As filed with the Securities and Exchange Commission on October 20, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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MAXYGEN, INC.
(Exact name of Registrant as specified in its charter)

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Delaware 8731 77-0449487
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)

MAXYGEN, INC.
515 Galveston Drive
Redwood City, California 94063
(650) 298-5300
(Address, including zip code, and telephone number, including area code, of
Maxygen, Inc.'s principal executive offices)

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RUSSELL J. HOWARD, Ph.D.
President and Chief Executive Officer
MAXYGEN, INC.
515 Galveston Drive
Redwood City, California 94063
(650) 298-5300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

Copies to:

JULIAN N. STERN BARRY E. TAYLOR
AUGUST J. MORETTI TREVOR J. CHAPLICK
HELLER EHRMAN WHITE & MCAULIFFE WILSON SONSINI GOODRICH & ROSATI
2500 Sand Hill Road, Suite 100 PROFESSIONAL CORPORATION
Menlo Park, California 94025-7063 650 Page Mill Road
Telephone: (650) 234-4229 Palo Alto, California 94304
Facsimile: (650) 234-4299 Telephone: (650) 493-9300
Facsimile: (650) 845-5000

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

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration number of the earlier
effective registration statement for the same offering: [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]

CALCULATION OF REGISTRATION FEE

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Proposed
Maximum Amount of
Aggregate Registration
Title of securities to be registered Offering Price(1) Fee
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Common Stock, $.0001 par value................... $80,500,000 $22,379
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(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457 under the Securities Act of 1933, as
amended.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act or until the Registration Statement shall
become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.

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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated October 20, 1999.

{MAXYGEN LOGO}

Common Stock

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This is an initial public offering of shares of common stock of Maxygen,
Inc. All of the shares of common stock are being sold by Maxygen.

Prior to this offering, there has been no public market for the common stock.
It is currently estimated that the initial public offering price per share will
be between $ and $ . Application has been made for quotation of the
common stock on The Nasdaq National Market under the symbol "MAXY".

See "Risk Factors" beginning on page 6 to read about certain factors you
should consider before buying shares of the common stock.

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Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed on the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.

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Per Share Total
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Initial public offering price............................ $ $
Underwriting discount.................................... $ $
Proceeds, before expenses, to Maxygen.................... $ $

To the extent that the underwriters sell more than shares of common
stock, the underwriters have the option to purchase up to an additional
shares from Maxygen at the initial public offering price less the underwriting
discount.

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The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.

Goldman, Sachs & Co.

Robertson Stephens

Invemed Associates

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Prospectus dated , 1999.

PROSPECTUS SUMMARY

You should read the following summary together with the more detailed
information regarding us and our common stock being sold in this offering and
our financial statements and notes to those financial statements appearing
elsewhere in this prospectus.

Our Business

Overview

We are the leader in the emerging field of directed molecular evolution, the
process by which novel genes are generated for commercial use. Our proprietary
technologies, known as MolecularBreeding(TM), mimic the natural process of
evolution and bring together advances in molecular biology and classical
breeding, while capitalizing on the large amount of genetic information being
generated by the genomics industry. Unlike conventional technologies,
MolecularBreeding technologies are efficient, in part because they require
minimal understanding of complex underlying biological mechanisms. Our
technologies enable us to rapidly develop novel genes for commercial
applications that would be difficult or impossible to develop or find through
other processes. We believe our MolecularBreeding technologies are commercially
applicable to a broad range of industries. We are currently conducting research
on more than 35 product candidates for the chemical, agricultural and
pharmaceutical industries, enabling us to potentially generate short-term as
well as long-term revenues.

We have established collaborations with Novo Nordisk, DuPont/Pioneer Hi-
Bred, AstraZeneca and DSM, all leaders in their respective markets, as well as
United States government agencies. Committed funding from our commercial
collaborators and U.S. government agencies totals over $94 million.
Additionally, we may receive milestone payments of over $145 million based on
the accomplishment of specific performance criteria, as well as royalties on
product sales. While we will continue to establish strategic collaborations
with leading companies and pursue additional grants from U.S. government
agencies, we will also invest our own funds in certain specific areas. To that
end, we have retained significant rights to future applications of our
technologies.

Our Target Markets

Our technologies address a number of multi-billion dollar industries. Our
target markets include chemicals, agriculture, protein pharmaceuticals and
prophylactic and therapeutic vaccines. Within these markets, we are focused on
specific high-value opportunities. In chemicals, we are developing novel
biocatalytic processes that could increase yields and decrease manufacturing
costs for multiple products. In addition, we believe biocatalytic processes may
have utility for generating novel useful materials. In agriculture, we are
applying our technologies to potentially increase crop yield and qualities,
such as enhancing nutritional value for human food or animal feed. In
pharmaceuticals and vaccines, we are focused on developing products for a
number of indications, including multiple forms of cancer, infectious diseases
such as HIV and hepatitis, and autoimmune diseases such as rheumatoid arthritis
and multiple sclerosis.

Our Technologies

Our MolecularBreeding technologies consist of two components:
DNAShuffling(TM) recombination technologies and MaxyScan(TM) screening systems.
DNAShuffling is the process of recombining single genes or gene families to
generate a library of novel genes. MaxyScan is a series of specialized
screening systems that efficiently and rapidly select those gene products and
enzymes best suited for specific commercial purposes. We have an extensive
patent portfolio, including 15 issued U.S. patents, of which five are owned by
us and 10 are in-licensed. Furthermore, we have over 40 families of patent
applications relating to our MolecularBreeding technologies, the application of
our technologies to diverse industries, and specific proteins improved by the
application of our technologies.

Our Accomplishments

We have attracted a multi-disciplinary team comprised of leading experts in
the field of directed molecular evolution. We have consistently been able to
generate significant enhancements in many different genes that have relevance
to multiple commercial applications. We have demonstrated improvements in 10
product candidates and have an additional 25 product candidates in earlier
stages of development. For example, we have increased the anti-viral activity
of a protein and developed novel enzymes which have the potential to streamline
chemical and pharmaceutical manufacturing processes. In addition, we have
significantly improved the performance of multiple commercially relevant
properties of the industrial enzyme subtilisin, a product that had annual sales
of $500 million in 1998. Subtilisin is one of the most highly studied and
engineered enzymes. This example demonstrates the ability of MolecularBreeding
to achieve significant improvements beyond the limits of modern biotechnology.

We have established strategic alliances with recognized leaders in their
respective industries. To date, these include Novo Nordisk in the area of
industrial enzymes, DuPont/Pioneer Hi-Bred and AstraZeneca, each in
agriculture, and DSM in antibiotic manufacturing. Since 1997, our collaborators
have committed funding of over $67 million, of which approximately $23 million
has been received, including $10 million in equity investments. In addition, we
could receive over $145 million in milestone payments based on the
accomplishment of specific performance criteria, as well as royalties on
products sales. We have received six grants from U.S. government agencies with
total committed grant funding of over $27 million, of which approximately $4
million has been expended. These grants are primarily for the development of
vaccines and the advancement of our MolecularBreeding technologies.

Our Strategy

Our strategy has four major components. First, we will continue to develop
our core MolecularBreeding technologies to extend our proprietary technology
leadership by investing significantly in research and development programs.
Second, we will continue to establish strategic collaborations with leading
companies in targeted industries and will pursue additional grants from U.S.
government agencies. We have retained, and intend to continue to retain,
significant rights to develop and market certain applications of products
arising from our strategic collaborations. Third, we plan to develop multiple
products in the chemicals, agriculture and pharmaceutical industries to
generate revenues in the short-, medium- and long-term. We expect to receive a
diversified royalty stream from the sale of commercial products and processes
that may be developed and commercialized by our existing collaborators as well
as revenues from any products that result from our grant-funded programs and
self-funded programs. Finally, we plan to retain rights to use our technologies
in multiple applications. We will invest our own funds in selected areas and
product opportunities with the aim of capturing a high percentage of profits on
product sales.

Our History

We began operations in 1997, to commercialize technologies originally
conceived by Dr. Willem P.C. Stemmer while at Affymax Research Institute, a
subsidiary of Glaxo Wellcome plc. We now have over 100 employees and occupy our
own facilities and executive offices, totaling 47,880 square feet, located at
515 Galveston Drive, Redwood City, California 94063. Our telephone number is
(650) 298-5300. We were incorporated under the laws of Delaware on May 7, 1996.

Maxygen(R) is our registered trademark, and MaxyScan(TM),
MolecularBreeding(TM), DNAShuffling(TM), and the Maxygen logo are certain of
our trademarks. Other service marks, trademarks and trade names referred to in
this prospectus are the property of their respective owners.

The Offering

Shares offered by Maxygen.................... shares
Shares outstanding after this offering....... shares
Proposed Nasdaq National Market symbol....... MAXY
Use of proceeds.............................. For research and development activities, for
capital expenditures, to finance possible
acquisitions and investments in technology
and for working capital and other general
corporate purposes.

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The above information is based on shares outstanding as of September 30,
1999. This information excludes 3,031,795 shares of common stock issuable upon
the exercise of outstanding options at a weighted average exercise price of
$0.46 per share and 2,827,375 shares of common stock reserved for future
issuance under our benefit plans.

Except as otherwise indicated, we have presented information in this
prospectus based on the following assumptions:

. the underwriters do not exercise their over-allotment option; and

. each outstanding share of preferred stock converts into one share of
common stock prior to the closing of this offering.

Summary Financial Data

See Note 1 of Notes to Financial Statements for an explanation of the
method used to determine the number of shares used in computing per share data
below.

Year Ended Six Months
December 31, Ended June 30,
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1997 1998 1998 1999
------- ------- ------- -------
(in thousands, except per share
data)

Statement of Operations Data:
Collaborative research and development
revenue.................................. $341 $3,564 $396 $3,122
Grant revenue............................. -- 1,646 664 2,550
------- ------- ------- -------
Total revenues............................ 341 5,210 1,060 5,672
Operating expenses:
Research and development................ 2,757 7,132 2,504 7,026
General and administrative.............. 915 3,010 928 1,865
Amortization of deferred stock
compensation........................... -- -- -- 341
------- ------- ------- -------
Total operating expenses.................. 3,672 10,142 3,432 9,232
------- ------- ------- -------
Loss from operations...................... (3,331) (4,932) (2,372) (3,560)
Net interest income....................... 161 229 52 362
------- ------- ------- -------
Net loss.................................. $(3,170) $(4,703) $(2,320) $(3,198)
======= ======= ======= =======
Basic and diluted net loss per share...... $(0.64) $(0.70) $(0.36) $(0.43)
======= ======= ======= =======
Shares used in computing basic and diluted
net loss per share....................... 4,917 6,748 6,379 7,512
Pro forma basic and diluted net loss per
share.................................... $(0.40) $(0.21)
======= =======
Shares used in computing pro forma basic
and diluted net loss per share........... 11,762 15,573

In the "pro forma" column below, we have adjusted the actual balance sheet
data to give effect to the receipt of proceeds from the August 1999 sales of
800,000 shares of Series E Preferred Stock at $6.25 per share. In the "pro
forma as adjusted" column below, we have adjusted the pro forma balance sheet
data to give effect to receipt of the net proceeds from the sale in this
offering of shares of common stock at an assumed initial
public offering price of $ per share, after deducting the estimated
underwriting discounts and commissions and estimated offering expenses.

June 30, 1999
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Pro
Pro Forma As
Actual Forma Adjusted
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(in thousands)

Balance Sheet Data:
Cash and cash equivalents.......................... $31,378 $36,378 $
Working capital.................................... 28,752 33,752
Total assets....................................... 39,023 44,023
Accumulated deficit................................ (11,071) (11,071) (11,071)
Total stockholders' equity......................... 32,086 37,086

RISK FACTORS

You should carefully consider the risks described below before making an
investment decision. If any of the following risks actually occurs, our
business, financial condition or results of operations could be materially
adversely affected. In such case, the trading price of our common stock could
decline, and you may lose all or part of your investment.

We Are an Early Stage Company Deploying Unproven Technologies and, as a Result,
We May Not Be Able to Develop Commercially Successful Products, Which Could
Cause Us to Cease Operations.

You must evaluate us in light of the uncertainties and complexities
affecting an early stage biotechnology company. Our MolecularBreeding
technologies are new and in the early stage of development. We may not develop
products that prove to be safe and efficacious in any market, meet applicable
regulatory standards, are capable of being manufactured at reasonable costs, or
can be marketed successfully.

We may not be successful in the commercial development of products.
Successful products will require significant development and investment,
including testing, to demonstrate their cost-effectiveness prior to their
commercialization. To date, only a limited number of gene-based products have
been developed and commercialized. We have not proven our ability to develop
and commercialize products. Further, none of our potential vaccine or protein
therapeutic products are expected to enter clinical trials within the next
year. We must conduct a substantial amount of additional research and
development before any regulatory authority will approve any of our products.
Our research and development may not indicate that our products are safe and
effective, in which case regulatory authorities may not approve them. Our
operations may be affected by problems frequently encountered in connection
with the development and utilization of new and unproven technologies and by
the competitive environment in which we operate.

Commercialization of Our Technologies Depends On Collaborations With Other
Companies. We May Not Be Able to Find Collaborators in the Future.

Since we do not currently possess the resources necessary to develop and
commercialize potential products that may result from our MolecularBreeding
technologies, or the resources to complete any approval processes which may be
required for these products, we must enter into collaborative arrangements to
develop and commercialize products. We have entered into collaborative
agreements with other companies to fund the development of certain new products
for specific purposes. We may not be able to maintain existing, or enter into
additional, collaborative arrangements and any of these collaborative
arrangements may not be successful. Further, we may not be successful in
negotiating additional arrangements that have terms that are satisfactory to
us. If we fail to enter into or maintain collaborative arrangements, our
products may not be commercialized.

We will have limited or no control over the resources that any collaborator
may devote to our products. Any of our present or future collaborators may not
perform their obligations as expected. These collaborators may breach or
terminate their agreement with us or otherwise fail to conduct their
collaborative activities successfully and in a timely manner. Further, our
collaborators may elect not to develop products arising out of our
collaborative arrangements or devote sufficient resources to the development,
manufacture, market or sale of these products. If any of these events occur, we
may not be able to commercialize our products.

We Intend to Conduct Proprietary Research Programs, and Any Conflicts With Our
Collaborators or Any Inability to Commercialize Products Resulting from This
Research Could Harm Our Business.

An important part of our strategy involves conducting proprietary research
programs. We may pursue opportunities in fields that could conflict with our
collaborators. Moreover, disagreements with our collaborators could develop
over rights to our intellectual property. Any conflict with our collaborators
could reduce our ability to obtain future collaboration agreements and
negatively impact our relationship with existing collaborators, which could
harm our business.

Certain of our collaborators could also become competitors in the future.
If our collaborators develop competing products, preclude us from entering into
collaborations with their competitors, fail to obtain timely regulatory
approvals, terminate their agreements with us prematurely or fail to devote
sufficient resources to the development and commercialization of products, our
product development efforts could be harmed.

We will either commercialize products resulting from our proprietary
programs directly or through licensing to other companies. We have no
experience in manufacturing and marketing, and we currently do not have the
resources or capability to manufacture products on a commercial scale. In order
for us to commercialize these products directly, we would need to develop, or
obtain through outsourcing arrangements, the capability to manufacture, market
and sell products. We do not have these capabilities and we may not be able to
develop or otherwise obtain the requisite manufacturing, marketing and sales
capabilities. If we are unable to successfully commercialize products resulting
from our proprietary research efforts, we will continue to incur losses.

Difficulties We May Encounter Managing Our Growth Could Adversely Affect Our
Results of Operations.

We have experienced a period of rapid and substantial growth that has
placed and, if this growth continues, will place a strain on our administrative
and operational infrastructure. If we are unable to manage this growth
effectively, our business, results of operations or financial condition may be
harmed. We increased the number of our employees from 20 at December 31, 1997
to 96 at June 30, 1999. Our revenues increased from $341,000 in 1997 to $5.2
million in 1998 and $5.7 million for the six months ended June 30, 1999. Our
ability to manage our operations and growth effectively requires us to continue
to improve our operational, financial and management controls, reporting
systems and procedures and to attract and retain sufficient numbers of talented
employees. We may not be able to successfully implement improvements to our
management information and control systems in an efficient or timely manner and
may discover deficiencies in existing systems and controls.

Since Our Technologies Can Be Applied to Many Different Industries, if We Focus
Our Efforts on Industries Which Fail to Produce Viable Product Candidates, We
May Fail to Capitalize on More Profitable Areas.

We have limited financial and managerial resources. In light of the fact
that our technologies may be applicable to numerous, diverse industries, we
will be required to prioritize our application of resources to discrete
efforts. This necessitates focusing on product candidates in selected
industries and foregoing efforts with regard to other products and industries.
Our decisions may not produce viable commercial products and may divert our
resources from more profitable market opportunities.

We Have a History of Net Losses. We Expect to Continue to Incur Net Losses and
We May Not Achieve or Maintain Profitability.

We have incurred net losses since our inception, including a net loss of
approximately $3.2 million for the six months ended June 30, 1999. As of June
30, 1999, we have an accumulated deficit of approximately $11.1 million. We
expect to have increasing net losses and negative cash flow in the

foreseeable future. The size of these net losses will depend, in part, on the
rate of growth, if any, in our contract revenues and on the level of our
expenses. To date, all of our revenues have been derived from collaborations
and grants and will continue to be in the foreseeable future. Revenues from
collaborations and grants are uncertain and we may not be able to secure future
grants and revenues from collaborations. We expect to spend significant amounts
to fund research and development and enhance our core technologies. As a
result, we expect that our operating expenses will increase significantly in
the near term and, consequently, we will need to generate significant
additional revenues to achieve profitability. Even if we do achieve
profitability, we may not be able to sustain or increase profitability on a
quarterly or annual basis.

Ethical, Legal, and Social Issues May Limit the Acceptance of Genetically
Engineered Products.

Our success will depend in part upon our ability to develop products
discovered through our MolecularBreeding technologies. Governmental authorities
could, for social or other purposes, limit the use of genetic processes or
prohibit the practice of our MolecularBreeding technologies. Ethical and other
concerns about our MolecularBreeding technologies and products resulting
therefrom could adversely affect their market acceptance.

The commercial success of our potential products will depend in part on
public acceptance of the use of genetically engineered products including
drugs, plants and plant products. Public attitudes may be influenced by claims
that genetically engineered products are unsafe for consumption or pose a
danger to the environment. Our genetically engineered products may not gain
public acceptance. Negative public reaction to genetically modified organisms
and products could result in greater government regulation of genetic research
and resultant products, including stricter labeling requirements, and cause a
decrease in the demand for our products.

The subject of genetically modified organisms has received negative
publicity in Europe, which has aroused public debate. The adverse publicity in
Europe could lead to greater regulation and trade restrictions on imports of
genetically altered products. If similar adverse publicity and public reaction
occur in the United States, genetic research and resultant products could be
subject to greater domestic regulation and could cause a decrease in the demand
for our products.

Many Potential Competitors Who Have Greater Resources and Experience Than We Do
May Develop Products and Technologies That Make Ours Obsolete.

The biotechnology industry is characterized by rapid technological change,
and the area of gene research is a rapidly evolving field. Our future success
will depend on our ability to maintain a competitive position with respect to
technological advances. Rapid technological development by others may result in
our products and technologies becoming obsolete.

We face, and will continue to face, intense competition from organizations
such as large biotechnology companies, as well as academic and research
institutions and government agencies that are pursuing competing DNA
manipulation technologies. These organizations may develop technologies that
are superior alternatives to our technologies. Further, our competitors may be
more effective at implementing their DNA manipulation technologies to develop
commercial products. Certain of these competitors have entered into
collaborations with leading companies within our target markets, including
certain of our existing collaborators.

Any products that we develop through our MolecularBreeding technologies
will compete in multiple, highly competitive markets. Most of the organizations
competing with us have greater capital resources, research and development
staffs and facilities, and greater experience in DNA manipulation, obtaining
regulatory approvals and product manufacturing and greater marketing
capabilities.

Accordingly, our competitors may be able to more easily develop
technologies and products that would render our technologies and products and
those of our collaborators obsolete and noncompetitive.

Any Inability to Adequately Protect Our Proprietary Technologies Could Harm Our
Competitive Position.

Our success will depend in part on our ability to obtain patents and
maintain adequate protection of our other intellectual property for our
technologies and products in the United States and other countries. The laws of
some foreign countries do not protect proprietary rights to the same extent as
the laws of the United States, and many companies have encountered significant
problems in protecting their proprietary rights in these foreign countries.
These problems can be caused by, for example, a lack of rules and methods for
defending intellectual property rights.

The patent positions of biopharmaceutical and biotechnology companies,
including our patent position, are generally uncertain and involve complex
legal and factual questions. We will be able to protect our proprietary rights
from unauthorized use by third parties only to the extent that our proprietary
technologies are covered by valid and enforceable patents or are effectively
maintained as trade secrets. We will apply for patents covering both our
technologies and products as we deem appropriate. However, these applications
may be challenged and not result in issued patents. Our existing patents and
any future patents we obtain may not be sufficiently broad to prevent others
from practicing our technologies or from developing competing products.
Furthermore, others may independently develop similar or alternative
technologies or design around our patented technologies. In addition, our
patents may be challenged, invalidated or fail to provide us with any
competitive advantages.

We rely upon trade secret protection for our confidential and proprietary
information. We have taken security measures to protect our proprietary
information. These measures may not provide adequate protection for our trade
secrets or other proprietary information. While we seek to protect our
proprietary information by entering into confidentiality agreements with
employees, collaborators and consultants, we cannot assure you that our
proprietary information will not be disclosed, or that we can meaningfully
protect our trade secrets. In addition, others may independently develop
substantially equivalent proprietary information or techniques or otherwise
gain access to our trade secrets.

Litigation or Other Proceedings or Third Party Claims of Intellectual Property
Infringement Could Require Us to Spend Time and Money and Could Shut Down Some
of Our Operations.

Our commercial success depends in part on neither infringing patents and
proprietary rights of third parties, nor breaching any licenses that we have
entered into with regard to our technologies and products. Others have filed,
and in the future are likely to file, patent applications covering genes or
gene fragments which we may wish to utilize with our MolecularBreeding
technologies, or products that are similar to products developed with the use
of our MolecularBreeding technologies. If these patent applications result in
issued patents and we wish to use the claimed technology, we would need to
obtain a license from the third party.

Third parties may assert that we are employing their proprietary technology
without authorization. In addition, third parties may obtain patents in the
future and claim that use of our technologies infringes these patents. We could
incur substantial costs and diversion of management and technical personnel in
defending ourselves against any of these claims or enforcing our patents
against others. Furthermore, parties making claims against us may be able to
obtain injunctive or other equitable relief which could effectively block our
ability to further develop, commercialize and sell products, and could result
in the award of substantial damages against us. In the event of a successful
claim of infringement, we may be required to pay damages and obtain one or more
licenses from third parties. We may not be able to obtain these licenses at a
reasonable cost, if at all. Defense of any lawsuit or failure to obtain any of
these licenses could prevent us from commercializing available products.

The Loss of Key Personnel or the Inability to Attract and Retain Additional
Personnel Could Have a Material Adverse Effect on Our Results of Operations.

We are highly dependent on the principal members of our management and
scientific staff, the loss of whose services might adversely impact the
achievement of our objectives. In addition, recruiting and retaining qualified
scientific personnel to perform future research and development work will be
critical to our success. We do not currently have sufficient executive
management personnel to fully execute our business plan. There is currently a
shortage of skilled executives, which is likely to continue. As a result,
competition for skilled personnel is intense and the turnover rate can be high.
Although we believe we will be successful in attracting and retaining qualified
personnel, competition for experienced scientists from numerous companies and
academic and other research institutions may limit our ability to do so on
acceptable terms.

Our planned activities will require additional expertise in specific
industries and areas applicable to the products developed through our
technologies. These activities will require the addition of new personnel,
including management, and the development of additional expertise by existing
management personnel. The inability to acquire these services or to develop
this expertise could impair the growth, if any, of our business.

If We Engage in Any Acquisition, We Will Incur a Variety of Costs, and the
Anticipated Benefits of the Acquisition May Never Be Realized.

If appropriate opportunities become available, we may attempt to acquire
businesses, technologies, services or products that we believe are a strategic
fit with our business. We currently have no commitments or agreements with
respect to any material acquisitions. If we do undertake any transaction of
this sort, the process of integrating an acquired business, technology, service
or product may result in unforeseen operating difficulties and expenditures and
may absorb significant management attention that would otherwise be available
for ongoing development of our business. Moreover, the anticipated benefits of
any acquisition may fail to be realized. Future acquisitions could result in
potentially dilutive issuances of equity securities, the incurrence of debt,
contingent liabilities and/or amortization expenses related to goodwill and
other intangible assets, which could adversely affect our results of operations
and financial conditions.

In addition, recent proposed changes in the Financial Accounting Standards
Board rules for merger accounting may affect the cost of making acquisitions or
of being acquired. For example, elimination of the pooling of interests method
of accounting for mergers would likely result in our having to record goodwill
that we would amortize to earnings if we merge with another company. Such
amortization would adversely impact our future operating results. Further,
accounting rule changes that reduce the availability of write-offs of the value
of in-process research and development in connection with an acquisition could
result in the capitalization and amortization of these amounts which would
negatively impact results of operations in future periods.

We Will Need Additional Capital in the Future, Which May Not Be Available to
Us.

Our future capital requirements will be substantial, and will depend on
many factors including payments received under collaborative agreements and
government grants, the progress and scope of our collaborative and independent
research and development projects and the filing, prosecution and enforcement
of patent claims.

Changes may also occur that would consume available capital resources
significantly sooner than we expect. We may be unable to raise sufficient
additional capital. If we fail to raise sufficient funds, we will have to
curtail or cease operations. We anticipate that the net proceeds of this
offering and interest earned thereon will enable us to maintain our currently
planned operations for at least the next two years. If our

capital resources are insufficient to meet future capital requirements, we will
have to raise additional funds to continue the development of our technologies
and complete the commercialization of products, if any, resulting from our
technologies.

Some of Our Programs Depend on Government Grants, Which May Be Withdrawn. The
Government Has License Rights to Technology Developed With Its Funds.

We have received and expect to continue to receive significant funds under
various United States government research and technology development programs.
Funding by the government may be significantly reduced in the future for a
number of reasons. For example, some programs are subject to a yearly
appropriations process in Congress. Additionally, we may not receive funds
under existing or future grants because of budgeting constraints of the agency
administering the program. There can be no assurance that we will receive the
entire funding under our existing or future grants.

Our grants give the government certain license rights to inventions
resulting from funded work. Our business could be harmed if the government
exercises these rights.

Our Potential Therapeutic Products Are Subject to a Lengthy and Uncertain
Regulatory Process Which May Not Result in the Necessary Regulatory Approval.

The FDA must approve any vaccine or therapeutic product before it can be
marketed in the United States. Before we can file a new drug application or
biologic license application with the FDA, the product candidate must undergo
extensive clinical trials, which can take many years and require substantial
expenditures. The regulatory process also includes preclinical testing. Data
obtained from preclinical and clinical activities are susceptible to varying
interpretations which could delay, limit or prevent regulatory approval. In
addition, delays or rejections may be encountered based upon changes in
regulatory policy for product approval during the period of product development
and regulatory agency review of each submitted new application or product
license application. The regulatory process is expensive and time consuming.

Because our products involve the application of new technologies and may be
based upon new therapeutic approaches, they may be subject to substantial
review by government regulatory authorities and, as a result, regulatory
approvals may be obtained more slowly than for products using more conventional
technologies. We have not submitted an investigational new drug application for
any product candidate, and no therapeutic product candidate developed with our
MolecularBreeding technologies has been approved for commercialization in the
United States or elsewhere. We or any of our collaborators may not be able to
conduct clinical testing or obtain the necessary approvals from the FDA or
other regulatory authorities for our products. Our product candidates must also
be approved by the regulatory agencies of foreign governments before the
product can be sold in those other countries.

Even after investing significant time and expenditures, we may not obtain
regulatory approval for our products. Even if regulatory approval is granted,
this approval may entail limitations on the indicated uses for which a product
may be marketed. Further, once regulatory approval is obtained, a marketed
product and its manufacturer are subject to continual review, and discovery of
previously unknown problems with a product or manufacturer may result in
restrictions on this product, manufacturer and manufacturing facility,
including withdrawal of the product from the market. In certain countries,
regulatory agencies also set or approve prices.

Genetically Engineered Agricultural Products That We Provide in the Future May
be Limited by Stringent Laws.

We may develop genetically engineered agricultural products. The field
testing, production and marketing of genetically engineered plants and plant
products are subject to federal, state, local and foreign governmental
regulation. Regulatory agencies administering existing or future regulations or
legislation may not allow us to produce and market our genetically engineered
products in a timely manner

or under technically or commercially feasible conditions. In addition,
regulatory action or private litigation could result in expenses, delays or
other impediments to our product development programs or the commercialization
of resulting products.

Although the FDA has announced in a policy statement that it will apply the
same regulatory standards to foods developed through genetic engineering as
applied to foods developed through traditional plant breeding, genetically
engineered food products will be subject to premarket review if these products
raise safety questions or are deemed to be food additives. Our products may be
subject to lengthy FDA reviews and unfavorable FDA determinations if they raise
questions or are deemed to be food additives.

The FDA has also announced in a policy statement that it will not require
that genetically engineered agricultural products be labeled as such, provided
that these products are as safe and have the same nutritional characteristics
as conventionally developed products. The FDA may reconsider or change its
policies, or local or state authorities may enact labeling requirements, either
of which could have a material adverse effect on the demand for our products.

The United States Department of Agriculture prohibits genetically
engineered plants from being grown and transported except pursuant to an
exemption, or under controls so burdensome as to render commercialization
impracticable. Our future products may not be exempted by the USDA.

Health Care Reform and Restrictions on Reimbursements May Limit Our Returns on
Pharmaceutical Products.

Our future products are expected to include pharmaceutical products. Our
ability and that of our collaborators to commercialize pharmaceutical products
developed with our MolecularBreeding technologies may depend in part on the
extent to which reimbursement for the cost of these products will be available
from government health administration authorities, private health insurers and
other organizations. Third-party payors are increasingly challenging the price
of medical products and services. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and there can be
no assurance that adequate third party coverage will be available for any
product to enable us to maintain price levels sufficient to realize an
appropriate return on our investment in research and product development.

Our Collaborations With Outside Scientists May Be Subject to Restriction and
Change.

We work with scientific advisors and collaborators at academic and other
institutions. These scientists are not our employees and may have other
commitments that would limit their availability to us. Although our scientific
advisors generally agree not to do competing work, if a conflict of interest
between their work for us and their work for another entity arises, we may lose
their services. Although our scientific advisors and collaborators sign
agreements not to disclose our confidential information, it is possible that
certain of our valuable proprietary knowledge may become publicly known through
them.

We May Be Sued for Product Liability.

We may be held liable if any product we develop or any product which is
made with the use of, or incorporates, any of our technologies causes injury or
is found otherwise unsuitable during product testing, manufacturing, marketing
or sale. These risks are inherent in the development of chemical, agricultural
and pharmaceutical products. Although we intend to obtain general liability and
product liability insurance, this insurance may be prohibitively expensive, or
may not fully cover our potential liabilities. Inability to obtain sufficient
insurance coverage at an acceptable cost or otherwise to protect against
potential product liability claims could prevent or inhibit the
commercialization of products developed by us or our collaborators.

We Use Hazardous Chemicals and Radioactive and Biological Materials in Our
Business. Any Claims Relating to Improper Handling, Storage or Disposal of
These Materials Could Be Time Consuming and Costly.

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

In addition, certain of our collaborators are working with these types of
hazardous materials in connection with our collaborations. To our knowledge,
the work is performed in accordance with biosafety regulations. In the event of
a lawsuit or investigation, we could be held responsible for any injury caused
to persons or property by exposure to, or release of, these viruses and
hazardous materials. Further, under certain circumstances, we have agreed to
indemnify our collaborators against all damages and other liabilities arising
out of development activities or products produced in connection with these
collaborations.

Management May Invest or Spend the Proceeds of This Offering in Ways With Which
You May Not Agree and in Ways That May Not Yield a Return.

Management will retain broad discretion over the use of proceeds from this
offering. Stockholders may not deem such uses desirable and our use of the
proceeds may not yield a significant return or any return at all. Management
intends to use a majority of the proceeds from this offering for research and
development, working capital and other general corporate purposes and to
finance potential acquisitions or investments. Because of the number and
variability of factors that determine our use of the net proceeds from this
offering, we cannot assure you that these uses will not vary substantially from
our currently planned uses. Pending these uses of the net proceeds from this
offering, we intend to invest the net proceeds from this offering in short-
term, interest-bearing, investment grade and U.S. government securities.

Our Stock Price Could Be Extremely Volatile and You May Not Be Able to Resell
Your Shares at or Above the Initial Offering Price.

Prior to this offering, there has been no public market for shares of our
common stock. An active trading market may not develop following completion of
this offering, or if developed, may not be maintained. The initial public
offering price for the shares will be determined by negotiations between us and
representatives of the underwriters. This price may not be indicative of prices
that will prevail later in the market. The stock market has experienced
significant price and volume fluctuations, and the market prices of technology
companies, particularly life science companies, have been highly volatile. You
may not be able to resell your shares at or above the initial public offering
price.

In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted. A securities class action suit against us could result in
substantial costs and the diversion of management's attention and resources,
which could have a material and adverse effect on our business.

We Expect that Our Quarterly Results of Operations Will Fluctuate, and This
Fluctuation Could Cause Our Stock Price to Decline, Causing Investor Losses.

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

. expiration of research contracts with collaborators or government
research grants, which may not be renewed or replaced;

. the success rate of our discovery efforts leading to milestones and
royalties;

. the timing and willingness of collaborators to commercialize our products
which would result in royalties; and

. general and industry specific economic conditions, which may affect our
collaborators' research and development expenditures.

A large portion of our expenses, including expenses for facilities,
equipment and personnel, are relatively fixed. Accordingly, if revenues
decline or do not grow as anticipated due to expiration of research contracts
or government research grants, failure to obtain new contracts or other
factors, we may not be able to correspondingly reduce our operating expenses.
In addition, we plan to significantly increase operating expenses in 2000.
Failure to achieve anticipated levels of revenues could therefore
significantly harm our operating results for a particular fiscal period.

Due to the possibility of fluctuations in our revenues and expenses, we
believe that quarter-to-quarter comparisons of our operating results are not a
good indication of our future performance. Our operating results in some
quarters may not meet the expectations of stock market analysts and investors.
In that case, our stock price would probably decline.

Future Sales of Our Common Stock May Depress Our Stock Price.

The market price of our common stock could decline as a result of sales of
substantial amounts of our common stock in the public market after the closing
of this offering, or the perception that these sales could occur. In addition,
these factors could make it more difficult for us to raise funds through
future offerings of common stock. There will be * * * * shares of common stock
outstanding immediately after this offering, or * * * * shares if the
representatives of the underwriters exercise their over-allotment option in
full. All of the shares sold in the offering will be freely transferable
without restriction or further registration under the Securities Act, except
for any shares purchased by our "affiliates," as defined in Rule 144 of the
Securities Act. The remaining * * * * * shares of common stock outstanding
will be "restricted securities" as defined in Rule 144. These shares may be
sold in the future without registration under the Securities Act to the extent
permitted by Rule 144 or other exemptions under the Securities Act. See
"Shares Eligible for Future Sale."

Some of Our Existing Stockholders Can Exert Control Over Us, and May Not Make
Decisions that Are in the Best Interests of All Stockholders.

After this offering, our officers, directors and principal stockholders
(greater than 5% stockholders) will together control approximately % of our
outstanding common stock, and Affymax Technologies N.V. will own approximately
% of our outstanding common stock. As a result, these stockholders, if they
act together, and Affymax Technologies N.V. by itself, will be able to exert a
significant degree of influence over our management and affairs and over
matters requiring stockholder approval, including the election of directors
and approval of significant corporate transactions. In addition, this
concentration of ownership may delay or prevent a change in control of Maxygen
and might affect the market price of our common stock, even when a change may
be in the best interests of all stockholders. In addition, the interests of
this concentration of ownership may not always coincide with our interests or
the interests of other stockholders and accordingly, they could cause us to
enter into transactions or agreements which we would not otherwise consider.

Our Facilities Are Located Near Known Earthquake Fault Zones, and the
Occurrence of an Earthquake or Other Catastrophic Disaster Could Cause Damage
to Our Facilities and Equipment, Which Could Require Us to Cease or Curtail
Operation.

Our facilities are located near known earthquake fault zones and are
vulnerable to damage from earthquakes. We are also vulnerable to damage from
other types of disasters, including fire, floods, power loss, communications
failures and similar events. If any disaster were to occur, our ability to
operate our business at our facilities would be seriously, or potentially
completely, impaired. In addition, the unique nature of our research activities
and of much of our equipment could make it difficult for us to recover from a
disaster. The insurance we maintain may not be adequate to cover our losses
resulting from disasters or other business interruptions. Accordingly, an
earthquake or other disaster could materially and adversely harm our ability to
conduct business.

As a New Investor, You Will Experience Immediate and Substantial Dilution.

If you purchase shares of our common stock in this offering, you will incur
immediate and substantial dilution in pro forma net tangible book value. If the
holders of outstanding options or warrants exercise those options or warrants,
you will incur further dilution. See "Dilution."

Year 2000 Issues Could Negatively Affect Our Business.

If we, our customers, our providers of hardware and software or our third-
party computer network providers fail to remedy any Year 2000 issues, our
research programs could be interrupted. Any significant interruption in our
research would harm our operating results. Presently, we are unable to predict
whether an interruption is likely to occur, the duration of any interruption or
the effect an interruption would have on our future revenue.

We cannot guarantee that we will be able to identify and correct all Year
2000 problems on a timely basis. Similarly, we cannot guarantee that unknown or
unanticipated Year 2000 issues will not arise. As a result, Year 2000
compliance efforts may involve significant time and expense and the occurrence
of unknown, unanticipated or unremediated Year 2000 problems could harm our
business and operating results. We currently have no contingency plans to
address the risks associated with unremediated Year 2000 problems.

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of
the federal securities laws that relate to future events or our future
financial performance. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expect," "plan,"
"anticipate," "believe," "estimate," "predict," "intend," "potential" or
"continue" or the negative of these terms or other comparable terminology.
Examples of these forward-looking statements include, but are not limited to,
statements regarding the following: (1) our MolecularBreeding technologies and
processes, (2) our ability to realize commercially valuable discoveries in our
programs, (3) our intellectual property portfolio, (4) our business strategies
and plans and (5) our ability to develop products suitable for
commercialization. These statements are only predictions.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus or to conform these statements to
actual results.

USE OF PROCEEDS

The net proceeds to Maxygen from the sale of the shares of common
stock are estimated to be approximately $ at an assumed initial public
offering price of $ per share (approximately $ if the underwriters'
over-allotment option is exercised in full), after deducting the estimated
underwriting discounts and offering expenses payable by us.

We intend to use the net proceeds of the offering for research and
development, working capital and other general corporate purposes and capital
expenditures. In addition, we may, if appropriate opportunities arise, use an
undetermined portion of the net proceeds to acquire or invest in complementary
companies or other entities or technologies. Pending such uses, we will invest
the net proceeds in short-term, interest-bearing investment-grade and U.S.
government securities.

DIVIDEND POLICY

We have never paid cash dividends on our common stock or any other
securities. We anticipate that we will retain all of our future earnings, if
any, for use in the expansion and operation of our business and do not
anticipate paying cash dividends in the foreseeable future.

CAPITALIZATION

The following table sets forth our capitalization as of June 30, 1999:

. on an actual basis;

. on a pro forma basis to reflect the net proceeds from the issuance in
August 1999 of 800,000 shares of Series E Preferred Stock at $6.25 per
share and the automatic conversion prior to the closing of this offering,
of all outstanding shares of preferred stock into 11,898,031 shares of
common stock; and

. on a pro forma as adjusted basis to reflect the sale of shares of
common stock offered by this prospectus at an assumed initial public
offering price of $ per share, after deducting the estimated
underwriting discounts and offering expenses payable by us.

The outstanding share information excludes 2,260,020 shares of common stock
issuable upon the exercise of outstanding options under our option plan with a
weighted average exercise price of $0.33 per share as of June 30, 1999. In
addition, the outstanding share information excludes 2,129,980 shares of
common stock reserved for issuance under our option plan as of June 30, 1999.

This information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements and related notes thereto included elsewhere in this
prospectus.

June 30, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except share
and per share data)

Stockholders' equity:..........................
Convertible preferred stock, $0.0001 par
value; 25,000,000 shares authorized,
11,098,031 shares issued and outstanding,
actual; no shares issued and outstanding pro
forma and pro forma as adjusted............. $1 $-- $--
Common stock, $0.0001 par value, 50,000,000
shares authorized: 9,435,000 shares issued
and outstanding, actual; 21,333,031 shares
issued and outstanding, pro forma;
shares issued and outstanding,
pro forma as adjusted....................... 1 2
Additional paid-in capital................... 45,860 50,860
Notes receivable from stockholders........... (548) (548) (548)
Deferred stock compensation.................. (2,157) (2,157) (2,157)
Accumulated deficit.......................... (11,071) (11,071) (11,071)
-------- -------- --------
Total stockholders' equity................... 32,086 37,086
-------- -------- --------
Total capitalization........................... $32,086 $37,086 $
======== ======== ========

DILUTION

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

The pro forma net tangible book value of Maxygen at June 30, 1999, was
$37.1 million, or $1.74 per share of common stock. Pro forma net tangible book
value per share represents total tangible assets less total liabilities,
divided by the number of outstanding shares of common stock after giving effect
to the conversion of all outstanding shares of our preferred stock into
11,898,031 shares of common stock (including the conversion of 800,000 shares
of Series E preferred stock sold in August 1999) effective automatically
immediately prior to the closing of this offering. After giving effect to the
sale of the ****** shares of common stock at an assumed initial public offering
price of $******* per share, and after deducting estimated underwriting
discounts and commissions and estimated offering expenses, our pro forma as
adjusted net tangible book value at June 30, 1999, would be $******* or $******
per share. This represents an immediate increase in the pro forma as adjusted
net tangible book value of $****** per share to existing stockholders and an
immediate dilution of $****** per share to new investors, or approximately ****
% of the assumed offering price of $****** per share. The following table
illustrates this per share dilution:

Assumed initial public offering price per share.................... $
Pro forma net tangible book value per share at June 30, 1999..... $1.74
Increase per share attributable to this offering ................
-----
Pro forma net tangible book value per share after this offering ...
-----
Dilution per share to new investors................................ $
=====

The following table shows on a pro forma as adjusted basis at June 30,
1999, after giving effect to the sale of the ******* shares of common stock at
an assumed initial public offering price of $****** per share, before deducting
estimated underwriting discounts and commissions and estimated offering
expenses, and conversion of all preferred stock into common stock for the
number of shares of common stock purchased from us, the total consideration
paid to us and the average price paid per share by existing stockholders and by
new investors purchasing common stock in this offering:

Shares Purchased Total Consideration Average
--------------------- ------------------------- Price
Number Percentage Amount Percentage Per Share
---------- ---------- -------------- ---------- ---------
(in thousands)

Existing stockholders... 21,333,031 % $43,364 % $2.03
New investors...........
---------- ---- ------- ---- -----
Total................. % $ %
========== ==== ======= ==== =====

The computations in the table above assume no exercise of any stock options
outstanding at June 30, 1999. As of June 30, 1999, there were options
outstanding to purchase a total of 2,260,020 shares of common stock at a
weighted average exercise price of $0.33 per share. If any of these options are
exercised, there will be further dilution to new public investors.

SELECTED FINANCIAL DATA

The statement of operations data for the years ended December 31, 1997 and
1998 and the balance sheet data as of December 31, 1997 and 1998 are derived
from our financial statements, which have been audited by Ernst & Young LLP,
independent auditors and are included elsewhere in this prospectus. The
financial data as of June 30, 1999 and for the six months ended June 30, 1998
and 1999 are derived from unaudited financial statements included elsewhere in
this prospectus. We have prepared this unaudited information on the same basis
as the audited financial statements and have included all adjustments,
consisting only of normal recurring adjustments, that we consider necessary for
a fair presentation of our financial position and operating results for such
periods. When you read this selected financial data, it is important that you
also read the historical financial statements and related notes included in
this prospectus, as well as the section of this prospectus related to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Historical results are not necessarily indicative of future
results. See Note 1 of Notes to Financial Statements for an explanation of the
method used to determine the number of shares used in computing pro forma net
loss per share.

Year Ended Six Months
December 31, Ended June 30,
---------------- ----------------
1997 1998 1998 1999
------- ------- ------- -------
(in thousands, except per share
data)

Statement Of Operations Data:
Collaborative research and development
revenue.................................. $341 $3,564 $396 $3,122
Grant revenue............................. -- 1,646 664 2,550
------- ------- ------- -------
Total revenues............................ 341 5,210 1,060 5,672
Operating expenses:
Research and development................ 2,757 7,132 2,504 7,026
General and administrative.............. 915 3,010 928 1,865
Amortization of deferred stock
compensation........................... -- -- -- 341
------- ------- ------- -------
Total operating expenses.................. 3,672 10,142 3,432 9,232
------- ------- ------- -------
Loss from operations...................... (3,331) (4,932) (2,372) (3,560)
Net interest income....................... 161 229 52 362
------- ------- ------- -------
Net loss.................................. $(3,170) $(4,703) $(2,320) $(3,198)
======= ======= ======= =======
Basic and diluted net loss per share...... $(0.64) $(0.70) $(0.36) $(0.43)
======= ======= ======= =======
Shares used in computing basic and diluted
net loss per share....................... 4,917 6,748 6,379 7,512
Pro forma basic and diluted net loss per
share.................................... $(0.40) $(0.21)
======= =======
Shares used in computing pro forma basic
and diluted net loss per share........... 11,762 15,573

December 31,
---------------- June 30,
1997 1998 1999
------- ------- ---------
(in thousands)

Balance Sheet Data:
Cash and cash equivalents........................... $2,693 $15,306 $31,378
Working capital..................................... 2,152 12,764 28,752
Total assets........................................ 3,154 17,600 39,023
Accumulated deficit................................. (3,170) (7,873) (11,071)
Total stockholders' equity.......................... 2,571 14,187 32,086

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that are based
upon current expectations. These forward-looking statements fall within the
meaning of the federal securities laws that relate to future events or our
future financial performance. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expect," "plan,"
"anticipate," "believe," "estimate," "predict," "intend," "potential" or
"continue" or the negative of these terms or other comparable terminology.
Forward-looking statements involve risks and uncertainties. Our actual results
and the timing of events could differ materially from those anticipated in our
forward-looking statements as a result of many factors, including those set
forth under "Risk Factors" and elsewhere in this prospectus.

Overview

Maxygen was founded in May 1996 and began operations in March 1997. To
date, we have generated revenues from research collaborations with large
agriculture and chemical companies and from government grants. Our current
collaborators are Novo Nordisk, DuPont/Pioneer Hi-Bred, AstraZeneca and DSM.
Our government grants are from the Defense Advanced Research Projects Agency
and the National Institute of Standards and Technology-Advanced Technology
Program.

We have invested heavily in establishing our MolecularBreeding
technologies. These investments contributed to revenue increases from $341,000
in 1997 to $5.2 million in 1998 and $5.7 million in the six months ended June
30, 1999. Our total headcount increased from 20 employees at the end of fiscal
1997 to 74 employees at the end of fiscal 1998 and to 96 employees at June 30,
1999 of whom 80% were engaged in research and development. Research and
development consisted of work for collaborators, government grant agencies and
work advancing our core technologies.

We have incurred significant losses since our inception. As of June 30,
1999, our accumulated deficit was $11.1 million and total stockholders' equity
was $32.1 million. Operating expenses increased from $3.7 million in fiscal
1997, to $10.1 million in fiscal 1998 and to $9.2 million for the six months
ended June 30, 1999. We expect to incur additional operating losses over at
least the next several years as we continue to expand our research and
development efforts and infrastructure.

Source of Revenue and Revenue Recognition Policy

We recognize revenues from research collaboration agreements as earned upon
achievement of the performance requirements of the agreements. Revenue related
to grant agreements is recognized as related research and development expenses
are incurred. Payments received that are related to future performance are
deferred and recognized as revenue as the performance requirements are
achieved. As of June 30, 1999, we have deferred revenues of approximately $5.5
million. We are funded fully by our collaborators for these research efforts.
Our sources of potential revenue for the next several years are likely to be
payments under existing and possible future collaborative arrangements,
government research grants, milestone payments, and royalties from our
collaborators based on revenues received from any products commercialized under
those agreements. See Note 2 of Notes to Financial Statements.

Deferred Compensation

Deferred compensation for options granted to employees has been determined
as the difference between the deemed fair market value for financial reporting
purposes of our common stock on the date options were granted and the exercise
price. Deferred compensation for options granted to consultants has been
determined in accordance with Statement of Financial Accounting Standards No.
123 as the fair value of the equity instruments issued. Deferred compensation
for options granted to consultants is periodically remeasured as the underlying
options vest.

In connection with the grant of stock options to employees, we recorded
deferred stock compensation of approximately $2.1 million in the six month
period ended June 30, 1999 and $352,000 in the fiscal year ended December 31,
1998. These amounts were initially recorded as a component of stockholders'
equity and are being amortized as charges to operations over the vesting period
of the options. We recorded amortization of deferred compensation of
approximately $341,000 for the six months ended June 30, 1999. The amortization
expense relates to options awarded to employees in all operating expense
categories. See Note 8 of Notes to Financial Statements. We anticipate
recording additional deferred stock compensation of approximately $12.0 million
for the three months ended September 30, 1999. Deferred compensation is
included as a reduction of stockholders' equity and is being amortized to
expense over the vesting period using a graded vesting method.

Results of Operations

Comparison of Six Months Ended June 30, 1998 and 1999

Revenues

Our total revenues increased from $1.1 million for the six months ended
June 30, 1998 to $5.7 million for the six months ended June 30, 1999. This
increase was due primarily to the addition of new research collaborations, new
government grants and the expansion of existing government grants.
Collaboration research and development revenue and grant revenue accounted for
37% and 63%, respectively, of total revenues for the six months ended June 30,
1998, and 55% and 45% of total revenues, for the six months ended June 30,
1999, respectively.

Research and Development Expenses

Our research and development expenses consist primarily of salaries and
other personnel-related expenses, facility costs, supplies and depreciation of
facilities and laboratory equipment. Research and development expenses
increased 181% from $2.5 million for the six months ended June 30, 1998 to
$7.0 million for the six months ended June 30, 1999. The increase was due
primarily to increased staffing and other personnel-related costs to support
our additional collaborative and internal research efforts.

Research and development expenses represented 236% of total revenues for
the six months ended June 30, 1998 and 124% of total revenues for the six
months ended June 30, 1999. The decrease as a percentage of total revenues was
due primarily to the growth in our total revenues. We expect to continue to
devote substantial resources to research and development, and we expect that
research and development expenses will continue to increase in absolute
dollars.

General and Administrative Expenses

Our general and administrative expenses consist primarily of personnel
costs for finance, human resources, business development, legal and general
management, as well as professional expenses, such as legal and accounting.
General and administrative expenses increased 101% from $928,000 for the six
months ended June 30, 1998 to $1.9 million for the six months ended June 30,
1999. Expenses increased primarily due to increased staffing necessary to
manage and support our growth.

General and administrative expenses represented 88% of total revenues for
the six months ended June 30, 1998 and 33% of total revenues for the six months
ended June 30, 1999. The decrease as a percentage of our total revenues was due
primarily to the growth in our total revenues. We expect that our general and
administrative expenses will increase in absolute dollar amounts as we expand
our legal and accounting staff, add infrastructure and incur additional costs
related to being a public company, including directors' and officers'
insurance, investor relations programs and increased professional fees.

Net Interest Income

Interest income represents income earned on our cash and cash equivalents.
Interest income increased from $52,000 for the six months ended June 30, 1998
to $362,000 for the six months ended June 30, 1999. This increase was due to
higher average cash balances.

Provision for Income Taxes

We incurred net operating losses in the six months ended June 30, 1998 and
1999, and consequently we did not pay any federal, state or foreign income
taxes.

Comparison of Years Ended December 31, 1997 and 1998

Revenues

Our total revenues for fiscal 1997 and 1998 were $341,000 and $5.2 million,
respectively. The increase of $4.9 million was due primarily to the addition of
new research collaborations and government grants. Collaborative research and
development revenue accounted for 100% of total revenues in fiscal 1997.
Collaborative research and development revenue and grant revenue accounted for
68% and 32%, respectively, of total revenues in fiscal 1998.

Research and Development Expenses

Research and development expenses increased from $2.8 million in fiscal
1997 to $7.1 million in fiscal 1998. The increase was due primarily to
increased staffing and other personnel-related costs. Research and development
expenses represented 809% and 137% of total revenues in fiscal 1997 and 1998,
respectively. The decrease as a percentage of total revenues was due primarily
to the growth in our total revenues.

General and Administrative Expenses

General and administrative expenses increased from $915,000 in fiscal 1997
to $3.0 million in fiscal 1998. Expenses increased in each period due primarily
to increased staffing and personnel-related costs resulting from additional
staffing necessary to manage and support our growth. General and administrative
expenses represented 268% of total revenues for fiscal 1997 and 58% of total
revenues for fiscal 1998. The decrease as a percentage of our total revenues
was due primarily to the growth in our total revenues.

Net Interest Income

Net interest income was $161,000 in fiscal 1997 and $229,000 in fiscal
1998. Changes in interest income were due primarily to changes in our average
cash balances during these periods.

Provision for Income Taxes

We incurred net operating losses in fiscal 1997 and 1998 and consequently
we did not pay any federal, state or foreign income taxes.

As of December 31, 1998, we had a federal net operating loss carryforwards
of approximately $5.4 million. We also had federal research and development
credit carryforwards of approximately $300,000. If not utilized, the net
operating losses and credit carryforwards will expire at various dates
beginning in 2012 through 2018. Utilization of the net operating losses and
credits may be subject to a substantial annual limitation due to the change in
the ownership provisions of the Internal Revenue Code of 1986, as amended, and
similar state provisions. The annual limitation may result in the expiration of
net operating losses and credit before utilization. See Note 9 of Notes to
Financial Statements.

Liquidity and Capital Resources

Since inception, we have financed our operations primarily through private
placements of preferred stock, totaling $41.5 million and research and
development funding from collaborators and government grants. As of June 30,
1999, we had $31.4 million in cash and cash equivalents and $2.0 million
available under an equipment financing line of credit.

Our operating activities used cash of $2.6 million and $2.7 million in
fiscal 1997 and 1998, respectively, and $2.6 million and $681,000 in the six
months ended June 30, 1998 and 1999, respectively. Uses of cash in operating
activities were primarily to fund net operating losses offset by receipt of
funding from collaborators which has been deferred.

Additions of property and equipment were $459,000 and $760,000 in fiscal
1997 and 1998, respectively, and $540,000 and $3.2 million in the six months
ended June 30, 1998 and 1999, respectively. We expect to continue to make
significant investments in the purchase of property and equipment to support
our expanding operations. A portion of our cash may be used to acquire or
invest in complementary businesses, products or technologies, or to obtain the
right to use such complementary technologies.

Financing activities provided cash of $5.7 million and $16.1 million in
fiscal 1997 and 1998, respectively, and $1.6 million and $20 million in the six
months ended June 30, 1998 and 1999, respectively. These amounts are the
proceeds we received from the sale of preferred stock, net of issuance costs,
and proceeds from the sale of common stock.

We believe that the net proceeds from this offering, together with our
current cash balances and funding received from collaborators and government
grants will be sufficient to satisfy our anticipated cash needs for working
capital and capital expenditures for at least the next 24 months. However, it
is possible that we will seek additional financing within this timeframe. We
may raise additional funds through public or private financing, collaborative
relationships or other arrangements. We cannot assure you that additional
funding, if sought, will be available on terms favorable to us. Further, any
additional equity financing may be dilutive to stockholders, and debt
financing, if available, may involve restrictive covenants. Our failure to
raise capital when needed may harm our business and operating results.

Disclosure about Market Risk

Our exposure to market risk is confined to our cash and cash equivalents
which have maturities of less than three months. We maintain an investment
portfolio of depository accounts, master notes and liquidity optimized
investment contracts. The securities in our investment portfolio are not
leveraged, are classified as available-for-sale and are, due to their very
short-term nature, subject to minimal interest rate risk. We currently do not
hedge interest rate exposure. Because of the short-term maturities of our
investments, we do not believe that an increase in market rates would have any
negative impact on the realized value of our investment portfolio.

Year 2000 Issues

The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failures or miscalculations causing disruptions of
operations for any company using such computer programs or hardware, including,
among other things, a temporary inability to process research data, send
invoices or engage in normal business activities. As a result, many companies'
computer systems may need to be upgraded or replaced in order to avoid "Year
2000" issues.

State of Readiness

We completed an assessment of our information technology systems for year
2000 problems in June 1999. Our information technology group coordinated a
program to assess and document all other systems.

We are a relatively new enterprise and therefore a majority of the computer
hardware and software we use to operate our business has been acquired within
the past 30 months. While this itself is not protection against Year 2000
issues, it is a factor to consider when comparing the efforts required to
achieve Year 2000 readiness against other enterprises with older legacy
systems.

Our approach was to prioritize a comprehensive list of all systems on the
basis of their importance to the operation of our business. Working from this
list, we would:

. obtain documentation from third party vendors as to their Year 2000
compliance testing and recommendations;

. devise a review and testing plan for all internal systems;

. conduct the review and testing;

. assess any necessary follow-on actions or remediation required; and

. execute the measures identified.

Principally because information from third party hardware and software
vendors has continued to change throughout this year, we have determined that
an additional set of compliance tests are prudent. We will conduct a final
review process of all systems in October 1999. Based on the continuing release
of information and recommended remediation activities from the principal
vendor of our enterprise productivity software, Microsoft, we expect to
continue to be required to make changes to our server software throughout the
remainder of 1999.

Budget

To date we have incurred expenses relating to Year 2000 compliance of less
than $10,000. We do not expect the remaining planned work to exceed $15,000.
These costs have been included in the operating expenses of 1999.

Reasonably Likely Worst Case Scenario

If we, our customers, our providers of hardware and software, or our third-
party computer network providers fail to remedy any Year 2000 issues, the
reasonably likely worst case scenario would be the interruption of our
research programs, which could have a material adverse affect on our business,
financial conditions and results of operations. Presently we are unable to
quantitatively estimate the duration and extent of any such interruption, or
estimate the effect such interruption may have on our future revenue. However,
we believe that the impact of any Year 2000 issue on our research operations
will be limited to the ongoing execution of new experiments. We do not expect
that any historical data will be affected.

Contingency Plans

We do not believe that we will need to implement a Year 2000 contingency
plan. We expect to complete our Year 2000 plan in October 1999. The effort
required to complete the plan is minimal. Therefore, we believe that we can
complete the planned work within this timeframe. Additionally, we may
implement a company-wide system shutdown on December 31, 1999 and a controlled
startup by the information technology organization on January 2, 2000 prior to
the opening of business on January 3, 2000. This will allow us to immediately
identify and address any issues.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities," which will be effective for our fiscal
year 2001. This Statement establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments embedded in other contracts, be recorded in the balance sheet as
either an asset or liability measured at its fair value. The statement also
requires that changes in the derivative's fair value be recognized in earnings
unless specific hedge accounting criteria are met. SFAS 133 is not anticipated
to have a significant impact on our operating results or financial condition
when adopted, since we currently do not engage in hedging activities.

BUSINESS

Overview

We are the leader in the emerging field of directed molecular evolution,
the process by which novel genes are generated for commercial use. Our
proprietary technologies, known as MolecularBreeding, bring together advances
in molecular biology and classical breeding, while capitalizing on the large
amount of genetic information being generated by the genomics industry. Our
principal objective is to maximize the value of our MolecularBreeding
technologies through the development of multiple products in a broad range of
industries including agriculture, chemicals and human therapeutics.

We have established strategic alliances with recognized leaders in our
target industries and with United States government agencies. To date, our
corporate collaborators include Novo Nordisk in the area of industrial enzymes,
DuPont/Pioneer Hi-Bred and AstraZeneca, each in agriculture, and DSM in
antibiotic manufacturing. Our government grants are from DARPA and NIST-ATP in
the area of vaccines and advancement of our MolecularBreeding technologies.
Committed funding from our commercial collaborators and grant agencies totals
over $94 million. We may additionally receive over $145 million in milestone
payments based on the accomplishment of specific performance criteria, as well
as royalties on product sales.

We will continue to establish strategic collaborations with recognized
leaders in several of our target industries and with U.S. government agencies.
We plan to retain significant rights to develop and market products arising
from our funded strategic collaborations. In addition, we will identify and
invest our own funds in certain specific areas and product opportunities with
the aim of capturing a high percentage of profits on product sales. We intend
to fully develop and exploit the breadth of opportunity which we believe can be
addressed by our MolecularBreeding technologies.

Background

Evolution and DNA

Evolution is the process of adaptation of living organisms to their
environment resulting from a combination of two factors. First, sexual
reproduction by living organisms creates a variety of physical characteristics
that increase the diversity of a population. Second, nature exerts a selective
force on the individuals favoring certain of these physical characteristics,
dictating which characteristics will be favored and be passed to the next
generation. As a result of changing environmental and competitive pressures,
diversity may increase, leading to variation in the physical characteristics of
individuals and species adapted for specific environments.

The physical characteristics of an organism are determined by genetic
information inherited from the previous generation. This genetic information is
coded for by DNA, a molecule found in the cells of living organisms. DNA is
comprised of a linear sequence of four different chemical bases called
nucleotides. Human cells have several billion nucleotides, the precise sequence
of which determines the content of the genetic information. DNA is organized
into discrete units called genes. Genes act alone or in combination to produce
proteins, that not only form the fabric of cells but also direct them to
perform biological functions which may in turn influence physical
characteristics. Generally, the inherited biological properties or physical
characteristics of an organism change only when the DNA in a gene is altered.

In summary, variations in genes provide the basis for inherited diversity
in a population. Therefore, maximizing genetic diversity increases the
opportunity for developing characteristics optimally suited for a specific
environment.

Mutation and Recombination

There are two predominant methods by which nature is able to change the
genetic information encoded by DNA to create diversity: mutation and
recombination.

All organisms incur a certain number of mutations in their DNA as a result
of normal cellular operations or interactions with external environmental
factors such as radiation from sunlight. Mutation typically involves changes in
individual nucleotides and is essentially random. Almost all mutations are
harmful to the function of genes, but a very small percentage are beneficial
and may pass more broadly into the population.

Sexually reproducing organisms use recombination, a process that involves
the organized exchange and reassortment of large sections of DNA from their
parents. This process allows for new combinations of genes without disrupting
the function of the newly created genes. This has a significant impact on
physical characteristics and is the primary cause of diversity in a sexually
reproducing population.

Classical Breeding and Its Limitations

Without any knowledge of the genetic basis of evolution, humans have been
breeding crops and animals for over 4,000 years in the search for better
physical characteristics. All of the domestic breeds of farm animals and
horses, cereal crops, fruits, vegetables, crops for fiber, household pets, most
ornamental flowers and many other species represent the results of many
generations of selective breeding by humans. In all these cases, crops or
animals with the most desired physical characteristics have been cross-bred to
produce improvements in the next generation. For example, modern corn now has a
dramatically higher yield than the wild strain of corn. This improvement
probably began with ancient Inca farmers continually selecting, breeding and
propagating the most robust seed corn. This is known as classical breeding.

[photo comparing size of wild strain of corn with modern corn]

In the 19th century, advances in biology led to a better understanding of
the basis of heredity. The discovery of the structure of DNA in 1953
subsequently led to the realization that genetic information was responsible
for physical characteristics and that its manipulation could further improve
the breeding process. In modern breeding, the DNA of offspring is often
sequenced to determine whether or not they are carrying undesirable genes. This
reduces the probability of breeding poor quality stock and increases the pace
of improvement.

Despite the improvements in classical breeding, this technique still has a
number of significant limitations. First, the process is extremely time
consuming, since the offspring must mature in order to determine if they carry
the desired characteristic. For example, this cycle takes several years in
cattle. Second, classical breeding can only be used to breed entire organisms
and cannot readily use genetic information to modify or select for specific
genes and the traits they represent. This limitation is compounded when
multiple genes encode the selected trait or when the simultaneous breeding of
multiple traits is desired. Thus, the scope of potential improvements
accessible by classical breeding are limited.

Modern Biotechnology and Its Current Limitations

The modern biotechnology industry was founded on the ability to isolate
native genes and express their proteins in production systems. Despite some
notable exceptions, the majority of proteins discovered by scientists and
developed by the modern biotechnology industry have not been commercially
successful. Similarly, in the chemical industry, native enzymes have not been
efficient or stable enough to be used for manufacturing chemicals. The lack of
product success is due in part to the fact that the relevant proteins have not
been evolved for commercial purposes.

The genomics industry is focused on identifying genes and elucidating their
function. Genomics has been highly successful in identifying tens of thousands
of genes, but has been limited in its ability to rapidly develop products. This
results from two primary causes. First, the genes identified by genomics have
not been evolved for commercial purposes. Second, once a gene has been
identified, a number of steps need to be completed before the genetic
information can be used for the development of products.

Typical deficiencies of native genes and proteins which limit their
commercial utility as therapeutic products include inappropriate
bioavailability and stability, difficulty and cost of manufacture, lack of
specificity, toxicity and other side effects. Similarly, in applications such
as agricultural biotechnology and biocatalysis for chemical processes, problems
include protein expression levels, specificity, stability, enzyme efficiency
under industrial manufacturing conditions and purity. In addition, potential
products with the highest commercial value often result from the action of
multiple genes or multiple biological reactions and are difficult to optimize
with modern biotechnology techniques. As a result, many biotechnology product
candidates have been abandoned during development or never pursued due to the
unsuitability of the native proteins for commercial uses.

One approach used by the modern biotechnology industry to attempt to
optimize genes for commercial purposes is random mutagenesis. This technique
involves randomly mutating genes in an attempt to achieve improvement and
usually results in harmful changes. In addition, the low probability of
randomly improving a gene or sequence of complex biological reactions makes
screening for positive changes prohibitively expensive and time consuming.

A second approach, rational design, seeks to modify a gene to improve its
properties based on knowledge regarding how the structure of the gene
determines the function of its resultant gene product. Fundamental research on
the mechanism of action of the relevant gene product is pursued until the
knowledge gained allows a rational prediction of how to change the gene for
desired effect. This process requires many simplifying assumptions, is costly,
time intensive and generally has been unsuccessful.

As such, genes and gene products have generally proven too complex to
commercialize using genomics, rational design, random mutagenesis or other
current technologies.

The Maxygen Solution

We have developed proprietary MolecularBreeding technologies that address
the limitations of classical breeding and modern biotechnology by maximizing
genetic diversity through directed evolution at the molecular level. Maximizing
genetic diversity increases the opportunity for developing characteristics
optimally suited for a specific commercial purpose. Our MolecularBreeding
technologies bring together advances in molecular biology and classical
breeding, while capitalizing on the wealth of genetic information being
developed by genomics. Our technologies are fast, inexpensive, commercially
focused and results oriented. Our approach, unlike conventional approaches,
requires minimal understanding of complex underlying biological mechanisms.

There are two components of our MolecularBreeding technologies. The first
is DNAShuffling, our proprietary process for recombining genes into a diverse
library of novel sequences. The second is MaxyScan, a series of proprietary
specialized screening capabilities for the selection of desired commercial
properties from the library of novel sequences. The combination of DNAShuffling
and MaxyScan specialized screening capabilities enables us to identify novel
products in a rapid, cost-effective manner.

Virtually any product or process that utilizes or could utilize DNA or
proteins can potentially be optimized using our MolecularBreeding technologies.
We are therefore applying our technologies to evolve genes and proteins for use
in fields as diverse as chemicals, agriculture, vaccines and protein
pharmaceuticals.

We believe that our MolecularBreeding technologies provide distinctive
advantages over modern biotechnology, as summarized in the following table.

Advantages of Maxygen's MolecularBreeding Technologies

Maxygen's
Modern MolecularBreeding
Characteristic Biotechnology Technologies
- -----------------------------------------------------------------------------

Time to generate lead product candidates several years weeks to months
- -----------------------------------------------------------------------------
Need to understand the biological
mechanisms underlying lead product
candidates yes no
- -----------------------------------------------------------------------------
Ability to optimize properties for
commercial applications no yes
- -----------------------------------------------------------------------------
Cost to generate lead product candidates high low
- -----------------------------------------------------------------------------
Amount of resulting genetic diversity limited virtually unlimited

Maxygen's Molecular Breeding Technologies

Our technologies represent an integrated platform in which the desired
genetic trait is generated in a two-step process that mimics the natural events
of evolution. First, genes are subjected to DNAShuffling, generating a diverse
library of novel sequences. Second, the individual gene products of the library
are subsequently selected using our specialized MaxyScan screening systems. The
gene products that show improvements in the desired characteristics become the
initial lead candidates. After confirmation of activity, the initial lead
candidates are then used as the genetic starting material for additional rounds
of shuffling. Once the level of improvement needed for the particular
commercial application is achieved, the group of lead candidates is moved
forward to the product or process development stage.

[DIAGRAM OF MAXYGEN DNA SHUFFLING TECHNOLOGY]

Step One: DNAShuffling Technologies

Our DNAShuffling technologies work as follows: a single gene or multiple
genes are cleaved into fragments and recombined creating a population of novel
gene sequences. The novel genes created by DNAShuffling are then selected for
one or more desired characteristics. This selection process yields a population
of genes which becomes the starting point for the next cycle of recombination.
As with classical breeding, this process is repeated until genes expressing the
desired properties are identified.

DNAShuffling can be used to evolve properties which are coded for by single
genes, multiple gene pathways and entire genomes. By repeating the process,
DNAShuffling ultimately generates libraries with a high percentage of
functional genes. Due to the high quality of these libraries, only a relatively
small number of assays need to be performed in order to identify gene variants
with the desired commercial qualities. This process significantly reduces the
cost and time associated with identifying multiple product candidates.

Step Two: MaxyScan Screening of Shuffled Libraries

The ability to screen or select for a desired improvement in function is
essential to the effective development of a gene or protein with the desired
property. As a result, we have invested significant resources in developing
automated, rapid screens and selection formats.

We have developed flexible assay systems which measure the production of
small molecules in culture without significant purification steps or specific
assay reagents, thereby eliminating two time-consuming steps required for
traditional assays. We are also focusing on the development of reliable,
cell-based assays that are predictive of specific functions relevant to our
human therapeutics programs. Accordingly, we continue to develop new screening
approaches and technologies. Our approach is to create multitiered assay
systems whereby a less sensitive assay is used as a first screen to quickly
select gene products with the desired characteristics , followed by a more
sensitive assay to confirm value in these variants and to select for final lead
product candidates. Unlike approaches that create random diversity,
MolecularBreeding produces high-quality libraries of genetic diversity with a
predominance of active functional genes. This allows us to use complex
biological screens and formats as a final assay, as relatively few gene
products must be screened to detect an improvement in the starting gene
activity.

We have access to multiple sources of genetic starting material. In
addition to the wealth of publicly available genetic sequence information, we
are able to access our collaborators' proprietary genes. Furthermore, we are
able to inexpensively obtain our own genetic starting material which, when
coupled with the DNAShuffling process, provides a virtually infinite amount of
novel, proprietary high-value diversity.

Demonstrated Successes of MolecularBreeding in Multiple Applications

We have consistently achieved improvement in gene function using our
MolecularBreeding technologies. Impressive results have been demonstrated in
many different systems that have relevance to multiple commercial applications.
Our technologies have the ability to generate improvements that would be
difficult, costly, time intensive and, in many cases, impossible to achieve
using other methods. We have shown that a detailed understanding of the
underlying complex biological mechanisms is not required to achieve the desired
outcome.

For example, we have demonstrated our ability to improve genes that
increase the anti-viral activity of a protein and develop novel enzymes which
have the potential to streamline chemical and pharmaceutical manufacturing
processes. In addition, we have improved the performance of subtilisin, one of
the most commercially valuable laundry detergent enzymes. Subtilisin is one of
the most highly studied and engineered enzymes. This example demonstrates the
ability of MolecularBreeding to achieve significant improvements beyond the
limits of modern biotechnology. A summary of representative experiments
published by our scientists is set forth below.

Example Property Activity Increase Publication
- -----------------------------------------------------------------------------------------------------------

B-lactamase Increased antibiotic 32,000-fold Nature (1994)
resistance/enzyme activity
Antibody Increased expression level 100-fold Nature Medicine (1996)
Antibody Increased antibody/receptor (greater than) Nature Medicine (1996)
binding 440-fold
Green fluorescent Increased fluorescence 45-fold Nature Biotechnology (1996)
protein
B-galactosidase to Increase in activity 66-fold activity Proceedings of the
fucosidase National Academy of
Sciences (1997)
Increase in specificity 1,000-fold specificity
Arsenate pathway (3 Increased bacterial resistance 40-fold Nature Biotechnology (1997)
genes) to arsenate
Subtilisin protease Simultaneous improvement 2 to 4 fold in Nature Biotechnology (1999)
in 3 properties 3 properties
Cephalosporinase family Increased antibiotic resistance 270-540-fold Nature (1998)
Human A-interferon Increased activity as 285,000-fold Nature Biotechnology (1999)
family measured by antiviral activity
on mouse cells
HSV thymidine kinase Increased sensitivity to 32-fold Nature Biotechnology (1999)
family prodrug (AZT)

The Maxygen Strategy

Our goal is to be the world leader in the commercialization of products and
processes developed using directed molecular evolution. There are four basic
elements to our business strategy:

Expand Our Proprietary Technology Leadership. In order to expand our
technology leadership, we will continue to develop our core MolecularBreeding
technologies by investing significantly in research and development. We will
in-license and acquire technologies that complement our core capabilities. We
will protect and build on our existing patent portfolio and also rely on trade
secrets to protect our proprietary technologies. We will continue to recruit
and collaborate with leaders in the field of directed molecular evolution.

Expand Our Strategic Collaborations and Grants. We will continue to
establish strategic collaborations with leading companies in different
industries. We will also pursue additional grants from major U.S. government
agencies. Our goal is to leverage the combined expertise of Maxygen and

our collaborators. Additionally, we seek to receive financial support from our
collaborators for research and development of products and of our core
technologies, and potential milestone and royalty payments on any products
commercialized.

Maximize Commercial Applications of Our Technologies. We plan to develop
multiple products for multiple industries. We believe we have short, medium and
long-term commercial opportunities in the chemicals, agriculture and
pharmaceutical industries. We believe our technologies have broad commercial
applications, including the development of new and improved pharmaceuticals and
vaccines, better agricultural products and more efficient chemical
manufacturing systems.

Retain Our Commercialization Rights. We have invested and plan to invest
our own funds in certain specific areas and product opportunities with the aim
of capturing a high percentage of profits on product sales.

Potential Fields of Application

We believe that our MolecularBreeding technologies can be applied to many
different industries. Virtually any product or process that utilizes or could
utilize DNA or proteins can potentially be optimized using our
MolecularBreeding technologies. Potential applications of MolecularBreeding
technologies include the development of new high-value products and the
improvement of existing products and manufacturing processes. We can
potentially use multiple approaches to develop products to solve complex
problems, including the following:

In Medicine

. New and improved treatments for major diseases such as cancer,
cardiovascular disease, diabetes and obesity.

. New vaccines to treat and prevent viral diseases such as hepatitis, AIDS
and emerging viral diseases and parasitic diseases such as malaria which
affect millions of people each year.

. Therapeutic vaccines and gene therapies to treat and prevent autoimmune
diseases such as multiple sclerosis, allergies and cancer.

. Novel natural products for the development of better and cheaper
antibiotics to counter the spread of infectious organisms that have
developed a resistance to conventional antibiotics.

. Novel natural products as improved therapies for cancer.

. Novel gene therapies for treatments for hereditary diseases such as
hemophilia and cystic fibrosis.

In Agriculture and Food Production

. Crops with increased yields which require less fertilizers, herbicides or
insecticides.

. Plants which can thrive on land where they could not otherwise survive,
for example because of lack of water, high salt level or extreme
temperatures.

. Vaccines to treat and prevent diseases of farm animals.

. Nutritionally improved forms of food and animal feed.

. Food with increased health benefits.

In the Chemical Industry

. New, more cost-effective and more environmentally friendly production
systems for plastics, vitamins, pharmaceuticals, fibers and adhesives.

. Novel materials such as fibers and plastics.

. Plants as factories for the cheaper and more environmentally friendly
production of chemicals such as plastics and pharmaceuticals.

In the Environmental and Energy Industries

. New systems for controlling pollution, such as novel processes for
reduction of carbon emissions and polluting effluents.

. Alternative energy sources.

. Removal of pollutants, such as sulphur, from oil and other fossil fuels.

Current Fields of Application

We are currently applying our MolecularBreeding technologies to high-value
opportunities in the fields of chemicals, agriculture, prophylactic and
therapeutic vaccines and protein pharmaceuticals.

Chemicals

The chemicals industry is comprised of 3 major segments: commodity,
specialty and fine chemicals. Together, 1998 sales in these segments exceeded
$800 billion. Within these segments, approximately $50 billion is readily
addressable by biological processing, for example, either by fermentation or
biocatalysis. An additional $200 billion has been identified as being
potentially addressable by biological approaches within the next 10-20 years.
Included in the potential market is the manufacturing of major chemicals,
plastics, vitamins, pharmaceutical intermediates, biocatalysts, the pigments
and additives in paint and the polymers and fibers in our clothing. Native
enzymes are generally not able to meet the stringent activity requirements that
would allow for the broad commercial use of biocatalysts.

We have demonstrated that MolecularBreeding technologies allow for the
creation of novel biocatalysts and metabolic pathways that overcome the
limitations of native enzymes. We are currently generating libraries of
proprietary biocatalysts which we believe will offer a significant competitive
advantage over existing chemical catalysts. These biocatalysts could provide
increased yields and decreased manufacturing costs by a reduction in
requirements for raw materials, capital equipment and energy. In addition, we
believe these biocatalysts will have applicability in generating novel useful
materials.

We have established two collaborations in the chemical industry, one with
Novo Nordisk, the world's leading manufacturer of industrial enzymes, and
another with DSM, a leader in the production of bulk antibiotic products and
intermediates. Our partnership with Novo Nordisk was established in September
1997. Novo Nordisk had a market share of 45% of the industrial enzymes market
in 1998. The total industrial enzymes market (a segment of the chemicals
market) is estimated at $1.4 billion today, growing to over $3 billion by 2008.
Together with Novo Nordisk we are applying our MolecularBreeding technologies
for the potential production of improved industrial enzymes. For example, we
have significantly improved multiple commercially relevant properties in
subtilisin, one of the world's most highly engineered industrial enzyme
products. Under the five-year agreement, Novo Nordisk will pay us royalties on
any sales of industrial enzyme products that are developed through our
MolecularBreeding technologies.

In March 1999, we commenced a three-year strategic collaboration with DSM
to evolve novel enzymes for use in the manufacture of certain classes of
penicillin antibiotics. We are receiving research funding over the three-year
collaboration, and we will receive royalties from the implementation of any
evolved enzymes developed through our MolecularBreeding technologies.

In addition to the existing collaborations, we expect to pursue independent
development of high-value chemical products, as well as enter into additional
strategic alliances with leading chemical companies.

Agriculture

Today's agricultural biotechnology market is estimated at approximately $1
billion. It is expected to grow to approximately $6 billion by 2005. Over the
past decade, biotechnology has been used to provide protection from herbicides,
diseases and pests, resulting in impressive increases in crop yield.

The need for increased crop yield and the desire to move away from chemical
pesticides have combined with the sequencing of plant and insect genomes to
provide significant growth in agricultural biotechnology.

In addition to yield improvement, the agricultural industry is investing
heavily in biotechnology to develop crops with improved qualities such as
higher oil content, and enhanced nutritional value for human food or animal
feed.

A third area of great market potential is the use of plants as "factories"
where the plant produces a substance that has commercial value, generally when
processed and separated from the plant and sold as a pure preparation. Plants
potentially can be used to manufacture pharmaceutical products or specialty or
fine chemicals.

We believe our MolecularBreeding technologies can be used to create
numerous commercial opportunities in crop protection and in improved plant
quality traits. We are developing multiple commercial products for the
agriculture industry through commercial collaborations with two of the world's
leading agriculture companies, AstraZeneca and DuPont/Pioneer Hi-Bred. From
these collaborations we have committed funding of over $61 million and may
receive milestone payments of over $145 million based on the accomplishment of
specific performance criteria, as well as royalties on product sales. The
AstraZeneca and DuPont/Pioneer Hi-Bred collaborations fully fund our research
and development efforts under these collaborations, and provide us with a large
portfolio of potentially high-value gene products for the agricultural markets.

Together with our collaborators, we are working on a broad portfolio of 12
potential products in areas of yield improvement and quality traits. We have
retained significant rights to develop and market certain applications of the
products resulting from the collaborations. In addition to the existing
collaborations, we are currently pursuing and expect to pursue independent
development of high-value agricultural products, and intend to enter into
additional strategic alliances with leading agriculture companies.

Prophylactic and Therapeutic Vaccines

Worldwide sales of vaccines in 1998 exceeded $4 billion and are expected to
exceed approximately $10 billion by 2005. Vaccines have been used for decades
to prevent the onset of infectious disease in humans and animals. The vaccine
market has the potential to increase dramatically for several reasons. First,
vaccines are recognized as the preferred therapy for numerous infectious
diseases given the increasing drug resistance of pathogens and the inability to
prevent or effectively treat traditional and newly emerging viral infections.
Second, vaccines are also being investigated as treatments for cancer,
autoimmune diseases, allergy, and other non-infectious diseases. Third,
vaccines are being used increasingly by adult populations. Finally, vaccines
are being used increasingly by travelers from developed countries.

Vaccines are typically comprised of two elements: antigens, which are
components of the invading pathogen that are recognized by cells of the immune
system and trigger the body's defenses; and adjuvants, which are immune system
boosters. The development of vaccines has been hindered because existing
antigens and adjuvants are limited in their ability to generate the required
immune responses. We believe that we can generate novel vaccines that have the
potential to overcome the limitations of traditional vaccine development.

We have built our research and development capabilities in the vaccine area
with the support of government grant funding and have retained full
commercialization rights, subject only to a license to the U.S. government as
required by applicable statutes and regulations. Total committed government
grant funding in the vaccine area is over $22 million.

We believe our MolecularBreeding technologies have the potential ability to
transform the design and development of vaccines through the optimization of
properties that allow for the generation of broad and strong immune response.
This would enable us to address both the treatment and prevention of a wide
variety of diseases including cancer, allergy, autoimmune disease and
infectious diseases such as AIDS and hepatitis. We are developing a portfolio
of products in the vaccine area, including, for example, proprietary novel
optimized antigens and adjuvants for stimulating the immune system.

Protein Pharmaceuticals

In 1998, the worldwide sales of recombinant therapeutic proteins were
approximately $17 billion, and are projected to reach approximately $19 billion
in 2000. Recombinant protein pharmaceutical products, such as erythropoietin
(1998 worldwide sales of $4 billion) and granulocyte colony stimulating factor
(1998 worldwide sales of over $1.6 billion) represent some of the world's
highest revenue pharmaceutical products. While some native protein
pharmaceuticals can address large markets, many native proteins are not well
suited for commercialization without modification. We believe that our
MolecularBreeding technologies provide the capabilities necessary to attain
this optimization.

Our MolecularBreeding technologies potentially could be applied to improve
existing pharmaceutical proteins, create superior second generation high-value
proteins with, for instance, improved half-life, and create new proteins and
pioneer new therapies. Our MolecularBreeding technologies potentially could
also be applied to protein pharmaceuticals to improve desirable biological
activities, alter receptor specificity and binding activity, and reduce harmful
side effects and toxicities.

The area of human therapeutics presents significant opportunity for us as
the rapid cloning and sequencing of the human genome is leading to the
identification of hundreds of new genes and proteins that potentially could be
optimized and developed as novel protein pharmaceuticals. We are currently
working on a number of protein pharmaceuticals at the research stage. We are
pursuing a two-fold strategy to develop protein pharmaceuticals. First, we
intend to collaborate with leading pharmaceutical and biotechnology companies
and second, we are internally developing our own pharmaceutical product
pipeline for future collaboration opportunities, out-licensing or independent
commercialization.

The following chart summarizes the current status of our commercially-
focused research projects. This table does not include our proof of principle
research focused publications.

Current Status of Commercially-Focused Research Projects

[CHART]

Areas of Exploration

In addition to those areas described above, we will continue to evaluate
opportunities in fields such as antibody engineering, nutraceuticals, natural
products, gene therapy, liquid fuels and environmental applications. We are
assessing these and other commercialization opportunities through discussions
with potential corporate and academic collaborators and U.S. government
agencies. In many instances, initial technology development and proof of
principle models have already been established. Additional development may be
funded through federal grants, corporate collaborators or our own funds.

Monoclonal Antibodies

Our MolecularBreeding technologies potentially allow for the generation of
novel antibodies with improved specificity and other improved therapeutic
properties for multiple diseases. Monoclonal antibodies are an important sector
of the biotechnology industry representing over 20% of all biopharmaceutical
products in development. Several, including Genentech's Herceptin(R) and
Novartis' Simulect(R), have recently been approved for commercial sale by FDA
and have potential utility in a broad range of diseases.

Nutraceuticals

We believe that our technologies may be applied to individual genes, gene
families and entire complex biological pathways to develop foods, nutritional
supplements and animal feed with improved health benefits. Specific
applications include vitamins, sweeteners, preservatives, and cholesterol
lowering agents. These are potentially high-value products that are currently
receiving significant attention in both the food and pharmaceutical industries.

Natural Product Drug Discovery

Natural products and natural product derivatives represent approximately
80% of 1998 product sales in the areas of antibiotics and cancer therapies. We
may enter into collaborations with biotechnology and pharmaceutical companies
to generate novel libraries of lead natural product compounds by modifying
enzymes and metabolic pathways through MolecularBreeding. We believe that novel
enzymes and pathways created through MolecularBreeding may allow for the
generation of natural product analogues in ways that are not feasible using
existing medicinal or combinatorial chemistry. Our efforts could potentially
create novel natural products with increased activity, half-life,
bioavailability or specificity.

Gene Therapy

Gene therapy is an approach to treat or prevent certain diseases by
introducing therapeutic genes into target cells to produce specific proteins
that will elicit a desired therapeutic response. We believe that our
MolecularBreeding technologies are potentially well suited to the development
of gene delivery and cell-targeting systems that could improve current modes of
disease treatment and prevention. We have completed two internal programs that
demonstrate the technical feasibility of MolecularBreeding to improve the
properties of viral and non-viral gene therapy delivery vectors.

Liquid Fuels and Environmental Uses

The depletion of fossil fuels and the effects of carbon dioxide emissions
on the environment have raised awareness of the need to develop alternative
fuels. Our MolecularBreeding technologies may be employed to develop biological
systems that produce cleaner burning fuels, such as methanol and ethanol, from
alternative carbon sources, such as plant biomass and animal waste rather than
petroleum. Additionally, our MolecularBreeding technologies potentially could
be used to develop biocatalytic systems which could capture carbon dioxide
which would otherwise be released to the environment, and use it to produce
value-added products, such as fertilizer, polymers and plastics, and cleaner
burning fuels.

Corporate Collaborations

Since inception, we have entered into strategic collaborations and several
additional proof of principle collaborations with commercial entities and have
received six grants from U.S. government agencies. We have total committed
funding of over $94 million, of which approximately $67 million is from our
collaborators and $27 million from government funding. Of these committed
funds, approximately $11 million have been expended and in addition $10 million
has been received in consideration of purchase of our equity. In addition,
potential milestone payments from our existing collaborations could exceed $145
million based on the accomplishment of specific performance criteria, in
addition to earned royalties on product sales. We expect that strategic
collaborations and government grants will continue to be an important element
of our business strategy.

In our strategic collaborations, in exchange for commercial licenses to the
products developed during the program in specified fields, we typically seek
up-front license fees, collaborative research funding, technology advancement
funding, milestone payments for significant developments and royalties on
product sales.

We have entered into the following significant collaborations:

Novo Nordisk

In September 1997, we entered into a five year strategic collaboration with
Novo Nordisk A/S, the world's largest producer of industrial enzymes, for the
development and bulk production of specific industrial enzymes in fields such
as laundry detergents, leather processing and pulp and paper manufacturing.
Industrial enzymes are used for a broad spectrum of activities ranging from
food preparation, to detergents, to pulp and paper manufacturing. Industrial
enzymes today represent over a $1.4 billion market.

Novo Nordisk will use our MolecularBreeding technologies to generate new
industrial enzymes. In addition, Novo Nordisk has made a five year commitment
to contribute funding for the research and development of new directed
evolution technologies. Under the agreement, Novo Nordisk has an exclusive
royalty-bearing license to use our MolecularBreeding technologies to develop
proteins and enzymes for use in certain industrial enzyme fields. We have
received an exclusive royalty free license to certain Novo Nordisk
complementary technologies in all fields outside the scope of the
collaboration. Under this agreement, Novo Nordisk will pay us a royalty on the
sales of industrial enzyme products developed using our MolecularBreeding
technologies.

DuPont/Pioneer Hi-Bred

In December 1998, we entered into a five year strategic collaboration with
Pioneer Hi-Bred International, Inc., a wholly-owned subsidiary of E.I. duPont
de Nemours and Company, to utilize our MolecularBreeding technologies to
generate novel gene products for use in the development of specific crop
protection and quality grain traits in corn, soybeans, and certain other crops.
Under the terms of the agreement, in exchange for global commercialization
rights, DuPont/Pioneer Hi-Bred purchased $5 million of our preferred stock and
paid $2.5 million in up-front license fees. In addition, DuPont/Pioneer Hi-Bred
has committed to pay us $27.5 million over five years for research and
technology development, as well as possible milestone payments of up to $45
million based on the accomplishment of specific performance criteria and
royalties on future product sales, if any. This agreement may be terminated by
Dupont/Pioneer Hi-Bred after three years, upon six months notice, if a
specified technological milestone has not been met.

DSM

In March 1999, we entered into a three-year collaboration with Gist-
brocades N.V., a subsidiary of DSM N.V., to utilize our proprietary
MolecularBreeding technologies to develop certain novel

enzymes for use in the manufacture of certain classes of penicillin
antibiotics. Under the terms of the agreement, in exchange for global
commercialization rights, we will receive research funding over three years and
will receive royalties from the commercialization of any enzymes developed
through our MolecularBreeding technologies.

AstraZeneca

In June 1999, we entered into a five year strategic collaboration with
Zeneca Limited, a wholly-owned subsidiary of AstraZeneca plc, to utilize our
MolecularBreeding technologies to improve the yield and quality of several of
AstraZeneca's strategic crops. AstraZeneca is one of the world's leading
agricultural companies. We have received $5 million in a preferred stock equity
investment and could receive up to $21.5 million for research and development
funding and technology advancement funding. We may receive over $100 million in
potential milestone payments based on the accomplishment of specific
performance criteria, in addition to royalties on product sales. In addition,
each year of the collaboration AstraZeneca has the right to substitute their
obligation to pay us $1 million in annual technology advancement funding with a
$3 million equity investment at a 50% premium to the current market value.

In addition to the above collaborations, we have entered into several proof
of principle collaborations with parties such as Abbott, Pfizer and Novartis.

U.S. Government Grants

Government grants allow us to focus on key internal scientific programs. In
addition, we retain ownership of all intellectual property and commercial
rights generated during the project, subject to rights retained by the U.S.
government as required by the applicable statutes and regulations. We have
obtained grant funding of over $27 million, primarily for the development of
vaccines and the advancement of core technology, as outlined below.

Summary of Grants

Granting Dollar
Area of Grant Agency Description Grant Date Amount
- ------------------------------------------------------------------------------------------------

Improved Drug Testing NIST-ATP Use of MolecularBreeding Sept. 1997 $2.0 million
technologies to develop new assay
systems for use in accelerated
discovery and development of new
AIDS therapies and vaccines.

Evolution of Vectors DARPA Use of MolecularBreeding Feb. 1998 $5.6 million
technologies to evolve a new
generation of DNA vectors for
rapid and efficient delivery of
antigens for immunization.

Whole Genome Shuffling NIST-ATP Use of MolecularBreeding Oct. 1998 $1.2 million
technologies to develop new or
improved manufacturing processes.

Decontamination DARPA Use of MolecularBreeding Dec. 1998 $3.8 million
technologies to create
enzyme-based decontamination
reagents effective against pathogens.

Novel Therapeutic and DARPA Use of MolecularBreeding April 1999 $7.7 million
Prophylactic DNA technologies to generate
Vaccines novel vaccines with a broad
spectrum of activity against
multiple strains of several
different pathogens.

Aerosol-Based Vaccines DARPA Use of MolecularBreeding Sept. 1999 $6.8 million
technologies to deliver
aerosol-based prophylactic and
therapeutic agents.

Intellectual Property and Technology Licenses

Pursuant to the technology transfer agreement we entered into with Affymax
Technologies N.V. and Glaxo Group Limited, each a wholly-owned subsidiary of
Glaxo Wellcome plc, we were assigned all rights to the patents, applications
and know-how related to MolecularBreeding technologies. Affymetrix, Inc.
retains an exclusive, royalty-free license under the patents and patent
applications previously owned by Affymax for use in the diagnostics and
research supply markets for specific applications. In addition, Affymax
assigned jointly to us and to Affymetrix a family of patent applications
relating to circular PCR techniques.

We have an extensive patent portfolio including 5 issued U.S. patents
relating to our proprietary MolecularBreeding technology. Counterpart
applications of these U.S. patents are pending in other major industrial
countries. We have an additional 77 pending U.S. patent applications and 63
pending foreign and international counterpart applications relating to our
MolecularBreeding technologies and specialized screening technologies, and the
application of these technologies to diverse industries including agriculture,
protein pharmaceuticals, vaccines, gene therapy, chemicals, and small molecules
therapeutics.

We have exclusively licensed patent rights and technology for specific uses
from Novo Nordisk, the California Institute of Technology, Stanford University
and the University of Washington. These licenses give us rights to an issued
U.S. patent, 10 U.S. patent applications, and 79 additional international or
foreign counterpart applications.

In addition, we received from Affymax a worldwide, non-exclusive license to
certain Affymax patent applications and patents related to phage display
technology.

Competition

We believe we are the leader in the field of directed molecular evolution.
We are aware that companies such as Diversa and Ixsys have alternative methods
for obtaining genetic diversity. Academic institutions such as Caltech and the
University of Washington are working in this field, and we have licensed
certain technology from Caltech and the University of Washington. In the
future, we expect the field to become highly competitive and that companies and
academic and research institutions will seek to develop technologies that could
be competitive with our MolecularBreeding technologies.

Any products that we may develop through our MolecularBreeding technologies
will compete in highly competitive markets. Many of our potential competitors
in these markets have substantially greater financial, technical and personnel
resources than we do, and we cannot assure you that they will not succeed in
developing technologies and products that would render our technologies and
products and those of our collaborators obsolete or noncompetitive. In
addition, many of those competitors have significantly greater experience than
we do in their respective fields.

Employees

As of September 30, 1999, we had 109 full-time employees, 53 of whom hold
Ph.D. or M.D. degrees and 88 of whom were engaged in full-time research
activities. We plan to expand our corporate development programs and hire
additional staff as corporate collaborations and government grants are
established. We continue to search for qualified individuals with
interdisciplinary training and flexibility to address the various aspects and
applications of our technologies. None of our employees are represented by a
labor union, and we consider our employee relations to be good.

Facilities

We lease an aggregate of 47,880 square feet of office and laboratory
facilities in Redwood City, California. The lease expires on February 24, 2005
with respect to 31,166 square feet and on March 31, 2002 with respect to 16,714
square feet. We have an option to extend the term of the lease for three years
with respect to the 16,714 square feet. We believe that the facilities we
currently lease are sufficient for the next 6 months. We believe we will
require additional space thereafter and will seek additional facilities.

Legal Proceedings

We are not currently a party to any material pending legal proceedings.

MANAGEMENT

Directors and Executive Officers

Our directors and executive officers as of September 30, 1999 are as
follows:

Name Age Position
---- --- --------

Director, President and Chief Executive
Russell J. Howard, Ph.D....... 49 Officer
Simba Gill, Ph.D.............. 35 Chief Financial Officer and Senior Vice
President of Business Development
Michael Rabson, Ph.D.......... 45 General Counsel and Senior Vice President
of Legal Affairs
Willem P.C. Stemmer, Ph.D. ... 42 Vice President of Research
Joseph Affholter, Ph.D. ...... 35 Vice President of Biocatalysis and
Chemical Processing
Director of Intellectual Property, Chief
Norman Kruse, Ph.D............ 50 Patent Counsel
Isaac Stein (1)(2)............ 53 Chairman of the Board and Director
Robert J. Glaser, M.D. (2).... 81 Director
M.R.C. Greenwood, Ph.D........ 56 Director
Adrian Hennah (1)............. 42 Director
Gordon Ringold, Ph.D. (1)(2).. 48 Director
Julian N. Stern............... 75 Secretary

- --------
(1)Member of the audit and finance committee

(2)Member of the compensation committee

Russell J. Howard, Ph.D., has served as our President, Chief Executive
Officer and Director since June 1998 and is one of our co-founders. Dr. Howard
was elected our President and Chief Operating Officer in May 1997. Originally
trained in biochemistry and chemistry, Dr. Howard has spent over 20 years
studying infectious diseases, primarily malaria, and currently serves on the
National Institutes of Health and USAID advisory panels for malaria vaccine
development. Prior to joining Maxygen, Dr. Howard was from August 1994 to June
1996 the President and Scientific Director of Affymax Research Institute.

Simba Gill, Ph.D., joined us in July 1998 as the Chief Financial Officer
and Senior Vice President of Business Development. Prior to joining us, from
November 1996 to July 1998, Dr. Gill was at Megabios Corp. where he was Vice
President of Business Development. Prior to this from November 1995 to November
1996, Dr. Gill was Director of Business Development at Systemix. Prior to
joining Systemix, Dr. Gill worked at Boehringer Mannheim in a variety of
corporate functions including Global Product Manager for Erythropoietin,
Manager of Corporate Business Development and Director of New Diagnostics
Program Management. Dr. Gill received his Ph.D. in immunology at King's
College, London University in collaboration with the U.K. biotechnology company
CellTech, and his M.B.A. from INSEAD in Fontainebleau, France.

Michael Rabson, Ph.D., joined us in September 1999 as Senior Vice President
of Legal Affairs and General Counsel. Prior to joining us from February 1996 to
September 1999, Dr. Rabson was a member of Wilson Sonsini Goodrich & Rosati,
P.C. Prior to becoming a member, Dr. Rabson was an associate at Wilson Sonsini
Goodrich & Rosati, P.C. Dr. Rabson received his Ph.D. in infectious disease
epidemiology from Yale University and did a post-doctoral fellowship at the
National Cancer Institute, National Institutes of Health. He was a patent
examiner at the U.S. Patent and Trademark Office before he received his law
degree from Yale Law School.

Willem P.C. Stemmer, Ph.D., is one of our co-founders and the inventor of
MolecularBreeding. He has served as our Vice President of Research since March
1997. Dr. Stemmer's background is in medical genetics, where he originally
worked on antibody engineering for immunotherapy of cancer. Prior to the
organization of Maxygen, he was a distinguished scientist at Affymax Research
Institute from 1992 to 1996. He is a co-founder and board member of the
Diversity Biotechnology Consortium, a joint academic

and business effort focused on theoretical issues in molecular diversity and
evolution. Dr. Stemmer has pioneered our MolecularBreeding technologies and has
authored more than 14 papers on the subject and is the named inventor on more
than 20 patent applications covering the technologies and, to date, five issued
patents.

Joseph Affholter, Ph.D., joined us in April 1998 as Vice President of
Biocatalysis and Chemical Processing. Prior to joining us, Dr. Affholter was
from 1997 to 1998 a member of the Biotechnology Steering Committee and from
July 1996 to March 1998 was the research leader of the biotechnology program at
the Dow Chemical Company. Prior to this, Dr. Affholter was the project leader
of industrial biocatalysis research and development. Dr. Affholter serves on a
number of academic and corporate technical advisory boards and has given
numerous invited seminars on the coming impact of biotechnology on the chemical
industry. Dr. Affholter received his B.S. degree in chemistry from Michigan
Technological University and his Ph.D. in molecular pharmacology from Stanford
University.

Norman Kruse, Ph.D., J.D., joined us in March 1998 as the Director of
Intellectual Property, Chief Patent Counsel. Prior to joining us, from December
1995 to February 1998, Dr. Kruse was a patent attorney at Chiron Corporation.
Dr. Kruse was a patent attorney at Townsend and Townsend and Crew from January
1993 to December 1995. Dr. Kruse received his Ph.D. in molecular biology from
the University of Washington and worked initially as a scientist and manager in
the diagnostics industry. Subsequently, he managed technology assessment and
acquisition for Triton Biosciences, during which time he obtained his J.D. from
Golden Gate University of Law in San Francisco.

Isaac Stein, has served as our Chairman of the Board since June 1998 and a
director since May 1996 and is one of our co-founders. Since November 1982, Mr.
Stein has been president of Waverley Associates, Inc. a private investment
firm. Mr. Stein is also a Managing Member of Technogen Enterprises, L.L.C. and
Technogen Managers, L.L.C., which is the general partner of Technogen
Associates, L.P. and a director of ALZA Corporation, the Benham Group of mutual
funds and CV Therapeutics, Inc. He is also a trustee of Stanford University and
the Chairman of the Board of UCSF Stanford Health Care.

Robert J. Glaser, M.D., has served as our Director since September 1997.
Dr. Glaser was Director for Medical Science at the Lucille P. Markey Charitable
Trust from 1984 to June 1997, and a trustee from 1988 to June 1997. In
accordance with donor's will, the Trust ceased operations in June 1997. Dr.
Glaser is also a director of ALZA Corporation and Hanger Orthopedic Group, Inc.
Dr. Glaser has held faculty appointments at several universities, including
Dean of the School of Medicine at Stanford University and Professor of Social
Medicine at Harvard University. Originally trained as an internist, Dr. Glaser
has 124 publications on streptococcal infections, rheumatic fever, medical
education and health care, as well as being a contributor to numerous
scientific treatises.

M.R.C. Greenwood, Ph.D., has served as our Director since February 1999.
Dr. Greenwood has been Chancellor of the University of California ("UC") at
Santa Cruz since July 1996. Prior to being named Chancellor of UC Santa Cruz,
Dr. Greenwood was Dean of Graduate Studies and Vice President at UC Davis from
July 1989 to July 1996. In addition, from November 1993 to May 1995, Dr.
Greenwood took a leave from UC Davis to serve as Associate Director for Science
in the White House Office of Science and Technology Policy. Dr. Greenwood
received her doctorate in physiology, developmental biology and neurosciences
from Rockefeller University.

Adrian Hennah has served as our Director since September 1997. Mr. Hennah
has held several key positions in the Glaxo Wellcome Organization. He is
currently Chief Financial Officer of Glaxo Wellcome Inc. Prior to that, Mr.
Hennah had a range of responsibilities within research and development
including finance, business redesign and strategy process, human resources and
engineering, and he led the team coordinating the integration of Glaxo and
Wellcome. Mr. Hennah has a degree in law from Cambridge University and is a
Sloan Fellow of the London Business School.

Gordon Ringold, Ph.D., has served as our Director since September 1997.
Since March 1995, Dr. Ringold has been Chief Executive Officer and Scientific
Director of Affymax Research Institute where he manages the development of
novel technologies to accelerate the pace of drug discovery. Prior to serving
as Chief Executive Officer, Dr. Ringold was the President and Scientific
Director of Affymax Research Institute. Dr. Ringold received his Ph.D. in the
laboratory of Dr. Harold Varmus, prior to joining the Stanford University
School of Medicine, Department of Pharmacology, and serving as the Vice
President and Director of the Institute for Cancer and Development Biology of
Syntex Research. Dr. Ringold is a Managing Member of Technogen Enterprises,
L.L.C. and Technogen Managers, L.L.C., which is the general partner of
Technogen Associates, L.P. and has served as Chairman and Chief Executive
Officer of SurroMed, a biotechnology company focused on novel clinical
databases since 1997.

Julian N. Stern, J.D., has served as our Secretary since March 1997. He is
the sole employee of a professional corporation that is a partner of the law
firm of Heller Ehrman White & McAuliffe and is a director of ALZA Corporation.

Scientific Advisory Board

The following individuals are members of our Scientific Advisory Board:

Baruch S. Blumberg, M.D, Ph.D., is a Distinguished Scientist at Fox Chase
Cancer Center, Philadelphia, and University Professor of Medicine and
Anthropology at the University of Pennsylvania. Dr. Blumberg's research has
covered many areas including clinical research, epidemiology, virology,
genetics and anthropology. Dr. Blumberg was awarded the Nobel Prize in 1976
for his work on infectious diseases and specifically for the discovery of the
hepatitis B virus and has also been elected to the National Inventors Hall of
Fame for similar work. Dr. Blumberg's research and insight into infectious
diseases are valuable to Maxygen programs related to vaccines and hepatitis B
in particular.

Arthur Kornberg, M.D., is an active Professor Emeritus at the Stanford
University School of Medicine, Department of Biochemistry. Dr. Kornberg has
received numerous accolades including several honorary degrees and awards, the
National Medal of Science, and the Nobel Prize in Medicine in 1959. He is a
member of several prestigious scientific societies and serves as a member of
several scientific advisory boards. Dr. Kornberg's years of research in
enzymes and metabolism is a valuable contribution to directing the internal
research programs of Maxygen.

Joshua Lederberg, Ph.D., a research geneticist, is Professor Emeritus at
the Rockefeller University, in New York. Formerly, Dr. Lederberg was a
professor of genetics at the University of Wisconsin and at Stanford
University School of Medicine. Dr. Lederberg is a pioneer in the field of
bacterial genetics with the discovery of genetic recombination in bacteria,
work for which he received the Nobel Prize in Physiology and Medicine in 1958.
Maxygen is funding work in Dr. Lederberg's laboratory pertaining to the study
of cell fusion and the generation of genetically diverse recombinants. His
work and guidance in genetic recombination is important to our
MolecularBreeding technologies.

Alejandro C. Zaffaroni, Ph.D., is one of our co-founders. Dr. Zaffaroni is
a biochemist by training and a highly successful biotechnology entrepreneur,
who has co-founded and built several companies including ALZA Corporation,
DNAX Institute of Molecular and Cellular Biology, Affymax N.V. and Affymetrix,
Inc. Dr. Zaffaroni has repeatedly recognized the commercial value of leading-
edge technologies and has turned those visions into highly successful
companies. In 1995, Dr. Zaffaroni was awarded the National Medal of Technology
by President Clinton in recognition of his contributions to the pharmaceutical
and biotechnology industries. Dr. Zaffaroni is a member of the Managing
Partner of Technogen Associates, L.P.

Frances Arnold, Ph.D., is a Professor of Chemical Engineering and
Biochemistry at the California Institute of Technology. She received her Ph.D.
in Chemical Engineering from the University of California, Berkeley. Following
post-doctoral research appointments in Chemistry at Berkeley and Caltech, she
joined Caltech's Division of Chemistry and Chemical Engineering in 1987. She
has authored or co-authored more

than 120 publications and has 18 patents issued or pending. She serves on the
editorial boards of Protein Engineering and the Journal of Molecular Catalysis:
Enzymatic and is a member of the Science Board of the Santa Fe Institute. Dr.
Arnold's research focuses on engineering new enzymes and pathways by directing
their evolution in the laboratory. Her group collaborates with numerous
academic and industrial groups interested in enzymes and their applications in
biotechnology, chemicals synthesis and medicine. Her awards include an Office
of Naval Research Young Investigator Award, a Presidential Young Investigator
Award and a David and Lucille Packard Fellowship in Science and Engineering.
Maxygen is funding work at Dr. Arnold's laboratory pertaining to directed
molecular evolution. Dr. Arnold provides on-going guidance in the field of
directed molecular evolution and its applications in the chemical industry.

Board Composition and Committees

We currently have six directors.

Our board of directors currently has an audit committee and a compensation
committee. The audit committee consists of Adrian Hennah, Gordon Ringold and
Isaac Stein. The audit committee makes recommendations to the board of
directors regarding the selection of independent auditors, reviews the scope of
audit and other services by our independent auditors, reviews the accounting
principles and auditing practices and procedures to be used for our financial
statements and reviews the results of those audits. The compensation committee
consists of Robert J. Glaser, Gordon Ringold and Issac Stein. The compensation
committee makes recommendations to the board of directors regarding our stock
and compensation plans, approves compensation of certain officers and grants
stock options.

Compensation Committee Interlocks and Insider Participation Interlocks

None of the members of the compensation committee is currently, or has ever
been at any time since our formation, one of our officers or employees, nor has
served as a member of the board of directors or compensation committee of any
entity that has one or more officers serving as a member of our board of
directors or compensation committee.

In March 1998, Dr. Ringold executed a full recourse promissory note in the
amount of $99,000 in favor of Maxygen for the payment of the exercise price in
connection with the exercise of options to purchase 550,000 shares of our
common stock. In addition, in August 1998, Dr. Ringold purchased 16,667 shares
of Series B preferred stock at a purchase price of $3.00 per share. In March
1997, Mr. Stein issued a full recourse promissory note in the amount of
$120,000, of which $98,800 is outstanding, in favor of Maxygen in connection
with the purchase of 600,000 shares of our common stock. In addition, in August
1998, the Stein 1995 Revocable Trust, of which Mr. Stein is a trustee,
purchased 31,667 shares of Series B preferred stock at a price of $3.00 per
share and Stein Partners, of which Mr. Stein is a partner, purchased 41,667
shares of Series B preferred stock at a price of $3.00 per share.

Director Compensation

Our nonemployee directors are reimbursed for expenses incurred in
connection with attending board and committee meetings but are not compensated
for their services as board or committee members. We have in the past granted
nonemployee directors options to purchase our common stock pursuant to the
terms of our stock plans, and our board continues to have the discretion to
grant options to new nonemployee directors. Beginning after our stockholders
meeting in 2000, our nonemployee directors will each receive nondiscretionary,
automatic grants of options to purchase 20,000 shares of our common stock upon
joining the board of directors and nondiscretionary, automatic grants of
options to purchase 5,000 shares of our common stock each year pursuant to the
1999 Nonemployee Directors Stock Option Plan.

Executive Compensation

The following table sets forth the compensation paid by us during 1998 to
our Chief Executive Officer and to our four other most highly compensated
executive officers who received salary and bonus compensation of more than
$100,000 during 1998. The following table also sets forth compensation
information about Michael Rabson, who would have been one of our four most
highly compensated executive officers if he had been employed by us in fiscal
year 1998.

Summary Compensation Table

Long-Term
Compensation
------------
Awards
Annual Compensation Securities
-------------------- Underlying All Other
Name and Position Year Salary Bonus Options Compensation
----------------- ---- ------ ----- ------------ ------------

Russell J. Howard............... 1998 $218,333 $ -- 200,000 $ --
President, Chief Executive
Officer and Director
Simba Gill(1)................... 1998 99,750 10,000 330,000 35,864(2)
Chief Financial Officer and
Senior Vice President of
Business Development
Michael Rabson(3)............... 1998 -- -- -- --
Senior Vice President of Legal
Affairs and General Counsel
Willem P.C. Stemmer............. 1998 136,667 -- -- --
Vice President of Research
Joseph Affholter(4)............. 1998 84,480 10,000 110,000 82,397(5)
Vice President of Biocatalysis
and Chemical Processing
Norman Kruse(6)................. 1998 118,767 10,000 87,500 114,809(7)
Director of Intellectual
Property, Chief Patent Counsel

- --------
(1) Dr. Gill joined Maxygen in July 1998. His annual salary is $190,000.

(2) Consists of $35,864 for reimbursement of relocation expenses.

(3) Dr. Rabson joined Maxygen in September 1999. Dr. Rabson's annual salary is
currently $220,000.

(4) Dr. Affholter joined Maxygen in May 1998. His annual salary is $135,960.

(5) Consists of $39,953 in the form of a housing allowance and $42,444 for
reimbursement of relocation expenses.

(6) Dr. Kruse joined Maxygen in March 1998. His annual salary is $144,200.

(7) Consists of $31,233 in the form of a housing allowance and $83,575 for
reimbursement of relocation expenses.

Stock Options Granted in the Fiscal Year Ended December 31, 1998

The following table sets forth information with respect to stock options
granted during the fiscal year ended December 31, 1998 to each of the named
executive officers. All options were granted under Maxygen's 1997 Stock Option
Plan. The following options are immediately exercisable in full at the date of
grant, but shares purchased on exercise of unvested options are subject to a
repurchase right in our favor that entitles us to repurchase unvested shares at
their original exercise price on termination of the employee's services with
us. The repurchase right lapses as to 25% of the shares on the first
anniversary of the grant date and the balance, ratably by year, over the next
three years.

The percentage of options granted is based on an aggregate of 1,537,120
options granted by Maxygen during the fiscal year ended December 31, 1998 to
our employees, including the named executive officers. The potential realizable
value amounts in the last two columns of the following chart represent
hypothetical gains that could be achieved for the respective options if
exercised at the end of the option term. The assumed 5% and 10% annual rates of
stock price appreciation from the date of grant to the end of the option term
are provided in accordance with rules of the SEC and do not represent our
estimate or projection of the future common stock price. Actual gains, if any,
on stock option exercises are dependent on the future performance of the common
stock, overall market conditions and the option holder's continued employment
through the vesting period.

Individual Grants
------------------------------------------
Potential
Realizable
Value at
% of Assumed Annual
Total Rates of Stock
Options Price
Number of Granted Appreciation
Securities to Exercise for Option
Underlying Employees Price Terms
Options in Fiscal Per Expiration ---------------
Name Granted Year Share Date 5% 10%
---- ---------- --------- -------- ---------- ------- -------

Russell J. Howard
President, Chief
Executive Officer and
Director............... 200,000 13.0% $0.30 6/16/08 $37,733 $95,624
Simba Gill
Chief Financial Officer
and Senior Vice
President of Business
Development............ 330,000(1) 21.5% 0.30 6/16/08 62,261 157,781
Michael Rabson
Senior Vice President
of Legal Affairs and
General Counsel(2)..... -- -- -- -- -- --
Willem P.C. Stemmer
Vice President of
Research.............. -- -- -- -- -- --
Joseph Affholter
Vice President of
Biocatalysis and
Chemical Processing.... 110,000 7.2% 0.30 6/16/08 20,753 52,593
Norman Kruse
Director of
Intellectual Property,
Chief Patent Counsel... 87,500 5.7% 0.20 3/11/08 11,006 27,890

- --------
(1) Our right of repurchase lapses over a four-year period with respect to 25%
of the underlying shares at the first anniversary of the grant date and in
equal monthly installments over the next three years.

(2) Dr. Rabson joined Maxygen in September 1999.

Aggregated Option Exercises in Fiscal Year 1998 and Fiscal-Year End Option
Values

The following table sets forth certain information regarding exercised
stock options during the fiscal year ended December 31, 1998 and unexercised
options held as of December 31, 1998 by each of the named executive officers.
All options were granted under our 1997 Stock Option Plan. These options are
immediately exercisable in full at the date of grant, but shares purchased on
exercise of unvested options are subject to a repurchase right in our favor
that entitles us to repurchase unvested shares at their original exercise price
on termination of the employee's services with us. Unless otherwise indicated,
the repurchase right lapses as to 25% of the shares on the first anniversary of
the grant date and the balance, ratably by year, over the next three years. The
value realized is based on the fair market value of the underlying securities
as of the date of exercise, minus the per share exercise price, multiplied by
the number of shares underlying the option. The value of unexercised in-the-
money options are based on a value of $0.50 per share, the fair market value of
our common stock on December 31, 1998 as determined by our board of directors.
Amounts reflected are based on the value of $0.50 per share, minus the per
share exercise price, multiplied by the number of shares underlying the option.
Each of the people below who exercised options paid the entire exercise price
with a full recourse promissory note secured by the acquired stock, except Dr.
Gill who paid 10% of the exercise price by cash and the remaining amount with a
full recourse promissory note.

Number Of
Securities Value Of
Underlying Unexercised
Unexercised In-The Money
Options At Options At
Shares Fiscal Year-End(#) Fiscal Year-End($)
Acquired On Value ------------------------- -------------------------
Name Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ---------- ----------- ------------- ----------- -------------

Russell J. Howard
President, Chief
Executive Officer and
Director............... 150,000 -- 200,000 -- $40,000 --
Simba Gill
Chief Financial Officer
and Senior Vice
President of Business
Development(1) ........ 330,000 33,000 -- -- -- --
Michael Rabson(2)
Senior Vice President
of Legal Affairs and
General Counsel........ -- -- -- -- -- --
Willem P.C. Stemmer
Vice President of
Research............... 300,000 -- -- -- -- --
Joseph Affholter
Vice President of
Biocatalysis and
Chemical Processing.... -- -- 110,000 -- 22,000 --
Norman Kruse
Director of
Intellectual Property,
Chief Patent Counsel... -- -- 87,500 -- 26,250 --

(2) Dr. Rabson joined Maxygen in September 1999.

Employee Benefit Plans

1997 Stock Option Plan

Our 1997 Stock Option Plan was adopted by our board of directors on March
1, 1997. This plan provides for the grant of incentive stock options to our
employees and nonstatutory stock options to our employees, directors and
consultants. As of September 30, 1999, 7,500,000 shares of common stock were
reserved for issuance under this plan. Of these shares, 2,340,830 had been
issued upon exercise of stock options, 3,031,795 shares were subject to
outstanding options and 2,127,375 shares were available for future grant.

Our board of directors or a committee appointed by the board administers
the stock plan and determines the terms of options granted, including the
exercise price, the number of shares subject to individual option awards and
the vesting period of options. The exercise price of nonstatutory options must
generally be at least 85% of the fair market value of the common stock on the
date of grant. The exercise price of incentive stock options cannot be lower
than 100% of the fair market value of the common stock on the date of grant
and, in the case of incentive stock options granted to holders of more than 10%
of our voting power, not less than 110% of the fair market value. The term of
an incentive stock option cannot exceed 10 years, and the term of an incentive
stock option granted to a holder of more than 10% of our voting power cannot
exceed five years.

A participant may not transfer rights granted under our stock option plan
other than by will, the laws of descent and distribution or as otherwise
provided under the stock option plan.

Options granted under our stock option plan will accelerate and become
fully exercisable for a period of 30 days in the event we are acquired, unless
the successor corporation assumes or substitutes other equivalent options in
their place. Our board of directors may not, without the adversely affected
optionee's prior written consent, amend, modify or terminate the stock plan if
the amendment, modification or termination would impair the rights of
optionees. Our stock option plan will terminate in 2007 unless terminated
earlier by the board of directors.

1999 Employee Stock Purchase Plan

Our board of directors adopted our 1999 Employee Stock Purchase Plan on
September 29, 1999. This plan provides our employees with an opportunity to
purchase our common stock through accumulated payroll deductions.

A total of 400,000 shares of common stock has been reserved for issuance
under the purchase plan. In addition, the purchase plan provides for annual
increases in the number of shares available for issuance under the purchase
plan on the first day of each year, beginning January 1, 2001, equal to 200,000
shares or such lesser amount as may be determined by the board.

The board of directors or a committee appointed by the board administers
the purchase plan. The board or its committee has full and exclusive authority
to interpret the terms of the purchase plan and determine eligibility.

Employees are eligible to participate if they are customarily employed by
us or any participating subsidiary for at least 20 hours per week and more than
five months in any calendar year. However, an employee may not be granted an
option to purchase stock under the purchase plan if such an employee:

. immediately after grant owns stock possessing five percent or more
of the total combined voting power or value of all classes of our
capital stock, or

. whose rights to purchase stock under all of our employee stock
purchase plans accrues at a rate which exceeds $25,000 worth of
stock for each calendar year.

The purchase plan, which is intended to qualify under Section 423 of the
Internal Revenue Code of 1986, as amended, allows for favorable tax treatment
of participants, offering periods of up to 24 months, as determined by the plan
administrator, although it is anticipated that offering periods will generally
be 12 months, each including two six-month purchase periods. The offering
periods will generally start on the first trading day on or after April 1 of
each year, except for the first offering period which will commence on the
first trading day before the effective date of this offering, will end on the
last trading day on or before March 31, 2001, and will have two purchase
periods ending on the last trading days of September 2000 and March 2001.

The purchase plan permits participants to purchase common stock though
payroll deductions of up to 15% of the participant's "compensation."
Compensation is defined as the participant's base straight time gross earnings
and commissions but excludes payments for overtime, shift premium payments,
incentive compensation, incentive payments, bonuses and other compensation.

Amounts deducted and accumulated for the participant's account are used to
purchase shares of common stock on the last trading day of each purchase period
at a price of 85% of the lower of the fair market values of the common stock at
the beginning of the offering period and the end of the purchase period.
Participants may reduce their withholding percentage to zero at any time during
an offering period and may increase their withholding percentage or decrease
it, but to more than zero, on the first day of each purchase period.
Participants may end their participation at any time during an offering period,
and they will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with us.

A participant may not transfer rights granted under the purchase plan other
than by will, the laws of descent and distribution or as otherwise provided
under the purchase plan.

The purchase plan provides that, if we merge with or into another
corporation or a sale of substantially all of our assets, a successor
corporation may assume or substitute for each outstanding purchase right. If
the successor corporation refuses to assume or substitute for the outstanding
purchase rights, the offering period then in progress will be shortened, and a
new exercise date will be set.

The purchase plan will terminate in 2009. However, the board of directors
has the authority to amend or terminate the purchase plan at any time and may
apply any action to affect their outstanding rights to purchase stock under the
purchase plan.

1999 Nonemployee Directors Stock Option Plan

We have adopted the 1999 Nonemployee Directors Stock Option Plan and have
reserved a total of 300,000 shares of common stock for issuance thereunder.
Each nonemployee director who becomes a Maxygen director after our stockholder
meeting in 2000 will be automatically granted a nonstatutory stock option to
purchase 20,000 shares of common stock on the date on which such person first
becomes a director. At each annual stockholders meeting beginning with the
first board meeting after the 1999 Annual Stockholders Meeting, each
nonemployee director will automatically be granted a nonstatutory option to
purchase 5,000 shares of common stock. The exercise price of options under the
director plan will be equal to the fair market value of the common stock on the
date of grant. The maximum term of the options granted under the director plan
is ten years. Options will become exercisable at the rate determined by the
plan administrator. Shares underlying options granted to a director upon
joining our board are subject to a right of repurchase in our favor which
lapses with respect to 25% of the shares one year after the date of grant and
at a rate of 25% of the shares at the end of each year thereafter. Each
subsequent grant is subject to a right of repurchase for one year after the
date of grant. The director plan will terminate in September 2009, unless
terminated earlier in accordance with the provisions of the director plan.

401(k) Plan

In May 1997, our board of directors adopted a Retirement Savings and
Investment Plan covering our full-time employees located in the United States.
This plan is intended to qualify under Section 401(k) of the Internal Revenue
Code of 1986, as amended, so that contributions to this plan by employees, and
the investment earnings thereon, are not taxable to employees until withdrawn.
Pursuant to this plan, employees may elect to reduce their current compensation
by up to the lesser of 25% of their annual compensation or the statutory
prescribed annual limit ($10,000 in 1999) and to have the amount of the
reduction contributed to his plan. We do not currently make additional matching
contributions on behalf of plan participants.

Limitation of Liability and Indemnification

Our certificate of incorporation and bylaws limit the liability of
directors, officers, employees and other agents to the fullest extent permitted
by Delaware law; provided however that we indemnify any such person in
connection with a proceeding initiated by such person only if such proceeding
was authorized by our board. Delaware law provides that directors of a
corporation will not be personally liable for monetary damages for breach of
their fiduciary duties as directors, except for liability for: (1) breach of
their duty of loyalty to the corporation or its stockholders, (2) acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) unlawful payments of dividends or unlawful stock
repurchases or redemptions, or (4) any transaction from which the director
derived an improper personal benefit. This limitation of liability does not
apply to liabilities arising under the federal or state securities laws and
does not affect the availability of equitable remedies such as injunctive
relief or rescission.

We believe that indemnification under our bylaws and certificate of
incorporation cover at least negligence and gross negligence on the part of
indemnified parties. Our bylaws also permit us to secure insurance on behalf of
any officer, director, employee or other agent for any liability arising out of
his or her actions in this capacity, regardless of whether the bylaws permit
indemnification.

We intend to enter into agreements to indemnify our directors, in addition
to the indemnification provided for in our bylaws. These agreements, among
other things, will indemnify our directors for certain expenses (including
attorneys' fees), judgments, fines and settlement amounts incurred by any such
person in any action or proceeding, including any action by or in the right of
Maxygen arising out of such person's services as one of our directors, any of
our subsidiaries or any other company or enterprise to which the person
provides services at our request. We believe that these provisions and
agreements are necessary to attract and retain qualified persons as directors.

There is no pending litigation or proceeding involving a director or
officer of Maxygen in which indemnification is required or permitted, and we
are not aware of any threatened litigation or proceeding that may result in a
claim for indemnification.

CERTAIN TRANSACTIONS

In February 1997, we entered into a services agreement with Affymax
Research Institute. Pursuant to the services agreement, Affymax provided
certain accounting, administrative and facilities management services to us and
allowed us to occupy certain facilities leased by Affymax in exchange for
specified annual fees. The services agreement terminated on April 1, 1999.

At the time of our formation, we entered into a technology transfer
agreement with Affymax Technologies N.V. and Glaxo Group Limited, each a
wholly-owned subsidiary of Glaxo Wellcome plc, pursuant to which we were
assigned all right, title and interest in the patents, patent applications and
confidential information relating to our MolecularBreeding technologies,
subject to an exclusive royalty-free license under the patents and patent
applications for use in the diagnostics and research supply markets for
specific applications. In exchange for the intellectual property transferred we
issued 5,460,000 shares of our common stock to Affymax.

In March 1997, in connection with our formation, we made loans to certain
officers and directors to purchase our common stock, which are evidenced by
full recourse promissory notes and secured by the common stock underlying this
stock purchase. The promissory notes bear interest at 6.42% per year, and
interest payments on the notes are due and payable on June 30 and December 31
of each year. Unpaid principal and interest on the notes are due and payable on
the earlier of 30 days after termination of the participant's employment with
us, or three years after the date of the promissory note. As of September 30,
1999, the original and outstanding principal amounts of each promissory note by
a director or executive officer are set forth below.

Outstanding
Director or Executive Officer Original Note Amount Note Amount
----------------------------- -------------------- -----------

Russell Howard.............................. $ 60,000 $ 60,000
Isaac Stein................................. 120,000 98,800
Willem P.C. Stemmer......................... 120,000 120,000

Options granted to our directors, executive officers and key employees are
immediately exercisable as to both vested and unvested shares, with unvested
shares being subject to a right of repurchase in our favor in the event of
termination of employment prior to vesting of all shares. These individuals pay
the exercise price for their outstanding options pursuant to full recourse
promissory notes secured by the common stock underlying the options. The notes
bear interest at 5.59% per year, and interest payments on the notes are due and
payable on June 30 and December 31 of each year. Unpaid principal and interest
on the notes are due and payable on the earlier of 30 days after termination of
the participant's employment with us, or three years after the date of the
promissory note. As of September 30, 1999, the original and outstanding
principal amounts of each promissory note by a director or executive officer
are set forth below.

Original
and
Outstanding
Director or Executive Officer Note Amount
----------------------------- -----------

Simba Gill....................................................... $173,163
Russell J. Howard................................................ 47,250
Michael S. Rabson................................................ 236,250
Gordon Ringold................................................... 99,000
Willem P.C. Stemmer.............................................. 136,688

In April 1998, we loaned $72,500 to Dr. Joseph Affholter, which is
evidenced by a full recourse promissory note. In April 1999, we loaned an
additional $77,500 to Dr. Affholter and received from Dr. Affholter a full
recourse promissory note covering all amounts due from Dr. Affholter, which
note is secured by a deed of trust on Dr. Affholter's principal residence and
bears interest at 5.70% per year with respect to $72,500 of the principal and
4.83% with respect to $77,500 of the principal. Under the terms of the
promissory note, interest is generally forgiven. The promissory note is due
with respect to $72,500 of the principal on April 1, 2003 and with respect to
$77,500 of the principal on March 30, 2004. The outstanding principal amount of
the promissory note is $150,000.

In March 1997, December 1997 and April 1998, we sold to various investors a
total of 2,795,000 shares of Series A preferred stock at a purchase price of
$2.00 per share. In August 1998, we sold to various investors a total of
3,666,667 shares of Series B preferred stock at a purchase price of $3.00 per
share. In December 1998, we sold to a collaborator a total of 1,000,000 shares
of Series C preferred stock at a purchase price of $5.00 per share. In June
1999, we sold to various investors a total of 3,636,364 shares of Series D
preferred stock at a purchase price of $5.50 per share. In August 1999, we sold
to a collaborator a total of 800,000 shares of Series E preferred stock at a
purchase price of $6.25.

The table below sets forth the officers, directors, immediate family
members of officers and directors and holders of more than 5% of our
outstanding stock who invested in, or are beneficial owners of our preferred
stock as of September 30, 1999. The numbers in the table below are on an as
converted to common stock basis at a conversion ratio of one share of common
stock for each share of preferred stock.

Preferred Stockholder Preferred Stock
--------------------- ---------------

Holders of More than 5%:
Affymax Technologies N.V. (a wholly-owned subsidiary of
Glaxo Wellcome plc)..................................... 1,250,000
Technogen Associates, L.P. (1)........................... 3,274,772
Technogen Enterprises, L.L.C. (2)........................ 3,274,772
Directors:
Gordon Ringold (3)....................................... 3,291,439
Isaac Stein (4).......................................... 3,348,106
Officers:
Russell Howard (5)....................................... 55,136
Willem Stemmer........................................... 125,000
Michael Rabson........................................... 9,100
Immediate Family Members of Officers and Directors:
Bhagwant Gill and Krishna Gill (6)....................... 128,787
Joseph Glaser, II (7).................................... 8,712
Robert Glaser, Jr. (8)................................... 10,991
Sally Glaser (9)......................................... 9,718

- --------
(1) Consists of 3,211,574 shares held by Technogen Associates, L.P. and 63,198
shares held by Technogen Enterprises, L.L.C. Technogen Enterprises, L.L.C.
and Technogen Associates, L.P. are under common control.

(2) Consists of 3,211,574 shares held by Technogen Associates, L.P. and 63,198
shares held by Technogen Enterprises, L.L.C. Technogen Enterprises, L.L.C.
and Technogen Associates, L.P. are under common control.

(3) Includes 3,211,574 shares held by Technogen Associates, L.P. and 63,198
shares held by Technogen Enterprises, L.L.C. Technogen Managers, L.L.C. is
the general partner of Technogen Associates, L.P. Dr. Ringold is a Managing
Member of Technogen Enterprises, L.L.C. and Technogen Managers, L.L.C. and
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest in the limited liability companies.

(4) Includes 3,211,574 shares held by Technogen Associates, L.P. and 63,198
shares held by Technogen Enterprises, L.L.C. Technogen Managers, L.L.C. is
the general partner of Technogen Associates, L.P. Mr. Stein is a Managing
Member of Technogen Enterprises, L.L.C. and Technogen Managers, L.L.C. and
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest in the limited liability companies. Also includes
525,667 shares held by the Stein 1995 Revocable Trust, of which Mr. Stein
is a trustee and 41,667 shares held by Stein Partners, of which Mr. Stein
is a general partner.

(5) Includes 53,636 shares held by the Russell and Maureen Howard Trust, of
which Dr. Howard is a trustee.

(6) Drs. Gill are the parents of Simba Gill.

(7) Mr. Glaser is the son of Robert J. Glaser.

(8) Mr. Glaser is the son of Robert J. Glaser.

(9) Ms. Glaser is the daughter of Robert J. Glaser.

Holders of our preferred stock are entitled to registration rights with
respect to the shares of common stock that they will hold following this
offering. See "Description of Capital Stock--Registration Rights."

We believe that all transactions between us and our officers, directors,
principal stockholders and other affiliates have been and will be on terms no
less favorable to us than could be obtained from unaffiliated third parties.

PRINCIPAL STOCKHOLDERS

The following table sets forth the beneficial ownership of our common stock
as of September 30, 1999 (assuming conversion of all outstanding shares of
preferred stock into common stock upon the closing of this offering and as
adjusted to reflect the sale of the shares offered by this prospectus) by:

. each person who is known by us to beneficially own more than 5% of our
common stock;

. each of the named executive officers and each of our directors; and

. all of our officers and directors as a group.

Percentage of ownership is based on 22,063,861 shares outstanding as of
September 30, 1999, assuming conversion of the preferred stock, and
shares outstanding after this offering, assuming no exercise of the
underwriters' over-allotment options. Beneficial ownership is calculated based
on SEC requirements. All shares of the common stock subject to options
currently exercisable or exercisable within 60 days after September 30, 1999
are deemed to be outstanding for the purpose of computing the percentage of
ownership of the person holding such options, but are not deemed to be
outstanding for computing the percentage of ownership of any other person.
Unless otherwise indicated below, each stockholder named in the table has sole
or shared voting and investment power with respect to all shares beneficially
owned, subject to applicable community property laws. Unless otherwise
indicated in the table, the address of each individual listed in the table is
Maxygen, Inc., 515 Galveston Drive, Redwood City, California 94063.

Number of Percentage of Shares
Shares Beneficially Owned
Beneficially ------------------------
Owned Prior to Before After
Beneficial Owner the Offering Offering Offering
---------------- -------------- ---------- ----------

Affymax Technologies N.V. (1)
Greenford Road, Greenford,
Middlesex,
UBG OHE, UK........................ 6,710,000 30.4% %
Technogen Associates, L.P. (2)
525 University Avenue, Suite 700
Palo Alto, California 94301........ 3,274,772 14.8% %
Technogen Enterprises, L.L.C. (3)
525 University Avenue, Suite 700
Palo Alto, California 94301........ 3,274,772 14.8% %
Russell J. Howard, Ph.D. (4)........ 877,636 3.9% %
Willem P.C. Stemmer, Ph.D. (5)...... 1,147,500 5.2% %
Simba Gill, Ph.D. (6)............... 456,738 2.1% %
Joseph Affholter, Ph.D. (7)......... 175,700 * %
Norman Kruse, Ph.D. (8)............. 154,043 * %
Michael Rabson, Ph.D. (9)........... 359,100 1.6% %
Isaac Stein (10).................... 3,892,106 17.6% %
Robert J. Glaser, M.D............... -- * %
M.R.C. Greenwood, Ph.D. (11)........ 75,000 * %
Adrian Hennah (12).................. 75,000 * %
Gordon Ringold, Ph.D. (13).......... 10,531,439 47.7% %
All directors and executive officers
as a group (12 persons) (14)....... 14,453,202 63.3% %

- --------
*Less than 1% of Maxygen's outstanding common stock.

(1) Affymax Technologies N.V. is a wholly-owned subsidiary of Glaxo Wellcome
plc.

(3) Consists of 3,211,574 shares held by Technogen Associates, L.P. and 63,198
shares held by Technogen Enterprises, L.L.C. Technogen Enterprises, L.L.C.
and Technogen Associates, L.P. are under common control.

(4) Includes 53,636 shares held by the Russell and Maureen Howard Trust, of
which Dr. Howard is a trustee. Also includes 297,500 shares that are
subject to immediately exercisable options. As of September 30, 1999, we
have the right to repurchase 454,375 shares including shares issuable upon
exercise of options held by Dr. Howard if Dr. Howard ceases his employment,
directorship or consultancy with us.

(5) Includes 391,875 shares that are subject to our right of repurchase as of
September 30, 1999 if Dr. Stemmer ceases his employment, directorship or
consultancy with us.

(6) Includes 350,350 shares that are subject to our right of repurchase as of
September 30, 1999 if Dr. Gill ceases his employment, directorship or
consultancy with us.

(7) Includes 175,700 shares that are subject to immediately exercisable
options. As of September 30, 1999, we have the right to repurchase 144,375
shares issuable upon exercise of these options if Dr. Affholter ceases his
employment, directorship or consultancy with us.

(8) Includes 132,168 shares that are subject to immediately exercisable
options. As of September 30, 1999, we have the right to repurchase 127,500
shares issuable upon exercise of these options if Dr. Kruse ceases his
employment, directorship or consultancy with us.

(9) As of September 30, 1999, we have the right to repurchase 350,000 of these
shares if Dr. Rabson ceases his employment, directorship or consultancy
with us.

(10) Includes 3,211,574 shares that are held by Technogen Associates, L.P. and
63,198 shares held by Technogen Enterprises, L.L.C. Technogen Managers,
L.L.C. is the general partner of Technogen Associates, L.P. Mr. Stein is a
Managing Member of Technogen Enterprises, L.L.C. and Technogen Managers,
L.L.C. and disclaims beneficial ownership of these shares except to the
extent of his pecuniary interest in the limited liability companies.
Includes 525,667 shares held by the Stein 1995 Revocable Trust, of which
Mr. Stein is a trustee and 41,667 shares held by Stein Partners, of which
Mr. Stein is a general partner. As of September 30, 1999, we have the
right to repurchase 162,500 shares held by Mr. Stein if he ceases his
employment, directorship or consultancy with us.

(11) Includes 75,000 shares that are subject to immediately exercisable
options. As of September 30, 1999, we have the right to repurchase all of
the shares issuable upon exercise of these options if Dr. Greenwood ceases
her employment, directorship or consultancy with us.

(12) Includes 75,000 shares that are subject to immediately exercisable
options. As of September 30, 1999, we have the right to repurchase all of
the shares issuable upon exercise of these options if Mr. Hennah ceases
his employment, directorship or consultancy with us.

(13) Includes 3,211,574 shares held by Technogen Associates, L.P. and 63,198
shares held by Technogen Enterprises, L.L.C. Technogen Managers, L.L.C. is
the general partner of Technogen Associates, L.P. Dr. Ringold is a
Managing Member of Technogen Enterprises, L.L.C. and Technogen Managers,
L.L.C. and disclaims beneficial ownership of these shares except to the
extent of his pecuniary interest in the limited liability companies. Also
includes 6,710,000 shares held by Affymax Technologies N.V. Dr. Ringold is
the Chief Executive Officer of Affymax Research, Institute which is under
common control with Affymax Technologies N.V. Dr. Ringold disclaims
beneficial ownership of these shares. Also includes 20,000 shares held by
the Gregory Zarucki Ringold 1998 Trust, 20,000 shares held by the
Alexander Zarucki Ringold 1998 Trust and 20,000 shares held by the Melanie
Gault-Ringold 1998 Trust. As of September 30, 1999, we have the right to
repurchase 137,500 shares held by Dr. Ringold if he ceases his employment,
directorship or consultancy with us.

(14) Includes shares included pursuant to notes (2), (3), (4), (5), (6), (7),
(8), (9), (10), (11), (12) and (13).

DESCRIPTION OF CAPITAL STOCK

General

Our amended and restated certificate of incorporation, the filing of which
will occur at the closing of this offering, authorizes the issuance of up to 70
million shares of common stock, par value $0.0001 per share, and 5 million
shares of preferred stock, par value $0.0001 per share, the rights and
preferences of which may be established from time to time by our board of
directors. As of September 30, 1999, after giving effect to the conversion of
all preferred stock into common stock, 22,063,861 shares of common stock were
outstanding. As of September 30, 1999, we had 147 stockholders.

Common Stock

Each holder of common stock is entitled to one vote for each share on all
matters to be voted upon by the stockholders and there are no cumulative voting
rights. Subject to preferences to which holders of preferred stock issued after
the sale of the common stock offered hereby may be entitled, holders of common
stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the board of directors out of funds legally
available therefor. In the event of our liquidation, dissolution or winding up,
holders of common stock will be entitled to share in our assets remaining after
the payment of liabilities and the satisfaction of any liquidation preference
granted to the holders of any outstanding shares of preferred stock. Holders of
common stock have no preemptive or conversion rights or other subscription
rights, and there are no redemption or sinking fund provisions applicable to
the common stock. All outstanding shares of common stock are, and the shares of
common stock offered by us in this offering, when issued and paid for, will be,
fully paid and nonassessable. The rights, preferences and privileges of the
holders of common stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock, which we may
designate in the future.

Preferred Stock

Upon the closing of this offering, the board of directors will be
authorized, subject to any limitations prescribed by law, without stockholder
approval, from time to time to issue up to an aggregate of 5 million shares of
preferred stock, $0.0001 par value per share, in one or more series, each of
such series to have such rights and preferences, including voting rights,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, as shall be determined by the board of directors. The rights of
the holders of common stock will be subject to, and may be adversely affected
by, the rights of holders of any preferred stock that may be issued in the
future. Issuance of preferred stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, a majority of our
outstanding voting stock. We have no present plans to issue any shares of
preferred stock.

Registration Rights

Pursuant to a registration rights agreement entered into between us and
holders of 19,163,031 shares of common stock issuable upon conversion of our
Series A, Series B, Series C, Series D and Series E preferred stock, we are
obligated, under limited circumstances and subject to specified conditions and
limitations, to use our reasonable best efforts to register the registrable
shares.

We must use our reasonable best efforts to register shares of the
registrable shares:

- if we receive written notice from holders of 50% or more of the
registrable shares requesting that we effect a registration with respect
to at least 20% of the registrable shares then held by the holders
requesting registration;

-if we decide to register our own securities; or

- if (1) we receive written notice from any holder or holders of the
registrable shares requesting that we effect a registration on Form S-3
(a shortened form of registration statement) with respect to the
registrable shares and (2) we are then eligible to use Form S-3 (which
at the earliest could occur twelve calendar months after the closing of
this offering).

However, in addition to certain other conditions and limitations, if we are
proposing to issue registered shares and the underwriters request to decrease
the number of shares registered, we can limit the number of registerable shares
included in the registration statement. The underwriters have requested that no
registerable shares be registered in this offering. In addition, the holders of
these registration rights have entered into lockup agreements and waived their
registration rights until 180 days following this offering.

Delaware Anti-Takeover Law and Charter Provisions

Certain provisions of our certificate of incorporation and bylaws may have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of us. Such
provisions could limit the price that certain investors might be willing to pay
in the future for shares of our common stock. Certain of these provisions allow
us to issue preferred stock without any vote or further action by the
stockholders, require advance notification of stockholder proposals and
nominations of candidates for election as directors, and do not provide for
cumulative voting in the election of directors. In addition, our bylaws provide
that special meetings of the stockholders may be called only by the board of
directors and that the authorized number of directors may be changed only by
resolution of the board of directors. These provisions may make it more
difficult for stockholders to take certain corporate actions and could have the
effect of delaying or preventing a change in control of Maxygen.

In addition, we are subject to Section 203 of the Delaware General
Corporation Law. This law prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder, unless any of the
following conditions are met. First, this law does not apply if prior to the
date of the transaction, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder. Second, the law does not apply
if upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned by persons who are directors and also
officers and by employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer. Third, the law does not apply
if at or after the date of the transaction, the business combination is
approved by the board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of
at least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.

Transfer Agent and Registrar

The Transfer Agent and Registrar for our common stock is ChaseMellon
Shareholder Services.

SHARES ELIGIBLE FOR FUTURE SALE

Immediately prior to this offering, there was no public market for our
common stock. Future sales of substantial amounts of common stock in the
public market could adversely affect the market price of our common stock.

Upon completion of this offering, we will have outstanding an aggregate of
shares of common stock, assuming the issuance of shares of common
stock offered hereby and no exercise of options after September 30, 1999. Of
these shares, the shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, except
for any shares purchased by "affiliates" of Maxygen as that term is defined in
Rule 144 under the Securities Act. Shares purchased by affiliates may
generally only be sold pursuant to an effective registration statement under
the Securities Act in compliance with limitations of Rule 144 as described
below.

The remaining 22,063,861 shares of common stock held by existing
stockholders were issued and sold by us in reliance on exemptions from the
registration requirements of the Securities Act. All of these shares will be
subject to "lock-up" agreements providing that the stockholder will not offer,
sell or otherwise dispose of any of the shares of common stock owned by them
for a period of 180 days after the date of this offering. Goldman, Sachs &
Co., however, may in its sole discretion, at any time without notice, release
all or any portion of the shares subject to lock-up agreements. Upon
expiration of the lock-up agreements, shares will become eligible
for sale pursuant to Rule 144(k), shares will become eligible for sale
under Rule 144 and shares will become eligible for sale under Rule 701.

Days After Date Of Shares Eligible
This Prospectus For Sale Comment
------------------ --------------- ----------------------------------------------------------------

Upon Effectiveness...... Shares sold in the offering
180 days................ Lock-up released; shares salable under Rules 144(k), 144 and 701
Thereafter.............. Restricted securities held for one year or less

Immediately after the completion of this offering, we intend to file a
registration statement on Form S-8 under the Securities Act to register all of
the shares of common stock issued or reserved for future issuance under our
stock option plans. Based upon the number of shares subject to outstanding
options as of , 1999 and currently reserved for issuance under both of
these plans, this registration statement would cover approximately
shares. Shares registered under the registration statement will generally be
available for sale in the open market immediately after the 180 day lock-up
agreements expire.

Also beginning six months after the date of this offering, holders of
19,163,031 shares of our common stock, including shares issuable upon
conversion of preferred stock will be entitled to certain rights with respect
to registration of these shares for sale in the public market. See
"Description of Capital Stock -- Registration Rights". Registration of these
shares under the Securities Act would result in these shares becoming freely
tradable without restriction under the Securities Act immediately upon
effectiveness of the registration.

Rule 144

In general, under Rule 144 as currently in effect, beginning 180 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell in "broker's
transactions" or to market makers, within any three-month period, a number of
shares that does not exceed the greater of:

- 1% of the number of shares of common stock then outstanding (which will
equal approximately shares immediately after this offering); or

- the average weekly trading volume in the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.

Sales under Rule 144 are generally subject to the availability of current
public information about Maxygen.

Rule 144(k)

Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the 180 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, is entitled to sell such
shares without having to comply with the manner of sale, public information,
volume limitation or notice filing provisions of Rule 144. Therefore, unless
otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.

Rule 701

In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchase shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to sell such shares 180 days after
the effective date of this offering in reliance on Rule 144, in the case of
affiliates, without having to comply with the holding period and notice filing
requirements of Rule 144 and, in the case of non-affiliates, without having to
comply with the public information, volume limitation or notice filing
requirements of Rule 144.

LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for
Maxygen by Heller Ehrman White & McAuliffe, Palo Alto, California. Certain
legal matters will be passed upon for the underwriters by Wilson Sonsini
Goodrich & Rosati, Professional Corporation. An investment partnership composed
of current and former members of and persons associated with Wilson Sonsini
Goodrich & Rosati, Professional Corporation, beneficially own 4,546 shares of
our common stock. HEWM Investors, an entity affiliated with Heller Ehrman White
& McAuliffe, beneficially owns 27,000 shares of our common stock. Julian N.
Stern, the sole shareholder of a professional corporation that is a partner of
Heller Ehrman White & McAuliffe and Secretary of Maxygen beneficially owns
65,000 shares of our common stock.

CHANGE IN INDEPENDENT AUDITORS

Effective December 1998, Ernst & Young LLP was engaged as our independent
auditors and replaced other auditors who were dismissed as our independent
auditors on the same date. The decision to change auditors was approved by our
board of directors. Our former auditors issued a report for the period ended
December 31, 1997 which contained an emphasis paragraph as to our ability to
continue as a going concern. In connection with the audit for the period ended
December 31, 1997, there were no disagreements with our former auditors on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreements if not resolved to the
satisfaction of our former auditors, would have caused them to make reference
thereto in any of their reports. Our former auditors have not audited or
reported on any of the financial statements included in this prospectus. Prior
to December 1998, we had not consulted with Ernst & Young LLP on items that
involved our accounting principles or the form of audit opinion to be issued on
our financial statements.

EXPERTS

Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1997 and 1998, and for the years then ended December
31, 1998, as set forth in their report. We have included our financial
statements in the prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLP's report, given upon the authority of such firm
as experts in accounting and auditing.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the SEC a registration statement on Form S-1 (including
exhibits and schedules) under the Securities Act, with respect to the shares to
be sold in this offering. This prospectus does not contain all of the
information set forth in the registration statement. For further information
with respect to us and the common stock offered in this prospectus, reference
is made to the registration statement, including the exhibits, financial
statements and notes to the financial statements filed as a part of the
registration statement. With respect to each document filed with the SEC as an
exhibit to the registration statement, reference is made to the exhibit for a
more complete description of the matter involved.

We will be filing quarterly and annual reports, proxy statements and other
information with the SEC. You may read and copy any document that we file at
the public reference facilities of the SEC at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
to the public from the SEC's web site at http://www.sec.gov.

MAXYGEN, INC.

INDEX TO FINANCIAL STATEMENTS

Report of Ernst & Young LLP Independent Auditors.......................... F-2
Balance Sheets............................................................ F-3
Statements of Operations.................................................. F-4
Statement of Stockholders' Equity......................................... F-5
Statements of Cash Flows.................................................. F-6
Notes to Financial Statements............................................. F-7

F-1

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Maxygen, Inc.

We have audited the accompanying balance sheets of Maxygen, Inc. as of
December 31, 1997 and 1998, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Maxygen, Inc. at December
31, 1997 and 1998, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP

Palo Alto, California
March 11, 1999

F-2

MAXYGEN, INC.

BALANCE SHEETS
(in thousands, except share and per share amounts)

Pro Forma
Stockholders'
December 31, Equity at
---------------- June 30, June 30, 1999
1997 1998 1999 (Note 10)
------- ------- ----------- -------------
(Unaudited) (Unaudited)

ASSETS
Current assets:
Cash and cash equivalents........ $2,693 $15,306 $31,378
Grant and other receivables...... 10 600 2,672
Prepaid expenses and other
current assets.................. 32 271 450
------- ------- --------
Total current assets............... 2,735 16,177 34,500
Property and equipment, net...... 419 1,001 3,947
Deposits and other assets........ -- 422 576
------- ------- --------
Total assets....................... $3,154 $17,600 $39,023
======= ======= ========

LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable................. $101 $466 $688
Accrued compensation............. 53 153 264
Other accrued liabilities........ 178 286 436
Deferred revenue................. 199 2,403 4,360
Related party payables........... 52 105 --
------- ------- --------
Total current liabilities.......... 583 3,413 5,748
Deferred revenue................... -- -- 1,189
Commitments
Stockholders' equity:
Convertible preferred stock,
$0.0001 par value,
25,000,000 shares authorized,
issuable in series: 2,790,000,
7,461,667 and 11,098,031 shares
issued and outstanding in
December 31, 1997, 1998 and June
30, 1999, respectively (no
shares outstanding proforma)
(aggregate liquidation
preference of $21,590 and
$41,590 at December 31, 1998 and
June 30, 1999, respectively).... -- 1 1 $ --
Common stock, $0.0001 par value:
50,000,000 shares authorized,
7,660,000, 9,230,500, and
9,435,000 shares issued and
outstanding at December 31,
1997, 1998, and June 30, 1999,
respectively (20,533,031 shares
outstanding pro forma).......... 1 1 1 2
Additional paid-in capital....... 6,019 22,958 45,860 45,860
Notes receivable from
stockholders.................... (279) (548) (548) (548)
Deferred stock compensation...... -- (352) (2,157) (2,157)
Accumulated deficit.............. (3,170) (7,873) (11,071) (11,071)
------- ------- -------- --------
Total stockholders' equity......... 2,571 14,187 32,086 $32,086
------- ------- -------- ========
Total liabilities and stockholders'
equity............................ $3,154 $17,600 $39,023
======= ======= ========

See accompanying notes.

F-3

MAXYGEN, INC.

STATEMENTS OF OPERATIONS
(in thousands, except per share data)

Year ended Six months
December 31, ended June 30,
---------------- ----------------
1997 1998 1998 1999
------- ------- ------- -------
(Unaudited)

Collaborative research and development
revenue.................................. $341 $3,564 $396 $3,122
Grant revenue............................. -- 1,646 664 2,550
------- ------- ------- -------
Total revenues............................ 341 5,210 1,060 5,672
Operating expenses:
Research and development................ 2,757 7,132 2,504 7,026
General and administrative.............. 915 3,010 928 1,865
Amortization of deferred stock
compensation........................... -- -- -- 341
------- ------- ------- -------
Total operating expenses.................. 3,672 10,142 3,432 9,232
------- ------- ------- -------
Loss from operations...................... (3,331) (4,932) (2,372) (3,560)
Interest income, net...................... 161 229 52 362
------- ------- ------- -------
Net loss.................................. $(3,170) $(4,703) $(2,320) $(3,198)
======= ======= ======= =======
Basic and diluted net loss per share...... $(0.64) $(0.70) $(0.36) $(0.43)
======= ======= ======= =======
Shares used in computing basic and diluted
net loss per share....................... 4,917 6,748 6,379 7,512
Pro forma basic and diluted net loss per
share (unaudited)........................ $(0.40) $(0.21)
======= =======
Shares used in computing pro forma basic
and diluted net loss per share
(unaudited).............................. 11,762 15,573

See accompanying notes.

F-4

MAXYGEN, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share and per share amounts)

Convertible Notes
Preferred Stock Common Stock Additional Receivable Deferred Total
----------------- ---------------- Paid-In from Stock Accumulated Stockholders'
Shares Amount Shares Amount Capital Stockholders Compensation Deficit Equity
---------- ------ --------- ------ ---------- ------------ ------------ ----------- -------------

Issuance of common
stock to Affymax
Technologies N.V. and
Glaxo Group Limited
for technology in
March 1997........... -- $-- 5,460,000 $-- $-- $-- $ -- $-- $--
Issuance of common
stock to founders for
promissory notes at
$0.20 per share...... -- -- 2,100,000 1 419 (420) -- -- --
Issuance of Series A
convertible preferred
stock to investors at
$2.00 per share for
cash................. 2,790,000 -- -- -- 5,580 -- -- -- 5,580
Issuance of common
stock to employees
upon exercise of
stock options for
$0.20 per share...... -- -- 100,000 -- 20 -- -- -- 20
Payments received on
promissory notes..... -- -- -- -- -- 141 -- -- 141
Net loss from
inception to December
31, 1997............. -- -- -- -- -- -- -- (3,170) (3,170)
---------- --- --------- ---- ------- ----- ------- -------- -------
Balance at December
31, 1997............. 2,790,000 -- 7,660,000 1 6,019 (279) -- (3,170) 2,571
Issuance of Series A
convertible preferred
stock to investors at
$2.00 per share for
cash................. 5,000 -- -- -- 10 -- -- -- 10
Issuance of Series B
convertible preferred
stock to investors at
$3.00 per share for
cash, less issuance
cost of $36.......... 3,666,667 1 -- -- 10,966 -- -- -- 10,967
Issuance of Series C
convertible preferred
stock to a
collaborator for cash
at $5.00 per share... 1,000,000 -- -- -- 5,000 -- -- -- 5,000
Options granted to
consultants for
services rendered.... -- -- -- -- 134 -- -- -- 134
Issuance of common
stock to consultants
for cash and services
at $2.25 and $4.00
per share, and to
employees upon
exercise of stock
options for cash and
promissory notes at
$0.20 and $0.30 per
share................ -- -- 1,570,500 -- 477 (269) -- -- 208
Deferred stock
compensation......... -- -- -- -- 352 -- (352) -- --
Net loss............. -- -- -- -- -- -- -- (4,703) (4,703)
---------- --- --------- ---- ------- ----- ------- -------- -------
Balance at December
31, 1998............. 7,461,667 1 9,230,500 1 22,958 (548) (352) (7,873) 14,187
Issuance of common
stock to employees
upon exercise of
options at $0.20 and
$0.30 per share
(unaudited).......... -- -- 14,500 -- 4 -- -- -- 4
Issuance of common
stock for services
rendered and certain
technology rights at
$4.00 and $5.16 per
share (unaudited).... -- -- 190,000 -- 835 -- -- -- 835
Issuance of Series D
convertible preferred
stock to investors at
$5.50 per share for
cash, less issuance
costs of $83
(unaudited).......... 3,636,364 -- -- -- 19,917 -- -- -- 19,917
Deferred stock
compensation
(unaudited).......... -- -- -- -- 2,146 -- (2,146) -- --
Amortization of
deferred stock
compensation
(unaudited).......... -- -- -- -- -- -- 341 -- 341
Net loss
(unaudited).......... -- -- -- -- -- -- -- (3,198) (3,198)
---------- --- --------- ---- ------- ----- ------- -------- -------
Balance at June 30,
1999 (unaudited)..... 11,098,031 $1 9,435,000 $1 $45,860 $(548) $(2,157) $(11,071) $32,086
========== === ========= ==== ======= ===== ======= ======== =======

See accompanying notes.

F-5

MAXYGEN, INC.

STATEMENTS OF CASH FLOWS
(in thousands, except per share data)

Year ended Six months
December 31, ended June 30,
---------------- ----------------
1997 1998 1998 1999
------- ------- ------- -------
(Unaudited)

Operating activities
Net loss................................... $(3,170) $(4,703) $(2,320) $(3,198)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............ 40 178 70 222
Deferred stock compensation
amortization............................ -- -- -- 341
Common stock issued and stock options
granted to consultants for services
rendered and for certain technology
rights -- 257 -- 835
Changes in operating assets and
liabilities:
Grant and other receivables............ (10) (590) (226) (2,072)
Prepaid expenses and other current
assets................................ (32) (239) 19 (179)
Deposits and other assets.............. -- (422) (253) (154)
Accounts payable....................... 101 365 201 222
Accrued liabilities.................... 231 208 (26) 261
Deferred revenue....................... 199 2,204 (56) 3,146
Related party payables................. 52 53 17 (105)
------- ------- ------- -------
Net cash used in operating activities...... (2,589) (2,689) (2,574) (681)
------- ------- ------- -------
Investing activities
Acquisition of property and equipment...... (459) (760) (540) (3,168)
------- ------- ------- -------
Financing activities
Proceeds from issuance of convertible
preferred stock, net of issuance costs.... 5,580 14,477 10 19,917
Proceeds from notes payable................ -- 1,500 1,500 --
Payments received on promissory notes...... 141 -- -- --
Proceeds from issuance of common stock..... 20 85 52 4
------- ------- ------- -------
Net cash provided by financing activities.. 5,741 16,062 1,562 19,921
------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents............................... 2,693 12,613 (1,552) 16,072
Cash and cash equivalents at beginning of
period.................................... -- 2,693 2,693 15,306
------- ------- ------- -------
Cash and cash equivalents at end of
period.................................... $2,693 $15,306 $1,141 $31,378
======= ======= ======= =======
Schedule of noncash transactions
Issuance of common stock in exchange for
note receivable........................... $420 $269 $180 $--
Conversion of note payable to common
stock..................................... $-- $1,500 $-- $--

See accompanying notes.

F-6

MAXYGEN, INC.

NOTES TO FINANCIAL STATEMENTS
(Information for the six months ended June 30, 1998 and 1999 is unaudited)

1. Organization and Summary of Significant Accounting Policies

Maxygen, Inc. (the "Company") was incorporated in Delaware on May 7, 1996
to develop and apply proprietary directed evolution technologies, also known as
"MolecularBreeding," to evolve new or improved properties into single genes,
multigene pathways, vectors, and genomes. Since the technology can be applied
to a wide range of genetic targets, the Company will explore commercial
opportunities for the directed evolution of novel enzymes and metabolic
processes, novel products for agriculture, as well as opportunities in the
fields of human medicine, such as gene therapy, vaccines, and protein
pharmaceuticals.

Operations commenced in March 1997 and have consisted primarily of
technology and product development. Operational activity and expenses incurred
for the period from inception (May 7, 1996) through March 1997 were immaterial.

Through December 31, 1998, the Company was in the development stage. During
fiscal 1999, the Company entered into its second corporate research
collaboration and recognized significant revenues associated with collaborative
research agreements and expects to receive significant revenues under these
agreements in the future. Consequently, the Company is no longer considered to
be in the development stage. The Company will require additional financial
resources to complete the development and commercialization of its products.
Management plans to continue to finance the Company primarily through issuances
of equity securities, collaborative research and development arrangements,
government grants, and debt financing. If the financing arrangements
contemplated by management are not consummated, the Company may have to seek
other sources of capital or reevaluate its operating plans.

Interim Financial Information

The financial information at June 30, 1999 and for the six months ended
June 30, 1998 and 1999 is unaudited but has been prepared on the same basis as
the annual financial statements and, in the opinion of management, includes all
adjustments (consisting only of normal recurring adjustments) that the Company
considers necessary for a fair presentation of the financial position at such
date and the operating results and cash flows for such periods. Results for the
interim period are not necessarily indicative of the results to be expected for
any subsequent six-month period nor for the entire year.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. The Company's cash
and cash equivalents are maintained with one financial institution and consist
of depository accounts, master notes, and liquidity optimized general
investment contracts.

The Company has classified its marketable securities as "available-for-
sale" and recorded these securities at fair value. At June 30, 1999, these
instruments are classified as cash equivalents. Unrealized gains and losses,
which are considered to be temporary, are recorded as a separate component of
stockholders' equity until realized. At December 31, 1997 and 1998 and June 30,
1999, the fair value of all of the Company's marketable securities approximated
cost.

F-7

MAXYGEN, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful life of the assets (generally three to five years). Leasehold
improvements are amortized over the shorter of six years or the estimated
useful life of the assets.

Revenue Recognition

License fees which are nonrefundable and do not obligate the Company to
perform any future services, are recognized when received. Technology
advancement funding received for access to the program technology during the
term of the research agreement is deferred and recognized on a straight-line
basis over the relevant periods specified in the agreement.

Revenue related to collaborative research with the Company's corporate
collaborators is recognized as research services are performed over the related
funding periods for each contract. Under these agreements, the Company is
required to perform research and development activities as specified in each
respective agreement on a best-efforts basis. The payments received under each
respective agreement are not refundable and are generally based on a
contractual cost per full-time equivalent employee working on the project.
Research and development expenses under the collaborative research agreements
approximate or exceed the revenue recognized under such agreements over the
term of the respective agreements. Deferred revenue may result when the Company
does not incur the required level of effort during a specific period in
comparison to funds received under the respective contracts. Milestone and
royalty payments, if any, will be recognized pursuant to collaborative
agreements upon the achievement of specified milestones. In the six months
ended June 30, 1999, the Company has earned and recognized $100,000 of
milestone payments (none in fiscal 1997 and 1998).

In 1997 and 1998 and for the six months ended June 30, 1999, the Company
was awarded three Defense Advanced Research Projects Agency grants and two
National Institute of Standards and Technology-Advanced Technology Program
grants totaling approximately $2.0 million, $10.6 million, and $7.7 million,
respectively, for various research and development projects. The terms of these
grant agreements are three years. Revenue related to grant agreements is
recognized as related research and development expenses are incurred.

Research and Development Expenses

Research and development expenses consist of costs incurred for Company-
sponsored as well as collaborative research and development activities. These
costs include direct and research-related overhead expenses and are expensed as
incurred.

Stock-Based Compensation

The Company accounts for common stock options granted to employees using
the intrinsic value method and, thus, recognizes no compensation expense for
options granted with exercise prices equal to or greater than the fair value of
the Company's common stock on the date of the grant. In 1999, the Company
recognized deferred stock compensation related to certain stock option grants
(see Note 8). Pro forma information required by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123") is also included in Note 8.

F-8

MAXYGEN, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)

Deferred compensation for options granted to nonemployees has been
determined in accordance with SFAS 123 as the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measured. Deferred compensation for options granted to non-employees
is periodically remeasured as the underlying options vest.

Net Loss Per Share

Basic and diluted net loss per common share are presented in conformity
with the Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"), for all periods presented. Following the guidance given by
the Securities and Exchange Commission Staff Accounting Bulletin No. 98, common
stock and convertible preferred stock that has been issued or granted for
nominal consideration prior to the anticipated effective date of the initial
public offering must be included in the calculation of basic and diluted net
loss per common share as if these shares had been outstanding for all periods
presented. To date, the Company has not issued or granted shares for nominal
consideration.

In accordance with SFAS 128, basic and diluted net loss per share has been
computed using the weighted-average number of shares of common stock
outstanding during the period, less shares subject to repurchase. Pro forma
basic and diluted net loss per common share, as presented in the statements of
operations, has been computed for the year ended December 31, 1998 and the
six months ended June 30, 1999 as described above, and also gives effect to the
conversion of the convertible preferred stock which will automatically convert
to common stock immediately prior to the completion of the Company's initial
public offering (using the if-converted method) from the original date of
issuance.

F-9

The following table presents the calculation of basic, diluted and pro
forma basic and diluted net loss per share (in thousands, except per share
data):

Year ended Six months
December 31, ended June 30,
---------------- ----------------
1997 1998 1998 1999
------- ------- ------- -------

Net loss................................... $(3,170) $(4,703) $(2,320) $(3,198)
======= ======= ======= =======
Basic and diluted:
Weighted-average shares of common stock
outstanding............................. 6,329 8,789 8,388 9,276
Less: weighted-average shares subject to
repurchase.............................. (1,412) (2,041) (2,009) (1,764)
------- ------- ------- -------
Weighted-average shares used in computing
basic and diluted net loss per share.... 4,917 6,748 6,379 7,512
======= ======= ======= =======
Basic and diluted net loss per share....... $(0.64) $(0.70) $(0.36) $(0.43)
======= ======= ======= =======
Pro forma:
Net loss................................. $(4,703) $(3,198)
======= =======
Shares used above........................ 6,748 7,512
Pro forma adjustment to reflect weighted
effect of assumed conversion of
convertible preferred stock
(unaudited)............................. 5,014 8,061
------- -------
Shares used in computing pro forma basic
and diluted net loss per share
(unaudited)............................. 11,762 15,573
======= =======
Pro forma basic and diluted net loss per
share (unaudited)....................... $(0.40) $(0.21)
======= =======

The Company has excluded all convertible preferred stock, outstanding stock
options, and shares subject to repurchase from the calculation of diluted loss
per common share because all such securities are antidilutive for all
applicable periods presented. The total number of shares excluded from the
calculations of diluted net loss per share, prior to application of the
treasury stock method for options, was 6,232,000 and 11,305,000 for the years
ended December 31, 1997 and 1998, respectively, and 6,375,000 and 14,560,000
for the six months ended June 30, 1998 and 1999, respectively. Such securities,
had they been dilutive, would have been included in the computations of diluted
net loss per share. See Note 8 for further information on these securities.

Comprehensive Income

As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of this statement had no
impact on the Company's net loss or stockholders' equity in 1998.

Segment Reporting

As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 131 establishes annual and interim
reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas, and major
customers. The Company has determined that it operates in only one segment.
Accordingly, the adoption of this statement had no impact on the Company's
financial statements.

Effect of New Accounting Standards

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which will

F-10

MAXYGEN, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)

be effective for the year ending 2001. This statement establishes accounting
and reporting standards requiring that every derivative instrument, including
certain derivative instruments imbedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement also requires that changes in the derivative's fair value be
recognized in earnings unless specific hedge accounting criteria are met. The
Company believes the adoption of SFAS 133 will not have a material effect on
the financial statements, since it currently does not engage in hedging
activities.

2. Collaborative Agreements

AstraZeneca

In June 1999, the Company entered into a noncancelable (other than for
material breach), five-year collaborative research agreement with Zeneca
Limited, a wholly-owned subsidiary of AstraZeneca plc (hereafter known as
"AstraZeneca") to improve the yield and quality of several of AstraZeneca's
strategic crops. Pursuant to the agreement, AstraZeneca paid $2.5 million in
technology advancement funding. AstraZeneca must also provide research funding
of $15 million over the research term, potential milestone payments that could
exceed $100 million as well as royalties on future product sales, as defined in
the agreement. The technology advancement funding is being recognized ratably
over the relevant periods as specified in the agreement.

Revenue recognized under the collaborative research agreement with
AstraZeneca was $57,000 (2% of total collaborative research and development
revenues) for the six months ended June 30, 1999.

In August 1999, in conjunction with the agreement, AstraZeneca purchased
800,000 shares of Series E convertible preferred stock at $6.25 per share.
Additionally, on an annual basis beginning in the second year of the agreement,
AstraZeneca must either pay $1 million in annual technology advancement funding
or purchase $3 million shares of the Company's stock at a 50% premium to the
current fair value.

DuPont/Pioneer Hi-Bred International, Inc.

In December 1998, the Company entered into a five-year collaborative
research and license agreement with Pioneer Hi-Bred International, Inc., a
subsidiary of E.I. duPont de Nemours and Company (hereafter known as
"DuPont/Pioneer Hi-Bred") to utilize MolecularBreeding technologies to generate
novel gene products for use in the development of specific crop protection and
quantity grain traits in corn, soybeans, and certain other crops. Pursuant to
the agreement, DuPont/Pioneer Hi-Bred paid an up-front nonrefundable license
fee of $2.5 million which was recognized as revenue upon receipt. In addition,
the agreement provides for nonrefundable research and development funding of up
to $20 million, potential milestone payments of up to $45 million and royalties
on future product sales, as defined in the agreement. The agreement also
provides for nonrefundable technology advancement payments of $7.5 million
which are being recognized ratably over the applicable research term. The
agreement may be terminated by DuPont/Pioneer Hi-Bred after three years upon
six-months notice, if a specified technological milestone has not been met.

Revenue recognized under the collaborative research agreement with
DuPont/Pioneer Hi-Bred was $2.6 million and $2.4 million for the year ended
December 31, 1998 and for the six months ended June 30, 1999, respectively (72%
and 78%, respectively, of total collaborative research and development
revenues).

F-11

MAXYGEN, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)

In December 1998, in conjunction with the agreement, DuPont/Pioneer Hi-Bred
purchased 1,000,000 shares of Series C convertible preferred stock at $5.00 per
share. Furthermore, upon a public offering of the Company's common stock and
subject to the underwriter's discretion, the Company can require DuPont/Pioneer
Hi-Bred to purchase $5,000,000 of the Company's common stock at the initial
public offering price.

DSM

In March 1999, the Company entered into a three-year collaborative research
and license agreement with Gist-brocades N.V., a subsidiary of DSM N.V. ("DSM")
to utilize the Company's proprietary MolecularBreeding technologies to develop
certain novel enzymes involved in the manufacture of certain classes of
antibiotics. Under the terms of the agreement, DSM will receive worldwide
commercialization rights and the Company will receive research payments of
approximately $2.3 million over the three-year term and may receive royalty
payments in the future. Total revenue of $215,000 was recognized for the six
months ended June 30, 1999 (7% of total collaborative research and development
revenue).

Novo Nordisk A/S

In September 1997, the Company entered into a five-year License and
Collaboration Agreement with Novo Nordisk A/S ("Novo Nordisk") to use
MolecularBreeding to develop products. The agreement provides for research and
development funding as well as royalty payments on future products to the
Company upon the occurrence of specified events as defined in the agreement.

As set forth in the agreement, Novo Nordisk will fund up to $500,000 of
research funding under the development program on an annual basis. Total
revenue of $544,000 and $223,000 was recognized for the year ended December 31,
1998 and for the six months ended June 30, 1999, respectively (15% and 7%,
respectively, of total collaborative research and development revenue). No
revenue was recognized under this agreement for the year ended December 31,
1997.

Other Collaborations

The Company has entered into corporate collaborations under which it has
completed all of its research obligations. Revenue recognized pursuant to these
agreements was $341,000, $461,000, and $196,000 for the years ended December
31, 1997, 1998, and for the six months ended June 30, 1999, respectively (100%,
13%, and 6%, respectively, of total collaborative research and development
revenue).

3. Sponsored License and Research Agreements

The Company has entered into several research agreements to fund research
at universities and other organizations. These agreements are generally
cancelable by either party upon written notice and may be extended by mutual
consent of both parties. Research and development expenses are recognized as
the related services are performed, generally ratably over the period of the
service. Expenses under these agreements were approximately $254,000, $702,000,
and $197,000 for the years ended December 31, 1997, 1998, and for the six
months ended June 30, 1999, respectively.

F-12

MAXYGEN, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)

4. Property and Equipment

Property and equipment consisted of the following (in thousands):

December
31,
------------ June 30,
1997 1998 1999
---- ------ --------

Leasehold improvements................................ $-- $ -- $1,174
Machinery and equipment............................... 406 1,123 2,728
Computer equipment and software....................... 36 68 134
Furniture and fixtures................................ 16 28 351
---- ------ ------
458 1,219 4,387
Less accumulated depreciation and amortization........ (39) (218) (440)
---- ------ ------
Property and equipment, net........................... $419 $1,001 $3,947
==== ====== ======

5. Equipment Financing

In June 1999, the Company entered into an equipment financing agreement for
up to $2.0 million with a financing company. As of June 30, 1999, the Company
has not financed any equipment purchases under this agreement.

In July 1999, the Company financed $1.2 million in equipment purchases
structured as loans. The equipment loans are to be repaid over 48 months at an
interest rate of 11.73% and are secured by the related equipment. During the
first year of the loan terms, the payments consist of interest only.

6. Commitments

Services and Facility Agreement

In February 1997, the Company entered into a services and facility
agreement, which was amended in September 1998 and February 1999, with Affymax
Research Institute ("ARI"), a related party. Under the agreement, ARI provided
certain accounting, human resources, materials management, facility, safety,
library, and information technology services, as well as the use of designated
space in the ARI facility for specified periods. In exchange, the Company
agreed to pay ARI $417,000 for the period from February 1, 1997 to December 31,
1997, $667,000 for the period from January 1, 1998 to December 31, 1998, and
$135,000 for the period from January 1, 1999 to April 1, 1999. In addition, ARI
agreed to transfer title of fixed assets with a carrying value of approximately
$55,000 to the Company. At December 31, 1998, the Company owed ARI
approximately $105,000 under this agreement. The agreement expired in April
1999.

F-13

MAXYGEN, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)

Facility and Equipment Leases

The Company leases facilities under an operating lease which commenced in
1999. The lease terms of the facilities under this lease expire in 2002 and
2005. The lease contains a renewal option on the facilities under the portion
of the lease that expires in 2002. This lease also includes scheduled rent
increases. The scheduled rent increases are recognized on a straight-line basis
over the term of the lease. Minimum annual rental commitments under operating
leases are as follows:

December 31, June 30,
1998 1999
------------ --------
(In thousands)

1999................................................... $1,027 $ 755
2000................................................... 1,048 1,519
2001................................................... 955 1,441
2002................................................... 979 1,101
2003................................................... 1,005 1,005
Thereafter............................................. 1,221 1,208
------ ------
$6,235 $7,029
====== ======

Rent expense allocated from the services and facility agreement for the
years ended December 31, 1997 and 1998 was approximately $122,000 and $147,000,
respectively. For the six months ended June 30, 1999, rent expense was
approximately $547,000.

7. Related Party Notes Receivable

The Company issued full recourse loans to certain employees, of which
$279,000, $620,000, and $698,000 was outstanding at December 31, 1997 and 1998
and June 30, 1999, respectively. These loans bear interest at rates ranging
from 4.83% to 6.42% with terms ranging from three to five years. One loan
totaling $150,000 was for the purchase of the employee's residence and is
secured by a deed of trust on the employee's residence. The remaining loans
were for the purchase of the Company's common stock and are classified in
stockholders' equity.

8. Stockholders' Equity

Convertible Preferred Stock

Convertible preferred stock designated and outstanding is as follows (in
thousands, except share amounts):

Number of Shares
---------------------- Aggregate
Issued and Net Liquidation
Designated Outstanding Proceeds Preference
---------- ----------- -------- -----------

Series A......................... 2,800,000 2,795,000 $ 5,590 $ 5,590
Series B......................... 3,666,667 3,666,667 10,967 11,000
Series C......................... 1,000,000 1,000,000 5,000 5,000
---------- ---------- ------- -------
At December 31, 1998............. 7,466,667 7,461,667 21,557 21,590
Series D......................... 3,636,364 3,636,364 19,917 20,000
Series E......................... 800,000 -- -- --
---------- ---------- ------- -------
At June 30, 1999................. 11,903,031 11,098,031 $41,474 $41,590
========== ========== ======= =======

F-14

MAXYGEN, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)

Each share of preferred stock is convertible into common stock on a one-
for-one basis (subject to, among other things, adjustment for stock splits and
dividends) at the option of the holder or automatically upon a public offering
in which the public offering price is equal to or exceeds $8.00 per share and
the aggregate proceeds are equal to or exceeds $10 million.

The holders of shares of Series A, B, C, D, and E convertible preferred
stock are entitled to receive dividends, at the rate of $0.16, $0.24, $0.40,
$0.44, and $0.50 per share per year, respectively, out of any assets legally
available, prior to and in preference to any declaration or payment of any
dividend on the common stock of the Company. Such dividends are payable
annually when, as, and if declared by the board of directors, and such
dividends are not cumulative. As of June 30, 1999, no dividends have been
declared.

In the event of any liquidation, dissolution, or winding up of the Company,
either voluntary or involuntary, the stockholders of Series A, B, C, D, and E
convertible preferred stock are entitled to receive, prior to and in preference
to any distribution of any of the assets of the Company to the stockholders of
common stock by reason of their ownership, an amount equal to the sum of $2.00,
$3.00, $5.00, $5.50, and $6.25, respectively, for each outstanding share of
Series A, B, C, D, and E preferred stock (as adjusted for any stock dividends,
combinations, or splits), plus any declared but unpaid dividends on such shares
(collectively, the "Series A, B, C, D, and E Liquidation Preference"). After
payment in full of the Series A, B, C, D, and E Liquidation Preference, each
stockholder of shares of Series A, B, C, D, and E convertible preferred stock
then outstanding shall be entitled to be paid out of the remaining net assets
of the corporation, as and when distributed, ratably with the stockholders of
common stock such amount as would otherwise be distributable to such
stockholder on an as-converted basis.

In the event insufficient funds are available to pay all liquidation
preferences, then the net assets of the Company shall be paid ratably to the
holders of the Series A, B, C, D, and E preferred stock, in proportion to their
respective liquidation preferences. A merger, reorganization, or sale of all or
substantially all of the assets of the Company, in which the existing
stockholders of the Company prior to the transaction possess less than 50% of
the voting power of the surviving entity (or its parent) immediately after the
transaction, shall be deemed to be a liquidation, dissolution, or winding up of
the Company.

The holder of each share of preferred stock is entitled to voting rights
equal to the number of shares of common stock into which each share of
preferred stock could be converted, and has voting rights and powers equal to
the voting rights and powers of the shares of common stock.

1997 Stock Option Plan

In 1997, the Company authorized the 1997 Stock Option Plan (the "Plan")
under which the board of directors may issue incentive stock options to
employees, including officers and members of the board of directors who are
also employees, and nonqualified stock options to employees, officers,
directors, consultants, and advisors of the Company. Under the Plan, incentive
options to purchase the Company's common shares may be granted to employees at
prices not lower than fair value at the date of grant, as determined by the
board of directors. Nonstatutory options (options which do not qualify as
incentive options) may be granted to key employees, including directors and
consultants, at prices not lower than 85% of fair value at the date of grant
(110% in certain cases), as determined by the board of directors. Options have
a term of ten years. Certain options are immediately exercisable, at the
discretion of the board of directors. Shares issued pursuant to the exercise of
an unvested option are subject to the

F-15

MAXYGEN, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)

Company's right of repurchase which lapse over periods specified by the board
of directors, generally four years from the date of grant. If not immediately
exercisable, options generally vest over four years (vesting at a rate of 25%
at the end of each year).

Activity under the Plan is as follows:

Options Outstanding
--------------------------
Weighted-
Average
Shares Number of Exercise Price
Available Shares Per Share
---------- ---------- --------------

Shares authorized..................... 2,140,000 -- --
Options granted....................... (1,891,550) 1,891,550 $0.20
Options exercised..................... -- (100,000) $0.20
---------- ---------- -----
Balance at December 31, 1997.......... 248,450 1,791,550 $0.20
Shares authorized..................... 3,860,000 -- --
Options granted....................... (1,537,120) 1,537,120 $0.30
Options exercised..................... -- (1,495,500) $0.22
Options canceled...................... 38,500 (38,500) $0.24
---------- ---------- -----
Balance at December 31, 1998.......... 2,609,830 1,794,670 $0.27
Options granted....................... (526,600) 526,600 $0.53
Options exercised..................... -- (14,500) $0.24
Options canceled...................... 46,750 (46,750) $0.37
---------- ---------- -----
Balance at June 30, 1999.............. 2,129,980 2,260,020 $0.33
========== ========== =====

The options outstanding and exercisable at December 31, 1998 are as
follows:

Options Outstanding Weighted-Average
------------------------------------ Remaining
Exercise Price Number Outstanding Contractual Life Vested Options
-------------- ------------------ ---------------- --------------
(In years)

$0.20 818,300 8.7 207,137
$0.30 872,370 9.6 50,000
$0.50 104,000 9.9 21,500
--------- -------
1,794,670 278,637
========= =======

The options outstanding and exercisable at June 30, 1999 are as follows:

$0.20 810,050 8.2 375,588
$0.30 907,370 9.1 190,125
$0.50 288,100 9.6 24,500
$0.63 254,500 9.9 --
--------- -------
2,260,020 590,213
========= =======

F-16

MAXYGEN, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)

The weighted-average fair value of options granted in fiscal 1997 and 1998
was $0.05 and $0.86, respectively. At December 31, 1997, 1998, and June 30,
1999, 75,000, 1,064,250, and 677,125 shares of common stock issued upon the
exercise of options were subject to repurchase at a weighted-average price of
$0.20, $0.23, and $0.24, respectively.

Pro forma net loss information is required to be disclosed by SFAS 123 and
has been determined as if the Company has accounted for its employee stock
options under the fair market value method of that statement. The fair value
for these options was estimated at the date of grant using the minimum value
method with the following weighted-average assumptions:

1997 1998
------------ ------------

Expected dividend yield.......................... 0% 0%
Risk-free interest rate range.................... 5.9% to 6.6% 4.4% to 5.6%
Expected life.................................... 5 years 5 years

The full effect of SFAS 123 will not be fully reflected until fiscal 2002.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The
Company's pro forma net loss information is as follows (in thousands, except
per share amounts):

Year ended
December 31,
-----------------
1997 1998
------- -------

Net loss--as reported.................................... $(3,170) $(4,703)
======= =======
Net loss--pro forma...................................... $(3,191) $(4,748)
======= =======
Basic and diluted net loss per share--as reported........ $(0.64) $ (0.70)
======= =======
Basic and diluted net loss per share--pro forma.......... $ (0.65) $ (0.70)
======= =======

In October through December 1998, the Company granted 51,500 fully vested
nonqualified common stock options to consultants at $2.25 and $4.00 per share
for services rendered. In addition, in September 1998, 75,000 shares of common
stock were issued to consultants for services at $2.25 per share. The fair
value of the common stock issued and stock options granted were $257,000 and
was recorded as an expense in the period. During the six months ended June 30,
1999, the Company issued 190,000 shares of common stock for services rendered
and certain technology rights. The value of these shares was $835,000 and was
recorded as an expense in the period.

During the year ended December 31, 1998 and during the six months ended
June 30, 1999, in connection with the grant of certain share options to
employees, the Company recorded deferred stock compensation of $352,000 and
$2.1 million, respectively, representing the difference between the exercise
price and the deemed fair value of the Company's common stock for financial
reporting purposes on the date such stock options were granted. Deferred
compensation is included as a reduction of stockholders' equity and is being
amortized to expense on a graded vesting method. During the six months ended
June 30, 1999, the Company recorded amortization of deferred stock compensation
expense of approximately $341,000 (none for the year ended December 31, 1998).
Additional deferred compensation of approximately $11,453,000 is expected to be
recorded based on the deemed fair value of common stock options granted to
employees during September 1999. The Company also expects to record additional
deferred compensation with respect to stock options granted to consultants in
September 1999, totaling

F-17

MAXYGEN, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)

$513,000. Options granted to consultants are periodically valued as they vest
in accordance with SFAS 123 and EITF 96-18 using a Black-Scholes model and the
following weighted-average assumptions for 1999: estimated volatility of 0.7,
risk-free interest rate of 5.0%, no dividend yield, and an expected life of
the option equal to the full term, generally five years from the date of
grant.

Common Stock

The founders' shares issued in March 1997 are also subject to repurchase
until fully vested in four years. At December 31, 1997, 1998, and June 30,
1999, 1,575,000, 1,050,000, and 525,000 shares, respectively, of common stock
at a weighted-average price of $0.20 per share were subject to repurchase.

At December 31, 1998, the Company has reserved shares of common for future
issuance as follows:

Conversion of convertible preferred stock..................... 7,466,667
1997 Stock Option Plan........................................ 4,404,500
----------
11,871,167
==========

At June 30, 1999, the Company has reserved shares of common stock for
future issuance as follows:

Conversion of convertible preferred stock..................... 11,098,031
1997 Stock Option Plan........................................ 4,390,000
----------
15,488,031
==========

9. Income Taxes

At December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $5.4 million. The Company also had federal
research and development tax credit carryforwards of approximately $300,000.
The net operating loss and credit carryforwards will expire at various dates
beginning in the year 2012 through 2018, if not utilized.

Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets for financial reporting and the amount
used for income tax purposes. Significant components of the Company's deferred
tax assets for federal and state income taxes as of December 31 are as
follows:

December 31,
----------------
1997 1998
------- -------
(In thousands)

Net operating loss carryforwards........................... $ 1,000 $ 1,800
Research credits........................................... 100 400
Capitalized research and development....................... -- 100
Deferred revenue........................................... -- 900
Other...................................................... 100 200
------- -------
Total deferred tax assets.................................. 1,200 3,400
Valuation allowance........................................ (1,200) (3,400)
------- -------
Net deferred tax assets.................................... $ -- $ --
======= =======

F-18

MAXYGEN, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)

Because of the Company's lack of earnings history, the deferred tax assets
have been fully offset by a valuation allowance. The valuation allowance
increased by $1.2 million and $2.2 million during the years ended December 31,
1997 and 1998, respectively.

10. Subsequent Events (Unaudited)

Grant Award

In September 1999, the Company was awarded a Defense Advanced Research
Projects Agency grant totaling approximately $6.8 million for a research and
development project. The term of the grant agreement is three years.

Initial Public Offering

In September 1999, the board of directors authorized management of the
Company to file a registration statement with the Securities and Exchange
Commission permitting the Company to sell shares of its common stock to the
public. If the initial public offering is closed under the terms presently
anticipated, all of the preferred stock outstanding will automatically convert
into 11,098,031 shares of common stock. Unaudited pro forma stockholders'
equity, as adjusted for the assumed conversion of the preferred stock, is set
forth on the balance sheet.

In September 1999, the board of directors approved an amendment to the
Company's articles of incorporation to authorize 5,000,000 shares of
undesignated preferred stock, for which the board of directors is authorized to
fix the designation, powers, preferences, and rights and an increase in the
authorized number of shares of common stock to 70,000,000 shares.

In September 1999, the Company's board of directors approved an increase in
the number of shares of common stock reserved for issuance under the 1997 Stock
Plan to 7,500,000 shares.

In October 1999, the Company's board of directors adopted the 1999 Employee
Stock Purchase Plan (the "Purchase Plan"). A total of 400,000 shares of the
Company's common stock have been reserved for issuance under the Purchase Plan.
The Purchase Plan permits eligible employees to purchase common stock at a
discount, but only through payroll deductions, during defined offering periods.
The price at which stock is purchased under the Purchase Plan is equal to 85%
of the fair market value of the common stock on the first or last day of the
offering period, whichever is lower. The initial offering period will commence
on the effective date of the offering. In addition, the Purchase Plan provides
for annual increases of 200,000 shares available for issuance under the
Purchase Plan beginning with fiscal 2000.

In October 1999, the Company adopted the 1999 Nonemployee Directors Stock
Option Plan and reserved a total of 300,000 shares of common stock for issuance
thereunder. Each nonemployee director who becomes a director of the Company
will be automatically granted a nonstatutory stock option to purchase 20,000
shares of common stock on the date on which such person first becomes a
director. At each board meeting immediately following each annual stockholders
meeting beginning with the first board meeting after the 1999 Annual
Stockholders Meeting, each nonemployee director will automatically be granted a
nonstatutory option to purchase 5,000 shares of common stock. The exercise
price of options under the director plan will be equal to the fair market value
of the common stock on the date of grant. The maximum term of the options
granted under the director plan is ten years. Each initial grant under the
director plan will vest as to

F-19

MAXYGEN, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)

25% of the shares subject to the option one year after the date of grant and at
a rate of 25% of the shares at the end of each year. Each subsequent grant will
vest in full one year after the date of grant. The director plan will terminate
in September 2009, unless terminated earlier in accordance with the provisions
of the director plan.

F-20

UNDERWRITING

Maxygen and the underwriters named below have entered into an underwriting
agreement with respect to the shares being offered. Subject to certain
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Goldman, Sachs & Co., BancBoston
Robertson Stephens Inc., and Invemed Associates LLC are the representatives of
the underwriters.

Number
of
Underwriters Shares
------------ -------

Goldman, Sachs & Co.
BancBoston Robertson Stephens Inc.
Invemed Associates LLC

=======
Total
=======

The underwriting agreement provides that if any of the shares of common
stock are purchased by the underwriters, all of the shares of common stock that
the underwriters have agreed to purchase under the underwriting agreement, must
be purchased. If the underwriters sell more shares than the total number set
forth in the table above, the underwriters have an option to buy up to an
additional shares from Maxygen to cover such sales. They may
exercise that option for 30 days. If any shares are purchased under this
option, the underwriters will severally purchase shares in approximately the
same proportion as set forth in the table above.

The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by Maxygen. These amounts are
shown assuming both no exercise and full exercise of the underwriters' option
to purchase additional shares.

Paid by Maxygen
-----------------
No Full
Exercise Exercise
-------- --------

Per Share.................................................. $ $
Total...................................................... $ $

Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price. Any
of these securities dealers may resell any shares purchased from the
underwriters to other brokers or dealers at a discount of up to $ per
share from the initial public offering price. If all the shares are not sold at
the initial public offering price, the representatives may change the offering
price and the other selling terms.

Maxygen has agreed with the underwriters not to dispose of or hedge any of
their common stock or securities convertible into or exchangeable for shares of
common stock during the period from the date of this prospectus continuing
through the date 180 days after the date of this prospectus, except with the
prior written consent of Goldman, Sachs & Co. This restriction does not apply
to any existing employee benefit plans. See "Shares Eligible for Future Sale"
for a discussion of transfer restrictions.

As of October 1, 1999, Invemed Associates LLC, one of the underwriters,
held 363,636 shares of common stock through Invemed Fund L.P., a fund for which
Invemed Associates is the sole general partner. These shares were purchased in
June 1999 for $5.50 per share. Certain officers of Invemed Associates hold
104,876 shares of common stock, of which 69,423 shares were purchased in August
1998 for $3.00 per share and 35,453 shares were purchased in June 1999 for
$5.50 per share. In addition, a minority shareholder and director of Invemed
Associates' corporate parent, Invemed Securities, Inc., owns an aggregate of
9,621 shares of common stock, of which 4,167 shares were purchased in August
1998 for $3.00 per share and 5,454 shares were purchased in June 1999 for $5.50
per share.

U-1

Invemed and the aforementioned affiliated stockholders have agreed, for a
period of 180 days following the date of this prospectus, that they will not
sell, transfer, assign, pledge, hypothecate or otherwise transfer these shares.

Prior to this offering, there has been no public market for the common
stock. The initial public offering price for the common stock will be
negotiated among Maxygen and the representatives of the underwriters. Among the
factors considered in determining the initial public offering price of the
shares, in addition to prevailing market conditions, will be Maxygen's
historical performance, estimates of Maxygen's business potential and earnings
prospects, an assessment of Maxygen's management and the consideration of the
above factors in relation to market valuation of companies in related
businesses.

Maxygen has made application to list the shares of common stock on The
Nasdaq National Market under the symbol "MAXY."

In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.

The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares
sold by or for the account of such underwriter in stabilizing or short covering
transactions.

These activities by the underwriters may stabilize, maintain or affect the
market price of the common stock. As a result, the price of the common stock
may be higher than the price that otherwise might exist in the open market. If
these activities are commenced, they may be discontinued by the underwriters at
any time. These transactions may be effected on The Nasdaq National Market, in
the over-the-counter market or otherwise.

The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.

Maxygen currently anticipates that it will request the underwriters to
reserve up to shares of its common stock for sale at the initial public
offering price to persons designated by Maxygen through a directed share
program. The number of shares available for sale to the general public will be
reduced to the extent such persons purchase such reserved shares. The reserved
shares not so purchased will be offered by the underwriters to the general
public on the same basis as other shares offered hereby.

Maxygen estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$ .

Maxygen has agreed to indemnify the several underwriters against
liabilities, including liabilities under the Securities Act of 1933.

U-2

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You
must not rely on any unauthorized information or representations. This
prospectus is an offer to sell only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The
information contained in this prospectus is current only as of its date.

----------------

TABLE OF CONTENTS

Page
----

Prospectus Summary....................................................... 2
Risk Factors............................................................. 6
Forward-Looking Statements............................................... 16
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Financial Data.................................................. 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 26
Management............................................................... 42
Certain Transactions..................................................... 51
Principal Stockholders................................................... 54
Description of Capital Stock............................................. 56
Shares Eligible for Future Sale.......................................... 58
Legal Matters............................................................ 59
Change in Independent Auditors........................................... 59
Experts.................................................................. 60
Where You Can Find Additional Information................................ 60
Index to Financial Statements............................................ F-1
Underwriting............................................................. U-1

----------------

Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether
or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to an unsold
allotment or subscription.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Maxygen, Inc.

Common Stock

----------------

[LOGO]

----------------

Goldman, Sachs & Co.

Robertson Stephens

Invemed Associates

Representatives of the Underwriters

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

PART II

Information Not Required In Prospectus

Item 13 Other Expenses of Issuance and Distribution.*

The following table sets forth all expenses to be paid by Maxygen, other
than the underwriting discounts and commissions payable by Maxygen in
connection with the sale of the common stock being registered. All amounts
shown are estimates except for the registration fee and the NASD filing fee.

AMOUNT TO
BE PAID
----------

Registration fee................................................. $
NASD filing fee..................................................
Nasdaq National Market...........................................
Blue sky qualification fees and expenses.........................
Printing and engraving expenses..................................
Legal fees and expenses..........................................
Accounting fees and expenses.....................................
Transfer agent and registrar fees................................
Miscellaneous expenses...........................................
Total.......................................................... $
==========

- --------
*To be supplied by amendment.

Item 14 Indemnification of Officers and Directors.

Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. Our Certificate of Incorporation and Bylaws
provide that we will indemnify our directors, officers, employees and agents to
the full extent permitted by Delaware General Corporation Law, including in
circumstances in which indemnification is otherwise discretionary under
Delaware law. In addition, we intend to enter into separate indemnification
agreements with our directors which would require us, among other things, to
indemnify them against certain liabilities which may arise by reason of their
status or service (other than liabilities arising from willful misconduct of a
culpable nature). The indemnification provisions in our Certificate of
Incorporation and Bylaws and the indemnification agreement to be entered into
between us and our directors may be sufficiently broad to permit
indemnification of our officers and directors for liabilities (including
reimbursement of expenses incurred) arising under the Securities Act. We also
intend to maintain director and officer liability insurance, if available on
reasonable terms, to insure our directors and officers against the cost of
defense, settlement or payment of a judgment under certain circumstances. In
addition, the underwriting agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the underwriters of the Company and
our officers and directors for certain liabilities arising under the Securities
Act, or otherwise.

Item 15 Recent Sales of Unregistered Securities.

Since our incorporation in May 1996, we have sold and issued the following
securities:

1. In March 1997, we issued to Affymax Technologies, N.V. and Glaxo Group
Limited (both subsidiaries of Glaxo Wellcome plc) a total of 5,460,000 shares
of common stock in exchange for the transfer of intellectual property and other
technology assets. In addition, we sold an aggregate of 2,100,000 shares of
common stock to four founders of Maxygen for aggregate consideration of
$420,000 which was paid by promissory note, secured by the common stock
underlying the stock purchase. In May 1998, we issued 125,000 shares of common
stock to the California Institute of Technology in exchange for the license of
intellectual property. In September 1998, we sold 75,000 shares of common stock
to three of our consultants for aggregate consideration of $22,500. In

II-1

March 1999, we issued 15,000 shares of common stock to Cahan & Associates in
consideration for consulting services. In April 1999, we issued 50,000 shares
of common stock to the University of Washington in exchange for the license of
intellectual property.

2. In March 1997, we sold 2,500,000 shares of Series A preferred stock to two
investors for aggregate consideration of $5,000,000. In December 1997, we sold
290,000 shares of Series A preferred stock to 16 investors for aggregate
consideration of $580,000. In April 1998, we sold 5,000 shares of Series A
preferred stock to one investor for aggregate consideration of $10,000.

3. In August 1998, we sold 3,666,667 shares of Series B preferred stock to 63
investors for aggregate consideration of $10,966,000.

4. In December 1998, we sold 1,000,000 shares of Series C preferred stock to
Pioneer Overseas Corporation for an aggregate consideration of $5,000,000.

5. In June 1999, we sold 3,636,364 shares of Series D preferred stock to 62
investors for aggregate consideration of $19,917,000.

6. In August 1999, we sold 800,000 shares of Series E preferred stock to
AstraZeneca Holdings, B.V. for aggregate consideration of $5,000,000.

7. Since our incorporation, we have issued, and there remain outstanding,
options to purchase an aggregate of 3,031,795 shares of common stock with
exercise prices ranging from $0.20 to $0.75 per share. Since our
incorporation, options to purchase 2,340,830 shares of common stock have been
exercised for aggregate consideration of $838,369.

There were no underwriters employed in connection with any of the
transactions set forth in Item 15.

The issuances of securities described in Items 15(1) through 15(6) were
deemed to be exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act and Regulation D promulgated thereunder as
transactions by an issuer not involving a public offering. The issuances of
securities described in Item 15(7) were deemed to be exempt from registration
under the Securities Act in reliance on Rule 701 promulgated thereunder as
transactions pursuant to compensatory benefit plans approved by the
registrant's board of directors. The recipients of securities in each such
transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about us or had access, through
employment or other relationships, to such information.

II-2

Item 16 Exhibits and Financial Statement Schedules.

(A) EXHIBITS

Exhibit
Number Description of Document
------- ----------------------------------------------------------------------

1.1* Form of Underwriting Agreement
3.1 Certificate of Incorporation, as currently in effect
3.2 Amended Certificate of Designations, Preferences and Rights of Series
A Preferred Stock, as currently in effect
3.3 Amended Certificate of Designations, Preferences and Rights of Series
B Preferred Stock, as currently in effect
3.4 Amended Certificate of Designations, Preferences and Rights of Series
C Preferred Stock, as currently in effect
3.5 Certificate of Designations, Preferences and Rights of Series D
Preferred Stock, as currently in effect
3.6 Certificate of Designations, Preferences and Rights of Series E
Preferred Stock, as currently in effect
3.7 Bylaws, as currently in effect
3.8 Amended and Restated Certificate of Incorporation, to be effective
upon closing
3.9 Amended and Restated Bylaws, to be effective upon closing
4.1* Specimen Common Stock Certificate
4.2 Registration Rights Agreement among the Company, Affymax Technologies
N.V., Dr. Zaffaroni and Glaxo Wellcome plc dated March 14, 1997
4.3 Amendment to Registration Rights Agreement and Consent dated as of
July 31, 1998 between Maxygen and certain holders of Series A
preferred stock
4.4 Second Amendment to Registration Rights Agreement and Consent dated as
of December 23, 1998 among Maxygen and certain holders of Series A
preferred stock and Series B preferred stock
4.5 Third Amendment to Registration Rights Agreement and Consent dated as
of June 15, 1999 among Maxygen, and certain holders of Series A
preferred stock, Series B preferred stock, Series C preferred stock
and Series D preferred stock
4.6 Series E Preferred Stock Purchase Agreement between Maxygen,
AstraZeneca Holdings, B.V. and Zeneca Limited dated as of June 18,
1999
4.7 Fourth Amendment to Registration Rights Agreement and Consent dated as
of August 6, 1999 among Maxygen, certain holders of Series A preferred
stock, Series B preferred stock, Series C preferred stock, Series D
preferred stock and Series E preferred stock
5.1* Opinion of Heller Ehrman White & McAuliffe
10.1 1997 Stock Option Plan, as amended
10.2 Form of Promissory Note dated March 14, 1997 executed by each of
Russell J. Howard, Isaac Stein and Willem P.C. Stemmer in favor of
Maxygen
10.3+ Technology Transfer Agreement among Maxygen, Affymax Technologies N.V.
and Glaxo Wellcome plc dated March 14, 1997, as amended, effective
March 1, 1998
10.4 Lease between Metropolitan Life Insurance Company and Maxygen dated
October 21, 1998
10.5 First Amendment to Lease dated as of February 26, 1999 by and between
Metropolitan Life Insurance Company and Maxygen
10.6 Promissory Note dated April 22, 1999 executed by Joseph Affholter and
Roxanne Affholter in favor of Maxygen
10.7 Form of Director Indemnification Agreement
10.8 1999 Nonemployee Directors Stock Option Plan
10.9 1999 Employee Stock Purchase Plan
10.10 Form of Promissory Note issued in connection with exercise of stock
options
16.1 Letter re change in certifying accountant
23.1 Consent of Ernst & Young LLP, Independent Auditors

II-3

Exhibit
Number Description of Document
------- --------------------------------------------------------------------

23.2* Consent of Heller Ehrman White & McAuliffe (included in Exhibit 5.1)
24.1 Power of Attorney (included on page II-5)
27.1 Financial Data Schedule

- --------
*to be filed by amendment
+confidential treatment requested

(B) FINANCIAL STATEMENT SCHEDULES.

All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.

Item 17 Undertakings

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Commission such indemnification is against public policy
as expressed in the Securities Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective; and

(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the Offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof.

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Redwood City, California, on the
20th day of October 1999.

MAXYGEN, INC.

By: /s/ Russell J. Howard_______________
Russell J. Howard, Ph.D.
President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Isaac Stein and Simba Gill, and
each of them acting individually, as his true and lawful attorneys-in-fact and
agents, each with full power of substitution, for him in any and all
capacities, to sign any and all amendments to this Registration Statement
(including post-effective amendments or any abbreviated registration statement
and any amendments thereto filed pursuant to Rule 462(b) increasing the number
of securities for which registration is sought), and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, with full power of each to act alone, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully for all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or his or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:

Signature Title Date
--------- ----- ----

/s/ Russell J. Howard, Ph.D. President, Chief Executive October 20, 1999
____________________________________ Officer and Director
Russell J. Howard, Ph.D. (Principal Executive Officer)

/s/ Simba Gill, Ph.D. Senior Vice President of October 20, 1999
____________________________________ Business Development and Chief
Simba Gill, Ph.D. Financial Officer (Principal
Financial and Accounting
Officer)

/s/ Isaac Stein Chairman of the Board October 20, 1999
____________________________________
Isaac Stein

/s/ Robert J. Glaser, M.D. Director October 20, 1999
____________________________________
Robert J. Glaser, M.D.

/s/ M.R.C. Greenwood, Ph.D. Director October 20, 1999
____________________________________
M.R.C. Greenwood, Ph.D.

/s/ Adrian Hennah Director October 20, 1999
____________________________________
Adrian Hennah

/s/ Gordon Ringold, Ph.D. Director October 20, 1999
____________________________________
Gordon Ringold, Ph.D.

II-5

EXHIBIT INDEX

Exhibit
Number Description of Document
------- ----------------------------------------------------------------------

1.1* Form of Underwriting Agreement
3.1 Certificate of Incorporation, as currently in effect
3.2 Amended Certificate of Designations, Preferences and Rights of Series
A Preferred Stock, as currently in effect
3.3 Amended Certificate of Designations, Preferences and Rights of Series
B Preferred Stock, as currently in effect
3.4 Amended Certificate of Designations, Preferences and Rights of Series
C Preferred Stock, as currently in effect
3.5 Certificate of Designations, Preferences and Rights of Series D
Preferred Stock, as currently in effect
3.6 Certificate of Designations, Preferences and Rights of Series E
Preferred Stock, as currently in effect
3.7 Bylaws, as currently in effect
3.8 Amended and Restated Certificate of Incorporation, to be effective
upon closing
3.9 Amended and Restated Bylaws, to be effective upon closing
4.1* Specimen Common Stock Certificate
4.2 Registration Rights Agreement among the Company, Affymax Technologies
N.V., Dr. Zaffaroni and Glaxo Wellcome plc dated March 14, 1997
4.3 First Amendment to Registration Rights Agreement and Consent dated as
of July 31, 1998 between Maxygen and certain holders of Series A
preferred stock
4.4 Second Amendment to Registration Rights Agreement and Consent dated as
of December 23, 1998 among Maxygen and certain holders of Series A
preferred stock and Series B preferred stock
4.5 Third Amendment to Registration Rights Agreement and Consent dated as
of June 15, 1999 among Maxygen, and certain holders of Series A
preferred stock, Series B preferred stock, Series C preferred stock
and Series D preferred stock
4.6 Series E Preferred Stock Purchase Agreement between Maxygen,
AstraZeneca Holdings, B.V. and Zeneca Limited dated as of June 18,
1999
4.7 Fourth Amendment to Registration Rights Agreement and Consent dated as
of August 6, 1999 among Maxygen, certain holders of Series A preferred
stock, Series B preferred stock, Series C preferred stock, Series D
preferred stock and Series E preferred stock
5.1* Opinion of Heller Ehrman White & McAuliffe
10.1 1997 Stock Option Plan, as amended
10.2 Form of Promissory Note dated March 14, 1997 executed by each of
Russell J. Howard, Isaac Stein and Willem P.C. Stemmer in favor of
Maxygen
10.3+ Technology Transfer Agreement among Maxygen, Affymax Technologies N.V.
and Glaxo Wellcome plc dated March 14, 1997, as amended, effective
March 1, 1998
10.4 Lease between Metropolitan Life Insurance Company and Maxygen dated
October 21, 1998
10.5 First Amendment to Lease dated as of February 26, 1999 by and between
Metropolitan Life Insurance Company and Maxygen
10.6 Promissory Note dated April 22, 1999 executed by Joseph Affholter and
Roxanne Affholter in favor of Maxygen
10.7 Form of Director Indemnification Agreement
10.8 1999 Nonemployee Directors Stock Option Plan
10.9 1999 Employee Stock Purchase Plan
10.10 Form of Promissory Note issued in connection with exercise of stock
options
16.1 Letter re change in certifying accountant
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2* Consent of Heller Ehrman White & McAuliffe (included in Exhibit 5.1)
24.1 Power of Attorney (included on page II-5)
27.1 Financial Data Schedule

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*to be filed by amendment
+confidential treatment requested