Celera 10-Q 2008 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 27, 2008

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                    TO                    

COMMISSION FILE NUMBER: 001-34116

Celera Corporation

(Exact name of registrant as specified in its charter)

Delaware	26-2028576
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification No.)

1401 Harbor Bay Parkway

Alameda, CA 94502

(Address of principal executive offices, with zip code)

(510) 749-4200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.    Yes  x    No  ¨

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. (Check one):

Large accelerated filer  ¨	Accelerated filer  ¨	Non-accelerated filer  x	Smaller reporting company  ¨
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Number of shares of common stock outstanding as of October 31, 2008: 80,477,502.

TABLE OF CONTENTS

		Page
PART I – Financial Information
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Statements of Operations for the Three Months Ended September 27, 2008 and September 30, 2007	4
	Condensed Consolidated Statements of Financial Position at September 27, 2008 and June 30, 2008	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 27, 2008 and September 30, 2007	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	27
Item 4T.	Controls and Procedures	28
PART II – Other Information
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 6.	Exhibits	54
SIGNATURES		55

2

CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR”

PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Quarterly Report on Form 10-Q contains certain forward-looking statements, including, without limitation, statements concerning the conditions in our industry, our operations, our economic performance and financial condition, including, in particular, statements relating to our business and growth strategy and service development efforts. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements so long as such information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the information. When used in this Quarterly Report on Form 10-Q, the words “may,” “might,” “should,” “estimate,” “project,” “plan,” “anticipate,” “expect,” “intend,” “outlook,” “believe” and other similar expressions are intended to identify forward-looking statements and information. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. These forward-looking statements are based on estimates and assumptions by our management that, although we believe to be reasonable, are inherently uncertain and subject to a number of risks and uncertainties. These risks and uncertainties include, without limitation, those identified under “Risk Factors” in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K filed on September 8, 2008 with the Securities and Exchange Commission (SEC), pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. Reference is also made to such risks and uncertainties detailed from time to time in our filings with the SEC.

3

PART I – Financial Information

ITEM 1. FINANCIAL STATEMENTS

Celera Corporation

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended
(Dollar amounts in thousands except per share amounts)	September 27, 2008			September 30, 2007
Net Revenues
Products, including alliance equalization	$	10,363		$	2,445
Services		30,463			—
Royalty, licenses and milestones		4,983			13,696
Total Net Revenues		45,809			16,141
Cost of Sales
Products		5,489			3,153
Services		9,072			—
Total Cost of Sales		14,561			3,153
Gross Margin		31,248			12,988
Selling, general and administrative		25,228			8,068
Research and development		7,961			10,721
Amortization of purchased intangible assets		2,549			—
Employee-related charges, asset impairments and other		1,760			—
Operating Loss		(6,250	)		(5,801	)
Loss on investments, net		(3,217	)		—
Interest income, net		2,490			7,133
Other expense, net		—			(283	)
(Loss) Income Before Income Taxes		(6,977	)		1,049
Provision for income taxes		28			384
Net (Loss) Income	$	(7,005	)	$	665
Net (Loss) Income per Share
Basic and diluted	$	(0.09	)	$	0.01
Weighted Average Shares Outstanding(in thousands)
Basic		80,184			79,081
Diluted		80,184			80,301

See accompanying notes to unaudited condensed consolidated financial statements.

4

Celera Corporation

Condensed Consolidated Statements of Financial Position

(Unaudited)

(Dollar amounts in thousands)	At September 27, 2008			At June 30, 2008
Assets
Current assets
Cash and cash equivalents	$	50,600		$	47,318
Short-term investments		266,389			287,726
Accounts receivable (net of allowances for doubtful accounts of $11,603 and $8,489, respectively)		44,555			39,462
Inventories, net		7,779			9,316
Prepaid expenses and other current assets		39,104			34,228
Total current assets		408,427			418,050
Property, plant and equipment, net		11,075			10,977
Goodwill and intangible assets, net		236,543			237,198
Other long-term assets		13,412			12,529
Total Assets	$	669,457		$	678,754
Liabilities and Stockholders’ Equity
Current liabilities
Loans payable	$	103		$	123
Accounts payable		8,517			6,091
Accrued salaries and wages		6,051			10,923
Other accrued expenses		10,608			10,244
Deferred revenue		2,576			3,061
Total current liabilities		27,855			30,442
Other long-term liabilities		28,772			29,013
Total Liabilities		56,627			59,455
Commitments and contingencies (refer to Note 8)
Stockholders’ Equity
Common stock: par value $0.01 per share; 300,000,000 shares authorized; 80,486,931 shares issued and 80,462,569 shares outstanding at September 27, 2008		805			—
Additional paid-in capital		1,573,667			—
Accumulated other comprehensive loss		(5,843	)		—
Treasury stock, at cost		(434	)		—
Net allocations from Applied Biosystems, Inc.		—			1,567,659
Accumulated net loss		(955,365	)		(948,360	)
Total Stockholders’ Equity		612,830			619,299
Total Liabilities and Stockholders’ Equity	$	669,457		$	678,754

See accompanying notes to unaudited condensed consolidated financial statements.

5

Celera Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended
(Dollar amounts in thousands)	September 27, 2008			September 30, 2007
Operating Activities
Net (loss) income	$	(7,005	)	$	665
Adjustments to reconcile net (loss) income from operations to net cash used by operating activities:
Depreciation and amortization		4,056			1,080
Allowance for doubtful accounts		3,788			—
Loss on investments		3,230			—
Employee-related charges, asset impairments and other		1,760			—
Share-based compensation		1,370			1,101
Deferred income taxes		13			5,474
Loss on disposal of assets		292			—
Nonreimbursable utilization of tax benefits by Applied Biosystems		—			(3,603	)
Changes in operating assets and liabilities:
Accounts receivable		(8,881	)		(10,236	)
Inventories		1,537			(882	)
Prepaid expenses and other assets		(4,847	)		(921	)
Accounts payable and other liabilities		(2,995	)		(6,813	)
Net Cash Used by Operating Activities		(7,682	)		(14,135	)
Investing Activities
Additions to property, plant and equipment and intangible assets		(3,791	)		(313	)
Proceeds from maturities of available-for-sale investments		34,500			30,409
Proceeds from sales of available-for-sale investments		7,507			182,842
Purchases of available-for-sale investments		(29,398	)		(42,706	)
Investment in alliance activity, net		(666	)		—
Net Cash Provided by Investing Activities		8,152			170,232
Financing Activities
Principal payments on loans payable and debt		(30	)		—
Funding from Applied Biosystems as a result of the split-off		1,118			—
Proceeds from stock issued for stock plans, net		1,724			1,326
Net Cash Provided by Financing Activities		2,812			1,326
Net Change in Cash and Cash Equivalents		3,282			157,423
Cash and Cash Equivalents at Beginning of Period		47,318			33,359
Cash and Cash Equivalents at End of Period	$	50,600		$	190,782

See accompanying notes to unaudited condensed consolidated financial statements.

6

Celera Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

1. The Company and Nature of Operations

Organization

Celera Corporation is a diagnostics business that delivers personalized disease management through a combination of products and services incorporating proprietary discoveries.

When used in these notes, references to the “Company” and “Celera” refer to the Celera Group for all periods prior to the completion of the split-off from Applied Biosystems, Inc. (Applied Biosystems), formally known as Applera Corporation (Applera), which is discussed below under Relationship with Applied Biosystems, and to Celera Corporation and its direct and indirect subsidiaries for all periods following the completion of the split-off, in each case, unless the context otherwise requires.

Celera operates through three reporting segments: a clinical laboratory testing service business (Lab Services); a products business (Products); and a segment which includes other activities under corporate management (Corporate). The Lab Services business, conducted through Berkeley HeartLab, Inc. (BHL), offers a broad portfolio of clinical laboratory tests and disease management services to help improve cardiovascular disease treatment regimens for patients. The Products business develops, manufactures and oversees the commercialization of molecular diagnostic products, most of which are commercialized through the Company’s relationship with Abbott Molecular, a subsidiary of Abbott Laboratories. The Corporate segment includes revenues from royalties, licenses, funded collaborations and milestone payments related to the licensing of certain intellectual property and from the sale of Celera’s former small molecule and proteomic programs. The Corporate segment also includes corporate and shared general and administrative functions, and centrally managed research and business development activities.

On July 25, 2008, Celera’s Board of Directors approved a change of the Company’s fiscal year from a June 30 fiscal year-end to a 52 or 53 week fiscal year generally ending on the last Saturday in December. Results of the transition period, which will end on December 27, 2008, will be reported by the Company on Form 10-K.

Relationship with Applied Biosystems

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

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

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

Following the split-off from Applied Biosystems, Celera was no longer a reporting unit of Applied Biosystems, and the holders on the split-off date of Celera Group common stock are now the stockholders of Celera Corporation.

At the time of the split-off, each outstanding share of Celera Group common stock was redeemed in exchange for one share of Celera Corporation common stock. In addition, each option to purchase shares of Celera Group common stock and each other security evidencing the right to receive shares of Celera Group common stock issued under employee stock incentive plans and outstanding on the split-off date were converted into a similar option to purchase shares of Celera Corporation common stock, at the same exercise price, or a similar security evidencing the right to receive shares of Celera Corporation common stock.

7

Celera Corporation

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Basis of Presentation

Prior to the split-off, Celera was a reportable segment of Applied Biosystems and its financial information was included in Applied Biosystems’ consolidating financial information. The condensed consolidated financial statements of Celera include the accounts or assets of Applied Biosystems that were specifically attributed to the Celera Group using the historical basis of assets and liabilities of the Celera business.

Following the split-off, Celera became a stand-alone company and began preparing its own consolidated financial statements. As a result, comparability of certain items has been affected, including the stockholders’ equity section of the Condensed Consolidated Statements of Financial Position which is discussed further in Note 11.

The unaudited condensed consolidated financial statements and related disclosures have been prepared in conformity with accounting principles generally accepted in the United States of America, or GAAP. All intracompany transactions and balances have been eliminated in consolidation. These interim financial statements and notes do not include all of the financial information and footnotes required by GAAP for complete financial statements. They should be read in conjunction with the audited combined financial statements and related notes, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2008. These interim financial statements are not necessarily indicative of the results that may be expected for the six months ending December 27, 2008 or any other future period.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments and the revision discussed below) considered necessary for a fair presentation of the information for each period contained therein.

The preparation of these statements requires the Company to make estimates and assumptions. Although the estimates consider all available information, actual results could affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods.

Revision of Prior Period Financial Statements

During the third calendar quarter of 2008, the Company identified errors in the tax accounting associated with the split-off from Applied Biosystems. The impact of these errors was an understatement of the tax provision and net loss for the three and twelve months ended June 30, 2008. The Company assessed the materiality of these errors on the consolidated financial statements for the year ended June 30, 2008, in accordance with the SEC’s Staff Accounting Bulletin No. 99,Materiality and concluded that the errors were not material for either period. The Company also concluded that correcting the errors during the three months ended September 27, 2008, would have materially misstated the results of the quarter. Accordingly, in accordance with the SEC’s Staff Accounting Bulletin No. 108,Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the financial statements for the year ended June 30, 2008 have been revised to correct for the immaterial errors and to allow for the correct recording of these transactions.

8

Celera Corporation

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Set out below are the line items within the consolidated financial statements as of and for the year-ended June 30, 2008 that have been impacted by the revisions. The revision had no net impact on the Company’s Consolidated Statement of Cash Flows for the year ended June 30, 2008.

	Fiscal Year Ended June 30, 2008
(Dollar amounts in thousands except per share amounts)	As Reported		As Revised
Consolidated Statement of Operations
Provision for income taxes	$	89,122	$	95,576
Net loss		104,064		110,518
Unaudited basic and diluted pro forma net loss per share		1.31		1.39
Consolidated Statement of Financial Position
Prepaid expenses and other current assets	$	32,831	$	34,228
Total current assets		416,653		418,050
Total assets		677,357		678,754
Other long-term liabilities		21,162		29,013
Total liabilities		51,604		59,455
Accumulated net losses		941,906		948,360
Total allocated net worth		625,753		619,299
Total liabilities and allocated net worth		677,357		678,754

Set out below is a summary of the unaudited quarterly financial results for the three months ended June 30, 2008 that have been impacted by the revisions:

	Three Months Ended June 30, 2008
(Dollar amounts in thousands except per share amounts)	As Reported		As Revised
Net loss	$	97,676	$	104,130
Unaudited basic and diluted pro forma net loss per share		1.22		1.30

2. Accounting Policies

There have been no changes to the Company’s accounting policies during the three months ended September 27, 2008, except as noted below. Refer to Note 1 to the combined financial statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2008.

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157,Fair Value Measurements, which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS No. 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 for financial assets and liabilities. In February 2008, the FASB issued FASB Staff Position (FSP) No. 157-2 which delays the effective date of SFAS No. 157 for all non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company adopted the provisions of SFAS No. 157 with respect to its financial assets and liabilities on July 1, 2008. The adoption of SFAS No. 157 did not have a material effect on the Company’s condensed consolidated financial condition or results of operations or

9

Celera Corporation

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

cash flows (refer to Note 9). The Company is in the process of evaluating this standard with respect to its effect on non-financial assets and liabilities and therefore has not yet determined the impact it will have on its consolidated financial statements upon full adoption in 2009.

In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities (Including an amendment of FASB Statement No. 115). SFAS No. 159 permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. The Company adopted the provisions of SFAS No. 159 on July 1, 2008. The Company did not elect the fair value option, therefore the adoption of SFAS No. 159 did not have any impact on its condensed consolidated financial statements.

3. Net (Loss) Income per Share

Basic and diluted net loss per share has been computed for the three months ended September 27, 2008 using the weighted average number of common shares outstanding for the period.

Pro forma net income per share has been presented for the three months ended September 30, 2007 to reflect the capital structure of Celera subsequent to the split-off date. Pro forma basic and diluted net income per share has been computed by dividing the quarterly net income by the weighted average number of shares of Celera Group common stock outstanding for the period.

The following table summarizes the reconciliation of basic and diluted net (loss) income per share:

(Dollar amounts in millions except per share amounts)	September 27, 2008			September 30, 2007
Numerator:
Net (loss) income available to common stockholders used in the calculation of basic and diluted net (loss) income per share	$	(7.0	)	$	0.7
Denominator:
Weighted average shares used in the calculation of basic earnings per share		80,184			79,081
Weighted average shares used in the calculation of diluted earnings per share		80,184			80,301
Net (loss) income per share:
Basic and diluted	$	(0.09	)	$	0.01

Restricted stock awards and stock options to acquire 6.5 million shares for the three months ended September 27, 2008 and 2.6 million shares for the three months ended September 30, 2007 have been excluded from the computations of diluted net (loss) income per share because their effect would have been anti-dilutive.

10

Celera Corporation

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

4. Goodwill and Intangible Assets

There has been no change to the goodwill balance between June 30, 2008 and September 27, 2008.

The changes in the gross carrying amount and accumulated amortization of intangible assets other than goodwill at September 27, 2008 were as follows:

	Gross Carrying Amount
(Dollar amounts in millions)	June 30, 2008		Additions		September 27, 2008
Amortized intangible assets:
Acquired technology	$	17.6	$	—	$	17.6
Patents and licenses		0.4		2.0		2.4
Customer relationships		85.2		—		85.2
Other		0.9		—		0.9
Total amortized intangible assets		104.1		2.0		106.1
Unamortized intangible assets:
Trade names		23.8		—		23.8
Total	$	127.9	$	2.0	$	129.9
	Accumulated Amortization
(Dollar amounts in millions)	June 30, 2008		Additions		September 27, 2008
Amortized intangible assets:
Acquired technology	$	1.6	$	0.6	$	2.2
Patents and licenses		0.2		0.1		0.3
Customer relationships		5.4		2.0		7.4
Other		0.1		—		0.1
Total amortized intangible assets		7.3		2.7		10.0
Unamortized intangible assets:
Trade names		—		—		—
Total	$	7.3	$	2.7	$	10.0

In connection with the BHL and Atria acquisitions, trade names were acquired that were determined to be indefinitely lived. These intangible assets are tested for impairment as part of the annual goodwill impairment test.

Aggregate intangible asset amortization expense was $2.7 million for the three months ended September 27, 2008, of which $2.5 million related to acquisition-related intangible assets and is recorded in amortization of purchased intangible assets in the Condensed Consolidated Statements of Operations. The amortization of patents and licenses is recorded in cost of sales in the Condensed Consolidated Statements of Operations.

11

Celera Corporation

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

5. Balance Sheet Accounts

The following table provides the major components of selected accounts in the Condensed Consolidated Statements of Financial Position:

(Dollar amounts in millions)	September 27, 2008		June 30, 2008
Other long-term assets:
Investment in Abbott strategic alliance (1)	$	10.6	$	10.0
Other		2.8		2.5
Total other long-term assets	$	13.4	$	12.5
Other accrued expenses:
Restructuring	$	1.5	$	1.6
Other		8.7		8.3
Total other accrued expenses	$	10.2	$	9.9
Other long-term liabilities:
Deferred compensation	$	6.1	$	6.1
Deferred tax liability		16.1		16.0
Accrued pension benefits		—		2.4
Other		6.6		4.5
Total other long-term liabilities	$	28.8	$	29.0

(1) Prepaid expenses and other current assets include $17.4 million and $14.7 million at September 27, 2008 and June 30, 2008, respectively, related to the investment in the Abbott strategic alliance.

6. Inventories

Inventories, net at September 27, 2008 and June 30, 2008 included the following components:

(Dollar amounts in millions)	September 27, 2008		June 30, 2008
Raw materials and supplies	$	3.3	$	4.5
Work-in-process		1.5		2.1
Finished products		3.0		2.7
Total inventories, net	$	7.8	$	9.3

7. Share-Based Compensation

Effective July 1, 2008, the Company’s Board of Directors approved the Celera Corporation 2008 Stock Incentive Plan (the Plan) and reserved 20 million shares of its common stock for issuance under the Plan. The Plan authorizes grants of Celera Corporation common stock options, restricted stock units and other equity awards. Directors, officers and key employees may be granted awards under the Plan in a manner that reflects their responsibilities.

Prior to the split-off, Celera employees participated in the Applied Biosystems/Celera Group 1999 Amended and Restated Stock Incentive Plan (Celera Group Plan) which was first approved by stockholders of Applied Biosystems in April 1999. As part of the split-off, each outstanding share of Celera Group common stock was redeemed in exchange for one share of Celera Corporation common stock. In addition, each option to purchase, or right to receive, shares of Celera Group common stock issued under employee stock incentive plans and outstanding on the split-off date has been converted into a similar option to purchase shares of Celera Corporation common stock, at the same exercise price, or a similar security evidencing the right to receive shares of Celera Corporation common stock.

12

Celera Corporation

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Detailed descriptions of the Company’s share-based compensation plans are included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2008.

The Company accounts for stock-based compensation expense in accordance with the provisions of SFAS No. 123 (revised 2004),Share-Based Payment. The Company estimates the fair value of stock-based payment awards on the date of grant using the Black-Scholes pricing model, which is affected by the Company’s stock price as well as other assumptions. Grants made to directors and employees vest over three and four years, respectively. Forfeitures are estimated such that the Company only recognizes expense for those shares expected to vest, and adjustments are made if actual forfeitures differ from those estimates.

During the three months ended September 27, 2008, option grants were made to members of the Board of Directors and to employees for 180,000 and 49,500 common shares, respectively. No grants of restricted stock units or restricted stock awards were made in the three months ended September 27, 2008. The fair value of options granted under the Plan during the three months ended September 27, 2008 was estimated using the following assumptions:

	Grants to Directors			Grants to Employees
Expected option term in years		6.0			4.9
Volatility		40.6	%		37.7	%
Risk-free interest rate		3.5	%		3.3	%
Expected dividends		0.0	%		0.0	%
Weighted average fair value per option granted	$	5.49		$	5.44

Share-based compensation expense for the three months ended September 27, 2008 and September 30, 2007 was $1.4 million and $1.1 million, respectively.

8. Commitments and Contingencies

Indemnifications

In the normal course of business, Celera enters into some agreements under which it indemnifies third parties for intellectual property infringement claims, claims arising from breaches of representations or warranties, or other similar matters. In addition, from time to time, Celera provides indemnity protection to third parties for claims relating to past performance arising from undisclosed liabilities, product liabilities, environmental obligations, representations and warranties, and other claims. In these agreements, the scope and amount of remedy, or the period in which claims can be made, may be limited. It is not possible to determine the maximum potential amount of future payments, if any, due under these indemnities due to the conditional nature of the obligations and the unique facts and circumstances involved in each agreement. Historically, payments made related to these indemnifications have not been material to the Company’s consolidated financial statements.

Legal Proceedings

Applied Biosystems and some of its officers are defendants in a lawsuit brought on behalf of purchasers of Celera Group common stock in its follow-on public offering of Celera Group common stock completed on March 6, 2000. In the offering, Applied Biosystems sold an aggregate of approximately 4.4 million shares of Celera Group common stock at a public offering price of $225 per share. The lawsuit, which was commenced with the filing of several complaints

13

Celera Corporation

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

in April and May 2000, is pending in the U.S. District Court for the District of Connecticut, and an amended consolidated complaint was filed on August 21, 2001. The consolidated complaint generally alleges that the prospectus used in connection with the offering was inaccurate or misleading because it failed to adequately disclose the alleged opposition of the Human Genome Project and two of its supporters, the governments of the U.S. and the U.K., to providing patent protection to Celera’s genomic-based products. Although neither Celera nor Applied Biosystems ever sought, or intended to seek, a patent on the basic human genome sequence data, the complaint also alleges that Applied Biosystems did not adequately disclose the risk that it would not be able to patent this data. The consolidated complaint seeks unspecified monetary damages, rescission, costs and expenses, and other relief as the court deems proper. On March 31, 2005, the court certified the case as a class action.

Under the terms of the separation agreement between Celera and Applied Biosystems, Celera agreed to indemnify Applied Biosystems for liabilities resulting from the class action suit described above, as well as other actions pending on the split-off date or that may arise in the future, to the extent such actions are ultimately determined to relate to or arise out of the Celera business, assets or liabilities, in each case, to the extent not covered by Applied Biosystems’ insurance. If plaintiffs in these suits are ultimately successful on the merits, the resulting liabilities for which Celera is responsible could have a material adverse impact on Celera’s business and financial condition.

On May 15, 2008, Celera received a letter from the National Institutes of Health, or NIH, following up on previous correspondence and discussions and requesting that Celera enter into a license agreement with the NIH for its U.S. Patent No. 5,252,477 in connection with Celera’s ViroSeq HIV-1 Genotyping System, and that Celera pay royalties in respect of all of its past sales of this product (which NIH alleges to be approximately $1.9 million if paid in full by June 30, 2008), and in respect of future sales of this product. Although Celera has had discussions with the NIH in the past on this matter, Celera continues to believe that the NIH’s patent is not applicable to its ViroSeq HIV-1 Genotyping System and that the NIH is not entitled to any royalties from the sale of this product.

Use Tax Liability

The Company has identified a use tax liability at BHL related to the period prior to its acquisition in October 2007 that is probable of occurrence. Potential losses associated with this liability cannot be reasonably estimated at this time and, as such, no accrual has been made in the condensed consolidated financial statements. This liability is subject to recovery through indemnification under the BHL purchase agreement.

9. Fair Value Measurements

The Company adopted the provisions of SFAS No. 157,Fair Value Measurements, on July 1, 2008. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). SFAS No. 157 classifies the inputs used to measure fair value into the following hierarchy:

Level 1:	Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2:	Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the assets or liability.
Level 3:	Unobservable inputs for the asset or liability.

14

Celera Corporation

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

The following table sets forth the Company’s financial assets that were accounted for at fair value at September 27, 2008:

			Fair Value at Reporting Date Using
(Dollar amounts in millions)	Total		Level 1		Level 2		Level 3
Treasuries	$	16.7	$	16.7	$	—	$	—
Government agency bonds		44.3		—		44.3		—
Corporate bonds		139.2		—		139.2		—
Asset and mortgage backed securities		42.1		—		42.1		—
Commercial paper and certificates of deposit		24.1		—		24.1		—
Short-term investments		266.4		16.7		249.7		—
Cash equivalents		48.4		44.4		4.0		—
Publicly traded common stock		2.1		2.1		—		—
Deferred compensation and excess savings plan assets		6.5		6.5		—		—
Total assets measured at fair value	$	323.4	$	69.7	$	253.7	$	—

Cash equivalents consist of instruments with remaining maturities of three months or less at the date of purchase. Publicly traded common stock represents minority equity investments which are included in other long-term assets in the Condensed Consolidated Statements of Financial Position. Deferred compensation and excess savings plan assets, totaling $6.5 million at September 27, 2008, have been classified as “trading” and have been recorded at fair value with realized gains and losses included in net loss. These assets are included in prepaid expenses and other current assets in the Condensed Consolidated Statements of Financial Position.

The Company has classified its investments in equity and debt securities as “available-for-sale”. Available-for-sale investments are initially recorded at cost with temporary changes in fair value periodically adjusted through comprehensive income. The Company periodically reviews its investments for other-than-temporary declines in fair value based on the specific identification method and writes down investments to their fair value when an other-than-temporary decline has occurred.

At September 27, 2008, the Company evaluated its investment portfolio to determine if there had been a decline in market value that was considered to be other-than-temporary. For the three months ended September 27, 2008, the Company concluded that $3.2 million of the decline in market value was other-than-temporary and recorded a charge in loss on investments for an other-than-temporary impairment of investments in senior debt securities issued by Lehman Brothers Holdings, Inc. and Washington Mutual Bank NV. The impairment charge resulted from a number of factors, including the magnitude and duration of the decline in market value, the regulatory and economic environment, and changes in credit rating of the issuers. Total unrealized losses of $8.2 million in the investment portfolio at September 27, 2008 were due to market movements and fluctuations in interest rates and have been recorded in accumulated other comprehensive loss in the Condensed Consolidated Statement of Financial Position. Management does not believe the unrealized losses represent an other-than-temporary impairment based on its evaluation of available evidence as of September 27, 2008. The Company has the intent and ability to hold these investments until recovery of value or maturity.

10. Income Taxes

The provision for income taxes for the three months ended September 27, 2008 was determined based upon estimates of the Company’s consolidated effective income tax rate for the six-months ending December 27, 2008. The consolidated effective income tax rate for the three months ended September 27, 2008 was 0.4%, compared to 36.6% for the three months ended September

15

Celera Corporation

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

30, 2007. The decrease was due to the Company being in a net operating loss position for the three months ended September 27, 2008 compared to being profitable in the prior year quarter, and there being a full valuation allowance against the Company’s deferred tax assets following the split-off from Applied Biosystems.

Celera adopted the provisions of FASB Interpretation (FIN) No. 48,Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 and FIN 48-1,Definition of Settlement in FASB Interpretation No. 48 on July 1, 2007. FIN 48 addresses the recognition and measurement of uncertain income tax positions using a “more-likely-than-not” threshold and also requires enhanced disclosures in financial statements. FIN 48-1 amends FIN 48 to provide guidance on how companies should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

(Dollar amounts in millions)
Unrecognized income tax benefits at June 30, 2008	$	4.0
Decreases from prior-period positions		(3.6	)
Unrecognized income tax benefits at September 27, 2008	$	0.4

The unrecognized income tax benefits at June 30, 2008, included $3.6 million related to deferred tax assets that were allocated to the Company under Applied Biosystems’ tax accounting policies. Following the split-off, these deferred tax assets remained with Applied Biosystems as did the related unrecognized income tax benefits of $3.6 million. The Company does not believe the total amount of unrecognized tax benefits will increase or decrease significantly for the remainder of the fiscal period ended December 27, 2008.

Although the Company’s tax filings are under continual examination by the tax authorities and the Company regularly assesses its tax uncertainties, tax examinations are inherently uncertain.

The Company files U.S. federal and various state income tax returns. The U.S. statutes of limitation are open for the fiscal tax years 2004 forward. Under the tax matters agreement between Applied Biosystems and the Company, it is expected that Applied Biosystems generally will be responsible for the payment of all taxes attributable to Celera’s operations prior to the split-off.

On July 30, 2008, the Housing and Economic Recovery Act of 2008 was enacted. Under this law, companies can elect to accelerate a portion of their unused alternative minimum tax credit and credit for increased research activities (R&D credit) in lieu of the 50-percent “bonus” depreciation enacted in February 2008. The Company is currently in the process of analyzing the impact of this new law.

The California 2008-2009 Budget Bill (AB 1452), enacted on September 30, 2008, resulted in two temporary changes to the Company’s projected 2008 California income tax. First, the bill suspends the use of Net Operating Loss (NOL) carryovers for two years. Second, the bill limits the use of R&D credit carryovers to no more than 50% of the tax liability before credits. There is no impact to the Company because of its net operating loss position.

On October 3, 2008, the Emergency Economic Stabilization Act of 2008 was signed into law. Under this law, the R&D credit was retroactively extended through December 31, 2009 from December 31, 2007. The Company does not expect to recognize a benefit from this tax law change in 2008 because of its net operating loss position combined with its valuation allowance position.

16

Celera Corporation

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

11. Stockholders’ Equity

The Condensed Consolidated Statement of Financial Position at June 30, 2008 included the equity transactions of Applied Biosystems, which were attributed to Celera as “net allocations from Applied Biosystems.” These net allocations from Applied Biosystems primarily consisted of equity transactions that were specifically attributable to Celera. These transactions included, among others, net loss of Celera, activity related to Celera Group common stock, including stock-based compensation, investment activity specifically allocated to Celera and tax items related to Celera. These transactions were incurred by Applied Biosystems and based on specific identification and Applied Biosystems’ tax sharing policy, were attributed to Celera.

After the split-off, the Company’s stockholders’ equity has been separately tracked and reflected in the Condensed Consolidated Statements of Stockholders’ Equity set out below:

(Dollar amounts in millions)	Net Allocations From Applied Biosystems			Common Stock		Additional Paid-In Capital		Accumulated Other Comp- rehensive Loss			Accumulated Net Loss			Treasury Stock			Total Stock- holders’ Equity
Revised balance at June 30, 2008	$	1,567.7		$	—	$	—	$	—		$	(948.4	)	$	—		$	619.3
Allocation following split-off from Applied Biosystems		(1,567.7	)		0.8		1,569.5		(2.2	)		—			(0.4	)		—
Balance at July 1, 2008	$	—		$	0.8	$	1,569.5	$	(2.2	)	$	(948.4	)	$	(0.4	)	$	619.3
Net loss		—			—		—		—			(7.0	)		—			(7.0	)
Unrealized loss on investments		—			—		—		(5.3	)		—			—			(5.3	)
Termination of pension plan		—			—		—		1.6			—			—			1.6
Comprehensive loss																		(10.7	)
Issuances under Celera stock plans		—			—		1.7		—			—			—			1.7
Funding from Applied Biosystems as a result of the split-off		—			—		1.1		—			—			—			1.1
Share-based compensation		—			—		1.4		—			—			—			1.4
																	��
Balance at September 27, 2008	$	—		$	0.8	$	1,573.7	$	(5.9	)	$	(955.4	)	$	(0.4	)	$	612.8

12. Segmented Information

Business Segments

Celera’s operations are primarily in the U.S., and it operated as one segment through December 31, 2007. Celera reorganized its business in January 2008 and now operates through three reporting segments: a clinical laboratory testing service business (Lab Services); a products business (Products); and a segment which includes other activities under corporate management (Corporate). The Lab Services business, conducted through BHL, offers a broad portfolio of clinical laboratory tests and disease management services to help healthcare providers improve cardiovascular disease treatment regimens for their patients. The Products business develops, manufactures and oversees the commercialization of molecular diagnostic products, most of which are commercialized through Celera’s relationship with Abbott. The Corporate segment includes revenues for royalties, licenses, funded collaborations and milestones related to the licensing of certain intellectual property and from the sale of Celera’s former small molecule and proteomic programs. The Corporate segment also includes corporate and shared general and administrative functions, centrally managed research and business development activities. Also included in the Corporate segment is amortization of purchased intangibles related to Celera’s acquisitions, interest income, and loss on investments.

17

Celera Corporation

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Costs and expenses for the Lab Services segment and the Products segment reflect direct costs attributable to those segments and an allocation of certain shared services related to information technology, human resources, facilities and other services. These costs have been allocated based on head count or specific identification. Costs related to the business development activities have been allocated to the Products segment to the extent agreed to under Celera’s Alliance relationship with Abbott. All other centralized corporate and shared administrative costs are reflected in the Corporate segment. The allocation methods have been consistently applied for all periods presented.

Centrally managed assets including cash, cash equivalents, short-term investments and income tax related balances are included in the Corporate segment. Goodwill and intangible assets are included in their related segments.

The following table provides information concerning the segments for the three months ended September 27, 2008 and September 30, 2007:

(Dollar amounts in millions)	Lab Services		Products			Corporate			Elimination of Intersegment Sales			Total
Three months ended September 27, 2008
Revenues from external customers	$	30.1	$	10.5		$	5.2		$	—		$	45.8
Intersegment revenues (1)		—		1.1			—			(1.1	)		—
Total net revenues		30.1		11.6			5.2			(1.1	)		45.8
Operating income (loss)		2.1		1.2			(9.3	)		(0.3	)		(6.3	)
Loss on investments		—		—			(3.2	)		—			(3.2	)
Interest income, net		—		—			2.5			—			2.5
Income (loss) before income taxes		2.1		1.2			(10.0	)		(0.3	)		(7.0	)
Total assets		244.3		79.8			345.4			—			669.5
Depreciation and amortization		0.7		0.3			3.1			—			4.1
Three months ended September 30, 2007
Revenues from external customers	$	—	$	4.7		$	11.4		$	—		$	16.1
Intersegment revenues (1)		—		—			—			—			—
Total net revenues		—		4.7			11.4			—			16.1
Operating loss		—		(5.0	)		(0.8	)		—			(5.8	)
Interest income, net		—		—			7.1			—			7.1
Other expense, net		—		—			(0.3	)		—			(0.3	)
(Loss) income before income taxes		—		(5.0	)		6.0			—			1.0
Total assets		—		44.1			754.3			—			798.4
Depreciation and amortization		—		0.4			0.7			—			1.1

(1) Sales to BHL for the period ended September 27, 2008.

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

The purpose of the following management’s discussion and analysis is to provide an overview of the business of Celera to help facilitate an understanding of significant factors influencing our historical operating results, financial condition, and cash flows and also to convey our expectations of the potential impact of known trends, events, or uncertainties that may impact our future results. The following should be read in conjunction with our audited combined financial statements and related notes, included in our Annual Report on Form 10-K filed with the SEC on September 8, 2008. Historical results and percentage relationships are not necessarily indicative of operating results for future periods.

We have reclassified some prior year amounts for comparative purposes.

Business Overview

We are a diagnostics business that delivers personalized disease management through a combination of products and services incorporating proprietary discoveries. Our subsidiary Berkeley HeartLab, Inc., or BHL, offers clinical laboratory testing services to characterize cardiovascular disease risk and improve patient management. We also oversee the commercialization of a wide range of molecular diagnostic products through our strategic alliance with Abbott Laboratories. Since we commenced operations in fiscal 1996, we have evolved from a business focused on the discovery and distribution of genomic information based on our work in sequencing the human genome to a diagnostics business focused on personalized disease management.

Our operations are primarily in the U.S., except for the products sold globally by Abbott through our alliance. We operated as one segment through December 31, 2007. We reorganized our business in January 2008 and now operate through three reporting segments, a clinical laboratory testing service business (Lab Services), a products business (Products), and a segment which includes other activities under corporate management (Corporate). Our Lab Services business, conducted through BHL, offers a broad portfolio of clinical laboratory tests and disease management services to help improve cardiovascular disease treatment regimens for patients. Our Products business develops, manufactures and oversees the commercialization of molecular diagnostic products, most of which are commercialized through our relationship with Abbott Molecular, a subsidiary of Abbott Laboratories. Our Corporate segment includes revenues from royalties, licenses, funded collaborations and milestone payments related to the licensing of certain intellectual property and from the sale of our former small molecule and proteomic programs. Our Corporate segment also includes corporate and shared general and administrative functions, centrally managed research and business development activities.

Split-Off and Relationship with Applied Biosystems

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

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

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

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

The members of our Board of Directors are Richard H. Ayers, Jean-Luc Bélingard, William G. Green, Peter Barton Hutt, Gail K. Naughton, Ph.D., Kathy Ordoñez, and Bennett M. Shapiro, M.D. William G. Green has been elected non-executive Chairman of the Board.

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

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

Basis of Presentation

Prior to the split-off, Celera was a reportable segment of Applied Biosystems and our financial information was included in Applied Biosystems’ consolidating financial information. Our consolidated financial statements include the assets and liabilities of Applied Biosystems that were specifically attributed to us using their historical basis.

Following the split-off, we became a stand-alone company and now prepare our own consolidated financial statements. As a result, comparability of certain items has been affected, including the stockholders’ equity section of the Condensed Consolidated Statements of Financial Position.

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

On July 25, 2008, our Board of Directors approved a change of the Company’s fiscal year from a June 30 fiscal year-end to a 52 or 53 week fiscal year generally ending on the last Saturday in December. Results of the transition period, which will end on December 27, 2008, will be reported by the Company on Form 10-K.

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Revision of Prior Period Financial Statements

During the third calendar quarter of 2008, we identified errors in the tax accounting associated with the split-off from Applied Biosystems. The impact of these errors was an understatement of the tax provision and net loss for the three and twelve months ended June 30, 2008. We assessed the materiality of these errors on the consolidated financial statements for the year ended June 30, 2008, in accordance with the SEC’s Staff Accounting Bulletin No. 99,Materiality and concluded that the errors were not material for either period. We also concluded that correcting the errors during the three months ended September 27, 2008, would have materially misstated the results of the quarter. Accordingly, in accordance with the SEC’s Staff Accounting Bulletin No. 108,Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the financial statements for the year-ended June 30, 2008 have been revised to correct for the immaterial errors and to allow for the correct recording of these transactions.

Set out below are the line items within the consolidated financial statements as of and for the year-ended June 30, 2008 that have been impacted by the revisions. The revision had no net impact on our Condensed Consolidated Statement of Cash Flows for the year ended June 30, 2008.

	Fiscal Year Ended June 30, 2008
(Dollar amounts in thousands except per share amounts)	As Reported		As Revised
Consolidated Statement of Operations
Provision for income taxes	$	89,122	$	95,576
Net loss		104,064		110,518
Unaudited basic and diluted pro forma net loss per share		1.31		1.39
Consolidated Statement of Financial Position
Prepaid expenses and other current assets	$	32,831	$	34,228
Total current assets		416,653		418,050
Total assets		677,357		678,754
Other long-term liabilities		21,162		29,013
Total liabilities		51,604		59,455
Accumulated net losses		941,906		948,360
Total allocated net worth		625,753		619,299
Total liabilities and allocated net worth		677,357		678,754

Set out below is a summary of the unaudited quarterly financial results for the three months ended June 30, 2008 that have been impacted by the revisions:

	Three Months Ended June 30, 2008
(Dollar amounts in thousands except per share amounts)	As Reported		As Revised
Net loss	$	97,676	$	104,130
Unaudited basic and diluted pro forma net loss per share		1.22		1.30

Recent Business Developments

In November 2008, we appointed Scott K. Milsten as Vice President, General Counsel and Corporate Secretary of Celera.

In October, we appointed Christopher Hall as Chief Business Officer of BHL. Mr. Hall succeeds Frank Ruderman, the former Chairman and CEO of BHL, who left the company in October, 2008.

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In September, together with research collaborators at Brigham and Women’s Hospital, we published data inAtherosclerosis reporting that a variant of theLPA gene is associated with a two-fold higher risk of major cardiovascular events (myocardial infarction, ischemic stroke and cardiovascular death). This study confirmed our previous findings of an increased risk associated with thisLPA variant and showed that the excess risk was eliminated by taking low dose aspirin. This research collaboration has resulted in the filing of a jointly-owned patent application by Brigham and Women’s Hospital and us on this gene variant’s association with cardiovascular events and aspirin benefit. We have obtained an exclusive worldwide royalty-bearing license to Brigham and Women’s Hospital’s interest in the jointly-owned intellectual property.

In August, we elected Peter Barton Hutt to our Board of Directors, and separately, we appointed Jean Amos Wilson, Ph.D., as Vice President of laboratory operations at BHL.

A novel, proprietary, blood-based KIF6 testing service was broadly commercialized through BHL in July, following a trial market during the summer. The BHL KIF6 testing service is based on our published research and identifies people at elevated risk for coronary heart disease that may be reduced by statin therapy. Following the successful launch of the blood-based KIF6 testing service, BHL is now developing a buccal swab version of the test, which we intend to trial market as part of a Direct-to-Physician program in the coming months.

Results of Operations

Three Months Ended September 27, 2008 Compared to Three Months Ended September 30, 2007

	Three Months Ended
(Dollar amounts in millions)	September 27, 2008			September 30, 2007			% Increase (Decrease)
Net revenues	$	45.8		$	16.1		184	%
Cost of sales		14.6			3.1		371	%
Gross margin		31.2			13.0		140	%
Selling, general and administrative		25.2			8.1		211	%
Research and development		8.0			10.7		(25	%)
Amortization of purchased intangible assets		2.5			—		—
Employee-related charges, asset impairment and other		1.8			—		—
Operating loss		(6.3	)		(5.8	)	9	%
Loss on investments		(3.2	)		—		—
Interest income, net		2.5			7.2		(65	%)
Other expenses, net		—			(0.3	)	(100	%)
(Loss) income before income taxes		(7.0	)		1.1		(736	%)
Provision for income taxes		—			0.4		(100	%)
Net (loss) income	$	(7.0	)	$	0.7		(1,100	%)
Effective income tax rate		0.4	%		36.6	%

The following table sets forth the components of our net revenues from external customers by segment for the three months ended September 27, 2008 and September 30, 2007:

	Three Months Ended
(Dollar amounts in millions)	September 27, 2008		September 30, 2007		% Increase (Decrease)
Revenues from external customers
Lab Services	$	30.1	$	—	—
Products		10.5		4.7	123	%
Corporate		5.2		11.4	(54	%)
Total revenues from external customers	$	45.8	$	16.1	184	%

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Revenues

Lab Services revenue consists of sales made by BHL, which was acquired in October 2007. There are no comparable results in the prior year quarter.

Revenues from our Products segment for the three months ended September 27, 2008 increased compared to the three months ended September 30, 2007 primarily due to higher sales of Atria HLA products and a higher equalization payment from our alliance partner, Abbott. We acquired Atria in October 2007. Equalization revenue, net was $5.3 million for the three months ended September 27, 2008 compared to $2.1 million for the prior year quarter.

Corporate revenue, which primarily consists of royalty, license and milestone payments, decreased $6.2 million for the three months ended September 27, 2008 compared to September 30, 2007. The prior year quarter included revenues of $3.0 million from the resale of our cathepsin S inhibitor program to a privately-held drug development company and $2.0 million from Merck as a result of the cathepsin K inhibitor program entering a Phase III clinical trial. In the three months ended September 27, 2008 we did not recognize royalty revenue from Cepheid, one of our licensees, as we changed our revenue recognition from an accrual basis to a cash-received basis for this license. This was due to limitations in our ability to estimate the quarterly royalty revenue prior to receipt of payment in the subsequent quarter. We will start to record this royalty revenue on a cash-received basis in the fourth quarter of calendar 2008 until such time as we are able to estimate royalty revenue prior to receipt of payment.

Gross Margin

Gross margin for the three months ended September 27, 2008 increased compared to the three months ended September 30, 2007 primarily as a result of the increase in net revenue.

Gross margin as a percentage of net revenue decreased to 68% for the three months ended September 27, 2008 from 80% for the three months ended September 30, 2007. This was primarily due to the exclusion of the Cepheid royalty revenue and the inclusion of BHL operations for the quarter, partially offset by higher equalization revenues from our alliance with Abbott for the three months ended September 27, 2008. The gross margin percentage for the three months ended September 30, 2007 was positively impacted by the high margin revenue of $5.0 million related to our former small molecule business referred to above.

Operating Expenses

Selling, general and administrative expenses increased by $17.1 million for the three months ended September 27, 2008 compared to the prior year quarter, primarily due to the inclusion of BHL expenses of $17.5 million in the quarter.

Research and development expenses decreased for the three months ended September 27, 2008 compared to the prior year quarter primarily due to reduced spending in discovery research and projects associated with the Abbott alliance.

The amortization of purchased intangible assets of $2.5 million related to the acquisitions of BHL and Atria in October 2007.

Employee-related charges, asset impairment and other expenses of $1.8 million for the three months ended September 27, 2008 included a $1.6 million charge related to the realization of pension costs as a result of the split-off from Applied Biosystems. Certain pension costs had been recorded in accumulated other comprehensive income following the adoption of Statement of Financial Accounting Standard (SFAS) No. 158Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans on June 30, 2007. The pension plan was terminated following the split-off from Applied Biosystems and the related unrealized charge of $1.6 million was recorded in the Condensed Consolidated Statement of Operations. We also recorded severance costs of $0.3 million, partially offset by a pre-tax benefit of $0.1 million for a reduction in employee-related costs associated with severance and benefit charges recorded in fiscal 2007.

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Operating Loss

The following table summarizes our operating loss by segment for the three months ended September 27, 2008 and September 30, 2007:

	Three Months Ended
(Dollar amounts in millions)	September 27, 2008			September 30, 2007			% Increase (Decrease)
Lab Services	$	2.1		$	—		—
Products		1.2			(5.0	)	(124	%)
Corporate		(9.3	)		(0.8	)	1,063	%
Elimination of intersegment income		(0.3	)		—		—
Operating loss	$	(6.3	)	$	(5.8	)	9	%

Our Lab Services segment was not part of our operations at September 30, 2007. Our Products segment had operating income for the three months ended September 27, 2008 as compared to an operating loss for the three months ended September 30, 2007. This was primarily due to higher equalization payments from Abbott and sales of higher margin Atria HLA products. Also contributing to this variance were lower operating expenses.

Operating loss for our Corporate segment increased over the comparative period primarily due to fewer milestone payments and no Cepheid royalty revenues being recorded in the three months ended September 27, 2008. Also contributing to the increase was amortization of purchased intangible assets related to the BHL and Atria acquisitions and employee-related charges, asset impairments and other expense, partially offset by lower R&D expenses for the three months ended September 27, 2008.

Loss on Investments

During the three months ended September 27, 2008 we recorded $3.2 million in loss on investments for an other-than-temporary impairment of our investments in senior debt securities issued by Lehman Brothers Holdings, Inc. and Washington Mutual Bank NV. The impairment charge resulted from a number of factors, including the magnitude and duration of the decline in market value, the regulatory and economic environment, and changes in credit rating of the issuers.

Interest Income, Net

Interest income, net decreased primarily due to lower average balances of cash, cash equivalents and short-term investments, combined with lower average interest rates.

Other Expenses, Net

Other expense, net of $0.3 million for the three months ended September 30, 2007 consisted of net realized losses recorded on the disposal of marketable securities. No such gains or losses were realized in the three months ended September 27, 2008.

Provision for Income Taxes

The consolidated effective income tax rate for the three months ended September 27, 2008 was 0.4%, compared to 36.6% for the three months ended September 30, 2007. The decrease in the provision for income taxes is due to our loss position for the three months ended September 27, 2008 compared to being profitable in the prior year quarter, and there being a full valuation allowance against the Company’s deferred tax assets following the split-off from Applied Biosystems. A full valuation allowance was established against our deferred tax assets subsequent to the split-off from Applied Biosystems as a result of our historic losses.

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Supplemental Information

The following supplemental information is provided for the three months ended September 27, 2008 and the three months ended September 30, 2007. The amounts disclosed below for end-user sales are not included as part of our revenues. End-user sales consist of products sold globally through the alliance with Abbott and are thus recognized by Abbott. A significant portion of our product revenues is derived from the alliance through our profit sharing arrangement. We believe the discussion of end-user sales of products sold through the alliance provides a meaningful measure of market acceptance of these products and thus also a meaningful measure of the sales performance of the alliance. The reporting of this supplemental data permits comparisons of product and alliance performance on a period-to-period basis. The revenues reported in our Condensed Consolidated Statements of Operations do not directly provide this or comparable information, because the reported product revenues fluctuate period to period based on factors other than product sales due to the profit sharing arrangement with Abbott. Accordingly, end-user sales are the only publicly reported measure of alliance product sales.

	Three Months Ended
(Dollar amounts in millions)	September 27, 2008		September 30, 2007
Equalization revenue, net	$	5.3	$	2.1
End-user revenues		39.4		24.9

Increased sales of Human Immunodeficiency Virus (HIV), hepatitis C virus (HCV), and hepatitis B virus (HBV) RealTime™ viral load assays used on them2000™ system, cystic fibrosis reagents, HLA products, ViroSeq™ HIV-1 Genotyping System and Fragile X analyte specific reagents all contributed to the year-over-year quarterly growth.

Discussion of Financial Resources and Liquidity

We had cash and cash equivalents and short-term investments of $317.0 million at September 27, 2008, and $335.0 million at June 30, 2008. We believe that existing funds are adequate to satisfy our normal operating cash flow needs and planned capital expenditures for at least the next twelve months.

The following table summarizes the components of our financial resources at:

(Dollar amounts in millions)	September 27, 2008		June 30, 2008
Cash and cash equivalents	$	50.6	$	47.3
Short-term investments		266.4		287.7
Total cash and cash equivalents and short-term investments		317.0		335.0
Total debt		0.1		0.1
Working capital		379.2		386.2

The overall decrease of cash and cash equivalents and short-term investments during the three months ended September 27, 2008 was primarily caused by cash used by operating activities and the impairment of certain securities within our short-term investment portfolio. During the three months ended September 27, 2008, we recorded a decline in the market value of our portfolio of $8.7 million caused by market movements. We concluded that of the decline in market value, $3.2 million was other-than-temporary and, as a result, we recorded an impairment charge of $3.2 million in loss on investments in our Condensed Consolidated Statement of Operations. We do not believe the unrealized losses represent an other-than-temporary impairment based on our evaluation of available evidence as of September 27, 2008. Our intent is to hold these investments until recovery of value or maturity.

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The decrease in working capital was primarily due to the reduction in cash and cash equivalents, and short-term investments of $18.0 million, partially offset by a reduction in accrued salaries and wages of $4.9 million, and an increase in accounts receivable and prepaid expenses and other current assets of $5.1 million and $4.9 million, respectively.

Net cash flows for the three months ended September 27, 2008 were as follows:

(Dollar amounts in millions)
Net cash used by operating activities	$	(7.7	)
Net cash provided by investing activities		8.2
Net cash provided by financing activities		2.8

Operating activities

For the three months ended September 30, 2008, income-related cash flow was $7.5 million and movements in operating assets and liabilities were $15.2 million. Income-related cash flow represents the net loss for the period adjusted for non-cash charges including depreciation and amortization, allowance for doubtful accounts, asset impairments and share-based compensation.

The movements in operating assets and liabilities were caused by: an increase of $8.9 million in accounts receivable due primarily to increased revenue and lower collections at BHL; an increase of $4.8 million in prepaid expenses and other assets primarily related to an increase in the investment in the Abbott strategic alliance and prepaid insurance; a decrease of $3.0 million in accounts payable and other liabilities caused primarily by the payment of incentive compensation in the quarter, partially offset by increased accounts payable; partially offset by a decrease in net inventory of $1.5 million.

Investing activities

The net cash provided by investing activities of $8.2 million was primarily caused by proceeds from the sale and maturity of available-for-sale securities exceeding the purchase of available-for-sale securities by $12.6 million. This was partially offset by additions to long-term assets of $3.8 million which consisted of capital expenditures totaling $1.8 million, primarily related to the purchase of software licenses and leasehold improvements at BHL including the build-out of 4myheart Centers, and $2.0 million related to the purchase of a technology license as a result of the split-off from Applied Biosystems.

Financing activities

The net cash provided by financing activities of $2.8 million included proceeds from stock issued for stock plans of $1.7 million and a contribution of $1.1 million received from Applied Biosystems towards the cost of replacing a technology license.

Off-Balance Sheet Arrangements

An off-balance sheet arrangement includes any contractual obligation, agreement or transaction arrangement involving an unconsolidated entity under which we would have: (1) retained a contingent interest in transferred assets; (2) an obligation under derivative instruments classified as equity; (3) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or that engages in leasing, hedging or research and development services with us; or (4) made guarantees.

At September 27, 2008 and September 30, 2007, we had no off-balance sheet arrangements or obligations.

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Critical Accounting Estimates

There have been no material changes to our critical accounting policies and estimates from the disclosures made in Management’s Discussion and Analysis of Financial Conditions and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2008 filed with the SEC on September 8, 2008.

Recent Accounting Pronouncements

Refer to Note 2 to our unaudited condensed consolidated financial statements for a description of the effect of recently adopted accounting pronouncements.

In December 2007, the Financial Accounting Standards Board issued SFAS No. 141 (revised 2007),Business Combinations, which replaces SFAS No. 141,Business Combinations. SFAS No. 141(R) establishes the principles and requirements for how an acquirer recognizes and measures the identifiable assets acquired, the liabilities assumed, the goodwill acquired and any noncontrolling interest in the acquiree. SFAS No. 141(R) also establishes the disclosure requirements for a business combination. Following our change of fiscal year-end, the provisions of SFAS No. 141(R) are effective for the Company’s 2009 fiscal year, beginning on December 28, 2008. A significant impact may be realized on any future acquisition by us as a result of the adoption of SFAS 141(R). The amount of such impact cannot be currently determined and will depend on the nature and terms of such acquisition.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As discussed in Part II: Item 7A of our Annual Return on Form 10-K filed with the SEC on September 8, 2008, our principal exposures to financial market risk continue to be changes in interest rates and changes in equity prices.

Changes in interest rates will affect the interest earned on our cash, cash equivalents, and short-term investments, as well as the value of those investments. Our primary objectives for these investments are to ensure the preservation of capital, meet liquidity requirements, and optimize returns.

We manage our interest rate risk by maintaining an investment portfolio generally consisting of debt instruments of high credit quality and relatively short maturities. As of September 27, 2008, our cash, cash equivalents and short-term investments were invested in a diversified, highly liquid portfolio of corporate bonds, treasury and agency securities, as well as asset-backed securities and money market instruments.

We do not hedge our equity positions in other companies or our short-term investments. Our exposure on these instruments is limited to changes in quoted market prices.

We have minimal exposure to foreign currency risk as our operations are primarily in the U.S. and our sales are typically billed in U.S. dollars.

Impact of Inflation and Changing Prices

Inflation and changing prices are continually monitored. We attempt to minimize the impact of inflation by improving productivity and efficiency through continual review of both manufacturing capacity and operating expense levels. When operating costs increase, we attempt to recover such costs by increasing, over time, the selling price of our products and services. We believe the effects of inflation have been appropriately managed and therefore have not had a material impact on our historic consolidated operations and resulting financial position.

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ITEM 4T. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We are responsible for maintaining disclosure controls and procedures, as defined by the Securities and Exchange Commission in its Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Disclosure controls and procedures are controls and other procedures designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, at the level of reasonable assurance, our disclosure controls and procedures are effective to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our fiscal quarter ended September 27, 2008, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting except as noted below.

Due to the transfer of certain corporate functions from Applied Biosystems to Celera following the split-off, there have been certain changes to the internal control environment at Celera during the fiscal quarter ended September 27, 2008. Controls over the treasury, tax and external reporting functions that were previously performed at Applied Biosystems are now being performed at Celera.

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PART II – Other Information

ITEM 1. Legal Proceedings

On May 15, 2008, we received a letter from the National Institutes of Health, or NIH, following up on previous correspondence and discussions and requesting that we enter into a license agreement with the NIH for its U.S. Patent No. 5,252,477 in connection with our ViroSeq HIV-1 Genotyping System, and that we pay royalties in respect of all of our sales (both past and future) of this product. Although we have had discussions with the NIH in the past on this matter, we continue to believe that the NIH’s patent is not applicable to our ViroSeq HIV-1 Genotyping System and that the NIH is not entitled to any royalties from the sale of this product.

We have also from time to time been involved in various lawsuits, arbitrations, investigations, and other legal actions. These legal actions have involved, for example, commercial, intellectual property, securities, and employment matters. We believe that we have meritorious defenses against the claims currently asserted against us and intend to defend them vigorously. However, the outcome of legal actions is inherently uncertain, and we cannot be sure that we will prevail in our defense of claims currently asserted against us.

In addition to legal actions to which we are a party, we may be required under the separation agreement to indemnify Applied Biosystems for damages, costs and other liabilities incurred by Applied Biosystems relating to existing and future lawsuits, arbitrations, investigations, and other legal actions to which Applied Biosystems is or may become a party, to the extent related to our business. For more information, see the sections entitled “Risk Factors – Applied Biosystems is subject to a class action lawsuit relating to its 2000 offering of shares of Celera Group tracking stock that may result in liabilities for which we have agreed to indemnify Applied Biosystems,” “Risk Factors – Our separation agreement with Applied Biosystems requires us to indemnify Applied Biosystems for specified liabilities, including liabilities relating to the Celera business, specified litigation and one-half of any liabilities resulting from the split-off” and “Item 13 – Our Relationship with Applied Biosystems Following the Split-Off” in our Annual Report on Form 10-K filed with the SEC on September 8, 2008.

ITEM 1A. Risk Factors

Following the split-off, Applied Biosystems may compete with us in our diagnostics business directly or enable others to compete with us by providing them access to its intellectual property, reagents, and technologies.

Applied Biosystems’ reagent and clinical laboratory testing service business in human diagnostics was historically operated exclusively through Celera. As a result, Applied Biosystems has not competed with us in this business, nor was it permitted to enable others to compete with us in the business by providing them access to its intellectual property, reagents, and technologies. Since the split-off, Applied Biosystems may directly compete with us or enable others to compete with us in human diagnostics, except that for a period of three years following the split-off date, Applied Biosystems, subject to specified exceptions, will be restricted in its ability to supply any reseller with capillary electrophoresis sequencers for commercialization of human diagnostic tests outside of Asia, Africa, the Middle East and South America, nor will it be able to itself commercialize these tests anywhere in the world for the same three year period. In addition, Applied Biosystems will not supply any third-party reseller with real-time instruments for use in the humanin vitro diagnostics, or HIVD, field, unless the third party has obtained a license to Applied Biosystems real-time intellectual property in the field, although the third party cannot

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commercialize human diagnostic tests for specified conditions on these instruments for three years following the split-off date. See “Our Relationship with Applied Biosystems Following the Split-Off” within Item 13 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2008 for further information. Competition from Applied Biosystems in all other areas of our business may limit our success in expanding our product offerings into new areas and disease indications.

The restrictions on Applied Biosystems described above would not apply to the commercialization of a competing product acquired as part of an acquisition of a third party by Applied Biosystems, nor would it prohibit an acquiror of Applied Biosystems from continuing to commercialize a competing product following an acquisition. Accordingly, Invitrogen will not be prohibited from continuing to commercialize a competing product following the Proposed Merger. We have been informed that Invitrogen is currently commercializing a high resolution HLA typing product line that might be characterized as a “CE Assay”, as defined in the Operating Agreement, which it would be entitled to continue to commercialize following the Proposed Merger. In addition, Invitrogen may have other competing products, that we are not aware of, that would not be subject to the restrictions described above.

Our net revenues will be negatively affected if third-party payors decide that our products or services are not approved for reimbursement or if healthcare providers do not accept our diagnostic products.

Our revenues are highly dependent on our clinical laboratory tests and diagnostic products being approved for reimbursement by Medicare and other government healthcare programs, as well as private insurance companies and managed care organizations, commonly referred to, collectively, as “third-party payors.” Although most third-party payors currently have approved our clinical laboratory tests and the use of our diagnostic products for reimbursement, this could change if they determine that these tests and products are not medically necessary or otherwise not approved for reimbursement under standards independently established by these third-party payors which may take into consideration factors such as the experimental nature of a particular test or product, or whether less expensive alternatives are available. Each third-party payor makes its own decision as to whether a given diagnostic test is medically necessary and worthy of payment. If Medicare or any other significant third-party payor determines that our clinical laboratory tests are not medically necessary or are not otherwise suitable for reimbursement, healthcare providers could be reluctant to prescribe these tests. Similarly, if the use of our diagnostic products is not approved for reimbursement, purchasers of these products could decrease or eliminate their orders of these products. This could harm our operating results and financial condition. Also, there can be no assurance that third-party payors will approve for reimbursement any clinical laboratory tests or the use of diagnostic products sold by us in the future.

In addition, the growth and success of our sales of diagnostic products depends on market acceptance by healthcare providers and laboratories of our products as clinically useful and cost-effective. We expect that most of our diagnostic products will use genotyping and gene expression information to predict predisposition to diseases, disease progression or severity, or responsiveness to treatment. Market acceptance depends on the widespread acceptance and use by healthcare providers of genetic testing for these purposes. The use of genotyping and gene expression information by healthcare providers for these purposes is relatively new. Healthcare providers may not want to use our products designed for these purposes, which could harm our operating results and financial condition.

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Efforts by third-party payors, including Medicare, to reduce utilization and reimbursement rates could decrease our net revenues and profitability.

Third-party payors have increased their efforts to control the cost, utilization and delivery of healthcare services. From time to time, Congress has considered and implemented changes in the Medicare fee schedules in conjunction with budgetary legislation. A five-year moratorium on changes to the Medicare clinical laboratory fee schedule will end on December 31, 2008, which could result in the receipt of reduced Medicare reimbursements for our clinical laboratory testing services from Medicare. Reductions in the reimbursement rates of other third-party payors have occurred and may occur in the future. In the past, these reimbursement rate changes have resulted in reduced prices, added costs and decreased test utilization for the clinical laboratory industry and future rate reductions could have a similar impact on the industry. If the payment amount we receive for our clinical laboratory testing services is reduced, it could harm our operating results and financial condition. Also, if clinical laboratories that purchase our diagnostic products receive reduced payment for their testing services, the reduced payments may cause them to seek lower pricing for our diagnostic products, which could, in turn, harm our operating results and financial condition.

We may need to accept lower prices for some of our testing services in exchange for participating in provider networks.

A large portion of our clinical laboratory testing business is currently reimbursed by non-governmental third-party payors on an out-of-network, non-participating basis. This means that we do not have contracted reimbursement rates with these companies. In order to contain medical expenses, many of these companies have requested that we become an in-network, participating provider of clinical laboratory testing services. Becoming an in-network, participating provider has the advantage of providing us with access to more patients for our clinical laboratory testing services and assuring that our clinical laboratory tests are reimbursable by the insurance company or managed care organization that has established the network. However, in-network, participating reimbursement rates tend to be substantially lower than those reimbursement rates currently being received by our clinical laboratory for our testing services. Therefore, joining these networks could reduce our net income and harm our operating results and financial condition. On the other hand, failure to join these networks could prevent us from being reimbursed by these providers for our clinical laboratory tests altogether. In addition, reduced reimbursement rates offered to in-network, participating providers may indirectly harm our diagnostic product business. We believe that many of the purchasers of our diagnostic products that perform clinical laboratory testing services face similar pressure to become in-network, participating providers. Should these purchasers become in-network, participating providers, if they are not already, the reduced reimbursement rates received by these purchasers may cause them to seek lower pricing for our diagnostic products, which could, in turn, harm our operating results and financial condition.

Medicare contracting reforms could change Medicare’s reimbursement policies or rates for our laboratory testing services.

In response to a Congressional mandate, the Department of Health and Human Services is replacing the organizations that currently administer the Medicare “fee-for-service” programs with new Medicare Administrative Contractors. The fee-for-service program is the traditional Medicare program where beneficiaries choose the physician or other healthcare provider they wish to see and pay a fee for each service used. If clinical laboratory testing services are covered by Medicare, then Medicare pays the entire bill for the services and the beneficiary is not responsible for any portion of the payment. The transition to the new contractor for our clinical laboratory testing service started on August 28, 2008. We believe that the new contractor may change coverage policies or reimbursement rates that are applicable to our laboratory tests.

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The competition in the healthcare and biotechnology industries is intensely competitive and evolving.

There is intense competition among healthcare, diagnostic, and biotechnology companies attempting to develop new diagnostic products. We are aware of competitors who are engaged in research and development projects that address the same diseases that we are targeting. Our products business competes with companies in the U.S. and abroad that are engaged in the development and commercialization of products and services that provide genetic information. These companies may develop products or services that are competitive with, and could be more effective and/or cost-effective than, the diagnostic products offered by us or our collaborators or licensees, such as analyte specific reagents, diagnostic test kits, or diagnostic testing services that perform the same or similar purposes as our or our collaborators’ or licensees’ diagnostic products. Key competitors for our leading products include Luminex Corporation and Third Wave Technologies, Inc. for our cystic fibrosis products, Siemens for our ViroSeq™ HIV-1 Genotyping System, and Siemens and F. Hoffmann-La Roche, Ltd. for them2000™ system and assays that are sold as part of our alliance with Abbott. Also, clinical laboratories may offer testing services that are competitive with the diagnostic products sold by us or our collaborators or licensees. For example, a clinical laboratory can use either reagents purchased from manufacturers other than us, or their own internally developed reagents, to provide diagnostic testing services. In this manner, clinical laboratories could offer testing services for a particular disease as an alternative to purchasing diagnostic products sold by us or our collaborators or licensees for use in their testing of the same disease. The testing services offered by clinical laboratories may be easier and more cost-effective to develop and market than test kits developed by us or our collaborators or licensees because the testing services are not subject to the same clinical validation requirements that are applicable to the FDA cleared or approved diagnostic test kits. For example, clinical reference laboratories such as Laboratory Corporation of America Holdings, or LabCorp, and Quest Diagnostics Incorporated, or Quest, offer laboratory developed tests that compete with our ViroSeq HIV-1 Genotyping System.

In addition, our clinical laboratory testing services, and our associated disease monitoring, management, and educational services compete primarily with existing diagnostic, detection and monitoring technologies and disease management service companies. In particular, many clinical reference laboratories, including LabCorp, Sonic Healthcare Limited, Mayo Medical Laboratories, Quest, and other regional laboratory companies, offer clinical testing services using a traditional lipid panel test, which is simpler to perform and less expensive than our more extensive and proprietary lipid fractionation and related cardiovascular bio-marker tests, and which is widely accepted as an adequate test for assessing and managing risk of cardiovascular disease. Also, other companies, including Atherotech, Inc., Agilent Technologies, Inc., and LipoScience, Inc., currently provide alternative methods for lipoprotein subclass analysis using different technologies than our testing services. In addition, companies, including Healthways, Inc. and LifeMasters Supported SelfCare, Inc., and internal efforts by some healthcare payors, such as United Healthcare, compete with our disease monitoring and management and lifestyle modification offerings. Many of our actual or potential competitors may have longer operating histories, better name recognition and greater financial, technical, sales, marketing, and distribution capabilities than we have. These competitors also may have more experience in research and development, regulatory matters and manufacturing. Many of these companies, particularly those selling the traditional lipid panel test, offer tests or services that have been approved for third-party reimbursement. Our current or potential competitors may use, or develop in the future, technologies that are superior to, or more effective than, ours, which could make our tests noncompetitive or obsolete. We seek to expand our service offerings to

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provide greater characterization of risk and associated therapeutic response. We also seek to distinguish our services by supplementing our clinical laboratory testing services with additional disease monitoring, management, and educational services that include patient education programs with respect to nutrition, exercise, stress reduction, and medication compliance.

Our competitive position depends on maintaining our intellectual property protection.

Our ability to compete and to achieve and maintain profitability depends, in part, on our ability to protect our proprietary discoveries and technologies through obtaining and enforcing intellectual property rights, including patent rights, copyrights, trade secrets, and other intellectual property rights, and operating without infringing the intellectual property rights of others. Our ability to obtain patent protection for the inventions we make, including those relating to novel methods of diagnosing and/or treating diseases, is uncertain. The patentability of these and other types of biotechnology inventions involves complex factual, scientific, and legal questions. As a result, it is difficult to predict whether patents will issue or the breadth of claims that will be allowed in biotechnology patents. This may be particularly true with regard to the patenting of gene sequences, gene functions, genetic variations and methods of diagnosis of disease. Future changes in policies or laws, or interpretations of these policies or laws, relevant to the patenting of biotechnology inventions could harm our patent position in the U.S. or other countries. Opposition to the protection of these inventions in the U.S. or other countries could result in stricter standards for obtaining or enforcing biotechnology patent rights.

In some instances, patent applications in the U.S. are maintained in secrecy until a patent issues. In most instances, the content of U.S. and international patent applications is made available to the public approximately eighteen months after the initial filing from which priority is claimed. As a result, we may not be aware that others have filed patent applications for inventions covered by our patent applications and may incorrectly believe that our inventors were the first to make the invention. Accordingly, our patent applications may be preempted or we may have to participate in interference proceedings before the U.S. Patent and Trademark Office. These proceedings determine the priority of invention and the right to a patent for the claimed invention in the U.S. In addition, disputes may arise in the future with regard to the ownership of rights to any invention developed with collaborators, which could result in delays in, or prevent, the development of related products.

Patents used in our clinical laboratory testing services business are owned by Berkeley HeartLab, Inc., or BHL. In addition, there are several patents and patent applications owned by Applied Biosystems, which are primarily used in our products business, that have been transferred to us on or prior to the split-off date. These patents and patent applications include:

• a family of patents relating to HIV genotyping used in our ViroSeq™ HIV-1 Genotyping System, which expires in 2018,

• two patents relating to human leukocyte antigen, or HLA, typing used in our HLA typing products, which expire in 2015, and

• patent applications relating to methods of determining risk for developing specific diseases that are used in various stages of research and product development, but not yet used in commercial products; if patents issue from these applications, the terms of the patents would expire from 2023 through 2029.

We also rely on trade secret protection for our confidential and proprietary information and procedures, including procedures related to sequencing genes and to searching and identifying important regions of genetic information. We protect our trade secrets through recognized practices, including access control, confidentiality and non-use agreements with employees,

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consultants, collaborators and customers, and other security measures. These confidentiality and non-use agreements may be breached, however, and we may not have adequate remedies for a breach. In addition, our trade secrets may otherwise become known or be independently developed by competitors. Accordingly, it is uncertain whether our reliance on trade secret protection will be adequate to safeguard our confidential and proprietary information and procedures.

Applied Biosystems is subject to a class action lawsuit relating to its 2000 offering of shares of Celera Group tracking stock that may result in liabilities for which we have agreed to indemnify Applied Biosystems.

Applied Biosystems and some of its officers are defendants in a lawsuit brought on behalf of purchasers of Celera Group tracking stock in its follow-on public offering of Celera Group tracking stock completed on March 6, 2000. In the offering, Applied Biosystems sold an aggregate of approximately 4.4 million shares of Celera Group tracking stock at a public offering price of $225 per share. The lawsuit was commenced with the filing of several complaints in 2000, which have been consolidated into a single case which has been certified by the court as a class action. The consolidated complaint generally alleges that the prospectus used in connection with the offering was inaccurate or misleading because it failed to adequately disclose the alleged opposition of the Human Genome Project and two of its supporters, the governments of the U.S. and the U.K., to providing patent protection to our genomic-based products. The complaint also alleges that Applied Biosystems did not adequately disclose the risk that it would not be able to patent this data. The consolidated complaint seeks unspecified monetary damages, rescission, costs and expenses, and other relief as the court deems proper. Although Applied Biosystems has stated that it believes the asserted claims are without merit and intends to defend the case vigorously, the outcome of this or any other litigation is inherently uncertain.

Under the terms of the separation agreement we entered into with Applied Biosystems, we agreed to indemnify Applied Biosystems for liabilities resulting from the class action suit described above, as well as other actions pending on the split-off date or that may arise in the future, to the extent such actions are ultimately determined to relate to or arise out of the Celera business, assets or liabilities, in each case, to the extent not covered by Applied Biosystems’ insurance. There is no limit on the maximum amount of monetary damages for which we may be required to indemnify Applied Biosystems for such suit. If plaintiffs in these suits are ultimately successful on the merits, the resulting liabilities for which we are responsible could have a material adverse impact on our business and financial condition. See “Our Relationship with Applied Biosystems Following the Split-Off – Agreements Between Applied Biosystems and Us Relating to the Split-Off – Separation Agreement” contained in Item 13 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2008.

The allocation of intellectual property rights between Applied Biosystems and us in connection with the split-off may harm our business.

Prior to the split-off, Celera had access to all intellectual property owned or licensed by Applied Biosystems for use in the human diagnostics field. Under the separation agreement with Applied Biosystems, intellectual property developed by Celera or used primarily in our business was transferred to us on or prior to the split-off date. However, some intellectual property currently used in substantially all of our diagnostic products is also used by Applied Biosystems and has been retained by Applied Biosystems. All intellectual property that has been retained by Applied Biosystems and that is used in our diagnostic products is being made available to us through a master purchase agreement we entered into with Applied Biosystems on the split-off date, except that intellectual property used in our hepatitis C virus, or HCV, analyte specific reagents is being made available to us under a license agreement that we entered into with Applied Biosystems on

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the split-off date. The early termination of either of these agreements or an increase in the prices for these goods and services after the term of the master purchase agreement could harm our business. Also, we may need to obtain additional licenses from third parties for rights that are not transferred to us from Applied Biosystems. Our inability to obtain these licenses or to obtain these licenses on commercially acceptable terms could affect our ability to develop and sell some of our diagnostic products. Any impairment to our product development or production could harm our operating results and financial condition.

We may be subject to restrictions to preserve the tax-free treatment of the split-off and may not be able to engage in desirable acquisitions and other strategic transactions following the split-off.

Under the tax matters agreement and separation agreement that we have entered into with Applied Biosystems, to preserve the tax-free treatment of the split-off to Applied Biosystems, we may be subject to restrictions for the two-year period following the split-off on our ability to:

• issue equity securities to satisfy financing needs;

• acquire businesses or assets with equity securities; or

• engage in mergers or asset transfers that could jeopardize the tax-free status of the split-off.

However, if Applied Biosystems were determined to be subject to tax on the distribution of the Celera Corporation common stock, we would no longer be subject to these restrictions. These restrictions may limit our ability to engage in new business or other transactions that may maximize the value of our business and may also discourage, delay or prevent a merger, change of control, disposition of our subsidiaries or divisions or other strategic transactions involving our issuance of equity. In addition, provisions of our amended and restated certificate of incorporation and amended and restated by-laws and applicable law also may have the effect of discouraging, delaying or preventing change of control transactions that our stockholders find desirable. For more information, see the section entitled “Our Relationship with Applied Biosystems Following the Split-Off – Agreements Between Applied Biosystems and Us Relating to the Split-Off – Tax Matters Agreement,” in Item 13 in our Annual Report on Form 10-K for the fiscal year ended June 30, 2008.

The negotiation of the split-off agreements between us and Applied Biosystems were effected through discussions among Applied Biosystems employees, some of whom, following the split-off, became our employees but some of whom did not, and without involvement in, or review of, the agreements by independent outside advisors to us or an independent Board of Directors of Celera.

Celera Corporation was formed to effect the split-off and has only operated as an independent company with an independent Board of Directors and independent advisors since July 1, 2008. The split-off agreements between us and Applied Biosystems were negotiated through discussions among Applied Biosystems employees, some of whom, following the split-off, became our employees but some of whom did not, and without review by independent advisors to, or an independent Board of Directors of, our Company. Accordingly, the agreements may not reflect terms that would be as favorable to us as would have been negotiated by us if we had been an independent company.

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Following the split-off, we may experience increased costs resulting from our operation as an independent entity and our diminished bargaining power in negotiating with third parties to obtain optimal pricing for goods, technology and services.

Prior to the split-off, we were supported by Applied Biosystems’ centralized functions, including finance, legal, and human resources. Following the split-off, we may incur additional costs relating to our procurement and implementation of these services to the extent necessary to operate as an independent entity. In addition, as a business unit of Applied Biosystems, we were able to take advantage of Applied Biosystems’ bargaining power in negotiating with third parties to obtain raw materials and supplies, capital goods, technology and services, including insurance and employee benefit services. Following the split-off, as a smaller, stand-alone company, we may be unable to obtain these goods, technology and services at prices and on terms as favorable as those available to us as a business unit of Applied Biosystems. Increased costs resulting from our operation as an independent entity and our diminished bargaining power could harm our business, financial condition and results of operations.

Our business is affected by macroeconomic conditions.

Various macroeconomic factors could affect our business and the results of our operations. For instance, slower economic activity, inflation, volatility in foreign currency exchange rates, decreased consumer confidence and other factors could increase our business costs, lower our revenues or affect the ability of our customers to purchase and pay for our products and services. Interest rates and the liquidity of the credit markets could also affect the value of our investments.

We may be unable to make the changes necessary to operate as an independent entity, which could prevent us from operating profitably.

Celera has been a business unit of Applied Biosystems since we commenced operations in fiscal 1996. However, following the split-off, Applied Biosystems has no obligation to provide financial, operational or organizational assistance to us other than pursuant to a transition services agreement for a limited period of time. We may not be able to implement successfully the changes necessary to operate independently. Celera has historically recorded net losses due, in part, to our investment in new technology and diagnostic product discovery and development, and therapeutic target discovery and drug development, as well as other investments required for the expansion of our business operations as an early-stage business. We cannot assure you that we will be profitable as a stand-alone company.

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We may become involved in expensive intellectual property legal proceedings.

There has been substantial litigation and other legal proceedings regarding patents and other intellectual property rights relevant to diagnostic and biotechnology products and services. The intellectual property rights of biotechnology companies, including those held by us, are generally uncertain and involve complex factual, scientific, and legal questions. Our success in diagnostic product development, clinical laboratory testing, and therapeutic target discovery may depend, in part, on our ability to operate without infringing the intellectual property rights of others and our ability to prevent others from infringing our intellectual property rights. Also, contractual disputes related to existing license rights to patents owned by others may affect our ability to develop, manufacture, and sell our products and clinical laboratory testing services.

We may initiate proceedings at the U.S. Patent and Trademark Office to determine our patent rights with respect to others. Also, we may initiate patent litigation to enforce our patent rights or invalidate patents held by others. These legal actions may similarly be initiated against us by others alleging that we are infringing their rights. The cost to us of any patent litigation or proceedings, even if we are successful, could be substantial, and these legal actions may absorb significant management time. Even if we are successful on the merits in any such proceeding, the cost of these proceedings could harm our operating results and financial condition.

If infringement claims against us are resolved unfavorably to us, we may be enjoined from manufacturing or selling our products or services without a license from a third party, and we may not be able to obtain a license on commercially acceptable terms, or at all. Also, we could become subject to significant liabilities to others if these claims are resolved unfavorably to us. Similarly, our business could be harmed and we could be subject to liabilities because of lawsuits brought by others against Abbott Laboratories, with whom we have a strategic alliance. For example, Abbott was previously sued by Innogenetics N.V. for patent infringement due to Abbott’s sale of hepatitis C virus, or HCV, genotyping analyte specific reagents, or ASRs, manufactured by us for Abbott. We agreed to share equally the cost of this litigation, and accordingly in our 2007 and 2008 fiscal years we recorded pre-tax charges totaling $3.9 million for Celera’s share of damages awarded by a jury to Innogenetics. In addition in our 2006, 2007, and 2008 fiscal years we recorded $2.9 million of legal fees associated with this litigation. Also, for several months during the litigation, which was settled in April 2008, we and Abbott were prevented from manufacturing or selling HCV genotyping products because of a court-ordered injunction.

We rely on independent healthcare providers, laboratories, and others to collect and process patient specimens.

We have a limited internal network of BHL employees who are able to collect blood specimens. We rely on healthcare providers and other clinical laboratories to collect and send to our laboratory for testing most of our clinical laboratory specimens. Although we believe we pay our service providers fair market value consideration for specimen collection and processing services and in compliance with anti-kickback and anti-referral laws, legal restrictions prohibit us from paying additional consideration, such as a referral fee, for these services. Because these services are time-consuming and may not be a business priority for the companies and individuals we rely on to provide them, the fair market value consideration may not be sufficient incentive for them to continue providing these services. If we are unable to obtain or maintain needed collection and processing services, we would be unable to obtain patient samples for testing, which would harm our operating results and financial condition.

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Some of our diagnostic research and product development programs require access to human tissue and/or blood samples, other biological materials, and related information, which may be in limited supply.

We may not be able to obtain or maintain access to these materials and information on acceptable terms, or may not be able to obtain needed consents from individuals providing tissue, blood, or other samples. In addition, government regulation in the U.S. and foreign countries could result in restricted access to, or use of, human tissue or blood samples or other biological materials. If we lose access to sufficient numbers or sources of tissue or blood samples or other required biological materials, or if tighter restrictions are imposed on the use of related clinical or other information or information generated from tissue or blood samples or other biological materials, these research and development programs and our operating results and financial condition could be harmed.

In addition, agreements that we have entered into in connection with the split-off require our business to be conducted differently than previously conducted and have caused our relationship with Applied Biosystems to be different from what it has historically been. We are an independent company and are no longer able to rely on Applied Biosystems as we have in the past. For example, we no longer have early access to Applied Biosystems’ instrumentation, reagents and technologies. Also, the supply by Applied Biosystems of some goods and services used in our business is governed by the terms of the master purchase agreement we entered into at the split-off date, and Applied Biosystems no longer provides us with exclusive access to these goods and services. These differences may harm our operating results and financial condition.

If the split-off is determined to be taxable for U.S. federal income tax purposes, we and our stockholders could incur significant income tax liabilities, and we could be required to indemnify Applied Biosystems for taxes.

On June 18, 2008, Applied Biosystems received a tax opinion from Skadden, Arps, Slate, Meagher & Flom LLP to the effect that the split-off, together with certain related transactions necessary to effectuate the split-off, (i) should qualify under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code as an exchange that is tax-free to the Celera Group tracking stock holders, although in light of the Proposed Merger there is a significant risk that the Internal Revenue Service (IRS) and a court could conclude to the contrary, and (ii) will be tax-free to Celera. The opinion relies on certain facts, assumptions, representations and undertakings, including those relating to the pre or post split-off activities of Applied Biosystems and Celera. Actions taken by Applied Biosystems or us that are inconsistent with such facts, assumptions, representations or undertakings could result in the split-off being treated by the IRS as a taxable transaction. The IRS is not bound by the opinion and could determine that the split-off should be treated as a taxable transaction if it determines that any of these facts, assumptions, representations or undertakings is not correct or has been violated by either Celera or Applied Biosystems as a result of pre or post split-off activity, or if it disagrees with the conclusions in the opinion.

If the split-off fails to qualify for tax-free treatment, Applied Biosystems would be subject to tax as if it had sold the Celera Corporation common stock in a taxable sale at fair market value, and our initial public stockholders, the former holders of Celera Group tracking stock whose stock was redeemed in exchange for shares of our common stock in the split-off, should recognize either (A) gain or loss equal to the difference between the fair market value of the shares of Celera Corporation common stock received and the holder’s tax basis in the Celera Group tracking stock redeemed in exchange for the shares of Celera Corporation common stock or (B) in certain circumstances, a distribution equal to the fair market value of the shares of Celera Corporation common stock received, which should be taxed (i) as a dividend to the extent of such holder’s pro rata share of Applied Biosystems’ current and accumulated earnings and profits, then (ii) as a non-taxable return of capital to the extent of such holder’s tax basis in the Celera Group tracking stock redeemed, and finally (iii) as capital gain with respect to the remaining value. Under the tax matters agreement between Applied Biosystems and us, we would generally be required to indemnify Applied Biosystems against any tax resulting from the exchange if the tax resulted from:

• an issuance of our equity securities, a redemption of our equity securities, or our involvement in other acquisitions of our equity securities,

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• other actions or failures to act by us, or

• any of our representations or undertakings being incorrect and violated.

For a more detailed discussion, see the section entitled “Our Relationship with Applied Biosystems Following the Split-Off – Agreements Between Applied Biosystems and Us Relating to the Split-Off – Tax Matters Agreement” in Item 13 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2008. Our indemnification obligations to Applied Biosystems and its subsidiaries, officers and directors are not limited by any maximum amount. If we are required to indemnify Applied Biosystems or any other person under the circumstances set forth in the tax matters agreement, we may be subject to substantial liabilities.

Our accounting and other management systems and resources may not be adequate to meet the financial reporting and other requirements to which we are subject following the split-off. If we are unable to achieve and maintain effective internal controls, our operating results and financial condition could be harmed.

Prior to the split-off from Applied Biosystems, we were not directly subject to reporting and other requirements of the Securities Exchange Act of 1934 (the Exchange Act). As a result of the transactions, we are directly subject to reporting and other obligations under the Exchange Act, including the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley). Sarbanes-Oxley will require annual management assessments of the effectiveness of our internal controls over financial reporting. Our reporting and other obligations will place significant demands on our management and administrative and operational resources, including accounting resources.

To comply with these requirements, we may need to upgrade our systems, including information technology, implement additional financial and management controls, reporting systems and procedures and hire additional legal, accounting and finance staff. If we are unable to upgrade our systems and procedures in a timely and effective fashion, we may not be able to comply with our financial reporting requirements and other rules that apply to public companies. In addition, if we are unable to conclude that our internal controls over financial reporting are effective, we could lose investor confidence in the accuracy and completeness of our financial reports. Any failure to achieve and maintain effective internal controls could harm our operating results and financial condition.

Our clinical laboratory testing services are subject to federal and state anti-kickback and anti-referral laws and regulations.

Federal and state anti-kickback laws prohibit payment, or offers of payment, in exchange for referrals of products and services for which reimbursement may be made by Medicare or other federal and state healthcare programs. Some state laws contain similar prohibitions that apply without regard to the payor of reimbursement for the services. Federal and state anti-referral laws, including the Stark Law, prohibit physicians from referring their Medicare or other federally funded healthcare program patients or specimens to healthcare providers with which the physicians or their immediate family members have a financial relationship involving some types of health services. The financial relationships covered by these prohibitions include clinical laboratory services such as those provided by us. Some state laws also contain similar prohibitions that apply without regard to the payor of reimbursement for the services. Based on our analysis of publicly-disclosed government settlements and public announcements by various

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government officials, we believe the federal officials responsible for administering and enforcing the healthcare laws and regulations have made a priority of eliminating healthcare fraud. While we seek to conduct our business in compliance with all applicable laws and regulations, many of the laws and regulations applicable to our business, particularly those relating to billing and reimbursement of tests and those relating to relationships with physicians, hospitals and patients, contain imprecise language that has not been interpreted by courts. We must rely on our interpretation of these laws and regulations based on the advice of our counsel, and regulatory or law enforcement authorities may not agree with our interpretation of these laws and regulations and may seek to enforce legal remedies or penalties against us for violations. From time to time we may need to change our operations, particularly pricing or billing practices, in response to changing interpretations of these laws and regulations or regulatory or judicial determinations with respect to these laws and regulations. These occurrences, regardless of their outcome, could damage our reputation and harm important business relationships that we have with healthcare providers, laboratories, and others. Furthermore, if a regulatory or judicial authority finds that we have not complied with applicable laws and regulations, we would be required to refund amounts that were billed and collected in violation of such laws and regulations. In addition, we may voluntarily refund amounts that were alleged to have been billed and collected in violation of applicable laws and regulations. In either case, we could suffer civil and criminal damages, fines and penalties, exclusion from participation in governmental healthcare programs and the loss of licenses, certificates and authorizations necessary to operate our business, as well as incur liabilities from third-party claims, all of which could harm our operating results and financial condition. Moreover, regardless of the outcome, if we are investigated by a regulatory or law enforcement authority we could incur substantial costs, including legal fees, and our management may be required to divert a substantial amount of time to an investigation.

Our clinical laboratory testing service business is subject to HIPAA and other federal and state security and privacy laws and regulations.

The Health Insurance Portability and Accountability Act of 1996, or HIPAA, and its related privacy and security regulations establish federal standards for the uses and disclosures of individually identifiable health information, which is referred to as protected health information. In addition, we are also subject to state privacy and security laws that in some cases impose more stringent requirements than HIPAA and its related regulations. In addition, we must comply with the laws of other countries that regulate the transfer of healthcare data relating to citizens of those countries. HIPAA, as well as state and foreign privacy and security regulations provide for significant fines and other penalties for the wrongful use or disclosure of protected health information, including potential civil and criminal fines and penalties. Although HIPAA and the related regulations do not expressly provide for a private right of damages, we also could incur damages under state and foreign laws to individuals claiming that we wrongfully used or disclosed their confidential health information or other private personal information.

There is a high demand for, and short supply of, key personnel needed for our clinical laboratory testing services.

Our existing clinical laboratory services operations require individuals who are licensed as Clinical Laboratory Scientists in the State of California. We believe that to continue operating and to expand our clinical laboratory testing services, we must continue to attract and retain these licensed Clinical Laboratory Scientists. There is a shortage of licensed Clinical Laboratory Scientists in the State of California, and we compete for these personnel with hospitals, other clinical laboratories, and other healthcare providers. Licensed Clinical Laboratory Scientists may prefer to work for these other organizations either because of the compensation offered, the reputations of the organizations, or other personal considerations. If we are unable to attract and retain a sufficient number of licensed Clinical Laboratory Scientists, the current operations of the group’s clinical laboratory testing services could be harmed and the future growth of those services could be delayed or prevented.

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We lack our own sales organization to sell our diagnostic products to unaffiliated clinical testing laboratories.

Because we lack our own sales organization to sell our diagnostic products to unaffiliated clinical testing laboratories, our ability to successfully sell these products to these laboratories depends on our ability to develop a sales organization, work with Abbott under the existing strategic alliance agreement described above, work with another distributor, or pursue a combination of these alternatives. In jurisdictions in which we use other distributors for our diagnostic products, our success in marketing these products depends largely on the efforts of the distributors. Our inability to develop a sales organization or work with other distributors to sell our diagnostic products to unaffiliated clinical testing laboratories may harm our operating results and financial condition.

We rely on single suppliers or a limited number of suppliers of instruments, key components of our products and some test kits used in our clinical laboratory testing services.

Several key components of our diagnostic products come from, or are manufactured for us by, a single supplier or a limited number of suppliers, including Applied Biosystems. This applies to components such as enzymes, fluorescent dyes, phosphoramidites, and oligonucleotides. We acquire some of these and other key components on a purchase-order basis, meaning that the supplier is not required to supply us with specified quantities over any set period of time or set aside part of its inventory for our forecasted requirements. We have not arranged for alternative supply sources for some of these components should suppliers become unable to meet our demand or become unwilling to do so on terms that are acceptable to us. It may be difficult, if not impossible, to find alternative suppliers, especially to replace enzymes, fluorescent dyes, phosphoramidites, and oligonucleotides. In addition, we rely on single source suppliers, particularly Applied Biosystems, to provide instruments, associated software, and consumables for use in our products business.

We obtain Lp-PLA2 test kits, known as PLAC^® test kits, used in our clinical laboratory testing services from a single supplier – diaDexus, Inc., or diaDexus. To our knowledge, diaDexus is the only supplier of PLAC test kits used in clinical laboratory testing, and, therefore, no alternative supply source would be available should diaDexus become unable to provide a sufficient number of these kits to meet our demand or become unwilling to do so on acceptable terms. There can be no assurance that diaDexus will be able to meet our demand for these kits in the future.

Similarly, we obtain reagents for our ApoE genetic test from a third party supplier that is currently not able to provide us with new reagents that comply with the FDA’s revised guidelines. We currently have access to sufficient quantity of reagents to last until the expiration of the vendor’s contract in May, 2009. If we are unable to source alternative supplies of reagents then our ApoE test revenue will be impacted.

We are required under FDA regulations to verify that our suppliers of key components for our diagnostic products are in compliance with all applicable FDA regulations, including the Quality System Regulation. We believe that this requirement increases the difficulty in arranging for needed alternative supply sources, particularly for components that are from “single source” suppliers, which means that they are currently the only viable supplier of custom-ordered components.

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If any of the components of our products or any of the kits used for our laboratory testing services are no longer available in the marketplace, or are not available on commercially acceptable terms, we may be forced to further develop our products or testing services to use alternative components or test kits or discontinue the products or testing services. Changes in our products or services or the use of new components may require us to seek new regulatory clearances, approvals or licenses and may be costly.

Our success will depend on our ability to retain our key employees and recruit key management personnel.

One of our primary assets is our highly skilled personnel. These personnel could leave us and so deprive us of the skill and knowledge essential for performance of our existing and new business. The overall level of benefits and compensation offered to employees of Celera following the split-off may be less than that offered to these employees as part of Applied Biosystems. In addition, some of our employees may have additional or different responsibilities following the split-off as a result of the fact we are an independent public company. If any of our key personnel leaves for one of these or any other reason, it could harm our operating results and financial condition.

Furthermore, because we have previously relied on Applied Biosystems corporate personnel in the operation of our business, we must train existing personnel or hire new management personnel to perform functions previously performed by these employees. We cannot assure you that we will be able to effectively train or hire employees in a timely manner or that this transition will not result in an interruption of our services. Any interruption could harm our ability to continue to develop and manage our business following the split-off.

Ethical, legal, and social issues may decrease demand for our diagnostic products and clinical laboratory testing business.

Genetic testing has raised issues regarding confidentiality and the appropriate uses of the resulting information. For example, concerns have been expressed regarding the use of genetic test results by insurance carriers or employers to discriminate on the basis of this information, resulting in barriers to the acceptance of genetic tests by consumers. This could lead to governmental authorities calling for limits on, or regulation of the use of, genetic testing or prohibiting testing for genetic predisposition to some diseases, particularly those that have no known cure. Were any of these scenarios to occur, it could reduce the potential markets for our business and, therefore, harm our operating results and financial condition and net income.

The FDA has issued draft guidance on IVDMIAs, which may prevent others from using our diagnostic products.

The FDA has issued draft guidance on a new class of laboratory developed tests called “In-Vitro Diagnostic Multivariate Index Assays,” or IVDMIAs. This draft guidance, which was issued in 2006 and 2007, represents the FDA’s first public discussion of its position on IVDMIAs, which generally are tests developed by a single clinical laboratory for use only in that laboratory, and which combine the values of multiple variables using an interpretation function to yield a single patient-specific result for use in the diagnosis, prevention, or treatment of diseases or other conditions. If this draft guidance becomes final and is enforced, a laboratory-developed test that meets the definition of an IVDMIA could not be used for diagnostic purposes before the laboratory receives FDA clearance or approval for use of that test. The requirements for FDA clearance or approval are evolving, but could include the requirement that the laboratory seek clearance pursuant to Section 510(k) of the Federal Food, Drug and Cosmetic Act, or FFDCA. The Section 510(k) clearance process generally requires the filing of notice with the FDA with clinical data demonstrating that the product and its intended purpose are “substantially equivalent” to a diagnostic device that is already cleared or approved for marketing by the FDA. If a 510(k) premarketing clearance is not obtained, the laboratory could be required to file a FDA

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pre-market approval or PMA application under the FFDCA, which must demonstrate that a diagnostic device is safe and effective, and must be supported by more extensive information than required for a 510(k) notification. However, because the IVDMIA guidance document sets forth a new classification, and that guidance remains in draft form, we cannot be certain how, or if, this new classification will affect our business, or if the clearance process will be modified from that described above.

We do not believe that the tests currently offered by us are IVDMIAs, as set forth in the draft guidance document, and, therefore, these tests would not be directly affected. However, clinical laboratories that license some of our intellectual property might be developing tests using our intellectual property, and these laboratory-developed tests may be considered IVDMIAs by the FDA. The requirement of FDA clearance or approval for any of these tests could discourage their development, or delay or prevent them from being used if developed, which in turn, could delay or prevent altogether payments to us from the use of these laboratory-developed tests. Also, it is possible that some of our current or future diagnostic products could be indirectly affected because other companies might want to use our diagnostic products as part of an IVDMIA, although we are not aware of any customers that currently use our diagnostic products in this manner. The requirement of FDA clearance or approval for any of these tests could discourage their development, or delay or prevent them from being used if developed, which in turn, could affect the demand for our products being used as a part of these tests. In addition, some of our future tests used in our clinical laboratory testing services could meet the definition of an IVDMIA and therefore require FDA clearance or approval.

We need to maintain federal and state operating licenses and similar clearances to conduct our clinical laboratory testing.

Our clinical laboratory is regulated by the Clinical Laboratory Improvement Amendments of 1988, or CLIA. CLIA is a federal law that regulates clinical laboratory testing performed on specimens derived from humans for the purpose of providing information for the diagnosis, prevention, or treatment of disease. CLIA is intended to ensure the quality and reliability of clinical laboratory testing in the United States. Our CLIA certification requires our clinical laboratory to be inspected every other year in addition to being subject to random CLIA inspections. Our clinical laboratory in Alameda, California is also subject to license requirements imposed by the State of California. California laws establish quality standards for day-to-day operation of the clinical laboratory, including the training and skills required of personnel and quality control. Our California and New York state licenses require periodic inspections by the state laboratory licensing authorities. If a CLIA or state inspector finds deficiencies, that finding could lead to the revocation or suspension of, or limitations being placed upon, our CLIA accreditation or California, New York, or other state licenses. Any revocation, suspension, or limitation could prevent us from performing all or some of our clinical laboratory testing services and could harm our operating results and financial condition.

We no longer have early access to Applied Biosystems’ instrumentation, reagents, and technologies for use in our diagnostic products and services.

Prior to the split-off, Celera had access to Applied Biosystems’ instrumentation, reagents and technologies before they were made available to unaffiliated third parties. This early access has provided a competitive advantage to us in developing our products business. After the split-off, our business relationship with Applied Biosystems is similar to that of any other customer. This change in access to new technologies could harm our competitive position.

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The historical financial information of Celera may not be representative of our results as an independent entity, and, therefore, may not be reliable as an indicator of our historical or future results.

The historical financial information we have included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended June 30, 2008 may not reflect what our results of operations, financial position and cash flows would have been had we been an independent entity during the periods presented. This is because, in part, the financial information reflects allocations for services provided to Celera by Applied Biosystems. These allocations may not reflect the costs we will incur for similar or incremental services as an independent entity.

We could encounter difficulties if we were to expand our diagnostic product manufacturing and clinical laboratory testing services.

If there were a substantial increase in the demand for our products or services, we would have to increase the capacity of our facilities or establish alternate manufacturing or service arrangements with other companies. We may not be able to effectively manage large increases in capacity. In addition to the difficulties that are inherent in the expansion, development, or acquisition of new facilities, our operations are government regulated and any facility expansion or acquisition would require regulatory approvals, clearances or licenses and/or would need to meet standards specified in applicable laws and regulations. Facilities used for clinical laboratory testing services are subject, on an ongoing basis, to federal and state regulation under CLIA and California, New York, and other state laws and regulations, which is described above in these risk factors. Also, our diagnostic product manufacturing facilities are subject, on an ongoing basis, to the FDA’s Quality System Regulation, international quality standards and other regulatory requirements, including requirements for good manufacturing practices, and the State of California Department of Health Services Food and Drug Branch requirements. We may encounter difficulties expanding our diagnostic product manufacturing operations or our laboratory testing services in accordance with these regulations and standards, which could result in a delay or termination of product manufacturing or laboratory testing services.

Our business may be harmed by any disruption to our computer hardware, software, and Internet applications.

Our business requires manipulating and analyzing large amounts of data, communicating the results of the analysis to our internal research personnel and our collaborators via the Internet and tracking and communicating the results, via the Internet and other modalities, of the tests performed by our clinical laboratory testing business. Also, we rely on a global enterprise software system to operate and manage our business. Our business, therefore, depends on the continuous, effective, reliable, and secure operation of our computer hardware, software, networks, Internet servers, and related infrastructure. To the extent that our hardware or software malfunctions or there is an interruption in Internet service in a way that affects access to our data by our internal research personnel or collaborators or access to our laboratory testing results by referring professionals or patients, our operating results and financial condition could be harmed.

Our computer and communications hardware is protected through physical and software safeguards. However, it remains vulnerable to fire, storm, flood, power loss, earthquakes, telecommunications failures, physical or software break-ins, software viruses, and similar events. If we fail to maintain the necessary computer capacity and data to support our and our collaborators’ and licensees’ discovery, research, and development activities, including our associated computational needs, we could experience a loss of or delay in revenues. In addition, any sustained disruption in Internet access provided by other companies could harm our operating results and financial condition.

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We are changing our marketing strategy for our clinical laboratory testing services, and our new strategy could harm our revenues.

Until recently, we have focused on actively marketing our clinical laboratory testing services solely to accounts that referred large volumes of specimens for our services. We believe that the continued growth of our clinical laboratory services requires us to change our sales strategy, moving away from our sole focus on large-volume accounts and instead developing local market territories comprised of at least one large volume account and additional lower volume accounts located near the large-volume accounts. We have already started to implement this new marketing strategy within each of our sales territories and believe that it should be implemented over the next several years. As a result of this new strategy, we expect to relocate most of our existing clinical educators and develop centrally-located sites, referred to as 4myheart Centers, for the delivery of disease management and patient education services and patient resources. These new 4myheart Centers will be developed based on market demand. Accordingly, we cannot predict the number of new 4myheart Centers that will be developed in any given year. In addition, because each new 4myheart Center is expected to have a unique service offering tailored to its particular market, and the costs of operating these centers will vary from market to market, we are unable to forecast the investment required to develop or operate these new centers. The primary duties of our clinical educators are to educate our patients in areas such as nutrition, exercise, stress reduction, and medication compliance. These marketing and organizational changes may harm the business we currently receive from our existing accounts, and under our new strategy we may not be successful in generating business from new accounts to the extent anticipated.

Our rights under the split-off agreements we have entered into with Applied Biosystems may be less favorable to us than if we had remained a business segment of Applied Biosystems and the terms of our master purchase agreement we have entered into with Applied Biosystems may be less favorable to us than if it had been negotiated with an unaffiliated third party.

The terms of the split-off agreements we have entered into with Applied Biosystems may be less favorable to us than if we remained part of Applied Biosystems. For example, some of the intellectual property rights are being made available to us on a non-exclusive basis through the master purchase agreement, which also covers materials currently provided to us by Applied Biosystems used in our products and services and research and development, as well as future Applied Biosystems materials. The master purchase agreement provides for current pricing for all materials and components for the first year after the split-off, with price increases during each subsequent year of the agreement subject to a combination of the Producer Price Index and Employment Cost Index. This could result in us paying more for these products than if we remained part of Applied Biosystems. In addition, Applied Biosystems has licensed to us specified intellectual property rights which we and Applied Biosystems will seek to license to various third parties in the humanin vitro diagnostics field. Revenues from these third-party licenses would be shared equally between us and Applied Biosystems. We currently have a limited right to license this intellectual property to third parties in the human diagnostics field and receive all revenues from these licenses. This could result in us receiving less from these licenses than if we remained part of Applied Biosystems.

In addition, we have negotiated our split-off agreements, including our master purchase agreement, with Applied Biosystems. Had these agreements been negotiated with unaffiliated third parties, their terms might have been more favorable to us.

Our separation agreement with Applied Biosystems requires us to indemnify Applied Biosystems for specified liabilities, including liabilities relating to the Celera business, specified litigation and one-half of any liabilities resulting from the split-off.

Under the terms of our separation agreement with Applied Biosystems, we have agreed from and after the split-off date to indemnify Applied Biosystems for indemnifiable losses relating to or resulting from, among other things:

• the failure to satisfy or otherwise discharge liabilities of Celera;

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• our assets and liabilities;

• our failure to observe our obligations under the separation agreement or our other split-off agreements with Applied Biosystems from and after the split-off date;

• the class action lawsuit relating to Applied Biosystems’ 2000 offering of shares of Celera Group tracking stock, as well as other actions pending on the split-off date or that may arise in the future, to the extent such actions are ultimately determined to relate to or arise out of the Celera business, assets or liabilities;

• one-half of liabilities resulting from the split-off, the separation agreement and/or the registration statement; and

• liabilities resulting from the oversight and/or management of the businesses and affairs of Applied Biosystems or one or both of Celera or the Applied Biosystems Group prior to the split-off, but only to the extent that such liabilities arise out of or relate to the businesses, assets or liabilities of Celera prior to the split-off or Celera benefited from such oversight and/or management prior to the split-off.

There is no limit on the maximum amount of monetary damages for which we may be required to indemnify Applied Biosystems under the separation agreement. As a result, successful indemnification claims, to the extent not covered by insurance, could harm our financial condition and results of operations.

Our clinical laboratory testing services depend primarily on a single courier for the delivery of our clinical specimens.

Substantially all patient specimens are sent by healthcare providers and other clinical laboratories to our clinical testing laboratory by an established international overnight shipping service. We use overnight shipping because patient specimens are biological materials that can spoil if not tested on a timely basis after collection from a patient. Therefore, any interruption in shipping, even one that is short in duration, could interfere with our services and harm our business. Our primary courier’s shipping network relies on various modes of transportation, including trucks and airplanes. The transportation of specimens could therefore be delayed or prevented by natural or man-made disasters or other events that interfere with these modes of transportation, including earthquakes, floods, power outages, inclement weather, and terrorism. If there is a delay in the delivery of patient samples that are in-transit, we would have no way to prevent these samples from spoiling. Although there are other companies that provide similar overnight courier services, many of the circumstances that could interfere with our primary courier’s services likely would interfere with the services of other similar couriers. Additionally, we do not have a guaranteed pricing arrangement with our primary courier and may be subject to unanticipated price changes. If we need to switch to a different courier because of circumstances that are unique to our primary courier or due to a change in our primary courier’s pricing, it could take us several days or longer to establish an agreement with a new courier, the shipping rates might not be as favorable to us, and our testing services would likely be interrupted. The inability to receive the specimens and perform our tests, even if only for a short period of time, or the loss of specimens due to shipping delays, could interrupt our business and harm our reputation.

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Our research, development, and commercialization of diagnostic products are dependent in part on a strategic alliance agreement with Abbott Laboratories.

We entered into a strategic alliance agreement with Abbott for the joint discovery, development, manufacture, and commercialization of molecular diagnostic products. Although this is a long-term alliance, the alliance agreement contains provisions that could result in early termination for reasons that include the following: breach of the agreement by either company; a change in control of either company; or either company’s dissatisfaction with the financial performance of the alliance based upon specifically agreed upon parameters over a measurement period set forth in the alliance agreement. In addition, the amount and timing of resources to be devoted to research, development, eventual clinical trials and commercialization activities by Abbott are generally not within our control. Failure by Abbott to devote sufficient resources to this alliance or the termination of this alliance altogether could harm our operating results and financial condition.

Our successful development of diagnostic products may depend on entering into other collaborations, alliances, and similar arrangements with other companies.

Our strategy for the discovery, development, clinical testing, manufacturing and/or commercialization of most of our diagnostic product candidates includes entering into collaborations and similar arrangements with other companies, in addition to our strategic alliance with Abbott. Depending on the nature of the product candidate, our potential collaborators may include pharmaceutical companies, clinical reference laboratories, diagnostic imaging equipment suppliers, or other companies. We have identified some potential new collaborators, but have not yet entered into any collaboration arrangements with them. Although we have expended, and continue to expend, time and money on internal research and development programs, we may be unsuccessful in creating diagnostic product candidates that would enable us to form additional collaborations and alliances and, if applicable, receive milestone and/or royalty payments from collaborators. Other companies may not be interested in entering into these relationships with us, or may not be interested in doing so on terms that we consider acceptable.

Our development and commercialization of diagnostic products could be harmed if collaborators or licensees fail to perform under their agreements with us or if they terminate those agreements.

Each of our existing collaboration, license, and similar agreements with other companies for the development and commercialization of products, including our alliance agreement with Abbott, may be canceled under some circumstances. These agreements generally may be terminated under circumstances including a material breach or default of the agreement, a change in control, or the insolvency or bankruptcy of either party. In addition, the amount and timing of resources to be devoted to research, development, clinical trials, and commercialization activities by our collaborators and licensees are generally not within our control. We expect that collaboration, license, and similar agreements entered into in the future, if any, will have similar terms and limitations. Furthermore, even if these agreements contain commitments regarding these activities, our collaborators or licensees may not perform their obligations as expected. If collaborators or licensees terminate their agreements or otherwise fail to conduct their collaborative or licensed activities in a timely manner, or at all, the development or commercialization of diagnostic products may be delayed or prevented. If we assume responsibility for continuing diagnostic programs on our own after termination of a collaboration, license, or similar agreement, we may be required to devote additional resources to product development and commercialization or we may need to cancel some development programs. Any reallocation of additional resources to product development and/or commercialization or cancellation of development programs may harm our operating results and financial condition.

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Our diagnostic product candidates may never result in a commercialized product.

Most of our diagnostic product candidates are in various stages of research and development and the ability to commercialize those product candidates, including through collaborators or licensees, is highly uncertain. Development of existing product candidates will require significant additional research and development efforts by us or our collaborators or licensees before they can be marketed. For potential diagnostic products, these efforts include extensive clinical testing to confirm the products are safe and effective and may require lengthy regulatory review and clearance or approval by the FDA and comparable agencies in other countries. Furthermore, even if these products are found to be safe and effective and receive necessary regulatory clearances or approvals, they may never be developed into commercial products due to considerations such as inability to obtain needed licenses to intellectual property owned by others, market and competitive conditions, and manufacturing difficulties or cost considerations. Our inability to produce commercialized products could harm our operating results and financial condition.

Development and commercialization of diagnostic product candidates depends on the satisfaction of regulatory requirements.

In the U.S., either we or our collaborators or licensees must show through pre-clinical studies and clinical trials that each of our or our collaborators’ or licensees’ diagnostic product candidates is safe and effective for each indication before obtaining regulatory clearance or approval from the FDA for the commercial sale of that product as anin vitro diagnostic product with clinical claims. Outside of the U.S., the regulatory requirements for commercialization vary from country to country. This regulatory review and approval process can take many years and require substantial expense and may not be successful. If we or our collaborators or licensees fail to adequately show the safety and effectiveness of a diagnostic product candidate because, for example, the results from pre-clinical studies are different from the results that are obtained in clinical trials, regulatory clearance or approval could be delayed or denied. Without regulatory clearance or approval, we or our collaborators or licensees may be unable to complete the development or commercialization of the product for which clearance or approval was sought. The inability of us or our collaborators or licensees to commercialize products could harm our operating results and financial condition.

The FDA has issued an interpretation of the regulations governing the sale of Analyte Specific Reagent products which could prevent or delay our or our collaborators’ or licensees’ sales of these products and harm our operating results and financial condition. In September 2007, the FDA, published “Guidance for Industry and FDA Staff: Commercially Distributed Analyte Specific Reagents (ASRs): Frequently Asked Questions,” clarifying the FDA’s interpretation of the regulations governing the sale of Analyte Specific Reagent, or ASR, products. ASRs are a class of products that do not require regulatory clearance or approval. The FDA’s guidance document contains an interpretation of the ASR regulations that, we believe, represents a departure from FDA practice and policy prior to the release of the FDA’s draft guidance in September 2006, regarding products that can be characterized as ASRs. We believe that all of our current ASR products, other than our HLA ASR products, will meet the regulatory definition of an ASR, as set forth in the guidance document. Our products sold as ASRs include HLA products, Fragile X products, and deep vein thrombosis products. We similarly believe that all of the ASR products that Abbott currently contributes to our strategic alliance with Abbott will meet the regulatory definition of an ASR, as set forth in the guidance document. If the FDA does not agree with our interpretations of our ASR products, we may need to establish an appropriate action plan for any affected product, such as reconfiguring the product to bring it into compliance with the ASR definition or seeking clearance pursuant to Section 510(k) of the Federal Food, Drug and Cosmetic Act, or FFDCA. In June 2008 the FDA issued a letter that stated that the FDA might employ “enforcement discretion” to the sale of ASR products that did not meet the regulatory definition of an ASR, if a manufacturer met with the FDA and developed an approved plan to bring the products into compliance by reconfiguring the

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product or seeking the appropriate registration. We applied for and received assurance of such “enforcement discretion” for the sale of our HLA ASR products from the FDA, while working with the FDA under a pre-IDE for registering the HLA products. The FDA may change its position on “enforcement discretion” at their discretion, or we could fail to achieve the proposed plan for registering the HLA products, and we could be required to discontinue marketing the HLA ASRs. The Section 510(k) clearance process generally requires the filing of notice with the FDA with clinical data demonstrating that the product and its intended purpose are “substantially equivalent” to a diagnostic device that is already cleared or approved for marketing by the FDA. If a 510(k) premarketing clearance is not obtained, an FDA pre-market approval or PMA application must be filed under the FFDCA, which must demonstrate that a diagnostic device is safe and effective, and must be supported by more extensive information than required for a 510(k) notification. The process for obtaining an FDA pre-market approval or 510(k) clearance may be time-consuming, expensive, and difficult to obtain and there is no assurance that they will be obtained. Accordingly, under the new interpretation of the ASR regulations, the FDA could require us or Abbott to discontinue marketing current non-compliant products. Any discontinuation could be indefinite or permanent, and our business could be harmed. Also, the interpretation of the ASR regulations contained in the guidance document might make development of new ASR products more difficult, and this could similarly harm our operating results and financial condition.

Commercialization of our products depends on satisfaction of ongoing regulatory requirements.

The manufacture of our and our collaborators’ and licensees’ diagnostic products is subject to the FDA’s Quality System Regulation. Manufacturing problems with respect to any product, including non-compliance with this regulation, could result in withdrawal of regulatory clearance or approval for that product, and could also force us or our collaborators or licensees to suspend manufacturing of, reformulate, conduct additional testing for, and/or change the labeling for, that product. This could delay or prevent us from generating revenues from the sale of any affected diagnostic product.

Clinical trials of diagnostic product candidates may not be successful.

Potential clinical trials of product candidates may not begin on time, may not be completed on schedule, or at all, or may not be sufficient for registration of the products or result in products that can receive necessary clearances or approvals. Numerous unforeseen events during, or as a result of, clinical testing could delay or prevent commercialization of our or our collaborators’ or licensees’ diagnostic product candidates. Diagnostic product candidates that appear to be promising at early stages of development or early clinical trials may later be found to be unsafe, ineffective, or to have limited medical value. If we are unable to successfully complete clinical trials for diagnostic product candidates, our operating results and financial condition would be harmed.

We could be harmed by disruptions to our critical manufacturing, clinical laboratory, or other facilities.

We have headquarters, research and development, manufacturing, administrative, and clinical laboratory facilities in Alameda, Burlingame and South San Francisco, California and do not have alternative facilities or manufacturing or testing backup plans. Our California facilities are located near major earthquake faults. Although following the split-off we have purchased insurance policies covering damages to our operations and facilities resulting from some natural disasters, including flooding, windstorm and lightning, the ultimate impact of disruptions caused by earthquakes, other natural disasters or weather-related events, or other causes, such as acts of terrorism, on us, our significant suppliers, and the general infrastructure is unknown, and our

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operating results could be harmed if a major earthquake or other disaster occurs. In particular, all of our laboratory testing services are performed at our clinical laboratory facility in Alameda and we do not have access to any backup facility should there be an interruption in operations due to earthquakes or other disasters. It would be expensive and time consuming to repair or replace our laboratory facility or the equipment located at that facility. Furthermore, if operations at our Alameda facility are interrupted, it may be difficult and time-consuming for us to hire another company to perform laboratory testing services, because we would need to find a laboratory that has the required state and federal licenses and would perform our testing services on terms and conditions that are acceptable to us. An earthquake or other disaster could likewise harm our manufacturing capabilities. However, the impact of a manufacturing disruption would depend, in part, on factors such as customer demand and inventory levels of our products. Also, the repair or replacement of our facility or equipment may require new regulatory approvals, clearances or licenses, which would further delay operations. A prolonged or sustained interruption in our facility or equipment could harm our operating results and financial condition.

We may pursue acquisitions, investments, or other strategic relationships or alliances, which may consume significant resources, may be unsuccessful, may require us to obtain financing on a stand-alone basis, and could dilute the holders of our common stock.

Acquisitions, investments and other strategic relationships and alliances, if pursued, may involve significant cash expenditures, debt incurrence, additional operating losses, and expenses that could have a material adverse effect on our financial condition and operating results. Acquisitions involve numerous other risks, including:

• diversion of management time and attention from daily operations;

• difficulties integrating acquired businesses, technologies and personnel into our business;

• inability to obtain required regulatory approvals and/or required financing on favorable terms;

• entry into new markets in which we have little previous experience;

• potential loss of key employees, key contractual relationships, or key customers of acquired companies or of us; and

• assumption of the liabilities and exposure to unforeseen liabilities of acquired companies.

If these types of transactions are pursued, it may be difficult for us to complete these transactions quickly and to integrate these acquired operations efficiently into our current business operations. Any acquisitions, investments or other strategic relationships and alliances by us may ultimately harm our business and financial condition. In addition, future acquisitions may not be as successful as originally anticipated and may result in impairment charges. We have incurred these charges in recent years in relation to acquisitions. For example, since fiscal 2002 we have incurred charges for impairment of goodwill, intangibles and other assets and other charges of $30.4 million related to our acquisition of Paracel, Inc. Additionally, during our 2007 and 2006 fiscal years, we incurred charges totaling $28.8 million for severance and benefit costs and asset impairments relating to our acquisition of Axys Pharmaceuticals, Inc., and our subsequent decision to partner or sell our small molecule drug discovery and development programs, and the integration of Celera Diagnostics into us.

In the event we need to obtain financing to complete an acquisition, investment or other strategic relationship or alliance, we will have to do so on a stand-alone basis without reliance on Applied Biosystems’ overall balance sheet. The cost to us of stand-alone financing may be materially higher than the cost of financing that we might have obtained as part of Applied Biosystems, and

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we may not be able to secure adequate debt or equity financing on desirable terms. Also, under the tax matters agreement and separation agreement that we have entered into with Applied Biosystems, to preserve the tax-free treatment of the split-off to Applied Biosystems, for the two-year period following the split-off we may be subject to restrictions on our ability to issue equity securities to satisfy financing needs, acquire businesses or assets with equity securities or engage in mergers or asset transfers that could jeopardize the tax-free status of the split-off. These restrictions may limit our ability to engage in these transactions (though if Applied Biosystems were determined to be subject to tax on the distribution of the Celera Corporation common stock, we would no longer be subject to these restrictions).

In addition, subject to these potential restrictions, acquisitions and other transactions may involve the issuance of a substantial amount of Celera Corporation common stock without the approval of our stockholders. Any issuances of this nature could be dilutive to our stockholders.

The market price and trading volume of our common stock may be volatile and may face negative pressure.

Before the split-off, there was no trading market for the shares of our common stock. Our common stock issued in the split-off traded publicly for the first time following the split-off. Until, and possibly even after, orderly trading markets develop for our stock, there may be significant fluctuations in price. Investors’ interest may not lead to a liquid trading market and the market price of our common stock may be volatile. This may result in short- or long-term negative pressure on the trading price of shares of our common stock.

The market price of our common stock may be volatile due to the risks and uncertainties described in this “Risk Factors” section, as well as other factors that may affect the market price, such as:

• conditions and publicity regarding the genomics, biotechnology, pharmaceutical, diagnostics, or life sciences industries generally;

• price and volume fluctuations in the stock market at large which do not relate to our operating performance; and

• comments by securities analysts or government officials, including those with regard to the viability or profitability of the biotechnology sector generally or with regard to intellectual property rights of life science companies, or our ability to meet market expectations.

The stock market has from time to time experienced extreme price and volume fluctuations that are unrelated to the operating performance of particular companies or the industries in which they compete.

In addition, our ability to achieve previously announced financial targets is subject to a number of risks, uncertainties, and other factors affecting our business and the genomics, biotechnology, pharmaceutical, diagnostics, and life sciences industries generally, many of which are beyond our control. These factors may cause actual results to differ materially. We describe a number of these factors throughout this document, including in these Risk Factors. We cannot assure you that we will meet these targets. If we are not able to meet these targets, it could harm the market price of our common stock.

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Future sales of our stock could adversely affect our stock’s market price and our ability to raise capital in the future.

Sales of substantial amounts of our common stock could harm the market price of our stock. This also could harm our ability to raise capital in the future. The shares issued in the split-off are freely tradable without restriction under the Securities Act of 1933 (the Securities Act) by persons other than “affiliates,” as defined under the Securities Act. Any sales of substantial amounts of our common stock in the public market, or the perception that those sales might occur, could harm the market price of our common stock.

We will not solicit the approval of our stockholders for the issuance of authorized but unissued shares of our common stock unless this approval is deemed advisable by our Board of Directors or is required by applicable law, regulation or stock exchange listing requirements. The issuance of those shares could dilute the value of our outstanding shares of common stock.

We do not expect to pay dividends on our common stock.

We currently do not expect to pay any dividends on our common stock for the foreseeable future. Holders of our common stock will have to rely on a rise in the market price of our common stock, if any, to earn a return on their investment in our common stock, which rise is uncertain and unpredictable. As a result, you should not rely on an investment in our common stock as a source of dividend income.

Anti-takeover provisions could deter takeover attempts of Celera Corporation and limit appreciation of the market price for shares of our common stock.

Our amended and restated certificate of incorporation, amended and restated by-laws, and Delaware law contain provisions that may have the impact of delaying or precluding an acquisition of our company without the approval of our Board of Directors. These provisions may limit the price that investors might be otherwise willing to pay in the future for shares of our common stock. These provisions include provisions providing for a staggered Board of Directors, advance notice procedures for stockholder proposals and director nominations and a provision in our amended and restated certificate of incorporation that does not afford stockholders the right to call a special meeting of stockholders. In addition, there are provisions of Delaware law that may also have the effect of precluding an acquisition of us without the approval of our Board of Directors.

Our collaborations with outside experts may be subject to restriction and change.

We collaborate with scientific and clinical experts at academic and other institutions that provide assistance and guidance to our research and development efforts. These advisors and collaborators are not our employees and may have other commitments that limit their availability to us. Although they generally agree not to collaborate with our competitors, if a conflict of interest arises between their work for us and their work for another company or institution, we may lose the services of these experts. In addition, our advisors and collaborators sign confidentiality agreements that generally prohibit their use or disclosure of our confidential information other than in connection with our collaboration and, where applicable, require disclosure and assignment to us of their ideas, developments, discoveries and inventions arising under our collaboration. These confidentiality agreements generally have a term that lasts for so long as the collaboration is in effect, plus a specified period afterward and are generally terminable by either party upon a breach of the agreement by the other party and, in some cases, upon written notice. These agreements generally permit us to seek injunctive or other relief to prevent unpermitted use or disclosure of our confidential information. However, it is possible that valuable proprietary knowledge may become publicly known or otherwise available to other parties, including our competitors, through these experts.

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We may be exposed to product liability or other legal claims relating to our products and services.

Clinicians, patients, third-party payors, and others may at times seek damages from us based on testing or analysis errors caused by a technician’s misreading of results, mishandling of the patient samples, or similar claims. Product liability or other claims, or product recalls, regardless of the ultimate outcome, could require us to spend significant time and money in litigation and to pay significant damages. These damages, if not covered by adequate insurance, could harm our operating results and financial condition.

Our operations are subject to potential exposure to environmental liabilities.

Our research and development activities, manufacturing activities, and clinical laboratory testing activities involve the controlled use of potentially hazardous materials, including biological materials, chemicals, and various radioactive compounds. Also, some of our diagnostic products, including products sold through our strategic alliance with Abbott, are hazardous materials or include hazardous materials. We cannot completely eliminate the risk of accidental or other contamination or injury from these materials, and we could be held liable for resulting damages, which could be substantial. We do not maintain environmental liability insurance and any potential environmental damages for which we become liable may not be covered under our existing insurance policies. Under some laws and regulations, a party can be subject to “strict liability” for damages caused by some hazardous materials, which means that a party can be liable without regard to fault or negligence. Furthermore, we could be held indirectly responsible for contamination or injury arising from the conduct of Abbott in manufacturing, selling, or distributing alliance diagnostic products. We could be held similarly responsible for the actions of our other collaborators or licensees. In addition, we are subject to federal, state, local, and foreign laws, regulations, and permits governing the use, storage, handling, and disposal of hazardous materials and specified waste products, as well as the shipment and labeling of materials and products containing hazardous materials. If we are found to be liable for our use of hazardous materials, or fail to comply with any of these laws, regulations, or permits, or if we are held indirectly responsible for the conduct of Abbott or other collaborators or licensees found to be non-compliant, we could be subject to substantial fines or penalties, payment of remediation costs, loss of permits, and/or other adverse governmental action. Any of these events could harm our operating results and financial condition.

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ITEM 6. Exhibits

EXHIBIT NO.	DOCUMENT
31.1	Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a)
31.2	Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a)
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CELERA CORPORATION
/s/ KATHY ORDOÑEZ
Name:	Kathy Ordoñez
Title:	Chief Executive Officer
Date:	November 10, 2008
/s/JOEL R. JUNG
Name:	Joel R. Jung
Title:	Chief Financial Officer
Date:	November 10, 2008

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