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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

For the year ended December 31, 2002

TRANSITION PERIOD FROM                      TO                     .

Commission File Number 0-31275

LARGE SCALE BIOLOGY CORPORATION

(Exact name of registrant as specified in its charter)

3333 Vaca Valley Parkway, Vacaville, CA 95688

(Address of principal executive offices and zip code)

(707) 446-5501

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 par value

Preferred Stock Purchase Rights

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).  Yes  ¨  No  x

The aggregate market value of voting stock held by non-affiliates of the Registrant as of June 30, 2002 was approximately $36.4 million (based on the last reported sale price of $2.18 on June 28, 2002 on the NASDAQ National Market).

The number of shares outstanding of the Registrant’s common stock as of March 20, 2003 was 25,257,891.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive proxy statement, which is expected to be filed not later than 120 days after the Registrant’s year ended December 31, 2002, to be delivered in connection with the Registrant’s 2003 Annual Meeting of Stockholders, are incorporated by reference into Part III of this Form 10-K.

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Large Scale Biology Corporation

Form 10-K

For the Year Ended December 31, 2002

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Some of the statements contained in this report constitute forward-looking statements that involve substantial risks and uncertainties. In some cases, you can identify these statements by forward-looking words such as “may,” “will,” “expect,” “plan,” “anticipate,” “believe,” or “continue” and variations of these words or comparable words. In addition, any statements which refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Our Business section and Management’s Discussion and Analysis of Financial Condition and Results of Operations contain many such forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and situations that may cause our or our industry’s actual results, level of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. The risk factors contained in this report, under the heading Factors That May Affect Our Business, as well as any other cautionary language in this report, provide examples of risks, uncertainties and events that may cause our actual results to differ from the expectations described or implied in our forward-looking statements.

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. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this report. Except as required by law, we do not undertake to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Large Scale Biology Corporation, LSBC, our logo, GENEWARE^®, PLURIGEN, ProGEx and other product and trade names are trademarks of or registered trademarks of Large Scale Biology Corporation in the United States and/or other countries. Other product and trade names mentioned herein may be trademarks and/or registered trademarks of their respective companies. References in this report to “the Company,” “our,” “we” and “us” refer collectively to Large Scale Biology Corporation, a Delaware corporation, and its predecessors and subsidiaries.

PART I

Item 1.    Business

Overview

LSBC’s goal is to develop therapeutic products using our proprietary technologies and expertise. The product categories in which LSBC has made the most progress using our proprietary biomanufacturing technology are: (1) vaccines for the treatment of cancer and the treatment and prevention of infectious diseases, including disease agents of potential concern in biological warfare and, (2) the low-cost production of complex proteins for therapeutic product applications. Examples of specific products on which we are working include:

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We successfully completed a Phase I human clinical trial of our NHL vaccine and are designing a Phase III clinical trial and manufacturing protocol for this product to facilitate a potential collaboration for further development. We produced human alpha-galactosidase A as part of a collaborative research agreement with the National Institutes of Health, or NIH. We have received Orphan Drug designation for this potential product from the Food and Drug Administration (FDA), and we are preparing an IND, or Investigational New Drug Application. Using our proprietary proteomics and genomics technologies, LSBC has developed potential products and processes for treatment of a variety of diseases in the medical field of hematology based on our approach to the stimulation and expansion of stem cell precursors. We have initiated preclinical research on our approach for the expansion of bone marrow and cord blood stem cells.

LSBC’s proprietary technologies include methodologies for the analysis of both genes and proteins and for the completion of that analysis in an automated, high-throughput fashion. We also own unique systems for manufacturing proteins in both research quantities and commercial quantities to pharmaceutical-grade purity standards. These systems use proprietary plant-based gene delivery vehicles in green plants for the production of vaccines and therapeutic proteins without genetic modifications of the plant host. We believe that these manufacturing technologies will provide us and our partners with significant competitive advantages in speed and ease of production, safety, production capacity and cost of goods in the future.

In addition to using our technologies to develop our own proprietary therapeutic product candidates, we are marketing them to collaborators and commercial customers. We believe opportunities exist to market our technologies to potential customers for the discovery of proteins that act as markers for diagnostic purposes and/or as therapeutic targets, and for custom manufacturing of client’s protein therapeutics and vaccines.

LSBC was incorporated in California in 1987 and reincorporated in Delaware in 2000. From our inception until the end of 2000, LSBC’s main focus was on internally developing and integrating proprietary technologies, and on providing research and development services to customers. In 2001, our focus shifted to the development of products throughout the early stages of clinical testing.

The Company is headquartered in Vacaville, California and its mailing address is 3333 Vaca Valley Parkway, Vacaville, California, 95688, and our telephone number is (707) 446-5501. Our corporate web site address is www.lsbc.com. We make available free of charge through our web site our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the Securities and Exchange Commission

Developments in the Year 2002

LSBC accomplished the following during 2002:

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Recent Development

In January 2003, the FDA granted the Company Orphan Drug designation for its proprietary plant-produced human enzyme, alpha-galactosidase A, for the treatment of Fabry disease. The Company is now accelerating its planned filing of an IND with the FDA for clinical trials of this product. LSBC has established a relationship with a clinical research center specializing in genetic diseases to undertake a Phase I clinical trial later this year.

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Science and Industry Background

All living things are made up of one or more cells. Although science still has much to learn about how cells actually function, it is commonly accepted that all cells have several basic components. Inside each plant and animal cell is a nucleus containing deoxyribonucleic acid, or DNA, that makes up its genetic code. Different sections of the DNA are called genes. A gene or a combination of genes encode the information needed for carrying the various essential life functions. Each gene is composed of a specific, unique sequence of DNA. When a gene is turned on, or “expressed,” the genetically coded information is copied into a related molecule called messenger ribonucleic acid, or mRNA. This messenger travels to a location outside the nucleus where proteins are then made according to the genetic information contained in the mRNA.

All diseases involve changes affecting one or more proteins in a cell. These changes may result in an increase, decrease or elimination of the relevant protein(s) or in the structure of the protein. Many diseases are directly caused by genetic defects that affect the way proteins are made or regulated within cells. In order to identify the nature of disease and to design effective drugs to treat diseases, it is necessary to understand these changes in the composition of the cellular proteins, or “proteome.” Therefore, we believe that the field of proteomics is becoming crucial in the biotechnology and pharmaceutical industries’ efforts to discover and develop drugs that treat disease, and to make products which enable researchers and doctors to predict, diagnose and monitor diseases. LSBC has developed over the past 15 years a comprehensive, proprietary proteomics technology that is capable of rapid analysis of the proteomes of normal and diseased human tissues for the identification of proteins that are associated with diseases. The study of these disease-related proteins is an important tool for diagnostic and therapeutic research and product development.

Private industry and the federal government have each announced the completion of the sequencing of the human genome. The Human Genome Project has resulted in large databases that contain genetic sequences of sections of the chromosomes but which provide little or no information about the function of these gene sequences. Scientists cannot infer, necessarily or reliably, gene function from gene sequence or mRNA levels alone, nor from comparison to other genes of known function. Without understanding the function of genes, the sequences are of little practical use. Determining gene function involves the discovery of the role or relationship that a gene, or the protein it encodes, has with a particular biological process and understanding the consequences of modulating its activity. Discovering gene function requires the matching of gene sequence to specific protein function. We believe our key technologies, including our core proteomics and GENEWARE technologies, address these needs. In addition, we believe that our manufacturing capability will enable us to produce commercially valuable proteins rapidly and cost effectively.

Much of the work being done in the biotechnology industry today is on drug development. Quite often, for a company to discover and develop a new drug requires analysis of “diseased” versus “normal” tissue to find what is known as a drug “target” within the tissue. A drug “target” may be a protein that is directly correlated to the disease or a biochemical pathway involved with the disease. The scientist’s next step is to determine which chemicals, proteins or compounds impact the drug “target” in a positive way, i.e., provides a cure or reduces the effect of the disease on the particular tissue without causing unacceptable side effects. If such research is successful at that stage, then a potential drug product has been discovered. We believe that the final, and perhaps most important step for drug development, is a speedy and cost-effective means of producing a protein drug in commercial quantities, which is one of our core capabilities.

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Our Strategy

LSBC’s corporate strategy is to capitalize on our platform technologies to develop and commercialize the Company’s own products as well as those of our clients and partners. While LSBC’s GENEWARE and ProGEx protein expression and analysis platforms are broadly applicable, the Company’s current focus is on developing and commercializing biomedical products and biomanufacturing services. LSBC also generates near-term revenue from custom discovery and development services.

LSBC’s strategic business focus consists of development of the following business opportunities:

The Company’s genomics and bioinformatics capabilities also can be used to discover genes of medical interest. Likewise, LSBC’s well-established protein isolation and analysis (proteomics) infrastructure can be used to discover drug targets as well as targets of toxicity for drugs and environmental chemicals. LSBC’s genomics, proteomics and informatics processes are integrated to offer the Company, its clients and partners a powerful discovery service.

LSBC has successfully achieved proof of principle with its own human and animal-health-care therapeutics. While some early stages of biomanufacturing, regulatory and clinical development can be supported by the Company, LSBC plans to achieve advanced product development and commercialization goals in collaboration with pharmaceutical and biopharmaceutical companies. In particular, two of the Company’s products, our NHL vaccine and a feline parvovirus vaccine have successfully completed early-stage clinical trials and are ready to move forward into advanced development. We have also completed manufacturing process development of a second human therapeutic product, alpha-galactosidase A to treat Fabry disease. We have received Orphan Drug designation from the FDA for this product. We are currently preparing the regulatory documents to initiate clinical trials. LSBC is in discussions with several potential partners for commercial development of our products and we expect to generate license, research and development and royalty income from these alliances. However, LSBC cannot assure you that these discussions will lead to alliances or that LSBC will realize revenue from any alliance it forms.

LSBC has been developing a unique biomanufacturing capability for proteins and peptides to capitalize on the current and anticipated capacity constraints of the biotechnology industry. We built a manufacturing facility in Owensboro, Kentucky, that is ready for FDA-compliant manufacturing of human therapeutics and vaccines developed by LSBC and our clients.

Commercial Opportunities

Products

Alpha-Galactosidase A.    Alpha-galactosidase A is an enzyme used for replacement therapy to treat Fabry disease. Fabry disease is a genetic disorder that results in the inability of tissues within organs, primarily the liver, kidney and spleen, to recycle various structural lipid components resulting in the accumulation of these lipids in those organs and the heart. Fabry is an X-linked disease that usually results in death for homozygous males in the fourth or fifth decade of life.

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LSBC’s enzyme is produced in plants with our proprietary GENEWARE system. The enzyme is recovered and purified to clinical standards in a proprietary process that is validated and compliant with cGMP, or current Good Manufacturing Practices. The product has been produced at LSBC’s biomanufacturing facility in Owensboro, Kentucky.

Preclinical data, collected to support an IND filing with the FDA, was done collaboratively with Dr. Roscoe Brady and his team at the National Institutes of Health (National Institute of Neurological Disease and Stroke) under a collaborative research and development agreement. The preclinical data in a Fabry mouse model system shows good efficacy and safety in the animals. LSBC applied for and received an Orphan Drug designation from the FDA for this molecule.

LSBC has requested a pre-IND meeting at the FDA to request guidance for filing an IND for use of alpha-galactosidase A for Fabry disease.

Aprotinin.    Aprotinin is a natural protein that acts to prevent protein breakdown, and is used in medical procedures to reduce the systemic inflammatory response, or SIR, associated with cardiopulmonary bypass surgery, or CPB. Once triggered, SIR can lead to a cascade of subsequent inflammatory events that can collectively retard patient recovery. When administered intravenously in CPB procedures, aprotinin helps decrease the need for blood transfusions, reduces post-operative bleeding, and thus reduces re-exploration for bleeding. There is one aprotinin-containing product on the United States market for use in CPB that is currently obtained by extraction from bovine lungs.

LSBC has successfully produced pilot-scale quantities of bovine-identical equivalent using its proprietary GENEWARE plant-based biomanufacturing system. LSBC’s aprotinin active pharmaceutical ingredient, or API, has the same biological activity as its animal-derived counterpart. When scaled to commercial-level production, the Company believes that its aprotinin could be obtained cost effectively and in sufficient quantities to meet worldwide demand, without the safety concerns associated with animal- and especially bovine-derived products.

LSBC is in discussions with potential partners for supplying the company’s aprotinin to the medical and industrial markets. However, LSBC cannot assure you that we will succeed in creating commercial arrangements with these parties.

Endothelial Cell-Derived Growth Factor.    LSBC has developed novel technology for stimulating the proliferation of human bone marrow and cord blood stem cells. Proprietary products and processes developed by LSBC may prove effective in a variety of applications, including the treatment of diseases of hematopoiesis, treatment of patients who receive chemotherapy and/or radiation therapy for cancer, as an adjunct to vaccine therapy, and in the facilitation of bone marrow-mediated gene therapy. LSBC expects to initiate clinical research as well as seek commercial partners for many of the potential applications of this technology.

Non-Hodgkin’s Lymphoma Vaccine.     During 2002, LSBC completed the clinical portion of a Phase I safety trial in humans of a patient-specific vaccine for the treatment of indolent NHL. Non-Hodgkin’s or B-cell lymphoma is the sixth leading cause of death in the United States and the Western world and the only cancer for which incidence and mortality are increasing (approximately 6% per annum incidence and 3% per annum mortality). We estimate that there are between 55,000 and 80,000 new cases of NHL per year in the United States alone.

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LSBC conducted a 16-patient safety trial at Stanford University Medical School in collaboration with Ronald Levy, M.D. There were no vaccine-associated adverse events reported, and 75% of the patients treated mounted either a cellular or humoral response to the vaccine. Although too small a number of patients was treated to derive statistical conclusions in this pilot study, the consistent method of manufacture, safety and immunogenicity were shown and further clinical trials are indicated. LSBC has met with the FDA and is designing a Phase III clinical trial protocol. LSBC is seeking partners to further develop this product.

Services

Biomanufacturing.    LSBC has a separate facility for the biomanufacture of therapeutic proteins, vaccines and industrial biomolecules for customers and for in-house proprietary products. During 2002, LSBC focused on manufacturing our NHL vaccine and on validating our Owensboro, Kentucky facility to allow cGMP manufacturing of our NHL vaccine, alpha-galactosidase A and aprotinin, in addition to the manufacture of development stage pharmaceutical products for customers. LSBC has expanded its business development staff and is marketing aggressively its biomanufacturing capabilities to potential customers.

Proteomics Services.    Protein markers are proteins that, when present in body tissues, or fluids such as blood or urine, can be used to make an early diagnosis of a disease or to track its progress. Protein markers can provide an early, accurate, simple and non-invasive technique for assessing when a person has a disease or is at risk of developing it (diagnostic markers), and the progress of an existing disease and its response to treatment (clinical markers).

In addition to utilizing our proteomics technologies for our own internal discovery efforts, we market our protein marker discovery capabilities to customers under arrangements with varying levels of intellectual property participation, research funding and success fees. Depending on a customer’s preference, such arrangements may be in the form of a partnership which may include technology access fees, research funding, milestones payments and royalties or, alternatively, on a straight fee-for-service basis where we forgo downstream participation in exchange for higher research funding. In 2002, we were awarded a five-year, $12.2 million fee-for-service proteomics contract by the National Institute of Environmental Health Sciences.

Agricultural Genomics.    LSBC has substantial expertise in the field of agricultural genomics. Using our GENEWARE system, we can rapidly screen large numbers of unknown genes contained in high-quality gene “libraries” for gene function. This system was applied successfully to the discovery of useful genes for commercial crops during our multi-year alliance with the Dow Chemical Company. In addition, LSBC’s GENEWARE system may be useful for the production of protein products for agricultural applications. For example, LSBC has extended its contractual alliance with Growers Research Group for the production of bovine lysozyme with potential applications in remediation of certain important plant pathogens. LSBC is seeking new partners to expand its commercial base in agriculture.

Our Technologies

Genomics and Proteomics

GENEWARE, our core technology, is a modified plant viral vector system we use to insert genes rapidly and temporarily into host organisms, usually plants in the Nicotiana genus. We use GENEWARE for gene discovery, gene function analysis and protein production. GENEWARE viral vectors carry a gene sequence of interest into a cell of a host organism. With conventional transgenic, or GMO, technology, the gene sequence is inserted into the chromosomes of the host in the nucleus where it is converted into mRNA. The mRNA then moves outside the nucleus to the

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cytoplasm where it is translated into protein. GENEWARE is “non-GMO” in that GENEWARE does not use the traditional transgenic methods of inserting a gene into the genome of the host organism. The use of GENEWARE does not permanently alter the genetic makeup of the plant or other organism.

We can use GENEWARE in several ways to discover gene function. In one method, we insert a gene of unknown function into the GENEWARE vector (a plant virus) that is then inoculated onto a plant causing changes in the inoculated plant that can be analyzed to rapidly determine the function of that gene. In another method, we insert a gene sequence into our GENEWARE vector that reads in a backwards, or “antisense” manner to the natural gene. The antisense sequence will cause the natural gene in the plant to be turned off. We can then analyze the plant for any biochemical changes that occur which, in turn, tell us the function of the natural gene. These methods of discovering the function of previously unknown genes allow us to find genes that have commercial utility.

LSBC’s proteomics technology allows for the rapid determination of the protein composition, or proteome, of cells, tissues and body fluids. Protein composition is a listing of the specific proteins present in a given sample, and their amounts. We can rapidly identify and quantify a significant range of proteins found in normal human tissues and body fluids and the changes in proteins that are caused by diseases or by the use of particular drugs. We believe that proteomics is becoming very important in discovering and developing therapeutics, and in predicting, diagnosing and monitoring diseases. We believe that our proteomics expertise can be used to derive information that is currently unavailable using gene identification alone.

LBSC’s GENEWARE and ProGEx technologies, used in combination, can reveal comprehensive genetic information from identification of gene function through quantitative and qualitative descriptions of identified proteins resulting from turning a gene on or off. We are continuing to integrate our proteomics and genomics technology platforms. We believe that this integration effort is a significant competitive advantage in our product development strategy.

Biomanufacturing

LSBC also uses GENEWARE to manufacture therapeutic proteins, peptides and other molecules in plants. GENEWARE can achieve significant time and cost advantages over traditional, transgenic genetic-engineering systems and alternative manufacturing technologies. GENEWARE can be a very efficient and competitive protein production system due to its potential for high expression, speed of production, safety (non-mammalian cell system) and the fact that minimal capital expenditures are required compared to alternate expression systems. LSBC uses its Owensboro, Kentucky production facility for the custom production of protein products from plants, including those proteins produced using GENEWARE technology. The Company will be seeking FDA approval for a human Phase III trial of our NHL vaccine, which the Company plans to conduct after securing a partner. The Company also is seeking FDA approval for the initiation of human clinical trials of our alpha-galactosidase A as a therapy for Fabry disease. Since 1991, LSBC has conducted more than ten USDA-approved field trials, each demonstrating that GENEWARE is environmentally safe. We believe that GENEWARE is environmentally safe because the viral vector and the genes we insert cannot be incorporated into the plant genome and, thus, cannot be transmitted to the next generation of the plant in the seed or pollen; it has a limited host range; and the modified virus does not persist in the soil to the next planting season. In addition, LSBC applies its GENEWARE system only to non-food crops. LSBC follows standard operating procedures during field and greenhouse production and testing to further ensure environmental safety.

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Bioinformatics

LSBC generates large amounts of data when working with genes and proteins. Bioinformatics is the word we use to define our gathering, storage, analysis, retrieval and manipulation of this data using computers. Our bioinformatics infrastructure comprises the entire collection of laboratory information management systems (LIMS), relational database technology, analysis tools and various other hardware and software supporting our development efforts. We use very sophisticated techniques in advanced computer programming and engineering to integrate proprietary software, relational database programming, load balancing, batch management processing, and client-side applications to integrate and manage all types of biological information.

In addition, to increase our understanding of the biological importance of our data, our proprietary data are joined with publicly available biological data and stored in a relational database for data mining and discovery purposes. These combined data sets are used by LSBC scientists for product and discovery applications.

We believe our bioinformatics resources are important components of the Company’s competitiveness and of great value to our product development initiatives.

Intellectual Property

LSBC continually seeks patent protection for our proteomics, genomics, biomanufacturing, and plant and animal viral gene expression technologies. As of December 31, 2002, we had 57 issued and 109 pending U.S. patents. Our issued U.S. patents expire between 2006 and 2020. Foreign patents corresponding to many of the U.S. patents and patent applications have been filed and/or issued in one or more other countries, resulting in a total of 50 issued and 142 pending foreign patents as of December 31, 2002. We believe that these issued patents in various technological areas are valuable to our business. In the plant and animal viral systems field, we have 19 issued U.S. patents and 47 issued foreign patents with durations ranging from 2011 to 2018. In the proteomics field we have 29 issued U.S. patents and 1 issued foreign patent with durations ranging from 2006 to 2020. In the genomics field, we have 3 issued U.S. patents with durations to 2018. In the bioprocessing field, we have 6 issued U.S. patents and 2 issued foreign patents with durations through 2018. While our patents are an important element of our success, our business as a whole is not materially dependent on any one patent.

These patents give us the right to exclude others from practicing or selling products, technologies or services covered by the methods claimed, and from making, using or selling the products which are the subject of the claims of these patents.

A registered trademark gives the owner the right to exclude others from using identical or confusingly similar marks within the same channels of commerce. We own or own rights to many registered trademarks and unregistered marks in the United States and in many other countries.

LSBC also relies upon copyright protection, trade secrets, continuing technological innovation and licensing from others to protect our intellectual property. Our success will depend, in part, on our ability to obtain patent protection for our products and processes, to preserve our copyrights and trade secrets, to operate without infringing the proprietary rights of third parties and to acquire licenses, if needed, to support or enhance our intellectual property portfolio.

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Collaborations

LSBC’s revenue has been derived principally from collaborations with others. The business structure varies depending on the specific product or research objectives of the collaborations and whether the client is a business, a government agency, or an academic institution. In general, LSBC receives immediate funding for license and technology access fees and for reimbursement of costs to LSBC. We also seek to share in the long-term value of the products that we assist our collaborators in developing through the retention of certain product rights and from royalty fees from the future sale of products developed using our technologies. Other collaborations take the form of alliances to jointly commercialize product applications evolved from combining specific technologies of each company.

LSBC also provides, or has provided, research and development stage biomanufacturing services to other companies and entities including Novozymes Biotech, Inc., ApoImmune, Inc., Growers Research Group LLC, Weyerhauser Company and the University of Arkansas for Medical Sciences. Manufacturing agreements may include payment to LSBC for costs associated with scale-up of manufacturing processes, payments for supply of product and royalties on product sold. Research agreements may include payments for technology access, costs of research, certain rights to intellectual property developed and participation in sales of products resulting from the agreements.

LSBC also actively seeks revenue from government funding sources that promote the development of products having strategic importance to us. For example, LSBC has worked with the U.S. Navy under a Collaborative Research and Development Agreement for the development of a protein-based product that increases stem cell proliferation. The Company also received a multi-year contract with the National Institute of Environmental Health Sciences to provide proteomics services for application in toxicogenomics and we have also received a multi-year grant from the National Institute of Standards and Technology to develop new vaccine production technologies.

Employees

As of March 21, 2003, LSBC has 114 full-time employees, of which 86 are engaged in research and development or biomanufacturing activities and the remainder work in general and administrative areas. Twenty of our employees hold Ph.D. degrees.

Research and Development

LSBC’s internally funded research and development expenses totaled $21.2 million, $22.4 million and $16.4 million in 2002, 2001 and 2000, respectively. Our customer-sponsored research and development expenditures totaled $1.2 million, $3.5 million and $8.1 million in 2002, 2001 and 2000, respectively.

Competition

The markets for protein development and production, including human vaccines and therapeutics such as the ones we are developing, are highly competitive. Competitors with substantially greater resources are actively developing products similar to, or competitive with, our products. Several pharmaceutical, biotechnology, chemical and other life sciences companies engage in research and development in the use of novel gene expression systems to produce therapeutic proteins. Other companies are developing and marketing therapeutics for NHL. Two other companies are marketing products overseas that would or might be competitive with our alpha-galactosidase A product.

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We and others compete in the emerging fields of functional genomics and proteomics on the basis of technological innovations that offer time and cost advantages for the accomplishment of specific tasks, many of which were not previously practical. We believe our proprietary technology, and our significant patent portfolio, will allow us to compete effectively in these fields. However, we expect new developments to continue and discoveries by others may render our potential products and technologies non-competitive.

Item 2.    Properties

LSBC’s principal research and development facility and corporate headquarters are located in Vacaville, California, at a facility of approximately 45,000 square feet that includes administrative offices, a genetic engineering laboratory, a plant discovery and function laboratory and a bioinformatics software laboratory, under a lease that expires on February 28, 2004. We also own a facility of approximately 22,000 square feet and approximately 20 acres of land in Owensboro, Kentucky for pilot and large-scale extraction and downstream biomanufacturing of protein products produced in plants. Our proteomics division presently occupies a laboratory and office facility in Germantown, Maryland of approximately 53,000 square feet, under a lease that expires on December 31, 2010.

Item 3.    Legal Proceedings

From time to time we become a party to legal proceedings that are incident to our normal business operations such as employment litigation. In the opinion of management, these lawsuits will not result in any material adverse effects on the Company’s financial condition.

Item 4.    Submission of Matters to a Vote of Security Holders

Not applicable.

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Part II

Item 5.    Market for Registrant’s Common Equity and Related Stockholder Matters

Market Information.    The Company’s common stock is traded on the NASDAQ National Market under the symbol “LSBC.” Public trading of our common stock commenced on August 10, 2000. The following table sets forth the high and low sale price per share of the Company’s common stock during each quarter of 2002 and 2001.

Holders.    Based upon data provided by our transfer agent, the Company had approximately 6,020 beneficial holders of our common stock as of March 20, 2003. This total includes persons whose stock is in nominee or “street name” accounts through brokers.

Dividends.    The Company has never declared or paid any cash dividends on its common stock and we do not anticipate declaring any dividends in the foreseeable future. We currently intend to reinvest future earnings, if any, for use in research and development or other business needs.

Use of Proceeds.    During the third quarter of 2000, the Company received net proceeds of approximately $89 million from an initial public offering, or IPO, of common stock. Provided below is a reasonable estimate of the amount of IPO net proceeds used in each of the following categories, through December 31, 2002:

The use of proceeds for working capital includes expenditures for research and development and general and administrative activities. Cash and investments consist of money market funds, commercial paper, corporate and U.S. government agency notes, and bank certificates of deposit.

None of the IPO net proceeds were paid directly or indirectly to directors, officers, or their associates, persons owning 10 percent (10%) or more of any class of our equity securities, or our affiliates. The use of IPO net proceeds set forth above does not represent a material change from the anticipated use of proceeds described in the prospectus contained in our Registration Statement on Form S-1 (SEC Registration No. 333-34198), declared effective on August 9, 2000.

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Item 6.    Selected Financial Data

You should read the following selected financial data in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes included in Part IV of this Report. We derived the consolidated statement of operations data for the years ended December 31, 2002, 2001 and 2000 and the consolidated balance sheet data as of December 31, 2002 and 2001 from our audited consolidated financial statements included in this Report. We derived the consolidated statement of operations data for the years ended December 31, 1999 and 1998 and the consolidated balance sheet data as of December 31, 2000, 1999 and 1998 from our audited consolidated financial statements not included in this Report.