1022974--3/15/2006--DECODE_GENETICS

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Risks Related to Our Development of DG031 The Phase III clinical trial for DG031 will require the recruitment of patients based on ethnicity and haplotype status; recruitment rates may be lower than we expect thus delaying the trial and hurting our commercial prospects. We have only indirect evidence from biomarkers studies about the effectiveness of DG031 and this data may not be validated in the Phase III clinical trial. Our patent protection for DG031 may provide marketing exclusivity for only a limited term. Risks Related to Our Business We may not successfully develop or derive revenues from any products. If we continue to incur operating losses longer than anticipated, or in amounts greater than anticipated, we may be unable to continue our operations. If our assumption about the role of genes in disease is wrong, we may not be able to develop useful products. In order to conduct clinical trials and to market our drugs we will have to develop methods to produce these drugs using clinically approved methods and at commercially viable rates Clinical trials required for our product candidates or the products of our customers and partners are expensive and time-consuming, their outcome is uncertain and we may not achieve our projected development goals in the timeframes we have announced and expect. Co-development of therapeutic and diagnostic products may be required, and delays in the development and approval of a commercially available diagnostic may delay drug approval or impede market acceptance of the therapeutic product. If we are not able to obtain sufficient additional funding to meet our capital requirements, we may be forced to reduce or terminate our research and product development programs. The commercial success of any products that we may develop will depend upon the degree of market acceptance among physicians, patients, healthcare payors and the medical community. If we cannot successfully develop a marketing and sales force or maintain suitable arrangements with third parties to market and sell our products, our ability to deliver products may be impaired. If we cannot successfully form and maintain suitable arrangements with third parties for the manufacturing of the products we may develop, our ability to develop or deliver products may be impaired. Our reliance on the Icelandic population may limit the applicability of our discoveries to certain populations. If a substantial portion of participants in our genetics research studies withdraw their informed consent, our ongoing research may suffer. If we fail to protect confidential data adequately, we could incur a liability. Some parts of our product development services create a risk of liability from clinical trial participants and the parties with whom we contract. If, in the course of these trials or activities, Use of therapeutic or diagnostic products developed as a result of our programs may result in product liability claims for which we have inadequate insurance. Our fee-for-service work bears certain risks of liability to our customers. Increased leverage as a result of our convertible debt may harm our financial condition and results of operations. We may be unable to hire and retain the key personnel upon whom our success depends. Currency fluctuations may negatively affect our financial condition. Our contracts may terminate upon short notice. Risks Related to Our Collaborative Relationships If we are unable to form and maintain the collaborative relationships that our business strategy requires, our programs will suffer and we may not be able to develop products. Dependence on collaborative relationships may lead to delays in product development, product defects and disputes over rights to technology. Risks Related to Our Industry Concerns regarding the use of genetic testing results may limit the commercial viability of any products we develop. We may not be able to compete successfully with other companies and government agencies in the development and marketing of products and services. Changes in outsourcing trends and economic conditions in the pharmaceutical and biotechnology industries could adversely affect our growth. If regulatory approvals for products resulting from our gene discovery programs are not obtained, we will not be able to derive revenues from these products. Third party reimbursement and health care reform policies may reduce market acceptance of our products. Our corporate compliance program cannot guarantee that we are in compliance with all applicable federal and state regulations in the United States, Iceland, the European Union and elsewhere. Our operations involve a risk of injury or damage from hazardous materials, and if an accident were to occur, we could be subject to costly and damaging liability claims. Risks Related to Our Intellectual Property We may not be able to protect the proprietary rights that are critical to our success. Our patent applications covering DG041, DG051 and DG061 have not issued yet as patents. Any patent protection we obtain for our products may not prevent marketing of similar competing products. Any patents we obtain may be challenged by producers of generic drugs. Risks Related to Investing in Our Stock Future sales of common stock may dilute our stockholders. The price of our common stock is volatile and the market value of your investment may decrease. We may issue preferred stock with rights that could affect your rights and prevent a takeover of the business. We currently do not intend to pay dividends on our common stock and consequently, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.

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1022974--3/15/2006--DECODE_GENETICS_INC