1116449--3/24/2006--XENOGEN

related topics

{property, intellectual, protect}

{customer, product, revenue}

{product, liability, claim}

{control, financial, internal}

{acquisition, growth, future}

{stock, price, operating}

{stock, price, share}

{operation, natural, condition}

{personnel, key, retain}

{cost, regulation, environmental}

{product, candidate, development}

{regulation, government, change}

{provision, law, control}

{cost, operation, labor}

If our proposed merger with Caliper Life Sciences, Inc. is not consummated, our stock price, business and operations could be harmed. We have a history of losses and an accumulated deficit of $186.3 million as of December 31, 2005, and we may never achieve profitability. If our products and services do not become widely used by pharmaceutical, biotechnology, biomedical and chemical researchers, it is unlikely that we will ever become profitable. As a company in the early stage of commercialization, our limited history of operations makes evaluation of our business and future growth prospects difficult. Our future revenue is unpredictable and could cause our operating results to fluctuate significantly from quarter to quarter. The termination or non-renewal of a large contract or the loss of, or a significant reduction in, sales to any of our significant customers could harm our operating results. We may not fully realize our revenue under long-term contracts, which could harm our business and result in higher losses than anticipated. If we are unable to meet customer demand, it would adversely impact our financial results and restrict our sales growth. We depend on a limited number of suppliers, and we will be unable to manufacture or deliver our products if shipments from these suppliers are interrupted or are not supplied on a timely basis. Because we receive revenue principally from biomedical research institutions and pharmaceutical, biotechnology and chemical companies, the industry conditions faced by those companies and their capital spending policies may have a significant effect on the demand for our products. If we fail to properly manage our growth, our business could be adversely affected. We have a limited sales and marketing organization, and although we intend to increase our sales and marketing organization, we may be unable to build an organization to meet demand for our products and services. We depend on key employees in a competitive market for skilled personnel, and without additional employees, we cannot grow or achieve profitability. Our intellectual property rights, including one patent that is due to expire in 2006, may not provide meaningful commercial protection for our products, which could enable third parties to use our technology, or very similar technology, and could reduce our ability to compete in the market. We may need to initiate lawsuits to protect or enforce our patents or other proprietary rights, which would be expensive and, if we lose, may cause us to lose some of our intellectual property rights, which would reduce our ability to compete in the market and may cause our stock price to decline. Our success will depend partly on our ability to operate without infringing or misappropriating the proprietary rights of others. Our rights to the use of technologies licensed to us by third parties are not within our control, and without these technologies, our products and programs may not be successful and our business prospects could be harmed. We occasionally may become subject to commercial disputes that could harm our business. We face competition from companies with established technologies for in vivo biological assessment, which may prevent us from achieving significant market share for our products. Failure to raise additional capital or generate the significant capital necessary to expand our operations and develop new products could reduce our ability to compete. Contamination in our animal populations could damage our inventory, harm our reputation and result in decreased sales. If a natural or man-made disaster strikes our manufacturing facility, we would be unable to manufacture our products for a substantial amount of time and we would experience lost revenue. Terrorist acts, acts of war and natural disasters may seriously harm our business and revenues, costs and expenses and financial condition. We use hazardous materials in our business. Any claims relating to improper handling, storage or disposal of these materials could be time consuming and costly. Compliance with governmental regulations could increase our operating costs, which would adversely affect the commercialization of our technology. Public perception of ethical and social issues may limit or discourage the use of mice for scientific experimentation, which could reduce our revenues and adversely affect our business. We may engage in future acquisitions, which could be expensive and time consuming, and such acquisitions could adversely affect your investment in us as we may never realize any benefits from such acquisitions. Decreased effectiveness of equity compensation could adversely affect our ability to attract and retain employees, and adoption of changes in accounting for equity compensation could adversely affect earnings. We expect that our stock price will fluctuate significantly, and you may not be able to resell your shares at or above your investment price. We have recently begun a more extensive assessment of the adequacy of our internal control system, which will be costly and could result in the identification of deficiencies in our system of internal controls. If the ownership of our common stock continues to be highly concentrated, it may prevent you and other stockholders from influencing significant corporate decisions and may result in conflicts of interest that could cause our stock price to decline. Future sales of common stock by our existing stockholders may cause our stock price to fall. Our charter documents and Delaware law may inhibit a takeover that stockholders consider favorable and could also limit the market price of investors stock.

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1116449--3/24/2006--XENOGEN_CORP