Table of Contents

As filed with the Securities and Exchange Commission on August 4, 2008

Registration No. 333-150224

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 1

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

CODEXIS, INC.

(Exact name of Registrant as specified in its charter)

200 Penobscot Drive, Redwood City, CA 94063

(650) 421-8100

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Alan Shaw, Ph.D.

President and Chief Executive Officer

Codexis, Inc.

200 Penobscot Drive, Redwood City, CA 94063

(650) 421-8100

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

CALCULATION OF REGISTRATION FEE

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

Table of Contents

The information contained in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED AUGUST 4, 2008

                 Shares

Codexis, Inc.

Common Stock

Prior to this offering, there has been no public market for our common stock. We anticipate that the initial public offering price will be between $                 and $                 per share. We have applied to list our common stock on The Nasdaq Global Market under the symbol “CDXS.”

We are selling                  shares of our common stock.

The underwriters have an option to purchase a maximum of                  additional shares from us to cover over-allotments of shares.

Investing in our common stock involves risks. See “Risk Factors” beginning on page 9.

Delivery of the shares of common stock will be made on or about                 , 2008.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is                 , 2008.

Table of Contents

The Codexis Biocatalyst Solution

Beginning Biocatalyst

Not suitable for industrial use

Proprietary Optimization

Rapidly evolve beneficial traits

Optimized Biocatalyst

Optimized for specific application at commercial scale production levels

Pharmaceuticals

Biofuels

Carbon Management

Water Treatment

Chemicals

Current and Target Markets

CODEXIS

Bringing Life to Chemistry™

Table of Contents

TABLE OF CONTENTS

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date on the front cover of this prospectus, or such other dates as are stated in this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.

Dealer Prospectus Delivery Obligation

Until                     , 2008 (25 days after commencement of this offering), all dealers that buy, sell, or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

i

Table of Contents

1

Table of Contents

2

Table of Contents

3

Table of Contents

4

Table of Contents

5

Table of Contents

6

Table of Contents

7

Table of Contents

8

Table of Contents

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this prospectus, before deciding whether to invest in shares of our common stock. The occurrence of any of the events described below could harm our business, financial condition, results of operations and growth prospects. In such an event, the trading price of our common stock may decline and you may lose all or part of your investment.

Risks Relating to Our Business

We have a limited operating history, which may make it difficult to evaluate our current business and predict our future performance.

Our company has been in existence since 2002. Our operations to date have been primarily limited to organizing and staffing our company, developing our technology platform and establishing arrangements with customers, contract manufacturers and collaborators. Consequently, any assessments of our current business and predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries. If we do not address these risks successfully, our business will be harmed.

Our quarterly operating results may fluctuate in the future. As a result, we may fail to meet or exceed the expectations of research analysts or investors, which could cause our stock price to decline.

Our financial condition and operating results have varied significantly in the past and may continue to fluctuate from quarter to quarter and year to year in the future due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations include the following factors, as well as other factors described elsewhere in this prospectus:

9

Table of Contents

Due to the various factors mentioned above, and others, the results of any prior quarterly or annual periods should not be relied upon as indications of our future operating performance.

We have a history of net losses, and we may not achieve or maintain profitability.

We have incurred net losses since our inception, including losses of $11.6 million, $18.7 million and $39.0 million in 2005, 2006 and 2007, respectively. As of March 31, 2008, we had an accumulated deficit of $108.1 million. We expect to incur losses and negative cash flow from operating activities for the next several years. To date, we have derived a substantial portion of our revenues from research and development agreements with our collaborators and expect to derive a substantial portion of our revenue from these sources for at least the next several years. If we are unable to extend our existing agreements or enter into new agreements upon the expiration or termination of our existing agreements, our revenues could be adversely affected. In addition, some of our collaboration agreements provide for milestone payments and future royalty payments, the payment of which are uncertain as they are dependent on our and our collaborators’ abilities and willingness to successfully develop and commercialize products. We expect to spend significant amounts to fund the development of additional pharmaceutical and potential bioindustrial products, including biofuels. As a result, we expect that our operating expenses will exceed revenues for the next several years and we do not expect to achieve profitability during that period, if ever. If we fail to achieve profitability, or if the time required to achieve profitability is longer than we anticipate, we may not be able to continue our business. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.

If our existing collaboration agreements expire or are terminated, our revenues could be adversely affected.

Our existing collaboration agreements generally have fixed terms and may be terminated under certain conditions. Accordingly, our ability to derive revenue from collaborations following the expiration or termination of these arrangements is uncertain, and will depend in large part on our ability to either extend existing collaborations or enter into new collaborative arrangements. Our ability to do so will, in turn, be largely dependent on our ability to address the needs of current and potential future collaborators.

We may continue to encounter difficulties managing our growth, which could adversely affect our business.

Our business has grown rapidly and we expect this growth to continue. Overall, we have grown from approximately 40 employees at the end of 2002 to approximately 253 employees as of March 31, 2008. Currently we are working simultaneously on multiple projects targeting several markets. Furthermore, we are conducting our business across several countries, including activities in the United States, Singapore, Hungary, Germany and India. These diversified, global operations place increased demands on our limited resources and require us to substantially expand the capabilities of our administrative and operational resources and to attract, train, manage and retain qualified management, technicians, scientists and other personnel. As our operations expand domestically and internationally, we will need to continue to manage multiple locations and additional relationships with various customers, collaborators, suppliers and other third parties. Our ability to manage our operations, growth, and various projects effectively will require us to make additional investment in our infrastructure to continue to improve our operational, financial and management controls and our reporting systems and procedures and to attract and retain sufficient numbers of talented employees, which we may be unable to do. As a result, we may be unable to manage our expenses in the

10

Table of Contents

future, which may negatively impact our gross margins or operating expenses in any particular quarter. In addition, we may not be able to successfully improve our management information and control systems, including our internal control over financial reporting, to a level necessary to manage our growth and to remediate an existing material weakness in our internal control, and we may discover additional deficiencies in existing systems and controls that we may not be able to remediate in an efficient or timely manner.

We and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting. If we fail to remediate this material weakness or are unable to maintain effective internal control over financial reporting in the future, the accuracy and timeliness of our financial reporting may be adversely affected.

In connection with the audit of our consolidated financial statements for 2005, 2006 and 2007, we and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting. The material weakness we identified comprises (i) our lack of policies and procedures, with the associated internal controls, to appropriately address complex, non-routine transactions and (ii) the lack of a sufficient number of qualified personnel to timely account for such transactions in accordance with U.S. generally accepted accounting principles. The evidence of this material weakness included: improper revenue recognition for certain complex revenue arrangements; incorrect application of accounting standards for, and untimely communication of information relating to, certain stock option grants; the failure to identify pre-existing accounting issues and control deficiencies at two acquired companies and the incorrect assessment of fair value of certain acquired tangible assets; the improper recording of cumulative foreign currency translation adjustments, resulting in part from our selection of the incorrect functional currency for a foreign subsidiary; and the lack of effective inventory management processes, primarily relating to the segregation of research and development materials from commercial inventories. The material weakness resulted in the recording of numerous audit adjustments, and significantly delayed our financial statement close process, for the three-year period ended December 31, 2007 and the three-month period ended March 31, 2008.

We have not yet been able to remediate this material weakness. However, we plan to take significant steps intended to address the underlying causes of the material weakness in the immediate future, primarily through the hiring of additional accounting and finance personnel with technical accounting and financial reporting experience, and the development and implementation of formal policies, improved processes and documented procedures. We do not know the specific timeframe needed to remediate all of the control deficiencies underlying this material weakness. In addition, we expect to incur significant incremental costs associated with this remediation, primarily due to the hiring of additional finance and accounting personnel, the retention of third-party experts and contractors, and the procurement, implementation and validation of robust accounting and financial reporting systems. If we fail to enhance our internal controls to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act of 2002, we may be unable to accurately report our financial results, or report them within the timeframes required by law or exchange regulations. We cannot assure you that we will be able to remediate this material weakness in a timely manner, if at all, or that in the future additional material weaknesses or significant deficiencies will not exist or otherwise be discovered, a risk that is significantly increased in light of the complexity of our business and multinational operations, and the emerging need for complex inter-subsidiary transactions. If our efforts to remediate the weakness identified are not successful or if other deficiencies occur, our ability to accurately and timely report our financial position, results of operations or cash flows could be impaired, which could result in late filings of our annual and quarterly reports under the Exchange Act, restatements of our consolidated financial statements, a decline in our stock price, suspension or delisting of our common stock by The Nasdaq Global Market, or other material effects on our business, reputation, results of operations, financial condition or liquidity.

11

Table of Contents

If we lose our licenses from Maxygen, we may be unable to continue our business.

We have licensed our core enabling intellectual property rights and technology from Maxygen, Inc., or Maxygen, under our March 2002 license agreement with Maxygen, which was subsequently amended in September 2002, October 2002, and August 2006. We rely heavily on this technology, which comprises advanced biotechnology methods, bioinformatics and years of accumulated know-how, to develop the optimized biocatalysts that are central to our business. Under the terms of the license agreement, we are obligated, among other things, to pay Maxygen a significant percentage of certain types of consideration we receive in connection with our biofuels research collaboration with Shell. During 2006 and 2007, as a result of consideration received in connection with this collaboration, we were obligated to pay Maxygen $0.6 million and $7.8 million, respectively. Maxygen has the right to terminate our rights under the agreement with respect to fuels, but not with respect to chemicals or pharmaceuticals, if we breach our royalty obligations to Maxygen and do not cure such breach within 60 days after we receive notice. Maxygen also has the right to terminate our license if we breach any third party agreements under which Maxygen sublicensed rights under the agreement, and fail to cure such breach within the time period specified in such third party agreement. Maxygen also has the right to terminate our license with respect to any family of related patent applications if we fail to pay our share of costs for obtaining and maintaining a patent licensed to us by Maxygen more than three times within any three year period. If the agreement were terminated, then we would lose our rights to utilize the technology and intellectual property covered by that agreement to develop, manufacture and commercialize many of our products. This would have a material adverse impact on our financial condition, results of operations and growth prospects and could prevent us from continuing our business.

We are dependent on our collaborators, and our failure to successfully manage these relationships could prevent us from developing and commercializing many of our products and achieving or sustaining profitability.

Our ability to maintain and manage collaborations with key industry leaders in our markets is fundamental to the success of our business. We currently have license agreements, collaborative research agreements, supply agreements, and/or distribution agreements with numerous parties. We may have limited or no control over the amount or timing of resources that any collaborator may devote to our partnered products or collaborative efforts. Any of our collaborators may fail to perform their obligations as expected. These collaborators may breach or terminate their agreements with us or otherwise fail to conduct their collaborative activities successfully and in a timely manner. Further, our collaborators may not develop products arising out of our collaborative arrangements or devote sufficient resources to the development, manufacture, marketing, or sale of these products. Moreover, disagreements with a collaborator could develop and any conflict with a collaborator could reduce our ability to enter into future collaboration agreements and negatively impact our relationships with one or more existing collaborators. If any of these events occur, or if we fail to maintain our agreements with our collaborators, we may not be able to commercialize our existing and potential products, grow our business, or generate sufficient revenue to support our operations. Our collaboration opportunities could be harmed if:

12

Table of Contents

Additionally, our business could be negatively impacted if any of our collaborators or suppliers undergoes a change of control or were to otherwise assign the provisions of any of our agreements. For example, under our license agreement with Shell, Shell may assign the agreement without our consent in connection with a change of control. If Shell or any of our other collaborators were to assign these agreements to a competitor of ours or to a third party who is not willing to work with us on the same terms or commit the same resources as the current collaborator, our business could be harmed.

Our future success is heavily dependent on our collaborative research agreement with Shell.

Our current business plan for biofuels is heavily dependent on our collaborative research agreement with Shell, which will continue to be critical to our success in researching and developing successful biocatalysts for producing biofuel products. Shell’s efforts in commercializing those products profitably will be critical to the success of our business plan for biofuels. If we are unable to successfully execute on the development of products for Shell, our ability to expand into other bioindustrial areas may be significantly impaired, which will materially and adversely affect our ability to grow our business.

A delay or failure in Shell’s performance under the collaborative research agreement or license agreement with us would have a material adverse effect on our business and financial condition. We cannot control Shell’s performance or the resources it devotes to our programs. For example, although Shell has agreed to fund a specified number of our full-time employee equivalents in the performance of activities under the collaborative research agreement, Shell has the right under various circumstances to decrease the number of our full-time employee equivalents that it supports. Any such reduction would have a material impact on our revenue and business plan for biofuels. Moreover, disputes may arise between us and Shell, which could delay the programs on which we are working or could prevent us from commercially exploiting our technology platform and any developments resulting from the collaborative research agreement. If that were to occur, we may have to use funds, personnel, equipment, facilities and other resources that we have not budgeted to undertake certain activities on our own. Performance issues, program delay or termination or unbudgeted use of our resources may have a material adverse effect on our business and financial condition. Even if we successfully develop commercially viable technologies, our ability to derive revenues from those technologies will be dependent upon Shell’s willingness and ability to commercialize them. Disagreements with Shell could also result in expensive arbitration or litigation, which may not be resolved in our favor. Shell could merge with or be acquired by another company or experience financial or other setbacks unrelated to our research collaboration agreement that could adversely affect us.

We have agreed to work exclusively with Shell until November 2012 in the field of converting cellulosic biomass into fermentable sugars that can be converted into fuels as well as the conversion of these sugars into fuels and related products. However, Shell is not required to work exclusively with us, and could develop or pursue alternative technologies that it decides to use for commercialization purposes instead of the technology developed under our collaborative research agreement with Shell. For example, Shell is currently working with Iogen to develop cellulosic ethanol and CHOREN Industries to develop biodiesels, and it recently announced a collaboration with Virent Energy Systems to develop biogasoline. If Shell does not pursue the commercialization of any cellulosic sugars, biofuels or related products that may be developed under our collaborative research agreement, our exclusive arrangement would prevent us from pursuing these opportunities with others and could place us at a significant competitive disadvantage in the biofuels market.

13

Table of Contents

We cannot guarantee that our relationship with Shell will continue. Shell can terminate its collaborative research agreement with us after November 1, 2009 for any or no reason by providing us with six months’ notice, and its license agreement with us for any or no reason by providing us with six months’ notice. Each party also has the right to terminate the license agreement and the collaborative research agreement in the case of an uncured breach by the other party, and to terminate the collaborative research agreement if that party believes the other party has assigned the collaborative research agreement to a direct competitor of the terminating party. If our collaboration with Shell were to fail, we would likely need to find another collaborator to provide the financial assistance and infrastructure necessary for us to develop and commercialize our products and execute our strategy with respect to biofuels. Failure to maintain this relationship would have a material adverse effect on our business, financial condition and prospects.

Our failure to enter into new collaborations in our target markets could prevent us from developing and commercializing many of our products and achieving or sustaining profitability.

In addition to our existing collaborations, we will need to enter into, maintain and manage additional collaborations in our target markets to continue to grow our business. Because we do not currently and may never possess the resources necessary to independently develop and commercialize all of the potential products that may result from our technologies, the growth and success of our business depends on our ability to continue to enter into, and derive additional revenue from, collaboration agreements to develop and commercialize potential products in our various target markets. If we are unable to enter into additional collaboration agreements on terms satisfactory to us, we may not be able to commercialize our existing and potential products, grow our business, or generate sufficient revenue to support our operations.

We are dependent on a limited number of customers.

Our current revenues are derived from a limited number of key customers. For the year ended December 31, 2007, our top five customers accounted for approximately 65% of our revenues, with Shell and Pfizer accounting for approximately 33% and 13%, respectively. For the three months ended March 31, 2008, our top five customers accounted for approximately 70% of our revenues, with Shell accounting for 46% of our revenues. We expect a limited number of customers to continue to account for a significant portion of our revenues for the foreseeable future. This customer concentration increases the risk of quarterly fluctuations in our revenues and operating results. The loss or reduction of business from one or a combination of our significant customers could adversely affect our revenues, financial condition and results of operations.

Our dependence on contract manufacturers for biocatalyst production exposes our business to risks.

We have limited internal capacity to manufacture biocatalysts and are unable to do so for commercial scale production. As a result, we are dependent upon the performance and capacity of third party manufacturers for the commercial scale manufacturing of our biocatalysts.

We have historically relied on one Italian contract manufacturer, CPC Biotech srl, or CPC, to manufacture substantially all of our commercial enzymes used in our pharmaceutical business. Our pharmaceutical business, therefore, faces risks of difficulties with, and interruptions in, performance by CPC, the occurrence of which could adversely impact the availability, launch and/or sales of our enzymes in the future. We are in the process of qualifying other contract manufacturers, but we do not have agreements or commitments with such contract manufacturers at this time. The failure of CPC or any other manufacturers that we may use to supply manufactured product on a timely basis or at all, or to manufacture our enzymes or other biocatalysts in compliance with our specifications or applicable quality requirements, or to manufacture our enzymes or other biocatalysts in volumes sufficient to meet demand would adversely affect our ability to achieve development milestones under our collaborations or sell our pharmaceutical products, could harm our relationships with our collaborators or customers and could negatively affect our revenues and operating results.

14

Table of Contents

We do not currently have a long-term supply contract with CPC or any other contract manufacturers, who are under no obligation to manufacture our enzymes and could elect to discontinue the manufacture of our enzymes at any time and without cause. If CPC does not expand its facilities to match our growing demand or if we are unable to contract with other manufacturers on commercially reasonable terms or at all, we will not have enough capacity to meet our current demand projections. If we require additional manufacturing capacity and are unable to obtain it in sufficient quantity, we may not be able to increase our pharmaceutical sales, or we may be required to make very substantial capital investments to build that capacity or to contract with another manufacturer on terms that may be less favorable than the terms we currently have with CPC. If we choose to build our own additional manufacturing capacity, it could take a year or longer before that facility is able to produce commercial volumes of our biocatalysts. In addition, if we contract with other manufacturers, we may experience delays of several months in qualifying them, which could harm our relationships with our collaborators or customers and could negatively affect our revenues or operating results.

We plan to evaluate whether to invest in our own manufacturing capabilities or to establish long-term supply contracts with additional contract manufacturers. However, we cannot guarantee that we will be able to acquire, develop or contract for internal manufacturing capabilities on commercially reasonable terms, or at all. Any resources we expend on acquiring or building internal manufacturing capabilities could be at the expense of other potentially more profitable opportunities.

We are primarily dependent on contract manufacturers to manufacture our pharmaceutical products.

We currently rely on a small number of collaborators and contract manufacturers to manufacture our pharmaceutical intermediates. For example, our collaborator Arch Pharmalabs Limited, or Arch, supplies us and our customers with intermediates manufactured using our proprietary biocatalysts.

Our pharmaceutical business faces risks of difficulties with, and interruptions in, performance by Arch, the occurrence of which could adversely impact the availability, launch and/or sales of our products in the future. The failure of Arch to supply intermediates on a timely basis or at all, or to manufacture our products in compliance with our specifications or applicable quality requirements, or to manufacture the product in volumes sufficient to meet demand would adversely affect our ability to commercialize our pharmaceutical products and could negatively affect our revenues and operating results. If Arch does not expand its facilities to match our growing demand, or experiences delays related to the construction of new facilities or the expansion of existing facilities, or if we are unable to contract with other suppliers on commercially reasonable terms or at all, we will not have enough capacity to meet our current demand projections.

We intend to use Arch as the primary supplier for our planned launch of APIs. We will rely on Arch to deliver materials on a timely basis and to comply with applicable regulatory requirements, which may include current Good Manufacturing Practices, or cGMP, and will be dependent on Arch to timely manufacture and deliver sufficient quantities of materials produced under cGMP conditions to enable us to bring products to market in a timely manner. Failure by Arch, or any other contract manufacturer that we rely on to manufacture APIs, to comply with applicable regulations could adversely affect the production and commercialization of API products, which could lead to lost sales. We also rely, to a lesser extent, on other contract manufacturers to supply our pharmaceutical intermediates. The failure of these manufacturers to supply intermediates, or to manufacture products in compliance with our specifications or in sufficient volumes, would have similar negative effects on our revenues and operating results.

15

Table of Contents

If we are unable to develop and commercialize new products for the generic pharmaceutical market, our business and prospects will be harmed.

We plan to launch several new intermediates and APIs for generic drugs in non-regulated markets, and plan to launch these same products in the regulated markets when the patent protection for each branded product expires. This effort is subject to numerous risks, including the following:

If one or more of these risks were to materialize, our future business, results of operations and financial condition could be materially adversely affected, and we may be unable to grow our business.

We will face numerous risks relating to any pharmaceutical products that we commercialize.

The commercialization of pharmaceutical intermediates and APIs will expose us to a number of risks, including risks related to product liability litigation, unexpected safety or efficacy concerns, product recalls or withdrawals, changes in laws or regulations relating to the generics industry, negative publicity affecting doctor or patient confidence in the products, and pressure from existing or new competitive products. In addition, our existing and potential innovator customers may view us as competitors and be less willing to do business with us. Moreover, we may be subject to claims alleging that our pharmaceutical products violate the patent or other intellectual property rights of third parties, particularly in connection with any generic products on which the patent covering the branded drug is expiring. These claims could give rise to litigation, which may be costly and time-consuming and could divert management’s attention. If we are unsuccessful in our defense of any such claims, we may lose our right to develop or manufacture the products, be required to pay monetary damages, or be required to enter into license agreements and pay substantial royalties. The occurrence of any of these events could have a material adverse effect on our business, results of operation, financial condition and cash flows.

Our business could be adversely affected if the clinical trials being conducted by our innovator customers who sell branded drugs fail or if the processes used by those customers to manufacture their final pharmaceutical products fail to be approved.

Our biocatalysts are used in the manufacture of intermediates and APIs which are then used in the manufacture of final pharmaceutical products by our customers who sell branded drugs, which we refer to as innovators. In order to sell these pharmaceutical products in markets that provide effective patent protection, which we refer to as regulated markets, the products must be approved by the FDA in the United States, and similar regulatory bodies in other regulated markets, prior to commercialization. If these customers experience adverse events in their clinical trials, fail to receive regulatory approval for the drugs, or decide for business or other reasons to discontinue their clinical trials or drug development activities, our revenues will be negatively impacted. The process of producing these drugs, and their generic equivalents, is also subject to regulation by the FDA in the United States and equivalent regulatory bodies in other regulated markets. If any pharmaceutical process that uses our biocatalysts does not receive approval by the appropriate regulatory body or if customers decide not to pursue approval, our business could be adversely affected.

16

Table of Contents

Our business could be adversely affected if customers do not adopt our processes.

Historically, pharmaceutical companies have been reluctant to use biocatalysts in the manufacture of their intermediates or APIs because naturally occurring biocatalysts were not economically viable for production at commercial scale. For example, naturally occurring biocatalysts are often not stable enough to be used in industrial settings. Additionally, the activity and productivity of these biocatalysts are often too limited to be effective in commercial scale manufacturing and often result in incomplete reactions and insufficient product yields. Although our biocatalysts have been developed to address these problems, we may still encounter reluctance by pharmaceutical companies to adopt processes that use our biocatalysts. If customers decide not to adopt processes using our biocatalysts over other methods of producing the intermediates or APIs for their drugs, our revenues will be negatively impacted.

Moreover, we believe that the lower manufacturing costs enabled by our technology platform is one of the principal reasons pharmaceutical companies have purchased and will continue to purchase our products and processes. If we are unable to maintain the cost advantages provided by our technology platform, customers may be less willing to acquire our products and processes, which would also negatively impact our revenues.

If we fail to fund research in certain areas, we will lose rights to develop products in those areas using technology licensed from Maxygen.

Under our license agreement with Maxygen, we can extend the scope of our license into several additional areas related to hydrogen, coal and natural gas-based fuels if we meet certain funding thresholds for research in those fields by September 2009. If we do not meet the funding requirements in any of those areas, we would lose our rights to use the licensed technology and intellectual property to develop products or pursue collaborations in that area, which could have a material adverse effect on our ability to grow our business and revenues.

We may need additional licenses from Maxygen to pursue certain future business opportunities in the chemical market.

Under our license agreement with Maxygen, we obtained exclusive rights to manufacture certain types of chemicals for specified purposes within particular fields. Should we desire to work on any chemicals that are outside the scope of these license rights, we may need to seek additional rights from Maxygen. Maxygen has no obligation to grant such rights to us and may choose not to license such rights to us on favorable terms, if at all. If we are unable to obtain rights to those additional areas, we may not be able to develop products or services or pursue collaborations in those areas, which could limit our ability to expand into the chemicals market.

Our government grants are subject to uncertainty, which could harm our business and results of operations.

We have received grants funded by various agencies of the federal government and foreign governments to complement and enhance our own resources. Funds available under these grants and contracts must be applied by us toward the research and development programs specified by the granting agencies rather than for all our programs generally. Moreover, revenues from such sources are uncertain because these agreements and grants generally have fixed terms and may be terminated, modified or recovered by the granting agency under certain conditions.

We may also be subject to audits by the government agencies as part of routine audits of our activities funded by our government grants. As part of an audit, these agencies may review our performance, cost structures and compliance with applicable laws, regulations and standards. If any of our costs are found to be allocated improperly, the costs may not be reimbursed and any costs already reimbursed for such

17

Table of Contents

contract may have to be refunded. Accordingly, an audit could result in an adjustment to our revenue and results of operations.

If we are unable to successfully commercialize our technology in biofuels and other bioindustrial markets, our business may fail to generate sufficient revenue, which would adversely affect our operating results.

We expect to derive a significant portion of our future revenue from the development of bioindustrial products, including biocatalysts for the production of biofuels, that we may develop with our collaborators, and by licensing our proprietary technology. In order to develop a viable biofuels business, we will need to demonstrate that we can develop biocatalysts that can be used to produce biofuels from cellulosic biomass. We do not know when we will be able to demonstrate these capabilities, if at all. If we are able to develop this technology, Shell has the right, but not the obligation, to commercialize this technology. If Shell decides to commercialize our technology, Shell will need to build a demonstration facility, design, finance and construct commercial scale biofuel facilities, and operate commercial scale facilities at costs that are competitive with traditional petroleum-based fuels and other alternative fuel technologies that may be developed.

In addition to biofuels, we expect to invest a significant amount of our future research and development efforts in other bioindustrial areas, including carbon management, water treatment and chemicals. We do not currently have any, and may be unable to secure, funded collaborations in these areas. Even if we are able to enter into collaborations in one or more of these areas, we and our collaborators may be unable to develop commercially viable solutions to these problems. Moreover, because we have limited financial and managerial resources, we will be required to prioritize our application of resources to particular development and commercialization efforts. Any resources we expend on one or more of these efforts could be at the expense of other potentially profitable opportunities. If we focus our efforts and resources on one or more of these areas and they do not lead to commercially viable products, our revenues, financial condition and results of operations could be adversely affected.

Production and commercialization of cellulosic biofuels and other chemicals derived from cellulose may not be feasible.

Production and commercialization of cellulosic biofuel products, and other chemicals derived from cellulose, may not be feasible for a variety of reasons. For example, the development of technology for converting sugar into a commercially viable non-ethanol biofuel alternative to petroleum-based fuels is still in its infancy, and we do not know whether this can be done commercially or at all. To date there has been a lack of significant private and government funding for research and development. Furthermore, there have been very few, if any, well-directed research and development public policies emphasizing investment in the research and development of, and providing incentives for the commercialization of, and transition to, biofuels.

Substantial development of infrastructure will be required for the biofuels industry to grow. Areas requiring expansion include, but are not limited to, additional rail capacity, additional storage facilities for biofuels, increases in truck fleets capable of transporting biofuels within localized markets, expansion of refining and blending facilities to handle biofuels, and growth in the fleet of vehicles capable of using biofuels. Substantial investments required for infrastructure changes and expansions may not be made on a timely basis or at all. Any delay or failure in making the changes to or expansion of infrastructure could harm demand or prices for potential biofuel products and impose additional costs that would hinder the commercialization of biofuels.

Currently, we believe that there are no commercial scale cellulosic biofuel production plants in operation in the United States. There can be no assurance that anyone will be able or willing to develop and operate biofuel production plants at commercial scale or that any biofuel facilities can be profitable.

18

Table of Contents

Additionally, it is likely that different biocatalysts will be required to produce biofuels and other chemicals from cellulosic biomass. Therefore, different biocatalysts may be needed to be developed for use in different geographic locations to convert the biomass available in each locale into sugars that can be used in the production of these biofuels and chemicals. This will make the development of biofuels and other chemicals derived from cellulose more expensive.

Finally, if existing tax credits, subsidies and other incentives in the United States and foreign markets are phased out or reduced, the overall cost of commercialization of cellulosic ethanol will increase.

We will have to develop or acquire rights to a commercial scale expression system for enzymes that convert cellulosic biomass to sugars.

In order to commercialize cellulosic biofuels, we will need access to an expression system that is capable of producing the necessary biocatalysts at commercial scale. Because we do not currently have access or rights to a commercial expression system for enzymes that convert cellulosic biomass to sugars, we will need to buy, license or develop this type of expression system. We may not be able to license the systems on commercially reasonable terms or at all, particularly since Danisco (which purchased Genencor International) and Novozymes are major sources of expression systems and also potential competitors of ours. If we cannot license the system on commercially reasonable terms, we would be required to attempt to develop such a system on our own, which may be difficult, costly and time consuming, in part because of the broad, existing intellectual property rights owned by Danisco, Novozymes and others. We cannot be certain whether we would be successful in developing such a system.

Fluctuations in the price of and demand for petroleum-based fuels may reduce demand for biofuels.

Biofuels are anticipated to be marketed as an alternative to petroleum-based fuels. Therefore, if the price of oil falls, any revenues that we generate from biofuel products could decline, and we may be unable to produce products that are a commercially viable alternative to petroleum-based fuels.

The royalties that we may earn under our agreements with Shell are indexed to the price of oil and generally increase as the price of oil increases. However, the index is set based on average prices between November 2007 and the date of first commercial sale. Therefore, if prices remain high during this period and subsequently fall, our revenues would be negatively impacted.

Our approach to the biofuels and chemical markets may be limited by the scarcity or cost of non-food sustainable biomass sources.

Our approach to the biofuels and chemical markets will be dependent upon the availability and price of the cellulosic biomass which we need to use to produce biofuels and other chemicals derived from cellulose. If the availability of cellulosic biomass decreases or its price increases, this will reduce our potential profit margins, especially if market conditions do not allow us to pass along increased costs to our customers. At certain levels, prices may make these products uneconomical to use and produce.

The price and availability of cellulosic biomass may be influenced by general economic, market and regulatory factors. These factors include weather conditions, farming decisions, government policies and subsidies with respect to agriculture and international trade, and global demand and supply. The significance and relative impact of these factors on the price of cellulosic biomass is difficult to predict, especially without knowing what types of cellulosic biomass materials we may need to use.

19

Table of Contents

We face risks associated with our international business.

Significant portions of our operations are conducted outside of the United States and we expect to continue to have significant foreign operations in the foreseeable future. International business operations are subject to a variety of risks, including:

We manufacture many of our pharmaceutical intermediates in India, which has stringent local regulations that make it difficult for money earned in India to be taken out of the country without being subject to Indian taxes. While our Indian subsidiary can make use of some of the funds we earn in India, these regulations may limit the amount of profits we can repatriate from operations in India.

If we engage in any acquisitions, we will incur a variety of costs and may potentially face numerous other risks that could adversely affect our business operations.

We have made acquisitions in the past, and if appropriate opportunities become available, we expect to acquire additional businesses, assets, technologies, or products to enhance our business in the future. In connection with any future acquisitions, we could:

Acquisitions involve numerous risks, including problems integrating the purchased operations, technologies or products, unanticipated costs, diversion of management’s attention from our core businesses, adverse effects on existing business relationships with current and/or prospective collaborators, customers and/or suppliers, risks associated with entering markets in which we have no or limited prior experience and potential loss of key employees. We do not have extensive experience in managing the integration process and we may not be able to successfully integrate any businesses, assets, products, technologies, or personnel that we might acquire in the future without a significant expenditure of operating, financial and management resources, if at all. The integration process could divert management time from focusing on operating our business, result in a decline in employee morale and cause retention issues to arise from changes in compensation, reporting relationships, future prospects or the direction of the business. Acquisitions may also require us to record goodwill and non-amortizable intangible assets that will be subject to impairment testing on a regular basis and potential periodic impairment charges, incur amortization expenses related to

20

Table of Contents

certain intangible assets, and incur large and immediate write-offs and restructuring and other related expenses, all of which could harm our operating results and financial condition. In addition, if we fail in our integration efforts with respect to any of our acquisitions and are unable to efficiently operate as a combined organization, our business and financial condition may be adversely affected.

We must rely on our suppliers, contract manufacturers and customers to deliver timely and accurate information in order to accurately report our financial results in the time frame and manner required by law.

We need to receive timely, accurate and complete information from a number of third parties in order to accurately report our financial results on a timely basis. We rely on the third parties that sell pharmaceutical products that are manufactured using our biocatalysts to provide us with complete and accurate information regarding revenue, costs of revenue and payments owed to us on a timely basis. In addition, we rely on suppliers and contract manufacturers to provide us with timely and accurate information regarding our inventories, and current and former collaborators to provide us product sales and cost saving information in connection with royalties owed to us. Any failure to receive timely information from one or more of these third parties could require that we estimate a greater portion of our revenues and other operating statistics for the period based on prior history, which could cause our reported financial results to be incorrect. Moreover, if the information that we receive is not accurate, our financial statements may be materially incorrect and may require restatement, and we may not receive the full amount of revenue that we are entitled to under these arrangements. Although we typically have audit rights with these parties, performing such an audit could be harmful to our collaborative relationships, expensive and time-consuming and may not be sufficient to reveal any discrepancies.

If we lose key personnel or are unable to attract and retain additional personnel, it could delay our product development programs, harm our research and development efforts, and we may be unable to pursue collaborations or develop our own products.

The loss of any key scientific staff, or the failure to attract or retain other key scientific employees, could prevent us from developing and commercializing our products for our target markets and entering into collaborations or licensing arrangements to execute on our business strategy. We may not be able to attract or retain qualified employees in the future due to the intense competition for qualified personnel among biotechnology and other technology-based businesses, particularly in the biofuels area, or due to the competition for, or availability of, personnel with the qualifications or experience necessary for our biofuels business. If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may experience staffing constraints that will adversely affect our ability to meet the demands of our collaborators in a timely fashion or to support our internal research and development programs. In particular, our product and process development programs are dependent on our ability to attract and retain highly skilled scientists. Competition for experienced scientists and other technical personnel from numerous companies and academic and other research institutions may limit our ability to do so on acceptable terms. All of our employees are at-will employees, which means that either the employee or we may terminate their employment at any time.

Our planned activities will require additional expertise in specific industries and areas applicable to the products and processes developed through our technologies or acquired through strategic or other transactions, especially in the new end markets that we seek to penetrate. These activities will require the addition of new personnel, and the development of additional expertise by existing personnel. The inability to acquire these services or to develop this expertise could impair the growth, if any, of our business. Additionally, under our agreements with Shell, we are required to meet certain hiring targets and failure to meet such targets is considered a breach of the agreements, which could give Shell a right to terminate the agreements. Furthermore, we conduct a substantial portion of our generic pharmaceutical business in India

21

Table of Contents

and believe that to expand our position in the generics market, we will need to employ and retain people who have or can cultivate strong relationships with contract manufacturers and/or customers in India.

Our ability to compete may decline if we do not adequately protect our proprietary technologies or if we lose some of our intellectual property rights through costly litigation or administrative proceedings.

Our success depends in part on our ability to obtain patents and maintain adequate protection of our intellectual property for our technologies and products and potential products in the United States and other countries. We have adopted a strategy of seeking patent protection in the United States and in foreign countries with respect to certain of the technologies used in or relating to our products and processes. As such, as of July 31, 2008, we owned or had licensed rights to approximately 230 issued patents and approximately 150 pending patent applications in the United States and in various foreign jurisdictions. Of the licensed patents and patent applications, most are owned by Maxygen or the California Institute of Technology and exclusively licensed to us for use in certain fields. As of July 31, 2008, we owned approximately 15 issued patents and approximately 75 pending patent applications in the United States and in various foreign jurisdictions directed to our enabling technologies and to our methods and products used in the production of pharmaceuticals such as atorvastatin, montelukast and azetidinone compounds, and we intend to continue to apply for patents relating to our technologies, methods and products as we deem appropriate.

Numerous patents in our portfolio involve complex legal and factual questions and, therefore, enforceability cannot be predicted with any certainty. Issued patents and patents issuing from pending applications may be challenged, invalidated, or circumvented. Additional uncertainty may result from an inconsistent policy in the United States that has emerged regarding the scope of legal claims allowed in biotechnology patents. Accordingly, we cannot ensure that any of our pending patent applications will result in issued patents, or even if issued, predict the breadth of the claims upheld in our and other companies’ patents. Given that the degree of future protection for our proprietary rights is uncertain, we cannot ensure that: (i) we were the first to make the inventions covered by each of our pending applications, (ii) we were the first to file patent applications for these inventions, and (iii) the proprietary technologies we develop will be patentable.

In addition, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. Monitoring unauthorized use of our intellectual property is difficult, and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology, particularly in certain foreign countries where the local laws may not protect our proprietary rights as fully as in the United States. If competitors are able to use our technology, our ability to compete effectively could be harmed. Moreover, others may independently develop and obtain patents for technologies that are similar to or superior to our technologies. If that happens, we may need to license these technologies, and we may not be able to obtain licenses on reasonable terms, if at all, which could cause harm to our business.

Our commercial success also depends in part on not infringing patents and proprietary rights of third parties, and not breaching any licenses or other agreements that we have entered into with regard to our technologies, products and business. We cannot ensure that patents have not been issued to third parties that could block our ability to obtain patents or to operate as we would like. There may be patents in some countries that, if valid, may block our ability to commercialize products in those countries if we are unsuccessful in circumventing or acquiring the rights to these patents. There also may be claims in patent applications filed in some countries that, if granted and valid, may also block our ability to commercialize products or processes in these countries if we are unable to circumvent or license them.

The biotechnology industry is characterized by frequent and extensive litigation regarding patents and other intellectual property rights, and we believe that the various bioindustrial markets will also be characterized by this type of litigation. Many biotechnology companies have employed intellectual property litigation as a way to gain a competitive advantage. Our involvement in litigation, interferences, opposition proceedings or other intellectual property proceedings inside and outside of the United States, to

22

Table of Contents

defend our intellectual property rights or as a result of alleged infringement of the rights of others, may cause us to spend significant amounts of money. Any potential intellectual property litigation also could force us to do one or more of the following:

We are aware of a significant number of patents and patent applications relating to aspects of our technologies filed by, and issued to, third parties. We cannot assure you that if this third party intellectual property is asserted against us that we would ultimately prevail.

If any of our competitors have filed patent applications or obtained patents that claim inventions also claimed by us, we may have to participate in interference proceedings declared by the relevant patent regulatory agency to determine priority of invention and, thus, the right to the patents for these inventions in the United States. These proceedings could result in substantial cost to us even if the outcome is favorable. Even if successful, an interference may result in loss of certain claims. Any litigation or proceedings could divert our management’s time and efforts. Even unsuccessful claims could result in significant legal fees and other expenses, diversion of management time, and disruption in our business. Uncertainties resulting from initiation and continuation of any patent or related litigation could harm our ability to compete.

We may not be able to enforce our intellectual property rights throughout the world.

The laws of some foreign countries, including India, where we manufacture pharmaceutical intermediates through our collaborators, do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biotechnology and/or bioindustrials technologies, which could make it difficult for us to stop the infringement of our patents or misappropriation of our other intellectual property rights. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property in such countries may be inadequate.

If our biocatalysts, or the genes that code for our biocatalysts, are stolen, others could use these biocatalysts or genes to produce competing products.

Third parties, including our contract manufacturers, customers and those involved in shipping our biocatalysts often have custody or control of our biocatalysts. If our biocatalysts, or the genes that code for our biocatalysts, were stolen or misappropriated, they could be used by other parties who may be able to reproduce these biocatalysts for their own commercial gain. If this were to occur, it would be difficult for us to challenge this type of use, especially in countries with limited intellectual property protection.

Under our license with Maxygen, there are limitations on our ability to enforce Maxygen’s patents to which we hold a license, which could have a material adverse effect on our business.

Our core enabling technology is licensed from Maxygen. Under our agreement with Maxygen, Maxygen has the first right to enforce many of the patents that we licensed, particularly those directly related to gene shuffling technology. If Maxygen declines to enforce these patent rights, we can enforce these rights after a delay of up to six months, or Maxygen can deny us the ability to enforce if Maxygen concludes that such

23

Table of Contents

enforcement may have a material adverse impact on Maxygen or one or more other licensees of Maxygen’s technology. Some portions of the technology licensed to us by Maxygen are owned by third parties that retain the right to enforce the patents. If Maxygen or these third parties fail to enforce their patent rights, our business could be materially adversely affected. Maxygen also has the right to control the defense of patent infringement claims made by third parties alleging infringement related to gene shuffling technology. If Maxygen does not provide a timely and adequate defense to these claims, we could be forced to stop using the licensed technology, redesign our products and/or obtain a license from the party claiming infringement, which may not be available on commercially reasonable terms or at all. If Maxygen were to become acquired or controlled by a competitor of ours or a third party who is not willing to work with us on the same terms or commit the same resources as Maxygen, our business could be harmed.

Confidentiality agreements with employees and others may not adequately prevent disclosures of trade secrets and other proprietary information.

We rely in part on trade secret protection to protect our confidential and proprietary information and processes. However, trade secrets are difficult to protect. We have taken measures to protect our trade secrets and proprietary information, but these measures may not be effective. We require new employees and consultants to execute confidentiality agreements upon the commencement of an employment or consulting arrangement with us. These agreements generally require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. These agreements also generally provide that inventions conceived by the individual in the course of rendering services to us shall be our exclusive property. Nevertheless, our proprietary information may be disclosed, third parties could reverse engineer our biocatalysts and others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

If we lose key management personnel, it could harm our business.

Our business involves complex, global operations across a variety of markets and requires a management team that is knowledgeable in the many areas in which we operate. The loss of any key members of our management, including our chief executive officer Alan Shaw, or the failure to attract or retain other key employees who possess the requisite expertise for the conduct of our business, could prevent us from developing and commercializing our products for our target markets and entering into collaborations or licensing arrangements to execute on our business strategy.

Competitors and potential competitors who have greater resources and experience than we do may develop products and technologies that make ours obsolete or may use their greater resources to gain market share at our expense.

The biocatalysis industry and each of our target markets are characterized by rapid technological change. Our future success will depend on our ability to maintain a competitive position with respect to technological advances. We are aware that other companies, including Verenium Corporation (previously Diversa Corporation), Royal DSM N.V. and DuPont, have alternative methods for obtaining and generating genetic diversity or use mutagenesis techniques to produce genetic diversity. Academic institutions such as the California Institute of Technology, the Max Planck Institute and the Center for Fundamental and Applied Molecular Evolution (FAME), a jointly sponsored initiative between Emory University and Georgia Institute of Technology, are also working in this field. Technological development by others may result in our products and technologies, as well as products developed by our customers using our biocatalysts, becoming obsolete.

We face intense competition in the pharmaceuticals market. There are a number of companies who compete with us throughout the various stages of a pharmaceutical product’s lifecycle. Many large

24

Table of Contents

pharmaceutical companies have internal capabilities to develop and manufacture intermediates and APIs. These companies include many of our large innovator and generic pharmaceutical customers, such as Merck, Pfizer and Teva. There are also many large, well-established fine chemical manufacturing companies, such as DSM, BASF and Lonza Group Ltd, that compete to supply pharmaceutical intermediates and APIs to our customers. We also face increasing competition from generic pharmaceutical manufacturers in low cost centers such as India and China.

In addition to competition from companies manufacturing APIs and intermediates, we face competition from companies that sell biocatalysts for use in the pharmaceutical market. There is competition from large industrial enzyme companies, such as Novozymes A/S and Amano Enzyme Inc., whose industrial enzymes (for detergents, for example) are occasionally used in pharmaceutical processes. There is also competition in this area is from several small companies with product offerings comprised primarily of naturally occurring biocatalysts or that offer biocatalyst optimization services.

We expect the biofuels industry to be extremely competitive, with competition coming from ethanol producers as well as other providers of alternative and renewable fuels. Significant competitors include companies such as Novozymes, who has partnered with BP p.l.c. to produce biofuels, and Danisco A/S/Genencor, which is marketing cellulases to convert biomass into sugar. DuPont, Iogen Corp., Verenium, Virent Energy Systems, Inc. and Amyris are also attempting to develop non-ethanol biofuels. DuPont has announced plans to develop and market biobutanol in collaboration with BP, and has recently announced a joint venture with Genecor to develop and commercialize a low-cost solution for the production of cellulosic ethanol from non-food sources. In addition, Virent is collaborating with Shell to develop biogasoline directly from sugars. Other potential competitors such as Range Fuels Inc. are focused on developing non-biocatalytic thermochemical processes to convert biomass into fuels. Some or all of these competitors or other competitors, as well as academic, research and government institutions, are developing or may develop technologies for, and are competing or may compete with us in, the production of alternative fuels or biofuels.

We will face competition from a variety of companies focusing on developing biocatalytic routes to chemicals, including DuPont, DSM and Metabolix.

Our ability to compete successfully will depend on our ability to develop proprietary products that reach the market in a timely manner and are technologically superior to and/or are less expensive than other products on the market. Many of our competitors have substantially greater production, financial, research and development, personnel and marketing resources than we do. As a result, our competitors may be able to develop competing and/or superior technologies and processes, and compete more aggressively and sustain that competition over a longer period of time than we could. Our technologies and products may be rendered obsolete or uneconomical by technological advances or entirely different approaches developed by one or more of our competitors. As more companies develop new intellectual property in our markets, the possibility of a competitor acquiring patent or other rights that may limit our products or potential products increases, which could lead to litigation.

Our lack of resources relative to many of our competitors may cause us to fail to anticipate or respond adequately to new developments and other competitive pressures. This failure could reduce our competitiveness and market share, adversely affect our results of operations and financial position, and prevent us from obtaining or maintaining profitability.

We may need substantial additional capital in the future in order to expand our business.

Our future capital requirements may be substantial, particularly as we continue to develop our biocatalysis business and expand our biocatalyst discovery and development process. Although we believe that we have sufficient cash on hand to fund our operations and meet our obligations until we become cash flow positive, our current plans and assumptions may change and our need for additional capital will

25

Table of Contents

depend on many factors, including the financial success of our pharmaceutical business, whether we are successful in obtaining payments from customers, whether we can enter into additional collaborations, the progress and scope of our collaborative and independent research and development projects performed by our customers and collaborators, the effect of any acquisitions of other businesses or technologies that we may make in the future, whether we decide to develop an internal manufacturing capability, and the filing, prosecution and enforcement of patent claims.

If our capital resources are insufficient to meet our capital requirements, we will have to raise additional funds to continue the development of our technology and products and complete the commercialization of products, if any, resulting from our technologies. If future financings involve the issuance of equity securities, our existing stockholders would suffer dilution. If we were permitted to raise additional debt financing, we may be subject to restrictive covenants that limit our ability to conduct our business. We may not be able to raise sufficient additional funds on terms that are favorable to us, if at all. If we fail to raise sufficient funds and continue to incur losses, our ability to fund our operations, take advantage of strategic opportunities, develop products or technologies, or otherwise respond to competitive pressures could be significantly limited. If this happens we may be forced to delay or terminate research or development programs or the commercialization of products resulting from our technologies, curtail or cease operations or obtain funds through collaborative and licensing arrangements that may require us to relinquish commercial rights, or grant licenses on terms that are not favorable to us. If adequate funds are not available, we will not be able to successfully execute our business plan or continue our business.

The terms of our loan and security agreement with General Electric Capital Corporation and Oxford Finance Corporation may restrict our ability to engage in certain transactions.

In September 2007, we entered into a loan and security agreement with General Electric Capital Corporation, or GE, and Oxford Finance Corporation, or Oxford. Pursuant to the terms of the loan and security agreement, we cannot engage in certain transactions, including disposing of certain assets, transferring capital to foreign subsidiaries, declaring dividends, acquiring or merging with another entity or leasing additional real property unless certain conditions are met or unless we receive prior approval of GE and Oxford. If GE and Oxford do not consent to any of these actions that we desire to take, we could be prohibited from engaging in transactions which could be beneficial to our business and our stockholders.

Business interruptions could delay us in the process of developing our products and could disrupt our sales.

Our headquarters is located in the San Francisco Bay Area near known earthquake fault zones and is vulnerable to significant damage from earthquakes. We are also vulnerable to other types of natural disasters and other events that could disrupt our operations, such as riot, civil disturbances, war, terrorist acts, flood or infections in our laboratory or production facilities and other events beyond our control. We do not have a detailed disaster recovery plan. In addition, we do not carry insurance for earthquakes and we may not carry sufficient business interruption insurance to compensate us for losses that may occur. Any losses or damages we incur could have a material adverse effect on our cash flows and success as an overall business. Furthermore, Shell may terminate our collaborative research agreement if a force majeure event interrupts our collaboration activities for more than ninety days.

Ethical, legal and social concerns about genetically engineered products and processes could limit or prevent the use of our products, processes, and technologies and limit our revenues.

Some of our products and processes are genetically engineered or involve the use of genetically engineered products or genetic engineering technologies. If we and/or our collaborators are not able to overcome the ethical, legal, and social concerns relating to genetic engineering, our products and processes may not be accepted. Any of the risks discussed below could result in expenses, delays, or other

26

Table of Contents

impediments to our programs or the public acceptance and commercialization of products and processes dependent on our technologies or inventions. Our ability to develop and commercialize one or more of our technologies, products, or processes could be limited by the following factors:

The subject of genetically modified organisms has received negative publicity, which has aroused public debate. This adverse publicity could lead to greater regulation and trade restrictions on imports of genetically altered products.

The biocatalysts that we develop have significantly enhanced characteristics compared to those found in naturally occurring enzymes or microbes. While we produce our biocatalysts only for use in a controlled industrial environment, we do not know what effect, if any, would result if our biocatalysts were released into the natural environment. Any adverse effect resulting from such a release could have a material adverse effect on our business and financial condition, and we may have exposure to liability for any resulting harm.

Stringent laws and required government approvals may be time consuming and costly, and could delay our introduction of products, and changes to existing regulations and policies may present technical, regulatory and economic barriers, all of which may significantly reduce demand for biofuels.

In order to achieve and maintain market acceptance, our biofuels business will need to meet a significant number of regulations and standards, including regulations imposed by the U.S. Department of Transportation, the U.S. Environmental Protection Agency, various state agencies and others. As these regulations and standards evolve, and if new regulations or standards are implemented, we and our collaborators may be required to modify our proposed facilities and processes, or develop and support new facilities or processes, and this will increase our costs. Any failure to comply, or delays in compliance, with the various existing and evolving industry regulations and standards could prevent or delay our production of biofuels and the provision of related services could harm our biofuels business.

The market for biofuels is heavily influenced by foreign, federal, state and local government regulations and policies concerning the petroleum industry. For example, in 2007, the U.S. Congress passed an alternative fuels mandate that calls for 9 billion gallons of liquid transportation fuels sold in 2008 to come from alternative sources, including biofuels, a mandate that grows to 36 billion gallons by 2022. In the U.S. and in a number of other countries, these regulations and policies have been modified in the past and may be modified again in the future. Any reduction in mandated requirements for fuel alternatives and additives to gasoline may cause demand for biofuels to decline and deter investment in the research and development of biofuels. Market uncertainty regarding future policies may also affect our ability to develop new biofuels products or to license our technologies to third parties. Any inability to address these requirements and any regulatory or policy changes could have a material adverse effect on our biofuels business, financial condition and operating results. Our other potential bioindustrials products may be subject to additional regulations.

27

Table of Contents

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 and could adversely affect our business and results of operations.

Our research and development processes involve the controlled use of hazardous materials, including chemical, radioactive, and biological materials. Our operations also produce hazardous waste products. We cannot eliminate entirely the risk of accidental contamination or discharge and any resultant injury from these materials. Federal, state, and local laws and regulations govern the use, manufacture, storage, handling, and disposal of these materials. We may be sued for any injury or contamination that results from our use or the use by third parties of these materials, and our liability may exceed our total assets. In addition, compliance with applicable environmental laws and regulations may be expensive, and current or future environmental regulations may impair our research, development, or production efforts.

We may be sued for product liability.

The design, development, manufacture and sale of our products involve an inherent risk of product liability claims and the associated adverse publicity. We could also be named in product liability claims that are brought against our customers that use our products, particularly those customers in the pharmaceutical market. Insurance coverage is expensive and may be difficult to obtain, and may not be available in the future on acceptable terms, or at all. Although we currently maintain product liability insurance for our products in amounts we believe to be commercially reasonable, if the coverage limits of these insurance policies are not adequate, a claim brought against us, whether covered by insurance or not, could have a material adverse effect on our business, results of operations, financial condition and cash flows. In addition, this insurance may not provide adequate coverage against potential losses. If claims or losses exceed our liability insurance coverage, we may go out of business.

Our ability to use our net operating loss carryforwards to offset future taxable income may be subject to certain limitations.

In general, under Section 382 of the Internal Revenue Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating loss carryforwards, or NOLs, to offset future taxable income. Our existing NOLs may be subject to limitations arising from previous ownership changes, and if we undergo an ownership change in connection with or after this public offering, our ability to utilize NOLs could be further limited by Section 382 of the Internal Revenue Code. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Internal Revenue Code. The existing NOLs of some of our subsidiaries currently may be subject to limitations arising from ownership changes prior to, or in connection with, their acquisition by us. Furthermore, our ability to utilize NOLs of companies that we may acquire in the future may be subject to limitations. For these reasons, we may not be able to utilize a material portion of the NOLs reflected on our balance sheet, even if we attain profitability.

Risks Relating to this Offering

We are subject to anti-takeover provisions in our certificate of incorporation and bylaws and under Delaware law that could delay or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders.

Provisions in our amended and restated certificate of incorporation and our bylaws, both of which will become effective upon the completion of this offering, may delay or prevent an acquisition of us. Among other things, our amended and restated certificate of incorporation and bylaws will provide for a board of directors which is divided into three classes, with staggered three-year terms and will provide that all stockholder action must be effected at a duly called meeting of the stockholders and not by a consent in

28

Table of Contents

writing, and will further provide that only our board of directors, the chairman of the board of directors, our chief executive officers or president may call a special meeting of the stockholders. These provisions may also frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, who are responsible for appointing the members of our management team. Furthermore, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits, with some exceptions, stockholders owning in excess of 15% of our outstanding voting stock from merging or combining with us. Finally, our charter documents establish advanced notice requirements for nominations for election to our board of directors and for proposing matters that can be acted upon at stockholder meetings. Although we believe these provisions together provide for an opportunity to receive higher bids by requiring potential acquirers to negotiate with our board of directors, they would apply even if an offer to acquire our company may be considered beneficial by some stockholders.

Concentration of ownership among our existing officers, directors and principal stockholders may prevent other stockholders from influencing significant corporate decisions and depress our stock price.

When this offering is completed, our officers, directors and existing stockholders who hold at least 5% of our stock will together control approximately     % of our outstanding common stock. As of March 31, 2008, Maxygen, Biomedical Sciences Investment Fund Pte Ltd and Shell owned 25%, 14% and 13% of our outstanding common stock, respectively, as calculated on an as-converted basis. If these officers, directors, and principal stockholders or a group of our principal stockholders act together, they will be able to exert a significant degree of influence over our management and affairs and control matters requiring stockholder approval, including the election of directors and approval of mergers or other business combination transactions. The interests of this concentration of ownership may not always coincide with our interests or the interests of other stockholders. For instance, officers, directors, and principal stockholders, acting together, could cause us to enter into transactions or agreements that we would not otherwise consider. Similarly, this concentration of ownership may have the effect of delaying or preventing a change in control of our company otherwise favored by our other stockholders. This concentration of ownership could depress our stock price.

Our share price may be volatile and you may be unable to sell your shares at or above the offering price.

The initial public offering price for our shares will be determined by negotiations between us and representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. The market price of shares of our common stock could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including:

29

Table of Contents

Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of shares of our common stock. If the market price of shares of our common stock after this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

A significant portion of our total outstanding shares of common stock is restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares of common stock intend to sell shares, could reduce the market price of our common stock. After this offering, we will have              outstanding shares of common stock. Of these shares, all of the shares offered under this prospectus will be freely tradable without restriction under the federal securities laws unless purchased by our affiliates, and 35,805,720 shares are currently restricted under securities laws or as a result of lock-up agreements but will be able to be resold after the offering as described in the “Shares Eligible for Future Sale” section of this prospectus. Moreover, after this offering, holders of an aggregate of 33,124,426 shares of our common stock will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. As of March 31, 2008, our three largest stockholders collectively hold 52% of our outstanding common stock, as calculated on an as-converted basis. If one or more of them were to sell a substantial portion of the shares they hold, it could cause our stock price to decline.

We also intend to register all              shares of common stock that we may issue under our 2008 Incentive Award Plan. Once we register these shares, they can be freely sold in the public market upon issuance and once vested, subject to the 180-day lock-up periods under the lock-up agreements described in the “Underwriting” section of this prospectus.

30

Table of Contents

No public market for our common stock currently exists and an active trading market may not develop or be sustained following this offering.

Prior to this offering, there has been no public market for our common stock. An active trading market may not develop following the completion of this offering or, if developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.

If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our stock or change their opinion of our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.

Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.

The initial public offering price will be substantially higher than the tangible book value per share of shares of our common stock based on the total value of our tangible assets less our total liabilities immediately following this offering. Therefore, if you purchase shares of our common stock in this offering, you will experience immediate and substantial dilution of approximately $            per share in the price you pay for shares of our common stock as compared to its tangible book value, assuming an initial public offering price of $            per share. To the extent outstanding options to purchase shares of common stock are exercised, there will be further dilution. For further information on this calculation, see “Dilution” elsewhere in this prospectus.

We have broad discretion in the use of net proceeds from this offering and may not use them effectively.

Although we currently intend to use the net proceeds from this offering in the manner described in “Use of Proceeds” elsewhere in this prospectus, we will have broad discretion in the application of the net proceeds. Our failure to apply these funds effectively could affect our ability to continue to develop and sell our products and grow our business, which could cause the value of your investment to decline.

We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.

We have never operated as a public company. As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act, as well as related rules implemented by the Securities and Exchange Commission and The Nasdaq Stock Market, imposes various requirements on public companies. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more expensive for us to maintain director and officer liability insurance.

In addition, the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, commencing in 2009,

31

Table of Contents

we must perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. We may not be able to remediate the material weakness in our internal control over financial reporting prior to the time of this testing. Our compliance with Section 404 will require that we incur substantial accounting expense and expend significant management time on compliance-related issues. We will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner, or if we are unable to remediate the material weakness in our internal control over financial reporting in a timely manner, our stock price could decline, and we could face sanctions, delisting or investigations by The Nasdaq Global Market, or other material effects on our business, reputation, results of operations, financial condition or liquidity.

We do not anticipate paying cash dividends, and accordingly, stockholders must rely on stock appreciation for any return on their investment.

We do not anticipate paying cash dividends in the future. As a result, only appreciation of the price of our common stock will provide a return to stockholders. Investors seeking cash dividends should not invest in our common stock.

32

Table of Contents

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by these forward-looking statements. These risks and uncertainties are contained principally in the section entitled “Risk Factors.”

Forward-looking statements include all statements that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential,” or the negative of those terms, and similar expressions and comparable terminology intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements represent our estimates and assumptions only as of the date of this prospectus and, except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this prospectus.

This prospectus also contains estimates and other information concerning our current and target markets that are based on industry publications, surveys and forecasts, including those generated by IMS Health, Datamonitor and the U.S. Energy Information Association. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates and information. These industry publications, surveys and forecasts generally indicate that their information has been obtained from sources believed to be reliable. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause actual results to differ materially from those expressed in these publications, surveys and forecasts.

33

Table of Contents

USE OF PROCEEDS

We estimate that we will receive net proceeds of approximately $             million from the sale of              shares of common stock offered in this offering, based on an assumed initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this prospectus) and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) the net proceeds to us from this offering by $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters’ over-allotment option is exercised in full, we estimate that our net proceeds will be approximately $             million.

We currently intend to use the net proceeds of this offering, together with existing cash and cash equivalents, to fund working capital and other general corporate expenditures, including the costs associated with being a public company and improving our internal control over financial reporting. We estimate that we will use approximately $1 million to $3 million to purchase and implement an enterprise resource planning software system and to hire additional personnel to improve our internal control over financial reporting. We may also use a portion of the net proceeds to acquire other businesses, products or technologies, including those that would enable us to seek new markets for our existing products, develop new products or increase our ability to manufacture and produce our biocatalysts. However, we do not have agreements or commitments for any specific acquisitions at this time.

The expected use of net proceeds of this offering represents our current intentions based upon our present plan and business conditions. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering. Accordingly, we will have broad discretion in the application of the net proceeds, and investors will be relying on our judgment regarding the application of the proceeds of this offering.

Until we use the net proceeds of this offering, we intend to invest the net proceeds in short-term, interest-bearing, investment-grade securities. We cannot predict whether the proceeds invested will yield a favorable return.

DIVIDEND POLICY

We have never declared or paid cash dividends on our common stock, and currently do not plan to declare dividends on shares of our common stock in the foreseeable future. We expect to retain our future earnings, if any, for use in the operation and expansion of our business. In addition, in certain circumstances, we are prohibited by various borrowing arrangements from paying cash dividends without the prior written consent of the lenders. Subject to the foregoing, the payment of cash dividends in the future, if any, will be at the discretion of our board of directors and will depend upon such factors as earnings levels, capital requirements, our overall financial condition and any other factors deemed relevant by our board of directors.

34

Table of Contents

CAPITALIZATION

The following table sets forth our cash, cash equivalents and short-term investments and our capitalization as of March 31, 2008:

The pro forma and pro forma as adjusted information below is illustrative only and our capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes appearing elsewhere in this prospectus.

35

Table of Contents

Each $1.00 increase or decrease in the assumed initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this prospectus) would increase or decrease, as applicable, our cash, cash equivalents and marketable securities, working capital, total assets and stockholders’ deficit by approximately $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The number of shares of common stock shown as issued and outstanding in the table is based on the number of shares of our common stock outstanding as of March 31, 2008 and excludes:

36

Table of Contents

DILUTION

If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock after this offering.

Our pro forma net tangible book value at March 31, 2008 was $28.5 million, or $0.75 per share of common stock. Pro forma net tangible book value per share represents total tangible assets less total liabilities (which includes the reclassification of preferred stock warrant liability into additional paid-in capital upon the conversion to common stock of preferred stock underlying warrants), divided by the number of outstanding shares of common stock on March 31, 2008, after giving effect to the conversion of all outstanding shares of preferred stock into shares of common stock as if the conversion occurred on March 31, 2008, and assuming the exercise of options to purchase up to 1,840,845 shares of common stock which our officers, directors and beneficial owners of more than 5% of our outstanding common stock have a right to acquire within 60 days of March 31, 2008, at a weighted average exercise price of $1.13. Our pro forma as adjusted net tangible book value at March 31, 2008, after giving effect to the sale of             shares of common stock in this offering at an assumed initial public offering price of $             per share and after deducting the estimated underwriting discounts and commissions and estimated offering expenses, would have been approximately $             million, or $             per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $             per share to existing stockholders and an immediate dilution of $             per share to new investors, or approximately         % of the assumed initial public offering price of $             per share. The following table illustrates this per share dilution:

A $1.00 increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) our pro forma as adjusted net tangible book value by $             million, the pro forma as adjusted net tangible book value per share by $             per share and the dilution in the pro forma net tangible book value to new investors in this offering by $             per share, assuming the number of shares offered by us, as set forth on the cover pages of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The following table shows, as of March 31, 2008, the number of shares of common stock purchased from us, the total consideration paid to us and the average price paid per share by existing stockholders and by new investors purchasing common stock in this offering at an assumed initial public offering price of $             per share, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

A $1.00 increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) total consideration paid by new investors, total consideration paid by all stockholders and the average price per share paid by all stockholders by $            , $             and $            , respectively,

37

Table of Contents

assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discount and estimated offering expenses payable by us.

The discussion and tables in this section regarding dilution are based on 37,646,565 shares of common stock issued and outstanding as of March 31, 2008 which reflects (i) the automatic conversion of all of our preferred stock into an aggregate of 32,330,100 shares of our common stock, (ii) includes the 1,840,845 shares of common stock which our officers, directors and beneficial owners of more than 5% of our outstanding common stock have a right to acquire within 60 days of March 31, 2008 and (iii) excludes:

If the underwriters exercise their over-allotment option in full, the following will occur:

To the extent that outstanding options or warrants are exercised, you will experience further dilution. If all of our outstanding options and warrants were exercised, our pro forma net tangible book value as of March 31, 2008 would have been $52.8 million, or $1.14 per share, and the pro forma, as adjusted net tangible book value after this offering would have been $             million, or $             per share, causing dilution to new investors of $             per share.

In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

38

Table of Contents

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read together with our consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus. The selected consolidated financial data in this section is not intended to replace our consolidated financial statements and the accompanying notes. Our historical results are not necessarily indicative of our future results.

We derived the statements of operations data for 2005, 2006 and 2007 and the balance sheet data as of December 31, 2006 and 2007 from our audited consolidated financial statements appearing elsewhere in this prospectus. The statement of operations data for 2003 and 2004 and the balance sheet data as of December 31, 2003, 2004 and 2005 have been derived from our audited consolidated financial statements not included in this prospectus. The statements of operations data for the three months ended March 31, 2007 and 2008 and the balance sheet data as of March 31, 2008 is derived from our unaudited consolidated financial statements appearing elsewhere in this prospectus.

39

Table of Contents

40

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this prospectus. In addition to historical financial information, the following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in “Risk Factors.”

Overview

We are a leading developer of proprietary biocatalysts that we believe have the potential to revolutionize chemistry-based manufacturing processes across a variety of industries. Our proprietary biocatalysts include existing biocatalysts that we have optimized and new biocatalysts that we have developed using our technology platform. Biocatalysts are enzymes or microbes that initiate or accelerate chemical reactions. This process, known as biocatalysis, can enable the production of products used in everyday life. Our proprietary technology platform allows us to rapidly evolve and optimize biocatalysts to perform specific and desired chemical reactions for commercial scale industrial applications. We believe we can use our technology platform to improve industrially relevant characteristics of any biocatalyst, enabling manufacturing processes that are faster, less complex, less capital intensive and lower cost than conventional chemistry-based processes. In addition, we believe that our technology platform can enable the production of products that are currently impossible to produce economically at commercial scale.

We were incorporated in Delaware in January 2002 as a wholly-owned subsidiary of Maxygen, Inc. In March 2002, we licensed from Maxygen our core enabling technology, which comprises advanced biotechnology methods, bioinformatics and years of accumulated know-how which we use to significantly expedite the process of developing customized enzymes and microbes. In March 2002, we also commenced operations, and from 2002 until 2005, our operations focused on organizing and staffing our company and developing our technology platform. During this period, we funded our activities principally from the proceeds of a venture capital equity financing in 2002 and a strategic equity investment by our collaborator Pfizer, Inc. in 2004. We also relied on borrowings under our financing arrangements and revenues from numerous research and development collaborations, including those with Bristol-Myers Squibb Company, Cargill, Inc., Chevron Corporation, Eli Lilly and Company, Hercules, Inc., Lonza AG, Matrix Pharmaceuticals Inc., Merck & Co., Inc., Novozymes A/S, Pfizer, Rio Tinto Group, Royal DSM N.V., Sandoz International GmbH, and Schering-Plough Corporation. In 2005, we recognized our first revenue from the sales of products. Since 2005, we have continued to generate revenue, to enter into collaborations in the pharmaceuticals market, and began our research collaboration with Equilon Enterprises LLC dba Shell Oil Products US, or Shell, in the biofuels market.

To date, we have generated revenues primarily from collaborative research and development funding, sales of our products and government grants. Our total revenue has grown significantly, rising five-fold over the last four years, and more than doubling over the last two years, from $12.1 million in 2006 to $25.3 million in 2007. In the three months ended March 31, 2008, our total revenue grew to $8.4 million from $4.7 million for the comparable period in 2007, which represents a 78% increase. Most of our revenue since inception has been derived from collaborative research and development arrangements, which accounted for 80%, 76% and 52% of our revenues in 2005, 2006 and 2007, respectively, and 67% and 57% of our revenues in the three months ended March 31, 2007 and 2008, respectively. Our product sales have grown over five-fold over the last three years, from $2.3 million in 2005 to $11.4 million in 2007. Notwithstanding our revenue growth, we have continued to experience significant losses as we have invested heavily in our own product pipeline, research and development capacity for our collaborations, and administrative infrastructure in connection with growth in our business. As of March 31, 2008, we had

41

Table of Contents

an accumulated deficit of $108.1 million. We incurred net losses of $11.6 million, $18.7 million and $39.0 million in 2005, 2006 and 2007, respectively, and net losses of $5.1 million and $13.9 million in the three months ended March 31, 2007 and 2008, respectively. In light of the growth in market acceptance of our products and services to date, we currently intend to increase our investment in research and development and the related expense, such that we do not expect to achieve profitability prior to 2010.

We initially targeted the pharmaceutical industry as the first market for our products and services. In this market, we have historically entered into collaborations, which have involved complex service and intellectual property agreements under which we research and develop optimized biocatalysts for innovators in connection with their drug development efforts. In these collaborations, we typically receive up-front payments, milestone payments, payments based upon the number of full-time employee equivalents, or FTEs, engaged in related research and development activities and licensing fees and royalties.

Our pharmaceutical product offerings include biocatalysts, pharmaceutical intermediates and Codex Biocatalyst Panels. Our pharmaceutical customers incorporate our biocatalysts into the manufacturing processes used to produce their drugs. Our intermediates are complex chemical substances that have been manufactured by, or on behalf of, us using our biocatalysts. Drug manufacturers use intermediates to produce the active pharmaceutical ingredients, or APIs, used in their drugs. We believe that major pharmaceutical manufacturers are increasingly willing to outsource portions of their own internal manufacturing and to purchase intermediates that are difficult or expensive to manufacture. Codex Biocatalyst Panels are plates embedded with genetically diverse variants of our proprietary biocatalysts, which allow our customers to screen our biocatalysts at their facilities and evaluate whether a biocatalyst produces a desired activity that is applicable to a particular pharmaceutical manufacturing process. We view Codex Biocatalyst Panels, which we began selling in 2007, as a way to build early and broad awareness of the power and utility of our technology platform, and we plan to increase our efforts to expand Codex Biocatalyst Panels sales.

Our pharmaceutical service offerings include screening and optimization services. We use our screening services to test our customers’ pharmaceutical materials against our existing libraries of biocatalysts to determine whether our biocatalysts produce detectible activity. We use our optimization services to optimize desired biocatalysts identified through our screening services and our customers’ use of Codex Biocatalyst Panels. These services, in turn, can lead to sales of biocatalysts to our pharmaceutical customers.

We provide our biocatalysts, Codex Biocatalyst Panels, screening and optimization services and intermediates to our innovator customers and provide intermediates to our generics customers. We plan to launch several new intermediates and APIs in non-regulated markets for purchase by manufacturers of generic forms of drugs and intend to sell these same intermediates and APIs for use in the regulated markets when the patent protection for each product expires. We sell our products primarily to generics manufacturers through our small direct sales and business development force in the United States, United Kingdom and Germany.

In the biofuels market, we entered into a research agreement with Shell in 2006. The goal of this initial research collaboration was to develop biocatalysts to break down sustainable non-food cellulosic biomass. In connection with this collaboration, we received up-front payments, research and development service payments and a milestone payment.

Based on the success of this initial collaboration, in 2007, we entered into a new, expanded multiyear research collaboration with Shell. We received an up-front fee and are currently receiving FTE payments under this collaboration. This up-front fee is refundable under certain conditions, such as a change in control in which we are acquired by a competitor of Shell. This refundability lapses ratably over a five-year period beginning on November 1, 2007, on a straight-line basis. We are eligible for milestone payments upon the achievement of certain technical goals beginning in 2009, as well as additional milestones in each of the subsequent years of the agreement. We will also be eligible for royalty payments if Shell produces fuel products at commercial scale that are manufactured using our intellectual property or intellectual property that was developed by us and Shell under the research collaboration.

42

Table of Contents

Under the terms of our license agreement with Maxygen, we are obligated to pay Maxygen a significant portion of certain types of consideration we receive in connection with our biofuels research collaboration with Shell. The actual fees payable to Maxygen will depend on the amount, timing and type of consideration we receive, including payments from the sale of our equity securities and payments in connection with the research and development and/or sale of fuel products made with a biocatalyst developed using the licensed technology. In the case of consideration received from the sale of our equity securities to Shell, we are obligated to pay Maxygen a significant portion of any excess paid above $3.97 per share, the price per share of our Series D preferred stock. With regard to FTE funding, we are only obligated to pay Maxygen to the extent the consideration received exceeds specified amounts which were based on historical FTE rates we charged to our pharmaceutical collaborators. In connection with all consideration received from Shell relating to our biofuels research collaboration, we were obligated to pay Maxygen $0.6 million and $7.8 million in 2006 and 2007, respectively, and $0.1 million in the three months ended March 31, 2008. During 2007, amounts owed to Maxygen in connection with Shell’s FTE funding were less than 5% of the total FTE payments we received from Shell.

Our strategy for collaborative arrangements is to retain substantial participation in the future economic value of our technology while receiving current cash payments to offset research and development costs and working capital needs. These agreements are complex and have multiple elements that cover a variety of present and future activities. In addition, certain elements of these agreements are intrinsically difficult to separate and treat as separate units for accounting purposes, especially exclusivity payments. Consequently, we expect to recognize these exclusivity payments over the term of the exclusivity period.

We rely heavily on contract manufacturing organizations, or CMOs, to manufacture our biocatalysts and intermediates at commercial scale. Arch Pharmalabs Limited, or Arch, of Mumbai, India manufactures all of our commercialized drug products for sale to generic API manufacturers. Historically, we have relied upon CPC Biotech, srl, or CPC, of Naples, Italy to provide all of our commercial scale enzyme production for use by our innovator collaborators in their internal manufacturing as well as by us for the manufacture of our own intermediates. We are in the process of qualifying other contract manufacturers, but we do not have agreements or commitments with such contract manufacturers at this time. We have recently established a subsidiary in Hungary to manufacture certain microbes at commercial scale, but that capability will not be fully operational until 2009, at the earliest.

We intend to maintain a capital-efficient business model, so we actively seek CMOs who are willing to invest in capital equipment to manufacture our products at commercial scale. As a result, we are heavily dependent on the availability of manufacturing capacity at, and the reliability of, our CMOs. We also pursue collaborations with industry leaders that allow us to leverage our collaborators’ engineering, manufacturing and commercial expertise, their distribution infrastructure and their ability to fund commercial-scale production facilities. We believe that, if our collaborators choose to utilize our technology to commercialize new products, this capital-efficient business model will allow us to expand into new markets without having to finance or operate large industrial facilities.

In addition to our organic growth, we have expanded through the acquisition of technologies and of businesses. In February 2005, we acquired Jülich Fine Chemicals GmbH in Jülich, Germany, and have operated it as a wholly-owned subsidiary since then. In July 2007, we acquired BioCatalytics, Inc. in Pasadena, California. Prior to our acquisition of these businesses, both had been engaged in the sale of research enzymes and services for the pharmaceutical and fine chemical industries.

Revenue, Cost of Product Revenues

Revenue

Our revenues comprise collaborative research and development revenues, product revenues and government grants.

43

Table of Contents

Cost of Product Revenue

Cost of product revenues includes both internal and third-party fixed and variable costs including amortization of purchased technology, materials and supplies, labor, facilities and other overhead costs associated with our product revenues.

Research and Development Expenses

Research and development expenses consist of costs incurred for internal projects as well as partner-funded collaborative research and development activities. These costs include license and royalty fees payable to Maxygen for consideration that we receive in connection with our biofuels collaboration, our direct and research-related overhead expenses, which include salaries and other personnel-related expenses, facility costs, supplies, depreciation of facilities, and laboratory equipment, as well as research consultants and the cost of funding research at universities and other research institutions, and are expensed as incurred. License and royalty fees payable to Maxygen may fluctuate depending on the timing and type of consideration received from Shell in connection with our biofuels research collaboration. Costs to acquire technologies that are utilized in research and development and that have no alternative future use are expensed when incurred. Our research and development efforts devoted to our internal product and process development projects increased significantly in 2007 as compared to 2006, from 31 projects in 2006 to 46 in 2007. Our internal research and development projects are typically completed in 12 to 24 months, and generally the costs associated with any single internal project during these periods were not material.

As more fully described in Note 2 of the accompanying financial statements, we do not track fully burdened research and development costs by project. Fully burdened research and development costs include all costs noted above as research and development expenses plus an allocation of certain overhead expenses that were incurred to support the research and development project, such as project accounting and administration. We do not believe that measurement of fully burdened research and development costs would provide meaningful data to our management that would affect operational decisions, so the cost of tracking such data would outweigh any potential benefit.

However, we do estimate, based on FTE efforts, the percentage of research and development efforts (as measured in hours incurred, which approximates costs) undertaken for projects funded by our collaborative partners and government grants and projects funded by us. To approximate research and development expenses by funded category, the number of hours expended in each category has been divided by the total number of hours expended on all categories of research and development with the resulting fractions then multiplied by the total cost of research and development effort, with the products then added to project-specific external costs. In the case where a collaborative partner is sharing the research and development costs, the expenses for that project are allocated proportionately between the collaborative projects funded by third parties and internal projects. We do not have any obligation to repay research and development funds provided by our collaborative partners under any circumstances, including

44

Table of Contents

in connection with failures to meet milestones or occurrences of negative research outcomes. We believe that presenting our research and development expenses in these categories will provide our investors with meaningful information on how our resources are being used.

The following table presents our approximate research and development expenses by funding category (in thousands):