Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x.

The number of shares outstanding of the registrant’s common stock as of October 31, 2002November 8, 2003 was 36,193,512.

The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments consisting of normal recurring adjustments necessary for a fair presentation of the interim financial information for ACLARA BioSciences, Inc. (“ACLARA”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for the presentation of complete financial statements. The preparation of interim financial statements in conformity with generally accepted accounting principals requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from these estimates.

This Form 10-Q should be read in conjunction with the financial statements and notes thereto included in ACLARA’s Form 10-K for the year ended December 31, 2001,2002, as filed with the Securities and Exchange Commission. Furthermore, interim results of operations are not necessarily indicative of the results that may be expected for the entire year or for other interim periods.

Comprehensive income generally represents all changes in stockholders’ equity (deficit) except those resulting from investments or contributions by stockholders. ACLARA’s unrealized gains on available-for-sale securities represent the only component of comprehensive income that is excluded from ACLARA’s net loss for the three and nine months ended September 30, 20012003 and 2002 and for the cumulative period from May 5, 1995 (date of inception) to September 30, 2002.2003. As this component of comprehensive income is not significant, individually or in the aggregate, no separate statements of comprehensive income have been presented.

Basic earnings per share is calculated based on the weighted-average number of common shares outstanding during the period. Diluted earnings per share would give effect to the dilutive effect of common stock equivalents consisting of stock options and warrants (calculated using the treasury stock method) and common stock subject to repurchase. Potentially dilutive securities have been excluded from the diluted earnings per share computations as they have an antidilutive effect due to ACLARA’s net loss.

A reconciliation of shares used in the calculations is as follows (in thousands, except per share data):

The following outstanding options warrants and common stock subject to repurchasewarrants (prior to the application of the treasury stock method), were excluded from the computation of diluted net loss per share as they had an anti-dilutiveantidilutive effect (in thousands):

Restricted cash at September 30, 2002 and December 31, 20012002 comprised $34.1 million held in escrow as part of ourits settlement of litigation with Caliper Technologies Corporation (“Caliper”). Pursuant to the Caliper settlement agreement, ACLARA has provided a letter of credit to Caliper in the amount of $32.5 million as a guarantee of ACLARA’s performance. The banking institution whichthat had issued the letter of credit required ACLARA to maintain a balance of 105% of the letter of credit amount in a segregated account. This amountOn February 15, 2003 the letter of $34.1 million is invested in short-term US government agency debtcredit was terminated and money market funds.

As part of the litigation settlement with Caliper, 900,000 shares of ACLARA common stock were issued in March 2001 with a guaranteed liquidation price of $36.11 per share if Caliper sellssold the shares after August 21, 2002 but before February 21, 2003. ACLARA initially valued the put obligation associated with these shares at $20.8 million. The put obligation is classified as a liability as ACLARA had posted collateral in the form of a letter of credit to Caliper in the amount of $32.5 million, as a guarantee of ACLARA’s performance under the terms of the litigation settlement.

In August 2000, ACLARA entered into a settlement and release with Rodenstock N.A.North America (“Rodenstock”) of alleged claims(formerly 2C Optics) relating to a dispute arising out of ACLARA’s repurchase of its Series A Preferred Stock from Rodenstock in 1999. The settlement agreement was approved by the board of directors of Rodenstock and a majority of Rodenstock’s outstanding shares entitled to vote on the matter. On April 27, 2001, S&A Biotech Investments, LLC (“S&A”), a stockholder of Rodenstock, filed a shareholder derivative suit in the Superior Court of California for the County of Santa Clara, naming the directors of Rodenstock as individual defendants, Rodenstock as a nominal defendant, and ACLARA as a defendant. The purported claims by S&A are (1)alleges breach of fiduciary duties and corporate waste by Rodenstock Instruments Corporation and the individual defendants, including Thomas Baruch, who was the chairman of the boards of ACLARA and Rodenstock, in connection with the August 2000 settlement between ACLARA and (2)Rodenstock. S&A also asserts a claim against ACLARA for allegedly aiding and abetting the purported breach of fiduciary dutiesduty by ACLARA.Rodenstock and Rodenstock’s directors. Among other remedies, S&A seeks rescission of the settlement agreement and repurchase of the Series A Preferred Stock and injunctive relief.above-referenced stock repurchase. ACLARA filed its demurrer, and Rodenstock and Mr. Baruch filed their demurrers and motions fornotices of summary judgment, which were heard in April 2002. The Court denied all demurrers, but granted Rodenstock and Mr. Baruch’s motionnotice for summary judgment. Plaintiff has dismissed without prejudice its claimsclaim against ACLARA, while it considers appealingappealed the judgment for the other defendants.

During the third quarter of 2002 ACLARA approved and initiated a restructuring plan that reducedto streamline its operations, reduce costs associated with the microfluidics aspect of our business so we couldand increase our focus on oureTag assay chemistry. Accordingly, we recognized a restructuring charge of $3.3 million during the third quarter. The reduction includedquarter of 2002, including $0.8 million of severance and related costs related to the reduction of our employment level by over 50 employees. This reduction was phased in over the second half of 2002 and primarily affected the microfluidics area of our business, where essentially all of our active programs were eliminated. Termination benefits related to severance packages, out-placement services and other associated costs are included in restructuring expense on the involuntary terminationstatement of approximately 50 employees. The terminated employees were primarily in researchoperations and development associated with microfluidics.there was no remaining balance at September 30, 2003. We also wrote off approximately $2.5 million of fixed assets that are not expected to be used prospectively.

The following table sets forth an analysis of the components of the third quarter restructuring charges (in thousands):

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the Financial Condition and Results of Operations should be read in conjunction with our condensed financial statements and the notes to those and the Form 10-Q for the quarters ended March 31, 2002 and June 30, 2002, statementsaccompanying footnotes included elsewhere in this Form 10-Q, and in conjunction with the Form 10-K for the year ended December 31, 2001.2002. Statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations that express that ACLARA “believes”, “anticipates”, “expects” or “plans to” as well as other statements that are not historical fact, are forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. Actual events or results may differ materially as a result of the risks and uncertainties described herein and elsewhere, including, but not limited to, those factors discussed in “Factors Affecting Operating Results” set forth below.

We were formed by a spin-off transaction from Soane Technologies, Inc. which was incorporated in 1991 and subsequently changed its name to 2C Optics, Inc. We were incorporated in Delaware in 1995 under the name Soane BioSciences, Inc. and changed our name in 1998 to ACLARA BioSciences, Inc. ACLARA is a leading developer of assay chemistry and microfluidic productssystems for life science research. Since our inception, we have engaged primarily in research and development activities related to the application of our proprietary microfluidicstechnologies to genomic and assay chemistry technologies forproteomic applications in the field of drug discovery. Prospectively, our focus is expected to be primarily on our assay chemistry technologies since we believe that these present the most significant opportunity. Our business strategy is to commercialize our eTag assay chemistries to pharmaceuticaldiscovery and biotechnology customers for applications in gene expression, protein expression and protein function analysis. The eTag Expert Assay Program has been introduced in October 2002 to facilitate commercialization of the eTag Assay System.

We have invested substantial amounts in establishing oureTag assay chemistries and microfluidic devicestechnology for life science research. From our inception to September 30, 2002,2003, we have incurred over $81.8$99.1 million in research and development expenses. Total costs and operating expenses were $18.4 million and $34.9 million for the nine months ended September 30, 2003 and 2002, respectively. Over 80%70% of our 13764 employees at October 31, 2002September 30, 2003 were engaged in research and development activities.

We have incurred significant losses since our inception. As of September 30, 2002,2003, our accumulated deficit was $136.0$159.4 million and total stockholders’ equity was $121.7$98.5 million. Total costs and operating expenses were $12.6 million (includes a $0.4 million charge related to a litigation settlement and a $3.3 million charge related to restructuring) and $11.3 million (includes a $2.8 million revaluation credit related to a litigation settlement) for the quarters ended September 30, 2002 and 2001, respectively. We expect to incur additional operating losses over at least the next two years as we continue to invest significant resourcesheavily in research and development activities, build our sales and marketing organizationsorganization and commercialize our initialeTag products.

Essentially all our revenues through 2002 were generated from commercial research collaborations and from government grants related to discontinued microfluidics programs that are not active in 2003. Our sources of potential revenue in 2003 and for the next several years are likely to be primarily from product revenue derived fromcommercialization of our proprietary eTag assay chemistries, receipts under possible future collaborative arrangements, and government research grants.

In July 2002, we took steps to increase our focus on oureTag assay chemistry opportunities and to reduce costs, particularly those costs associated with the microfluidics aspect of our business. While we are reducing the resources allocated to microfluidic activities, we expect that microfluidic technologies will continue to play a role in our operations prospectively but primarily in ways that enhance the market for our eTag assay chemistries. Related to these actions, we have takentook a charge in the third quarter of 2002 of $3.3 million. Our Additional cost reduction steps were taken in April 2003. All of our resources are currently directed at developing theeTag Assay System was introduced commercially in October 2002 and we expect this to be the primary source of our revenues in 2003 and beyond.

Since inception, we have financed our operations primarily through our initial public offering in March 2000 that raised net proceeds of $201.0 million, private placements of preferred stock totaling $32.3 million, loans from the landlord of our Mountain View facility and equipment financing lines of credit totaling $4.4 million, capital leases totaling $1.8 million, and research and development funding from collaborators and government grants. As of September 30, 2002,2003, we had total unrestricted cash resources of $118.1$93.2 million, comprising $69.6 million$34.1million in cash and cash equivalents, $15.6$33.0 million in short-term marketable investments and $33.0$26.1 million in long-term marketable investments. In addition, we had $34.1 million in restricted cash.

A loan agreement with the landlord of the Mountain View facility allowed us to borrow $663,000 for leasehold improvements at an annual interest rate of 8.5%. The principal balance of this loan at September 30, 20022003 was $521,000.$463,000. The note matures on July 1, 2009.

In March 1999, ACLARA entered into a ten year operating lease agreement for our Mountain View facility. The future annual minimum loan payments including accrued interest and lease payments under the loan and lease agreements at September 30, 2003 are as follows (in thousands):

Operating activities used cash of $18.7$13.0 million and $15.8$18.7 million for the nine months ended September 30, 20022003 and 2001,2002, respectively. Uses of cash in operating activities primarily resulted from operating losses adjusted for non-cash expenses and changes in working capital and other liabilities.

Cash provided by investing activities was $8.9 million for the nine months ended September 30, 2003, including the release of restricted cash from the Caliper settlement of $34.1 million and net maturities of investments of $24.7 million, compared to cash provided by investing activities of $57.0 million for the nine months ended September 30, 2002. As part of our litigation settlement with Caliper, we provided a letter of credit to Caliper in the amount of $32.5 million as a guarantee of our performance under the settlement agreement. The banking institution that issued the letter of credit required us to maintain a balance of 105% of the letter of credit amount in a segregated account. This amount of $34.1 million is recorded as restricted cash in our financial statements at December 31, 2002. In October 2002, including net maturitieswe paid Caliper $32.5 million related to this settlement. Of this amount approximately $1.4 million was for the repurchase at the then-current market price of investmentsthe 900,000 shares previously issued to Caliper in the original settlement agreement. On February 15, 2003 the letter of $58.3 million compared tocredit was terminated and the restricted cash used in investingwas released. Cash provided by financing activities of $68.0 millionremained essentially unchanged for the nine months ended September 30, 2001 that included a $32.9 million transfer to restricted cash relating to a litigation settlement2003 and the net purchases of investments of $32.5 million. Cash provided by financing activities remained essentially flat for the nine months ended September 30, 2002 and 2001.2002. Financing activity primarily reflects cash proceeds received through the employee exercise of stock options and employee participation in the employee stock purchase program

We believe that our current cash and cash equivalents, short-term and long-term marketable investment balances and funding received from collaborators and government grants will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures for at least the next 24 months. After that time, we cannot be certain that additional funding, if required, will be available on acceptable terms, or at all. DespiteWe expect that our expectations,costs will continue to exceed our revenues on an annual basis for at least the next two years. From time to time, we may need to raise additionalconsider possible strategic transactions, including the potential acquisitions of products, technologies and companies, with the goal of further developing our business and maximizing stockholder value. Such transactions, if any, could materially affect our future liquidity and capital before the end of the next 24 months.resources. We may raise additional funds through public or private financing, collaborative relationships or other arrangements. Further, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. Our failure to raise capital when needed may harm our business and operating results.

CRITICAL ACCOUNTING POLICIES

There have been no material changes to our litigation settlement with Caliper, we have provided a letter of credit to Caliper in the amount of $32.5 million as a guarantee of our performance under the settlement agreement. The banking institution that issued the letter of credit required us to maintain a balance of 105% of the letter of credit amount in a segregated account. This amount of $34.1 million is recorded as restricted cashcritical accounting policies and estimates from those disclosed in our financial statements at September 30,report on Form 10-K for our fiscal year ended December 31, 2002. In October 2002, we paid Caliper $32.5 million related to this settlement. Of this amount approximately $1.3 million was for the repurchase at the then-current market price of the 900,000 shares previously issued to Caliper in the original settlement agreement. The restricted cash will be released to us in early 2003 upon cancellation of the letter of credit issued to Caliper at the time of the original settlement.

The following risk factors outline certain risks and uncertainties concerning future results and should be read in conjunction with the other information contained in ourthis Report on Form 10-Q and with the Company’s Annual Report on Form 10-K for the year ended December 31, 2001 and Quarterly Report on Form 10-Q for the periods ended March 31, 2002 and June 30, 2002. Any of these risk factors could materially and adversely affect our business, results of operations, financial condition and future growth prospects. Additional risks and uncertainties that we do not currently know about or that we currently deem immaterial may also impair our business, financial condition, results of operations and future growth prospects.

Since we were founded in May 1995, we have engaged primarily in research and development efforts. We have incurred operating losses every year since inception, and we may never achieve profitability. Net losses for the years ended December 31, 2002, 2001 and 2000 were $37.2 million, $29.0 million and $59.2 million, respectively. Net losses for the three and nine months ended September 30, 2003 were $4.9 million and $16.3 million respectively. Net losses for the three and nine months ended September 30, 2002 and the years ended December 31, 2001, 2000, and 1999 were $30.1 million, $29.0 million, $59.2$11.2 million and $8.2$30.1 million respectively. As of September 30, 2002,2003, we had an accumulated deficit of $136.0$159.4 million. Our losses have resulted principally from costs incurred in connection with our research and development activities, from litigation settlement charges and from selling, general and administration costs associated with our operations.

To date, we have not generated any significant revenue from the sale of products. Our ability to generate revenues from product sales or to achieve profitability is dependent on our ability, alone or with collaborative partners, to successfully design, develop, manufacture and commercialize our proprietary assay chemistry systems in a timely manner.manner and on adoption of our technological approach by customers. Our revenue to datethrough 2002 has been generated principally from collaborative research and development agreements, government grants and initial sales of Arteas Microfluidic Devicescommercial collaborations related to Roche.our former microfluidics activities. None of these revenue sources are expected to be significant in 2003 and subsequent years, when oureTag Assay System is anticipated to be the primary source of revenue. We expect that our costs will continue to exceed our revenues on an annual basis for at least the next two years. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.

Our operating results have fluctuated in the past and are likely to do so in the future. These fluctuations could cause our stock price to decline. Some of the factors that could cause our operating results to fluctuate include: