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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

OR

¨        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM __________ TO __________

Commission File Number: 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  x  No  ¨

As of June 30, 2003, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $90 million (based upon the average bid and asked prices of such stock as reported by The Nasdaq Stock Market on such date). The Registrant did not have any non-voting stock outstanding 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 February 15, 2004, the number of outstanding shares of the Registrants’ Common Stock was 36,014,281, 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 2004 Annual Meeting of Stockholders, which will be filed with the Security and Exchange Commission within 120 days after the close of the Registrant’s fiscal year ended December 31, 2003.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include, but are not limited to, anticipated progress in commercialization of our eTag^™ assay system for pharmaceutical development, as diagnostic products and related services; the potential for use of our eTag assays in clinical development programs; our ability to establish reliable, high-volume manufacturing at commercially reasonable costs; our ability to develop relationships with third party suppliers and manufacturers for commercial scale production of certain components and kits; expected reliance on a few customers for the majority of our revenues; the validity and enforceability of our patents, the possible infringement of our intellectual property by others, the adoption of our technology by pharmaceutical and biotechnology companies; our estimate of the demand for our products and the size of our markets; levels of future investment in our research and development efforts; the potential for raising additional capital; results of our restructuring in 2002 to streamline our operations; and the sufficiency of our existing cash, cash equivalents and short-term marketable investment balances. In some cases, forward-looking statements can be identified by terminology such as “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 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. The reader is cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this Form 10-K. We undertake no obligation to update such forward-looking statements to reflect events or circumstances occurring after the date of this report.

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ACLARA BIOSCIENCES, INC.

FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

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ITEM 1.    BUSINESS

OVERVIEW

We are a life sciences company focused on developing and commercializing novel assay solutions for drug discovery and development, providing critical high-value information about the expression and interaction of genes and proteins within and on the surface of cells, and secreted between cells. In analyzing the presence of protein-protein interactions in cell culture samples as well as in human clinical samples, we believe our eTag^™ assays can detect important protein complexes that are not readily discernible with other technologies, providing valuable information on the likely efficacy of targeted therapeutics acting on those mechanisms in individual patients and specific patient groups. Such biological indicators of pharmaceutical efficacy are frequently known as “biomarkers”.

We develop and deliver these innovative assays as part of the eTag Assay System. We are commercializing our eTag Assay System in the following ways.

Our eTag assays are easy to use. They require only a very small amount of biological sample and can be performed directly on cell lysates of cultured or primary cells, as well as fresh, frozen and formalin-fixed paraffin-embedded clinically-derived tissue samples. This ability to utilize small amounts of human clinical samples in a wide range of formats without extensive and time-consuming sample preparation makes eTag assays well suited to diagnostic applications in human disease management.

For research purposes, the assays can be used for the simultaneous analysis of multiple different biological analytes in a high throughput mode. This multiplexing capability, combined with quantitative readout of gene and protein expression patterns, provides a critical level of high performance and utility for eTag assays. eTag assays represent a universal platform for the analysis of genes, proteins and cellular pathways utilizing standard existing capillary electrophoresis instrumentation systems.

We were formed by a spin-off transaction from Soane Technologies, Inc., which was incorporated in 1991 and subsequently changed its name to 2C Optics, Inc. We were incorporated in Delaware in 1995 under the name Soane BioSciences, Inc. and changed our name 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. We file our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on

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Form 8-K and other required reports and any amendments to those reports with the Securities and Exchange Commission. 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. We also make available on our website reports filed with the SEC by our directors, officers and beneficial owners of ten percent or greater of our securities pursuant to Rule 16a-3(k) 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

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 could interact. Today, the critical barriers impeding more efficient and effective drug discovery and development have shifted. The genomics revolution has provided pharmaceutical researchers with a dramatic increase in the number of potential targets against which to conduct screens of compound libraries and against which to develop pharmaceutical products. We believe that the most significant challenges today are first, to efficiently prioritize the most promising targets from a large number of alternatives, second, to identify, as quickly and as early in the process as possible, compounds that are free of toxicity or pharmakinetic problems, and third, to identify biomarkers that can be identified in particular patients that may indicate which pharmaceutical or combination of pharmaceuticals will be most likely to be effective in those particular patients. To manage these challenges, pharmaceutical researchers need the most comprehensive analysis possible of all the inter-related biological elements that affect drug interactions.

Current Tools for Gene and Protein Expression.     Currently there are no technologies that address the analysis of both genes and proteins using the same platform. Pharmaceutical researchers have traditionally performed a significant amount of gene expression analysis and there are established tools for doing so. Protein analysis has been less effective because of the lack of adequate tools with which to perform the more complex analysis. It is becoming widely recognized that an understanding of proteins, protein complexes and biological pathways is at least as critical to successful drug development as extensive gene expression data, if not more so.

Gene expression analysis 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 hybridization microarrays and PCR based methods. Microarrays can be used to monitor many thousands of gene products at the same time, but only for relatively small numbers of samples because only one biological sample can be analyzed per individual microarray experiment. PCR based methods, can be applied to large sample sets, but typically can only measure one to three gene products per sample. We believe neither of these approaches is suitable for the detailed analysis of tens to hundreds of genes. In addition, neither of these technologies permits the complementary analysis of proteins and cell signaling pathways that is critical to a complete understanding of actual and potential drug interactions.

Techniques for analyzing proteins and protein complexes are more diverse, not as well standardized and, because of the greater complexity that exists at the protein level, not as effective in comparison to established gene expression tools. Protein analysis tools are generally not quantitative and while able to provide some information about proteins, cannot provide critical information about protein complexes. Current tools like ELISA assays and bead-based systems can measure protein expression, but are limited in the types of protein that

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they can address and by their solid state format. Mass spectrometry is a highly specific tool utilized to discover new proteins in different biological settings, but is not well suited to routine research and diagnostic tests or highly repetitive testing because of its large sample requirements, long run and analysis time requirements and poor reproducibility of results.

Biology is Complex: More Comprehensive Tools are Needed.    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. 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 tissue-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.

Traditionally, life science and pharmaceutical researchers have examined single genes or proteins in isolation, in large part because that was the approach that available tools permitted. Today, researchers are recognizing that they need to simultaneously study the complex interaction of many levels of biological information—genomic DNA, RNA, proteins, protein complexes as well as the pathways through which these components interact and determine biological effects. This understanding requires scientists to run more assays and to develop new and quantitative 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. To develop this type of information, researchers need tools that are capable of measuring all of these interacting elements in a quantitative way. These tools also need to be many times more productive and cost-efficient than current tools if they are to effectively manage the increased amount of biological information.

Drug discovery and development in this environment demands an analytical system that efficiently and effectively measures tens to hundreds of different RNA molecules, proteins, protein modifications, and protein-protein interactions or complexes from the same sample—and from a very small quantity of that same sample. In addition, in many applications, 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 characterize a disease process or measure beneficial or toxic effects of a new drug.

As pharmaceutical researchers expand the size of their compound libraries and have to deal with an increasing number of potential new targets, they require new laboratory technologies capable of complex simultaneous analysis of multiple analytes in a cost-effective and rapid manner. Multiplexed assays, or the ability to simultaneously analyze tens to hundreds of different biological analytes in a high throughput manor, are an ideal and increasingly essential 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 cell receptors and protein complexes. 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.

Adverse drug reactions (ADRs) lead to more than 100,000 deaths per year in the United States. ADRs rank as one of the top six leading causes of death in the U.S. 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

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throughput-screening assay would allow simultaneous profiling of gene and protein expression directly from stimulated cells to enable characterization of ADME/Tox (Absorption, Distribution, Metabolism, and Excretion/Toxicology) properties of drug compounds. The goal of ADME/Tox analysis is 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. To implement ADME/Tox profiling cost effectively in the early phase of the drug discovery process, a high throughput, multiple analyte assay technology is highly beneficial.

Paradigm Shift in Drug Development: The Evolution of Targeted Therapies.    Pharmaceutical companies are under significant pressure to increase the productivity of their research and development functions. While enhanced research tools can be of significant help in this regard, these pharmaceutical companies’ spending on drug development programs, including clinical trials, can be four or five times the amount spent on research and drug discovery. In addition, the most immediate impact on revenue for a pharmaceutical company can be derived form accelerating the progress of existing drugs in development through clinical trials, as opposed to enhancing drug discovery programs. Accordingly, we believe the most critical area of focus for many pharmaceutical and biotechnology companies is enhancing the effectiveness of their drug development programs by increasing the speed and probability of success of clinical trials to bring drug candidates to market as rapidly as possible.

In this regard, we believe that pharmaceutical and biotechnology companies are increasingly embracing the concept of targeted therapies, i.e. drugs that can be prescribed for particular patients based on the identification in those patients of biomarkers that are predictive of responsiveness to that drug. The benefits of quality biomarkers to drug developers include shorter, smaller and less costly clinical trials with a higher probability of successful completion. In addition, the drug can be expected to have an improved economic profile because it can be prescribed with a higher degree of expected effectiveness, brought to market more rapidly and potentially positioned as first- or second- line treatment rather than a second- or third-line treatment.

Clinical trials can be shorter, smaller and less costly because the successful utilization of biomarkers will generally enrich a patient population for drug responsiveness. A higher response rate can be translated in a clinical trial setting to fewer patients and shorter follow up time. Clinical trials are very expensive and this saving in time and expense can be significant. The potential economic profile of the drug, once approved, can be enhanced because based on greater and more predictable efficacy, the drug will be prescribed more readily and with an improved reimbursement outlook. In addition, by getting to market faster the patent life of the drug at the time of regulatory approval is longer.

Further elevating the general level of interest in targeted therapies is the position taken by the U.S. Food and Drug Administration (“FDA”). For example, the Commissioner of the FDA made the following statement to the Joint Economic Committee of the U.S. Congress on July 9, 2003. “While there are and no doubt will continue to be traditional “blockbuster”-type drugs in development that may bring important public health benefits to many millions of patients, breakthroughs in genomics, proteomics, and other new fields of molecular biology also hold great promise for truly individualized drug therapy in which diagnostic tests and novel drug delivery mechanisms guide the use of medications, turning heterogeneous diseases like cancer and heart disease into distinct types of pathologies that appropriately require distinct therapeutic approaches.” The FDA has subsequently indicated that it will be running joint workshops with groups like the American Society of Clinical Oncologists and the National Cancer Institute to help in the development of these biomarkers. We believe that interest will continue to develop in the development of targeted pharmaceutical products and technologies that support that development.

Oncology—the Need for Targeted Therapies.    We believe that targeted therapies will be developed in many therapeutic areas such as oncology (cancer), inflammation, metabolic disease and heart disease. Better understanding of disease processes and mechanisms and the identification of novel targets is driving this trend. We believe that the need for such therapies will be greatest in those deadly disease areas where the patient and physician do not have the time to pursue alternate therapies in series due to irreversible damage over time, or

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death. The deadly progression of disease increases the priority on identifying the most effective therapy as rapidly as possible. Cancer is the most obvious example of such a therapeutic area.

Over 1 million new cases of cancer are diagnosed each year, with four solid tumor cancer types (breast, prostate, lung and colorectal) accounting for over 700,000 of these. While the incidence of lung cancer is declining slightly, the incidence of breast and colorectal cancer is believed to be increasing at approximately 5% annually and the incidence of prostate cancer at approximately 1% annually. We believe that over 400,000 of these patients are put on drug therapy each year. Accordingly there is a very substantial number of patients for whom targeted therapies would represent a significant advance in treatment options.

Although there are often several therapeutic options 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. In many cases, treatments are effective in only a small percentage of the total patients and so multiple treatment options may be pursued until an effective one is found, unless a better targeting method is available. 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 will 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. There are multiple drugs currently in phase I, II and III clinical trials for indications in breast, lung, colorectal and prostate cancer and we believe that some of these may go through clinical trials with tests using clinical surrogate markers to assess the likely therapeutic response in particular patients.

THE ACLARA SOLUTION

The eTag Assay System provides a solution to a number of challenges facing pharmaceutical companies in drug discovery and development.

As a research tool, eTag assays provide a universal platform for the simultaneous analysis of tens to hundreds of genes and proteins in simple, easy to use, solution-phase assays from the same sample. This capability facilitates simplified and more efficient screens to prioritize drug targets and to conduct ADME/Tox studies to eliminate from the drug development pipeline early in the process those drug candidates that are likely to have toxic effects.

In clinical trials, eTag assays provide a method of selecting those patients for inclusion in clinical trials of targeted pharmaceutical therapies that may be highly efficacious in selected patient populations while only minimally effective in the general patient population. The ability of eTag assays to analyze in a quantitative way many genes and proteins, cell signaling and pathway activation, protein-protein interactions, and/or receptor complex formation from a small quantity of a single biological sample may allow the identification of biological parameters that can be used as biomarkers that can be predictive of therapeutic effectiveness.

OUR STRATEGY

Our objective is to be a leading provider of enabling biology assays for drug discovery and development. Our primary focus initially is on developing assays for the identification of clinical biomarkers that may be predictive in clinical trials of responsiveness in a patient to a particular cancer therapy. Subsequently, we anticipate commercializing eTag assays not just for pharmaceutical development but also for diagnostic products

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and/or services based on these assays and approved pharmaceutical products. We also intend to promote our eTag assay system as a broad based platform for drug discovery and development.

Key elements of our strategy include:

SALES AND MARKETING

We commercialize our eTag Assay System in two ways. First, we make eTag assays available to customers for gene expression profiling and protein expression analysis though the purchase of eTag reagent kits, software, custom assay services, and consulting support. Customers that have entered into supply agreements for the purchase of such assays and services include Proctor & Gamble Pharmaceuticals, GlaxoSmithKline, Pfizer, Vertex Pharmaceuticals and Lawrence Livermore National Laboratory.

Secondly, we offer collaborative arrangements under which pharmaceutical and biotechnology customers can access our development expertise to provide customized eTag assays and services for use in clinical development programs. These assays can be used as an aide in patient selection in clinical trials of targeted pharmaceutical therapies that may be highly efficacious in selected patient populations while only minimally effective in the general patient population. We expect that the structure of such collaborations may include a combination of upfront fees, milestone payments and funding for assay development services. Ultimately, we believe that such collaborations may include the development of assays to be used for stratification of patients in FDA approved clinical trials. Two companies, Genentech, Inc. and another large biotechnology company have entered into collaboration agreements to evaluate the use of eTag assays in such applications. In July 2002, we entered into a collaboration agreement with Genentech, Inc. for the evaluation of eTag assays in identifying certain receptor binding and signaling events. This agreement was extended in April 2003 to include more extensive evaluation. A milestone payment was received during the fourth quarter of 2003 related to this agreement and additional work is currently underway related to an additional phase of this collaboration.

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We depend upon a limited number of customers for a substantial portion of our revenues, the loss of any one or more of which would have a material adverse effect on our business, results of operations and financial condition. In 2003, two customers each accounted over 10% of our total revenues. These were Genetech, Inc. 56% and Lawrence Livermore National Laboratory (17%).

We expect that upon regulatory approval of targeted pharmaceuticals that the eTag assays that have utility as an aide in the clinical trials for those pharmaceuticals may subsequently have applicability as diagnostic tools for the approved drugs and we expect to pursue this diagnostic commercial opportunity.

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

OUR TECHNOLOGY PLATFORM AND PRODUCTS

We believe that the eTag Assay System represents a universal platform with superior performance and cost. We have developed over 500 different fluorescent reporter molecules that can be easily incorporated into nucleic acid or protein probes using standard labeling methods. Special cleavage agents are used to specifically release the fluorescent reporter molecules upon binding of the probe to its target. These reporter molecules are small, biologically compatible, organic molecules that differ incrementally in their charge-to-mass ratios—and thus have a specific peak address in a capillary electrophoresis based separation. Only released eTag molecules are detected, providing a precise quantitative result. Our assay platform has the following capabilities:

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

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the applications of and increase the demand for our products and thereby to speed the commercialization of our eTag Assay System.

Amersham—In March 2003, we entered into a Joint Marketing and Services Agreement with Amersham Biosciences, Inc 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 System. 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 for the purpose of co-developing systems, which would use our microfluidic devices (known as “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, Johnson & Johnson and ourselves to a bilateral agreement between Johnson & Johnson and us. 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.

Third Wave Technologies—In October 2002, we entered into License and Supply Agreements with Third Wave Technologies, Inc. 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 us 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 Third Wave and us.

RESEARCH AND DEVELOPMENT

Since the end of 2002 all of our research and development programs have been directed at continuing the development of the eTag Assay System and at broadening the applications for which it can be used. In particular, we have developed eTag assay technology that has the potential, through detection of unique biomarkers, to differentiate likely responders from non-responders to certain targeted therapies in certain patient groups and thereby to facilitate the development of therapeutic products targeted on specific patient populations by providing clinical diagnostic assays. These assays are initially targeted at support of clinical trials but could eventually lead to diagnostic services and/or kits as clinical candidates enter the market. More generally, the technology has application in gene expression profiling and protein expression analysis as a research tool. Through 2001 we had focused primarily on developing our microfluidic and nanofluidic technologies related to “lab-on-a-chip” products and we have developed a substantial base of intellectual property in this field. During 2002 we refocused our research and development activities around our unique eTag assay system. Research and development expense for the years ended December 31, 2003, 2002 and 2001 was $15.6 million, $23.6 million and $23.5 million, respectively. At December 31, 2003, we had 44 employees engaged directly in research and development activities.

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SCIENTIFIC ADVISORY BOARD

We have established a Scientific Advisory Board to provide scientific expertise in the development of applications for eTag assays. The members of the Scientific Advisory Board, which is not a committee of or related to our Board of Directors, are:

David B. Agus, M.D.—Dr. Agus is Research Director at the Louis Warschaw Prostate Cancer Center at Cedars-Sinai Medical Center and Assistant Professor of Medicine at UCLA. Dr. Agus’s research focuses on the biology of cancer and the development of new treatments for prostate cancer.

Carlos L. Arteaga, M.D.—Dr. Arteaga is Professor of Medicine and Cancer Biology and Director of the Breast Cancer Research Program of the Vanderbilt-Ingram Cancer Center at Vanderbilt University School of Medicine. Professor Arteaga’s research focuses on the role of growth factor receptors, such as the EGF receptor, erb-B2 and TGF-beta receptors in the progression of breast cancer, as well as the development of anti-cancer molecular therapeutics.

PJ Utz, M.D.—Dr. Utz is an Assistant Professor and directs a research laboratory in the Division of Rheumatology and Immunology at the Center for Clinical Immunology at the Stanford University School of Medicine. Dr. Utz’s research is focused on autoimmune diseases such as systemic lupus erythematosus and rheumatoid arthritis.

John Weinstein, M.D., Ph.D. — Dr. Weinstein is Principal Investigator at the Laboratory of Molecular Pharmacology within the National Cancer Institute’s Center for Cancer Research. Dr. Weinstein’s research focus is the molecular pharmacology of cancer cells utilizing techniques such as gene expression profiling and bioinformatics, and the identification and characterization of new agents for the treatment of cancer.

Owen N. Witte, M.D.—Dr. Witte is Professor of Microbiology, Immunology and Molecular Genetics at UCLA. Professor Witte is also an Investigator of the Howard Hughes Medical Institute. Professor Witte’s research focuses on the interrelated problems of cell growth regulation and differentiation and the understanding of the function of oncogenes found in human leukemias and epithelial cancers, as well as immune disorders and inflammation.

COMPETITION

We are aware that other companies are developing and applying a variety of technologies to the applications in life science research and clinical development at which our eTag assays are targeted. A number of established companies, such as Affymetrix, Inc., Applied Biosystems (a member of Applera Corporation), Amersham Biosciences Corp., and BD Biosciences provide technology and products to the research markets. In addition there are many other public and private companies developing alternative technologies and products for these markets. We believe that the principal competitive factors in our markets are product capability, supplier credibility and reputation, customer service, 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 and financial strength.

INTELLECTUAL PROPERTY

We seek patent protection on our core technologies, applications and improvements of these technologies, and on related inventions that will help ensure our access to desired markets. As of March 2004, we owned or

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had licensed over 285 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. Consistent with our business plans, we have focused since 2002 on building our patent estate in eTag technology and its applications while consolidating and maintaining our patent estate in microfluidics technology. Our patents and patent applications relate to the following essential areas:

Our issued patents have expiration dates from 2010 to 2021.

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 related to our business 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 assays 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, there is only a single source of supply. We have a contractual arrangement with Third Wave for supply of Cleavase enzyme that is a critical component of our assays for gene expression applications and this enzyme is proprietary to Third Wave. We have entered into two supply agreements for the supply of antibodies for use in our protein applications and will have to both maintain these relationships and enter into additional supply agreements for such antibodies and other reagents. 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 our overall solution.

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EMPLOYEES

As of December 31, 2003 we had 62 employees, of whom 44 are in research and development and 18 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.

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, marketing and administration. Our lease expires in July 2009. Currently we use approximately one-half of our leased facility.

Management believes that our facility is suitable and has capacity adequate for our current needs and our future needs as currently contemplated.

ITEM 3.    LEGAL PROCEEDINGS

Information with respect to litigation settlements is incorporated by reference to note 9 in the Notes to Financial Statements.

Information with respect to ongoing litigation matters 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 February 15, 2004, there were approximately 165 holders of record of 36,014,281, shares of outstanding Common Stock. We have not paid any dividends since our inception and do not intend to pay any dividends on our Common Stock in the foreseeable future.

Securities Authorized for Issuance Under Equity Compensation Plans

As of December 31, 2003, we had four equity compensation plans. These plans are the 1995 Stock Option Plan, the ACLARA BioSciences, Inc. 1997 Stock Plan and the ACLARA BioSciences, Inc. Employee Stock Purchase Plan, all of which have been approved by our stockholders and a Non-statutory Stock Option Agreement (“NQ03 Plan”), which was adopted by the Board of Directors on March 15, 2003. The following table summarizes our equity compensation plans as of December 31, 2003:

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The statements of operations data for each of the years ended December 31, 2003, 2002 and 2001, and the balance sheet data as of December 31, 2003 and 2002, have been derived from our audited financial statements included elsewhere in this report. The statements of operations data for each of the years ended December 31, 2000 and 1999, and the balance sheet data as of December 31, 2001, 2000 and 1999 has been derived from our audited financial statements not included in the report. 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.