Business Overview

We are the leader in the development and production of human therapeutic proteins through transgenic technology that enables animals to produce what is known as a recombinant form of a specified human protein in their milk. Using this technology, we are developing a portfolio of recombinant blood proteins to treat a range of genetic and acquired protein deficiencies, including hemophilia and other coagulation disorders. These blood proteins, also known as plasma proteins, are difficult to produce in other manufacturing systems, and some are currently only available by extraction from human blood. We have also initiated the development of a portfolio of monoclonal antibodies, or MAb's, for use as potential follow-on biologics targeted at several large market products.

Our first product, ATryn ®, our recombinant form of human antithrombin, validated our transgenic production technology's capability to meet the regulatory requirements for recombinant proteins. In 2006, ATryn ® became the first transgenically produced therapeutic protein to be approved anywhere in the world when we obtained European Commission approval of the use of ATryn ® as a prophylactic treatment for patients with hereditary antithrombin deficiency, or HD, undergoing surgical procedures. In February 2008, we announced that ATryn® had met the statistical requirements for the primary endpoint in our pivotal trial to support our filing of a Biologics License Application, or BLA, for the use of ATryn® in the United States in HD patients undergoing surgery or childbirth. On August 7, 2008 we completed the filing of the BLA and the FDA has accepted it for review and assigned it Priority Review status. The FDA's Blood Products Advisory Committee is scheduled to review the BLA for ATryn® during a meeting that is planned for January 2009. Under Priority Review, the target date for FDA action is February 7, 2009. The FDA has also designated ATryn® an Orphan Drug. We plan to develop ATryn® and several of our other recombinant proteins through strategic collaborations.

In June 2008, we entered into our collaboration agreement with OVATION to develop and market ATryn® in the United States, including development and commercialization of ATryn® in the HD indication and in larger market acquired deficiencies such as the treatment of heparin resistance in patients undergoing surgery requiring cardiopulmonary bypass. In Europe and the Middle East we have collaborated with LEO Pharma, or LEO, for further development of ATryn® for use in acquired antithrombin deficiencies, such as disseminated intravascular coagulation, or DIC, associated with severe sepsis. We have entered into negotiations for the transition of the program from LEO to LFB Biotechnologies, or LFB. This follows an internal strategic review and reprioritization by LEO. LEO has confirmed that there are no safety or efficacy issues with the ATryn ® product either commercially or in the Phase II clinical study for the potential treatment of DIC. LFB has expressed a significant interest in commercializing ATryn ® in Europe and the Middle East for its existing indications. LFB is also interested in continuing the development of ATryn® in the ongoing Phase II DIC study and for other clinical indications. Further patients are not being recruited into the Phase II study until completion of the transition to LFB.

In September 2006, we entered into a collaboration agreement with LFB to develop selected recombinant plasma proteins and MAb's. The first program in this collaboration is for the development of a recombinant form of human blood coagulation factor VIIa for the treatment of patients with hemophilia. We have subsequently added to the LFB collaboration a program to develop a recombinant form of human coagulation factor IX, as well as programs to develop alpha-1 antitrypsin and an antibody to the CD20 immune system receptor, the same target as for the MAb marketed as Rituxan ®. We are engaged in business development activities with the objective of adding additional collaborations for one or more of our recombinant proteins.

On June 30, 2008, we entered into an additional amendment to the Joint Development and Commercialization Agreement with LFB to establish LFB/GTC LLC a separate legal entity for the joint venture. This amendment added LFB/GTC LLC as a party to the agreement and provided that rights to the intellectual property of the new joint venture will flow through this entity.

We are implementing a strategy in follow-on biologics, or biosimilars, which will be defined in more detail as legislation is enacted and regulatory guidance is established in both Europe and the U.S. The CD20 monoclonal antibody in our LFB collaboration may be considered for clinical development as a follow-on biologic in the U.S. and a biosimilar in the EU.

We have also used our transgenic technology in external programs to produce therapeutic products for our partners. For our external programs, we typically enter into a supply or services agreement with a partner to provide production and/or purification of the partner's product using our transgenic technology. We currently have an active external program with PharmAthene, and our collaboration with Merrimack Pharmaceuticals concluded in September 2008 with the expiration of our agreement by its terms. Most of our revenues in 2007 and 2008 were derived from our external programs.

We have operated at a net loss since our inception in 1993, and we used $7 million of net cash in our operations during the first nine months of 2008. Our recurring losses from operations and our limited funds raise substantial doubt about our ability to continue as a going concern. We are entirely dependent upon funding from equity financings, partnering programs and proceeds from short and long-term debt to finance our operations until we achieve commercial success in selling and licensing our products and positive cash flow from operations. Based on our cash balance as of September 28, 2008, as well as projected cash receipts from existing programs, including additional committed funding of our LFB/GTC LLC expenses from LFB in 2008 as well as planned proceeds from the LFB convertible debt financing (see Note 14), we believe we have the ability to continue our operations into the second quarter of 2009. We expect that future sources of funding may include new or expanded collaboration arrangements and sales of equity or debt securities. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate our research and development programs, reduce our planned commercialization efforts, or obtain funds through arrangements with collaborators or others that may require us to relinquish rights to certain product candidates that we might otherwise seek to develop or commercialized independently. Additionally, any future equity funding may dilute ownership of our equity investors.

This discussion and analysis of our financial condition should be read in connection with our consolidated financial statements herein and the accompanying notes thereto, and, our Annual Report on Form 10-K for the fiscal year ended December 30, 2007 (our 2007 Form 10-K), in particular, the information set forth therein under Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations".

Results of Operations The key components to our losses are revenue, costs of revenue, and research and development expenses.

Fiscal three months ended September 28, 2008 and September 30, 2007

                                               (dollars in thousands)
                              September 28,     September 30,
                                  2008              2007         $ Change      % Change
  Revenue                    $         2,929   $         2,576   $     353           14 %
  Cost of revenue            $         1,123   $         1,418   $    (295 )        (21 )%
  Research and development   $         5,326   $         7,091   $  (1,765 )        (25 )%

Revenue. During the third quarter of 2008, we derived approximately $2.7 million of revenue from our external development programs, of which $919,000 related to our work with PharmAthene and $1.5 million related to the Merrimack program, which was completed in the third quarter of 2008. During the third quarter of 2007, approximately $2.5 million of our revenue was derived from our external development programs, of which $1.3 million related to work with PharmAthene and $893,000 from our program with Merrimack. We expect revenue from external programs to continue to vary due to the nature, timing and specific requirements for these development activities.

Cost of revenue. The decrease in cost of revenue is primarily a result of a $469,000 write off, in 2007, of in-process inventory which was found to be out of specification for commercial use during release testing. This was partially offset by an increase of approximately $325,000 on the PharmAthene program related to development activities. The level of expenses for our external programs will fluctuate from period to period depending upon the stage of development of individual programs as they progress.

Research and development expense. The third quarter 2008 research and development expense included $3.6 million related to the ATryn® program, a decrease of $1.4 million as compared to $5 million in the third quarter of 2007. Details of ATryn ® related expenses for the respective quarters are as follows:

                                                       (dollars in millions)
                                                     Fiscal three months ended
                                                 September 28,       September 30,
                                                      2008               2007
   ATryn® manufacturing expenses                 $          1.9     $           2.8
   EMEA regulatory process expenses                         0.3                 0.7
   U.S. clinical trial and regulatory expenses              1.2                 1.2
   Other                                                    0.2                 0.3

   Total                                         $          3.6     $           5.0

Manufacturing costs include costs of producing clinical material in excess of the maximum transfer price to LEO as well as process development and validation costs for scale up of the ATryn® manufacturing process and costs associated with establishment of a second fill site.

During the third quarter of 2008, we incurred approximately $1.2 million of expense in support of the programs in our LFB collaboration (FVIIa, FIX, CD20 and AAT), which were charged to the LFB/GTC LLC, in accordance with the terms of the joint venture agreement. During the third quarter, we were reimbursed approximately $1.5 million from the LLC, of which approximately $300,000 was recorded as a payable to the LLC at the end of the third quarter 2008. We incurred approximately $700,000 of expense on the programs in the LFB collaboration during the third quarter of 2007. We also incurred approximately $1.8 million of expense on other research and development programs during the third quarter 2008 as compared to $1.5 million in the third quarter of 2007.

We cannot estimate the costs to complete the research and development programs due to significant variability in clinical trial costs and the regulatory approval process.

Fiscal nine months ended September 28, 2008 and September 30, 2007

                                               (dollars in thousands)
                              September 28,     September 30,
                                  2008              2007         $ Change      % Change
  Revenue                    $        15,613   $        10,844   $   4,769           44 %
  Cost of revenue            $         8,042   $         9,706   $  (1,664 )        (17 )%
  Research and development   $        15,722   $        20,244   $  (4,522 )        (22 )%

Revenue. During the first nine months of 2008, we derived $9.6 million of revenue from our external development programs with Merrimack and PharmAthene, of which $5.8 million related to PharmAthene, and approximately $4.2 million from the sale of ATryn ® product to LEO Pharma for clinical and commercial use. We also derived $550,000 of revenue related to our exclusive license to Pharming for recombinant fibrinogen. During the first nine months of 2007, $3.6 million of our revenue was derived from the sale of ATryn® product to LEO Pharma for clinical and commercial use and approximately $6.1 million was derived from our external development programs with Merrimack and PharmAthene. We expect revenue from external programs to continue to vary due to the nature, timing and specific requirements for these development activities.

Cost of revenue. The decrease in cost of revenue is primarily a result of a $2.9 million write off, in 2007, of ATryn® inventory which was rendered unusable as a result of the fill/finish process conducted at our U.S. based third party fill/finish contractor as well as a write-off of approximately $469,000 of ATryn® inventory during the third quarter 2007 as described above. This was partially offset by an increase of approximately $1.6 million on the PharmAthene program related to development activities. The level of expenses for our external programs will fluctuate from period to period depending upon the stage of development of individual programs as they progress.

Research and development expense. The first nine months of 2008 research and development expense included $12.1 million related to the ATryn® program, a decrease of $2 million as compared to $14.1 million in the first nine months of 2007. Details of ATryn® related expenses for the respective six month periods are as follows:

                                                       (dollars in millions)
                                                     Fiscal nine months ended
                                                 September 28,      September 30,
                                                      2008              2007
   ATryn® manufacturing expenses                 $          6.3    $           7.5
   EMEA regulatory process expenses                         0.8                2.4
   U.S. clinical trial and regulatory expenses              4.4                3.6
   Other                                                    0.6                0.6

   Total                                         $         12.1    $          14.1

Manufacturing costs include costs of producing clinical material in excess of the maximum transfer price to LEO as well as process development and validation costs for scale up of the ATryn® manufacturing process and costs associated with establishment of a second fill site.

During the first six months of 2008, we incurred approximately $3.1 million of expense in support of the programs in our LFB collaboration (FVIIa, FIX, CD20 and AAT), and we received approximately $3 million of funding from LFB for costs incurred in the first six months of 2008, which was recorded as a reduction in research and development expense during the second quarter of 2008.

During the third quarter of 2008, we incurred approximately $1.2 million of expense in support of the programs in our LFB collaboration (FVIIa, FIX, CD20 and AAT), which were charged to the LFB/GTC LLC, in accordance with the terms of the joint venture agreement. During the third quarter, we were reimbursed approximately $1.5 million from the LLC, of which approximately $300,000 was recorded as a payable to the LLC at the end of the third quarter 2008. We incurred approximately $2.7 million of expenses on the programs in the LFB collaboration during the first nine months of 2007. We also incurred approximately $3.4 million of expense on other research and development programs during the first nine months of 2008 and the first nine months of 2007.

We cannot estimate the costs to complete the research and development programs due to significant variability in clinical trial costs and the regulatory approval process.

Liquidity and Capital Resources

Our objective is to finance our business appropriately through a mix of equity financings, partnering payments, receipts from contracts for external programs, grant proceeds, debt financings and interest income earned on our cash and cash equivalents, until such time as product sales and royalties occur and we achieve positive cash flow from operations. We expect that our ability to raise future funds will be affected by our ability to enter into new or expanded partnering arrangements or contracts for external programs, the terms and progress of such arrangements and contracts, the regulatory review of ATryn® in the U.S. for HD, the progress of initial clinical trials for DIC in the EU, the results of research and development and preclinical testing of our other proprietary product candidates, and advances in competing products and technologies, as well as general market conditions.

We use our cash primarily to pay salaries, wages and benefits, facility and facility-related costs of office, farm and laboratory space and other outside direct costs such as manufacturing and clinical trial expenses. During the first nine months of 2008 we had a net decrease in cash and marketable securities of $7 million, which included approximately $5.4 million received in net proceeds from our February registered direct offering, $11 million used in operations, $900,000 to pay down debt, and $600,000 used for capital expenditures. In October 2008 we signed an agreement with LFB for $15 million financing in which we will issue convertible debt and warrants to purchase shares of our common stock. Under the agreement, the convertible debt will mature on June 30, 2012, and will bear interest at an annual rate of 8%. As a condition of the financing, $4 million of the proceeds will be placed in a restricted cash account to secure our debt to GE Capital. We expect net proceeds at closing, after transaction costs and establishment of the restricted cash account, to be approximately $10 million. We are currently in

discussions for potential new partnering arrangements with a plan to bring in further financial resources. In addition, we may sell additional equity or debt securities. However, there can be no assurance that we will be able to enter into anticipated partnering arrangements, or raise additional capital, on terms that are acceptable to us, or at all. We estimate the net use of cash in operations for the remainder of 2008 to be approximately $8.7 million, not including upfront payments from any unsigned partnering.

Our consolidated financial statements have been presented on the basis that we are a going concern, which contemplates the continuity of business, realization of assets and the satisfaction of liabilities in the ordinary course of business. We have incurred losses from operations and negative operating cash flow in each of the years 2008 and 2007 and in prior years, and have an accumulated deficit of $297.9 million at September 28, 2008. Our recurring losses from operations and limited funds raise substantial doubt about our ability to continue as a going concern. The primary sources of additional capital raised in the first nine months of 2008 and 2007 have been equity financings and debt financings under our credit facility. Based on our cash balance as of September 28, 2008, as well as projected cash receipts from existing programs, including additional committed funding from LFB in 2008 as well as proceeds from the LFB convertible debt financing (described in Note 14), we believe we have the ability to continue our operations into the second quarter of 2009. We expect that future sources of funding may include new or expanded collaboration arrangements and sales of equity or debt securities. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate our research and development programs, reduce our planned commercialization efforts, or obtain funds through arrangements with collaborators or others that may require us to relinquish rights to certain product candidates that we might otherwise seek to develop or commercialize independently. Additionally, any future equity fundings dilute ownership of our existing equity investors.

Cash Flows used in Operating Activities

Cash used in operating activities decreased by approximately $13.8 million to $11 million in the first nine months of 2008 from $24.8 million for the first nine months of 2007. The decrease is primarily a result of $4.5 million in funding received from LFB which was recorded as a credit to research and development expense in the first nine months of 2008, milestone payments of approximately $3.5 million received from OVATION (which were recorded as deferred revenue during the third quarter of 2008), and an increase in cash receipts from PharmAthene of approximately $3 million during the first nine months of 2008 as compared to 2007, as well as a change in our payment patterns as compared to 2007.

Cash Flows from Investing Activities

Cash flows provided by investing activities include $6.6 million in redemptions of marketable securities in our portfolio and $448,000 used for purchases of capital equipment, net of sales of capital equipment of $168,000 We anticipate a similar level of capital expenditures company-wide in 2008 as compared to 2007. We plan to utilize new operating lease lines, if they become available, for our capital expenditures during 2008. However, we have the ability to delay capital purchases if leasing is unavailable.

Cash Flows from Financing Activities

Equity Financing Activities

In February 2008, we received approximately $5.4 million in proceeds from a registered direct offering, net of approximately $600,000 in offering costs and fees. In the offering, we sold 6.9 million shares of our common stock at $0.87 per share (market price on the date of the agreement) and 7-year warrants, which were immediately exercisable, to purchase an aggregate of 6.9 million shares of our common stock at an exercise price of $0.87 per share.

Credit Facility

Our $8.9 million of outstanding long-term debt at September 28, 2008 includes $8.3 million owed to GE Capital, and approximately $605,000 owed to LFB net of an unamortized discount of approximately $238,000 on the LFB convertible note that we issued to LFB in December 2006. Of the $8.9 million, approximately $1.3 million was classified as current, which reflects the amount due through September 2009 on our GE Capital term loan.

COMMITMENTS AND CONTINGENCIES

Our commitments and contingencies are disclosed in Note 5 in the Notes to Consolidated Financial Statements included in Item 8 of our 2007 Form 10-K. We have reviewed the commitments and contingencies at September 28, 2008 and noted that there were no material changes or additions.