
Management		87
Certain relationships and related party transactions		105
Principal stockholders		107
Description of capital stock		112
Shares eligible for future sale		116
Underwriting		118
Legal matters		121
Experts		121
Where you can find additional information		122
Index to consolidated financial statements		F-1

	Year ended December 31
Research and development expenses	2003		2002

	(in thousands)
Salaries, benefits and taxes	$	7,608	$	6,132
Laboratory supplies and expenses		2,240		1,402
Instrument development costs		2,047		3,057
Clinical trial expenses		931		2,167
Contracted research costs		1,610		1,235
All others		1,596		1,804

Total research and development expenses	$	16,032	$	15,797

	Year ended December 31
Stock-based compensation expenses included in:	Year ended December 31
Stock-based compensation expenses included in:	2003		2002

	(in thousands)
Research and development expenses	$	412	$	57
General and administrative expenses		230		—

	$	642	$	57

Summary of initial sale of common stock and all sales of convertible preferred stock	Year(s)	Number of shares	Price per share		Net proceeds		Equivalent common shares

Initial sale of common stock	1984	10,000	$	150.00	$	1,500,000	10,000

Convertible preferred stock
Series A	1988	36,350		10.00		363,500	669,343
Series B	1989	30,000		10.00		300,000	236,952
Series C	1990	30,000		10.00		300,000	296,016
Series D	1999	33,251,090		0.32		10,596,967	2,216,742
Series E	2000	4,588,612		4.74		21,612,236	3,059,083
Series F	2001, 2003	13,454,500		4.00		51,942,414	8,969,677

					$	85,115,117	15,447,813

	Payments due in
Contractual obligations	Total		2004		2005 and 2006		2007 and 2008		After 2008

	(in thousands)
Lines of credit	$	8,147	$	3,817	$	4,113	$	217	$	—
Operating leases		5,067		714		1,482		1,507		1,364
Capital lease obligations		2		2		—		—		—
Open purchase order commitments (1)		4,133		4,133		—		—		—

Total contractual obligations	$	17,349	$	8,666	$	5,595	$	1,724	$	1,364

Milestone	Payment criteria	Target date	Amount ($US)

Commercial readiness for breast cancer therapy monitoring	Steering committee approves product release for sale of an FDA-approved breast cancer therapy monitoring system	None	1,500,000

Metastatic colorectal or prostate cancer monitoring	First patient enrolled in clinical trial	6/30/04	500,000
	Steering committee approves regulatory submission	11/30/05	500,000

Prostate cancer	Feasibility of large blood volume method demonstrated and product concept proposed	9/30/04	300,000
	First patient enrolled in clinical trial	6/30/05	333,000
	Steering committee approves regulatory submission	12/31/07	500,000

Lung cancer: adjuvant prognosis and recurrence	First patient enrolled in clinical trial	10/31/04	333,000
monitoring	Steering committee approves progress and data review for clinical trial after significant percentage of patients properly enrolled	3/31/06	250,000
	Steering committee approves regulatory submission	12/31/07	500,000

Colorectal cancer: adjuvant prognosis and recurrence	First patient enrolled in clinical trial	1/31/05	334,000
monitoring	Steering committee approves progress and data review for clinical trial after significant percentage of patients properly enrolled	6/30/06	250,000
	Steering committee approves regulatory submission	12/31/07	500,000

Tumor cell profiling reagents	Steering committee approves product development process, first product commercially available, second product completes production readiness review, and third product demonstrates proof of principle and acquired antibody	9/30/04	200,000

Large volume sample processing	Steering committee approves commercial readiness	7/31/06	500,000

Cancer type	Stage	Year	Site(s) [Reference/Publication]	Key findings	Number of patients and controls

Breast	Metastatic	2003	Multicenter (20 sites) [Not yet published.]	CTCs predict time to progression and overall survival; subject of 510(k) submission that received clearance.	177 patients 345 controls

Breast	Metastatic	2001	Georgetown University [Monitoring Circulating Epithelial Cells (CEC) in the Blood of Patients with Advanced Carcinoma of the Breast: A Pilot Study. Proceedings of the American Society of Clinical Oncology, abstract #1964, 2001.]	CTCs predict response in 80% of patients after two cycles of therapy.	28 patients 22 controls

Breast	Recurrence	2000	Thomas Jefferson University [Peripheral Blood Tumor Cell Load Reflects the Clinical Activity of the Disease in Patients with Carcinoma of the Breast. International Journal of Oncology 17(3); 573-578, 2001.]	CTCs detected in patients after surgery for breast cancer. Presence of CTCs may predict recurrence.	45 patients 32 controls

Breast	Metastatic	2000	Georgetown University [Monitoring Expression of HER-2 on Circulating Epithelial Cells in Patients with Advanced Breast Cancer. International Journal of Oncology 21(5); 1111-1118, 2002.]	HER-2/neu protein detected on CTCs in 9 of 19 patients.*	19 patients 22 controls

Breast	Various	1998	University of Texas Southwestern [Detection and Characterization of Carcinoma Cells in the Blood. Proceedings of the National Academy Sciences 95; 4589-4594, 1998.]	CTCs present in cancer patients; CTCs may be useful for early detection and monitoring therapy.	30 patients 13 controls

Cancer type	Stage	Year	Site(s) [Reference/Publication]	Key findings	Number of patients and controls

Colorectal	Metastatic	2003	Fox Chase Cancer Center [Isolation And Characterization Of Circulating Tumor Cells in Patients with Colorectal Cancer. Proceedings of the American Society of Clinical Oncology, abstract #1186, 2003.]	Changes in CTCs correlate with clinical status over time.	50 patients

Colorectal	Various	1999	Lankenau Hospital and Thomas Jefferson University [Detection of Colorectal Cancer in Peripheral Blood Using Ferrofluids. American Society of Colon and Rectal Surgeons, abstract #262, 1999.]	CTCs detected in colorectal cancer patients.	44 patients 27 controls

Prostate	Metastatic	2002	Thomas Jefferson University [Not yet published.]	Observed apoptosis (cell death) of CTCs in prostate cancer patients.	12 patients

Prostate	Metastatic	2002	Thomas Jefferson University [mRNA Profiles of Circulating Tumor Cells (CTC) During Therapy of Advanced Prostate Cancer Patients. American Association of Cancer Researchers, abstract #39, 2002.]	Gene expression can be assessed in CTCs of prostate cancer patients.	9 patients 13 controls

Prostate	Metastatic	2001	Thomas Jefferson University [Changes in Circulating Carcinoma Cells in Metastatic Prostate Cancer Patients Correlates with Disease Status. Urology 58: 386-392, 2001.]	Changes in CTCs correlate with clinical status over time.	10 patients 22 controls

Product		Description	Status

Sample collection
	CellSave Preservative Tube	Evacuated blood collection tube with preservative	510(k) cleared. Commercialized for IVD use.

Sample preparation
	CellPrep Sample Preparation System	Semi-automated instrument to capture and label cells from 7.5 ml blood samples	510(k) cleared. In use in ongoing research trials. Currently not planned to be commercialized.

	CellTracks AutoPrep System	Automated instrument to capture and label cells from 7.5 ml blood samples	510(k) cleared. Commercialized for RUO. Launch for IVD use planned for third quarter of 2004.

	CellTracks LVSP System	Instrument, reagents and proprietary disposables to pre-process a 30ml blood sample prior to preparation in the CellTracks AutoPrep System	Class I, 510(k) exempt device in development. Product launch planned for second half of 2004.

Sample presentation
	CellTracks MagNest Cell Presentation Device	Device that presents magnetically labeled cells for analysis. An accessory of the CellTracks AutoPrep System and CellSpotter Analyzer	Commercialized for RUO as an accessory to the CellSpotter Analyzer and CellTracks AutoPrep System. Launch for IVD use planned for third quarter of 2004.

Sample analysis
	CellSpotter Analyzer	Semi-automated fluorescence microscope used to count and characterize cells in the MagNest Cell Presentation Device	510(k) cleared for metastatic breast cancer. Commercialized for RUO. Launch for IVD use planned for third quarter of 2004. Second generation in development.

	CellTracks Analyzer	Modular bench top scanning cytometer used to characterize cells in the MagNest Cell Presentation Device	510(k) cleared for counting of certain types of white blood cells. In development for analysis of CTCs.

	CellTracks EasyCount System	Simple cell counter used to count and characterize cells in the MagNest cell presentation device	Early development

Reagent kits
	CellSearch Epithelial Cell Kit (a Veridex product)*	Counting of CTCs using the CellTracks AutoPrep System and CellSpotter Analyzer	510(k) cleared for metastatic breast cancer. Commercialized for RUO. Launch for IVD use planned for third quarter of 2004.

	CellSearch Epithelial Cell Control (a Veridex product)*	Two levels of controls that monitor the performance of the CellTracks AutoPrep System, CellSpotter Analyzer and the CellSearch Epithelial Cell Kit	510(k) submitted in April 2004. Commercialized for RUO. Launch for IVD use planned for third quarter of 2004.

	CellSearch Profile Kit (a Veridex product)*	Isolation of CTCs using the CellTracks AutoPrep System for molecular or cell analysis	Commercialization for RUO planned for second quarter of 2004. Not planned for IVD use.

	CellTracks Endothelial Cell Kit	Counting of endothelial cells	In development. Commercialization planned for RUO for fourth quarter of 2004.

	CellTracks Fungal Assay Kit	Detection of fungal infection	In research.

Cell profile reagents
	Tumor profile reagents (a Veridex product)*	For characterization of CTCs isolated using the CellSearch Epithelial Cell Kits	In development. Commercialization planned for third quarter of 2004 as ASRs. No FDA review is anticipated to be required.

	Legg Mason Wood Walker
	Incorporated