<HTML>
<HEAD>
<TITLE>ADVANCIS PHARMACEUTICAL CORPORATION</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">As filed with the Securities and Exchange
Commission on August&nbsp;1, 2003</FONT></B>
</DIV>

<DIV align="right">
<B><FONT size="2">Registration
No.&nbsp;333-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B>
</DIV>

<DIV align="left">
<HR size="1" width="100%" align="left" noshade>
</DIV>

<DIV align="left">
<HR size="1" width="100%" align="left" noshade>
</DIV>

<P align="center">
<B><FONT size="4">SECURITIES AND EXCHANGE COMMISSION</FONT></B>

<DIV align="center">
<B>Washington, D.C. 20549</B>
</DIV>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="center">
<B><FONT size="5">Form S-1</FONT></B>

<DIV align="center">
<B>REGISTRATION STATEMENT</B>
</DIV>

<DIV align="center">
<B>UNDER</B>
</DIV>

<DIV align="center">
<B>THE SECURITIES ACT OF 1933</B>
</DIV>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="center">
<B><FONT size="6">Advancis Pharmaceutical Corporation</FONT></B>

<DIV align="center">
<I><FONT size="2">(Exact name of registrant as specified in its
charter)</FONT></I>
</DIV>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="34%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="32%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="28%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Delaware</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <B><FONT size="2">2834</FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <B><FONT size="2">52-2208264</FONT></B></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <I><FONT size="2">(State or other jurisdiction of<BR>
    incorporation or organization)</FONT></I></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <I><FONT size="2">(Primary Standard Industrial<BR>
    Classification Code Number)</FONT></I></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <I><FONT size="2">(I.R.S. Employer<BR>
    Identification Number)</FONT></I></TD>
</TR>

</TABLE>
</CENTER>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="center">
<B><FONT size="2">20425 Seneca Meadows Parkway</FONT></B>

<DIV align="center">
<B><FONT size="2">Germantown, Maryland 20876</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(301)&nbsp;944-6600</FONT></B>
</DIV>

<DIV align="center">
<I><FONT size="2">(Address, including zip code, and telephone
number,</FONT></I>
</DIV>

<DIV align="center">
<I><FONT size="2">including area code, of registrant&#146;s
principal executive offices)</FONT></I>
</DIV>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="center">
<B><FONT size="2">Edward M. Rudnic, Ph.D.</FONT></B>

<DIV align="center">
<B><FONT size="2">President and Chief Executive
Officer</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Advancis Pharmaceutical Corporation</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">20425 Seneca Meadows Parkway</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Germantown, Maryland 20876</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(301)&nbsp;944-6600</FONT></B>
</DIV>

<DIV align="center">
<I><FONT size="2">(Name, address, including zip code, and
telephone number,</FONT></I>
</DIV>

<DIV align="center">
<I><FONT size="2">including area code, of agent for
service)</FONT></I>
</DIV>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="center">
<B><I><FONT size="2">With copies to:</FONT></I></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="33%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="31%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="30%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <B><FONT size="2">Jeffrey A. Baumel, Esq.<BR>
    Daniel J. Malooly, Esq.<BR>
     </FONT></B><FONT size="2">McCarter &#38; English, LLP<BR>
    300 Park Avenue<BR>
    New York, New York 10022<BR>
    (212) 609-6800
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <B><FONT size="2">R.W. Smith, Jr., Esq.<BR>
     Howard S. Schwartz, Esq.<BR>
    </FONT></B><FONT size="2">Piper Rudnick LLP<BR>
    6225 Smith Avenue<BR>
    Baltimore, Maryland 21209<BR>
    (410) 580-3000
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <B><FONT size="2">Jeffrey E. Cohen, Esq.<BR>
    Carol B. Stubblefield, Esq.<BR>
     </FONT></B><FONT size="2">Coudert Brothers LLP<BR>
    1114 Avenue of the Americas<BR>
    New York, New York 10036<BR>
    (212) 626-4400
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Approximate date of commencement of proposed
sale to the public:</FONT></B><FONT size="2"> As soon as
practicable after this Registration Statement becomes effective.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If any of the securities being registered on this
Form are to be offered on a delayed or continuous basis pursuant
to Rule&nbsp;415 under the Securities Act of 1933, check the
following
box:&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If this Form is filed to register additional
securities for an offering pursuant to Rule&nbsp;462(b) under
the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same
offering.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If this Form is a post-effective amendment filed
pursuant to Rule&nbsp;462(c) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same
offering.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If this Form is a post-effective amendment filed
pursuant to Rule&nbsp;462(d) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same
offering.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If delivery of the prospectus is expected to be
made pursuant to Rule&nbsp;434 under the Securities Act, check
the following
box.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<P align="center">
<B><FONT size="2">CALCULATION OF REGISTRATION FEE</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="29%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="14%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="14%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="14%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="17%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="9"></TD>
</TR>

<TR>
    <TD colspan="9" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="9"></TD>
</TR>

<TR>
    <TD colspan="9" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Proposed Maximum</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Proposed Maximum</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Title of Each Class of Securities</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Amount to be</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Offering Price Per</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Aggregate Offering</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Amount of</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">to be Registered</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Registered&nbsp;(1)</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Share</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Price&nbsp;(2)</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Registration Fee</FONT></B></TD>
</TR>

<TR>
    <TD colspan="9"></TD>
</TR>

<TR>
    <TD colspan="9" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common Stock, par value $0.01 per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">$86,250,000
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">$6,978
    </FONT></TD>
</TR>

<TR>
    <TD colspan="9" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD colspan="9" align="left"><HR size="1" noshade></TD>

</TR>

</TABLE>
</CENTER>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes a maximum
    of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    that may be purchased by the Underwriters to cover
    over-allotments, if any.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Estimated solely for the purpose of computing the
    amount of the registration fee pursuant to Rule&nbsp;457(o)
    under the Securities Act of 1933.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">The registrant hereby amends this registration
statement on such date or dates as may be necessary to delay its
effective date until the registrant shall file a further
amendment which specifically states that this registration
statement shall thereafter become effective in accordance with
Section&nbsp;8(a) of the Securities Act of 1933 or until the
registration statement shall become effective on such date as
the Commission, acting pursuant to said Section&nbsp;8(a), may
determine.</FONT></B>

<P align="left">
<HR size="1" width="100%" align="left" noshade>

<DIV align="left">
<HR size="1" width="100%" align="left" noshade>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<TABLE width="100%" border="1" cellpadding="5"><TR><TD>
<B><FONT size="2" color="#E8112D">The information in this
prospectus is not complete and may be changed. We may not sell
these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and is not soliciting
an offer to buy these securities in any state where the offer or
sale is not permitted.</FONT><FONT size="2"> <BR>
</FONT></B>
</TD></TR></TABLE>

<P align="center">
<FONT size="2"> <FONT color="#E8112D">Subject to Completion,
dated August&nbsp;1, 2003</FONT>
</FONT>

<P align="left">
<FONT size="2">PROSPECTUS
</FONT>

<P align="center">
<FONT size="4">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares
</FONT>

<P align="center">
<IMG src="w88581w8858100.gif" alt="Advancis Logo">

<P align="center">
<FONT size="5">Common Stock
</FONT>

<P align="center">
<HR size="1" width="100%" align="center" noshade>

<P align="left">
<FONT size="2">This is the initial public offering of shares of
our common stock. No public market currently exists for our
common stock.
</FONT>

<P align="left">
<FONT size="2">We expect to apply to list our shares of common
stock for quotation on The NASDAQ National Market under the
symbol &#147;AVNC.&#148; We anticipate that the initial public
offering price will be between
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share.
</FONT>

<P align="center">
<I>Investing in our shares involves risks. See &#147;Risk
Factors&#148; beginning on page&nbsp;7.</I>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="72%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Per Share</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Public Offering Price
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Underwriting Discount
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds to Advancis (before expenses)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<FONT size="2">We have granted the underwriters a 30-day option
to purchase up
to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional
shares of common stock at the public offering price less the
underwriting discount to cover over-allotments.
</FONT>

<P align="left">
<B><FONT size="2">Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved
of these securities or determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal
offense.</FONT></B>

<P align="left">
<FONT size="2">Lehman Brothers, on behalf of the underwriters,
expects to deliver the shares on or
about &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2003.
</FONT>

<P align="center">
<HR size="1" width="100%" align="center" noshade>

<P align="left">
<FONT size="2"> </FONT><B><FONT size="5">LEHMAN
BROTHERS</FONT></B>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="33%"></TD>
    <TD width="67%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2"> </FONT><B><FONT size="5">PACIFIC GROWTH
    EQUITIES, LLC</FONT></B></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2003
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">TABLE OF CONTENTS</FONT></B>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="90%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Page</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prospectus Summary
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Risk Factors
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Special Note Regarding Forward-Looking Statements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Use of Proceeds
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dividend Policy
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capitalization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dilution
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Selected Financial Data
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Management&#146;s Discussion and Analysis of
    Financial Condition and Results of Operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Business
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Management
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Certain Relationships and Related Transactions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">57</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Principal Stockholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">59</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Description of Capital Stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Shares Eligible for Future Sale
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Underwriting
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">68</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Legal Matters
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Experts
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Where You Can Find More Information
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">71</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Index to Financial Statements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left">

</DIV>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Until &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2003 (25&nbsp;days after the commencement of this offering), all
dealers selling shares of our common stock, whether or not
participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers&#146; obligation
to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
</FONT>

<P align="center"><FONT size="2">i
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "PROSPECTUS SUMMARY" -->

<P align="center">
<B><FONT size="2">PROSPECTUS SUMMARY</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">This summary highlights information contained
elsewhere in this prospectus. This summary does not contain all
of the information you should consider before investing in our
common stock. You should read this entire prospectus carefully,
including the section entitled &#147;Risk Factors&#148; and our
financial statements and the related notes included elsewhere in
this prospectus, before making an investment decision.
References in this prospectus to our certificate of
incorporation and bylaws refer to the certificate of
incorporation and bylaws as the same shall be in effect upon the
completion of this offering. Unless otherwise specified or the
context otherwise requires, references in this prospectus to
&#147;we,&#148; &#147;our&#148; and &#147;us&#148; refer to
Advancis Pharmaceutical Corporation.</FONT></I>

<P align="left">
<B><FONT size="2">Our Company</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are a pharmaceutical company focused on
developing and commercializing pulsatile drug products that
fulfill substantial unmet medical needs in the treatment of
infectious disease. We are developing a broad portfolio of drugs
based on our novel biological finding that bacteria exposed to
antibiotics in front-loaded, sequential bursts, or pulses, are
killed more efficiently and effectively than those exposed to
standard antibiotic treatment regimens. Based on this finding,
we have developed a proprietary, once-a-day pulsatile delivery
technology called PULSYS.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have focused initially on developing pulsatile
formulations of approved and marketed drugs that no longer have
patent protection or that have patents expiring in the next
three years. We currently have three pulsatile drugs in
Phase&nbsp;I/II clinical trials, five pulsatile drugs or drug
combinations in late stage preclinical development and are
exploring pulsatile formulations for a range of other
antibiotics. We are also developing a non-pulsatile, generic
formulation of the antibiotic Biaxin XL, the patent covering the
active pharmaceutical ingredient for which expires in 2005. We
intend to use any cash flow generated by this product to
accelerate development of our pulsatile drug candidates.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to commercialize our products through
third party collaborations and with an internal marketing and
sales force. In July 2003, we entered into a collaboration
agreement with GlaxoSmithKline pursuant to which we licensed
patents and PULSYS technology for use with its Augmentin
(amoxicillin/clavulanate combination) products, which
collectively had 2002 U.S. sales of over $1.5 billion, and with
limited other amoxicillin products. GlaxoSmithKline will be
responsible for the clinical development, manufacture and sale
of the products. We received an initial payment of
$5&nbsp;million from GlaxoSmithKline upon signing of our
collaboration agreement and can receive milestone payments of up
to $52&nbsp;million if it achieves specified product development
goals. In addition, upon commercialization of any of the
products, we would receive certain royalty payments and may
receive incentive payments of up to $50&nbsp;million if
specified annual sales goals are achieved.
</FONT>

<P align="left">
<B><FONT size="2">Market Opportunity for Pulsatile
Drugs</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">According to sales data compiled by IMS Health,
an independent pharmaceutical industry research firm, worldwide
anti-infective sales were approximately $44.7&nbsp;billion in
2002, including $20.3&nbsp;billion in North America. Antibiotics
accounted for approximately $27.2&nbsp;billion of such 2002
worldwide sales, including more than $10&nbsp;billion in North
America. The large market for antibiotics is expected to
continue to grow in light of the aging of the United States
population, the increased use of therapies that compromise the
immune system such as cancer chemotherapy and the growing
prevalence of immune related diseases such as AIDS. Standard
antibiotic regimens have significant limitations, including
ineffectiveness against resistant bacteria, multiple daily
dosing requirements, lengthy treatment periods and the potential
for severe side effects. We believe that the growing problem of
resistance and other limitations of standard antibiotic regimens
are not currently being adequately addressed.
</FONT>

<P align="left">
<B><FONT size="2">Our Novel Solution</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The significant unmet needs in the anti-infective
market prompted our founders to search for a more efficient and
effective method to attack bacteria. We found that, as a result
of the relatively short natural life
</FONT>

<P align="center"><FONT size="2">1
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">cycle of bacteria, antibiotics are more effective
in killing bacteria when released in three to five pulses that
each occur within the first six to eight hours following initial
dosing. To exploit this finding, we have developed a
proprietary, once-a-day delivery technology called PULSYS that
enables rapid, pulsatile delivery of antibiotics and improved
bioavailability, or ability to be absorbed by the body. We
believe that our novel finding, as implemented through our
PULSYS technology, will result in the following therapeutic
advantages:
</FONT>
</DIV>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Improved bactericidal activity, or bacteria
    killing efficiency;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Once daily dosing and shorter length of treatment
    resulting in increased patient convenience and compliance;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Lower overall drug dose with reduced side effect
    profile; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Decreased emergence of antibiotic resistant
    bacteria.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">While our initial focus has been on developing
pulsatile antibiotics, we believe that pulsatile dosing may
offer therapeutic advantages in the areas of antivirals,
antifungals and oncology. We have implemented a multi-layer
patent strategy to protect our pulsatile antibiotic products as
well as the pulsatile delivery of drugs in other therapeutic
categories.
</FONT>

<P align="left">
<B><FONT size="2">Product Development Strategy</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to develop pulsatile drugs that have
multiple therapeutic advantages over existing antibiotics. We
plan to focus initially on developing improved versions of
approved and marketed drugs, either delivered alone or in
combination with other drugs. We believe that the advantages of
this approach include:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Decreased development risk and costs;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Decreased development timeframe because we
    anticipate that we may rely, in part, on prior regulatory
    approvals and safety and efficacy data;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Reasonable and predictable production costs; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Market acceptance due to the use of well-known
    antibiotics.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">PULSYS Commercialization Strategy</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Pursue third party collaborations for widely
distributed antibiotics.</FONT></I><FONT size="2"> We anticipate
collaborating with large pharmaceutical companies to apply our
technology to develop pulsatile versions of widely distributed
antibiotics, such as those prescribed by general practitioners,
as well as combinations of such products. These collaborations
will allow us to enter large markets more quickly with the
greater financial and marketing resources of our partners.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Develop proprietary antibiotic combination
products.</FONT></I><FONT size="2"> We intend to focus our
initial internal development efforts on pulsatile formulations
of antibiotic combination products that we can market to
concentrated groups of pharmaceutical prescribers, such as
hospital-based physicians or specialists. This concentration
will allow us to commercialize our pulsatile drugs with a
relatively small internal sales force. Our initial proprietary
pulsatile drug candidate is a fluoroquinolone/metronidazole
combination.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Acquire or license antibiotic products.
</FONT></I><FONT size="2">We intend to acquire or license
antibiotic products that we believe can be improved with our
PULSYS technology. We are focused on acquiring drugs and drug
candidates that would be marketed to concentrated groups of
pharmaceutical prescribers and that have been proven to be safe
and effective.
</FONT>

<P align="center"><FONT size="2">2
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">
<B><FONT size="2">Our Product Pipeline</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table summarizes the antibiotic
compounds we have in clinical trials and which we expect will
serve as the basis for drug products or, with additional
clinical development, drug combination products.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="29%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="16%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="15%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="14%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="14%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">PULSYS Targeted</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Product</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Advancis Product</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Key Indication(s)</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Standard Therapy</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Added Value</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Opportunity</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="9" align="center" valign="top">
    <B><FONT size="2">PHASE I/ II PULSYS PRODUCT
    CANDIDATES</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pulsatile Amoxicillin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Upper respiratory tract infections (URTI),
    urinary tract infections
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">10-14&nbsp;days, two or three times daily
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Once daily, lower dose, shorter duration
    (5-7&nbsp;days)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Alone and in combination with other drugs
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pulsatile Clarithromycin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">URTI, acute exacerbation of chronic bronchitis
    (AECB), sinusitis
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">7-14&nbsp;days, twice daily
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Once daily, lower dose, shorter duration
    (5-7&nbsp;days)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Alone or in combination with other drugs
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pulsatile Metronidazole
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Trichomoniasis, amebiasis
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">1-10&nbsp;days, one to three times daily
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Single dose therapy
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Alone and in combination with other drugs
    </FONT></TD>
</TR>

<TR>
    <TD colspan="9" align="center" valign="top">
    <B><FONT size="2">NON-PULSATILE GENERIC PRODUCT CANDIDATE (ANDA
    to be filed)</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Clarithromycin extended release
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">URTI, AECB, sinusitis
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">7-14&nbsp;days, once daily
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">N/ A
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Alone
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have five additional pulsatile antibiotic
product candidates in late-stage preclinical development,
including three combination products. With respect to one of the
product candidates, we recently entered into a collaboration
agreement with GlaxoSmithKline pursuant to which we licensed our
patents and PULSYS technology for use with its Augmentin
(amoxicillin/clavulanate combination) products. We are exploring
pulsatile formulations for a range of other antibiotics and
antibiotic combinations.
</FONT>

<P align="left">
<B><FONT size="2">Corporate Information</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We were incorporated in Delaware in December 1999
and commenced operations in January 2000. Our principal
executive offices are located at 20425 Seneca Meadows Parkway,
Germantown, Maryland 20876. Our telephone number is (301)
944-6600. Our website is www.advancispharm.com. Information
contained on our website is not part of, and is not incorporated
into, this prospectus.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Advancis, Advancis Pharmaceutical Corp., the
Advancis logo, PULSYS and MAPS are trademarks of Advancis
Pharmaceutical Corporation. All other trademarks, trade names or
service marks appearing in this prospectus are the property of
their respective owners.
</FONT>

<P align="center"><FONT size="2">3
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "THE OFFERING" -->

<P align="center">
<B><FONT size="2">THE OFFERING</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="40%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="57%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common stock offered
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size="2">shares
    (&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    if the underwriters&#146; over-allotment option is exercised in
    full)
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common stock outstanding after this offering
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size="2">shares
    (&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    if the underwriters&#146; over-allotment option is exercised in
    full)
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Use of proceeds
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">We intend to use the net proceeds from this
    offering as follows: research and development including
    preclinical development and clinical trials, purchase of capital
    equipment, licensing activities and general corporate purposes.
    See &#147;Use of Proceeds.&#148;
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proposed NASDAQ National Market symbol
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">AVNC
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The total number of outstanding shares of common
stock above excludes:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">2,801,125 shares of common stock issuable upon
    exercise of stock options outstanding as of June&nbsp;30, 2003
    at a weighted average exercise price of $0.31 per share; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">66,842 shares of common stock issuable upon
    exercise of outstanding warrants as of June&nbsp;30, 2003 at a
    weighted average exercise price of $1.32 per share.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Except as otherwise indicated, information in
this prospectus:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">assumes the underwriters have not exercised their
    option to
    purchase&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    to cover over-allotments; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">reflects the automatic conversion of 27,565,555
    shares of our outstanding convertible preferred stock into
    27,565,555 shares of common stock upon completion of this
    offering.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">4
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "SUMMARY FINANCIAL DATA" -->

<P align="center">
<B><FONT size="2">SUMMARY FINANCIAL DATA</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents summary historical
financial information for us. You should read this information
in conjunction with our financial statements and related notes
and the information under &#147;Selected Financial Data&#148;
and &#147;Management&#146;s Discussion and Analysis of Financial
Condition and Results of Operations&#148; included elsewhere in
this prospectus.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The pro forma net loss per share and shares used
in computing pro forma net loss per share are calculated as if
all of our convertible preferred stock (including shares issued
after June&nbsp;30, 2003) were converted into shares of our
common stock on January&nbsp;1, 2002. The net loss applicable to
common stockholders for the six months ended June&nbsp;30, 2003
does not include $22,600,000 of deemed interest and dividends
related to a beneficial conversion feature charge associated
with convertible notes and preferred stock issued during 2003
which would be recorded in the second half of 2003. The pro
forma balance sheet data below reflects (i)&nbsp;the issuance of
9,292,284 shares of Series&nbsp;E Convertible Preferred Stock
after June&nbsp;30, 2003 for cash, (ii)&nbsp;the conversion of
principal and accrued interest with respect to convertible notes
in the aggregate principal amount of $5.0&nbsp;million issued on
March&nbsp;28, 2003 into 2,263,272 shares of Series&nbsp;E
Convertible Preferred stock after June&nbsp;30, 2003, and
(iii)&nbsp;the conversion of each outstanding share of all
classes of our preferred stock into one share of common stock
upon the closing of this offering. The pro forma as adjusted
balance sheet data below reflects the issuance and sale
of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our common stock in this offering at an initial public
offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share (the midpoint of the range of the initial offering price),
after deducting the underwriting discounts and commissions and
estimated offering expenses, and our receipt of the net proceeds
from that sale.
</FONT>

<P align="left">
<B><FONT size="2">Statements of Operations Data</FONT></B>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="29%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six Months Ended June&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost and expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Research and development
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,133,014</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,295,308</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,855,130</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,660,989</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,537,966</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">General and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">751,962</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,958,602</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,323,879</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,523,214</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,853,342</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,884,976</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,253,910</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,179,009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,184,203</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,391,308</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Loss from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,884,976</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,253,910</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,179,009</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,184,203</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,391,308</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income (expense), net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66,713</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,334</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">102,629</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">84,162</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(98,155</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(47,615</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,818,263</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,184,576</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,123,995</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,100,041</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,489,463</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accretion of issuance costs of mandatorily
    redeemable convertible preferred stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,887</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(37,594</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(73,925</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(35,945</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(37,361</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss applicable to common stockholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,830,150</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,222,170</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,197,920</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,135,986</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,526,824</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss per share, basic and diluted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.39</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6.88</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8.95</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4.19</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4.03</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pro forma net loss per share, basic and diluted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.49</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.26</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Shares used in computing net loss per share,
    basic and diluted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">764,712</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,049,915</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,587,117</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,465,294</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,869,276</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Shares used in computing pro forma net loss per
    share, basic and diluted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,152,672</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,434,831</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">5
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">
<B><FONT size="2">Balance Sheet Data</FONT></B>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="58%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">June&nbsp;30, 2003</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(unaudited)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pro Forma</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Actual</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pro Forma</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As Adjusted</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">244,582</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,152,221</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,029,756</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,937,395</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,979,852</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,888,463</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,888,463</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total mandatorily redeemable convertible
    preferred stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,476,656</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deficit accumulated during the development stage
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(30,616,297</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(30,616,297</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(30,616,297</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total stockholders&#146; equity (deficit)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(29,426,752</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,048,932</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">6
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "RISK FACTORS" -->

<P align="center">
<B><FONT size="2">RISK FACTORS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">An investment in our common stock involves a
substantial risk of loss. You should consider carefully the
following risks and other information contained in this
prospectus before you decide whether to purchase our common
stock. Additional risks and uncertainties, including those
affecting the market in which we operate or that we currently
deem immaterial, may also impair our business and operations. If
any such risks should actually occur, our business, results of
operations and financial condition could suffer significantly.
As a result, the market price of our common stock could decline,
and you may lose all or part of your investment.</FONT></I>

<P align="left">
<B><FONT size="2">Risks Related to Our Business</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">We expect to incur losses for the
    foreseeable future and may never become
    profitable.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">From the date we began operations in January 2000
through June&nbsp;30, 2003, we have incurred operating losses of
approximately $30.7&nbsp;million. Our losses to date have
resulted principally from research and development costs related
to the development of our product candidates, the purchase of
equipment and establishment of our facilities and general and
administrative costs related to our operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect to incur substantial losses for the
foreseeable future as a result of increases in our research and
development costs, including costs associated with conducting
preclinical testing and clinical trials, and regulatory
compliance activities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our chances for achieving profitability will
depend on numerous factors, including success in:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">developing and testing product candidates;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">receiving regulatory approvals;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">developing proprietary antibiotic products;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">commercializing our products; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">establishing our competitive position.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Many of these factors will depend on
circumstances beyond our control. We cannot assure you that we
will ever become profitable.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Substantially all of our product candidates
    are based on a finding that could ultimately prove to be
    incorrect, or could have limited applicability.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Substantially all of our product candidates are
based on our finding that bacteria exposed to antibiotics in
front-loaded, rapid sequential bursts are eliminated more
efficiently and effectively than those exposed to presently
available treatment regimens. We have not identified with
certainty the actual scientific mechanism that produces the
finding that pulsatile delivery of antibiotics is more effective
than standard treatment regimens, and we have only limited
results from clinical trials involving this finding in humans.
While preliminary studies in animals have supported our finding
that pulsatile delivery of antibiotics is more effective than
standard treatment regimens, no clinical trials testing efficacy
in humans have commenced. Ultimately, our finding may be
incorrect, in which case our pulsatile drugs would not differ
substantially from competing drugs and may be inferior to them.
If these products are substantially identical or inferior to
products already available, the market for our pulsatile drugs
will be reduced or eliminated.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Even if pulsatile dosing is more effective than
ordinary dosing, we may be unable to apply this finding
successfully to a substantial number of products in the
anti-infective market. Our preliminary studies indicate that
pulsatile dosing may not provide superior performance for all
types of antibiotics. Additionally, we have not conducted any
studies with anti-viral or anti-fungal medications. If we cannot
apply our technology to a wide variety of antibiotics or other
anti-infectives, our potential market will be substantially
reduced.
</FONT>

<P align="center"><FONT size="2">7
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Our delivery technology may not be
    effective, which would prevent us from commercializing products
    that are more effective than those of our
    competitors.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Even if we are correct that pulsatile dosing is
more effective than ordinary dosing of antibiotics, our delivery
technology must be effective in humans for the administration of
pulses at an appropriate level. If our PULSYS delivery
technology is not effective in delivering rapid bursts of
antibiotics, or is unable to do so at an appropriate level, and
we are not able to create an alternative delivery method for
pulsatile dosing that proves to be effective, we will be unable
to capitalize on any advantage of our discovery. Should this
occur, our pulsatile product candidates may not be more
effective that those of our competitors, which may decrease or
eliminate market acceptance of our products.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">If a competitor produces and commercializes
    an antibiotic that is superior to our pulsatile antibiotics, the
    market for our potential products would be reduced or
    eliminated.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have devoted a substantial amount of our
research efforts and capital to the development of pulsatile
antibiotics. We have only one product candidate that does not
depend on our PULSYS technology. If a competitor produces and
commercializes an antibiotic or method of delivery of
antibiotics that provides superior safety, effectiveness or
other significant advantages over our pulsatile antibiotics, the
value of our pulsatile drugs would be reduced substantially and,
as a result, without additional products to market or sell, our
ability to generate revenue would be severely compromised. We
would need to conduct substantial new research and development
activities to establish new product targets, which would be
costly and time consuming. In the event we are unable to
establish new product targets, we will be unable to generate
sources of revenue.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">We have not commissioned an extensive third
    party patent infringement, invalidity and enforceability
    investigation on pulsatile dosing and we are aware of one issued
    patent covering pulsatile delivery.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our patents, prior art and infringement
investigations were primarily conducted by our senior management
and other employees. Although our patent counsel has consulted
with management in connection with management&#146;s
investigations, our patent counsel has not undertaken an
extensive independent analysis to determine whether our
pulsatile technology infringes upon any issued patents or
whether our issued patents or patent applications covering
pulsatile dosing could be invalidated or rendered unenforceable
for any reason. We are aware of one issued patent owned by a
third party that covers certain aspects of delivering drugs by
use of two delayed release pulses. We cannot assure you that a
claim will not be asserted by such patent holder or any other
holder of an issued patent that any of our products infringe
their patent or that our patents are invalid or unenforceable.
We may be exposed to future litigation by third parties based on
claims that our products or activities infringe the intellectual
property rights of others. We cannot assure you that, in the
event of litigation, any claims would be resolved in our favor.
Any litigation or claims against us, whether or not valid, may
result in substantial costs, could place a significant strain on
our financial resources, divert the attention of management and
harm our reputation. In addition, intellectual property
litigation or claims could result in substantial damages and
force us to do one or more of the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">cease selling, incorporating or using any of our
    products that incorporate the challenged intellectual property;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">obtain a license from the holder of the infringed
    intellectual property right, which license may be costly or may
    not be available on reasonable terms, if at all; or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">redesign our products, which would be costly and
    time-consuming and may not be possible.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Our generic clarithromycin product may face
    intellectual property challenge.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Currently, clarithromycin is covered by a series
of patents that are owned or controlled by a company having
substantially greater financial and other resources than us. We
do not intend to market any clarithromycin products until the
patent covering the active pharmaceutical ingredient (API) for
clarithromycin expires in 2005, at which time we intend to
commercialize a generic, extended release clarithromycin product.
</FONT>

<P align="center"><FONT size="2">8
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">We are aware of a U.S.&nbsp;patent covering an
extended release clarithromycin product and we are also aware of
issued patents relating to the production of clarithromycin
products. We believe that we will be able to manufacture and
market a formulation of a clarithromycin product without
infringing these patents. In the event a claim is brought
against us, our distributors, licensees or collaborators for
patent infringement, we cannot assure you that any legal
proceedings would be resolved in our favor. If such a dispute
were resolved against us, in addition to potential damages,
which could be substantial, the commercial manufacture or sale
of our generic clarithromycin product candidate could be
enjoined unless a license were obtained. There can be no
assurances that if a license is required, such license would be
made available on terms acceptable to us, or at all. Any claim
of patent infringement may involve substantial expenditures and
divert the time and effort of management.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">We do not intend to seek patent protection
    for certain aspects of our technology.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have not filed for patent protection with
respect to individual dosage forms that are part of our overall
pulsatile antibiotic products, and we may not seek such patent
coverage in the future. In producing such dosage forms, we
expect to use general formulation techniques used in the
industry that would be modified by us and which would,
therefore, include know-how and trade secrets that we have
developed. We cannot be certain that a patent would issue to
cover such intellectual property and we would prefer to keep
such techniques and know-how as our trade secrets. In the event
a competitor is able to develop technology substantially similar
to ours, we may not be able to block its use of such technology,
in which case our potential market may be substantially reduced.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">If we are unable to develop and
    successfully commercialize our product candidates, we may never
    achieve profitability.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have not commercialized any products or
recognized any revenue from product sales. All of our pulsatile
drugs are in early stages of development and currently, only
three pulsatile product candidates are being tested in Phase I/
II clinical trials. We expect that we must conduct significant
additional research and development activities before we will be
able to receive final regulatory approval to commercialize any
pulsatile products. We must successfully complete Phase I/ II
clinical trials, commence and successfully complete Phase III
clinical trials and obtain regulatory approval for our pulsatile
drugs before we are able to generate revenue from their sales.
Even if we succeed in developing and commercializing one or more
of our pusatile drugs, we may never generate sufficient or
sustainable revenue to enable us to be profitable.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">If we do not successfully attract and
    retain collaborative partners, or our partners do not satisfy
    their obligations, we will be unable to develop our partnered
    product candidates.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the early stages of our development, we
intend to enter into collaborative arrangements with third
parties to develop certain product candidates. These
collaborations may be necessary in order for us to:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">fund our research and development activities;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">fund manufacturing by third parties;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">seek and obtain regulatory approvals; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">successfully commercialize our product candidates.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Currently, we only have one such collaborative
agreement, which is with GlaxoSmithKline (GSK). In connection
with this agreement, we have granted certain rights regarding
the use of patents and our PULSYS technology with
amoxicillin/clavulanate combination products and certain other
amoxicillin products, including development and marketing
rights. We do not have day-to-day control over the activities of
GSK with respect to any such product candidates. We cannot
assure you that GSK will fulfill its obligations, including the
development and commercialization of any product candidate. If
GSK fails to fulfill its obligations under our agreement, we may
be unable to assume the development of these product candidates
or enter into alternative arrangements with a third party. As a
result, our ability to receive any revenue from these product
candidates is entirely dependent on the efforts of GSK. We could
also become involved in
</FONT>

<P align="center"><FONT size="2">9
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">disputes with GSK, which could lead to delays or
termination of our development program and time-consuming and
expensive litigation or arbitration. GSK may terminate this
agreement on relatively short notice. If GSK terminates or
breaches our agreement, or otherwise fails to complete its
obligations in a timely manner, our chances of successfully
developing and commercializing any of these product candidates
would be materially and adversely affected.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, the growth of our business and
development of additional product candidates may require that we
seek additional collaborative partners. We cannot assure you
that we will be able to enter into collaborative agreements with
partners on terms favorable to us, or at all, and any future
agreement may expose us to similar risks that we face under our
agreement with GSK. Our inability to enter into additional
collaborative arrangements with other partners, or our failure
to maintain such arrangements, would limit the number of product
candidates which we could develop and ultimately, decrease our
sources of any future revenues.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">If we cannot enter into new licensing
    arrangements, our ability to develop a diverse product portfolio
    could be limited.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A component of our business strategy is
in-licensing drug compounds developed by other pharmaceutical
and biotechnology companies or academic research laboratories
that may be marketed and developed or improved upon using our
novel technologies. Competition for promising compounds can be
intense and currently, we have not entered into any arrangement
to license any drugs from other companies. If we are not able to
identify licensing opportunities or enter into licensing
arrangements on acceptable terms, we will be unable to develop a
diverse portfolio of products.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Our executive officers and other key
    personnel are critical to our business and our future success
    depends on our ability to retain them.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are highly dependent on the principal members
of our scientific and management teams, including Edward M.
Rudnic, our president and chief executive officer, Steven A.
Shallcross, our senior vice president and chief financial
officer, and Kevin S. Sly, our senior vice president, business
development and marketing. In order to pursue our product
development, marketing and commercialization plans, we will need
to hire additional personnel with experience in clinical
testing, government regulation, manufacturing, marketing and
business development. We may not be able to attract and retain
personnel on acceptable terms given the intense competition for
such personnel among high technology enterprises, including
biotechnology, pharmaceutical and healthcare companies,
universities and non-profit research institutions. If we lose
any of our key personnel, or are unable to attract and retain
qualified personnel, our business, financial condition and
results of operations may be materially and adversely affected.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Our ability to complete clinical trials and
    ultimately, commercialize products will be delayed if we are
    unable to obtain sufficient APIs from certain
    suppliers.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We obtain APIs from certain specialized
manufacturers for use in clinical studies that we intend to
conduct without assistance from collaborative partners. Although
the antibiotics we use in our clinical studies may be obtained
from several API suppliers, our applications for regulatory
approval may authorize only one API supplier as our source. In
the event an authorized supplier in an application for
regulatory approval loses its regulatory status as an acceptable
source or otherwise becomes unable or unwilling to supply the
API to us at a commercially reasonable price, we would need to
locate another source. A change to a supplier not previously
approved in our application for regulatory approval or an
alteration in the procedures or product provided to us by an
approved supplier may require formal approval by the
U.S.&nbsp;Food and Drug Administration (FDA) before we could use
the API in the production of commercial supplies for our
products. These factors could result in delays in conducting or
completing our clinical trials and ultimately delay our ability
to commercialize products.
</FONT>

<P align="center"><FONT size="2">10
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Clinical trials for our product candidates
    may be delayed due to our dependence on third parties for the
    conduct of such trials.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have limited experience in conducting and
managing clinical trials, and currently, we do not employ any
clinical trial managers. We rely, and will continue to rely, on
third parties, including our collaborative partners, clinical
research organizations and outside consultants, to assist us in
managing and monitoring clinical trials. Our reliance on these
third parties may result in delays in completion of, or the
failure to complete, these trials if they fail to perform their
obligations under our agreements.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">If clinical trials for our products are
    unsuccessful or delayed, we will be unable to meet our
    anticipated development and commercialization
    timelines.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We must demonstrate through preclinical testing
and clinical trials that our product candidates are safe and
effective for use in humans before we can obtain regulatory
approvals for their commercial sale. In addition, if we make
claims of superiority over existing products, we will need to
prove such claims in additional clinical trials. For drug
products such as our amoxicillin/clarithromycin combination
product which contains active ingredients in fixed combinations
that have not been previously approved by the FDA, clinical
studies may also need to be conducted in order to establish the
contribution of each active component to the effectiveness of
the combination in an appropriately identified patient
population.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Conducting clinical trials is a lengthy,
time-consuming and expensive process. Currently we only have
three pulsatile drug products in Phase&nbsp;I/II clinical trials
and we have not completed such trials and additional studies in
animals to extrapolate proper dosage for Phase&nbsp;III clinical
efficacy trials in humans. In the event we incorrectly identify
a dosage as appropriate for human clinical trials, any results
we receive from such trials may not properly reflect the actual
efficacy or safety of our products. Furthermore, we do not
expect to have results from Phase&nbsp;III clinical efficacy
trials in humans until at least 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The commencement and rate of completion of
clinical trials for our products may be delayed by many factors,
including:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">lack of efficacy during the clinical trials;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">unforeseen safety issues;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">slower than expected rate of patient recruitment;
    or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">government or regulatory delays.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The results from preclinical testing and early
clinical trials are often not predictive of results obtained in
later clinical trials. Although a new product may show promising
results in pre-clinical and initial clinical trials, it may
subsequently prove unfeasible or impossible to generate
sufficient safety and efficacy data to obtain necessary
regulatory approvals. Data obtained from preclinical and
clinical studies are susceptible to varying interpretations,
which may delay, limit or prevent regulatory approval. In
addition, we may encounter regulatory delays or rejections as a
result of many factors, including results that do not support
our claims, perceived defects in the design of clinical trials
and changes in regulatory policy during the period of product
development. Our business, financial condition and results of
operations may be materially adversely affected by any delays
in, or termination of, our clinical trials or a determination by
the FDA that the results of our trials are inadequate to justify
regulatory approval.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">We may need additional capital in the
    future. If additional capital is not available, we may be forced
    to delay or curtail the development of our product
    candidates.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We anticipate that our existing capital
resources, including the net proceeds of this offering, and
interest earned on such proceeds, will enable us to maintain our
current operations for at least the next 24&nbsp;months. Our
requirements for additional capital may be substantial and will
depend on many other factors, including:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">successful commercialization of our generic
    formulation of Blaxin&nbsp;XL;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">payments received under present or future
    collaborative partner agreements;
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">11
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">continued progress of research and development of
    our pulsatile drugs;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our ability to license drugs from others for use
    with PULSYS;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">costs associated with protecting our intellectual
    property rights;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">development of marketing and sales capabilities;
    and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">market acceptance of our products.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have no significant committed sources of
additional capital. To the extent our capital resources are
insufficient to meet future capital requirements, we will have
to raise additional funds to continue the development of our
product candidates. We cannot assure you that funds will be
available on favorable terms, if at all. To the extent we raise
additional capital through the sale of securities, the issuance
of those securities could result in dilution to our
stockholders. In addition, if we incur debt financing, a
substantial portion of our operating cash flow may be dedicated
to the payment of principal and interest on such indebtedness,
thus, limiting funds available for our business activities. If
adequate funds are not available, we may be required to curtail
significantly our development and commercialization activities.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">We could be forced to pay substantial
    damage awards if product liability claims that may be brought
    against us are successful.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The use of any of our product candidates in
clinical trials, and the sale of any approved products, may
expose us to liability claims and financial losses resulting
from the use or sale of our products. We have obtained limited
product liability insurance coverage for our clinical trials.
However, such insurance may not be adequate to cover any claims
made against us. In addition, we may not be able to maintain
insurance coverage at a reasonable cost or in sufficient amounts
or scope to protect us against losses.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">If our products are not accepted by the
    market, our revenues and profitability will
    suffer.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Even if we obtain regulatory approval to market
our products, our products may not gain market acceptance among
physicians, patients, healthcare payors and the medical
community. The degree of market acceptance of any pharmaceutical
product that we develop will depend on a number of factors,
including:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">demonstration of clinical efficacy and safety;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">cost-effectiveness;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">potential advantages over alternative therapies;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">reimbursement policies of government and
    third-party payors; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">effectiveness of our marketing and distribution
    capabilities and the effectiveness of such capabilities of our
    collaborative partners.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our product candidates, if successfully
developed, will compete with a number of products manufactured
and marketed by major pharmaceutical companies, biotechnology
companies and manufacturers of generic drugs. Our products may
also compete with new products currently under development by
others. Physicians, patients, third-party payors and the medical
community may not accept and utilize any product candidates that
we or our collaborative partners develop. To the extent current
antibiotics already successfully treat certain infections,
physicians may not be inclined to prescribe our pulsatile drugs
for the same indications. If our products do not achieve
significant market acceptance, we will not be able to generate
significant revenues or become profitable.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Because we have limited manufacturing
    capabilities we must rely on third party manufacturers, or
    expend substantial funds to expand our facilities, to
    commercialize our products.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We currently rely on several contractors to
manufacture product samples for our clinical studies that we
intend to conduct without assistance from collaborative
partners. We are in the process of building manufacturing
facilities for production of clinical supplies sufficient for
use through our Phase&nbsp;II and, in
</FONT>

<P align="center"><FONT size="2">12
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">some cases, Phase&nbsp;III clinical trials. We
have no experience building manufacturing facilities and we may
not be able to build such facilities at currently anticipated
costs. If the costs of building such facilities significantly
exceed our current expectations, we will be required to use
funds we have allocated for other purposes. In addition, if we
are unsuccessful in building our own manufacturing facilities
and fail to maintain our relationships with our current clinical
supply manufacturers or enter into relationships with new
manufacturers, we will be unable to conduct our clinical trials
effectively.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to rely on third-parties to manufacture
those products that we intend to sell through our own
commercialization and sales efforts. If we are unable to
maintain our relationships with our current manufacturers, enter
into agreements with other third-party manufacturers for the
commercialization of these products or expand our own
facilities, we will not be able to generate revenue from sales
of such products and our business and financial condition will
be materially adversely affected.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">If we fail to establish marketing, sales
    and distribution capabilities, or fail to enter into
    arrangements with third parties, we will not be able to
    commercialize our products.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We do not have any sales, marketing or
distribution capabilities. In order to commercialize any product
candidates that receive final regulatory approval, we must
either acquire or develop an internal marketing and sales force
with technical expertise and with supporting distribution
capabilities or make arrangements with third parties to perform
these services for us. In order to market any of our product
candidates directly, we must either acquire or develop. The
acquisition or development of a sales and distribution
infrastructure would require substantial resources, which may
divert the attention of our management and key personnel, and
defer our product development efforts. To the extent that we
enter into marketing and sales arrangements with other
companies, our revenues will depend on the efforts of others.
These efforts may not be successful. If we fail to develop
sales, marketing and distribution channels, or enter into
arrangements with third parties, we will experience delays in
product sales and incur increased costs.
</FONT>

<P align="left">
<B><FONT size="2">Risks Related To Our Industry</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Any inability to protect our intellectual
    property could harm our competitive position and third parties
    may claim that our products infringe on their intellectual
    property rights.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our success will depend in part on our ability to
obtain patents and maintain adequate protection of other
intellectual property for our technologies and products in the
U.S. and other countries. If we do not adequately protect our
intellectual property, competitors may be able to use our
technologies and erode or negate our competitive advantage.
Further, the laws of some foreign countries do not protect our
proprietary rights to the same extent as the laws of the U.S.,
and we may encounter significant problems in protecting our
proprietary rights in these foreign countries.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The patent positions of pharmaceutical and
biotechnology companies, including our patent positions, involve
complex legal and factual questions and, therefore, validity and
enforceability cannot be predicted with certainty. Patents may
be challenged, deemed unenforceable, invalidated or
circumvented. We will be able to protect our proprietary rights
from unauthorized use by third parties only to the extent that
we cover our proprietary technologies with valid and enforceable
patents or we effectively maintain such proprietary technologies
as trade secrets. We will apply for patents covering both our
technologies and product candidates as we deem appropriate. We
may fail to apply for patents on important technologies or
products in a timely fashion, or at all, and in any event, the
applications we do file may be challenged and may not result in
issued patents. Any future patents we obtain may not be
sufficiently broad to prevent others from practicing our
technologies or from developing competing products. Furthermore,
others may independently develop similar or alternative
technologies or design around our patented technologies. In
addition, if challenged, our patents may be declared invalid.
Even if valid, our patents may fail to provide us with any
competitive advantages.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We rely upon trade secrets protection for our
confidential and proprietary information. We have taken measures
to protect our proprietary information; however, these measures
may not provide adequate protection. We seek to protect our
proprietary information by entering into confidentiality
agreements with
</FONT>

<P align="center"><FONT size="2">13
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">employees, collaborators and consultants.
Nevertheless, employees, collaborators or consultants may still
disclose our proprietary information, and we may not be able to
meaningfully protect our trade secrets. In addition, others may
independently develop substantially equivalent proprietary
information or techniques or otherwise gain access to our trade
secrets.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">If we do not compete successfully in the
    development and commercialization of products and keep pace with
    rapid technological change, we will be unable to capture and
    sustain a meaningful market position.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The biotechnology and pharmaceutical industries
are highly competitive and subject to significant and rapid
technological change. While we are not aware of any company
using rapid bursts of antibiotics as a treatment method, there
are numerous companies actively engaged in the research and
development of anti-infectives. Many of these companies and
institutions, either alone or together with their collaborative
partners, have substantially greater financial resources and
larger research and development staffs than we do. In addition,
many of these competitors, either alone or together with their
collaborative partners, have significantly greater experience
than we do in:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">developing products;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">undertaking preclinical testing and human
    clinical trials;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">obtaining approvals of products from the FDA and
    other regulatory agencies; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">manufacturing and marketing products.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Developments by others may render our product
candidates or technologies obsolete or noncompetitive. We face
and will continue to face intense competition from other
companies for collaborative arrangements with pharmaceutical and
biotechnology companies, for establishing relationships with
academic and research institutions, and for licenses of products
or technology. These competitors, either alone or with their
collaborative partners, may succeed in developing technologies
or products that are more effective than ours.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">If we experience delays in obtaining
    regulatory approvals, or are unable to obtain or maintain
    regulatory approvals, we may be unable to commercialize any
    products.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our product candidates are subject to extensive
and rigorous domestic government regulation. The FDA regulates,
among other things, the development, testing, manufacture,
safety, efficacy, record-keeping, labeling, storage, approval,
advertising, promotion, sale and distribution of pharmaceutical
products. If our products are marketed abroad, they will also be
subject to extensive regulation by foreign governments. None of
our product candidates has been approved for sale in the
U.S.&nbsp;or any foreign market. The regulatory review and
approval process takes many years, requires the expenditure of
substantial resources, involves post-marketing surveillance and
may involve ongoing requirements for post-marketing studies.
Delays in obtaining regulatory approvals may:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">adversely affect the commercialization of any
    drugs that we or our collaborative partners develop;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">impose costly procedures on us or our
    collaborative partners;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">diminish any competitive advantages that we or
    our collaborative partners may attain; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">adversely affect our receipt of revenues or
    royalties.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Any required approvals, once obtained, may be
withdrawn. Further, if we fail to comply with applicable FDA and
other regulatory requirements at any stage during the regulatory
process, we may encounter difficulties including:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">delays in clinical trials or commercialization;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">product recalls or seizures;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">suspension of production and/or distribution;
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">14
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">withdrawals of previously approved marketing
    applications; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">fines, civil penalties and criminal prosecutions.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect to rely on our collaborative partners
to file investigational new drug applications and generally
direct the regulatory approval process for many of our products.
Our collaborative partners may not be able to conduct clinical
testing or obtain necessary approvals from the FDA or other
regulatory authorities for any product candidates. If we fail to
obtain required governmental approvals, we or our collaborative
partners will experience delays in, or be precluded from,
marketing products developed through our research.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We and our contract manufacturers also are
required to comply with the applicable FDA good manufacturing
practice regulations. Good manufacturing practice regulations
include requirements relating to quality control and quality
assurance as well as the corresponding maintenance of records
and documentation. Manufacturing facilities are subject to
inspection by the FDA. These facilities must be approved before
we can use them in commercial manufacturing of our products. We
or our contract manufacturers may not be able to comply with the
applicable good manufacturing practice requirements and other
FDA regulatory requirements. If we or our contract manufacturers
fail to comply, we could be subject to fines or other sanctions,
or be precluded from marketing our products.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">The manufacture and storage of
    pharmaceutical and chemical products is subject to environmental
    regulation and risk.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Because of the chemical ingredients of
pharmaceutical products and the nature of their manufacturing
process, the pharmaceutical industry is subject to extensive
environmental regulation and the risk of incurring liability for
damages or the costs of remedying environmental problems. If we
fail to comply with environmental regulations to use, discharge
or dispose of hazardous materials appropriately or otherwise to
comply with the conditions attached to our operating licenses,
the licenses could be revoked and we could be subject to
criminal sanctions and/or substantial liability or could be
required to suspend or modify our operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Environmental laws and regulations can require us
to undertake or pay for investigation, clean-up and monitoring
of environmental contamination identified at properties that we
currently own or operate or that we formerly owned or operated.
Further, they can require us to undertake or pay for such
actions at offsite locations where we may have sent hazardous
substances for disposal. These obligations are often imposed
without regard to fault. In the event we are found to have
violated environmental laws or regulations, our reputation will
be harmed and we may incur substantial monetary liabilities.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Market acceptance of our products will be
    limited if users of our products are unable to obtain adequate
    reimbursement from third-party payors.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The commercial success of our product candidates
will depend in part on the availability of reimbursement from
third-party payors, including government health administrators,
managed care providers and private health insurers. Even if we
succeed in bringing any of our proposed products to market, we
cannot assure you that third-party payors will consider our
products cost-effective or provide reimbursement in whole or in
part for their use.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Significant uncertainty exists as to the
reimbursement status of newly approved health care products.
Third-party payors may conclude that our products are less safe,
effective or cost-effective than existing products. Therefore,
third-party payors may not approve our products for
reimbursement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If third-party payors do not approve our products
for reimbursement or fail to reimburse them adequately, sales
will suffer as some physicians or their patients will opt for a
competing product that is approved for reimbursement or is
adequately reimbursed. Even if third-party payors make
reimbursement available, reimbursement levels may not be
sufficient for us to realize an appropriate return on our
investment in product development.
</FONT>

<P align="center"><FONT size="2">15
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Moreover, the trend toward managed healthcare in
the United States, the growth of organizations such as health
maintenance organizations, and legislative proposals to reform
healthcare and government insurance programs could significantly
influence the purchase of healthcare services and products,
resulting in lower prices and reduced demand for our products.
In addition, legislation and regulations affecting the pricing
of pharmaceuticals may change in ways adverse to us. While we
cannot predict the likelihood of any of these legislative or
regulatory proposals, if any government or regulatory agencies
adopt these proposals, they could materially adversely affect
our business, financial condition and results of operations.
</FONT>

<P align="left">
<B><FONT size="2">Risks Related to this Offering</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">HealthCare Ventures&nbsp;V, L.P. and
    HealthCare Ventures&nbsp;VI, L.P. will have substantial control
    over our business.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">HealthCare Ventures&nbsp;V, L.P. and HealthCare
Ventures&nbsp;VI, L.P. currently beneficially owns 55.4% of our
outstanding common stock, and will beneficially
own &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of our outstanding common stock after this offering
(&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
if the underwriters&#146; over-allotment option is exercised in
full). James H. Cavanaugh and Harold&nbsp;R. Werner, members of
our board of directors, are general partners of HealthCare
Partners&nbsp;V, L.P. and HealthCare Partners&nbsp;VI, L.P.,
which are the general partners of HealthCare Ventures&nbsp;V,
L.P. and HealthCare Ventures&nbsp;VI, L.P., respectively.
Accordingly, the HealthCare Ventures partnerships will be able
to exert significant influence over all matters requiring
stockholder approval, including the election and removal of
directors and any merger, consolidation or sale of all or
substantially all of our assets. In addition, the HealthCare
Ventures partnerships may dictate the day-to-day management of
our business. This concentration of ownership could have the
effect of delaying, deferring or preventing a change in control,
or impeding a merger or consolidation, takeover or other
business combination or a sale of all or substantially all of
our assets.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Future sales of our common stock, or the
    perception that these sales may occur, could depress our stock
    price.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Sales of substantial amounts of our common stock
in the public market, or the perception in the public markets
that these sales may occur, could cause the market price of our
common stock to decline. This could also impair our ability to
raise additional capital through the sale of our equity
securities. Upon completion of this offering, we will
have &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our common stock outstanding. In addition, as of
June&nbsp;30, 2003, options to purchase a total of
2,801,125&nbsp;shares were outstanding, of which 428,950 were
vested. We intend to file a Form&nbsp;S-8 registration statement
to register these and all other shares of common stock issuable
under our stock incentive plan. Following this offering, our
current stockholders and holders of shares of our mandatorily
redeemable convertible preferred stock, options and warrants to
acquire our common stock, on a fully-diluted basis assuming
exercise of all outstanding options and warrants and conversion
of the mandatorily redeemable convertible preferred stock are
expected to
own &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of the outstanding shares of our common stock,
or &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
if the underwriters&#146; over-allotment option is exercised in
full. Following the expiration of a 180-day &#147;lock-up&#148;
period to which the shares held by our current stockholders will
be subject, the holders of those shares will generally be
entitled to dispose of those shares. Moreover, Lehman Brothers
may, in its sole discretion and at any time without notice,
release those holders from the sale restrictions on their
shares. In addition to the adverse effect a price decline could
have on holders of our common stock, such a decline could impede
our ability to raise capital or to make acquisitions through the
issuance of additional shares of our common stock or other
equity securities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">After this offering, the holders of approximately
27,565,555&nbsp;shares of our common stock, including shares to
be issued upon the conversion of mandatorily redeemable
convertible preferred stock, will have rights to cause us to
file registration statements on their behalf and to include
their shares in registration statements that we may file on our
behalf or on behalf of other stockholders. By exercising their
registration rights and selling a large number of shares, these
holders could cause the price of our common stock to decline.
Furthermore, if we file a registration statement to offer
additional shares of our common stock and have to include shares
held by those holders, it could impair our ability to raise
needed capital by depressing the price at which we could sell
our common stock.
</FONT>

<P align="center"><FONT size="2">16
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Our certificate of incorporation and
    provisions of Delaware law could discourage a takeover you may
    consider favorable or could cause current management to become
    entrenched and difficult to replace.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Provisions in our certificate of incorporation
and Delaware law may have the effect of delaying or preventing a
merger or acquisition of us, or making a merger or acquisition
less desirable to a potential acquirer, even when the
stockholders may consider the acquisition or merger favorable.
Under the terms of our certificate of incorporation, we are
authorized to issue 25&nbsp;million shares of &#147;blank
check&#148; preferred stock, and to determine the price,
privileges, and other terms of these shares. The issuance of any
preferred stock with superior rights to our common stock could
reduce the value of our common stock. In particular, specific
rights we may grant to future holders of preferred stock could
be used to restrict an ability to merge with or sell our assets
to a third party, preserving control by present owners and
management and preventing you from realizing a premium on your
shares.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, we are subject to provisions of the
Delaware corporation law that, in general, prohibit any business
combination with a beneficial owner of 15% or more of our common
stock for five years unless the holder&#146;s acquisition of our
stock was approved in advance by our board of directors. These
provisions could affect our stock price adversely.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">The price of our common stock may be
    volatile.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to this offering, there has been no public
market for our common stock. We cannot predict the extent to
which investor interest will lead to the development of an
active and liquid trading market in our common stock. The
initial public offering price for the shares will be determined
by negotiations between us and the representatives of the
underwriters and may not be indicative of the market price of
the common stock that will prevail in the trading market. The
market price of the common stock may decline below the initial
public offering price. Some companies that have had volatile
market prices for their securities have been subject to
securities class action suits filed against them. If a suit were
to be filed against us, regardless of the outcome, it could
result in substantial costs and a diversion of our
management&#146;s attention and resources. This could have a
material adverse effect on our business, results of operations
and financial condition.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">We will have broad discretion in how we use
    the proceeds of this offering.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our management will have considerable discretion
in the application of the proceeds of this offering, and you
will not have the opportunity, as part of your investment
decision, to assess whether we are using the proceeds
appropriately. We may use the proceeds for corporate purposes
that do not immediately enhance our profitability or increase
our market value.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">You will suffer immediate and substantial
    dilution.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The initial public offering price per share is
expected to be substantially higher than the net tangible book
value per share immediately after the offering. As a result, you
will pay a price per share that substantially exceeds the book
value of our assets after subtracting our liabilities. Assuming
an offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
you will incur immediate and substantial dilution of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;in
the pro forma net tangible book value per share of the common
stock from the price you paid. As of June&nbsp;30, 2003, we also
had outstanding stock options to purchase 2,801,125&nbsp;shares
of our common stock at a weighted average exercise price of
$0.31 per share and warrants to purchase 66,842&nbsp;shares of
our common stock at a weighted average exercise price of $1.32
per share. If these stock options and warrants were exercised,
you would experience additional dilution. See
&#147;Dilution.&#148;
</FONT>

<P align="center"><FONT size="2">17
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" -->

<P align="center">
<B><FONT size="2">SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This prospectus, including the sections entitled
&#147;Prospectus Summary,&#148; &#147;Risk Factors,&#148;
&#147;Management&#146;s Discussion and Analysis of Financial
Condition and Results of Operations,&#148; and
&#147;Business,&#148; contains forward-looking statements. These
statements relate to future events or to our future financial
performance, and involve known and unknown risks, uncertainties
and other factors that may cause our actual results, levels of
activity, performance or achievements to be materially different
from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking
statements. In some cases, you can identify forward-looking
statements by the use of words such as &#147;may,&#148;
&#147;could,&#148; &#147;expect,&#148; &#147;intend,&#148;
&#147;plan,&#148; &#147;seek,&#148; &#147;anticipate,&#148;
&#147;believe,&#148; &#147;estimate,&#148; &#147;predict,&#148;
&#147;potential,&#148; &#147;continue,&#148; or the negative of
these terms or other comparable terminology. You should not
place undue reliance on forward-looking statements since they
involve known and unknown risks, uncertainties and other factors
which are, in some cases, beyond our control and which could
materially affect actual results, levels of activity,
performance or achievements. Factors that may cause actual
results to differ materially from current expectations include,
but are not limited to:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">general economic and business conditions;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">changes in governmental laws and regulations
    relating to the development and commercialization of
    pharmaceutical products;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the financial condition of our collaborative
    partners;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">competition in our industry; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the other risks described under &#147;Risk
    Factors&#148; in this prospectus.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">All forward-looking statements attributable to us
or persons acting on our behalf are expressly qualified in their
entirety by the cautionary statements set forth in this
prospectus. We are under no obligation to update any
forward-looking statement, whether as a result of new
information, future events or otherwise.
</FONT>

<P align="center"><FONT size="2">18
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "USE OF PROCEEDS" -->

<P align="center">
<B><FONT size="2">USE OF PROCEEDS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We will receive approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
in net proceeds from the sale of our common stock in this
offering, or approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
if the underwriters&#146; over-allotment option is exercised in
full, based on an assumed initial offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share (the midpoint of the initial offering price) and after
deducting the estimated underwriting discounts and commissions
and estimated offering expenses payable by us.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We currently intend to use the proceeds of this
offering for research and development activities, including
clinical trials for our product candidates, purchases of capital
equipment, licensing activities and other general corporate
purposes.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The amount and timing of our actual expenditures
will depend on numerous factors, including the progress of our
research and development activities and clinical trials, the
number and breadth of our product development programs, our
ability to establish and maintain corporate collaborations and
other arrangements and the amount of cash, if any, generated by
our operations. In addition, a portion of the net proceeds may
be used for the acquisition of products, businesses and
technologies that are complementary to our own, although we
currently do not have any understandings, commitments or
agreements with respect to acquisitions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We currently intend to use the proceeds from this
offering as follows:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">$20.0&nbsp;million for non-sponsored research and
    development, including pre-clinical development and clinical
    trials;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">$12.0&nbsp;million for purchase of capital
    equipment and other research facility improvements, including
    the development of manufacturing capability for clinical trials;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">$25.0&nbsp;million in connection with licensing
    activities; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
    of the proceeds for general corporate purposes, including
    working capital and the possible acquisition of pharmaceutical
    products and businesses that are complementary to our own.
    Currently, we have no specific plans or commitments with respect
    to any acquisition. We cannot assure you that we will complete
    any acquisitions or that, if completed, any acquisition will be
    successful.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To the extent that we have research and
development activities that are sponsored by strategic partners,
such as GlaxoSmithKline, we will have additional funds available
for research and development.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We will retain broad discretion in the allocation
and use of the proceeds of this offering. Pending application of
the proceeds, as described above, we will invest any remaining
proceeds in short-term, investment-grade, interest-bearing
securities.
</FONT>

<!-- link1 "DIVIDEND POLICY" -->

<P align="center">
<B><FONT size="2">DIVIDEND POLICY</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have never declared nor paid cash dividends on
our common stock. We currently intend to retain our future
earnings, if any, to finance the further development and
expansion of our business and do not intend to pay cash
dividends for the foreseeable future. Any future determination
to pay dividends will be at the discretion of our board of
directors and will depend on our financial condition, results of
operations, capital requirements, restrictions contained in
current or future financing instruments and such other factors
as our board of directors deems relevant.
</FONT>

<P align="center"><FONT size="2">19
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "CAPITALIZATION" -->

<P align="center">
<B><FONT size="2">CAPITALIZATION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth our capitalization
as of June&nbsp;30, 2003:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">on an actual basis;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">on a pro forma basis to give effect to
    (i)&nbsp;the issuance after June&nbsp;30, 2003 of
    9,292,284&nbsp;shares of Series&nbsp;E Convertible Preferred
    Stock, (ii)&nbsp;the conversion after June&nbsp;30, 2003 of
    principal and accrued interest with respect to convertible notes
    in the aggregate principal amount of $5.0&nbsp;million issued on
    March&nbsp;28, 2003 into 2,263,272&nbsp;shares of Series&nbsp;E
    Convertible Preferred Stock and (iii)&nbsp;the automatic
    conversion of 27,565,555&nbsp;shares of all classes of our
    preferred stock into 27,565,555&nbsp;shares of common stock upon
    the closing of this offering and the change in our authorized
    capital stock resulting from the filing of our restated
    certificate of incorporation; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">on a pro forma as adjusted basis to give effect
    to the receipt of the net proceeds from the sale
    of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of common stock in this offering at an assumed initial public
    offering price of
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
    share (the midpoint of the range of the initial offering price)
    and after deducting the underwriting discounts and commissions
    and estimated offering expenses.
    </FONT></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="48%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">June 30, 2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pro Forma As</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Actual</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pro Forma</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Adjusted</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Convertible Note
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,091,389</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mandatorily redeemable convertible preferred
    stock:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">$0.01 par value; 16,009,999 shares authorized;
    16,009,999 shares issued and outstanding at June 30, 2003, 0
    shares issued and outstanding on a pro forma basis and on a pro
    forma as adjusted basis, respectively
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,476,656</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stockholders&#146; deficit:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common stock, $0.01 par value;
    23,333,333&nbsp;shares authorized at June&nbsp;30, 2003
    and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    authorized on a pro forma and on a pro forma as adjusted basis,
    2,523,875&nbsp;shares issued and outstanding at June&nbsp;30,
    2003, 30,089,430 on a pro forma basis
    and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;on
    a pro forma as adjusted basis, respectively
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,239</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">300,894</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital in excess of par value
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,180,246</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,380,275</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred stock-based compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,015,940</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,015,940</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,015,940</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deficit accumulated during the development stage
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(30,616,297</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(30,616,297</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(30,616,297</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total stockholders&#146; equity (deficit)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(29,426,752</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,048,932</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total capitalization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,141,293</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,048,932</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The table above does not include:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">2,801,125&nbsp;shares of common stock issuable
    upon the exercise of options outstanding as of June&nbsp;30,
    2003 at a weighted average exercise price of $0.31 per share;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">3,500 additional shares of common stock available
    for future issuance under our stock incentive plan as of
    June&nbsp;30, 2003;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">66,842 shares of common stock issuable upon
    exercise of warrants outstanding as of June&nbsp;30, 2003 at a
    weighted average exercise price of $1.32 per share; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">$22,600,000 of deemed interest and dividends
    related to a beneficial conversion feature charge associated
    with convertible notes and shares of Series&nbsp;E Convertible
    Preferred Stock issued during 2003, which will be recorded in
    the second half of 2003.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">31,500 shares of outstanding common stock owned
    by three non-management directors, which are subject to vesting
    requirements and, accordingly, not treated as outstanding.
    Consistent with the provisions of EITF No.&nbsp;00-23, these
    shares will be reclassified to equity upon the lapse of the
    vesting requirements.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">20
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "DILUTION" -->

<P align="center">
<B><FONT size="2">DILUTION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our pro forma net tangible book value as of
June&nbsp;30, 2003 was approximately $24,970,932, or $0.83 per
share, based on the pro forma number of shares of common stock
outstanding as of June&nbsp;30, 2003 of 30,089,430, calculated
after giving effect to (i)&nbsp;the issuance of
9,292,284&nbsp;shares of Series&nbsp;E Convertible Preferred
Stock after June&nbsp;30, 2003, (ii)&nbsp;the conversion after
June&nbsp;30, 2003 of principal and accrued interest with
respect to convertible notes in the aggregate principal amount
of $5.0&nbsp;million issued in March 2003 into
2,263,272&nbsp;shares of Series&nbsp;E Convertible Preferred
Stock and (iii)&nbsp;the automatic conversion of
27,565,555&nbsp;shares of all classes of our preferred stock
into 27,565,555&nbsp;shares of common stock upon the closing of
this offering and the change in our authorized capital stock
resulting from the filing of our restated certificate of
incorporation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Dilution in pro forma net tangible book value per
share represents the difference between the amount per share
paid by purchasers of shares of our common stock in this
offering and the pro forma net tangible book value per share of
our common stock immediately following this offering. After
giving effect to the sale
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
in this offering at an assumed initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share (the midpoint of the range of the initial offering price)
and after deducting underwriting discounts and commissions and
estimated offering expenses, our pro forma net tangible book
value as of June&nbsp;30, 2003 would have been
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
or
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share. This represents an immediate increase in pro forma net
tangible book value of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share to existing stockholders and an immediate dilution in pro
forma net tangible book value of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share to new investors purchasing shares in this offering. The
following table illustrates this per share dilution:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="87%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Assumed initial public offering price per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pro forma net tangible book value per share as of
    June&nbsp;30, 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase per share attributable to new investors
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">As adjusted pro forma net tangible book value per
    share after this offering
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dilution in pro forma net tangible book value per
    share to new investors
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The analysis presented above does not give effect
to the issuance and sale
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of
our shares of common stock that will occur if the underwriters
exercise their option to purchase additional shares from us. If
the underwriters exercise such option in full, the pro forma net
tangible book value would be
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share, the increase in pro forma net tangible book value to
existing stockholders would be
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share and the dilution in pro forma net tangible book value to
new investors would be
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table summarizes as of
June&nbsp;30, 2003, on a pro forma basis, the number of shares
purchased from us, the total consideration paid and the average
price per share paid by our existing stockholders and by the
investors purchasing shares in this offering with respect to the
number of shares purchased from us at an assumed offering price
of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share and before deduction of underwriting discounts and
commissions and estimated expenses:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="36%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Shares Purchased</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Total Consideration</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Average Price</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Per Share</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Existing stockholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">New investors
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The analysis presented in the above table
excludes the 2,801,125&nbsp;shares of common stock issuable upon
the exercise of options outstanding as of June&nbsp;30, 2003 and
the issuance
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our common stock that will occur if the underwriters exercise
their over-allotment option in full.
</FONT>

<P align="center"><FONT size="2">21
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "SELECTED FINANCIAL DATA" -->

<P align="center">
<B><FONT size="2">SELECTED FINANCIAL DATA</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The selected financial data should be read in
conjunction with &#147;Management&#146;s Discussion and Analysis
of Financial Condition and Results of Operations&#148; and our
financial statements and the related notes appearing elsewhere
in this prospectus. The statement of operations data for the
fiscal years ended December&nbsp;31, 2000, 2001 and 2002 and the
balance sheet data as of December&nbsp;31, 2001 and 2002 are
derived from our audited financial statements appearing
elsewhere in this prospectus. The balance sheet data as of
December 31, 2000 is derived from our audited financial
statements. The statement of operations data for the six months
ended June&nbsp;30, 2002 and 2003 and the balance sheet data as
of June&nbsp;30, 2003 are derived from our unaudited financial
statements appearing elsewhere in this prospectus and which, in
the opinion of management, include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair
statement of the results for the unaudited interim periods. The
historical results are not necessarily indicative of the results
to be expected in any future period.
</FONT>

<P align="left">
<B><FONT size="2">Statements of Operations Data</FONT></B>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="30%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Year Ended December 31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six Months Ended June 30,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost and expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Research and development
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,133,014</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,295,308</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,855,130</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,660,989</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,537,966</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">General and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">751,962</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,958,602</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,323,879</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,523,214</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,853,342</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,884,976</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,253,910</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,179,009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,184,203</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,391,308</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Loss from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,884,976</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,253,910</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,179,009</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,184,203</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,391,308</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income (expense), net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66,713</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,334</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">102,629</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">84,162</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(98,155</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(47,615</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,818,263</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,184,576</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,123,995</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,100,041</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,489,463</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accretion of issuance costs of mandatorily
    redeemable convertible preferred stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,887</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(37,594</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(73,925</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(35,945</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(37,361</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss applicable to common stockholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,830,150</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,222,170</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,197,920</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,135,986</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,526,824</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic and diluted net loss per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.39</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6.88</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8.95</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4.19</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4.03</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Shares used in computing net loss per share,
    basic and diluted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">764,712</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,049,915</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,587,117</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,465,294</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,869,276</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="37%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">As of December 31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As of June&nbsp;30</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Balance Sheet Data</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,061,304</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,187,189</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,059,911</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">244,582</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,019,888</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,575,075</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,058,523</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,029,756</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term debt, including current portion
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,089,882</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,730,934</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,425,429</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mandatory redeemable convertible preferred stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,433,481</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,391,170</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,439,295</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,476,656</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deficit accumulated during the development stage
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,818,263</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,002,839</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(23,126,834</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(30,616,297</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total stockholders&#146; deficit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,710,150</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,701,660</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(22,701,459</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(29,426,752</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">22
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" -->

<P align="center">
<B><FONT size="2">MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND</FONT></B>

<DIV align="center">
<B><FONT size="2">RESULTS OF OPERATIONS</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following discussion of our financial
condition and results of operations should be read in
conjunction with the financial statements and the notes to those
statements included elsewhere in this prospectus. This
discussion may contain forward-looking statements that involve
risks and uncertainties. As a result of many factors, such as
those set forth under &#147;Risk Factors&#148; and elsewhere in
this prospectus, our actual results may differ materially from
those anticipated in these forward-looking statements.
</FONT>

<P align="left">
<B><FONT size="2">Background</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Since we began our operations in January 2000, we
have devoted substantially all of our resources to the discovery
and development of pharmaceutical products for the treatment of
bacterial infections. We have not generated any revenues from
product sales. We currently have three pulsatile drugs in Phase
I/ II clinical trials, five pulsatile drugs or drug combinations
in late stage preclinical development and are exploring
pulsatile formulations for a range of other antibiotics and
antibiotic combinations. We have also developed a non-pulsatile,
generic formulation of Biaxin XL.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Revenues. </FONT></I><FONT size="2">We have
not generated any operating revenues since our inception. Any
revenues that we may receive in the near future are expected to
consist primarily of license fees, milestone payments and
research reimbursement payments to be received from
collaborative partners. If our development efforts result in
clinical success, regulatory approval and successful
commercialization of our products, we could generate revenues
from sales of our products and from receipt of royalties on
sales of licensed products. We received a payment of
$5&nbsp;million from GlaxoSmithKline upon signing of our license
agreement in July 2003, which will be deferred and recognized as
revenue throughout the estimated development period of the
contract. Remaining milestone payments under this agreement will
be recognized as revenue in accordance with our revenue
recognition policies set forth in Note&nbsp;2 to the financial
statements included elsewhere in this document.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Research and Development Expenses.
</FONT></I><FONT size="2">We expect our research and development
expenses to increase as we continue to develop our product
candidates. These expenses consist primarily of salaries and
related expenses for personnel, fees paid to professional
service providers in conjunction with independently monitoring
our clinical trials and acquiring and evaluating data in
conjunction with our clinical trials, costs of contract
manufacturing services, costs of materials used in clinical
trials and research and development, depreciation of capital
resources used to develop our products, costs of facilities and
the legal costs of pursuing patent protection of our
intellectual property. We expense research and development costs
as incurred. We believe that significant investment in product
development is a competitive necessity and plan to continue
these investments in order to be in a position to realize the
potential of our product candidates and proprietary
technologies. From inception through June&nbsp;30, 2003, we
spent an aggregate of $22.8&nbsp;million, including stock-based
compensation expenses of $750,000, on research and development.
We expect to incur licensing costs in the future that could be
substantial, as we increase our efforts to license existing
product candidates.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">General and Administrative Expenses.
</FONT></I><FONT size="2">General and administrative expenses
consist primarily of salaries and other related costs for
personnel serving executive, finance, accounting, information
technology and human resource functions. Other costs include
facility costs not otherwise included in research and
development expense and professional fees for legal and
accounting services. We expect that our general and
administrative expenses will increase as we add personnel and
become subject to the reporting obligations applicable to public
companies. Our general and administrative expenses have
increased as a result of our expansion into a new facility in
June 2003. From inception through June&nbsp;30, 2003, we spent
an aggregate of $7.9&nbsp;million, including stock-based
compensation expenses of $235,000, on general and administrative
expenses.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Stock-Based Compensation.
</FONT></I><FONT size="2">We have recorded deferred stock-based
compensation expense in connection with the grant of stock
options to employees. Deferred stock-based compensation for
options granted to employees is the difference between the fair
value for financial reporting purposes of our common stock on
</FONT>

<P align="center"><FONT size="2">23
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">the date such options were granted and their
exercise price. We recorded stock-based compensation of $155,000
and $520,000 during 2002 and the six month period ending
June&nbsp;30, 2003, respectively, for options granted to
consultants in accordance with Statement of Financial Accounting
Standards No.&nbsp;123 based on the fair value of the equity
instruments issued. Stock-based compensation for options granted
to consultants is periodically remeasured as the underlying
options vest in accordance with Emerging Issues Task Force Issue
No.&nbsp;96-18.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We recorded deferred stock-based compensation and
additional paid in capital of approximately $133,000 and
$5.2&nbsp;million in the year ended December&nbsp;31, 2002 and
the six month period ending June&nbsp;30, 2003, respectively,
related to stock options granted to employees. These amounts
were recorded as a component of stockholders&#146; deficit and
are being amortized as charges to operations over the vesting
periods of the options. We recorded amortization of deferred
stock-based compensation of approximately $30,000 and $280,000
for the year ended December&nbsp;31, 2002 and the six month
period ending June&nbsp;30, 2003, respectively. For options
granted to employees through June&nbsp;30, 2003, we expect to
record additional amortization of deferred stock-based
compensation as follows: $1.3&nbsp;million during the remainder
of 2003, $2.0&nbsp;million in 2004, $1.0&nbsp;million in 2005,
$0.5&nbsp;million in 2006 and $0.2&nbsp;million in 2007.
Stock-based compensation related to options awarded to employees
and consultants is assigned to all operating expense categories
in the statements of operations. We may record additional
deferred stock-based compensation if we grant additional options
prior to our initial public offering.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Beneficial Conversion Feature.
</FONT></I><FONT size="2">In March 2003, we issued
$5&nbsp;million of convertible notes to certain existing
investors. The notes and accrued interest were converted into
2,263,272 shares of Series&nbsp;E Convertible Preferred Stock in
July 2003, at a price of $2.25 per share. As a result, we will
record a beneficial conversion charge in the form of deemed
interest of approximately $1.7&nbsp;million during the second
half of 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In July 2003, we completed the sale of 9,292,284
shares of Series&nbsp;E Convertible Preferred Stock for $2.25
per share. As a result, we will record a beneficial conversion
charge in the form of deemed dividends of approximately of
$20.9&nbsp;million during the second half of 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Interest Income (Expense) and Other Expense.
</FONT></I><FONT size="2">Interest income consists of interest
earned on our cash, cash equivalents and short-term investments.
Interest expense consists of interest incurred on equipment debt
and convertible notes.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have a limited history of operations. We
anticipate that our quarterly results of operations will
fluctuate for the foreseeable future due to several factors,
including payments made or received pursuant to licensing or
collaboration agreements, progress of our research and
development efforts, and the timing and outcome of regulatory
approvals. Our limited operating history makes predictions of
future operations difficult or impossible. Since our inception,
we have incurred significant losses. As of June&nbsp;30, 2003,
we had an accumulated deficit of approximately
$30.6&nbsp;million. We anticipate incurring additional losses,
which may increase, for the foreseeable future.
</FONT>

<P align="left">
<B><FONT size="2">Results of Operations</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Six Months Ended June&nbsp;30, 2003
    Compared to Six Months Ended June&nbsp;30, 2002</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Revenues.</FONT></I><FONT size="2"> We did not
record any revenues during the six months ended June&nbsp;30,
2002 or 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Research and Development
Expenses.</FONT></I><FONT size="2"> Research and development
expenses increased by $877,000, or 19%, to $5.5&nbsp;million for
the six months ended June&nbsp;30, 2003 compared to
$4.7&nbsp;million for the six months ended June&nbsp;30, 2002.
Research and development expense consists of salaries and
related costs of research and development personnel, and the
costs of consultants, materials and supplies associated with
research and development projects, as well as clinical studies.
The increase was primarily attributable to higher personnel and
related costs from one period to the other, partially offset by
lower expenditures during 2003 for clinical studies. $608,000 of
the increase was also attributable to stock-based compensation
expense for research and
</FONT>

<P align="center"><FONT size="2">24
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">development personnel. During the remainder of
2003, and thereafter, research and development expense will
increase substantially as we increase the number of products for
which we conduct clinical trials.
</FONT>
</DIV>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="68%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six Months Ended June&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Research and Development Expenses</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Personnel, benefits and related costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,369,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,025,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Consultants, supplies, materials, other direct
    costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,485,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,268,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Clinical studies
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">807,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">245,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,661,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,538,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">General and Administrative
Expenses.</FONT></I><FONT size="2"> General and administrative
expenses increased $330,000, or 22%, to $1.8&nbsp;million in the
six months ended June&nbsp;30, 2003 from $1.5&nbsp;million in
the six months ended June&nbsp;30, 2002. General and
administrative expenses consist of salaries and related costs
for executive and other administrative personnel. This increase
is primarily due to higher compensation and benefits expenses
related to new hires, legal expenses resulting from product
out-licensing negotiations, consulting fees for business
development activities and stock-based compensation expense of
$192,000 in 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Net Interest Income
(Expense).</FONT></I><FONT size="2"> Net interest expense in the
six months ended June&nbsp;30, 2003 was $98,000 compared to net
interest income of $84,000 in the six months ended June&nbsp;30,
2002. The increase in net interest expense was attributable to
lower average cash balances and lower interest earned on cash in
2003, partially offset by lower interest expense due to the
amounts of interest capitalized related to leasehold
improvements to our new facility in 2003 as compared to 2002.
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="68%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six Months Ended June&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">245,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(161,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(133,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">84,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(98,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Fiscal Year Ended December&nbsp;31, 2002
    Compared to Fiscal Year Ended December&nbsp;31,
    2001</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Revenues.</FONT></I><FONT size="2"> We did not
record any revenues during the fiscal years ended
December&nbsp;31, 2002 or 2001.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Research and Development
Expenses.</FONT></I><FONT size="2"> Research and development
expenses increased $5.6&nbsp;million, or 106%, to
$10.9&nbsp;million for the fiscal year ended December&nbsp;31,
2002 from $5.3&nbsp;million for the fiscal year ended
December&nbsp;31, 2001. Research and development expenses
consist of salaries and related costs of research and
development personnel, and the costs of consultants, materials
and supplies associated with research and development projects
as well as clinical studies. The increase was primarily
attributable to higher personnel and related costs and the
activities associated with accelerated research and development
activities related to our lead product candidates. Four of our
lead product candidates were in Phase&nbsp;I clinical trials in
2002. Research and development expenses for the fiscal year
ended December&nbsp;31, 2002 included $142,000 of stock-based
compensation expense.
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="70%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Research&nbsp;and Development Expenses</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Personnel, benefits and related costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,625,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,518,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Consultants, supplies, materials, other direct
    costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,167,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,921,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Clinical studies
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">503,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,416,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,295,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,855,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">General and Administrative
Expenses.</FONT></I><FONT size="2"> General and administrative
expenses increased $1.3&nbsp;million, or 65%, to
$3.3&nbsp;million for the fiscal year ended December&nbsp;31,
2002 from $2.0&nbsp;million for the fiscal year ended
December&nbsp;31, 2001. General and administrative expenses
consist of salaries and related costs for executive
</FONT>

<P align="center"><FONT size="2">25
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">and other administrative personnel. The increase
was primarily due to higher compensation and benefits expenses
related to new hires. General and administrative expenses
included $43,000 of stock-based compensation expense.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Net Interest Income (Expense) and Other
Expense.</FONT></I><FONT size="2"> Net interest income and other
expense was $54,000 for the fiscal year ended December&nbsp;31,
2002 compared to net interest income of $70,000 for the fiscal
year ended December&nbsp;31, 2001. The increase in interest
income was attributable to higher average cash balances for the
fiscal year ended December&nbsp;31, 2002, partially offset by an
increase in interest expense attributable to an increase in our
equipment term loan obligations and other expense of $48,000
consisting of bank commitment fees related to a cancelled debt
financing.
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="69%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">184,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">338,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(114,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(236,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(48,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Fiscal Year Ended December&nbsp;31, 2001
    Compared to Fiscal Year Ended December&nbsp;31,
    2000</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Revenues.</FONT></I><FONT size="2"> We did not
record any revenues in either of the fiscal years ended
December&nbsp;31, 2001 or 2000.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Research and Development
Expenses.</FONT></I><FONT size="2"> Research and development
expenses increased $4.2&nbsp;million, or 367.3%, to
$5.3&nbsp;million for the fiscal year ended December&nbsp;31,
2001 from $1.1&nbsp;million for the fiscal year ended
December&nbsp;31, 2000. Research and development expenses
consist of salaries and related costs of research and
development personnel, and the costs of consultants, materials
and supplies associated with research and development projects
as well as clinical studies. The increase was primarily
attributable to an increase in personnel, the initiation of
clinical studies and related costs in 2001 and the activities
associated with accelerated research and development programs
related to our lead product candidates.
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="69%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Research and Development Expenses</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Personnel, benefits and related costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">598,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,625,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Consultants, supplies, materials, other direct
    costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">535,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,167,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Clinical studies
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">503,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,133,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,295,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">General and Administrative
Expenses.</FONT></I><FONT size="2"> General and administrative
expenses increased $1.2&nbsp;million, or 160.5%, to
$2.0&nbsp;million for the fiscal year ended December&nbsp;31,
2001 from $752,000 for the fiscal year ended December&nbsp;31,
2000. General and administrative expenses consist of salaries
and related costs for executive and other administrative
personnel. This increase was primarily due to higher
compensation and benefits expenses related to new hires,
facilities and related overhead costs.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Net Interest Income
(Expense).</FONT></I><FONT size="2"> Net interest income was
$70,000 for the fiscal year ended December&nbsp;31, 2001
compared to net interest income of $67,000 for the fiscal year
ended December&nbsp;31, 2000. The increase in interest income
for the fiscal year ended December&nbsp;31, 2001 was
attributable to higher average cash
</FONT>

<P align="center"><FONT size="2">26
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">balances in 2001, partially offset by interest
expense of $114,000 attributable to our credit facilities. We
did not have any debt obligations requiring interest charges for
the fiscal year ended December&nbsp;31, 2000.
</FONT>
</DIV>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="71%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">184,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(114,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">Liquidity and Capital Resources</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have funded our operations principally with
the proceeds of $54.5 million from a series of five preferred
stock offerings over the period 2000 through 2003 as follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="44%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">No. of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Price Per</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount (In</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Issue</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Share</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Millions)</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred Stock, Series&nbsp;A
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred Stock, Series&nbsp;B
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred Stock, Series&nbsp;C
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,010,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred Stock, Series&nbsp;D
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2001 and 2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,999,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred Stock, Series&nbsp;E
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,555,556</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,565,555</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each share of preferred stock is convertible into
one share of our common stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with convertible notes and
Series&nbsp;E Convertible Preferred Stock issued in 2003, we
will record a beneficial conversion charge of approximately
$22,600,000 of deemed interest and dividends in the second half
of 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are a party to four credit facilities for an
aggregate amount of $6.8&nbsp;million as of July&nbsp;31, 2003
used to finance the purchase of equipment. Our facilities dated
as of January 2001 and February 2002 have implicit interest
rates of between 8.35% and 11.62%. Our facility dated as of
March 2002 has an interest rate of floating 30-Day LIBOR plus
250 basis points or fixed costs of funds plus 250&nbsp;basis
points. Our facility dated as of July 2003 has an interest rate
of floating 30-Day LIBOR plus 280&nbsp;basis points or fixed
cost of funds plus 280&nbsp;basis points. As of July&nbsp;31,
2003, $1,299,511 is outstanding under all of these facilities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At June&nbsp;30, 2003, cash and cash equivalents
were $245,000 compared to $5.5&nbsp;million at December&nbsp;31,
2002. Our cash and cash equivalents are highly liquid
investments with a maturity of three months or less at date of
purchase and consist of time deposits and investments in money
market funds with commercial banks and financial institutions
and high-quality corporate bonds rated AAA to A1+/P1. Also, we
maintain cash balances with financial institutions in excess of
insured limits. We do not anticipate any losses with respect to
such cash balances.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Net cash used in operations was $3.4&nbsp;million
and $5.6&nbsp;million for the six months ended June&nbsp;30,
2003 and 2002, respectively. The net loss for the six months
ended June&nbsp;30, 2003 of $7.5&nbsp;million was partially
offset by non-cash charges for depreciation and amortization of
$275,000 and stock-based compensation of $800,000. Net cash used
in investing activities during the first half of 2003 was
$5.1&nbsp;million and consisted of facility leasehold
improvement payments of $4.8&nbsp;million and deposits for
property and equipment of $1.1&nbsp;million, partially offset by
$830,000 in landlord concessions. Net cash from financing
activities for the six months ended June&nbsp;30, 2003 was
$4.7&nbsp;million which consists primarily of proceeds from
convertible notes of $5.0&nbsp;million, offset by payments of
equipment debt financing obligations of approximately $306,000.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cash used in operations was $12.8&nbsp;million
and $6.4&nbsp;million for the years ended December&nbsp;31, 2002
and 2001, respectively. The net loss for 2002 of
$14.1&nbsp;million was partially offset by non-cash charges for
</FONT>

<P align="center"><FONT size="2">27
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">depreciation and amortization of $503,000 and
stock-based compensation of $185,000. Net cash received from
investing activities for the fiscal year ended December&nbsp;31,
2002 was $3.0&nbsp;million and consisted of the sale of
short-term investment obligations of $6.2&nbsp;million, offset
by restricted cash transfers of $1.4&nbsp;million, equipment
purchases of approximately $1.4&nbsp;million and deposits for
property and equipment of $283,000. Net cash from financing
activities for 2002 was $3.6&nbsp;million, which consisted
primarily of proceeds from the issuance of mandatorily
redeemable convertible series D preferred stock of
$3.0&nbsp;million and net proceeds from lines of credit related
to equipment financing of approximately $641,000.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table summarizes our contractual
obligations at June&nbsp;30, 2003 and the effects such
obligations are expected to have on our liquidity and cash flows
in future periods.
</FONT>

<P align="center">
<B><FONT size="2">Payments Due by Period</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="39%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July to</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">After</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Contractual Obligations</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2005</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2006</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2007</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2008</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2008</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="31"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="31" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Short and long-term debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,425</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">324</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">585</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">297</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">186</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating lease obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,670</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">497</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">895</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">993</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,015</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,045</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,076</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,149</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payments for leasehold improvements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,187</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,187</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total contractual cash obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,282</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,008</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,480</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,290</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,201</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,078</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,076</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,149</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to spend approximately
$13.0&nbsp;million for capital expenditures in 2003, of which
$7.5&nbsp;million will be for leasehold improvements and
$5.5&nbsp;million for equipment. Total leasehold improvements,
net of landlord allowances, will be approximately
$7.5&nbsp;million for our new corporate, research and
development facility. As of June&nbsp;30, 2003, obligations of
approximately $2.2&nbsp;million remain outstanding under this
project. Capital equipment requirements of $5.5&nbsp;million
will be utilized for the initial fit-out of our new corporate,
research and development facility. Funding for the equipment
will be primarily from our $5.5&nbsp;million line of credit
established in July 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Excluded from the above table of commitments at
June&nbsp;30, 2003 are convertible notes dated as of
March&nbsp;28, 2003 pursuant to which we borrowed
$5.0&nbsp;million from HealthCare Ventures VI, L.P. and five
other investors. On July&nbsp;2, 2003, the investors converted
their notes plus accrued interest into shares of our
Series&nbsp;E Convertible Preferred Stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect to incur losses from operations for the
foreseeable future. We expect to incur increasing research and
development expenses, including expenses related to additions to
personnel and clinical trials. We expect that our general and
administrative expenses will increase in the future as we expand
our business development, legal and accounting staff, add
infrastructure and incur additional costs related to being a
public company, including directors&#146; and officers&#146;
insurance, investor relations programs and increased
professional fees. Our future capital requirements will depend
on a number of factors, including the continued progress of our
research and development of product candidates, the timing and
outcome of regulatory approvals, payments received or made under
collaborative agreements, the costs involved in preparing,
filing, prosecuting, maintaining, defending and enforcing patent
claims and other intellectual property rights, the acquisition
of licenses to new products or compounds, the status of
competitive products, the availability of financing and our or
our partners&#146; success in developing markets for our product
candidates. We believe our existing cash and cash equivalents,
together with the net proceeds of the Series&nbsp;E Preferred
Stock and this offering, will be sufficient to fund our
operating expenses, debt repayments and capital equipment
requirements for at least the next two years. Without the
proceeds from this offering, we believe that our existing cash
and cash equivalents will be sufficient to fund our operating
expenses, debt repayments and capital expenditures for at least
the next twelve months.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Except for the equipment credit lines described
above, we have no credit facility or other committed sources of
capital. To the extent our capital resources are insufficient to
meet future capital requirements, we will need to raise
additional capital or incur indebtedness to fund our operations.
We cannot assure you that
</FONT>

<P align="center"><FONT size="2">28
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">additional debt or equity financing will be
available on acceptable terms, if at all. If adequate funds are
not available, we may be required to delay, reduce the scope of
or eliminate our research and development programs, reduce our
commercialization efforts or obtain funds through arrangements
with collaborative partners or others that may require us to
relinquish rights to certain product candidates that we might
otherwise seek to develop or commercialize independently. Any
future funding may dilute the ownership of our equity investors.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Quantitative and Qualitative Disclosures about
Market Risk</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our exposure to market risk is currently confined
to our cash and cash equivalents and restricted cash that have
maturities of less than three months. We currently do not hedge
interest rate exposure. We have not used derivative financial
instruments for speculation or trading purposes. Because of the
short-term maturities of our cash and cash equivalents, we do
not believe that an increase in market rates would have any
significant impact on the realized value of our investments, but
may increase the interest expense associated with our debt.
</FONT>

<P align="left">
<B><FONT size="2">Effects of Inflation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our most liquid assets are cash, cash equivalents
and short-term investments. Because of their liquidity, these
assets are not directly affected by inflation. We also believe
that we have intangible assets in the value of our intellectual
property. In accordance with generally accepted accounting
principles, we have not capitalized the value of this
intellectual property on our balance sheet. Due to the nature of
this intellectual property, we believe that these intangible
assets are not affected by inflation. Because we intend to
retain and continue to use our equipment, furniture and fixtures
and leasehold improvements, we believe that the incremental
inflation related to replacement costs of such items will not
materially affect our operations. However, the rate of inflation
affects our expenses, such as those for employee compensation
and contract services, which could increase our level of
expenses and the rate at which we use our resources.
</FONT>

<P align="left">
<B><FONT size="2">Recent Accounting Pronouncements</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In July 2002, the FASB issued SFAS No.&nbsp;146,
<I>&#147;Accounting for Costs Associated with Exit or Disposal
Activities&#148;</I> (&#147;SFAS&nbsp;146&#148;). SFAS&nbsp;146
addresses issues regarding the recognition, measurement and
reporting of costs that are associated with exit and disposal
activities, including restructuring activities. The scope of
SFAS&nbsp;146 includes costs to terminate contracts that are not
capital leases, costs to consolidate facilities or relocate
employees and termination benefits provided to employees who are
involuntarily terminated under terms of a one-time benefit
arrangement that is not an ongoing benefit arrangement or an
individual compensation contract. The provisions of the
Statement are effective for exit or disposal activities
initiated after December&nbsp;31, 2002. We anticipate that the
adoption of SFAS&nbsp;146 will not have an impact on our
financial position, results of operations or cash flows as of
June&nbsp;30, 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 2002, the FASB issued SFAS
No.&nbsp;148, <I>&#147;Accounting for Stock-Based
Compensation&nbsp;&#151; Transition and Disclosure&#148;</I>
(&#147;SFAS&nbsp;148&#148;). SFAS&nbsp;148 amends SFAS&nbsp;123,
<I>&#147;Accounting for Stock-Based Compensation,&#148;</I> to
provide alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based
employee compensation. In addition, this Statement amends the
disclosure requirements of SFAS&nbsp;123 to require prominent
disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee
compensation and the effect of the method used on reported
results. The alternative methods of transition and additional
disclosure requirements and the new interim disclosure
provisions are effective for fiscal years ending after
December&nbsp;15, 2002 and for the first interim period
beginning after December&nbsp;15, 2002, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In April 2003, the FASB issued SFAS No.&nbsp;149
<I>&#147;Amendment of Statement&nbsp;133 on Derivative
Instruments and Hedging Activities&#148; </I>(&#147;SFAS
149&#148;). SFAS 149 amends and clarifies financial accounting
and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities under
SFAS No.&nbsp;133, <I>&#147;Accounting for Derivative
Instruments and Hedging Activities.&#148;</I> SFAS 149 is
effective for contracts entered into or modified after
</FONT>

<P align="center"><FONT size="2">29
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">June&nbsp;30, 2003, and for hedging relationships
designated after June&nbsp;30, 2003, except that the provisions
of SFAS 149 that relate to SFAS No.&nbsp;133 implementation
issues that have been effective for fiscal quarters that began
prior to June&nbsp;15, 2003 should continue to be applied in
accordance with their respective effective dates. We are
reviewing the provisions of SFAS&nbsp;149 and do not anticipate
that the adoption will have a material impact on our financial
condition or results of operations.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In May 2003, the FASB issued SFAS No.&nbsp;150
<I>&#147;Accounting For Certain Financial Instruments with
Characteristics of both Liabilities and Equity&#148;</I>
(&#147;SFAS&nbsp;150&#148;). SFAS&nbsp;150 establishes standards
for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity.
It requires that an issuer classify a financial instrument that
is within its scope as a liability (or an asset in some
circumstances). SFAS&nbsp;150 is effective for financial
instruments entered into or modified after May&nbsp;31, 2003,
and otherwise is effective at the beginning of the first interim
period beginning after June&nbsp;15, 2003, except for
mandatorily redeemable financial instruments of nonpublic
entities. We do not anticipate that the adoption of
SFAS&nbsp;150 will have a material impact on our financial
condition or results of operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In November 2002, the FASB issued Interpretation
No.&nbsp;45<I>, &#147;Guarantor&#146;s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others&#148;</I> (&#147;FIN&nbsp;45&#148;).
FIN&nbsp;45 elaborates on the existing disclosure requirements
for most guarantees, and clarifies that at the time a company
issues a guarantee, the company must recognize an initial
liability for the fair value of the obligation it assumes under
that guarantee and must disclose that information in its interim
and annual financial statements. The initial recognition and
measurement provisions apply on a prospective basis to
guarantees issued or modified after December&nbsp;31, 2002. In
accordance with FIN&nbsp;45, we are required to disclose the
nature and potential future payments under existing guarantees
as of December&nbsp;31, 2002. We had no guarantees within the
scope of FIN 45 as of December&nbsp;31, 2002 and June&nbsp;30,
2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In January 2003, the FASB issued FIN No.&nbsp;46,
<I>&#147;Consolidation of Variable Interest Entities, an
interpretation of Accounting Research Bulletin
No.&nbsp;51&#148;</I> (&#147;FIN&nbsp;46&#148;). FIN&nbsp;46
requires certain variable interest entities to be consolidated
by the primary beneficiary of the entity if the equity investors
in the entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional
subordinated financial support from other parties. FIN&nbsp;46
is effective for all variable interest entities created or
acquired after January&nbsp;31, 2003. For variable interest
entities created or acquired prior to February&nbsp;1, 2003, the
consolidation provisions of FIN&nbsp;46 must be applied for the
first interim or annual period beginning after June&nbsp;15,
2003. We have not entered into any contractual relationships
with a variable interest entity as of December&nbsp;31, 2002 and
June&nbsp;30, 2003.
</FONT>

<P align="left">
<B><FONT size="2">Critical Accounting Policies and
Estimates</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our discussion and analysis of our financial
condition and results of operations are based on our financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of
assets, liabilities and expenses. On an ongoing basis, we
evaluate our estimates and judgments, including those related to
accrued expenses, fair valuation of stock related to stock-based
compensation and income taxes. We based our estimates on
historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We believe the following critical accounting
policies affect our more significant judgments and estimates
used in the preparation of our financial statements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Revenue Recognition.
</FONT></I><FONT size="2">We will use the milestone payment
method of revenue recognition when all milestones in respect of
payments to be received under contractual arrangements are
determined to be substantive, at-risk and the culmination of an
earnings process. Substantive milestones are payments that are
conditioned upon events requiring substantive effort, when the
amounts of the milestones are reasonable relative to the time,
effort and risk involved in achieving them and when the
milestones are reasonable
</FONT>

<P align="center"><FONT size="2">30
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">relative to each other and the amount of any
up-front payment. If these criteria are not met the timing of
the recognition of revenue from the milestone payment may vary.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Accrued Expenses. </FONT></I><FONT size="2">As
part of the process of preparing financial statements we are
required to estimate accrued expenses. This process involves
identifying services that have been performed on our behalf and
estimating the level of service performed and the associated
cost incurred for such service as of each balance sheet date in
our financial statements. Examples of estimated accrued expenses
include professional service fees, such as lawyers and
accountants, contract service fees, such as amounts paid to
clinical monitors, data management organizations and
investigators in conjunction with clinical trials, and fees paid
to contract manufacturers in conjunction with the production of
clinical materials. In connection with such service fees, our
estimates are most affected by our understanding of the status
and timing of services provided relative to the actual levels of
services incurred by such service providers. The majority of our
service providers invoice us monthly in arrears for services
performed. In the event that we do not identify certain costs
that have begun to be incurred or we under- or over-estimate the
level of services performed or the costs of such services, our
reported expenses for such period would be too low or too high.
The date on which certain services commence, the level of
services performed on or before a given date and the cost of
such services are often judgmental. We make these judgments
based upon the facts and circumstances known to us in accordance
with generally accepted accounting principles.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Stock-Based Compensation.
</FONT></I><FONT size="2">We have elected to follow APB Opinion
No.&nbsp;25, Accounting for Stock Issued to Employees, and
related interpretations, in accounting for our stock-based
compensation plans, rather than the alternative fair value
accounting method provided for under SFAS No.&nbsp;123,
Accounting for Stock-Based Compensation. In the notes to our
financial statements we provide pro forma disclosures in
accordance with SFAS No.&nbsp;123 and related pronouncements. We
account for transactions in which services are received in
exchange for equity instruments based on the fair value of such
services received from non-employees or of the equity
instruments issued, whichever is more reliably measured, in
accordance with SFAS No.&nbsp;123 and EITF Issue No.&nbsp;96-18,
Accounting for Equity Instruments that Are Issued to Other than
Employees for Acquiring, or in Conjunction with Selling, Goods
or Services. The two factors which most effect charges or
credits to operations related to stock-based compensation are
the fair value of the common stock underlying stock options for
which stock-based compensation is recorded and the volatility of
such fair value. If our estimates of the fair value of these
equity instruments are too high or too low, it would have the
effect of overstating or understating expenses. Because shares
of our common stock have not been publicly traded, market
factors historically considered in valuing stock and stock
option grants include comparative values of public companies
discounted for the risk and limited liquidity provided for in
the shares we are issuing, pricing of private sales of our
convertible preferred stock and the effect of events that have
occurred between the time of such grants, economic trends,
perspective provided by investment banks and the comparative
rights and preferences of the security being granted compared to
the rights and preferences of our other outstanding equity.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Income Taxes.</FONT></I><FONT size="2"> As
part of the process of preparing our financial statements we are
required to estimate our income taxes in each of the
jurisdictions in which we operate. We account for income taxes
by the liability method. Under this method, deferred income
taxes are recognized for tax consequences in future years of
differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end, based on
enacted laws and statutory tax rates applicable to the periods
in which the differences are expected to affect taxable income.
Valuation allowances are provided if, based upon the weight of
available evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have not recorded any tax provision or benefit
for the years ended December&nbsp;31, 2001 and 2002. We have
provided a valuation allowance for the full amount of our net
deferred tax assets since realization of any future benefit from
deductible temporary differences and net operating loss carry
forwards cannot be sufficiently assured at December&nbsp;31,
2001 and 2002. At December&nbsp;31, 2001 and 2002, we had
federal net operating loss carryforwards of approximately
$3.3&nbsp;million and $16.1&nbsp;million, respectively,
available to reduce future taxable income, which will begin to
expire in 2020. Under the provisions of the Internal Revenue
Code, certain substantial changes in our ownership may result in
a limitation on the amount of net operating loss carryforwards
that can be used in future years.
</FONT>

<P align="center"><FONT size="2">31
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "BUSINESS" -->

<P align="center">
<B><FONT size="2">BUSINESS</FONT></B>

<P align="left">
<B><FONT size="2">Overview</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are a pharmaceutical company focused on
developing and commercializing pulsatile drug products that
fulfill substantial unmet medical needs in the treatment of
infectious disease. We are developing a broad portfolio of drugs
based on our novel biological finding that bacteria exposed to
antibiotics in front-loaded, sequential bursts, or pulses, are
killed more efficiently and effectively than those exposed to
standard antibiotic treatment regimens. Based on this finding,
we have developed a proprietary, once-a-day pulsatile delivery
technology called PULSYS. We have focused initially on
developing more effective, pulsatile formulations of approved
and marketed drugs that no longer have patent protection or that
have patents expiring in the next three years. We intend to
commercialize our products through third party collaborations
and with an internal marketing and sales force. We recently
entered into a collaboration agreement with GlaxoSmithKline for
the development, manufacture and sale of a pulsatile version of
its antibiotic Augmentin, which had U.S.&nbsp;sales of over
$1.5&nbsp;billion in 2002.
</FONT>

<P align="left">
<B><FONT size="2">Advancis Highlights</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Focus on significant unmet needs in the
growing antibiotic market.</FONT></I><FONT size="2"> The large
market for antibiotics is expected to continue to grow in light
of the aging of the United States population, the increased use
of therapies that compromise the immune system such as cancer
chemotherapy and the growing prevalence of immune related
diseases such as AIDS. In addition, the increased incidence of
antibiotic resistant bacteria has limited the effectiveness of
many currently available antibiotics. Despite the substantial
and growing antibiotic market, there has been little progress in
addressing the limitations of currently available antibiotics,
such as increased incidence of resistant bacteria and
inconvenient multiple daily dosage requirements and lengthy
treatments, which reduce patient compliance. Many large
pharmaceutical companies have reduced discovery and development
efforts in this sector and others have stopped developing
antibiotic products. We believe that the unmet needs and
apparent lack of emphasis by many large pharmaceutical companies
create substantial opportunities in this market.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Broadly applicable approach with multiple
advantages.</FONT></I><FONT size="2"> We believe our pulsatile
drugs have multiple therapeutic advantages over currently
available antibiotics, including improved efficacy, reduced
incidence of resistance, fewer side effects, once daily dosing,
shorter treatment periods and increased bioavailability (or
ability to be absorbed by the body). Although our studies of
pulsatile drugs have been limited to antibiotics, we believe
that pulsatile dosing may offer therapeutic advantages in the
areas of antivirals, antifungals and oncology.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Anticipated reduced development risk, cost and
time frame.</FONT></I><FONT size="2"> We intend to reduce
development risk and expense and decrease time to market for our
drug candidates by focusing on developing improved versions of
approved and marketed drugs, either delivered alone or in
combination with other drugs. Since these existing drugs have
already been proven to be safe and effective, we anticipate
being able to rely, in part, on prior regulatory approvals and
existing safety and efficacy data in seeking FDA approval of our
pulsatile drugs. We expect that our ability to rely on these
prior approvals and existing data will significantly reduce the
costs associated with generating our own pre-clinical and
clinical data and accelerate our drug development process.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Pipeline of product candidates in clinical and
pre-clinical trials.</FONT></I><FONT size="2"> We currently have
three pulsatile drugs in Phase I/II clinical trials, five
pulsatile drugs or drug combinations in late stage preclinical
development and are exploring pulsatile formulations for a range
of other antibiotics and antibiotic combinations. We are also
developing a non-pulsatile, generic formulation of Biaxin XL,
the patent covering the active pharmaceutical ingredient for
which expires in 2005. We intend to use any cash flow generated
by this product to accelerate development of our pulsatile drug
candidates.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Multiple PULSYS commercialization
strategies.</FONT></I><FONT size="2"> We anticipate
collaborating with other large pharmaceutical companies, in
addition to GlaxoSmithKline, to apply our technology to develop
pulsatile versions of widely distributed antibiotics, such as
those prescribed by general practitioners, as well as
combinations of
</FONT>

<P align="center"><FONT size="2">32
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">such products. These collaborations will allow us
to enter large markets more quickly with the greater financial
and marketing resources of our partners. We also intend to
develop proprietary antibiotic combination products and will
seek to in-license or acquire antibiotic products that we
believe can be improved with our PULSYS technology. Our internal
product development and drug acquisition activities are focused
on drugs that we can sell to concentrated groups of
pharmaceutical prescribers, such as hospital-based physicians
and specialists. This concentration will allow us to
commercialize our proprietary pulsatile drugs with a relatively
small internal sales force. These strategies provide us with a
broad range of opportunities to achieve commercial success.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Multi-level patent
strategy.</FONT></I><FONT size="2"> We have implemented a
multi-level patent strategy in order to protect our pulsatile
drugs. The first level is comprised of &#147;umbrella&#148;
patents and patent applications to protect the pulsatile
delivery of general classes of drugs, such as antibiotics and
antivirals. The second level is comprised of
&#147;sub-umbrella&#148; patents and patent applications,
protecting the pulsatile delivery of subclasses of drugs, such
as beta-lactam antibiotics with enzyme inhibitors. The third
level includes filing patent applications for specific pulsatile
drugs. We intend to continue to use and enhance this strategy in
order to protect our intellectual property. We currently own
three issued U.S.&nbsp;patents, six allowed U.S.&nbsp;patents,
over 20 U.S.&nbsp;patent applications and four international
patent applications.
</FONT>

<P align="left">
<B><FONT size="2">Market Opportunity</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Infectious diseases are caused by pathogens such
as bacteria, viruses and fungi that enter the body through the
skin or mucous membranes of the lungs, nasal passages and
gastrointestinal tract, and overwhelm the body&#146;s immune
system. These pathogens establish themselves in various tissues
and organs throughout the body and cause a number of serious
and, in some cases, lethal infections.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We believe that the antibiotic market presents a
highly attractive opportunity for the following reasons:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Substantial market.</FONT></I><FONT size="2">
Antibiotics, along with antiviral medications and antifungal
medications, constitute the primary categories of the
anti-infective market. According to sales data compiled by IMS
Health, an independent pharmaceutical industry research firm,
worldwide anti-infective sales were approximately
$44.7&nbsp;billion in 2002, including $20.3&nbsp;billion in
North America. Antibiotics accounted for approximately
$27.2&nbsp;billion of such 2002 worldwide sales, including more
than $10&nbsp;billion in North America.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Increased resistance to existing
therapies.</FONT></I><FONT size="2"> Certain medical practices
and sociological factors have led to increased bacterial
resistance to many currently available antibiotics. Bacterial
resistance has been fostered through the erroneous prescription
of anti-infective drugs for non-bacterial infections and
unconfirmed infections and the administration of broad spectrum
antibiotics before the specific disease-causing pathogen has
been identified. In addition, the lack of patient compliance
with prescribed course of therapies has contributed to bacterial
resistance to currently marketed compounds. For example, it is
estimated that penicillin is ineffective against one-third of
all <I>Streptococcus pneumoniae</I>, a type of bacteria that can
cause pneumonia, meningitis and ear infections. The increased
prevalence of resistant bacteria has resulted in prolonged
hospitalizations, increased healthcare costs and higher
mortality rates.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Growing need for improved new
drugs.</FONT></I><FONT size="2"> Social and demographic factors
are contributing to the growth in the antibiotic market and the
need for new, more effective therapies. The aging population of
the United States is more likely to have suppressed immune
systems and will require drugs that are effective against
increasingly resistant strains of bacteria. Patients diagnosed
with diseases that target the immune system, such as AIDS,
increasingly require therapies that are more effective to combat
infection. In addition, the pharmaceutical industry continues to
develop therapeutics, such as cancer chemotherapy, that weaken
the immune system as a side effect of the primary therapy. As a
result, there is a strong demand for new treatments that are
more potent, more effective against resistant strains and that
cause fewer side effects.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Difficulties in developing new classes of
anti-infective compounds. </FONT></I><FONT size="2">We believe
that the growing problem of resistance and other limitations of
currently available antibiotics are not being adequately
addressed. Moreover, many of the large pharmaceutical companies
have reduced research and development efforts in this
</FONT>

<P align="center"><FONT size="2">33
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">sector and others have stopped producing
anti-infective products, possibly because of the difficulties
involved in developing new antibiotic compounds.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Reduced development risk and
costs.</FONT></I><FONT size="2"> <I>In vitro </I>and early <I>in
vivo </I>testing of anti-infective drugs has been shown to be
more predictive of human clinical results than testing in other
therapeutic categories. Accordingly, there is reduced
development risk and cost associated with the production of
anti-infective products.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Limitations of standard treatment regimens.
</FONT></I><FONT size="2">In addition to the increased incidence
of antibiotic resistant bacteria, we believe that standard
antibiotic treatment regimens have several other limitations,
including multiple daily dosage requirements, lengthy treatment
periods, limited effectiveness and severe side effects, all of
which decrease patient compliance and ultimately, therapeutic
efficacy.
</FONT>

<P align="left">
<B><FONT size="2">Our Solution</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Our Novel Discovery</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The significant unmet needs in the anti-infective
market prompted our founders to search for a more efficient
method to attack bacteria. We found that, as a result of the
relatively short natural life cycle of bacteria, antibiotics are
more effective in killing bacteria when released in three to
five pulses that each occur within the first six to eight hours
following initial dosing. To exploit this finding, we have
developed a proprietary, once-a-day delivery technology called
PULSYS that enables rapid, pulsatile delivery of antibiotics and
improved bioavailability, or ability to be absorbed by the body.
We believe that our novel finding, as implemented through our
PULSYS technology, will result in the following therapeutic
advantages:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Improved bactericidal activity, or bacteria
    killing efficiency;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Once daily dosing and shorter length of treatment
    resulting in increased patient convenience and compliance;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Lower overall drug dose with reduced side effect
    profile; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Decreased emergence of antibiotic resistant
    bacteria.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Biological Foundation for Our
    Approach</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our approach to improving antibiotic
effectiveness represents a departure from traditional methods,
which were focused on increasing drug dosages and searching for
new classes of drugs. Our pulsatile dosing approach attempts to
increase antibiotic effectiveness by better addressing the
growth cycle and natural defense mechanisms of bacteria. Studies
have shown that antibiotics are generally more effective against
bacteria that are actively growing. Following the administration
of a dose of immediate release antibiotics, surviving bacteria
generally react by entering into a dormant state during which
the bacteria are more difficult to kill. Our preclinical studies
show that our pulsatile approach is more effective because the
gradually increasing staggered releases of drugs do not appear
to trigger the natural defense mechanisms in bacteria that cause
the bacteria to enter into a dormant state. As a result, the
active bacteria may be acted upon and killed more easily by the
antibiotic agent. By keeping the bacteria in an active,
non-defensive state, we may be able to increase antibiotic
effectiveness without increasing overall dosages.
</FONT>

<P align="center"><FONT size="2">34
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The graph below illustrates drug concentration in
a patient&#146;s bloodstream over a 24-hour period comparing
drugs administered through our PULSYS system with standard twice
daily dosing. The standard dosing regimen reflects the
administration of an immediate release tablet at the start of a
day, followed by an additional immediate release tablet
12&nbsp;hours later. The PULSYS profile reflects the
administration of a single dose designed to release the drug in
four front-loaded pulses, with no additional doses administered
for the balance of the day.
</FONT>

<P align="center">
<IMG src="w88581w8858101.gif" alt="(DOSING GRAPH)">

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Preclinical Results</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have evaluated the effectiveness of
antibiotics administered in front-loaded, sequential pulses in
both laboratory and animal studies. Our preliminary findings
indicate that the pulsatile dosing of certain antibiotics not
only eliminates more bacteria and may lower the development of
antibiotic-resistant bacteria strains, but that it is able to do
so at significantly lower drug concentrations and with shorter
courses of therapy than those required under currently available
treatments. For example, our preclinical studies with
amoxicillin have shown that:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Amoxicillin when administered once daily using
    our PULSYS system eliminated more intermediate-resistant
    <I>Strep. pneumoniae </I>than amoxicillin administered in a
    standard twice daily dosing regimen;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Strep. pneumoniae</FONT></I><FONT size="2">
    becomes more resistant after three or four days of two or three
    times a day dosing of amoxicillin, but does not become resistant
    after once daily dosing with our PULSYS system over the same
    time period; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Amoxicillin delivered through our PULSYS system
    eliminates <I>Strep. pneumoniae </I>at levels below the lowest
    concentration believed to inhibit the growth of the bacteria, or
    its minimum inhibitory concentration.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">PULSYS&nbsp;&#151; Our Enabling
Technology</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In order to develop drugs based on our novel
biological finding, we created a proprietary, once-a-day drug
delivery technology called PULSYS that enables gradually
increasing staggered doses of antibiotics. The PULSYS dosage
form consists of a tablet that contains multiple pellets with
varying release profiles that are combined in a proportion to
produce optimum medication levels during the first few hours
after dosing. We anticipate that our pulsatile drugs will each
provide for once-a-day dosing. PULSYS utilizes commonly used
inactive ingredients and common manufacturing processes. We are
also exploring the administration of pulsatile drugs in forms
other than tablets.
</FONT>

<P align="center"><FONT size="2">35
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">PULSYS drugs are designed using MAPS, our
proprietary enabling design regimen, which we created to
evaluate and develop new pulsatile drug candidates. MAPS
combines computer simulations with microbiology and other
laboratory experiments to analyze the physical, chemical,
biological and microbiological properties of each specific
antibiotic in order to optimize selection and design of
pulsatile drug candidates. This analysis includes an evaluation
of the solubility, permeability, stability and metabolism
profiles of antibiotics as a function of position in the
gastro-intestinal tract. We attempt to optimize overall
antibiotic bioavailability by adjusting the timing and
composition of pulses. By examining the bioavailability of
antibiotics prior to the selection of PULSYS candidates, we
believe that we will increase the likelihood of successful
product development.
</FONT>

<P align="left">
<B><FONT size="2">Our Strategy</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to use our novel finding and related
proprietary technology to develop and commercialize more
efficient, effective and convenient pharmaceutical products,
with an initial focus on antibiotics. To achieve this objective,
we have adopted the following product development and
commercialization strategies:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Commercialize products with multiple
advantages.</FONT></I><FONT size="2"> We intend to develop
pulsatile drugs that have multiple therapeutic advantages over
currently available antibiotics, including improved efficacy,
reduced incidence of resistance, fewer side effects, once daily
dosing, shorter treatment periods and increased bioavailability.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Focus initially on existing
antibiotics.</FONT></I><FONT size="2"> We intend to reduce
development risk and expense and decrease time to market for our
drug candidates by focusing on improved versions of approved and
marketed drugs, either delivered alone or in combination with
other drugs. The additional benefits of developing improved
formulations of existing and approved antibiotics include
reasonable and predictable production costs and higher
probability of market acceptance due to the use of well-known
antibiotics.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, since these existing products have
already been proven to be safe and effective, we anticipate
being able to rely on existing approvals and existing safety and
efficacy data, which would allow us to reduce the amount of new
data that we will need to generate in order to support FDA
approval of our products.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Pursue third party collaborations for widely
distributed antibiotics.</FONT></I><FONT size="2"> We anticipate
collaborating with other large pharmaceutical companies, in
addition to GlaxoSmithKline, to apply our technology to develop
pulsatile versions of widely distributed antibiotics, such as
those prescribed by general practitioners, as well as
combinations of such products. These collaborations will allow
us to enter large markets more quickly with the greater
financial and marketing resources of our partners. In addition,
we intend to incorporate our technology into products that are
under development and to apply our technology to produce
improved formulations of broad spectrum antibiotics that have
not been successfully commercialized because of problems such as
inconvenient dosing regimens or efficacy concerns.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Develop proprietary antibiotic combination
products.</FONT></I><FONT size="2"> We intend to focus our
initial internal development efforts on pulsatile formulations
of antibiotic combination products that we can sell to
concentrated groups of customers, such as hospital-based
physicians or specialists. This concentration will allow us to
commercialize our pulsatile drugs with a relatively small
internal sales force. Our initial proprietary pulsatile drug
candidate is a fluoroquinolone/metronidazole combination.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Acquire or license antibiotic products.
</FONT></I><FONT size="2">We intend to acquire or license
antibiotic products that we believe can be improved with our
PULSYS technology. We are focused on acquiring drugs and drug
candidates that would be sold in niche markets and that have
been proven to be safe and effective.
</FONT>

<P align="center"><FONT size="2">36
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">
<B><FONT size="2">Our Product Pipeline</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table summarizes the antibiotic
compounds we have in clinical trials and late stage preclinical
development. We expect that these compounds will serve as the
basis for drug products or, with additional clinical
development, drug combination products. Each of our product
candidates is still in the early stage of development. Due to
our on-going research and development efforts, additional or
alternative compounds may be selected to replace or supplement
the compounds described below.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="23%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="18%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="20%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Current</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">PULSYS</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Advancis Product</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Key Indication(s)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Therapy</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Targeted Added Value</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Product Opportunity</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="13" align="center" valign="top">
    <B><FONT size="2">PHASE&nbsp;I/II PULSYS PRODUCT
    CANDIDATES</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amoxicillin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Upper respiratory tract infections (URTI),
    urinary tract infections (UTI)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="bottom"><FONT size="2">10-14&nbsp;days, two or three times daily</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="bottom"><FONT size="2">Once daily, lower dose, shorter duration (5-7&nbsp;days)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Alone and in combination with other drugs
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Clarithromycin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">URTI, acute exacerbation of chronic bronchitis
    (AECB), sinusitis
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="bottom"><FONT size="2">7-14&nbsp;days, twice daily</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="bottom"><FONT size="2">Once daily, lower dose, shorter duration (5-7&nbsp;days)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Alone or in combination with other drugs
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Metronidazole
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Trichomoniasis, amebiasis
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="bottom"><FONT size="2">1-10&nbsp;days, one to three times daily</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">Single dose therapy</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Alone and in combination with other drugs
    </FONT></TD>
</TR>

<TR>
    <TD colspan="13" align="center" valign="top">
    <B><FONT size="2">NON-PULSATILE GENERIC PRODUCT CANDIDATE (ANDA
    to be filed)</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Clarithromycin<BR>
    extended<BR>
    release&nbsp;(1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">URTI, AECB, sinusitis
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="bottom"><FONT size="2">7-14&nbsp;days, once daily</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">N/ A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Alone
    </FONT></TD>
</TR>

<TR>
    <TD colspan="13" align="center" valign="top">
    <B><FONT size="2">PRECLINICAL PRODUCT
    CANDIDATES&nbsp;(2)</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amoxicillin/<BR>
    clavulanate<BR>
    combination
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">AECB, sinusitis
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="bottom"><FONT size="2">10-14&nbsp;days, two or three times daily</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="bottom"><FONT size="2">Once daily, lower dose, shorter duration (5-7&nbsp;days)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">As a combination
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amoxicillin/<BR>
    clarithromycin<BR>
    combination
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">URTI, UTI AECB, sinusitis
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="bottom"><FONT size="2">10-14&nbsp;days, twice daily</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="bottom"><FONT size="2">Once daily, lower dose, broader spectrum, shorter duration (5-7&nbsp;days)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">As a combination
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cefuroxime
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">UTI, skin and skin structure infections
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="bottom"><FONT size="2">7-10&nbsp;days, twice daily</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="bottom"><FONT size="2">Once daily, lower dose, shorter duration (3-5&nbsp;days)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Alone and in combination with other drugs
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Ciprofloxacin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">UTI, intra-abdominal infections
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="bottom"><FONT size="2">3-14&nbsp;days, once or twice daily</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="bottom"><FONT size="2">Once daily, lower dose, shorter duration (1-3&nbsp;days)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Alone and in combination with other drugs
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fluoroquinolone/<BR>
    metronidazole<BR>
    combination
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Intra-abdominal infections post-surgery
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="bottom"><FONT size="2">7-14&nbsp;days, twice daily</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="bottom"><FONT size="2">Once daily, shorter duration (3-5&nbsp;days)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">As a combination
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Non-pulsatile equivalent to Biaxin XL Filmtab
    tablets (clarithromycin extended-release tablets).
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">We are conducting <I>in vivo</I> studies of our
    amoxicillin/ clavulanate product and we are conducting <I>in
    vitro</I> studies of each of our other preclinical products.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For an explanation of the terms Preclinical,
Phase&nbsp;I, Phase&nbsp;II, Phase&nbsp;I/ II, Phase&nbsp;III
and ANDA, please refer to the information under the heading
&#147;Government Regulation&#148; below.
</FONT>

<P align="center"><FONT size="2">37
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our research and development group is actively
engaged in identifying additional candidates for our product
development pipeline, such as cefpodoxime, doxycycline and a
cephalosporin/clarithromycin combination. In identifying our
product opportunities, our research and development group works
directly with our formulation group to examine the practical
aspects of drug development, including manufacturability and
applicable regulatory issues.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to explore the use of our pulsatile
dosing approach beyond antibiotics to other therapeutic
categories, such as antiviral and antifungal therapies and
treatments for cancer. Although we have not tested the
effectiveness of pulsatile dosing for these applications, we
believe that our approach may yield benefits similar to those we
have found for the treatment of bacterial infections.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Pulsatile Product Candidates</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to develop the pulsatile drugs listed
below, incorporating one or more of the following improvements:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Once-a-day formulation;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Lower dose;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Shorter duration of therapy;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Reduced side effect profile;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Combination product with superior efficacy over
    either product alone;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Improved pediatric dosage form; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Geriatric dosage form.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Amoxicillin</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Amoxicillin (marketed by GSK as Amoxil and
marketed by other companies as a generic product) is a
semi-synthetic antibiotic that is effective for the treatment of
a variety of conditions, including ear, nose and throat
infections, urinary tract infections, skin infections and lower
respiratory infections. In 2002, amoxicillin had U.S. sales of
approximately $490&nbsp;million. Amoxicillin is generally
recommended for dosing two or three times daily, for a period of
ten to 14&nbsp;days.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In an <I>in vitro </I>study, a simulation of
standard regimens of amoxicillin (immediate release products
taken twice daily or three-times daily) inhibited growth of
<I>Strep. pneumoniae</I>, but did not have a bactericidal
effect. In the same study, pulsatile dosing significantly
improved the bacterial killing efficiency of amoxicillin against
both sensitive and resistant strains of <I>Strep.
pneumoniae</I>. Our studies also showed that:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Amoxicillin may be enhanced to eliminate more
    intermediate-resistant <I>Strep. pneumoniae </I>with once daily
    dosing through our PULSYS system than with standard dosing
    regimens without altering the overall daily dose;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Strep. pneumoniae
    </FONT></I><FONT size="2">becomes more resistant after three or
    four days of two or three times a day dosing of amoxicillin, but
    does not become resistant after once daily dosing with our
    PULSYS system over the same time period; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Amoxicillin delivered through our PULSYS system
    eliminates <I>Strep. pneumoniae </I>at antibiotic levels that
    would not otherwise be expected to even inhibit bacterial growth.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our initial results from Phase I/ II clinical
trials support our ability to deliver amoxicillin in a pulsatile
manner. We are currently conducting additional Phase I/ II
clinical trials to optimize the dosing profile.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to develop pulsatile amoxicillin
products alone and in combination with other drugs. We
anticipate marketing our amoxicillin products and amoxicillin
combination products through third party collaborations.
</FONT>

<P align="center"><FONT size="2">38
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Clarithromycin</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Clarithromycin (marketed by Abbott Laboratories
as Biaxin and Biaxin&nbsp;XL Filmtab, a once daily treatment) is
a semi-synthetic antibiotic, which is available as tablets and
granules for oral suspension. Clarithromycin is effective for
the treatment of various mild to moderate infections, including
pharyngitis/tonsillitis, sinusitis, chronic bronchitis and
pneumonia. In 2002, clarithromycin had U.S. sales of
approximately $650&nbsp;million, including sales for both Biaxin
and Biaxin&nbsp;XL. Clarithromycin is generally prescribed for
twice daily dosing, for a period of seven to 14&nbsp;days.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In our <I>in vivo </I>(mice)&nbsp;studies, mice
infected with <I>Strep. pneumoniae </I>had a 90% survival rate
when treated with clarithromycin dosed once daily in a pulsatile
manner as compared to a 50% survival rate when treated with
twice daily dosing of immediate release clarithromycin.
Moreover, mice in the pulsatile treatment group achieved maximum
survivability after five days of treatment compared to maximum
survivability after eight days of treatment in the immediate
release group. In the same study, mice infected with <I>H.
influenzae </I>had a 90% survival rate when treated with
clarithromycin dosed in a pulsatile manner as compared to a 10%
survival rate when treated with immediate release clarithromycin.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our initial results from Phase I/II clinical
trials support our ability to deliver clarithromycin in a
pulsatile manner. We are currently conducting additional Phase
I/II clinical trials to optimize the dosing profile.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to develop pulsatile clarithromycin
products alone and in combination with other drugs. We
anticipate marketing our clarithromycin products and
clarithromycin combination products through third party
collaborations.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Metronidazole</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Metronidazole (marketed by Pfizer as Flagyl and
as a generic product by other companies) is a synthetic
antibiotic with antiprotozoal and antibacterial activity.
Metronidazole products are effective for the treatment of a
variety of conditions, including trichomoniasis and amebiasis.
In 2002, metronidazole had U.S. sales of approximately
$75&nbsp;million. Metronidazole is typically dosed twice daily,
for a period of one to ten days.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our <I>in vitro </I>studies indicate that
metronidazole dosed in a pulsatile manner is as effective
against sensitive and highly resistant bacteria as three-times
daily dosing of immediate release metronidazole. We found that
metronidazole quickly killed bacteria <I>in vitro </I>when
administered in a pulsatile fashion. Bacterial colony counts
were reduced to undetectable levels after ten hours and were
maintained at this level for the duration of the 96-hour
experiment against specific sensitive and resistant strains of
bacteria. These data suggest that a more convenient, once-daily
alternative to the standard one to three times daily regimen
could be achieved with PULSYS.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our initial results from Phase I/ II clinical
trials support our ability to deliver metronidazole in a
pulsatile manner. We intend to conduct additional Phase I/ II
clinical trials to optimize the dosing profile.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to develop pulsatile metronidazole
products alone and in combination with other drugs. We
anticipate marketing our metronidazole products and
metronidazole combination products through an internal sales
force.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Amoxicillin/clavulanate combination</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Amoxicillin/clavulanate (marketed by GSK as
Augmentin, and sold by other companies as a generic product) is
an antibacterial combination consisting of the semi-synthetic
antibiotic, amoxicillin, and the beta-lactamase inhibitor,
clavulanate. The combination of amoxicillin and clavulanate is
effective for the treatment of a variety of conditions,
including ear, nose and throat infections, genitourinary tract
infections, skin infections and lower respiratory infections. In
2002, amoxicillin/clavulanate products had U.S. sales of
approximately $1.9&nbsp;billion. Amoxicillin/clavulanate is
generally recommended for administration two or three times
daily, for a period of ten to 14&nbsp;days. We have entered into
a license agreement with GSK for the development of a pulsatile
formulation of the amoxicillin/clavulanate combination.
</FONT>

<P align="center"><FONT size="2">39
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">In vivo
</FONT></I><FONT size="2">(rat)&nbsp;studies indicate that
pulsatile dosing of amoxicillin/clavulanate improves the
efficacy of this combination against resistant bacteria.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our initial results from Phase&nbsp;I/II clinical
trials support our ability to deliver amoxicillin in a pulsatile
manner. We are cooperating with our partner, GSK, as it designs
additional preclinical experiments and additional
Phase&nbsp;I/II clinical trials and develop its
commercialization strategy.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Amoxicillin/clarithromycin
    combination</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Amoxicillin and clarithromycin are each effective
for the treatment of various infections such as the elimination
of <I>H. pylori </I>in gastric ulcer therapy. We intend to
develop a value-added amoxicillin/clarithromycin combination
product which we believe may deliver performance superior to
either drug alone.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our <I>in vitro </I>studies have shown that the
antibacterial efficacy of amoxicillin/clarithromycin was
improved when delivered in a pulsatile manner as compared to a
once-daily, immediate release treatment. We found that the
combination of amoxicillin/clarithromycin when delivered <I>in
vitro </I>in a pulsatile fashion was at least as effective in
killing bacteria, and in some instances, more effective than the
individual antibiotics in eliminating bacteria, even at doses
that were significantly lower than the doses used when
administered individually. These results indicate that the
combination is significantly more effective than either of the
individual antibiotics administered alone.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our initial results from Phase&nbsp;I/II clinical
trials of amoxicillin and clarithromycin support our ability to
deliver each of these antibiotics in a pulsatile manner. We are
currently conducting Phase&nbsp;I/II clinical trials to optimize
the dosing profiles of each of amoxicillin and clarithromycin.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We anticipate marketing this combination product
through third party collaborations.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Cefuroxime</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cefuroxime axetil (marketed by GSK as Ceftin and
by other companies as a generic product) is a semi-synthetic
antibiotic, available as tablets and granules for oral
suspension. Cefuroxime is effective for the treatment of various
mild to moderate infections, including urinary tract infections
and skin/skin structure infections. In 2002, cefuroxime had
U.S.&nbsp;sales of approximately $365&nbsp;million. Cefuroxime
is generally prescribed for twice daily dosing, for a period of
seven to ten days.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In our <I>in vitro </I>studies, cefuroxime
administered once daily in a pulsatile manner demonstrated
initial bactericidal activity against <I>Staphylococcus
aureus</I> and <I>Strep. pneumoniae </I>comparable to
twice-daily, immediate release treatment. In contrast to the
twice-daily treatment regimen that allowed bacteria to re-grow
after the first day of treatment, pulsatile cefuroxime
repeatedly reduced bacterial colonies for two days following the
initial treatment.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to develop a value-added formulation of
cefuroxime or another similar drug in the cephalosporins class
alone and in combination with other drugs, which we would market
through third party collaborations.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Ciprofloxacin</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Ciprofloxacin (marketed by Bayer as Cipro) is a
synthetic broad-spectrum antibiotic, which is available as
tablets and granules for oral suspension. Ciprofloxacin is
effective for the treatment of various mild to moderate
infections, including urinary tract infections, sinusitis and
lower respiratory tract infections. In 2002, ciprofloxacin had
U.S.&nbsp;sales of approximately $1&nbsp;billion. Ciprofloxacin
is typically dosed twice daily, for a period of three to
14&nbsp;days.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our <I>in vitro </I>studies indicate that
ciprofloxacin dosed once daily in a pulsatile manner is as
effective as twice daily dosing of immediate release
ciprofloxacin without altering the overall daily dose. We found
that ciprofloxacin quickly killed bacteria <I>in vitro </I>when
administered in a pulsatile fashion. These data suggest that
</FONT>

<P align="center"><FONT size="2">40
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">a more convenient, once-daily alternative to
twice-daily, immediate release ciprofloxacin could be achieved
with PULSYS.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to develop a pulsatile formulation of
ciprofloxacin primarily for use in combination with other
antibiotic drugs, such as metronidazole, which have also been
developed with the PULSYS system. We anticipate marketing our
ciprofloxacin combination products through an internal sales
force. In the event we produce a pulsatile product candidate
consisting solely of ciprofloxacin, we anticipate marketing such
product through a third party collaboration.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Fluoroquinolone/metronidazole
    combination</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to develop a pulsatile
fluoroquinolone/metronidazole product. We believe that the
combination of fluoroquinolone and metronidazole will prove to
be effective for the treatment of infections caused by a mixture
of anaerobic and aerobic bacteria, such as diabetic foot
infections or post-surgery intra-abdominal infections.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Based on the results of our pulsatile
fluoroquinolone and metronidazole experiments, we believe that a
combination product containing fluoroquinolone and metronidazole
may perform in a fashion superior to either drug alone,
particularly when one or both drugs is delivered in a pulsatile
manner.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our initial results from Phase&nbsp;I/II clinical
trials support our ability to deliver metronidazole in a
pulsatile manner. We intend to conduct additional
Phase&nbsp;I/II clinical trials to optimize the dosing profile
of metronidazole.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We anticipate marketing this combination product
through an internal sales force targeting gastro-intestinal
surgeons.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Generic Product Candidate</FONT></I></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Clarithromycin Extended Release</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As part of our analysis in evaluating a pulsatile
clarithromycin product, we identified an opportunity to
formulate a generic equivalent of Biaxin XL, which we believe we
can commercialize without infringing upon the patents held by
Abbott Laboratories. We filed a patent application covering the
production method of our generic version of this product in
October 2000 and are currently in the final stages of clinical
trials. In 2002, sales of immediate release clarithromycin were
approximately $315&nbsp;million and sales of extended release
clarithromycin were approximately $335&nbsp;million. We intend
to enter into a partnership with a third party for the
manufacture, marketing and distribution of this product and
submit an ANDA in late 2003. Although this product does not
incorporate our pulsatile proprietary drug delivery technology,
we believe that it presents an opportunity to generate cash flow
to accelerate development of our pulsatile drug candidates. We
expect sales of this product to begin within the next two years.
</FONT>

<P align="left">
<B><FONT size="2">Our Collaboration with
GlaxoSmithKline</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In July&nbsp;2003, we entered into a license
agreement with GlaxoSmithKline pursuant to which we licensed
patents and PULSYS technology to GlaxoSmithKline for use with
its Augmentin (amoxicillin/clavulanate combination) products and
with limited other amoxicillin products. Under the agreement,
GlaxoSmithKline will be responsible, at its cost and expense, to
use commercially reasonable efforts for the clinical
development, manufacture and sale of the licensed products. We
received an initial non-refundable, non-creditable payment of
$5&nbsp;million from GlaxoSmithKline upon signing of the
agreement and would be entitled to receive milestone payments
from GlaxoSmithKline not to exceed an aggregate of
$52&nbsp;million if it achieves certain product development
goals, including commencement of clinical trials and the filing
and approval of an NDA with the FDA. In addition, we will
receive royalty payments on the commercial sale of products
developed under the agreement. We may also receive sales
milestone payments of up to $50&nbsp;million if specified annual
sales goals are achieved. GlaxoSmithKline may terminate this
agreement upon relatively short notice. Our receipt of milestone
payments, royalty payments and sales milestone payments under
the agreement will depend on the successful efforts of
GlaxoSmithKline to develop and commercialize the
</FONT>

<P align="center"><FONT size="2">41
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">products covered by the agreement and is subject
to certain conditions and limitations. We cannot assure you that
we will receive any milestone or royalty payments or that our
collaboration with GlaxoSmithKline will result in the approval
and marketing of any drug.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Manufacturing</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We currently rely on third-party contract
manufacturers to produce sufficient quantities of our product
candidates for use in the preclinical studies and clinical
trials that we are conducting. However, we are in the process of
developing the capability to manufacture the necessary supplies
for use in our pre-clinical studies and clinical trials. We
anticipate that our pilot facility will satisfy our drug
production needs through at least Phase&nbsp;II and, in some
cases, through Phase&nbsp;III clinical trials. We believe that
our initial focus on the production of improved formulations of
approved and marketed drugs will reduce the risk and time
involved in the establishment of manufacturing capabilities
because production of these drugs involves well-known, common
manufacturing processes. Until we complete construction of our
manufacturing facility, we must depend on third-party contract
manufacturers for production of our clinical supplies.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to rely on third-party contract
manufacturers to produce sufficient quantities of our drugs for
certain of our Phase&nbsp;III clinical trial supplies. In
addition, since we intend to rely on third parties for large
scale commercialization, we have and will continue to engage
those contract manufacturers who have the capability to
manufacture drug products in bulk quantities for
commercialization.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with our manufacturing activities,
we generate hazardous waste. We are subject to federal and state
regulation regarding the disposal of hazardous and potentially
hazardous waste. We may incur costs to comply with such
regulations now or in the future.
</FONT>

<P align="left">
<B><FONT size="2">Marketing and Sales</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have no sales, marketing or distribution
capabilities. In order to commercialize any of our product
candidates, we must either make arrangements with third parties
to perform these services for us or acquire or develop internal
sales, marketing and distribution capabilities. We intend to
rely on partnerships with larger companies for the sale of
widely distributed antibiotics and for international sales. We
intend to develop an internal sales force to enable us to market
and sell our proprietary combination products in concentrated
markets. We also intend to use such an internal sales force to
market and sell acquired or licensed products improved with
PULSYS.
</FONT>

<P align="left">
<B><FONT size="2">Competition</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The pharmaceutical industry is highly competitive
and characterized by a number of established, large
pharmaceutical companies, as well as smaller emerging companies.
Our main competitors are:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">large pharmaceutical companies, such as GSK,
    Pfizer, Johnson&nbsp;&#38; Johnson, Aventis, Abbott
    Laboratories, AstraZeneca, Bayer, Bristol-Myers Squibb and
    Merck, that may develop new drug compounds that render our drugs
    obsolete or noncompetitive;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">smaller pharmaceutical and biotechnology
    companies and specialty pharmaceutical companies engaged in
    research and development of novel antibiotics, such as Cubist,
    Vicuron, InterMune and King; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">drug delivery companies, such as
    Johnson&nbsp;&#38; Johnson&#146;s Alza division, Biovail and
    SkyePharma, that may develop a dosing regimen that is more
    effective than pulsatile dosing.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, with respect to our generic version
of Biaxin&nbsp;XL we will compete with Abbott Laboratories, the
manufacturer of the branded drug, and other manufacturers of
generic products.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Many of our competitors possess greater
financial, managerial and technical resources and have
established reputations for successfully developing and
marketing drugs, all of which put us at a competitive
disadvantage. We may also face competition for the in-licensing
of products from other companies that may be able to offer
better terms to the licensors. Furthermore, new developments,
including the development of
</FONT>

<P align="center"><FONT size="2">42
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">methods of preventing the incidence of disease,
such as vaccines, occur rapidly in the pharmaceutical industry.
These developments may render our product candidates or
technologies obsolete or noncompetitive.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Patent and Intellectual Property
Protection</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our success depends in part on our ability to
obtain patents, to protect trade secrets, to operate without
infringing upon the proprietary rights of others and to prevent
others from infringing on our proprietary rights. We seek to
protect our proprietary position by, among other methods, filing
U.S. and foreign patent applications related to our proprietary
technology, inventions and improvements that are important to
the development of our business. Further, all of our employees
have executed agreements assigning to us all rights to any
inventions and processes they develop while they are employed by
us.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, we intend to use license agreements
to access external products and technologies, as well as to
convey our own intellectual property to others. We will be able
to protect our proprietary rights from unauthorized use by third
parties only to the extent that our proprietary rights are
covered by valid and enforceable patents or are effectively
maintained as trade secrets. Protection of our intellectual
property rights is subject to a number of risks.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We currently own three issued U.S.&nbsp;patents,
six allowed U.S.&nbsp;patents and over 20&nbsp;U.S.&nbsp;patent
applications. Our issued patents cover certain compositions and
methods using pulsatile dosing. We also own a number of pending
international patent applications corresponding to these
U.S.&nbsp;patents and applications. Our issued U.S.&nbsp;patents
are as follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="35%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="47%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">U.S. Patent No.</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Date Issued</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Subject</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">6,565,882
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">May 20, 2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Antibiotic composition with inhibitor
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">6,544,555
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">April 8, 2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Antibiotic composition
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">6,541,014
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">April 1, 2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Antiviral product, use and formulation thereof
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">Government Regulation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are subject to extensive pre- and post-market
regulation by the FDA, including regulations that govern the
testing, manufacturing, safety, efficacy, labeling, storage,
record keeping, advertising, and promotion of drugs under the
Federal Food, Drug and Cosmetic Act and the Public Health
Services Act, and by comparable agencies in foreign countries.
FDA approval is required before any dosage form of any new drug,
a generic equivalent of a previously approved drug, or a new
combination of previously approved drugs, can be marketed in the
United States. All applications for FDA approval must contain
information relating to pharmaceutical formulation, stability,
manufacturing, processing, packaging, labeling and quality
control.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">New Drug Application Process</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The process required by the FDA before a new drug
may be marketed in the United States generally involves:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">completion of preclinical laboratory and animal
    testing;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">submission of an investigational new drug
    application (IND) which must become effective before the
    commencement of clinical trials;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">performance of adequate and well-controlled human
    clinical trials to establish the safety and efficacy of the
    proposed drug product&#146;s intended use; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">submission to and approval by the FDA of a New
    Drug Application (NDA).
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">PRECLINICAL:&nbsp;Preclinical studies generally
    include laboratory evaluation of product chemistry, formulation
    and stability, as well as animal studies, to assess the safety
    and efficacy of the product. Preclinical trials also provide a
    basis for design of human clinical studies.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">43
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">Human clinical trials are typically conducted in
    three sequential phases which may overlap:
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">PHASE I:&nbsp;During Phase I studies, the drug is
    initially introduced into healthy human subjects and tested for
    safety, dosage tolerance, absorption, metabolism, distribution
    and excretion.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">PHASE&nbsp;II: During Phase&nbsp;II studies, the
    drug is introduced to patients that have the medical condition
    that the drug is intended to treat. Phase&nbsp;II studies are
    intended to identify possible adverse effects and safety risks,
    to determine the efficacy of the product for specific targeted
    diseases and to determine dosage tolerance and optimal dosage.
    Phase&nbsp;II studies may often be combined with Phase&nbsp;I
    studies (referred to as Phase&nbsp;I/II studies) in certain
    instances when safety issues may be less prevalent.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">PHASE&nbsp;III: When Phase&nbsp;II evaluations
    demonstrate that a dosage range of the product is effective and
    has an acceptable safety profile, Phase&nbsp;III trials are
    undertaken to further evaluate dosage, clinical efficacy and to
    further test for safety in an expanded patient population, often
    at geographically dispersed clinical study sites.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The drug sponsor, the FDA or the institutional
review board at each institution at which a clinical trial is
being performed may suspend a clinical trial at any time for
various reasons, including a concern that the subjects are being
exposed to an unacceptable health risk.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The results of product development, preclinical
animal studies and human studies are submitted to the FDA as
part of the NDA. The NDA also must contain extensive
manufacturing information. The FDA may approve or disapprove the
NDA if applicable FDA regulatory criteria are not satisfied or
it may require additional clinical data to continue to evaluate
the NDA.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In our NDA submissions, we intend to rely in part
on prior FDA approvals of the antibiotic ingredients utilized in
our products and on data generated by other parties which help
to demonstrate the safety and effectiveness of those
ingredients. In the case of products that we may develop in
conjunction with sponsors of previously approved products, we
expect that we will have a specific right of reference to the
data contained in the prior applications. In any case in which
we do not have a specific right of reference from the sponsor of
the previously approved product, we anticipate our NDA
submissions would be covered by Section&nbsp;505(b)(2) of the
Federal Food, Drug and Cosmetic Act. The submission or approval
of a NDA covered by Section&nbsp;505(b)(2) can be subject to a
number of limitations. However, we do not believe that these
limitations will apply to any of the products which are the
subject of our current development projects. All data necessary
to satisfy the FDA of the safety and effectiveness of our own
versions of these products will have to be generated by or for
us and submitted to FDA in support of our applications. These
data are expected to include data establishing the safety and
efficacy of the pulsatile dosage and any other differences
between the dosage form and the conditions for use of our
products and the dosage form and conditions for use of the
previously approved products. In the case of antibiotic
ingredients not previously approved to be manufactured and sold
in the combinations that we propose, it will also be necessary
for us to satisfy the FDA&#146;s combination drug policy with
data establishing that each active component contributes to the
effectiveness of the combination. In its review of our NDA
submissions, the FDA will have broad discretion to require us to
generate data on these questions, and it is impossible to
predict the number or nature of the studies that may be required
before the agency will grant an approval. No assurance can be
given that NDAs submitted for our products will receive FDA
approval on a timely basis, if at all.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Because all of the products that we have in
development contain antibiotic ingredients that were submitted
to FDA for approval prior to November&nbsp;20, 1997, we will
not, under current law, be able to submit to FDA patent
information covering those products and therefore, once
approved, the Orange Book listings of the products will not
include any patent information. As a consequence, potential
competitors who submit 505(b)(2) or ANDA applications for
generic versions of our NDA-approved products will not have to
certify to any of our patents that they may infringe or to
provide us notice in the event that they intend to market their
products prior to expiration of those patents. Additionally, if
we bring a patent infringement action against any such
applicants, there will be no automatic 30-month stay of approval
of those potentially infringing products. However, we would be
entitled to pursue traditional patent-law procedures and
remedies, such as preliminary injunctions.
</FONT>

<P align="center"><FONT size="2">44
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under the Prescription Drug User Fee Act (PDUFA)
generally, the submission of NDA applications are subject to
substantial application user fees, currently exceeding $500,000,
and the manufacturer and/or sponsor under an approved NDA are
also subject to annual product and establishment user fees,
currently exceeding $30,000 per product and $200,000 per
establishment. These fees are typically increased annually.
However, because our products in development contain only active
ingredients that have been previously approved in other
applications, we do not believe that we will be subject to any
of these user fees. We could become subject to such fees,
however, if the FDA determines that any of our applications seek
approval of a new &#147;indication for use&#148; beyond those
previously approved for those active ingredients. In addition,
the PDUFA statute has been subject to significant amendments in
connection with its regular reauthorization. There can be no
assurance that, under existing PDUFA provisions or under
amendments thereto, we will continue to be exempt from user fees
in the future.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Abbreviated New Drug Application
    Process</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Drug Price Competition and Patent Term
Restoration Act of 1984, or the Hatch-Waxman Act, established
abbreviated FDA approval procedures for those proprietary drugs
that are no longer protected by patents and which are shown to
be equivalent to previously approved proprietary drugs. Approval
to manufacture these drugs is obtained by filing an abbreviated
new drug application, or an ANDA. An ANDA is a submission that
contains data and information pertaining to the active
pharmaceutical ingredient, drug product formulation,
specifications and stability of the generic drug, as well as
analytical methods, manufacturing process validation data and
quality control procedures. As a substitute for clinical safety
and efficacy data on the product, the applicant is generally
required to provide data from studies in humans establishing
that the ANDA drug formulation is bioequivalent to the
previously approved proprietary drug. In order to obtain an ANDA
approval of a strength or dosage form that differs from the
referenced brand-name drug, an applicant must file and have
granted an ANDA Suitability Petition. A product is not eligible
for ANDA approval if it is not determined by the FDA to be
equivalent to the referenced brand-name drug or if it is
intended for a different use. However, such a product might be
approved under an NDA with supportive data from clinical trials.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">One advantage of the ANDA approval process is
that an ANDA applicant generally can rely upon equivalence data
in lieu of conducting preclinical testing and clinical trials to
demonstrate that a product is safe and effective for its
intended use. We intend to follow this process with respect to
our generic clarithromycin product bioequivalent to Biaxin XL.
We do not believe that our generic clarithromycin product will
infringe any outstanding patent after expiration of the
clarithromycin API patent. Because that product utilizes an
active ingredient first submitted to FDA for approval prior to
November&nbsp;20, 1997, we will not have to submit
certifications with respect to outstanding patents covering the
Biaxin XL product and will not be subject to a potential
30&nbsp;month stay of the approval of our product in the event
that the holder(s) of those patents choose to bring a patent
infringement claim against us. However, traditional patent law
procedures and remedies may be pursued by the patent holders,
including preliminary and permanent injunctions against
marketing of our product and damages for marketing an infringing
product. Therefore, because of the inapplicability of the patent
listing and certification procedures, resolution of potential
patent infringement claims with respect to our product may be
impossible until after we have obtained approval of our ANDA.
This may cause delays in our ability or willingness to market
the product upon ANDA approval and/or may subject us to a risk
of substantial monetary damages in the event that we market the
product prior to the resolution of any infringement claims that
may be made.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">No assurance can be given that any ANDA submitted
for any of our products will receive FDA approval on a timely
basis, if at all, or that the FDA will not require us to submit
NDAs for products that we believe are eligible for ANDA
submission.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Once approved, a product approval may be
withdrawn if compliance with pre-and post-market regulatory
standards are not maintained or if problems are identified at a
later date. In addition, the FDA may require post-marketing
studies to monitor the safety and/or effectiveness of approved
products and may limit further marketing of the product based on
the results of these post-marketing studies. The FDA has broad
post-
</FONT>

<P align="center"><FONT size="2">45
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">market regulatory and enforcement powers,
including the ability to levy fines and civil penalties, suspend
or delay issuance of approvals, seize or recall products, and
withdraw approvals.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Satisfaction of FDA pre-market approval
requirements typically takes several years and the actual time
required may vary substantially based upon the type, complexity
and novelty of the product or disease. Government regulation may
delay or prevent marketing of potential products for a
considerable period of time and impose costly procedures upon a
manufacturer&#146;s activities. Success in early stage clinical
trials does not assure success in later stage clinical trials.
Data obtained from clinical activities is not always conclusive
and may be susceptible to varying interpretations that could
delay, limit or prevent regulatory approval. Even if a product
receives regulatory approval, later discovery of previously
unknown problems with a product may result in restrictions on
the product or even complete withdrawal of the product from the
market.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">FDA also strictly regulates the promotional
claims that may be made about prescription drug products. In
particular, the FDA requires substantiation of any claims of
superiority of one product over another including, in many
cases, requirements that such claims be proven by adequate and
well controlled head-to-head clinical trials. To the extent that
market acceptance of our products may depend on their
superiority over existing therapies, any restriction on our
ability to advertise or otherwise promote claims of superiority,
or requirements to conduct additional expensive clinical trials
to provide proof of such claims, could negatively effect the
sales of our products and/or our costs.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">From time to time, including presently,
legislation is drafted and introduced in Congress that could
significantly change the statutory provisions governing the
approval, manufacturing and marketing of drug products. In
addition, FDA regulations and guidance are often revised or
reinterpreted by the agency in ways that may significantly
affect our business and our products. It is impossible to
predict whether legislative changes will be enacted, or FDA
regulations, guidance or interpretations changed, or what the
impact of such changes, if any, may be.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We and are products are also subject to numerous
federal, state and local laws relating to such matters as safe
working conditions, manufacturing practices, environmental
protection, and disposal of hazardous or potentially hazardous
substances. We may incur substantial costs to comply with such
laws and regulations now or in the future.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Foreign Regulatory Approval</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Outside the United States, our ability to market
our products will also be contingent upon receiving marketing
authorizations from the appropriate regulatory authorities. The
foreign regulatory approval process includes all the risks
associated with FDA approval described above. The requirements
governing conduct of clinical trials and marketing authorization
vary widely from country to country.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under European Union regulatory systems,
marketing authorizations may be submitted either under a
centralized or decentralized procedure. The centralized
procedure provides for the grant of a single marketing
authorization that is valid for all European Union member
states. The decentralized procedure provides for mutual
recognition of national approval decisions. Under this
procedure, the holder of a national marketing authorization may
submit an application to the remaining member states. Within
90&nbsp;days of receiving the application and assessment report,
each member state must decide whether to recognize approval. We
plan to choose the appropriate route of European regulatory
filing in an attempt to accomplish the most rapid regulatory
approvals. However, the chosen regulatory strategy may not
secure regulatory approvals or approvals of the chosen product
indications. In addition, these approvals, if obtained, may take
longer than anticipated.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We cannot assure you that any of our product
candidates will prove to be safe or effective, will receive
regulatory approvals, or will be successfully commercialized.
</FONT>

<P align="center"><FONT size="2">46
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">
<B><FONT size="2">Employees</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of July&nbsp;31, 2003, we had 55 employees, 13
of whom are senior management, 17 are in supervisory positions
and 25 are non-management. Of the 55 employees, 36 perform
scientific and research activities and 17 hold advanced degrees.
</FONT>

<P align="left">
<B><FONT size="2">Facilities</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our principal executive offices are located in an
approximately 62,000 square foot facility in Germantown,
Maryland. We moved into this facility in May 2003 and expect to
complete the transfer of our laboratory function to this
facility by October 2003. The lease for this facility expires in
June 2013. We also have an approximately 8,432 square foot lab
and office facility in Gaithersburg, Maryland, the lease for
which expires in November 2003 and an approximately 5,021 square
foot office facility in Gaithersburg, Maryland, the lease for
which expires in August 2003. We do not intend to renew the
leases for the Gaithersburg facilities.
</FONT>

<P align="left">
<B><FONT size="2">Legal Proceedings</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are not currently a party to any material
legal proceedings.
</FONT>

<P align="center"><FONT size="2">47
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "MANAGEMENT" -->

<P align="center">
<B><FONT size="2">MANAGEMENT</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our executive officers, key employees and
directors are as follows:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="37%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="53%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Age</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Position</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Edward M. Rudnic, Ph.D.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">President, Chief Executive Officer, Director and
    Treasurer
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Steven A. Shallcross
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Senior Vice President, Chief Financial Officer
    and Secretary
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Kevin S. Sly
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Senior Vice President, Business Development and
    Marketing
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Colin E. Rowlings, Ph.D.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">39</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vice President, Pharmaceutical R&#38;D
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Robert Guttendorf, Ph.D.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vice President, Preclinical Research
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sandra E. Wassink
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Senior Director, Pharmaceutical Development
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Beth A. Burnside, Ph.D.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Senior Director, Formulation Development
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">James D. Isbister
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">66</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director, Chairman of the Board
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">James H. Cavanaugh, Ph.D.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">66</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Elizabeth Czerepak
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">R. Gordon Douglas, Jr., M.D.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">69</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Wayne T. Hockmeyer, Ph.D.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">58</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Harold R. Werner
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">55</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Edward M. Rudnic, Ph.D.
</FONT></I><FONT size="2">founded Advancis Pharmaceutical
Corporation and has been our president, chief executive officer,
treasurer and a director since our inception. Dr.&nbsp;Rudnic
has over twenty years of industry experience in the development
and commercialization of a wide range of pharmaceutical
products. From 1997 to 1999, Dr.&nbsp;Rudnic directed the
research and development activities in the U.S. for Shire
Pharmaceuticals. Shire acquired Pharmavene, Inc. in 1997, a
start-up company focused on the design and commercialization of
drug delivery systems, where Dr.&nbsp;Rudnic was senior vice
president for development and technical operations from 1996 to
1997 and vice president, pharmaceutical research and development
from 1991 to 1996. From September 1990 to April 1991, he was an
independent consultant. From 1985 to 1990, he held positions of
increasing responsibility as a director of formulation
development and head of pharmaceutical process development at
Schering-Plough Corporation. Dr.&nbsp;Rudnic was a research
investigator at E.R.&nbsp;Squibb and Sons, developing oral
controlled-release dosage forms and novel drug delivery
concepts, from 1982 to 1985. Dr.&nbsp;Rudnic has a B.S. in
pharmacy, M.S. in pharmaceutics and a Ph.D. in pharmaceutical
sciences from the University of Rhode Island. Dr.&nbsp;Rudnic is
a registered pharmacist. He holds adjunct professorships at the
University of Rhode Island and the University of Maryland.
Dr.&nbsp;Rudnic was elected to our board of directors pursuant
to a stockholders&#146; agreement between us and holders of our
preferred stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Steven A. Shallcross
</FONT></I><FONT size="2">joined us in October 2001 as senior
vice president, chief financial officer and secretary.
Mr.&nbsp;Shallcross has over 17&nbsp;years of senior financial
and operations experience in emerging organizations,
acquisitions and restructurings. Mr.&nbsp;Shallcross was the
vice president of finance and chief financial officer at Bering
Truck Corporation, a truck manufacturer, from August 1997 to
2001. From 1993 to 1997, Mr.&nbsp;Shallcross served as vice
president of operations at Precision Scientific, Inc., a
manufacturer of scientific laboratory equipment. He was the
controller of Precision Scientific from June 1993 to January
1994. Mr.&nbsp;Shallcross received a bachelor&#146;s degree in
accounting from the University of Illinois, and received an
M.B.A from the University of Chicago, Graduate School of
Business. Mr.&nbsp;Shallcross is also a certified public
accountant.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Kevin S. Sly </FONT></I><FONT size="2">joined
us in February 2002 as senior vice president, business
development and marketing. Mr.&nbsp;Sly has over 20&nbsp;years
of experience in the design, development and management of
products, services and businesses incorporating biomedical and
pharmaceutical technologies. From 1995 to 2002, Mr.&nbsp;Sly
established and directed new business development and marketing
efforts for Yamanouchi Pharma Technologies, Inc., a
pharmaceutical drug delivery system company. From 1990 to 1995,
Mr.&nbsp;Sly served as vice president, business development for
another emerging company, ReSeal Pharmaceutical Systems,
directing technological development, business development and
marketing of controlled-delivery systems for
</FONT>

<P align="center"><FONT size="2">48
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">pharmaceuticals, health care and personal care
products. Mr.&nbsp;Sly received a B.A. in biology from Pomona
College in Claremont, California.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Robert J. Guttendorf, Ph.D.
</FONT></I><FONT size="2">joined us as vice president of
preclinical research in September 2002. Dr.&nbsp;Guttendorf has
over 15&nbsp;years of experience in the pharmaceutical industry
applying his pharmacokinetic, pharmacodynamic and drug
metabolism expertise in all phases of drug discovery and
development, and across a broad range of therapeutic areas. From
October 2001 to August 2002, Dr.&nbsp;Guttendorf was scientific
strategy advisor at Pfizer Global R&#38;D in Ann Arbor, Michigan
(formerly Parke-Davis Pharmaceutical Research). Prior to that,
he held various scientific and managerial positions with
increasing responsibilities within Pfizer/ Parke-Davis,
including director of PK/DM discovery and preclinical
development. Dr.&nbsp;Guttendorf received a B.S. in pharmacy
from West Virginia University and is a registered pharmacist. He
received a Ph.D. in pharmaceutical sciences from the University
of Kentucky.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Colin E. Rowlings, Ph.D.
</FONT></I><FONT size="2">joined us in August 2001 as vice
president of pharmaceutical research and development.
Dr.&nbsp;Rowlings has 14&nbsp;years of pharmaceutical industry
experience including 12&nbsp;years in dosage form development of
new chemical entities. Prior to joining us in 2001,
Dr.&nbsp;Rowlings served as group director of pharmaceutical
research and development at the San Diego site of the Pfizer
Global R&#38;D organization (previously Agouron Pharmaceuticals
Inc.). From 1997 to 2001, Dr.&nbsp;Rowlings was director of
pharmaceutical development in Agouron and managed formulation
development, clinical manufacturing, process scale-up, clinical
supply release testing, stability and documentation functions.
Prior to that, Dr.&nbsp;Rowlings worked in formulation
development at Rhone-Poulenc Rorer (now Aventis) and Eli Lilly.
Dr.&nbsp;Rowlings has a bachelor of pharmacy degree from the
University of Queensland, Australia and received a Ph.D. in
pharmaceutics from the University of Iowa.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Sandra E. Wassink
</FONT></I><FONT size="2">joined us as senior director,
pharmaceutical development in May 2000. Ms.&nbsp;Wassink has
over 20&nbsp;years of industry experience in formulation and
development of advanced drug products. From 1992 to 2000,
Ms.&nbsp;Wassink managed the pharmaceutical technology
department at Shire Laboratories, Inc. She was involved in
development, scale up, validation and introduction into
production of oral solid dose products. Prior to that,
Ms.&nbsp;Wassink was involved in formulation development at
Schering-Plough Corporation. Ms.&nbsp;Wassink received a
bachelor&#146;s degree in biology from Florida State University.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Beth A. Burnside, Ph.D.
</FONT></I><FONT size="2">joined us in August 2002 as senior
director, formulation development. From 1993 to 2002,
Dr.&nbsp;Burnside was employed by Shire Laboratories Inc. While
at Shire she held management positions with increasing
responsibilities in the pharmaceutics, pharmaceutical
development and the advanced drug delivery organizations. As
vice president of the advanced drug delivery division,
Dr.&nbsp;Burnside developed the division&#146;s specialized
controlled release and enhanced bioavailability oral delivery
formulation and product strategy. Prior to working at Shire,
Dr.&nbsp;Burnside gained additional experience at Johnson &#38;
Johnson from 1991 to 1992 and at Schering-Plough Research from
1989 to 1991. She received a B.S. in chemistry/ mathematics from
Muhlenberg College in Allentown, Pennsylvania, and an M.S. in
organic chemistry and a Ph.D. in physical-organic chemistry from
Drexel University.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">James D. Isbister
</FONT></I><FONT size="2">has been our chairman of the board of
directors since our inception. Mr.&nbsp;Isbister was a founder
of Pharmavene, Inc. and served as its president and chief
executive officer and as a director from 1990 to 1998. From 1986
until January 1989, Mr.&nbsp;Isbister was senior vice president
of Consolidated HealthCare and served as president of its
subsidiary, Combined Technologies, Inc. Mr.&nbsp;Isbister served
as senior vice president of the National Blue Cross and Blue
Shield Association from 1980 to 1986 and as a consultant to the
Association from January 1989 to January 1990. From 1978 to
1980, Mr.&nbsp;Isbister was the associate director for
management of the U.S.&nbsp;International Communication Agency.
Mr.&nbsp;Isbister served as deputy director of the National
Institute of Mental Health from 1970 to 1974 and as the first
director of the U.S. Alcohol, Drug Abuse, and Mental Health
Administration from 1974 to 1977. Mr.&nbsp;Isbister was elected
to our board of directors pursuant to a stockholders&#146;
agreement between us and holders of our preferred stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">James H. Cavanaugh, Ph.D.
</FONT></I><FONT size="2">has been a director since our
inception. Dr.&nbsp;Cavanaugh has been the president of
HealthCare Ventures LLC since 1988. Dr.&nbsp;Cavanaugh served as
president of SmithKline and French Laboratories U.S., Inc. from
March 1985 to February 1989 and as president of SmithKline
Clinical Laboratories from 1981 to 1985. Prior thereto,
Dr.&nbsp;Cavanaugh was the president of Allergan International, a
</FONT>

<P align="center"><FONT size="2">49
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">specialty eye care company. Prior to his industry
experience, Dr.&nbsp;Cavanaugh was Deputy Assistant to the
President for Domestic Affairs and Deputy Chief of the White
House Staff. Prior thereto, he served as deputy assistant
secretary for health and scientific affairs in the
U.S.&nbsp;Department of Health, Education and Welfare and as
special assistant to the surgeon general of the U.S. Public
Health Service. Dr. Cavanaugh serves as a member of the board of
directors of MedImmune, Inc., Shire Pharmaceuticals Group PLC,
Diversa Corp. and Vicuron Pharmaceuticals (formerly Versicor,
Inc.). Dr.&nbsp;Cavanaugh also currently serves on the board of
directors of the National Venture Capital Association and as
trustee emeritus of the California College of Medicine.
Dr.&nbsp;Cavanaugh holds a Ph.D. and an M.S. from the University
of Iowa and a B.S. from Fairleigh Dickinson University.
Dr.&nbsp;Cavanaugh was elected to serve on our board of
directors pursuant to a stockholders&#146; agreement between us
and holders of our preferred stock.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Elizabeth Czerepak
</FONT></I><FONT size="2">joined our Board of Directors in July
2003. Ms.&nbsp;Czerepak was a founder of Bear Stearns Health
Innoventures and has been a member of Bear Stearns Health
Innoventures Management L.L.C., the general partner of the funds
comprising the Bear Stearns Health Innoventures group since its
inception in April 2001. She is an employee of Bear Stearns
Asset Management Inc., the managing member of Bear Stearns
Health Innoventures Management L.L.C. Prior to joining Bear
Stearns Health Innoventures, Ms.&nbsp;Czerepak was vice
president of business development and a member of the executive
board at BASF Pharma/ Knoll Pharmaceutical Co. From 1987 to
1995, Ms.&nbsp;Czerepak served in various senior positions at
Hoffmann-La Roche, responsible for licensing, acquisitions,
financial analysis and strategic planning. Ms.&nbsp;Czerepak
also established an internal venture vehicle for Hoffmann-La
Roche to facilitate start-up companies. She received a B.A.
magna cum laude from Marshall University and a M.B.A. from
Rutgers University. Ms.&nbsp;Czerepak was elected to serve on
our board of directors pursuant to a stockholders&#146;
agreement between us and holders of our preferred stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">R. Gordon Douglas, Jr., M.D.
</FONT></I><FONT size="2">has been a director since our
inception. Dr.&nbsp;Douglas currently serves as consultant to
the Vaccine Research Center at the National Institute of Health.
Dr.&nbsp;Douglas was president, Merck Vaccines, responsible for
the research, development, manufacturing and marketing of Merck
Vaccines&#146; vaccine products, from 1989 until 1999. From 1982
to 1990, he was a professor of medicine and chairman, department
of medicine, Cornell University Medical College and
physician-in-chief, the New York Hospital. He also served as
head of the infectious disease unit at the University of
Rochester School of Medicine. Dr.&nbsp;Douglas serves on the
board of directors of Vical Incorporated. Dr.&nbsp;Douglas is a
graduate of Princeton University and Cornell University Medical
College. Dr.&nbsp;Douglas was elected to serve on our board of
directors pursuant to a stockholders&#146; agreement between us
and holders of our preferred stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Wayne T. Hockmeyer,
Ph.D.</FONT></I><FONT size="2">, has been a director since our
inception. Dr.&nbsp;Hockmeyer founded MedImmune, Inc. in April
1988 and served as president and chief executive officer from
1988 until October 2000. Dr.&nbsp;Hockmeyer was elected to serve
on the board of directors of MedImmune in May 1988 and became
chairman of the board of directors in May 1993. He currently
continues to serve as the chairman of the board of directors of
MedImmune and serves as president of MedImmune Ventures, Inc.
From 1986 to 1988, Dr.&nbsp;Hockmeyer was vice president of
research and development of Praxis Biologics. From 1980 to 1986,
he was chairman of the Department of Immunology at the Walter
Reed Army Institute of Research. From 1966 to 1986, he served as
a commissioned officer in the United States Army. He is a member
of the board of directors of Diversa Corporation, GenVec, Inc.,
InterMune Pharmaceuticals, Inc., Idenix Pharmaceuticals, Inc.
and TolerRx Inc. Dr.&nbsp;Hockmeyer earned his bachelor&#146;s
degree from Purdue University and his Ph.D. from the University
of Florida in 1972. In 2002, Dr.&nbsp;Hockmeyer was awarded a
doctor of science honoris causa from Purdue University.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Harold R. Werner </FONT></I><FONT size="2">has
been a director since our inception. Mr.&nbsp;Werner has
28&nbsp;years of experience in planning, development and
financing of health care technology. He was a founder of
HealthCare Ventures in 1985. Since that time he has served on
the boards of over thirty public and private companies in the
health care field and has specialized in the formation of new
high-science companies. Prior to the formation of HealthCare
Ventures, Mr.&nbsp;Werner was director of new ventures for
Johnson&nbsp;&#38; Johnson Development Corporation, making
outside investments and licenses for Johnson&nbsp;&#38; Johnson
in biotechnology, pharmaceuticals, vision care, diagnostics and
other high technology areas of health care. Before joining
Johnson&nbsp;&#38; Johnson in 1980, Mr.&nbsp;Werner was senior
vice president of Robert S. First, Inc. and was responsible for
</FONT>

<P align="center"><FONT size="2">50
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">managing its European and, later, U.S. health
care management consulting business. Mr.&nbsp;Werner currently
serves on the board of directors of GenVec, Inc. Mr.&nbsp;Werner
received his B.S. (high honors) and M.S. degrees from Princeton
University and an M.B.A. from the Harvard Graduate School of
Business Administration. Mr.&nbsp;Werner was elected to serve on
our board of directors pursuant to a stockholders&#146;
agreement between us and holders of our preferred stock
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Future Officer Positions</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to hire individuals to serve as
officers in the following positions: head of regulatory affairs,
chief science officer and head of medical management affairs.
</FONT>

<P align="left">
<B><FONT size="2">Scientific Advisory Board</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Floyd E. Bloom, M.D.
</FONT></I><FONT size="2">is chairman of our scientific advisory
board. Dr.&nbsp;Bloom has investigated comprehensive
neurotransmitter systems at the anatomical, physiological and
pharmacological levels. Dr.&nbsp;Bloom has conducted correlative
studies of the noradrenergic innervation of cerebellum and
cerebral cortex. Dr.&nbsp;Bloom was also one of the first
neurobiologists to utilize modern molecular biological
techniques in a search for molecules of importance in brain
function and the characterization of brain specific genes.
Recognizing the value of computers in neuroscience, he pioneered
their application to neuro-anatomic investigations and the
development of a neuro-anatomic database. His work has found
considerable applicability to many enigmatic disorders of the
nervous system, such as the addictive states, the dementias and
the major psychoses. Dr.&nbsp;Bloom is presently chairman of the
Department of Neuropharmacology at The Scripps Research
Institute. He previously was director of Behavioral Neurobiology
at The Salk Institute and Chief of the Laboratory of
Neuropharmacology of NIMH. A member of the National Academy of
Sciences and the Institute of Medicine, he has received numerous
awards, including the Pasarow Award for Neuropsychiatry and the
Herman von Helmholtz Award, as well as a number of honorary
degrees from major universities. In addition, Dr.&nbsp;Bloom was
the editor-in-chief of Science Magazine from May 1995 to June
2000. Dr.&nbsp;Bloom received an A.B. cum laude from Southern
Methodist University and received a M.D. from Washington
University.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">George L. Drusano,
M.D.</FONT></I><FONT size="2"> served as chief resident at the
University of Maryland Hospital and became a tenured professor
in 1992. Dr.&nbsp;Drusano currently serves as director of
clinical pharmacology and associate director of the clinical
research institute at Albany Medical College. He has served on
the program committee of the Interscience Conference on
Antimicrobial Agents and Chemotherapy (ICAAC), and has served as
pharmacology editor for the journal Antimicrobial Agents and
Chemotherapy. Dr.&nbsp;Drusano is a fellow of the Infectious
Diseases Society of America and a fellow of the American Academy
of Microbiology. He is the current president of the
International Society for Anti-infective Pharmacology (ISAP). He
was the recipient of the Rhone-Poulenc Award (1991)&nbsp;for the
most innovative research with fluoroquinolones. He was also the
recipient of the American Society of Health System Pharmacy
Research and Education Foundation Drug Therapy Research Award
for outstanding contribution to the scientific pharmaceutical
literature (1998). He currently reviews for several scientific
journals, including the Journal of the American Medical
Association, the New England Journal of Medicine and the Annals
of Internal Medicine. He is a consultant for over
20&nbsp;companies in the pharmaceutical industry.
Dr.&nbsp;Drusano received a bachelor&#146;s degree in physics
magna cum laude from Boston College. Dr.&nbsp;Drusano received a
M.D., cum laude from the University of Maryland School of
Medicine.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">James W. McGinity,
Ph.D.</FONT></I><FONT size="2"> is the holder of the Johnson and
Johnson Centennial Chair in Pharmacy and is professor and
division head of pharmaceutics in the College of Pharmacy, the
University of Texas at Austin. Prior to joining the University
of Texas in 1976, he was a research scientist at the Squibb
Institute for Medical Research in New Brunswick, N.J.
Dr.&nbsp;McGinity&#146;s research interests and publications are
in the areas of physical pharmacy and pharmaceutical technology.
He has been issued 13&nbsp;U.S.&nbsp;patents and currently has
five patent applications under review with the U.S.&nbsp;patent
office. His research has been published in journals such as
Science, Journal of Pharmaceutical Sciences, Pharmaceutical
Development and Technology, Pharmaceutical Research,
International Journal of Pharmaceutics and the Journal of
Microencapsulation. He has been the U.S.&nbsp;Editor for the
European Journal of Pharmaceutics and Biopharmaceutics since
1995.
</FONT>

<P align="center"><FONT size="2">51
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">Dr.&nbsp;McGinity has been a consultant to the
FDA and many pharmaceutical and chemical companies both in the
U.S.&nbsp;and Europe. He received his B.S. in pharmacy at the
University of Queensland, Australia, and his Ph.D. in physical
pharmacy from the University of Iowa.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Board of Directors</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Currently, the members of our board of directors
are elected pursuant to certain voting provisions of a
stockholders agreement, which provisions will terminate upon
completion of this offering. Our certificate of incorporation
provides for a classified board of directors consisting of three
classes of directors, each serving staggered three-year terms.
As a result, a portion of our board of directors will be elected
each year. To implement the classified structure, prior to the
consummation of the offering, three of the nominees to the board
will be elected to a one year term, three will be elected to two
year terms and three will be elected to three-year terms.
Thereafter, directors will be elected for three-year terms.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our executive officers are appointed by the board
of directors on an annual basis and serve until their successors
have been duly elected and qualified. There are no family
relationships among any of our directors or executive officers.
</FONT>

<P align="left">
<B><FONT size="2">Committees of Our Board</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our bylaws provide that our board of directors
may designate one or more board committees. We have an audit
committee and a compensation committee.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our audit committee is composed of Wayne
Hockmeyer and R.&nbsp;Gordon Douglas and is responsible for the
following functions:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">approve and retain the independent auditors to
    conduct the annual audit of our books and records;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">review the proposed scope and results of the
    audit;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">review and pre-approve the independent
    auditor&#146;s audit and non-audited services rendered;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">approve the audit fees to be paid;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">review accounting and financial controls with the
    independent auditors and our financial and accounting staff;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">review and approve transactions between us and
    our directors, officers and affiliates;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">recognize and prevent prohibited non-audit
    services;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">establish procedures for complaints received by
    us regarding accounting matters; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">oversee internal audit functions.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our compensation committee is composed of Wayne
Hockmeyer, Elizabeth Czerepak and James Cavanaugh and is
responsible for the following functions:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">review and recommend the compensation
    arrangements for management, including the compensation for our
    president and chief executive officer;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">establish and review general compensation
    policies with the objective to attract and retain superior
    talent, to reward individual performance and to achieve our
    financial goals; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">administer our stock incentive plan.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Compensation Committee Interlocks and Insider
Participation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">None of the members of our compensation committee
has at any time been one of our officers or employees. None of
our executive officers serves or in the past has served as a
member of the board of directors or compensation committee of
any entity that has one or more of its executive officers
serving on our board of directors or our compensation committee.
</FONT>

<P align="center"><FONT size="2">52
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">
<B><FONT size="2">Compensation of Directors</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our directors who are also our employees have not
received and will not receive any additional compensation for
their services as our directors. We currently pay our chairman
of the board of directors annual cash compensation of $40,000
and we pay our non-employee directors, other than
Dr.&nbsp;Cavanaugh and Mr.&nbsp;Werner, annual cash compensation
of $24,000. We will also reimburse our non-employee directors
for reasonable expenses incurred to attend meetings of the board
and its committees and business meetings and functions on our
behalf. During the fiscal year ended December&nbsp;31, 2002,
Mr.&nbsp;Isbister received $40,000 as director fees and
Drs.&nbsp;Douglas and Hockmeyer each received $20,000 as
director fees. In addition, our directors are eligible to
participate in our 2000 stock incentive plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As compensation for service on our board of
directors for the fiscal year ended December&nbsp;31, 2002, in
November 2001, Drs.&nbsp;Cavanaugh and Hockmeyer and
Messrs.&nbsp;Isbister and Werner each received an option to
acquire 15,000 shares of our common stock at an exercise price
of $0.3375 per share. As compensation for service on our board
of directors for the year 2003, in June 2003, Drs. Cavanaugh,
Douglas and Hockmeyer and Messrs.&nbsp;Isbister and Werner each
received an option to acquire 30,000&nbsp;shares of our common
stock at an exercise price of $0.3375 per share.
</FONT>

<P align="left">
<B><FONT size="2">Executive Compensation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table contains summary information
concerning annual compensation for the fiscal years ended
December&nbsp;31, 2002, 2001 and 2000 for our chief executive
officer and each of our other three most highly compensated
executive officers whose salary and bonus exceeded $100,000 for
the year ended December&nbsp;31, 2002.
</FONT>

<P align="center">
<B><FONT size="2">Summary Compensation Table</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="39%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Long-Term Compensation</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Annual Compensation</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Underlying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">All Other</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name &#38; Principal Position</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Salary</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Bonus(1)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Option Awards(2)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Compensation</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Edward M. Rudnic
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">255,626</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63,907</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">President, Chief Executive Officer,
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">242,575</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">59,985</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">720,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(3)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Treasurer and Director
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">228,167</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,813</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Steven A. Shallcross
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">183,058</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,765</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Senior Vice President, Chief
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,385</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,497</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">200,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Financial Officer
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Kevin S. Sly
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">157,013</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">89,313</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">180,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">194,557</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(4)</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Senior Vice President, Business
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Development and Marketing
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Colin E. Rowlings
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">169,628</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42,407</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Vice President of Pharmaceutical
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">68,750</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,601</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34, 211</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Research and Development
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Bonus earned is paid in the first quarter of the
    subsequent year. The bonus paid to Mr.&nbsp;Sly in 2002 includes
    a $50,000 signing bonus.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">In June 2003, each of Dr.&nbsp;Rudnic and
    Messrs.&nbsp;Shallcross and Sly received option grants of
    300,000, 150,000 and 170,000&nbsp;shares, respectively, at an
    exercise price of $0.3375 per share.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">In 2001, Dr.&nbsp;Rudnic received an option to
    purchase 180,000&nbsp;shares of common stock at an exercise
    price of $0.2090 per share, and to purchase 540,000&nbsp;shares
    of common stock at an exercise price of $0.2250 per share. Of
    these grants, options covering 120,000&nbsp;shares of common
    stock at an exercise price of $0.2250 per share were transferred
    to a family trust.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes $117,170 for relocation expenses and
    $77,387 for reimbursed taxes.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">53
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">
<B><FONT size="2">Stock Option Grants</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Option Grants in Last Fiscal
    Year</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth information
related to the grant of stock options by us during the year
ended December&nbsp;31, 2002 to the executive officers named in
the summary compensation table.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="29%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">Individual Grants</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent of</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Potential Realizable</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Value at Assumed</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Annual Appreciation</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Securities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Granted to</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Rates of Stock Price for</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Underlying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Employees</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise or</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Option Term</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">in Fiscal</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Base Price</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Expiration</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Granted</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">($/Share)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Date</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">5%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">10%</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Edward M. Rudnic
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Steven A. Shallcross
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Kevin S. Sly
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">180,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.34</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2/12/2012</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Colin E. Rowlings
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.34</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8/13/2012</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Aggregated Option Exercises and Fiscal
    Year-End Option Values</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table contains information
concerning the aggregated option exercises during the fiscal
year ended December&nbsp;31, 2002 and the value of unexercised
options held as of December&nbsp;31, 2002 by the executive
officers named in the summary compensation table:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="27%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Number of Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Value of Unexercised</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Underlying</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">In-the-Money</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Unexercised Options at</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Options at</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31, 2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31, 2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Acquired&nbsp;on</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Value</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Realized</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercisable</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Unexercisable</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercisable</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Unexercisable</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Edward M. Rudnic
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">365,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">235,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Steven A. Shallcross
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">150,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Kevin S. Sly
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">180,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Collin E. Rowlings
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">130,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>

<P align="left">
<B><FONT size="2">Stock Incentive Plan</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In May 2000, we adopted the 2000 stock incentive
plan. At the time of its adoption, 640,000&nbsp;shares of common
stock were available for issuance in connection with awards
granted to employees, directors and consultants under the plan.
In March 2001, October 2001 and February 2002, the number of
shares available for issuance under the plan was increased to
2,090,100, 2,990,100 and 4,000,000, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Options granted under the plan may be incentive
stock options or non-statutory stock options. Stock purchase
rights may also be granted under the plan. Incentive stock
options may only be granted to employees. The board of directors
determines the period over which options become exercisable;
however, except in the case of options granted to officers,
directors and consultants, options will become exercisable at a
rate of not less than 25% per year over four years from the date
the options are granted. The exercise price of incentive stock
options and non-statutory stock options will be no less than
100% of the fair market value per share of our common stock on
the grant date. The term of the options is 10&nbsp;years except,
with respect to one incentive stock option held by one of our
executive officers, the term of which is 5&nbsp;years. As of
December&nbsp;31, 2001 and 2002, there were 843,700 and
1,264,800&nbsp;shares of common stock available for future
option grants, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The holders of options to acquire common stock
under the plan have entered into option grant agreements with
us. The stock restriction agreements that are a condition
precedent to the exercise of options granted under the plan,
together with the option grant agreements, provide us with a
right of first refusal with
</FONT>

<P align="center"><FONT size="2">54
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">respect to the sale of certain exercised option
shares and contain &#147;claw back&#148; provisions in the event
the optionee&#146;s relationship with us is terminated.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2001, in compliance with the plan,
non-statutory stock options granted to employees, directors and
outside consultants were replaced with option grants allowing
the early exercise of 100% of the respective options. The other
terms of the stock option grants were not changed. Shares issued
under non-statutory options exercised prior to vesting are
subject to forfeiture in accordance with the vesting schedule of
the granted stock options.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Certain of our directors, consultants and
employees (and/or immediate family members or related entities
to which certain of those individual have transferred their
options or shares of common stock) have entered into our
standard form of stock restriction agreement as a condition to
their exercise of options to acquire common stock pursuant to
the plan. These agreements provide us with, among other things,
a right of first refusal in connection with the option
holder&#146;s sale of the common stock, as well as the right to
purchase the stockholder&#146;s common stock in the event that
the stockholder&#146;s relationship with us is terminated under
certain circumstances. During 2001 and 2002, certain employees,
directors and outside consultants exercised options to purchase
1,097,250 and 93,000 shares or restricted common stock,
respectively. At December&nbsp;31, 2001 and 2002, 1,032,500 and
908,000, shares of restricted common stock remain unvested,
respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table provides information with
respect to the equity securities that are authorized for
issuance under our compensation plans as of December&nbsp;31,
2002:
</FONT>

<!-- link1 "Equity Compensation Plan Information" -->

<P align="center">
<B><FONT size="2">Equity Compensation Plan Information</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="32%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of Securities</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Remaining Available for</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of Securities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Future Issuance Under</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">to be Issued Upon</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted-average</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Equity Compensation</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise Price of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Plans (Excluding</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Outstanding Options,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Outstanding Options,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Securities Reflected</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Warrants and Rights(a)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Warrants and Rights(b)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">in Column (a)) (c)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity compensation plans approved by security
    holders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,544,950</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,264,800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity compensation plans not approved by
    security holders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,544,950</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,264,800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">401(k) Plan</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">All our full time employees in the United States
over the age of 18 are eligible to participate in our 401(k)
Plan after three months of employment. Subject to certain
limitations imposed by federal tax laws, employees may
contribute up to 15% of their salary (including bonuses and/or
commissions) per year. Our board of directors has discretion to
match contributions made by our employees. To date we have not
made any matching contributions.
</FONT>

<P align="left">
<B><FONT size="2">Employment Agreements</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In January 2000, we entered into an employment
agreement with Dr.&nbsp;Rudnic, our president and chief
executive officer. Under the agreement, Dr.&nbsp;Rudnic will
receive a salary of $310,000 during 2003 and is eligible for
annual increases and performance-based bonuses equal to 25% of
his base salary. At his option, he may receive all or any
portion of his bonus in shares of our common stock at the
then-applicable market value. Dr.&nbsp;Rudnic is entitled to
participate in and receive the benefits we provide to our other
executive officers, including any life, health, accident,
disability, medical, dental and hospitalization plans, and other
perquisites and benefits as are provided to our other executive
officers. The agreement may be terminated by us at any time or
by Dr.&nbsp;Rudnic upon 90&nbsp;days&#146; advance notice. If we
terminate Dr.&nbsp;Rudnic&#146;s employment without cause, he
will receive severance compensation equal to
24&nbsp;months&#146; salary.
</FONT>

<P align="center"><FONT size="2">55
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In February 2002, we entered into an employment
agreement with Mr.&nbsp;Shallcross, our senior vice president
and chief financial officer. Under the agreement,
Mr.&nbsp;Shallcross will receive a salary of $200,000 during
2003 and is eligible for annual increases and performance-based
bonuses equal to 25% of his base salary. Mr.&nbsp;Shallcross is
entitled to participate in and receive the benefits we provide
to our other executive officers, including any life, health,
accident, disability, medical, dental and hospitalization plans,
and other perquisites and benefits as are provided to our other
executive officers. The agreement may be terminated by us at any
time or by Mr.&nbsp;Shallcross upon 90 days&#146; advance
notice. If we terminate Mr.&nbsp;Shallcross&#146; employment
without cause, he will receive severance compensation equal to
24&nbsp;months&#146; salary.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In February 2002, we entered into an employment
agreement with Mr.&nbsp;Sly, our senior vice president, business
development and marketing. Under the agreement, Mr.&nbsp;Sly
will receive a salary of $200,000 during 2003 and is eligible
for annual increases and performance-based bonuses equal to 25%
of his base salary. Mr.&nbsp;Sly is entitled to participate in
and receive the benefits we provide to our other executive
officers, including any life, health, accident, disability,
medical, dental and hospitalization plans, and other perquisites
and benefits as are provided to our other executive officers.
The agreement may be terminated by us at any time or by
Mr.&nbsp;Sly upon 90&nbsp;days&#146; advance notice. If we
terminate Mr.&nbsp;Sly without cause, he will receive severance
compensation equal to 24&nbsp;months&#146; salary.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In February 2002, we entered into an employment
agreement with Dr.&nbsp;Rowlings, our vice president,
pharmaceutical R&#38;D. Under the agreement, Dr.&nbsp;Rowlings
will receive a salary of $185,000 during 2003 and is eligible
for annual increases and performance-based bonuses equal to 25%
of his base salary. Dr.&nbsp;Rowlings is entitled to participate
in and receive the benefits we provide to our other executive
officers, including any life, health, accident, disability,
medical, dental and hospitalization plans, and other perquisites
and benefits as are provided to our other executive officers.
The agreement may be terminated by us at any time or by
Dr.&nbsp;Rowlings upon 90&nbsp;days&#146; advance notice. If we
terminate Dr.&nbsp;Rowlings without cause, he will receive
severance compensation equal to 24&nbsp;months&#146; salary.
</FONT>

<P align="center"><FONT size="2">56
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" -->

<P align="center">
<B><FONT size="2">CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have funded our operations principally with
the proceeds of $54.5&nbsp;million from a series of five
preferred stock offerings over the period 2000 through 2003 as
follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="41%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">No. of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Price Per</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Issue</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Share</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(In millions)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred Stock, Series&nbsp;A
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred Stock, Series&nbsp;B
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred Stock, Series&nbsp;C
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,010,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred Stock, Series&nbsp;D
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2001 and 2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,999,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred Stock, Series&nbsp;E
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,555,556</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,565,555</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each share of outstanding preferred stock
converts into one share of our common stock upon the closing of
this offering.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each of the following investors, which are
holders of in excess of 5% of our common stock (on a pro forma
basis as of July&nbsp;25, 2003), participated in the offer and
sale of the above shares of preferred stock as indicated below:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="23%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="17%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="13%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Purchase</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Aggregate</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Price Per</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percentage</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Investor</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Date of Purchase</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Security (1)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Share</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Purchased</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Investment</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Ownership</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">HealthCare Ventures V, L.P.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">1/7/2000 and<BR>
    6/5/2000
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Series A Preferred
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,741,800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,741,800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">11/13/2000
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Series B Preferred
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">870,900</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,088,625</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">4/24/2001
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Series C Preferred
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">666,666</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">999,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">10/25/2001 and 2/4/2002
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Series D Preferred
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,474,886</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,568,494</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">7/2/2003
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Series E Preferred
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">888,889</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,643,141</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,398,918</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21.9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">HealthCare Ventures VI, L.P.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">11/13/2000
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Series B Preferred
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">783,810</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">979,763</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">4/24/2001
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Series C Preferred
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,588,322</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,882,483</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">10/25/2001 and 2/4/2002
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Series D Preferred
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,883,508</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,737,893</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">7/2/2003
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Series E Preferred
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,869,252</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,455,816</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,124,892</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,055,955</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Bear Stearns Health Innoventures group(2)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">7/25/2003
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Series E Preferred
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,444,444</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,999,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Rho Management Trust,&nbsp;I
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">1/7/2000
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Series A Preferred
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">193,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">193,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">11/13/2000
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Series B Preferred
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">193,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">242,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">4/24/2001
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Series C Preferred
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">371,067</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">556,601</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">10/25/2001 and 2/4/2002
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Series D Preferred
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">757,320</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,703,970</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">7/2/2003
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Series E Preferred
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">421,484</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">948,339</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,937,071</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,644,510</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The shares of Series&nbsp;E Preferred Stock also
    include shares issued to the investors upon conversion of
    promissory notes in the principal amount of $5.0&nbsp;million
    issued under the terms of a note issuance agreement dated
    March&nbsp;28, 2003.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes BX, L.P., Bear Stearns Health
    Innoventures, L.P., Bear Stearns Health Innoventures Offshore,
    L.P., Bear Stearns Health Innoventures Employee Fund, L.P. and
    BSHI Members, L.L.C.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">57
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">James H. Cavanaugh and Harold R. Werner, members
of our board of directors, are general partners of HealthCare
Partners&nbsp;V, L.P., and HealthCare Partners&nbsp;VI, L.P.,
which, are the general partners of HealthCare Ventures&nbsp;V,
L.P. and HealthCare Ventures&nbsp;VI, L.P., respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Elizabeth Czerepak, a member of our board of
directors, is a member of Bear Stearns Health Innoventure
Management, L.L.C., the general partner of the funds comprising
the Bear Stearns Health Innoventures group.
</FONT>

<P align="left">
<B><FONT size="2">Loans to Executive Officer</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In October 2001, we provided loans to
Dr.&nbsp;Rudnic, our president, chief executive officer,
treasurer and a director, and two trusts affiliated with
Dr.&nbsp;Rudnic, that are evidenced by full recourse notes in
the aggregate principal amount of $121,500. The notes bear
interest at a fixed annual interest rate of 5.5%, with the
interest payable annually, and mature in October 2006. The
proceeds from these notes were used to exercise options to
acquire 540,000&nbsp;shares of our common stock. The loans are
secured by 540,000&nbsp;shares of our common stock issued to
Dr.&nbsp;Rudnic and the two trusts, plus any additional shares
acquired by these holders. Following exercise, Dr. Rudnic
transferred by gift a total of 50,000&nbsp;shares of our common
stock to five family members. The shares of common stock remain
pledged to secure the loan to Dr.&nbsp;Rudnic. As of
June&nbsp;30, 2003, the total amount outstanding under the loans
was $126,004, including accrued interest.
</FONT>

<P align="left">
<B><FONT size="2">Consulting Arrangements</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 2002, we entered into a consulting
arrangement with Mr.&nbsp;Isbister, the chairman of our board of
directors, which provides for a payment to Mr.&nbsp;Isbister of
$60,000 per year in exchange for consulting services.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In August 2000, we entered into a consulting
agreement with Jenefir D. Isbister, Ph.D., the spouse of
Mr.&nbsp;Isbister and a professor at George Mason University,
which provides for the payment to Dr.&nbsp;Isbister of $1,500
per day for various strategic consulting services she performs
on our behalf. The original term of the consulting agreement
expired in August 2001, but has since been extended. Unless
renewed, the current consulting agreement will expire in
December 2003. In 2002, we paid an aggregate of $65,100 to
Dr.&nbsp;Isbister under this agreement. We have also granted
options to Dr.&nbsp;Isbister that are exercisable for
80,000&nbsp;shares of our common stock at a weighted average
exercise price of $0.29 per share.
</FONT>

<P align="center"><FONT size="2">58
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "PRINCIPAL STOCKHOLDERS" -->

<P align="center">
<B><FONT size="2">PRINCIPAL STOCKHOLDERS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table shows information regarding
the beneficial ownership of shares of our common stock as of
July&nbsp;25, 2003 for:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">each of our directors;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">each executive officer named in the summary
    compensation table;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">all directors and executive officers as a group;
    and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">each person known to us to be the beneficial
    owner of more than 5% of our outstanding shares of common stock.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Beneficial ownership is determined in accordance
with the rules and regulations of the Securities and Exchange
Commission. In computing the number of shares beneficially owned
by a person and the percentage ownership of that person, shares
of common stock subject to options held by that person that are
currently exercisable or exercisable within 60&nbsp;days of the
date hereof are deemed outstanding. Such shares, however, are
not deemed outstanding for the purposes of computing the
percentage ownership of any other person. Except as indicated in
the footnotes to the following table or pursuant to applicable
community property laws, each stockholder named in the table has
sole voting and investment power with respect to the shares set
forth opposite such stockholder&#146;s name. The percentage of
beneficial ownership is based on 30,285,930&nbsp;shares of
common stock outstanding as of July&nbsp;25, 2003.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="40%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Percentage of Common Stock</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Outstanding</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><B><FONT size="1">Beneficial Owner(1)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Before Offering</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">After Offering(2)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Five Percent Stockholders</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">HealthCare Ventures group(3)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,768,033</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Bear Stearns Health Innoventures group(4)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,444,444</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Rho Management Trust, I(5)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,937,071</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Directors and Executive Officers:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">James H. Cavanaugh, Ph.D.(6)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,845,033</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Harold R. Werner(7)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,845,033</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Elizabeth Czerepak(8)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,444,444</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Edward M. Rudnic, Ph.D.(9)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,780,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">James D. Isbister(10)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">585,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Wayne T. Hockmeyer, Ph.D.(11)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">115,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">R. Gordon Douglas, Jr., M.D.(12)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">92,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Colin E. Rowlings, Ph.D.(13)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">57,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Steven A. Shallcross
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Kevin S. Sly(14)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">All directors and executive officers as a group
    (11&nbsp;persons)(15)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,110,977</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">78.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">*&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">less than 1%
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="3%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Unless otherwise indicated, the address of each
    person is c/o Advancis Pharmaceutical Corporation,
    20425&nbsp;Seneca Meadows Parkway, Germantown, Maryland 20876.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Assumes no shares are purchased in this offering
    by the listed persons.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 6,643,141&nbsp;shares beneficially owned
    by HealthCare Ventures V, L.P. and 10,124,892&nbsp;shares
    beneficially owned by HealthCare Ventures VI, L.P. The address
    for the HealthCare Ventures entities is 44&nbsp;Nassau Street,
    Princeton, New Jersey 08542.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 2,555,921&nbsp;shares beneficially owned
    by BX, L.P., 643,205&nbsp;shares beneficially owned by Bear
    Stearns Health Innoventures, L.P., 529,139&nbsp;shares
    beneficially owned by Bear Stearns Health
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">59
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="3%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    <FONT size="2">Innoventures Offshore, L.P., 417,234&nbsp;shares
    beneficially owned by Bear Stearns Health Innoventures Employee
    Fund, L.P. and 298,945&nbsp;shares held by BSHI Members, L.L.C.
    The address for the Bear Stearns Health Innoventures entities is
    383&nbsp;Madison Avenue, New York, New York 10179.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(5)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The address of Rho Management Trust, I is c/o Rho
    Management Company, Inc., Carnegie Hall Towers, 152&nbsp;W. 57th
    Street, New York, New York 10019.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(6)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Dr.&nbsp;Cavanaugh is a general partner of
    HealthCare Partners&nbsp;V, L.P. and HealthCare
    Partners&nbsp;VI, L.P., which are the general partners of
    HealthCare Ventures&nbsp;V, L.P. and HealthCare
    Ventures&nbsp;VI, L.P., respectively. In such capacity he may be
    deemed to share voting and investment power with respect to
    6,643,141&nbsp;shares beneficially owned by HealthCare Ventures
    V, L.P. and 10,124,892&nbsp;shares beneficially owned by
    HealthCare Ventures VI, L.P., each of which is a venture capital
    investment affiliate of HealthCare Ventures LLC.
    Dr.&nbsp;Cavanaugh disclaims beneficial ownership of the shares
    owned by these funds, except to the extent of his proportionate
    pecuniary interest therein. Dr.&nbsp;Cavanaugh&#146;s
    beneficially owned shares also include 22,250&nbsp;shares of
    restricted stock that remain subject to vesting and
    30,000&nbsp;shares issuable upon exercise of options that are
    exercisable within 60&nbsp;days. The shares issuable upon the
    exercise of such options, depending on the date of exercise, may
    be subject to vesting. Dr.&nbsp;Cavanaugh&#146;s address is c/o
    HealthCare Ventures LLC, 44&nbsp;Nassau Street, Princeton, New
    Jersey 08542.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(7)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Mr.&nbsp;Werner is a general partner of
    HealthCare Partners&nbsp;V, L.P. and HealthCare
    Partners&nbsp;VI, L.P. which are the general partners of
    HealthCare Ventures&nbsp;V, L.P. and HealthCare
    Ventures&nbsp;VI, L.P., respectively. In such capacity he may be
    deemed to share voting and investment power with respect to
    6,643,141&nbsp;shares beneficially owned by HealthCare Ventures
    V, L.P. and 10,124,892&nbsp;shares beneficially owned by
    HealthCare Ventures VI, L.P. Mr.&nbsp;Werner disclaims
    beneficial ownership of the shares owned by these funds, except
    to the extent of his proportionate pecuniary interest therein.
    Mr.&nbsp;Werner&#146;s beneficially owned shares also include
    24,750&nbsp;shares held by the Werner Family Investment Limited
    Partnership, 22,250&nbsp;shares of restricted stock that remain
    subject to vesting and 30,000&nbsp;shares issuable upon exercise
    of options that are exercisable within 60&nbsp;days. The shares
    issuable upon the exercise of options, depending on the date of
    exercise, may be subject to vesting. Mr.&nbsp;Werner&#146;s
    address is c/o&nbsp;HealthCare Ventures LLC, 44&nbsp;Nassau
    Street, Princeton, New Jersey 08542.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(8)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Ms.&nbsp;Czerepak is a member of Bear Stearns
    Health Innoventures Management L.L.C., which serves as the
    general partner of the funds comprising the Bear Stearns Health
    Innoventures group, and is an employee of Bear Stearns Asset
    Management Inc., the managing member of Bear Stearns Health
    Innoventures Management L.L.C. In such capacity, she may be
    deemed to share voting and investment power with respect to the
    4,444,444&nbsp;shares beneficially owned by the Bear Stearns
    Health Innoventures group. Ms.&nbsp;Czerepak disclaims
    beneficial ownership of the shares owned by the funds
    constituting such group except to the extent of her
    proportionate pecuniary interest therein.
    Ms.&nbsp;Czerepak&#146;s address is c/o Bear Stearns Asset
    Management Inc., 583&nbsp;Madison Ave., New York, New York 10179.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(9)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 210,000&nbsp;shares that remain subject
    to vesting and 90,000&nbsp;shares issuable upon exercise of
    options that are exercisable within 60&nbsp;days. Also includes
    160,000&nbsp;shares held by the Elizabeth Ashley Rudnic Special
    Trust, of which 30,000 are shares of restricted stock that
    remain subject to vesting, and 160,000&nbsp;shares held by the
    Megan Valentina Rudnic Special Trust, of which 30,000 are shares
    of restricted stock that remain subject to vesting.
    Dr.&nbsp;Rudnic disclaims beneficial ownership of all shares
    held in the trusts.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(10)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 460,000&nbsp;shares held in trust for
    the benefit of Mr.&nbsp;Isbister, of which 150,000 are shares of
    restricted stock that remain subject to vesting. Also includes
    45,000&nbsp;shares issuable upon exercise of options that are
    exercisable within 60&nbsp;days, of which 41,250 would be shares
    of restricted stock subject to vesting. Also includes
    80,000&nbsp;shares held by Dr.&nbsp;Jenefir D. Isbister, 5,000
    of which are shares of restricted stock that remain subject to
    vesting and 60,000 of which are issuable upon exercise of
    options that are exercisable within 60&nbsp;days. Of
    Dr.&nbsp;Isbister&#146;s shares issuable upon exercise of
    options, 55,000 would be shares of restricted stock subject to
    vesting. Mr.&nbsp;Isbister disclaims beneficial ownership of all
    shares held by Dr.&nbsp;Isbister.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">60
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(11)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 65,000 shares held in trust for the
    benefit of Dr.&nbsp;Hockmeyer&#146;s son, of which 51,250 are
    shares of restricted stock that remain subject to vesting.
    Dr.&nbsp;Hockmeyer disclaims beneficial ownership of all shares
    held in the trust.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(12)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 41,000&nbsp;shares of restricted stock
    that remain subject to vesting.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(13)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 37,500&nbsp;shares issuable upon
    exercise of options that are exercisable within 60&nbsp;days.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(14)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Represents 45,000&nbsp;shares issuable upon
    exercise of options that are exercisable within 60&nbsp;days.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(15)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 16,768,033 shares beneficially owned by
    HealthCare Ventures group that are attributed to
    Dr.&nbsp;Cavanaugh and Mr.&nbsp;Werner. Also includes
    561,750&nbsp;shares of restricted stock that remain subject to
    vesting and 357,500&nbsp;shares issuable upon exercise of
    options that are exercisable within 60&nbsp;days. Of the shares
    issuable upon exercise of options, 156,250 would be shares of
    restricted stock subject to vesting.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">61
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "DESCRIPTION OF CAPITAL STOCK" -->

<P align="center">
<B><FONT size="2">DESCRIPTION OF CAPITAL STOCK</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following description of our capital stock
does not purport to be complete and is subject to, and qualified
in its entirety by, our certificate of incorporation and bylaws,
which we have included as exhibits to the registration statement
of which this prospectus forms a part.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Upon the closing of this offering, our authorized
capital stock will consist of 225&nbsp;million shares of common
stock, par value $0.01&nbsp;per share, and 25&nbsp;million
shares of undesignated preferred stock, par value $0.01&nbsp;per
share. Immediately following the completion of this offering, an
aggregate
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock will be issued and outstanding and no shares of
preferred stock will be issued and outstanding.
</FONT>

<P align="left">
<B><FONT size="2">Common Stock</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of July&nbsp;25, 2003, there were 30,285,930
shares of our common stock outstanding (as adjusted to reflect
the conversion of all shares of our preferred stock upon the
closing of this offering) held of record by
60&nbsp;stockholders. The holders of our common stock are
entitled to one vote per share on any matter to be voted upon by
stockholders. The holders of our common stock are entitled to
dividends as our board of directors may declare from time to
time from legally available funds subject to the preferential
rights of the holders of any shares of our preferred stock that
we may issue in the future.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our certificate of incorporation does not provide
for cumulative voting in connection with the election of
directors. Accordingly, directors will be elected by a plurality
of the shares voting once a quorum is present. No holder of our
common stock will have any preemptive right to subscribe for any
shares of capital stock issued in the future.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Upon any voluntary or involuntary liquidation,
dissolution or winding up of our affairs, the holders of our
common stock are entitled to share, on a pro rata basis, all
assets remaining after payment to creditors and subject to prior
distribution rights of any shares of preferred stock that we may
issue in the future. All of the outstanding shares of common
stock are, and the shares offered by us in this offering will
be, fully paid and non-assessable.
</FONT>

<P align="left">
<B><FONT size="2">Preferred Stock</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of July&nbsp;25, 2003, we had issued and
outstanding 2,000,000 shares of Series&nbsp;A Redeemable
Convertible Preferred Stock, 2,000,000 shares of Series&nbsp;B
Redeemable Convertible Preferred Stock, 4,010,000 shares of
Series&nbsp;C Redeemable Convertible Preferred Stock, 7,999,999
shares of Series&nbsp;D Redeemable Convertible Preferred Stock
and 11,555,556 shares of Series&nbsp;E Redeemable Convertible
Preferred Stock. As of the closing of this offering, none of
such shares of our preferred stock will be outstanding. Under
our amended and restated certificate of incorporation, our board
of directors, without any further action by our stockholders,
will be authorized to issue shares of our undesignated preferred
stock in one or more classes or series. The board may fix the
rights, preferences and privileges of the preferred stock, along
with any limitations or restrictions, including voting rights,
dividend rights, conversion rights, redemption privileges and
liquidation preferences of each class or series of preferred
stock. The preferred stock could have voting or conversion
rights that could adversely affect the voting power or other
rights of holders of our common stock. The issuance of preferred
stock could also have the effect, under certain circumstances,
of delaying, deferring or preventing a change of control of our
company. We currently have no plans to issue any shares of
preferred stock.
</FONT>

<P align="left">
<B><FONT size="2">Registration Rights</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of the closing date of this offering, all
shares of our preferred stock will convert into an aggregate of
27,565,555 shares of our common stock. We have entered into an
agreement with the holders of such stock pursuant to which the
holders are entitled to registration rights with respect to
their shares. The holders of at least 50% of the securities with
registration rights can require us to register all or part of
their shares. Following such demand registration, any such
holder may additionally require us to register its shares with
</FONT>

<P align="center"><FONT size="2">62
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">registration rights, provided that the aggregate
offering price of such registration would exceed $5,000,000. We
are not obligated to file more than two registration statements
under these demand registration provisions if all shares
required to be registered by holders are sold substantially on
the price and terms offered in the registration statements. If
we register any of our common stock either for our own account
or for the account of other security holders, the holders of
these securities are entitled to include their shares of common
stock in that registration, subject to the ability of the
underwriters to limit the number of shares included in the
offering. Further, the holders may require us, no more than
twice annually, to file registration statements of Form&nbsp;S-2
or Form&nbsp;S-3 when we are eligible to use that form. We are
generally responsible for all of the expenses associated with
these registrations, including the reasonable fees and expenses
of counsel acting on behalf of the holders; however we are not
responsible for the costs of underwriters&#146; discounts and
commissions.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Warrants</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with the commencement of a lease
for the our premises in December 2001, we granted to the lessor
a freely exercisable warrant to purchase up to 20,000 shares of
our common stock at an exercise price of $1.25&nbsp;per share.
The expiration date of the warrant is December&nbsp;1, 2010.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In January 2001, we entered into a $1,500,000
line of credit facility to finance the purchase of specified
equipment. In connection with the line of credit, we issued to
the lender&#146;s assignee warrants to purchase such number of
shares of our common stock equal to 4% of the amount of funds
drawn by us divided by a per share exercise price of $1.25. As
of June&nbsp;30, 2003, based on actual draw downs, we have
issued warrants to purchase 42,151 shares of common stock to the
lender&#146;s assignee.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In February 2002, we entered into a $2,000,000
line of credit to finance the purchase of specified equipment
based on lender approved equipment schedules. In connection with
the line of credit, we agreed to issue the lender warrants to
purchase such number of shares of our common stock equal to 2%
of the funds drawn by us divided by a per share exercise price
of $2.25. As of June&nbsp;30, 2003, based on actual drawdowns,
we have issued warrants to purchase 4,691 shares of common stock.
</FONT>

<P align="left">
<B><FONT size="2">Anti-Takeover Effects of Certain Provisions of
Delaware Law and Our Certificate of Incorporation
and&nbsp;Bylaws</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Effect of Delaware Anti-takeover Statute.
</FONT></I><FONT size="2">We are subject to Section&nbsp;203 of
the Delaware General Corporation Law. In general,
Section&nbsp;203 prohibits a Delaware corporation from engaging
in any business combination with any interested stockholder for
a period of three years following the date that the stockholder
became an interested stockholder, unless:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">prior to that date, the board of directors of the
    corporation approved either the business combination or the
    transaction that resulted in the stockholder becoming an
    interested stockholder;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">upon consummation of the transaction that
    resulted in the stockholder becoming an interested stockholder,
    the interested stockholder owned at least 85% of the voting
    stock of the corporation outstanding at the time the transaction
    commenced, excluding for purposes of determining the number of
    shares outstanding those shares owned by persons who are
    directors and also officers and by excluding employee stock
    plans in which employee participants do not have the right to
    determine confidentially whether shares held subject to the plan
    will be tendered in a tender or exchange offer; or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">on or subsequent to that date, the business
    combination is approved by the board of directors of the
    corporation and authorized at an annual or special meeting of
    stockholders, and not by written consent, by the affirmative
    vote of at least 66&nbsp;2/3% of the outstanding voting stock
    that is not owned by the interested stockholder.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">63
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">
<FONT size="2">Section&nbsp;203 defines &#147;business
combination&#148; to include the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">any merger or consolidation involving the
    corporation and the interested stockholder;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">any sale, transfer, pledge or other disposition
    of 10% or more of the assets of the corporation involving the
    interested stockholder;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">subject to certain exceptions, any transaction
    that results in the issuance or transfer by the corporation of
    any stock of the corporation to the interested stockholder;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">any transaction involving the corporation that
    has the effect of increasing the proportionate share of the
    stock of any class or series of the corporation beneficially
    owned by the interested stockholder; or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the receipt by the interested stockholder of the
    benefit of any loans, advances, guarantees, pledges or other
    financial benefits provided by or through the corporation.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In general, Section&nbsp;203 defines an
interested stockholder as any entity or person beneficially
owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or
controlling or controlled by any of these entities or persons.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Certificate of Incorporation and Bylaw
Provisions. </FONT></I><FONT size="2">Our certificate of
incorporation and bylaws include provisions that may have the
effect of discouraging, delaying or preventing a change in
control or an unsolicited acquisition proposal that a
stockholder might consider favorable, including a proposal that
might result in the payment of a premium over the market price
for the shares held by stockholders. These provisions are
summarized in the following paragraphs.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Classified Board of Directors.
</FONT></I><FONT size="2">Our certificate of incorporation and
bylaws provide for our board to be divided into three classes of
directors serving staggered, three year terms. The
classification of the board has the effect of requiring at least
two annual stockholder meetings, instead of one, to replace a
majority of the members of the board of directors.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Authorized but Unissued or Undesignated
Capital Stock. </FONT></I><FONT size="2">At the closing of this
offering, our authorized capital stock will consist of
225&nbsp;million shares of common stock and 25&nbsp;million
shares of preferred stock. After this offering, we will
have &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;outstanding
shares of common stock. The authorized but unissued (and in the
case of preferred stock, undesignated) stock may be issued by
our board of directors in one or more transactions. In this
regard, our certificate of incorporation grants the board of
directors broad power to establish the rights and preferences of
authorized and unissued preferred stock. The issuance of shares
of preferred stock pursuant to the authority of the board
described above could decrease the amount of earnings and assets
available for distribution to holders of common stock and
adversely affect the rights and powers, including voting rights,
of such holders and may have the effect of delaying, deferring
or preventing a change in control. Our board of directors does
not currently intend to seek stockholder approval prior to any
issuance of preferred stock, unless otherwise required by law.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Special Meetings of Stockholders.
</FONT></I><FONT size="2">Our certificate of incorporation and
bylaws provide that special meetings of our stockholders may be
called only by our board of directors, by our chairman of the
board of directors or by our Chief Executive Officer.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Notice Procedures.
</FONT></I><FONT size="2">Our bylaws establish advance notice
procedures with respect to all stockholder proposals to be
brought before meetings of our stockholders, including proposals
relating to the nomination of candidates for election as
directors, the removal of directors and amendments to our
amended and restated certificate of incorporation or bylaws.
These procedures provide that notice of such stockholder
proposals must be timely given in writing to our Secretary prior
to the meeting. Generally, to be timely, notice must be received
by our Secretary not more than 90 or less than 120&nbsp;days
prior to the meeting. The notice must contain certain
information specified in the bylaws.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Limitation of Director Liability.
</FONT></I><FONT size="2">Our certificate of incorporation
limits the liability of our directors (in their capacity as
directors but not in their capacity as officers) to us or our
stockholders to the fullest extent
</FONT>

<P align="center"><FONT size="2">64
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">permitted by Delaware law. Specifically, our
directors will not be personally liable for monetary damages for
breach of a director&#146;s fiduciary duty as a director, except
for liability:
</FONT>
</DIV>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">for any breach of the director&#146;s duty of
    loyalty to us or our stockholders;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">for acts or omissions not in good faith or which
    involve intentional misconduct or a knowing violation of law;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">under Section&nbsp;174 of the Delaware General
    Corporation Law, which relates to unlawful payments of dividends
    or unlawful stock repurchases or redemptions; or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">for any transaction from which the director
    derived an improper personal benefit.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Indemnification Arrangements.
</FONT></I><FONT size="2">Our certificate of incorporation and
bylaws provide that our directors and officers shall be
indemnified and provide for the advancement to them of expenses
in connection with actual or threatened proceedings and claims
arising out of their status as such to the fullest extent
permitted by the Delaware General Corporation Law. Prior to the
closing of this offering, we intend to enter into
indemnification agreements with each of our directors and
executive officers that provide them with rights to
indemnification and expense advancement to the fullest extent
permitted under the Delaware General Corporation Law.
</FONT>

<P align="left">
<B><FONT size="2">Listing</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have applied to have our common stock approved
for quotation on The NASDAQ National Market under the symbol
&#147;AVNC.&#148;
</FONT>

<P align="left">
<B><FONT size="2">Transfer Agent and Registrar</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The transfer agent and registrar for our common
stock is American Stock Transfer&nbsp;&#38; Trust Company.
</FONT>

<P align="center"><FONT size="2">65
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "SHARES ELIGIBLE FOR FUTURE SALE" -->

<P align="center">
<B><FONT size="2">SHARES ELIGIBLE FOR FUTURE SALE</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to this offering, there has been no public
market for our common stock. We cannot predict the effect, if
any, that market sales of shares of our common stock or the
availability of shares of our common stock for sale will have on
the market price of our common stock prevailing from time to
time. Nevertheless, sales of substantial amounts of our common
stock in the public market could adversely affect the market
price of our common stock and could impair our future ability to
raise capital through the sale of our equity securities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Upon the completion of this offering, we will
have &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock outstanding, assuming no exercise of the
underwriters&#146; over-allotment option.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The number of shares of common stock to be
outstanding after this offering is based on the number of shares
outstanding as of July&nbsp;25, 2003, and excludes:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">2,636,125 shares of common stock issuable upon
    the exercise of outstanding stock options at a weighed average
    exercise price of $0.31 per share; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">66,842 shares of common stock issuable upon
    exercise of outstanding warrants at a weighted average exercise
    price of $1.32 per share.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Of the outstanding shares,
the &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
sold in this offering and any shares issued upon exercise of the
underwriters&#146; over-allotment option will be freely tradable
without restriction under the Securities Act, except that any
shares held by our &#147;affiliates,&#148; as that term is
defined in Rule&nbsp;144 promulgated under the Securities Act,
may only be sold in compliance with the limitations described
below. The remaining 30,285,930 shares of common stock will be
deemed &#147;restricted securities&#148; as defined under
Rule&nbsp;144. Restricted shares may be sold in the public
market only if registered or if they qualify for a resale under
Rules&nbsp;144, 144(k) or 701 under the Securities Act, which
rules are summarized below. Subject to the lock-up agreements
described below and the provisions of Rules&nbsp;144, 144(k) and
701, additional shares will be available for sale in the public
market as follows:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="29%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="68%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Number of Shares</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Date</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">After 180&nbsp;days from the date of this
    prospectus, the 180-day lock-up is released and these shares
    will be freely tradable under Rule&nbsp;144 (subject, in some
    cases, to volume limitations) or Rule&nbsp;144(k)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">After 180&nbsp;days from the date of this
    prospectus, the 180-day lock-up will be released and these
    shares will be freely tradable under Rule&nbsp;701 (subject, in
    some cases, to repurchase by us and volume limitations)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">After 180&nbsp;days from the date of this
    prospectus, these restricted securities will have been held for
    less than one year and will not yet be freely tradable under
    Rule&nbsp;144
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">Rule&nbsp;144</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In general, under Rule&nbsp;144, as currently in
effect, beginning 90&nbsp;days after the date of this
prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell
those shares. Persons who have owned shares of our common stock
for at least one year would be entitled to sell, within any
three-month period, a number of shares that does not exceed the
greater of:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">1% of the number of shares of common stock then
    outstanding, which will equal
    approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    immediately after this offering; or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the average weekly trading volume of the common
    stock on the Nasdaq National Market during the four calendar
    weeks preceding the filing of a notice on Form&nbsp;144 with
    respect to that sale.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">66
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">
<B><FONT size="2">Rule&nbsp;144(k)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under Rule&nbsp;144(k), a person who is not
deemed to have been one of our &#147;affiliates&#148; at any
time during the 90&nbsp;days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least
two years, generally including the holding period of any prior
owner other than an &#147;affiliate,&#148; is entitled to sell
such shares without complying with the manner of sale, notice
filing, volume limitation or notice provisions of Rule&nbsp;144.
</FONT>

<P align="left">
<B><FONT size="2">Rule&nbsp;701</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In general, under Rule&nbsp;701, any of our
employees, directors, officers, consultants or advisors who
purchase shares from us in connection with a compensatory stock
or option plan or other written agreement before the effective
date of this offering is entitled to resell those shares
90&nbsp;days after the effective date of this offering in
reliance on Rule&nbsp;144, without having to comply with certain
restrictions, including the holding period, contained in
Rule&nbsp;144.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Securities and Exchange Commission has
indicated that Rule&nbsp;701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended,
along with the shares acquired upon exercise of those options,
including exercises after the date of this prospectus.
Securities issued in reliance on Rule&nbsp;701 are restricted
securities and, subject to the contractual restrictions
described above, beginning 90&nbsp;days after the date of this
prospectus, may be sold by persons other than
&#147;affiliates,&#148; as defined in Rule&nbsp;144, subject
only to the manner of sale provisions of Rule&nbsp;144.
Securities issued in reliance on Rule&nbsp;701 may be sold by
&#147;affiliates&#148; under Rule&nbsp;144 without compliance
with its one year minimum holding period requirement.
</FONT>

<P align="left">
<B><FONT size="2">Stock Options</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of June&nbsp;30, 2003, options to purchase a
total of 2,801,125 shares of common stock were outstanding, of
which 428,950 were vested. We intend to file a Form&nbsp;S-8
registration statement under the Securities Act to register all
shares of common stock issuable under our stock incentive plan.
Accordingly, shares of common stock underlying these options
will be eligible for sale in the public markets, subject to
vesting restrictions or the lock-up agreements described below.
</FONT>

<P align="left">
<B><FONT size="2">Lock-Up Agreements</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our directors, officers and stockholders have
agreed under lock-up agreements that they will not, directly or
indirectly, offer, sell or otherwise dispose of any shares of
common stock or any security which may be converted into or
exchanged or exercised for any common stock without the prior
written consent of Lehman Brothers for a period of 180&nbsp;days
from the date of this prospectus.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, we have agreed that for a period of
180&nbsp;days from the date of this prospectus, we will not,
without the prior written consent of Lehman Brothers, offer,
sell or otherwise dispose of any shares of common stock or any
securities which may be converted into or exchanged for any
common stock.
</FONT>

<P align="left">
<B><FONT size="2">Registration Rights</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Following this offering, under specified
circumstances and subject to customary conditions, holders of
27,565,555 shares of our outstanding common stock will have
demand registration rights with respect to their shares of
common stock, subject to the 180-day lock-up arrangement
described above, to require us to register their shares of
common stock under the Securities Act, and rights to participate
in any future registrations of securities. If the holders of
these registrable securities request that we register their
shares, and if the registration is effected, these shares will
become freely tradable without restriction under the Securities
Act. Any sales of securities by these stockholders could have a
material adverse effect on the trading price of our common
stock. See &#147;Description of Capital Stock&nbsp;&#151;
Registration Rights.&#148;
</FONT>

<P align="center"><FONT size="2">67
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "UNDERWRITING" -->

<P align="center">
<B><FONT size="2">UNDERWRITING</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under the terms of an Underwriting Agreement,
which is filed as an exhibit to the registration statement
relating to this prospectus, each of the underwriters named
below, for whom Lehman Brothers Inc. and Pacific Growth
Equities, LLC are acting as representatives, have severally
agreed to purchase from us the respective number of shares of
common stock opposite their names below:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="76%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Underwriters</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of Shares</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Lehman Brothers
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pacific Growth Equities, LLC
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The underwriting agreement provides that the
underwriters&#146; obligations to purchase shares of common
stock depends on the satisfaction of the conditions contained in
the underwriting agreement, including:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the obligation to purchase all of the shares of
    common stock offered hereby if any of the shares are purchased;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the representations and warranties made by us to
    the underwriters are true;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">there is no material change in the financial
    markets; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">we deliver customary closing documents to the
    underwriters.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Over-Allotment Option</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have granted the underwriters a 30-day option
after the date of this prospectus, to purchase, from time to
time, in whole or in part, up to an aggregate
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
at the public offering price less underwriting discounts and
commissions. The option may be exercised to cover
over-allotments, if any, made in connection with the offering.
To the extent that this option is exercised, each underwriter
will be obligated, subject to certain conditions, to purchase
its pro rata portion of these additional shares based on the
underwriter&#146;s percentage underwriting commitment in the
offering as indicated in the preceding table.
</FONT>

<P align="left">
<B><FONT size="2">Commissions and Expenses</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table summarizes the underwriting
discounts and commissions we will pay to the underwriters. These
amounts are shown assuming both no exercise and full exercise of
the underwriters&#146; overallotment option to
purchase &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional
shares. The underwriting fee is the difference between the
initial price to the public and the amount the underwriters pay
to purchase the shares from us.
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="66%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">No Exercise</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Full Exercise</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The underwriters have advised us that they
propose to offer the shares of common stock directly to the
public at the public offering price presented on the cover page
of this prospectus, and to selected dealers, who may include the
underwriters, at the public offering price less a selling
concession not in excess of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share. The underwriters may allow, and the selected dealers may
reallow, a concession not in excess of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share to brokers and dealers. After the offering, the
underwriters may change the offering price and other selling
terms.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We estimate that the expenses of the offering
that are payable by us will be approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have applied for quotation of our common stock
on The NASDAQ National Market under the symbol &#147;AVNC.&#148;
</FONT>

<P align="left">
<B><FONT size="2">Lock-up Agreements</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have agreed that, without the prior written
consent of Lehman Brothers Inc., we will not, directly or
indirectly, offer, sell or dispose of any common stock or any
securities which may be converted into or exchanged for any
common stock for a period of 180&nbsp;days from the date of this
prospectus. Our directors, officers and stockholders have agreed
under lock-up agreements not to, without the prior written
consent of
</FONT>

<P align="center"><FONT size="2">68
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">Lehman Brothers Inc., directly or indirectly,
offer, sell or otherwise dispose of any common stock or any
securities which may be converted into or exchanged or exercised
for any common stock for a period of 180&nbsp;days from the date
of this prospectus.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Offering Price Determination</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to this offering, there has been no public
market for our common stock. The initial public offering price
will be determined by negotiation between us and the
underwriters. The factors that the representatives will consider
in determining the public offering price include:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the history and prospects for the industry in
    which we compete;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the ability of our management and our business
    potential and earning prospects;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the prevailing securities markets at the time of
    this offering;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the recent market prices of, and the demand for,
    publicly traded shares of generally comparable companies.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Indemnification</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the
Securities Act, and liabilities incurred in connection with the
directed share program referred to below, and to contribute to
payments that the underwriters may be required to make for these
liabilities.
</FONT>

<P align="left">
<B><FONT size="2">Stabilization, Short Positions and Penalty
Bids</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The representatives may engage in over-allotment,
stabilizing transactions, syndicate covering transactions, and
penalty bids or purchasers for the purpose of pegging, fixing or
maintaining the price of the common stock, in accordance with
Regulation&nbsp;M under the Exchange Act of 1934:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Over-allotment involves sales by the underwriters
    of shares in excess of the number of shares the underwriters are
    obligated to purchase, which creates a syndicate short position.
    The short position may be either a covered short position or a
    naked short position. In a covered short position, the number of
    shares over-allotted by the underwriters is not greater than the
    number of shares that they may purchase in the over-allotment
    option. In a naked short position, the number of shares involved
    is greater than the number of shares in the over-allotment
    option. The underwriters may close out any short position by
    either exercising their over-allotment option and/or purchasing
    shares in the open market.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Stabilizing transactions permit bids to purchase
    the underlying security so long as the stabilizing bids do not
    exceed a specified maximum;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Syndicate covering transactions involve purchases
    of the common stock in the open market after the distribution
    has been completed in order to cover syndicate short positions.
    In determining the source of shares to close out the short
    position, the underwriters will consider, among other things,
    the price of shares available for purchase in the open market as
    compared to the price at which they may purchase shares through
    the over-allotment option. If the underwriters sell more shares
    than could be covered by the over-allotment option, a naked
    short position, the position can only be closed out by buying
    shares in the open market. A naked short position is more likely
    to be created if the underwriters are concerned that there could
    be downward pressure on the price of the shares in the open
    market after pricing that could adversely affect investors who
    purchase in the offering.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Penalty bids permit the representatives to
    reclaim a selling concession from a syndicate member when the
    common stock originally sold by the syndicate member is
    purchased in a stabilizing or syndicate covering transaction to
    cover syndicate short positions.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">These stabilizing transactions, syndicate
covering transactions and penalty bids may have the effect of
raising or maintaining the market price of our common stock or
preventing or retarding a decline in the market price of the
common stock. As a result, the price of the common stock may be
higher than the price
</FONT>

<P align="center"><FONT size="2">69
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">that might otherwise exist in the open market.
These transactions may be effected on The NASDAQ National Market
or otherwise and, if commenced, may be discontinued at any time.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Neither we nor any of the underwriters make any
representation or prediction as to the direction or magnitude of
any effect that the transactions described above may have on the
price of the common stock. In addition, neither we nor any of
the underwriters make representation that the representatives
will engage in these stabilizing transactions or that any
transaction, once commenced, will not be discontinued without
notice.
</FONT>

<P align="left">
<B><FONT size="2">Electronic Distribution</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A prospectus in electronic format may be made
available on the Internet sites or through other online services
maintained by one or more of the underwriters and/or selling
group members participating in this offering, or by their
affiliates. In those cases, prospective investors may view
offering terms online and, depending upon the particular
underwriter or selling group member, prospective investors may
be allowed to place orders online. The underwriters may agree
with us to allocate a specific number of shares for sale to
online brokerage account holders. Any such allocation for online
distributions will be made by the representatives on the same
basis as other allocations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Other than the prospectus in electronic format,
the information on any underwriter&#146;s or selling group
member&#146;s web site and any information contained in any
other web site maintained by an underwriter or selling group
member is not part of the prospectus or the registration
statement of which this prospectus forms a part, has not been
approved and/or endorsed by us or any underwriter or selling
group member in its capacity as underwriter or selling group
member and should not be relied upon by investors.
</FONT>

<P align="left">
<B><FONT size="2">Directed Shares</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At our request, the underwriters have reserved up
to a maximum
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of the common stock offered by this prospectus for sale to our
directors, employees, their nominees and persons with business
relationships with us, at the initial public offering price set
forth on the cover page of this prospectus. These persons must
commit to purchase no later than the close of business on the
date following the date of this prospectus. The number of shares
available for sale to the general public will be reduced to the
extent these persons purchase the reserved shares.
</FONT>

<P align="left">
<B><FONT size="2">Discretionary Accounts</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The underwriters have informed us that they do
not intend to confirm sales to discretionary accounts that
exceed 5% of the total number of shares offered by them.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Any offers in Canada will be made only under an
exemption from the requirements to file a prospectus in the
relevant province of Canada where the sale is made.
</FONT>

<!-- link1 "LEGAL MATTERS" -->

<P align="center">
<B><FONT size="2">LEGAL MATTERS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The validity of the common stock offered hereby
will be passed upon for us by McCarter &#38; English, LLP.
Certain legal matters in connection with the offering will be
passed upon for the underwriters by Coudert Brothers LLP.
</FONT>

<!-- link1 "EXPERTS" -->

<P align="center">
<B><FONT size="2">EXPERTS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The financial statements of Advancis
Pharmaceutical Corporation as of December&nbsp;31, 2001 and 2002
and for each of the three years in the period ended
December&nbsp;31, 2002 included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
</FONT>

<P align="center"><FONT size="2">70
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "WHERE YOU CAN FIND MORE INFORMATION" -->

<P align="center">
<B><FONT size="2">WHERE YOU CAN FIND MORE INFORMATION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have filed with the Securities and Exchange
Commission under the Securities Act a registration statement on
Form&nbsp;S-1 relating to the shares of common stock we are
offering by this prospectus. This prospectus, which constitutes
part of the registration statement filed with the Commission,
does not contain all the information included in the
registration statement and the exhibits and schedules thereto.
For further information with respect to us and our common stock,
you should refer to the registration statement and its exhibits.
Statements contained in this prospectus as to the contents of
any contract, agreement or other document are not necessarily
complete, and, where the contract, agreement or other document
is an exhibit to the registration statement, any statement with
respect to such contract, agreement or document is qualified by
the provisions of such exhibit. You may examine a copy of the
registration statement, including the exhibits, at the
Commission&#146;s public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. You can obtain a copy of a portion
of the registration statement from the public reference room
upon payment of prescribed fees. You may obtain information on
the operation of the public reference room by calling the
commission at 1-800-SEC-0330. The Commission maintains a website
that contains periodic reports, proxy and information statements
and other information regarding registrants that file
electronically with the Commission. The address of the website
is http://www.sec.gov.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As a result of this offering, we will become
subject to the information and periodic reporting requirements
of the Exchange Act and, in accordance therewith, will file
periodic reports, proxy statements and other information with
the Commission.
</FONT>

<P align="center"><FONT size="2">71
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">ADVANCIS PHARMACEUTICAL CORPORATION</FONT></B>

<P align="center">
<B><FONT size="2">TABLE OF CONTENTS</FONT></B>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="81%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Page(s)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Report of Independent Auditors
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Financial Statements:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance Sheets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Statements of Operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Statement of Stockholders&#146; Deficit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Statements of Cash Flows
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Notes to Financial Statements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom" nowrap><FONT size="2">F-7 - F-21</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-1
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">REPORT OF INDEPENDENT AUDITORS</FONT></B>

<P align="left">
<FONT size="2">To the Board of Directors and
</FONT>

<DIV align="left">
<FONT size="2">Stockholders of Advancis Pharmaceutical
Corporation
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In our opinion, the accompanying balance sheets
and the related statements of operations, of changes in
stockholders&#146; deficit and of cash flows present fairly, in
all material respects, the financial position of Advancis
Pharmaceutical Corporation (the &#147;Company&#148;) (a
development stage enterprise) at December&nbsp;31, 2001 and
December&nbsp;31, 2002, and the results of its operations and
its cash flows for each of the three years in the period ended
December&nbsp;31, 2002 in conformity with accounting principles
generally accepted in the United States of America. These
financial statements are the responsibility of the
Company&#146;s management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
</FONT>

<P align="left">
<FONT size="2">/s/ PRICEWATERHOUSECOOPERS LLP
</FONT>

<P align="left">
<FONT size="2">July&nbsp;25, 2003
</FONT>

<DIV align="left">
<FONT size="2">McLean, Virginia
</FONT>
</DIV>

<P align="center"><FONT size="2">F-2
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">ADVANCIS PHARMACEUTICAL CORPORATION</FONT></B>

<DIV align="center">
<B><FONT size="2">(A Development Stage Enterprise)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">BALANCE SHEETS</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="53%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December 31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As of</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="15" align="center" valign="top">
    <B><FONT size="2">ASSETS</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,187,189</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,059,911</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">244,582</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Short-term investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,284,860</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid expenses and other current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,714</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">172,512</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">335,107</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,478,763</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,232,423</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">579,689</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property and equipment, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,744,512</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,693,208</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,219,202</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restricted cash
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,438,538</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,438,538</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deposits
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">134,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">488,854</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,592,827</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Notes receivable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">121,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">121,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">121,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Intangible assets, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">96,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">84,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">78,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,575,075</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,058,523</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,029,756</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="15" align="center" valign="top">
    <B><FONT size="2">LIABILITIES, MANDATORILY REDEEMABLE
    CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS&#146;
    DEFICIT</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">275,059</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">758,773</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,593,139</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">520,624</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">830,980</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,060,636</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Line of credit&nbsp;&#151; current portion
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">345,354</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">595,704</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">651,116</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Convertible notes payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,091,389</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,141,037</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,185,457</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,396,280</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Line of credit&nbsp;&#151; non current portion
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">744,528</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,060,230</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">699,313</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Note payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">75,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">75,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred credit on lease concession
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">809,259</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,885,565</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,320,687</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,979,852</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Commitments and contingencies
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mandatorily redeemable convertible preferred
    stock:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Series&nbsp;A, $0.01 par value; 2,000,000 shares
    authorized, issued and outstanding (liquidation preference of
    $2,370,877, $2,607,964 and $2,740,827 at December&nbsp;31, 2001,
    2002 and June&nbsp;30, 2003, respectively)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,978,942</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,989,471</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,994,692</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Series&nbsp;B, $0.01 par value; 2,000,000 shares
    authorized, issued and outstanding (liquidation preference of
    $2,786,164, $3,064,781 and $3,218,870 at December&nbsp;31, 2001,
    2002 and June&nbsp;30, 2003, respectively)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,476,712</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,488,355</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,494,130</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Series&nbsp;C, $0.01 par value; 4,010,000 shares
    authorized, issued and outstanding (liquidation preference of
    $6,428,634, $7,071,498 and $7,427,037 at December&nbsp;31, 2001,
    2002 and June&nbsp;30, 2003, respectively)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,981,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,998,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,006,480</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Series&nbsp;D, $0.01 par value; 6,666,666 shares
    authorized, issued and outstanding at December&nbsp;31, 2001 and
    7,999,999 shares authorized, issued and outstanding at
    December&nbsp;31, 2002 and June&nbsp;30, 2003 (liquidation
    preference of $15,275,341, $20,071,641 and $21,080,800 at
    December&nbsp;31, 2001, 2002 and June&nbsp;30, 2003,
    respectively)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,954,316</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,963,369</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,981,354</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total mandatorily redeemable convertible
    preferred stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,391,170</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,439,295</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,476,656</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stockholders&#146; deficit:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common stock, $0.01 par value; 22,000,000 shares
    authorized at December&nbsp;31, 2001 and 23,333,333 shares
    authorized at December&nbsp;31, 2002 and June&nbsp;30, 2003;
    2,457,250, 2,518,750 and 2,523,875 shares issued and outstanding
    at December&nbsp;31, 2001, 2002 and June&nbsp;30, 2003,
    respectively
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,573</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,188</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,239</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital in excess of par value
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">276,606</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">503,173</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,180,246</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred stock-based compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(102,986</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,015,940</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deficit accumulated during the development stage
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,002,839</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(23,126,834</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(30,616,297</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total stockholders&#146; deficit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,701,660</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(22,701,459</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(29,426,752</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities, mandatorily redeemable
    convertible preferred stock and stockholders&#146; deficit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,575,075</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,058,523</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,029,756</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying notes are an integral part of
these financial statements.
</FONT>

<P align="center"><FONT size="2">F-3
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">ADVANCIS PHARMACEUTICAL CORPORATION</FONT></B>

<DIV align="center">
<B><FONT size="2">(A Development Stage Enterprise)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">STATEMENTS OF OPERATIONS</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="26%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six Months Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">For the Period from</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">June&nbsp;30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">January&nbsp;1, 2000</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Date of Inception)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">to June&nbsp;30, 2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost and expenses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Research and development
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,133,014</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,295,308</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,855,130</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,660,989</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,537,966</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,821,418</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">General and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">751,962</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,958,602</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,323,879</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,523,214</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,853,342</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,887,785</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,884,976</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,253,910</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,179,009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,184,203</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,391,308</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,709,203</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Loss from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,884,976</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,253,910</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,179,009</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,184,203</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,391,308</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(30,709,203</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66,713</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">183,641</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">338,135</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">245,276</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,451</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">623,940</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(114,307</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(235,506</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(161,114</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(133,606</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(483,419</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(47,615</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(47,615</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,818,263</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,184,576</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,123,995</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,100,041</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,489,463</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(30,616,297</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accretion of issuance costs of mandatorily
    redeemable convertible preferred stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,887</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(37,594</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(73,925</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(35,945</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(37,361</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(160,767</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss applicable to common stockholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,830,150</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,222,170</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,197,920</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,135,986</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,526,824</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(30,777,064</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic and diluted net loss per share applicable
    to common stockholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.39</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6.88</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8.95</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4.19</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4.03</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Shares used in calculation of basic and diluted
    net loss per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">764,712</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,049,915</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,587,117</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,465,294</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,869,276</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying notes are an integral part of
these financial statements.
</FONT>

<P align="center"><FONT size="2">F-4
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">ADVANCIS PHARMACEUTICAL CORPORATION</FONT></B>

<DIV align="center">
<B><FONT size="2">(A Development Stage Enterprise)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">STATEMENT OF CHANGES IN STOCKHOLDERS&#146;
DEFICIT</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="31%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Deficit</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Capital in</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Deferred</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">During the</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Par</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Excess of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Stock-Based</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Development</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Stockholders&#146;</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Value</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Par Value</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Compensation</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Stage</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Deficit</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance at January&nbsp;1, 2000 (Inception)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,360,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">106,400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">120,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accretion of issuance costs of mandatorily
    redeemable convertible preferred stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,887</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,887</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,818,263</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,818,263</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance at December&nbsp;31, 2000
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,360,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">94,513</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,818,263</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,710,150</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Issuance of restricted stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,097,250</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,973</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">219,687</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">230,660</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accretion of issuance costs of mandatorily
    redeemable convertible preferred stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(37,594</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(37,594</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,184,576</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,184,576</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance at December&nbsp;31, 2001
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,457,250</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,573</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">276,606</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,002,839</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,701,660</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Issuance of restricted stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">615</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,218</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,833</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accretion of issuance costs of mandatorily
    redeemable convertible preferred stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(73,925</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(73,925</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Issuance of stock options for services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">155,334</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">155,334</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred stock-based compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">132,940</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(132,940</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of deferred stock-based compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,954</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,954</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,123,995</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,123,995</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance at December&nbsp;31, 2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,518,750</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,188</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">503,173</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(102,986</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(23,126,834</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(22,701,459</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unaudited activity:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Issuance of restricted stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,125</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,605</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,656</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accretion of issuance costs of mandatorily
    redeemable convertible preferred stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(37,361</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(37,361</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Issuance of stock options for services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">519,503</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">519,503</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred stock-based compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,193,326</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,193,326</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of deferred stock-based compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">280,372</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">280,372</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,489,463</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,489,463</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance at June&nbsp;30, 2003 (Unaudited)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,523,875</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,239</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,180,246</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,015,940</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(30,616,297</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(29,426,752</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying notes are an integral part of
these financial statements.
</FONT>

<P align="center"><FONT size="2">F-5
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">ADVANCIS PHARMACEUTICAL CORPORATION</FONT></B>

<DIV align="center">
<B><FONT size="2">(A Development Stage Enterprise)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">STATEMENTS OF CASH FLOWS</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="25%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">For the</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Period from</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six Months Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">January 1,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Year Ended December 31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">June&nbsp;30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000 (Date of</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Inception) to</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June 30, 2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash flows from operating activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,818,263</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,184,576</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,123,995</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,100,041</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,489,463</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(30,616,297</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Adjustments to reconcile net loss to net cash
    used in operating activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,033</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">245,007</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">502,981</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">216,987</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">274,661</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,056,682</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stock-based compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">185,288</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">799,875</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">985,163</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of deferred credit on lease
    concession
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20,751</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20,751</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest accrued on convertible notes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">91,389</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">91,389</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Changes in assets and liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid expenses and other current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(130,431</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,932</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(83,013</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(95,371</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(162,595</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(335,107</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Others
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(106,285</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,958</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(71,308</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,720</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(185,271</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">148,390</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">126,669</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">483,714</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">339,915</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">834,366</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,593,139</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">148,167</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">372,457</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">310,356</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,701</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,229,656</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,060,636</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash used in operating activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,724,389</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,404,469</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,795,977</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,590,809</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,445,582</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(24,370,417</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash flows from investing activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchase of short-term investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,202,075</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,202,075</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sale of short-term investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,202,075</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,487,892</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,202,075</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchases of property and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(520,151</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,479,401</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,439,677</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(656,397</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,794,655</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,233,884</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deposits on property and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(115,750</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">92,693</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(283,246</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(105,767</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,101,253</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,407,556</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restricted cash
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,438,538</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(497,738</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,438,538</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Landlord lease concession
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">830,010</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">830,010</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash from (used in) investing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(635,901</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,588,783</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,040,614</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,227,990</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,065,898</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,249,968</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash flows from financing activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from lines of credit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,317,224</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,019,866</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">472,948</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,337,090</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from note payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">75,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">75,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payments on lines of credit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(227,342</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(453,814</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(177,059</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(305,505</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(986,661</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from convertible notes payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from issuance of common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">109,160</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,833</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,213</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,656</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">123,649</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from issuance of mandatorily redeemable
    convertible preferred stock, net of issuance costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,421,594</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,920,095</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,974,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,974,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,315,889</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash from financing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,421,594</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,119,137</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,628,085</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,278,302</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,696,151</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,864,967</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net increase/(decrease) in cash and cash
    equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,061,304</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,125,885</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,127,278</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,915,483</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,815,329</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">244,582</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents, beginning of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,061,304</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,187,189</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,187,189</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,059,911</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents, end of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,061,304</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,187,189</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,059,911</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,102,672</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">244,582</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">244,582</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Supplemental disclosure:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash paid for interest, net of interest
    capitalized
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">114,287</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">211,393</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">160,839</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">133,606</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">459,286</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-cash financing transactions:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Exercise of stock option for note receivable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">121,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">121,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accretion of issuance costs of mandatorily
    redeemable convertible preferred stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,887</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,594</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">73,925</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,945</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,361</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">160,767</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common stock issued for intangible assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">120,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">120,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying notes are an integral part of
these financial statements.
</FONT>

<P align="center"><FONT size="2">F-6
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">ADVANCIS PHARMACEUTICAL CORPORATION</FONT></B>

<DIV align="center">
<B><FONT size="2">(A Development Stage Enterprise)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO FINANCIAL STATEMENTS</FONT></B>

<P align="left">
<B><FONT size="2">1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nature of the
Business</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Advancis Pharmaceutical Corporation (the
&#147;Company&#148;), formerly Advanced Pharma, Inc., was
incorporated in Delaware in December 1999 and commenced
operations on January&nbsp;1, 2000. The Company has focused on
the development of anti-infective pharmaceutical formulations
that will provide the convenience of once-a-day dosing with
improved therapeutic advantages for ailments such as sinusitis,
respiratory tract infections, urinary tract infections, diabetic
foot ulcers and post-surgical infections. The Company intends to
develop and commercialize improved formulations of currently
marketed anti-infective products using various means of
administration and proprietary drug delivery technology,
including the Company&#146;s PULSYS<SUP>TM</SUP> technology. The
Company plans to accomplish this through corporate partnerships
for the development, sale and marketing of some of these
products, while retaining rights to develop, sell and market
others. Since its inception, the Company has devoted
substantially all of its efforts to business planning, research
and development, recruiting management and technical staff,
acquiring operating assets and raising capital. Accordingly, the
Company is considered to be in the development stage as defined
in Statement of Financial Accounting Standards
(&#147;SFAS&#148;) No.&nbsp;7, <I>&#147;Accounting for
Development Stage Enterprises.&#148;</I>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company&#146;s expected activities will
necessitate significant uses of working capital throughout 2003
and beyond. Additionally, the Company&#146;s capital
requirements will depend on many factors, including the success
of the Company&#146;s research and development efforts, payments
received under contractual agreements with other parties, if
any, and the status of competitive products. The Company plans
to continue financing operations with preferred stock sales.
</FONT>

<P align="left">
<B><FONT size="2">2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Summary of
Significant Accounting Policies</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Use of Estimates</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The preparation of financial statements in
conformity with generally accepted accounting principles in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Cash and Cash Equivalents</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cash equivalents are highly liquid investments
with a maturity of three months or less at date of purchase and
consist of time deposits and investments in money market funds
with commercial banks and financial institutions and
high-quality corporate bonds. Also, the Company maintains cash
balances with financial institutions in excess of insured
limits. The Company does not anticipate any losses with such
cash balances. At December&nbsp;31, 2001 and 2002, the Company
maintained all of its cash and cash equivalents in three
financial institutions.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Fair Value of Financial
    Instruments</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The carrying amounts of the Company&#146;s
financial instruments, which include cash and cash equivalents,
short-term investments, the notes payable and line of credit
borrowings, approximate their fair values due to their short
maturities.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Investments</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company classifies all of its investments as
available-for-sale. Available-for-sale securities are carried at
fair value, with the unrealized gains and losses reported as a
component of stockholders&#146; deficit in
</FONT>

<P align="center"><FONT size="2">F-7
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ADVANCIS PHARMACEUTICAL CORPORATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Enterprise)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">comprehensive income (loss). At December&nbsp;31,
2001, the unrealized gain on available-for-sale securities was
de minimus. Investments available for current operations are
classified in the balance sheet as current assets; investments
held for long-term purposes are classified as noncurrent assets.
Interest income and realized gains and losses on securities are
included in &#147;Interest income&#148; in the statements of
operations.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Comprehensive Income</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">SFAS No.&nbsp;130, <I>&#147;Reporting
Comprehensive Income,&#148;</I> requires a full set of
general-purpose financial statements to be expanded to include
the reporting of &#147;comprehensive income.&#148; Comprehensive
income is comprised of two components, net income and other
comprehensive income. For the years ended December&nbsp;31,
2000, 2001 and 2002, there were no items of other comprehensive
income.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Property and Equipment</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Property and equipment are stated at cost and
depreciated over their estimated useful lives using the
straight-line method. Upon retirement or sale, the cost of
assets disposed of and the related accumulated depreciation are
removed from the accounts and any resulting gain or loss is
credited or charged to operations. Repairs and maintenance costs
are expensed as incurred.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Intangible Assets</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Intangible assets consist of the cost of
capitalized patent applications. Patents are carried at cost
amounting to $120,000, less accumulated amortization which is
calculated on a straight-line basis over the legal, estimated
useful lives of the patents, not to exceed 20&nbsp;years. The
Company periodically reviews the carrying value of patents to
determine whether the carrying amount of the patent is
recoverable. For the years ended December&nbsp;31, 2001 and
2002, there were no adjustments to the carrying values of
patents. The Company is amortizing the cost of the patent
applications over a period of ten years. Ownership of all of its
patents is retained by the Company in all its transactions.
Amortization expense for each of the years ended
December&nbsp;31, 2000, 2001 and 2002 was $12,000. Accumulated
amortization as of December&nbsp;31, 2001 and 2002 is $24,000
and $36,000, respectively. The estimated aggregate amortization
expense for each of the five succeeding fiscal years is $12,000.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Revenue Recognition</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Corporate partner revenues include license fees
and milestone payments associated with collaborations with third
parties. Revenue from non-refundable, upfront license fees where
the Company has continuing involvement is recognized ratably
over the development or agreement period. Revenue associated
with performance milestones is recognized based upon the
achievement of the milestones, as defined in the respective
agreements. Royalties from licensees are based on third-party
sales of licensed products and will be recorded in accordance
with contract terms when third-party results are reliably
measurable and collectibility is reasonably assured.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Research and Development</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company expenses research and development
costs as incurred. Research and development costs primarily
consist of salaries and related expenses for personnel and
capital resources. Other research and development expenses
include fees paid to consultants and outside service providers
and the costs of materials used in clinical trials and research
and development.
</FONT>

<P align="center"><FONT size="2">F-8
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ADVANCIS PHARMACEUTICAL CORPORATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Enterprise)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Impairment of Long-Lived
    Assets</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">SFAS No.&nbsp;144, <I>&#147;Accounting for the
Impairment or Disposal of Long-Lived Assets,&#148;</I>
establishes accounting standards for the impairment of
long-lived assets. The Company reviews its long-lived assets,
including property and equipment, for impairment whenever events
or circumstances indicate that the carrying amount of an asset
may not be recoverable. If this review indicates that the asset
will not be recoverable based on the expected undiscounted net
cash flows of the related asset, an impairment loss is
recognized. There were no impairment losses recognized in 2000,
2001 and 2002.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Accounting for Stock-Based
    Compensation</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Employee stock awards under the Company&#146;s
compensation plans are accounted for in accordance with
Accounting Principles Board Opinion (&#147;APB&#148;)
No.&nbsp;25, <I>&#147;Accounting for Stock Issued to
Employees,&#148;</I> and related interpretations. No
compensation cost has been recognized for employee stock-based
compensation in 2000 and 2001, as all options granted during
those years had an exercise price equal to the market value of
the underlying common stock on the date of grant. During 2002
and the six month period ending June&nbsp;30, 2003, stock
options were granted with an exercise price which was below the
estimated fair market value of the common stock at the date of
grant. Deferred stock-based compensation of $132,940 and
$5,193,326 (unaudited) was recorded during 2002 and the six
month period ending June&nbsp;30, 2003, respectively in
accordance with APB&nbsp;25, and will be amortized over the
related vesting period of the options. The Company recorded
stock-based compensation expense of $29,954 and $280,372
(unaudited) during 2002 and the six month period ending
June&nbsp;30, 2003, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table illustrates the effect on net
loss and net loss per share if the Company had applied the fair
value recognition provisions of SFAS&nbsp;No.&nbsp;123,
<I>&#147;Accounting for Stock-Based Compensation&#148;</I>
(&#147;SFAS&nbsp;123&#148;). Because options vest over several
years and additional option grants are expected to be made in
future years, the pro forma results are not representative of
the pro forma results for future years.
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="33%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">December 31</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six Months Ended June&nbsp;30</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss, as reported
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,818,263</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,184,576</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,123,995</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,100,041</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,489,463</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Add&nbsp;&#151; Total stock-based compensation
    expense determined under the intrinsic value method
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,954</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">280,372</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less&nbsp;&#151; Total stock-based compensation
    expense determined under the fair value based method for all
    awards
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,253</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(88,579</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(161,755</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(63,626</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(468,390</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pro forma net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,821,516</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,273,155</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,255,796</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,163,667</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,677,481</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accretion of issuance costs of mandatorily
    redeemable convertible preferred stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,887</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(37,594</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(73,925</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(35,945</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(37,361</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pro forma net loss applicable to common
    stockholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,833,403</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,310,749</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,329,721</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,199,612</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,714,842</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss per share:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic and diluted, as reported
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.39</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6.88</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8.95</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4.19</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4.03</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic and diluted, pro forma
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.40</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6.96</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9.03</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4.23</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4.13</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-9
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ADVANCIS PHARMACEUTICAL CORPORATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Enterprise)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The weighted average fair value of options
granted during 2000, 2001 and 2002 was $0.14, $0.24 and $0.31
per share, respectively. The fair value of each option grant was
estimated on the date of grant using the Black-Scholes options
pricing model with the following assumptions for grants in 2000,
2001 and 2002:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="56%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="15%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="15%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="5" align="center" nowrap><B><FONT size="1">December 31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Expected life (in years)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">5
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">4
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">5
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Risk-free interest rate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">3.62% to 4.88%
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">5.94%
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">3.19%&nbsp;&#151;&nbsp;4.7%
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Volatility
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">100%
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">80%
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">80%
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dividend yield
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">0%
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">0%
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">0%
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Income Taxes</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company accounts for income taxes by the
liability method. Under this method, deferred income taxes are
recognized for tax consequences in future years of differences
between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end, based on enacted
laws and statutory tax rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation
allowances are provided if, based upon the weight of available
evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Restricted Cash</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2002, the Company established a cash
deposit account in the amount of $497,738 that is pledged as
collateral for a line of credit (see Note&nbsp;4). Also, in
conjunction with the lease of the office and laboratory space
building, the Company provided the landlord with a letter of
credit, which was collateralized with a restricted cash deposit
in the amount of $940,800 (see Note&nbsp;12). These deposits are
recorded as non-current restricted cash at December&nbsp;31,
2002.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Earnings Per Share</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Basic earnings per share is computed based on the
weighted average number of common shares outstanding during the
period. Diluted earnings per share is computed based on the
weighted average shares outstanding adjusted for all dilutive
potential common shares. The dilutive impact, if any, of common
stock equivalents outstanding during the period, including
outstanding stock options and warrants, is measured by the
treasury stock method. The dilutive impact, if any, of the
Company&#146;s redeemable convertible preferred stock is
measured using the if-converted method. Potential common shares
are not included in the computation of diluted earnings per
share if they are antidilutive. The Company incurred net losses
for 2000, 2001 and 2002 and, accordingly, did not assume
exercise or conversion of any of the Company&#146;s outstanding
stock options, warrants or redeemable convertible preferred
stock because to do so would be antidilutive.
</FONT>

<P align="center"><FONT size="2">F-10
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ADVANCIS PHARMACEUTICAL CORPORATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Enterprise)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following are the securities that could
potentially dilute basic earnings per share in the future that
were not included in the computation of diluted earnings per
share because to do so would have been antidilutive for the
periods presented:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="32%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">December 31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">June 30,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">(Number of Shares)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,676,667</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,009,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,009,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,009,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stock options
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">240,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,049,150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,544,950</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,324,650</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,801,125</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Nonvested restricted stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,032,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">908,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">908,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">565,750</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Warrants
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62,151</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66,842</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62,151</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66,842</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Convertible notes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,263,272</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,260,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,820,468</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,529,791</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,304,800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,706,988</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Recent Accounting
    Pronouncements</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In July 2002, the FASB issued
SFAS&nbsp;No.&nbsp;146, <I>&#147;Accounting for Costs Associated
with Exit or Disposal Activities&#148;
</I>(&#147;SFAS&nbsp;146&#148;). SFAS&nbsp;146 addresses issues
regarding the recognition, measurement and reporting of costs
that are associated with exit and disposal activities, including
restructuring activities. The scope of SFAS&nbsp;146 includes
costs to terminate contracts that are not capital leases, costs
to consolidate facilities or relocate employees and termination
benefits provided to employees who are involuntarily terminated
under terms of a one-time benefit arrangement that is not an
ongoing benefit arrangement or an individual compensation
contract. The provisions of the Statement are effective for exit
or disposal activities initiated after December&nbsp;31, 2002.
The Company anticipates that the adoption of SFAS&nbsp;146 will
not have an impact on the Company&#146;s financial position,
results of operations or cash flows.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 2002, the FASB issued
SFAS&nbsp;No.&nbsp;148, <I>&#147;Accounting for Stock-Based
Compensation&nbsp;&#151; Transition and Disclosure&#148;
</I>(&#147;SFAS&nbsp;148&#148;). SFAS&nbsp;148 amends
SFAS&nbsp;123 to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of SFAS&nbsp;123 to
require prominent disclosures in both annual and interim
financial statements about the method of accounting for
stock-based employee compensation and the effect of the method
used on reported results. The alternative methods of transition
and additional disclosure requirements and the new interim
disclosure provisions are effective for fiscal years ending
after December&nbsp;15, 2002 and for the first interim period
beginning after December&nbsp;15, 2002, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In April 2003, the FASB issued
SFAS&nbsp;No.&nbsp;149, <I>&#147;Amendment of Statement&nbsp;133
on Derivative Instruments and Hedging Activities&#148;
</I>(&#147;SFAS&nbsp;149&#148;). SFAS&nbsp;149 amends and
clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives) and
for hedging activities under SFAS No.&nbsp;133,
<I>&#147;Accounting for Derivative Instruments and Hedging
Activities.&#148;</I> SFAS&nbsp;149 is effective for contracts
entered into or modified after June&nbsp;30, 2003, and for
hedging relationships designated after June&nbsp;30, 2003,
except that the provisions of SFAS&nbsp;149 that relate to SFAS
No.&nbsp;133 Implementation Issues that have been effective for
fiscal quarters that began prior to June&nbsp;15, 2003 should
continue to be applied in accordance with their respective
effective dates. The Company is reviewing the provisions of
SFAS&nbsp;149 and does not anticipate that the adoption will
have a material impact on the Company&#146;s financial condition
or results of operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In May 2003, the FASB issued SFAS No.&nbsp;150
<I>&#147;Accounting For Certain Financial Instruments with
Characteristics of both Liabilities and Equity&#148;
</I>(&#147;SFAS&nbsp;150&#148;). SFAS&nbsp;150 establishes
standards for how an
</FONT>

<P align="center"><FONT size="2">F-11
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ADVANCIS PHARMACEUTICAL CORPORATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Enterprise)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity.
It requires that an issuer classify a financial instrument that
is within its scope as a liability (or an asset in some
circumstances). SFAS&nbsp;150 is effective for financial
instruments entered into or modified after May&nbsp;31, 2003,
and otherwise is effective at the beginning of the first interim
period beginning after June&nbsp;15, 2003, except for
mandatorily redeemable financial instruments of nonpublic
entities. The Company does not anticipate that the adoption of
SFAS&nbsp;150 will have a material impact on the Company&#146;s
financial condition or results of operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In November 2002, the FASB issued Interpretation
No.&nbsp;45<I>, &#147;Guarantor&#146;s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others&#148; </I>(&#147;FIN&nbsp;45&#148;).
FIN&nbsp;45 elaborates on the existing disclosure requirements
for most guarantees, and clarifies that at the time a company
issues a guarantee, the Company must recognize an initial
liability for the fair value of the obligation it assumes under
that guarantee and must disclose that information in its interim
and annual financial statements. The initial recognition and
measurement provisions apply on a prospective basis to
guarantees issued or modified after December&nbsp;31, 2002. In
accordance with FIN&nbsp;45, the Company is required to disclose
the nature and potential future payments under existing
guarantees as of December&nbsp;31, 2002. The Company has no
guarantees within the scope of FIN&nbsp;45 as of
December&nbsp;31, 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In January 2003, the FASB issued
FIN&nbsp;No.&nbsp;46, <I>&#147;Consolidation of Variable
Interest Entities, an interpretation of Accounting Research
Bulletin No.&nbsp;51&#148; </I>(&#147;FIN&nbsp;46&#148;).
FIN&nbsp;46 requires certain variable interest entities to be
consolidated by the primary beneficiary of the entity if the
equity investors in the entity do not have the characteristics
of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties.
FIN&nbsp;46 is effective for all variable interest entities
created or acquired after January&nbsp;31, 2003. For variable
interest entities created or acquired prior to February&nbsp;1,
2003, the consolidation provisions of FIN&nbsp;46 must be
applied for the first interim or annual period beginning after
June&nbsp;15, 2003. The Company has not entered into any
contractual relationships with a variable interest entity as of
December&nbsp;31, 2002.
</FONT>

<P align="left">
<B><FONT size="2">3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property and
Equipment</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Property and equipment consist of the following:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="60%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Estimated</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December 31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Useful Life</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Years)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Construction in progress
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">152,614</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">474,608</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Computer equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">153,818</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">373,855</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Furniture and fixtures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">162,809</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">537,953</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3-10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,497,215</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,977,037</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Leasehold improvements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,096</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">75,776</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,999,552</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,439,229</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less&nbsp;&#151; accumulated depreciation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(255,040</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(746,021</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,744,512</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,693,208</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Depreciation expense for the years ended
December&nbsp;31, 2000, 2001 and 2002 was $22,033, $233,007,
$490,981, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the six-month period ending June&nbsp;30,
2003, the Company expended approximately $4,795,000
(unaudited)&nbsp;for the construction of its headquarters and
purchase of equipment.
</FONT>

<P align="center"><FONT size="2">F-12
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ADVANCIS PHARMACEUTICAL CORPORATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Enterprise)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<P align="left">
<B><FONT size="2">4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Borrowings</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company&#146;s obligations on borrowings are
as follows:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="71%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December 31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Lines of credit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,089,882</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,655,934</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Montgomery County note payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">75,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,089,882</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,730,934</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Principal payments under borrowings are as
follows:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="84%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Year Ending December 31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">595,704</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">597,599</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2005
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">309,832</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2006
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">201,962</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2007
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,837</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,730,934</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less: Current portion
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(595,704</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,135,230</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Lines of Credit</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In January 2001, the Company entered into a
$1,500,000 line of credit facility to finance the purchase of
specified equipment based on lender-approved equipment
schedules. The implicit interest rate is 11.62%. In connection
with this line of credit, the Company agreed to issue to the
lender&#146;s assignee warrants to purchase up to 48,000 shares
of the Company&#146;s common stock, subject to the aggregate
amount of draw-downs under the credit facility (see
Note&nbsp;7). The Company has granted a security interest in the
assets purchased under the credit line. During 2001, the Company
drew down $1,317,224 under the line of credit and repaid
$227,342. During 2002, the Company repaid an additional
$350,784. The balance outstanding at December&nbsp;31, 2001 and
2002 was $1,089,882 and $739,098, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In February 2002, the Company entered into a
$2,000,000 line of credit facility to finance the purchase of
specified equipment based on approved equipment schedules. The
implicit interest rate is between 8.35% to 9.35%. In connection
with the line of credit, the Company agreed to issue to the
lender warrants to purchase up to 17,778&nbsp;shares of the
Company&#146;s common stock, subject to the aggregate amount of
draw-downs under the credit facility (see Note&nbsp;7). The
Company also granted to the lender&#146;s assignee the option to
invest up to $750,000 (based on the size of the round) in
subsequent private equity rounds at the going price per share.
During 2002, the Company drew down $527,586 under the line of
credit and repaid $21,902. The balance outstanding at
December&nbsp;31, 2002 was $505,684.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In March 2002, the Company entered into a
$500,000 line of credit facility with a bank to finance the
purchase of equipment. The interest rate will be floating 30-Day
LIBOR + 250 basis points or fixed cost of funds + 250 basis
points. Each drawing requires monthly repayment of principal
plus interest based upon a 48-month repayment schedule. The line
of credit has first lien on all assets purchased with the
proceeds of this line. The Company has also opened a $497,738
restricted account (see Note&nbsp;2) with the bank to be used
</FONT>

<P align="center"><FONT size="2">F-13
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ADVANCIS PHARMACEUTICAL CORPORATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Enterprise)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">as collateral for this line of credit. During
2002, the Company drew down $492,280 and repaid $81,128. The
balance outstanding at December&nbsp;31, 2002 was $411,152.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Montgomery County Note
    Payable</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 2001, the Company entered into an
Economic Development Fund Agreement with Montgomery County,
Maryland. The primary purpose of the Economic Development Fund
is to assist private employers who are located or planning to
locate or substantially expand operations in Montgomery County.
In September 2002, the Company received a $75,000 loan from the
County. The loan will be amortized over 5&nbsp;years from the
loan disbursement date, with a moratorium on both the principal
and the interest payment, until the third anniversary of the
loan. The interest rate is fixed at 5% per annum. The principal
and accrued interest must be repaid by the fifth anniversary of
the loan disbursement date in quarterly installments with the
first quarterly payment due on the 15th day of the month
following the moratorium expiration date.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">According to the agreement, the County will
permanently forgive part or all of the $75,000 loan principal
balance together with the accrued interest if the following
conditions are met:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">$25,000 will be forgiven if the Company has made
    a capital investment in Montgomery County exceeding
    $7.5&nbsp;million by the third anniversary date of loan
    disbursement date.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">$25,000 will be forgiven if the Company generates
    at least 80% of the specified projected headcount of new full
    time employees by the end of 2004.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">$25,000 will be forgiven if the Company maintains
    a specified number of full time employees through 2006.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Additionally, the Company must repay the entire
$75,000 if it relocates to a site outside Montgomery County, or
moves all or substantial parts of its business outside the
county, within 5&nbsp;years of the date of the promissory note.
</FONT>

<P align="left">
<B><FONT size="2">5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued
Expenses</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Accrued expenses consist of the following:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="62%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Bonus accrual
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">196,701</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">420,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">391,989</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued professional fees
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56,468</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">237,192</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">338,127</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Relocation accrual
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">107,615</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88,815</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">131,402</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued research and development expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">97,428</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Insurance and benefits
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67,329</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other accrued expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62,412</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,644</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">151,629</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Construction costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,047,489</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total accrued expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">520,624</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">830,980</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,060,636</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mandatorily
Redeemable Convertible Preferred Stock</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In January 2000, the Company authorized
2,000,000&nbsp;shares of preferred stock, designated as
Series&nbsp;A Redeemable Convertible Preferred Stock (the
&#147;Series&nbsp;A Preferred Stock&#148;), and issued
1,000,000&nbsp;shares of Series&nbsp;A Preferred Stock. In June
2000, the Company issued an additional 1,000,000&nbsp;shares of
Series&nbsp;A
</FONT>

<P align="center"><FONT size="2">F-14
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ADVANCIS PHARMACEUTICAL CORPORATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Enterprise)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">Preferred Stock. In November 2000, the Company
authorized an additional 2,000,000&nbsp;shares of preferred
stock, designated as Series&nbsp;B Redeemable Convertible
Preferred Stock (the &#147;Series&nbsp;B Preferred Stock&#148;)
and issued 2,000,000&nbsp;shares of Series&nbsp;B Preferred
Stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In April 2001, the Company authorized an
additional 4,010,000&nbsp;shares of preferred stock, designated
as Series&nbsp;C Redeemable Convertible Preferred Stock (the
&#147;Series&nbsp;C Preferred Stock&#148;), and issued
4,010,000&nbsp;shares of Series&nbsp;C Preferred Stock. In
October 2001, the Company authorized an additional
6,666,666&nbsp;shares of preferred stock, designated
6,666,666&nbsp;shares as Series&nbsp;D Redeemable Convertible
Preferred Stock (the &#147;Series&nbsp;D Preferred Stock&#148;),
and issued 6,666,666&nbsp;shares of Series&nbsp;D Preferred
Stock. In February 2002, the Company authorized and issued an
additional 1,333,333&nbsp;shares of Series&nbsp;D Preferred
Stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Series&nbsp;A, Series&nbsp;B, Series&nbsp;C,
and Series&nbsp;D Preferred Stock have the following terms:
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Voting</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The holders of the preferred stock are entitled
to vote, together with the holders of common stock, on all
matters submitted to stockholders for a vote. Each preferred
stockholder is entitled to the number of votes equal to the
number of shares of common stock into which each preferred share
is convertible at the time of such vote. In addition, the
holders of a majority in voting power of the preferred stock are
entitled to elect two of the Company&#146;s directors.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Dividends</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The holders of the Series&nbsp;A, Series&nbsp;B,
Series&nbsp;C and Series&nbsp;D Preferred Stock are entitled to
receive, when and as declared by the Board of Directors and out
of funds legally available, noncumulative dividends, payable in
preference and priority to any payment of any dividend on common
stock. No dividends or other distributions shall be made with
respect to the common stock, until all declared dividends on the
Series&nbsp;A, Series&nbsp;B, Series&nbsp;C and Series&nbsp;D
Preferred Stock have been paid. The shares of the Series&nbsp;A,
Series&nbsp;B, Series&nbsp;C, and Series&nbsp;D Preferred Stock
participate ratably with each other with respect to the issuance
of dividends, and senior to the common stock. Through
December&nbsp;31, 2002, no dividends have been declared or paid
by the Company.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Liquidation Preference</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the event of any liquidation, dissolution or
winding-up of the affairs of the Company, the holders of the
then outstanding Series&nbsp;A, Series&nbsp;B, Series&nbsp;C and
Series&nbsp;D Preferred Stock will receive for each share an
amount equal to the sum of $1.00, $1.25, $1.50 and $2.25 per
share of Series&nbsp;A, Series&nbsp;B, Series&nbsp;C and
Series&nbsp;D Preferred Stock, respectively, plus 10% per annum
thereon, compounded annually, plus all declared but unpaid
dividends, payable in preference and priority to any payments
made to the holders of the then outstanding common stock. The
shares of the Series&nbsp;A, Series&nbsp;B, Series&nbsp;C, and
Series&nbsp;D Preferred Stock participate ratably with each
other in such payments, and senior to the common stock. In
addition, the holders of the Series&nbsp;A, Series&nbsp;B,
Series&nbsp;C and Series&nbsp;D Preferred Stock will receive an
aggregate amount equal to any preferential amount fixed for
distribution to any class or series of capital stock (other than
common stock) ranking junior to the Series&nbsp;A,
Series&nbsp;B, Series&nbsp;C and Series&nbsp;D Preferred Stock
upon liquidation. This payment will be distributed to the
holders of the then outstanding Series&nbsp;A, Series&nbsp;B,
Series&nbsp;C and Series&nbsp;D Preferred Stock in an equal
amount per share. Finally, after all of the foregoing payments
are made, the holders of the Series&nbsp;A, Series&nbsp;B,
Series&nbsp;C and Series&nbsp;D Preferred Stock will share
ratably with the holders of the Company&#146;s common stock on
an as-converted basis in any further distribution to
stockholders.
</FONT>

<P align="center"><FONT size="2">F-15
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ADVANCIS PHARMACEUTICAL CORPORATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Enterprise)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Conversion</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each share of preferred stock, at the option of
the holder, is convertible into a number of fully paid shares of
common stock as determined by dividing the respective preferred
stock issue price by the conversion price in effect at the time.
The initial conversion price of Series&nbsp;A, Series&nbsp;B,
Series&nbsp;C and Series&nbsp;D Preferred Stock is $1.00, $1.25,
$1.50 and $2.25, respectively, and is subject to adjustment in
accordance with antidilution provisions contained in the
Company&#146;s charter. Conversion is automatic immediately upon
the closing of a firm commitment underwritten public offering in
which the public offering price equals or exceeds $10.00 per
share (adjusted to reflect subsequent stock dividends, stock
splits or recapitalizations) and the net proceeds raised are at
least $20,000,000. Additionally, upon the Company&#146;s receipt
of a notice that the holders of 75% or more of the preferred
stock are electing to convert their shares, all shares of
preferred stock automatically convert to common stock. As of
December&nbsp;31, 2002, 16,009,999&nbsp;shares of common stock
are reserved for the conversion of the Series&nbsp;A,
Series&nbsp;B, Series&nbsp;C and Series&nbsp;D Preferred Stock.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Redemption</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The holder or holders of at least a majority of
the outstanding Series&nbsp;A, Series&nbsp;B, Series&nbsp;C and
Series&nbsp;D Preferred Stock may, by written request after
December&nbsp;31, 2003, require the Company to redeem the
preferred stock by paying in cash a sum equal to 100% of the
original purchase price of the preferred stock plus any declared
but unpaid dividends. Following such a request, and subject to
the following sentence, the Company is obligated to redeem 25%
of the preferred stock then owned by the requesting holders
annually.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If the Company does not have sufficient funds
legally available to redeem all shares of Series&nbsp;A,
Series&nbsp;B, Series&nbsp;C and Series&nbsp;D Preferred Stock
to be redeemed at the redemption date, then the Company shall
redeem such shares ratably to the extent possible subject to the
25% limitation and shall redeem the remaining shares as soon as
sufficient funds are legally available.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At December&nbsp;31, 2002, the combined
redemption amount for Series&nbsp;A, Series B, Series&nbsp;C and
Series&nbsp;D Preferred Stock is $28,514,998. The total carrying
value of the Series&nbsp;A, Series&nbsp;B, Series&nbsp;C and
Series&nbsp;D Preferred Stock differs from the redemption amount
due to stock issuance costs which have been netted from the
proceeds at issuance date, and are being accreted through the
redemption date.
</FONT>

<P align="left">
<B><FONT size="2">7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Warrants</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with the commencement of a lease
for the Company&#146;s premises in December 2001, the Company
granted to the lessor a freely exercisable warrant to purchase
up to 20,000&nbsp;shares of the Company&#146;s common stock (the
&#147;Lessor Warrant Shares&#148;) at an exercise price of $1.25
per share. The expiration date of the warrant is
December&nbsp;1, 2010, which is the tenth anniversary of the
effective date. The Lessor Warrant Shares were valued using the
Black Scholes option pricing model at $0.15 per Lessor Warrant
Share and the aggregate value was de minimus.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In January 2001, the Company entered into a
$1,500,000 line of credit facility to finance the purchase of
specified equipment based on approved equipment schedules (see
Note&nbsp;4). In connection with the line of credit, the Company
agreed to issue the lender&#146;s assignee warrants to purchase
such number of shares of the Company&#146;s common stock as
determined by calculating the following: 4% of the amount of
funds drawn by the Company divided by a per share exercise price
of $1.25. As of December&nbsp;31, 2001, based on actual draw
downs, the Company has issued stock warrants for
42,151&nbsp;shares of common stock (the &#147;Lender Warrant
Shares&#148;). The warrants are immediately exercisable, and the
expiration date is from January&nbsp;22, 2008 to July&nbsp;24,
2008. The Lender Warrant Shares were valued using the Black
Scholes option pricing model at $0.08 per Lender Warrant Share
and the aggregate value was de minimus.
</FONT>

<P align="center"><FONT size="2">F-16
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ADVANCIS PHARMACEUTICAL CORPORATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Enterprise)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In February 2002, the Company entered into a
$2,000,000 line of credit facility to finance the purchase of
specified equipment based on lender approved equipment schedules
(see Note&nbsp;4). In connection with the line of credit, the
Company agreed to issue the lender warrants to purchase such
number of shares of the Company&#146;s common stock as
determined by calculating the following: 2% of the funds drawn
by the Company divided by a per share exercise price of $2.25.
As of December&nbsp;31, 2002, based on actual drawdowns, the
Company has issued stock warrants to purchase 4,691&nbsp;shares
of common stock (the &#147;Lender Warrant Shares&#148;). The
warrants are immediately exercisable, and the expiration date is
July&nbsp;14, 2009 to December&nbsp;10, 2009. The warrants were
valued using the Black Scholes option pricing model at $0.65 per
Lender Warrant Share and the aggregate value was de minimus.
</FONT>

<P align="left">
<B><FONT size="2">8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Common
Stock</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 1999, the Company authorized
2,000,000 shares of common stock. In consideration of the
contribution to the Company of certain property by the
Company&#146;s two founders, the Company issued the founders
1,360,000&nbsp;shares of common stock. After that issuance, the
founders entered into an agreement with the Company pursuant to
which, among other things, a total of 640,000 shares of the
founders&#146; common stock (600,000 shares held by one founder,
40,000 held by the other) were subject to repurchase options.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">One founder&#146;s agreement provided the
Company, in the first instance, and then the preferred
stockholders, the option to purchase (at original cost) 600,000
of the shares held by that founder in the event that
(a)&nbsp;the founder&#146;s employment with the Company is
terminated or (b)&nbsp;the Company fails to satisfy certain
performance objectives. During 2001, the Board of Directors
determined that the Company had achieved its performance
objectives for 2000 and, therefore, 300,000 shares of the
600,000 shares were released from the repurchase option. During
February 2002, the Board of Directors released the remaining
300,000 shares from the repurchase option.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The agreement for the other founder provided the
Company, in the first instance, and then the preferred
stockholders, the option to repurchase 40,000 of the shares held
by a trust related to the founder upon the founder&#146;s
removal from the Board of Directors. This repurchase option
lapsed in November 2001.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On November&nbsp;13, 2000, April&nbsp;24, 2001,
October&nbsp;25, 2001 and February&nbsp;7, 2002, the Board of
Directors approved an amendment to the Company&#146;s charter
that increased the authorized number of shares of common stock
to 8,000,000, 14,000,000, 22,000,000 and 23,333,333,
respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each share of common stock is entitled to one
vote. The holders of common stock are also entitled to receive
dividends whenever funds are legally available and when declared
by the Board of Directors, subject to the prior rights of
holders of all classes of stock outstanding.
</FONT>

<P align="left">
<B><FONT size="2">9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock Option
Plan</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In May 2000, the Company adopted the 2000 Stock
Incentive Plan (the &#147;Plan&#148;). At the time of its
adoption, 640,000 shares of common stock were available for
issuance in connection with awards granted to employees,
directors and consultants under the Plan. In March 2001, October
2001 and April 2002, the number of shares available for issuance
under the Plan was increased to 2,090,100, 2,990,100, and
4,000,000, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Options granted under the Plan may be incentive
stock options or non-statutory stock options. Stock purchase
rights may also be granted under the Plan. Incentive stock
options may only be granted to employees. The Board of Directors
determines the period over which options become exercisable
however, except in the case of options granted to officers,
directors and consultants, options shall become exercisable at a
rate of not less than 25% per year over four years from the date
the options are granted. Options granted to one non-employee
consultant vested over two years; that consultant, however,
terminated her relationship with
</FONT>

<P align="center"><FONT size="2">F-17
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ADVANCIS PHARMACEUTICAL CORPORATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Enterprise)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">the Company during 2002 and the option was
terminated. The exercise price of incentive stock options and
non-statutory stock options shall be no less than 100% of the
fair market value per share of the Company&#146;s common stock
on the grant date. The term of all options is 10&nbsp;years
except, with respect to one incentive stock option held by a
Company executive, the term of which is 5&nbsp;years. As of
December&nbsp;31, 2001 and 2002, there were 843,700 and
1,264,800 shares of common stock available for future option
grants, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table summarizes the activity of
the Company&#146;s stock option plan:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="65%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted-Average</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise Price</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Outstanding, January&nbsp;1, 2000
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Granted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">240,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Exercised
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cancelled
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Outstanding, December&nbsp;31, 2000
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">240,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Granted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,917,400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Exercised
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,097,250</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.21</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cancelled
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Outstanding, December&nbsp;31, 2001
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,049,150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Granted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">668,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.34</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Exercised
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">93,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cancelled
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">79,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.21</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Outstanding&nbsp;&#151; December&nbsp;31, 2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,544,950</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table summarizes information about
stock options outstanding at December&nbsp;31, 2002:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Options Outstanding</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Options Exercisable</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted-Average</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Range of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Remaining</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted-Average</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted-Average</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise Price</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Outstanding</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Contractual Life</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise Price</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercisable</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise Price</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">$0.15 to $0.34</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,544,950</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.84</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">215,350</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.26</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company granted 50,000 and 37,000 stock
options to non-employee consultants and scientific advisory
board members during 2001 and 2002, respectively. The Company
will recognize an expense for such options, based on the fair
value of the options at each reporting period. The options are
valued using the Black Scholes option pricing model and the
aggregate value during 2002 was $155,334. The aggregate value of
the options granted during 2001 was de minimus.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Restricted Stock</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Certain of the Company&#146;s directors,
consultants and employees (and/or immediate family members or
related entities to which certain of those individuals have
transferred their options or shares of common stock) have
entered into the Company&#146;s standard form of stock
restriction agreement as a condition to their exercise of
options to acquire common stock pursuant to the Plan. These
agreements provide, among other things, for a right of first
refusal to the Company in connection with the option
holder&#146;s sale of the common stock, as well as the right for
the Company to purchase the stockholder&#146;s common stock in
the event that the stockholder&#146;s relationship with the
Company is terminated under certain circumstances. Shares issued
under non-statutory stock options exercised prior to vesting are
subject to forfeiture in accordance with the vesting schedule of
the granted stock options. During 2001 and 2002, certain of the
Company&#146;s employees, board
</FONT>

<P align="center"><FONT size="2">F-18
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ADVANCIS PHARMACEUTICAL CORPORATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Enterprise)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">members and consultants exercised unvested stock
options, awarded under the Company&#146;s 2000 Stock Incentive
Plan, to acquire a total of 1,097,250 and 93,000 shares,
respectively, of restricted common stock. Consistent with the
provisions of EITF No.&nbsp;00-23, for all exercises of stock
options into unvested restricted stock after March&nbsp;2002,
the Company recorded a liability for the amount of the proceeds
received, which is reclassified to equity upon the vesting of
the restricted stock. As of December&nbsp;31, 2002, $9,304
related to 31,500 shares of restricted stock was recorded as a
liability. At December&nbsp;31, 2001 and 2002, 1,032,500 and
908,000 shares, respectively of restricted common stock remain
unvested pursuant to awards.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2001, in compliance with the Plan,
non-statutory stock option granted to employees, directors and
outside consultants were replaced with options grants allowing
the early exercise of 100% of the respective options into
unvested restricted stock with the same vesting period as the
stock options. The other terms of the stock option grants were
not changed. Following exercise, the restricted common stock
continues to vest in accordance with the same schedule as the
granted stock options.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Of the stock options exercised in 2001 into
unvested restricted stock, one top executive and two affiliated
trusts exercised a total of 540,000 non-statutory stock options
during 2001 with full-recourse promissory notes for an aggregate
exercise price of $121,500. Interest accrues on the notes at
5.50% and the term of the notes is five years. As of
December&nbsp;31, 2001 and 2002, unpaid interest accrued on the
notes is $1,113 and $1,114, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In February 2002, the Board of Directors modified
the terms of one of the founder&#146;s existing restricted
unvested shares, which effectively gave the Company the right to
repurchase those 100,000 shares of unvested stock if the Company
does not achieve certain performance milestones during 2002. In
January 2003, the Board of Directors released the Company&#146;s
right to repurchase those 100,000 shares of restricted common
stock.
</FONT>

<P align="left">
<B><FONT size="2">10.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income
Taxes</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Deferred tax assets consist of the following:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="66%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December 31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net operating loss carryforwards
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,267,932</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,212,259</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Start-up costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,017,958</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,478,827</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,439</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(128,018</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">201,065</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">288,122</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Charitable contributions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,438</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Research and experimental credit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">220,568</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">856,589</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred tax assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,691,084</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,716,217</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Valuation allowance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,691,084</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,716,217</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net deferred tax assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company has not recorded any tax provision or
benefit for the years ended December&nbsp;31, 2000, 2001 and
2002. The Company has provided a valuation allowance for the
full amount of its net deferred tax assets since realization of
any future benefit from deductible temporary differences and net
operating loss cannot be sufficiently assured at
December&nbsp;31, 2000, 2001 and 2002.
</FONT>

<P align="center"><FONT size="2">F-19
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ADVANCIS PHARMACEUTICAL CORPORATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Enterprise)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At December&nbsp;31, 2001 and 2002, the Company
had federal net operating loss carryforwards of approximately
$3,283,000 and $16,086,000, respectively, available to reduce
future taxable income, which will begin to expire in 2020.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under the provisions of the Internal Revenue
Code, certain substantial changes in the Company&#146;s
ownership may result in a limitation on the amount of net
operating loss carryforwards which can be used in future years.
</FONT>

<P align="left">
<B><FONT size="2">11.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;401(k)
Savings Plan</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2000, the Company established a defined
contribution savings plan under Section&nbsp;401(k) of the
Internal Revenue Code. This plan covers substantially all
employees who meet minimum age and service requirements and
allows participants to defer a portion of their annual
compensation on a pre-tax basis. Company contributions to the
plan may be made at the discretion of the Board of Directors. To
date there were no contributions made to the plan by the Company.
</FONT>

<P align="left">
<B><FONT size="2">12.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Commitments</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company leases office space and certain
office equipment under noncancelable operating leases. The
office lease is for 16&nbsp;months ending on February&nbsp;28,
2003, and the office equipment leases end July&nbsp;31, 2005 and
September&nbsp;30, 2005. Rent expense under these leases was
$58,041, $252,138, $347,901 for the years ended
December&nbsp;31, 2000, 2001, 2002, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In August 2002, the Company entered into a
10-year office and laboratory space lease renewable for two
periods of 5 consecutive years each at the end of the original
term. The Company has taken possession of the lease space during
2003. In conjunction with the execution of the lease agreement,
the Company provided the landlord with a letter of credit, which
the Company collateralized with a $940,800 restricted cash
deposit (see Note&nbsp;2).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Future minimum lease payments under noncancelable
operating leases at December&nbsp;31, 2002 are as follows:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="82%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Operating</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Year Ending December 31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Leases</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">752,332</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">894,486</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2005
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">992,675</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2006
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,014,574</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2007
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,045,011</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Thereafter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,225,521</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,924,599</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">13.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subsequent
Events</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On March&nbsp;28, 2003, the Company issued
$5,000,000 convertible notes to certain of its existing
preferred stockholders. These notes are convertible into shares
of the first Qualified Financing, as defined in the Note
agreement, and bear interest of 7% per annum compounding monthly
until maturity date and 12% per annum compounding monthly after
maturity date. On July&nbsp;2, 2003, the note holders opted to
convert the Convertible Note and accrued interest into 2,263,272
shares of Series&nbsp;E Convertible Preferred Stock at a price
of $2.25 per share.
</FONT>

<P align="center"><FONT size="2">F-20
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ADVANCIS PHARMACEUTICAL CORPORATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Enterprise)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On July&nbsp;2, 2003, the Company sold
2,484,886&nbsp;shares of Series&nbsp;E Convertible Preferred
Stock to certain of its existing preferred stockholders at a
price of $2.25 per share. On July&nbsp;25, 2003, the Company
sold an additional 6,807,398&nbsp;shares of Series&nbsp;E
Convertible Preferred Stock to new investors at $2.25 per share.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On July&nbsp;9, 2003, the Company signed a
commitment letter to secure up to a $5.5&nbsp;million line of
credit from a bank to finance the equipment associated with the
build-out of the Company&#146;s headquarters and laboratory. The
total amount of the line of credit will depend on the amount of
new cash raised by the Company through equity and collaborative
payments, and will become due and payable on demand if the
Company is not able to raise at least $27,000,000 within
12&nbsp;months from the closing of the line of credit. This
commitment is subject to the formal approval of the bank, the
approval of the Maryland Industrial Development Financing
Authority and the receipt by the bank of certain reports from
the Company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On July&nbsp;18, 2003, the Company entered into a
development and license agreement with GlaxoSmithKline (GSK)
pursuant to which the Company has exclusively licensed patents
and PULSYS technology to GSK for use on some of its products.
Under the agreement, GSK will be responsible for the clinical
development, manufacture, commercialization and sale of the
licensed products. In consideration for the licensing of its
technology, the Company is entitled to receive an initial
upfront payment of $5,000,000 and can receive milestone payments
not to exceed $52,000,000 over the development period if it
achieves specified product development goals. In addition, upon
commercialization of any of the products, the Company could
receive royalty payments and may receive additional incentive
payments of up to $50,000,000 if specified annual sales goals
are achieved.
</FONT>

<P align="left">
<B><FONT size="2">14.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Quarterly
Financial Data (Unaudited)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents unaudited quarterly
financial data of the Company. The Company&#146;s quarterly
results of operations for these periods are not necessarily
indicative of future results of operations.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="29%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Basic and</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Diluted Net</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Non-</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Loss Per</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Operating</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Net Loss</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Share</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Income</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Applicable to</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Applicable to</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Operating</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Expense),</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Common</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Common</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Loss</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Net</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Net Loss</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Stockholders</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Stockholders</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Year ended December&nbsp;31, 2001
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">First quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,453,896</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,232</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,446,664</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,452,131</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.45</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Second quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,970,731</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,863</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,967,868</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,976,498</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.92</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Third quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,823,849</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,737</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,821,112</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,830,960</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.71</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fourth quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,005,434</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56,502</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,948,932</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,962,581</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.80</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Year ended December&nbsp;31, 2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">First quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,524,181</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49,064</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,475,117</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,492,278</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.88</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Second quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,660,022</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,098</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,624,924</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,643,708</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.31</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Third quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,072,671</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,931</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,064,740</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,083,730</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.40</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fourth quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,922,135</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(37,079</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,959,214</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,978,204</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.36</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Six months ended June&nbsp;30, 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">First quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,237,382</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,802</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,253,184</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,271,762</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.82</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Second quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,153,926</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(82,353</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,236,279</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,255,062</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.21</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-21
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">You should rely only on the information contained
in this prospectus. We have not authorized anyone to provide you
with information that is different from that contained in this
prospectus. This prospectus is not an offer to sell or a
solicitation of an offer to buy shares of common stock in any
jurisdiction where it is unlawful. The information in this
prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or of any
sale of our common stock.
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<HR size="1" width="100%" align="left" noshade>
</DIV>

<DIV align="left">
<HR size="1" width="100%" align="left" noshade>
</DIV>

<P align="center">
<FONT size="5">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares
</FONT>

<P align="center">
<IMG src="w88581w8858100.gif" alt="Advancis Logo">

<P align="center">
<FONT size="5">Common Stock
</FONT>

<P align="center">
<HR size="1" width="33%" align="center" noshade>

<P align="center">
<FONT size="2">PROSPECTUS
</FONT>

<P align="center">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2003
</FONT>

<DIV align="center">
<HR size="1" width="33%" align="center" noshade>
</DIV>

<P align="left">
<B><FONT size="5">LEHMAN BROTHERS</FONT></B>

<P align="right">
<B><FONT size="5">PACIFIC GROWTH EQUITIES, LLC</FONT></B>

<P align="left">
<HR size="1" width="100%" align="left" noshade>

<DIV align="left">
<HR size="1" width="100%" align="left" noshade>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "PART II INFORMATION NOT REQUIRED IN PROSPECTUS" -->

<P align="center">
<B><FONT size="2">PART&nbsp;II</FONT></B>

<DIV align="center">
<B><FONT size="2">INFORMATION NOT REQUIRED IN
PROSPECTUS</FONT></B>
</DIV>

<!-- link2 "Item 13. Other Expenses of Issuance and Distribution." -->

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;13.</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Other Expenses of Issuance and
    Distribution.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth the various
expenses, other than underwriting discounts and commissions,
payable by us in connection with the sale of the common stock
being registered. All of the amounts shown are estimated except
the Securities and Exchange Commission registration fee.
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="86%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">SEC registration fee
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,978</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">NASD filing fee
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,125</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Nasdaq National Market listing fee
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Printing and engraving expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Legal fees and expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounting fees and expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Blue Sky fees and expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Transfer agent and registrar fees
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Miscellaneous fees and expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">*&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">To be filed by amendment
    </FONT></TD>
</TR>

</TABLE>

<!-- link2 "Item 14. Indemnification of Directors and Officers." -->

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;14.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Indemnification of Directors and
    Officers.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;145 of the Delaware General
Corporation Law provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
corporation) by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation or enterprise.
The indemnity may include expenses (including attorneys&#146;
fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by the person in connection with the
action, suit, or proceeding, provided the person acted in good
faith and in a manner he reasonably believed to be in or not
opposed to the corporation&#146;s best interests and, with
respect to any criminal action or proceeding, had no reasonable
cause to believe that his conduct was unlawful. A similar
standard of care is applicable in the case of actions by or in
the right of the corporation, except that no indemnification may
be made in respect of any claim, issue or matter as to which
such person will have been adjudged to be liable to the
corporation unless and only to the extent that the Delaware
Court of Chancery or the court in which such action was brought
determines that, despite the adjudication of liability but in
view of all of the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for expenses that
the Delaware Court of Chancery or other court shall deem proper.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our certificate of incorporation and bylaws
provide that we will indemnify and advance expenses to our
directors, officers and employees to the fullest extent
permitted by Delaware law in connection with any threatened,
pending or completed action, suit or proceeding to which such
person was or is a party or is threatened to be made a party by
reason of the fact that he or she is or was our director,
officer or employee, or is or was serving at our request as a
director, officer, employee or agent of another corporation or
enterprise. Prior to the closing of this offering, we intend to
enter into indemnification agreements with each of our directors
and executive officers that provide them with rights to
indemnification and expense advancement to the fullest extent
permitted under the Delaware General Corporation Law.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to the consummation of this offering, we
intend to purchase directors&#146; and officers&#146; liability
insurance to insure our directors and officers against liability
for actions or omissions occurring in their capacity as a
director or officer, subject to certain exclusions and
limitations.
</FONT>

<P align="center"><FONT size="2">II-1
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link2 "Item 15. Recent Sales of Unregistered Securities." -->

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;15.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Recent Sales of Unregistered
    Securities.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following is a summary of our sales of
securities during the past three years that were not registered
under the Securities Act of 1933, as amended:
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Issuances of Capital Stock</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 1999 in connection with our
formation, we issued 1,360,000&nbsp;shares of our common stock
to our founders in exchange for certain intellectual property
rights.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In January and June 2000, we issued
2,000,000&nbsp;shares of our Series&nbsp;A Convertible Preferred
Stock to a group of accredited investors at a purchase price of
$1.00 per share for aggregate consideration of $2,000,000.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In November 2000, we issued 2,000,000&nbsp;shares
of our Series&nbsp;B Convertible Preferred Stock to a group of
accredited investors at a purchase price of $1.25 per share for
aggregate consideration of $2,500,000.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In April 2001, we issued 4,010,000&nbsp;shares of
our Series&nbsp;C Convertible Preferred Stock to a group of
accredited investors at a purchase price of $1.50 per share for
aggregate consideration of $6,015,000.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In October 2001, we issued 6,666,666&nbsp;shares
of our Series&nbsp;D Convertible Preferred Stock to a group of
accredited investors at a purchase price of $2.25 per share for
aggregate consideration of $14,999,999.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 2001, we issued a warrant for the
purchase of up to 20,000&nbsp;shares of our common stock to an
accredited investor for an exercise price of $1.25 per share.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In February 2002, we issued 1,333,333 shares of
our Series&nbsp;D Convertible Preferred Stock to a group of
accredited investors at a purchase price of $2.25 per share for
aggregate consideration of $2,999,999.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In March 2003, we issued convertible promissory
notes to a group of accredited investors for aggregate
consideration of $5,000,000. These notes plus accrued interest
converted into 2,263,272&nbsp;shares of Series&nbsp;E
Convertible Preferred Stock in July 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In July 2003, we issued 9,292,284&nbsp;shares of
our Series&nbsp;E Convertible Preferred Stock to a group of
accredited investors at a purchase price of $2.25 per share for
an aggregate consideration of $20,907,639.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In January, March, April, June and July 2001, we
issued warrants for the purchase of up to 7,363, 6,685, 12,514,
3,841 and 11,748&nbsp;shares, respectively, of our common stock
to an accredited investor at an exercise price of $1.25 per
share.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In July and December 2002, we issued warrants for
the purchase of up to 1,644 and 3,047&nbsp;shares, respectively,
of our common stock to an accredited investor at an exercise
price of $2.25 per share.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Stock Options Grants</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">From inception through September 2000, we granted
to our employees, directors and consultants options to purchase
240,000&nbsp;shares of our common stock at an exercise price of
$0.15 per share.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">From January 2001 through March 2001, we granted
to our employees, directors and consultants options to purchase
387,300&nbsp;shares of our common stock at an exercise price of
$0.19 per share.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In March 2001, we granted to our chief executive
officer an option to purchase 180,000&nbsp;shares of our common
stock at an exercise price of approximately $0.21 per share.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">From April 2001 through August 2001, we granted
to our employees, directors and consultants options to purchase
973,600&nbsp;shares of our common stock at an exercise price of
approximately $0.23 per share.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">From November 2001 through present, we granted to
our employees, directors and consultants options to purchase
2,311,450&nbsp;shares of our common stock at an exercise price
of approximately $0.34 per share.
</FONT>

<P align="center"><FONT size="2">II-2
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Stock Options Exercises</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">From inception through the present, we have
issued 159,500&nbsp;shares of our common stock in respect of
stock options exercises at an exercise price of $0.15 per share.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">From inception through the present, we have
issued 233,000&nbsp;shares of our common stock in respect of
stock options exercises at an exercise price of $0.19 per share.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">From inception through the present, we have
issued 775,500&nbsp;shares of our common stock in respect of
stock options exercises at an exercise price of $0.23 per share.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">From inception through the present, we have
issued 192,375&nbsp;shares of our common stock in respect of
stock options exercises at an exercise price of $0.34 per share.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">All of the above-described issuances were exempt
from registration (i)&nbsp;pursuant to Section&nbsp;4(2) of the
Securities Act, or Regulation&nbsp;D or Rule&nbsp;144A
promulgated thereunder, as transactions not involving a public
offering or (ii)&nbsp;Rule&nbsp;701 promulgated under the
Securities Act or (iii)&nbsp;as transactions not involving a
sale of securities. With respect to each transaction listed
above, no general solicitation was made by either us or any
person acting on our behalf; the securities sold are subject to
transfer restrictions; and the certificates for the shares
contained an appropriate legend stating such securities have not
been registered under the Securities Act and may not be offered
or sold absent registration or pursuant to an exemption
therefrom. No underwriters were involved in connection with the
sales of securities referred to in this Item&nbsp;15.
</FONT>

<!-- link2 "Item 16. Exhibits and Financial Statement Schedules." -->

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;16.</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Exhibits and Financial Statement
    Schedules.</FONT></I></B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="85%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Exhibit Description</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">1</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Underwriting Agreement
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Fifth Restated Certificate of Incorporation of
    Advancis Pharmaceutical Corporation, including amendment thereto
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Certificate of Incorporation of Advancis
    Pharmaceutical Corporation to be in effect after the closing of
    the offering made pursuant to this Registration Statement
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amended and Restated Bylaws of Advancis
    Pharmaceutical Corporation, including amendment thereto
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Bylaws of Advancis Pharmaceutical
    Corporation to be in effect after the closing of the offering
    made pursuant to this Registration Statement
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Specimen Stock Certificate
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">5</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Opinion of McCarter&nbsp;&#38; English, LLP
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Executive Employment Agreement between Advancis
    Pharmaceutical Corporation and Edward M. Rudnic dated
    January&nbsp;7, 2000
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Executive Employment Agreement between Advancis
    Pharmaceutical Corporation and Steven A. Shallcross dated
    February&nbsp;22, 2002
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Executive Employment Agreement between Advancis
    Pharmaceutical Corporation and Colin E. Rowlings dated
    February&nbsp;22, 2002
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Executive Employment Agreement between Advancis
    Pharmaceutical Corporation and Kevin S. Sly dated
    February&nbsp;25, 2002
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Executive Employment Agreement between Advancis
    Pharmaceutical Corporation and Robert Guttendorf dated
    January&nbsp;3, 2003
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Offer Letter between Advancis
    Pharmaceutical Corporation and Sandra E. Wassink dated
    April&nbsp;8, 2000
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Offer Letter between Advancis
    Pharmaceutical Corporation and Beth A. Burnside dated
    July&nbsp;17, 2002
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Indemnification Agreement
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">II-3
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="85%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Exhibit Description</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Construction Services Agreement between Advancis
    Pharmaceutical Corporation and Barclay White Skanska, Inc. dated
    July&nbsp;12, 2002, including General Conditions of the Contract
    for Construction
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Lease Agreement between Advancis Pharmaceutical
    Corporation and Seneca Meadows Corporate Center&nbsp;II LLC
    dated August&nbsp;1, 2002
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Note Issuance Agreement between Advancis
    Pharmaceutical Corporation and HealthCare Ventures&nbsp;VI,
    L.P., Rho Management Trust, I, Steven Ostrofsky, Private Equity
    Holdings L.L.C., Targeted Entrepreneurial Services, LLC and the
    DC 1998 NFA Trust FBO Lee Casty dated March&nbsp;28, 2003
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Convertible Promissory Note dated
    March&nbsp;28, 2003
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amendment to Secured Convertible Promissory Note
    dated June&nbsp;23, 2003
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.14</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">2000 Stock Incentive Plan
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Incentive Stock Option Agreement
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Non-qualified Stock Option Agreement
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Stock Restriction Agreement
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.18+</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Development and License Agreement between
    Advancis Pharmaceutical Corporation and GlaxoSmithKline dated
    July&nbsp;18, 2003
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Stock Purchase Pledge Agreement between Advancis
    Pharmaceutical Corporation and Edward M. Rudnic dated
    October&nbsp;15, 2001
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Stock Purchase Promissory Note by Edward
    M. Rudnic dated October&nbsp;15, 2001
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.21</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Fourth Amended and Restated Stockholders&#146;
    Agreement
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.22</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Omnibus Addendum and Amendment to Series&nbsp;E
    Convertible Preferred Stock Purchase Agreement and Fourth
    Amended and Restated Stockholders&#146; Agreement
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">23</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of McCarter &#38; English, LLP (included
    in Exhibit&nbsp;5.1)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">23</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of PricewaterhouseCoopers LLP
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">24</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Powers of Attorney (included on the signature
    page)
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">*&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">To be filed by amendment.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">+&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Confidential treatment requested for certain
    portions of this Exhibit pursuant to Rule&nbsp;406 under the
    Securities Act, which portions are omitted and filed separately
    with the Securities and Exchange Commission.
    </FONT></TD>
</TR>

</TABLE>

<!-- link2 "Item 17. Undertakings." -->

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;17.</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Undertakings.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The undersigned Registrant hereby undertakes to
provide to the underwriters at the closing specified in the
underwriting agreements certificates in such denominations and
registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
</FONT>

<P align="center"><FONT size="2">II-4
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The undersigned Registrant hereby undertakes that:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">For purposes of determining any liability under
    the Securities Act of 1933, the information omitted from the
    form of prospectus filed as part of this registration statement
    in reliance upon Rule&nbsp;430A and contained in a form of
    prospectus filed by the Registrant pursuant to
    Rule&nbsp;424(b)(1) or (4) or 497(h) under the Securities Act
    shall be deemed to be part of this registration statement as of
    the time it was declared effective;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">For the purpose of determining any liability
    under the Securities Act of 1933, each post-effective amendment
    that contains a form of prospectus shall be deemed to be a new
    registration statement relating to the securities offered
    therein, and the offering of such securities at that time shall
    be deemed to be the initial <I>bona fide </I>offering thereof.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">II-5
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "SIGNATURES" -->

<P align="center">
<B><FONT size="2">SIGNATURES</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to the requirements of the Securities
Act, the Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Germantown, State of Maryland, on
August&nbsp;1, 2003.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">ADVANCIS PHARMACEUTICAL CORPORATION
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="2%"></TD>
    <TD width="58%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">By:&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">/s/ EDWARD M. RUDNIC
    </FONT></TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <HR size="1" align="left" noshade></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <FONT size="2">Edward M. Rudnic, Ph.D.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <I><FONT size="2">President, Chief Executive Officer,</FONT></I></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <I><FONT size="2">Treasurer and Director</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to the requirements of the Securities
Act, this Registration Statement has been signed by the
following persons in the capacities indicated on the 1st day of
August, 2003. Each person whose signature appears below hereby
constitutes and appoints Edward&nbsp;M. Rudnic, Ph.D. and
Steven&nbsp;A. Shallcross, or either of them, as such
person&#146;s true and lawful attorney-in-fact and agent with
full power and substitution for such person and in such
person&#146;s name, place and stead, in any and all capacities,
to sign and to file with the Securities and Exchange Commission,
any and all amendments and post-effective amendments to this
Registration Statement, with exhibits thereto and other
documents in connection therewith, including any registration
statements or amendments thereto filed pursuant to
Rule&nbsp;462(b) under the Securities Act, granting unto said
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises, as fully to all intents and
purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and
agent or any substitute therefor, may lawfully do or cause to be
done by virtue thereof.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="39%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="49%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Signature</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Title</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ EDWARD M. RUDNIC<BR>
    <HR size="1" noshade>Edward M. Rudnic, Ph.D.
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">President, Chief Executive Officer, Treasurer and
    Director<BR>
    (Principal Executive Officer)
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ STEVEN A. SHALLCROSS<BR>
    <HR size="1" noshade>Steven A. Shallcross
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Senior Vice President, Chief Financial Officer
    and Secretary<BR>
    (Principal Accounting and Financial Officer)
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ JAMES D. ISBISTER<BR>
    <HR size="1" noshade>James D. Isbister
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Chairman of the Board of Directors
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ JAMES H. CAVANAUGH<BR>
    <HR size="1" noshade>James H. Cavanaugh, Ph.D.
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Director
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ ELIZABETH CZEREPAK<BR>
    <HR size="1" noshade>Elizabeth Czerepak
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Director
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ R. GORDON DOUGLAS, JR.<BR>
    <HR size="1" noshade>R. Gordon Douglas, Jr., M.D.
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Director
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ WAYNE T. HOCKMEYER<BR>
    <HR size="1" noshade>Wayne T. Hockmeyer, Ph.D.
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Director
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ HAROLD R. WERNER<BR>
    <HR size="1" noshade>Harold R. Werner
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Director
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">II-6
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "EXHIBIT INDEX" -->

<P align="center">
<B><FONT size="2">EXHIBIT INDEX</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="85%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Exhibit Description</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">1</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Underwriting Agreement
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Fifth Restated Certificate of Incorporation of
    Advancis Pharmaceutical Corporation, including amendment thereto
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Certificate of Incorporation of Advancis
    Pharmaceutical Corporation to be in effect after the closing of
    the offering made pursuant to this Registration Statement
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amended and Restated Bylaws of Advancis
    Pharmaceutical Corporation, including amendment thereto
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Bylaws of Advancis Pharmaceutical
    Corporation to be in effect after the closing of the offering
    made pursuant to this Registration Statement
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Specimen Stock Certificate
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">5</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Opinion of McCarter&nbsp;&#38; English, LLP
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Executive Employment Agreement between Advancis
    Pharmaceutical Corporation and Edward M. Rudnic dated
    January&nbsp;7, 2000
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Executive Employment Agreement between Advancis
    Pharmaceutical Corporation and Steven A. Shallcross dated
    February&nbsp;22, 2002
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Executive Employment Agreement between Advancis
    Pharmaceutical Corporation and Colin E. Rowlings dated
    February&nbsp;22, 2002
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Executive Employment Agreement between Advancis
    Pharmaceutical Corporation and Kevin S. Sly dated
    February&nbsp;25, 2002
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Executive Employment Agreement between Advancis
    Pharmaceutical Corporation and Robert Guttendorf dated
    January&nbsp;3, 2003
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Offer Letter between Advancis
    Pharmaceutical Corporation and Sandra E. Wassink dated
    April&nbsp;8, 2000
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Offer Letter between Advancis
    Pharmaceutical Corporation and Beth A. Burnside dated
    July&nbsp;17, 2002
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Indemnification Agreement
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Construction Services Agreement between Advancis
    Pharmaceutical Corporation and Barclay White Skanska, Inc. dated
    July&nbsp;12, 2002, including General Conditions of the Contract
    for Construction
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Lease Agreement between Advancis Pharmaceutical
    Corporation and Seneca Meadows Corporate Center&nbsp;II LLC
    dated August&nbsp;1, 2002
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Note Issuance Agreement between Advancis
    Pharmaceutical Corporation and HealthCare Ventures&nbsp;VI,
    L.P., Rho Management Trust, I, Steven Ostrofsky, Private Equity
    Holdings L.L.C., Targeted Entrepreneurial Services, LLC and the
    DC 1998 NFA Trust FBO Lee Casty dated March&nbsp;28, 2003
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Convertible Promissory Note dated
    March&nbsp;28, 2003
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amendment to Secured Convertible Promissory Note
    dated June&nbsp;23, 2003
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.14</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">2000 Stock Incentive Plan
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Incentive Stock Option Agreement
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Non-qualified Stock Option Agreement
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Stock Restriction Agreement
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.18+</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Development and License Agreement between
    Advancis Pharmaceutical Corporation and GlaxoSmithKline dated
    July&nbsp;18, 2003
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Stock Purchase Pledge Agreement between Advancis
    Pharmaceutical Corporation and Edward M. Rudnic dated
    October&nbsp;15, 2001
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Stock Purchase Promissory Note by Edward
    M. Rudnic dated October&nbsp;15, 2001
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.21</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Fourth Amended and Restated Stockholders&#146;
    Agreement
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.22</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Omnibus Addendum and Amendment to Series&nbsp;E
    Convertible Preferred Stock Purchase Agreement and Fourth
    Amended and Restated Stockholders&#146; Agreement
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="84%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Exhibit Description</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">23</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of McCarter &#38; English, LLP (included
    in Exhibit&nbsp;5.1)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">23</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of PricewaterhouseCoopers LLP
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">24</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Powers of Attorney (included on the signature
    page)
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">*&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">To be filed by amendment.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">+&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Confidential treatment requested for certain
    portions of this Exhibit pursuant to Rule&nbsp;406 under the
    Securities Act, which portions are omitted and filed separately
    with the Securities and Exchange Commission.
    </FONT></TD>
</TR>

</TABLE>
</BODY>
</HTML>
[{"type": "S-1", "sequence": "1", "filename": "w88581sv1.htm", "description": "FORM S-1", "secsgml_size_bytes": 1095787}]
{"company-data": {"conformed-name": "ADVANCIS PHARMACEUTICAL CORP", "cik": "0001161924"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-107599", "film-number": "03818760"}, "business-address": {"street1": "942 CLOPPER ROAD", "city": "GAITHERSBURG", "state": "MD", "zip": "20878", "phone": "240-683-9850"}}
ADVANCIS PHARMACEUTICAL CORPORATION
As filed with the Securities and Exchange
Commission on August 1, 2003
Registration
No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Advancis Pharmaceutical Corporation
(Exact name of registrant as specified in its
charter)
Delaware
2834
52-2208264
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification Number)
20425 Seneca Meadows Parkway
Germantown, Maryland 20876
(301) 944-6600
(Address, including zip code, and telephone
number,
including area code, of registrant's
principal executive offices)
Edward M. Rudnic, Ph.D.
President and Chief Executive
Officer
Advancis Pharmaceutical Corporation
20425 Seneca Meadows Parkway
Germantown, Maryland 20876
(301) 944-6600
(Name, address, including zip code, and
telephone number,
including area code, of agent for
service)
With copies to:
Jeffrey A. Baumel, Esq.
Daniel J. Malooly, Esq.
McCarter & English, LLP
300 Park Avenue
New York, New York 10022
(212) 609-6800
R.W. Smith, Jr., Esq.
Howard S. Schwartz, Esq.
Piper Rudnick LLP
6225 Smith Avenue
Baltimore, Maryland 21209
(410) 580-3000
Jeffrey E. Cohen, Esq.
Carol B. Stubblefield, Esq.
Coudert Brothers LLP
1114 Avenue of the Americas
New York, New York 10036
(212) 626-4400
Approximate date of commencement of proposed
sale to the public:
As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this
Form are to be offered on a delayed or continuous basis pursuant
to Rule 415 under the Securities Act of 1933, check the
following
box:
o
If this Form is filed to register additional
securities for an offering pursuant to Rule 462(b) under
the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same
offering.
o
If this Form is a post-effective amendment filed
pursuant to Rule 462(c) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same
offering.
o
If this Form is a post-effective amendment filed
pursuant to Rule 462(d) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same
offering.
o
If delivery of the prospectus is expected to be
made pursuant to Rule 434 under the Securities Act, check
the following
box.
o
CALCULATION OF REGISTRATION FEE
Proposed Maximum
Proposed Maximum
Title of Each Class of Securities
Amount to be
Offering Price Per
Aggregate Offering
Amount of
to be Registered
Registered (1)
Share
Price (2)
Registration Fee
Common Stock, par value $0.01 per share
$86,250,000
$6,978
(1)
Includes a maximum
    of                     shares
    that may be purchased by the Underwriters to cover
    over-allotments, if any.
(2)
Estimated solely for the purpose of computing the
    amount of the registration fee pursuant to Rule 457(o)
    under the Securities Act of 1933.
The registrant hereby amends this registration
statement on such date or dates as may be necessary to delay its
effective date until the registrant shall file a further
amendment which specifically states that this registration
statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the
registration statement shall become effective on such date as
the Commission, acting pursuant to said Section 8(a), may
determine.
The information in this
prospectus is not complete and may be changed. We may not sell
these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and is not soliciting
an offer to buy these securities in any state where the offer or
sale is not permitted.
Subject to Completion,
dated August 1, 2003
PROSPECTUS
Shares
Common Stock
This is the initial public offering of shares of
our common stock. No public market currently exists for our
common stock.
We expect to apply to list our shares of common
stock for quotation on The NASDAQ National Market under the
symbol "AVNC." We anticipate that the initial public
offering price will be between
$     and
$      per share.
Investing in our shares involves risks. See "Risk
Factors" beginning on page 7.
Per Share
Total
Public Offering Price
$
$
Underwriting Discount
$
$
Proceeds to Advancis (before expenses)
$
$
We have granted the underwriters a 30-day option
to purchase up
to            additional
shares of common stock at the public offering price less the
underwriting discount to cover over-allotments.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved
of these securities or determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal
offense.
Lehman Brothers, on behalf of the underwriters,
expects to deliver the shares on or
about                     ,
2003.
LEHMAN
BROTHERS
PACIFIC GROWTH
    EQUITIES, LLC
,
2003
TABLE OF CONTENTS
Page
Prospectus Summary
1
Risk Factors
7
Special Note Regarding Forward-Looking Statements
18
Use of Proceeds
19
Dividend Policy
19
Capitalization
20
Dilution
21
Selected Financial Data
22
Management's Discussion and Analysis of
    Financial Condition and Results of Operations
23
Business
32
Management
48
Certain Relationships and Related Transactions
57
Principal Stockholders
59
Description of Capital Stock
62
Shares Eligible for Future Sale
66
Underwriting
68
Legal Matters
70
Experts
70
Where You Can Find More Information
71
Index to Financial Statements
F-1
Until                     ,
2003 (25 days after the commencement of this offering), all
dealers selling shares of our common stock, whether or not
participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation
to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
i
PROSPECTUS SUMMARY
This summary highlights information contained
elsewhere in this prospectus. This summary does not contain all
of the information you should consider before investing in our
common stock. You should read this entire prospectus carefully,
including the section entitled "Risk Factors" and our
financial statements and the related notes included elsewhere in
this prospectus, before making an investment decision.
References in this prospectus to our certificate of
incorporation and bylaws refer to the certificate of
incorporation and bylaws as the same shall be in effect upon the
completion of this offering. Unless otherwise specified or the
context otherwise requires, references in this prospectus to
"we," "our" and "us" refer to
Advancis Pharmaceutical Corporation.
Our Company
We are a pharmaceutical company focused on
developing and commercializing pulsatile drug products that
fulfill substantial unmet medical needs in the treatment of
infectious disease. We are developing a broad portfolio of drugs
based on our novel biological finding that bacteria exposed to
antibiotics in front-loaded, sequential bursts, or pulses, are
killed more efficiently and effectively than those exposed to
standard antibiotic treatment regimens. Based on this finding,
we have developed a proprietary, once-a-day pulsatile delivery
technology called PULSYS.
We have focused initially on developing pulsatile
formulations of approved and marketed drugs that no longer have
patent protection or that have patents expiring in the next
three years. We currently have three pulsatile drugs in
Phase I/II clinical trials, five pulsatile drugs or drug
combinations in late stage preclinical development and are
exploring pulsatile formulations for a range of other
antibiotics. We are also developing a non-pulsatile, generic
formulation of the antibiotic Biaxin XL, the patent covering the
active pharmaceutical ingredient for which expires in 2005. We
intend to use any cash flow generated by this product to
accelerate development of our pulsatile drug candidates.
We intend to commercialize our products through
third party collaborations and with an internal marketing and
sales force. In July 2003, we entered into a collaboration
agreement with GlaxoSmithKline pursuant to which we licensed
patents and PULSYS technology for use with its Augmentin
(amoxicillin/clavulanate combination) products, which
collectively had 2002 U.S. sales of over $1.5 billion, and with
limited other amoxicillin products. GlaxoSmithKline will be
responsible for the clinical development, manufacture and sale
of the products. We received an initial payment of
$5 million from GlaxoSmithKline upon signing of our
collaboration agreement and can receive milestone payments of up
to $52 million if it achieves specified product development
goals. In addition, upon commercialization of any of the
products, we would receive certain royalty payments and may
receive incentive payments of up to $50 million if
specified annual sales goals are achieved.
Market Opportunity for Pulsatile
Drugs
According to sales data compiled by IMS Health,
an independent pharmaceutical industry research firm, worldwide
anti-infective sales were approximately $44.7 billion in
2002, including $20.3 billion in North America. Antibiotics
accounted for approximately $27.2 billion of such 2002
worldwide sales, including more than $10 billion in North
America. The large market for antibiotics is expected to
continue to grow in light of the aging of the United States
population, the increased use of therapies that compromise the
immune system such as cancer chemotherapy and the growing
prevalence of immune related diseases such as AIDS. Standard
antibiotic regimens have significant limitations, including
ineffectiveness against resistant bacteria, multiple daily
dosing requirements, lengthy treatment periods and the potential
for severe side effects. We believe that the growing problem of
resistance and other limitations of standard antibiotic regimens
are not currently being adequately addressed.
Our Novel Solution
The significant unmet needs in the anti-infective
market prompted our founders to search for a more efficient and
effective method to attack bacteria. We found that, as a result
of the relatively short natural life
1
cycle of bacteria, antibiotics are more effective
in killing bacteria when released in three to five pulses that
each occur within the first six to eight hours following initial
dosing. To exploit this finding, we have developed a
proprietary, once-a-day delivery technology called PULSYS that
enables rapid, pulsatile delivery of antibiotics and improved
bioavailability, or ability to be absorbed by the body. We
believe that our novel finding, as implemented through our
PULSYS technology, will result in the following therapeutic
advantages:
•
Improved bactericidal activity, or bacteria
    killing efficiency;
•
Once daily dosing and shorter length of treatment
    resulting in increased patient convenience and compliance;
•
Lower overall drug dose with reduced side effect
    profile; and
•
Decreased emergence of antibiotic resistant
    bacteria.
While our initial focus has been on developing
pulsatile antibiotics, we believe that pulsatile dosing may
offer therapeutic advantages in the areas of antivirals,
antifungals and oncology. We have implemented a multi-layer
patent strategy to protect our pulsatile antibiotic products as
well as the pulsatile delivery of drugs in other therapeutic
categories.
Product Development Strategy
We intend to develop pulsatile drugs that have
multiple therapeutic advantages over existing antibiotics. We
plan to focus initially on developing improved versions of
approved and marketed drugs, either delivered alone or in
combination with other drugs. We believe that the advantages of
this approach include:
•
Decreased development risk and costs;
•
Decreased development timeframe because we
    anticipate that we may rely, in part, on prior regulatory
    approvals and safety and efficacy data;
•
Reasonable and predictable production costs; and
•
Market acceptance due to the use of well-known
    antibiotics.
PULSYS Commercialization Strategy
Pursue third party collaborations for widely
distributed antibiotics.
We anticipate
collaborating with large pharmaceutical companies to apply our
technology to develop pulsatile versions of widely distributed
antibiotics, such as those prescribed by general practitioners,
as well as combinations of such products. These collaborations
will allow us to enter large markets more quickly with the
greater financial and marketing resources of our partners.
Develop proprietary antibiotic combination
products.
We intend to focus our
initial internal development efforts on pulsatile formulations
of antibiotic combination products that we can market to
concentrated groups of pharmaceutical prescribers, such as
hospital-based physicians or specialists. This concentration
will allow us to commercialize our pulsatile drugs with a
relatively small internal sales force. Our initial proprietary
pulsatile drug candidate is a fluoroquinolone/metronidazole
combination.
Acquire or license antibiotic products.
We intend to acquire or license
antibiotic products that we believe can be improved with our
PULSYS technology. We are focused on acquiring drugs and drug
candidates that would be marketed to concentrated groups of
pharmaceutical prescribers and that have been proven to be safe
and effective.
2
Our Product Pipeline
The following table summarizes the antibiotic
compounds we have in clinical trials and which we expect will
serve as the basis for drug products or, with additional
clinical development, drug combination products.
PULSYS Targeted
Product
Advancis Product
Key Indication(s)
Standard Therapy
Added Value
Opportunity
PHASE I/ II PULSYS PRODUCT
    CANDIDATES
Pulsatile Amoxicillin
Upper respiratory tract infections (URTI),
    urinary tract infections
10-14 days, two or three times daily
Once daily, lower dose, shorter duration
    (5-7 days)
Alone and in combination with other drugs
Pulsatile Clarithromycin
URTI, acute exacerbation of chronic bronchitis
    (AECB), sinusitis
7-14 days, twice daily
Once daily, lower dose, shorter duration
    (5-7 days)
Alone or in combination with other drugs
Pulsatile Metronidazole
Trichomoniasis, amebiasis
1-10 days, one to three times daily
Single dose therapy
Alone and in combination with other drugs
NON-PULSATILE GENERIC PRODUCT CANDIDATE (ANDA
    to be filed)
Clarithromycin extended release
URTI, AECB, sinusitis
7-14 days, once daily
N/ A
Alone
We have five additional pulsatile antibiotic
product candidates in late-stage preclinical development,
including three combination products. With respect to one of the
product candidates, we recently entered into a collaboration
agreement with GlaxoSmithKline pursuant to which we licensed our
patents and PULSYS technology for use with its Augmentin
(amoxicillin/clavulanate combination) products. We are exploring
pulsatile formulations for a range of other antibiotics and
antibiotic combinations.
Corporate Information
We were incorporated in Delaware in December 1999
and commenced operations in January 2000. Our principal
executive offices are located at 20425 Seneca Meadows Parkway,
Germantown, Maryland 20876. Our telephone number is (301)
944-6600. Our website is www.advancispharm.com. Information
contained on our website is not part of, and is not incorporated
into, this prospectus.
Advancis, Advancis Pharmaceutical Corp., the
Advancis logo, PULSYS and MAPS are trademarks of Advancis
Pharmaceutical Corporation. All other trademarks, trade names or
service marks appearing in this prospectus are the property of
their respective owners.
3
THE OFFERING
Common stock offered
shares
    (          shares
    if the underwriters' over-allotment option is exercised in
    full)
Common stock outstanding after this offering
shares
    (          shares
    if the underwriters' over-allotment option is exercised in
    full)
Use of proceeds
We intend to use the net proceeds from this
    offering as follows: research and development including
    preclinical development and clinical trials, purchase of capital
    equipment, licensing activities and general corporate purposes.
    See "Use of Proceeds."
Proposed NASDAQ National Market symbol
AVNC
The total number of outstanding shares of common
stock above excludes:
•
2,801,125 shares of common stock issuable upon
    exercise of stock options outstanding as of June 30, 2003
    at a weighted average exercise price of $0.31 per share; and
•
66,842 shares of common stock issuable upon
    exercise of outstanding warrants as of June 30, 2003 at a
    weighted average exercise price of $1.32 per share.
Except as otherwise indicated, information in
this prospectus:
•
assumes the underwriters have not exercised their
    option to
    purchase                    shares
    to cover over-allotments; and
•
reflects the automatic conversion of 27,565,555
    shares of our outstanding convertible preferred stock into
    27,565,555 shares of common stock upon completion of this
    offering.
4
SUMMARY FINANCIAL DATA
The following table presents summary historical
financial information for us. You should read this information
in conjunction with our financial statements and related notes
and the information under "Selected Financial Data"
and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in
this prospectus.
The pro forma net loss per share and shares used
in computing pro forma net loss per share are calculated as if
all of our convertible preferred stock (including shares issued
after June 30, 2003) were converted into shares of our
common stock on January 1, 2002. The net loss applicable to
common stockholders for the six months ended June 30, 2003
does not include $22,600,000 of deemed interest and dividends
related to a beneficial conversion feature charge associated
with convertible notes and preferred stock issued during 2003
which would be recorded in the second half of 2003. The pro
forma balance sheet data below reflects (i) the issuance of
9,292,284 shares of Series E Convertible Preferred Stock
after June 30, 2003 for cash, (ii) the conversion of
principal and accrued interest with respect to convertible notes
in the aggregate principal amount of $5.0 million issued on
March 28, 2003 into 2,263,272 shares of Series E
Convertible Preferred stock after June 30, 2003, and
(iii) the conversion of each outstanding share of all
classes of our preferred stock into one share of common stock
upon the closing of this offering. The pro forma as adjusted
balance sheet data below reflects the issuance and sale
of                    shares
of our common stock in this offering at an initial public
offering price of
$          per
share (the midpoint of the range of the initial offering price),
after deducting the underwriting discounts and commissions and
estimated offering expenses, and our receipt of the net proceeds
from that sale.
Statements of Operations Data
Year Ended December 31,
Six Months Ended June 30,
2000
2001
2002
2002
2003
(Unaudited)
Revenue
$
—
$
—
$
—
$
—
$
—
Cost and expenses
Research and development
1,133,014
5,295,308
10,855,130
4,660,989
5,537,966
General and administrative
751,962
1,958,602
3,323,879
1,523,214
1,853,342
Total expenses
1,884,976
7,253,910
14,179,009
6,184,203
7,391,308
Loss from operations
(1,884,976
)
(7,253,910
)
(14,179,009
)
(6,184,203
)
(7,391,308
)
Interest income (expense), net
66,713
69,334
102,629
84,162
(98,155
)
Other expense
—
—
(47,615
)
—
—
Net loss
(1,818,263
)
(7,184,576
)
(14,123,995
)
(6,100,041
)
(7,489,463
)
Accretion of issuance costs of mandatorily
    redeemable convertible preferred stock
(11,887
)
(37,594
)
(73,925
)
(35,945
)
(37,361
)
Net loss applicable to common stockholders
$
(1,830,150
)
$
(7,222,170
)
$
(14,197,920
)
$
(6,135,986
)
$
(7,526,824
)
Net loss per share, basic and diluted
$
(2.39
)
$
(6.88
)
$
(8.95
)
$
(4.19
)
$
(4.03
)
Pro forma net loss per share, basic and diluted
$
(0.49
)
$
(0.26
)
Shares used in computing net loss per share,
    basic and diluted
764,712
1,049,915
1,587,117
1,465,294
1,869,276
Shares used in computing pro forma net loss per
    share, basic and diluted
29,152,672
29,434,831
5
Balance Sheet Data
June 30, 2003
(unaudited)
Pro Forma
Actual
Pro Forma
As Adjusted
Cash and cash equivalents
$
244,582
$
21,152,221
$
Total assets
11,029,756
31,937,395
Total liabilities
11,979,852
6,888,463
6,888,463
Total mandatorily redeemable convertible
    preferred stock
28,476,656
—
—
Deficit accumulated during the development stage
(30,616,297
)
(30,616,297
)
(30,616,297
)
Total stockholders' equity (deficit)
(29,426,752
)
25,048,932
6
RISK FACTORS
An investment in our common stock involves a
substantial risk of loss. You should consider carefully the
following risks and other information contained in this
prospectus before you decide whether to purchase our common
stock. Additional risks and uncertainties, including those
affecting the market in which we operate or that we currently
deem immaterial, may also impair our business and operations. If
any such risks should actually occur, our business, results of
operations and financial condition could suffer significantly.
As a result, the market price of our common stock could decline,
and you may lose all or part of your investment.
Risks Related to Our Business
We expect to incur losses for the
    foreseeable future and may never become
    profitable.
From the date we began operations in January 2000
through June 30, 2003, we have incurred operating losses of
approximately $30.7 million. Our losses to date have
resulted principally from research and development costs related
to the development of our product candidates, the purchase of
equipment and establishment of our facilities and general and
administrative costs related to our operations.
We expect to incur substantial losses for the
foreseeable future as a result of increases in our research and
development costs, including costs associated with conducting
preclinical testing and clinical trials, and regulatory
compliance activities.
Our chances for achieving profitability will
depend on numerous factors, including success in:
•
developing and testing product candidates;
•
receiving regulatory approvals;
•
developing proprietary antibiotic products;
•
commercializing our products; and
•
establishing our competitive position.
Many of these factors will depend on
circumstances beyond our control. We cannot assure you that we
will ever become profitable.
Substantially all of our product candidates
    are based on a finding that could ultimately prove to be
    incorrect, or could have limited applicability.
Substantially all of our product candidates are
based on our finding that bacteria exposed to antibiotics in
front-loaded, rapid sequential bursts are eliminated more
efficiently and effectively than those exposed to presently
available treatment regimens. We have not identified with
certainty the actual scientific mechanism that produces the
finding that pulsatile delivery of antibiotics is more effective
than standard treatment regimens, and we have only limited
results from clinical trials involving this finding in humans.
While preliminary studies in animals have supported our finding
that pulsatile delivery of antibiotics is more effective than
standard treatment regimens, no clinical trials testing efficacy
in humans have commenced. Ultimately, our finding may be
incorrect, in which case our pulsatile drugs would not differ
substantially from competing drugs and may be inferior to them.
If these products are substantially identical or inferior to
products already available, the market for our pulsatile drugs
will be reduced or eliminated.
Even if pulsatile dosing is more effective than
ordinary dosing, we may be unable to apply this finding
successfully to a substantial number of products in the
anti-infective market. Our preliminary studies indicate that
pulsatile dosing may not provide superior performance for all
types of antibiotics. Additionally, we have not conducted any
studies with anti-viral or anti-fungal medications. If we cannot
apply our technology to a wide variety of antibiotics or other
anti-infectives, our potential market will be substantially
reduced.
7
Our delivery technology may not be
    effective, which would prevent us from commercializing products
    that are more effective than those of our
    competitors.
Even if we are correct that pulsatile dosing is
more effective than ordinary dosing of antibiotics, our delivery
technology must be effective in humans for the administration of
pulses at an appropriate level. If our PULSYS delivery
technology is not effective in delivering rapid bursts of
antibiotics, or is unable to do so at an appropriate level, and
we are not able to create an alternative delivery method for
pulsatile dosing that proves to be effective, we will be unable
to capitalize on any advantage of our discovery. Should this
occur, our pulsatile product candidates may not be more
effective that those of our competitors, which may decrease or
eliminate market acceptance of our products.
If a competitor produces and commercializes
    an antibiotic that is superior to our pulsatile antibiotics, the
    market for our potential products would be reduced or
    eliminated.
We have devoted a substantial amount of our
research efforts and capital to the development of pulsatile
antibiotics. We have only one product candidate that does not
depend on our PULSYS technology. If a competitor produces and
commercializes an antibiotic or method of delivery of
antibiotics that provides superior safety, effectiveness or
other significant advantages over our pulsatile antibiotics, the
value of our pulsatile drugs would be reduced substantially and,
as a result, without additional products to market or sell, our
ability to generate revenue would be severely compromised. We
would need to conduct substantial new research and development
activities to establish new product targets, which would be
costly and time consuming. In the event we are unable to
establish new product targets, we will be unable to generate
sources of revenue.
We have not commissioned an extensive third
    party patent infringement, invalidity and enforceability
    investigation on pulsatile dosing and we are aware of one issued
    patent covering pulsatile delivery.
Our patents, prior art and infringement
investigations were primarily conducted by our senior management
and other employees. Although our patent counsel has consulted
with management in connection with management's
investigations, our patent counsel has not undertaken an
extensive independent analysis to determine whether our
pulsatile technology infringes upon any issued patents or
whether our issued patents or patent applications covering
pulsatile dosing could be invalidated or rendered unenforceable
for any reason. We are aware of one issued patent owned by a
third party that covers certain aspects of delivering drugs by
use of two delayed release pulses. We cannot assure you that a
claim will not be asserted by such patent holder or any other
holder of an issued patent that any of our products infringe
their patent or that our patents are invalid or unenforceable.
We may be exposed to future litigation by third parties based on
claims that our products or activities infringe the intellectual
property rights of others. We cannot assure you that, in the
event of litigation, any claims would be resolved in our favor.
Any litigation or claims against us, whether or not valid, may
result in substantial costs, could place a significant strain on
our financial resources, divert the attention of management and
harm our reputation. In addition, intellectual property
litigation or claims could result in substantial damages and
force us to do one or more of the following:
•
cease selling, incorporating or using any of our
    products that incorporate the challenged intellectual property;
•
obtain a license from the holder of the infringed
    intellectual property right, which license may be costly or may
    not be available on reasonable terms, if at all; or
•
redesign our products, which would be costly and
    time-consuming and may not be possible.
Our generic clarithromycin product may face
    intellectual property challenge.
Currently, clarithromycin is covered by a series
of patents that are owned or controlled by a company having
substantially greater financial and other resources than us. We
do not intend to market any clarithromycin products until the
patent covering the active pharmaceutical ingredient (API) for
clarithromycin expires in 2005, at which time we intend to
commercialize a generic, extended release clarithromycin product.
8
We are aware of a U.S. patent covering an
extended release clarithromycin product and we are also aware of
issued patents relating to the production of clarithromycin
products. We believe that we will be able to manufacture and
market a formulation of a clarithromycin product without
infringing these patents. In the event a claim is brought
against us, our distributors, licensees or collaborators for
patent infringement, we cannot assure you that any legal
proceedings would be resolved in our favor. If such a dispute
were resolved against us, in addition to potential damages,
which could be substantial, the commercial manufacture or sale
of our generic clarithromycin product candidate could be
enjoined unless a license were obtained. There can be no
assurances that if a license is required, such license would be
made available on terms acceptable to us, or at all. Any claim
of patent infringement may involve substantial expenditures and
divert the time and effort of management.
We do not intend to seek patent protection
    for certain aspects of our technology.
We have not filed for patent protection with
respect to individual dosage forms that are part of our overall
pulsatile antibiotic products, and we may not seek such patent
coverage in the future. In producing such dosage forms, we
expect to use general formulation techniques used in the
industry that would be modified by us and which would,
therefore, include know-how and trade secrets that we have
developed. We cannot be certain that a patent would issue to
cover such intellectual property and we would prefer to keep
such techniques and know-how as our trade secrets. In the event
a competitor is able to develop technology substantially similar
to ours, we may not be able to block its use of such technology,
in which case our potential market may be substantially reduced.
If we are unable to develop and
    successfully commercialize our product candidates, we may never
    achieve profitability.
We have not commercialized any products or
recognized any revenue from product sales. All of our pulsatile
drugs are in early stages of development and currently, only
three pulsatile product candidates are being tested in Phase I/
II clinical trials. We expect that we must conduct significant
additional research and development activities before we will be
able to receive final regulatory approval to commercialize any
pulsatile products. We must successfully complete Phase I/ II
clinical trials, commence and successfully complete Phase III
clinical trials and obtain regulatory approval for our pulsatile
drugs before we are able to generate revenue from their sales.
Even if we succeed in developing and commercializing one or more
of our pusatile drugs, we may never generate sufficient or
sustainable revenue to enable us to be profitable.
If we do not successfully attract and
    retain collaborative partners, or our partners do not satisfy
    their obligations, we will be unable to develop our partnered
    product candidates.
During the early stages of our development, we
intend to enter into collaborative arrangements with third
parties to develop certain product candidates. These
collaborations may be necessary in order for us to:
•
fund our research and development activities;
•
fund manufacturing by third parties;
•
seek and obtain regulatory approvals; and
•
successfully commercialize our product candidates.
Currently, we only have one such collaborative
agreement, which is with GlaxoSmithKline (GSK). In connection
with this agreement, we have granted certain rights regarding
the use of patents and our PULSYS technology with
amoxicillin/clavulanate combination products and certain other
amoxicillin products, including development and marketing
rights. We do not have day-to-day control over the activities of
GSK with respect to any such product candidates. We cannot
assure you that GSK will fulfill its obligations, including the
development and commercialization of any product candidate. If
GSK fails to fulfill its obligations under our agreement, we may
be unable to assume the development of these product candidates
or enter into alternative arrangements with a third party. As a
result, our ability to receive any revenue from these product
candidates is entirely dependent on the efforts of GSK. We could
also become involved in
9
disputes with GSK, which could lead to delays or
termination of our development program and time-consuming and
expensive litigation or arbitration. GSK may terminate this
agreement on relatively short notice. If GSK terminates or
breaches our agreement, or otherwise fails to complete its
obligations in a timely manner, our chances of successfully
developing and commercializing any of these product candidates
would be materially and adversely affected.
In addition, the growth of our business and
development of additional product candidates may require that we
seek additional collaborative partners. We cannot assure you
that we will be able to enter into collaborative agreements with
partners on terms favorable to us, or at all, and any future
agreement may expose us to similar risks that we face under our
agreement with GSK. Our inability to enter into additional
collaborative arrangements with other partners, or our failure
to maintain such arrangements, would limit the number of product
candidates which we could develop and ultimately, decrease our
sources of any future revenues.
If we cannot enter into new licensing
    arrangements, our ability to develop a diverse product portfolio
    could be limited.
A component of our business strategy is
in-licensing drug compounds developed by other pharmaceutical
and biotechnology companies or academic research laboratories
that may be marketed and developed or improved upon using our
novel technologies. Competition for promising compounds can be
intense and currently, we have not entered into any arrangement
to license any drugs from other companies. If we are not able to
identify licensing opportunities or enter into licensing
arrangements on acceptable terms, we will be unable to develop a
diverse portfolio of products.
Our executive officers and other key
    personnel are critical to our business and our future success
    depends on our ability to retain them.
We are highly dependent on the principal members
of our scientific and management teams, including Edward M.
Rudnic, our president and chief executive officer, Steven A.
Shallcross, our senior vice president and chief financial
officer, and Kevin S. Sly, our senior vice president, business
development and marketing. In order to pursue our product
development, marketing and commercialization plans, we will need
to hire additional personnel with experience in clinical
testing, government regulation, manufacturing, marketing and
business development. We may not be able to attract and retain
personnel on acceptable terms given the intense competition for
such personnel among high technology enterprises, including
biotechnology, pharmaceutical and healthcare companies,
universities and non-profit research institutions. If we lose
any of our key personnel, or are unable to attract and retain
qualified personnel, our business, financial condition and
results of operations may be materially and adversely affected.
Our ability to complete clinical trials and
    ultimately, commercialize products will be delayed if we are
    unable to obtain sufficient APIs from certain
    suppliers.
We obtain APIs from certain specialized
manufacturers for use in clinical studies that we intend to
conduct without assistance from collaborative partners. Although
the antibiotics we use in our clinical studies may be obtained
from several API suppliers, our applications for regulatory
approval may authorize only one API supplier as our source. In
the event an authorized supplier in an application for
regulatory approval loses its regulatory status as an acceptable
source or otherwise becomes unable or unwilling to supply the
API to us at a commercially reasonable price, we would need to
locate another source. A change to a supplier not previously
approved in our application for regulatory approval or an
alteration in the procedures or product provided to us by an
approved supplier may require formal approval by the
U.S. Food and Drug Administration (FDA) before we could use
the API in the production of commercial supplies for our
products. These factors could result in delays in conducting or
completing our clinical trials and ultimately delay our ability
to commercialize products.
10
Clinical trials for our product candidates
    may be delayed due to our dependence on third parties for the
    conduct of such trials.
We have limited experience in conducting and
managing clinical trials, and currently, we do not employ any
clinical trial managers. We rely, and will continue to rely, on
third parties, including our collaborative partners, clinical
research organizations and outside consultants, to assist us in
managing and monitoring clinical trials. Our reliance on these
third parties may result in delays in completion of, or the
failure to complete, these trials if they fail to perform their
obligations under our agreements.
If clinical trials for our products are
    unsuccessful or delayed, we will be unable to meet our
    anticipated development and commercialization
    timelines.
We must demonstrate through preclinical testing
and clinical trials that our product candidates are safe and
effective for use in humans before we can obtain regulatory
approvals for their commercial sale. In addition, if we make
claims of superiority over existing products, we will need to
prove such claims in additional clinical trials. For drug
products such as our amoxicillin/clarithromycin combination
product which contains active ingredients in fixed combinations
that have not been previously approved by the FDA, clinical
studies may also need to be conducted in order to establish the
contribution of each active component to the effectiveness of
the combination in an appropriately identified patient
population.
Conducting clinical trials is a lengthy,
time-consuming and expensive process. Currently we only have
three pulsatile drug products in Phase I/II clinical trials
and we have not completed such trials and additional studies in
animals to extrapolate proper dosage for Phase III clinical
efficacy trials in humans. In the event we incorrectly identify
a dosage as appropriate for human clinical trials, any results
we receive from such trials may not properly reflect the actual
efficacy or safety of our products. Furthermore, we do not
expect to have results from Phase III clinical efficacy
trials in humans until at least 2004.
The commencement and rate of completion of
clinical trials for our products may be delayed by many factors,
including:
•
lack of efficacy during the clinical trials;
•
unforeseen safety issues;
•
slower than expected rate of patient recruitment;
    or
•
government or regulatory delays.
The results from preclinical testing and early
clinical trials are often not predictive of results obtained in
later clinical trials. Although a new product may show promising
results in pre-clinical and initial clinical trials, it may
subsequently prove unfeasible or impossible to generate
sufficient safety and efficacy data to obtain necessary
regulatory approvals. Data obtained from preclinical and
clinical studies are susceptible to varying interpretations,
which may delay, limit or prevent regulatory approval. In
addition, we may encounter regulatory delays or rejections as a
result of many factors, including results that do not support
our claims, perceived defects in the design of clinical trials
and changes in regulatory policy during the period of product
development. Our business, financial condition and results of
operations may be materially adversely affected by any delays
in, or termination of, our clinical trials or a determination by
the FDA that the results of our trials are inadequate to justify
regulatory approval.
We may need additional capital in the
    future. If additional capital is not available, we may be forced
    to delay or curtail the development of our product
    candidates.
We anticipate that our existing capital
resources, including the net proceeds of this offering, and
interest earned on such proceeds, will enable us to maintain our
current operations for at least the next 24 months. Our
requirements for additional capital may be substantial and will
depend on many other factors, including:
•
successful commercialization of our generic
    formulation of Blaxin XL;
•
payments received under present or future
    collaborative partner agreements;
11
•
continued progress of research and development of
    our pulsatile drugs;
•
our ability to license drugs from others for use
    with PULSYS;
•
costs associated with protecting our intellectual
    property rights;
•
development of marketing and sales capabilities;
    and
•
market acceptance of our products.
We have no significant committed sources of
additional capital. To the extent our capital resources are
insufficient to meet future capital requirements, we will have
to raise additional funds to continue the development of our
product candidates. We cannot assure you that funds will be
available on favorable terms, if at all. To the extent we raise
additional capital through the sale of securities, the issuance
of those securities could result in dilution to our
stockholders. In addition, if we incur debt financing, a
substantial portion of our operating cash flow may be dedicated
to the payment of principal and interest on such indebtedness,
thus, limiting funds available for our business activities. If
adequate funds are not available, we may be required to curtail
significantly our development and commercialization activities.
We could be forced to pay substantial
    damage awards if product liability claims that may be brought
    against us are successful.
The use of any of our product candidates in
clinical trials, and the sale of any approved products, may
expose us to liability claims and financial losses resulting
from the use or sale of our products. We have obtained limited
product liability insurance coverage for our clinical trials.
However, such insurance may not be adequate to cover any claims
made against us. In addition, we may not be able to maintain
insurance coverage at a reasonable cost or in sufficient amounts
or scope to protect us against losses.
If our products are not accepted by the
    market, our revenues and profitability will
    suffer.
Even if we obtain regulatory approval to market
our products, our products may not gain market acceptance among
physicians, patients, healthcare payors and the medical
community. The degree of market acceptance of any pharmaceutical
product that we develop will depend on a number of factors,
including:
•
demonstration of clinical efficacy and safety;
•
cost-effectiveness;
•
potential advantages over alternative therapies;
•
reimbursement policies of government and
    third-party payors; and
•
effectiveness of our marketing and distribution
    capabilities and the effectiveness of such capabilities of our
    collaborative partners.
Our product candidates, if successfully
developed, will compete with a number of products manufactured
and marketed by major pharmaceutical companies, biotechnology
companies and manufacturers of generic drugs. Our products may
also compete with new products currently under development by
others. Physicians, patients, third-party payors and the medical
community may not accept and utilize any product candidates that
we or our collaborative partners develop. To the extent current
antibiotics already successfully treat certain infections,
physicians may not be inclined to prescribe our pulsatile drugs
for the same indications. If our products do not achieve
significant market acceptance, we will not be able to generate
significant revenues or become profitable.
Because we have limited manufacturing
    capabilities we must rely on third party manufacturers, or
    expend substantial funds to expand our facilities, to
    commercialize our products.
We currently rely on several contractors to
manufacture product samples for our clinical studies that we
intend to conduct without assistance from collaborative
partners. We are in the process of building manufacturing
facilities for production of clinical supplies sufficient for
use through our Phase II and, in
12
some cases, Phase III clinical trials. We
have no experience building manufacturing facilities and we may
not be able to build such facilities at currently anticipated
costs. If the costs of building such facilities significantly
exceed our current expectations, we will be required to use
funds we have allocated for other purposes. In addition, if we
are unsuccessful in building our own manufacturing facilities
and fail to maintain our relationships with our current clinical
supply manufacturers or enter into relationships with new
manufacturers, we will be unable to conduct our clinical trials
effectively.
We intend to rely on third-parties to manufacture
those products that we intend to sell through our own
commercialization and sales efforts. If we are unable to
maintain our relationships with our current manufacturers, enter
into agreements with other third-party manufacturers for the
commercialization of these products or expand our own
facilities, we will not be able to generate revenue from sales
of such products and our business and financial condition will
be materially adversely affected.
If we fail to establish marketing, sales
    and distribution capabilities, or fail to enter into
    arrangements with third parties, we will not be able to
    commercialize our products.
We do not have any sales, marketing or
distribution capabilities. In order to commercialize any product
candidates that receive final regulatory approval, we must
either acquire or develop an internal marketing and sales force
with technical expertise and with supporting distribution
capabilities or make arrangements with third parties to perform
these services for us. In order to market any of our product
candidates directly, we must either acquire or develop. The
acquisition or development of a sales and distribution
infrastructure would require substantial resources, which may
divert the attention of our management and key personnel, and
defer our product development efforts. To the extent that we
enter into marketing and sales arrangements with other
companies, our revenues will depend on the efforts of others.
These efforts may not be successful. If we fail to develop
sales, marketing and distribution channels, or enter into
arrangements with third parties, we will experience delays in
product sales and incur increased costs.
Risks Related To Our Industry
Any inability to protect our intellectual
    property could harm our competitive position and third parties
    may claim that our products infringe on their intellectual
    property rights.
Our success will depend in part on our ability to
obtain patents and maintain adequate protection of other
intellectual property for our technologies and products in the
U.S. and other countries. If we do not adequately protect our
intellectual property, competitors may be able to use our
technologies and erode or negate our competitive advantage.
Further, the laws of some foreign countries do not protect our
proprietary rights to the same extent as the laws of the U.S.,
and we may encounter significant problems in protecting our
proprietary rights in these foreign countries.
The patent positions of pharmaceutical and
biotechnology companies, including our patent positions, involve
complex legal and factual questions and, therefore, validity and
enforceability cannot be predicted with certainty. Patents may
be challenged, deemed unenforceable, invalidated or
circumvented. We will be able to protect our proprietary rights
from unauthorized use by third parties only to the extent that
we cover our proprietary technologies with valid and enforceable
patents or we effectively maintain such proprietary technologies
as trade secrets. We will apply for patents covering both our
technologies and product candidates as we deem appropriate. We
may fail to apply for patents on important technologies or
products in a timely fashion, or at all, and in any event, the
applications we do file may be challenged and may not result in
issued patents. Any future patents we obtain may not be
sufficiently broad to prevent others from practicing our
technologies or from developing competing products. Furthermore,
others may independently develop similar or alternative
technologies or design around our patented technologies. In
addition, if challenged, our patents may be declared invalid.
Even if valid, our patents may fail to provide us with any
competitive advantages.
We rely upon trade secrets protection for our
confidential and proprietary information. We have taken measures
to protect our proprietary information; however, these measures
may not provide adequate protection. We seek to protect our
proprietary information by entering into confidentiality
agreements with
13
employees, collaborators and consultants.
Nevertheless, employees, collaborators or consultants may still
disclose our proprietary information, and we may not be able to
meaningfully protect our trade secrets. In addition, others may
independently develop substantially equivalent proprietary
information or techniques or otherwise gain access to our trade
secrets.
If we do not compete successfully in the
    development and commercialization of products and keep pace with
    rapid technological change, we will be unable to capture and
    sustain a meaningful market position.
The biotechnology and pharmaceutical industries
are highly competitive and subject to significant and rapid
technological change. While we are not aware of any company
using rapid bursts of antibiotics as a treatment method, there
are numerous companies actively engaged in the research and
development of anti-infectives. Many of these companies and
institutions, either alone or together with their collaborative
partners, have substantially greater financial resources and
larger research and development staffs than we do. In addition,
many of these competitors, either alone or together with their
collaborative partners, have significantly greater experience
than we do in:
•
developing products;
•
undertaking preclinical testing and human
    clinical trials;
•
obtaining approvals of products from the FDA and
    other regulatory agencies; and
•
manufacturing and marketing products.
Developments by others may render our product
candidates or technologies obsolete or noncompetitive. We face
and will continue to face intense competition from other
companies for collaborative arrangements with pharmaceutical and
biotechnology companies, for establishing relationships with
academic and research institutions, and for licenses of products
or technology. These competitors, either alone or with their
collaborative partners, may succeed in developing technologies
or products that are more effective than ours.
If we experience delays in obtaining
    regulatory approvals, or are unable to obtain or maintain
    regulatory approvals, we may be unable to commercialize any
    products.
Our product candidates are subject to extensive
and rigorous domestic government regulation. The FDA regulates,
among other things, the development, testing, manufacture,
safety, efficacy, record-keeping, labeling, storage, approval,
advertising, promotion, sale and distribution of pharmaceutical
products. If our products are marketed abroad, they will also be
subject to extensive regulation by foreign governments. None of
our product candidates has been approved for sale in the
U.S. or any foreign market. The regulatory review and
approval process takes many years, requires the expenditure of
substantial resources, involves post-marketing surveillance and
may involve ongoing requirements for post-marketing studies.
Delays in obtaining regulatory approvals may:
•
adversely affect the commercialization of any
    drugs that we or our collaborative partners develop;
•
impose costly procedures on us or our
    collaborative partners;
•
diminish any competitive advantages that we or
    our collaborative partners may attain; and
•
adversely affect our receipt of revenues or
    royalties.
Any required approvals, once obtained, may be
withdrawn. Further, if we fail to comply with applicable FDA and
other regulatory requirements at any stage during the regulatory
process, we may encounter difficulties including:
•
delays in clinical trials or commercialization;
•
product recalls or seizures;
•
suspension of production and/or distribution;
14
•
withdrawals of previously approved marketing
    applications; and
•
fines, civil penalties and criminal prosecutions.
We expect to rely on our collaborative partners
to file investigational new drug applications and generally
direct the regulatory approval process for many of our products.
Our collaborative partners may not be able to conduct clinical
testing or obtain necessary approvals from the FDA or other
regulatory authorities for any product candidates. If we fail to
obtain required governmental approvals, we or our collaborative
partners will experience delays in, or be precluded from,
marketing products developed through our research.
We and our contract manufacturers also are
required to comply with the applicable FDA good manufacturing
practice regulations. Good manufacturing practice regulations
include requirements relating to quality control and quality
assurance as well as the corresponding maintenance of records
and documentation. Manufacturing facilities are subject to
inspection by the FDA. These facilities must be approved before
we can use them in commercial manufacturing of our products. We
or our contract manufacturers may not be able to comply with the
applicable good manufacturing practice requirements and other
FDA regulatory requirements. If we or our contract manufacturers
fail to comply, we could be subject to fines or other sanctions,
or be precluded from marketing our products.
The manufacture and storage of
    pharmaceutical and chemical products is subject to environmental
    regulation and risk.
Because of the chemical ingredients of
pharmaceutical products and the nature of their manufacturing
process, the pharmaceutical industry is subject to extensive
environmental regulation and the risk of incurring liability for
damages or the costs of remedying environmental problems. If we
fail to comply with environmental regulations to use, discharge
or dispose of hazardous materials appropriately or otherwise to
comply with the conditions attached to our operating licenses,
the licenses could be revoked and we could be subject to
criminal sanctions and/or substantial liability or could be
required to suspend or modify our operations.
Environmental laws and regulations can require us
to undertake or pay for investigation, clean-up and monitoring
of environmental contamination identified at properties that we
currently own or operate or that we formerly owned or operated.
Further, they can require us to undertake or pay for such
actions at offsite locations where we may have sent hazardous
substances for disposal. These obligations are often imposed
without regard to fault. In the event we are found to have
violated environmental laws or regulations, our reputation will
be harmed and we may incur substantial monetary liabilities.
Market acceptance of our products will be
    limited if users of our products are unable to obtain adequate
    reimbursement from third-party payors.
The commercial success of our product candidates
will depend in part on the availability of reimbursement from
third-party payors, including government health administrators,
managed care providers and private health insurers. Even if we
succeed in bringing any of our proposed products to market, we
cannot assure you that third-party payors will consider our
products cost-effective or provide reimbursement in whole or in
part for their use.
Significant uncertainty exists as to the
reimbursement status of newly approved health care products.
Third-party payors may conclude that our products are less safe,
effective or cost-effective than existing products. Therefore,
third-party payors may not approve our products for
reimbursement.
If third-party payors do not approve our products
for reimbursement or fail to reimburse them adequately, sales
will suffer as some physicians or their patients will opt for a
competing product that is approved for reimbursement or is
adequately reimbursed. Even if third-party payors make
reimbursement available, reimbursement levels may not be
sufficient for us to realize an appropriate return on our
investment in product development.
15
Moreover, the trend toward managed healthcare in
the United States, the growth of organizations such as health
maintenance organizations, and legislative proposals to reform
healthcare and government insurance programs could significantly
influence the purchase of healthcare services and products,
resulting in lower prices and reduced demand for our products.
In addition, legislation and regulations affecting the pricing
of pharmaceuticals may change in ways adverse to us. While we
cannot predict the likelihood of any of these legislative or
regulatory proposals, if any government or regulatory agencies
adopt these proposals, they could materially adversely affect
our business, financial condition and results of operations.
Risks Related to this Offering
HealthCare Ventures V, L.P. and
    HealthCare Ventures VI, L.P. will have substantial control
    over our business.
HealthCare Ventures V, L.P. and HealthCare
Ventures VI, L.P. currently beneficially owns 55.4% of our
outstanding common stock, and will beneficially
own           %
of our outstanding common stock after this offering
(          %
if the underwriters' over-allotment option is exercised in
full). James H. Cavanaugh and Harold R. Werner, members of
our board of directors, are general partners of HealthCare
Partners V, L.P. and HealthCare Partners VI, L.P.,
which are the general partners of HealthCare Ventures V,
L.P. and HealthCare Ventures VI, L.P., respectively.
Accordingly, the HealthCare Ventures partnerships will be able
to exert significant influence over all matters requiring
stockholder approval, including the election and removal of
directors and any merger, consolidation or sale of all or
substantially all of our assets. In addition, the HealthCare
Ventures partnerships may dictate the day-to-day management of
our business. This concentration of ownership could have the
effect of delaying, deferring or preventing a change in control,
or impeding a merger or consolidation, takeover or other
business combination or a sale of all or substantially all of
our assets.
Future sales of our common stock, or the
    perception that these sales may occur, could depress our stock
    price.
Sales of substantial amounts of our common stock
in the public market, or the perception in the public markets
that these sales may occur, could cause the market price of our
common stock to decline. This could also impair our ability to
raise additional capital through the sale of our equity
securities. Upon completion of this offering, we will
have                      shares
of our common stock outstanding. In addition, as of
June 30, 2003, options to purchase a total of
2,801,125 shares were outstanding, of which 428,950 were
vested. We intend to file a Form S-8 registration statement
to register these and all other shares of common stock issuable
under our stock incentive plan. Following this offering, our
current stockholders and holders of shares of our mandatorily
redeemable convertible preferred stock, options and warrants to
acquire our common stock, on a fully-diluted basis assuming
exercise of all outstanding options and warrants and conversion
of the mandatorily redeemable convertible preferred stock are
expected to
own           %
of the outstanding shares of our common stock,
or           %
if the underwriters' over-allotment option is exercised in
full. Following the expiration of a 180-day "lock-up"
period to which the shares held by our current stockholders will
be subject, the holders of those shares will generally be
entitled to dispose of those shares. Moreover, Lehman Brothers
may, in its sole discretion and at any time without notice,
release those holders from the sale restrictions on their
shares. In addition to the adverse effect a price decline could
have on holders of our common stock, such a decline could impede
our ability to raise capital or to make acquisitions through the
issuance of additional shares of our common stock or other
equity securities.
After this offering, the holders of approximately
27,565,555 shares of our common stock, including shares to
be issued upon the conversion of mandatorily redeemable
convertible preferred stock, will have rights to cause us to
file registration statements on their behalf and to include
their shares in registration statements that we may file on our
behalf or on behalf of other stockholders. By exercising their
registration rights and selling a large number of shares, these
holders could cause the price of our common stock to decline.
Furthermore, if we file a registration statement to offer
additional shares of our common stock and have to include shares
held by those holders, it could impair our ability to raise
needed capital by depressing the price at which we could sell
our common stock.
16
Our certificate of incorporation and
    provisions of Delaware law could discourage a takeover you may
    consider favorable or could cause current management to become
    entrenched and difficult to replace.
Provisions in our certificate of incorporation
and Delaware law may have the effect of delaying or preventing a
merger or acquisition of us, or making a merger or acquisition
less desirable to a potential acquirer, even when the
stockholders may consider the acquisition or merger favorable.
Under the terms of our certificate of incorporation, we are
authorized to issue 25 million shares of "blank
check" preferred stock, and to determine the price,
privileges, and other terms of these shares. The issuance of any
preferred stock with superior rights to our common stock could
reduce the value of our common stock. In particular, specific
rights we may grant to future holders of preferred stock could
be used to restrict an ability to merge with or sell our assets
to a third party, preserving control by present owners and
management and preventing you from realizing a premium on your
shares.
In addition, we are subject to provisions of the
Delaware corporation law that, in general, prohibit any business
combination with a beneficial owner of 15% or more of our common
stock for five years unless the holder's acquisition of our
stock was approved in advance by our board of directors. These
provisions could affect our stock price adversely.
The price of our common stock may be
    volatile.
Prior to this offering, there has been no public
market for our common stock. We cannot predict the extent to
which investor interest will lead to the development of an
active and liquid trading market in our common stock. The
initial public offering price for the shares will be determined
by negotiations between us and the representatives of the
underwriters and may not be indicative of the market price of
the common stock that will prevail in the trading market. The
market price of the common stock may decline below the initial
public offering price. Some companies that have had volatile
market prices for their securities have been subject to
securities class action suits filed against them. If a suit were
to be filed against us, regardless of the outcome, it could
result in substantial costs and a diversion of our
management's attention and resources. This could have a
material adverse effect on our business, results of operations
and financial condition.
We will have broad discretion in how we use
    the proceeds of this offering.
Our management will have considerable discretion
in the application of the proceeds of this offering, and you
will not have the opportunity, as part of your investment
decision, to assess whether we are using the proceeds
appropriately. We may use the proceeds for corporate purposes
that do not immediately enhance our profitability or increase
our market value.
You will suffer immediate and substantial
    dilution.
The initial public offering price per share is
expected to be substantially higher than the net tangible book
value per share immediately after the offering. As a result, you
will pay a price per share that substantially exceeds the book
value of our assets after subtracting our liabilities. Assuming
an offering price of
$          ,
you will incur immediate and substantial dilution of
$          in
the pro forma net tangible book value per share of the common
stock from the price you paid. As of June 30, 2003, we also
had outstanding stock options to purchase 2,801,125 shares
of our common stock at a weighted average exercise price of
$0.31 per share and warrants to purchase 66,842 shares of
our common stock at a weighted average exercise price of $1.32
per share. If these stock options and warrants were exercised,
you would experience additional dilution. See
"Dilution."
17
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus, including the sections entitled
"Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial
Condition and Results of Operations," and
"Business," contains forward-looking statements. These
statements relate to future events or to our future financial
performance, and involve known and unknown risks, uncertainties
and other factors that may cause our actual results, levels of
activity, performance or achievements to be materially different
from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking
statements. In some cases, you can identify forward-looking
statements by the use of words such as "may,"
"could," "expect," "intend,"
"plan," "seek," "anticipate,"
"believe," "estimate," "predict,"
"potential," "continue," or the negative of
these terms or other comparable terminology. You should not
place undue reliance on forward-looking statements since they
involve known and unknown risks, uncertainties and other factors
which are, in some cases, beyond our control and which could
materially affect actual results, levels of activity,
performance or achievements. Factors that may cause actual
results to differ materially from current expectations include,
but are not limited to:
•
general economic and business conditions;
•
changes in governmental laws and regulations
    relating to the development and commercialization of
    pharmaceutical products;
•
the financial condition of our collaborative
    partners;
•
competition in our industry; and
•
the other risks described under "Risk
    Factors" in this prospectus.
All forward-looking statements attributable to us
or persons acting on our behalf are expressly qualified in their
entirety by the cautionary statements set forth in this
prospectus. We are under no obligation to update any
forward-looking statement, whether as a result of new
information, future events or otherwise.
18
USE OF PROCEEDS
We will receive approximately
$           million
in net proceeds from the sale of our common stock in this
offering, or approximately
$           million
if the underwriters' over-allotment option is exercised in
full, based on an assumed initial offering price of
$          per
share (the midpoint of the initial offering price) and after
deducting the estimated underwriting discounts and commissions
and estimated offering expenses payable by us.
We currently intend to use the proceeds of this
offering for research and development activities, including
clinical trials for our product candidates, purchases of capital
equipment, licensing activities and other general corporate
purposes.
The amount and timing of our actual expenditures
will depend on numerous factors, including the progress of our
research and development activities and clinical trials, the
number and breadth of our product development programs, our
ability to establish and maintain corporate collaborations and
other arrangements and the amount of cash, if any, generated by
our operations. In addition, a portion of the net proceeds may
be used for the acquisition of products, businesses and
technologies that are complementary to our own, although we
currently do not have any understandings, commitments or
agreements with respect to acquisitions.
We currently intend to use the proceeds from this
offering as follows:
•
$20.0 million for non-sponsored research and
    development, including pre-clinical development and clinical
    trials;
•
$12.0 million for purchase of capital
    equipment and other research facility improvements, including
    the development of manufacturing capability for clinical trials;
•
$25.0 million in connection with licensing
    activities; and
•
$           million
    of the proceeds for general corporate purposes, including
    working capital and the possible acquisition of pharmaceutical
    products and businesses that are complementary to our own.
    Currently, we have no specific plans or commitments with respect
    to any acquisition. We cannot assure you that we will complete
    any acquisitions or that, if completed, any acquisition will be
    successful.
To the extent that we have research and
development activities that are sponsored by strategic partners,
such as GlaxoSmithKline, we will have additional funds available
for research and development.
We will retain broad discretion in the allocation
and use of the proceeds of this offering. Pending application of
the proceeds, as described above, we will invest any remaining
proceeds in short-term, investment-grade, interest-bearing
securities.
DIVIDEND POLICY
We have never declared nor paid cash dividends on
our common stock. We currently intend to retain our future
earnings, if any, to finance the further development and
expansion of our business and do not intend to pay cash
dividends for the foreseeable future. Any future determination
to pay dividends will be at the discretion of our board of
directors and will depend on our financial condition, results of
operations, capital requirements, restrictions contained in
current or future financing instruments and such other factors
as our board of directors deems relevant.
19
CAPITALIZATION
The following table sets forth our capitalization
as of June 30, 2003:
•
on an actual basis;
•
on a pro forma basis to give effect to
    (i) the issuance after June 30, 2003 of
    9,292,284 shares of Series E Convertible Preferred
    Stock, (ii) the conversion after June 30, 2003 of
    principal and accrued interest with respect to convertible notes
    in the aggregate principal amount of $5.0 million issued on
    March 28, 2003 into 2,263,272 shares of Series E
    Convertible Preferred Stock and (iii) the automatic
    conversion of 27,565,555 shares of all classes of our
    preferred stock into 27,565,555 shares of common stock upon
    the closing of this offering and the change in our authorized
    capital stock resulting from the filing of our restated
    certificate of incorporation; and
•
on a pro forma as adjusted basis to give effect
    to the receipt of the net proceeds from the sale
    of                      shares
    of common stock in this offering at an assumed initial public
    offering price of
    $          per
    share (the midpoint of the range of the initial offering price)
    and after deducting the underwriting discounts and commissions
    and estimated offering expenses.
June 30, 2003
Pro Forma As
Actual
Pro Forma
Adjusted
Convertible Note
$
5,091,389
$
—
$
—
Mandatorily redeemable convertible preferred
    stock:
—
$0.01 par value; 16,009,999 shares authorized;
    16,009,999 shares issued and outstanding at June 30, 2003, 0
    shares issued and outstanding on a pro forma basis and on a pro
    forma as adjusted basis, respectively
28,476,656
—
—
Stockholders' deficit:
Common stock, $0.01 par value;
    23,333,333 shares authorized at June 30, 2003
    and            shares
    authorized on a pro forma and on a pro forma as adjusted basis,
    2,523,875 shares issued and outstanding at June 30,
    2003, 30,089,430 on a pro forma basis
    and           on
    a pro forma as adjusted basis, respectively
25,239
300,894
Capital in excess of par value
6,180,246
60,380,275
Deferred stock-based compensation
(5,015,940
)
(5,015,940
)
(5,015,940
)
Deficit accumulated during the development stage
(30,616,297
)
(30,616,297
)
(30,616,297
)
Total stockholders' equity (deficit)
(29,426,752
)
25,048,932
Total capitalization
$
4,141,293
$
25,048,932
$
The table above does not include:
•
2,801,125 shares of common stock issuable
    upon the exercise of options outstanding as of June 30,
    2003 at a weighted average exercise price of $0.31 per share;
•
3,500 additional shares of common stock available
    for future issuance under our stock incentive plan as of
    June 30, 2003;
•
66,842 shares of common stock issuable upon
    exercise of warrants outstanding as of June 30, 2003 at a
    weighted average exercise price of $1.32 per share; and
•
$22,600,000 of deemed interest and dividends
    related to a beneficial conversion feature charge associated
    with convertible notes and shares of Series E Convertible
    Preferred Stock issued during 2003, which will be recorded in
    the second half of 2003.
•
31,500 shares of outstanding common stock owned
    by three non-management directors, which are subject to vesting
    requirements and, accordingly, not treated as outstanding.
    Consistent with the provisions of EITF No. 00-23, these
    shares will be reclassified to equity upon the lapse of the
    vesting requirements.
20
DILUTION
Our pro forma net tangible book value as of
June 30, 2003 was approximately $24,970,932, or $0.83 per
share, based on the pro forma number of shares of common stock
outstanding as of June 30, 2003 of 30,089,430, calculated
after giving effect to (i) the issuance of
9,292,284 shares of Series E Convertible Preferred
Stock after June 30, 2003, (ii) the conversion after
June 30, 2003 of principal and accrued interest with
respect to convertible notes in the aggregate principal amount
of $5.0 million issued in March 2003 into
2,263,272 shares of Series E Convertible Preferred
Stock and (iii) the automatic conversion of
27,565,555 shares of all classes of our preferred stock
into 27,565,555 shares of common stock upon the closing of
this offering and the change in our authorized capital stock
resulting from the filing of our restated certificate of
incorporation.
Dilution in pro forma net tangible book value per
share represents the difference between the amount per share
paid by purchasers of shares of our common stock in this
offering and the pro forma net tangible book value per share of
our common stock immediately following this offering. After
giving effect to the sale
of                      shares
in this offering at an assumed initial public offering price of
$          per
share (the midpoint of the range of the initial offering price)
and after deducting underwriting discounts and commissions and
estimated offering expenses, our pro forma net tangible book
value as of June 30, 2003 would have been
$                    million
or
$          per
share. This represents an immediate increase in pro forma net
tangible book value of
$          per
share to existing stockholders and an immediate dilution in pro
forma net tangible book value of
$          per
share to new investors purchasing shares in this offering. The
following table illustrates this per share dilution:
Assumed initial public offering price per share
$
Pro forma net tangible book value per share as of
    June 30, 2003
$
Increase per share attributable to new investors
$
As adjusted pro forma net tangible book value per
    share after this offering
$
Dilution in pro forma net tangible book value per
    share to new investors
$
The analysis presented above does not give effect
to the issuance and sale
of                     of
our shares of common stock that will occur if the underwriters
exercise their option to purchase additional shares from us. If
the underwriters exercise such option in full, the pro forma net
tangible book value would be
$          per
share, the increase in pro forma net tangible book value to
existing stockholders would be
$          per
share and the dilution in pro forma net tangible book value to
new investors would be
$          per
share.
The following table summarizes as of
June 30, 2003, on a pro forma basis, the number of shares
purchased from us, the total consideration paid and the average
price per share paid by our existing stockholders and by the
investors purchasing shares in this offering with respect to the
number of shares purchased from us at an assumed offering price
of
$          per
share and before deduction of underwriting discounts and
commissions and estimated expenses:
Shares Purchased
Total Consideration
Average Price
Number
Percent
Amount
Percent
Per Share
Existing stockholders
New investors
Total
The analysis presented in the above table
excludes the 2,801,125 shares of common stock issuable upon
the exercise of options outstanding as of June 30, 2003 and
the issuance
of                 shares
of our common stock that will occur if the underwriters exercise
their over-allotment option in full.
21
SELECTED FINANCIAL DATA
The selected financial data should be read in
conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our
financial statements and the related notes appearing elsewhere
in this prospectus. The statement of operations data for the
fiscal years ended December 31, 2000, 2001 and 2002 and the
balance sheet data as of December 31, 2001 and 2002 are
derived from our audited financial statements appearing
elsewhere in this prospectus. The balance sheet data as of
December 31, 2000 is derived from our audited financial
statements. The statement of operations data for the six months
ended June 30, 2002 and 2003 and the balance sheet data as
of June 30, 2003 are derived from our unaudited financial
statements appearing elsewhere in this prospectus and which, in
the opinion of management, include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair
statement of the results for the unaudited interim periods. The
historical results are not necessarily indicative of the results
to be expected in any future period.
Statements of Operations Data
Year Ended December 31,
Six Months Ended June 30,
2000
2001
2002
2002
2003
(Unaudited)
Revenue
$
—
$
—
$
—
$
—
$
—
Cost and expenses
Research and development
1,133,014
5,295,308
10,855,130
4,660,989
5,537,966
General and administrative
751,962
1,958,602
3,323,879
1,523,214
1,853,342
Total expenses
1,884,976
7,253,910
14,179,009
6,184,203
7,391,308
Loss from operations
(1,884,976
)
(7,253,910
)
(14,179,009
)
(6,184,203
)
(7,391,308
)
Interest income (expense), net
66,713
69,334
102,629
84,162
(98,155
)
Other expense
—
—
(47,615
)
—
—
Net loss
(1,818,263
)
(7,184,576
)
(14,123,995
)
(6,100,041
)
(7,489,463
)
Accretion of issuance costs of mandatorily
    redeemable convertible preferred stock
(11,887
)
(37,594
)
(73,925
)
(35,945
)
(37,361
)
Net loss applicable to common stockholders
$
(1,830,150
)
$
(7,222,170
)
$
(14,197,920
)
$
(6,135,986
)
$
(7,526,824
)
Basic and diluted net loss per share
$
(2.39
)
$
(6.88
)
$
(8.95
)
$
(4.19
)
$
(4.03
)
Shares used in computing net loss per share,
    basic and diluted
764,712
1,049,915
1,587,117
1,465,294
1,869,276
As of December 31,
As of June 30
Balance Sheet Data
2000
2001
2002
2003
(Unaudited)
Cash and cash equivalents
$
2,061,304
$
10,187,189
$
4,059,911
$
244,582
Total assets
3,019,888
18,575,075
9,058,523
11,029,756
Long-term debt, including current portion
—
1,089,882
1,730,934
1,425,429
Mandatory redeemable convertible preferred stock
4,433,481
25,391,170
28,439,295
28,476,656
Deficit accumulated during the development stage
(1,818,263
)
(9,002,839
)
(23,126,834
)
(30,616,297
)
Total stockholders' deficit
(1,710,150
)
(8,701,660
)
(22,701,459
)
(29,426,752
)
22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of our financial
condition and results of operations should be read in
conjunction with the financial statements and the notes to those
statements included elsewhere in this prospectus. This
discussion may contain forward-looking statements that involve
risks and uncertainties. As a result of many factors, such as
those set forth under "Risk Factors" and elsewhere in
this prospectus, our actual results may differ materially from
those anticipated in these forward-looking statements.
Background
Since we began our operations in January 2000, we
have devoted substantially all of our resources to the discovery
and development of pharmaceutical products for the treatment of
bacterial infections. We have not generated any revenues from
product sales. We currently have three pulsatile drugs in Phase
I/ II clinical trials, five pulsatile drugs or drug combinations
in late stage preclinical development and are exploring
pulsatile formulations for a range of other antibiotics and
antibiotic combinations. We have also developed a non-pulsatile,
generic formulation of Biaxin XL.
Revenues.
We have
not generated any operating revenues since our inception. Any
revenues that we may receive in the near future are expected to
consist primarily of license fees, milestone payments and
research reimbursement payments to be received from
collaborative partners. If our development efforts result in
clinical success, regulatory approval and successful
commercialization of our products, we could generate revenues
from sales of our products and from receipt of royalties on
sales of licensed products. We received a payment of
$5 million from GlaxoSmithKline upon signing of our license
agreement in July 2003, which will be deferred and recognized as
revenue throughout the estimated development period of the
contract. Remaining milestone payments under this agreement will
be recognized as revenue in accordance with our revenue
recognition policies set forth in Note 2 to the financial
statements included elsewhere in this document.
Research and Development Expenses.
We expect our research and development
expenses to increase as we continue to develop our product
candidates. These expenses consist primarily of salaries and
related expenses for personnel, fees paid to professional
service providers in conjunction with independently monitoring
our clinical trials and acquiring and evaluating data in
conjunction with our clinical trials, costs of contract
manufacturing services, costs of materials used in clinical
trials and research and development, depreciation of capital
resources used to develop our products, costs of facilities and
the legal costs of pursuing patent protection of our
intellectual property. We expense research and development costs
as incurred. We believe that significant investment in product
development is a competitive necessity and plan to continue
these investments in order to be in a position to realize the
potential of our product candidates and proprietary
technologies. From inception through June 30, 2003, we
spent an aggregate of $22.8 million, including stock-based
compensation expenses of $750,000, on research and development.
We expect to incur licensing costs in the future that could be
substantial, as we increase our efforts to license existing
product candidates.
General and Administrative Expenses.
General and administrative expenses
consist primarily of salaries and other related costs for
personnel serving executive, finance, accounting, information
technology and human resource functions. Other costs include
facility costs not otherwise included in research and
development expense and professional fees for legal and
accounting services. We expect that our general and
administrative expenses will increase as we add personnel and
become subject to the reporting obligations applicable to public
companies. Our general and administrative expenses have
increased as a result of our expansion into a new facility in
June 2003. From inception through June 30, 2003, we spent
an aggregate of $7.9 million, including stock-based
compensation expenses of $235,000, on general and administrative
expenses.
Stock-Based Compensation.
We have recorded deferred stock-based
compensation expense in connection with the grant of stock
options to employees. Deferred stock-based compensation for
options granted to employees is the difference between the fair
value for financial reporting purposes of our common stock on
23
the date such options were granted and their
exercise price. We recorded stock-based compensation of $155,000
and $520,000 during 2002 and the six month period ending
June 30, 2003, respectively, for options granted to
consultants in accordance with Statement of Financial Accounting
Standards No. 123 based on the fair value of the equity
instruments issued. Stock-based compensation for options granted
to consultants is periodically remeasured as the underlying
options vest in accordance with Emerging Issues Task Force Issue
No. 96-18.
We recorded deferred stock-based compensation and
additional paid in capital of approximately $133,000 and
$5.2 million in the year ended December 31, 2002 and
the six month period ending June 30, 2003, respectively,
related to stock options granted to employees. These amounts
were recorded as a component of stockholders' deficit and
are being amortized as charges to operations over the vesting
periods of the options. We recorded amortization of deferred
stock-based compensation of approximately $30,000 and $280,000
for the year ended December 31, 2002 and the six month
period ending June 30, 2003, respectively. For options
granted to employees through June 30, 2003, we expect to
record additional amortization of deferred stock-based
compensation as follows: $1.3 million during the remainder
of 2003, $2.0 million in 2004, $1.0 million in 2005,
$0.5 million in 2006 and $0.2 million in 2007.
Stock-based compensation related to options awarded to employees
and consultants is assigned to all operating expense categories
in the statements of operations. We may record additional
deferred stock-based compensation if we grant additional options
prior to our initial public offering.
Beneficial Conversion Feature.
In March 2003, we issued
$5 million of convertible notes to certain existing
investors. The notes and accrued interest were converted into
2,263,272 shares of Series E Convertible Preferred Stock in
July 2003, at a price of $2.25 per share. As a result, we will
record a beneficial conversion charge in the form of deemed
interest of approximately $1.7 million during the second
half of 2003.
In July 2003, we completed the sale of 9,292,284
shares of Series E Convertible Preferred Stock for $2.25
per share. As a result, we will record a beneficial conversion
charge in the form of deemed dividends of approximately of
$20.9 million during the second half of 2003.
Interest Income (Expense) and Other Expense.
Interest income consists of interest
earned on our cash, cash equivalents and short-term investments.
Interest expense consists of interest incurred on equipment debt
and convertible notes.
We have a limited history of operations. We
anticipate that our quarterly results of operations will
fluctuate for the foreseeable future due to several factors,
including payments made or received pursuant to licensing or
collaboration agreements, progress of our research and
development efforts, and the timing and outcome of regulatory
approvals. Our limited operating history makes predictions of
future operations difficult or impossible. Since our inception,
we have incurred significant losses. As of June 30, 2003,
we had an accumulated deficit of approximately
$30.6 million. We anticipate incurring additional losses,
which may increase, for the foreseeable future.
Results of Operations
Six Months Ended June 30, 2003
    Compared to Six Months Ended June 30, 2002
Revenues.
We did not
record any revenues during the six months ended June 30,
2002 or 2003.
Research and Development
Expenses.
Research and development
expenses increased by $877,000, or 19%, to $5.5 million for
the six months ended June 30, 2003 compared to
$4.7 million for the six months ended June 30, 2002.
Research and development expense consists of salaries and
related costs of research and development personnel, and the
costs of consultants, materials and supplies associated with
research and development projects, as well as clinical studies.
The increase was primarily attributable to higher personnel and
related costs from one period to the other, partially offset by
lower expenditures during 2003 for clinical studies. $608,000 of
the increase was also attributable to stock-based compensation
expense for research and
24
development personnel. During the remainder of
2003, and thereafter, research and development expense will
increase substantially as we increase the number of products for
which we conduct clinical trials.
Six Months Ended June 30,
Research and Development Expenses
2002
2003
Personnel, benefits and related costs
$
2,369,000
$
4,025,000
Consultants, supplies, materials, other direct
    costs
1,485,000
1,268,000
Clinical studies
807,000
245,000
Total
$
4,661,000
$
5,538,000
General and Administrative
Expenses.
General and administrative
expenses increased $330,000, or 22%, to $1.8 million in the
six months ended June 30, 2003 from $1.5 million in
the six months ended June 30, 2002. General and
administrative expenses consist of salaries and related costs
for executive and other administrative personnel. This increase
is primarily due to higher compensation and benefits expenses
related to new hires, legal expenses resulting from product
out-licensing negotiations, consulting fees for business
development activities and stock-based compensation expense of
$192,000 in 2003.
Net Interest Income
(Expense).
Net interest expense in the
six months ended June 30, 2003 was $98,000 compared to net
interest income of $84,000 in the six months ended June 30,
2002. The increase in net interest expense was attributable to
lower average cash balances and lower interest earned on cash in
2003, partially offset by lower interest expense due to the
amounts of interest capitalized related to leasehold
improvements to our new facility in 2003 as compared to 2002.
Six Months Ended June 30,
2002
2003
Interest income
$
245,000
$
35,000
Interest expense
(161,000
)
(133,000
)
Total, net
$
84,000
$
(98,000
)
Fiscal Year Ended December 31, 2002
    Compared to Fiscal Year Ended December 31,
    2001
Revenues.
We did not
record any revenues during the fiscal years ended
December 31, 2002 or 2001.
Research and Development
Expenses.
Research and development
expenses increased $5.6 million, or 106%, to
$10.9 million for the fiscal year ended December 31,
2002 from $5.3 million for the fiscal year ended
December 31, 2001. Research and development expenses
consist of salaries and related costs of research and
development personnel, and the costs of consultants, materials
and supplies associated with research and development projects
as well as clinical studies. The increase was primarily
attributable to higher personnel and related costs and the
activities associated with accelerated research and development
activities related to our lead product candidates. Four of our
lead product candidates were in Phase I clinical trials in
2002. Research and development expenses for the fiscal year
ended December 31, 2002 included $142,000 of stock-based
compensation expense.
Year Ended December 31,
Research and Development Expenses
2001
2002
Personnel, benefits and related costs
$
2,625,000
$
5,518,000
Consultants, supplies, materials, other direct
    costs
2,167,000
3,921,000
Clinical studies
503,000
1,416,000
Total
$
5,295,000
$
10,855,000
General and Administrative
Expenses.
General and administrative
expenses increased $1.3 million, or 65%, to
$3.3 million for the fiscal year ended December 31,
2002 from $2.0 million for the fiscal year ended
December 31, 2001. General and administrative expenses
consist of salaries and related costs for executive
25
and other administrative personnel. The increase
was primarily due to higher compensation and benefits expenses
related to new hires. General and administrative expenses
included $43,000 of stock-based compensation expense.
Net Interest Income (Expense) and Other
Expense.
Net interest income and other
expense was $54,000 for the fiscal year ended December 31,
2002 compared to net interest income of $70,000 for the fiscal
year ended December 31, 2001. The increase in interest
income was attributable to higher average cash balances for the
fiscal year ended December 31, 2002, partially offset by an
increase in interest expense attributable to an increase in our
equipment term loan obligations and other expense of $48,000
consisting of bank commitment fees related to a cancelled debt
financing.
Year Ended December 31,
2001
2002
Interest income
$
184,000
338,000
Interest expense
(114,000
)
(236,000
)
Other expense
—
(48,000
)
Total, net
$
70,000
$
54,000
Fiscal Year Ended December 31, 2001
    Compared to Fiscal Year Ended December 31,
    2000
Revenues.
We did not
record any revenues in either of the fiscal years ended
December 31, 2001 or 2000.
Research and Development
Expenses.
Research and development
expenses increased $4.2 million, or 367.3%, to
$5.3 million for the fiscal year ended December 31,
2001 from $1.1 million for the fiscal year ended
December 31, 2000. Research and development expenses
consist of salaries and related costs of research and
development personnel, and the costs of consultants, materials
and supplies associated with research and development projects
as well as clinical studies. The increase was primarily
attributable to an increase in personnel, the initiation of
clinical studies and related costs in 2001 and the activities
associated with accelerated research and development programs
related to our lead product candidates.
Year Ended December 31,
Research and Development Expenses
2000
2001
Personnel, benefits and related costs
$
598,000
$
2,625,000
Consultants, supplies, materials, other direct
    costs
535,000
2,167,000
Clinical studies
—
503,000
Total
$
1,133,000
$
5,295,000
General and Administrative
Expenses.
General and administrative
expenses increased $1.2 million, or 160.5%, to
$2.0 million for the fiscal year ended December 31,
2001 from $752,000 for the fiscal year ended December 31,
2000. General and administrative expenses consist of salaries
and related costs for executive and other administrative
personnel. This increase was primarily due to higher
compensation and benefits expenses related to new hires,
facilities and related overhead costs.
Net Interest Income
(Expense).
Net interest income was
$70,000 for the fiscal year ended December 31, 2001
compared to net interest income of $67,000 for the fiscal year
ended December 31, 2000. The increase in interest income
for the fiscal year ended December 31, 2001 was
attributable to higher average cash
26
balances in 2001, partially offset by interest
expense of $114,000 attributable to our credit facilities. We
did not have any debt obligations requiring interest charges for
the fiscal year ended December 31, 2000.
Year Ended
December 31,
2000
2001
Interest income
$
67,000
$
184,000
Interest expense
—
(114,000
)
Total, net
$
67,000
$
70,000
Liquidity and Capital Resources
We have funded our operations principally with
the proceeds of $54.5 million from a series of five preferred
stock offerings over the period 2000 through 2003 as follows:
No. of
Price Per
Amount (In
Issue
Year
Shares
Share
Millions)
Preferred Stock, Series A
2000
2,000,000
$
1.00
$
2.0
Preferred Stock, Series B
2000
2,000,000
1.25
2.5
Preferred Stock, Series C
2001
4,010,000
1.50
6.0
Preferred Stock, Series D
2001 and 2002
7,999,999
2.25
18.0
Preferred Stock, Series E
2003
11,555,556
2.25
26.0
27,565,555
$
54.5
Each share of preferred stock is convertible into
one share of our common stock.
In connection with convertible notes and
Series E Convertible Preferred Stock issued in 2003, we
will record a beneficial conversion charge of approximately
$22,600,000 of deemed interest and dividends in the second half
of 2003.
We are a party to four credit facilities for an
aggregate amount of $6.8 million as of July 31, 2003
used to finance the purchase of equipment. Our facilities dated
as of January 2001 and February 2002 have implicit interest
rates of between 8.35% and 11.62%. Our facility dated as of
March 2002 has an interest rate of floating 30-Day LIBOR plus
250 basis points or fixed costs of funds plus 250 basis
points. Our facility dated as of July 2003 has an interest rate
of floating 30-Day LIBOR plus 280 basis points or fixed
cost of funds plus 280 basis points. As of July 31,
2003, $1,299,511 is outstanding under all of these facilities.
At June 30, 2003, cash and cash equivalents
were $245,000 compared to $5.5 million at December 31,
2002. Our cash and cash equivalents are highly liquid
investments with a maturity of three months or less at date of
purchase and consist of time deposits and investments in money
market funds with commercial banks and financial institutions
and high-quality corporate bonds rated AAA to A1+/P1. Also, we
maintain cash balances with financial institutions in excess of
insured limits. We do not anticipate any losses with respect to
such cash balances.
Net cash used in operations was $3.4 million
and $5.6 million for the six months ended June 30,
2003 and 2002, respectively. The net loss for the six months
ended June 30, 2003 of $7.5 million was partially
offset by non-cash charges for depreciation and amortization of
$275,000 and stock-based compensation of $800,000. Net cash used
in investing activities during the first half of 2003 was
$5.1 million and consisted of facility leasehold
improvement payments of $4.8 million and deposits for
property and equipment of $1.1 million, partially offset by
$830,000 in landlord concessions. Net cash from financing
activities for the six months ended June 30, 2003 was
$4.7 million which consists primarily of proceeds from
convertible notes of $5.0 million, offset by payments of
equipment debt financing obligations of approximately $306,000.
Cash used in operations was $12.8 million
and $6.4 million for the years ended December 31, 2002
and 2001, respectively. The net loss for 2002 of
$14.1 million was partially offset by non-cash charges for
27
depreciation and amortization of $503,000 and
stock-based compensation of $185,000. Net cash received from
investing activities for the fiscal year ended December 31,
2002 was $3.0 million and consisted of the sale of
short-term investment obligations of $6.2 million, offset
by restricted cash transfers of $1.4 million, equipment
purchases of approximately $1.4 million and deposits for
property and equipment of $283,000. Net cash from financing
activities for 2002 was $3.6 million, which consisted
primarily of proceeds from the issuance of mandatorily
redeemable convertible series D preferred stock of
$3.0 million and net proceeds from lines of credit related
to equipment financing of approximately $641,000.
The following table summarizes our contractual
obligations at June 30, 2003 and the effects such
obligations are expected to have on our liquidity and cash flows
in future periods.
Payments Due by Period
July to
December
After
Contractual Obligations
Total
2003
2004
2005
2006
2007
2008
2008
(In thousands)
Short and long-term debt
$
1,425
$
324
$
585
$
297
$
186
$
33
$
—
$
—
Operating lease obligations
10,670
497
895
993
1,015
1,045
1,076
5,149
Payments for leasehold improvements
2,187
2,187
—
—
—
—
—
—
Total contractual cash obligations
$
14,282
$
3,008
$
1,480
$
1,290
$
1,201
$
1,078
$
1,076
$
5,149
We intend to spend approximately
$13.0 million for capital expenditures in 2003, of which
$7.5 million will be for leasehold improvements and
$5.5 million for equipment. Total leasehold improvements,
net of landlord allowances, will be approximately
$7.5 million for our new corporate, research and
development facility. As of June 30, 2003, obligations of
approximately $2.2 million remain outstanding under this
project. Capital equipment requirements of $5.5 million
will be utilized for the initial fit-out of our new corporate,
research and development facility. Funding for the equipment
will be primarily from our $5.5 million line of credit
established in July 2003.
Excluded from the above table of commitments at
June 30, 2003 are convertible notes dated as of
March 28, 2003 pursuant to which we borrowed
$5.0 million from HealthCare Ventures VI, L.P. and five
other investors. On July 2, 2003, the investors converted
their notes plus accrued interest into shares of our
Series E Convertible Preferred Stock.
We expect to incur losses from operations for the
foreseeable future. We expect to incur increasing research and
development expenses, including expenses related to additions to
personnel and clinical trials. We expect that our general and
administrative expenses will increase in the future as we expand
our business development, legal and accounting staff, add
infrastructure and incur additional costs related to being a
public company, including directors' and officers'
insurance, investor relations programs and increased
professional fees. Our future capital requirements will depend
on a number of factors, including the continued progress of our
research and development of product candidates, the timing and
outcome of regulatory approvals, payments received or made under
collaborative agreements, the costs involved in preparing,
filing, prosecuting, maintaining, defending and enforcing patent
claims and other intellectual property rights, the acquisition
of licenses to new products or compounds, the status of
competitive products, the availability of financing and our or
our partners' success in developing markets for our product
candidates. We believe our existing cash and cash equivalents,
together with the net proceeds of the Series E Preferred
Stock and this offering, will be sufficient to fund our
operating expenses, debt repayments and capital equipment
requirements for at least the next two years. Without the
proceeds from this offering, we believe that our existing cash
and cash equivalents will be sufficient to fund our operating
expenses, debt repayments and capital expenditures for at least
the next twelve months.
Except for the equipment credit lines described
above, we have no credit facility or other committed sources of
capital. To the extent our capital resources are insufficient to
meet future capital requirements, we will need to raise
additional capital or incur indebtedness to fund our operations.
We cannot assure you that
28
additional debt or equity financing will be
available on acceptable terms, if at all. If adequate funds are
not available, we may be required to delay, reduce the scope of
or eliminate our research and development programs, reduce our
commercialization efforts or obtain funds through arrangements
with collaborative partners or others that may require us to
relinquish rights to certain product candidates that we might
otherwise seek to develop or commercialize independently. Any
future funding may dilute the ownership of our equity investors.
Quantitative and Qualitative Disclosures about
Market Risk
Our exposure to market risk is currently confined
to our cash and cash equivalents and restricted cash that have
maturities of less than three months. We currently do not hedge
interest rate exposure. We have not used derivative financial
instruments for speculation or trading purposes. Because of the
short-term maturities of our cash and cash equivalents, we do
not believe that an increase in market rates would have any
significant impact on the realized value of our investments, but
may increase the interest expense associated with our debt.
Effects of Inflation
Our most liquid assets are cash, cash equivalents
and short-term investments. Because of their liquidity, these
assets are not directly affected by inflation. We also believe
that we have intangible assets in the value of our intellectual
property. In accordance with generally accepted accounting
principles, we have not capitalized the value of this
intellectual property on our balance sheet. Due to the nature of
this intellectual property, we believe that these intangible
assets are not affected by inflation. Because we intend to
retain and continue to use our equipment, furniture and fixtures
and leasehold improvements, we believe that the incremental
inflation related to replacement costs of such items will not
materially affect our operations. However, the rate of inflation
affects our expenses, such as those for employee compensation
and contract services, which could increase our level of
expenses and the rate at which we use our resources.
Recent Accounting Pronouncements
In July 2002, the FASB issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal
Activities"
("SFAS 146"). SFAS 146
addresses issues regarding the recognition, measurement and
reporting of costs that are associated with exit and disposal
activities, including restructuring activities. The scope of
SFAS 146 includes costs to terminate contracts that are not
capital leases, costs to consolidate facilities or relocate
employees and termination benefits provided to employees who are
involuntarily terminated under terms of a one-time benefit
arrangement that is not an ongoing benefit arrangement or an
individual compensation contract. The provisions of the
Statement are effective for exit or disposal activities
initiated after December 31, 2002. We anticipate that the
adoption of SFAS 146 will not have an impact on our
financial position, results of operations or cash flows as of
June 30, 2003.
In December 2002, the FASB issued SFAS
No. 148,
"Accounting for Stock-Based
Compensation — Transition and Disclosure"
("SFAS 148"). SFAS 148 amends SFAS 123,
"Accounting for Stock-Based Compensation,"
to
provide alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based
employee compensation. In addition, this Statement amends the
disclosure requirements of SFAS 123 to require prominent
disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee
compensation and the effect of the method used on reported
results. The alternative methods of transition and additional
disclosure requirements and the new interim disclosure
provisions are effective for fiscal years ending after
December 15, 2002 and for the first interim period
beginning after December 15, 2002, respectively.
In April 2003, the FASB issued SFAS No. 149
"Amendment of Statement 133 on Derivative
Instruments and Hedging Activities"
("SFAS
149"). SFAS 149 amends and clarifies financial accounting
and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities under
SFAS No. 133,
"Accounting for Derivative
Instruments and Hedging Activities."
SFAS 149 is
effective for contracts entered into or modified after
29
June 30, 2003, and for hedging relationships
designated after June 30, 2003, except that the provisions
of SFAS 149 that relate to SFAS No. 133 implementation
issues that have been effective for fiscal quarters that began
prior to June 15, 2003 should continue to be applied in
accordance with their respective effective dates. We are
reviewing the provisions of SFAS 149 and do not anticipate
that the adoption will have a material impact on our financial
condition or results of operations.
In May 2003, the FASB issued SFAS No. 150
"Accounting For Certain Financial Instruments with
Characteristics of both Liabilities and Equity"
("SFAS 150"). SFAS 150 establishes standards
for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity.
It requires that an issuer classify a financial instrument that
is within its scope as a liability (or an asset in some
circumstances). SFAS 150 is effective for financial
instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for
mandatorily redeemable financial instruments of nonpublic
entities. We do not anticipate that the adoption of
SFAS 150 will have a material impact on our financial
condition or results of operations.
In November 2002, the FASB issued Interpretation
No. 45
, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others"
("FIN 45").
FIN 45 elaborates on the existing disclosure requirements
for most guarantees, and clarifies that at the time a company
issues a guarantee, the company must recognize an initial
liability for the fair value of the obligation it assumes under
that guarantee and must disclose that information in its interim
and annual financial statements. The initial recognition and
measurement provisions apply on a prospective basis to
guarantees issued or modified after December 31, 2002. In
accordance with FIN 45, we are required to disclose the
nature and potential future payments under existing guarantees
as of December 31, 2002. We had no guarantees within the
scope of FIN 45 as of December 31, 2002 and June 30,
2003.
In January 2003, the FASB issued FIN No. 46,
"Consolidation of Variable Interest Entities, an
interpretation of Accounting Research Bulletin
No. 51"
("FIN 46"). FIN 46
requires certain variable interest entities to be consolidated
by the primary beneficiary of the entity if the equity investors
in the entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46
is effective for all variable interest entities created or
acquired after January 31, 2003. For variable interest
entities created or acquired prior to February 1, 2003, the
consolidation provisions of FIN 46 must be applied for the
first interim or annual period beginning after June 15,
2003. We have not entered into any contractual relationships
with a variable interest entity as of December 31, 2002 and
June 30, 2003.
Critical Accounting Policies and
Estimates
Our discussion and analysis of our financial
condition and results of operations are based on our financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of
assets, liabilities and expenses. On an ongoing basis, we
evaluate our estimates and judgments, including those related to
accrued expenses, fair valuation of stock related to stock-based
compensation and income taxes. We based our estimates on
historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
We believe the following critical accounting
policies affect our more significant judgments and estimates
used in the preparation of our financial statements.
Revenue Recognition.
We will use the milestone payment
method of revenue recognition when all milestones in respect of
payments to be received under contractual arrangements are
determined to be substantive, at-risk and the culmination of an
earnings process. Substantive milestones are payments that are
conditioned upon events requiring substantive effort, when the
amounts of the milestones are reasonable relative to the time,
effort and risk involved in achieving them and when the
milestones are reasonable
30
relative to each other and the amount of any
up-front payment. If these criteria are not met the timing of
the recognition of revenue from the milestone payment may vary.
Accrued Expenses.
As
part of the process of preparing financial statements we are
required to estimate accrued expenses. This process involves
identifying services that have been performed on our behalf and
estimating the level of service performed and the associated
cost incurred for such service as of each balance sheet date in
our financial statements. Examples of estimated accrued expenses
include professional service fees, such as lawyers and
accountants, contract service fees, such as amounts paid to
clinical monitors, data management organizations and
investigators in conjunction with clinical trials, and fees paid
to contract manufacturers in conjunction with the production of
clinical materials. In connection with such service fees, our
estimates are most affected by our understanding of the status
and timing of services provided relative to the actual levels of
services incurred by such service providers. The majority of our
service providers invoice us monthly in arrears for services
performed. In the event that we do not identify certain costs
that have begun to be incurred or we under- or over-estimate the
level of services performed or the costs of such services, our
reported expenses for such period would be too low or too high.
The date on which certain services commence, the level of
services performed on or before a given date and the cost of
such services are often judgmental. We make these judgments
based upon the facts and circumstances known to us in accordance
with generally accepted accounting principles.
Stock-Based Compensation.
We have elected to follow APB Opinion
No. 25, Accounting for Stock Issued to Employees, and
related interpretations, in accounting for our stock-based
compensation plans, rather than the alternative fair value
accounting method provided for under SFAS No. 123,
Accounting for Stock-Based Compensation. In the notes to our
financial statements we provide pro forma disclosures in
accordance with SFAS No. 123 and related pronouncements. We
account for transactions in which services are received in
exchange for equity instruments based on the fair value of such
services received from non-employees or of the equity
instruments issued, whichever is more reliably measured, in
accordance with SFAS No. 123 and EITF Issue No. 96-18,
Accounting for Equity Instruments that Are Issued to Other than
Employees for Acquiring, or in Conjunction with Selling, Goods
or Services. The two factors which most effect charges or
credits to operations related to stock-based compensation are
the fair value of the common stock underlying stock options for
which stock-based compensation is recorded and the volatility of
such fair value. If our estimates of the fair value of these
equity instruments are too high or too low, it would have the
effect of overstating or understating expenses. Because shares
of our common stock have not been publicly traded, market
factors historically considered in valuing stock and stock
option grants include comparative values of public companies
discounted for the risk and limited liquidity provided for in
the shares we are issuing, pricing of private sales of our
convertible preferred stock and the effect of events that have
occurred between the time of such grants, economic trends,
perspective provided by investment banks and the comparative
rights and preferences of the security being granted compared to
the rights and preferences of our other outstanding equity.
Income Taxes.
As
part of the process of preparing our financial statements we are
required to estimate our income taxes in each of the
jurisdictions in which we operate. We account for income taxes
by the liability method. Under this method, deferred income
taxes are recognized for tax consequences in future years of
differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end, based on
enacted laws and statutory tax rates applicable to the periods
in which the differences are expected to affect taxable income.
Valuation allowances are provided if, based upon the weight of
available evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized.
We have not recorded any tax provision or benefit
for the years ended December 31, 2001 and 2002. We have
provided a valuation allowance for the full amount of our net
deferred tax assets since realization of any future benefit from
deductible temporary differences and net operating loss carry
forwards cannot be sufficiently assured at December 31,
2001 and 2002. At December 31, 2001 and 2002, we had
federal net operating loss carryforwards of approximately
$3.3 million and $16.1 million, respectively,
available to reduce future taxable income, which will begin to
expire in 2020. Under the provisions of the Internal Revenue
Code, certain substantial changes in our ownership may result in
a limitation on the amount of net operating loss carryforwards
that can be used in future years.
31
BUSINESS
Overview
We are a pharmaceutical company focused on
developing and commercializing pulsatile drug products that
fulfill substantial unmet medical needs in the treatment of
infectious disease. We are developing a broad portfolio of drugs
based on our novel biological finding that bacteria exposed to
antibiotics in front-loaded, sequential bursts, or pulses, are
killed more efficiently and effectively than those exposed to
standard antibiotic treatment regimens. Based on this finding,
we have developed a proprietary, once-a-day pulsatile delivery
technology called PULSYS. We have focused initially on
developing more effective, pulsatile formulations of approved
and marketed drugs that no longer have patent protection or that
have patents expiring in the next three years. We intend to
commercialize our products through third party collaborations
and with an internal marketing and sales force. We recently
entered into a collaboration agreement with GlaxoSmithKline for
the development, manufacture and sale of a pulsatile version of
its antibiotic Augmentin, which had U.S. sales of over
$1.5 billion in 2002.
Advancis Highlights
Focus on significant unmet needs in the
growing antibiotic market.
The large
market for antibiotics is expected to continue to grow in light
of the aging of the United States population, the increased use
of therapies that compromise the immune system such as cancer
chemotherapy and the growing prevalence of immune related
diseases such as AIDS. In addition, the increased incidence of
antibiotic resistant bacteria has limited the effectiveness of
many currently available antibiotics. Despite the substantial
and growing antibiotic market, there has been little progress in
addressing the limitations of currently available antibiotics,
such as increased incidence of resistant bacteria and
inconvenient multiple daily dosage requirements and lengthy
treatments, which reduce patient compliance. Many large
pharmaceutical companies have reduced discovery and development
efforts in this sector and others have stopped developing
antibiotic products. We believe that the unmet needs and
apparent lack of emphasis by many large pharmaceutical companies
create substantial opportunities in this market.
Broadly applicable approach with multiple
advantages.
We believe our pulsatile
drugs have multiple therapeutic advantages over currently
available antibiotics, including improved efficacy, reduced
incidence of resistance, fewer side effects, once daily dosing,
shorter treatment periods and increased bioavailability (or
ability to be absorbed by the body). Although our studies of
pulsatile drugs have been limited to antibiotics, we believe
that pulsatile dosing may offer therapeutic advantages in the
areas of antivirals, antifungals and oncology.
Anticipated reduced development risk, cost and
time frame.
We intend to reduce
development risk and expense and decrease time to market for our
drug candidates by focusing on developing improved versions of
approved and marketed drugs, either delivered alone or in
combination with other drugs. Since these existing drugs have
already been proven to be safe and effective, we anticipate
being able to rely, in part, on prior regulatory approvals and
existing safety and efficacy data in seeking FDA approval of our
pulsatile drugs. We expect that our ability to rely on these
prior approvals and existing data will significantly reduce the
costs associated with generating our own pre-clinical and
clinical data and accelerate our drug development process.
Pipeline of product candidates in clinical and
pre-clinical trials.
We currently have
three pulsatile drugs in Phase I/II clinical trials, five
pulsatile drugs or drug combinations in late stage preclinical
development and are exploring pulsatile formulations for a range
of other antibiotics and antibiotic combinations. We are also
developing a non-pulsatile, generic formulation of Biaxin XL,
the patent covering the active pharmaceutical ingredient for
which expires in 2005. We intend to use any cash flow generated
by this product to accelerate development of our pulsatile drug
candidates.
Multiple PULSYS commercialization
strategies.
We anticipate
collaborating with other large pharmaceutical companies, in
addition to GlaxoSmithKline, to apply our technology to develop
pulsatile versions of widely distributed antibiotics, such as
those prescribed by general practitioners, as well as
combinations of
32
such products. These collaborations will allow us
to enter large markets more quickly with the greater financial
and marketing resources of our partners. We also intend to
develop proprietary antibiotic combination products and will
seek to in-license or acquire antibiotic products that we
believe can be improved with our PULSYS technology. Our internal
product development and drug acquisition activities are focused
on drugs that we can sell to concentrated groups of
pharmaceutical prescribers, such as hospital-based physicians
and specialists. This concentration will allow us to
commercialize our proprietary pulsatile drugs with a relatively
small internal sales force. These strategies provide us with a
broad range of opportunities to achieve commercial success.
Multi-level patent
strategy.
We have implemented a
multi-level patent strategy in order to protect our pulsatile
drugs. The first level is comprised of "umbrella"
patents and patent applications to protect the pulsatile
delivery of general classes of drugs, such as antibiotics and
antivirals. The second level is comprised of
"sub-umbrella" patents and patent applications,
protecting the pulsatile delivery of subclasses of drugs, such
as beta-lactam antibiotics with enzyme inhibitors. The third
level includes filing patent applications for specific pulsatile
drugs. We intend to continue to use and enhance this strategy in
order to protect our intellectual property. We currently own
three issued U.S. patents, six allowed U.S. patents,
over 20 U.S. patent applications and four international
patent applications.
Market Opportunity
Infectious diseases are caused by pathogens such
as bacteria, viruses and fungi that enter the body through the
skin or mucous membranes of the lungs, nasal passages and
gastrointestinal tract, and overwhelm the body's immune
system. These pathogens establish themselves in various tissues
and organs throughout the body and cause a number of serious
and, in some cases, lethal infections.
We believe that the antibiotic market presents a
highly attractive opportunity for the following reasons:
Substantial market.
Antibiotics, along with antiviral medications and antifungal
medications, constitute the primary categories of the
anti-infective market. According to sales data compiled by IMS
Health, an independent pharmaceutical industry research firm,
worldwide anti-infective sales were approximately
$44.7 billion in 2002, including $20.3 billion in
North America. Antibiotics accounted for approximately
$27.2 billion of such 2002 worldwide sales, including more
than $10 billion in North America.
Increased resistance to existing
therapies.
Certain medical practices
and sociological factors have led to increased bacterial
resistance to many currently available antibiotics. Bacterial
resistance has been fostered through the erroneous prescription
of anti-infective drugs for non-bacterial infections and
unconfirmed infections and the administration of broad spectrum
antibiotics before the specific disease-causing pathogen has
been identified. In addition, the lack of patient compliance
with prescribed course of therapies has contributed to bacterial
resistance to currently marketed compounds. For example, it is
estimated that penicillin is ineffective against one-third of
all
Streptococcus pneumoniae
, a type of bacteria that can
cause pneumonia, meningitis and ear infections. The increased
prevalence of resistant bacteria has resulted in prolonged
hospitalizations, increased healthcare costs and higher
mortality rates.
Growing need for improved new
drugs.
Social and demographic factors
are contributing to the growth in the antibiotic market and the
need for new, more effective therapies. The aging population of
the United States is more likely to have suppressed immune
systems and will require drugs that are effective against
increasingly resistant strains of bacteria. Patients diagnosed
with diseases that target the immune system, such as AIDS,
increasingly require therapies that are more effective to combat
infection. In addition, the pharmaceutical industry continues to
develop therapeutics, such as cancer chemotherapy, that weaken
the immune system as a side effect of the primary therapy. As a
result, there is a strong demand for new treatments that are
more potent, more effective against resistant strains and that
cause fewer side effects.
Difficulties in developing new classes of
anti-infective compounds.
We believe
that the growing problem of resistance and other limitations of
currently available antibiotics are not being adequately
addressed. Moreover, many of the large pharmaceutical companies
have reduced research and development efforts in this
33
sector and others have stopped producing
anti-infective products, possibly because of the difficulties
involved in developing new antibiotic compounds.
Reduced development risk and
costs.
In vitro
and early
in
vivo
testing of anti-infective drugs has been shown to be
more predictive of human clinical results than testing in other
therapeutic categories. Accordingly, there is reduced
development risk and cost associated with the production of
anti-infective products.
Limitations of standard treatment regimens.
In addition to the increased incidence
of antibiotic resistant bacteria, we believe that standard
antibiotic treatment regimens have several other limitations,
including multiple daily dosage requirements, lengthy treatment
periods, limited effectiveness and severe side effects, all of
which decrease patient compliance and ultimately, therapeutic
efficacy.
Our Solution
Our Novel Discovery
The significant unmet needs in the anti-infective
market prompted our founders to search for a more efficient
method to attack bacteria. We found that, as a result of the
relatively short natural life cycle of bacteria, antibiotics are
more effective in killing bacteria when released in three to
five pulses that each occur within the first six to eight hours
following initial dosing. To exploit this finding, we have
developed a proprietary, once-a-day delivery technology called
PULSYS that enables rapid, pulsatile delivery of antibiotics and
improved bioavailability, or ability to be absorbed by the body.
We believe that our novel finding, as implemented through our
PULSYS technology, will result in the following therapeutic
advantages:
•
Improved bactericidal activity, or bacteria
    killing efficiency;
•
Once daily dosing and shorter length of treatment
    resulting in increased patient convenience and compliance;
•
Lower overall drug dose with reduced side effect
    profile; and
•
Decreased emergence of antibiotic resistant
    bacteria.
Biological Foundation for Our
    Approach
Our approach to improving antibiotic
effectiveness represents a departure from traditional methods,
which were focused on increasing drug dosages and searching for
new classes of drugs. Our pulsatile dosing approach attempts to
increase antibiotic effectiveness by better addressing the
growth cycle and natural defense mechanisms of bacteria. Studies
have shown that antibiotics are generally more effective against
bacteria that are actively growing. Following the administration
of a dose of immediate release antibiotics, surviving bacteria
generally react by entering into a dormant state during which
the bacteria are more difficult to kill. Our preclinical studies
show that our pulsatile approach is more effective because the
gradually increasing staggered releases of drugs do not appear
to trigger the natural defense mechanisms in bacteria that cause
the bacteria to enter into a dormant state. As a result, the
active bacteria may be acted upon and killed more easily by the
antibiotic agent. By keeping the bacteria in an active,
non-defensive state, we may be able to increase antibiotic
effectiveness without increasing overall dosages.
34
The graph below illustrates drug concentration in
a patient's bloodstream over a 24-hour period comparing
drugs administered through our PULSYS system with standard twice
daily dosing. The standard dosing regimen reflects the
administration of an immediate release tablet at the start of a
day, followed by an additional immediate release tablet
12 hours later. The PULSYS profile reflects the
administration of a single dose designed to release the drug in
four front-loaded pulses, with no additional doses administered
for the balance of the day.
Preclinical Results
We have evaluated the effectiveness of
antibiotics administered in front-loaded, sequential pulses in
both laboratory and animal studies. Our preliminary findings
indicate that the pulsatile dosing of certain antibiotics not
only eliminates more bacteria and may lower the development of
antibiotic-resistant bacteria strains, but that it is able to do
so at significantly lower drug concentrations and with shorter
courses of therapy than those required under currently available
treatments. For example, our preclinical studies with
amoxicillin have shown that:
•
Amoxicillin when administered once daily using
    our PULSYS system eliminated more intermediate-resistant
Strep. pneumoniae
than amoxicillin administered in a
    standard twice daily dosing regimen;
•
Strep. pneumoniae
becomes more resistant after three or four days of two or three
    times a day dosing of amoxicillin, but does not become resistant
    after once daily dosing with our PULSYS system over the same
    time period; and
•
Amoxicillin delivered through our PULSYS system
    eliminates
Strep. pneumoniae
at levels below the lowest
    concentration believed to inhibit the growth of the bacteria, or
    its minimum inhibitory concentration.
PULSYS — Our Enabling
Technology
In order to develop drugs based on our novel
biological finding, we created a proprietary, once-a-day drug
delivery technology called PULSYS that enables gradually
increasing staggered doses of antibiotics. The PULSYS dosage
form consists of a tablet that contains multiple pellets with
varying release profiles that are combined in a proportion to
produce optimum medication levels during the first few hours
after dosing. We anticipate that our pulsatile drugs will each
provide for once-a-day dosing. PULSYS utilizes commonly used
inactive ingredients and common manufacturing processes. We are
also exploring the administration of pulsatile drugs in forms
other than tablets.
35
PULSYS drugs are designed using MAPS, our
proprietary enabling design regimen, which we created to
evaluate and develop new pulsatile drug candidates. MAPS
combines computer simulations with microbiology and other
laboratory experiments to analyze the physical, chemical,
biological and microbiological properties of each specific
antibiotic in order to optimize selection and design of
pulsatile drug candidates. This analysis includes an evaluation
of the solubility, permeability, stability and metabolism
profiles of antibiotics as a function of position in the
gastro-intestinal tract. We attempt to optimize overall
antibiotic bioavailability by adjusting the timing and
composition of pulses. By examining the bioavailability of
antibiotics prior to the selection of PULSYS candidates, we
believe that we will increase the likelihood of successful
product development.
Our Strategy
We intend to use our novel finding and related
proprietary technology to develop and commercialize more
efficient, effective and convenient pharmaceutical products,
with an initial focus on antibiotics. To achieve this objective,
we have adopted the following product development and
commercialization strategies:
Commercialize products with multiple
advantages.
We intend to develop
pulsatile drugs that have multiple therapeutic advantages over
currently available antibiotics, including improved efficacy,
reduced incidence of resistance, fewer side effects, once daily
dosing, shorter treatment periods and increased bioavailability.
Focus initially on existing
antibiotics.
We intend to reduce
development risk and expense and decrease time to market for our
drug candidates by focusing on improved versions of approved and
marketed drugs, either delivered alone or in combination with
other drugs. The additional benefits of developing improved
formulations of existing and approved antibiotics include
reasonable and predictable production costs and higher
probability of market acceptance due to the use of well-known
antibiotics.
In addition, since these existing products have
already been proven to be safe and effective, we anticipate
being able to rely on existing approvals and existing safety and
efficacy data, which would allow us to reduce the amount of new
data that we will need to generate in order to support FDA
approval of our products.
Pursue third party collaborations for widely
distributed antibiotics.
We anticipate
collaborating with other large pharmaceutical companies, in
addition to GlaxoSmithKline, to apply our technology to develop
pulsatile versions of widely distributed antibiotics, such as
those prescribed by general practitioners, as well as
combinations of such products. These collaborations will allow
us to enter large markets more quickly with the greater
financial and marketing resources of our partners. In addition,
we intend to incorporate our technology into products that are
under development and to apply our technology to produce
improved formulations of broad spectrum antibiotics that have
not been successfully commercialized because of problems such as
inconvenient dosing regimens or efficacy concerns.
Develop proprietary antibiotic combination
products.
We intend to focus our
initial internal development efforts on pulsatile formulations
of antibiotic combination products that we can sell to
concentrated groups of customers, such as hospital-based
physicians or specialists. This concentration will allow us to
commercialize our pulsatile drugs with a relatively small
internal sales force. Our initial proprietary pulsatile drug
candidate is a fluoroquinolone/metronidazole combination.
Acquire or license antibiotic products.
We intend to acquire or license
antibiotic products that we believe can be improved with our
PULSYS technology. We are focused on acquiring drugs and drug
candidates that would be sold in niche markets and that have
been proven to be safe and effective.
36
Our Product Pipeline
The following table summarizes the antibiotic
compounds we have in clinical trials and late stage preclinical
development. We expect that these compounds will serve as the
basis for drug products or, with additional clinical
development, drug combination products. Each of our product
candidates is still in the early stage of development. Due to
our on-going research and development efforts, additional or
alternative compounds may be selected to replace or supplement
the compounds described below.
Current
PULSYS
Advancis Product
Key Indication(s)
Therapy
Targeted Added Value
Product Opportunity
PHASE I/II PULSYS PRODUCT
    CANDIDATES
Amoxicillin
Upper respiratory tract infections (URTI),
    urinary tract infections (UTI)
10-14 days, two or three times daily
Once daily, lower dose, shorter duration (5-7 days)
Alone and in combination with other drugs
Clarithromycin
URTI, acute exacerbation of chronic bronchitis
    (AECB), sinusitis
7-14 days, twice daily
Once daily, lower dose, shorter duration (5-7 days)
Alone or in combination with other drugs
Metronidazole
Trichomoniasis, amebiasis
1-10 days, one to three times daily
Single dose therapy
Alone and in combination with other drugs
NON-PULSATILE GENERIC PRODUCT CANDIDATE (ANDA
    to be filed)
Clarithromycin
extended
release (1)
URTI, AECB, sinusitis
7-14 days, once daily
N/ A
Alone
PRECLINICAL PRODUCT
    CANDIDATES (2)
Amoxicillin/
clavulanate
combination
AECB, sinusitis
10-14 days, two or three times daily
Once daily, lower dose, shorter duration (5-7 days)
As a combination
Amoxicillin/
clarithromycin
combination
URTI, UTI AECB, sinusitis
10-14 days, twice daily
Once daily, lower dose, broader spectrum, shorter duration (5-7 days)
As a combination
Cefuroxime
UTI, skin and skin structure infections
7-10 days, twice daily
Once daily, lower dose, shorter duration (3-5 days)
Alone and in combination with other drugs
Ciprofloxacin
UTI, intra-abdominal infections
3-14 days, once or twice daily
Once daily, lower dose, shorter duration (1-3 days)
Alone and in combination with other drugs
Fluoroquinolone/
metronidazole
combination
Intra-abdominal infections post-surgery
7-14 days, twice daily
Once daily, shorter duration (3-5 days)
As a combination
(1)
Non-pulsatile equivalent to Biaxin XL Filmtab
    tablets (clarithromycin extended-release tablets).
(2)
We are conducting
in vivo
studies of our
    amoxicillin/ clavulanate product and we are conducting
in
    vitro
studies of each of our other preclinical products.
For an explanation of the terms Preclinical,
Phase I, Phase II, Phase I/ II, Phase III
and ANDA, please refer to the information under the heading
"Government Regulation" below.
37
Our research and development group is actively
engaged in identifying additional candidates for our product
development pipeline, such as cefpodoxime, doxycycline and a
cephalosporin/clarithromycin combination. In identifying our
product opportunities, our research and development group works
directly with our formulation group to examine the practical
aspects of drug development, including manufacturability and
applicable regulatory issues.
We intend to explore the use of our pulsatile
dosing approach beyond antibiotics to other therapeutic
categories, such as antiviral and antifungal therapies and
treatments for cancer. Although we have not tested the
effectiveness of pulsatile dosing for these applications, we
believe that our approach may yield benefits similar to those we
have found for the treatment of bacterial infections.
Pulsatile Product Candidates
We intend to develop the pulsatile drugs listed
below, incorporating one or more of the following improvements:
•
Once-a-day formulation;
•
Lower dose;
•
Shorter duration of therapy;
•
Reduced side effect profile;
•
Combination product with superior efficacy over
    either product alone;
•
Improved pediatric dosage form; and
•
Geriatric dosage form.
Amoxicillin
Amoxicillin (marketed by GSK as Amoxil and
marketed by other companies as a generic product) is a
semi-synthetic antibiotic that is effective for the treatment of
a variety of conditions, including ear, nose and throat
infections, urinary tract infections, skin infections and lower
respiratory infections. In 2002, amoxicillin had U.S. sales of
approximately $490 million. Amoxicillin is generally
recommended for dosing two or three times daily, for a period of
ten to 14 days.
In an
in vitro
study, a simulation of
standard regimens of amoxicillin (immediate release products
taken twice daily or three-times daily) inhibited growth of
Strep. pneumoniae
, but did not have a bactericidal
effect. In the same study, pulsatile dosing significantly
improved the bacterial killing efficiency of amoxicillin against
both sensitive and resistant strains of
Strep.
pneumoniae
. Our studies also showed that:
•
Amoxicillin may be enhanced to eliminate more
    intermediate-resistant
Strep. pneumoniae
with once daily
    dosing through our PULSYS system than with standard dosing
    regimens without altering the overall daily dose;
•
Strep. pneumoniae
becomes more resistant after three or
    four days of two or three times a day dosing of amoxicillin, but
    does not become resistant after once daily dosing with our
    PULSYS system over the same time period; and
•
Amoxicillin delivered through our PULSYS system
    eliminates
Strep. pneumoniae
at antibiotic levels that
    would not otherwise be expected to even inhibit bacterial growth.
Our initial results from Phase I/ II clinical
trials support our ability to deliver amoxicillin in a pulsatile
manner. We are currently conducting additional Phase I/ II
clinical trials to optimize the dosing profile.
We intend to develop pulsatile amoxicillin
products alone and in combination with other drugs. We
anticipate marketing our amoxicillin products and amoxicillin
combination products through third party collaborations.
38
Clarithromycin
Clarithromycin (marketed by Abbott Laboratories
as Biaxin and Biaxin XL Filmtab, a once daily treatment) is
a semi-synthetic antibiotic, which is available as tablets and
granules for oral suspension. Clarithromycin is effective for
the treatment of various mild to moderate infections, including
pharyngitis/tonsillitis, sinusitis, chronic bronchitis and
pneumonia. In 2002, clarithromycin had U.S. sales of
approximately $650 million, including sales for both Biaxin
and Biaxin XL. Clarithromycin is generally prescribed for
twice daily dosing, for a period of seven to 14 days.
In our
in vivo
(mice) studies, mice
infected with
Strep. pneumoniae
had a 90% survival rate
when treated with clarithromycin dosed once daily in a pulsatile
manner as compared to a 50% survival rate when treated with
twice daily dosing of immediate release clarithromycin.
Moreover, mice in the pulsatile treatment group achieved maximum
survivability after five days of treatment compared to maximum
survivability after eight days of treatment in the immediate
release group. In the same study, mice infected with
H.
influenzae
had a 90% survival rate when treated with
clarithromycin dosed in a pulsatile manner as compared to a 10%
survival rate when treated with immediate release clarithromycin.
Our initial results from Phase I/II clinical
trials support our ability to deliver clarithromycin in a
pulsatile manner. We are currently conducting additional Phase
I/II clinical trials to optimize the dosing profile.
We intend to develop pulsatile clarithromycin
products alone and in combination with other drugs. We
anticipate marketing our clarithromycin products and
clarithromycin combination products through third party
collaborations.
Metronidazole
Metronidazole (marketed by Pfizer as Flagyl and
as a generic product by other companies) is a synthetic
antibiotic with antiprotozoal and antibacterial activity.
Metronidazole products are effective for the treatment of a
variety of conditions, including trichomoniasis and amebiasis.
In 2002, metronidazole had U.S. sales of approximately
$75 million. Metronidazole is typically dosed twice daily,
for a period of one to ten days.
Our
in vitro
studies indicate that
metronidazole dosed in a pulsatile manner is as effective
against sensitive and highly resistant bacteria as three-times
daily dosing of immediate release metronidazole. We found that
metronidazole quickly killed bacteria
in vitro
when
administered in a pulsatile fashion. Bacterial colony counts
were reduced to undetectable levels after ten hours and were
maintained at this level for the duration of the 96-hour
experiment against specific sensitive and resistant strains of
bacteria. These data suggest that a more convenient, once-daily
alternative to the standard one to three times daily regimen
could be achieved with PULSYS.
Our initial results from Phase I/ II clinical
trials support our ability to deliver metronidazole in a
pulsatile manner. We intend to conduct additional Phase I/ II
clinical trials to optimize the dosing profile.
We intend to develop pulsatile metronidazole
products alone and in combination with other drugs. We
anticipate marketing our metronidazole products and
metronidazole combination products through an internal sales
force.
Amoxicillin/clavulanate combination
Amoxicillin/clavulanate (marketed by GSK as
Augmentin, and sold by other companies as a generic product) is
an antibacterial combination consisting of the semi-synthetic
antibiotic, amoxicillin, and the beta-lactamase inhibitor,
clavulanate. The combination of amoxicillin and clavulanate is
effective for the treatment of a variety of conditions,
including ear, nose and throat infections, genitourinary tract
infections, skin infections and lower respiratory infections. In
2002, amoxicillin/clavulanate products had U.S. sales of
approximately $1.9 billion. Amoxicillin/clavulanate is
generally recommended for administration two or three times
daily, for a period of ten to 14 days. We have entered into
a license agreement with GSK for the development of a pulsatile
formulation of the amoxicillin/clavulanate combination.
39
In vivo
(rat) studies indicate that
pulsatile dosing of amoxicillin/clavulanate improves the
efficacy of this combination against resistant bacteria.
Our initial results from Phase I/II clinical
trials support our ability to deliver amoxicillin in a pulsatile
manner. We are cooperating with our partner, GSK, as it designs
additional preclinical experiments and additional
Phase I/II clinical trials and develop its
commercialization strategy.
Amoxicillin/clarithromycin
    combination
Amoxicillin and clarithromycin are each effective
for the treatment of various infections such as the elimination
of
H. pylori
in gastric ulcer therapy. We intend to
develop a value-added amoxicillin/clarithromycin combination
product which we believe may deliver performance superior to
either drug alone.
Our
in vitro
studies have shown that the
antibacterial efficacy of amoxicillin/clarithromycin was
improved when delivered in a pulsatile manner as compared to a
once-daily, immediate release treatment. We found that the
combination of amoxicillin/clarithromycin when delivered
in
vitro
in a pulsatile fashion was at least as effective in
killing bacteria, and in some instances, more effective than the
individual antibiotics in eliminating bacteria, even at doses
that were significantly lower than the doses used when
administered individually. These results indicate that the
combination is significantly more effective than either of the
individual antibiotics administered alone.
Our initial results from Phase I/II clinical
trials of amoxicillin and clarithromycin support our ability to
deliver each of these antibiotics in a pulsatile manner. We are
currently conducting Phase I/II clinical trials to optimize
the dosing profiles of each of amoxicillin and clarithromycin.
We anticipate marketing this combination product
through third party collaborations.
Cefuroxime
Cefuroxime axetil (marketed by GSK as Ceftin and
by other companies as a generic product) is a semi-synthetic
antibiotic, available as tablets and granules for oral
suspension. Cefuroxime is effective for the treatment of various
mild to moderate infections, including urinary tract infections
and skin/skin structure infections. In 2002, cefuroxime had
U.S. sales of approximately $365 million. Cefuroxime
is generally prescribed for twice daily dosing, for a period of
seven to ten days.
In our
in vitro
studies, cefuroxime
administered once daily in a pulsatile manner demonstrated
initial bactericidal activity against
Staphylococcus
aureus
and
Strep. pneumoniae
comparable to
twice-daily, immediate release treatment. In contrast to the
twice-daily treatment regimen that allowed bacteria to re-grow
after the first day of treatment, pulsatile cefuroxime
repeatedly reduced bacterial colonies for two days following the
initial treatment.
We intend to develop a value-added formulation of
cefuroxime or another similar drug in the cephalosporins class
alone and in combination with other drugs, which we would market
through third party collaborations.
Ciprofloxacin
Ciprofloxacin (marketed by Bayer as Cipro) is a
synthetic broad-spectrum antibiotic, which is available as
tablets and granules for oral suspension. Ciprofloxacin is
effective for the treatment of various mild to moderate
infections, including urinary tract infections, sinusitis and
lower respiratory tract infections. In 2002, ciprofloxacin had
U.S. sales of approximately $1 billion. Ciprofloxacin
is typically dosed twice daily, for a period of three to
14 days.
Our
in vitro
studies indicate that
ciprofloxacin dosed once daily in a pulsatile manner is as
effective as twice daily dosing of immediate release
ciprofloxacin without altering the overall daily dose. We found
that ciprofloxacin quickly killed bacteria
in vitro
when
administered in a pulsatile fashion. These data suggest that
40
a more convenient, once-daily alternative to
twice-daily, immediate release ciprofloxacin could be achieved
with PULSYS.
We intend to develop a pulsatile formulation of
ciprofloxacin primarily for use in combination with other
antibiotic drugs, such as metronidazole, which have also been
developed with the PULSYS system. We anticipate marketing our
ciprofloxacin combination products through an internal sales
force. In the event we produce a pulsatile product candidate
consisting solely of ciprofloxacin, we anticipate marketing such
product through a third party collaboration.
Fluoroquinolone/metronidazole
    combination
We intend to develop a pulsatile
fluoroquinolone/metronidazole product. We believe that the
combination of fluoroquinolone and metronidazole will prove to
be effective for the treatment of infections caused by a mixture
of anaerobic and aerobic bacteria, such as diabetic foot
infections or post-surgery intra-abdominal infections.
Based on the results of our pulsatile
fluoroquinolone and metronidazole experiments, we believe that a
combination product containing fluoroquinolone and metronidazole
may perform in a fashion superior to either drug alone,
particularly when one or both drugs is delivered in a pulsatile
manner.
Our initial results from Phase I/II clinical
trials support our ability to deliver metronidazole in a
pulsatile manner. We intend to conduct additional
Phase I/II clinical trials to optimize the dosing profile
of metronidazole.
We anticipate marketing this combination product
through an internal sales force targeting gastro-intestinal
surgeons.
Generic Product Candidate
Clarithromycin Extended Release
As part of our analysis in evaluating a pulsatile
clarithromycin product, we identified an opportunity to
formulate a generic equivalent of Biaxin XL, which we believe we
can commercialize without infringing upon the patents held by
Abbott Laboratories. We filed a patent application covering the
production method of our generic version of this product in
October 2000 and are currently in the final stages of clinical
trials. In 2002, sales of immediate release clarithromycin were
approximately $315 million and sales of extended release
clarithromycin were approximately $335 million. We intend
to enter into a partnership with a third party for the
manufacture, marketing and distribution of this product and
submit an ANDA in late 2003. Although this product does not
incorporate our pulsatile proprietary drug delivery technology,
we believe that it presents an opportunity to generate cash flow
to accelerate development of our pulsatile drug candidates. We
expect sales of this product to begin within the next two years.
Our Collaboration with
GlaxoSmithKline
In July 2003, we entered into a license
agreement with GlaxoSmithKline pursuant to which we licensed
patents and PULSYS technology to GlaxoSmithKline for use with
its Augmentin (amoxicillin/clavulanate combination) products and
with limited other amoxicillin products. Under the agreement,
GlaxoSmithKline will be responsible, at its cost and expense, to
use commercially reasonable efforts for the clinical
development, manufacture and sale of the licensed products. We
received an initial non-refundable, non-creditable payment of
$5 million from GlaxoSmithKline upon signing of the
agreement and would be entitled to receive milestone payments
from GlaxoSmithKline not to exceed an aggregate of
$52 million if it achieves certain product development
goals, including commencement of clinical trials and the filing
and approval of an NDA with the FDA. In addition, we will
receive royalty payments on the commercial sale of products
developed under the agreement. We may also receive sales
milestone payments of up to $50 million if specified annual
sales goals are achieved. GlaxoSmithKline may terminate this
agreement upon relatively short notice. Our receipt of milestone
payments, royalty payments and sales milestone payments under
the agreement will depend on the successful efforts of
GlaxoSmithKline to develop and commercialize the
41
products covered by the agreement and is subject
to certain conditions and limitations. We cannot assure you that
we will receive any milestone or royalty payments or that our
collaboration with GlaxoSmithKline will result in the approval
and marketing of any drug.
Manufacturing
We currently rely on third-party contract
manufacturers to produce sufficient quantities of our product
candidates for use in the preclinical studies and clinical
trials that we are conducting. However, we are in the process of
developing the capability to manufacture the necessary supplies
for use in our pre-clinical studies and clinical trials. We
anticipate that our pilot facility will satisfy our drug
production needs through at least Phase II and, in some
cases, through Phase III clinical trials. We believe that
our initial focus on the production of improved formulations of
approved and marketed drugs will reduce the risk and time
involved in the establishment of manufacturing capabilities
because production of these drugs involves well-known, common
manufacturing processes. Until we complete construction of our
manufacturing facility, we must depend on third-party contract
manufacturers for production of our clinical supplies.
We intend to rely on third-party contract
manufacturers to produce sufficient quantities of our drugs for
certain of our Phase III clinical trial supplies. In
addition, since we intend to rely on third parties for large
scale commercialization, we have and will continue to engage
those contract manufacturers who have the capability to
manufacture drug products in bulk quantities for
commercialization.
In connection with our manufacturing activities,
we generate hazardous waste. We are subject to federal and state
regulation regarding the disposal of hazardous and potentially
hazardous waste. We may incur costs to comply with such
regulations now or in the future.
Marketing and Sales
We have no sales, marketing or distribution
capabilities. In order to commercialize any of our product
candidates, we must either make arrangements with third parties
to perform these services for us or acquire or develop internal
sales, marketing and distribution capabilities. We intend to
rely on partnerships with larger companies for the sale of
widely distributed antibiotics and for international sales. We
intend to develop an internal sales force to enable us to market
and sell our proprietary combination products in concentrated
markets. We also intend to use such an internal sales force to
market and sell acquired or licensed products improved with
PULSYS.
Competition
The pharmaceutical industry is highly competitive
and characterized by a number of established, large
pharmaceutical companies, as well as smaller emerging companies.
Our main competitors are:
•
large pharmaceutical companies, such as GSK,
    Pfizer, Johnson & Johnson, Aventis, Abbott
    Laboratories, AstraZeneca, Bayer, Bristol-Myers Squibb and
    Merck, that may develop new drug compounds that render our drugs
    obsolete or noncompetitive;
•
smaller pharmaceutical and biotechnology
    companies and specialty pharmaceutical companies engaged in
    research and development of novel antibiotics, such as Cubist,
    Vicuron, InterMune and King; and
•
drug delivery companies, such as
    Johnson & Johnson's Alza division, Biovail and
    SkyePharma, that may develop a dosing regimen that is more
    effective than pulsatile dosing.
In addition, with respect to our generic version
of Biaxin XL we will compete with Abbott Laboratories, the
manufacturer of the branded drug, and other manufacturers of
generic products.
Many of our competitors possess greater
financial, managerial and technical resources and have
established reputations for successfully developing and
marketing drugs, all of which put us at a competitive
disadvantage. We may also face competition for the in-licensing
of products from other companies that may be able to offer
better terms to the licensors. Furthermore, new developments,
including the development of
42
methods of preventing the incidence of disease,
such as vaccines, occur rapidly in the pharmaceutical industry.
These developments may render our product candidates or
technologies obsolete or noncompetitive.
Patent and Intellectual Property
Protection
Our success depends in part on our ability to
obtain patents, to protect trade secrets, to operate without
infringing upon the proprietary rights of others and to prevent
others from infringing on our proprietary rights. We seek to
protect our proprietary position by, among other methods, filing
U.S. and foreign patent applications related to our proprietary
technology, inventions and improvements that are important to
the development of our business. Further, all of our employees
have executed agreements assigning to us all rights to any
inventions and processes they develop while they are employed by
us.
In addition, we intend to use license agreements
to access external products and technologies, as well as to
convey our own intellectual property to others. We will be able
to protect our proprietary rights from unauthorized use by third
parties only to the extent that our proprietary rights are
covered by valid and enforceable patents or are effectively
maintained as trade secrets. Protection of our intellectual
property rights is subject to a number of risks.
We currently own three issued U.S. patents,
six allowed U.S. patents and over 20 U.S. patent
applications. Our issued patents cover certain compositions and
methods using pulsatile dosing. We also own a number of pending
international patent applications corresponding to these
U.S. patents and applications. Our issued U.S. patents
are as follows:
U.S. Patent No.
Date Issued
Subject
6,565,882
May 20, 2003
Antibiotic composition with inhibitor
6,544,555
April 8, 2003
Antibiotic composition
6,541,014
April 1, 2003
Antiviral product, use and formulation thereof
Government Regulation
We are subject to extensive pre- and post-market
regulation by the FDA, including regulations that govern the
testing, manufacturing, safety, efficacy, labeling, storage,
record keeping, advertising, and promotion of drugs under the
Federal Food, Drug and Cosmetic Act and the Public Health
Services Act, and by comparable agencies in foreign countries.
FDA approval is required before any dosage form of any new drug,
a generic equivalent of a previously approved drug, or a new
combination of previously approved drugs, can be marketed in the
United States. All applications for FDA approval must contain
information relating to pharmaceutical formulation, stability,
manufacturing, processing, packaging, labeling and quality
control.
New Drug Application Process
The process required by the FDA before a new drug
may be marketed in the United States generally involves:
•
completion of preclinical laboratory and animal
    testing;
•
submission of an investigational new drug
    application (IND) which must become effective before the
    commencement of clinical trials;
•
performance of adequate and well-controlled human
    clinical trials to establish the safety and efficacy of the
    proposed drug product's intended use; and
•
submission to and approval by the FDA of a New
    Drug Application (NDA).
PRECLINICAL: Preclinical studies generally
    include laboratory evaluation of product chemistry, formulation
    and stability, as well as animal studies, to assess the safety
    and efficacy of the product. Preclinical trials also provide a
    basis for design of human clinical studies.
43
Human clinical trials are typically conducted in
    three sequential phases which may overlap:
PHASE I: During Phase I studies, the drug is
    initially introduced into healthy human subjects and tested for
    safety, dosage tolerance, absorption, metabolism, distribution
    and excretion.
PHASE II: During Phase II studies, the
    drug is introduced to patients that have the medical condition
    that the drug is intended to treat. Phase II studies are
    intended to identify possible adverse effects and safety risks,
    to determine the efficacy of the product for specific targeted
    diseases and to determine dosage tolerance and optimal dosage.
    Phase II studies may often be combined with Phase I
    studies (referred to as Phase I/II studies) in certain
    instances when safety issues may be less prevalent.
PHASE III: When Phase II evaluations
    demonstrate that a dosage range of the product is effective and
    has an acceptable safety profile, Phase III trials are
    undertaken to further evaluate dosage, clinical efficacy and to
    further test for safety in an expanded patient population, often
    at geographically dispersed clinical study sites.
The drug sponsor, the FDA or the institutional
review board at each institution at which a clinical trial is
being performed may suspend a clinical trial at any time for
various reasons, including a concern that the subjects are being
exposed to an unacceptable health risk.
The results of product development, preclinical
animal studies and human studies are submitted to the FDA as
part of the NDA. The NDA also must contain extensive
manufacturing information. The FDA may approve or disapprove the
NDA if applicable FDA regulatory criteria are not satisfied or
it may require additional clinical data to continue to evaluate
the NDA.
In our NDA submissions, we intend to rely in part
on prior FDA approvals of the antibiotic ingredients utilized in
our products and on data generated by other parties which help
to demonstrate the safety and effectiveness of those
ingredients. In the case of products that we may develop in
conjunction with sponsors of previously approved products, we
expect that we will have a specific right of reference to the
data contained in the prior applications. In any case in which
we do not have a specific right of reference from the sponsor of
the previously approved product, we anticipate our NDA
submissions would be covered by Section 505(b)(2) of the
Federal Food, Drug and Cosmetic Act. The submission or approval
of a NDA covered by Section 505(b)(2) can be subject to a
number of limitations. However, we do not believe that these
limitations will apply to any of the products which are the
subject of our current development projects. All data necessary
to satisfy the FDA of the safety and effectiveness of our own
versions of these products will have to be generated by or for
us and submitted to FDA in support of our applications. These
data are expected to include data establishing the safety and
efficacy of the pulsatile dosage and any other differences
between the dosage form and the conditions for use of our
products and the dosage form and conditions for use of the
previously approved products. In the case of antibiotic
ingredients not previously approved to be manufactured and sold
in the combinations that we propose, it will also be necessary
for us to satisfy the FDA's combination drug policy with
data establishing that each active component contributes to the
effectiveness of the combination. In its review of our NDA
submissions, the FDA will have broad discretion to require us to
generate data on these questions, and it is impossible to
predict the number or nature of the studies that may be required
before the agency will grant an approval. No assurance can be
given that NDAs submitted for our products will receive FDA
approval on a timely basis, if at all.
Because all of the products that we have in
development contain antibiotic ingredients that were submitted
to FDA for approval prior to November 20, 1997, we will
not, under current law, be able to submit to FDA patent
information covering those products and therefore, once
approved, the Orange Book listings of the products will not
include any patent information. As a consequence, potential
competitors who submit 505(b)(2) or ANDA applications for
generic versions of our NDA-approved products will not have to
certify to any of our patents that they may infringe or to
provide us notice in the event that they intend to market their
products prior to expiration of those patents. Additionally, if
we bring a patent infringement action against any such
applicants, there will be no automatic 30-month stay of approval
of those potentially infringing products. However, we would be
entitled to pursue traditional patent-law procedures and
remedies, such as preliminary injunctions.
44
Under the Prescription Drug User Fee Act (PDUFA)
generally, the submission of NDA applications are subject to
substantial application user fees, currently exceeding $500,000,
and the manufacturer and/or sponsor under an approved NDA are
also subject to annual product and establishment user fees,
currently exceeding $30,000 per product and $200,000 per
establishment. These fees are typically increased annually.
However, because our products in development contain only active
ingredients that have been previously approved in other
applications, we do not believe that we will be subject to any
of these user fees. We could become subject to such fees,
however, if the FDA determines that any of our applications seek
approval of a new "indication for use" beyond those
previously approved for those active ingredients. In addition,
the PDUFA statute has been subject to significant amendments in
connection with its regular reauthorization. There can be no
assurance that, under existing PDUFA provisions or under
amendments thereto, we will continue to be exempt from user fees
in the future.
Abbreviated New Drug Application
    Process
The Drug Price Competition and Patent Term
Restoration Act of 1984, or the Hatch-Waxman Act, established
abbreviated FDA approval procedures for those proprietary drugs
that are no longer protected by patents and which are shown to
be equivalent to previously approved proprietary drugs. Approval
to manufacture these drugs is obtained by filing an abbreviated
new drug application, or an ANDA. An ANDA is a submission that
contains data and information pertaining to the active
pharmaceutical ingredient, drug product formulation,
specifications and stability of the generic drug, as well as
analytical methods, manufacturing process validation data and
quality control procedures. As a substitute for clinical safety
and efficacy data on the product, the applicant is generally
required to provide data from studies in humans establishing
that the ANDA drug formulation is bioequivalent to the
previously approved proprietary drug. In order to obtain an ANDA
approval of a strength or dosage form that differs from the
referenced brand-name drug, an applicant must file and have
granted an ANDA Suitability Petition. A product is not eligible
for ANDA approval if it is not determined by the FDA to be
equivalent to the referenced brand-name drug or if it is
intended for a different use. However, such a product might be
approved under an NDA with supportive data from clinical trials.
One advantage of the ANDA approval process is
that an ANDA applicant generally can rely upon equivalence data
in lieu of conducting preclinical testing and clinical trials to
demonstrate that a product is safe and effective for its
intended use. We intend to follow this process with respect to
our generic clarithromycin product bioequivalent to Biaxin XL.
We do not believe that our generic clarithromycin product will
infringe any outstanding patent after expiration of the
clarithromycin API patent. Because that product utilizes an
active ingredient first submitted to FDA for approval prior to
November 20, 1997, we will not have to submit
certifications with respect to outstanding patents covering the
Biaxin XL product and will not be subject to a potential
30 month stay of the approval of our product in the event
that the holder(s) of those patents choose to bring a patent
infringement claim against us. However, traditional patent law
procedures and remedies may be pursued by the patent holders,
including preliminary and permanent injunctions against
marketing of our product and damages for marketing an infringing
product. Therefore, because of the inapplicability of the patent
listing and certification procedures, resolution of potential
patent infringement claims with respect to our product may be
impossible until after we have obtained approval of our ANDA.
This may cause delays in our ability or willingness to market
the product upon ANDA approval and/or may subject us to a risk
of substantial monetary damages in the event that we market the
product prior to the resolution of any infringement claims that
may be made.
No assurance can be given that any ANDA submitted
for any of our products will receive FDA approval on a timely
basis, if at all, or that the FDA will not require us to submit
NDAs for products that we believe are eligible for ANDA
submission.
Once approved, a product approval may be
withdrawn if compliance with pre-and post-market regulatory
standards are not maintained or if problems are identified at a
later date. In addition, the FDA may require post-marketing
studies to monitor the safety and/or effectiveness of approved
products and may limit further marketing of the product based on
the results of these post-marketing studies. The FDA has broad
post-
45
market regulatory and enforcement powers,
including the ability to levy fines and civil penalties, suspend
or delay issuance of approvals, seize or recall products, and
withdraw approvals.
Satisfaction of FDA pre-market approval
requirements typically takes several years and the actual time
required may vary substantially based upon the type, complexity
and novelty of the product or disease. Government regulation may
delay or prevent marketing of potential products for a
considerable period of time and impose costly procedures upon a
manufacturer's activities. Success in early stage clinical
trials does not assure success in later stage clinical trials.
Data obtained from clinical activities is not always conclusive
and may be susceptible to varying interpretations that could
delay, limit or prevent regulatory approval. Even if a product
receives regulatory approval, later discovery of previously
unknown problems with a product may result in restrictions on
the product or even complete withdrawal of the product from the
market.
FDA also strictly regulates the promotional
claims that may be made about prescription drug products. In
particular, the FDA requires substantiation of any claims of
superiority of one product over another including, in many
cases, requirements that such claims be proven by adequate and
well controlled head-to-head clinical trials. To the extent that
market acceptance of our products may depend on their
superiority over existing therapies, any restriction on our
ability to advertise or otherwise promote claims of superiority,
or requirements to conduct additional expensive clinical trials
to provide proof of such claims, could negatively effect the
sales of our products and/or our costs.
From time to time, including presently,
legislation is drafted and introduced in Congress that could
significantly change the statutory provisions governing the
approval, manufacturing and marketing of drug products. In
addition, FDA regulations and guidance are often revised or
reinterpreted by the agency in ways that may significantly
affect our business and our products. It is impossible to
predict whether legislative changes will be enacted, or FDA
regulations, guidance or interpretations changed, or what the
impact of such changes, if any, may be.
We and are products are also subject to numerous
federal, state and local laws relating to such matters as safe
working conditions, manufacturing practices, environmental
protection, and disposal of hazardous or potentially hazardous
substances. We may incur substantial costs to comply with such
laws and regulations now or in the future.
Foreign Regulatory Approval
Outside the United States, our ability to market
our products will also be contingent upon receiving marketing
authorizations from the appropriate regulatory authorities. The
foreign regulatory approval process includes all the risks
associated with FDA approval described above. The requirements
governing conduct of clinical trials and marketing authorization
vary widely from country to country.
Under European Union regulatory systems,
marketing authorizations may be submitted either under a
centralized or decentralized procedure. The centralized
procedure provides for the grant of a single marketing
authorization that is valid for all European Union member
states. The decentralized procedure provides for mutual
recognition of national approval decisions. Under this
procedure, the holder of a national marketing authorization may
submit an application to the remaining member states. Within
90 days of receiving the application and assessment report,
each member state must decide whether to recognize approval. We
plan to choose the appropriate route of European regulatory
filing in an attempt to accomplish the most rapid regulatory
approvals. However, the chosen regulatory strategy may not
secure regulatory approvals or approvals of the chosen product
indications. In addition, these approvals, if obtained, may take
longer than anticipated.
We cannot assure you that any of our product
candidates will prove to be safe or effective, will receive
regulatory approvals, or will be successfully commercialized.
46
Employees
As of July 31, 2003, we had 55 employees, 13
of whom are senior management, 17 are in supervisory positions
and 25 are non-management. Of the 55 employees, 36 perform
scientific and research activities and 17 hold advanced degrees.
Facilities
Our principal executive offices are located in an
approximately 62,000 square foot facility in Germantown,
Maryland. We moved into this facility in May 2003 and expect to
complete the transfer of our laboratory function to this
facility by October 2003. The lease for this facility expires in
June 2013. We also have an approximately 8,432 square foot lab
and office facility in Gaithersburg, Maryland, the lease for
which expires in November 2003 and an approximately 5,021 square
foot office facility in Gaithersburg, Maryland, the lease for
which expires in August 2003. We do not intend to renew the
leases for the Gaithersburg facilities.
Legal Proceedings
We are not currently a party to any material
legal proceedings.
47
MANAGEMENT
Our executive officers, key employees and
directors are as follows:
Name
Age
Position
Edward M. Rudnic, Ph.D.
47
President, Chief Executive Officer, Director and
    Treasurer
Steven A. Shallcross
41
Senior Vice President, Chief Financial Officer
    and Secretary
Kevin S. Sly
46
Senior Vice President, Business Development and
    Marketing
Colin E. Rowlings, Ph.D.
39
Vice President, Pharmaceutical R&D
Robert Guttendorf, Ph.D.
46
Vice President, Preclinical Research
Sandra E. Wassink
46
Senior Director, Pharmaceutical Development
Beth A. Burnside, Ph.D.
42
Senior Director, Formulation Development
James D. Isbister
66
Director, Chairman of the Board
James H. Cavanaugh, Ph.D.
66
Director
Elizabeth Czerepak
47
Director
R. Gordon Douglas, Jr., M.D.
69
Director
Wayne T. Hockmeyer, Ph.D.
58
Director
Harold R. Werner
55
Director
Edward M. Rudnic, Ph.D.
founded Advancis Pharmaceutical
Corporation and has been our president, chief executive officer,
treasurer and a director since our inception. Dr. Rudnic
has over twenty years of industry experience in the development
and commercialization of a wide range of pharmaceutical
products. From 1997 to 1999, Dr. Rudnic directed the
research and development activities in the U.S. for Shire
Pharmaceuticals. Shire acquired Pharmavene, Inc. in 1997, a
start-up company focused on the design and commercialization of
drug delivery systems, where Dr. Rudnic was senior vice
president for development and technical operations from 1996 to
1997 and vice president, pharmaceutical research and development
from 1991 to 1996. From September 1990 to April 1991, he was an
independent consultant. From 1985 to 1990, he held positions of
increasing responsibility as a director of formulation
development and head of pharmaceutical process development at
Schering-Plough Corporation. Dr. Rudnic was a research
investigator at E.R. Squibb and Sons, developing oral
controlled-release dosage forms and novel drug delivery
concepts, from 1982 to 1985. Dr. Rudnic has a B.S. in
pharmacy, M.S. in pharmaceutics and a Ph.D. in pharmaceutical
sciences from the University of Rhode Island. Dr. Rudnic is
a registered pharmacist. He holds adjunct professorships at the
University of Rhode Island and the University of Maryland.
Dr. Rudnic was elected to our board of directors pursuant
to a stockholders' agreement between us and holders of our
preferred stock.
Steven A. Shallcross
joined us in October 2001 as senior
vice president, chief financial officer and secretary.
Mr. Shallcross has over 17 years of senior financial
and operations experience in emerging organizations,
acquisitions and restructurings. Mr. Shallcross was the
vice president of finance and chief financial officer at Bering
Truck Corporation, a truck manufacturer, from August 1997 to
2001. From 1993 to 1997, Mr. Shallcross served as vice
president of operations at Precision Scientific, Inc., a
manufacturer of scientific laboratory equipment. He was the
controller of Precision Scientific from June 1993 to January
1994. Mr. Shallcross received a bachelor's degree in
accounting from the University of Illinois, and received an
M.B.A from the University of Chicago, Graduate School of
Business. Mr. Shallcross is also a certified public
accountant.
Kevin S. Sly
joined
us in February 2002 as senior vice president, business
development and marketing. Mr. Sly has over 20 years
of experience in the design, development and management of
products, services and businesses incorporating biomedical and
pharmaceutical technologies. From 1995 to 2002, Mr. Sly
established and directed new business development and marketing
efforts for Yamanouchi Pharma Technologies, Inc., a
pharmaceutical drug delivery system company. From 1990 to 1995,
Mr. Sly served as vice president, business development for
another emerging company, ReSeal Pharmaceutical Systems,
directing technological development, business development and
marketing of controlled-delivery systems for
48
pharmaceuticals, health care and personal care
products. Mr. Sly received a B.A. in biology from Pomona
College in Claremont, California.
Robert J. Guttendorf, Ph.D.
joined us as vice president of
preclinical research in September 2002. Dr. Guttendorf has
over 15 years of experience in the pharmaceutical industry
applying his pharmacokinetic, pharmacodynamic and drug
metabolism expertise in all phases of drug discovery and
development, and across a broad range of therapeutic areas. From
October 2001 to August 2002, Dr. Guttendorf was scientific
strategy advisor at Pfizer Global R&D in Ann Arbor, Michigan
(formerly Parke-Davis Pharmaceutical Research). Prior to that,
he held various scientific and managerial positions with
increasing responsibilities within Pfizer/ Parke-Davis,
including director of PK/DM discovery and preclinical
development. Dr. Guttendorf received a B.S. in pharmacy
from West Virginia University and is a registered pharmacist. He
received a Ph.D. in pharmaceutical sciences from the University
of Kentucky.
Colin E. Rowlings, Ph.D.
joined us in August 2001 as vice
president of pharmaceutical research and development.
Dr. Rowlings has 14 years of pharmaceutical industry
experience including 12 years in dosage form development of
new chemical entities. Prior to joining us in 2001,
Dr. Rowlings served as group director of pharmaceutical
research and development at the San Diego site of the Pfizer
Global R&D organization (previously Agouron Pharmaceuticals
Inc.). From 1997 to 2001, Dr. Rowlings was director of
pharmaceutical development in Agouron and managed formulation
development, clinical manufacturing, process scale-up, clinical
supply release testing, stability and documentation functions.
Prior to that, Dr. Rowlings worked in formulation
development at Rhone-Poulenc Rorer (now Aventis) and Eli Lilly.
Dr. Rowlings has a bachelor of pharmacy degree from the
University of Queensland, Australia and received a Ph.D. in
pharmaceutics from the University of Iowa.
Sandra E. Wassink
joined us as senior director,
pharmaceutical development in May 2000. Ms. Wassink has
over 20 years of industry experience in formulation and
development of advanced drug products. From 1992 to 2000,
Ms. Wassink managed the pharmaceutical technology
department at Shire Laboratories, Inc. She was involved in
development, scale up, validation and introduction into
production of oral solid dose products. Prior to that,
Ms. Wassink was involved in formulation development at
Schering-Plough Corporation. Ms. Wassink received a
bachelor's degree in biology from Florida State University.
Beth A. Burnside, Ph.D.
joined us in August 2002 as senior
director, formulation development. From 1993 to 2002,
Dr. Burnside was employed by Shire Laboratories Inc. While
at Shire she held management positions with increasing
responsibilities in the pharmaceutics, pharmaceutical
development and the advanced drug delivery organizations. As
vice president of the advanced drug delivery division,
Dr. Burnside developed the division's specialized
controlled release and enhanced bioavailability oral delivery
formulation and product strategy. Prior to working at Shire,
Dr. Burnside gained additional experience at Johnson &
Johnson from 1991 to 1992 and at Schering-Plough Research from
1989 to 1991. She received a B.S. in chemistry/ mathematics from
Muhlenberg College in Allentown, Pennsylvania, and an M.S. in
organic chemistry and a Ph.D. in physical-organic chemistry from
Drexel University.
James D. Isbister
has been our chairman of the board of
directors since our inception. Mr. Isbister was a founder
of Pharmavene, Inc. and served as its president and chief
executive officer and as a director from 1990 to 1998. From 1986
until January 1989, Mr. Isbister was senior vice president
of Consolidated HealthCare and served as president of its
subsidiary, Combined Technologies, Inc. Mr. Isbister served
as senior vice president of the National Blue Cross and Blue
Shield Association from 1980 to 1986 and as a consultant to the
Association from January 1989 to January 1990. From 1978 to
1980, Mr. Isbister was the associate director for
management of the U.S. International Communication Agency.
Mr. Isbister served as deputy director of the National
Institute of Mental Health from 1970 to 1974 and as the first
director of the U.S. Alcohol, Drug Abuse, and Mental Health
Administration from 1974 to 1977. Mr. Isbister was elected
to our board of directors pursuant to a stockholders'
agreement between us and holders of our preferred stock.
James H. Cavanaugh, Ph.D.
has been a director since our
inception. Dr. Cavanaugh has been the president of
HealthCare Ventures LLC since 1988. Dr. Cavanaugh served as
president of SmithKline and French Laboratories U.S., Inc. from
March 1985 to February 1989 and as president of SmithKline
Clinical Laboratories from 1981 to 1985. Prior thereto,
Dr. Cavanaugh was the president of Allergan International, a
49
specialty eye care company. Prior to his industry
experience, Dr. Cavanaugh was Deputy Assistant to the
President for Domestic Affairs and Deputy Chief of the White
House Staff. Prior thereto, he served as deputy assistant
secretary for health and scientific affairs in the
U.S. Department of Health, Education and Welfare and as
special assistant to the surgeon general of the U.S. Public
Health Service. Dr. Cavanaugh serves as a member of the board of
directors of MedImmune, Inc., Shire Pharmaceuticals Group PLC,
Diversa Corp. and Vicuron Pharmaceuticals (formerly Versicor,
Inc.). Dr. Cavanaugh also currently serves on the board of
directors of the National Venture Capital Association and as
trustee emeritus of the California College of Medicine.
Dr. Cavanaugh holds a Ph.D. and an M.S. from the University
of Iowa and a B.S. from Fairleigh Dickinson University.
Dr. Cavanaugh was elected to serve on our board of
directors pursuant to a stockholders' agreement between us
and holders of our preferred stock.
Elizabeth Czerepak
joined our Board of Directors in July
2003. Ms. Czerepak was a founder of Bear Stearns Health
Innoventures and has been a member of Bear Stearns Health
Innoventures Management L.L.C., the general partner of the funds
comprising the Bear Stearns Health Innoventures group since its
inception in April 2001. She is an employee of Bear Stearns
Asset Management Inc., the managing member of Bear Stearns
Health Innoventures Management L.L.C. Prior to joining Bear
Stearns Health Innoventures, Ms. Czerepak was vice
president of business development and a member of the executive
board at BASF Pharma/ Knoll Pharmaceutical Co. From 1987 to
1995, Ms. Czerepak served in various senior positions at
Hoffmann-La Roche, responsible for licensing, acquisitions,
financial analysis and strategic planning. Ms. Czerepak
also established an internal venture vehicle for Hoffmann-La
Roche to facilitate start-up companies. She received a B.A.
magna cum laude from Marshall University and a M.B.A. from
Rutgers University. Ms. Czerepak was elected to serve on
our board of directors pursuant to a stockholders'
agreement between us and holders of our preferred stock.
R. Gordon Douglas, Jr., M.D.
has been a director since our
inception. Dr. Douglas currently serves as consultant to
the Vaccine Research Center at the National Institute of Health.
Dr. Douglas was president, Merck Vaccines, responsible for
the research, development, manufacturing and marketing of Merck
Vaccines' vaccine products, from 1989 until 1999. From 1982
to 1990, he was a professor of medicine and chairman, department
of medicine, Cornell University Medical College and
physician-in-chief, the New York Hospital. He also served as
head of the infectious disease unit at the University of
Rochester School of Medicine. Dr. Douglas serves on the
board of directors of Vical Incorporated. Dr. Douglas is a
graduate of Princeton University and Cornell University Medical
College. Dr. Douglas was elected to serve on our board of
directors pursuant to a stockholders' agreement between us
and holders of our preferred stock.
Wayne T. Hockmeyer,
Ph.D.
, has been a director since our
inception. Dr. Hockmeyer founded MedImmune, Inc. in April
1988 and served as president and chief executive officer from
1988 until October 2000. Dr. Hockmeyer was elected to serve
on the board of directors of MedImmune in May 1988 and became
chairman of the board of directors in May 1993. He currently
continues to serve as the chairman of the board of directors of
MedImmune and serves as president of MedImmune Ventures, Inc.
From 1986 to 1988, Dr. Hockmeyer was vice president of
research and development of Praxis Biologics. From 1980 to 1986,
he was chairman of the Department of Immunology at the Walter
Reed Army Institute of Research. From 1966 to 1986, he served as
a commissioned officer in the United States Army. He is a member
of the board of directors of Diversa Corporation, GenVec, Inc.,
InterMune Pharmaceuticals, Inc., Idenix Pharmaceuticals, Inc.
and TolerRx Inc. Dr. Hockmeyer earned his bachelor's
degree from Purdue University and his Ph.D. from the University
of Florida in 1972. In 2002, Dr. Hockmeyer was awarded a
doctor of science honoris causa from Purdue University.
Harold R. Werner
has
been a director since our inception. Mr. Werner has
28 years of experience in planning, development and
financing of health care technology. He was a founder of
HealthCare Ventures in 1985. Since that time he has served on
the boards of over thirty public and private companies in the
health care field and has specialized in the formation of new
high-science companies. Prior to the formation of HealthCare
Ventures, Mr. Werner was director of new ventures for
Johnson & Johnson Development Corporation, making
outside investments and licenses for Johnson & Johnson
in biotechnology, pharmaceuticals, vision care, diagnostics and
other high technology areas of health care. Before joining
Johnson & Johnson in 1980, Mr. Werner was senior
vice president of Robert S. First, Inc. and was responsible for
50
managing its European and, later, U.S. health
care management consulting business. Mr. Werner currently
serves on the board of directors of GenVec, Inc. Mr. Werner
received his B.S. (high honors) and M.S. degrees from Princeton
University and an M.B.A. from the Harvard Graduate School of
Business Administration. Mr. Werner was elected to serve on
our board of directors pursuant to a stockholders'
agreement between us and holders of our preferred stock
Future Officer Positions
We intend to hire individuals to serve as
officers in the following positions: head of regulatory affairs,
chief science officer and head of medical management affairs.
Scientific Advisory Board
Floyd E. Bloom, M.D.
is chairman of our scientific advisory
board. Dr. Bloom has investigated comprehensive
neurotransmitter systems at the anatomical, physiological and
pharmacological levels. Dr. Bloom has conducted correlative
studies of the noradrenergic innervation of cerebellum and
cerebral cortex. Dr. Bloom was also one of the first
neurobiologists to utilize modern molecular biological
techniques in a search for molecules of importance in brain
function and the characterization of brain specific genes.
Recognizing the value of computers in neuroscience, he pioneered
their application to neuro-anatomic investigations and the
development of a neuro-anatomic database. His work has found
considerable applicability to many enigmatic disorders of the
nervous system, such as the addictive states, the dementias and
the major psychoses. Dr. Bloom is presently chairman of the
Department of Neuropharmacology at The Scripps Research
Institute. He previously was director of Behavioral Neurobiology
at The Salk Institute and Chief of the Laboratory of
Neuropharmacology of NIMH. A member of the National Academy of
Sciences and the Institute of Medicine, he has received numerous
awards, including the Pasarow Award for Neuropsychiatry and the
Herman von Helmholtz Award, as well as a number of honorary
degrees from major universities. In addition, Dr. Bloom was
the editor-in-chief of Science Magazine from May 1995 to June
2000. Dr. Bloom received an A.B. cum laude from Southern
Methodist University and received a M.D. from Washington
University.
George L. Drusano,
M.D.
served as chief resident at the
University of Maryland Hospital and became a tenured professor
in 1992. Dr. Drusano currently serves as director of
clinical pharmacology and associate director of the clinical
research institute at Albany Medical College. He has served on
the program committee of the Interscience Conference on
Antimicrobial Agents and Chemotherapy (ICAAC), and has served as
pharmacology editor for the journal Antimicrobial Agents and
Chemotherapy. Dr. Drusano is a fellow of the Infectious
Diseases Society of America and a fellow of the American Academy
of Microbiology. He is the current president of the
International Society for Anti-infective Pharmacology (ISAP). He
was the recipient of the Rhone-Poulenc Award (1991) for the
most innovative research with fluoroquinolones. He was also the
recipient of the American Society of Health System Pharmacy
Research and Education Foundation Drug Therapy Research Award
for outstanding contribution to the scientific pharmaceutical
literature (1998). He currently reviews for several scientific
journals, including the Journal of the American Medical
Association, the New England Journal of Medicine and the Annals
of Internal Medicine. He is a consultant for over
20 companies in the pharmaceutical industry.
Dr. Drusano received a bachelor's degree in physics
magna cum laude from Boston College. Dr. Drusano received a
M.D., cum laude from the University of Maryland School of
Medicine.
James W. McGinity,
Ph.D.
is the holder of the Johnson and
Johnson Centennial Chair in Pharmacy and is professor and
division head of pharmaceutics in the College of Pharmacy, the
University of Texas at Austin. Prior to joining the University
of Texas in 1976, he was a research scientist at the Squibb
Institute for Medical Research in New Brunswick, N.J.
Dr. McGinity's research interests and publications are
in the areas of physical pharmacy and pharmaceutical technology.
He has been issued 13 U.S. patents and currently has
five patent applications under review with the U.S. patent
office. His research has been published in journals such as
Science, Journal of Pharmaceutical Sciences, Pharmaceutical
Development and Technology, Pharmaceutical Research,
International Journal of Pharmaceutics and the Journal of
Microencapsulation. He has been the U.S. Editor for the
European Journal of Pharmaceutics and Biopharmaceutics since
1995.
51
Dr. McGinity has been a consultant to the
FDA and many pharmaceutical and chemical companies both in the
U.S. and Europe. He received his B.S. in pharmacy at the
University of Queensland, Australia, and his Ph.D. in physical
pharmacy from the University of Iowa.
Board of Directors
Currently, the members of our board of directors
are elected pursuant to certain voting provisions of a
stockholders agreement, which provisions will terminate upon
completion of this offering. Our certificate of incorporation
provides for a classified board of directors consisting of three
classes of directors, each serving staggered three-year terms.
As a result, a portion of our board of directors will be elected
each year. To implement the classified structure, prior to the
consummation of the offering, three of the nominees to the board
will be elected to a one year term, three will be elected to two
year terms and three will be elected to three-year terms.
Thereafter, directors will be elected for three-year terms.
Our executive officers are appointed by the board
of directors on an annual basis and serve until their successors
have been duly elected and qualified. There are no family
relationships among any of our directors or executive officers.
Committees of Our Board
Our bylaws provide that our board of directors
may designate one or more board committees. We have an audit
committee and a compensation committee.
Our audit committee is composed of Wayne
Hockmeyer and R. Gordon Douglas and is responsible for the
following functions:
•
approve and retain the independent auditors to
    conduct the annual audit of our books and records;
•
review the proposed scope and results of the
    audit;
•
review and pre-approve the independent
    auditor's audit and non-audited services rendered;
•
approve the audit fees to be paid;
•
review accounting and financial controls with the
    independent auditors and our financial and accounting staff;
•
review and approve transactions between us and
    our directors, officers and affiliates;
•
recognize and prevent prohibited non-audit
    services;
•
establish procedures for complaints received by
    us regarding accounting matters; and
•
oversee internal audit functions.
Our compensation committee is composed of Wayne
Hockmeyer, Elizabeth Czerepak and James Cavanaugh and is
responsible for the following functions:
•
review and recommend the compensation
    arrangements for management, including the compensation for our
    president and chief executive officer;
•
establish and review general compensation
    policies with the objective to attract and retain superior
    talent, to reward individual performance and to achieve our
    financial goals; and
•
administer our stock incentive plan.
Compensation Committee Interlocks and Insider
Participation
None of the members of our compensation committee
has at any time been one of our officers or employees. None of
our executive officers serves or in the past has served as a
member of the board of directors or compensation committee of
any entity that has one or more of its executive officers
serving on our board of directors or our compensation committee.
52
Compensation of Directors
Our directors who are also our employees have not
received and will not receive any additional compensation for
their services as our directors. We currently pay our chairman
of the board of directors annual cash compensation of $40,000
and we pay our non-employee directors, other than
Dr. Cavanaugh and Mr. Werner, annual cash compensation
of $24,000. We will also reimburse our non-employee directors
for reasonable expenses incurred to attend meetings of the board
and its committees and business meetings and functions on our
behalf. During the fiscal year ended December 31, 2002,
Mr. Isbister received $40,000 as director fees and
Drs. Douglas and Hockmeyer each received $20,000 as
director fees. In addition, our directors are eligible to
participate in our 2000 stock incentive plan.
As compensation for service on our board of
directors for the fiscal year ended December 31, 2002, in
November 2001, Drs. Cavanaugh and Hockmeyer and
Messrs. Isbister and Werner each received an option to
acquire 15,000 shares of our common stock at an exercise price
of $0.3375 per share. As compensation for service on our board
of directors for the year 2003, in June 2003, Drs. Cavanaugh,
Douglas and Hockmeyer and Messrs. Isbister and Werner each
received an option to acquire 30,000 shares of our common
stock at an exercise price of $0.3375 per share.
Executive Compensation
The following table contains summary information
concerning annual compensation for the fiscal years ended
December 31, 2002, 2001 and 2000 for our chief executive
officer and each of our other three most highly compensated
executive officers whose salary and bonus exceeded $100,000 for
the year ended December 31, 2002.
Summary Compensation Table
Long-Term Compensation
Annual Compensation
Number of Shares
Underlying
All Other
Name & Principal Position
Year
Salary
Bonus(1)
Option Awards(2)
Compensation
Edward M. Rudnic
2002
$
255,626
$
63,907
—
$
—
President, Chief Executive Officer,
2001
242,575
59,985
720,000
(3)
—
Treasurer and Director
2000
228,167
47,813
—
—
Steven A. Shallcross
2002
183,058
45,765
—
—
Senior Vice President, Chief
2001
31,385
6,497
200,000
—
Financial Officer
2000
—
—
—
—
Kevin S. Sly
2002
157,013
89,313
180,000
194,557
(4)
Senior Vice President, Business
2001
—
—
—
—
Development and Marketing
2000
—
—
—
—
Colin E. Rowlings
2002
169,628
42,407
70,000
—
Vice President of Pharmaceutical
2001
68,750
14,601
80,000
34, 211
Research and Development
2000
—
—
—
—
(1)
Bonus earned is paid in the first quarter of the
    subsequent year. The bonus paid to Mr. Sly in 2002 includes
    a $50,000 signing bonus.
(2)
In June 2003, each of Dr. Rudnic and
    Messrs. Shallcross and Sly received option grants of
    300,000, 150,000 and 170,000 shares, respectively, at an
    exercise price of $0.3375 per share.
(3)
In 2001, Dr. Rudnic received an option to
    purchase 180,000 shares of common stock at an exercise
    price of $0.2090 per share, and to purchase 540,000 shares
    of common stock at an exercise price of $0.2250 per share. Of
    these grants, options covering 120,000 shares of common
    stock at an exercise price of $0.2250 per share were transferred
    to a family trust.
(4)
Includes $117,170 for relocation expenses and
    $77,387 for reimbursed taxes.
53
Stock Option Grants
Option Grants in Last Fiscal
    Year
The following table sets forth information
related to the grant of stock options by us during the year
ended December 31, 2002 to the executive officers named in
the summary compensation table.
Individual Grants
Percent of
Potential Realizable
Total
Value at Assumed
Number of
Options
Annual Appreciation
Securities
Granted to
Rates of Stock Price for
Underlying
Employees
Exercise or
Option Term
Options
in Fiscal
Base Price
Expiration
Granted
Year
($/Share)
Date
5%
10%
Edward M. Rudnic
—
Steven A. Shallcross
—
Kevin S. Sly
180,000
28.5
%
$
0.34
2/12/2012
Colin E. Rowlings
70,000
11.1
%
$
0.34
8/13/2012
Aggregated Option Exercises and Fiscal
    Year-End Option Values
The following table contains information
concerning the aggregated option exercises during the fiscal
year ended December 31, 2002 and the value of unexercised
options held as of December 31, 2002 by the executive
officers named in the summary compensation table:
Number of Shares
Value of Unexercised
Underlying
In-the-Money
Unexercised Options at
Options at
Shares
December 31, 2002
December 31, 2002
Acquired on
Value
Exercise
Realized
Exercisable
Unexercisable
Exercisable
Unexercisable
Edward M. Rudnic
—
—
365,000
235,000
Steven A. Shallcross
—
—
50,000
150,000
Kevin S. Sly
—
—
—
180,000
Collin E. Rowlings
—
—
20,000
130,000
Stock Incentive Plan
In May 2000, we adopted the 2000 stock incentive
plan. At the time of its adoption, 640,000 shares of common
stock were available for issuance in connection with awards
granted to employees, directors and consultants under the plan.
In March 2001, October 2001 and February 2002, the number of
shares available for issuance under the plan was increased to
2,090,100, 2,990,100 and 4,000,000, respectively.
Options granted under the plan may be incentive
stock options or non-statutory stock options. Stock purchase
rights may also be granted under the plan. Incentive stock
options may only be granted to employees. The board of directors
determines the period over which options become exercisable;
however, except in the case of options granted to officers,
directors and consultants, options will become exercisable at a
rate of not less than 25% per year over four years from the date
the options are granted. The exercise price of incentive stock
options and non-statutory stock options will be no less than
100% of the fair market value per share of our common stock on
the grant date. The term of the options is 10 years except,
with respect to one incentive stock option held by one of our
executive officers, the term of which is 5 years. As of
December 31, 2001 and 2002, there were 843,700 and
1,264,800 shares of common stock available for future
option grants, respectively.
The holders of options to acquire common stock
under the plan have entered into option grant agreements with
us. The stock restriction agreements that are a condition
precedent to the exercise of options granted under the plan,
together with the option grant agreements, provide us with a
right of first refusal with
54
respect to the sale of certain exercised option
shares and contain "claw back" provisions in the event
the optionee's relationship with us is terminated.
During 2001, in compliance with the plan,
non-statutory stock options granted to employees, directors and
outside consultants were replaced with option grants allowing
the early exercise of 100% of the respective options. The other
terms of the stock option grants were not changed. Shares issued
under non-statutory options exercised prior to vesting are
subject to forfeiture in accordance with the vesting schedule of
the granted stock options.
Certain of our directors, consultants and
employees (and/or immediate family members or related entities
to which certain of those individual have transferred their
options or shares of common stock) have entered into our
standard form of stock restriction agreement as a condition to
their exercise of options to acquire common stock pursuant to
the plan. These agreements provide us with, among other things,
a right of first refusal in connection with the option
holder's sale of the common stock, as well as the right to
purchase the stockholder's common stock in the event that
the stockholder's relationship with us is terminated under
certain circumstances. During 2001 and 2002, certain employees,
directors and outside consultants exercised options to purchase
1,097,250 and 93,000 shares or restricted common stock,
respectively. At December 31, 2001 and 2002, 1,032,500 and
908,000, shares of restricted common stock remain unvested,
respectively.
The following table provides information with
respect to the equity securities that are authorized for
issuance under our compensation plans as of December 31,
2002:
Equity Compensation Plan Information
Number of Securities
Remaining Available for
Number of Securities
Future Issuance Under
to be Issued Upon
Weighted-average
Equity Compensation
Exercise of
Exercise Price of
Plans (Excluding
Outstanding Options,
Outstanding Options,
Securities Reflected
Warrants and Rights(a)
Warrants and Rights(b)
in Column (a)) (c)
Equity compensation plans approved by security
    holders
1,544,950
$
0.29
1,264,800
Equity compensation plans not approved by
    security holders
—
—
—
Total
1,544,950
$
0.29
1,264,800
401(k) Plan
All our full time employees in the United States
over the age of 18 are eligible to participate in our 401(k)
Plan after three months of employment. Subject to certain
limitations imposed by federal tax laws, employees may
contribute up to 15% of their salary (including bonuses and/or
commissions) per year. Our board of directors has discretion to
match contributions made by our employees. To date we have not
made any matching contributions.
Employment Agreements
In January 2000, we entered into an employment
agreement with Dr. Rudnic, our president and chief
executive officer. Under the agreement, Dr. Rudnic will
receive a salary of $310,000 during 2003 and is eligible for
annual increases and performance-based bonuses equal to 25% of
his base salary. At his option, he may receive all or any
portion of his bonus in shares of our common stock at the
then-applicable market value. Dr. Rudnic is entitled to
participate in and receive the benefits we provide to our other
executive officers, including any life, health, accident,
disability, medical, dental and hospitalization plans, and other
perquisites and benefits as are provided to our other executive
officers. The agreement may be terminated by us at any time or
by Dr. Rudnic upon 90 days' advance notice. If we
terminate Dr. Rudnic's employment without cause, he
will receive severance compensation equal to
24 months' salary.
55
In February 2002, we entered into an employment
agreement with Mr. Shallcross, our senior vice president
and chief financial officer. Under the agreement,
Mr. Shallcross will receive a salary of $200,000 during
2003 and is eligible for annual increases and performance-based
bonuses equal to 25% of his base salary. Mr. Shallcross is
entitled to participate in and receive the benefits we provide
to our other executive officers, including any life, health,
accident, disability, medical, dental and hospitalization plans,
and other perquisites and benefits as are provided to our other
executive officers. The agreement may be terminated by us at any
time or by Mr. Shallcross upon 90 days' advance
notice. If we terminate Mr. Shallcross' employment
without cause, he will receive severance compensation equal to
24 months' salary.
In February 2002, we entered into an employment
agreement with Mr. Sly, our senior vice president, business
development and marketing. Under the agreement, Mr. Sly
will receive a salary of $200,000 during 2003 and is eligible
for annual increases and performance-based bonuses equal to 25%
of his base salary. Mr. Sly is entitled to participate in
and receive the benefits we provide to our other executive
officers, including any life, health, accident, disability,
medical, dental and hospitalization plans, and other perquisites
and benefits as are provided to our other executive officers.
The agreement may be terminated by us at any time or by
Mr. Sly upon 90 days' advance notice. If we
terminate Mr. Sly without cause, he will receive severance
compensation equal to 24 months' salary.
In February 2002, we entered into an employment
agreement with Dr. Rowlings, our vice president,
pharmaceutical R&D. Under the agreement, Dr. Rowlings
will receive a salary of $185,000 during 2003 and is eligible
for annual increases and performance-based bonuses equal to 25%
of his base salary. Dr. Rowlings is entitled to participate
in and receive the benefits we provide to our other executive
officers, including any life, health, accident, disability,
medical, dental and hospitalization plans, and other perquisites
and benefits as are provided to our other executive officers.
The agreement may be terminated by us at any time or by
Dr. Rowlings upon 90 days' advance notice. If we
terminate Dr. Rowlings without cause, he will receive
severance compensation equal to 24 months' salary.
56
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
We have funded our operations principally with
the proceeds of $54.5 million from a series of five
preferred stock offerings over the period 2000 through 2003 as
follows:
No. of
Price Per
Issue
Year
Shares
Share
Amount
(In millions)
Preferred Stock, Series A
2000
2,000,000
$
1.00
$
2.0
Preferred Stock, Series B
2000
2,000,000
1.25
2.5
Preferred Stock, Series C
2001
4,010,000
1.50
6.0
Preferred Stock, Series D
2001 and 2002
7,999,999
2.25
18.0
Preferred Stock, Series E
2003
11,555,556
2.25
26.0
27,565,555
$
54.5
Each share of outstanding preferred stock
converts into one share of our common stock upon the closing of
this offering.
Each of the following investors, which are
holders of in excess of 5% of our common stock (on a pro forma
basis as of July 25, 2003), participated in the offer and
sale of the above shares of preferred stock as indicated below:
Purchase
Aggregate
Price Per
Shares
Total
Percentage
Investor
Date of Purchase
Security (1)
Share
Purchased
Investment
Ownership
HealthCare Ventures V, L.P.
1/7/2000 and
6/5/2000
Series A Preferred
$
1.00
1,741,800
$
1,741,800
11/13/2000
Series B Preferred
1.25
870,900
1,088,625
4/24/2001
Series C Preferred
1.50
666,666
999,999
10/25/2001 and 2/4/2002
Series D Preferred
2.25
2,474,886
5,568,494
7/2/2003
Series E Preferred
2.25
888,889
2,000,000
6,643,141
11,398,918
21.9
%
HealthCare Ventures VI, L.P.
11/13/2000
Series B Preferred
$
1.25
783,810
$
979,763
4/24/2001
Series C Preferred
1.50
2,588,322
3,882,483
10/25/2001 and 2/4/2002
Series D Preferred
2.25
3,883,508
8,737,893
7/2/2003
Series E Preferred
2.25
2,869,252
6,455,816
10,124,892
20,055,955
33.4
%
Bear Stearns Health Innoventures group(2)
7/25/2003
Series E Preferred
$
2.25
4,444,444
$
9,999,999
14.7
%
Rho Management Trust, I
1/7/2000
Series A Preferred
$
1.00
193,600
$
193,600
11/13/2000
Series B Preferred
1.25
193,600
242,000
4/24/2001
Series C Preferred
1.50
371,067
556,601
10/25/2001 and 2/4/2002
Series D Preferred
2.25
757,320
1,703,970
7/2/2003
Series E Preferred
2.25
421,484
948,339
1,937,071
3,644,510
6.4
%
(1)
The shares of Series E Preferred Stock also
    include shares issued to the investors upon conversion of
    promissory notes in the principal amount of $5.0 million
    issued under the terms of a note issuance agreement dated
    March 28, 2003.
(2)
Includes BX, L.P., Bear Stearns Health
    Innoventures, L.P., Bear Stearns Health Innoventures Offshore,
    L.P., Bear Stearns Health Innoventures Employee Fund, L.P. and
    BSHI Members, L.L.C.
57
James H. Cavanaugh and Harold R. Werner, members
of our board of directors, are general partners of HealthCare
Partners V, L.P., and HealthCare Partners VI, L.P.,
which, are the general partners of HealthCare Ventures V,
L.P. and HealthCare Ventures VI, L.P., respectively.
Elizabeth Czerepak, a member of our board of
directors, is a member of Bear Stearns Health Innoventure
Management, L.L.C., the general partner of the funds comprising
the Bear Stearns Health Innoventures group.
Loans to Executive Officer
In October 2001, we provided loans to
Dr. Rudnic, our president, chief executive officer,
treasurer and a director, and two trusts affiliated with
Dr. Rudnic, that are evidenced by full recourse notes in
the aggregate principal amount of $121,500. The notes bear
interest at a fixed annual interest rate of 5.5%, with the
interest payable annually, and mature in October 2006. The
proceeds from these notes were used to exercise options to
acquire 540,000 shares of our common stock. The loans are
secured by 540,000 shares of our common stock issued to
Dr. Rudnic and the two trusts, plus any additional shares
acquired by these holders. Following exercise, Dr. Rudnic
transferred by gift a total of 50,000 shares of our common
stock to five family members. The shares of common stock remain
pledged to secure the loan to Dr. Rudnic. As of
June 30, 2003, the total amount outstanding under the loans
was $126,004, including accrued interest.
Consulting Arrangements
In December 2002, we entered into a consulting
arrangement with Mr. Isbister, the chairman of our board of
directors, which provides for a payment to Mr. Isbister of
$60,000 per year in exchange for consulting services.
In August 2000, we entered into a consulting
agreement with Jenefir D. Isbister, Ph.D., the spouse of
Mr. Isbister and a professor at George Mason University,
which provides for the payment to Dr. Isbister of $1,500
per day for various strategic consulting services she performs
on our behalf. The original term of the consulting agreement
expired in August 2001, but has since been extended. Unless
renewed, the current consulting agreement will expire in
December 2003. In 2002, we paid an aggregate of $65,100 to
Dr. Isbister under this agreement. We have also granted
options to Dr. Isbister that are exercisable for
80,000 shares of our common stock at a weighted average
exercise price of $0.29 per share.
58
PRINCIPAL STOCKHOLDERS
The following table shows information regarding
the beneficial ownership of shares of our common stock as of
July 25, 2003 for:
•
each of our directors;
•
each executive officer named in the summary
    compensation table;
•
all directors and executive officers as a group;
    and
•
each person known to us to be the beneficial
    owner of more than 5% of our outstanding shares of common stock.
Beneficial ownership is determined in accordance
with the rules and regulations of the Securities and Exchange
Commission. In computing the number of shares beneficially owned
by a person and the percentage ownership of that person, shares
of common stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of the
date hereof are deemed outstanding. Such shares, however, are
not deemed outstanding for the purposes of computing the
percentage ownership of any other person. Except as indicated in
the footnotes to the following table or pursuant to applicable
community property laws, each stockholder named in the table has
sole voting and investment power with respect to the shares set
forth opposite such stockholder's name. The percentage of
beneficial ownership is based on 30,285,930 shares of
common stock outstanding as of July 25, 2003.
Percentage of Common Stock
Outstanding
Beneficial Owner(1)
Number of Shares
Before Offering
After Offering(2)
Five Percent Stockholders
HealthCare Ventures group(3)
16,768,033
55.4
%
Bear Stearns Health Innoventures group(4)
4,444,444
14.7
Rho Management Trust, I(5)
1,937,071
6.4
Directors and Executive Officers:
James H. Cavanaugh, Ph.D.(6)
16,845,033
55.6
Harold R. Werner(7)
16,845,033
55.6
Elizabeth Czerepak(8)
4,444,444
14.7
Edward M. Rudnic, Ph.D.(9)
1,780,000
5.9
James D. Isbister(10)
585,000
1.9
Wayne T. Hockmeyer, Ph.D.(11)
115,000
*
R. Gordon Douglas, Jr., M.D.(12)
92,000
*
Colin E. Rowlings, Ph.D.(13)
57,500
*
Steven A. Shallcross
50,000
*
Kevin S. Sly(14)
45,000
*
All directors and executive officers as a group
    (11 persons)(15)
24,110,977
78.7
%
*
less than 1%
(1)
Unless otherwise indicated, the address of each
    person is c/o Advancis Pharmaceutical Corporation,
    20425 Seneca Meadows Parkway, Germantown, Maryland 20876.
(2)
Assumes no shares are purchased in this offering
    by the listed persons.
(3)
Includes 6,643,141 shares beneficially owned
    by HealthCare Ventures V, L.P. and 10,124,892 shares
    beneficially owned by HealthCare Ventures VI, L.P. The address
    for the HealthCare Ventures entities is 44 Nassau Street,
    Princeton, New Jersey 08542.
(4)
Includes 2,555,921 shares beneficially owned
    by BX, L.P., 643,205 shares beneficially owned by Bear
    Stearns Health Innoventures, L.P., 529,139 shares
    beneficially owned by Bear Stearns Health
59
Innoventures Offshore, L.P., 417,234 shares
    beneficially owned by Bear Stearns Health Innoventures Employee
    Fund, L.P. and 298,945 shares held by BSHI Members, L.L.C.
    The address for the Bear Stearns Health Innoventures entities is
    383 Madison Avenue, New York, New York 10179.
(5)
The address of Rho Management Trust, I is c/o Rho
    Management Company, Inc., Carnegie Hall Towers, 152 W. 57th
    Street, New York, New York 10019.
(6)
Dr. Cavanaugh is a general partner of
    HealthCare Partners V, L.P. and HealthCare
    Partners VI, L.P., which are the general partners of
    HealthCare Ventures V, L.P. and HealthCare
    Ventures VI, L.P., respectively. In such capacity he may be
    deemed to share voting and investment power with respect to
    6,643,141 shares beneficially owned by HealthCare Ventures
    V, L.P. and 10,124,892 shares beneficially owned by
    HealthCare Ventures VI, L.P., each of which is a venture capital
    investment affiliate of HealthCare Ventures LLC.
    Dr. Cavanaugh disclaims beneficial ownership of the shares
    owned by these funds, except to the extent of his proportionate
    pecuniary interest therein. Dr. Cavanaugh's
    beneficially owned shares also include 22,250 shares of
    restricted stock that remain subject to vesting and
    30,000 shares issuable upon exercise of options that are
    exercisable within 60 days. The shares issuable upon the
    exercise of such options, depending on the date of exercise, may
    be subject to vesting. Dr. Cavanaugh's address is c/o
    HealthCare Ventures LLC, 44 Nassau Street, Princeton, New
    Jersey 08542.
(7)
Mr. Werner is a general partner of
    HealthCare Partners V, L.P. and HealthCare
    Partners VI, L.P. which are the general partners of
    HealthCare Ventures V, L.P. and HealthCare
    Ventures VI, L.P., respectively. In such capacity he may be
    deemed to share voting and investment power with respect to
    6,643,141 shares beneficially owned by HealthCare Ventures
    V, L.P. and 10,124,892 shares beneficially owned by
    HealthCare Ventures VI, L.P. Mr. Werner disclaims
    beneficial ownership of the shares owned by these funds, except
    to the extent of his proportionate pecuniary interest therein.
    Mr. Werner's beneficially owned shares also include
    24,750 shares held by the Werner Family Investment Limited
    Partnership, 22,250 shares of restricted stock that remain
    subject to vesting and 30,000 shares issuable upon exercise
    of options that are exercisable within 60 days. The shares
    issuable upon the exercise of options, depending on the date of
    exercise, may be subject to vesting. Mr. Werner's
    address is c/o HealthCare Ventures LLC, 44 Nassau
    Street, Princeton, New Jersey 08542.
(8)
Ms. Czerepak is a member of Bear Stearns
    Health Innoventures Management L.L.C., which serves as the
    general partner of the funds comprising the Bear Stearns Health
    Innoventures group, and is an employee of Bear Stearns Asset
    Management Inc., the managing member of Bear Stearns Health
    Innoventures Management L.L.C. In such capacity, she may be
    deemed to share voting and investment power with respect to the
    4,444,444 shares beneficially owned by the Bear Stearns
    Health Innoventures group. Ms. Czerepak disclaims
    beneficial ownership of the shares owned by the funds
    constituting such group except to the extent of her
    proportionate pecuniary interest therein.
    Ms. Czerepak's address is c/o Bear Stearns Asset
    Management Inc., 583 Madison Ave., New York, New York 10179.
(9)
Includes 210,000 shares that remain subject
    to vesting and 90,000 shares issuable upon exercise of
    options that are exercisable within 60 days. Also includes
    160,000 shares held by the Elizabeth Ashley Rudnic Special
    Trust, of which 30,000 are shares of restricted stock that
    remain subject to vesting, and 160,000 shares held by the
    Megan Valentina Rudnic Special Trust, of which 30,000 are shares
    of restricted stock that remain subject to vesting.
    Dr. Rudnic disclaims beneficial ownership of all shares
    held in the trusts.
(10)
Includes 460,000 shares held in trust for
    the benefit of Mr. Isbister, of which 150,000 are shares of
    restricted stock that remain subject to vesting. Also includes
    45,000 shares issuable upon exercise of options that are
    exercisable within 60 days, of which 41,250 would be shares
    of restricted stock subject to vesting. Also includes
    80,000 shares held by Dr. Jenefir D. Isbister, 5,000
    of which are shares of restricted stock that remain subject to
    vesting and 60,000 of which are issuable upon exercise of
    options that are exercisable within 60 days. Of
    Dr. Isbister's shares issuable upon exercise of
    options, 55,000 would be shares of restricted stock subject to
    vesting. Mr. Isbister disclaims beneficial ownership of all
    shares held by Dr. Isbister.
60
(11)
Includes 65,000 shares held in trust for the
    benefit of Dr. Hockmeyer's son, of which 51,250 are
    shares of restricted stock that remain subject to vesting.
    Dr. Hockmeyer disclaims beneficial ownership of all shares
    held in the trust.
(12)
Includes 41,000 shares of restricted stock
    that remain subject to vesting.
(13)
Includes 37,500 shares issuable upon
    exercise of options that are exercisable within 60 days.
(14)
Represents 45,000 shares issuable upon
    exercise of options that are exercisable within 60 days.
(15)
Includes 16,768,033 shares beneficially owned by
    HealthCare Ventures group that are attributed to
    Dr. Cavanaugh and Mr. Werner. Also includes
    561,750 shares of restricted stock that remain subject to
    vesting and 357,500 shares issuable upon exercise of
    options that are exercisable within 60 days. Of the shares
    issuable upon exercise of options, 156,250 would be shares of
    restricted stock subject to vesting.
61
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock
does not purport to be complete and is subject to, and qualified
in its entirety by, our certificate of incorporation and bylaws,
which we have included as exhibits to the registration statement
of which this prospectus forms a part.
Upon the closing of this offering, our authorized
capital stock will consist of 225 million shares of common
stock, par value $0.01 per share, and 25 million
shares of undesignated preferred stock, par value $0.01 per
share. Immediately following the completion of this offering, an
aggregate
of                 shares
of common stock will be issued and outstanding and no shares of
preferred stock will be issued and outstanding.
Common Stock
As of July 25, 2003, there were 30,285,930
shares of our common stock outstanding (as adjusted to reflect
the conversion of all shares of our preferred stock upon the
closing of this offering) held of record by
60 stockholders. The holders of our common stock are
entitled to one vote per share on any matter to be voted upon by
stockholders. The holders of our common stock are entitled to
dividends as our board of directors may declare from time to
time from legally available funds subject to the preferential
rights of the holders of any shares of our preferred stock that
we may issue in the future.
Our certificate of incorporation does not provide
for cumulative voting in connection with the election of
directors. Accordingly, directors will be elected by a plurality
of the shares voting once a quorum is present. No holder of our
common stock will have any preemptive right to subscribe for any
shares of capital stock issued in the future.
Upon any voluntary or involuntary liquidation,
dissolution or winding up of our affairs, the holders of our
common stock are entitled to share, on a pro rata basis, all
assets remaining after payment to creditors and subject to prior
distribution rights of any shares of preferred stock that we may
issue in the future. All of the outstanding shares of common
stock are, and the shares offered by us in this offering will
be, fully paid and non-assessable.
Preferred Stock
As of July 25, 2003, we had issued and
outstanding 2,000,000 shares of Series A Redeemable
Convertible Preferred Stock, 2,000,000 shares of Series B
Redeemable Convertible Preferred Stock, 4,010,000 shares of
Series C Redeemable Convertible Preferred Stock, 7,999,999
shares of Series D Redeemable Convertible Preferred Stock
and 11,555,556 shares of Series E Redeemable Convertible
Preferred Stock. As of the closing of this offering, none of
such shares of our preferred stock will be outstanding. Under
our amended and restated certificate of incorporation, our board
of directors, without any further action by our stockholders,
will be authorized to issue shares of our undesignated preferred
stock in one or more classes or series. The board may fix the
rights, preferences and privileges of the preferred stock, along
with any limitations or restrictions, including voting rights,
dividend rights, conversion rights, redemption privileges and
liquidation preferences of each class or series of preferred
stock. The preferred stock could have voting or conversion
rights that could adversely affect the voting power or other
rights of holders of our common stock. The issuance of preferred
stock could also have the effect, under certain circumstances,
of delaying, deferring or preventing a change of control of our
company. We currently have no plans to issue any shares of
preferred stock.
Registration Rights
As of the closing date of this offering, all
shares of our preferred stock will convert into an aggregate of
27,565,555 shares of our common stock. We have entered into an
agreement with the holders of such stock pursuant to which the
holders are entitled to registration rights with respect to
their shares. The holders of at least 50% of the securities with
registration rights can require us to register all or part of
their shares. Following such demand registration, any such
holder may additionally require us to register its shares with
62
registration rights, provided that the aggregate
offering price of such registration would exceed $5,000,000. We
are not obligated to file more than two registration statements
under these demand registration provisions if all shares
required to be registered by holders are sold substantially on
the price and terms offered in the registration statements. If
we register any of our common stock either for our own account
or for the account of other security holders, the holders of
these securities are entitled to include their shares of common
stock in that registration, subject to the ability of the
underwriters to limit the number of shares included in the
offering. Further, the holders may require us, no more than
twice annually, to file registration statements of Form S-2
or Form S-3 when we are eligible to use that form. We are
generally responsible for all of the expenses associated with
these registrations, including the reasonable fees and expenses
of counsel acting on behalf of the holders; however we are not
responsible for the costs of underwriters' discounts and
commissions.
Warrants
In connection with the commencement of a lease
for the our premises in December 2001, we granted to the lessor
a freely exercisable warrant to purchase up to 20,000 shares of
our common stock at an exercise price of $1.25 per share.
The expiration date of the warrant is December 1, 2010.
In January 2001, we entered into a $1,500,000
line of credit facility to finance the purchase of specified
equipment. In connection with the line of credit, we issued to
the lender's assignee warrants to purchase such number of
shares of our common stock equal to 4% of the amount of funds
drawn by us divided by a per share exercise price of $1.25. As
of June 30, 2003, based on actual draw downs, we have
issued warrants to purchase 42,151 shares of common stock to the
lender's assignee.
In February 2002, we entered into a $2,000,000
line of credit to finance the purchase of specified equipment
based on lender approved equipment schedules. In connection with
the line of credit, we agreed to issue the lender warrants to
purchase such number of shares of our common stock equal to 2%
of the funds drawn by us divided by a per share exercise price
of $2.25. As of June 30, 2003, based on actual drawdowns,
we have issued warrants to purchase 4,691 shares of common stock.
Anti-Takeover Effects of Certain Provisions of
Delaware Law and Our Certificate of Incorporation
and Bylaws
Effect of Delaware Anti-takeover Statute.
We are subject to Section 203 of
the Delaware General Corporation Law. In general,
Section 203 prohibits a Delaware corporation from engaging
in any business combination with any interested stockholder for
a period of three years following the date that the stockholder
became an interested stockholder, unless:
•
prior to that date, the board of directors of the
    corporation approved either the business combination or the
    transaction that resulted in the stockholder becoming an
    interested stockholder;
•
upon consummation of the transaction that
    resulted in the stockholder becoming an interested stockholder,
    the interested stockholder owned at least 85% of the voting
    stock of the corporation outstanding at the time the transaction
    commenced, excluding for purposes of determining the number of
    shares outstanding those shares owned by persons who are
    directors and also officers and by excluding employee stock
    plans in which employee participants do not have the right to
    determine confidentially whether shares held subject to the plan
    will be tendered in a tender or exchange offer; or
•
on or subsequent to that date, the business
    combination is approved by the board of directors of the
    corporation and authorized at an annual or special meeting of
    stockholders, and not by written consent, by the affirmative
    vote of at least 66 2/3% of the outstanding voting stock
    that is not owned by the interested stockholder.
63
Section 203 defines "business
combination" to include the following:
•
any merger or consolidation involving the
    corporation and the interested stockholder;
•
any sale, transfer, pledge or other disposition
    of 10% or more of the assets of the corporation involving the
    interested stockholder;
•
subject to certain exceptions, any transaction
    that results in the issuance or transfer by the corporation of
    any stock of the corporation to the interested stockholder;
•
any transaction involving the corporation that
    has the effect of increasing the proportionate share of the
    stock of any class or series of the corporation beneficially
    owned by the interested stockholder; or
•
the receipt by the interested stockholder of the
    benefit of any loans, advances, guarantees, pledges or other
    financial benefits provided by or through the corporation.
In general, Section 203 defines an
interested stockholder as any entity or person beneficially
owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or
controlling or controlled by any of these entities or persons.
Certificate of Incorporation and Bylaw
Provisions.
Our certificate of
incorporation and bylaws include provisions that may have the
effect of discouraging, delaying or preventing a change in
control or an unsolicited acquisition proposal that a
stockholder might consider favorable, including a proposal that
might result in the payment of a premium over the market price
for the shares held by stockholders. These provisions are
summarized in the following paragraphs.
Classified Board of Directors.
Our certificate of incorporation and
bylaws provide for our board to be divided into three classes of
directors serving staggered, three year terms. The
classification of the board has the effect of requiring at least
two annual stockholder meetings, instead of one, to replace a
majority of the members of the board of directors.
Authorized but Unissued or Undesignated
Capital Stock.
At the closing of this
offering, our authorized capital stock will consist of
225 million shares of common stock and 25 million
shares of preferred stock. After this offering, we will
have                     outstanding
shares of common stock. The authorized but unissued (and in the
case of preferred stock, undesignated) stock may be issued by
our board of directors in one or more transactions. In this
regard, our certificate of incorporation grants the board of
directors broad power to establish the rights and preferences of
authorized and unissued preferred stock. The issuance of shares
of preferred stock pursuant to the authority of the board
described above could decrease the amount of earnings and assets
available for distribution to holders of common stock and
adversely affect the rights and powers, including voting rights,
of such holders and may have the effect of delaying, deferring
or preventing a change in control. Our board of directors does
not currently intend to seek stockholder approval prior to any
issuance of preferred stock, unless otherwise required by law.
Special Meetings of Stockholders.
Our certificate of incorporation and
bylaws provide that special meetings of our stockholders may be
called only by our board of directors, by our chairman of the
board of directors or by our Chief Executive Officer.
Notice Procedures.
Our bylaws establish advance notice
procedures with respect to all stockholder proposals to be
brought before meetings of our stockholders, including proposals
relating to the nomination of candidates for election as
directors, the removal of directors and amendments to our
amended and restated certificate of incorporation or bylaws.
These procedures provide that notice of such stockholder
proposals must be timely given in writing to our Secretary prior
to the meeting. Generally, to be timely, notice must be received
by our Secretary not more than 90 or less than 120 days
prior to the meeting. The notice must contain certain
information specified in the bylaws.
Limitation of Director Liability.
Our certificate of incorporation
limits the liability of our directors (in their capacity as
directors but not in their capacity as officers) to us or our
stockholders to the fullest extent
64
permitted by Delaware law. Specifically, our
directors will not be personally liable for monetary damages for
breach of a director's fiduciary duty as a director, except
for liability:
•
for any breach of the director's duty of
    loyalty to us or our stockholders;
•
for acts or omissions not in good faith or which
    involve intentional misconduct or a knowing violation of law;
•
under Section 174 of the Delaware General
    Corporation Law, which relates to unlawful payments of dividends
    or unlawful stock repurchases or redemptions; or
•
for any transaction from which the director
    derived an improper personal benefit.
Indemnification Arrangements.
Our certificate of incorporation and
bylaws provide that our directors and officers shall be
indemnified and provide for the advancement to them of expenses
in connection with actual or threatened proceedings and claims
arising out of their status as such to the fullest extent
permitted by the Delaware General Corporation Law. Prior to the
closing of this offering, we intend to enter into
indemnification agreements with each of our directors and
executive officers that provide them with rights to
indemnification and expense advancement to the fullest extent
permitted under the Delaware General Corporation Law.
Listing
We have applied to have our common stock approved
for quotation on The NASDAQ National Market under the symbol
"AVNC."
Transfer Agent and Registrar
The transfer agent and registrar for our common
stock is American Stock Transfer & Trust Company.
65
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public
market for our common stock. We cannot predict the effect, if
any, that market sales of shares of our common stock or the
availability of shares of our common stock for sale will have on
the market price of our common stock prevailing from time to
time. Nevertheless, sales of substantial amounts of our common
stock in the public market could adversely affect the market
price of our common stock and could impair our future ability to
raise capital through the sale of our equity securities.
Upon the completion of this offering, we will
have                     shares
of common stock outstanding, assuming no exercise of the
underwriters' over-allotment option.
The number of shares of common stock to be
outstanding after this offering is based on the number of shares
outstanding as of July 25, 2003, and excludes:
•
2,636,125 shares of common stock issuable upon
    the exercise of outstanding stock options at a weighed average
    exercise price of $0.31 per share; and
•
66,842 shares of common stock issuable upon
    exercise of outstanding warrants at a weighted average exercise
    price of $1.32 per share.
Of the outstanding shares,
the                     shares
sold in this offering and any shares issued upon exercise of the
underwriters' over-allotment option will be freely tradable
without restriction under the Securities Act, except that any
shares held by our "affiliates," as that term is
defined in Rule 144 promulgated under the Securities Act,
may only be sold in compliance with the limitations described
below. The remaining 30,285,930 shares of common stock will be
deemed "restricted securities" as defined under
Rule 144. Restricted shares may be sold in the public
market only if registered or if they qualify for a resale under
Rules 144, 144(k) or 701 under the Securities Act, which
rules are summarized below. Subject to the lock-up agreements
described below and the provisions of Rules 144, 144(k) and
701, additional shares will be available for sale in the public
market as follows:
Number of Shares
Date
After 180 days from the date of this
    prospectus, the 180-day lock-up is released and these shares
    will be freely tradable under Rule 144 (subject, in some
    cases, to volume limitations) or Rule 144(k)
After 180 days from the date of this
    prospectus, the 180-day lock-up will be released and these
    shares will be freely tradable under Rule 701 (subject, in
    some cases, to repurchase by us and volume limitations)
After 180 days from the date of this
    prospectus, these restricted securities will have been held for
    less than one year and will not yet be freely tradable under
    Rule 144
Rule 144
In general, under Rule 144, as currently in
effect, beginning 90 days after the date of this
prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell
those shares. Persons who have owned shares of our common stock
for at least one year would be entitled to sell, within any
three-month period, a number of shares that does not exceed the
greater of:
•
1% of the number of shares of common stock then
    outstanding, which will equal
    approximately                     shares
    immediately after this offering; or
•
the average weekly trading volume of the common
    stock on the Nasdaq National Market during the four calendar
    weeks preceding the filing of a notice on Form 144 with
    respect to that sale.
66
Rule 144(k)
Under Rule 144(k), a person who is not
deemed to have been one of our "affiliates" at any
time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least
two years, generally including the holding period of any prior
owner other than an "affiliate," is entitled to sell
such shares without complying with the manner of sale, notice
filing, volume limitation or notice provisions of Rule 144.
Rule 701
In general, under Rule 701, any of our
employees, directors, officers, consultants or advisors who
purchase shares from us in connection with a compensatory stock
or option plan or other written agreement before the effective
date of this offering is entitled to resell those shares
90 days after the effective date of this offering in
reliance on Rule 144, without having to comply with certain
restrictions, including the holding period, contained in
Rule 144.
The Securities and Exchange Commission has
indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended,
along with the shares acquired upon exercise of those options,
including exercises after the date of this prospectus.
Securities issued in reliance on Rule 701 are restricted
securities and, subject to the contractual restrictions
described above, beginning 90 days after the date of this
prospectus, may be sold by persons other than
"affiliates," as defined in Rule 144, subject
only to the manner of sale provisions of Rule 144.
Securities issued in reliance on Rule 701 may be sold by
"affiliates" under Rule 144 without compliance
with its one year minimum holding period requirement.
Stock Options
As of June 30, 2003, options to purchase a
total of 2,801,125 shares of common stock were outstanding, of
which 428,950 were vested. We intend to file a Form S-8
registration statement under the Securities Act to register all
shares of common stock issuable under our stock incentive plan.
Accordingly, shares of common stock underlying these options
will be eligible for sale in the public markets, subject to
vesting restrictions or the lock-up agreements described below.
Lock-Up Agreements
Our directors, officers and stockholders have
agreed under lock-up agreements that they will not, directly or
indirectly, offer, sell or otherwise dispose of any shares of
common stock or any security which may be converted into or
exchanged or exercised for any common stock without the prior
written consent of Lehman Brothers for a period of 180 days
from the date of this prospectus.
In addition, we have agreed that for a period of
180 days from the date of this prospectus, we will not,
without the prior written consent of Lehman Brothers, offer,
sell or otherwise dispose of any shares of common stock or any
securities which may be converted into or exchanged for any
common stock.
Registration Rights
Following this offering, under specified
circumstances and subject to customary conditions, holders of
27,565,555 shares of our outstanding common stock will have
demand registration rights with respect to their shares of
common stock, subject to the 180-day lock-up arrangement
described above, to require us to register their shares of
common stock under the Securities Act, and rights to participate
in any future registrations of securities. If the holders of
these registrable securities request that we register their
shares, and if the registration is effected, these shares will
become freely tradable without restriction under the Securities
Act. Any sales of securities by these stockholders could have a
material adverse effect on the trading price of our common
stock. See "Description of Capital Stock —
Registration Rights."
67
UNDERWRITING
Under the terms of an Underwriting Agreement,
which is filed as an exhibit to the registration statement
relating to this prospectus, each of the underwriters named
below, for whom Lehman Brothers Inc. and Pacific Growth
Equities, LLC are acting as representatives, have severally
agreed to purchase from us the respective number of shares of
common stock opposite their names below:
Underwriters
Number of Shares
Lehman Brothers
Pacific Growth Equities, LLC
The underwriting agreement provides that the
underwriters' obligations to purchase shares of common
stock depends on the satisfaction of the conditions contained in
the underwriting agreement, including:
•
the obligation to purchase all of the shares of
    common stock offered hereby if any of the shares are purchased;
•
the representations and warranties made by us to
    the underwriters are true;
•
there is no material change in the financial
    markets; and
•
we deliver customary closing documents to the
    underwriters.
Over-Allotment Option
We have granted the underwriters a 30-day option
after the date of this prospectus, to purchase, from time to
time, in whole or in part, up to an aggregate
of                               shares
at the public offering price less underwriting discounts and
commissions. The option may be exercised to cover
over-allotments, if any, made in connection with the offering.
To the extent that this option is exercised, each underwriter
will be obligated, subject to certain conditions, to purchase
its pro rata portion of these additional shares based on the
underwriter's percentage underwriting commitment in the
offering as indicated in the preceding table.
Commissions and Expenses
The following table summarizes the underwriting
discounts and commissions we will pay to the underwriters. These
amounts are shown assuming both no exercise and full exercise of
the underwriters' overallotment option to
purchase                               additional
shares. The underwriting fee is the difference between the
initial price to the public and the amount the underwriters pay
to purchase the shares from us.
No Exercise
Full Exercise
Per share
$
$
Total
$
$
The underwriters have advised us that they
propose to offer the shares of common stock directly to the
public at the public offering price presented on the cover page
of this prospectus, and to selected dealers, who may include the
underwriters, at the public offering price less a selling
concession not in excess of
$          per
share. The underwriters may allow, and the selected dealers may
reallow, a concession not in excess of
$                    per
share to brokers and dealers. After the offering, the
underwriters may change the offering price and other selling
terms.
We estimate that the expenses of the offering
that are payable by us will be approximately
$                    .
We have applied for quotation of our common stock
on The NASDAQ National Market under the symbol "AVNC."
Lock-up Agreements
We have agreed that, without the prior written
consent of Lehman Brothers Inc., we will not, directly or
indirectly, offer, sell or dispose of any common stock or any
securities which may be converted into or exchanged for any
common stock for a period of 180 days from the date of this
prospectus. Our directors, officers and stockholders have agreed
under lock-up agreements not to, without the prior written
consent of
68
Lehman Brothers Inc., directly or indirectly,
offer, sell or otherwise dispose of any common stock or any
securities which may be converted into or exchanged or exercised
for any common stock for a period of 180 days from the date
of this prospectus.
Offering Price Determination
Prior to this offering, there has been no public
market for our common stock. The initial public offering price
will be determined by negotiation between us and the
underwriters. The factors that the representatives will consider
in determining the public offering price include:
•
the history and prospects for the industry in
    which we compete;
•
the ability of our management and our business
    potential and earning prospects;
•
the prevailing securities markets at the time of
    this offering;
•
the recent market prices of, and the demand for,
    publicly traded shares of generally comparable companies.
Indemnification
We have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the
Securities Act, and liabilities incurred in connection with the
directed share program referred to below, and to contribute to
payments that the underwriters may be required to make for these
liabilities.
Stabilization, Short Positions and Penalty
Bids
The representatives may engage in over-allotment,
stabilizing transactions, syndicate covering transactions, and
penalty bids or purchasers for the purpose of pegging, fixing or
maintaining the price of the common stock, in accordance with
Regulation M under the Exchange Act of 1934:
•
Over-allotment involves sales by the underwriters
    of shares in excess of the number of shares the underwriters are
    obligated to purchase, which creates a syndicate short position.
    The short position may be either a covered short position or a
    naked short position. In a covered short position, the number of
    shares over-allotted by the underwriters is not greater than the
    number of shares that they may purchase in the over-allotment
    option. In a naked short position, the number of shares involved
    is greater than the number of shares in the over-allotment
    option. The underwriters may close out any short position by
    either exercising their over-allotment option and/or purchasing
    shares in the open market.
•
Stabilizing transactions permit bids to purchase
    the underlying security so long as the stabilizing bids do not
    exceed a specified maximum;
•
Syndicate covering transactions involve purchases
    of the common stock in the open market after the distribution
    has been completed in order to cover syndicate short positions.
    In determining the source of shares to close out the short
    position, the underwriters will consider, among other things,
    the price of shares available for purchase in the open market as
    compared to the price at which they may purchase shares through
    the over-allotment option. If the underwriters sell more shares
    than could be covered by the over-allotment option, a naked
    short position, the position can only be closed out by buying
    shares in the open market. A naked short position is more likely
    to be created if the underwriters are concerned that there could
    be downward pressure on the price of the shares in the open
    market after pricing that could adversely affect investors who
    purchase in the offering.
•
Penalty bids permit the representatives to
    reclaim a selling concession from a syndicate member when the
    common stock originally sold by the syndicate member is
    purchased in a stabilizing or syndicate covering transaction to
    cover syndicate short positions.
These stabilizing transactions, syndicate
covering transactions and penalty bids may have the effect of
raising or maintaining the market price of our common stock or
preventing or retarding a decline in the market price of the
common stock. As a result, the price of the common stock may be
higher than the price
69
that might otherwise exist in the open market.
These transactions may be effected on The NASDAQ National Market
or otherwise and, if commenced, may be discontinued at any time.
Neither we nor any of the underwriters make any
representation or prediction as to the direction or magnitude of
any effect that the transactions described above may have on the
price of the common stock. In addition, neither we nor any of
the underwriters make representation that the representatives
will engage in these stabilizing transactions or that any
transaction, once commenced, will not be discontinued without
notice.
Electronic Distribution
A prospectus in electronic format may be made
available on the Internet sites or through other online services
maintained by one or more of the underwriters and/or selling
group members participating in this offering, or by their
affiliates. In those cases, prospective investors may view
offering terms online and, depending upon the particular
underwriter or selling group member, prospective investors may
be allowed to place orders online. The underwriters may agree
with us to allocate a specific number of shares for sale to
online brokerage account holders. Any such allocation for online
distributions will be made by the representatives on the same
basis as other allocations.
Other than the prospectus in electronic format,
the information on any underwriter's or selling group
member's web site and any information contained in any
other web site maintained by an underwriter or selling group
member is not part of the prospectus or the registration
statement of which this prospectus forms a part, has not been
approved and/or endorsed by us or any underwriter or selling
group member in its capacity as underwriter or selling group
member and should not be relied upon by investors.
Directed Shares
At our request, the underwriters have reserved up
to a maximum
of                      shares
of the common stock offered by this prospectus for sale to our
directors, employees, their nominees and persons with business
relationships with us, at the initial public offering price set
forth on the cover page of this prospectus. These persons must
commit to purchase no later than the close of business on the
date following the date of this prospectus. The number of shares
available for sale to the general public will be reduced to the
extent these persons purchase the reserved shares.
Discretionary Accounts
The underwriters have informed us that they do
not intend to confirm sales to discretionary accounts that
exceed 5% of the total number of shares offered by them.
Any offers in Canada will be made only under an
exemption from the requirements to file a prospectus in the
relevant province of Canada where the sale is made.
LEGAL MATTERS
The validity of the common stock offered hereby
will be passed upon for us by McCarter & English, LLP.
Certain legal matters in connection with the offering will be
passed upon for the underwriters by Coudert Brothers LLP.
EXPERTS
The financial statements of Advancis
Pharmaceutical Corporation as of December 31, 2001 and 2002
and for each of the three years in the period ended
December 31, 2002 included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
70
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange
Commission under the Securities Act a registration statement on
Form S-1 relating to the shares of common stock we are
offering by this prospectus. This prospectus, which constitutes
part of the registration statement filed with the Commission,
does not contain all the information included in the
registration statement and the exhibits and schedules thereto.
For further information with respect to us and our common stock,
you should refer to the registration statement and its exhibits.
Statements contained in this prospectus as to the contents of
any contract, agreement or other document are not necessarily
complete, and, where the contract, agreement or other document
is an exhibit to the registration statement, any statement with
respect to such contract, agreement or document is qualified by
the provisions of such exhibit. You may examine a copy of the
registration statement, including the exhibits, at the
Commission's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. You can obtain a copy of a portion
of the registration statement from the public reference room
upon payment of prescribed fees. You may obtain information on
the operation of the public reference room by calling the
commission at 1-800-SEC-0330. The Commission maintains a website
that contains periodic reports, proxy and information statements
and other information regarding registrants that file
electronically with the Commission. The address of the website
is http://www.sec.gov.
As a result of this offering, we will become
subject to the information and periodic reporting requirements
of the Exchange Act and, in accordance therewith, will file
periodic reports, proxy statements and other information with
the Commission.
71
ADVANCIS PHARMACEUTICAL CORPORATION
TABLE OF CONTENTS
Page(s)
Report of Independent Auditors
F-2
Financial Statements:
Balance Sheets
F-3
Statements of Operations
F-4
Statement of Stockholders' Deficit
F-5
Statements of Cash Flows
F-6
Notes to Financial Statements
F-7 - F-21
F-1
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and
Stockholders of Advancis Pharmaceutical
Corporation
In our opinion, the accompanying balance sheets
and the related statements of operations, of changes in
stockholders' deficit and of cash flows present fairly, in
all material respects, the financial position of Advancis
Pharmaceutical Corporation (the "Company") (a
development stage enterprise) at December 31, 2001 and
December 31, 2002, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America. These
financial statements are the responsibility of the
Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
July 25, 2003
McLean, Virginia
F-2
ADVANCIS PHARMACEUTICAL CORPORATION
(A Development Stage Enterprise)
BALANCE SHEETS
December 31,
As of
June 30,
2001
2002
2003
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
10,187,189
$
4,059,911
$
244,582
Short-term investments
6,284,860
—
—
Prepaid expenses and other current assets
6,714
172,512
335,107
Total current assets
16,478,763
4,232,423
579,689
Property and equipment, net
1,744,512
2,693,208
7,219,202
Restricted cash
—
1,438,538
1,438,538
Deposits
134,300
488,854
1,592,827
Notes receivable
121,500
121,500
121,500
Intangible assets, net
96,000
84,000
78,000
Total assets
$
18,575,075
$
9,058,523
$
11,029,756
LIABILITIES, MANDATORILY REDEEMABLE
    CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS'
    DEFICIT
Current liabilities:
Accounts payable
$
275,059
$
758,773
$
1,593,139
Accrued expenses
520,624
830,980
3,060,636
Line of credit — current portion
345,354
595,704
651,116
Convertible notes payable
—
—
5,091,389
Total current liabilities
1,141,037
2,185,457
10,396,280
Line of credit — non current portion
744,528
1,060,230
699,313
Note payable
—
75,000
75,000
Deferred credit on lease concession
—
—
809,259
Total liabilities
1,885,565
3,320,687
11,979,852
Commitments and contingencies
Mandatorily redeemable convertible preferred
    stock:
Series A, $0.01 par value; 2,000,000 shares
    authorized, issued and outstanding (liquidation preference of
    $2,370,877, $2,607,964 and $2,740,827 at December 31, 2001,
    2002 and June 30, 2003, respectively)
1,978,942
1,989,471
1,994,692
Series B, $0.01 par value; 2,000,000 shares
    authorized, issued and outstanding (liquidation preference of
    $2,786,164, $3,064,781 and $3,218,870 at December 31, 2001,
    2002 and June 30, 2003, respectively)
2,476,712
2,488,355
2,494,130
Series C, $0.01 par value; 4,010,000 shares
    authorized, issued and outstanding (liquidation preference of
    $6,428,634, $7,071,498 and $7,427,037 at December 31, 2001,
    2002 and June 30, 2003, respectively)
5,981,200
5,998,100
6,006,480
Series D, $0.01 par value; 6,666,666 shares
    authorized, issued and outstanding at December 31, 2001 and
    7,999,999 shares authorized, issued and outstanding at
    December 31, 2002 and June 30, 2003 (liquidation
    preference of $15,275,341, $20,071,641 and $21,080,800 at
    December 31, 2001, 2002 and June 30, 2003,
    respectively)
14,954,316
17,963,369
17,981,354
Total mandatorily redeemable convertible
    preferred stock
25,391,170
28,439,295
28,476,656
Stockholders' deficit:
Common stock, $0.01 par value; 22,000,000 shares
    authorized at December 31, 2001 and 23,333,333 shares
    authorized at December 31, 2002 and June 30, 2003;
    2,457,250, 2,518,750 and 2,523,875 shares issued and outstanding
    at December 31, 2001, 2002 and June 30, 2003,
    respectively
24,573
25,188
25,239
Capital in excess of par value
276,606
503,173
6,180,246
Deferred stock-based compensation
—
(102,986
)
(5,015,940
)
Deficit accumulated during the development stage
(9,002,839
)
(23,126,834
)
(30,616,297
)
Total stockholders' deficit
(8,701,660
)
(22,701,459
)
(29,426,752
)
Total liabilities, mandatorily redeemable
    convertible preferred stock and stockholders' deficit
$
18,575,075
$
9,058,523
$
11,029,756
The accompanying notes are an integral part of
these financial statements.
F-3
ADVANCIS PHARMACEUTICAL CORPORATION
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
Six Months Ended
For the Period from
Year Ended December 31,
June 30,
January 1, 2000
(Date of Inception)
2000
2001
2002
2002
2003
to June 30, 2003
(Unaudited)
(Unaudited)
(Unaudited)
Revenue
$
—
$
—
$
—
$
—
$
—
$
—
Cost and expenses:
Research and development
1,133,014
5,295,308
10,855,130
4,660,989
5,537,966
22,821,418
General and administrative
751,962
1,958,602
3,323,879
1,523,214
1,853,342
7,887,785
Total expenses
1,884,976
7,253,910
14,179,009
6,184,203
7,391,308
30,709,203
Loss from operations
(1,884,976
)
(7,253,910
)
(14,179,009
)
(6,184,203
)
(7,391,308
)
(30,709,203
)
Interest income
66,713
183,641
338,135
245,276
35,451
623,940
Interest expense
—
(114,307
)
(235,506
)
(161,114
)
(133,606
)
(483,419
)
Other expense
—
—
(47,615
)
—
—
(47,615
)
Net loss
(1,818,263
)
(7,184,576
)
(14,123,995
)
(6,100,041
)
(7,489,463
)
(30,616,297
)
Accretion of issuance costs of mandatorily
    redeemable convertible preferred stock
(11,887
)
(37,594
)
(73,925
)
(35,945
)
(37,361
)
(160,767
)
Net loss applicable to common stockholders
$
(1,830,150
)
$
(7,222,170
)
$
(14,197,920
)
$
(6,135,986
)
$
(7,526,824
)
$
(30,777,064
)
Basic and diluted net loss per share applicable
    to common stockholders
$
(2.39
)
$
(6.88
)
$
(8.95
)
$
(4.19
)
$
(4.03
)
Shares used in calculation of basic and diluted
    net loss per share
764,712
1,049,915
1,587,117
1,465,294
1,869,276
The accompanying notes are an integral part of
these financial statements.
F-4
ADVANCIS PHARMACEUTICAL CORPORATION
(A Development Stage Enterprise)
STATEMENT OF CHANGES IN STOCKHOLDERS'
DEFICIT
Deficit
Accumulated
Capital in
Deferred
During the
Total
Par
Excess of
Stock-Based
Development
Stockholders'
Shares
Value
Par Value
Compensation
Stage
Deficit
Balance at January 1, 2000 (Inception)
1,360,000
$
13,600
$
106,400
$
—
$
—
$
120,000
Accretion of issuance costs of mandatorily
    redeemable convertible preferred stock
—
—
(11,887
)
—
—
(11,887
)
Net loss
—
—
—
—
(1,818,263
)
(1,818,263
)
Balance at December 31, 2000
1,360,000
13,600
94,513
—
(1,818,263
)
(1,710,150
)
Issuance of restricted stock
1,097,250
10,973
219,687
—
—
230,660
Accretion of issuance costs of mandatorily
    redeemable convertible preferred stock
—
—
(37,594
)
—
—
(37,594
)
Net loss
—
—
—
—
(7,184,576
)
(7,184,576
)
Balance at December 31, 2001
2,457,250
24,573
276,606
—
(9,002,839
)
(8,701,660
)
Issuance of restricted stock
61,500
615
12,218
—
—
12,833
Accretion of issuance costs of mandatorily
    redeemable convertible preferred stock
—
—
(73,925
)
—
—
(73,925
)
Issuance of stock options for services
—
—
155,334
—
—
155,334
Deferred stock-based compensation
—
—
132,940
(132,940
)
—
—
Amortization of deferred stock-based compensation
—
—
—
29,954
—
29,954
Net loss
—
—
—
—
(14,123,995
)
(14,123,995
)
Balance at December 31, 2002
2,518,750
25,188
503,173
(102,986
)
(23,126,834
)
(22,701,459
)
Unaudited activity:
Issuance of restricted stock
5,125
51
1,605
—
—
1,656
Accretion of issuance costs of mandatorily
    redeemable convertible preferred stock
—
—
(37,361
)
—
—
(37,361
)
Issuance of stock options for services
—
—
519,503
—
—
519,503
Deferred stock-based compensation
—
—
5,193,326
(5,193,326
)
—
—
Amortization of deferred stock-based compensation
—
—
—
280,372
—
280,372
Net loss
—
—
—
—
(7,489,463
)
(7,489,463
)
Balance at June 30, 2003 (Unaudited)
2,523,875
$
25,239
$
6,180,246
$
(5,015,940
)
$
(30,616,297
)
$
(29,426,752
)
The accompanying notes are an integral part of
these financial statements.
F-5
ADVANCIS PHARMACEUTICAL CORPORATION
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
For the
Period from
Six Months Ended
January 1,
Year Ended December 31,
June 30,
2000 (Date of
Inception) to
2000
2001
2002
2002
2003
June 30, 2003
(Unaudited)
(Unaudited)
(Unaudited)
Cash flows from operating activities:
Net loss
$
(1,818,263
)
$
(7,184,576
)
$
(14,123,995
)
$
(6,100,041
)
$
(7,489,463
)
$
(30,616,297
)
Adjustments to reconcile net loss to net cash
    used in operating activities:
Depreciation and amortization
34,033
245,007
502,981
216,987
274,661
1,056,682
Stock-based compensation
—
—
185,288
—
799,875
985,163
Amortization of deferred credit on lease
    concession
—
—
—
—
(20,751
)
(20,751
)
Interest accrued on convertible notes
—
—
—
—
91,389
91,389
Changes in assets and liabilities:
Prepaid expenses and other current assets
(130,431
)
40,932
(83,013
)
(95,371
)
(162,595
)
(335,107
)
Others
(106,285
)
(4,958
)
(71,308
)
—
(2,720
)
(185,271
)
Accounts payable
148,390
126,669
483,714
339,915
834,366
1,593,139
Accrued expenses
148,167
372,457
310,356
47,701
2,229,656
3,060,636
Net cash used in operating activities
(1,724,389
)
(6,404,469
)
(12,795,977
)
(5,590,809
)
(3,445,582
)
(24,370,417
)
Cash flows from investing activities:
Purchase of short-term investments
—
(6,202,075
)
—
—
—
(6,202,075
)
Sale of short-term investments
—
—
6,202,075
5,487,892
—
6,202,075
Purchases of property and equipment
(520,151
)
(1,479,401
)
(1,439,677
)
(656,397
)
(4,794,655
)
(8,233,884
)
Deposits on property and equipment
(115,750
)
92,693
(283,246
)
(105,767
)
(1,101,253
)
(1,407,556
)
Restricted cash
—
—
(1,438,538
)
(497,738
)
—
(1,438,538
)
Landlord lease concession
—
—
—
—
830,010
830,010
Net cash from (used in) investing activities
(635,901
)
(7,588,783
)
3,040,614
4,227,990
(5,065,898
)
(10,249,968
)
Cash flows from financing activities:
Proceeds from lines of credit
—
1,317,224
1,019,866
472,948
—
2,337,090
Proceeds from note payable
—
—
75,000
—
—
75,000
Payments on lines of credit
—
(227,342
)
(453,814
)
(177,059
)
(305,505
)
(986,661
)
Proceeds from convertible notes payable
—
—
—
—
5,000,000
5,000,000
Proceeds from issuance of common stock
—
109,160
12,833
8,213
1,656
123,649
Proceeds from issuance of mandatorily redeemable
    convertible preferred stock, net of issuance costs
4,421,594
20,920,095
2,974,200
2,974,200
—
28,315,889
Net cash from financing activities
4,421,594
22,119,137
3,628,085
3,278,302
4,696,151
34,864,967
Net increase/(decrease) in cash and cash
    equivalents
2,061,304
8,125,885
(6,127,278
)
1,915,483
(3,815,329
)
244,582
Cash and cash equivalents, beginning of period
—
2,061,304
10,187,189
10,187,189
4,059,911
—
Cash and cash equivalents, end of period
$
2,061,304
$
10,187,189
$
4,059,911
$
12,102,672
$
244,582
$
244,582
Supplemental disclosure:
Cash paid for interest, net of interest
    capitalized
$
—
$
114,287
$
211,393
$
160,839
$
133,606
$
459,286
Non-cash financing transactions:
Exercise of stock option for note receivable
$
—
$
121,500
$
—
$
—
$
—
$
121,500
Accretion of issuance costs of mandatorily
    redeemable convertible preferred stock
$
11,887
$
37,594
$
73,925
$
35,945
$
37,361
$
160,767
Common stock issued for intangible assets
$
120,000
$
—
$
—
$
—
$
—
$
120,000
The accompanying notes are an integral part of
these financial statements.
F-6
ADVANCIS PHARMACEUTICAL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
1.     Nature of the
Business
Advancis Pharmaceutical Corporation (the
"Company"), formerly Advanced Pharma, Inc., was
incorporated in Delaware in December 1999 and commenced
operations on January 1, 2000. The Company has focused on
the development of anti-infective pharmaceutical formulations
that will provide the convenience of once-a-day dosing with
improved therapeutic advantages for ailments such as sinusitis,
respiratory tract infections, urinary tract infections, diabetic
foot ulcers and post-surgical infections. The Company intends to
develop and commercialize improved formulations of currently
marketed anti-infective products using various means of
administration and proprietary drug delivery technology,
including the Company's PULSYS
TM
technology. The
Company plans to accomplish this through corporate partnerships
for the development, sale and marketing of some of these
products, while retaining rights to develop, sell and market
others. Since its inception, the Company has devoted
substantially all of its efforts to business planning, research
and development, recruiting management and technical staff,
acquiring operating assets and raising capital. Accordingly, the
Company is considered to be in the development stage as defined
in Statement of Financial Accounting Standards
("SFAS") No. 7,
"Accounting for
Development Stage Enterprises."
The Company's expected activities will
necessitate significant uses of working capital throughout 2003
and beyond. Additionally, the Company's capital
requirements will depend on many factors, including the success
of the Company's research and development efforts, payments
received under contractual agreements with other parties, if
any, and the status of competitive products. The Company plans
to continue financing operations with preferred stock sales.
2.     Summary of
Significant Accounting Policies
Use of Estimates
The preparation of financial statements in
conformity with generally accepted accounting principles in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents are highly liquid investments
with a maturity of three months or less at date of purchase and
consist of time deposits and investments in money market funds
with commercial banks and financial institutions and
high-quality corporate bonds. Also, the Company maintains cash
balances with financial institutions in excess of insured
limits. The Company does not anticipate any losses with such
cash balances. At December 31, 2001 and 2002, the Company
maintained all of its cash and cash equivalents in three
financial institutions.
Fair Value of Financial
    Instruments
The carrying amounts of the Company's
financial instruments, which include cash and cash equivalents,
short-term investments, the notes payable and line of credit
borrowings, approximate their fair values due to their short
maturities.
Investments
The Company classifies all of its investments as
available-for-sale. Available-for-sale securities are carried at
fair value, with the unrealized gains and losses reported as a
component of stockholders' deficit in
F-7
ADVANCIS PHARMACEUTICAL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
comprehensive income (loss). At December 31,
2001, the unrealized gain on available-for-sale securities was
de minimus. Investments available for current operations are
classified in the balance sheet as current assets; investments
held for long-term purposes are classified as noncurrent assets.
Interest income and realized gains and losses on securities are
included in "Interest income" in the statements of
operations.
Comprehensive Income
SFAS No. 130,
"Reporting
Comprehensive Income,"
requires a full set of
general-purpose financial statements to be expanded to include
the reporting of "comprehensive income." Comprehensive
income is comprised of two components, net income and other
comprehensive income. For the years ended December 31,
2000, 2001 and 2002, there were no items of other comprehensive
income.
Property and Equipment
Property and equipment are stated at cost and
depreciated over their estimated useful lives using the
straight-line method. Upon retirement or sale, the cost of
assets disposed of and the related accumulated depreciation are
removed from the accounts and any resulting gain or loss is
credited or charged to operations. Repairs and maintenance costs
are expensed as incurred.
Intangible Assets
Intangible assets consist of the cost of
capitalized patent applications. Patents are carried at cost
amounting to $120,000, less accumulated amortization which is
calculated on a straight-line basis over the legal, estimated
useful lives of the patents, not to exceed 20 years. The
Company periodically reviews the carrying value of patents to
determine whether the carrying amount of the patent is
recoverable. For the years ended December 31, 2001 and
2002, there were no adjustments to the carrying values of
patents. The Company is amortizing the cost of the patent
applications over a period of ten years. Ownership of all of its
patents is retained by the Company in all its transactions.
Amortization expense for each of the years ended
December 31, 2000, 2001 and 2002 was $12,000. Accumulated
amortization as of December 31, 2001 and 2002 is $24,000
and $36,000, respectively. The estimated aggregate amortization
expense for each of the five succeeding fiscal years is $12,000.
Revenue Recognition
Corporate partner revenues include license fees
and milestone payments associated with collaborations with third
parties. Revenue from non-refundable, upfront license fees where
the Company has continuing involvement is recognized ratably
over the development or agreement period. Revenue associated
with performance milestones is recognized based upon the
achievement of the milestones, as defined in the respective
agreements. Royalties from licensees are based on third-party
sales of licensed products and will be recorded in accordance
with contract terms when third-party results are reliably
measurable and collectibility is reasonably assured.
Research and Development
The Company expenses research and development
costs as incurred. Research and development costs primarily
consist of salaries and related expenses for personnel and
capital resources. Other research and development expenses
include fees paid to consultants and outside service providers
and the costs of materials used in clinical trials and research
and development.
F-8
ADVANCIS PHARMACEUTICAL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
Impairment of Long-Lived
    Assets
SFAS No. 144,
"Accounting for the
Impairment or Disposal of Long-Lived Assets,"
establishes accounting standards for the impairment of
long-lived assets. The Company reviews its long-lived assets,
including property and equipment, for impairment whenever events
or circumstances indicate that the carrying amount of an asset
may not be recoverable. If this review indicates that the asset
will not be recoverable based on the expected undiscounted net
cash flows of the related asset, an impairment loss is
recognized. There were no impairment losses recognized in 2000,
2001 and 2002.
Accounting for Stock-Based
    Compensation
Employee stock awards under the Company's
compensation plans are accounted for in accordance with
Accounting Principles Board Opinion ("APB")
No. 25,
"Accounting for Stock Issued to
Employees,"
and related interpretations. No
compensation cost has been recognized for employee stock-based
compensation in 2000 and 2001, as all options granted during
those years had an exercise price equal to the market value of
the underlying common stock on the date of grant. During 2002
and the six month period ending June 30, 2003, stock
options were granted with an exercise price which was below the
estimated fair market value of the common stock at the date of
grant. Deferred stock-based compensation of $132,940 and
$5,193,326 (unaudited) was recorded during 2002 and the six
month period ending June 30, 2003, respectively in
accordance with APB 25, and will be amortized over the
related vesting period of the options. The Company recorded
stock-based compensation expense of $29,954 and $280,372
(unaudited) during 2002 and the six month period ending
June 30, 2003, respectively.
The following table illustrates the effect on net
loss and net loss per share if the Company had applied the fair
value recognition provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation"
("SFAS 123"). Because options vest over several
years and additional option grants are expected to be made in
future years, the pro forma results are not representative of
the pro forma results for future years.
December 31
Six Months Ended June 30
2000
2001
2002
2002
2003
(Unaudited)
Net loss, as reported
$
(1,818,263
)
$
(7,184,576
)
$
(14,123,995
)
$
(6,100,041
)
$
(7,489,463
)
Add — Total stock-based compensation
    expense determined under the intrinsic value method
—
—
29,954
—
280,372
Less — Total stock-based compensation
    expense determined under the fair value based method for all
    awards
(3,253
)
(88,579
)
(161,755
)
(63,626
)
(468,390
)
Pro forma net loss
(1,821,516
)
(7,273,155
)
(14,255,796
)
(6,163,667
)
(7,677,481
)
Accretion of issuance costs of mandatorily
    redeemable convertible preferred stock
(11,887
)
(37,594
)
(73,925
)
(35,945
)
(37,361
)
Pro forma net loss applicable to common
    stockholders
(1,833,403
)
(7,310,749
)
(14,329,721
)
(6,199,612
)
(7,714,842
)
Net loss per share:
Basic and diluted, as reported
$
(2.39
)
$
(6.88
)
$
(8.95
)
$
(4.19
)
$
(4.03
)
Basic and diluted, pro forma
$
(2.40
)
$
(6.96
)
$
(9.03
)
$
(4.23
)
$
(4.13
)
F-9
ADVANCIS PHARMACEUTICAL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
The weighted average fair value of options
granted during 2000, 2001 and 2002 was $0.14, $0.24 and $0.31
per share, respectively. The fair value of each option grant was
estimated on the date of grant using the Black-Scholes options
pricing model with the following assumptions for grants in 2000,
2001 and 2002:
December 31,
2000
2001
2002
Expected life (in years)
5
4
5
Risk-free interest rate
3.62% to 4.88%
5.94%
3.19% — 4.7%
Volatility
100%
80%
80%
Dividend yield
0%
0%
0%
Income Taxes
The Company accounts for income taxes by the
liability method. Under this method, deferred income taxes are
recognized for tax consequences in future years of differences
between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end, based on enacted
laws and statutory tax rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation
allowances are provided if, based upon the weight of available
evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.
Restricted Cash
During 2002, the Company established a cash
deposit account in the amount of $497,738 that is pledged as
collateral for a line of credit (see Note 4). Also, in
conjunction with the lease of the office and laboratory space
building, the Company provided the landlord with a letter of
credit, which was collateralized with a restricted cash deposit
in the amount of $940,800 (see Note 12). These deposits are
recorded as non-current restricted cash at December 31,
2002.
Earnings Per Share
Basic earnings per share is computed based on the
weighted average number of common shares outstanding during the
period. Diluted earnings per share is computed based on the
weighted average shares outstanding adjusted for all dilutive
potential common shares. The dilutive impact, if any, of common
stock equivalents outstanding during the period, including
outstanding stock options and warrants, is measured by the
treasury stock method. The dilutive impact, if any, of the
Company's redeemable convertible preferred stock is
measured using the if-converted method. Potential common shares
are not included in the computation of diluted earnings per
share if they are antidilutive. The Company incurred net losses
for 2000, 2001 and 2002 and, accordingly, did not assume
exercise or conversion of any of the Company's outstanding
stock options, warrants or redeemable convertible preferred
stock because to do so would be antidilutive.
F-10
ADVANCIS PHARMACEUTICAL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
The following are the securities that could
potentially dilute basic earnings per share in the future that
were not included in the computation of diluted earnings per
share because to do so would have been antidilutive for the
periods presented:
December 31,
June 30,
(Number of Shares)
2000
2001
2002
2002
2003
(Unaudited)
(Unaudited)
Preferred stock
4,000,000
14,676,667
16,009,999
16,009,999
16,009,999
Stock options
240,000
1,049,150
1,544,950
1,324,650
2,801,125
Nonvested restricted stock
—
1,032,500
908,000
908,000
565,750
Warrants
20,000
62,151
66,842
62,151
66,842
Convertible notes
—
—
—
—
2,263,272
Total
4,260,000
16,820,468
18,529,791
18,304,800
21,706,988
Recent Accounting
    Pronouncements
In July 2002, the FASB issued
SFAS No. 146,
"Accounting for Costs Associated
with Exit or Disposal Activities"
("SFAS 146"). SFAS 146 addresses issues
regarding the recognition, measurement and reporting of costs
that are associated with exit and disposal activities, including
restructuring activities. The scope of SFAS 146 includes
costs to terminate contracts that are not capital leases, costs
to consolidate facilities or relocate employees and termination
benefits provided to employees who are involuntarily terminated
under terms of a one-time benefit arrangement that is not an
ongoing benefit arrangement or an individual compensation
contract. The provisions of the Statement are effective for exit
or disposal activities initiated after December 31, 2002.
The Company anticipates that the adoption of SFAS 146 will
not have an impact on the Company's financial position,
results of operations or cash flows.
In December 2002, the FASB issued
SFAS No. 148,
"Accounting for Stock-Based
Compensation — Transition and Disclosure"
("SFAS 148"). SFAS 148 amends
SFAS 123 to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of SFAS 123 to
require prominent disclosures in both annual and interim
financial statements about the method of accounting for
stock-based employee compensation and the effect of the method
used on reported results. The alternative methods of transition
and additional disclosure requirements and the new interim
disclosure provisions are effective for fiscal years ending
after December 15, 2002 and for the first interim period
beginning after December 15, 2002, respectively.
In April 2003, the FASB issued
SFAS No. 149,
"Amendment of Statement 133
on Derivative Instruments and Hedging Activities"
("SFAS 149"). SFAS 149 amends and
clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives) and
for hedging activities under SFAS No. 133,
"Accounting for Derivative Instruments and Hedging
Activities."
SFAS 149 is effective for contracts
entered into or modified after June 30, 2003, and for
hedging relationships designated after June 30, 2003,
except that the provisions of SFAS 149 that relate to SFAS
No. 133 Implementation Issues that have been effective for
fiscal quarters that began prior to June 15, 2003 should
continue to be applied in accordance with their respective
effective dates. The Company is reviewing the provisions of
SFAS 149 and does not anticipate that the adoption will
have a material impact on the Company's financial condition
or results of operations.
In May 2003, the FASB issued SFAS No. 150
"Accounting For Certain Financial Instruments with
Characteristics of both Liabilities and Equity"
("SFAS 150"). SFAS 150 establishes
standards for how an
F-11
ADVANCIS PHARMACEUTICAL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity.
It requires that an issuer classify a financial instrument that
is within its scope as a liability (or an asset in some
circumstances). SFAS 150 is effective for financial
instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for
mandatorily redeemable financial instruments of nonpublic
entities. The Company does not anticipate that the adoption of
SFAS 150 will have a material impact on the Company's
financial condition or results of operations.
In November 2002, the FASB issued Interpretation
No. 45
, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others"
("FIN 45").
FIN 45 elaborates on the existing disclosure requirements
for most guarantees, and clarifies that at the time a company
issues a guarantee, the Company must recognize an initial
liability for the fair value of the obligation it assumes under
that guarantee and must disclose that information in its interim
and annual financial statements. The initial recognition and
measurement provisions apply on a prospective basis to
guarantees issued or modified after December 31, 2002. In
accordance with FIN 45, the Company is required to disclose
the nature and potential future payments under existing
guarantees as of December 31, 2002. The Company has no
guarantees within the scope of FIN 45 as of
December 31, 2002.
In January 2003, the FASB issued
FIN No. 46,
"Consolidation of Variable
Interest Entities, an interpretation of Accounting Research
Bulletin No. 51"
("FIN 46").
FIN 46 requires certain variable interest entities to be
consolidated by the primary beneficiary of the entity if the
equity investors in the entity do not have the characteristics
of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties.
FIN 46 is effective for all variable interest entities
created or acquired after January 31, 2003. For variable
interest entities created or acquired prior to February 1,
2003, the consolidation provisions of FIN 46 must be
applied for the first interim or annual period beginning after
June 15, 2003. The Company has not entered into any
contractual relationships with a variable interest entity as of
December 31, 2002.
3.     Property and
Equipment
Property and equipment consist of the following:
Estimated
December 31,
Useful Life
(Years)
2001
2002
Construction in progress
$
152,614
$
474,608
Computer equipment
3
153,818
373,855
Furniture and fixtures
5
162,809
537,953
Equipment
3-10
1,497,215
1,977,037
Leasehold improvements
2
33,096
75,776
1,999,552
3,439,229
Less — accumulated depreciation
(255,040
)
(746,021
)
$
1,744,512
$
2,693,208
Depreciation expense for the years ended
December 31, 2000, 2001 and 2002 was $22,033, $233,007,
$490,981, respectively.
During the six-month period ending June 30,
2003, the Company expended approximately $4,795,000
(unaudited) for the construction of its headquarters and
purchase of equipment.
F-12
ADVANCIS PHARMACEUTICAL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
4.     Borrowings
The Company's obligations on borrowings are
as follows:
December 31,
2001
2002
Lines of credit
$
1,089,882
$
1,655,934
Montgomery County note payable
—
75,000
$
1,089,882
$
1,730,934
Principal payments under borrowings are as
follows:
Year Ending December 31,
2003
$
595,704
2004
597,599
2005
309,832
2006
201,962
2007
25,837
1,730,934
Less: Current portion
(595,704
)
$
1,135,230
Lines of Credit
In January 2001, the Company entered into a
$1,500,000 line of credit facility to finance the purchase of
specified equipment based on lender-approved equipment
schedules. The implicit interest rate is 11.62%. In connection
with this line of credit, the Company agreed to issue to the
lender's assignee warrants to purchase up to 48,000 shares
of the Company's common stock, subject to the aggregate
amount of draw-downs under the credit facility (see
Note 7). The Company has granted a security interest in the
assets purchased under the credit line. During 2001, the Company
drew down $1,317,224 under the line of credit and repaid
$227,342. During 2002, the Company repaid an additional
$350,784. The balance outstanding at December 31, 2001 and
2002 was $1,089,882 and $739,098, respectively.
In February 2002, the Company entered into a
$2,000,000 line of credit facility to finance the purchase of
specified equipment based on approved equipment schedules. The
implicit interest rate is between 8.35% to 9.35%. In connection
with the line of credit, the Company agreed to issue to the
lender warrants to purchase up to 17,778 shares of the
Company's common stock, subject to the aggregate amount of
draw-downs under the credit facility (see Note 7). The
Company also granted to the lender's assignee the option to
invest up to $750,000 (based on the size of the round) in
subsequent private equity rounds at the going price per share.
During 2002, the Company drew down $527,586 under the line of
credit and repaid $21,902. The balance outstanding at
December 31, 2002 was $505,684.
In March 2002, the Company entered into a
$500,000 line of credit facility with a bank to finance the
purchase of equipment. The interest rate will be floating 30-Day
LIBOR + 250 basis points or fixed cost of funds + 250 basis
points. Each drawing requires monthly repayment of principal
plus interest based upon a 48-month repayment schedule. The line
of credit has first lien on all assets purchased with the
proceeds of this line. The Company has also opened a $497,738
restricted account (see Note 2) with the bank to be used
F-13
ADVANCIS PHARMACEUTICAL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
as collateral for this line of credit. During
2002, the Company drew down $492,280 and repaid $81,128. The
balance outstanding at December 31, 2002 was $411,152.
Montgomery County Note
    Payable
In December 2001, the Company entered into an
Economic Development Fund Agreement with Montgomery County,
Maryland. The primary purpose of the Economic Development Fund
is to assist private employers who are located or planning to
locate or substantially expand operations in Montgomery County.
In September 2002, the Company received a $75,000 loan from the
County. The loan will be amortized over 5 years from the
loan disbursement date, with a moratorium on both the principal
and the interest payment, until the third anniversary of the
loan. The interest rate is fixed at 5% per annum. The principal
and accrued interest must be repaid by the fifth anniversary of
the loan disbursement date in quarterly installments with the
first quarterly payment due on the 15th day of the month
following the moratorium expiration date.
According to the agreement, the County will
permanently forgive part or all of the $75,000 loan principal
balance together with the accrued interest if the following
conditions are met:
•
$25,000 will be forgiven if the Company has made
    a capital investment in Montgomery County exceeding
    $7.5 million by the third anniversary date of loan
    disbursement date.
•
$25,000 will be forgiven if the Company generates
    at least 80% of the specified projected headcount of new full
    time employees by the end of 2004.
•
$25,000 will be forgiven if the Company maintains
    a specified number of full time employees through 2006.
Additionally, the Company must repay the entire
$75,000 if it relocates to a site outside Montgomery County, or
moves all or substantial parts of its business outside the
county, within 5 years of the date of the promissory note.
5.     Accrued
Expenses
Accrued expenses consist of the following:
December 31,
June 30,
2001
2002
2003
(Unaudited)
Bonus accrual
$
196,701
$
420,000
$
391,989
Accrued professional fees
56,468
237,192
338,127
Relocation accrual
107,615
88,815
131,402
Accrued research and development expenses
97,428
—
—
Insurance and benefits
—
67,329
—
Other accrued expenses
62,412
17,644
151,629
Construction costs
—
—
2,047,489
Total accrued expenses
$
520,624
$
830,980
$
3,060,636
6.     Mandatorily
Redeemable Convertible Preferred Stock
In January 2000, the Company authorized
2,000,000 shares of preferred stock, designated as
Series A Redeemable Convertible Preferred Stock (the
"Series A Preferred Stock"), and issued
1,000,000 shares of Series A Preferred Stock. In June
2000, the Company issued an additional 1,000,000 shares of
Series A
F-14
ADVANCIS PHARMACEUTICAL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
Preferred Stock. In November 2000, the Company
authorized an additional 2,000,000 shares of preferred
stock, designated as Series B Redeemable Convertible
Preferred Stock (the "Series B Preferred Stock")
and issued 2,000,000 shares of Series B Preferred
Stock.
In April 2001, the Company authorized an
additional 4,010,000 shares of preferred stock, designated
as Series C Redeemable Convertible Preferred Stock (the
"Series C Preferred Stock"), and issued
4,010,000 shares of Series C Preferred Stock. In
October 2001, the Company authorized an additional
6,666,666 shares of preferred stock, designated
6,666,666 shares as Series D Redeemable Convertible
Preferred Stock (the "Series D Preferred Stock"),
and issued 6,666,666 shares of Series D Preferred
Stock. In February 2002, the Company authorized and issued an
additional 1,333,333 shares of Series D Preferred
Stock.
The Series A, Series B, Series C,
and Series D Preferred Stock have the following terms:
Voting
The holders of the preferred stock are entitled
to vote, together with the holders of common stock, on all
matters submitted to stockholders for a vote. Each preferred
stockholder is entitled to the number of votes equal to the
number of shares of common stock into which each preferred share
is convertible at the time of such vote. In addition, the
holders of a majority in voting power of the preferred stock are
entitled to elect two of the Company's directors.
Dividends
The holders of the Series A, Series B,
Series C and Series D Preferred Stock are entitled to
receive, when and as declared by the Board of Directors and out
of funds legally available, noncumulative dividends, payable in
preference and priority to any payment of any dividend on common
stock. No dividends or other distributions shall be made with
respect to the common stock, until all declared dividends on the
Series A, Series B, Series C and Series D
Preferred Stock have been paid. The shares of the Series A,
Series B, Series C, and Series D Preferred Stock
participate ratably with each other with respect to the issuance
of dividends, and senior to the common stock. Through
December 31, 2002, no dividends have been declared or paid
by the Company.
Liquidation Preference
In the event of any liquidation, dissolution or
winding-up of the affairs of the Company, the holders of the
then outstanding Series A, Series B, Series C and
Series D Preferred Stock will receive for each share an
amount equal to the sum of $1.00, $1.25, $1.50 and $2.25 per
share of Series A, Series B, Series C and
Series D Preferred Stock, respectively, plus 10% per annum
thereon, compounded annually, plus all declared but unpaid
dividends, payable in preference and priority to any payments
made to the holders of the then outstanding common stock. The
shares of the Series A, Series B, Series C, and
Series D Preferred Stock participate ratably with each
other in such payments, and senior to the common stock. In
addition, the holders of the Series A, Series B,
Series C and Series D Preferred Stock will receive an
aggregate amount equal to any preferential amount fixed for
distribution to any class or series of capital stock (other than
common stock) ranking junior to the Series A,
Series B, Series C and Series D Preferred Stock
upon liquidation. This payment will be distributed to the
holders of the then outstanding Series A, Series B,
Series C and Series D Preferred Stock in an equal
amount per share. Finally, after all of the foregoing payments
are made, the holders of the Series A, Series B,
Series C and Series D Preferred Stock will share
ratably with the holders of the Company's common stock on
an as-converted basis in any further distribution to
stockholders.
F-15
ADVANCIS PHARMACEUTICAL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
Conversion
Each share of preferred stock, at the option of
the holder, is convertible into a number of fully paid shares of
common stock as determined by dividing the respective preferred
stock issue price by the conversion price in effect at the time.
The initial conversion price of Series A, Series B,
Series C and Series D Preferred Stock is $1.00, $1.25,
$1.50 and $2.25, respectively, and is subject to adjustment in
accordance with antidilution provisions contained in the
Company's charter. Conversion is automatic immediately upon
the closing of a firm commitment underwritten public offering in
which the public offering price equals or exceeds $10.00 per
share (adjusted to reflect subsequent stock dividends, stock
splits or recapitalizations) and the net proceeds raised are at
least $20,000,000. Additionally, upon the Company's receipt
of a notice that the holders of 75% or more of the preferred
stock are electing to convert their shares, all shares of
preferred stock automatically convert to common stock. As of
December 31, 2002, 16,009,999 shares of common stock
are reserved for the conversion of the Series A,
Series B, Series C and Series D Preferred Stock.
Redemption
The holder or holders of at least a majority of
the outstanding Series A, Series B, Series C and
Series D Preferred Stock may, by written request after
December 31, 2003, require the Company to redeem the
preferred stock by paying in cash a sum equal to 100% of the
original purchase price of the preferred stock plus any declared
but unpaid dividends. Following such a request, and subject to
the following sentence, the Company is obligated to redeem 25%
of the preferred stock then owned by the requesting holders
annually.
If the Company does not have sufficient funds
legally available to redeem all shares of Series A,
Series B, Series C and Series D Preferred Stock
to be redeemed at the redemption date, then the Company shall
redeem such shares ratably to the extent possible subject to the
25% limitation and shall redeem the remaining shares as soon as
sufficient funds are legally available.
At December 31, 2002, the combined
redemption amount for Series A, Series B, Series C and
Series D Preferred Stock is $28,514,998. The total carrying
value of the Series A, Series B, Series C and
Series D Preferred Stock differs from the redemption amount
due to stock issuance costs which have been netted from the
proceeds at issuance date, and are being accreted through the
redemption date.
7.     Warrants
In connection with the commencement of a lease
for the Company's premises in December 2001, the Company
granted to the lessor a freely exercisable warrant to purchase
up to 20,000 shares of the Company's common stock (the
"Lessor Warrant Shares") at an exercise price of $1.25
per share. The expiration date of the warrant is
December 1, 2010, which is the tenth anniversary of the
effective date. The Lessor Warrant Shares were valued using the
Black Scholes option pricing model at $0.15 per Lessor Warrant
Share and the aggregate value was de minimus.
In January 2001, the Company entered into a
$1,500,000 line of credit facility to finance the purchase of
specified equipment based on approved equipment schedules (see
Note 4). In connection with the line of credit, the Company
agreed to issue the lender's assignee warrants to purchase
such number of shares of the Company's common stock as
determined by calculating the following: 4% of the amount of
funds drawn by the Company divided by a per share exercise price
of $1.25. As of December 31, 2001, based on actual draw
downs, the Company has issued stock warrants for
42,151 shares of common stock (the "Lender Warrant
Shares"). The warrants are immediately exercisable, and the
expiration date is from January 22, 2008 to July 24,
2008. The Lender Warrant Shares were valued using the Black
Scholes option pricing model at $0.08 per Lender Warrant Share
and the aggregate value was de minimus.
F-16
ADVANCIS PHARMACEUTICAL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
In February 2002, the Company entered into a
$2,000,000 line of credit facility to finance the purchase of
specified equipment based on lender approved equipment schedules
(see Note 4). In connection with the line of credit, the
Company agreed to issue the lender warrants to purchase such
number of shares of the Company's common stock as
determined by calculating the following: 2% of the funds drawn
by the Company divided by a per share exercise price of $2.25.
As of December 31, 2002, based on actual drawdowns, the
Company has issued stock warrants to purchase 4,691 shares
of common stock (the "Lender Warrant Shares"). The
warrants are immediately exercisable, and the expiration date is
July 14, 2009 to December 10, 2009. The warrants were
valued using the Black Scholes option pricing model at $0.65 per
Lender Warrant Share and the aggregate value was de minimus.
8.     Common
Stock
In December 1999, the Company authorized
2,000,000 shares of common stock. In consideration of the
contribution to the Company of certain property by the
Company's two founders, the Company issued the founders
1,360,000 shares of common stock. After that issuance, the
founders entered into an agreement with the Company pursuant to
which, among other things, a total of 640,000 shares of the
founders' common stock (600,000 shares held by one founder,
40,000 held by the other) were subject to repurchase options.
One founder's agreement provided the
Company, in the first instance, and then the preferred
stockholders, the option to purchase (at original cost) 600,000
of the shares held by that founder in the event that
(a) the founder's employment with the Company is
terminated or (b) the Company fails to satisfy certain
performance objectives. During 2001, the Board of Directors
determined that the Company had achieved its performance
objectives for 2000 and, therefore, 300,000 shares of the
600,000 shares were released from the repurchase option. During
February 2002, the Board of Directors released the remaining
300,000 shares from the repurchase option.
The agreement for the other founder provided the
Company, in the first instance, and then the preferred
stockholders, the option to repurchase 40,000 of the shares held
by a trust related to the founder upon the founder's
removal from the Board of Directors. This repurchase option
lapsed in November 2001.
On November 13, 2000, April 24, 2001,
October 25, 2001 and February 7, 2002, the Board of
Directors approved an amendment to the Company's charter
that increased the authorized number of shares of common stock
to 8,000,000, 14,000,000, 22,000,000 and 23,333,333,
respectively.
Each share of common stock is entitled to one
vote. The holders of common stock are also entitled to receive
dividends whenever funds are legally available and when declared
by the Board of Directors, subject to the prior rights of
holders of all classes of stock outstanding.
9.     Stock Option
Plan
In May 2000, the Company adopted the 2000 Stock
Incentive Plan (the "Plan"). At the time of its
adoption, 640,000 shares of common stock were available for
issuance in connection with awards granted to employees,
directors and consultants under the Plan. In March 2001, October
2001 and April 2002, the number of shares available for issuance
under the Plan was increased to 2,090,100, 2,990,100, and
4,000,000, respectively.
Options granted under the Plan may be incentive
stock options or non-statutory stock options. Stock purchase
rights may also be granted under the Plan. Incentive stock
options may only be granted to employees. The Board of Directors
determines the period over which options become exercisable
however, except in the case of options granted to officers,
directors and consultants, options shall become exercisable at a
rate of not less than 25% per year over four years from the date
the options are granted. Options granted to one non-employee
consultant vested over two years; that consultant, however,
terminated her relationship with
F-17
ADVANCIS PHARMACEUTICAL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
the Company during 2002 and the option was
terminated. The exercise price of incentive stock options and
non-statutory stock options shall be no less than 100% of the
fair market value per share of the Company's common stock
on the grant date. The term of all options is 10 years
except, with respect to one incentive stock option held by a
Company executive, the term of which is 5 years. As of
December 31, 2001 and 2002, there were 843,700 and
1,264,800 shares of common stock available for future option
grants, respectively.
The following table summarizes the activity of
the Company's stock option plan:
Number of
Weighted-Average
Options
Exercise Price
Outstanding, January 1, 2000
—
—
Granted
240,000
$
0.15
Exercised
—
—
Cancelled
—
—
Outstanding, December 31, 2000
240,000
0.15
Granted
1,917,400
0.24
Exercised
1,097,250
0.21
Cancelled
11,000
0.15
Outstanding, December 31, 2001
1,049,150
0.24
Granted
668,100
0.34
Exercised
93,000
0.24
Cancelled
79,300
0.21
Outstanding — December 31, 2002
1,544,950
$
0.29
The following table summarizes information about
stock options outstanding at December 31, 2002:
Options Outstanding
Options Exercisable
Weighted-Average
Range of
Number
Remaining
Weighted-Average
Number
Weighted-Average
Exercise Price
Outstanding
Contractual Life
Exercise Price
Exercisable
Exercise Price
$0.15 to $0.34
1,544,950
8.84
$
0.29
215,350
$
0.26
The Company granted 50,000 and 37,000 stock
options to non-employee consultants and scientific advisory
board members during 2001 and 2002, respectively. The Company
will recognize an expense for such options, based on the fair
value of the options at each reporting period. The options are
valued using the Black Scholes option pricing model and the
aggregate value during 2002 was $155,334. The aggregate value of
the options granted during 2001 was de minimus.
Restricted Stock
Certain of the Company's directors,
consultants and employees (and/or immediate family members or
related entities to which certain of those individuals have
transferred their options or shares of common stock) have
entered into the Company's standard form of stock
restriction agreement as a condition to their exercise of
options to acquire common stock pursuant to the Plan. These
agreements provide, among other things, for a right of first
refusal to the Company in connection with the option
holder's sale of the common stock, as well as the right for
the Company to purchase the stockholder's common stock in
the event that the stockholder's relationship with the
Company is terminated under certain circumstances. Shares issued
under non-statutory stock options exercised prior to vesting are
subject to forfeiture in accordance with the vesting schedule of
the granted stock options. During 2001 and 2002, certain of the
Company's employees, board
F-18
ADVANCIS PHARMACEUTICAL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
members and consultants exercised unvested stock
options, awarded under the Company's 2000 Stock Incentive
Plan, to acquire a total of 1,097,250 and 93,000 shares,
respectively, of restricted common stock. Consistent with the
provisions of EITF No. 00-23, for all exercises of stock
options into unvested restricted stock after March 2002,
the Company recorded a liability for the amount of the proceeds
received, which is reclassified to equity upon the vesting of
the restricted stock. As of December 31, 2002, $9,304
related to 31,500 shares of restricted stock was recorded as a
liability. At December 31, 2001 and 2002, 1,032,500 and
908,000 shares, respectively of restricted common stock remain
unvested pursuant to awards.
During 2001, in compliance with the Plan,
non-statutory stock option granted to employees, directors and
outside consultants were replaced with options grants allowing
the early exercise of 100% of the respective options into
unvested restricted stock with the same vesting period as the
stock options. The other terms of the stock option grants were
not changed. Following exercise, the restricted common stock
continues to vest in accordance with the same schedule as the
granted stock options.
Of the stock options exercised in 2001 into
unvested restricted stock, one top executive and two affiliated
trusts exercised a total of 540,000 non-statutory stock options
during 2001 with full-recourse promissory notes for an aggregate
exercise price of $121,500. Interest accrues on the notes at
5.50% and the term of the notes is five years. As of
December 31, 2001 and 2002, unpaid interest accrued on the
notes is $1,113 and $1,114, respectively.
In February 2002, the Board of Directors modified
the terms of one of the founder's existing restricted
unvested shares, which effectively gave the Company the right to
repurchase those 100,000 shares of unvested stock if the Company
does not achieve certain performance milestones during 2002. In
January 2003, the Board of Directors released the Company's
right to repurchase those 100,000 shares of restricted common
stock.
10.     Income
Taxes
Deferred tax assets consist of the following:
December 31,
2001
2002
Net operating loss carryforwards
$
1,267,932
$
6,212,259
Start-up costs
2,017,958
2,478,827
Depreciation and amortization
(16,439
)
(128,018
)
Accrued expenses
201,065
288,122
Charitable contributions
—
8,438
Research and experimental credit
220,568
856,589
Deferred tax assets
3,691,084
9,716,217
Valuation allowance
(3,691,084
)
(9,716,217
)
Net deferred tax assets
$
—
$
—
The Company has not recorded any tax provision or
benefit for the years ended December 31, 2000, 2001 and
2002. The Company has provided a valuation allowance for the
full amount of its net deferred tax assets since realization of
any future benefit from deductible temporary differences and net
operating loss cannot be sufficiently assured at
December 31, 2000, 2001 and 2002.
F-19
ADVANCIS PHARMACEUTICAL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
At December 31, 2001 and 2002, the Company
had federal net operating loss carryforwards of approximately
$3,283,000 and $16,086,000, respectively, available to reduce
future taxable income, which will begin to expire in 2020.
Under the provisions of the Internal Revenue
Code, certain substantial changes in the Company's
ownership may result in a limitation on the amount of net
operating loss carryforwards which can be used in future years.
11.     401(k)
Savings Plan
During 2000, the Company established a defined
contribution savings plan under Section 401(k) of the
Internal Revenue Code. This plan covers substantially all
employees who meet minimum age and service requirements and
allows participants to defer a portion of their annual
compensation on a pre-tax basis. Company contributions to the
plan may be made at the discretion of the Board of Directors. To
date there were no contributions made to the plan by the Company.
12.     Commitments
The Company leases office space and certain
office equipment under noncancelable operating leases. The
office lease is for 16 months ending on February 28,
2003, and the office equipment leases end July 31, 2005 and
September 30, 2005. Rent expense under these leases was
$58,041, $252,138, $347,901 for the years ended
December 31, 2000, 2001, 2002, respectively.
In August 2002, the Company entered into a
10-year office and laboratory space lease renewable for two
periods of 5 consecutive years each at the end of the original
term. The Company has taken possession of the lease space during
2003. In conjunction with the execution of the lease agreement,
the Company provided the landlord with a letter of credit, which
the Company collateralized with a $940,800 restricted cash
deposit (see Note 2).
Future minimum lease payments under noncancelable
operating leases at December 31, 2002 are as follows:
Operating
Year Ending December 31,
Leases
2003
$
752,332
2004
894,486
2005
992,675
2006
1,014,574
2007
1,045,011
Thereafter
6,225,521
$
10,924,599
13.     Subsequent
Events
On March 28, 2003, the Company issued
$5,000,000 convertible notes to certain of its existing
preferred stockholders. These notes are convertible into shares
of the first Qualified Financing, as defined in the Note
agreement, and bear interest of 7% per annum compounding monthly
until maturity date and 12% per annum compounding monthly after
maturity date. On July 2, 2003, the note holders opted to
convert the Convertible Note and accrued interest into 2,263,272
shares of Series E Convertible Preferred Stock at a price
of $2.25 per share.
F-20
ADVANCIS PHARMACEUTICAL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
On July 2, 2003, the Company sold
2,484,886 shares of Series E Convertible Preferred
Stock to certain of its existing preferred stockholders at a
price of $2.25 per share. On July 25, 2003, the Company
sold an additional 6,807,398 shares of Series E
Convertible Preferred Stock to new investors at $2.25 per share.
On July 9, 2003, the Company signed a
commitment letter to secure up to a $5.5 million line of
credit from a bank to finance the equipment associated with the
build-out of the Company's headquarters and laboratory. The
total amount of the line of credit will depend on the amount of
new cash raised by the Company through equity and collaborative
payments, and will become due and payable on demand if the
Company is not able to raise at least $27,000,000 within
12 months from the closing of the line of credit. This
commitment is subject to the formal approval of the bank, the
approval of the Maryland Industrial Development Financing
Authority and the receipt by the bank of certain reports from
the Company.
On July 18, 2003, the Company entered into a
development and license agreement with GlaxoSmithKline (GSK)
pursuant to which the Company has exclusively licensed patents
and PULSYS technology to GSK for use on some of its products.
Under the agreement, GSK will be responsible for the clinical
development, manufacture, commercialization and sale of the
licensed products. In consideration for the licensing of its
technology, the Company is entitled to receive an initial
upfront payment of $5,000,000 and can receive milestone payments
not to exceed $52,000,000 over the development period if it
achieves specified product development goals. In addition, upon
commercialization of any of the products, the Company could
receive royalty payments and may receive additional incentive
payments of up to $50,000,000 if specified annual sales goals
are achieved.
14.     Quarterly
Financial Data (Unaudited)
The following table presents unaudited quarterly
financial data of the Company. The Company's quarterly
results of operations for these periods are not necessarily
indicative of future results of operations.
Basic and
Diluted Net
Non-
Loss Per
Operating
Net Loss
Share
Income
Applicable to
Applicable to
Operating
(Expense),
Common
Common
Loss
Net
Net Loss
Stockholders
Stockholders
Year ended December 31, 2001
First quarter
$
(1,453,896
)
$
7,232
$
(1,446,664
)
$
(1,452,131
)
$
(1.45
)
Second quarter
(1,970,731
)
2,863
(1,967,868
)
(1,976,498
)
(1.92
)
Third quarter
(1,823,849
)
2,737
(1,821,112
)
(1,830,960
)
(1.71
)
Fourth quarter
(2,005,434
)
56,502
(1,948,932
)
(1,962,581
)
(1.80
)
Year ended December 31, 2002
First quarter
(2,524,181
)
49,064
(2,475,117
)
(2,492,278
)
(1.88
)
Second quarter
(3,660,022
)
35,098
(3,624,924
)
(3,643,708
)
(2.31
)
Third quarter
(4,072,671
)
7,931
(4,064,740
)
(4,083,730
)
(2.40
)
Fourth quarter
(3,922,135
)
(37,079
)
(3,959,214
)
(3,978,204
)
(2.36
)
Six months ended June 30, 2003
First quarter
(3,237,382
)
(15,802
)
(3,253,184
)
(3,271,762
)
(1.82
)
Second quarter
(4,153,926
)
(82,353
)
(4,236,279
)
(4,255,062
)
(2.21
)
F-21
You should rely only on the information contained
in this prospectus. We have not authorized anyone to provide you
with information that is different from that contained in this
prospectus. This prospectus is not an offer to sell or a
solicitation of an offer to buy shares of common stock in any
jurisdiction where it is unlawful. The information in this
prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or of any
sale of our common stock.
Shares
Common Stock
PROSPECTUS
,
2003
LEHMAN BROTHERS
PACIFIC GROWTH EQUITIES, LLC
PART II
INFORMATION NOT REQUIRED IN
PROSPECTUS
Item 13.
Other Expenses of Issuance and
    Distribution.
The following table sets forth the various
expenses, other than underwriting discounts and commissions,
payable by us in connection with the sale of the common stock
being registered. All of the amounts shown are estimated except
the Securities and Exchange Commission registration fee.
SEC registration fee
$
6,978
NASD filing fee
$
9,125
Nasdaq National Market listing fee
*
Printing and engraving expenses
*
Legal fees and expenses
*
Accounting fees and expenses
*
Blue Sky fees and expenses
*
Transfer agent and registrar fees
*
Miscellaneous fees and expenses
*
Total
$
*
*
To be filed by amendment
Item 14.
Indemnification of Directors and
    Officers.
Section 145 of the Delaware General
Corporation Law provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
corporation) by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation or enterprise.
The indemnity may include expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by the person in connection with the
action, suit, or proceeding, provided the person acted in good
faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests and, with
respect to any criminal action or proceeding, had no reasonable
cause to believe that his conduct was unlawful. A similar
standard of care is applicable in the case of actions by or in
the right of the corporation, except that no indemnification may
be made in respect of any claim, issue or matter as to which
such person will have been adjudged to be liable to the
corporation unless and only to the extent that the Delaware
Court of Chancery or the court in which such action was brought
determines that, despite the adjudication of liability but in
view of all of the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for expenses that
the Delaware Court of Chancery or other court shall deem proper.
Our certificate of incorporation and bylaws
provide that we will indemnify and advance expenses to our
directors, officers and employees to the fullest extent
permitted by Delaware law in connection with any threatened,
pending or completed action, suit or proceeding to which such
person was or is a party or is threatened to be made a party by
reason of the fact that he or she is or was our director,
officer or employee, or is or was serving at our request as a
director, officer, employee or agent of another corporation or
enterprise. Prior to the closing of this offering, we intend to
enter into indemnification agreements with each of our directors
and executive officers that provide them with rights to
indemnification and expense advancement to the fullest extent
permitted under the Delaware General Corporation Law.
Prior to the consummation of this offering, we
intend to purchase directors' and officers' liability
insurance to insure our directors and officers against liability
for actions or omissions occurring in their capacity as a
director or officer, subject to certain exclusions and
limitations.
II-1
Item 15.
Recent Sales of Unregistered
    Securities.
The following is a summary of our sales of
securities during the past three years that were not registered
under the Securities Act of 1933, as amended:
Issuances of Capital Stock
In December 1999 in connection with our
formation, we issued 1,360,000 shares of our common stock
to our founders in exchange for certain intellectual property
rights.
In January and June 2000, we issued
2,000,000 shares of our Series A Convertible Preferred
Stock to a group of accredited investors at a purchase price of
$1.00 per share for aggregate consideration of $2,000,000.
In November 2000, we issued 2,000,000 shares
of our Series B Convertible Preferred Stock to a group of
accredited investors at a purchase price of $1.25 per share for
aggregate consideration of $2,500,000.
In April 2001, we issued 4,010,000 shares of
our Series C Convertible Preferred Stock to a group of
accredited investors at a purchase price of $1.50 per share for
aggregate consideration of $6,015,000.
In October 2001, we issued 6,666,666 shares
of our Series D Convertible Preferred Stock to a group of
accredited investors at a purchase price of $2.25 per share for
aggregate consideration of $14,999,999.
In December 2001, we issued a warrant for the
purchase of up to 20,000 shares of our common stock to an
accredited investor for an exercise price of $1.25 per share.
In February 2002, we issued 1,333,333 shares of
our Series D Convertible Preferred Stock to a group of
accredited investors at a purchase price of $2.25 per share for
aggregate consideration of $2,999,999.
In March 2003, we issued convertible promissory
notes to a group of accredited investors for aggregate
consideration of $5,000,000. These notes plus accrued interest
converted into 2,263,272 shares of Series E
Convertible Preferred Stock in July 2003.
In July 2003, we issued 9,292,284 shares of
our Series E Convertible Preferred Stock to a group of
accredited investors at a purchase price of $2.25 per share for
an aggregate consideration of $20,907,639.
In January, March, April, June and July 2001, we
issued warrants for the purchase of up to 7,363, 6,685, 12,514,
3,841 and 11,748 shares, respectively, of our common stock
to an accredited investor at an exercise price of $1.25 per
share.
In July and December 2002, we issued warrants for
the purchase of up to 1,644 and 3,047 shares, respectively,
of our common stock to an accredited investor at an exercise
price of $2.25 per share.
Stock Options Grants
From inception through September 2000, we granted
to our employees, directors and consultants options to purchase
240,000 shares of our common stock at an exercise price of
$0.15 per share.
From January 2001 through March 2001, we granted
to our employees, directors and consultants options to purchase
387,300 shares of our common stock at an exercise price of
$0.19 per share.
In March 2001, we granted to our chief executive
officer an option to purchase 180,000 shares of our common
stock at an exercise price of approximately $0.21 per share.
From April 2001 through August 2001, we granted
to our employees, directors and consultants options to purchase
973,600 shares of our common stock at an exercise price of
approximately $0.23 per share.
From November 2001 through present, we granted to
our employees, directors and consultants options to purchase
2,311,450 shares of our common stock at an exercise price
of approximately $0.34 per share.
II-2
Stock Options Exercises
From inception through the present, we have
issued 159,500 shares of our common stock in respect of
stock options exercises at an exercise price of $0.15 per share.
From inception through the present, we have
issued 233,000 shares of our common stock in respect of
stock options exercises at an exercise price of $0.19 per share.
From inception through the present, we have
issued 775,500 shares of our common stock in respect of
stock options exercises at an exercise price of $0.23 per share.
From inception through the present, we have
issued 192,375 shares of our common stock in respect of
stock options exercises at an exercise price of $0.34 per share.
All of the above-described issuances were exempt
from registration (i) pursuant to Section 4(2) of the
Securities Act, or Regulation D or Rule 144A
promulgated thereunder, as transactions not involving a public
offering or (ii) Rule 701 promulgated under the
Securities Act or (iii) as transactions not involving a
sale of securities. With respect to each transaction listed
above, no general solicitation was made by either us or any
person acting on our behalf; the securities sold are subject to
transfer restrictions; and the certificates for the shares
contained an appropriate legend stating such securities have not
been registered under the Securities Act and may not be offered
or sold absent registration or pursuant to an exemption
therefrom. No underwriters were involved in connection with the
sales of securities referred to in this Item 15.
Item 16.
Exhibits and Financial Statement
    Schedules.
Exhibit
Number
Exhibit Description
1
.1*
Form of Underwriting Agreement
3
.1
Fifth Restated Certificate of Incorporation of
    Advancis Pharmaceutical Corporation, including amendment thereto
3
.2
Form of Certificate of Incorporation of Advancis
    Pharmaceutical Corporation to be in effect after the closing of
    the offering made pursuant to this Registration Statement
3
.3
Amended and Restated Bylaws of Advancis
    Pharmaceutical Corporation, including amendment thereto
3
.4
Form of Bylaws of Advancis Pharmaceutical
    Corporation to be in effect after the closing of the offering
    made pursuant to this Registration Statement
4
.1
Specimen Stock Certificate
5
.1*
Opinion of McCarter & English, LLP
10
.1
Executive Employment Agreement between Advancis
    Pharmaceutical Corporation and Edward M. Rudnic dated
    January 7, 2000
10
.2
Executive Employment Agreement between Advancis
    Pharmaceutical Corporation and Steven A. Shallcross dated
    February 22, 2002
10
.3
Executive Employment Agreement between Advancis
    Pharmaceutical Corporation and Colin E. Rowlings dated
    February 22, 2002
10
.4
Executive Employment Agreement between Advancis
    Pharmaceutical Corporation and Kevin S. Sly dated
    February 25, 2002
10
.5
Executive Employment Agreement between Advancis
    Pharmaceutical Corporation and Robert Guttendorf dated
    January 3, 2003
10
.6
Employment Offer Letter between Advancis
    Pharmaceutical Corporation and Sandra E. Wassink dated
    April 8, 2000
10
.7
Employment Offer Letter between Advancis
    Pharmaceutical Corporation and Beth A. Burnside dated
    July 17, 2002
10
.8
Form of Indemnification Agreement
II-3
Exhibit
Number
Exhibit Description
10
.9
Construction Services Agreement between Advancis
    Pharmaceutical Corporation and Barclay White Skanska, Inc. dated
    July 12, 2002, including General Conditions of the Contract
    for Construction
10
.10
Lease Agreement between Advancis Pharmaceutical
    Corporation and Seneca Meadows Corporate Center II LLC
    dated August 1, 2002
10
.11
Note Issuance Agreement between Advancis
    Pharmaceutical Corporation and HealthCare Ventures VI,
    L.P., Rho Management Trust, I, Steven Ostrofsky, Private Equity
    Holdings L.L.C., Targeted Entrepreneurial Services, LLC and the
    DC 1998 NFA Trust FBO Lee Casty dated March 28, 2003
10
.12
Form of Convertible Promissory Note dated
    March 28, 2003
10
.13
Amendment to Secured Convertible Promissory Note
    dated June 23, 2003
10
.14
2000 Stock Incentive Plan
10
.15
Form of Incentive Stock Option Agreement
10
.16
Form of Non-qualified Stock Option Agreement
10
.17
Form of Stock Restriction Agreement
10
.18+
Development and License Agreement between
    Advancis Pharmaceutical Corporation and GlaxoSmithKline dated
    July 18, 2003
10
.19
Stock Purchase Pledge Agreement between Advancis
    Pharmaceutical Corporation and Edward M. Rudnic dated
    October 15, 2001
10
.20
Form of Stock Purchase Promissory Note by Edward
    M. Rudnic dated October 15, 2001
10
.21
Fourth Amended and Restated Stockholders'
    Agreement
10
.22
Omnibus Addendum and Amendment to Series E
    Convertible Preferred Stock Purchase Agreement and Fourth
    Amended and Restated Stockholders' Agreement
23
.1*
Consent of McCarter & English, LLP (included
    in Exhibit 5.1)
23
.2
Consent of PricewaterhouseCoopers LLP
24
.1
Powers of Attorney (included on the signature
    page)
*
To be filed by amendment.
+
Confidential treatment requested for certain
    portions of this Exhibit pursuant to Rule 406 under the
    Securities Act, which portions are omitted and filed separately
    with the Securities and Exchange Commission.
Item 17.
Undertakings.
The undersigned Registrant hereby undertakes to
provide to the underwriters at the closing specified in the
underwriting agreements certificates in such denominations and
registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
II-4
The undersigned Registrant hereby undertakes that:
For purposes of determining any liability under
    the Securities Act of 1933, the information omitted from the
    form of prospectus filed as part of this registration statement
    in reliance upon Rule 430A and contained in a form of
    prospectus filed by the Registrant pursuant to
    Rule 424(b)(1) or (4) or 497(h) under the Securities Act
    shall be deemed to be part of this registration statement as of
    the time it was declared effective;
For the purpose of determining any liability
    under the Securities Act of 1933, each post-effective amendment
    that contains a form of prospectus shall be deemed to be a new
    registration statement relating to the securities offered
    therein, and the offering of such securities at that time shall
    be deemed to be the initial
bona fide
offering thereof.
II-5
SIGNATURES
Pursuant to the requirements of the Securities
Act, the Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Germantown, State of Maryland, on
August 1, 2003.
ADVANCIS PHARMACEUTICAL CORPORATION
By:
/s/ EDWARD M. RUDNIC
Edward M. Rudnic, Ph.D.
President, Chief Executive Officer,
Treasurer and Director
Pursuant to the requirements of the Securities
Act, this Registration Statement has been signed by the
following persons in the capacities indicated on the 1st day of
August, 2003. Each person whose signature appears below hereby
constitutes and appoints Edward M. Rudnic, Ph.D. and
Steven A. Shallcross, or either of them, as such
person's true and lawful attorney-in-fact and agent with
full power and substitution for such person and in such
person's name, place and stead, in any and all capacities,
to sign and to file with the Securities and Exchange Commission,
any and all amendments and post-effective amendments to this
Registration Statement, with exhibits thereto and other
documents in connection therewith, including any registration
statements or amendments thereto filed pursuant to
Rule 462(b) under the Securities Act, granting unto said
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises, as fully to all intents and
purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and
agent or any substitute therefor, may lawfully do or cause to be
done by virtue thereof.
Signature
Title
/s/ EDWARD M. RUDNIC
Edward M. Rudnic, Ph.D.
President, Chief Executive Officer, Treasurer and
    Director
(Principal Executive Officer)
/s/ STEVEN A. SHALLCROSS
Steven A. Shallcross
Senior Vice President, Chief Financial Officer
    and Secretary
(Principal Accounting and Financial Officer)
/s/ JAMES D. ISBISTER
James D. Isbister
Chairman of the Board of Directors
/s/ JAMES H. CAVANAUGH
James H. Cavanaugh, Ph.D.
Director
/s/ ELIZABETH CZEREPAK
Elizabeth Czerepak
Director
/s/ R. GORDON DOUGLAS, JR.
R. Gordon Douglas, Jr., M.D.
Director
/s/ WAYNE T. HOCKMEYER
Wayne T. Hockmeyer, Ph.D.
Director
/s/ HAROLD R. WERNER
Harold R. Werner
Director
II-6
EXHIBIT INDEX
Exhibit
Number
Exhibit Description
1
.1*
Form of Underwriting Agreement
3
.1
Fifth Restated Certificate of Incorporation of
    Advancis Pharmaceutical Corporation, including amendment thereto
3
.2
Form of Certificate of Incorporation of Advancis
    Pharmaceutical Corporation to be in effect after the closing of
    the offering made pursuant to this Registration Statement
3
.3
Amended and Restated Bylaws of Advancis
    Pharmaceutical Corporation, including amendment thereto
3
.4
Form of Bylaws of Advancis Pharmaceutical
    Corporation to be in effect after the closing of the offering
    made pursuant to this Registration Statement
4
.1
Specimen Stock Certificate
5
.1*
Opinion of McCarter & English, LLP
10
.1
Executive Employment Agreement between Advancis
    Pharmaceutical Corporation and Edward M. Rudnic dated
    January 7, 2000
10
.2
Executive Employment Agreement between Advancis
    Pharmaceutical Corporation and Steven A. Shallcross dated
    February 22, 2002
10
.3
Executive Employment Agreement between Advancis
    Pharmaceutical Corporation and Colin E. Rowlings dated
    February 22, 2002
10
.4
Executive Employment Agreement between Advancis
    Pharmaceutical Corporation and Kevin S. Sly dated
    February 25, 2002
10
.5
Executive Employment Agreement between Advancis
    Pharmaceutical Corporation and Robert Guttendorf dated
    January 3, 2003
10
.6
Employment Offer Letter between Advancis
    Pharmaceutical Corporation and Sandra E. Wassink dated
    April 8, 2000
10
.7
Employment Offer Letter between Advancis
    Pharmaceutical Corporation and Beth A. Burnside dated
    July 17, 2002
10
.8
Form of Indemnification Agreement
10
.9
Construction Services Agreement between Advancis
    Pharmaceutical Corporation and Barclay White Skanska, Inc. dated
    July 12, 2002, including General Conditions of the Contract
    for Construction
10
.10
Lease Agreement between Advancis Pharmaceutical
    Corporation and Seneca Meadows Corporate Center II LLC
    dated August 1, 2002
10
.11
Note Issuance Agreement between Advancis
    Pharmaceutical Corporation and HealthCare Ventures VI,
    L.P., Rho Management Trust, I, Steven Ostrofsky, Private Equity
    Holdings L.L.C., Targeted Entrepreneurial Services, LLC and the
    DC 1998 NFA Trust FBO Lee Casty dated March 28, 2003
10
.12
Form of Convertible Promissory Note dated
    March 28, 2003
10
.13
Amendment to Secured Convertible Promissory Note
    dated June 23, 2003
10
.14
2000 Stock Incentive Plan
10
.15
Form of Incentive Stock Option Agreement
10
.16
Form of Non-qualified Stock Option Agreement
10
.17
Form of Stock Restriction Agreement
10
.18+
Development and License Agreement between
    Advancis Pharmaceutical Corporation and GlaxoSmithKline dated
    July 18, 2003
10
.19
Stock Purchase Pledge Agreement between Advancis
    Pharmaceutical Corporation and Edward M. Rudnic dated
    October 15, 2001
10
.20
Form of Stock Purchase Promissory Note by Edward
    M. Rudnic dated October 15, 2001
10
.21
Fourth Amended and Restated Stockholders'
    Agreement
10
.22
Omnibus Addendum and Amendment to Series E
    Convertible Preferred Stock Purchase Agreement and Fourth
    Amended and Restated Stockholders' Agreement
Exhibit
Number
Exhibit Description
23
.1*
Consent of McCarter & English, LLP (included
    in Exhibit 5.1)
23
.2
Consent of PricewaterhouseCoopers LLP
24
.1
Powers of Attorney (included on the signature
    page)
*
To be filed by amendment.
+
Confidential treatment requested for certain
    portions of this Exhibit pursuant to Rule 406 under the
    Securities Act, which portions are omitted and filed separately
    with the Securities and Exchange Commission.