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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Commission File Number: 0-29975

ACLARA BIOSCIENCES, INC.

(Exact Name of Registrant as specified in its Charter)

1288 Pear Avenue, Mountain View, California 94043

(Address of principal executive offices and Zip Code)

(650) 210-1200

(Registrant’s telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

COMMON STOCK, $0.001 PAR VALUE

(Title of Class)

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.  ¨

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

As of June 28, 2002, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $32 million (based upon the average bid and asked prices of such stock as reported by The Nasdaq Stock Market on such date). Shares of Common Stock held by each officer, director, and holder of 5% or more of the outstanding Common Stock on that date have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of March 25, 2003, the number of outstanding shares of the Registrants’ Common Stock was 35,463,049, excluding 900,000 shares of treasury stock.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information required by Items 10, 11, 12 and 13 of Form 10-K is incorporated by reference from the Registrant’s proxy statement for the 2003 Annual Meeting of Stockholders, which will be filed, with the Securities and Exchange Commission within 120 days after the close of the Registrant’s fiscal year ended December 31, 2002.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should” or “will” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under the section, “Factors Affecting Operating Results,” contained in Part II—Item 7 of this report that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels or activity, performance or achievements expressed or implied by these 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. We are not under any duty to update any of the forward-looking statements after the date of this report to conform these statements to actual results, unless required by law.

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ACLARA BIOSCIENCES, INC.

FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

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ITEM 1.    BUSINESS

OVERVIEW

We are a life sciences company focused on developing and commercializing novel assay chemistry solutions for drug discovery and development, providing critical high-value information about the expression and interaction of genes and proteins within cells. The company develops, manufactures, and supplies these innovative biology assays as part of the eTag^™ Assay System. The system comprises reagent kits, software and services that simplify and automate various aspects of drug development, pre-clinical testing, and clinical assessment. Our eTag assays are easy to use. They require no time-consuming sample preparation steps, and provide for the simultaneous analysis of tens to hundreds of different biological analytes across tens of thousands of samples. This multiplexing capability is critical to the overall high performance of eTag assays. eTag assays represent a universal platform for the analysis of genes, proteins and cellular pathways and can be analyzed using existing capillary electrophoresis instrumentation systems.

Our eTag assays enable an efficient, high throughput systems biology approach for developing new drug targets and leads. This approach seeks broad understanding about the interaction of genes and proteins within and among cells rather than simply focusing on the activity of a particular gene or protein. In other words, the approach looks at the whole system rather than individual components. Moreover, these assays have broad applicability in the development of the new paradigm of molecular medicine for patient-specific therapeutic treatments based on individual genotypes and phenotypes derived from predictive biomarkers. In the future, we believe that physicians may use these novel assays to determine if specific clinical biomarkers, or combinations of biomarkers are present, making an individual patient amenable, or not, to the use of specific medicines.

Assays of these types are critical for effectively assessing drug efficacy and disease status across relevant cellular pathways or clinical biomarkers by quantitating many genes and proteins, cell signaling and pathway activation, protein-protein interactions, and/or cell-receptor binding from a single biological sample. We are developing and commercializing these high content assays initially in the target areas of oncology and toxicogenomics. While we are focused on developing tools for biopharmaceutical applications today, we expect eTag assays can also play a larger role in the future as predictive tests for treatment response and disease management. We introduced the eTag Assay System commercially through two separate programs in late 2002. We are making the eTag Assay System available through a scalable license-based eTag^™ Expert Access Program, whereby researchers have easy access to common applications, reagents, software, service and support. A Discovery Partners Program is also available for more proprietary applications with eTag technology.

ACLARA was formed by a spin-off transaction from Soane Technologies, Inc., which was incorporated in 1991 and subsequently changed its name to 2C Optics, Inc. We were incorporated in Delaware in 1995 under the name Soane BioSciences, Inc. and changed our name to ACLARA BioSciences, Inc. in 1998. We maintain an Internet website at www.aclara.com; however, information found on our website is not incorporated by reference into this report. On our website we make available, free of charge, the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission: our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act of 1934. You may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our reports, proxy statements, and other documents filed electronically with the SEC are available at the website maintained by the SEC at http://www.sec.gov.

INDUSTRY BACKGROUND

Paradigm Shift in Drug Discovery and Development.    Prior to the advent of genomics research, one of the most significant challenges facing scientists in the pharmaceutical industry was finding suitable therapeutic targets, i.e. genes or proteins with which a drug will interact. Today, the critical barriers impeding more efficient

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and effective drug discovery and development have shifted. The genomics revolution is providing pharmaceutical researchers with a dramatic increase in the number of potential targets against which to conduct screens of compound libraries. A significant challenge today is to efficiently select the most promising targets from a large and growing number of alternatives. In addition, pharmaceutical researchers are expanding the size of compound libraries they use to screen against new targets. Researchers require new laboratory technologies capable of screening increasingly large libraries of potential drug candidates against an increasing number of targets in a cost-effective, automated and rapid manner.

Effectively screening larger libraries of candidates is not sufficient. It is also necessary to characterize toxic responses as early in the drug development process as possible so that questionable candidates can be removed from the development pipeline and vital resources are not wasted on their further optimization. Today, 90% of pharmaceutical drug candidates fail during the development process despite extensive pre-clinical testing and positive animal testing data. To implement ADME/Tox (Absorption, Distribution, Metabolism, and Excretion/Toxicology) profiling cost effectively in the early phase of the drug discovery process, a high throughput, multiple analyte assay technology is required.

Biology is Complex: Systems Biology and the Need for More Effective Tools.    Genomics and proteomics are yielding an extraordinary mass of new biological data, which is in turn generating a fundamental shift in the nature of information and the way it is used to discover therapeutics. Scientists are discovering patterns of gene and protein expression associated with health and disease. They are using these patterns to discover and test potential new pharmaceuticals, even though they often do not yet know the underlying biological and disease mechanisms. However, the enormous challenge still remains of interconnecting these molecular events in living cells to provide insight into the pharmacological pathways that drug discovery programs require. It is critical to gain a perspective that is cell-based, where researchers look at the effect of a potential treatment on and among cells. Information held in the cell defines the temporal and spatial interactions of its components and therefore, its normal and abnormal functions. The concept of systems biology has led to research areas that target the whole cell and physiological pathways.

Unlike traditional biology that examines single genes or proteins in isolation, systems biology simultaneously studies the complex interaction of many levels of biological information—genomic DNA, mRNA, proteins, pathways and networks—to understand how they work together. This understanding requires scientists to run more assays and to develop new assays to determine to the fullest possible extent the effects of disease on the organism and the outcome of treatment on diseased and normal tissues. This has fueled a dramatic increase in the number of cell-based assays as screening tools in both research and drug discovery. Just as automated gene and protein analysis and their database tools are pushing the genomics and proteomics frontiers, automated cell and pathway analysis using rapid screening methods and bioinformatics will also be essential to understanding systems biology. Not only are more effective tools needed to measure pathway analytes, but these tools also need to be many times more productive and cost-efficient if they are to be used effectively. Without both better and more complete information as well as significant productivity enhancements, the promise of molecular medicine will never become a reality.

Drug discovery and development in the systems biology era demands an analytical system that efficiently and effectively measures tens to hundreds of different mRNAs, proteins, protein modifications, and protein-protein interactions from the same sample. In addition, sample throughput of tens of thousands of samples per day is required as well as high sensitivity and quantitation precision to measure subtle changes in analyte expression and pathway activation—a standard of performance that exceeds the capabilities of traditional systems—in order to accurately measure beneficial or toxic effects of a new drug. The new system must provide:

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Multiplexing Requirements for New Methods to Perform Systems Biology and Secondary Screening. Multiplexed assays, or the ability to simultaneously analyze tens to hundreds of different biological analytes across tens of thousands of samples, are an ideal method of securing high content data and for increasing the speed and efficiency of drug discovery. However, most measurement systems rely on solid-phase formats such as microarrays and beads, which prevent effective quantitative measurement of many critical cell-based analytes such as, for example, cell receptors. Only flexible, solution-phase multiplexing provides greater versatility and effective performance for addressing cell-based assays as well as gene and protein assays with high sensitivity and precision.

Secondary screening and lead optimization involve performing a variety of measurements on each potential drug candidate identified in a primary screen. While the number of compounds under investigation is smaller than in primary screening, the number and diversity of measurements performed on each compound is much larger. The purpose of these measurements is to verify and further characterize the biological activity of each potential drug candidate, or “hit.” For example, researchers may test each hit against the target at different concentrations to determine its potency. Also, each hit may be tested against a panel of different enzyme targets. Current technologies typically measure only a single data point at a time, such as the activity of one compound on a particular enzyme, limiting the efficiency and economy of secondary screening and lead optimization. The change in paradigm is to measure multiple indicators in pathways that may be affected. Multiplexing is an ideal method of securing data needed for increasing the speed and efficiency of secondary screening. Multiplexed assays for both gene and protein expression that are sensitive, precise and reproducible are essential. Only flexible, solution-phase multiplexing can include multiple biological controls and multiple assay controls in every well.

MOLECULAR MEDICINE AND THE NEW THERAPEUTICS

According to the new paradigm of molecular medicine, a systems level understanding of disease and drug treatment is paired with information about specific individual patient differences in order to prescribe individualized medicines. Diagnostic and prognostic tests based on each individual patient’s genotype and/or phenotype are used to direct and monitor the progress of treatment.

Pharmacogenomics Using Genotyping and Phenotyping Clinical Biomarkers.    Genotyping is the identification of the specific “alleles” (or variants) at specific positions within the DNA sequence of an individual. Phenotype is the observed biochemical or physiological characteristics of an individual as determined by his or her genotype and the environment in which it is expressed. Pharmacogenomics is the study of how individual phenotypic and/or genetic makeup influences drug response. The benefits of this knowledge include the potential for streamlining clinical trials by targeting a candidate drug to a specific responsive phenotype, reducing both the cost and time of drug development. An additional benefit is the potential for tailoring drug prescriptions by phenotypic or genetic profile to maximize efficacy and minimize toxic side effects.

To complement the pharmacogenomics concept, there is a large and growing need for versatile techniques to both quantify and measure a broad range of protein targets and activation events in normal and diseased cells; in other words, to measure phenotypic responses. Protein targets may be within a cell, secreted from a cell, or on a cell surface and may be associated with many other proteins. Many of these protein targets may need to be

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analyzed from each individual sample. Scientists want to be able to measure cellular responses to external stimuli, such as drug treatments, or in disease. Phenotyping of proteins and genotyping of DNA need to be done in parallel utilizing a multiplexed analysis to produce high content, cost-effective knowledge.

Gene expression analysis, another form of phenotyping, involves measuring the extent to which specific genes are represented as messenger RNA (mRNA) “copies” within a cell. Typically, a differential gene expression analysis is performed, where researchers compare the mRNAs expressed in healthy and diseased samples to identify specific genes involved in a particular disease process. Another common application involves measuring a change in expression of certain genes when researchers challenge cells using candidate drug compounds. The current leading technologies for gene expression analysis are:

We believe neither of these approaches is suitable for measuring large numbers of genes (tens to hundreds) over thousands of biological samples, as the testing of patient samples or of pharmaceutical drug candidates requires. We believe that a technology that could provide this capability would address a significant unmet need in the marketplace.

Oncology.    The oncology area is uniquely suited for early pharmacogenomic application. With more than 500,000 cancer-related deaths reported annually in the United States and the expectation that the number of cancer cases will double in the next 50 years, the oncology area is particularly open to adopting the most innovative medical advances. Although therapeutic options might abound for a given indication, treatment typically is expensive and accompanied by a host of adverse side effects that are detrimental to patients’ quality of life. The optimal therapy for a disease can vary from patient to patient; moreover, the consequence of suboptimal therapy can range from ineffectiveness to death from extreme adverse reactions. This results in the economic burden of trying multiple treatments, along with added costs of physician time and increased hospitalization. The ability to predict which therapies are most likely to be effective for certain patients would constitute a powerful advance in oncology. Such predictions would likely arise only from an understanding of disease and therapeutic effect on both a cellular and molecular level. An early success in treatment based on molecular knowledge of cancer is the use of Herceptin^® in the treatment of breast cancer. Breast cancer can be classified according to the expression of the HER-2/neu oncogene, which is amplified in approximately 30% of primary breast tumors. Herceptin is a HER-2 antibody that slows the progression of breast cancers in cases in which the HER-2 receptor is over-expressed. Therefore, Herceptin has been marketed along with a test for HER-2 expression to guide its usage. Future therapeutics linked to predictive efficacy—prognostic tests—may be expected to offer even greater potential than Herceptin. In fact, many oncology drugs in late stage development today will likely go through clinical trials with tests using clinical surrogate markers to phenotype patients and therapeutic response.

ADME/Tox screening/Toxicogenomics.    Adverse drug reactions (ADRs) lead to more than 100,000 deaths per year in the United States. ADRs ranked as one of the top six leading causes of death in the US in 1994. Additionally, 90% of pharmaceutical drug candidates fail during the development process despite extensive pre-clinical testing and positive animal testing data. Poor efficacy, pharmacokinetics and adverse clinical effects account for 70% of the failures. A large proportion of failures result from conducting pre-clinical drug tests in animals and not in human tissues. Conversely, it is likely that a large proportion of failed drugs in animals could be recovered if tested in human tissues. Ideally, a high throughput-screening assay would allow simultaneous profiling of gene and protein expression directly from stimulated cells. The results would enable functionally equivalent characterization of ADME/Tox properties of lead compounds. The promise of the use of human hepatocytes with a consistent population of cells will likely make routine the in vitro toxicity testing of human

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tissues before clinical trials. Lead compounds could likely be eliminated much earlier in the development process and would thereby save time and eliminate significant pre-clinical and clinical costs.

THE ACLARA SOLUTION

We are developing eTag assay chemistries to address the critical need for an analytical system that would allow researchers to perform high throughput systems biology in order to easily and efficiently assess tens to hundreds of cellular pathway or clinical biomarker analytes across thousands of samples.

Solution-Phase Multiplexing.    The eTag Assay System uses our proprietary eTag reporters and high performance “solution-based” assay chemistries to multiplex the analysis of cellular signaling pathways and biomarkers. Tens to hundreds of genes, proteins, protein phosphorylation events and protein-protein interactions can be quantitatively analyzed from the same sample. The eTag Assay System represents a universal platform for sensitive and quantitative analysis of genes and proteins, including cell surface receptors. Specific molecular binding events that occur during the reaction result in the release of electrophoretically distinct eTag reporters, which are then separated to provide precise, sensitive quantitation of multiple analytes. Because multiple analytes can be analyzed directly from cell lysates in the same assay, biological sample requirements are greatly reduced, enabling applications where the quantities of biological samples are limited. This is especially important in oncology where tumor biopsies are small and difficult to obtain. Furthermore, researchers can include multiple biological and internal controls in each individual microwell, thus providing the means for data normalization across experiments and across laboratories. Our universal platform for quantitative analysis of both genes and proteins provides significant improvements in productivity, throughput and cost, and a simple workflow for direct analysis from lysed human or other tissues.

Gene Expression Profiling of Tens to Hundreds of Genes.    For gene expression analysis, we have licensed Invader^® technology and Cleavase^® enzyme from Third Wave Technologies, Inc. (“Third Wave”). The combination of eTag reporter molecules and the Invader technology provides superior performance and orders of magnitude improvement in productivity for profiling the expression of many genes compared to other DNA and RNA detection methods. eTag-Multiplex Invader assays quantitate gene expression with high precision, accuracy and efficiency, enabling researchers to obtain decision-critical results more rapidly and have greater success at detecting targets and drug response. Researchers can easily perform these analyses at high throughput using far less bio-sample and can compare results across different samples, experiments and labs. They can profile many genes simultaneously in a single reaction directly from crude cell lysates, without the need for sample preparation, polymerase chain reaction (PCR) or reverse transcription and with built-in internal controls.

Proteomic Multiplex Assays for Tens of Proteins and Cell-based Assays.    Our eTag chemistries are designed for simultaneous measurement of protein expression in cell signaling pathways, phosphoprotein activation events and protein-protein interactions. A versatile menu of assay methods has been developed to analyze many types of proteins.

The solution phase multiplexing capability of eTag assays can be applied to the following diverse areas:

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KEY BENEFITS OF OUR eTAG PRODUCTS

We believe that the eTag Assay System offers researchers a universal platform with superior screening performance while providing large improvements in productivity and cost. This is critical if investigators are to successfully put cellular pathway screens into practice. The key benefits of our eTag products include the following:

OUR STRATEGY

We are developing the eTag Assay System to address major segments of biopharmaceutical development. Our objective is to be a leading provider of enabling protein and genomic assays for systems biology research and disease management. In addition, we are addressing the new paradigm of molecular medicine with the use of eTag assays for the development of new therapeutic applications and clinical biomarkers. Our strategic focus in oncology provides a direct pathway for development of new clinical applications and diagnostic tests linked to the new therapeutics of the future.

Key elements of our strategy include:

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OUR TECHNOLOGY

eTag Chemistry Platform.    Our proprietary eTag Assay System has been developed in response to our pharmaceutical partners’ desire to screen compound libraries against panels of many types of analytes and their need to develop tests for surrogate biomarkers that assess drug efficacy and safety. We have developed an assay platform that has the following characteristics:

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eTag System Solution.    Building upon our proprietary eTag chemistries, we are developing a software solution for the analysis of the data generated in our multiplexed assays. Our eTag Informer^™ software makes use of multiple internal controls to assign eTag peaks to particular analytes and to quantify these analytes. The eTag Informer Software is designed to be compatible with the common capillary electrophoresis instruments that are used to perform eTag assays.

We have developed multiplexed eTag assays for profiling cellular pathways and clinical biomarkers. Tens of proteins, protein phosphorylation or protein-protein interactions can be quantitatively measured. In addition, quantitative analysis of both mRNA expression panels and protein expression panels can be made from the same sample.

We have developed “ready to use” assay kits for panels of mRNA and proteins to address many of the commonly studied events and pathways in drug development, including cytokines (cell growth factors), and metabolic pathways that are involved in drug toxicity. We are continuing the development of important cell signaling assays for major pathways involved in cancer, inflammation and cell death. In addition, custom eTag multiplex assays are developed and manufactured for customers through our assay services, part of the eTag Expert Access Program.

SEGMENTS

As of December 31, 2002, ACLARA did not have any separately reportable business segments.

COLLABORATIONS AND STRATEGIC PARTNERSHIPS

We have entered into collaboration agreements with market leaders in various sectors of the life sciences industry. Our objectives with these agreements, as well as those we plan to execute with other leading companies and academic institutions, are to increase the awareness of, and sponsorship of, our eTag technology, to broaden the applications of and increase the demand for our products and thereby to speed the commercialization of our eTag Assay System.

Third Wave Technologies—In October 2002, we entered into License and Supply Agreements with Third Wave Technologies, Inc. (“Third Wave”) under which we were granted a license to certain of Third Wave’s intellectual property. Under these agreements, we have rights to incorporate Third Wave’s Invader technology and Cleavase enzyme with our eTag technology to offer the eTag Assay System for multiplexed gene expression applications for the research market. In addition to licensing the Invader technology platform to us, Third Wave will supply Cleavase enzyme to ACLARA for incorporation into eTag-Invader gene expression assays. Under these agreements we paid a license fee to Third Wave, purchased an initial quantity of Cleavase enzyme and will make royalty payments to Third Wave. For 2003, 2004 and 2005, as we initiate our eTag commercialization efforts, these royalty payments are fixed in amount. These License and Supply Agreements superceded a previous Joint Development and Marketing Agreement, signed in October 2001, between ACLARA and Third Wave.

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Amersham—In March 2003, we entered into a Joint Marketing and Services Agreement with Amersham Biosciences, Inc. (“Amersham”). Under this non-exclusive agreement, Amersham will sell and support the MegaBACE^™, its automated high-throughput DNA analysis system, for use with our eTag assay chemistries. Amersham is a leader in the marketing of capillary electrophoresis instrumentation to the life sciences research market and has a worldwide installed base of over a thousand systems. Amersham markets and provides support for the instrumentation, and we market and provide support for the eTag Assay System.

Applied Biosystems—We had entered into collaboration agreements with Applied Biosystems (“ABI”) for the purpose of co-developing systems, which would use our microfluidic devices (“Labcards”) in genetic analysis and pharmaceutical drug screening. Agreements related to these two separate fields were executed in April 1998 and March 1999, respectively. Under these agreements, systems were to be jointly developed and ABI was awarded exclusive marketing rights for Labcard products for these systems. During 2001, we agreed with ABI to amend the Agreement related to pharmaceutical drug screening to make it nonexclusive and to change the related trilateral agreement between ABI, ACLARA and Johnson & Johnson to a bilateral agreement between ACLARA and Johnson & Johnson. In March 2002, the agreement related to genetic analysis was amended to render it nonexclusive. Under both of these amended agreements, if ABI wishes to develop a Labcard product, we will have the right to negotiate to jointly develop and supply the Labcard product. ABI would obtain nonexclusive rights under certain of our patents if no agreement is reached on jointly developing the Labcard product, and we will receive royalties on product sales. We currently have no ongoing development programs under these agreements.

MARKETING, SALES AND DISTRIBUTION

We market the eTag Assay System through our own business development organization to leading pharmaceutical and biotechnology companies for research applications. We currently have a small group of employees engaged directly in business development, sales and marketing activities, along with active support in key accounts from technical personnel and from executive management.

We introduced the eTag Assay System in late 2002 through two access programs. Under the eTag Expert Access Program, customers can gain access to eTag assays for gene expression profiling, protein expression analysis, and cell-surface antigen assays. This is a license-based program under which customers can buy eTag reagent kits, software, custom assay services, and consulting support. Under the Discovery Partners Program, customers can gain access to applications that may allow them to discover and adopt novel drug targets, lead compounds, protein and antibody therapeutics and diagnostics.

RESEARCH AND DEVELOPMENT

We began developing our microfluidic technologies related to “lab-on-a-chip” products in the early 1990s and have developed a substantial base of intellectual property in this field. However our primary research and development focus has more recently been on our unique eTag assay chemistries. Currently, all of our research and development programs are directed at continuing the development of the eTag Assay System and at broadening the applications for which it can be used. The application areas on which we are focusing include gene expression profiling, protein expression analysis and cell signaling and protein-protein interaction assays. In addition we are developing applications that may facilitate the discovery and adoption of novel drug targets, lead compounds, protein and antibody therapeutics and diagnostics. Research and development expense for the years ended December 31, 2002, 2001 and 2000 was $23.6 million, $23.5 million and $21.0 million, respectively.

COMPETITION

We are aware that other companies are developing and applying microfluidics, microarray and assay technology to applications in life science research, including certain of the applications at which our products are targeted. In addition, a number of established companies, such as Affymetrix, Inc., Applied Biosystems (a

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member of Applera Corporation), Amersham Biosciences Corp., and BD Biosciences provide technology and products to the genomics and pharmaceutical research markets. We believe that the principal competitive factors in our markets are product capability, product reliability, customer service, supplier reputation, cost effectiveness of the technology and the sales and marketing strength of the supplier.

The markets for life science research and diagnostic products are highly competitive. Many of our potential competitors in these markets have substantially greater financial, technical and human resources than we do. We cannot assure you that they will not succeed in developing technologies and products that would render our technologies and products obsolete and noncompetitive. We also cannot assure you that we will be able to compete effectively with these competitors’ greater marketing presence.

INTELLECTUAL PROPERTY

We seek patent protection on our core technologies, applications and improvements of these technologies, and on related inventions that will help ensure the company of access to desired markets. As of March 2003, the company owns or has licensed over 240 patents or patent applications. Our policy is to file patent applications and to protect technology, inventions and improvements to inventions that are commercially important to the development of our business. In line with the company’s business plans, emphasis has been placed on building our patent estate in eTag technology and its applications while consolidating and maintaining our patent estate in microfluidics technology. Patent applications filed by the company last year relate to the following essential areas:

Our issued patents have expiration dates from 2009 to 2022.

We also rely upon trade secrets, know-how, trademarks, copyright protection and continuing technological and licensing opportunities to develop and maintain our competitive position. Our success will depend in part on our ability to obtain patent protection for our products and processes, to preserve our trade secrets, trademarks and copyrights, to operate without infringing the proprietary rights of others, to acquire licenses related to enabling technology or products and to enforce our intellectual property portfolio.

Our practice is to require our employees, consultants, outside scientific collaborators and sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information developed by or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties, subject to a right to publish certain information in the scientific literature in certain circumstances and subject to other specific exceptions. In the case of employees, the agreements provide that all inventions conceived by the individual while employed by us will be our exclusive property.

MANUFACTURING

We have developed in-house capabilities for the limited manufacture of eTag Assay Kits and components of those kits.

The nature of our assay chemistries necessitates access to specialized chemicals, reagents and raw materials. There are only a limited number of vendors who supply certain of these materials and in certain cases, the

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suppliers are the sole source of supply. We have a contractual arrangement with Third Wave for supply of Cleavase enzyme that is a critical component of our gene expression products that we will commercialize for gene expression applications and this enzyme is proprietary to Third Wave. We will need to enter into additional contractual relationships to secure supply of antibodies for use in our protein applications. We currently have no such supply arrangements in place. Certain of these suppliers will be the sole source of supply for the materials supplied.

While certain manufacturing processes will be performed internally by us, we intend to develop relationships with third party suppliers and manufacturers for commercial scale production of certain components and kits.

We also provide our eTag Informer software to customers to enable them to perform analyses of the data obtained from our eTag assays. In complex multiplexed assays, software to analyze the results and maintain the related database is an important element of the overall solution.

EMPLOYEES

As of December 31, 2002 we had 95 regular employees, of whom 72 are in research and development including pilot manufacturing, and 23 are in business development, marketing and administration. None of our employees is covered by collective bargaining agreements, and we consider relations with our employees to be good.

RECENT DEVELOPMENTS

On March 20, 2003, we announced the appointment of Thomas G. Klopack as our chief executive officer and a member of our Board of Directors. Mr. Klopack brings to ACLARA over 25 years’ experience commercializing new technologies and substantial life science operating management experience.

ITEM 2.    PROPERTIES

We lease approximately 44,000 square feet of laboratory and office space in Mountain View, California. Most of this space is currently devoted to research and development, pilot manufacturing, marketing and administration. Our lease expires in July 2009.

ITEM 3.    LEGAL PROCEEDINGS

Information with respect to this item is incorporated by reference to note 10 in the Notes to Financial Statements.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II

Our common stock trades publicly on The Nasdaq Stock Market under the symbol “ACLA”. The following table sets forth for the periods indicated, the quarterly high and low closing sales prices of the common stock on The Nasdaq Stock Market.

As of March 25, 2003, there were approximately 181 holders of record of 35,463,049 shares of outstanding Common Stock. ACLARA has not paid any dividends since its inception and does not intend to pay any dividends on its Common Stock in the foreseeable future.

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ITEM 6.    SELECTED FINANCIAL DATA

The statements of operations data for each of the years ended December 31, 2002, 2001 and 2000, and the balance sheet data as of December 31, 2002 and 2001, have been derived from our audited financial statements included elsewhere in this report. The statement of operations data for the years ended December 31, 1999 and 1998 and the balance sheet data as of December 31, 2000, 1999 and 1998 have been derived from our audited financial statements not included in this report. Our historical results are not necessarily indicative of results to be expected for any future period. The data presented below has been derived from financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America and should be read with our financial statements, including the accompanying Notes to the Financial Statements, and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this report.