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 blood deficiencies, including hemophilia and other blood 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. The level and speed of our proprietary products will be dependent upon our financial resources and new partnering arrangements as well as progress made in the legislative process related to follow-on biologics. After ATryn®, the next highest priority is recombinant factor VIIa referred to as rhFVIIa.

Our first product, ATryn®, is a recombinant form of human antithrombin, a blood protein with anticoagulation and anti-inflammatory properties. On February 6, 2009, we received United States Food and Drug Administration, or FDA, approval for ATryn® for patients with hereditary antithrombin deficiency, or HD, undergoing surgery or childbirth in the United States, making ATryn ® the first transgenically derived therapeutic protein approved by the FDA. The FDA has also designated ATryn® an Orphan Drug in this indication. Along with the approval of ATryn®, the FDA's Center for Veterinary Medicine also approved our New Animal Drug Application, the first of its kind to regulate genetically engineered animals. This is now required for a recombinant technology used to develop transgenic animals, such as the goats that produce recombinant antithrombin. In 2006, we obtained European Commission approval of the use of ATryn ® as a prophylactic treatment for HD patients undergoing surgical procedures. We believe that the regulatory approval of ATryn® in the U.S. and Europe achieved an important validation of our production technology, which will assist in obtaining approvals for other compounds and in other countries. We plan to develop ATryn®and several of our other recombinant proteins through strategic collaborations.

In September 2006, we entered into a collaboration agreement with LFB Biotechnologies, or 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. This collaboration has now been established in a separate joint venture entity, and we have now added to the joint venture programs to develop a recombinant form of human blood coagulation factor IX, recombinant human alpha-1 antitrypsin, as well as an antibody to the CD20 immune system receptor, the same target as for the MAb marketed as Rituxan®.

In June 2008, we entered into our collaboration agreement with Lundbeck Inc., (formerly OVATION Pharmaceuticals), to develop and market ATryn® in the U.S. The collaboration agreement includes the commercialization of ATryn ® in the HD indication and the further development of ATryn® in acquired antithrombin deficiency indications, or AD.

We believe that the cost and large scale supply advantages of our transgenic production technology are ideally suited to developing cost-effective, follow-on biologics, particularly MAbs, once the innovator biologics no longer have patent protection. MAbs are proteins that are generated by the immune system and bind to a specific target. MAbs typically express at reasonable levels in traditional recombinant production systems, but are often required in large quantities for their use in chronic disease indications. The patents for the first generation of therapeutic MAbs and other antibody-like proteins begin to expire in 2013, creating a significant opportunity for companies that are capable of producing biosimilar versions of the innovator products. The regulatory requirements for biosimilar products following patent expiration has been defined in Europe, and in the U.S. Congress is considering similar legislation. We anticipate that each follow-on product will generally require some level of clinical study, although not necessarily as extensive as that performed for the innovator antibody. We also have a development agreement in place with AgResearch in New Zealand for co-funding further development of selected follow-on biologics.

We have demonstrated transgenic production of a number of MAbs in both our proprietary and contract research and development programs. We have several patents covering the production of MAbs in the milk of transgenic mammals, along with other transgenic process patents, which we believe establish a strong proprietary position in the field. This intellectual property position enables development and commercial production of MAbs without relying on patents normally associated with cell culture and bacterial production technologies.

We have also used our transgenic technology in external programs to produce therapeutic products for our partners. For our external programs, we enter into licensing and development agreements with partners to use our transgenic technology to develop, produce, and purify recombinant forms of therapeutic proteins. Historically, we operated on a service contract basis, generally receiving fees for the development of the production platform and production and purification of the proteins. We currently have two active external programs, one with PharmAthene and another with JCOM. Most of our first quarter 2009 and 2008 revenues were derived from our external programs.

We have operated at a net loss since our inception in 1993, and we used $4.5 million of net cash in our operating cash flows during the first three months of 2009. 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 March 29, 2009, as well as potential cash receipts from existing programs and temporary deferral of certain vendor payments, our resources will be sufficient to fund operations through the second quarter of 2009. We expect that future sources of funding will include sales of equity or debt securities and new or expanded collaboration arrangements. If no funds are available, we would have to sell or liquidate the business. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate our research and development programs, 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 will dilute ownership of our existing 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 28, 2008 (our 2008 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 March 29, 2009 and March 30, 2008

                                               (dollars in thousands)
                             March 29, 2009     March 30, 2008    $ Change      % Change
 Revenue                    $            198   $          3,545   $  (3,347 )        (95 )%
 Cost of revenue            $            434   $          1,327   $    (893 )        (68 )%
 Research and development   $          6,800   $          7,704   $    (904 )        (12 )%

Revenue. During the first quarter of 2009, our revenue was derived from our external development programs. During the first quarter of 2008, we derived approximately $3.4 million of our revenue from our external development programs, primarily with Merrimack and PharmAthene. The Merrimack agreement was completed during the third quarter of 2008, and the work on the PharmAthene agreement was substantially completed during the fourth quarter of 2008. We expect revenue from external programs to continue to vary from quarter to quarter due to the nature, timing and specific requirements for these development activities. In subsequent quarters we expect shipments of ATryn® product to also generate revenue, though it will vary from

quarter to quarter. During the first quarter of 2009 we received $4 million in milestone payments from Lundbeck and $750,000 in milestone payments from JCOM neither of which were recorded as revenue. The milestone payments from Lundbeck and JCOM were recorded as deferred revenue on our balance sheet due to cash received for which revenue had not yet been recognized pursuant to our revenue recognition policy.

Cost of revenue. The decrease in cost of revenue is primarily a result of a decrease of approximately $780,000 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. Our first quarter 2009 research and development expense included $3.8 million related to the ATryn® program, a decrease of $1.3 million as compared to $5.1 million in the first quarter of 2008. Details of ATryn ® related expenses for the respective quarters are as follows:

                                                       (dollars in millions)
                                                     Fiscal three months ended
                                                     March 29,        March 30,
                                                       2009             2008
     ATryn® manufacturing expenses                 $         0.9     $       2.5
     EMEA regulatory process expenses                        0.2             0.3
     U.S. clinical trial and regulatory expenses             1.2             1.3
     Other                                                   1.5             1.0

     Total                                         $         3.8     $       5.1

Manufacturing costs include costs of producing clinical material in excess of the maximum transfer price to Lundbeck, 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 quarter of 2009, we incurred approximately $1.2 million in support of the programs in our LFB joint venture (FVIIa, FIX, CD20 and AAT). During the first quarter of 2008, we incurred approximately $1.6 million of expense in support of the programs in our LFB collaboration (FVIIa, FIX, CD20 and AAT). We also incurred approximately $1.8 million of expense on other research and development programs, including follow on biologics, during the first quarter of 2009 as compared to $900,000 in the first quarter of 2008. Reimbursement by LFB of the expenses incurred in support of the programs in our LFB collaboration did not begin until the second quarter of 2008.

We cannot estimate the costs to complete our ongoing 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 or contracts for external programs and our internal programs, including the transfer of European marketing rights to a new partner, the market launch of ATryn ® in the U.S. for HD, the progress of initial clinical trials of ATryn® for AD indications, 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 farm, laboratory and office space and other outside direct costs such as manufacturing and clinical trial expenses. During the first three months of 2009 we had a net decrease in cash and marketable securities of $4.9 million, which reflects $4.5 million used in operations and $342,000 to pay down debt. We are actively engaged in discussions with new and existing investors to refinance the company through the sale of equity or debt securities and we anticipate completion of a transaction in the second quarter of 2009. In addition, we are currently in discussions for potential new partnering arrangements with a plan to bring in further financial resources in the second half of 2009 through upfront payments. 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 2009 to be approximately $13 million to $17 million assuming that in the remainder of 2009 we receive $14 million to $18 million from new or expanded partnership relationships.

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 the first quarter of 2009 and since inception, and we have an accumulated deficit of $312.2 million at March 29, 2009. The primary sources of additional capital raised in 2008 and the first three months of 2009 have been equity financings and debt financings. Based on our cash balance as of March 29, 2009, as well

as potential cash receipts from existing programs and temporary deferral of certain vendor payments, we have the ability to continue our operations through the second quarter of 2009. We expect that future sources of funding will include sales of equity or debt securities and new or expanded collaboration arrangements. If no funds are available we would have to sell or liquidate the business. 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 funding will dilute ownership of our existing equity investors.

Cash Flows used in Operating Activities

Cash used in operating activities decreased by approximately $4.6 million from $9.1 million for the first three months of 2008 to $4.5 million in the first three months of 2009. The decrease is primarily a result of milestone payments of $4 million received from Lundbeck and $750,000 received from JCOM in 2009.

Cash Flows from Investing Activities

There were no significant cash flows provided by or used in investing activities during the first quarter of 2009 as compared to $5.6 million provided by investing activities in the first quarter of 2008. The decrease is a result of the redemption of all of our short term investments during 2008.

Cash Flows from Financing Activities

Equity Financing Activities

In February 2008, we received approximately $5.6 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 $20.7 million of outstanding long-term debt at March 29, 2009 includes $7.7 million owed to GE Capital, approximately $13 million owed to LFB net of unamortized discount of approximately $461,000 on the LFB convertible note that we issued to LFB in December 2008 and approximately $642,000 owed to LFB net of an unamortized discount of approximately $201,000 on the LFB convertible note that we issued to LFB in December 2006. Of the $20.7 million, approximately $1.3 million was classified as current, which reflects the amount due through March 2010 on our GE Capital term loan.

In December 2008, as a condition of the financing, we entered into an amendment to our term loan with GE Capital which required us to place $4 million of the proceeds from the December 2008 transaction into escrow to secure our existing debt to GE Capital, which is included in other assets on our balance sheet. Net of this escrow, $3.7 million is due on the GE loans. This $4 million escrow requirement is not a covenant under our original term loan with GE Capital. If our cash balance remains below the minimum amount per the agreement for five consecutive days, we have ten days to cure before GE has the option to apply the $4 million escrow balance to the outstanding debt balance. On May 5, 2009, our cash balance fell below the minimum amount per the agreement with GE for the fifth consecutive day. If we are unable to cure this by May 15, 2009 and GE exercises their option to apply the $4 million escrow balance to the outstanding debt balance, we are under no obligation to replenish the escrow. Further, this is not considered a default under either the amendment to our term loan with GE or the original term loan with GE. The repayment of the remaining $3.7 million of the GE loans is unaffected and is repayable in accordance with the original agreement terms.

COMMITMENTS AND CONTINGENCIES

Our commitments and contingencies are disclosed in Note 6 in the Notes to Consolidated Financial Statements included in Item 8 of our 2008 Form 10-K. We have reviewed the commitments and contingencies at March 29, 2009 and noted that there were no material changes or additions.