The purpose of the following management's discussion and analysis is to provide an overview of the business of Celera to help facilitate an understanding of significant factors influencing our historical operating results, financial condition, and liquidity and also to convey our expectations of the potential impact of known trends, events, or uncertainties that may impact our future results.

The following should be read in conjunction with our audited consolidated financial statements and related notes, included in our Transition Report on Form 10-KT filed with the SEC on March 25, 2009. Historical results and percentage relationships are not necessarily indicative of operating results for future periods.

Business Overview

We are a diagnostics business that delivers personalized disease management through a combination of products and services incorporating proprietary discoveries. We are organized into three reporting segments, a clinical laboratory testing service business (Lab Services), a products business (Products), and a segment that includes other activities under corporate management (Corporate). Our Lab Services business, conducted through Berkeley HeartLab, Inc. (BHL), offers a broad portfolio of clinical laboratory tests and disease management services designed to help healthcare providers improve cardiovascular disease treatment regimens for patients. Our Products business develops, manufactures, and oversees the commercialization of molecular diagnostic products. Most of this business is conducted through distribution and royalty agreements with Abbott Molecular, a subsidiary of Abbott Laboratories. Our Corporate segment includes revenues from royalties, licenses, funded collaborations and milestones related to the licensing of certain intellectual property and from our former small molecule and proteomic programs.

Relationship with Applied Biosystems (now Life Technologies)

Prior to July 1, 2008, we operated as a reporting unit of Applied Biosystems, formerly known as Applera, and not as a stand-alone company. Applied Biosystems established the following two classes of common stock, sometimes referred to as tracking stocks, which were intended to reflect separately the relative performance of Applied Biosystems' two businesses:

• Applied Biosystems Group common stock that was intended to reflect the relative performance of the Applied Biosystems Group; and

• Celera Group common stock that was intended to reflect the relative performance of the Celera Group.

On July 1, 2008, Applied Biosystems separated the Celera Group reporting unit from Applied Biosystems' remaining businesses by means of a redemption of each outstanding share of Celera Group common stock in exchange for one share of common stock of Celera Corporation. Upon the separation, we held all of the businesses, assets and liabilities attributed to the Celera Group and became an independent, publicly-traded company. Our common stock began trading on The NASDAQ Stock Market on July 1, 2008 under the symbol "CRA."

In November 2008, Applied Biosystems merged with Invitrogen Corporation to form a new company, Life Technologies Corporation (Life Technologies).

We historically received substantial administrative services and management from Applied Biosystems (now Life Technologies), and we have engaged in some related-party transactions with Applied Biosystems (now Life Technologies). Prior to the split-off, we also benefited from free access to all of Applied Biosystems' (now Life Technologies') technology and know-how, and license agreements that Applied Biosystems (now Life Technologies) had entered into with third parties related to intellectual property.

Although we are now an independent public company, we continue to have contractual and commercial relationships with Applied Biosystems (now Life Technologies). We entered into a separation agreement and several related agreements with Applied Biosystems (now Life Technologies) in connection with the split-off. These agreements govern our relationship with Applied Biosystems (now Life Technologies) after the split-off and provide for the allocation of employee benefit, tax and certain other liabilities and obligations attributable to periods before the split-off. These agreements also include arrangements with respect to intellectual property, interim services and a number of ongoing commercial relationships.

Basis of Presentation

Prior to the split-off, we were a reportable segment of Applied Biosystems (now Life Technologies) and our financial information was included in Applied Biosystems' (now Life Technologies') consolidating financial information. Our consolidated financial statements prior to July 1, 2008 include the assets and liabilities of Applied Biosystems (now Life Technologies) that were specifically attributed to us.

Following the split-off, on July 1, 2008, we became a stand-alone company with our own consolidated financial statements. As a result, comparability of certain items has been affected.

The discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements and related disclosures, which have been prepared in conformity with accounting principles generally accepted in the United States of America, or GAAP. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules. All significant intracompany transactions and balances have been eliminated in consolidation.

The discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and notes thereto for the six month transition period ended December 27, 2008 included in our Transition Report on Form 10-KT filed with the U.S. Securities and Exchange Commission (SEC) on March 25, 2009.

Recent Business Developments

In April 2009, BHL entered into a contract with Blue Cross and Blue Shield of Alabama for BHL's test services. The agreement establishes coverage across Blue Cross and Blue Shield's plans in Alabama for individuals who are already at elevated risk for cardiovascular disease.

In April 2009, we entered into separate patent license agreements with deCODE genetics, Inc. and Perlegen Sciences providing us access to certain genetic markers in cardiovascular and metabolic diseases.

In January 2009, Life Technologies granted licenses to two life science companies under its patents relating to real-time technology in the human in vitrodiagnostics field. Under our agreement with Applied Biosystems (now Life Technologies), revenues from these third-party licenses are shared between us and Applied Biosystems (now Life Technologies). Accordingly, we expect to record a total of $8.3 million in license fees over the five quarters ending April 3, 2010.

Results of Operations

The following discussion and analysis relates to our results of operations for
the three months ended March 28, 2009 and March 31, 2008. The selected financial
information contained in the table below should be read in conjunction with our
unaudited condensed consolidated financial statements and accompanying notes.



                                                         Three Months Ended
                                                    March 28,          March 31,
(Dollar amounts in millions)                           2009              2008           % Change
Net revenues                                        $     45.7        $      39.5             16 %
Cost of sales                                             14.0               13.2              6 %

Gross margin                                              31.7               26.3             21 %

Selling, general and administrative                       25.3               21.3             19 %
Research and development                                   7.7               10.2            (25 %)
Amortization of purchased intangible assets                2.5                2.5             -
Employee-related charges, asset impairments and
other                                                      0.7                3.9            (82 %)
Legal settlement                                            -                (1.1 )         (100 %)

Operating loss                                            (4.5 )            (10.5 )          (57 %)

Loss on investments                                         -                (3.1 )         (100 %)
Interest income, net                                       2.1                3.5            (40 %)
Other income, net                                           -                 0.1           (100 %)

Loss before income taxes                                  (2.4 )            (10.0 )          (76 %)
Benefit for income taxes                                   1.0                2.6            (62 %)

Net loss                                            $     (1.4 )      $      (7.4 )          (81 %)

Effective income tax rate                                 41.2 %             26.1 %

The following table summarizes the components of our net revenues from external customers by segment:

                                                Three Months Ended
                                             March 28,     March 31,
      (Dollar amounts in millions)              2009          2008      % Change
      Lab Services                           $     28.5    $     22.3         28 %
      Products                                     10.4           9.3         12 %
      Corporate                                     6.8           7.9        (14 %)

      Net revenues from external customers   $     45.7    $     39.5         16 %

The following table summarizes our operating income (loss) by segment:

                                              Three Months Ended
                                         March 28,         March 31,
     (Dollar amounts in millions)           2009             2008         % Change
     Lab Services                        $      1.1       $       0.7           57 %
     Products                                   1.3              (4.0 )       (133 %)
     Corporate                                 (7.0 )            (7.2 )         (3 %)
     Elimination of intersegment sales          0.1                -

     Operating loss                      $     (4.5 )     $     (10.5 )        (57 %)

Three Months Ended March 28, 2009 Compared to Three Months Ended March 31, 2008

Revenues

Revenues from our Lab Services segment for the three months ended March 28, 2009 increased by $6.2 million compared to the three months ended March 31, 2008 primarily due to increased test volumes and the broad scale launch of the blood-based KIF6 test in July 2008.

Prior to the termination of our alliance agreement with Abbott, effective October 1, 2008, the revenues of our Products segment included product sales to Abbott at cost and equalization revenue received under the alliance agreement. Equalization revenue resulted from an equal sharing of alliance profits and losses between the alliance partners and varied each period depending on the relative income and expense contribution of each partner. Under the terms of our new distribution agreement, Abbott is the exclusive distributor for a specified group of our diagnostic products. Sales under the distribution agreement are made to Abbott at a price that is based on Abbott's end-user sales price to third parties. Under the terms of our new royalty agreement with Abbott, we receive royalties on sales by Abbott of m2000 reagents, instruments, service and related consumables. Abbott receives royalties on the sale of certain of our genetic tests.

Research and development and administrative costs incurred by us under the terms of the Abbott alliance agreement were presented on a gross basis in our Consolidated Statements of Operations. All revenues, costs and expenses of the alliance, prior to its termination, were shared equally by both parties. The timing and nature of equalization payments led to fluctuations in both reported revenues and gross margins from period to period due to changes in end-user sales of alliance products and differences in relative operating expenses between the alliance partners.

Revenues for our Products segment for the three months ended March 28, 2009 increased by $1.1 million compared to the three months ended March 31, 2008. For the three months ended March 28, 2009, revenues were primarily from sales of Celera-manufactured products and from royalties from sales of RealTimeTM assays used on the m2000TM system from Abbott. For the three months ended March 31, 2008, revenues were recorded based on our alliance agreement with Abbott and included equalization revenue of $4.0 million.

Corporate revenue, which primarily consists of royalties, licenses and milestones, decreased $1.1 million for the three months ended March 28, 2009 compared to March 31, 2008. The reduction in revenue for the first quarter of 2009 was due primarily to lower royalty revenue received from a licensee compared to the prior year quarter partially offset by higher license revenue. The three months ended March 28, 2009 included revenue of $2.3 million from Life Technologies related to human in-vitro diagnostics (HIVD) licenses entered into by Life Technologies during the quarter. In January 2009, Life Technologies granted licenses to two life science companies under its patents relating to real-time technology in the HIVD field. Under our agreement with Applied Biosystems (now Life Technologies), revenues from these third-party licenses are shared between us and Applied Biosystems (now Life Technologies). The prior year quarter included revenues of $2.0 million from Beckman Coulter, Inc. one of our licensees; the last payment under this license was received in the three months ended December 27, 2008.

Gross Margin

Gross margin for the three months ended March 28, 2009 increased by $5.4 million compared to the three months ended March 31, 2008 primarily as a result of the increase in net revenues. Gross margin as a percentage of net revenue increased to 69% for the three months ended March 28, 2009 from 67% for the three months ended March 31, 2008, primarily as a result of efficiencies in our Lab Services and Products segments.

Operating Expenses

SG&A expenses increased by $4.0 million for the three months ended March 28, 2009 compared to the prior year quarter, primarily due to an increase of $1.7 million for costs associated with the expansion of sales efforts and $2.3 million due to an increased allowance for doubtful accounts at BHL. We have experienced an increased aging of our non-contractual payor and patient receivables as a result of changing and inconsistent payment patterns.

Research and development expenses decreased by $2.5 million for the three months ended March 28, 2009 compared to the prior year quarter primarily due to the completion of certain discovery research projects, including reduced proteomic-based target discovery and validation related activities, and associated lower employee-related costs in our Corporate and Products segments, and the termination of the strategic alliance with Abbott.

The amortization of purchased intangible assets for the three months ended March 28, 2009 and March 31, 2008 related to the acquisitions of BHL and Atria in October 2007.

Employee-related charges, asset impairment and other expenses of $0.7 million for the three months ended March 28, 2009 consisted of severance and related costs associated with the planned closure of our Rockville, Maryland facility. We expect to incur total costs of approximately $1.8 million relating to the closure in the first three quarters of 2009. Approximately $1.4 million of the costs is expected to be cash outlays and is expected to be paid by April 30, 2010. Payments will be made out of available cash. This compares to employee-related charges, asset impairment and other expenses of $3.9 million for the three months ended March 31, 2008, which consisted of $1.3 million of severance costs resulting from the realigning of our R&D resources, excess lease charges of $0.9 million related to a reduction in our proteomic-based activities, $1.1 million for professional fees related to the split-off from Applied Biosystems (now Life Technologies) and a pre-tax charge of $0.6 million related to a patent infringement suit with Innogenetics N.V.

The three months ended March 31, 2008 included a gain of $1.1 million in our Corporate segment related to the settlement of a litigation matter associated with our former Online/Information business, an information products and service business.

Operating Loss

Our Lab Services segment had operating income of $1.1 million for the three months ended March 28, 2009 compared to $0.7 million for the three months ended March 31, 2008. This was primarily due to the increase in gross margin as a result of increased revenue and cost savings, partially offset by the increase in SG&A, as described above.

Our Products segment had operating income of $1.3 million for the three months ended March 28, 2009 compared to an operating loss of $4.0 million for the three months ended March 31, 2008. This was primarily due to an increase in gross margin as a result of increased revenue and cost savings, and a decrease in R&D expenses, as described above. The three months ended March 31, 2008 included severance costs of $0.8 million related to the realigning of our R&D resources and $0.6 million associated with the patent infringement suit with Innogenetics N.V.

The operating loss for our Corporate segment was $7.0 million for the three months ended March 28, 2009 and decreased by $0.2 million compared to the prior year quarter, primarily due to a decrease in operating expenses, partially offset by a decrease in gross margin. The three months ended March 31, 2008 included employee-related charges, asset impairments and other of $2.5 million, partially offset by the gain of $1.1 million related to the settlement of a litigation matter associated with our former Online/Information business.

Loss on Investments

The three months ended March 31, 2008 included $3.1 million loss on investments for an other-than-temporary impairment of a minority equity investment.

Interest Income, Net

Interest income, net for the three months ended March 28, 2009 decreased compared with the prior year quarter primarily due to lower interest rates combined with lower average balances of cash and cash equivalents and short-term investments. Interest income, net for the three months ended March 28, 2009 included $0.2 million related to the long-term receivable from Abbott.

Benefit for Income Taxes

The consolidated effective income tax rate for the three months ended March 28, 2009 was a benefit of 41.2%, compared to 26.1% for the three months ended March 31, 2008. The increase was primarily due to a benefit of $0.9 million as a result of the new California apportionment laws that were enacted during the quarter.

Subsequent to the split-off from Applied Biosystems (now Life Technologies), a full valuation allowance was established against our federal deferred tax assets as a result of our historic losses.

Discussion of Financial Resources and Liquidity

We had cash and cash equivalents and short-term investments of $320.6 million at March 28, 2009 and $316.5 million at December 27, 2008. We believe that existing funds are adequate to satisfy our normal operating cash flow needs and planned capital expenditures for at least the next twelve months.

We do not have a revolving credit agreement in place, although we may establish such a facility in the future.

The following table summarizes the components of our financial resources at March 28, 2009 and December 27, 2008:

                                                                March 28,      December 27,
(Dollar amounts in millions)                                      2009             2008
Cash and cash equivalents                                      $      45.5     $        72.0
Short-term investments                                               275.1             244.5

Total cash and cash equivalents and short-term investments     $     320.6     $       316.5

Total debt                                                     $        -      $         0.1

We maintain a portfolio of investments in marketable debt securities, which are recorded at fair value. To minimize our exposure to credit risk, we invest in corporate and government securities with strong credit ratings and have established guidelines relative to credit, diversification and maturity with the primary objective of maintaining safety of principal. We do not invest in derivative financial instruments or auction rate securities. Recent global market and economic conditions have become increasingly negative, with tighter credit conditions and recession in most major economies continuing into 2009. Further deterioration in the credit markets may have an adverse effect on the fair value of our investment portfolio.

A prolonged economic downturn or a continuing scarcity of credit could adversely affect the financial condition and levels of business activity of our customers. This may in turn have a corresponding negative impact on our future operating results as our customers may delay payment or suffer business failures that may cause us to record higher allowances for doubtful accounts in the future.

The overall increase of cash and cash equivalents and short-term investments for the three months ended March 28, 2009 was primarily due to $7.2 million of proceeds received from the exercise of stock options and a net increase of $0.9 million in the value of securities within our short-term investment portfolio, partially offset by $2.4 million of cash used by operating activities and additions to property, plant and equipment of $1.6 million.

Net cash flows for the three months ended March 28, 2009 were as follows:

                                                           Three Months Ended
                                                      March 28,         March 31,
   (Dollar amounts in millions)                          2009             2008
   Net cash used by operating activities              $     (2.4 )     $      (3.5 )
   Net cash (used) provided by investing activities        (31.3 )            15.1
   Net cash provided by financing activities                 7.2               2.4

   Net change in cash and cash equivalents            $    (26.5 )     $      14.0

Operating activities

For the three months ended March 28, 2009, net cash used by operating activities of $2.4 million consisted of income-related cash flow of $9.5 million, offset by changes in operating assets and liabilities of $11.9 million. Income-related cash flow represents the net loss for the period adjusted for non-cash charges related to depreciation and amortization, allowance for doubtful accounts, loss on investments, employee-related charges, asset impairments and other, share-based compensation, deferred income taxes, gain on disposal of assets, non-cash interest income, amortization of premium on purchase of investments and non-reimburseable utilization of tax benefits by Applied Biosystems (now Life Technologies).

The changes in operating assets and liabilities were due to an increase of $6.9 million in accounts receivable due primarily to an increase in royalties receivable in our Corporate segment and an increase in accounts receivable at BHL; a decrease of $4.7 million in accounts payable and other liabilities caused primarily by the timing of bonus and payroll payments; an increase of $0.6 million in prepaid expenses and other assets due primarily to an income tax benefit of $0.9 million as a result of the new California apportionment laws that were enacted during the quarter; partially offset by a decrease in net inventories of $0.3 million.

For the three months ended March 31, 2008, net cash used by operating activities of $3.5 million related to changes in operating assets and liabilities of $3.1 million and income-related cash outflows of $0.4 million. The changes in operating assets and liabilities were due to an increase of $5.3 million in accounts receivable primarily due to increased revenues and slower collections at BHL; a decrease of $4.4 million in accounts payable and other liabilities primarily due to the timing of payments; partially offset by a decrease of $5.5 million in prepaid expenses and other assets primarily due to a reduction in the net investment in the Abbott alliance; and a decrease in net inventories of $1.1 million.

Investing activities

The net cash used by investing activities of $31.3 million was primarily caused by purchases of available-for-sale investments exceeding the proceeds from the maturity and sale of available-for-sale investments by $29.7 million, and by additions to property, plant and equipment and intangible assets, net of $1.6 million, which included $0.8 million for leasehold improvements, $0.7 million for the purchase of machinery and equipment and $0.1 million for the purchase of software licenses.

For the three months ended March 31, 2008, the net cash provided by investing activities of $15.1 million was due primarily to proceeds from the maturity and sale of available-for-sale investments exceeding the purchase of available-for-sale investments by $16.7 million. This was partially offset by additions to property, plant and equipment and intangible assets, net of $1.6 million, which included $1.2 million for leasehold improvements and $0.4 million for the purchase of machinery and equipment.

Financing activities

The net cash provided by financing activities of $7.2 million and $2.4 million for the three months ended March 28, 2009 and March 31, 2008, respectively, related primarily to proceeds from the issuance of stock upon the exercise of stock options.

Trends and Uncertainties That May Impact Future Results of Operations

Recent global market and economic conditions have been unprecedented and challenging, with tighter credit conditions and recession in most major economies continuing into 2009. As a result of these market conditions, the cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases, cease to provide credit to businesses and consumers. These factors have led to a decrease . . .