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<TITLE>INHIBITEX, INC.</TITLE>
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">As Filed with the Securities and Exchange
Commission on March&nbsp;3, 2004.</FONT></B>
</DIV>

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

<DIV align="left">
<HR size="4" noshade color="#000000" style="margin-top: -5px">
</DIV>

<DIV align="left">
<HR size="1" noshade color="#000000" style="margin-top: -10px">
</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&nbsp;S-1</FONT></B>

<DIV align="center">
<B>REGISTRATION STATEMENT UNDER 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">Inhibitex, Inc.</FONT></B>

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

<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">
    <B><FONT size="2">Delaware</FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <B><FONT size="2">2836</FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <B><FONT size="2">74-2708737</FONT></B></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <I><FONT size="2">(State or Other Jurisdiction<BR>
    of Incorporation or Organization)</FONT></I></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">
<B><FONT size="2">1165 Sanctuary Parkway</FONT></B>

<DIV align="center">
<B><FONT size="2">Suite&nbsp;400</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Alpharetta, GA 30004</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(678)&nbsp;746-1100</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">
<B><FONT size="2">William D. Johnston, 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">1165 Sanctuary Parkway</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Suite&nbsp;400</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Alpharetta, GA 30004</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(678)&nbsp;746-1100</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">Copies to:</FONT></I></B>

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<TR>
    <TD width="54%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="43%"><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">David S. Rosenthal, Esq.<BR>
    Swidler Berlin Shereff Friedman, LLP<BR>
    The Chrysler Building<BR>
    405 Lexington Avenue<BR>
    New York, New York 10174<BR>
    (212) 973-0111</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <B><FONT size="2">Mitchell S. Bloom, Esq.<BR>
    Testa, Hurwitz &#38; Thibeault, LLP<BR>
    125 High Street<BR>
    Boston, Massachusetts 02110<BR>
    (617) 248-7000</FONT></B></TD>
</TR>

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

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

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

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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, as amended (the
&#147;Securities Act&#148;), check the following
box.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 number of the
earlier effective registration statement for the same
offering.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 number of the
earlier effective registration statement for the same
offering.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
delivery of the Prospectus is expected to be made pursuant to
Rule&nbsp;434, please 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>

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<TR>
    <TD width="56%"><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="22%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <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">Proposed Maximum</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Aggregate</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Amount of Registration</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Title of Each Class of Securities to be Registered</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Offering Price(1)</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Fee(2)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <FONT size="2">Common Stock, .001 par value per share
    </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">$10,927.88
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

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<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">Estimated solely for the purpose of calculating
    the amount of the registration fee pursuant to Rule&nbsp;457(o)
    under the Securities Act of 1933, as amended.
    </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">Calculated pursuant to Rule&nbsp;457(o) based on
    an estimate of the proposed maximum aggregate offering price.
    </FONT></TD>
</TR>

</TABLE>

<P align="center">
<HR size="1" width="27%" align="center" noshade>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>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, as amended, or until the
Registration Statement shall become effective on such date as
the Commission, acting pursuant to said Section&nbsp;8(a), may
determine.</B>
</FONT>

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<HR size="1" noshade color="#000000" style="margin-top: -2px">

<DIV align="left">
<HR size="4" noshade color="#000000" style="margin-top: -10px">
</DIV>

<DIV>&nbsp;</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<TABLE width="100%" border="1" cellpadding="5"><TR><TD>
<B><FONT size="2" color="#EF2B2D">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 we are not
soliciting offers to buy these securities in any jurisdiction
where the offer or sale is not permitted.</FONT><FONT size="2">
<BR>
</FONT></B>
</TD></TR></TABLE>

<P align="center">
<B><FONT size="2" color="#EF2B2D">Subject to Completion, dated
March&nbsp;3, 2004</FONT></B>

<P align="left">
<B><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;&nbsp;&nbsp;&nbsp;&nbsp;Shares</FONT></B>

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

<TR>
    <TD width="48%"><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 align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">INHIBITEX, INC.</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="middle">
    <IMG src="g87401g8740101.gif" alt="(Inhibitex Logo)"></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<FONT size="4">Common Stock
</FONT>

<P align="left">
<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;per
share
</FONT>

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

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

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">We are
    offering &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
    of our common stock.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">We anticipate that the initial public offering
    price per share will be between
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
    share.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">This is our initial public offering and no public
    market currently exists for our shares.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Proposed trading symbol:
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left">
<FONT size="2">Nasdaq National Market&nbsp;&#151; INHX.
</FONT>
</DIV>

<P align="center">
<HR size="1" width="27%" align="center" noshade>

<P align="left">
<B><FONT size="2">This investment involves risks. See &#147;Risk
Factors&#148; beginning on page&nbsp;7.</FONT></B>

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

<TR>
    <TD width="73%"><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>
    <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="3%"><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" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Per Share</FONT></B></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">Initial 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 colspan="9"><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 colspan="9"><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, before expenses, to Inhibitex, Inc.
    </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 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 align="left">
<I><FONT size="2">The underwriters have a 30-day option to
purchase up
to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional
shares of common stock from us to cover over-allotments, if
any.</FONT></I>

<P align="left">
<B><FONT size="2">Neither the Securities and Exchange Commission
nor any state securities commission has approved of
anyone&#146;s investment in 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">The underwriters expect to deliver the shares to
purchasers
on &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;,
2004.
</FONT>

<DIV>&nbsp;</DIV>

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

<TR>
    <TD width="50%"></TD>
    <TD width="50%"></TD>
</TR>

<TR valign="top">
    <TD align="left"><B><FONT size="5">Piper Jaffray</FONT></B></TD>
    <TD align="right"><B><FONT size="5">Lazard</FONT></B></TD>
</TR>

</TABLE>

<P align="center">
<B><FONT size="5">Thomas Weisel Partners LLC</FONT></B>

<P align="center">
<B><FONT size="2">The date of this prospectus
is &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2004.</FONT></B>
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<DIV align="left">

</DIV>

<DIV align="left">
<!-- TOC -->
</DIV>

<DIV align="left">
<A name="tocpage"></A>
</DIV>

<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>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#101'>Summary</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">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">&nbsp;<A HREF='#102'>Risk Factors</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">7</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">&nbsp;<A HREF='#103'>Special Note on
    Forward-Looking Statements</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">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">&nbsp;<A HREF='#104'>Use of Proceeds</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">22</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">&nbsp;<A HREF='#105'>Dividend Policy</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">22</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">&nbsp;<A HREF='#106'>Capitalization</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">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">&nbsp;<A HREF='#107'>Dilution</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">25</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">&nbsp;<A HREF='#108'>Selected Financial Data</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">27</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">&nbsp;<A HREF='#109'>Management&#146;s Discussion
    and Analysis of Financial Condition and Results of Operations</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">28</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">&nbsp;<A HREF='#110'>Business</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">37</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">&nbsp;<A HREF='#111'>Management</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">56</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">&nbsp;<A HREF='#112'>Related Party
    Transactions</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">69</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">&nbsp;<A HREF='#113'>Principal Stockholders</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">72</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">&nbsp;<A HREF='#114'>Description of Capital
    Stock</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">76</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">&nbsp;<A HREF='#115'>Shares Eligible for Future
    Sale</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">80</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">&nbsp;<A HREF='#116'>Underwriting</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">83</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">&nbsp;<A HREF='#117'>Legal Matters</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">86</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">&nbsp;<A HREF='#118'>Experts</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">86</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">&nbsp;<A HREF='#119'>Where You Can Find More
    Information</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">86</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">&nbsp;&nbsp;<A HREF='#120'>Index to Financial
    Statements</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">F-1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv1w1.txt">EX-1.1 FORM OF PURCHASE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv3w1.txt">EX-3.1 CERTIFICATE OF INCORPORATION</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv3w3.txt">EX-3.3 BYLAWS</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv3w4.txt">EX-3.4 RESTATED CERTIFICATE OF INCORPORATION</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv3w5.txt">EX-3.5 AMENDED AND RESTATED BYLAWS</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w1.txt">EX-10.1 AMENDED AND RESTATED 1998 OWNERSHIP PLAN</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w3.txt">EX-10.3 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w4.txt">EX-10.4 2004 EMPLOYEE STOCK PURCHASE PLAN</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w5.txt">EX-10.5 FORM OF WARRANT / SERIES B PREFERRED STOCK</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w6.txt">EX-10.6 FORM OF WARRANT / SERIES D PREFERRED STOCK</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w7.txt">EX-10.7 AMENDMENT TO WARRANT / SERIES D PREFERRED</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w8.txt">EX-10.8 FORM OF WARRANT / SERIES E PREFERRED STOCK</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w9.txt">EX-10.9 AMENDMENT TO WARRANT / SERIES E PREFERRED</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w10.txt">EX-10.10 AMENDED AND RESTATED MASTER RIGHTS AGRMNT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w11.txt">EX-10.11 AMENDMENT NO.1 TO MASTER RIGHTS AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w12.txt">EX-10.12 FORM OF INDEMNITY AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w13.txt">EX-10.13 EMPLOYMENT AGREEMENT / WILLIAM JOHNSTON</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w14.txt">EX-10.14 AMENDED EMPLOYMENT AGREEMENT/HETHERINGTON</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w15.txt">EX-10.15 AMENDED EMPLOYMENT AGREEMENT / J. PATTI</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w16.txt">EX-10.16 AMENDED EMPLOYMENT AGREEMENT / R. PLUMB</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w17.txt">EX-10.17 AMENDED EMPLOYMENT AGREEMENT/D. WONNACOTT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w18.txt">EX-10.18 LICENSE & DEV. COLLABORATION AGMT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w19.txt">EX-10.19 LICENSE AGREEMENT DATED FEBRUARY 4, 2000</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w20.txt">EX-10.20 AMENDMENT #1 TO LICENSE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w21.txt">EX-10.21 AMENDMENT #2 TO LICENSE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w22.txt">EX-10.22 EXCLUSIVE LICENSE AGMT DATED 4/8/1999</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w23.txt">EX-10.23 LICENSE AGREEMENT DATED DECEMBER 23, 2002</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w24.txt">EX-10.24 NON-EXCLUSIVE CABILLY LICENSE AGMT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w25.txt">EX-10.25 PATENT LICENSE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w26.txt">EX-10.26 LICENSE AGREEMENT DATED JULY 1, 2003</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w27.txt">EX-10.27 PLASMA SUPPLY AGMT DATED OCTOBER 22, 2002</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w28.txt">EX-10.28 AMENDMENT TO PLASMA SUPPLY AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w29.txt">EX-10.29 AMENDMENT TO SUPPLY AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w30.txt">EX-10.30 PRODUCTION AGREEMENT DATED 12/5/2001</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w31.txt">EX-10.31 1ST AMENDMENT TO PRODUCTION AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w32.txt">EX-10.32 SUBLEASE AGREEMENT DATED 1/1/2001</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w33.txt">EX-10.33 NON-NEGOTIABLE PROMISSORY NOTE</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w34.txt">EX-10.34 SUBLEASE AGREEMENT DATED 12/23/02</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w35.txt">EX-10.35 LEASE AGREEMENT DATED 12/31/03</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv10w36.txt">EX-10.36 LOAN & SECURITY AGREEMENT DATED 2/11/03</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g87401exv23w1.txt">EX-23.1 CONSENT OF ERNST AND YOUNG LLP</A></FONT></TD></TR>
</TABLE>
</CENTER>

<DIV align="left">
<!-- /TOC -->
</DIV>

<P align="center">
<HR size="1" width="56%" align="center" noshade>

<P align="left">
<FONT size="2">You should rely only on the information contained
in this prospectus. We have not, and the underwriters have not,
authorized any other person to provide you with different
information. This prospectus is not an offer to sell, nor is it
seeking an offer to buy, these securities in any state where the
offer or sale is not permitted. The information in this
prospectus is complete and accurate as of the date on the front
cover, but the information may have changed since that date.
</FONT>

<P align="left">
<FONT size="2">For investors outside the United States: Neither
we nor any of the underwriters have done anything that would
permit this offering or possession or distribution of this
prospectus in any jurisdiction where action for that purpose is
required, other than in the United States. You are required to
inform yourselves about and to observe any restrictions relating
to this offering and the distribution of this prospectus.
</FONT>

<P align="center">

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">
<A name='101'></A>

<!-- link1 "SUMMARY" -->

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

<P align="left">
<I><FONT size="2">This summary highlights information about our
business and this offering contained elsewhere in this
prospectus. This summary does not contain all of the information
you should consider before investing in our common stock. Prior
to deciding to invest 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 to those financial statements that appear
elsewhere in this prospectus. References in this summary and in
the entire prospectus to our amended and restated certificate of
incorporation and bylaws refer to those that shall be in effect
immediately after the completion of this offering. Unless
otherwise specified, references in this prospectus to
&#147;Inhibitex,&#148; the &#147;Company,&#148; &#147;we,&#148;
&#147;our&#148; and &#147;us&#148; refer to Inhibitex,
Inc.</FONT></I>

<P align="left">
<I><FONT size="2">Inhibitex&#174;, MSCRAMM&#174;, Veronate&#174;
and Aurexis&#174; are registered trademarks of Inhibitex, Inc.
MSCRAMM is an acronym for Microbial Surface Components
Recognizing Adhesive Matrix Molecules.</FONT></I>

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

<P align="left">
<FONT size="2">We are a biopharmaceutical company engaged in the
discovery, development and commercialization of novel
antibody-based products for the prevention and treatment of
serious bacterial and fungal infections in the hospital setting.
We currently have two product candidates in late-stage clinical
development and three product candidates in preclinical
development. Our product candidates have been developed based on
our expertise in MSCRAMM proteins for which we own or have
licensed numerous patents and patent applications. MSCRAMM
proteins are located on the surface of pathogenic organisms,
such as bacteria and fungi, and play a prominent role in the
process of infection. These proteins enable organisms to
initiate and maintain an infection by adhering to specific sites
on human tissue or implanted medical devices. Our antibody-based
product candidates are designed to bind to specific MSCRAMM
proteins, thereby preventing infections or reducing their
severity.
</FONT>

<P align="left">
<FONT size="2">Our lead product candidate, Veronate, which we
expect will enter a Phase&nbsp;III clinical trial in the second
half of 2004, is being developed for the prevention of
hospital-associated infections in premature, very low birth
weight, or VLBW, infants. Veronate has been granted Fast Track
and Orphan Drug status by the FDA. Our second product candidate,
Aurexis, is currently being evaluated in a Phase&nbsp;II
clinical trial as a first-line therapy, in combination with
standard of care antibiotics, to treat serious, life-threatening
<I>Staphylococcus aureus,</I> or <I>S.&nbsp;aureus,</I>
bloodstream infections in hospitalized patients. We have
retained worldwide commercialization rights to both Veronate and
Aurexis and two of our three preclinical product candidates. We
expect to commercialize Veronate, and potentially Aurexis, in
the United States by establishing a specialized, hospital-based
sales force.
</FONT>

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

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

<P align="left">
<FONT size="2">We are developing Veronate as a prophylactic
product to prevent hospital-associated infections in VLBW
infants. Veronate contains concentrated amounts of antibodies
that target specific MSCRAMM proteins found on the surface of
staphylococci.
</FONT>

<P align="left">
<FONT size="2">According to the United States Census Bureau,
there were approximately 60,000 VLBW infants born in the United
States in 2001. VLBW infants are typically cared for in neonatal
intensive care units for, on average, the first two months of
their lives. During this time, VLBW infants are highly
susceptible to infection given the intensity of medical care,
duration of hospitalization, and the use of intravenous
catheters to deliver nutritional fluids and medication. Studies
indicate that 30-50% of all VLBW infants weighing
1,250&nbsp;grams or less at birth will develop at least one
hospital-associated infection. Hospital-associated infections
result in significant mortality and morbidity among VLBW
infants. The mortality rate
</FONT>

<P align="center"><FONT size="2">1
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">
<FONT size="2">among VLBW infants who acquire a
hospital-associated infection caused by <I>S.&nbsp;aureus</I> or
candida, a fungus, is approximately 17% and 34%, respectively.
In addition to this associated mortality, VLBW infants who
develop a hospital-associated infection spend, on average, 19
additional days in the hospital as compared to those that do not
develop such an infection.
</FONT>

<P align="left">
<FONT size="2">In December 2003, we completed a 512-patient,
multi-center, randomized, double-blind, placebo-controlled
Phase&nbsp;II clinical trial of Veronate for the prevention of
hospital-associated infections in VLBW infants weighing 500 to
1,250 grams at birth. The trial was designed to evaluate the
safety, dosing and preliminary efficacy of Veronate in this
patient population. Results from the trial demonstrated that
Veronate was generally safe and well tolerated among treated
infants. The preliminary efficacy findings from the
Phase&nbsp;II trial comparing Veronate at a dose of
750&nbsp;mg/kg to placebo were:
</FONT>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">a 63% reduction in the frequency of infection due
    to <I>S.&nbsp;aureus</I>;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">a 67% reduction in the frequency of infection due
    to candida;&nbsp;and
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">a 36% reduction in mortality.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">Based on these results, we expect to initiate a
multi-center, randomized, double-blind, placebo-controlled
Phase&nbsp;III clinical trial for Veronate in the second half of
2004. This trial will be designed to further evaluate and
confirm the efficacy and safety of Veronate at a dose of
750&nbsp;mg/kg in VLBW infants weighing 500 to 1,250&nbsp;grams
at birth.
</FONT>

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

<P align="left">
<FONT size="2">Aurexis is a humanized monoclonal antibody being
developed as a first-line therapy, in combination with standard
of care antibiotics, for serious, life-threatening
<I>S.&nbsp;aureus</I> bloodstream infections in hospitalized
patients. Aurexis and Veronate target the same MSCRAMM protein
on <I>S.&nbsp;aureus</I>. We believe the results from our
Phase&nbsp;II Veronate trial and our preclinical efficacy
studies provide validation for the <I>S.&nbsp;aureus</I> MSCRAMM
protein.
</FONT>

<P align="left">
<I><FONT size="2">S.&nbsp;aureus</FONT></I><FONT size="2"> is
one of the leading causes of hospital-associated infections.
There were an estimated one&nbsp;million hospital-associated
<I>S.&nbsp;aureus</I> infections worldwide in 2002, of which
approximately 225,000 occurred in the United States. Of the
estimated 225,000 <I>S.&nbsp;aureus</I> infections in the United
States, we estimate that approximately 50,000 were serious
bloodstream infections. <I>S.&nbsp;aureus</I> is becoming
increasingly resistant to antibiotics. According to the Centers
for Disease Control and other sources, the percentage of
hospital-associated <I>S.&nbsp;aureus</I> infections caused by
methicillin-resistant <I>S.&nbsp;aureus</I>, or MRSA, in
intensive care units in the United States doubled between 1994
and 2002, increasing from 30% to nearly 60%. The mortality rate
for bloodstream infections associated with MRSA is 30-50%, as
compared to the mortality rate associated with
methicillin-susceptible <I>S.&nbsp;aureus</I> bloodstream
infections of approximately 20%. <I>S.&nbsp;aureus</I>
infections are typically treated with intravenous antibiotics,
including vancomycin, which is generally administered to
patients with MRSA. We believe Aurexis will be used adjunctively
as a first-line therapy to treat <I>S.&nbsp;aureus</I>
bloodstream infections, regardless of which antibiotic is
prescribed for treatment.
</FONT>

<P align="left">
<FONT size="2">We are currently conducting a 60-patient,
multi-center, randomized, double-blind, placebo-controlled
Phase&nbsp;II clinical trial for Aurexis. Hospitalized patients
with documented <I>S.&nbsp;aureus</I> bloodstream infections are
randomized to receive standard of care antibiotic therapy
combined with either Aurexis or placebo. The Phase&nbsp;II trial
is designed to evaluate the safety, pharmacokinetics and
preliminary efficacy of Aurexis. We expect to complete
enrollment of this trial by the end of 2004 and have final data
from this trial during the first half of 2005. We are also
exploring the use of Aurexis in patients with cystic fibrosis and
</FONT>

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

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">
<FONT size="2">end stage renal disease and those who are
undergoing cardiac surgery. We may initiate additional
Phase&nbsp;II clinical trials in one or more of these
indications in the future.
</FONT>

<P align="left">
<B><I><FONT size="2">Preclinical Product
Candidates</FONT></I></B>

<P align="left">
<FONT size="2">We currently have three product candidates in
preclinical development, all of which are based on the use of
MSCRAMM proteins. Two of these candidates are humanized
monoclonal antibodies, one of which targets hospital-associated
enterococcal infections, the other of which targets
hospital-associated candida infections. Our third candidate is a
human staphylococcal vaccine being developed by Wyeth that is
the subject of a worldwide license and collaboration agreement.
</FONT>

<P align="left">
<B><FONT size="2">Benefits of Our MSCRAMM Protein
Approach</FONT></B>

<P align="left">
<FONT size="2">We believe that antibody-based product candidates
developed utilizing MSCRAMM proteins may provide the following
advantages over existing anti-infective therapies:
</FONT>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the ability to be used prophylactically in
    patients where the preventive use of antibiotics is not
    appropriate or recommended;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">improved patient outcomes by reducing the
    incidence of secondary site infections, relapse rates, mortality
    and length of hospital stay;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">a lower likelihood of inducing patterns of drug
    resistance due to their novel mechanisms of action;&nbsp;and
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">fewer side effects.
    </FONT></TD>
</TR>

</TABLE>

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

<P align="left">
<FONT size="2">Our goal is to become a leading biopharmaceutical
company that discovers, develops and commercializes novel,
antibody-based products to prevent and treat serious bacterial
and fungal infections in the hospital setting. In order to
achieve this goal, we are focused on the following key
strategies:
</FONT>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">complete the Phase&nbsp;III clinical trial and
    obtain regulatory approval for Veronate;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">advance the development of Aurexis and our
    preclinical product candidates;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">establish a specialized, hospital-based sales
    force in the United States to sell our products;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">utilize our expertise in MSCRAMM proteins to
    discover and develop additional first-in-class products;&nbsp;and
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">expand our product portfolio through in-licensing
    and acquisitions.
    </FONT></TD>
</TR>

</TABLE>

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

<P align="left">
<FONT size="2">We were incorporated in Delaware in May 1994. Our
principal executive offices are located at 1165&nbsp;Sanctuary
Parkway, Suite&nbsp;400, Alpharetta, Georgia 30004. Our
telephone number is (678)746-1100. Our website is
<I>www.inhibitex.com.</I> Information contained on our website
is not incorporated by reference into and does not constitute
part of this prospectus.
</FONT>

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

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

<CENTER>
<TABLE width="100%" 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="18%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="18%"><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><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size="2">shares</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">Common stock to be outstanding after this offering
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size="2">shares</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">Initial public offering price
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size="2">per share</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 colspan="3" align="left" valign="top"><FONT size="2">We plan to use the net proceeds from this offering for the continued development of our product candidates, working capital 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><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">INHX</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<FONT size="2">The number of shares to be outstanding
immediately after this offering is based
on &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 as of December&nbsp;31, 2003,
and excludes:
</FONT>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">3,185,490&nbsp;shares of common stock issuable
    upon the exercise of options outstanding as of December&nbsp;31,
    2003, with a weighted average exercise price of $0.60&nbsp;per
    share;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">247,564&nbsp;shares of common stock issuable upon
    the exercise of warrants outstanding as of December&nbsp;31,
    2003, with a weighted average exercise price of $1.49&nbsp;per
    share;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD 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;&nbsp;shares
    of common stock issuable upon the conversion of preferred stock
    to be paid in respect of dividends that will accrue on our
    outstanding preferred stock between January&nbsp;1, 2004 and the
    closing of this offering;&nbsp;and
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">623,128&nbsp;shares reserved for future issuance
    or grant under our stock incentive plans. In February 2004, an
    additional 3,400,000&nbsp;shares were reserved for future
    issuance or grant under our stock incentive plans.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">Except as otherwise noted, all of the information
presented in this prospectus is based on the following
assumptions:
</FONT>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">a&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;for&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;reverse
    split of our capital stock effective prior to the completion of
    this offering;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the conversion of all shares of preferred stock
    outstanding as of December&nbsp;31, 2003 into
    24,589,444&nbsp;shares of common stock immediately prior to the
    closing of this offering;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the conversion of all cumulative preferred stock
    dividends accrued as of December&nbsp;31, 2003 into
    3,223,185&nbsp;shares of common stock immediately prior to the
    closing of this offering;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the issuance
    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 subject to the mandatory cashless exercise of
    warrants to purchase 4,127,130&nbsp;shares of preferred stock
    upon the completion of this offering, at an assumed initial
    public offering price of
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
    share. The exercise price of these warrants is $5.91&nbsp;per
    share;&nbsp;and
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the underwriters do not exercise their right to
    purchase up to an
    additional &nbsp;&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.
    </FONT></TD>
</TR>

</TABLE>

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

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

<P align="left">
<FONT size="2">The following summary financial data should be
read in conjunction with &#147;Management&#146;s Discussion and
Analysis of Financial Condition and Results of Operations&#148;
included later in this prospectus, and our Financial Statements
and related Notes included in the back of this prospectus. The
summary financial data for the years ended December&nbsp;31,
2001, 2002 and 2003 and for the period from inception on
May&nbsp;13, 1994 through December&nbsp;31, 2003 are derived
from our audited financial statements, which are included
elsewhere in this prospectus. The summary financial data for the
years ended December&nbsp;31, 1999 and 2000 are derived from
audited financial statements which are not included in this
prospectus. Historical results are not indicative of results in
any future period.
</FONT>

<P align="left">
<FONT size="2">The pro forma as adjusted balance sheet data
reflect (i)&nbsp;the conversion of all of our preferred stock
outstanding as of December&nbsp;31, 2003 into shares of common
stock immediately prior to the closing of this offering,
(ii)&nbsp;the conversion of all cumulative preferred stock
dividends accrued through December&nbsp;31, 2003 into
3,223,185&nbsp;shares of common stock immediately prior to the
closing of this offering, (iii)&nbsp;the issuance
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 subject to the mandatory cashless exercise of
warrants to purchase 4,127,130&nbsp;shares of preferred stock
upon the completion of this offering, at an assumed initial
public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share, and (iv)&nbsp;the sale of shares of common stock in this
offering at
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share, after deducting underwriting discounts and commissions
and our estimated offering expenses.
</FONT>

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

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<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="38%"><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="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="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="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="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>
</TR>

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

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

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(May&nbsp;13,</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>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1994)</FONT></B></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Through</FONT></B></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">Years Ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></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">1999</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 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>
    <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="19"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(in thousands, except per share data)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Statement of Operations Data:</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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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" 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">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,162</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">261</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">634</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">271</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">900</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,096</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">Operating 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>
    <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">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">52,620</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,747</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,864</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,099</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,615</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">19,071</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">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">12,277</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">683</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,121</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,328</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,677</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>
    <TD><FONT size="2">&nbsp;</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 operating 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">64,897</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,430</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,985</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">8,946</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,943</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,748</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>
    <TD><FONT size="2">&nbsp;</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">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">(61,735</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">(3,169</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">(6,351</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">(8,675</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">(18,043</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">(22,652</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest and other 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">1,074</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(175</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">(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">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">430</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">319</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>
    <TD><FONT size="2">&nbsp;</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">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">(60,661</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">(3,344</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">(6,463</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">(8,107</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">(17,613</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">(22,333</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dividends and accretion to redemption value of
    redeemable 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">(13,559</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">(461</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">(1,271</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">(5,626</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">(6,201</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>
    <TD><FONT size="2">&nbsp;</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">Net loss attributable to common stockholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(74,220</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,344</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">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,924</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,378</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">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(23,239</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(28,534</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="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 colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic and diluted net loss attributable to common
    stockholders 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="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3.44</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7.08</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">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8.90</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20.10</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">(22.77</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT 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="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pro forma basic and diluted net loss attributable
    to common stockholders per share (unaudited)<SUP>(1)</SUP>
    </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 align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.18</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT 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="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average shares used to compute basic and
    diluted net loss attributable to common stockholders 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 align="right" valign="bottom" nowrap><FONT size="2">971</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">978</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,054</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,156</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,253</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT 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="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pro forma weighted average shares used to compute
    basic and diluted net loss attributable to common stockholders
    per share (unaudited)<SUP>(1)</SUP>
    </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 align="right" valign="bottom" nowrap><FONT size="2">24,145</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT 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="80%" 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="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="3%"><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">As of December&nbsp;31, 2003</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"></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">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>
</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">(in thousands)</FONT></B></TD>
</TR>

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

<TR>
    <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">26,649</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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">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">1,499</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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">Working capital
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,529</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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 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">30,662</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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">Long-term debt and capital leases, 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">1,795</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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">Redeemable convertible preferred stock and
    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">95,608</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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">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">(74,220</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 align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total stockholders&#146; (deficit) equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(73,226</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>

<DIV align="left">
<HR size="1" width="56%" align="left" noshade>
</DIV>

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

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left">
    <SUP><FONT size="2">(1)</FONT></SUP><FONT size="2"> See
    Note&nbsp;3 of Notes to Financial Statements for a description
    of the method used to compute pro forma basic and diluted net
    loss per common share and number of shares used in computing pro
    forma basic and diluted net loss per common share.
    </FONT></TD>
</TR>

</TABLE>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='102'></A>
</DIV>

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

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

<P align="left">
<I><FONT size="2">If you purchase our common stock, you will be
taking on a high degree of financial risk. In deciding whether
to invest in our common stock, you should carefully consider the
following discussion of risks, together with the other
information contained in this prospectus. The occurrence of any
of the following risks, as well as other risks and uncertainties
discussed elsewhere in this prospectus, could materially harm
our business and financial condition and our ability to raise
additional capital in the future. In that event, the market
price of our common stock could decline and you could lose all
or part of your investment.</FONT></I>

<DIV>&nbsp;</DIV>

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

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Risks Relating to Our Business</FONT></B></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">We depend heavily on the success of our lead
product candidate, Veronate, which is still in clinical
development. If we are unable to commercialize Veronate, or
experience significant delays in doing so, our business could be
materially harmed.</FONT></B>

<P align="left">
<FONT size="2">Since our inception, we have invested a
significant portion of our time and financial resources on the
development of Veronate. We anticipate that in the near-term,
our ability to generate significant product revenues will depend
solely on the successful development and commercialization of
Veronate. The commercial success of Veronate will depend on
several factors, including the following:
</FONT>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="4%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the successful completion of a Phase&nbsp;III
    clinical trial;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the receipt of an approved biological license
    application, or BLA, and the successful ongoing maintenance of
    approvals in the indications we are seeking from the United
    States Food and Drug Administration, or FDA, and similar foreign
    regulatory authorities;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">maintaining satisfactory commercial manufacturing
    and supply arrangements with third-parties;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">establishing our own hospital-based sales force
    and launching the product;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the acceptance of Veronate by the clinical and
    hospital community;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the willingness of third-party payors to provide
    adequate reimbursement for Veronate;&nbsp;and
    </FONT></TD>
</TR>

</TABLE>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">no other entity first obtains a final Orphan Drug
    approval of a BLA for the same indication targeted by Veronate
    and thereby prevents us from marketing Veronate for up to seven
    years.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">If the data from our Phase&nbsp;III clinical
trial for Veronate are not satisfactory, we will not be able to
proceed with the filing of a BLA for Veronate or we may be
forced to withdraw the filing or narrow the indication for which
we seek marketing approval. If we believe the results of the
Phase&nbsp;III trial are satisfactory and we file a BLA for
Veronate, the FDA may not accept our filing, may request
additional information, require additional clinical trials,
limit the approved use of such product or ultimately not grant
marketing approval for Veronate. Veronate has been granted Fast
Track status by the FDA. Fast Track status may qualify Veronate
for expedited review by the FDA, but does not assure such an
expedited review. Fast Track status may be withdrawn if the FDA
believes that such status is no longer supported by data from
our clinical development program. If we are not successful in
commercializing Veronate, or are significantly delayed in doing
so, our business will be materially harmed and we may need to
curtail or cease operations.
</FONT>

<P align="left">
<B><FONT size="2">No antibody-based products that target MSCRAMM
proteins have been developed or approved.</FONT></B>

<P align="left">
<FONT size="2">All of our product candidates, including Veronate
and Aurexis, target various MSCRAMM proteins. MSCRAMM proteins
have not yet been used by us or others to successfully develop
or commercialize any
</FONT>

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

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<DIV align="left">
<FONT size="2">approved products. We may fail to produce an
approved product that targets MSCRAMM proteins, which could
materially harm our business. If Veronate clinical trial results
are unsatisfactory, this may cast doubt on the viability of our
MSCRAMM protein approach and our entire portfolio of product
candidates.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">If the clinical trials for our product
candidates are unsuccessful or delayed, we could be delayed or
precluded from further developing, or ultimately selling our
product candidates.</FONT></B>

<P align="left">
<FONT size="2">You must evaluate us in light of the
uncertainties and complexities present in a development stage
biopharmaceutical company. In order to receive regulatory
approval for the commercialization of our product candidates, we
must conduct extensive clinical trials to demonstrate their
safety and efficacy. Clinical testing is expensive and can take
many years to complete, and its outcome is uncertain. Delays or
clinical setbacks may occur at any time.
</FONT>

<P align="left">
<FONT size="2">The results of preclinical studies and early
clinical trials of our product candidates may not predict the
results of later-stage clinical trials. Product candidates in
later stages of clinical trials may fail to show the desired
safety and efficacy traits despite having progressed through
initial clinical testing. The data collected from clinical
trials of our product candidates may not be sufficient to
support the submission of a BLA or to obtain regulatory approval
in the United States or elsewhere. We have conducted a single
512-patient Phase&nbsp;II trial for Veronate and a single
19-patient Phase&nbsp;I trial for Aurexis. The results of these
trials are not statistically significant. There can be no
assurance that the results of these trials are predictive of the
outcomes in our later-stage trials for Veronate and Aurexis. In
addition, we will have no control over the standard of care
antibiotic treatment used by investigators in conjunction with
Aurexis in our Phase&nbsp;II trial for Aurexis. This may make
our Phase&nbsp;II clinical trial data for Aurexis difficult to
interpret, which may require us to conduct additional clinical
trials.
</FONT>

<P align="left">
<B><FONT size="2">We must comply with extensive government
regulations in order to obtain and maintain marketing approval
for our products in the United States and abroad.</FONT></B>

<P align="left">
<FONT size="2">Our product candidates are subject to extensive
and rigorous domestic and foreign 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 product candidates are
successfully developed and marketed abroad, they will also be
subject to similar extensive regulation by foreign governments.
We must provide the FDA and foreign regulatory authorities, if
applicable, with clinical data that appropriately demonstrate
our product candidates&#146; safety and efficacy in humans
before they can be approved for the targeted indications. None
of our product candidates has been approved for sale in the
United States or any foreign market, and we cannot predict
whether regulatory approval will be obtained for any product
candidate that we are developing or plan to develop. The
regulatory review and approval process can take many years, is
dependent upon the type, complexity and novelty of the product,
requires the expenditure of substantial resources, involves
post-marketing surveillance, and may involve ongoing
requirements for post-marketing studies. In addition, we may
encounter delays or rejections based upon additional
governmental regulation resulting from future legislative or
administrative action or changes in FDA policy or interpretation
during the period of product development. Delays or failures in
obtaining regulatory approvals may:
</FONT>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

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

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

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

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

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

</TABLE>

<P align="center"><FONT size="2">8
</FONT>

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<FONT size="2">Furthermore, any required regulatory approvals,
if granted, may be withdrawn. If we fail to comply with
applicable FDA and other regulatory requirements at any stage
during the regulatory process, we may be subject to
restrictions, including:
</FONT>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</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;</FONT></TD>
    <TD align="left">
    <FONT size="2">refusal by the FDA to review pending applications
    or supplements to approved applications;
    </FONT></TD>
</TR>

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

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

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

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

</TABLE>

<P align="left">
<FONT size="2">The ability to market a product outside of the
United States is contingent upon receiving a marketing
authorization from the appropriate regulatory authorities.
Foreign regulatory approval processes typically include many, if
not all, of the risks associated with the FDA as described above
and may include additional risks.
</FONT>

<P align="left">
<B><FONT size="2">If our third-party vendors upon whom we rely
to conduct our clinical trials do not perform or fail to comply
with strict regulations, the clinical trials for our product
candidates may be delayed or unsuccessful.</FONT></B>

<P align="left">
<FONT size="2">We have limited experience in conducting and
managing large clinical trials. We rely on third parties,
including clinical research organizations, outside consultants
and principal investigators to assist us in managing, monitoring
and conducting our clinical trials. We rely on these vendors to
assist in the recruitment of sites for participation in clinical
trials, to maintain positive relations with the clinical sites
and to ensure that these sites are conducting the trial in
compliance with the protocol and our instructions. If these
third parties fail to perform satisfactorily or do not
adequately fulfill their obligations under the terms of our
agreements with them, the clinical trials for our product
candidates may be delayed or unsuccessful. Furthermore, the FDA
may inspect some of the clinical sites participating in our
clinical trials, or our third party vendors&#146; sites, to
determine if our clinical trials are being conducted according
to current good clinical practices. If the FDA determines that
our third-party vendors are not in compliance with applicable
regulations, we may be required to delay, repeat or terminate
such clinical trials. Any delay, repetition or termination of
our clinical trials could materially harm our business.
</FONT>

<P align="left">
<B><FONT size="2">If our third-party suppliers upon whom we rely
to provide us with critical raw materials do not perform or fail
to comply with strict regulations, our clinical trials for, and
commercialization of, our product candidates could be delayed or
adversely affected.</FONT></B>

<P align="left">
<FONT size="2">We purchase plasma, which contains the antibodies
needed to make Veronate, from a third-party supplier under a
long-term supply contract. We currently depend on this supplier
as our sole source of this critical raw material, and we
currently do not have arrangements with an alternative supplier.
It may be difficult or impossible for us to find alternative
suppliers on commercially acceptable terms, if at all.
</FONT>

<P align="left">
<FONT size="2">The collection of plasma, including screening
procedures for plasma donors, is subject to extensive and strict
regulation by the FDA and other foreign regulatory authorities.
These stringent measures could adversely affect our
supplier&#146;s ability to provide us with an adequate supply of
plasma for use in the manufacture of Veronate. While we
anticipate securing additional sources of plasma in the future,
until such time, the failure of our existing supplier to supply
us or otherwise perform its contractual obligations could have
an adverse effect on our ability to produce Veronate.
</FONT>

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

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<B><FONT size="2">If our third-party contract manufacturers upon
whom we rely to manufacture our product candidates do not
perform or fail to comply with strict regulations, our clinical
trials and the commercialization of our products could be
delayed or suspended.</FONT></B>

<P align="left">
<FONT size="2">We do not own or operate any manufacturing
facilities. We have contracted with third-party manufacturers to
make our product candidates for our clinical trials. We also
intend to rely on third-party contract manufacturers, at least
for the foreseeable future, to manufacture our products if and
when approved to be sold. Our reliance on third-party contract
manufacturers exposes us to a number of risks, any of which
could delay or prevent the completion of our clinical trials,
the approval or commercialization of our products, result in
higher costs, or deprive us of potential product revenues. Some
of these risks include:
</FONT>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Each of our current product candidates is and
    will likely be made by a single third-party contract
    manufacturer. We do not have alternate manufacturing plans for
    our product candidates at this time. It may be difficult or
    impossible for us to find alternative manufacturers on
    commercially acceptable terms, if at all. In addition, under our
    agreement with Nabi Biopharmaceuticals, Inc., we may not be able
    to engage any other party to manufacture Veronate until the
    agreement with Nabi is terminated.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Changing our current or future manufacturers may
    be difficult for us, as the number of potential contract
    manufacturers that would be able to make our products is limited
    and a change may interrupt our ability to supply our products to
    the marketplace. In accordance with FDA-mandated current good
    manufacturing practices, or cGMPs, changing manufacturers will
    require re-validation of the manufacturing processes and
    procedures and may require further clinical trials, which may be
    costly and time-consuming.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Our contract manufacturers may not perform as
    agreed or may not remain in the contract manufacturing business.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Our manufacturer&#146;s plant may be closed as a
    result of a natural disaster.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">To date, our product candidates have been
    manufactured in small quantities for preclinical studies and
    clinical trials. If we are unable to increase the manufacturing
    scale of, or increase the capacity for, our product candidates,
    their regulatory approval or commercial launch may be delayed or
    we may experience a shortage in supply. We cannot assure you
    that we will be able to find manufacturers acceptable to us who
    can manufacture our products in commercial quantities in a
    timely or economic manner, if at all.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Nabi is our contract manufacturer for Veronate.
    Nabi is a potential competitor which may, in the future, impact
    its willingness to perform under the terms of, or renew, our
    contract manufacturing agreement.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">Drug manufacturers are subject to ongoing
periodic inspections by the FDA, the United States Drug
Enforcement Agency, or the DEA, and corresponding state and
foreign agencies to ensure strict compliance with cGMPs, other
government regulations and corresponding foreign standards.
While we are obligated to audit their performance, we do not
have control over our third-party manufacturers&#146; compliance
with these regulations and standards. Failure by our third-party
manufacturers, or us, to comply with applicable regulations
could result in sanctions being imposed on us, including fines,
injunctions, civil penalties, failure of the government to grant
premarket approval of drugs, delays, suspension or withdrawal of
approvals, seizures or recalls of product, operating
restrictions and criminal prosecutions, any of which could
significantly and adversely affect our business.
</FONT>

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

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<P align="left">
<B><FONT size="2">We have experienced losses since our
inception. We expect to continue to incur such losses for the
foreseeable future and we may never become profitable.</FONT></B>

<P align="left">
<FONT size="2">Since inception through December&nbsp;31, 2003,
we have incurred a cumulative loss from operations of
approximately $61.7&nbsp;million. Our losses to date have
resulted principally from:
</FONT>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">costs related to our research programs and the
    development of our product candidates;&nbsp;and
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">general and administrative costs relating to our
    operations.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">We anticipate incurring substantial and
increasing losses for the foreseeable future as we further
develop our product candidates, which will require us to conduct
significant research and laboratory testing, conduct clinical
trials, as well as seek regulatory approvals. In addition, we
intend to establish a hospital-based sales force in the United
States to market and sell Veronate. We also expect that our
general and administrative expenses will increase as we add
additional personnel to support our operations. We cannot assure
you that we will ever become profitable.
</FONT>

<P align="left">
<B><FONT size="2">We may be forced to delay or curtail the
development or commercialization of our product candidates if we
are unable to obtain additional funding.</FONT></B>

<P align="left">
<FONT size="2">We expect that our need for additional capital
will be substantial and the extent of this need will depend on
many factors, some of which are beyond our control, including:
</FONT>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the successful and continued development of our
    product candidates in preclinical and clinical testing;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the establishment of marketing and sales
    capabilities and the costs to launch our product candidates;
    </FONT></TD>
</TR>

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

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

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">future payments, if any, received or made under
    existing or possible future collaborative arrangements;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the timing of regulatory approvals needed to
    market our product candidates;
    </FONT></TD>
</TR>

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

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

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the need to acquire licenses to new products or
    compounds.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">We have no committed sources of additional
capital. We cannot assure you that funds will be available to us
in the future on favorable terms, if at all. If adequate funds
are not available to us on terms that we find acceptable, or at
all, we may be required to delay, reduce the scope of, or
eliminate research and development efforts or clinical trials on
any or all of our product candidates. We may also be forced to
curtail or restructure our operations, obtain funds by entering
into arrangements with collaborators on unattractive terms or
relinquish rights to certain technologies or product candidates
that we would not otherwise relinquish in order to continue
independent operations.
</FONT>

<P align="left">
<B><FONT size="2">We may be unable to successfully develop or
commercialize product candidates that are the subject of
collaborations if our collaborators do not perform.</FONT></B>

<P align="left">
<FONT size="2">We expect to enter into and rely on
collaborations with third parties to develop and/or
commercialize our product candidates outside of the United
States and in certain markets in the United States. In
particular,
</FONT>

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

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<DIV align="left">
<FONT size="2">we plan to establish a partnership for Aurexis.
If we do so, such collaborators may not perform as agreed, fail
to comply with strict regulations or elect to delay or terminate
their efforts in developing or commercializing our product
candidates. Our only current collaboration is with Wyeth to
develop a vaccine to prevent staphylococcal infections in
humans. We believe this collaboration is necessary for us to
fund research and development activities, provide a suitable
manufacturer, obtain regulatory approvals and to successfully
commercialize a vaccine product candidate. We cannot assure you
that any product candidates derived from our relationship with
Wyeth, or other collaborations we may enter into in the future
with respect to Aurexis or our other product candidates, will
result in commercially successful products.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">If we are unable to attract and retain key
employees, advisors or consultants, we may be unable to
successfully develop and commercialize our product candidates or
otherwise manage our business effectively.</FONT></B>

<P align="left">
<FONT size="2">Our success depends in part on our ability to
attract and retain highly qualified management and personnel and
academic scientists and clinicians as advisors or consultants.
In order to pursue our product development and commercialization
strategies, we will need to attract and hire additional
personnel with experience in a number of disciplines, including
clinical testing, government regulation, manufacturing, sales
and marketing, drug reimbursement and information systems. We
may not be able to attract and retain such personnel on
acceptable terms, if at all. If we lose any key employees, or
are unable to attract and retain qualified personnel and
advisors, our business may be harmed.
</FONT>

<P align="left">
<B><FONT size="2">Our industry is highly competitive and subject
to rapid technological changes. As a result we may be unable to
compete successfully or develop innovative products, which could
harm our business.</FONT></B>

<P align="left">
<FONT size="2">The biotechnology and pharmaceutical industries
are highly competitive and subject to significant and rapid
technological change as researchers learn more about diseases
and develop new technologies and treatments. Our current and
potential competitors generally include, among others, major
multinational pharmaceutical companies, biotechnology firms,
universities and other research institutions. We are aware of
several pharmaceutical and biotechnology companies that are
actively engaged in the research and development of novel
products for bacterial and fungal infectious disease
applications. Some of these companies have commenced clinical
trials for products targeting the same markets and indications
that we are addressing. Some of these companies and
institutions, either alone or together with their collaborators,
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
collaborators, have significantly greater experience than we do
in discovering, developing, manufacturing and marketing
products. Developments by others may render our product
candidates or technologies obsolete or noncompetitive.
</FONT>

<P align="left">
<FONT size="2">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, for attracting investigators and sites capable of
conducting our clinical trials and for licenses of proprietary
technology. These competitors, either alone or with their
collaborators, may succeed in developing technologies or
products that are more effective, less expensive or easier to
administer than ours. Accordingly, our competitors may succeed
in obtaining FDA or other regulatory approvals for their drug
candidates more rapidly than we can. Companies that complete
clinical trials, obtain required regulatory approvals and
commercialize their drugs before their competitors may achieve a
significant competitive advantage, including certain patent and
FDA marketing exclusivity rights that could delay the ability of
competitors to market certain products. We cannot assure you
that product candidates resulting from our research and
development efforts, or from joint efforts with our
collaborators, will be able to compete successfully with our
competitors&#146; existing products or products under
development.
</FONT>

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

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<B><FONT size="2">Most of our product candidates target Orphan
Drug indications. If we fail to obtain approval in an orphan
indication before one of our competitors does, we may be
prevented from selling our products for a period of
time.</FONT></B>

<P align="left">
<FONT size="2">Our lead product candidate, Veronate, has been
granted Orphan Drug status by the FDA for the reduction of
nosocomial bacteremia caused by staphylococci in very low birth
weight, or VLBW infants, and most of our other product
candidates also target Orphan Drug indications. A product that
has Orphan Drug status and is the first to receive FDA approval
for the designated indication is entitled, subject to certain
limited exceptions, to market exclusivity in the United States
for seven years. We are aware of a number of other companies
that have received Orphan Drug status for product candidates
that are potentially competitive with Veronate and our other
product candidates. If we are not first to receive FDA approval
for our Orphan Drug indications, we may be prevented from having
our product candidates approved in those indications for up to
seven years. In addition, even if we are first to obtain
approval for our Orphan Drug indications, clinicians may choose
to use products approved for other indications &#147;off
label&#148; to treat patients who suffer from conditions for
which our products have received Orphan Drug approval.
</FONT>

<P align="left">
<B><FONT size="2">If our future products do not gain meaningful
acceptance in their intended markets, we are not likely to
generate significant revenues or become profitable.</FONT></B>

<P align="left">
<FONT size="2">Even if we successfully develop our product
candidates and obtain the requisite regulatory approvals to sell
them in the future, they may not gain market acceptance or
utilization among physicians and patients and reimbursement and
support from third-party payors. The degree of market acceptance
for any product that we commercialize will depend on a number of
factors, including:
</FONT>
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    <FONT size="2">the demonstration of its safety and efficacy in
    clinical trials;
    </FONT></TD>
</TR>

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

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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the product&#146;s potential advantages over
    existing or alternative therapies;
    </FONT></TD>
</TR>

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

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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
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    <FONT size="2">the actual or perceived safety of similar classes
    of products;
    </FONT></TD>
</TR>

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

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

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

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

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

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    <TD>&nbsp;</TD>
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    <FONT size="2">the scope of the product label approved by the
    FDA;&nbsp;and
    </FONT></TD>
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    <TD>&nbsp;</TD>
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    <TD>&nbsp;</TD>
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    <TD align="left">
    <FONT size="2">the cost effectiveness of the products.
    </FONT></TD>
</TR>

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<P align="left">
<FONT size="2">There can be no assurance that hospitals or
physicians will choose to administer our products to the entire
intended market, if at all. If our products do not achieve
meaningful market acceptance or if the market for our products
proves to be smaller than anticipated, we are not likely to
generate significant revenues or become profitable.
</FONT>

<P align="left">
<B><FONT size="2">If we are unable to adequately protect our
intellectual property, our business prospects could be
harmed.</FONT></B>

<P align="left">
<FONT size="2">Our success depends in part on our ability to:
</FONT>
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    <FONT size="2">obtain patents or rights to patents and maintain
    their validity;
    </FONT></TD>
</TR>

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

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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">protect our trade secrets;
    </FONT></TD>
</TR>

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

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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
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    <FONT size="2">operate without infringing upon the proprietary
    rights of others;&nbsp;and
    </FONT></TD>
</TR>

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

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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">prevent others from infringing on our proprietary
    rights or patents.
    </FONT></TD>
</TR>

</TABLE>

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

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<FONT size="2">We will be able to protect our proprietary
intellectual property 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. The patent position of
biopharmaceutical companies involves complex legal and factual
questions, and, therefore, we cannot predict with certainty
whether we will be able to ultimately enforce our patents or
proprietary rights. Any patents that we own or license may be
challenged, invalidated or circumvented and may not provide us
with the protection against competitors that we anticipate.
Accordingly, we may be forced to engage in costly and time
consuming litigation in order to protect our intellectual
property rights. Our pending patent applications, or those we
may file or license from third parties in the future, may not
result in patents being issued. Until a patent is issued, the
claims covered by the patent may be narrowed or removed entirely
and therefore we may not obtain adequate patent protection. As a
result, we may face unanticipated competition, or conclude that
without patent rights the risk of bringing product candidates to
the market is too great, thus adversely affecting our operating
results. Because of the extensive time required for the
development, testing and regulatory review of a product
candidate, it is possible that before any of our product
candidates can be approved for sale and commercialized, our
relevant patent rights may expire or remain in force for only a
short period following commercialization. Patent expiration
could adversely affect our ability to protect future product
development and, consequently, our operating results and
financial position. Also, patent rights may not provide us with
adequate proprietary protection or competitive advantages
against competitors with similar technologies. The laws of
certain foreign countries do not protect our intellectual
property rights to the same extent as do the laws of the United
States.
</FONT>

<P align="left">
<FONT size="2">In addition to patents, we rely on trade secrets
and proprietary know-how. We seek protection, in part, through
confidentiality and non-disclosure agreements. These agreements
may not provide meaningful protection or adequate remedies for
our technology in the event of unauthorized use or disclosure of
confidential and proprietary information. Failure to protect our
trade secrets and proprietary know-how could seriously impair
our competitive position and harm our business. We may become
involved in costly litigation in order to enforce patent rights
or protect trade secrets or know-how that we own or license.
</FONT>

<P align="left">
<B><FONT size="2">If a third party claims we are infringing on
its intellectual property rights, we could incur significant
litigation or licensing expenses, or be prevented from further
developing or commercializing our products.</FONT></B>

<P align="left">
<FONT size="2">Our commercial success depends in part on our
ability to operate without infringing the patents and other
proprietary rights of third parties. The biotechnology and
pharmaceutical industries are characterized by extensive
litigation regarding patents and other intellectual property
rights. The defense and prosecution of intellectual property
claims, United States Patent and Trademark Office interference
proceedings and related legal and administrative proceedings in
the United States and internationally involve complex legal and
factual questions. As a result, such proceedings are lengthy,
costly and time-consuming and their outcome is uncertain. We may
become involved in litigation in order to determine the
enforceability, scope and validity of the proprietary rights of
others.
</FONT>

<P align="left">
<FONT size="2">Scientific research has been conducted for many
years in the areas in which we have focused our research and
development efforts, which has resulted in third parties having
a number of issued patents and still-pending patent
applications. Patent applications in the United States are, in
most cases, maintained in secrecy until the patent is issued.
The publication of discoveries in the scientific or patent
literature frequently occurs substantially later than the date
on which the underlying discoveries were made. Therefore, patent
applications relating to products similar to our product
candidates may have already been filed by others without our
knowledge. In the event an infringement claim is brought against
us, we may be required to pay substantial legal and other
expenses to defend such a claim and, if we are unsuccessful in
defending the claim, we may be prevented from pursuing related
product development and commercialization and may be subject to
damage awards.
</FONT>

<P align="left">
<FONT size="2">If we become involved in any patent litigation,
interference or other administrative proceedings, we will incur
substantial expense and the efforts of our technical and
management personnel will be significantly
</FONT>

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

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<DIV align="left">
<FONT size="2">diverted. A detrimental outcome of such
litigation or proceedings may expose us to loss of our
proprietary position or to significant liabilities, or require
us to seek licenses that may not be available from third parties
on commercially acceptable terms, if at all. We may be
restricted or prevented from developing, manufacturing and
selling our product candidates in the event of an adverse
determination in a judicial or administrative proceeding or if
we fail to obtain necessary licenses.
</FONT>
</DIV>

<P align="left">
<FONT size="2">Our current and future product candidates may be
covered by third-party patents or other intellectual property
rights, in which case we would need to obtain a license or
sublicense to these rights in order to develop or commercialize
them. Any required licenses may not be available to us on
acceptable terms, if at all. If we do not obtain any required
licenses or sublicenses, we could encounter delays in the
development of our product candidates or be prevented from
manufacturing and commercializing our products. If it is
determined that we have infringed an issued patent, we could be
compelled to pay significant damages, including punitive
damages. In cases where we have in-licensed intellectual
property, our failure to comply with the terms and conditions of
such agreements could harm our business.
</FONT>

<P align="left">
<FONT size="2">Biosynexus, Inc. filed suit against us in
January&nbsp;2003 in the Superior Court of Fulton County,
Georgia, alleging the misappropriation of trade secrets, which
we purportedly received through a large, nationally recognized
third-party contract research organization. In its suit,
Biosynexus is seeking injunctive relief as well as financial
damages. As described under &#147;Competition,&#148; we believe
Biosynexus is developing a monoclonal antibody against
staphylococcal organisms for use in the pediatric market. As
such, Biosynexus is potentially a direct competitor. In
July&nbsp;2003, the court denied Biosynexus&#146; request for
injunctive relief, and further ruled that we made a preliminary
showing that we had not misappropriated, converted or benefited
from the use of any property, including trade secrets, of
Biosynexus. The court&#146;s ruling also indicated that
Biosynexus had not shown a substantial likelihood that it would
ultimately prevail on the merits of its case at trial. In
August&nbsp;2003, Biosynexus filed a notice of appeal of the
court&#146;s ruling. We can provide no assurance that the appeal
filed by Biosynexus will not be successful or that we will not
be subject to similar suits in the future.
</FONT>

<P align="left">
<B><FONT size="2">If we fail to establish marketing and sales
capabilities or fail to enter into effective sales, marketing
and distribution arrangements with third parties, we may not be
able to successfully commercialize our products.</FONT></B>

<P align="left">
<FONT size="2">We intend to sell Veronate, and possibly Aurexis,
through our own hospital-based sales force in the United States
and establish relationships with other companies to
commercialize them in other countries around the world. We
currently have no internal sales and marketing capabilities, or
an infrastructure to support such activities, and have no
experience in the commercialization of pharmaceutical products.
Therefore, our future profitability will depend in part on our
ability to efficiently develop a hospital-based sales force and
related marketing capabilities. The development of our own
hospital-based sales and marketing force will result in us
incurring significant costs before the time that we may generate
significant revenues. We may not be able to attract and retain
qualified marketing or sales people, or be able to establish an
effective sales force. To the extent that we enter into
marketing and sales arrangements with other companies to sell
our products in the United States or abroad, our product
revenues will depend on their efforts, which may not be
successful.
</FONT>

<P align="left">
<FONT size="2">Hospital-based products are typically distributed
through third-party distributors rather than directly through
the organization conducting the sale and marketing of the
product. Our ability to accurately forecast our sales will be
directly linked to the quality and timeliness of inventory
information provided by these third-party distributors.
</FONT>

<P align="left">
<B><FONT size="2">If government and third-party payors fail to
provide coverage and adequate reimbursement rates for our
products, our revenues and potential for profitability will be
harmed.</FONT></B>

<P align="left">
<FONT size="2">In both the United States and foreign markets,
our product revenues will depend principally upon the
reimbursement rates established by third-party payors. Such
third-party payors include government health
</FONT>

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

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<FONT size="2">administration authorities, managed-care
providers, private health insurers and other organizations.
These third-party payors are increasingly challenging the price,
and examining the cost effectiveness, of medical products and
services. In addition, significant uncertainty exists as to the
reimbursement status, if any, of newly approved drugs or
pharmaceutical products. We may need to conduct post-marketing
clinical trials in order to demonstrate the cost-effectiveness
of our products. Such studies may require us to commit a
significant amount of management time and financial and other
resources. We cannot assure you that our products will be
reimbursed or covered by any of these third-party payors.
</FONT>
</DIV>

<P align="left">
<FONT size="2">Domestic and foreign governments continue to
propose and pass legislation designed to reduce the cost of
healthcare, including drugs. In some foreign markets,
governments control prescription pharmaceuticals&#146; pricing
and profitability. In the United States, we expect that there
will continue to be federal and state proposals to implement
similar governmental control. In addition, increasing emphasis
on managed care in the United States will continue to put
pressure on the pricing of pharmaceutical products. Cost control
initiatives could decrease the price that we receive for any
products in the future, which would limit our revenues and
profitability. Accordingly, legislation and regulations
affecting the pricing of pharmaceutical products may change
before our product candidates are approved for sale, which could
further limit or eliminate reimbursement rates for our products.
</FONT>

<P align="left">
<B><FONT size="2">Veronate is a blood product derived from human
plasma. The administration of blood products could result in the
transmission of infectious diseases that could prevent us from
selling Veronate or expose us to liability.</FONT></B>

<P align="left">
<FONT size="2">Veronate is derived from human plasma, which is a
component of blood. Certain harmful pathogenic organisms are
found in blood. While the collection, processing and manufacture
of Veronate are designed to eliminate harmful pathogens, we
cannot assure you that this will prevent transmission of both
known and unknown pathogens to patients being treated with
Veronate. If Veronate were known to have transmitted any harmful
pathogens, approval of Veronate may be delayed, suspended or
withdrawn, we could be forced to recall the product, and we may
be subject to product liability claims. Further, if public
concern arises that any blood product may transmit a disease,
approval for Veronate may be delayed or withdrawn, or use of
Veronate may be reduced or limited due to these concerns.
</FONT>

<P align="left">
<B><FONT size="2">If a product liability claim is successfully
brought against us for uninsured liabilities or exceeds our
insurance coverage, we could be forced to pay substantial damage
awards.</FONT></B>

<P align="left">
<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 product liability claims. We have limited product
liability insurance coverage for our clinical trials. Such
insurance coverage may not protect us against any or all of the
product liability claims which may be brought against us in the
future. We may not be able to maintain adequate insurance
coverage at a commercially reasonable cost or in sufficient
amounts or scope to protect us against potential losses. In the
event a product liability claim is brought against us, we may be
required to pay legal and other expenses to defend the claim, as
well as uncovered damage awards resulting from a claim brought
successfully against us. Defending any product liability claim
or claims could require us to expend significant financial and
managerial resources, which could have an adverse effect on our
business.
</FONT>

<P align="left">
<B><FONT size="2">Our revenues, expenses and results of
operations will be subject to significant fluctuations, which
will make it difficult to compare our operating results from
period to period.</FONT></B>

<P align="left">
<FONT size="2">Until we have successfully developed and
commercialized a product candidate, we expect that substantially
all of our revenues will result from payments under
collaborative arrangements. To date, these payments have been in
the form of up-front license and research and development
support payments. We may not be able to generate additional
revenues under existing or future collaborative agreements.
Furthermore, payments to us under our existing and any future
collaborative arrangements, including any milestone and up-front
payments, are subject to significant fluctuation in both timing
and amount, or may never be paid. Therefore, our historical and
current revenues may not be indicative of our ability to
continue to achieve
</FONT>

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<FONT size="2">additional payment-generating milestones. In
addition, our supply agreement and our manufacturing agreement
with respect to Veronate require us to purchase certain minimum
amounts that we may not need and therefore may be uneconomic to
us. We expect that our operating results will increase or
decrease significantly from quarter to quarter and year to year
as a result of the timing of our research and development
efforts, the execution or termination of collaborative
arrangements, the initiation, success or failure of clinical
trials, the timing of the manufacture of lots of our product
candidates, or other development related factors. Accordingly,
our revenues and results of operations for any period may not be
comparable to the revenues or results of operations for any
other period.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">If we succeed in implementing our strategy, we
may encounter difficulties in managing our growth and expanding
our operations successfully.</FONT></B>

<P align="left">
<FONT size="2">If we successfully advance our product candidates
through clinical development and regulatory approvals, we will
need to add or expand research and clinical development,
regulatory, manufacturing, marketing and sales capabilities or
contract with third parties to provide these capabilities for
us. If our operations expand, we will need to hire additional
personnel and add corporate functions that we currently do not
have. Our ability to manage our operations and growth will
require us to continue to improve our operational, financial and
management controls, reporting systems and procedures. We may
not be able to implement such improvements to our management
information and control systems in an efficient or timely manner
and may discover deficiencies in existing systems and controls.
</FONT>

<P align="left">
<B><FONT size="2">If our use of hazardous materials results in
contamination or injury, we could suffer significant financial
loss.</FONT></B>

<P align="left">
<FONT size="2">Our research and manufacturing activities involve
the controlled use of certain hazardous materials and medical
waste. Notwithstanding the regulations controlling the use of
these materials and the safety procedures we undertake, we
cannot eliminate the risk of accidental contamination or injury
from these materials. In the event of an accident or
environmental discharge or exposure, we may be held liable for
any resulting damages, which may exceed our financial resources.
</FONT>

<P align="left">
<B><FONT size="2">Risks Related to this Offering and Ownership
of Our Common Stock</FONT></B>

<P align="left">
<B><FONT size="2">Our common stock price will likely be highly
volatile, and your investment could suffer a decline in
value.</FONT></B>

<P align="left">
<FONT size="2">Prior to this offering, you could not buy or sell
our common stock publicly. An active public market for our
common stock may not develop or, if developed, be sustained
after this offering. We will negotiate and determine the initial
public offering price with the representatives of the
underwriters. This price may vary from the market price of our
common stock after this offering. You may be unable to sell your
shares of common stock at or above the initial public offering
price or the price you paid.
</FONT>

<P align="left">
<FONT size="2">The market price of our common stock is likely to
be highly volatile and could be subject to wide fluctuations in
response to various factors and events, including but not
limited to:
</FONT>
<P>

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    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">disclosure of our or our competitors&#146;
    clinical trial data;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the disclosure of decisions by regulatory
    authorities regarding our or our competitors&#146; product
    candidates or products;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the approval or commercialization of new products
    by us or our competitors;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">announcements of scientific innovations by us or
    our competitors;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">rumors relating to us or our competitors;
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">17
</FONT>

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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">public concern about the safety of our product
    candidates, products or similar classes of products;
    </FONT></TD>
</TR>

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

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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">litigation to which we may become subject;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">actual or anticipated variations in our annual
    and quarterly operating results;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">changes in general conditions or trends in the
    biotechnology and pharmaceutical industries;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">changes in drug reimbursement rates or policies;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">announcements by us of significant acquisitions,
    strategic partnerships, joint ventures or capital commitments;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">additions or loss of key personnel;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">new regulatory legislation adopted in the United
    States or abroad;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">our failure to achieve or meet equity research
    analysts&#146; expectations or their estimates of our business,
    or a change in their recommendations concerning our company, the
    value of our common stock or our industry in general;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">termination or delay in any of our existing or
    future collaborative arrangements;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">future sales of equity or debt securities,
    including large block trades;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">changes in accounting principles;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">sales of our common stock by insiders or
    affiliates;&nbsp;and
    </FONT></TD>
</TR>

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

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

</TABLE>

<P align="left">
<FONT size="2">In addition, the stock market in general, and the
Nasdaq National Market and the market for biotechnology stocks
in particular, have historically experienced significant price
and volume fluctuations. Volatility in the market price for a
particular company&#146;s stock has often been unrelated or
disproportionate to the operating performance of that company.
Market and industry factors may seriously harm the market price
of our common stock, regardless of our operating performance.
</FONT>

<P align="left">
<B><FONT size="2">If we raise additional capital in the future,
your ownership in us could be diluted.</FONT></B>

<P align="left">
<FONT size="2">We expect that we will need to raise additional
capital in the future. We may not be able to do so on favorable
terms, if at all. Additional equity financings we may undertake
may be dilutive to the holders of our common stock or cause the
price of our common stock to decline. If we obtain funds through
a credit facility or through the issuance of debt or preferred
securities, these securities would have rights senior to your
rights as a common stockholder. If we cannot obtain sufficient
capital on commercially acceptable terms, we will not be able to
fully carry out our business strategy.
</FONT>

<P align="left">
<B><FONT size="2">Future sales of shares of our common stock may
cause our stock price to decline, even if our business is doing
well.</FONT></B>

<P align="left">
<FONT size="2">Our current stockholders hold a substantial
number of shares of our common stock that they will be able to
sell in the future. Sales of a significant number of shares of
our common stock, or the perception that these sales could
occur, particularly with respect to affiliates, directors,
executive officers or other insiders, could materially and
adversely affect the market price of our common stock and impair
our ability to raise
</FONT>

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

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<DIV align="left">
<FONT size="2">capital through the sale of additional equity
securities. See &#147;Underwriting&#148; and &#147;Shares
Eligible for Future Sale&#148; for a description of lock-up
agreements with respect to certain shares of common stock.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Insiders will continue to have substantial
control over us after this offering, which could delay or
prevent a change in our control.</FONT></B>

<P align="left">
<FONT size="2">After this offering, our directors, executive
officers and principal stockholders, together with their
affiliates, will beneficially own, in the aggregate,
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of our outstanding
shares of common stock. As a result, these stockholders, acting
together, would have the ability to delay or prevent a change in
control that may be favored by other stockholders and otherwise
exercise significant influence over all corporate actions
requiring stockholder approval, irrespective of how our other
stockholders may vote, including:
</FONT>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the election of directors;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">any amendment of our certificate of incorporation
    or bylaws;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the approval of some mergers and other
    significant corporate transactions, including a sale of
    substantially all of our assets; or
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the defeat of any non-negotiated takeover attempt
    that might otherwise benefit the public stockholders.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Investors in this offering will suffer
immediate and substantial dilution.</FONT></B>

<P align="left">
<FONT size="2">If you purchase common stock in this offering,
you will pay more for your shares than the amounts paid by
existing stockholders for their shares. As a result, you will
incur immediate and substantial dilution of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share, representing the difference between our pro forma net
tangible book value per share after giving effect to this
offering and the initial public offering price. We also have
outstanding options and warrants to acquire common stock at
exercise prices below the initial public offering price. To the
extent these outstanding options or warrants are ultimately
exercised, you will incur further dilution.
</FONT>

<P align="left">
<B><FONT size="2">Our amended and restated certificate of
incorporation, our amended and restated bylaws and Delaware law
contain provisions that could discourage, delay or prevent a
change in our control or our management.</FONT></B>

<P align="left">
<FONT size="2">Provisions of our amended and restated
certificate of incorporation, bylaws and the laws of Delaware,
the state we are incorporated in, may discourage, delay or
prevent a change in control of us or a change in management that
stockholders may consider favorable. These provisions:
</FONT>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">establish a classified, or staggered, board of
    directors, so that not all members of our board may be elected
    at one time;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">set limitations on the removal of directors;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">limit who may call a special meeting of
    stockholders;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">establish advance notice requirements for
    nominations for election to our board of directors or for
    proposing matters that can be acted upon at stockholder meetings;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">prohibit stockholder action by written consent,
    thereby requiring all stockholder actions to be taken at a
    meeting of our stockholders;&nbsp;and
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">19
</FONT>

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<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">provide our board of directors the ability to
    designate the terms of and issue new series of preferred stock
    without stockholder approval.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">These provisions could discourage proxy contests
and make it more difficult for you and other stockholders to
remove and elect directors and take other corporate actions.
These provisions could also limit the price that investors might
be willing to pay in the future for shares of our common stock.
</FONT>

<P align="left">
<B><FONT size="2">Future circumstances or events may cause us to
change our planned use of the net proceeds of this offering. We
may use, invest or spend the net proceeds of this offering in
ways in which we have not planned or with which you may not
agree.</FONT></B>

<P align="left">
<FONT size="2">We will have broad discretion over the use of the
net proceeds from this offering. Because of the number and
variability of factors that will determine our use of such
proceeds, our ultimate use might vary substantially from our
planned uses. You may not agree with how we spend or intend to
use these proceeds, and our use of the proceeds may not result
in an increase in the market value of our common stock.
</FONT>

<P align="left">
<B><FONT size="2">We are at risk of securities class action
litigation, which could harm our business.</FONT></B>

<P align="left">
<FONT size="2">Securities class action litigation has often been
brought against a company following a decline in the market
price of its securities. This risk is especially relevant for us
because biotechnology and biopharmaceutical companies are
subject to and have experienced significant stock price
volatility. If such litigation is brought against us, we may
incur substantial costs and a diversion of management&#146;s
attention and resources, which could harm our business.
</FONT>

<P align="center"><FONT size="2">20
</FONT>

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<DIV align="left">
<A name='103'></A>
</DIV>

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

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

<P align="left">
<FONT size="2">This prospectus contains forward-looking
statements. These forward-looking statements are principally
contained in the sections entitled &#147;Prospectus
Summary,&#148; &#147;Business&#148; and &#147;Management&#146;s
Discussion and Analysis of Financial Condition and Results of
Operations.&#148; These forward-looking statements involve known
and unknown risks, uncertainties and other factors that may
cause actual results, performance or achievements to be
materially different from any future results, performance or
achievements expressed or implied by the forward-looking
statements. In some cases, you can identify forward-looking
statements by terms such as &#147;may,&#148; &#147;will,&#148;
&#147;should,&#148; &#147;could,&#148; &#147;would,&#148;
&#147;expect,&#148; &#147;plan,&#148; &#147;intend,&#148;
&#147;anticipate,&#148; &#147;believe,&#148;
&#147;estimate,&#148; &#147;project,&#148; &#147;predict,&#148;
&#147;forecast,&#148; &#147;potential,&#148; as well as the
negative of such expressions, and similar expressions intended
to identify forward-looking statements. These statements reflect
our current views with respect to future events and are based on
assumptions and subject to risks and uncertainties. Given these
uncertainties, you should not place undue reliance on these
forward-looking statements. We discuss many of these risks in
greater detail under the heading &#147;Risk Factors.&#148; Also,
these forward-looking statements represent our estimates and
assumptions only as of the date of this prospectus.
</FONT>

<P align="left">
<FONT size="2">There may be events in the future that we are
unable to predict accurately, or over which we have no control.
Before you invest in our common stock, you should read this
prospectus and the documents that we reference in this
prospectus and have filed as exhibits to the registration
statement of which this prospectus is part, completely and with
the understanding that our actual future results may be
materially different from what we expect. Our business,
financial condition, results of operations, and prospects may
change. We may not update these forward-looking statements, even
though our situation may change in the future, unless we have
obligations under the Federal securities laws to update and
disclose material developments related to previously disclosed
information. We qualify all of the information presented in this
prospectus, and particularly our forward-looking statements, by
these cautionary statements.
</FONT>

<P align="center"><FONT size="2">21
</FONT>

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<DIV align="left">
<A name='104'></A>
</DIV>

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

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

<P align="left">
<FONT size="2">We estimate that the net proceeds from the sale
of our common stock in this offering will be approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million,
assuming an initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share and after deducting the underwriting discounts and
commissions and our estimated offering expenses. If the
underwriters exercise their option to purchase additional shares
of common stock in full to cover over-allotments, we estimate
our aggregate net proceeds will be approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million.
We anticipate using the net proceeds from this offering
approximately as follows:
</FONT>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">80% for the discovery, development and
    manufacturing of our product candidates;&nbsp;and
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">20% for working capital and general corporate
    purposes.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">The amount and timing of our use of these
proceeds will depend on a number of factors, including the
status of our development and commercialization efforts, the
amount of proceeds actually raised in this offering and the
amount of proceeds generated, if any, by entering into future
partnerships or collaborations with third-parties. We may also
use a portion of the proceeds for the acquisition of, or
investment in, companies, technologies or assets that complement
our technology or business strategy. However, we have no present
understandings, commitments or agreements to enter into any
potential acquisitions or investments at this time. We will have
broad discretion to determine the ultimate use of the net
proceeds from this offering, which may differ substantially from
the estimated uses outlined above.
</FONT>

<P align="left">
<FONT size="2">We intend to invest the net proceeds of the
offering, pending their use, in short-term and medium-term
interest-bearing, investment grade securities, money market
funds, certificates of deposit and direct or guaranteed
obligations of the United States government.
</FONT>

<P align="left">
<A name='105'></A>

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

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

<P align="left">
<FONT size="2">We have never paid or declared any cash dividends
on our common stock. We currently intend to retain future
earnings, if any, to finance the growth and development of our
business and we do not expect to pay any cash dividends on our
common stock in the foreseeable future.
</FONT>

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

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<DIV align="left">
<A name='106'></A>
</DIV>

<!-- link1 "CAPITALIZATION" -->

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

<P align="left">
<FONT size="2">The following table sets forth our cash, cash
equivalents and short-term investments and capitalization as of
December&nbsp;31, 2003, and is presented on an actual basis and
on a pro forma as adjusted basis. The pro forma as adjusted
column reflects (i)&nbsp;the conversion of all of our
outstanding shares of preferred stock into
24,589,444&nbsp;shares of common stock, (ii)&nbsp;the conversion
of all cumulative preferred stock dividends accrued as of
December&nbsp;31, 2003 into 3,223,185&nbsp;shares of common
stock immediately prior to the closing of this offering,
(iii)&nbsp;the issuance
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 subject to the mandatory cashless exercise of
warrants to purchase 4,127,130&nbsp;shares of preferred stock
upon the completion of this offering, at an assumed initial
public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share and (iv)&nbsp;our 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;&nbsp;per
share, after deducting underwriting discounts and commissions
and our estimated offering expenses. You should read this table
in conjunction with &#147;Selected Financial Data,&#148;
&#147;Use of Proceeds,&#148; &#147;Management&#146;s Discussion
and Analysis of Financial Condition and Results of
Operations,&#148; and our Financial Statements and related Notes
included elsewhere in this prospectus.
</FONT>

<CENTER>
<TABLE width="80%" 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="62%"><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>
    <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="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

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

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">As of December&nbsp;31, 2003</FONT></B></TD>
</TR>

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

<TR bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash, cash equivalents, and short-term investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,148,130</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</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>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term debt, net of current portion
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,795,204</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Redeemable convertible preferred stock,
    $0.001&nbsp;par value; 37,700,000&nbsp;shares authorized,
    24,373,444 issued and outstanding, actual; no shares authorized,
    issued or outstanding, pro forma as adjusted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">89,542,242</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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" 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">6,065,467</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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>

</TR>

<TR 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 redeemable convertible preferred stock and
    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">95,607,709</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stockholders&#146; (deficit)&nbsp;equity
    </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>
</TR>

<TR 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">Preferred stock, $0.001&nbsp;par value; no shares
    authorized, issued or outstanding, actual; 5,000,000&nbsp;shares
    authorized, no shares issued and outstanding, pro forma as
    adjusted
    </FONT></DIV>
    </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 colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Convertible preferred stock, $0.001&nbsp;par
    value; 216,000&nbsp;shares authorized, issued and outstanding,
    actual; no shares authorized, issued and outstanding, pro forma
    as adjusted
    </FONT></DIV>
    </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</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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 colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common stock, $0.001&nbsp;par value;
    43,100,000&nbsp;shares authorized, actual;
    75,000,000&nbsp;shares authorized, pro forma as adjusted;
    1,275,688&nbsp;shares issued and outstanding, actual;
    [&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;]&nbsp;shares issued and
    outstanding, pro forma as adjusted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,275</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>
    <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">Additional paid-in capital
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,797,059</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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 colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred stock 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">(804,310</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><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 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">(74,220,495</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="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>

</TR>

<TR 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">Total stockholders&#146; (deficit)&nbsp;equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(73,226,255</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="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>

</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">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">24,176,658</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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="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">
<FONT size="2">The number of shares of our common stock shown as
issued and outstanding in the table above as of
December&nbsp;31, 2003 excludes:
</FONT>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">3,185,490&nbsp;shares of common stock issuable
    upon the exercise of options outstanding as of December&nbsp;31,
    2003, with a weighted average exercise price of $0.60&nbsp;per
    share;
    </FONT></TD>
</TR>

</TABLE>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">247,564&nbsp;shares of common stock issuable upon
    the exercise of warrants outstanding as of December&nbsp;31,
    2003, with a weighted average exercise price of $1.49&nbsp;per
    share;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD 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;&nbsp;shares
    of common stock issuable upon the conversion of preferred stock
    to be paid in respect of dividends that will accrue on our
    outstanding preferred stock between January&nbsp;1, 2004 and the
    closing of this offering;&nbsp;and
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">623,128&nbsp;shares reserved for future issuance
    or grant under our stock incentive plans. In February 2004,
    3,400,000 additional shares were reserved for future issuance or
    grant under our stock incentive plans.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">In &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2004 we completed
a &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;for &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;reverse
split of our common stock.
</FONT>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='107'></A>
</DIV>

<!-- link1 "DILUTION" -->

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

<P align="left">
<FONT size="2">Our historical net tangible book value as of
December&nbsp;31, 2003 was approximately $(73.2)&nbsp;million,
or $(57.40) per share of common stock, based on
1,275,688&nbsp;shares of common stock outstanding. Historical
net tangible book value per share is determined by dividing our
total tangible assets less total liabilities and redeemable
preferred stock by the actual number of outstanding shares of
our common stock. Our pro forma net tangible book value as of
December&nbsp;31, 2003 was approximately $22.4&nbsp;million, or
$0.80&nbsp;per share of common stock, based on
27,812,629&nbsp;shares of common stock outstanding after giving
effect to the conversion of all outstanding shares of our
convertible preferred stock and dividends accrued as of
December&nbsp;31, 2003 into common stock. Pro forma net tangible
book value per share represents our total tangible assets less
our total liabilities, divided by the pro forma number of shares
of common stock outstanding before giving effect to this
offering.
</FONT>

<P align="left">
<FONT size="2">After giving 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;&nbsp;shares
of common stock in this offering, less underwriting discounts
and commissions and our estimated offering expenses, and the
issuance
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 subject to the mandatory cashless exercise of
warrants to purchase 4,127,130&nbsp;shares of preferred stock
upon the completion of this offering, at an assumed initial
public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share of common stock, our pro forma net tangible book value as
of December&nbsp;31, 2003 would have been
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
or
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share. This represents an immediate increase in pro forma net
tangible book value to existing stockholders of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share and an immediate dilution in pro forma net tangible book
value of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share to new investors purchasing our common stock in the
offering at an assumed initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share. Dilution per share to new investors is determined by
subtracting pro forma net tangible book value per share after
this offering from the initial public offering price per share
paid by a new investor. The following table illustrates the per
share dilution without giving effect to the over-allotment
option granted to the underwriters:
</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="83%"><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 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><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">Historical net tangible book value per share as
    of December&nbsp;31, 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">(57.40</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">Increase attributable to the conversion of
    convertible preferred stock and dividends
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58.20</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>

</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
    December&nbsp;31, 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.80</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
    in this offering
    </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 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>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pro forma net tangible book value per share after
    this offering
    </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 colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dilution of 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">
<FONT size="2">The following table sets forth, as of
December&nbsp;31, 2003, on the pro forma basis discussed above,
the number of shares of our common stock purchased from us, the
total consideration paid to us and the average price per share
paid to us by existing stockholders and to be paid by new
investors purchasing shares of our common stock in this
offering. The table assumes an initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share, before deducting underwriting discounts and commissions
and our estimated offering expenses:
</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="41%"><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>
    <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="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="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="3%"><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="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 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">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><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 align="right" valign="bottom" nowrap><FONT size="2">100</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">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><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>

</TR>

</TABLE>
</CENTER>

<P align="left">
<FONT size="2">The information in the two tables above excludes:
</FONT>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">3,185,490&nbsp;shares of common stock issuable
    upon the exercise of options outstanding as of December&nbsp;31,
    2003, with a weighted average exercise price of $0.60&nbsp;per
    share;
    </FONT></TD>
</TR>

</TABLE>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">247,564&nbsp;shares of common stock issuable upon
    the exercise of warrants outstanding as of December&nbsp;31,
    2003, with a weighted average exercise price of $1.49&nbsp;per
    share;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD 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;&nbsp;shares
    of common stock issuable upon the conversion of preferred stock
    to be paid in respect of dividends that will accrue on our
    outstanding preferred stock between January&nbsp;1, 2004 and the
    closing of this offering;&nbsp;and
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">623,128&nbsp;shares reserved for future issuance
    or grant under our stock incentive plans. In February 2004,
    3,400,000 additional shares were reserved for future issuance or
    grant under our stock incentive plans.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">If the underwriters exercise their over-allotment
option in full to
purchase &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional
shares of our common stock in this offering, the pro forma net
tangible book value per share after the offering would be
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share, the increase in pro forma net tangible book value per
share to existing stockholders would be
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share and the dilution to new stockholders purchasing shares in
this offering would be
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share.
</FONT>

<P align="center"><FONT size="2">26
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='108'></A>
</DIV>

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

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

<P align="left">
<FONT size="2">The following selected financial data should be
read in conjunction with, and are qualified by reference to,
&#147;Management&#146;s Discussion and Analysis of Financial
Condition and Results of Operations&#148; and our Financial
Statements and related Notes included elsewhere in this
prospectus. The statement of operations data for the years ended
December&nbsp;31, 2001, 2002 and 2003 and for the period from
inception on May&nbsp;13, 1994 through December&nbsp;31, 2003,
and the balance sheet data as of December&nbsp;31, 2002 and 2003
are derived from our audited financial statements, which are
included elsewhere in this prospectus. The statements of
operations data for the years ended December&nbsp;31, 1999 and
2000 and the balance sheet data as of December&nbsp;31, 1999,
2000 and 2001 are derived from our audited financial statements
which are not included in this prospectus. The selected
financial data set forth below for the year ended
December&nbsp;31, 2003 are not indicative of results in any
future period.
</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="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="38%"><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="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="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="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="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="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>
</TR>

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

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

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center"><B><FONT size="1">(May&nbsp;13, 1994)</FONT></B></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Through</FONT></B></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">Years Ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></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">1999</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 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>
    <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="23"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">(in thousands, except per share data)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Statement of Operations Data:</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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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" 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">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,162</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">261</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">634</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">271</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">900</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,096</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">Operating 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>
    <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">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">52,620</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,747</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,864</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,099</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,615</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">19,071</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">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">12,277</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">683</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,121</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,328</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,677</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>
    <TD><FONT size="2">&nbsp;</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 operating 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">64,897</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,430</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,985</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">8,946</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,943</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,748</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>
    <TD><FONT size="2">&nbsp;</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">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">(61,735</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">(3,169</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">(6,351</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">(8,675</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">(18,043</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">(22,652</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest and other 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">1,074</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(175</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">(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">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">430</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">319</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>
    <TD><FONT size="2">&nbsp;</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">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">(60,661</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">(3,344</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">(6,463</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">(8,107</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">(17,613</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">(22,333</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dividends and accretion to redemption value of
    redeemable 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">(13,559</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">(461</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">(1,271</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">(5,626</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">(6,201</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>
    <TD><FONT size="2">&nbsp;</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">Net loss attributable to common stockholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(74,220</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,344</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">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,924</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,378</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">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(23,239</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(28,534</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="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 colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic and diluted net loss attributable to common
    stockholders 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="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3.44</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7.08</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">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8.90</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20.10</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">(22.77</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT 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="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pro forma basic and diluted net loss attributable
    to common stockholders per share (unaudited)<SUP>(1)</SUP>
    </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 align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.18</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT 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="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average shares used to compute basic and
    diluted net loss attributable to common stockholders 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 align="right" valign="bottom" nowrap><FONT size="2">971</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">978</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,054</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,156</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,253</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT 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="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pro forma weighted average shares used to compute
    basic and diluted net loss attributable to common stockholders
    per share (unaudited)<SUP>(1)</SUP>
    </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 align="right" valign="bottom" nowrap><FONT size="2">24,145</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT 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="56%"><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="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="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="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>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">As of December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1999</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></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="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" 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">
    <B><FONT size="2">Balance Sheet Data:</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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">481</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,982</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,404</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,658</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">26,649</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">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">&#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">1,000</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">1,499</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">Working capital (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">3,025</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,737</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">(1,360</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">25,838</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,529</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 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">1,637</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,708</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,622</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,942</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">30,662</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">Long-term debt and capital leases, 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">501</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">387</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">572</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">459</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,795</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">Redeemable convertible preferred stock and
    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">2,955</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">19,276</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">20,558</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,934</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">95,608</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">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">(6,146</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">(13,070</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">(22,448</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">(45,686</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">(74,220</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">Total stockholders&#146; (deficit)&nbsp;equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,510</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">(12,304</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">(21,666</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">(44,886</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">(73,226</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left">
<HR size="1" width="56%" align="left" noshade>
</DIV>

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

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><SUP><FONT size="2">(1)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">See Note&nbsp;3 of Notes to Financial Statements
    for a description of the method used to compute pro forma basic
    and diluted net loss per common share and number of shares used
    in computing pro forma basic and diluted net loss per common
    share.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">27
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='109'></A>
</DIV>

<!-- 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</FONT></B>

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

<P align="left">
<I><FONT size="2">You should read this discussion together with
the financial statements, related notes and other financial
information included elsewhere in this prospectus. The following
discussion contains assumptions, estimates and other
forward-looking statements that involve a number of risks and
uncertainties, including those discussed under &#147;Risk
Factors,&#148; &#147;Special Note on Forward-Looking
Statements&#148; and elsewhere in this prospectus. These risks
could cause our actual results to differ materially from those
anticipated in these forward-looking statements.</FONT></I>

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

<P align="left">
<FONT size="2">We are a biopharmaceutical company engaged in the
discovery, development and commercialization of novel
antibody-based products for the prevention and treatment of
serious bacterial and fungal infections in the hospital setting.
We currently have two product candidates in late-stage clinical
development. Our lead product candidate is Veronate, which we
expect will enter a Phase&nbsp;III clinical trial in the second
half of 2004. We are developing Veronate for the prevention of
hospital-associated infections in premature, very low birth
weight, or VLBW, infants. We recently completed a 512-patient
Veronate Phase&nbsp;II clinical trial. Veronate has been granted
Fast Track and Orphan Drug status by the FDA. Our second product
candidate, Aurexis, is currently being evaluated in a
Phase&nbsp;II clinical trial as a first-line therapy, in
combination with standard of care antibiotics, to treat serious,
life-threatening <I>Staphylococcus aureus,</I> or
<I>S.&nbsp;aureus,</I> bloodstream infections in hospitalized
patients. In addition, we have three preclinical product
candidates that are being developed to prevent and treat serious
infections.
</FONT>

<P align="left">
<FONT size="2">We are a development stage company that has
generated significant losses since our inception in
May&nbsp;1994. We expect to incur substantial and increasing
losses for at least the next several years as we continue the
development of Veronate and Aurexis, continue our other research
and development activities and establish a commercial
infrastructure. To date, we have devoted substantially all of
our efforts towards research and development activities related
to our product candidates, which are based on our expertise in
MSCRAMM proteins. As of December&nbsp;31, 2003 we had an
accumulated deficit of $74.2&nbsp;million, which includes
non-cash expenses of $13.6&nbsp;million related to the accrual
of cumulative preferred stock dividends and the accretion to the
redemption value of our redeemable convertible preferred stock
and $176,000 related to the amortization of deferred stock
compensation. We anticipate that our quarterly and annual
results of operations will fluctuate due to several factors,
including progress made in our research and development efforts,
the timing and outcome of regulatory approvals, if any, and
payments made or received pursuant to existing or future
licensing or collaboration agreements. Therefore, meaningful
predictions of our future operations are difficult to make.
</FONT>

<P align="left">
<B><FONT size="2">Financial Operations Overview</FONT></B>

<P align="left">
<B><I><FONT size="2">Revenue.</FONT></I></B><FONT size="2">
Since our inception, we have not generated any revenue from the
sale of products and do not expect product-related revenues
until we obtain regulatory approval for and commercialize a
product candidate. Currently, our revenues represent the
amortization of an up-front license fee and quarterly research
and development support payments received in connection with a
license and collaboration agreement with Wyeth. If our
development efforts result in regulatory approval and the
successful commercialization of any of our product candidates,
we expect the majority of our future revenues will result from
product sales. In addition, in the future we may generate
revenues from up-front or milestone payments in connection with
collaborative or strategic relationships and royalties resulting
from the licensing of our intellectual property.
</FONT>

<P align="left">
<B><I><FONT size="2">Research and Development
Expense.</FONT></I></B><FONT size="2"> Research and development
expense consists of expenses incurred in discovering,
developing, testing and manufacturing our product candidates.
These expenses consist primarily of professional fees paid to
third-party service providers in conjunction with monitoring
patients enrolled in our clinical trials as well as accumulating
and evaluating the related data, salaries and related
</FONT>

<P align="center"><FONT size="2">28
</FONT>

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<DIV align="left">
<FONT size="2">expenses for personnel, costs of raw materials,
contract manufacturing services, supplies used in clinical
trials and research and development activities, consulting,
license and sponsored research fees paid to third parties and
facilities costs.
</FONT>
</DIV>

<P align="left">
<FONT size="2">We expect our research and development costs to
increase. In the near-term, we expect to expend greater
resources on the development of our two most advanced product
candidates, Veronate and Aurexis, than on the development of our
preclinical product candidates due to the number of patients
enrolled in the clinical trials for these product candidates and
the related cost of manufacturing clinical trial materials. Due
to the progress and timing of clinical trials, such expenditures
are likely to be uneven in future periods. Although we are
currently focused primarily on advancing Veronate through a
Phase&nbsp;III clinical trial and Aurexis through Phase&nbsp;II
clinical trials, we will make determinations as to which product
candidates to pursue and how much funding to direct to each on
an on-going basis in response to their scientific and clinical
success. From inception through December&nbsp;31, 2003, we have
spent approximately $52.6&nbsp;million on research and
development activities.
</FONT>

<P align="left">
<B><I><FONT size="2">General and Administrative
Expense.</FONT></I></B><FONT size="2"> General and
administrative expense consists primarily of salaries and other
related costs for personnel in executive, finance, accounting,
information technology and human resource functions. Other
significant costs include professional fees for marketing
research, legal, accounting and other consulting services. We
expect our general and administrative expenses to increase as we
add personnel, become subject to the reporting obligations
applicable to publicly-held companies and prepare for the
commercialization of our product candidates. From inception
through December&nbsp;31, 2003, we have spent approximately
$12.3&nbsp;million in general and administrative expenses.
</FONT>

<P align="left">
<B><I><FONT size="2">Interest and Other Income (Expense),
net.</FONT></I></B><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
capital leases and notes payable. Other income and expense
consists of the proceeds from the sale of excess raw materials
and the gain or loss on the disposal of equipment.
</FONT>

<P align="left">
<B><I><FONT size="2">Dividends and Accretion to Redemption Value
of Redeemable Preferred Stock.</FONT></I></B><FONT size="2"> We
accrue for an 8% cumulative annual dividend payable on our
Series&nbsp;C Redeemable Convertible Preferred Stock, or
Series&nbsp;C, and on our Series&nbsp;D Redeemable Convertible
Preferred Stock, or Series&nbsp;D. Upon completion of this
offering, all existing preferred stock will be converted into
common stock. Accordingly, there will be no further accrual of
preferred stock dividends. In addition, since our redeemable
preferred stock has been discounted to reflect the value of any
attached warrants, we accrete, or increase, our redeemable
preferred stock to equal its redemption value by the earliest
redemption date. This accretion decreases stockholders&#146;
equity and increases the loss per share attributable to common
stockholders. Upon the completion of this offering and the
conversion of all existing preferred stock to common stock, the
remaining discount of approximately $3.5&nbsp;million at
December&nbsp;31, 2003 related to our redeemable preferred stock
will be recognized as additional accretion, which will further
increase the net loss attributable to common stockholders.
</FONT>

<P align="left">
<B><FONT size="2">Critical Accounting Policies and
Estimates</FONT></B>

<P align="left">
<FONT size="2">This discussion and analysis of our current
financial condition and historical results of operations is
based on our audited financial statements, which have been
prepared in accordance with accounting principles generally
accepted in the United States. The preparation of our financial
statements requires us to make estimates and judgments with
respect to the selection and application of accounting policies
that affect the reported amounts of assets, liabilities,
revenues and expenses, and the disclosures of contingent assets
and liabilities. We base our estimates on historical experience
and various other assumptions that we believe are reasonable
under the circumstances at the time, the results of which form
the basis for making judgments about the carrying values of
certain assets and liabilities. Actual future results may differ
from these estimates under different assumptions or conditions.
</FONT>

<P align="center"><FONT size="2">29
</FONT>

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<P align="left">
<FONT size="2">We believe the following critical accounting
policies are important in understanding our financial statements:
</FONT>

<P align="left">
<B><I><FONT size="2">Revenue
Recognition.</FONT></I></B><FONT size="2"> We recognize revenue
primarily under licensing and other collaborative research and
development agreements as we perform services or meet
contractual obligations. Accordingly, up-front, non-refundable
license fees under agreements where we have an ongoing research
and development commitment are amortized, on a straight-line
basis, over the term of our ongoing obligations under the
agreement. Revenues received for ongoing research and
development activities under collaborative arrangements are
recognized as the research and development activities are
performed pursuant to the terms of the related agreements. In
the event we receive milestone payments in the future, we will
recognize such payments when all of the terms of such milestone
are achieved. Our revenue recognition policies are in compliance
with the Securities and Exchange Commission&#146;s, or
SEC&#146;s, Staff Accounting Bulletin, or SAB, No.&nbsp;101,
<I>Revenue Recognition in Financial Statements,</I> SAB
No.&nbsp;104, <I>Revenue Recognition,</I> and Emerging Issues
Task Force No.&nbsp;00-21, <I>Revenue Arrangements with Multiple
Deliverables.</I>
</FONT>

<P align="left">
<B><I><FONT size="2">Accrued
Expenses.</FONT></I></B><FONT size="2"> The preparation of our
financial statements requires us to estimate expenses that we
believe we have incurred, but for which we have not yet received
invoices from our vendors. This process involves identifying
services and activities that have been performed by third-party
vendors on our behalf and estimating the level to which they
have been performed and the associated cost incurred for such
service as of each balance sheet date. Examples of expenses for
which we accrue based on estimates include fees for services,
such as those provided by certain clinical research and data
management organizations and investigators in conjunction with
clinical trials and fees owed to contract manufacturers in
conjunction with the manufacture of materials for our clinical
trials.
</FONT>

<P align="left">
<FONT size="2">In connection with these service-related 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. In order
to estimate costs incurred to date, but not yet invoiced, we
analyze the progress of the clinical trial and related
activities, invoices received and budgeted costs when evaluating
the adequacy of the accrued liability for these related costs.
The majority of our service providers invoice us monthly in
arrears for services performed or based upon meeting
pre-determined milestones. In the event that we are not notified
of or we do not identify certain costs that have been incurred,
or we underestimate or overestimate the level or costs of
services performed, our reported expenses for such period might
be too low or too high. We must sometimes estimate the date on
which certain services commence and the level or costs of
services performed on or before a given date. We make these
estimates based upon the facts and circumstances known to us at
the time and in accordance with generally accepted accounting
principles.
</FONT>

<P align="left">
<B><I><FONT size="2">Stock-based
Compensation.</FONT></I></B><FONT size="2"> We have elected to
follow Accounting Principles Board, or APB, Opinion No.&nbsp;25,
<I>Accounting for Stock Issued to Employees,</I> and related
interpretations, in accounting for our stock-based compensation
plans, rather than the alternative fair value accounting method
provided for under Statement of Financial Accounting Standards,
or SFAS, No.&nbsp;123, <I>Accounting for Stock-Based
Compensation.</I> Accordingly, we have not recorded stock-based
compensation expense related to stock options issued to
employees if the exercise prices of the options are equal to or
greater than the fair value of the underlying common stock on
the date of grant. In the notes to our financial statements we
provide pro forma disclosures in accordance with
SFAS&nbsp;No.&nbsp;123 and related pronouncements.
</FONT>

<P align="left">
<FONT size="2">To date, the determination of the fair value of
our common stock for purposes of stock option grants has
involved significant judgment on our part because our shares
have not been publicly traded. In determining the fair value of
our common stock from time to time, our board of directors
considered the price at which we sold shares of convertible
preferred stock to investors, comparative values of public
companies discounted for the risk and limited liquidity provided
for in the shares we have issued, prior valuations of our common
stock and the impact of events or milestones that had occurred
since. Upon the completion
</FONT>

<P align="center"><FONT size="2">30
</FONT>

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<DIV align="left">
<FONT size="2">of this offering, the determination of the fair
market value of our common stock will be based upon the trading
price of our common stock.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Recent Accounting Pronouncements</FONT></B>

<P align="left">
<FONT size="2">In January&nbsp;2003, the Financial Accounting
Standards Board, or FASB, issued FASB Interpretation
No.&nbsp;46, or FIN&nbsp;46, <I>Consolidation of Variable
Interest Entities.</I> 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 new
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 provisions of
FIN&nbsp;46 must be applied for the first interim or annual
period beginning after March&nbsp;31, 2004. The adoption of this
statement did not have a material impact on our results of
operations or financial position.
</FONT>

<P align="left">
<FONT size="2">In May&nbsp;2003, the FASB issued
SFAS&nbsp;No.&nbsp;150, <I>Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity.</I> SFAS&nbsp;No.&nbsp;150 affects the issuer&#146;s
accounting for three types of freestanding financial
instruments. These are mandatorily redeemable shares, which the
issuing company is obligated to buy back in exchange for cash or
other assets; put options and forward purchase contracts; and
obligations that can be settled with shares, the monetary value
of which is fixed, tied solely or predominantly to a variable
such as a market index, or varies inversely with the value of
the issuers&#146; shares. Most of the guidance in
SFAS&nbsp;No.&nbsp;150 is effective for all 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. The adoption of this
statement did not have a material effect on our results of
operations or financial position.
</FONT>

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

<P align="left">
<B><I><FONT size="2">Fiscal Years Ended December&nbsp;31, 2003
and 2002</FONT></I></B>

<P align="left">
<B><I><FONT size="2">Revenue.</FONT></I></B><FONT size="2">
Revenue increased to $1.1&nbsp;million in 2003 from $900,000 in
2002. This increase of $196,000, or 22%, resulted from a
$300,000 grant from the FDA in 2003 offset by a reduction in
quarterly collaborative research and development support fees
from Wyeth.
</FONT>

<P align="left">
<B><I><FONT size="2">Research and Development
Expense.</FONT></I></B><FONT size="2"> Research and development
expense increased to $19.1&nbsp;million for 2003 from
$15.6&nbsp;million in 2002. This increase of $3.5&nbsp;million,
or 22.4%, resulted primarily from expenditures related to the
clinical development of our two most advanced product
candidates, Veronate and Aurexis. During 2003, we enrolled
substantially all 512 patients in a Phase&nbsp;II clinical trial
for Veronate and we initiated and completed a 19-patient
Phase&nbsp;I clinical trial for Aurexis. During 2002, we
initiated and completed a 37-patient Phase&nbsp;I clinical trial
for Veronate. Approximately $2.0&nbsp;million of this increase
represented direct clinical trial related costs, including fees
paid to third-party vendors that performed clinical monitoring,
data accumulation, statistical analysis and evaluation for our
clinical trials, as well as costs associated with the
manufacture of clinical trial materials. The other significant
factor contributing to the increase in 2003 was additional
license fees paid to secure intellectual property rights
</FONT>

<P align="center"><FONT size="2">31
</FONT>

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<DIV align="left">
<FONT size="2">related to the manufacture of Aurexis. The
following table summarizes the components of our research and
development expenses for 2003 and 2002.
</FONT>
</DIV>

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

<TR>
    <TD width="77%"><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="3%"><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&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">2003</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>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" 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">Clinical and manufacturing related expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,846</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,866</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="9"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Personnel, benefits and related 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">4,664</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,403</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="9"><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">License fees and other 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">3,069</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,080</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="9"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and facility related 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">1,492</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,266</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 colspan="9"><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 research and development expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,071</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,615</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">
<B><I><FONT size="2">General and Administrative
Expense.</FONT></I></B><FONT size="2"> General and
administrative expense increased to $4.7&nbsp;million in 2003
from $3.3&nbsp;million in 2002. This increase of
$1.4&nbsp;million, or 42.4%, resulted from increased legal and
professional fees primarily related to litigation to which we
are a party. This increase was offset, in part, by costs
incurred during 2002 for certain marketing studies that were not
conducted in 2003.
</FONT>

<P align="left">
<B><I><FONT size="2">Interest and Other Income (Expense),
net.</FONT></I></B><FONT size="2"> Interest and other income
(expense), net, decreased to $319,000 in 2003 from $430,000 in
2002. This decrease of $111,000, or 25.8%, resulted from a
decrease in interest income of $343,000, an increase in interest
expense of $83,000 and an increase in other income of $315,000
primarily due to the sale of unusable raw materials. The
decrease in interest income was primarily due to reduced yields
on investments resulting from lower interest rates and lower
average cash and cash equivalent balances in 2003.
</FONT>

<P align="left">
<B><I><FONT size="2">Dividends and Accretion to Redemption Value
of Redeemable Preferred Stock.</FONT></I></B><FONT size="2">
Dividends and accretion to redemption value of redeemable
preferred stock increased to $6.2&nbsp;million in 2003 from
$5.6&nbsp;million in 2002. This increase of $600,000, or 10.7%,
resulted from the accrual of cumulative dividends and the
accretion to redemption value associated with our Series&nbsp;D
preferred stock. Our Series&nbsp;D financing was completed in
February&nbsp;2002. Accordingly, 2003 reflected the full-year
effect of these items.
</FONT>

<P align="left">
<B><I><FONT size="2">Fiscal Years Ended December&nbsp;31, 2002
and 2001</FONT></I></B>

<P align="left">
<B><I><FONT size="2">Revenue.</FONT></I></B><FONT size="2">
Revenue increased to $900,000 in 2002 from $271,000 in 2001.
This increase of $629,000, or 232.1%, in 2002 was due to a full
year of revenue recognition in 2002 related to our license and
collaborative agreement with Wyeth.
</FONT>

<P align="left">
<B><I><FONT size="2">Research and Development
Expense.</FONT></I></B><FONT size="2"> Research and development
expense increased to $15.6&nbsp;million in 2002 from
$7.1&nbsp;million in 2001. This increase of $8.5&nbsp;million,
or 119.7%, resulted primarily from expenses related to the
clinical development of Veronate. In 2002, we initiated and
completed a 36-patient Phase&nbsp;I clinical trial for Veronate
and in late 2002, we began enrollment of a Phase&nbsp;II
clinical trial for Veronate. Of this $8.5&nbsp;million increase,
$3.3&nbsp;million was attributable to fees paid to contract
research organizations that performed clinical monitoring, data
accumulation and patient evaluation on our behalf. In addition,
$3.1&nbsp;million of the increase was related to the manufacture
of clinical trial material for the Phase&nbsp;II Veronate
clinical trial and the Phase&nbsp;I Aurexis clinical trial. The
remainder of the increase was primarily due to hiring
20&nbsp;additional personnel to support these clinical trials
and other research and development
</FONT>

<P align="center"><FONT size="2">32
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">programs. The following table summarizes the
components of our research and development expenses for 2002 and
2001.
</FONT>
</DIV>

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

<TR>
    <TD width="78%"><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="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><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&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">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</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></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" 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">Clinical and manufacturing related expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,866</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,358</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="9"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Personnel, benefits and related 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">4,403</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,653</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="9"><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">License fees and other 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">2,080</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,004</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="9"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and facility related 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">1,266</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,084</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 colspan="9"><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 research and development expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,615</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,099</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">
<B><I><FONT size="2">General and Administrative
Expense.</FONT></I></B><FONT size="2"> General and
administrative expense increased to $3.3&nbsp;million in 2002
from $1.8&nbsp;million in 2001. This increase of
$1.5&nbsp;million, or 83.3%, resulted primarily from legal,
market research and other professional fees incurred to support
our development efforts as well as the hiring of seven
additional personnel.
</FONT>

<P align="left">
<B><I><FONT size="2">Interest and Other Income (Expense),
net.</FONT></I></B><FONT size="2"> Interest and other income
(expense), net, decreased to $430,000 in 2002 from $569,000 in
2001. This decrease of $139,000, or 24.4%, resulted largely from
a decrease in other income of $516,000 offset by an increase in
interest income of $377,000. The decrease in other income in
2002 resulted from the sale of excess raw materials in 2001 that
we had acquired for a development program that we discontinued.
The increase in interest income in 2002 was attributable to
higher average cash balances in 2002 as compared to 2001.
</FONT>

<P align="left">
<B><I><FONT size="2">Dividends and Accretion to Redemption Value
of Redeemable Preferred Stock.</FONT></I></B><FONT size="2">
Dividends and accretion to redemption value of redeemable
preferred stock increased to $5.6&nbsp;million in 2002 from
$1.3&nbsp;million in 2001. This increase of $4.3&nbsp;million,
or 330.7%, in 2002 resulted primarily from the accrual of
cumulative dividends and the accretion to redemption value
associated with our Series&nbsp;D preferred stock.
</FONT>

<P align="left">
<B><FONT size="2">Liquidity and Capital Resources</FONT></B>

<P align="left">
<B><I><FONT size="2">Sources of Liquidity</FONT></I></B>

<P align="left">
<FONT size="2">Since inception in May 1994 through
December&nbsp;31, 2003, we have funded our operations primarily
with $84.5&nbsp;million raised from a series of five private
equity financings as follows:
</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="72%"><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="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" align="center" nowrap><B><FONT size="1">Preferred Stock</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">Amount</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>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">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">1995</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">540,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="10"><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">Series&nbsp;B
    </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>
</TR>

<TR>
    <TD colspan="10"><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">Round I
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1997</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,500,012</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="10"><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">Round&nbsp;II
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1998</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,500,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="10"><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">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">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">15,892,284</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="10"><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">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">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">44,997,928</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="10"><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">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">20,045,696</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 align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="10"><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">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 align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">84,475,920</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 align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<FONT size="2">From inception through December&nbsp;31, 2003, we
borrowed a total of $4.7&nbsp;million under notes payable,
credit facilities and capital leases and received approximately
$4.3&nbsp;million in license fees and collaborative research
payments, of which $1.2&nbsp;million, $1.3&nbsp;million, and
$1.7&nbsp;million were recorded as deferred revenue as of
December&nbsp;31, 2003, 2002 and 2001, respectively.
</FONT>

<P align="center"><FONT size="2">33
</FONT>

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<P align="left">
<FONT size="2">At December&nbsp;31, 2003, cash, cash equivalents
and short-term investments were $28.1&nbsp;million and we held
no investments with a maturity greater than 12&nbsp;months. Our
cash, cash equivalents and short-term investments are generally
held in a variety of interest-bearing instruments, consisting of
United States government and agency securities, high-grade
United States corporate bonds, municipal bonds, asset-backed
securities, commercial paper and money market accounts. We may
increase the average maturity date of our investments upon the
completion of this offering.
</FONT>

<P align="left">
<B><I><FONT size="2">Cash Flows</FONT></I></B>

<P align="left">
<FONT size="2">For the year ended December&nbsp;31, 2003, cash
and cash equivalents decreased by $2.0&nbsp;million. We used net
cash of $21.6&nbsp;million in operating activities. This use of
cash consisted of a net loss of $22.3&nbsp;million, an increase
in prepaid expenses and other current assets and accounts
receivable of $401,000, and a decrease in deferred revenue of
$171,000, offset by a net increase in accounts payable and
accrued expenses of $347,000 and depreciation and amortization
expense of $768,000. We used approximately $720,000 for
investing activities in 2003, which consisted of purchases of
property and equipment of $176,000 and net purchases of
marketable securities of $544,000. We received
$20.3&nbsp;million from financing activities during 2003 which
consisted of $18.5&nbsp;million related to the issuance of
convertible preferred stock and warrants in connection with our
Series&nbsp;E financing and $2.5&nbsp;million in proceeds from a
credit facility, offset by the repayment of capital lease
obligations and notes payable of $710,000. In addition, in 2003,
we financed the purchase of $421,000 of equipment under capital
leases.
</FONT>

<P align="left">
<FONT size="2">For the year ended December&nbsp;31, 2002, cash
and cash equivalents increased by $27.3&nbsp;million. We used
net cash of $15.9&nbsp;million in operating activities. This use
of cash primarily consisted of a net loss of $17.6&nbsp;million,
an increase in prepaid expenses and other assets of $371,000,
and a decrease in deferred revenue of $379,000, offset by an
increase in accounts payable and accrued expenses of
$1.6&nbsp;million and depreciation expense of $772,000. We used
$1.3&nbsp;million for investing activities in 2002, which
consisted primarily of purchases of marketable securities of
$1.0&nbsp;million and purchases of property and equipment of
$264,000. We received $44.4&nbsp;million from financing
activities during 2002 relating primarily to the issuance of
convertible preferred stock and warrants in connection with our
Series&nbsp;D financing of $44.8&nbsp;million, offset in part by
the repayment of notes payable and capital leases of $348,000.
In addition, during 2002, we financed the purchase of $251,000
of equipment under capital leases.
</FONT>

<P align="left">
<FONT size="2">For the year ended December&nbsp;31, 2001, cash
and cash equivalents decreased by $6.6&nbsp;million. We used net
cash of $5.8&nbsp;million in operating activities. This use of
cash primarily consisted of a net loss of $8.1&nbsp;million, a
decrease in accounts payable of $207,000, offset by an increase
in deferred revenue of $1.7&nbsp;million and depreciation
expense of $659,000. We used $662,000 for investing activities
in 2001, which consisted of purchases of property and equipment.
We used $69,000 for financing activities in 2001 which consisted
primarily of payments on promissory notes and capital leases. In
addition, during 2001, we financed the purchase of $486,000 of
equipment under capital leases.
</FONT>

<P align="left">
<B><I><FONT size="2">Funding Requirements</FONT></I></B>

<P align="left">
<FONT size="2">We anticipate that we will need to raise
additional capital in the future. Our future capital
requirements will depend on a number of factors, including the
timing and costs involved in conducting clinical trials and
obtaining regulatory approvals for our product candidates;
payments received or made under existing or future license or
collaboration agreements; the commercialization of our products;
the cost of filing, prosecuting and enforcing patent and other
intellectual property claims; and the need to acquire licenses
to new products or compounds. We may also need additional funds
for possible future strategic acquisitions of businesses,
products or technologies complementary to our business, although
none are currently anticipated.
</FONT>

<P align="left">
<FONT size="2">With the estimated proceeds from this offering,
we believe that our existing cash, cash equivalents and
short-term investments will be sufficient to fund our planned
operations for at least the next 18&nbsp;months. We may raise
additional funds from time to time through public or private
sales of equity securities or
</FONT>

<P align="center"><FONT size="2">34
</FONT>

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<DIV align="left">
<FONT size="2">from borrowings. Such funds may not be available
on acceptable terms, or at all, and our failure to raise capital
could have a materially adverse impact on our growth plans, our
financial condition and results of operations. If adequate funds
are not available in the future, we may be required to delay,
reduce the scope of or eliminate one or more of our research and
development programs, delay or curtail our commercialization
efforts or obtain funds through collaborative arrangements that
may require us to relinquish rights to certain product
candidates that we might otherwise choose to develop or
commercialize independently. Additional equity financings may be
dilutive to holders of our common stock and debt financing, if
available, may involve significant payment obligations and
covenants that restrict how we operate our business.
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">Contractual Obligations</FONT></I></B>

<P align="left">
<FONT size="2">Our material contractual obligations relate
primarily to a credit facility and notes payable, capital
leases, facility leases and certain minimum purchase obligations
we have under third-party supply and manufacturing agreements.
Our purchase obligations relate to the supply of raw materials
and a manufacturing agreement where we have made certain minimum
commitments.
</FONT>

<P align="left">
<FONT size="2">The following table summarizes our contractual
obligations as of December&nbsp;31, 2003 and the effect such
obligations are expected to have on our liquidity and cash flows
in future periods.
</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="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="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="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">Payments Due by Period</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Less than</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">More than</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">1&nbsp;Year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1-3 Years</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">4-5 Years</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">5 Years</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="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" 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">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,253</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">890</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">1,363</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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="21"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital 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">762</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">330</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">432</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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="21"><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">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">416</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">207</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">209</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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="21"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchase 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">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">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">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">&#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>

</TR>

<TR>
    <TD colspan="21"><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 contractual cash obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,306</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,177</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">2,129</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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="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">
<FONT size="2">In December 2003, we entered into an agreement to
lease a facility to be built to our specifications. Until
March&nbsp;30, 2004, we may terminate this agreement at any time
provided that we reimburse the developer for any out-of-pocket
costs it incurs through the date of termination, up to $325,000.
We anticipate that we will occupy this new facility in the
second or third quarter of 2005, at which time we expect that
our lease obligations for such facility will approximate
$1.0&nbsp;million per annum for the lease term of ten years.
</FONT>

<P align="left">
<B><FONT size="2">Quantitative and Qualitative Disclosures about
Market Risk</FONT></B>

<P align="left">
<FONT size="2">As of December&nbsp;31, 2003 and 2002 we had
cash, cash equivalents and short-term investments of
$28.1&nbsp;million and $29.7&nbsp;million, respectively. The
primary objective of our investment activities is to preserve
principal. To achieve this objective, we invest in highly liquid
and high-quality investment grade debt instruments of financial
institutions, corporations and United States government
securities with a weighted average maturity of no longer than
12&nbsp;months. Due to the relatively short-term nature of these
investments, we believe that we are not subject to any material
market risk exposure, and as a result, the estimated fair value
of our cash, cash equivalents and short-term investments
approximates their principal amounts. If market interest rates
were to increase immediately and uniformly by 10% from levels at
December&nbsp;31, 2003, we estimate that the fair value of our
investment portfolio would decline by an immaterial amount. We
do not have any foreign currency or other derivative financial
instruments and we do not have significant interest rate risk
associated with our debt obligations. While our cash, cash
equivalents and short-term investment balances will increase
upon completion of this offering, we will have the ability to
hold our fixed income investments until maturity, and therefore
we would not expect our operating results or cash flows to be
affected to any significant degree by the effect of a change in
market interest rates on our investments.
</FONT>

<P align="center"><FONT size="2">35
</FONT>

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<P align="left">
<B><FONT size="2">Effects of Inflation</FONT></B>

<P align="left">
<FONT size="2">The majority of our assets are monetary,
consisting of cash, cash equivalents and short-term investments.
Because of their liquidity, these assets are not generally
directly affected by inflation. We also believe that we have
significant intangible assets in the value of our technology and
product candidates. In accordance with generally accepted
accounting principles, we have not recorded the value of any
intellectual property or intangible assets that we have
developed on our balance sheet. Due to the nature of these
intangible assets, we do not believe they are 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="center"><FONT size="2">36
</FONT>

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<DIV align="left">
<A name='110'></A>
</DIV>

<!-- 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">
<FONT size="2">We are a biopharmaceutical company engaged in the
discovery, development and commercialization of novel
antibody-based products for the prevention and treatment of
serious bacterial and fungal infections in the hospital setting.
We currently have two product candidates in late-stage clinical
development. Our lead product candidate is Veronate, which we
expect will enter a Phase&nbsp;III clinical trial in the second
half of 2004. We are developing Veronate for the prevention of
hospital-associated infections in premature, very low birth
weight, or VLBW, infants. We recently completed a 512-patient
Veronate Phase&nbsp;II clinical trial. Veronate has been granted
Fast Track and Orphan Drug status by the FDA. Our second product
candidate, Aurexis, is currently being evaluated in a
Phase&nbsp;II clinical trial as a first-line therapy, in
combination with standard of care antibiotics, to treat serious,
life-threatening <I>Staphylococcus aureus,</I> or
<I>S.&nbsp;aureus,</I> bloodstream infections in hospitalized
patients. In addition, we have three preclinical product
candidates that are being developed to prevent or treat serious
infections.
</FONT>

<P align="left">
<FONT size="2">All of our product candidates have been developed
based on our expertise in MSCRAMM proteins for which we own or
have licensed numerous patents and patent applications. The
development of our product candidates is based on the discovery
that MSCRAMM proteins found on the surface of pathogenic
organisms play a prominent role in the process of infection. We
have demonstrated that antibodies that bind to these MSCRAMM
proteins will prevent or reduce the severity of infections by
interfering with the attachment of the pathogenic organisms to
human tissue or implanted medical devices. We believe our
expertise in MSCRAMM proteins and antibodies that target them
will enable us to discover additional novel therapies, as well
as to identify, license or acquire products that prevent and
treat life-threatening infections.
</FONT>

<P align="left">
<FONT size="2">We have retained worldwide commercialization
rights to Veronate and Aurexis. We expect to commercialize
Veronate in the United States by establishing a specialized,
hospital-based sales force. While we expect to establish a
worldwide collaboration for Aurexis, we anticipate retaining
co-promotion rights to Aurexis in the United States. In markets
outside the United States, we intend to enter into
collaborations to develop and commercialize our product
candidates.
</FONT>

<P align="left">
<B><FONT size="2">Hospital-Associated Infections</FONT></B>

<P align="left">
<FONT size="2">Hospital-associated infections generally refer to
infections that patients acquire while being treated or cared
for in a hospital setting and include, among others, pneumonia,
endocarditis and bloodstream infections, or bacteremia. These
infections are for the most part caused by bacterial or fungal
organisms that are present in the hospital. Most healthy
individuals generally are not susceptible to these organisms,
but immunocompromised persons, such as VLBW infants and the
elderly, or persons who have had surgical procedures or have
in-dwelling catheters or medical devices are particularly
vulnerable. According to the Centers for Disease Control, or
CDC, the most prevalent organisms causing hospital-associated
infections in the United States are bacterial organisms such as
<I>S.&nbsp;aureus, Staphylococcus epidermidis,</I> or
<I>S.&nbsp;epidermidis,</I> enterococcal species and fungal
organisms such as candida species.
</FONT>

<P align="left">
<FONT size="2">Based on data from the CDC and Decision
Resources, a market research firm, there are an estimated six
million hospital-associated infections worldwide each year, of
which approximately 85-90% are caused by bacteria and 8% by
fungi. The CDC estimates that approximately two million
hospital-associated infections occur in the United States each
year, which are implicated in approximately 90,000&nbsp;deaths
per annum. This represents more deaths per annum than are caused
by breast cancer and prostate cancer combined. These infections
also result in an estimated $4.5&nbsp;billion in healthcare
costs annually in the United States.
</FONT>

<P align="left">
<FONT size="2">Antibiotics are the predominant agents used to
treat hospital-associated infections. Antibiotics are small
molecule compounds whose primary mechanisms of action are
killing or inhibiting the growth of bacteria. Antibiotics
commonly used to treat hospital-associated infections include
methicillin and vancomycin.
</FONT>

<P align="center"><FONT size="2">37
</FONT>

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<DIV align="left">
<FONT size="2">Many bacteria have become increasingly resistant,
or unresponsive, to antibiotics, leading to an increase in the
incidence of antibiotic-resistant infections. Drug resistance is
the result of bacteria undergoing a biochemical mutation that
circumvents the mechanisms of action that generally allow
antibiotics to work. Some of the most virulent organisms that
demonstrate significant patterns of drug resistance include
methicillin-resistant <I>S.&nbsp;aureus,</I> or MRSA, and
vancomycin-resistant enterococci, or VRE.
</FONT>
</DIV>

<P align="left">
<FONT size="2">As bacterial resistance has become more
prevalent, there has been an increase in infection relapse rates
and secondary site infections. In addition, some infections
caused by MRSA can have associated mortality rates of 30-50%.
Clinicians have become increasingly reliant on the use of
vancomycin, which is an intravenous antibiotic generally
regarded as the drug of last resort, for the treatment of
serious antibiotic-resistant hospital-associated infections.
However, over the past several years, the emergence of
vancomycin-resistant <I>S.&nbsp;aureus,</I> or VRSA, has been
documented in the United States and Japan. In light of
increasing antibiotic resistance, there is a significant unmet
medical need for novel anti-infective therapies that prevent or
treat serious, life-threatening hospital-associated infections.
</FONT>

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

<P align="left">
<FONT size="2">We believe there is a substantial opportunity to
utilize our expertise in MSCRAMM proteins to discover, develop
and commercialize novel antibody-based products that address the
increasing prevalence of life-threatening hospital-associated
infections and the lack of effective therapies available to
treat these infections.
</FONT>

<P align="left">
<FONT size="2">The human immune system normally protects the
body against a variety of infections and other illnesses by
recognizing, neutralizing and eliminating pathogens and
malignant cells from the body. One of the primary functions of
the immune system is the production of antibodies. Antibodies
are soluble proteins found in the plasma portion of whole blood
capable of recognizing and binding to pathogens that are
potentially harmful to the human body. Antibodies recognize and
bind to cellular proteins generally referred to as antigens,
such as MSCRAMM proteins present on the surface of bacteria and
fungi. In order for an effective immune response to occur
without harming normal cells, the immune system generates
antibodies that recognize and bind tightly to one specific
antigen. Once an antibody binds to its targeted antigen, it
triggers the cellular components of the immune system to clear
the pathogen from the body.
</FONT>

<P align="left">
<FONT size="2">We have identified antibodies that specifically
bind to a number of different MSCRAMM proteins located on the
surface of many pathogenic organisms. MSCRAMM proteins enable
organisms to initiate and maintain an infection by adhering to
specific binding sites within human tissue. In addition, MSCRAMM
proteins allow these organisms to adhere to implanted or
in-dwelling materials, such as orthopedic implants, catheters
and vascular grafts. We believe that antibodies that target
MSCRAMM proteins can reduce the incidence and severity of
bacterial and fungal infections through two important biological
mechanisms of action. First, by binding to the MSCRAMM proteins,
these antibodies inhibit or block the invading organism from
attaching to tissue or implanted or in-dwelling medical devices.
Second, these antibodies coat the invading organism, identifying
it for clearance by other cellular components of the immune
system.
</FONT>

<P align="left">
<FONT size="2">We believe that antibody-based product candidates
developed utilizing our expertise in MSCRAMM proteins may
provide the following advantages over existing anti-infective
therapies:
</FONT>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the ability to be used prophylactically in
    patients where the preventive use of antibiotics is not
    appropriate or recommended;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">improved patient outcomes by reducing the
    incidence of secondary site infections, relapse rates, mortality
    and length of hospital stay;
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">38
</FONT>

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<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">a lower likelihood of inducing patterns of drug
    resistance due to their novel mechanisms of action;&nbsp;and
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">fewer side effects.
    </FONT></TD>
</TR>

</TABLE>

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

<P align="left">
<FONT size="2">Our antibody-based product candidates are
summarized in the chart below:
</FONT>

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

<TR>
    <TD width="26%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="34%"><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>
</TR>

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

<TR>
    <TD align="center" nowrap><B><FONT size="1">Product Candidate</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Intended Use</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">Commercial Rights</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>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Veronate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Prevention of hospital-associated infections in
    VLBW infants
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center" valign="top"><FONT size="2">Phase&nbsp;III expected second half 2004</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">Inhibitex</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="11"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Aurexis
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">First-line therapy for serious <I>S.&nbsp;aureus
    </I>infections in combination with standard of care antibiotics
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top" nowrap><FONT size="2">Phase&nbsp;II</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">Inhibitex</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="11"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Enterococcal monoclonal antibodies
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Hospital-associated enterococcal infections
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Preclinical</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">Inhibitex</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="11"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Candida monoclonal antibodies
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Hospital-associated candida infections
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Preclinical</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">Inhibitex</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="11"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Staphylococcal vaccine
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Prevention of staphylococcal infections
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Preclinical</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">Wyeth</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

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

<P align="left">
<FONT size="2">Veronate is a polyclonal antibody-based product
candidate that we are developing for the prevention of
hospital-associated infections in VLBW infants that occur after
the second day of life. Infections that occur after the second
day of life are generally referred to by neonatologists as
late-onset sepsis. We expect to begin a Phase&nbsp;III clinical
trial for this indication in the second half of 2004. Veronate
contains concentrated amounts of antibodies that target specific
MSCRAMM proteins found on the surface of staphylococci. Based on
our Phase&nbsp;II clinical trial results, we believe that
Veronate can reduce the number of hospital-associated infections
caused by <I>S.&nbsp;aureus</I> and candida organisms in VLBW
infants. Further, because infections caused by
<I>S.&nbsp;aureus</I> and candida organisms have high associated
mortality rates, approximately 17% and 34%, respectively, we
believe the prophylactic use of Veronate will also reduce the
overall mortality rate in VLBW infants.
</FONT>

<P align="left">
<FONT size="2">Veronate has been granted Fast Track status by
the FDA. Fast Track status may allow for expedited review by the
FDA and is afforded to those proposed products that the FDA
believes address life-threatening and unmet medical needs.
Veronate has also been granted Orphan Drug status for the
reduction of nosocomial bacteremia caused by staphylococci in
VLBW infants, which may provide for market exclusivity for seven
years from the date of FDA approval in certain circumstances. We
have also received a peer-reviewed, merit-based $300,000 grant
from the Office of Orphan Product Development of the FDA for the
development of Veronate.
</FONT>

<P align="left">
<I><FONT size="2">Market Opportunity for the Prevention of
Hospital-Associated Infections in VLBW Infants</FONT></I>

<P align="left">
<FONT size="2">According to the United States Census Bureau, in
2001 there were approximately 60,000 VLBW infants born in the
United States. The term VLBW infants refers to those infants
that weigh less than 1,500 grams at birth or that are generally
less than 32&nbsp;weeks gestational age. Approximately 43,000 of
these VLBW infants weighed 1,250 grams or less at birth. The
vast majority of surviving VLBW infants are cared for in
neonatal intensive care units, or NICUs. The average length of
stay in the NICU for these infants is approximately two months.
</FONT>

<P align="center"><FONT size="2">39
</FONT>

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<P align="left">
<FONT size="2">VLBW infants are highly susceptible to infection
while in the NICU, given the intensity of medical care, duration
of hospitalization, and the use of intravenous catheters to
deliver nutritional fluids and medication. Various studies
indicate that 30-50% of all VLBW infants weighing 1,250 grams or
less at birth will develop at least one hospital-associated
infection. There is an inverse relationship between a VLBW
infant&#146;s birth weight and the risk of acquiring a
hospital-associated infection.
</FONT>

<P align="left">
<FONT size="2">The most frequent causes of hospital-associated
infections in VLBW infants, in order of incidence, are coagulase
negative staphylococcus, or CoNS, <I>S.&nbsp;aureus</I> and
candida, which collectively account for almost two-thirds of the
hospital-associated infections in this patient population. CoNS
accounts for approximately 50% of hospital-associated
infections, while <I>S.&nbsp;aureus</I> and candida each account
for approximately 9%. Although CoNS is the most prevalent
organism causing these infections, it is not as virulent as
<I>S.&nbsp;aureus</I> and candida. The mortality rate among VLBW
infants who acquire a hospital-associated infection caused by
<I>S.&nbsp;aureus</I> or candida is approximately 17% and 34%,
respectively, as compared to 7% and 9%, respectively, for those
VLBW infants who either develop no infection or are infected
with CoNS.
</FONT>

<P align="left">
<FONT size="2">In addition to associated mortality, several
studies indicate that VLBW infants that develop a
hospital-associated infection stay, on average, 19 additional
days in the hospital when compared to those that do not acquire
an infection. In the United States, reimbursement to the
hospital for a day in the NICU generally ranges from $1,500 to
$3,000, which excludes the costs associated with physicians and
other required specialists.
</FONT>

<P align="left">
<I><FONT size="2">Veronate Clinical Trials</FONT></I>

<P align="left">
<I><FONT size="2">Phase&nbsp;III.</FONT></I><FONT size="2"> We
plan to initiate a multi-center, randomized, double-blind,
placebo-controlled Phase&nbsp;III clinical trial for Veronate in
the second half of 2004. This trial will be designed to further
evaluate and confirm the efficacy and safety of Veronate at a
dose of 750&nbsp;mg/kg in VLBW infants weighing 500 to 1,250
grams at birth. If the primary endpoint is achieved, we expect
to submit a biological license application, or BLA, for Veronate
to the FDA for the prevention of <I>S.&nbsp;aureus</I>
hospital-associated infections in VLBW infants that occur after
the infant&#146;s second day of life.
</FONT>

<P align="left">
<I><FONT size="2">Phase&nbsp;II.</FONT></I><FONT size="2"> In
December 2003, we completed a 512-patient, multi-center,
randomized, double-blind, placebo-controlled Phase&nbsp;II
clinical trial of Veronate for the prevention of
hospital-associated infections in VLBW infants weighing 500 to
1,250 grams at birth. This trial was designed to evaluate the
safety, dosing and preliminary efficacy of Veronate in this
patient population. Infants in this trial were initially
randomized by birth weight to receive one of four intravenous
treatments: placebo, or Veronate at a dose of 250mg/kg, 500mg/kg
or 750mg/kg. This trial was conducted at 53&nbsp;different NICUs
across the United States, and no single site accounted for more
than 7% of the subjects.
</FONT>

<P align="left">
<FONT size="2">Due to the prophylactic nature of the indication
and the estimated rates of incidence, the Phase&nbsp;II trial
was not powered to demonstrate statistically significant
differences among the treatment arms in measures of efficacy.
The results of the Phase&nbsp;II clinical trial demonstrated
that Veronate was generally safe and well tolerated among
treated patients. There were no adverse events that differed
among treatment cohorts. Only 4 of 1,280&nbsp;infusions were
discontinued or interrupted due to adverse events possibly
related to Veronate. There were no dose related trends observed
for adverse events, severe adverse events or morbidities
associated with prematurity. All Veronate-related adverse events
were few (14&nbsp;events among 9&nbsp;infants) and were
generally limited to changes in vital signs or apnea.
</FONT>

<P align="left">
<FONT size="2">The preliminary efficacy findings from this trial
comparing Veronate at a dose of 750&nbsp;mg/kg to placebo were:
</FONT>
<P>

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

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    <TD width="5%"></TD>
    <TD width="1%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a 63% reduction in the frequency of infection due
    to <I>S.&nbsp;aureus</I>;
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">40
</FONT>

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<P>

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

<TR>
    <TD width="5%"></TD>
    <TD width="1%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a 67% reduction in the frequency of infection due
    to candida;&nbsp;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">a 36% reduction in mortality.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<I><FONT size="2">Phase&nbsp;I.</FONT></I><FONT size="2"> We
conducted a Phase&nbsp;I dose-escalating clinical trial of
Veronate in 36&nbsp;VLBW infants weighing 500 to
1,250&nbsp;grams. Two cohorts of 18&nbsp;infants each were
studied. One cohort received 500mg/kg of Veronate and the second
cohort received 750mg/kg, both intravenously. The infants were
monitored for a period of 70&nbsp;days subsequent to their first
infusion. Results from this trial indicated that Veronate was
generally safe and well tolerated in VLBW infants.
</FONT>

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

<P align="left">
<FONT size="2">Aurexis is a humanized monoclonal antibody
currently in a Phase&nbsp;II clinical trial for evaluation as a
first-line therapy, in combination with standard of care
antibiotics, for the treatment of serious, life-threatening
<I>S.&nbsp;aureus</I> bloodstream infections in hospitalized
patients. Aurexis and Veronate target the same MSCRAMM protein
on <I>S.&nbsp;aureus</I>. We believe the results from the
Veronate Phase&nbsp;II clinical trial and our preclinical
efficacy studies provide validation for the
<I>S.&nbsp;aureus</I> MSCRAMM protein. We are also exploring the
use of Aurexis in patients with cystic fibrosis and end stage
renal disease and those who are undergoing cardiac surgery. We
may initiate additional Phase&nbsp;II clinical trials in
patients with one or more of these indications in the future.
</FONT>

<P align="left">
<I><FONT size="2">Market Opportunity for the Treatment of
S.&nbsp;aureus Infections</FONT></I>

<P align="left">
<I><FONT size="2">S.&nbsp;aureus</FONT></I><FONT size="2"> is
one of the leading causes of hospital-associated infections.
There were an estimated one&nbsp;million hospital-associated
<I>S.&nbsp;aureus</I> infections worldwide in 2002, of which
approximately 225,000 occurred in the United States. Of the
estimated 225,000 <I>S.&nbsp;aureus</I> infections that occurred
in the United States, we estimate that approximately 50,000 were
serious bloodstream infections.
</FONT>

<P align="left">
<FONT size="2">According to the CDC and other sources, the
percentage of hospital-associated <I>S.&nbsp;aureus</I>
infections in intensive care units in the United States caused
by methicillin-resistant <I>S.&nbsp;aureus,</I> or MRSA, doubled
between 1994 and 2002, increasing from 30% to nearly 60%. The
mortality rate for bloodstream infections associated with MRSA
is 30-50%, as compared to the mortality rate associated with
methicillin-susceptible <I>S.&nbsp;aureus</I> bloodstream
infections of approximately 20%. Studies indicate that patients
that acquire a MRSA bloodstream infection, as compared to those
that do not, require, on average, an additional 12&nbsp;days in
an intensive care unit, at an average cost of $27,000.
</FONT>

<P align="left">
<FONT size="2">The current clinical treatment of serious
infections due to <I>S.&nbsp;aureus</I> is dictated by a number
of factors including the type or location of the infection, the
antibiotic resistance pattern of the infecting strain, the
clinical characteristics of the patient and the infections
commonly found in any specific hospital or hospital department.
These infections are typically treated with intravenous
antibiotics. If the patient is thought to be infected with MRSA,
the current standard of care is administration of vancomycin,
which is generally considered to be the antibiotic of last
resort.
</FONT>

<P align="left">
<FONT size="2">We believe that Aurexis will be used adjunctively
as a first-line therapy to treat <I>S.&nbsp;aureus</I>
bloodstream infections regardless of which antibiotic is
prescribed for treatment. We also believe that the degree to
which the medical community will adopt the use of Aurexis will
be based on its ability to reduce the relapse rate of infection,
the frequency of secondary site infections, the incidence of
infection-associated mortality and the number of days patients
with infections stay in the hospital.
</FONT>

<P align="left">
<I><FONT size="2">Aurexis Clinical Trials</FONT></I>

<P align="left">
<I><FONT size="2">Phase&nbsp;II.</FONT></I><FONT size="2"> We
are currently conducting a 60-patient, multi-center, randomized,
double-blind, placebo-controlled Phase&nbsp;II clinical trial
for Aurexis. We expect to conduct the trial at 14&nbsp;hospitals
in the United States. Patients with documented
<I>S.&nbsp;aureus</I> bloodstream infections are randomized to
receive standard of
</FONT>

<P align="center"><FONT size="2">41
</FONT>

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<DIV align="left">
<FONT size="2">care antibiotic therapy combined with either
Aurexis, 20&nbsp;mg/kg, or placebo. Both Aurexis and placebo are
administered intravenously as a single dose. For the purpose of
this protocol, standard of care antibiotic therapy is selected
by the individual investigators. Subjects will be followed for
57&nbsp;days or until early termination from the trial.
</FONT>
</DIV>

<P align="left">
<FONT size="2">The primary objectives of the Phase&nbsp;II trial
for Aurexis are to evaluate:
</FONT>
<P>

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

<TR>
    <TD width="5%"></TD>
    <TD width="1%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the safety of a single administration of Aurexis;
    </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 pharmacokinetics of a single dose of
    Aurexis;&nbsp;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 preliminary efficacy of a single dose of
    Aurexis.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">We expect to complete enrollment of this trial by
the end of 2004 and to have final data during the first half of
2005.
</FONT>

<P align="left">
<I><FONT size="2">Phase&nbsp;I.</FONT></I><FONT size="2"> We
completed an open-label, randomized, dose-escalating
Phase&nbsp;I clinical trial in 19&nbsp;healthy volunteers to
assess the safety of Aurexis and determine dose-related
pharmacokinetics. Patients were intravenously administered four
dose levels of Aurexis at 2, 5, 10, or 20&nbsp;mg/kg. The
volunteers were monitored for a period of 56&nbsp;days
subsequent to the administration of the drug. Safety was
monitored by physical examinations, clinical and laboratory
tests, and adverse experience assessments.
</FONT>

<P align="left">
<FONT size="2">Results from this trial indicate Aurexis was well
tolerated by the healthy volunteers. Six adverse events were
noted, although none were considered related to Aurexis. No
other safety issues were identified and no dose reached the
protocol-specified definition of maximum tolerated dose.
Pharmacokinetic analysis demonstrated that doses of 10mg/kg or
greater achieved plasma levels of Aurexis associated with
therapeutic efficacy in preclinical animal models. The half life
of Aurexis was determined to be approximately 21&nbsp;days. We
selected the 20mg/kg dose for our Phase&nbsp;II trial of Aurexis.
</FONT>

<P align="left">
<I><FONT size="2">Preclinical Results.</FONT></I><FONT size="2">
We have conducted a number of preclinical studies in animals to
assess both the safety and efficacy of Aurexis. These studies
included using Aurexis both prophylactically as a monotherapy to
prevent, and in combination with vancomycin to treat, MRSA
infections. In these studies, no safety or toxicity issues were
observed. These studies demonstrated that when used
prophylactically, a single dose of Aurexis administered
intravenously provided statistically significant levels of
protection against MRSA infections as compared to the control.
The therapeutic administration of Aurexis intravenously, in
combination with vancomycin, significantly enhanced the
clearance of MRSA from the animals&#146; critical organs as
compared to vancomycin alone. We believe that the preclinical
models that yielded these results are generally viewed by the
scientific community as supportive and appropriate for assessing
the efficacy of anti-infective product candidates in humans.
</FONT>

<P align="left">
<B><I><FONT size="2">Other Product Candidates</FONT></I></B>

<P align="left">
<FONT size="2">In addition to Veronate and Aurexis, we currently
have three product candidates in preclinical development, all of
which are based on the use of MSCRAMM proteins. Two of these
candidates are humanized monoclonal antibodies, and the third is
a staphylococcal vaccine being developed by our partner, Wyeth.
</FONT>

<P align="left">
<I><FONT size="2">Enterococcal Monoclonal Antibodies</FONT></I>

<P align="left">
<FONT size="2">Enterococci account for approximately 8% of all
hospital-associated infections and have been reported as the
second most common cause of nosocomial endocarditis in the
United States. The overuse of antibiotics has resulted in the
emergence of drug-resistant strains of enterococci, including
vancomycin-resistant enterrococci. The problem in the United
States is serious, in that greater than 24% of confirmed
enterococcal infections reported in the June 2000 report of the
hospitals included in the National
</FONT>

<P align="center"><FONT size="2">42
</FONT>

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<DIV align="left">
<FONT size="2">Nosocomial Infectious Surveillance System were
vancomycin-resistant. The reported incidence of
vancomycin-resistant strains of enterococci increased by 40% for
those same hospitals from 1994 to 1998. We have identified and
characterized MSCRAMM protein targets expressed by enterococci
and we have generated monoclonal antibodies that recognize these
targets. Preclinical studies are ongoing to evaluate these
monoclonal antibodies.
</FONT>
</DIV>

<P align="left">
<I><FONT size="2">Candida Monoclonal Antibodies</FONT></I>

<P align="left">
<I><FONT size="2">Candida albicans,</FONT></I><FONT size="2"> or
<I>C.&nbsp;albicans,</I> is a significant cause of invasive
fungal infections in an expanding population of immunosuppressed
or immunocompromised patients such as those undergoing
chemotherapy, those with organ transplants or those with AIDS.
We have identified and characterized MSCRAMM proteins on the
surface of <I>C.&nbsp;albicans</I> and we have generated
monoclonal antibodies that target these proteins.
</FONT>

<P align="left">
<I><FONT size="2">Staphylococcal Vaccine</FONT></I>

<P align="left">
<FONT size="2">There are a number of patient groups, including
approximately 300,000 end stage renal disease patients in the
United States, patients receiving chronic long-term care, and
patients undergoing certain elective surgeries, who are at risk
of acquiring a staphylococcal infection. For these high-risk
groups, we believe an active vaccine may be a less costly and
preferred mode of therapy. We have entered into a license and
collaboration agreement with Wyeth to develop human vaccines
against staphylococcal organisms.
</FONT>

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

<P align="left">
<FONT size="2">Our goal is to become a leading biopharmaceutical
company that discovers, develops and commercializes novel,
antibody-based products to prevent and treat serious bacterial
and fungal infections in the hospital setting. In order to
achieve this goal, we are focused on the following key
strategies:
</FONT>

<P align="left">
<B><I><FONT size="2">Complete the Phase&nbsp;III Trial and
Obtain Regulatory Approval for
Veronate.</FONT></I></B><FONT size="2"> We are focused on
completing the clinical and regulatory development of Veronate.
We intend to initiate and complete a Phase&nbsp;III clinical
trial evaluating Veronate for the prevention of
hospital-associated infections in VLBW infants. Veronate has
also been granted Fast Track status, which may allow for
expedited review by the FDA. Veronate has received Orphan Drug
status for the reduction of nosocomial bacteremia caused by
staphylococci in VBLW infants, which may provide for market
exclusivity for seven years from the date of approval in certain
circumstances.
</FONT>

<P align="left">
<B><I><FONT size="2">Advance the Development of Aurexis and Our
Preclinical Product Candidates.</FONT></I></B><FONT size="2"> We
are developing Aurexis as a first-line therapy for the treatment
of serious <I>S.&nbsp;aureus</I> infections in combination with
standard of care antibiotics. Aurexis is currently in a
Phase&nbsp;II clinical trial. We are also advancing the
development of our two preclinical product candidates focused on
enterococcal and candida monoclonal antibodies.
</FONT>

<P align="left">
<B><I><FONT size="2">Establish a Specialized, Hospital-Based
Sales Force In The United States.</FONT></I></B><FONT size="2">
We have retained all worldwide commercial rights for Veronate
and Aurexis. We intend to establish a specialized hospital-based
sales force of approximately fifty individuals to promote
Veronate, and potentially Aurexis, in the United States. We
believe that the vast majority of the potential United States
demand for Veronate exists in approximately 1,000&nbsp;hospitals
that operate NICUs. As a result, we believe a relatively small
sales force can effectively be deployed to fully and efficiently
address this market. While we expect to enter into a worldwide
collaboration to further develop and commercialize Aurexis, we
intend to leverage our hospital-based sales force by retaining
certain co-promotion rights to Aurexis in the United States. In
markets outside of the United States, we currently plan to
establish partnerships with other companies to commercialize our
products.
</FONT>

<P align="left">
<B><I><FONT size="2">Utilize Our Expertise in MSCRAMM Proteins
to Discover and Develop Additional
First-in-Class&nbsp;Products.</FONT></I></B><FONT size="2"> Our
goal is to be the first to market antibody-based products to
prevent and treat specific
</FONT>

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<DIV align="left">
<FONT size="2">bacterial and fungal infections. We have used our
expertise in MSCRAMM proteins to discover and develop Veronate,
Aurexis and three preclinical candidates that may represent
first-in-class products. We believe that first-in-class drugs
capture superior market share and have competitive advantages
over drugs subsequently introduced. We will continue to devote
resources to the discovery and development of product candidates
that originate from our expertise in MSCRAMM proteins.
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">Expand Our Product Portfolio through
In-Licensing and Acquisitions.</FONT></I></B><FONT size="2"> We
intend to capitalize upon our expertise in MSCRAMM proteins,
antibody development, commercialization and infectious diseases
to in-license or acquire selected product candidates in various
stages of development. We will also evaluate opportunities to
leverage our sales force by in-licensing or acquiring and
promoting additional therapeutics which target the
hospital-based market.
</FONT>

<P align="left">
<B><FONT size="2">Sales and Marketing</FONT></B>

<P align="left">
<FONT size="2">There are approximately 5,000 hospitals in the
United States; however, we believe that the vast majority of the
demand for Veronate will occur in approximately
1,000&nbsp;hospitals where there are NICUs equipped to handle
the special needs of VLBW infants. Furthermore, 80% of the NICU
beds are concentrated in approximately 500 of these hospitals.
We believe that a specialized, hospital-based sales force of
approximately 50 qualified individuals can effectively promote
and sell Veronate in this market. We intend to establish this
sales force and create a commercial infrastructure capable of
supporting the independent commercialization of Veronate in the
United States.
</FONT>

<P align="left">
<FONT size="2">We have retained worldwide rights to Aurexis and
two of our product candidates in preclinical development. While
we plan to establish a worldwide collaboration for Aurexis, we
anticipate retaining co-promotion rights to Aurexis in the
United States. Assuming Veronate is approved for sale by the FDA
and we successfully develop a sales force, we may promote or
co-promote our other product candidates in the United States
through this sales force. The 1,000&nbsp;hospitals that contain
NICUs also account for 45% of all hospital beds in the United
States. By accessing approximately half the hospital beds in the
United States, we believe our sales force will be able to
effectively market Aurexis and our other product candidates. We
anticipate partnering or collaborating with other companies to
develop and commercialize our product candidates in countries
and regions outside of the United States.
</FONT>

<P align="left">
<B><FONT size="2">Raw Materials and Manufacturing</FONT></B>

<P align="left">
<B><I><FONT size="2">Raw
Materials.</FONT></I></B><FONT size="2"> Veronate is a
polyclonal antibody-based product candidate derived from human
plasma. Accordingly, the critical raw material used in the
manufacture of Veronate is plasma that contains sufficient
concentrations of naturally occurring antibodies that
specifically target MSCRAMM proteins. This plasma is collected
at FDA-approved donor centers in the United States. The
qualification of donors, the collection process and the
operation of donor centers are highly regulated by the FDA and
other domestic and foreign regulatory bodies. We currently do
not, nor do we intend to, own or operate any such donor centers.
We outsource, and intend to continue to outsource, the
collection of this critical raw material to qualified
FDA-approved third-party collectors who own and operate these
donor centers. We currently have a long-term supply agreement
with one third-party supplier of plasma, which we believe can
meet our current, near-term and product launch supply needs.
Pursuant to this supply agreement, no later than 90&nbsp;days
prior to each calendar-year end, we and our supplier must agree
on the quantity of plasma that we intend to purchase, and they
will provide, for the next calendar year. Once this quantity is
established, we are generally obligated to purchase at least 90%
of this predetermined quantity during the subsequent year. While
we have no current arrangements with any other supplier of
plasma, we believe there are suitable alternative sources of
plasma for Veronate.
</FONT>

<P align="left">
<B><I><FONT size="2">Manufacturing.</FONT></I></B><FONT size="2">
We do not own or operate any manufacturing facilities. We
currently outsource the manufacture of our product candidates to
qualified contract manufacturers. We anticipate we will continue
to rely on these or other qualified contract manufacturers for
the foreseeable future. Our contract manufacturers are currently
located in the United States, although, in the future, we may
consider using
</FONT>

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<FONT size="2">qualified manufacturers located in Europe or
other regions. Since the manufacturing processes used to
manufacture Veronate and Aurexis are vastly different, we use
different manufacturers for each of these product candidates.
</FONT>
</DIV>

<P align="left">
<FONT size="2">The manufacturing process for Veronate is
referred to as fractionation. The fractionation process, which
involves separating plasma into various components or fractions,
has been used for over thirty years by major pharmaceutical
companies to manufacture high quality antibody-based products.
In December 2001, we entered into a ten-year contract
manufacturing agreement with Nabi Biopharmaceuticals, Inc., or
Nabi, to manufacture Veronate on our behalf. Nabi operates an
FDA-approved facility in the United States, and is approved to
manufacture its proprietary, as well as third-party,
immunoglobulin products. Pursuant to our contract with Nabi, we
must, on a two-year rolling basis, commit to Nabi as to how much
Veronate we want Nabi to manufacture on our behalf. If we then
cancel or postpone any manufacturing runs over the two-year
period, cancellation penalties will apply. We believe Nabi is
qualified, and has the available capacity, to manufacture
Phase&nbsp;III clinical trial material and commercial quantities
of Veronate. Nabi has manufactured four lots of Veronate to
date. Under this agreement, we may not grant any rights allowing
any other party to manufacture Veronate, and therefore we may
not engage an alternative manufacturer until the agreement is
terminated. We may terminate the agreement with Nabi if Nabi
materially breaches the agreement, subject to a 20-day cure
period. We do not have alternative manufacturing plans for
Veronate at this time. If our agreement with Nabi were
terminated for any reason, it may be difficult or impossible for
us to find alternative manufacturers on commercially acceptable
terms, if at all. Because Nabi is developing a product to
prevent <I>S.&nbsp;aureus</I> and a staphylococcal vaccine, we
consider Nabi to be a competitor.
</FONT>

<P align="left">
<FONT size="2">We also used a contract manufacturer to produce
clinical trial materials for Aurexis for use in our Phase&nbsp;I
and II clinical trials. We may contract with a different
contract manufacturer capable of producing Phase&nbsp;III
clinical trial material, and if Aurexis is approved for sale,
commercial quantities. A change in contract manufacturers may
require further clinical trials for Aurexis. We currently have
not entered into any arrangement with a contract manufacturer to
produce Phase&nbsp;III clinical trial material for Aurexis. We
cannot assure you that we will be able to enter into an
agreement with another suitable contract manufacturer for
Aurexis on commercially acceptable terms, if at all, or in a
time-frame that does not delay the clinical development of
Aurexis.
</FONT>

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

<P align="left">
<FONT size="2">Our industry is highly competitive and
characterized by rapid technological change. Significant
competitive factors in our industry include, among others,
product efficacy and safety; the timing and scope of regulatory
approvals; the government reimbursement rates for and the
average selling price of products; the availability of raw
materials and qualified manufacturing capacity; manufacturing
costs; intellectual property and patent rights and their
protection; and sales and marketing capabilities.
</FONT>

<P align="left">
<FONT size="2">Any product candidates that we successfully
develop that are approved for sale by the FDA or similar
regulatory authorities in other countries may compete with
existing products and products that may become available in the
future. Many organizations, including large pharmaceutical and
biopharmaceutical companies, such as Cubist Pharmaceuticals,
Inc. and Vicuron Pharmaceuticals, Inc., as well as academic and
research organizations and government agencies, continue to
pursue the research and development of novel anti-infective
therapies that target staphylococcal as well as other bacterial
and fungal organisms. Many of these organizations have more
substantial capital resources than we have, and greater
capabilities and experience than we do in basic research,
conducting preclinical studies and clinical trials, regulatory
affairs, manufacturing, marketing and sales. As a result, we may
face competitive disadvantages relative to these organizations
should they develop or commercialize a competitive product.
Therefore, we cannot assure you that any of our product
candidates, if approved for sale, will compete successfully and
that another organization will not succeed in developing and
commercializing products that render our technology or product
candidates non-competitive or obsolete.
</FONT>

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<FONT size="2">Currently, we are not aware of any antibody-based
products approved by the FDA specifically for the prevention or
treatment of <I>S.&nbsp;aureus,</I> CoNS, candida or
enterococcal infections in any patient population. However, we
are aware of several biopharmaceutical companies developing
antibody-based therapies directed towards the prevention or
treatment of bacterial, and particularly staphylococcal,
infections.
</FONT>

<P align="left">
<FONT size="2">Nabi Biopharmaceuticals, Inc. is a publicly-held
biopharmaceutical company that discovers, develops, manufactures
and markets antibody-based therapies. Nabi has two
antibody-based product candidates currently in clinical trials
that are directed towards preventing or treating staphylococcal
infections. One of these product candidates has received Orphan
Drug status from the FDA. Nabi is our contract manufacturer for
Veronate.
</FONT>

<P align="left">
<FONT size="2">Biosynexus, Inc. is a privately-held
biotechnology company that is developing a portfolio of
protein-based products, including monoclonal antibodies, enzymes
and peptides, for the prevention and treatment of staphylococcal
infections. NeuTec, PLC is a privately-held biopharmaceutical
company that is developing a portfolio of antibody-based
therapeutic products designed to treat life-threatening
infections, particularly hospital-acquired infections such as
MRSA and candida.
</FONT>

<P align="left">
<B><FONT size="2">Intellectual Property Rights and
Patents</FONT></B>

<P align="left">
<FONT size="2">We are licensed under 23&nbsp;issued United
States patents and 24&nbsp;pending United States patent
applications, as well as corresponding international filings in
the field of MSCRAMMs generally. We own nine pending United
States patent applications and co-own one issued United States
patent and one pending United States patent application, as well
as corresponding international and foreign applications. The
issued United States patents expire between 2009 and 2018. In
addition to our patents and patent applications, we have
registered trademarks for Inhibitex, MSCRAMM, Aurexis and
Veronate.
</FONT>

<P align="left">
<FONT size="2">Of the patents and applications in our portfolio,
the following pertain directly to Veronate and Aurexis:
</FONT>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Our United States patent describing Veronate is
    directed to purified human immunoglobulin antibodies to
    <I>S.&nbsp;aureus</I> and <I>S.&nbsp;epidermidis</I> MSCRAMM
    proteins. This patent will expire in 2018 if not extended. Our
    pending United States Veronate patent application includes
    claims directed to methods used in preparing Veronate.
    Corresponding international applications are pending.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Our United States SdrG patent is directed to the
    nucleic acid sequence, or DNA, encoding the SdrG protein of
    <I>S.&nbsp;epidermidis.</I> The SdrG MSCRAMM protein is used in
    identifying donors for the preparation of Veronate. This patent
    will expire in 2018 if not extended. Our pending United States
    SdrG patent applications are directed to the SdrG protein and
    related methods. Corresponding international applications are
    pending.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Our two United States ClfA patents relate to both
    Veronate and Aurexis and are directed to the DNA and the ClfA
    MSCRAMM protein of <I>S.&nbsp;aureus.</I> These patents will
    expire in 2016 and 2014, respectively, if not extended. The ClfA
    protein is used in the identification of donors for the
    preparation of Veronate and is also the protein recognized by
    the Aurexis monoclonal antibody. There are no corresponding
    foreign rights available for the ClfA protein and nucleic acid
    sequences. Our pending United States ClfA patent application
    claims antibodies to the ClfA protein. Our pending United States
    ClfA monoclonal antibody patent application relates to Aurexis
    and claims a composition of matter for a monoclonal antibody to
    the ClfA protein. Corresponding international applications are
    pending.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">Patent rights and other proprietary rights are
important in our business and for the development of our product
candidates. We have sought, and intend to continue to seek
patent protection for our inventions and rely upon patents,
trade secrets, know-how, continuing technological innovations
and licensing
</FONT>

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<FONT size="2">opportunities to develop and maintain a
competitive advantage. In order to protect these rights,
know-how and trade secrets, we typically require employees,
consultants, collaborators and advisors to enter into
confidentiality agreements with us, generally stating that they
will not disclose any confidential information about us to third
parties for a certain period of time, and will otherwise not use
confidential information for anyone&#146;s benefit but ours.
</FONT>
</DIV>

<P align="left">
<FONT size="2">The patent positions of companies like ours
involve complex legal and factual questions and, therefore,
their enforceability cannot be predicted with any certainty. Our
issued patents, those licensed to us, and those that may issue
to us in the future may be challenged, invalidated or
circumvented, and the rights granted thereunder may not provide
us with proprietary protection or competitive advantages against
competitors with similar technology. Furthermore, our
competitors may independently develop similar technologies or
duplicate any technology developed by us. Because of the
extensive time required for development, testing and regulatory
review of a potential product, it is possible that, before any
of our product candidates can be approved for sale and
commercialized, our relevant patent rights may expire or remain
in force for only a short period following commercialization.
Expiration of patents we own or license could adversely affect
our ability to protect future product development and,
consequently, our operating results and financial position.
</FONT>

<P align="left">
<FONT size="2">We have filed two opposition proceedings with the
European Patent Office, or EPO, to revoke or substantially
narrow two patents issued to the Henry&nbsp;M. Jackson
Foundation for the Advancement of Military Medicine relating to
staphylococcal surface proteins. These patents have been
licensed to Biosynexus. In the first opposition, on
November&nbsp;5, 2003 an oral proceeding took place in which the
EPO concluded that the patent was limited to a single claim
having no relevance to our products. The patentee announced
their intent to appeal the decision and, if an appeal is filed,
a decision is expected to occur in late 2006. No preliminary
recommendation has been issued in the second opposition
proceeding, which we anticipate will occur in late 2004. We
believe that we do not infringe the corresponding United States
patents, which have narrower claims than those issued in Europe.
</FONT>

<P align="left">
<FONT size="2">In December 2003, we filed a Notice of Opposition
before the United States Patent and Trademark office opposing
the applications of Auxeris Therapeutics, Inc. to register
&#147;Auxeris&#148; as a trademark. In addition, we have
notified Auxeris of our intention to seek injunctive relief in
Federal court if it does not cease the use of the Auxeris name.
The grounds for opposition are that it is too similar to our
trademark &#147;Aurexis,&#148; and both marks are intended to be
used for pharmaceutical products.
</FONT>

<P align="left">
<B><FONT size="2">Licensing and Collaborative
Agreements</FONT></B>

<P align="left">
<FONT size="2">To date, we have entered into a number of license
and collaborative agreements with various institutions to obtain
intellectual property rights and patents relating to MSCRAMM
proteins and our product candidates. We have also entered into
an exclusive worldwide license and collaboration agreement with
Wyeth with respect to their use of our MSCRAMM protein
intellectual property to develop human staphylococcal vaccines.
Our strategy includes possible future in-licensing of
intellectual property or product candidates, as well as
collaborations with companies to develop, co-develop, market and
sell our product candidates in markets outside of the United
States.
</FONT>

<P align="left">
<B><I><FONT size="2">Texas A&#38;M University Health Science
Center</FONT></I></B>

<P align="left">
<FONT size="2">We have an exclusive royalty-bearing license from
the Texas A&#38;M University System, or Texas A&#38;M, for an
issued United States patent with claims directed toward the SdrG
nucleic acid sequence and related pending United States
divisional applications directed toward the SdrG protein and
antibodies to it, as well as corresponding foreign applications.
SdrG is the MSCRAMM protein that we target on
<I>S.&nbsp;epidermidis</I> and is used in the manufacture of
Veronate. We also have an exclusive royalty-bearing license to
Texas A&#38;M&#146;s rights in an allowed United States patent
application and foreign counterparts directed to the methods we
use for screening and selecting donor plasma using MSCRAMMs for
both SdrG and ClfA in the manufacture of Veronate. BioResearch
Ireland/ Trinity College Dublin is a co-owner of these patents
</FONT>

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<FONT size="2">and applications. All of these licenses are
subject to certain research rights retained by Texas A&#38;M.
Texas A&#38;M may terminate the license if we fail to use
commercially reasonable efforts to bring our products candidates
to market. We may terminate the license without cause upon
60&nbsp;days written notice. Otherwise, this agreement will
terminate upon the expiration of all of the licensed patents,
the earliest of which relates to the SdrG patent which will
expire, if not extended, in 2018. We have agreed to pay Texas
A&#38;M a royalty based on net sales for any product sold
utilizing these licenses.
</FONT>
</DIV>

<P align="left">
<FONT size="2">In connection with these license agreements, in
1995 we entered into the first of several cooperative research
agreements with Texas A&#38;M. Pursuant to these agreements, we
have the exclusive worldwide right to any discoveries resulting
from this collaboration, subject to research rights retained by
Texas A&#38;M and certain rights of the United States
government. We also have a right of first refusal to acquire the
rights to and file patents on discoveries made by Texas A&#38;M
in the field of MSCRAMM proteins that are made outside of the
scope of the collaboration. Texas A&#38;M is entitled to a
royalty on revenues that we receive for products that
incorporate technology developed through the collaboration. We
may terminate this collaboration upon 90&nbsp;days written
notice if the work is not performed satisfactorily.
</FONT>

<P align="left">
<B><I><FONT size="2">BioResearch Ireland (BRI)/Trinity College
Dublin</FONT></I></B>

<P align="left">
<FONT size="2">We have obtained a royalty-bearing license from
BioResearch Ireland, or BRI, under the United States SdrG
patents and related applications licensed to us from Texas
A&#38;M, as described above. Scientists from both Texas A&#38;M
and BRI are co-inventors on these applications. We have an
exclusive royalty-bearing license from BRI under two issued
United States patents and a pending United States patent
application directed to the ClfA nucleic acid and protein. The
license also covers pending international applications relating
to antibodies to ClfA. BRI may terminate the license if we fail
to use commercially reasonable efforts to bring one or more
products that use the licensed technology to market. Otherwise,
this license will terminate upon the expiration of the licensed
patents. The earliest of the United States ClfA patents will
expire in 2014, if not extended. Since 1996, we have entered
into several cooperative research agreements with BRI for
technologies relating to staphylococcal surface proteins. We
have exclusive worldwide rights to, and are entitled to file
patents on, any discoveries resulting from this collaboration.
All licenses from BRI are subject to research rights retained by
BRI. BRI is entitled to a royalty on any revenues that we
receive from the sale of products that incorporate technology
developed through the collaborative arrangement. We may
terminate the collaboration agreement on two months written
notice. BRI may terminate in the event of an uncured material
breach by us.
</FONT>

<P align="left">
<B><I><FONT size="2">Other Licensing Agreements</FONT></I></B>

<P align="left">
<FONT size="2">In August&nbsp;2001, we entered into a license
and development collaboration agreement with Wyeth for the
development of human staphylococcal vaccines. In connection with
this agreement, we received an up-front license fee of
$1.5&nbsp;million. We also receive annual research support
payments and if specified milestones are achieved, additional
milestone payments. Under the terms of this agreement, we
granted Wyeth an exclusive worldwide license to our MSCRAMM
protein intellectual property with respect to human vaccines
against staphylococcal organisms. The development, manufacture
and sale of any products resulting from the collaboration will
be the responsibility of Wyeth. We are entitled to royalties on
net sales of licensed products manufactured, sold or distributed
by Wyeth. We may terminate this agreement if Wyeth fails to use
reasonable commercial efforts to bring related products to
market. Wyeth may terminate the agreement without cause on six
months notice. Otherwise, this agreement will terminate upon the
expiration of all of the licensed patents, the first of which
expires in 2009.
</FONT>

<P align="left">
<FONT size="2">In November&nbsp;2001, we entered into a research
evaluation and worldwide non-exclusive license agreement with
Lonza Biologics for intellectual property and materials relating
to the expression of recombinant monoclonal antibodies to
bacterial surface proteins for use in the manufacture of
Aurexis. Under the terms of the agreement, we agreed to pay an
annual fee and a royalty on the net selling price of any
products that we market that utilize this technology. We may
terminate the agreement upon 60&nbsp;days notice. The agreement
terminates upon the expiration of the last valid patent or
15&nbsp;years, whichever is longer.
</FONT>

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<P align="left">
<FONT size="2">In June&nbsp;2003, we obtained a non-exclusive,
worldwide royalty-bearing license from Genentech for a patent,
commonly known as the Cabilly patent, relating to the production
of monoclonal antibodies for use in the manufacture of Aurexis.
Under the agreement, we paid Genentech an up-front license fee
and we are further obligated to pay a milestone payment due upon
the approval of Aurexis and a royalty on the sale of any of our
products that utilize the underlying technology. We may
terminate this agreement without cause upon 90&nbsp;days notice.
Otherwise, this license will terminate upon the expiration of
the patent, which will occur in 2018 if not extended.
</FONT>

<P align="left">
<FONT size="2">In July&nbsp;2003, we also obtained a
non-exclusive, worldwide royalty-bearing license from the
University of Iowa for patents, commonly known as the CMV
promoter patents, or Stinski patents, relating to the expression
of recombinant proteins used in the manufacture of Aurexis.
Under this agreement, we paid the University of Iowa an up-front
license fee and we are further obligated to pay a royalty on the
sale of any of our products that utilize the underlying
technology. We may terminate this agreement at any time.
Otherwise, this license will terminate upon the expiration of
the two in-licensed patents, which will be 2009 and 2012,
respectively.
</FONT>

<P align="left">
<FONT size="2">In March&nbsp;2004, we obtained a non-exclusive,
worldwide royalty-bearing license from the National Institutes
of Health for patent applications relating to technology used in
the humanization of monoclonal antibodies. Under this agreement
we paid an up-front license fee, and we agreed to pay a minimum
annual royalty, royalties on sales of our products that would
otherwise infringe any patent that may issue from the pending
applications, and milestone payments. We may terminate this
agreement upon 60&nbsp;days notice. This agreement terminates
upon the expiration of the patent, which will occur in 2011 if
not extended.
</FONT>

<P align="left">
<B><FONT size="2">Pharmaceutical Pricing and
Reimbursement</FONT></B>

<P align="left">
<FONT size="2">In both the United States and foreign markets,
the revenue associated with our products will depend in part
upon the availability of reimbursement from third-party payors.
Third-party payors include various government health authorities
such as The Centers for Medicare and Medicaid Services, or CMS,
which administers Medicare and Medicaid, managed-care providers,
private health insurers and other organizations. Third-party
payors are increasingly challenging the price and examining the
cost-effectiveness of medical products and services, including
pharmaceuticals. In addition, significant uncertainty exists as
to the reimbursement status of newly approved pharmaceutical
products. Our products may ultimately not be considered
cost-effective, and adequate third-party reimbursement may not
be available to enable us to maintain price levels sufficient to
support a profitable operation or generate an appropriate return
on our investment in product development.
</FONT>

<P align="left">
<FONT size="2">The United States and foreign governments
periodically propose and pass legislation designed to reduce the
cost of healthcare. Accordingly, legislation and regulations
affecting the pricing of pharmaceuticals may change before our
product candidates are approved for marketing. Adoption of new
legislation could further limit reimbursement for
pharmaceuticals. In addition, an increasing emphasis on managed
care in the United States has and will continue to increase the
pressure on pharmaceutical pricing. The marketability of our
products may suffer if the government and other third-party
payors fail to provide adequate coverage and reimbursement rates
for our product candidates.
</FONT>

<P align="left">
<FONT size="2">We intend to obtain coverage and reimbursement
for our products from these third-party payors, however we
cannot assure you that we will be successful in obtaining
adequate coverage, reimbursement, or pricing, if any.
</FONT>

<P align="center"><FONT size="2">49
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<P align="left">
<B><FONT size="2">Regulatory Matters</FONT></B>

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

<P align="left">
<FONT size="2">The preclinical and clinical testing,
manufacture, labeling, storage, distribution, promotion, sale
and export, reporting and record-keeping of our product
candidates are subject to extensive regulation by numerous
governmental authorities in the United States, principally the
FDA and corresponding state agencies, and regulatory agencies in
foreign countries.
</FONT>

<P align="left">
<FONT size="2">Non-compliance with applicable regulatory
requirements can result in, among other things, fines,
injunctions, seizure of products, total or partial suspension of
product manufacturing and marketing, failure of the government
to grant approval, withdrawal of marketing approvals and
criminal prosecution.
</FONT>

<P align="left">
<B><I><FONT size="2">United States Regulatory
Approval</FONT></I></B>

<P align="left">
<FONT size="2">Pursuant to FDA regulations, we are required to
undertake a long and rigorous process before any of our product
candidates may be marketed or sold in the United States. This
regulatory process typically includes the following general
steps:
</FONT>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the performance of satisfactory preclinical
    laboratory and animal studies under the FDA&#146;s Good
    Laboratory Practices regulation;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the development and demonstration of
    manufacturing processes which conform to FDA-mandated current
    Good Manufacturing Practices, or cGMPs;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the submission and acceptance of an
    Investigational New Drug application, or IND, which must become
    effective before human clinical trials may begin in the United
    States;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">obtaining the approval of Institutional Review
    Boards, or IRBs, at each site where we plan to conduct a
    clinical trial to protect the welfare and rights of human
    subjects in clinical trials;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the successful completion of a series of adequate
    and well-controlled human clinical trials to establish the
    safety and efficacy of any product candidate for its intended
    use;&nbsp;and
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the submission to, and review and approval by the
    FDA of, a Biologic License Application, or BLA, or for
    non-biologic pharmaceutical products, a New Drug Application, or
    NDA, prior to any commercial sale or shipment of a product.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">This process requires a substantial amount of
time and financial resources. We cannot assure you or be certain
that this process will result in the granting of an approval for
any of our product candidates on a timely basis, if at all. In
2002, the FDA announced a reorganization that has resulted in
the shift of the oversight and approval process for certain
therapeutic biologic drugs and the related staff from the Center
for Biologic Evaluation and Research, or CBER, to the Center for
Drug Evaluation and Research, or CDER. Our lead drug candidate,
Veronate, is being regulated through CBER, while Aurexis, and
any other monoclonal product candidates that we may develop, are
being regulated as drug products through CDER.
</FONT>

<P align="left">
<I><FONT size="2">Preclinical Testing</FONT></I>

<P align="left">
<FONT size="2">Preclinical tests generally include laboratory
evaluation of a product candidate, its chemistry, formulation,
stability and toxicity, as well as certain animal studies to
assess its potential safety and efficacy. We must submit the
results of these preclinical tests, together with manufacturing
information, analytical data and the clinical trial protocol, to
the FDA as part of an IND, which must become effective before we
may begin any human clinical trials. An IND automatically
becomes effective 30&nbsp;days after receipt by the FDA, unless
the FDA, within this 30-day time period, raises concerns or
questions about the intended
</FONT>

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<DIV align="left">
<FONT size="2">conduct of the trials and imposes what is
referred to as a clinical hold. If one or more of our products
is placed on clinical hold, we would be required to resolve any
outstanding issues to the satisfaction of the FDA before we
could begin clinical trials. Preclinical studies generally take
several years to complete, and there is no guarantee that an IND
based on those studies will become effective, allowing clinical
testing to begin.
</FONT>
</DIV>

<P align="left">
<FONT size="2">In addition to FDA review of an IND, each medical
site that desires to participate in a proposed clinical trial
must have the clinical protocol reviewed and approved by an
independent IRB. The IRB considers, among other things, ethical
factors, and the selection and safety of human subjects.
Clinical trials must be conducted in accordance with the
FDA&#146;s Good Clinical Practices requirements.
</FONT>

<P align="left">
<I><FONT size="2">Clinical Trials</FONT></I>

<P align="left">
<FONT size="2">Human clinical trials are typically conducted in
three sequential phases:
</FONT>

<P align="left">
<I><FONT size="2">Phase&nbsp;I.</FONT></I><FONT size="2"> In
Phase&nbsp;I clinical trials, a product candidate is typically
introduced either into healthy human subjects, or patients with
the medical condition for which the new drug is intended to be
used. The main purpose of the trial is to assess a product
candidate&#146;s safety and the ability of the human body to
tolerate the product candidate. Absorption, metabolism,
distribution and pharmacokinetic trials are also generally
performed at this stage. Phase&nbsp;I clinical trials generally
include less than 50 subjects or patients.
</FONT>

<P align="left">
<I><FONT size="2">Phase&nbsp;II.</FONT></I><FONT size="2">
During this phase, a product candidate is studied in an
exploratory trial or trials in a limited number of patients with
the disease or medical condition for which it is intended to be
used in order to (i)&nbsp;further identify any possible adverse
side effects and safety risks, (ii)&nbsp;assess the preliminary
or potential efficacy of the product candidate for specific
targeted diseases or medical conditions, and (iii)&nbsp;assess
dosage tolerance and determine the optimal dose for a
Phase&nbsp;III trial. Phase&nbsp;II trials generally involve 20
to 500 patients, who are typically divided into one or more
groups that will get one of several dose levels of the product
candidate and a control group that will receive a placebo.
</FONT>

<P align="left">
<I><FONT size="2">Phase&nbsp;III.</FONT></I><FONT size="2"> If
and when one or more Phase&nbsp;II trials demonstrate that a
specific dose or range of doses of a product candidate is likely
to be effective and has an acceptable safety profile, one or
more Phase&nbsp;III trials are generally undertaken to
demonstrate clinical efficacy and to further test for safety in
an expanded patient population with the goal of evaluating the
overall risk-benefit relationship of the product candidate.
Phase&nbsp;III trials will generally be designed to reach a
specific goal or endpoint, the achievement of which is intended
to demonstrate the product candidate&#146;s clinical efficacy.
The successful demonstration of clinical efficacy and safety in
one or more Phase&nbsp;III trials is typically a prerequisite to
the filing of a BLA or a NDA for a product candidate.
</FONT>

<P align="left">
<FONT size="2">We cannot be certain that we will successfully
complete the Phase&nbsp;I, Phase&nbsp;II or Phase&nbsp;III
testing of our product candidates within any specific time
period, if at all. Furthermore, we, the FDA or an IRB may
suspend or terminate a clinical trial at any time on various
grounds, including a finding that the subjects or patients are
being exposed to an unacceptable health risk.
</FONT>

<P align="left">
<I><FONT size="2">Biologic License Applications</FONT></I>

<P align="left">
<FONT size="2">Once clinical trials have been completed, we must
submit a BLA to the FDA in order to obtain approval for the
marketing and sale of a product candidate. Among many other
items, a BLA typically includes a description of the
manufacturing process and quality control methods, as well as
the results of preclinical and toxicology studies and clinical
trials. The FDA must approve the BLA prior to the marketing and
sale of the related product. The FDA may deny a BLA if all
applicable regulatory criteria are not satisfied or may require
additional data, including clinical, toxicology, safety or
manufacturing data. It can take several years for the FDA to
approve a BLA once it is submitted, and the actual time required
for any product candidate may vary substantially, depending upon
the nature, complexity and novelty of the product candidate. We
cannot be certain that the FDA, or any other similar regulatory
agency in other countries,
</FONT>

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</FONT>

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<DIV align="left">
<FONT size="2">will grant approval for any of our product
candidates on a timely basis, if at all. Success in preclinical
or early-stage clinical trials does not assure success in later
stage clinical trials. Data obtained from preclinical and
clinical activities is not always conclusive and may be
susceptible to varying interpretations that could delay, limit
or prevent regulatory approval. Even if such regulatory approval
is granted, additional post-marketing, or Phase&nbsp;IV clinical
trials, may be required that would add additional product
development costs beyond those incurred through Phase&nbsp;III
testing.
</FONT>
</DIV>

<P align="left">
<I><FONT size="2">Post-Approval Regulations</FONT></I>

<P align="left">
<FONT size="2">Even if a product candidate receives regulatory
approval, the approval is typically limited to specific clinical
indications. Further, even after regulatory approval is
obtained, subsequent discovery of previously unknown problems
with a product may result in restrictions on its use or even
complete withdrawal of the product from the market.
</FONT>

<P align="left">
<FONT size="2">Any FDA-approved products manufactured or
distributed by us are subject to continuing regulation by the
FDA, including record-keeping requirements and reporting of
adverse events or experiences. Further, drug manufacturers and
their subcontractors are required to register their
establishments with the FDA and state agencies, and are subject
to periodic inspections by the FDA and state agencies for
compliance with cGMP, which impose rigorous procedural and
documentation requirements upon us and our contract
manufacturers. Manufacturers of biologics must also comply with
the FDA&#146;s general biologic standards. We cannot be certain
that we, or our present or future contract manufacturers or
suppliers, will be able to comply with cGMP regulations and
other FDA regulatory requirements. Failure to comply with these
requirements may result in, among other things, total or partial
suspension of production activities, failure of the FDA to grant
approval for marketing, and withdrawal, suspension, or
revocation of marketing approvals.
</FONT>

<P align="left">
<FONT size="2">If the FDA approves one or more of our product
candidates, we and our contract manufacturers must provide
certain updated safety and efficacy information. Product
changes, as well as certain changes in the manufacturing process
or facilities where the manufacturing occurs or other
post-approval changes may necessitate additional FDA review and
approval.
</FONT>

<P align="left">
<FONT size="2">The labeling, advertising, promotion, marketing
and distribution of a drug or biologic product also must be in
compliance with FDA and Federal Trade Commission, or FTC,
requirements which include, among others, standards and
regulations for direct-to-consumer advertising, off-label
promotion, industry sponsored scientific and educational
activities, and promotional activities involving the Internet.
The FDA and FTC have very broad enforcement authority, and
failure to abide by these regulations can result in penalties,
including the issuance of a Warning Letter directing the company
to correct deviations from regulatory standards and enforcement
actions that can include seizures, fines, injunctions and
criminal prosecution.
</FONT>

<P align="left">
<FONT size="2">The FDA&#146;s policies may change and additional
government regulations may be enacted which could prevent or
delay regulatory approval of our product candidates. Moreover,
increased attention to the containment of health care costs in
the United States and in foreign markets could result in new
government regulations that could have a material adverse effect
on our business. We cannot predict the likelihood, nature or
extent of adverse governmental regulation that might arise from
future legislative or administrative action, either in the
United States or abroad.
</FONT>

<P align="left">
<I><FONT size="2">Orphan Drug and Fast Track Status</FONT></I>

<P align="left">
<FONT size="2">Veronate, our lead product candidate, has been
designated Fast Track status as provided for under various FDA
regulations. Veronate has also been designated as an Orphan Drug
by the FDA for the reduction of nosocomial bacteremia caused by
staphylococci in VLBW infants. If our other product candidates
meet the criteria, we may also apply for Orphan Drug and/or Fast
Track status for such product candidates.
</FONT>

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</FONT>

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<FONT size="2">The FDA may grant Orphan Drug status to drugs
intended to treat a &#147;rare disease or condition,&#148; which
is generally a disease or condition that affects fewer than
200,000 individuals in the United States. If and when the FDA
grants Orphan Drug status, the generic name and trade name of
the therapeutic agent and its potential orphan use are disclosed
publicly by the FDA. Aside from guidance concerning the
non-clinical laboratory studies and clinical investigations
necessary for approval of the BLA, Orphan Drug status does not
convey any advantage in, or shorten the duration of, the
regulatory review and approval process. However, a product that
has been designated as an Orphan Drug that subsequently receives
FDA approval for the indication for which it has received such
designation is entitled to Orphan Drug exclusivity, which means
the FDA may not approve any other applications to market the
same drug for the same indication, except in very limited
circumstances, for seven years from the date of FDA approval.
Orphan Drug status may also provide certain tax benefits.
</FONT>

<P align="left">
<FONT size="2">The FDA has also developed &#147;Fast Track&#148;
policies, which provide for the potential for expedited review
of a BLA. However, there is no assurance that the FDA will, in
fact, accelerate the review process for a Fast Track product
candidate. Fast Track status is provided only for those new and
novel therapies that are intended to treat persons with
life-threatening and severely debilitating diseases, where there
is a defined unmet medical need, especially where no
satisfactory alternative therapy exists or the new therapy is
significantly superior to alternative therapies. During the
development of product candidates that qualify for this status,
the FDA may expedite consultations and reviews of these
experimental therapies. Further, an accelerated approval process
is potentially available to product candidates that have been
studied for their safety and effectiveness in treating serious
or life-threatening illnesses. The FDA can base approval of a
marketing application for a Fast Track product on an effect on a
clinical endpoint, or on a surrogate endpoint that is reasonably
likely to predict clinical benefit. The FDA may condition the
approval of an application for certain Fast Track products on
additional post-approval studies to validate the surrogate
endpoint or confirm the effect on the clinical endpoint. Fast
Track status also provides for the potential for a product
candidate to have a &#147;Priority Review.&#148; A Priority
Review allows for portions of the BLA to be submitted to the FDA
for review prior to the completion of the entire application,
which could result in a reduction in the length of time it would
otherwise take the FDA to complete its review of the BLA.
</FONT>

<P align="left">
<FONT size="2">Fast Track status may be revoked by the FDA at
any time if the clinical results of a trial fail to continue to
support the assertion that the respective product candidate has
the potential to address an unmet medical need.
</FONT>

<P align="left">
<B><I><FONT size="2">Foreign Regulatory Approval</FONT></I></B>

<P align="left">
<FONT size="2">Outside of the United States, our ability to
market our product candidates will also be contingent upon us
receiving marketing authorizations from the appropriate foreign
regulatory authorities whether or not FDA approval has been
obtained. The foreign regulatory approval process in most
industrialized countries generally includes risks that are
similar with the FDA approval process we have described herein.
The requirements governing conduct of clinical trials and
marketing authorizations, and the time required to obtain
requisite approvals may vary widely from country to country and
differ from that required for FDA approval.
</FONT>

<P align="left">
<I><FONT size="2">Europe</FONT></I>

<P align="left">
<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. This procedure is currently mandatory for products
developed by means of a biotechnological process including
monoclonal antibodies, such as Aurexis and our other monoclonal
products that are being developed, and optional for
plasma-derived biological products, such as Veronate, new active
substances and other &#147;innovative medicinal products with
novel characteristics.&#148; 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 applications and
</FONT>

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<DIV align="left">
<FONT size="2">assessment report, each member state must decide
whether to recognize approval. The mutual recognition process
results in separate national marketing authorizations in the
reference member state and each concerned member state.
</FONT>
</DIV>

<P align="left">
<FONT size="2">With respect to Veronate, and any other product
candidates for which we are entitled to choose, 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.
</FONT>

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

<P align="left">
<FONT size="2">As of December&nbsp;31, 2003, we had
62&nbsp;full-time employees, 52 of whom were engaged in research
and development and 10 of whom were engaged in administration,
finance and marketing. All of our employees have entered into
non-disclosure agreements with us regarding our intellectual
property, trade secrets and other confidential information. None
of our employees is represented by a labor union or covered by a
collective bargaining agreement, nor have we experienced any
work stoppages. We believe that we maintain satisfactory
relations with our employees.
</FONT>

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

<P align="left">
<FONT size="2">Our offices and laboratory facilities are
currently located in two separate leased properties in
Alpharetta, Georgia, a northern suburb of Atlanta. We lease our
office space, which is approximately 13,500&nbsp;square feet,
under a lease which expires in March 2004. We expect to enter
into a new lease for this office space with a term ending in
June 2005. We lease our laboratory facility, which is
approximately 12,500&nbsp;square feet, under a separate
sub-lease which expires in December 2005. In December 2003, we
entered into an agreement to lease a 52,000&nbsp;square foot
facility in Alpharetta, Georgia to be built to our
specifications where we intend to relocate both of our existing
facilities. Until March&nbsp;30, 2004, we may terminate this
agreement at any time provided that we reimburse the developer
for any out-of-pocket costs it incurs through the date of
termination, up to $325,000. We anticipate that we will occupy
this new facility in the second or third quarter of 2005, at
which time we expect that our lease obligations for such
facility will approximate $1.0&nbsp;million per annum for the
lease term of ten years.
</FONT>

<P align="center"><FONT size="2">54
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<P align="left">
<B><FONT size="2">Legal Proceedings</FONT></B>

<P align="left">
<FONT size="2">In January&nbsp;2003, Biosynexus commenced an
action against us in the Superior Court of Fulton County,
Georgia. The suit seeks injunctive relief and financial damages
of $10.0&nbsp;million on each of the three claims of
(i)&nbsp;obtaining, (ii)&nbsp;converting and
(iii)&nbsp;benefiting from alleged trade secrets, which we
purportedly received through a large, nationally recognized
third-party contract research organization.
</FONT>

<P align="left">
<FONT size="2">In July&nbsp;2003, the court denied
Biosynexus&#146; request for an interlocutory injunction. The
court&#146;s ruling also stated that we made a preliminary
showing that we did not misappropriate any Biosynexus
information; that we are not using the information at issue;
that our clinical trial protocol and approach to reporting
adverse events, which were the alleged trade secrets, are
substantially different than Biosynexus&#146;; and that the
alleged trade secrets are in fact not trade secrets but well
known, widely-used and widely-reported concepts as applied to
premature babies in a NICU. The court&#146;s ruling also
indicated that Biosynexus had not shown a substantial likelihood
that it will ultimately prevail on the merits of its case at
trial. Following this ruling, we notified Biosynexus, and its
attorneys, of our intent to pursue an abusive litigation claim,
as provided for under Georgia law, against Biosynexus to seek
full recovery of all legal fees and expenses related to the suit
if they did not drop such claim within 30&nbsp;days. In
August&nbsp;2003, Biosynexus filed notice in the Superior Court
of Fulton County of its intent to appeal the court&#146;s
ruling. Our motion for summary judgment filed in
August&nbsp;2003 has been stayed pending the appeal to the
Georgia Supreme Court. We can provide no assurance that the
appeal filed by Biosynexus will not be successful or that we
will not be subject to similar suits in the future.
</FONT>

<P align="left">
<FONT size="2">Otherwise, we are not a party to or engaged in
any material legal proceedings.
</FONT>

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

<P align="left">
<B><FONT size="2">Executive Officers and Directors</FONT></B>

<P align="left">
<FONT size="2">The following table sets forth information
concerning our executive officers and directors as of
December&nbsp;31, 2003:
</FONT>

<CENTER>
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<TR>
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    <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="51%"><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">William D. Johnston,&nbsp;Ph.D.&nbsp;</FONT></DIV>
    </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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">President and Chief Executive Officer; Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Seth V. Hetherington,&nbsp;M.D.&nbsp;</FONT></DIV>
    </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 align="left" valign="top">
    <FONT size="2">Vice President, Clinical Development and Chief
    Medical Officer
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Joseph M. Patti, M.S.P.H.,&nbsp;Ph.D.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" 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, Preclinical Development and Chief
    Scientific Officer; Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Russell H. Plumb
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44</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, Finance and Administration and
    Chief Financial Officer
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Robert T. Schweiger
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" 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">Vice President, Business Development
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David M. Wonnacott,&nbsp;Ph.D.&nbsp;</FONT></DIV>
    </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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vice President, Quality and Regulatory Affairs
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Michael A. Henos<SUP>(1)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chairman of the Board of Directors
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">M. James Barrett, Ph.D<SUP>(1)(3)</SUP>
    </FONT></DIV>
    </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</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">Carl E. Brooks<SUP>(1)(3)</SUP>
    </FONT></DIV>
    </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>
    <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">J. Douglas Eplett, M.D<SUP>(2)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44</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">Russell M. Medford,&nbsp;M.D., Ph.D<SUP>(2)</SUP>
    </FONT></DIV>
    </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</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">Arda M. Minocherhomjee. Ph.D.<SUP>(1)(2)</SUP>
    </FONT></DIV>
    </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</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">Marc L. Preminger<SUP>(2)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54</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">Louis W. Sullivan,&nbsp;M.D.<SUP>(3)</SUP>&nbsp;
    </FONT></DIV>
    </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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left">
<HR size="1" width="56%" align="left" noshade>
</DIV>
<P>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD><SUP><FONT size="2">(1)</FONT></SUP><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Member of Compensation Committee.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD><SUP><FONT size="2">(2)</FONT></SUP><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Member of Audit Committee.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD><SUP><FONT size="2">(3)</FONT></SUP><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Member of the Nominating and Corporate Governance
    Committee.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><I><FONT size="2">William D.
Johnston,&nbsp;Ph.D.</FONT></I></B><FONT size="2"> has served as
our President and Chief Executive Officer and a member of our
board of directors since 1997. From 1991 to 1997,
Dr.&nbsp;Johnston was Vice President and General Manager of the
Gene Therapy Business Unit of Baxter Healthcare Corporation.
From 1975 to 1991, Dr.&nbsp;Johnston held various executive
positions at Baxter Healthcare Corporation, including Vice
President of Applied Sciences, which was the central research
and development unit of Baxter. Dr.&nbsp;Johnston currently
serves as a director of ACTx, a privately held medical device
company. Dr.&nbsp;Johnston is also a member of both the Emerging
Companies Section&nbsp;Governing Body of the Biotechnology
Industry Organization and its executive committee. Since 1999,
Dr.&nbsp;Johnston has served on the board of the Georgia
Biomedical Partnership; additionally, he is the vice-chairman
for the bioscience council executive committee for the Metro
Atlanta Chamber of Commerce, and is an advisory member to the
board of directors for the Georgia Department of Economic
Development. Dr.&nbsp;Johnston received both a B.S. in Chemistry
and a Ph.D. in Chemistry from Brigham Young University.
</FONT>

<P align="left">
<B><I><FONT size="2">Seth V.
Hetherington,&nbsp;M.D.</FONT></I></B><FONT size="2"> has served
as our Vice President, Clinical Development and Chief Medical
Officer since June&nbsp;2002. From 1998 to June&nbsp;2002,
Dr.&nbsp;Hetherington directed clinical programs in infectious
diseases at GlaxoSmithKline. From 1984 to 2001, he held clinical
appointments at various institutions, including the University
of North Carolina, University of Tennessee, St.&nbsp;Jude
Children&#146;s Research Hospital in Memphis and Albany Medical
College. Dr.&nbsp;Hetherington received a B.S. from Yale
University and a M.D. from the University of North Carolina in
Chapel Hill. Dr.&nbsp;Hetherington is board certified in
pediatrics and infectious diseases.
</FONT>

<P align="left">
<B><I><FONT size="2">Joseph M. Patti,
M.S.P.H.,&nbsp;Ph.D.</FONT></I></B><FONT size="2"> is a
co-founder of Inhibitex, Inc. and has served as our Vice
President, Preclinical Development and Chief Scientific Officer
since April 1998 and as a member of our board of directors since
July&nbsp;1997. From 1994 to 1998, Dr.&nbsp;Patti was an
assistant professor at Texas A&#38;M&#146;s Institute of
Biosciences and Technology. From 1996 to 1998, he served on the
faculty at the University of
</FONT>

<P align="center"><FONT size="2">56
</FONT>

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<DIV align="left">
<FONT size="2">Texas Health Science Center Graduate School of
Biomedical Sciences. He currently holds an adjunct faculty
position in the biology department at Georgia State University.
Dr.&nbsp;Patti received a B.S. in Microbiology from the
University of Pittsburgh, a M.S.P.H. from the University of
Miami, School of Medicine and a Ph.D. in Biochemistry from the
University of Alabama at Birmingham.
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">Russell H.
Plumb</FONT></I></B><FONT size="2"> has served as our Vice
President, Finance and Administration and Chief Financial
Officer since August&nbsp;2000. From December&nbsp;1999 to
July&nbsp;2000, Mr.&nbsp;Plumb served as Chief Financial Officer
of Emory Vision, a healthcare company. From 1994 to
November&nbsp;1999, he served as Chief Financial Officer and
Vice President, Finance of Serologicals Corporation, a
publicly-held biopharmaceutical company. Mr.&nbsp;Plumb received
both a B. Comm. and a M.B.A. from the University of Toronto.
Mr.&nbsp;Plumb has received designations as a certified public
accountant in Michigan and Georgia.
</FONT>

<P align="left">
<B><I><FONT size="2">Robert T.
Schweiger</FONT></I></B><FONT size="2"> has served as our Vice
President, Business Development since May&nbsp;2001. From
March&nbsp;1999 to April&nbsp;2001, Mr.&nbsp;Schweiger was Vice
President, Business Development and Planning at UCB Pharma, a
Belgian multinational pharmaceutical company. From
August&nbsp;1998 to February&nbsp;1999, he was a consultant to
various multinational pharmaceutical companies. Prior to that,
Mr.&nbsp;Schweiger held various executive level positions with
several large pharmaceutical companies, including 18&nbsp;years
with SmithKline Pharmaceuticals. Mr.&nbsp;Schweiger received a
B.S. in Finance from Rider College and a M.B.A. from St.
John&#146;s University Graduate School of Business.
</FONT>

<P align="left">
<B><I><FONT size="2">David M.
Wonnacott,&nbsp;Ph.D.</FONT></I></B><FONT size="2"> has served
as our Vice President, Quality and Regulatory Affairs since
May&nbsp;2002. From May&nbsp;2000 to March&nbsp;2002,
Mr.&nbsp;Wonnacott served as the Vice President of Regulatory
Affairs at Aviron, Inc., a biopharmaceutical company. From 1988
to February&nbsp;2000, he held several senior regulatory
positions at Merck&nbsp;&#38; Co. Inc. Prior to that, he held a
quality operations position at Eastman Pharmaceutical, a
division of Eastman Kodak. Dr.&nbsp;Wonnacott received a B.S. in
Chemistry from Brigham Young University and a Ph.D. in
Biochemistry from Utah State University.
</FONT>

<P align="left">
<B><I><FONT size="2">Michael A.
Henos</FONT></I></B><FONT size="2"> has served as a member of
our board of directors since July&nbsp;1997 and as chairman of
our board of directors since April&nbsp;2001. Mr.&nbsp;Henos
also served as chairman of our board of directors from
July&nbsp;1997 to January&nbsp;2000. Since 1991, Mr.&nbsp;Henos
has served as Managing General Partner of Alliance Technology
Ventures, L.P., a venture capital firm. From 1991 to 2001,
Mr.&nbsp;Henos served as a General Partner of Aspen Ventures, a
venture capital partnership. He currently serves as chairman of
the board of directors of AtheroGenics, Inc., a publicly-held
biopharmaceutical company. He is also a member of the board of
directors of several privately-held biotechnology companies:
Neuronyx, Inc., Genoptix, Inc., GlycoMimetics, Inc., Sensys
Medical, Inc.; as well as ValuBond, Inc., a company providing
services to the brokerage industry. Mr.&nbsp;Henos received a
B.S. in Economics and a M.B.A. in Finance from the University of
California, Los Angeles.
</FONT>

<P align="left">
<B><I><FONT size="2">M. James
Barrett,&nbsp;Ph.D.</FONT></I></B><FONT size="2"> has served as
a member of our board of directors since February&nbsp;2002.
Since August&nbsp;2001, Dr.&nbsp;Barrett has served as a general
partner of NEA Partners 10, Limited Partnership, the general
partner of New Enterprise Associates&nbsp;10, Limited
Partnership, a venture capital fund. From January&nbsp;1997 to
August&nbsp;2001, he served as Chairman and Chief Executive
Officer of Sensors for Medicine and Science, Inc., a medical
device company, which he founded in 1997 and continues to serve
as the chairman of its board of directors. Dr.&nbsp;Barrett also
serves on the boards of directors of two publicly-held
biopharmaceutical companies: MedImmune, Inc. and Pharmion, Inc.,
as well as GlycoMimetics, Inc., Iomai Corporation, Peptimmune
Inc. and Targacept, Inc., which are privately-held life science
companies. Dr.&nbsp;Barrett received a B.S. in Chemistry from
Boston College, a Ph.D. in Biochemistry from the University of
Tennessee and a M.B.A. from the University of Santa&nbsp;Clara.
</FONT>

<P align="left">
<B><I><FONT size="2">Carl E.
Brooks</FONT></I></B><FONT size="2"> has served as a member of
our board of directors since May&nbsp;1999 and served as
chairman from January&nbsp;2000 to April&nbsp;2001.
Mr.&nbsp;Brooks is president of Brooks&nbsp;&#38; Associates, a
consulting firm for the biopharmaceutical and blood banking
industries, which he founded in 1996. He previously served as
the president of the Hyland division of Baxter Healthcare
Corporation. He also serves as chairman of the
</FONT>

<P align="center"><FONT size="2">57
</FONT>

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<DIV align="left">
<FONT size="2">board of directors of Bluebird Bioscience, Inc.,
a generic pharmaceuticals company and on the board of directors
of Quantumcor, Inc., a cardiovascular device company, both of
which are privately-held. Mr.&nbsp;Brooks received a B.S. in
Chemical Engineering from the Ohio State University.
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">J. Douglas
Eplett,&nbsp;M.D.</FONT></I></B><FONT size="2"> has served as a
member of our board of directors since February&nbsp;2002. Since
September&nbsp;2000, Dr.&nbsp;Eplett has served as a general
partner of Essex Woodlands Health Ventures, a venture capital
firm. From July&nbsp;2000 to August&nbsp;2000, he worked as a
private consultant. From May&nbsp;1999 to June&nbsp;2000, he
served as a general partner of Pacific Horizon Ventures, LLC, a
venture capital firm. From August&nbsp;1998 to March&nbsp;1999,
he served as a consultant for Vanguard Venture Partners, a
venture capital firm. Dr.&nbsp;Eplett serves on the boards of
directors of Thermage, Inc., Walnut Technologies, Inc. and St.
Francis Medical Technologies, Inc., which are privately-held
medical device companies. He received a B.A. from the University
of Vermont, a M.D. from Tufts University and a M.B.A. from
Stanford University.
</FONT>

<P align="left">
<B><I><FONT size="2">Russell M.
Medford,&nbsp;M.D.,&nbsp;Ph.D.</FONT></I></B><FONT size="2"> has
served as a member of our board of directors since July 1997.
Since 1995, Dr.&nbsp;Medford has served as the President and
Chief Executive Officer of AtheroGenics, Inc., a publicly-held
biopharmaceutical company, and currently serves as a member of
its board of directors. He also serves on the board of directors
of SELSA (Southeastern Life Sciences Association), on the
Biotechnology Industry Organization&#146;s Emerging Companies
Section&nbsp;Governing Body, the Biosciences Executive Committee
for the Metro Atlanta Chamber of Commerce and is vice chairman
of the board of directors of the Georgia Biomedical Partnership.
He received a B.A. from Cornell University, and a M.D. and a
Ph.D. in Molecular and Cell Biology from the Albert Einstein
College of Medicine. Dr.&nbsp;Medford completed his residency in
internal medicine at the Beth Israel Hospital, Boston,
Massachusetts, and his fellowship in cardiology at the Brigham
and Women&#146;s Hospital, Boston, Massachusetts, and Harvard
Medical School, where he also served on the faculty of medicine.
</FONT>

<P align="left">
<B><I><FONT size="2">Arda M.
Minocherhomjee,&nbsp;Ph.D.</FONT></I></B><FONT size="2"> has
served as a member of our board of directors since June 2000.
Dr.&nbsp;Minocherhomjee joined William Blair&nbsp;&#38; Co. as a
senior healthcare analyst in 1992, since 1998 has served as a
managing director of William Blair Capital Partners, LLC, a
venture capital firm and is currently a principal of William
Blair&nbsp;&#38; Co. He also serves on the board of directors of
several privately-held companies: CryoCor, Inc., Cypress Medical
Products, LP and NuVasive Inc., which are medical device
companies, and Point Biomedical Corporation, Zycos Inc., and
Targagen, Inc., which are pharmaceutical companies. He received
a M.Sc. in Pharmacology from the University of Toronto and a
Ph.D. and a M.B.A. from the University of British Columbia.
Dr.&nbsp;Minocherhomjee has indicated that he intends to resign
from our board of directors shortly after the closing of this
offering.
</FONT>

<P align="left">
<B><I><FONT size="2">Marc L.
Preminger</FONT></I></B><FONT size="2"> has served as a member
of our board of directors since August 2003. From 1977 to
September 2002, Mr.&nbsp;Preminger served in various capacities
with CIGNA Healthcare, a healthcare insurance company, the most
recent of which was as its Senior Vice President and Chief
Financial Officer. He has been retired since September 2002. He
also serves on the board of directors of Gifts of Love, a
not-for-profit social services agency. Mr.&nbsp;Preminger
received a B.S. in Economics from Lafayette College and a
Masters of Actuarial Science from Georgia State University.
</FONT>

<P align="left">
<B><I><FONT size="2">Louis W.
Sullivan,&nbsp;M.D.</FONT></I></B><FONT size="2"> has served as
a member of our board of directors since August 2003.
Dr.&nbsp;Sullivan is the founding Dean, Director and President
Emeritus of the Morehouse School of Medicine. From 1993 until
his retirement in June 2002 and from 1981 to 1989,
Dr.&nbsp;Sullivan served as President of Morehouse School of
Medicine. From 1989 to 1993, he served as Secretary, United
States Department of Health and Human Services.
Dr.&nbsp;Sullivan serves on the boards of directors of 3M
Corporation, Bristol-Myers Squibb Company, CIGNA Corporation,
Equifax, Inc., Georgia-Pacific Corporation, Henry Schein and
United Therapeutics Corporation. He received a B.S. from
Morehouse College and a M.D. from Boston University.
</FONT>

<P align="center"><FONT size="2">58
</FONT>

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<P align="left">
<B><FONT size="2">Composition of Our Board of
Directors</FONT></B>

<P align="left">
<FONT size="2">Several of our current directors were selected as
directors under voting agreements and provisions of our
certificate of incorporation that will automatically terminate
upon the closing of this offering. Immediately after the
completion of this offering based upon our amended and restated
certificate of incorporation, our board of directors will be
divided into three classes, each of whose members will serve for
a staggered term. At each annual meeting of stockholders, a
class of directors will be elected for a three-year term to
succeed the directors of the same class whose terms are then
expiring. The terms of the directors will expire upon the
election and qualification of successor directors at the annual
meeting of stockholders to be held during the years 2005 for the
Class&nbsp;I directors, 2006 for the Class&nbsp;II directors and
2007 for the Class&nbsp;III directors.
</FONT>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Our Class&nbsp;I directors will be Arda M.
    Minocherhomjee, J.&nbsp;Douglas Eplett and Russell M. Medford.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Our Class&nbsp;II directors will be Louis W.
    Sullivan, Carl E. Brooks and Joseph M. Patti.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Our Class&nbsp;III directors will be William D.
    Johnston, Michael A. Henos, Marc L. Preminger and M.&nbsp;James
    Barrett.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">Our amended and restated certificate of
incorporation and by-laws provide that the number of our
directors shall be fixed from time to time by a resolution of
the majority of our board of directors. Any directorships
resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as
possible, each class will consist of one-third of the total
number of directors. Each officer serves at the discretion of
the board of directors and holds office until his successor is
elected and qualified or until his earlier resignation or
removal. There are no family relationships among any of our
directors or executive officers. The division of our board of
directors into three classes with staggered three-year terms may
delay or prevent a change of our management or a change in
control.
</FONT>

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

<P align="left">
<FONT size="2">Following the closing of this offering, our
directors who are not employees will receive an annual retainer
of $10,000 and an additional $2,000 for serving on a committee
of our board of directors. In addition to the foregoing $10,000
retainer, our chairman of the board, chairman of our audit
committee, chairman of our compensation committee and chairman
of our nominating and corporate governance committee will
receive additional annual retainers of $20,000, $7,500, $5,000
and $5,000, respectively. Our non-employee directors are also
eligible to participate in the 2004 Stock Incentive Plan,
pursuant to which upon their election to our board, they will be
entitled to an initial option grant to purchase
40,000&nbsp;shares of common stock, as well as annual option
grants to purchase 12,000&nbsp;shares of common stock; provided
that our chairman of the board is entitled to an annual option
grant to purchase 36,000&nbsp;shares of common stock. See the
&#147;Management&#151;Employee Benefit Plans&#151;2004 Stock
Incentive Plan&#148; section for a further description of our
2004 Stock Incentive Plan. All of our non-employee directors are
reimbursed for out-of-pocket expenses incurred in attending
board and committee meetings.
</FONT>

<P align="left">
<B><FONT size="2">Committees of the Board of Directors</FONT></B>

<P align="left">
<FONT size="2">Our board of directors has an audit committee, a
compensation committee and a nominating and corporate governance
committee, each of which will have the composition and
responsibilities described below. The board may also establish
other committees from time to time to assist in the discharge of
its responsibilities.
</FONT>

<P align="left">
<B><I><FONT size="2">Audit
Committee.</FONT></I></B><FONT size="2"> Our audit committee
oversees our corporate accounting and financial reporting
process. Among other things, our audit committee monitors the
qualifications, independence and performance of the independent
auditors; determines the engagement and compensation of the
independent auditors;
</FONT>

<P align="center"><FONT size="2">59
</FONT>

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<DIV align="left">
<FONT size="2">approves the retention of the independent
auditors to perform any proposed and permissible non-audit
services; reviews our financial statements; reviews our critical
accounting estimates; and discusses with management and the
independent auditors the results of the annual audit and the
review of our quarterly financial statements. Our audit
committee also reviews the effectiveness of internal controls
and the adequacy of our disclosure controls. In addition, our
audit committee maintains procedures for the receipt of
complaints and employee submissions of concerns regarding
accounting or auditing matters. Effective upon the closing of
this offering, the members of our audit committee will be
Mr.&nbsp;Preminger, chairman, and Drs.&nbsp;Eplett and Medford.
Mr.&nbsp;Preminger is our audit committee financial expert under
the SEC rule implementing Section&nbsp;407 of the Sarbanes-Oxley
Act of 2002. We believe that the composition of our audit
committee meets the standards for independence under the current
applicable requirements of the Sarbanes-Oxley Act of 2002, the
Nasdaq National Market and SEC rules and regulations. Although
Dr.&nbsp;Medford is not independent (as such term is defined
under the rules of the Nasdaq National Market) due to the
relationship between AtheroGenics, Inc., of which
Dr.&nbsp;Medford is president and chief executive officer, as is
described under &#147;Certain Relationships and Related Party
Transactions-Other Related Party Transactions,&#148; our board
of directors has determined, because of Dr.&nbsp;Medford&#146;s
experience as president and chief executive officer of a
publicly-traded biopharmaceutical company and his familiarity
with us and our business as one of our longest-standing board
members, that his membership on the audit committee is in our
best interests and the best interests of our stockholders, and
is therefore permitted under the rules of the Nasdaq National
Market. We intend that the functioning of our audit committee
will comply with the applicable requirements of the
Sarbanes-Oxley Act of 2002, the Nasdaq National Market and SEC
rules and regulations.
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">Compensation
Committee.</FONT></I></B><FONT size="2"> Our compensation
committee establishes, amends, reviews and approves our
compensation and benefit plans with respect to our officers and
employees, including reviewing the performance of and
determining individual elements of total compensation of the
Chief Executive Officer and other executive officers. The
compensation committee also determines annual retainer, meeting
fees, stock awards and other compensation for members of the
board of directors and will administer the issuance of stock
options and other awards under our equity incentive plans. The
current members of our compensation committee are
Dr.&nbsp;Minocherhomjee, chairman, Messrs.&nbsp;Henos and Brooks
and Dr.&nbsp;Barrett. We believe that the composition of our
compensation committee meets the standards for independence
under the current applicable requirements of the Sarbanes-Oxley
Act of 2002, the Nasdaq National Market and SEC rules and
regulations. We intend that the functioning of our compensation
committee will comply with the applicable requirements of the
Sarbanes-Oxley Act of 2002, the Nasdaq National Market and SEC
rules and regulations.
</FONT>

<P align="left">
<B><I><FONT size="2">Nominating and Corporate Governance
Committee.</FONT></I></B><FONT size="2"> Our nominating and
corporate governance committee intends to develop and recommend
to the board of directors a set of corporate governance
principles and procedures applicable to the Company, identify
individuals qualified to become board members, determine the
director nominees for each annual meeting of the Company&#146;s
stockholders and ensure that the audit, compensation and
nominating and corporate governance committees of the board of
directors shall have the benefit of qualified and experienced
independent directors. The current members of our nominating and
corporate governance committee are Dr.&nbsp;Sullivan, chairman,
and Dr.&nbsp;Barrett and Mr.&nbsp;Brooks. We believe that the
composition of our nominating and corporate governance committee
will meet the standards for independence under the current
applicable requirements of the Sarbanes-Oxley Act of 2002, the
Nasdaq National Market and SEC rules and regulations. We intend
that the functioning of our nominating and corporate governance
committee will comply with the applicable requirements of the
Sarbanes-Oxley Act of 2002, the Nasdaq National Market and SEC
rules and regulations.
</FONT>

<P align="left">
<B><FONT size="2">Compensation Committee Interlocks and Insider
Participation</FONT></B>

<P align="left">
<FONT size="2">None of our executive officers serves as a member
of the board of directors or compensation committee of any
entity that has one or more executive officers who serve on our
board or compensation committee. None of the members of our
compensation committee has ever been our employee.
</FONT>

<P align="center"><FONT size="2">60
</FONT>

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<P align="left">
<FONT size="2">We lease office and laboratory facilities in
Alpharetta, Georgia from AtheroGenics, Inc. Michael A. Henos, a
member of our compensation committee, is the chairman of the
board of directors of AtheroGenics, Inc. This lease will expire
on December&nbsp;31, 2005. Current monthly lease payments to
AtheroGenics pursuant to this lease are approximately $16,300.
In addition to these lease payments, we are also currently
paying AtheroGenics, Inc. $3,799&nbsp;per month pursuant to a 7%
promissory note in connection with certain leasehold
improvements at our leased facility. As of December&nbsp;31,
2003, the outstanding balance of the note was $84,852. The note
expires in December 2005. See &#147;Certain Relationships and
Related Party Transactions&#151;Stock Issuances&#148; for
information regarding shares of our preferred stock issued to
entities affiliated with Alliance Technology Ventures, whose
managing partner is Michael A. Henos.
</FONT>

<P align="left">
<B><FONT size="2">Clinical and Scientific Advisory
Board</FONT></B>

<P align="left">
<FONT size="2">We have a Clinical and Scientific Advisory Board,
the members of which include recognized scientific experts and
opinion leaders in the field of infectious diseases. This board
meets to assess our research and development programs, the
design and implementation of our clinical programs, our patent
and publication strategies, market opportunities, new
technologies relevant to our research and development programs
and specific scientific and technical issues relevant to our
business.
</FONT>

<P align="left">
<FONT size="2">The current members of our Clinical and
Scientific Advisory Board are:
</FONT>

<CENTER>
<TABLE width="100%" 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="31%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="31%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Position</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Institutional Affiliations</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>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Magnus H&#246;&#246;k,&nbsp;Ph.D.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Regents Professor, Director for Center of
    Extracellular Matrix Biology; co-founder of Inhibitex, Inc.
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Texas A&#38;M University System Health Science
    Center, Houston, TX
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Arnold Bayer,&nbsp;M.D.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Associate Program Director Infectious Diseases
    and Professor of Medicine
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">UCLA School of Medicine, Torrance, CA
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">G. Ralph Corey,&nbsp;M.D.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Professor, Infectious Diseases and Program
    Director, Internal Medicine Residency Training Program
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Duke University Medical Center, Durham, NC
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Charles A. Dinarello,&nbsp;M.D.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Professor of Medicine
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">University of Colorado School of Medicine,
    Denver, CO
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Timothy Foster,&nbsp;Ph.D.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Professor of Molecular Microbiology
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Trinity College, Dublin, Ireland
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Vance G. Fowler, Jr.,&nbsp;M.D., M.H.S
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Associate Professor, Division of Infectious
    Diseases, Department of Internal Medicine
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Duke University Medical Center, Durham, NC
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Norman Klinman,&nbsp;M.D.,&nbsp;Ph.D.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Professor of Medicine
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Scripps Research Institute, La&nbsp;Jolla, CA
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Joseph M. Patti, M.S.P.H. Ph.D.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vice President, Preclinical Development, Chief
    Scientific Officer and co-founder of Inhibitex, Inc.
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

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

<P align="left">
<FONT size="2">The following table sets forth the total
compensation paid to or earned by our chief executive officer
and each of our four other most highly compensated executive
officers for the fiscal year ended December&nbsp;31, 2003, who
were serving as executive officers on December&nbsp;31, 2003 and
whose total annual cash
</FONT>

<P align="center"><FONT size="2">61
</FONT>

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<DIV align="left">
<FONT size="2">compensation exceeded $100,000 for the year ended
December&nbsp;31, 2003. We refer to these individuals elsewhere
in this prospectus as our &#147;named executive officers.&#148;
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">Summary Compensation Table</FONT></I></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="41%"><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="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" align="center" nowrap><B><FONT size="1">Long-Term</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">Compensation</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">Awards</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></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">Annual Compensation<SUP>(1)</SUP></FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Shares</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="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 colspan="2" align="center" nowrap><B><FONT size="1">Name and Principal Position</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</FONT></B></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">Compensation<SUP>(2)</SUP></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>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">William D. Johnston,&nbsp;Ph.D.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">315,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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 align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,719</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">President and Chief Executive Officer; Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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 colspan="18"><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">Seth V. Hetherington,&nbsp;M.D.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">306,000</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">35,100</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">27,500</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">12,431</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vice President, Clinical Development and Chief
    Medical Officer
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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="18"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Joseph M. Patti, M.S.P.H.,&nbsp;Ph.D.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">210,000</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">31,200</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">100,000</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">8,755</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vice President, Preclinical Development and Chief
    Scientific Officer; Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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 colspan="18"><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">Russell H. Plumb
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">210,000</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">31,200</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">35,000</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">7,727</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vice President, Finance and Administration and
    Chief Financial Officer
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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="18"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David M. Wonnacott
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">216,000</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">24,960</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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">8,602</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vice President, Quality and Regulatory Affairs
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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 align="left">
<HR size="1" width="56%" align="left" noshade>
</DIV>

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

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><SUP><FONT size="2">(1)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">We have omitted perquisites and other personal
    benefits that do not exceed the lesser of $50,000 or 10% of the
    executive officer&#146;s annual salary and bonus disclosed in
    this table. We have also omitted information regarding group
    life and health insurance benefits that do not discriminate in
    favor of our directors or executive officers and are generally
    available to all salaried employees.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD><SUP><FONT size="2">(2)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">The amounts on the table under &#147;All Other
    Compensation&#148; represent supplemental insurance and 401(k)
    matching contributions.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><I><FONT size="2">Stock Option Grants in
2003.</FONT></I></B><FONT size="2"> The following table sets
forth information concerning stock option grants made to each of
the named executive officers during the fiscal year ended
December&nbsp;31, 2003. The potential realizable value is
calculated based on the term of the option at the time of its
grant, which is six years. This value is based on assumed rates
of stock appreciation of 5% and 10% compounded annually from the
date the options were granted until their expiration date. These
numbers are calculated based on the requirements of the SEC and
do not reflect our estimate of future stock price growth. Actual
gains, if any, on stock option exercises will depend on the
price of our common stock on the date on which the options are
ultimately exercised. All of the option grants vest annually
over four years.
</FONT>

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

<TR>
    <TD width="22%"><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="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="5%"><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="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>
</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"></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="3"></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"></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">Value at Assumed</FONT></B></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"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Annual Rates of</FONT></B></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"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Stock Price</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">Percent of Total</FONT></B></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">Appreciation for</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of Securities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options Granted</FONT></B></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">Option Term</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Underlying Options</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">to Employees in</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">Expiration</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></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">Granted</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fiscal Year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Per 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 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 valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">William D. Johnston
    </FONT></DIV>
    </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">31.7</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">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4/17/2009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,974</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">111,105</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">Seth V. Hetherington
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,500</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">4.8</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">0.80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4/17/2009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,482</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,974</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">Joseph M. Patti
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100,000</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">17.6</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">0.80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4/17/2009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,208</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">61,725</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">Russell H. Plumb
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,000</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">6.2</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">0.80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4/17/2009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,523</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">21,604</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">David M. Wonnacott
    </FONT></DIV>
    </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">7.9</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">0.80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4/17/2009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,243</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,776</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">62
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">
<B><I><FONT size="2">Fiscal Year-End Option
Values.</FONT></I></B><FONT size="2"> The following table sets
forth certain information regarding the number and value of
unexercised options held by each of the named executive officers
as of December&nbsp;31, 2003. There were no options exercised by
named executive officers in 2003. There was no public market for
our common stock as of December&nbsp;31, 2003. Accordingly,
amounts described in the following table under the heading
&#147;Value of Unexercised In-the-Money Options at Year
End&#148; are determined by multiplying the number of shares
underlying the options by the difference between an assumed
initial public price offering of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share and the per share option exercise price.
</FONT>

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

<TR>
    <TD width="45%"><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="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="5%"><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="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Number of Shares of Common</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Stock Underlying Unexercised</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Value of Unexercised In-the-</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Options at Year End</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Money Options at Year End</FONT></B></TD>
</TR>

<TR>
    <TD></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 align="center" nowrap><B><FONT size="1">Name</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 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">William D. Johnston
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">255,000</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">570,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</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">Seth V. Hetherington
    </FONT></DIV>
    </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">162,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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">Joseph M. Patti
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">184,702</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">290,000</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">Russell H. Plumb
    </FONT></DIV>
    </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">155,000</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">David M. Wonnacott
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,000</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>

</TABLE>
</CENTER>

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

<P align="left">
<B><I><FONT size="2">William D.
Johnston.</FONT></I></B><FONT size="2"> Effective on
February&nbsp;20, 2004, we entered into an employment agreement
with William D. Johnston, our chief executive officer and
president. The agreement has an initial term of one year and
will automatically renew on its anniversary date for an
additional one-year term unless employment is terminated in
accordance with the agreement. The agreement provides for an
annual base salary of $327,700, subject to annual increases as
approved by our compensation committee, and health and insurance
benefits. Dr.&nbsp;Johnston is eligible for bonus and incentive
(including stock option and other equity-based) compensation
plans as established by our compensation committee, with a
target bonus of up to 50% of base salary.
</FONT>

<P align="left">
<FONT size="2">Under the agreement, we or Dr.&nbsp;Johnston may
terminate his employment at any time. If we terminate
Dr.&nbsp;Johnston without cause, or he resigns for good reason,
he will be entitled, subject to execution of a release of
Inhibitex, to receive severance payments representing
12&nbsp;months of salary and health and insurance benefits. In
addition, if within one year after a change in control of
Inhibitex (or in contemplation of a change in control that is
reasonably likely to occur), Dr.&nbsp;Johnston is involuntarily
terminated for any reason other than for cause, or resigns for
good reason, he will be entitled, subject to execution of a
release of Inhibitex, to receive severance payments totaling
24&nbsp;months of salary and health and insurance benefits. In
addition, vesting of options to purchase shares of our common
stock held by Dr.&nbsp;Johnston would accelerate upon a change
in control.
</FONT>

<P align="left">
<FONT size="2">While employed by us and for a period equal to
the greater of one year or the severance period,
Dr.&nbsp;Johnston shall not directly or indirectly in the United
States (i)&nbsp;render substantially similar services to any
person or entity which competes with us; (ii)&nbsp;solicit for
employment any person who was employed by us; or (iii)&nbsp;call
on or solicit any of our customers or a potential customer with
which we were in negotiations.
</FONT>

<P align="left">
<B><I><FONT size="2">Executive Officer Employment
Agreements.</FONT></I></B><FONT size="2"> On December&nbsp;11,
2002, we entered into employment agreements with each of our
other named executive officers: Dr.&nbsp;Hetherington,
Dr.&nbsp;Patti, Mr.&nbsp;Plumb and Mr.&nbsp;Wonnacott. All of
these agreements were amended and restated as of
February&nbsp;20, 2004. Each of the employment agreements has an
initial term of one year and will automatically renew on its
anniversary date for an additional one-year term unless
employment is terminated in accordance with the agreement.
</FONT>

<P align="left">
<FONT size="2">Each employment agreement provides for annual
base salary, subject to annual increases as approved by our
compensation committee, and health and insurance benefits. The
2004 annual base salary for
</FONT>

<P align="center"><FONT size="2">63
</FONT>

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<DIV align="left">
<FONT size="2">Dr.&nbsp;Hetherington, Dr.&nbsp;Patti,
Mr.&nbsp;Plumb and Mr.&nbsp;Wonnacott is $317,600, $218,500,
$218,500, and $224,000, respectively. Each employment agreement
also provides that these named officers are eligible for bonus
and incentive compensation plans, including stock options and
other equity-based compensation as established by our
compensation committee, with a target bonus of up to 30% of base
salary. In Dr.&nbsp;Hetherington&#146;s case, his employment
agreement also provides for a monthly automobile allowance of
$600&nbsp;per month and a monthly housing allowance of
$1,970&nbsp;per month.
</FONT>
</DIV>

<P align="left">
<FONT size="2">Under these agreements, we, or any of these named
officers, may terminate his employment at any time. If we
terminate one of these named executive officers without cause,
or he resigns for good reason, such officer will be entitled,
subject to execution of a release of Inhibitex, to receive
severance payments representing 12&nbsp;months of salary and
health and insurance benefits. In addition, if within one year
after a change in control of Inhibitex (or in contemplation of a
change in control that is reasonably likely to occur), one of
these named executive officers is involuntarily terminated for
any reason other than for cause, or resigns for good reason,
such executive officer will be entitled, subject to execution of
a release of Inhibitex, to receive severance payments totaling
18&nbsp;months of salary and health and insurance benefits. In
addition, vesting of options to purchase shares of our common
stock held by such named executive officers would accelerate
upon a change in control.
</FONT>

<P align="left">
<FONT size="2">While employed by us and for a period equal to
the greater of one year or the severance period, an executive
officer shall not directly or indirectly in the United States
(i)&nbsp;render substantially similar services to any person or
entity which competes with us; (ii)&nbsp;solicit for employment
any person who was employed by us; or (iii)&nbsp;call on or
solicit any of our customers or a potential customer with which
we were in negotiations.
</FONT>

<P align="left">
<B><FONT size="2">Employee Benefit Plans</FONT></B>

<P align="left">
<B><I><FONT size="2">2004 Stock Incentive Plan</FONT></I></B>

<P align="left">
<FONT size="2">We adopted and our stockholders approved the 2002
Stock Incentive Plan in February 2002. We amended, restated and
renamed it as the 2004 Stock Incentive Plan, or the Stock
Incentive Plan, and our stockholders approved it as of
February&nbsp;20, 2004. The Stock Incentive Plan provides for
the grant of incentive stock options, or ISOs, nonstatutory
stock options, deferred stock units, restricted stock awards,
dividend rights, stock appreciation rights, cash payments and
other forms of stock-based compensation, which may be granted to
employees, directors, contractors and consultants. The Stock
Incentive Plan will terminate upon the earlier of its
termination by the compensation committee or on
December&nbsp;31, 2013.
</FONT>

<P align="left">
<I><FONT size="2">Shares Reserved.</FONT></I><FONT size="2"> As
of December&nbsp;31, 2003, 493,128&nbsp;shares of common stock
were reserved for issuance under the Stock Incentive Plan. In
February 2004, 3,400,000&nbsp;shares of common stock were added
to the number of reserved shares.
</FONT>

<P align="left">
<FONT size="2">In addition, shares subject to stock awards
granted under our Amended and Restated 1998 Equity Ownership
Plan and our 2002 Non-Employee Directors Plan, as described
later in this section, that expire, are forfeited or otherwise
terminate without being exercised, will be available for
re-issuance under the Stock Incentive Plan. As of
December&nbsp;31, 2003, outstanding stock options with respect
to a total of 2,063,249&nbsp;shares of our common stock were
held by participants under the Stock Incentive Plan.
Substantially all of these outstanding stock options are
intended to be ISOs.
</FONT>

<P align="left">
<FONT size="2">When a stock award expires, is settled in cash or
is terminated before it is exercised or shares are not issued or
are withheld upon the exercise of a stock award, the shares not
acquired, not issued or withheld pursuant to the stock awards
shall again become available for issuance under the Stock
Incentive Plan. Similarly, any shares tendered to pay an
exercise price or withheld in satisfaction of tax obligations
shall again become available for issuance under the Stock
Incentive Plan.
</FONT>

<P align="center"><FONT size="2">64
</FONT>

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<P align="left">
<I><FONT size="2">Administration and Exercise
Price.</FONT></I><FONT size="2"> Our compensation committee
administers the Stock Incentive Plan. The compensation committee
may delegate authority to perform certain functions under the
Stock Incentive Plan to our executive officers. Subject to the
terms of the Stock Incentive Plan, the compensation committee
determines recipients, the numbers and types of equity awards to
be granted, any applicable performance goals and the terms and
conditions of the equity awards. The compensation committee
determines the exercise price of option grants, the purchase
price for rights to purchase restricted stock and the strike
price for stock appreciation rights. Pursuant to the terms of
the Stock Incentive Plan, each person who is elected for the
first time to be a non-employee director will be granted an
option to purchase 40,000&nbsp;shares of common stock.
Subsequently, each non-employee director will be granted an
option to purchase 12,000&nbsp;shares of common stock on
February 1 of each year (36,000&nbsp;shares in the case of our
Chairman of the Board), provided, however, that each
non-employee director who has been a non-employee director for
less than 12&nbsp;months at February&nbsp;1 will receive an
annual grant that has been pro-rated from the date of
commencement of service as a non-employee director.
</FONT>

<P align="left">
<I><FONT size="2">Vesting and Term.</FONT></I><FONT size="2">
Stock awards granted under the Stock Incentive Plan to employees
to date generally vest annually over four years. Annual stock
awards under the Stock Incentive Plan to directors following the
completion of this offering will vest in their entirety on the
first anniversary of the date of grant and initial grants to
directors upon joining our board will vest over three years
after the date of grant at the rate of 33% for each completed
year of service. The vesting and term of each stock award are
set by the compensation committee, provided that no term can
exceed ten years from the date of grant.
</FONT>

<P align="left">
<I><FONT size="2">Transferability.</FONT></I><FONT size="2">
Subject to certain exceptions, each of the awards under the
Stock Incentive Plan may not be transferred other than by will
or by the laws of descent and distribution. However, a
participant may designate a beneficiary who may exercise the
rights under the stock-based award following the
participant&#146;s death. The compensation committee, in its
discretion, may provide for the transfer of stock awards granted
under the Stock Incentive Plan to certain trusts and
partnerships for the benefit of or held by immediate family
members of the participant.
</FONT>

<P align="left">
<I><FONT size="2">Effect of a Change in
Control.</FONT></I><FONT size="2"> Upon a change in control, as
defined in the Stock Incentive Plan, under certain
circumstances, vesting of options is subject to acceleration
pursuant to a formula based upon the employee&#146;s length of
service so that, with respect to an employee who has been
employed by us for two years, all such options would vest.
</FONT>

<P align="left">
<I><FONT size="2">Termination of
Service.</FONT></I><FONT size="2"> An non-employee director
whose service as a director ceases for any reason other than
removal of such non-employee director for cause may exercise
vested options for 12&nbsp;months. In the case of removal for
cause, the options shall terminate immediately upon such removal.
</FONT>

<P align="left">
<B><I><FONT size="2">2002 Non-Employee Directors Stock Option
Plan</FONT></I></B>

<P align="left">
<FONT size="2">We adopted our 2002 Non-Employee Directors Stock
Option Plan in February 2002. Upon the adoption of the 2004
Stock Incentive Plan in February 2004, no further options were
authorized to be granted under or from the 2002 Non-Employee
Directors Stock Option Plan, or Director Plan. All options
outstanding under the Director Plan will remain in full force
and effect until they expire or are exercised. As of
December&nbsp;31, 2003, outstanding stock options to purchase a
total of 120,000&nbsp;shares of our common stock were held by
participants under the Director Plan.
</FONT>

<P align="left">
<I><FONT size="2">Administration and Exercise
Price.</FONT></I><FONT size="2"> Our compensation committee
administers the Director Plan.
</FONT>

<P align="left">
<I><FONT size="2">Vesting and Term.</FONT></I><FONT size="2">
Awards granted under the Director Plan to date generally vest
over three years after the date of grant at the rate of 33% for
each completed year of service. Options granted under the
Director Plan may be exercised, once vested, up to ten years
from the date of grant.
</FONT>

<P align="center"><FONT size="2">65
</FONT>

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<P align="left">
<I><FONT size="2">Transferability.</FONT></I><FONT size="2">
Awards granted under the Director Plan are generally not
transferable, other than by will or by the laws of descent and
distribution, and are exercisable during the life of the
non-employee director only by the non-employee director or his
or her guardian or legal representative. The compensation
committee, in its discretion, may provide for the transfer of
awards granted under the Director Plan to certain trusts and
partnerships for the benefit of or held by immediate family
members of the non-employee director.
</FONT>

<P align="left">
<I><FONT size="2">Termination of
Service.</FONT></I><FONT size="2"> A non-employee director whose
service as a director ceases for any reason other than removal
of such non-employee director for cause may exercise vested
options for 12&nbsp;months. In the case of removal for cause,
the options shall terminate immediately upon such removal.
</FONT>

<P align="left">
<B><I><FONT size="2">Amended and Restated 1998 Equity Ownership
Plan</FONT></I></B>

<P align="left">
<FONT size="2">In May 1998 our board of directors adopted our
1998 Equity Ownership Plan, or the 1998 Plan, which was amended
and restated several times to increase the number of reserved
shares, the last of which occurred in December 2000. Upon the
adoption of the 2002 Stock Incentive Plan in February 2002, no
further options were authorized to be granted under or from the
1998 Plan. All options outstanding under the 1998 Plan will
remain in full force and effect until they expire or are
exercised. As of December&nbsp;31, 2003, options to purchase
1,002,242&nbsp;shares of our common stock were outstanding under
our 1998 Plan. The vast majority of the options granted under
the 1998 Plan are intended to be ISOs.
</FONT>

<P align="left">
<I><FONT size="2">Administration.</FONT></I><FONT size="2"> Our
compensation committee administers the 1998 Plan, and may
delegate authority to perform certain functions under the 1998
Plan to our executive officers.
</FONT>

<P align="left">
<I><FONT size="2">Vesting and Term.</FONT></I><FONT size="2">
Options granted under 1998 Plan generally vest over four years
and terminate on the tenth anniversary of the date of grant.
</FONT>

<P align="left">
<I><FONT size="2">Transferability.</FONT></I><FONT size="2">
Unless otherwise provided in the 1998 Plan or in the individual
stock option agreement, options granted under the 1998 Plan may
not be transferred.
</FONT>

<P align="left">
<B><I><FONT size="2">2004 Employee Stock Purchase
Plan</FONT></I></B>

<P align="left">
<FONT size="2">Our board of directors adopted, and our
stockholders approved as of February&nbsp;20, 2004, our 2004
Employee Stock Purchase Plan, or the Purchase Plan, which will
become effective after the closing of this offering. The purpose
of the Purchase Plan is to provide an opportunity for our
employees to purchase a proprietary interest in us.
</FONT>

<P align="left">
<I><FONT size="2">Administration.</FONT></I><FONT size="2"> The
Purchase Plan is administered by a committee appointed by the
board of directors for such purpose. The board of directors has
appointed our compensation committee to administer the Purchase
Plan.
</FONT>

<P align="left">
<I><FONT size="2">Shares Reserved.</FONT></I><FONT size="2"> A
total of 500,000&nbsp;shares of common stock are authorized for
issuance under the Purchase Plan.
</FONT>

<P align="left">
<I><FONT size="2">Eligibility.</FONT></I><FONT size="2">
Employees who are customarily employed for more than
20&nbsp;hours per week and for more than 5&nbsp;months in any
calendar year and have been so employed for a six-month period
are eligible to participate in the Purchase Plan. Employees who
would own 5% or more of the total combined voting power or value
of all classes of our stock immediately after the grant may not
participate in the purchase plan.
</FONT>

<P align="left">
<I><FONT size="2">Purchase Periods.</FONT></I><FONT size="2">
The Purchase Plan is intended to qualify under Section&nbsp;423
of the Internal Revenue Code and provides for quarterly purchase
periods, except that the first such purchase period will
commence on October&nbsp;1, 2004 and will end on
December&nbsp;31, 2004.
</FONT>

<P align="center"><FONT size="2">66
</FONT>

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<P align="left">
<I><FONT size="2">Payroll Deduction; Purchase
Limitations.</FONT></I><FONT size="2"> The Purchase Plan permits
participants to purchase common stock through payroll deductions
of up to 25% of their eligible base salary. For any calendar
year, a participant may not be granted rights to purchase shares
to the extent the fair market value of such shares exceeds
$25,000.
</FONT>

<P align="left">
<FONT size="2">Amounts deducted and accumulated by the
participant are used to purchase shares of our common stock at
the end of each quarterly purchase period. The purchase price
per share is 85% of the lower of the fair market value of our
common stock at the beginning of a purchase period or at the end
of a purchase period. An employee&#146;s participation ends
automatically upon termination of employment with us.
</FONT>

<P align="left">
<I><FONT size="2">Nontransferability.</FONT></I><FONT size="2">
A participant may not transfer rights to purchase our common
stock under the Purchase Plan other than by will or the laws of
descent and distribution.
</FONT>

<P align="left">
<I><FONT size="2">Effect of a Change of
Control.</FONT></I><FONT size="2"> In the event of a change of
control, no further shares shall be available under the Purchase
Plan, but all payroll deductions scheduled for collection in
that purchase period will be immediately applied to purchase
whole shares of our common stock.
</FONT>

<P align="left">
<I><FONT size="2">Additional
Provisions.</FONT></I><FONT size="2"> Our board of directors has
the authority to amend or terminate the Purchase Plan, except
that, subject to certain exceptions described in the Purchase
Plan, no such action may adversely affect any outstanding rights
to purchase stock under the Purchase Plan and the board of
directors may not increase the number of shares available under
the Purchase Plan, or amend the requirements as to the eligible
class of employees, without stockholder approval.
</FONT>

<P align="left">
<B><I><FONT size="2">401(k) Plan</FONT></I></B>

<P align="left">
<FONT size="2">We sponsor a 401(k) plan for the benefit of our
employees that is a defined contribution plan intended to
qualify under Section&nbsp;401(a) of the Internal Revenue Code
of 1986, as amended. Eligible employees may make pre-tax
contributions to the 401(k) plan subject to the statutorily
prescribed annual limit. Under the 401(k) plan, each employee is
fully vested in his or her deferred salary contributions. The
401(k) plan permits us to make discretionary matching and
profit-sharing contributions. During 2003 we matched 50% of an
employee&#146;s contributions, up to a maximum of 6% of that
employee&#146;s annual base compensation.
</FONT>

<P align="left">
<B><FONT size="2">Limitation of Liability and Indemnification of
Directors and Officers</FONT></B>

<P align="left">
<FONT size="2">Our amended and restated certificate of
incorporation, as it will be in effect immediately after the
completion of this offering, contains certain provisions
permitted under Delaware General Corporation Law relating to the
liability of directors. These provisions eliminate a
director&#146;s personal liability for monetary damages
resulting from a breach of fiduciary duty, except in certain
circumstances involving a breach of their duty of loyalty to our
company or our stockholders, acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation
of law, unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section&nbsp;174 of
the Delaware General Corporation Law or any transaction from
which the director derived an improper personal benefit.
</FONT>

<P align="left">
<FONT size="2">These provisions do not limit or eliminate our
rights or the rights of any stockholder to seek non-monetary
relief, such as an injunction or rescission, in the event of a
breach of a director&#146;s fiduciary duty. These provisions
also will not alter a director&#146;s liability under federal
securities laws. Our amended and restated certificate of
incorporation and amended and restated by-laws also contain
provisions indemnifying our directors and officers to the
fullest extent permitted by the Delaware General Corporation
Law. We believe that these provisions will assist us in
attracting and retaining qualified individuals to serve as
officers and directors.
</FONT>

<P align="left">
<FONT size="2">Upon the completion of this offering, we will
enter into separate, but identical, indemnity agreements with
each of our directors and executive officers and we expect to
enter into similar indemnity agreements with persons who become
directors or executive officers in the future. These indemnity
agreements provide that
</FONT>

<P align="center"><FONT size="2">67
</FONT>

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<DIV align="left">
<FONT size="2">we will indemnify our directors or executive
officers, or the indemnitees, against any amounts that he or she
becomes legally obligated to pay in connection with any claim
against him or her based upon any act, omission, neglect or
breach of duty that he or she may commit, omit or suffer while
acting in his or her capacity as a director and/or officer of
Inhibitex; provided that such claim: (i)&nbsp;is not based upon
the indemnitee&#146;s gaining any personal profit or advantage
to which he or she is not legally entitled; (ii)&nbsp;is not for
an accounting of profits made from the purchase or sale by the
indemnitee of our securities within the meaning of
Section&nbsp;16(b) of the Exchange Act or similar provisions of
any state law; and (iii)&nbsp;is not based upon the
indemnitee&#146;s knowingly fraudulent, deliberately dishonest
or willful misconduct. The indemnity agreements also provide
that all costs and expenses incurred by the indemnitee in
defending or investigating any such claim shall be paid by us in
advance of the final disposition thereof unless a majority of
our directors who are not parties to the action, independent
legal counsel in a written opinion, our stockholders or a court
of competent jurisdiction in a final, unappealable adjudication
determine that: (i)&nbsp;the indemnitee did not act in good
faith and in a manner that he or she reasonably believed to be
in or not opposed to our best interests or (ii)&nbsp;in the case
of any criminal action or proceeding, the indemnitee had
reasonable cause to believe his or her conduct was unlawful.
Each indemnitee has undertaken to repay us for any costs or
expenses so advanced if it shall ultimately be determined by a
court of competent jurisdiction in a final, nonappealable
adjudication that he or she is not entitled to indemnification
under the indemnity agreements.
</FONT>
</DIV>

<P align="left">
<FONT size="2">In addition, we maintain directors&#146; and
officers&#146; liability insurance to provide our directors and
officers with insurance coverage for losses arising from claims
based on breaches of duty, negligence, error and other wrongful
acts.
</FONT>

<P align="center"><FONT size="2">68
</FONT>

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<DIV align="left">
<A name='112'></A>
</DIV>

<!-- link1 "RELATED PARTY TRANSACTIONS" -->

<P align="center">
<B><FONT size="2">RELATED PARTY TRANSACTIONS</FONT></B>

<P align="left">
<FONT size="2">Other than employment agreements and other
arrangements that are described in &#147;Management&#148; and
the transactions described below, since January&nbsp;1, 2001,
there has not been, and there is not currently proposed, any
transaction or series of similar transactions to which we were
or will be a party where the amount involved exceeded or will
exceed $60,000 and in which any director, executive officer,
holder of 5% or more of any class of our capital stock or any
member of their immediate family had or will have a direct or
indirect material interest.
</FONT>

<P align="left">
<FONT size="2">We believe that we have executed all of the
transactions set forth below on terms no less favorable to us
than we could have obtained from unaffiliated third parties. It
is our intention to ensure that any and all future transactions
between us and our executive officers, directors and principal
stockholders and their affiliates, are approved by a majority of
the board of directors, including a majority of the independent
and disinterested members of the board of directors, and are on
terms no less favorable to us than those that we could obtain
from unaffiliated third parties.
</FONT>

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

<P align="left">
<FONT size="2">The following is a summary of the participation
of persons and entities who are our directors, executive
officers or holders of 5% or more of any class of our capital
stock in our preferred and common stock and warrant transactions
since January&nbsp;1, 2001.
</FONT>

<P align="left">
<B><I><FONT size="2">Issuance of Series&nbsp;D Preferred
Stock</FONT></I></B>

<P align="left">
<FONT size="2">In February, March and April 2002, we issued an
aggregate of 11,420,794&nbsp;shares of our Series&nbsp;D
preferred stock at a price per share of $3.94 for a total
purchase price of $44,997,928. We also issued warrants to
purchase an aggregate of 2,855,200&nbsp;shares of Series&nbsp;D
preferred stock at an exercise price of $5.91&nbsp;per share in
connection with our Series&nbsp;D financing. The following table
sets forth the number of shares of Series&nbsp;D preferred stock
and related warrants sold to our 5% stockholders and their
affiliates.
</FONT>

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

<TR>
    <TD width="47%"><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="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="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="3" align="center" nowrap><B><FONT size="1">Number of Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">of Series&nbsp;D</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">Aggregate</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name<SUP>(1)</SUP></FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Preferred Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Underlying Warrants</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Purchase Price</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>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">New Enterprise Associates&nbsp;10, Limited
    Partnership<SUP>(2)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,070,305</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,267,576</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">19,977,002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="13"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Essex Woodlands Health Ventures&nbsp;V,
    L.P.<SUP>(3)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,776,650</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">444,163</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,000,001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="13"><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">Alliance Technology Ventures&nbsp;III, L.P. and
    affiliated entities<SUP>(4)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,560,387</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">390,098</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">6,147,925</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="13"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital Technologies CDPQ Inc.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,269,035</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">317,259</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,999,998</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="13"><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">William Blair Capital Partners&nbsp;VI,
    L.P.<SUP>(5)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">913,707</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">228,427</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,600,006</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="13"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Burrill Biotechnology Capital Fund, LP
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">761,421</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">190,355</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">2,999,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left">
<HR size="1" width="56%" align="left" noshade>
</DIV>
<P>

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

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><SUP><FONT size="2">(1)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">See &#147;Principal Stockholders&#148; for more
    detail on shares held by these purchasers and their affiliated
    entities.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD><SUP><FONT size="2">(2)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">Dr.&nbsp;M. James Barrett, a member of our board
    of directors, is a general partner of NEA Partners&nbsp;10,
    Limited Partnership, the general partner of New Enterprise
    Associates&nbsp;10, Limited Partnership.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD><SUP><FONT size="2">(3)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">Dr.&nbsp;J. Douglas Eplett, a member of our board
    of directors, is a general partner of Essex Woodlands Health
    Ventures&nbsp;V, L.P.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD><SUP><FONT size="2">(4)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">Michael A. Henos, the chairman of our board of
    directors, is the general partner or manager of the general
    partner of each of the entities affiliated with Alliance
    Technology Ventures&nbsp;III, L.P.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD><SUP><FONT size="2">(5)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">Dr.&nbsp;Arda M. Minocherhomjee, a member of our
    board of directors, is a managing director of William Blair
    Capital Partners&nbsp;VI, L.L.C., the general partner of William
    Blair Capital Partners&nbsp;VI, L.P.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">69
</FONT>

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<P align="left">
<B><I><FONT size="2">Issuance of Series&nbsp;E Preferred
Stock</FONT></I></B>

<P align="left">
<FONT size="2">On December&nbsp;19, 2003, we issued an aggregate
of 5,087,740&nbsp;shares of our Series&nbsp;E preferred stock at
a price per share of $3.94 for a total purchase price of
$20,045,696. We also issued warrants to purchase an aggregate of
1,271,930&nbsp;shares of Series&nbsp;E preferred stock at an
exercise price of $5.91&nbsp;per share in connection with our
Series&nbsp;E financing. The following table sets forth the
number of shares of Series&nbsp;E preferred stock and related
warrants sold to our 5% stockholders and their affiliates.
</FONT>

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

<TR>
    <TD width="47%"><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="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="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="3" align="center" nowrap><B><FONT size="1">Number of Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">of Series&nbsp;E</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">Aggregate</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name<SUP>(1)</SUP></FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Preferred Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Underlying Warrants</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Purchase Price</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>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">New Enterprise Associates&nbsp;10, Limited
    Partnership<SUP>(2)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,284,263</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">571,065</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">8,999,996</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="13"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">William Blair Capital Partners&nbsp;VI,
    L.P.<SUP>(3)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">761,421</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">190,355</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">2,999,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="13"><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">Alliance Technology Ventures&nbsp;III, L.P. and
    affiliated entities<SUP>(4)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">673,022</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">168,253</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,651,707</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="13"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Burrill Biotechnology Capital Fund, LP
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">507,614</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">126,903</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,999,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="13"><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">Essex Woodlands Health Ventures&nbsp;V,
    L.P.<SUP>(5)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">380,710</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">95,177</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,499,997</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="13"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital Technologies CDPQ Inc.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">380,710</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">95,177</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,499,997</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left">
<HR size="1" width="56%" align="left" noshade>
</DIV>
<P>

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

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><SUP><FONT size="2">(1)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">See &#147;Principal Stockholders&#148; for more
    detail on shares held by these purchasers and their affiliated
    entities
    </FONT></TD>
</TR>

<TR valign="top">
    <TD><SUP><FONT size="2">(2)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">Dr.&nbsp;M. James Barrett, a member of our board
    of directors, is a general partner of NEA Partners&nbsp;10,
    Limited Partnership, the general partner of New Enterprise
    Associates&nbsp;10, Limited Partnership.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD><SUP><FONT size="2">(3)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">Dr.&nbsp;Arda M. Minocherhomjee, a member of our
    board of directors, is a managing director of William Blair
    Capital Partners&nbsp;VI, L.L.C., the general partner of William
    Blair Capital Partners&nbsp;VI, L.P.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD><SUP><FONT size="2">(4)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">Michael A. Henos, the chairman of our board of
    directors, is the general partner or manager of the general
    partner of each of the entities affiliated with Alliance
    Technology Ventures&nbsp;III, L.P.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD><SUP><FONT size="2">(5)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">Dr.&nbsp;J.&nbsp;Douglas Eplett, a member of our
    board of directors, is a general partner of Essex Woodlands
    Health Ventures&nbsp;V, L.P.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">In June 2001, we issued 40,833&nbsp;shares of our
common stock to Carl E. Brooks, a member of our board of
directors pursuant to the exercise of stock options at an
exercise price of $0.12&nbsp;per share for a total purchase
price of $4,900. In October 2002, we issued an additional
21,667&nbsp;shares of our common stock to Mr.&nbsp;Brooks
pursuant to the exercise of stock options at an exercise price
of $0.12&nbsp;per share for a total purchase price of $2,600 and
1,562&nbsp;shares of our common stock at an exercise price per
share of $0.285 for a total purchase price of $445.
</FONT>

<P align="left">
<FONT size="2">In connection with the above preferred stock
transactions, we entered into agreements with all of the holders
of our convertible preferred stock providing for registration
rights with respect to these shares. See the &#147;Description
of Capital Stock&#151; Registration Rights&#148; section.
</FONT>

<P align="left">
<B><I><FONT size="2">Preferred Stock Dividends</FONT></I></B>

<P align="left">
<FONT size="2">Under the terms of our existing certificate of
incorporation, holders of shares of our Series&nbsp;C and
Series&nbsp;D preferred stock are entitled to receive a
cumulative annual dividend of 8% on their investment. The
cumulative dividend accrues daily, whether or not declared.
These holders can elect at any time to take these Series&nbsp;C
and D dividends in shares of Series&nbsp;C and Series&nbsp;D
preferred stock. The tables above exclude all Series&nbsp;C and
Series&nbsp;D preferred stock issuable upon the conversion of
these accrued dividends. Accrued cumulative dividends as of
December&nbsp;31, 2003 were $4,274,595 and $6,789,910 for
Series&nbsp;C and Series&nbsp;D preferred stockholders,
respectively, and are convertible into 1,499,858 and
1,723,327&nbsp;shares of common stock, respectively. Upon the
completion of this offering and the adoption of our amended and
restated certificate of incorporation, all preferred stock will
convert into shares of common stock and therefore, dividends on
these preferred shares will cease to accrue.
</FONT>

<P align="center"><FONT size="2">70
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">
<B><FONT size="2">Other Related Party Transactions</FONT></B>

<P align="left">
<FONT size="2">We lease office and laboratory facilities in
Alpharetta, Georgia from AtheroGenics, Inc. Michael A. Henos,
our chairman, and Russell M. Medford, a member of our board of
directors, are chairman of the board of directors and the
president and chief executive officer, respectively, of
AtheroGenics, Inc. This lease will expire on December&nbsp;31,
2005. Current monthly lease payments to AtheroGenics pursuant to
this lease are approximately $16,300. In addition to these lease
payments, we are currently paying AtheroGenics, Inc.
$3,799&nbsp;per month pursuant to a 7% promissory note in
connection with certain leasehold improvements at our leased
facility. As of December&nbsp;31, 2003, the outstanding balance
of the note was $84,852. The note expires in December 2005.
</FONT>

<P align="center"><FONT size="2">71
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='113'></A>
</DIV>

<!-- link1 "PRINCIPAL STOCKHOLDERS" -->

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

<P align="left">
<FONT size="2">The following table sets forth certain
information known to us with respect to the beneficial ownership
of our common stock as of December&nbsp;31, 2003, as adjusted to
reflect the sale of common stock being offered in this offering,
by:
</FONT>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">each person or group of affiliated persons known
    by us to be the beneficial owner of more than 5% of our common
    stock;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</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;</FONT></TD>
    <TD align="left">
    <FONT size="2">each of our named executive officers;&nbsp;and
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">all directors and executive officers as a group.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">The column entitled &#147;Percentage of Shares of
Common Stock Beneficially Owned&#151; Before Offering&#148; is
based on 29,088,317&nbsp;shares of common stock outstanding as
of December&nbsp;31, 2003 assuming the conversion of all of our
outstanding convertible preferred stock, which includes the
conversion of all cumulative preferred stock dividends accrued
as of December&nbsp;31, 2003, into 27,812,629&nbsp;shares of
common stock. This excludes the assumed issuance
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 subject to the mandatory cashless exercise of
warrants to purchase shares of preferred stock upon the
completion of this offering. The column entitled
&#147;Percentage of Shares of Common Stock Beneficially
Owned&#151; After Offering&#148; is based
on &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 to be outstanding after this offering after
giving effect to
the &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
we are selling in this offering, the conversion of all preferred
stock and accrued cumulative preferred stock dividends, the
issuance
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 subject to the mandatory cashless exercise of
warrants to purchase 4,127,130&nbsp;shares of preferred stock
upon the completion of this offering, based on the assumed
initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share, a&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;for reverse
stock split, and assuming no further exercises of outstanding
option, warrants or the underwriters&#146; over-allotment option.
</FONT>

<P align="left">
<FONT size="2">Beneficial ownership is determined in accordance
with the rules of the SEC. The information does not necessarily
indicate beneficial ownership for any other purpose. For
purposes of calculating each person&#146;s or group&#146;s
percentage ownership, stock options and warrants exercisable
within 60&nbsp;days after December&nbsp;31, 2003 are included
for that person or group, but not the stock options or warrants
of any other person or group.
</FONT>

<P align="center"><FONT size="2">72
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">
<FONT size="2">Except as otherwise noted, the persons or
entities in this table have sole voting and investing power with
respect to all of the shares of common stock beneficially owned
by them, subject to community property laws, where applicable.
Except as otherwise set forth below, the street address of
beneficial owners of 5% or more of our common stock is
c/o&nbsp;Inhibitex, Inc., 1165&nbsp;Sanctuary Parkway,
Suite&nbsp;400, Alpharetta, Georgia 30004.
</FONT>

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

<TR>
    <TD width="51%"><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="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="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></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="7" align="center" nowrap><B><FONT size="1">Percentage of Shares</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">of Common Stock</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Beneficially Owned</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Beneficial Owner</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares Held</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</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>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">5% or greater 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 valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="13"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">New Enterprise Associates 10, Limited Partnership
    <SUP>(1)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,962,228</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31.4</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>
    <TD colspan="13"><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">Alliance Technology Ventures, L.P. and affiliated
    entities<SUP>(2)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,860,057</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="13"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">William Blair Capital Partners&nbsp;VI,
    L.P.<SUP>(3)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,561,675</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="13"><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">Essex Woodlands Health Ventures&nbsp;V,
    L.P.<SUP>(4)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,966,167</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">9.9</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 colspan="13"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital Technologies CDPQ Inc.<SUP>(5)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,254,657</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.6</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 colspan="13"><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">Burrill Biotechnology Capital Fund,
    LP<SUP>(6)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,694,936</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.7</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 colspan="13"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Named Executive Officers and
    Directors:</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 colspan="13"><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">William D. Johnston,&nbsp;Ph.D.<SUP>(7)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">714,423</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">2.4</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="13"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Seth V. Hetherington,&nbsp;M.D.<SUP>(8)</SUP>
    </FONT></DIV>
    </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="13"><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">Joseph M. Patti,
    M.S.P.H.,&nbsp;Ph.D.<SUP>(9)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">458,665</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.6</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 colspan="13"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Russell H. Plumb<SUP>(10)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">141,250</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">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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="13"><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">David M. Wonnacott<SUP>(11)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,000</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 colspan="13"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">M. James Barrett,&nbsp;Ph.D.<SUP>(12)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,962,228</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31.4</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>
    <TD colspan="13"><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">Carl E. Brooks<SUP>(13)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">94,689</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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 colspan="13"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">J. Douglas Eplett,&nbsp;M.D.<SUP>(14)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,966,167</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">9.9</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 colspan="13"><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">Michael A. Henos<SUP>(15)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,888,993</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">22.6</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 colspan="13"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Russell M.
    Medford,&nbsp;M.D.,&nbsp;Ph.D.<SUP>(16)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,228</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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="13"><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">Arda M. Minocherhomjee,&nbsp;Ph.D.<SUP>(17)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,561,675</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="13"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marc L. Preminger
    </FONT></DIV>
    </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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="13"><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">Louis W. Sullivan
    </FONT></DIV>
    </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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="13"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">All current executive officers and directors
    as a group (14 persons)<SUP>(18)</SUP></FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,908,318</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">74.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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="56%" align="left" noshade>

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

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&nbsp;*&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Represents beneficial ownership of less than one
    percent of our common stock.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD><SUP><FONT size="2">(1)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">Includes 8,123,587&nbsp;shares (including
    769,019&nbsp;shares issuable upon the conversion of accrued
    preferred stock dividends) and 1,838,641&nbsp;shares issuable
    under warrants beneficially owned by New Enterprise
    Associates&nbsp;10, Limited Partnership. New Enterprise
    Associates&nbsp;10, Limited Partnership is located at
    1119&nbsp;St.&nbsp;Paul Street, Baltimore, Maryland&nbsp;21202.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD><SUP><FONT size="2">(2)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">Includes 1,440,637&nbsp;shares (including
    79,613&nbsp;shares issuable upon the conversion of accrued
    cumulative preferred stock dividends) and 78,671&nbsp;shares
    issuable under warrants beneficially owned by Alliance
    Technology Ventures, L.P.; 399,103&nbsp;shares (which includes
    22,141&nbsp;shares issuable upon the conversion of accrued
    cumulative preferred stock dividends) and 21,868&nbsp;shares
    issuable under warrants beneficially owned by ATV/ GP Parallel
    Fund, L.P.; 109,175&nbsp;shares (which includes
    6,033&nbsp;shares issuable upon the conversion of accrued
    cumulative preferred stock dividends) and 5,961&nbsp;shares
    issuable under warrants beneficially owned by ATV/ MJF Parallel
    Fund, L.P.; 1,616,146&nbsp;shares (which includes
    268,528&nbsp;shares issuable upon the conversion of accrued
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">73
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

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

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
    <FONT size="2">cumulative preferred stock dividends) and
    164,975&nbsp;shares issuable under warrants beneficially owned
    by Alliance Technology Ventures&nbsp;II, L.P.;
    2,557,691&nbsp;shares (which includes 333,092&nbsp;shares
    issuable upon the conversion of accrued cumulative preferred
    stock dividends) and 380,711&nbsp;shares issuable under warrants
    beneficially owned by Alliance Technology Ventures&nbsp;III,
    L.P.; 44,670&nbsp;shares (which includes 5,203&nbsp;shares
    issuable upon the conversion of accrued cumulative preferred
    stock dividends) and 6,357&nbsp;shares issuable under warrants
    beneficially owned by ATV&nbsp;II Affiliates Fund, L.P.; and
    27,784&nbsp;shares (which includes 2,551&nbsp;shares issuable
    upon the conversion of accrued cumulative preferred stock
    dividends) and 6,308&nbsp;shares issuable under warrants
    beneficially owned by ATV&nbsp;III Affiliates Fund, L.P.
    Alliance Technology Ventures is located at 8995 Westside
    Parkway, Alpharetta, Georgia 30004.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD><SUP><FONT size="2">(3)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">Includes 5,142,893&nbsp;shares (including
    836,186&nbsp;shares issuable upon the conversion of accrued
    cumulative preferred stock dividends) and 418,782&nbsp;shares
    issuable under warrants beneficially owned by William Blair
    Capital Partners&nbsp;VI, L.P.&nbsp;William Blair Capital
    Partners&nbsp;VI,&nbsp;L.P. is located at
    227&nbsp;W.&nbsp;Monroe Street, Suite&nbsp;3500, Chicago,
    Illinois&nbsp;60606.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD><SUP><FONT size="2">(4)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">Includes 2,426,827&nbsp;shares (including
    269,467&nbsp;shares issuable upon the conversion of accrued
    cumulative preferred stock dividends) and 539,340&nbsp;shares
    issuable under warrants beneficially owned by Essex Woodlands
    Health Ventures&nbsp;V, L.P. Essex Woodlands Health Ventures is
    located at 190&nbsp;S.&nbsp;LaSalle Street, Suite&nbsp;2800,
    Chicago, Illinois&nbsp;60603.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD><SUP><FONT size="2">(5)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">Includes 1,842,221&nbsp;shares (including
    192,476&nbsp;shares issuable upon the conversion of accrued
    cumulative preferred stock dividends) and 412,436&nbsp;shares
    issuable under warrants beneficially owned by Capital
    Technologies CDPQ Inc. Capital Technologies CDPQ Inc. is located
    at Centre CDP&nbsp;Capital, 1000, place Jean-Paul-Riopelle,
    Montreal, Quebec&nbsp;H2Z 2B3, Canada.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD><SUP><FONT size="2">(6)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">Includes 1,377,678&nbsp;shares (including
    108,643&nbsp;shares issuable upon the conversion of accrued
    cumulative preferred stock dividends) and 317,258&nbsp;shares
    issuable under warrants beneficially owned by Burrill
    Biotechnology Capital Fund, LP Burrill Biotechnology Capital
    Fund,&nbsp;LP is located at One Embarcadero Center,
    Suite&nbsp;2100, San&nbsp;Francisco, California&nbsp;94111.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD><SUP><FONT size="2">(7)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">Includes 150,000&nbsp;shares owned by
    Susan&nbsp;D. Johnston, 32,000&nbsp;shares owned by the
    Ryan&nbsp;D. Johnston Irrevocable Trust, 22,000&nbsp;shares
    owned by each of the Kyle&nbsp;D. Johnston Irrevocable Trust,
    Kimberly&nbsp;D. Sites, Tiffany&nbsp;D. Hansen and Kirk&nbsp;D.
    Johnston, 10,000&nbsp;shares owned by Lynn&nbsp;S. Thornock,
    91,473&nbsp;shares owned by Dr.&nbsp;Johnston directly and
    342,950&nbsp;shares issuable upon the exercise of stock options
    held by Dr.&nbsp;Johnston that are exercisable within
    60&nbsp;days of December&nbsp;31, 2003 (including currently
    exercisable options to purchase 14,200&nbsp;shares granted in
    February 2004). Dr.&nbsp;Johnston disclaims beneficial ownership
    of the 76,000&nbsp;shares collectively owned by Kimberly&nbsp;D.
    Sites, Tiffany&nbsp;D. Hansen, Kirk&nbsp;D. Johnston and
    Lynn&nbsp;S. Thornock.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD><SUP><FONT size="2">(8)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">Represents 45,000&nbsp;shares issuable upon the
    exercise of stock options exercisable within 60&nbsp;days of
    December&nbsp;31, 2003.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD><SUP><FONT size="2">(9)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">Includes 241,463&nbsp;shares and
    217,202&nbsp;shares issuable upon the exercise of stock options
    exercisable within 60&nbsp;days of December&nbsp;31, 2003.
    </FONT></TD>
</TR>

</TABLE>
<P>

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

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><SUP><FONT size="2">(10)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">Represents 141,250&nbsp;shares issuable upon the
    exercise of stock options exercisable within 60&nbsp;days of
    December&nbsp;31, 2003.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD><SUP><FONT size="2">(11)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">Represents 35,000&nbsp;shares issuable upon the
    exercise of stock options exercisable within 60&nbsp;days of
    December&nbsp;31, 2003.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD><SUP><FONT size="2">(12)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">Dr.&nbsp;Barrett is a general partner of NEA
    Partners 10, Limited Partnership, the general partner of New
    Enterprise Associates&nbsp;10, Limited Partnership, a venture
    capital fund. In such capacity, he may be deemed to share voting
    and investment power with respect to the 8,123,587&nbsp;shares
    (which includes 769,019&nbsp;shares issuable upon the conversion
    of accrued preferred stock dividends) and 1,838,641&nbsp;shares
    issuable under warrants beneficially owned by New Enterprise
    Associates&nbsp;10, Limited Partnership. Dr.&nbsp;Barrett
    disclaims beneficial ownership of the shares held by New
    Enterprise Associates&nbsp;10, Limited Partnership, except to
    the extent of his proportionate pecuniary interest therein.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD><SUP><FONT size="2">(13)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">Includes 64,061&nbsp;shares and
    30,628&nbsp;shares issuable upon the exercise of stock options
    exercisable within 60&nbsp;days of December&nbsp;31, 2003.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD><SUP><FONT size="2">(14)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">Dr.&nbsp;Eplett is a general partner of Essex
    Woodlands Health Ventures&nbsp;V, L.P. In such capacity, he may
    be deemed to share voting and investment power with respect to
    the 2,426,827&nbsp;shares (which includes 269,467&nbsp;shares
    issuable upon the conversion of accrued preferred stock
    dividends) and 539,340&nbsp;shares issuable under warrants
    beneficially owned by Essex Woodlands Health Ventures&nbsp;V,
    L.P. Dr.&nbsp;Eplett disclaims beneficial ownership of the
    shares held by this fund, except to the extent of his
    proportionate pecuniary interest therein.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD><SUP><FONT size="2">(15)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">Mr.&nbsp;Henos is a managing general partner of
    Alliance Technology Ventures,&nbsp;L.P., ATV/ GP Parallel
    Fund,&nbsp;L.P. and ATV/ MJF Parallel Fund,&nbsp;L.P., a manager
    of Alliance Associates&nbsp;II, L.L.C., the general partner of
    Alliance Technology Ventures&nbsp;II,&nbsp;L.P. and ATV&nbsp;II
    Affiliates Fund,&nbsp;L.P. and a manager of ATV&nbsp;III
    Partners,&nbsp;L.L.C., the general partner of Alliance
    Technology Ventures&nbsp;III,&nbsp;L.P. and ATV&nbsp;III
    Affiliates Fund,&nbsp;L.P. In such capacity, he may be deemed to
    share voting and investment power with respect to the
    1,440,637&nbsp;shares (which includes 79,613&nbsp;shares
    issuable upon the conversion of accrued cumulative preferred
    stock dividends) and 78,671&nbsp;shares issuable under warrants
    beneficially owned by Alliance Technology Ventures,&nbsp;L.P.;
    399,103&nbsp;shares (which includes 22,141&nbsp;shares issuable
    upon the conversion of accrued cumulative preferred stock
    dividends) and 21,868&nbsp;shares issuable under warrants
    beneficially owned by ATV/ GP Parallel Fund,&nbsp;L.P.;
    109,175&nbsp;shares (which includes 6,033&nbsp;shares issuable
    upon the conversion of accrued cumulative preferred stock
    dividends) and 5,961&nbsp;shares issuable under warrants
    beneficially owned by ATV/ MJF Parallel Fund,&nbsp;L.P.;
    1,616,146&nbsp;shares (which includes 268,528&nbsp;shares
    issuable upon the
    </FONT></TD>
</TR>

</TABLE>

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</FONT>

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

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
    <FONT size="2">conversion of accrued cumulative preferred stock
    dividends) and 164,975&nbsp;shares issuable under warrants
    beneficially owned by Alliance Technology Ventures&nbsp;II,
    L.P.; 2,557,691&nbsp;shares (which includes 333,092&nbsp;shares
    issuable upon the conversion of accrued cumulative preferred
    stock dividends) and 380,711&nbsp;shares issuable under warrants
    beneficially owned by Alliance Technology Ventures&nbsp;III,
    L.P.; 44,670&nbsp;shares (which includes 5,203&nbsp;shares
    issuable upon the conversion of accrued cumulative preferred
    stock dividends) and 6,357&nbsp;shares issuable under warrants
    beneficially owned by ATV&nbsp;II Affiliates Fund,&nbsp;L.P.;
    and 27,784&nbsp;shares (which includes 2,551&nbsp;shares
    issuable upon the conversion of accrued cumulative preferred
    stock dividends) and 6,308&nbsp;shares issuable under warrants
    beneficially owned by ATV&nbsp;III Affiliates Fund,&nbsp;L.P.
    Mr.&nbsp;Henos disclaims beneficial ownership of the shares held
    by this fund, except to the extent of his proportionate
    pecuniary interest therein. Mr.&nbsp;Henos also personally holds
    28,936&nbsp;shares of our common stock.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD><SUP><FONT size="2">(16)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">Represents 40,228&nbsp;shares issuable upon the
    exercise of stock options exercisable within 60&nbsp;days of
    December&nbsp;31, 2003.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD><SUP><FONT size="2">(17)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">Dr.&nbsp;Minocherhomjee is a managing director of
    William Blair Capital Partners&nbsp;VI, L.L.C., the general
    partner of William Blair Capital Partners&nbsp;VI, L.P. In such
    capacity, he may be deemed to share voting and investment power
    with respect to the 5,142,893&nbsp;shares (which includes
    836,186&nbsp;shares issuable upon the conversion of accrued
    cumulative preferred stock dividends) and 418,782&nbsp;shares
    issuable under warrants beneficially owned by William Blair
    Capital Partners&nbsp;VI, L.P. Dr.&nbsp;Minocherhomjee disclaims
    beneficial ownership of the shares held by this fund, except to
    the extent of his proportionate pecuniary interest therein.
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD><SUP><FONT size="2">(18)</FONT></SUP></TD>
    <TD align="left">
    <FONT size="2">Includes 22,594,447&nbsp;shares (including
    2,591,834&nbsp;shares issuable upon the conversion of accrued
    cumulative preferred stock dividends) and an aggregate of
    4,313,872&nbsp;shares issuable upon the exercise of stock
    options and warrants; also includes the shares and warrants
    described in Notes&nbsp;(1) through (4)&nbsp;above.
    </FONT></TD>
</TR>

</TABLE>

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</FONT>

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<DIV align="left">
<A name='114'></A>
</DIV>

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<P align="center">
<B><FONT size="2">DESCRIPTION OF CAPITAL STOCK</FONT></B>

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

<P align="left">
<FONT size="2">The following description of our capital stock
and provisions of our amended and restated certificate of
incorporation and by-laws is a summary of all of the material
terms and provisions of such instruments and is qualified by
reference to our amended and restated certificate of
incorporation and our amended and restated by-laws, copies of
which have been filed with the SEC as exhibits to the
registration statement of which this prospectus is a part. The
descriptions of the common stock and preferred stock reflect
changes to our capital structure that will occur immediately
after the closing of this offering in accordance with the terms
of the amended and restated certificate of incorporation.
</FONT>

<P align="left">
<FONT size="2">Upon the completion of this offering, our
authorized capital stock will consist of 75,000,000&nbsp;shares
of common stock, par value $0.001&nbsp;per share, and
5,000,000&nbsp;shares of preferred stock, par value
$0.001&nbsp;per share. All of these shares of preferred stock
will be undesignated.
</FONT>

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

<P align="left">
<FONT size="2">As of December&nbsp;31, 2003, there were
29,088,317&nbsp;shares of our common stock outstanding held by
51&nbsp;stockholders of record. This amount assumes the
conversion of all outstanding shares of our preferred stock,
which includes the conversion of cumulative preferred stock
dividends accrued as of December&nbsp;31, 2003 into common
stock, into 27,812,629&nbsp;shares of common stock. This amount
excludes the issuance
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 subject to the mandatory cashless exercise of
warrants to purchase 4,127,130&nbsp;shares of Series&nbsp;D and
Series&nbsp;E preferred stock upon the completion of this
offering, at an assumed initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share. In addition, as of December&nbsp;31, 2003,
3,185,490&nbsp;shares of our common stock were subject to
outstanding options and 247,564&nbsp;shares of our common stock
which are subject to warrants that will remain outstanding after
the completion of this offering.
</FONT>

<P align="left">
<FONT size="2">Holders of our common stock are entitled to one
vote for each share held on all matters submitted to a vote of
stockholders and do not have cumulative voting rights.
Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of
the directors standing for election. Holders of common stock are
entitled to receive proportionately any dividends as may be
declared by our board of directors, subject to any preferential
dividend rights of outstanding preferred stock.
</FONT>

<P align="left">
<FONT size="2">In the event of our liquidation, dissolution or
winding up, the holders of common stock are entitled to
proportionately receive our net assets available for
distribution after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding
preferred stock. Holders of our common stock have no preemptive,
subscription, redemption or conversion rights. Our outstanding
shares of common stock are, and the shares offered by us in this
offering will be, when issued and paid for, fully paid and
nonassessable. The rights, preferences and privileges of holders
of common stock are subject to, and may be adversely affected
by, the rights of the holders of shares of any series of
preferred stock that we may designate and issue in the future.
</FONT>

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

<P align="left">
<FONT size="2">Upon the closing of this offering, all of the
outstanding shares of our preferred stock (including all accrued
cumulative preferred stock dividends), will automatically
convert on a one for one basis into shares of our common stock.
</FONT>

<P align="left">
<FONT size="2">After the closing of this offering, we will be
authorized, without further vote or action by the stockholders,
to issue up to an aggregate of 5,000,000&nbsp;shares of
preferred stock in one or more series. Each series of preferred
stock will have such number of shares, designations,
preferences, voting powers, qualifications
</FONT>

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</FONT>

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<DIV align="left">
<FONT size="2">and special or relative rights or privileges as
shall be determined by our board of directors, which may
include, among others, dividend rights, voting rights,
redemption and sinking fund provisions, liquidation preferences,
conversion rights and pre-emptive rights.
</FONT>
</DIV>

<P align="left">
<FONT size="2">The issuance of preferred stock, while providing
desired flexibility in connection with possible acquisitions and
other corporate purposes, could adversely affect the voting
power or other rights of the holders of common stock, and could
make it more difficult for a third party to acquire, or could
discourage a third party from attempting to acquire, a majority
of our outstanding voting stock. We cannot determine the actual
impact or effect of the issuance of any of this preferred stock
upon the rights of the holders of our common stock until the
board issues or determines the specific rights of this preferred
stock. Upon the closing of this offering, there will be no
shares of preferred stock outstanding, and we have no present
plans to issue any shares of preferred stock after the offering.
</FONT>

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

<P align="left">
<FONT size="2">As of December&nbsp;31, 2003, we have outstanding
warrants to purchase 4,374,694&nbsp;shares of common stock at
exercise prices ranging from $0.12 to $5.91&nbsp;per share with
a weighted average exercise price of $5.66&nbsp;per share. These
warrants expire on dates ranging from July 2004 to December
2013. All of these warrants include a cashless exercise feature,
and the holders are entitled to customary anti-dilution
protection including adjustments to the number of shares of
common stock issuable upon exercise of the warrants in the event
of a subdivision or combination of our common stock or the
payment of a stock dividend on our common stock.
</FONT>

<P align="left">
<FONT size="2">Of these outstanding warrants, 4,127,130 were
issued in connection with the purchase of our Series&nbsp;D and
Series&nbsp;E preferred stock in 2002 and 2003. In the event of
a public offering of our common stock of at least
$50&nbsp;million in gross proceeds, these warrants will be
mandatorily exercisable by their holders through a net issuance
feature and the Series&nbsp;D and Series&nbsp;E preferred stock
issued pursuant to this exercise will automatically be converted
into common shares upon the closing of such offering. Upon the
completion of this offering, at an assumed initial public
offering price
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share, &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 will be issued pursuant to this mandatory
exercise feature. The number of shares of common stock that will
ultimately be issuable pursuant to this mandatory exercise will
be dependent upon the price per share of our common stock upon
the closing of this offering.
</FONT>

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

<P align="left">
<FONT size="2">As of December&nbsp;31, 2003, we had outstanding
options to purchase 3,185,490&nbsp;shares of our common stock at
a weighted average exercise price of $0.60. Options to purchase
296,383&nbsp;shares of our common stock have been exercised
under our various stock option plans as of December&nbsp;31,
2003.
</FONT>

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

<P align="left">
<FONT size="2">Under the terms of our amended and restated
master rights agreement, the holders
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,
including &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 subject to the mandatory cashless exercise of
warrants to purchase 4,127,130&nbsp;shares of preferred stock
upon the completion of this offering, at an assumed initial
public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share, or their transferees, have been granted rights to
register these shares under the Securities Act of 1933, as
amended, or the Securities Act. If we propose to register any of
our securities under the Securities Act, either for our own
account or for the account of other stockholders, the holders of
these shares are entitled, under certain circumstances, to
include in the registration statement, at our expense, their
shares of common stock. In addition, the holders of these shares
may require us, at our expense and on not more than two
occasions at any time beginning approximately six months from
the date of the closing of this offering, to file a registration
statement under the Securities Act with respect to their shares
of common stock, and we will be required to use our reasonable
best efforts to effect the registration. Further, the holders of
these shares may require us, at our expense, to register their
shares on Form&nbsp;S-3 when we can avail ourselves of this
form. These registration
</FONT>

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<DIV align="left">
<FONT size="2">rights are subject to certain conditions and
limitations, including the right of the underwriters to limit
the number of shares included in any such registration under
certain circumstances.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Provisions of Delaware Law and Our Amended and
Restated Certificate of Incorporation and By-laws</FONT></B>

<P align="left">
<FONT size="2">Upon the completion of this offering, we will be
subject to the provisions of Section&nbsp;203 of the Delaware
General Corporation Law. Subject to certain exceptions,
Section&nbsp;203 of the Delaware General Corporation Law
prohibits a publicly-held Delaware corporation from engaging in
a &#147;business combination&#148; with an &#147;interested
stockholder&#148; for a period of three years after the date of
the transaction in which the person became an interested
stockholder, unless the interested stockholder attained such
status with the approval of our board of directors or unless the
business combination is approved in a prescribed manner. A
&#147;business combination&#148; is defined generally as a
merger or asset sale involving the interested stockholder or
other transaction resulting in a financial benefit to the
interested stockholder. Subject to various exceptions, an
&#147;interested stockholder&#148; is a person who, together
with affiliates and associates, owns, or within the past three
years did own, 15% or more of a corporation&#146;s voting stock.
This statute could prohibit or delay the accomplishment of
mergers or other takeover or change in control attempts with
respect to us and, accordingly, may discourage attempts to
acquire us.
</FONT>

<P align="left">
<FONT size="2">In addition, certain provisions of our amended
and restated certificate of incorporation and our amended and
restated by-laws may have the effect of delaying, deferring or
preventing a tender offer or takeover attempt that you, as a
stockholder, might deem to be in your best interest. These
provisions are designed to encourage persons seeking to acquire
us to initiate such a transaction through arm&#146;s-length
negotiations with our board of directors. The existence of these
provisions could adversely affect the prevailing price of our
common stock or limit the price that others might be willing to
pay in the future for shares of our common stock. These
provisions include:
</FONT>

<P align="left">
<B><I><FONT size="2">Stockholder Action; Special Meeting of
Stockholders.</FONT></I></B><FONT size="2"> Stockholders may not
take action by written consent, but only at a duly called annual
or special meeting of our stockholders. Special meetings of our
stockholders may be called only by the chairman of our board of
directors, our chief executive officer, or a majority of our
board of directors, and in no event may stockholders call a
special meeting. Thus, without approval by the chairman of the
board of directors, our chief executive officer or a majority of
the board of directors, our stockholders may not take action
between annual meetings.
</FONT>

<P align="left">
<B><I><FONT size="2">Advance Notice Requirements for Stockholder
Proposals and Director
Nominations.</FONT></I></B><FONT size="2"> A stockholder seeking
to bring business before an annual meeting of our stockholders,
or to nominate candidates for election as directors at an annual
meeting of our stockholders, must provide timely notice of his
or her intention in writing. To be timely, a stockholder&#146;s
notice must be delivered to our secretary, at our principal
executive offices, not less than 90&nbsp;days nor more than
120&nbsp;days prior to the first anniversary of the date of the
previous year&#146;s annual meeting of our stockholders.
However, if no annual meeting of stockholders was held in the
previous year or the date of the annual meeting of stockholders
has been changed to be more than 30&nbsp;calendar days from the
time of the previous year&#146;s annual meeting, then a proposal
shall be received no later than the close of business on the
tenth day following the date on which notice of the date of the
meeting was mailed or a public announcement was made. Only our
board of directors or a committee thereof may nominate
candidates for election at a special meeting of our
stockholders. Our by-laws also specify requirements as to the
form and content of a stockholder&#146;s notice. These
provisions may preclude stockholders from bringing matters
before an annual meeting of our stockholders or from making
nominations for directors at an annual or special meeting of our
stockholders.
</FONT>

<P align="left">
<B><I><FONT size="2">Authorized but Unissued
Shares.</FONT></I></B><FONT size="2"> Our authorized but
unissued shares of common and preferred stock are available for
future issuance without stockholder approval, subject to any
limitations imposed by the Nasdaq National Market. These
additional shares may be utilized for a variety of corporate
needs, including acquisitions and raising additional funds. The
existence of authorized but unissued and
</FONT>

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<DIV align="left">
<FONT size="2">unreserved common and preferred stock could
discourage an attempt by third parties to obtain control of us
by means of a proxy contest, tender offer, merger or otherwise.
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">Classification of Board
Members.</FONT></I></B><FONT size="2"> Our board of directors is
classified into three different classes of members, as nearly
equal in size as possible, with each class having its own
three-year term. Any one or more, or all of the directors may be
removed by the holders of at least a majority of the shares then
entitled to vote at an election of directors only for cause. Any
vacancy on our board of directors, including a vacancy resulting
from an enlargement of the board, may only be filled by vote of
a majority of the directors then in office. This classification
of our board of directors, and the limitations on the removal of
directors and filling of vacancies, may have the effect of
making it more difficult for a third party to acquire control of
us, or of discouraging a third party from acquiring control of
us because at least two annual meetings of stockholders, instead
of one, generally will be required to change the majority of our
board of directors.
</FONT>

<P align="left">
<B><FONT size="2">Transfer Agent and Registrar</FONT></B>

<P align="left">
<FONT size="2">Upon the closing of this offering, the transfer
agent and registrar for the common stock will be American Stock
Transfer&nbsp;&#38; Trust Company.
</FONT>

<P align="left">
<B><FONT size="2">Nasdaq National Market Listing</FONT></B>

<P align="left">
<FONT size="2">We have applied for the quotation of our common
stock on the Nasdaq National Market under the symbol
&#147;INHX.&#148;
</FONT>

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<DIV align="left">
<A name='115'></A>
</DIV>

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<P align="center">
<B><FONT size="2">SHARES ELIGIBLE FOR FUTURE SALE</FONT></B>

<P align="left">
<FONT size="2">Prior to this offering, no public market existed
for our common stock, and we cannot assure you that after this
offering a liquid trading market will develop or be sustained
for our common stock. Sales of shares of our common stock after
this offering, including those shares issuable upon the exercise
of warrants and options, and the availability of authorized
shares for future sale, may reduce the market price of our
common stock. Further, sales of substantial amounts of our
common stock, or the perception that those sales could occur,
could adversely affect the prevailing market price for our
common stock and could impair our future ability to obtain
capital, especially through an offering of equity securities.
</FONT>

<P align="left">
<FONT size="2">Upon the closing of this offering and after
giving effect for this offering, the conversion of all preferred
stock (including the conversion of accrued cumulative preferred
stock dividends) into shares of common stock,
a &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;for&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;reverse
stock split, and assuming no further exercises of outstanding
options, warrants or the underwriters&#146; over-allotment
option, an aggregate
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 will be issued and outstanding and no shares of
preferred stock will be issued and outstanding.
</FONT>

<P align="left">
<FONT size="2">Of these outstanding shares,
the &nbsp;&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 (assuming no exercise of the
underwriters&#146; over-allotment option) will be freely
tradable without restrictions or further registration under the
Securities Act, unless the shares are purchased by our
affiliates as that term is defined under Rule&nbsp;144 under the
Securities Act. The
remaining &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 outstanding after the offering are
&#147;restricted securities&#148; as defined under
Rule&nbsp;144. Substantially all of these restricted securities
will be subject to the 180&nbsp;day lock up period as described
below under &#147;Lock-up Agreements.&#148;
</FONT>

<P align="left">
<FONT size="2">Restricted securities may be sold in the public
market in the United States only if registered or if they
qualify for an exemption from registration under Rule&nbsp;144
or 701 under the Securities Act. These exceptions are summarized
below.
</FONT>

<P align="left">
<B><FONT size="2">Rule&nbsp;144</FONT></B>

<P align="left">
<FONT size="2">In general, under Rule&nbsp;144 as currently in
effect, beginning 90&nbsp;days after the effective date of this
offering, a person who has beneficially owned restricted
securities for at least one year, including the holding period
of any prior owner other than one of our affiliates, is entitled
to sell a number of restricted shares within any three-month
period that does not exceed the greater of
</FONT>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">1% of the number of shares of our 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;&nbsp;shares
    immediately after this offering;&nbsp;and
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the average weekly trading volume of our 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 the sale.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">Sales of restricted shares under Rule&nbsp;144
are also subject to requirements regarding the manner of sale,
notice and the availability of current public information about
us. Rule&nbsp;144 also provides that affiliates that sell shares
of our common stock that are not restricted shares must
nonetheless comply with the same restrictions applicable to
restricted shares, other than the holding period requirement.
Upon completion of the 180-day lock-up
period, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of
our outstanding restricted securities will be eligible for sale
under Rule&nbsp;144.
</FONT>

<P align="left">
<B><FONT size="2">Rule&nbsp;144(k)</FONT></B>

<P align="left">
<FONT size="2">Subject to the lock-up agreements described
below, shares of our common stock eligible for sale under
Rule&nbsp;144(k) may be sold immediately upon the completion of
this offering. In general, under Rule&nbsp;144(k), a person may
sell shares of common stock acquired from us immediately upon the
</FONT>

<P align="center"><FONT size="2">80
</FONT>

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<DIV align="left">
<FONT size="2">completion of this offering, without regard to
manner of sale, the availability of public information or
volume, if:
</FONT>
</DIV>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the person is not our affiliate and has not been
    our affiliate at any time during the three months preceding such
    a sale; and
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the person has beneficially owned the shares
    proposed to be sold for at least two years, including the
    holding period of any prior owner other than an affiliate.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">Upon expiration of the 180&nbsp;day lock-up
period, unless held by our affiliates,
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
shares of common stock will be eligible for sale under
Rule&nbsp;144(k). In addition, unless held by our affiliates,
approximately, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
shares of common stock will be eligible for sale under
Rule&nbsp;144(k) in December 2005.
</FONT>

<P align="left">
<B><FONT size="2">Rule&nbsp;701</FONT></B>

<P align="left">
<FONT size="2">Under Rule&nbsp;701, shares of our common stock
acquired upon the exercise of currently outstanding options or
pursuant to other rights granted under our various stock plans
may be resold, to the extent they are not subject to lock-up
agreements, (1)&nbsp;by persons other than affiliates, beginning
90&nbsp;days after the effective date of this offering, subject
only to the manner-of-sale provisions of Rule&nbsp;144, and
(2)&nbsp;by affiliates, subject to the manner-of-sale, current
public information, and filing requirements of Rule&nbsp;144, in
each case, without compliance with the one-year holding period
requirement of Rule&nbsp;144. Subject to the 180-day lock-up
period
approximately &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 will be immediately eligible for sale in
accordance with Rule&nbsp;701.
</FONT>

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

<P align="left">
<FONT size="2">Upon the completion of this offering,
stockholders that hold
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;restricted
shares of our common stock have the right, subject to various
conditions and limitations, to demand the filing of and include
their shares in registration statements relating to our
securities. Upon registration pursuant to such rights, these
shares would become feely tradable without restriction under the
Securities Act. By exercising their registration rights and
causing a large number of shares to be registered and sold in
the public market, these holders could cause the price of our
common stock to be volatile and decrease. In addition, any
demand to include such shares in our registration statements
could have a material adverse effect on our ability to raise
capital. See the &#147;Description of Capital Stock&#151;
Registration Rights&#148; section.
</FONT>

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

<P align="left">
<FONT size="2">As of December&nbsp;31, 2003 we had outstanding
options to purchase 3,185,490&nbsp;shares of our common stock of
which 1,080,081 were vested. Following this offering, we intend
to file one or more registration statements on Form&nbsp;S-8
under the Securities Act covering shares of our common stock
issued or reserved for issuance under our Amended and Restated
1998 Stock Option Plan, Stock Incentive Plan, 2002 Directors
Plan and 2004 Employee Stock Purchase Plan. Accordingly, shares
of our common stock that are registered under such registration
statements will be available for sale in the open market
immediately upon exercise of the related stock option by the
holders, subject to vesting restrictions with us, contractual
lock-up restrictions, and/or market stand-off provisions
applicable to each option agreement that prohibit the sale or
other disposition of the shares of common stock underlying the
options for a period of 180&nbsp;days after the date of this
prospectus, if requested by us.
</FONT>

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

<P align="left">
<FONT size="2">Upon the closing of this offering, there will be
warrants outstanding to purchase 247,564&nbsp;shares of common
stock at a weighted average exercise price of $1.49&nbsp;per
share. Subject to the 180&nbsp;day lock-up period and if
acquired pursuant to their cashless exercise feature, at an
assumed initial public offering of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
will be eligible to be sold pursuant to Rule&nbsp;144, of
which &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;will
be eligible
</FONT>

<P align="center"><FONT size="2">81
</FONT>

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<DIV align="left">
<FONT size="2">to be sold pursuant to Rule&nbsp;144(k). The
remaining &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
will be eligible to be sold pursuant to Rule&nbsp;144 on dates
ranging from June&nbsp;5, 2004 through December&nbsp;23, 2004,
subject to the 180&nbsp;day lock-up period.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Lock-up Agreements</FONT></B>

<P align="left">
<FONT size="2">We and all of our directors and officers and
holders of substantially all of our outstanding stock have
agreed that, without the prior written consent of Piper
Jaffray&nbsp;&#38; Co. on behalf of the underwriters, we and
they will not, during the period ending 180&nbsp;days after the
date of this prospectus: offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to
purchase, lend or otherwise transfer or dispose of directly or
indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common
stock; or enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic
consequences of ownership of our common stock; whether any such
transaction described above is to be settled by delivery of our
common stock or such other securities, in cash or otherwise.
These restrictions, and certain exceptions, are described in
more detail under &#147;Underwriting.&#148;
</FONT>

<P align="center"><FONT size="2">82
</FONT>

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<DIV align="left">
<A name='116'></A>
</DIV>

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

<P align="left">
<FONT size="2">The underwriters named below have agreed to buy,
subject to the terms of the purchase agreement, the number of
shares listed opposite their names below. Piper
Jaffray&nbsp;&#38; Co. and Lazard Fr&#232;res&nbsp;&#38; Co. LLC
are acting as joint book-running managers for this offering and
are acting as representatives of the underwriters. The
underwriters are committed to purchase and pay for all of the
shares if any are purchased, other than those shares covered by
the over-allotment option described below.
</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="81%"><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>
</TR>

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

<TR>
    <TD colspan="2" align="center" nowrap><B><FONT size="1">Underwriters</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">of Shares</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>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Piper Jaffray&nbsp;&#38; Co.&nbsp;</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 colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Lazard Fr&#232;res&nbsp;&#38; Co. 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>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Thomas Weisel Partners 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>

<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><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">
<FONT size="2">The underwriters have advised us that they
propose to offer the shares to the public at
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share. The underwriters propose to offer the shares to certain
dealers at the same price less a concession of not more than
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share. The underwriters may allow and the dealers may reallow a
concession of not more than
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share on sales to certain other brokers and dealers. After the
offering, these figures may be changed by the underwriters.
</FONT>

<P align="left">
<FONT size="2">We have granted to the underwriters an option to
purchase up to an
additional &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 from us at the same price to the public, and
with the same underwriting discount, as set forth above. The
underwriters may exercise this option any time during the 30-day
period after the date of this prospectus, but only to cover
over-allotments, if any. To the extent the underwriters exercise
the option, each underwriter will become obligated, subject to
certain conditions, to purchase approximately the same
percentage of the additional shares as it was obligated to
purchase under the purchase agreement.
</FONT>

<P align="left">
<FONT size="2">The following table shows the underwriting fees
to be paid to the underwriters in connection with this offering.
These amounts are shown assuming both no exercise and full
exercise of the over-allotment option.
</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 to be paid by us
    </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 agreed to indemnify the underwriters
against certain liabilities, including civil liabilities under
the Securities Act, or to contribute to payments that the
underwriters may be required to make in respect of those
liabilities.
</FONT>

<P align="left">
<FONT size="2">The underwriters have informed us that neither
they, nor any other underwriter participating in the
distribution of the offering, will make sales of the common
stock offered by this prospectus to accounts over which they
exercise discretionary authority without the prior specific
written approval of the customer.
</FONT>

<P align="left">
<FONT size="2">The offering of our shares of common stock is
made for delivery when, as and if accepted by the underwriters
and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters
reserve the right to reject an order for the purchase of shares
in whole or part.
</FONT>

<P align="left">
<FONT size="2">We and each of our directors, executive officers
and substantially all of our stockholders have agreed to certain
restrictions on the ability to sell shares of our common stock
for a period of 180&nbsp;days after the date of this prospectus.
We have also agreed not to directly or indirectly offer for
sale, sell, contract to sell,
</FONT>

<P align="center"><FONT size="2">83
</FONT>

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<DIV align="left">
<FONT size="2">grant any option for the sale of, or otherwise
issue or dispose of, any shares of common stock, options or
warrants to acquire shares of common stock, or any related
security or instrument, without the prior written consent of
Piper Jaffray&nbsp;&#38; Co. for a period of 180&nbsp;days after
the date of this prospectus. The agreement provides exceptions
for sales to the underwriters pursuant to the purchase
agreement, the granting of options to purchase shares under our
existing stock option plan and other common exceptions.
</FONT>
</DIV>

<P align="left">
<FONT size="2">Prior to the offering, there has been no
established trading market for our common stock. The initial
public offering price for the shares of common stock offered by
this prospectus will be negotiated by us and the underwriters.
The factors considered in determining the initial public
offering price include:
</FONT>
<P>

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

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">our future prospects and those of our industry in
    general;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the stage of development of our product
    candidates;
    </FONT></TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the anticipated market for our product candidates;
    </FONT></TD>
</TR>

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

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

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">certain other financial and operating information
    in recent periods for companies engaged in activities similar to
    ours.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">There can be no assurance that the initial public
offering price of the common stock will correspond to the price
at which the common stock will trade in the public market
subsequent to this offering or that an active public market for
the common stock will develop and continue after this offering.
</FONT>

<P align="left">
<FONT size="2">To facilitate the offering, the underwriters may
engage in transactions that stabilize, maintain or otherwise
affect the price of the common stock during and after the
offering. Specifically, the underwriters may over-allot or
otherwise create a short position in the common stock for their
own account by selling more shares of common stock than have
been sold to them by us and the selling stockholders. Short
sales involve the sale by the underwriters of a greater number
of shares than they are required to purchase in the offering.
&#147;Covered&#148; short sales are sales made in an amount not
greater than the underwriters&#146; option to purchase
additional shares in the offering. The underwriters may close
out any covered short position by either exercising their option
to purchase additional shares or purchasing shares in the open
market. In determining the source of shares to close out the
covered 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. &#147;Naked&#148;
short sales are sales in excess of this option. The underwriters
must close out any naked short position by purchasing shares in
the open market. A naked short position is more likely to be
created if the underwriters are concerned that there may be
downward pressure on the price of the common stock in the open
market after pricing that could adversely affect investors who
purchase in the offering.
</FONT>

<P align="left">
<FONT size="2">In addition, the underwriters may stabilize or
maintain the price of the common stock by bidding for or
purchasing shares of common stock in the open market and may
impose penalty bids. If penalty bids are imposed, selling
concessions allowed to syndicate members or other broker-dealers
participating in the offering are reclaimed if shares of common
stock previously distributed in the offering are repurchased,
whether in connection with stabilization transactions or
otherwise. The effect of these transactions may be to stabilize
or maintain the market price of the common stock at a level
above that which might otherwise prevail in the open market. The
imposition of a penalty bid may also effect the price of the
common stock to the extent that it discourages resales of the
common stock. The magnitude or effect of any stabilization or
other transactions is uncertain. These transactions may be
effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
</FONT>

<P align="center"><FONT size="2">84
</FONT>

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<P align="left">
<FONT size="2">We have applied to have our common stock approved
for quotation on the Nasdaq National Market under the symbol
&#147;INHX.&#148;
</FONT>

<P align="left">
<FONT size="2">At our request, the underwriters have reserved
for sale, at the initial public offering price, up
to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
offered by this prospectus to our directors, officers, employees
and others. The number of shares of common stock available for
sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares which
are not so purchased will be offered by the underwriters to the
general public on the same basis as the other shares offered by
this prospectus.
</FONT>

<P align="center"><FONT size="2">85
</FONT>

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<DIV align="left">
<A name='117'></A>
</DIV>

<!-- link1 "LEGAL MATTERS" -->

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

<P align="left">
<FONT size="2">The validity of the common stock offered hereby
will be passed upon for us by Swidler Berlin Shereff Friedman,
LLP, New&nbsp;York, New&nbsp;York. Legal matters in connection
with this offering will be passed upon for the underwriters by
Testa, Hurwitz&nbsp;&#38; Thibeault, LLP, Boston, Massachusetts.
</FONT>

<DIV align="left">
<A name='118'></A>
</DIV>

<!-- link1 "EXPERTS" -->

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

<P align="left">
<FONT size="2">The financial statements of Inhibitex, Inc. at
December&nbsp;31, 2002 and 2003, and for each of the three years
in the period ended December&nbsp;31, 2003 and the period from
inception (May&nbsp;13, 1994) through December&nbsp;31, 2003,
appearing in this Prospectus and Registration Statement have
been audited by Ernst&nbsp;&#38; Young LLP, independent
auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report
given on the authority of such firm as experts in accounting and
auditing.
</FONT>

<DIV align="left">
<A name='119'></A>
</DIV>

<!-- 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">
<FONT size="2">We have filed a registration statement on
Form&nbsp;S-1 with the SEC for the stock we are offering by this
prospectus. This prospectus does not include all of the
information contained in the registration statement. You should
refer to the registration statement and its exhibits for
additional information. Whenever we make reference in this
prospectus to any of our contracts, agreements or other
documents, the references are not necessarily complete and you
should refer to the exhibits attached to the registration
statement for copies of the actual contract, agreement or other
document. When we complete this offering, we will also be
required to file annual, quarterly and special reports, proxy
statements and other information with the SEC.
</FONT>

<P align="left">
<FONT size="2">You can read our SEC filings, including the
registration statement, over the Internet at the SEC&#146;s web
site at http://www.sec.gov. You may also read and copy any
document we file with the SEC at its public reference facilities
at 450&nbsp;Fifth Street,&nbsp;NW, Washington,&nbsp;DC 20549.
You may also obtain copies of the documents at prescribed rates
by writing to the Public Reference Section of the SEC at
450&nbsp;Fifth Street,&nbsp;NW, Washington,&nbsp;DC 20549.
Please call the SEC at 1-800-SEC-0330 for further information on
the operation of the public reference facilities. Our SEC
filings are also available at the office of the Nasdaq National
Market. For further information on obtaining copies of our
public filings at the Nasdaq National Market, you should call
(212)&nbsp;656-5060.
</FONT>

<P align="center"><FONT size="2">86
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">INHIBITEX, INC.</FONT></B>

<DIV align="center">
<B><FONT size="2">(A Development Stage Company)</FONT></B>
</DIV>

<P align="left">
<A name='120'></A>

<!-- link1 "INDEX TO FINANCIAL STATEMENTS" -->

<DIV align="center">
<B><FONT size="2">INDEX TO FINANCIAL STATEMENTS</FONT></B>
</DIV>

<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">Report of Ernst&nbsp;&#38; Young LLP, 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 valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <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 colspan="5"><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">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 colspan="5"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Statements of Stockholders&#146; (Deficit) Equity
    </FONT></DIV>
    </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 colspan="5"><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">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-7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD 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="right" valign="bottom" nowrap><FONT size="2">F-8</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"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">REPORT OF ERNST&nbsp;&#38; YOUNG LLP,
INDEPENDENT AUDITORS</FONT></B>

<P align="left">
<B><FONT size="2">The Board of Directors and
Stockholders</FONT></B>

<DIV align="left">
<B><FONT size="2">Inhibitex, Inc.</FONT></B>
</DIV>

<P align="left">
<FONT size="2">We have audited the accompanying balance sheets
of Inhibitex, Inc. (a Development Stage Company) as of
December&nbsp;31, 2002 and 2003, and the related statements of
operations, stockholders&#146; (deficit) equity and cash flows
for each of the three years in the period ended
December&nbsp;31, 2003 and for the period from inception
(May&nbsp;13, 1994) through December&nbsp;31, 2003. 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.
</FONT>

<P align="left">
<FONT size="2">We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
</FONT>

<P align="left">
<FONT size="2">In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial
position of Inhibitex, Inc. (a Development Stage Company) at
December&nbsp;31, 2002 and 2003, and the results of its
operations and its cash flows for each of the three years in the
period ended December&nbsp;31, 2003, and for the period from
inception (May&nbsp;13, 1994) through December&nbsp;31, 2003, in
conformity with accounting principles generally accepted in the
United States.
</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">ERNST&nbsp;&#38; YOUNG LLP
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">February&nbsp;16, 2004, except for Note&nbsp;15,
as to which the date is February&nbsp;20, 2004
</FONT>

<DIV align="left">
<FONT size="2">Atlanta, Georgia
</FONT>
</DIV>

<P align="left">
<FONT size="2">The foregoing report is in the form that will be
signed upon the completion of the restatement of capital
accounts described in Note&nbsp;15 to the financial statements.
</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">/s/&nbsp;&nbsp;ERNST&nbsp;&#38; YOUNG LLP
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">March&nbsp;2, 2004
</FONT>

<DIV align="left">
<FONT size="2">Atlanta, Georgia
</FONT>
</DIV>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">INHIBITEX, INC.</FONT></B>

<DIV align="center">
<B><FONT size="2">(A Development Stage Company)</FONT></B>
</DIV>

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

<CENTER>
<TABLE width="80%" 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="62%"><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 colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

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

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="11" 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>
</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">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,658,078</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,649,150</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">1,000,310</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,498,980</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">441,363</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">569,667</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">Accounts 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">35,814</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">308,924</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>

</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 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">30,135,565</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">29,026,721</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">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">1,806,916</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,635,544</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>

</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 assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,942,481</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,662,265</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>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="11"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="11" align="center" valign="top">
    <B><FONT size="2">LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
    STOCK AND<BR>
    STOCKHOLDERS&#146; (DEFICIT)&nbsp;EQUITY</FONT></B></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">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>
</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">Accounts payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">718,598</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,385,972</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">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">2,020,804</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,700,539</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">Current portion of 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">146,028</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">889,523</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">Current portion of capital 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">199,907</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">330,408</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">Current portion of deferred revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">212,500</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">191,667</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">Other 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">1,000,000</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">1,000,000</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>

</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 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">4,297,837</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,498,109</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">Long-term 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>
</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">Notes payable, net of 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">84,852</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">1,363,351</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 lease obligations, net of 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">373,975</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">431,853</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 revenue, net of 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">1,137,496</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">987,498</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>

</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 long-term 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">1,596,323</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,782,702</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">Redeemable convertible preferred stock,
    $.001&nbsp;par value; 30,000,000 and 37,700,000&nbsp;shares
    authorized at December&nbsp;31, 2002 and 2003, respectively;
    19,285,704 and 24,373,444&nbsp;shares issued and outstanding at
    December&nbsp;31, 2002 and 2003, respectively; liquidation
    preference of $76,639,474 and $101,556,363 at December&nbsp;31,
    2002 and 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">66,674,753</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">89,542,242</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">Preferred stock 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">4,259,307</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,065,467</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">Stockholders&#146; (deficit)&nbsp;equity:
    </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>
</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;A convertible preferred stock,
    $.001&nbsp;par value; 216,000&nbsp;shares authorized, issued and
    outstanding for all periods; liquidation preference of $251,424
    for both periods
    </FONT></DIV>
    </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</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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</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, $.001&nbsp;par value; 35,000,000
    and 43,100,000&nbsp;shares authorized at December&nbsp;31, 2002
    and 2003, respectively, 1,221,310 and 1,275,688&nbsp;shares
    issued and outstanding at December&nbsp;31, 2002 and 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">1,221</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,275</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">Additional paid-in capital
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">799,182</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,797,059</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 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">(804,310</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">(45,686,358</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">(74,220,495</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>

</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)&nbsp;equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(44,885,739</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">(73,226,255</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>

</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, redeemable convertible
    preferred stock and warrants and stockholders&#146;
    (deficit)&nbsp;equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,942,481</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,662,265</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>

</TR>

</TABLE>
</CENTER>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">INHIBITEX, INC.</FONT></B>

<DIV align="center">
<B><FONT size="2">(A Development Stage Company)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Statements of Operations</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="38%"><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>
    <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="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" align="center" nowrap><B><FONT size="1">Period from</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Inception</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center"><B><FONT size="1">(May&nbsp;13, 1994)</FONT></B></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">through</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" 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">2003</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 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>
</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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">License fees and milestones
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">862,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">150,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">150,000</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">Collaborative 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">1,999,455</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">208,335</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">750,000</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">645,833</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">Grant revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">300,000</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">300,000</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="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 revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,161,955</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">270,835</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">900,000</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">1,095,833</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">Operating expense:
    </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>
</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">52,619,526</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,099,172</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,614,526</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,071,491</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">12,277,476</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,846,530</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,327,857</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,676,655</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>

</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 operating 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">64,897,002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,945,702</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,942,383</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,748,146</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>

</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">(61,735,047</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">(8,674,867</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">(18,042,383</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">(22,652,313</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 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">599,358</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">471,732</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(44,180</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">271,306</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 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">474,097</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">96,794</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">473,840</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,986</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>

</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">(60,661,592</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">(8,106,341</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">(17,612,723</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">(22,333,021</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">Dividends and accretion to redemption value of
    redeemable 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">(13,558,903</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">(1,271,383</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">(5,625,804</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">(6,201,116</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>

</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 attributable to common stockholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(74,220,495</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,377,724</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">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(23,238,527</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(28,534,137</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>

</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 attributable to common
    stockholders 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="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8.90</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20.10</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">(22.77</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 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">Weighted average shares used to compute basic and
    diluted net loss attributable to common stockholders 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 align="right" valign="bottom" nowrap><FONT size="2">1,054,245</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,156,218</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">1,253,132</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 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">Pro forma basic and diluted net loss attributable
    to common stockholders per share (unaudited)
    </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 align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.18</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT 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">Pro forma weighted average shares used to compute
    basic and diluted net loss attributable to common stockholders
    per share (unaudited)
    </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 align="right" valign="bottom" nowrap><FONT size="2">24,145,289</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT 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-4
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">INHIBITEX, INC.</FONT></B>

<DIV align="center">
<B><FONT size="2">(A Development Stage Company)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Statements of Stockholders&#146; (Deficit)
Equity</FONT></B>

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

<TR>
    <TD width="24%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2147483647%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></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>
    <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="7" align="center" nowrap><B><FONT size="1">Series&nbsp;A</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></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>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Preferred</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Common Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></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></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Subscription</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Common Stock</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">Receivable</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></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="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="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Additional</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">For</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">Stockholders&#146;</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">Par</FONT></B></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"></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">Paid-in</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Purchase of</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">(Deficit)</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" align="center" nowrap><B><FONT size="1">Value</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">Value</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">Value</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Capital</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">Stock</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">Equity</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>
    <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="1">Balance at inception (May&nbsp;13, 1994)
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Issuance of subscriptions for common stock to
    founders at $.005&nbsp;per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">105,333</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">105</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">422</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">527</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Issuance of common stock at $1.00&nbsp;per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">100,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">100</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">99,900</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">100,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(54,088</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(54,088</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

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

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Balance at December&nbsp;31, 1994
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">105,333</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">105</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">100,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">100</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">100,322</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(54,088</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">46,439</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(266,491</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(266,491</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

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

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Balance at December&nbsp;31, 1995
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">105,333</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">105</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">100,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">100</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">100,322</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(320,579</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(220,052</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Issuance of Series&nbsp;A Preferred Stock at
    $2.50&nbsp;per share, net of related costs of $18,641
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">216,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">216</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">521,143</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">521,359</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Issuance of subscribed common stock at
    $.005&nbsp;per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(105,333</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(105</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">105,333</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">105</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(248,510</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(248,510</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

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

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Balance at December&nbsp;31, 1996
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">216,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">216</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">205,333</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">205</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">621,465</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(569,089</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">52,797</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Issuance of common stock at $.05&nbsp;per share,
    net of receivable from shareholder
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">309,303</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">310</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">15,155</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(3,867</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">11,598</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(508,304</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(508,304</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

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

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Balance at December&nbsp;31, 1997
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">216,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">216</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">514,636</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">515</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">636,620</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(3,867</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1,077,393</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(443,909</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Issuance of common stock at $.05 and
    $.075&nbsp;per share, net of receivable from shareholder
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">455,419</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">455</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">26,335</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(24,828</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,962</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1,725,290</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1,725,290</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

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

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Balance at December&nbsp;31, 1998
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">216,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">216</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">970,055</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">970</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">662,955</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(28,695</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(2,802,683</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(2,167,237</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Issuance of common stock at $.10&nbsp;per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">4,250</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">4</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">421</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">425</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(3,343,509</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(3,343,509</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

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

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Balance at December&nbsp;31, 1999
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">216,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">216</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">974,305</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">974</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">663,376</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(28,695</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(6,146,192</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(5,510,321</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Forgiveness of receivable from shareholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">28,695</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">28,695</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Issuance of warrant for the purchase of common
    stock at $.06&nbsp;per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">75</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">75</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Exercise of stock options
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">19,500</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">20</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">2,228</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">2,248</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Cumulative effect of change in accounting
    principle
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">99,500</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">99,500</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Preferred stock dividends
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(460,600</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(460,600</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(6,463,315</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(6,463,315</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

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

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Balance at December&nbsp;31, 2000
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">216,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">216</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">993,805</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">994</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">765,179</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(13,070,107</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(12,303,718</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

</TABLE>
</CENTER>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">INHIBITEX, INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Company)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Statements of Stockholders&#146; (Deficit)
Equity&nbsp;&#151; (Continued)</FONT></B>

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

<TR>
    <TD width="24%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2147483647%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2147483647%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></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>
    <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="7" align="center" nowrap><B><FONT size="1">Series&nbsp;A</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></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>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Preferred</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Common Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></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></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Subscription</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Common Stock</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">Receivable</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></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="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="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Additional</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">For</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">Stockholders&#146;</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">Par</FONT></B></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"></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">Paid-in</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Purchase of</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">(Deficit)</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" align="center" nowrap><B><FONT size="1">Value</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">Value</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">Value</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Capital</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">Stock</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">Equity</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>
    <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="1">Issuance of warrant for the purchase of common
    stock at $.23&nbsp;per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">3,450</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">3,450</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Exercise of stock options
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">114,646</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">114</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">12,360</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">12,474</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Preferred stock dividends
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1,271,383</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1,271,383</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(8,106,341</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(8,106,341</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

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

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Balance at December&nbsp;31, 2001
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">216,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">216</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,108,451</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,108</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">780,989</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(22,447,831</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(21,665,518</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Exercise of stock options
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">112,859</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">113</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">18,193</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">18,306</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Preferred stock dividends
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(4,461,328</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(4,461,328</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Accretion of Series&nbsp;D Preferred Stock to
    redemption value
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1,164,476</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1,164,476</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(17,612,723</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(17,612,723</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

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

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Balance at December&nbsp;31, 2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">216,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">216</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,221,310</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,221</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">799,182</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(45,686,358</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(44,885,739</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Exercise of stock options
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">54,378</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">54</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">17,332</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">17,386</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Preferred stock dividends
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(4,871,217</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(4,871,217</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Accretion of Series&nbsp;D and E Preferred Stock
    to redemption value
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1,329,899</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1,329,899</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Deferred stock compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">980,545</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(980,545</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Amortization of deferred stock compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">176,235</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">176,235</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(22,333,021</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(22,333,021</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

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

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Balance at December&nbsp;31, 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">216,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">216</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,275,688</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,275</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,797,059</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(804,310</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(74,220,495</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(73,226,255</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">INHIBITEX, INC.</FONT></B>

<DIV align="center">
<B><FONT size="2">(A Development Stage Company)</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="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="34%"><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="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="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Period from</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Inception</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="3" align="center"><B><FONT size="1">(May&nbsp;13, 1994)</FONT></B></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">through</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="5"></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">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="5"></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="5" 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>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" 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">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(60,661,592</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,106,341</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">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(17,612,723</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(22,333,021</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="4" 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>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <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">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">2,644,756</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">659,037</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">772,139</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">768,245</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="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of deferred stock 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">176,235</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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">176,235</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="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Loss on sale of 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">48,134</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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">48,134</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of investment premium
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,249</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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">45,249</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="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Forgiveness of receivables from 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">28,695</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of warrants and discount on debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">122,792</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,227</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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 colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stock issued for interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">124,576</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cumulative effect of change in accounting
    principle
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">99,500</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">&#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 colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Changes in operating 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>
</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 colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid expenses and other 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">(569,667</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">6,297</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(344,888</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">(128,304</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 colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts 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">(308,924</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">(9,640</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">(26,174</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">(273,110</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 colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable and other 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">2,385,972</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(206,772</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">248,573</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">667,374</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 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">1,700,539</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67,859</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,390,736</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(320,265</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 colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,179,165</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,729,165</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(379,169</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">(170,831</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</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><FONT size="2">&nbsp;</FONT></TD>
    <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">(52,984,570</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">(5,847,168</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">(15,899,219</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">(21,568,428</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5" 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>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" 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">(2,611,359</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">(661,843</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">(264,034</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">(176,208</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="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchases 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">(16,551,409</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">(1,000,310</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">(15,551,099</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from maturities 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">15,007,180</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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">15,007,180</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</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><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 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">(4,155,588</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">(661,843</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">(1,264,344</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">(720,127</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="5" 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>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from promissory notes and related
    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">3,013,492</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65,908</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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">2,500,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payments on promissory notes and capital leases
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,715,432</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">(147,210</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">(347,609</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">(710,292</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="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from bridge loan and related 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">2,220,000</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">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net proceeds from the issuance of preferred stock
    and 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">80,106,322</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">&#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">44,746,579</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,472,533</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from the 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">164,926</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,474</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,306</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</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><FONT size="2">&nbsp;</FONT></TD>
    <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 provided by (used in) 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">83,789,308</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">(68,828</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">44,417,276</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">20,279,627</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</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="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">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">26,649,150</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">(6,577,839</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">27,253,713</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">(2,008,928</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents at 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">7,982,204</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,404,365</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,658,078</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</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="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents at end of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,649,150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,404,365</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,658,078</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,649,150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT 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="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Supplemental cash flow information:
    </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>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest paid
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">583,177</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61,551</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">86,227</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">163,149</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Supplemental non-cash investing and 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>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fixed assets capitalized using promissory notes
    and capital leases
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,717,075</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">486,276</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">251,379</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">420,665</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Conversion of bridge loans and interest payable
    into Series&nbsp;C 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">2,124,576</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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 colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred stock dividends and accretion of
    preferred stock to redemption 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">13,558,903</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,271,383</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,625,804</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,201,116</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-7
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">INHIBITEX, INC.</FONT></B>

<DIV align="center">
<B><FONT size="2">(A Development Stage Company)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO FINANCIAL STATEMENTS</FONT></B>
<P>

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

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">1.</FONT></B></TD>
    <TD align="left">
    <B><FONT size="2">Operations</FONT></B></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">Inhibitex, Inc. (&#147;Inhibitex&#148; or the
&#147;Company&#148;) was incorporated in the state of Delaware
in May 1994. Inhibitex is a biopharmaceutical company engaged in
the discovery, development and commercialization of novel
antibody-based products for the prevention and treatment of
serious bacterial and fungal infections in the hospital setting.
The Company&#146;s primary activities since incorporation have
been establishing its offices, recruiting personnel, conducting
research, conducting pre-clinical and clinical trials,
performing business and financial planning, and raising capital.
Accordingly, the Company is considered to be in the development
stage for financial reporting purposes.
</FONT>

<P align="left">
<FONT size="2">The Company has incurred operating losses since
inception and expects such losses to continue for the
foreseeable future. These losses have largely been the result of
research and development expenses related to Veronate, the
Company&#146;s lead product candidate, and to a lesser extent,
Aurexis, its second product candidate. Veronate is being
developed to prevent hospital-associated infections in very low
birth weight infants. Aurexis is being developed to treat, in
combination with standard of care antibiotics, serious,
life-threatening <I>Staphylococcus aureus (S.&nbsp;aureus)</I>
infections in hospitalized patients. Both Veronate and Aurexis
are currently being evaluated in clinical trials. The Company
plans to continue to finance its operations with equity and/or
other financings or proceeds from potential future partnerships.
The Company&#146;s ability to continue its operations is
dependent, in the near term, upon the successful execution of
such financings and ultimately upon achieving profitable
operations. There can be no assurance that these funds will be
available on terms acceptable to the Company or that the Company
will become profitable.
</FONT>
<P>

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

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">2.</FONT></B></TD>
    <TD align="left">
    <B><FONT size="2">Summary of Significant Accounting
    Policies</FONT></B></TD>
</TR>

</TABLE>

<P align="left">
<B><I><FONT size="2">Use of
Estimates.</FONT></I></B><FONT size="2"> The preparation of
financial statements in conformity with accounting principles
generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets
and liabilities as of the date of the financial statements and
the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those
estimated.
</FONT>

<P align="left">
<B><I><FONT size="2">Cash, Cash Equivalents and Short-Term
Investments.</FONT></I></B><FONT size="2"> Cash equivalents
consist of short-term, highly liquid investments with original
maturities of 90&nbsp;days or less when purchased. Cash
equivalents are carried at cost, which approximates their fair
market value. Investments with original maturities beyond
90&nbsp;days when purchased are considered to be short-term
investments. These investments are accounted for in accordance
with Statement of Financial Accounting Standards
(&#147;SFAS&#148;) No.&nbsp;115, <I>Accounting for Certain
Investments in Debt and Equity Securities</I>
(&#147;SFAS&nbsp;115&#148;). The Company is required to maintain
a cash balance equal to the greater of $5.0&nbsp;million or 25%
of its total cash, cash equivalents, and short-term investments
on deposit with a lender pursuant to a loan and security
agreement as discussed in Note&nbsp;7.
</FONT>

<P align="left">
<FONT size="2">The Company has classified its entire investment
portfolio as available-for-sale. These securities are recorded
as either cash equivalents or short-term investments. Short-term
investments are carried at estimated fair value based upon
quoted market prices with unrealized gains and losses, if any,
reported in other comprehensive income. The amortized cost of
debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization and
accretion are included in interest and other income (expense),
net. Realized gains and losses are included in interest and
other income (expense), net. The cost basis of all securities
sold is based on the specific identification method.
</FONT>

<P align="center"><FONT size="2">F-8
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">INHIBITEX, INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Company)</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">Available-for-sale securities as of
December&nbsp;31, 2003 and 2002 consisted of commercial paper
and money-market funds.
</FONT>

<P align="left">
<B><I><FONT size="2">Property and Equipment,
Net.</FONT></I></B><FONT size="2"> Property and equipment are
recorded at cost and depreciated using the straight-line method
over the following estimated useful lives of the related assets:
</FONT>

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

<TR>
    <TD width="52%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="45%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Asset</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Estimated Life</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 valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Computer software and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">3 years
    </FONT></TD>
</TR>

<TR>
    <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 align="center" valign="top">
    <FONT size="2">7 years
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Laboratory equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">5 years
    </FONT></TD>
</TR>

<TR>
    <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 align="center" valign="top">
    <FONT size="2">Lesser of estimated useful life or life of lease
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<FONT size="2">The Company also capitalizes costs related to
computer software developed for internal use in accordance with
Statement of Position&nbsp;98-1, <I>Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use.</I>
When assets are retired or sold, the assets and accumulated
depreciation are removed from the respective accounts and any
gain or loss is recognized in interest and other income
(expense), net. Expenditures for repairs and maintenance are
charged to expense as incurred.
</FONT>

<P align="left">
<B><I><FONT size="2">Revenue
Recognition.</FONT></I></B><FONT size="2"> The Company
recognizes revenue primarily under licensing and other
collaborative research and development agreements. The Company
follows the revenue recognition criteria outlined in Staff
Accounting Bulletin (&#147;SAB&#148;) No.&nbsp;101, <I>Revenue
Recognition in Financial Statements</I> (&#147;SAB
No.&nbsp;101&#148;) as amended by SAB&nbsp;104 <I>&#147;Revenue
Recognition&#148;</I>, and Emerging Issues Task Force
(&#147;EITF&#148;) Issue&nbsp;00-21, <I>Revenue Arrangements
with Multiple Deliverables</I> (&#147;EITF Issued&nbsp;00
-21&#148;). Accordingly, up-front, non-refundable license fees
under agreements where the Company has an ongoing research and
development commitment are amortized, on a straight-line basis,
over the term of such commitment. Revenues received for ongoing
research and development activities under collaborative
arrangements are recognized as these activities are performed
pursuant to the terms of the related agreements (see
Note&nbsp;12). Any amounts received in advance of performance
are recorded as deferred revenue until earned.
</FONT>

<P align="left">
<B><I><FONT size="2">Accrued
Expenses.</FONT></I></B><FONT size="2"> As part of the process
of preparing its financial statements, management is required to
estimate expenses that the Company has incurred but for which it
has not been invoiced. This process involves identifying
services that have been performed on the Company&#146;s behalf
and estimating the level of services performed by third parties
and the associated cost incurred for such services as of each
balance sheet date. Examples of expenses for which the Company
accrues based on estimates include fees for services, such as
those provided by clinical research and data management
organizations, investigators and fees owed to contract
manufacturers in conjunction with the manufacture of clinical
trial materials. In connection with such service fees, these
estimates are most affected by management&#146;s understanding
of the status and timing of services provided relative to the
actual levels of services incurred by such service providers.
The majority of the Company&#146;s service providers invoice the
Company monthly in arrears for services performed. Management
makes these estimates based upon the facts and circumstances
known to it at the time and in accordance with accounting
principles generally accepted in the United States.
</FONT>

<P align="left">
<B><I><FONT size="2">Prepaid Expenses and Other Current
Assets.</FONT></I></B><FONT size="2"> Prepaid expenses and other
current assets consist primarily of license payments, insurance
premiums and payments to clinical research organizations that
the Company has made in advance.
</FONT>

<P align="left">
<B><I><FONT size="2">Stock-based
Compensation.</FONT></I></B><FONT size="2"> The Company accounts
for employee stock options using the intrinsic-value method in
accordance with Accounting Principles Board (&#147;APB&#148;)
Opinion No.&nbsp;25, <I>Accounting for Stock</I>
</FONT>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">INHIBITEX, INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Company)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<P align="left">
<I><FONT size="2">Issued to Employees</FONT></I><FONT size="2">
(&#147;APB No.&nbsp;25&#148;), and Financial Accounting
Standards Board Interpretation (&#147;FIN&#148;) No.&nbsp;44
(&#147;FIN&nbsp;44&#148;), <I>Accounting for Certain
Transactions Involving Stock Compensation, an Interpretation of
APB No.&nbsp;25, and Related Interpretations</I> and has adopted
the disclosure only provisions of SFAS&nbsp;No.&nbsp;123,
<I>Accounting for Stock-Based Compensation</I>
(&#147;SFAS&nbsp;No.&nbsp;123&#148;). The Company accounts for
equity instruments issued to non-employees in accordance with
the provisions of the SFAS&nbsp;No.&nbsp;123, EITF Issue
No.&nbsp;96-18, <I>Accounting for Equity Instruments that are
Issued to Other than Employees for Acquiring, or in Conjunction
with Selling, Goods or Services.</I> In December&nbsp;2002, the
Financial Accounting Standards Board issued
SFAS&nbsp;No.&nbsp;148, <I>Accounting for Stock-Based
Compensation&nbsp;&#151; Transition and Disclosure</I>
(&#147;SFAS&nbsp;No.&nbsp;148&#148;). SFAS&nbsp;No.&nbsp;148
amends SFAS&nbsp;No.&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, SFAS&nbsp;No.&nbsp;148 amends the disclosure
requirements of SFAS&nbsp;No.&nbsp;123 and APB No.&nbsp;28,
<I>Interim Financial Reporting</I>, to require disclosure in the
summary of significant accounting policies of the effects of an
entity&#146;s accounting policy with respect to employee stock
compensation on reported net loss. The Company has adopted the
disclosure requirements of SFAS&nbsp;No.&nbsp;148.
</FONT>

<P align="left">
<FONT size="2">Under APB No.&nbsp;25, if the exercise price of
the Company&#146;s employee and director stock options equals or
exceeds the estimated fair value of the underlying stock on the
date of grant, no compensation expense is recognized. In the
event that stock options are granted with an exercise price
below the estimated fair value of the Company&#146;s common
stock on the date of such grant, APB No.&nbsp;25 requires that
the difference between the estimated fair value and the exercise
price be recorded as deferred compensation and amortized over
the related vesting period. No stock compensation expense is
reflected in the Company&#146;s reported net loss in any period
prior to December&nbsp;31, 2002 as all options granted had an
exercise price equal to the fair value of the underlying common
stock on the date of grant.
</FONT>

<P align="left">
<FONT size="2">The Company has recorded deferred stock
compensation of $980,545 for the year ended December&nbsp;31,
2003, which represents the difference between the exercise price
per share and the fair value at the respective grant dates for
options granted in 2003. Deferred stock compensation is
recognized and amortized on a straight-line basis over the
vesting period of the related options, which for employees is
generally four years. The amortization of deferred stock
compensation related to stock options granted to the
Company&#146;s employees and directors was $176,235 for the year
ended December&nbsp;31, 2003. The expected future amortization
of deferred stock compensation related to the options granted in
2003 is $245,136 in each of 2004, 2005 and 2006 and $68,902 in
2007.
</FONT>

<P align="left">
<FONT size="2">The option valuation models used to value options
under SFAS&nbsp;No.&nbsp;123 were developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective
assumptions, including the expected volatility. Because the
Company&#146;s employee stock options have characteristics
significantly different from those of traded options and because
changes in the subjective input assumptions can materially
affect the fair value estimate, in the Company&#146;s opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
</FONT>

<P align="left">
<FONT size="2">As a result, the Company has elected to continue
to follow the intrinsic value method of accounting as prescribed
by APB No.&nbsp;25. The information regarding net loss as
required by SFAS No.&nbsp;123 has been determined as if the
Company had accounted for its stock-based compensation under the
fair value method of that Statement. The following table
illustrates the effect on net loss attributable to common
</FONT>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">INHIBITEX, INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Company)</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">stockholders and basic and diluted net loss per
share attributable to common stockholders had the Company
applied the fair value provisions of SFAS&nbsp;No.&nbsp;123 to
employee stock-based compensation:
</FONT>

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

<TR>
    <TD width="55%"><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="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>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">December 31,</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" 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 bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss attributable to common
    stockholders&nbsp;&#151; as reported
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,377,724</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(23,238,527</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">(28,534,137</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="13"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Add: Amortization of deferred stock compensation
    expense included in net loss&nbsp;&#151; as reported
    </FONT></DIV>
    </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">176,235</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="13"><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">Deduct: Stock compensation expense determined
    under fair 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">(10,967</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">(45,046</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">(412,845</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>

</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="13"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss attributable to common
    stockholders&nbsp;&#151; pro forma
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,388,691</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(23,283,573</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">(28,770,747</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>

</TR>

<TR>
    <TD colspan="13"><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">Net loss attributable to common stockholders 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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="13"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">As reported
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8.90</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20.10</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">(22.77</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>

</TR>

<TR>
    <TD colspan="13"><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">Pro forma
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8.91</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20.14</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">(22.96</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>

</TR>

</TABLE>
</CENTER>

<P align="left">
<FONT size="2">The fair value of each stock option was estimated
at the date of grant using the minimum value method with the
following assumptions:
</FONT>

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

<TR>
    <TD width="67%"><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>
</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">December 31,</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" 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 valign="bottom" bgcolor="#EEEEEE">
    <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><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.77%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.01%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.05%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="13"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Expected life
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">4 years</FONT></TD>
    <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="bottom" nowrap><FONT size="2">4 years</FONT></TD>
    <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="bottom" nowrap><FONT size="2">4 years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="13"><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">Weighted average fair value of options 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">$0.04</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">$0.12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">$1.52</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<FONT size="2">For purposes of pro forma disclosure, the
estimated fair value of the options is amortized to expense over
the vesting period of the related options.
</FONT>

<P align="left">
<B><I><FONT size="2">Fair Value of Financial
Instruments.</FONT></I></B><FONT size="2"> The carrying amounts
of the Company&#146;s financial instruments, which include cash,
cash equivalents, short-term investments, accounts payable,
accrued expenses, and capital lease and debt obligations,
approximate their fair values.
</FONT>

<P align="left">
<B><I><FONT size="2">Concentrations of Credit Risk and Limited
Suppliers.</FONT></I></B><FONT size="2"> Cash and cash
equivalents consist of financial instruments that potentially
subject the Company to concentrations of credit risk to the
extent recorded on the balance sheets. The Company believes that
it has established guidelines for investment of its excess cash
that maintains principal and liquidity through its policies on
diversification and investment maturity.
</FONT>

<P align="left">
<FONT size="2">The Company relies on certain materials used in
its development process that are procured from a single source
supplier as well as certain third-party contract manufacturers
that make its product candidates. The failure of its supplier or
a contract manufacturer to deliver on schedule, or at all, could
delay or interrupt the development process and adversely affect
the Company&#146;s operating results.
</FONT>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">INHIBITEX, INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Company)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<P align="left">
<B><I><FONT size="2">Research and Development
Expense.</FONT></I></B><FONT size="2"> Research and development
expense primarily consists of expenses incurred in the
discovery, development, and manufacturing of the Company&#146;s
product candidates. These expenses consist primarily of
(i)&nbsp;fees paid to third-party service providers to monitor
and accumulate data related to the Company&#146;s clinical
trials, (ii)&nbsp;costs related to obtaining patents and license
and research agreements, (iii)&nbsp;the costs to procure and
manufacture materials used in clinical trials, and
(iv)&nbsp;salaries and related expenses for personnel. These
costs are charged to expense as incurred.
</FONT>

<P align="left">
<B><I><FONT size="2">Income Taxes.</FONT></I></B><FONT size="2">
The Company utilizes the liability method of accounting for
income taxes as required by SFAS&nbsp;No.&nbsp;109,
<I>Accounting for Income Taxes</I>
(&#147;SFAS&nbsp;No.&nbsp;109&#148;). Under this method,
deferred tax assets and liabilities are determined based on the
differences between the financial reporting and tax reporting
bases of assets and liabilities and are measured using the
enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse. A valuation
allowance is recorded to reduce the carrying amounts of net
deferred tax assets to an amount the Company expects to realize
in the future based upon the available evidence at the time.
</FONT>

<P align="left">
<B><I><FONT size="2">Reclassifications.</FONT></I></B><FONT size="2">
Certain reclassifications have been made to prior period amounts
to conform to the current year presentation.
</FONT>

<P align="left">
<B><I><FONT size="2">Recent Accounting
Pronouncements.</FONT></I></B><FONT size="2"> In
January&nbsp;2003, the FASB issued FIN No.&nbsp;46,
<I>Consolidation of Variable Interest Entities</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 new
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 provisions of
FIN&nbsp;46 must be applied for the first interim or annual
period beginning after March&nbsp;31, 2004. The adoption of this
statement did not have a material impact on the Company&#146;s
results of operations or financial position.
</FONT>

<P align="left">
<FONT size="2">In May&nbsp;2003, the FASB issued
SFAS&nbsp;No.&nbsp;150, <I>Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity</I> (&#147;SFAS No.&nbsp;150&#148;).
SFAS&nbsp;No.&nbsp;150 affects the issuer&#146;s accounting for
three types of freestanding financial instruments. These are
mandatorily redeemable shares, which the issuing company is
obligated to buy back in exchange for cash or other assets; put
options and forward purchase contracts; and obligations that can
be settled with shares, the monetary value of which is fixed,
tied solely or predominantly to a variable such as a market
index, or varies inversely with the value of the issuer&#146;s
shares. Most of the guidance in SFAS&nbsp;No.&nbsp;150 is
effective for all 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. The adoption of this statement did not have
a material effect on the Company&#146;s results of operations or
financial position.
</FONT>
<P>

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

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">3.</FONT></B></TD>
    <TD align="left">
    <B><FONT size="2">Net Loss Per Share</FONT></B></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">The Company calculates net loss per share in
accordance with SFAS&nbsp;No.&nbsp;128, <I>Earnings Per
Share</I> (&#147;SFAS&nbsp;No.&nbsp;128&#148;) and SEC Staff
Accounting Bulletin No.&nbsp;98 (&#147;SAB No.&nbsp;98&#148;).
Under the provisions of SFAS&nbsp;No.&nbsp;128 and SAB
No.&nbsp;98, basic net loss per share is computed by dividing
the net loss attributable to common stockholders for the period
by the weighted average number of common shares outstanding for
the period. Diluted net loss per share attributable to common
stockholders is computed by dividing the net loss attributable
to common stockholders by the weighted average number of common
shares and dilutive common stock equivalents then outstanding.
Common stock equivalents consist of common shares issuable upon
the conversion of preferred stock and upon the exercise of stock
options, and the conversion of
</FONT>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">INHIBITEX, INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Company)</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 upon the exercise of warrants.
Dilutive earnings per share is the same as basic earnings per
share since common stock equivalents are excluded from the
calculation, due to their effect being anti-dilutive.
</FONT>

<P align="left">
<FONT size="2">The pro forma net loss per share attributable to
common stockholders and the shares used to compute basic and
diluted pro forma net loss per share attributable to common
stockholders are calculated assuming all of the Company&#146;s
outstanding preferred stock was converted into common stock as
of its date of issuance and the conversion of all cumulative
preferred stock dividends as of the date they were accrued. This
calculation excludes the assumed issuance of shares of common
stock subject to the mandatory cashless exercise, upon the
closing of an initial public offering, of warrants that were
outstanding at December&nbsp;31, 2003.
</FONT>

<P align="left">
<FONT size="2">The following table set forth the computation of
historical and pro forma basic and diluted net loss attributable
to common stockholders per share:
</FONT>

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

<TR>
    <TD width="55%"><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="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>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Year Ended December 31,</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" 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 valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Historical</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 align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Numerator:
    </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 align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss attributable to common stockholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,377,724</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(23,238,527</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">(28,534,137</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>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Denominator:
    </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 align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average common shares outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,054,245</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,156,218</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">1,253,132</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>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic and diluted net loss per share attributable
    to common stockholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8.90</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20.10</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">(22.77</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>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Pro forma</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 align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss attributable to common 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 align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(28,534,137</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT 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">Pro forma basic and diluted net loss per share
    attributable to common stockholders (unaudited)
    </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">(1.18</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT 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 align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Shares used above
    </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">1,253,132</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">Pro forma adjustment to reflect assumed weighted
    average effect of conversion of preferred stock and cumulative
    preferred stock dividends (unaudited)
    </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">22,892,157</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>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Shares used to compute pro forma basic and
    diluted net loss per share (unaudited)
    </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">24,145,289</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="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<FONT size="2">The following table outlines potentially dilutive
common stock equivalents outstanding that are not included in
the above historical calculations as the effect of their
inclusion was anti-dilutive.
</FONT>

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

<TR>
    <TD width="61%"><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="4%"><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">December 31,</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" 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 valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Redeemable convertible preferred stock and
    related dividends
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,472,569</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,149,204</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,596,629</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">Common 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">1,320,228</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,584,178</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,185,490</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">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">261,369</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">3,118,483</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">4,374,694</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">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">216,000</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">216,000</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">216,000</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>
    <TD><FONT size="2">&nbsp;</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
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,270,166</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,067,865</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,372,813</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="center"><FONT size="2">F-13
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">INHIBITEX, INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Company)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>
<P>

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

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">4.</FONT></B></TD>
    <TD align="left">
    <B><FONT size="2">Property and Equipment</FONT></B></TD>
</TR>

</TABLE>

<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">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">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">Laboratory equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,601,297</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,948,952</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">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">986,455</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">994,617</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">Computer software 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">745,613</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">735,563</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">Office 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">197,464</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">198,570</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><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,530,829</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,877,702</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">Less accumulated 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">(1,723,913</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">(2,242,158</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 property and equipment, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,806,916</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,635,544</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">
<FONT size="2">Included in the property and equipment are assets
recorded under capital leases with a cost of approximately
$547,000 and $737,000 at December&nbsp;31, 2002 and 2003,
respectively. Amortization of the assets recorded under capital
leases is included in depreciation expense. The accumulated
amortization related to these assets under capital leases was
approximately $191,000 and $421,000 at December&nbsp;31, 2002
and 2003, respectively. Depreciation expense was approximately
$659,000, $772,000 and $768,000 for the years ended
December&nbsp;31, 2001, 2002 and 2003, respectively.
</FONT>
<P>

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

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">5.</FONT></B></TD>
    <TD align="left">
    <B><FONT size="2">Accrued Expenses</FONT></B></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">The components of accrued expenses 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&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">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">Clinical development expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">979,063</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">476,456</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">Payroll and related 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">443,398</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">481,495</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">Manufacturing 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">287,178</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">83,750</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">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">187,265</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">236,746</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">Other operating 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">123,900</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">222,092</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">License 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">&#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">200,000</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">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,020,804</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,700,539</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>

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

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">6.</FONT></B></TD>
    <TD align="left">
    <B><FONT size="2">Commitments and Contingencies</FONT></B></TD>
</TR>

</TABLE>

<P align="left">
<B><I><FONT size="2">Lease
Commitments.</FONT></I></B><FONT size="2"> The Company leases
laboratory and office facilities in Alpharetta, Georgia under
two operating leases, one of which is with a related party. The
Company also leases office equipment under various
non-cancelable operating leases. Future minimum lease payments
under operating leases primarily relate to the laboratory and
office facility leases. One of the these leases includes annual
rent increases based upon increases in the Consumer Price Index,
which are considered to be contingent rentals and are charged to
expense when incurred. During the years ended December&nbsp;31,
2001, 2002 and 2003, rent expense totaled approximately
$240,000, $270,000 and $421,000, respectively.
</FONT>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">INHIBITEX, INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Company)</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">Future minimum payments under these operating
leases at December&nbsp;31, 2003 are as follows:
</FONT>

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

<TR>
    <TD width="86%"><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 align="center" nowrap><B><FONT size="1">Year Ending December&nbsp;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">2004
    </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">206,858</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">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">205,722</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">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">3,396</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 align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total minimum lease payments
    </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">415,976</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><I><FONT size="2">Purchase
Commitments.</FONT></I></B><FONT size="2"> In December 2001, the
Company entered into a ten-year contract manufacturing agreement
for Veronate. Pursuant to the terms of the agreement, the
Company is obligated to pay its contract manufacturer on a per
batch basis. The Company is required to provide the manufacturer
with a three-year rolling commitment that outlines the number of
batches it desires to be manufactured in each of the next three
years. In the event that Inhibitex cancels the production of any
of these batches, certain cancellation penalties may apply.
Specific prices per batch were established at the time of the
agreement and are subject to increases based upon increases in
certain cost of living indexes. The agreement may be terminated
by either party in the event of a default by the other party, or
upon mutual agreement.
</FONT>

<P align="left">
<FONT size="2">In October 2002, Inhibitex entered into a
ten-year plasma supply agreement with a supplier. Inhibitex is
required to purchase a certain number of liters of plasma per
year that shall be agreed upon by both parties no later than
90&nbsp;days prior to the beginning of such calendar year. The
Company is generally obligated to purchase 90% of the agreed
upon quantity in any given year. A price per liter was
established at the time of the agreement and is subject to
increases based upon increases in certain cost of living indexes
and other adjustments. The agreement may be terminated by either
party only in the event of a default by the other party, by the
Company upon 30&nbsp;days written notice if the clinical
development of Veronate is halted or terminated, or upon mutual
agreement.
</FONT>

<P align="left">
<B><I><FONT size="2">Contingencies.</FONT></I></B><FONT size="2">
In December 2003, the Company entered into an agreement to lease
a to-be built research and office facility. The lease is
immediately cancelable by the Company until March&nbsp;30, 2004,
provided that the Company reimburses the developer for
out-of-pocket expenses it incurs through the date of termination
up to $325,000.
</FONT>
<P>

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

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">7.</FONT></B></TD>
    <TD align="left">
    <B><FONT size="2">Long-term Debt</FONT></B></TD>
</TR>

</TABLE>

<P align="left">
<B><I><FONT size="2">Capital Lease
Obligations.</FONT></I></B><FONT size="2"> In 2002 and 2003,
Inhibitex entered into capital lease transactions related to the
acquisition of certain laboratory and other equipment. The
amortization of assets acquired under these capital leases has
been recorded as depreciation expense. These capital leases bear
interest at a rate of 10.2% and expire at various dates from
March 2005 to June 2007. In connection with these capital
leases, the lessor was granted warrants to purchase
5,117&nbsp;shares of Series&nbsp;D Redeemable Convertible
Preferred Stock at an exercise price of $3.94&nbsp;per share.
These warrants were recorded at their weighted average estimated
fair value of $2.49 per share, using the Black-Scholes method
assuming no dividend yield, expected life of seven&nbsp;years,
risk-free rate of 3.74% and volatility of 50%. This amount was
recorded as interest expense.
</FONT>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">INHIBITEX, INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Company)</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">Future payments under capital lease agreements as
of December&nbsp;31, 2003 are as follows:
</FONT>

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

<TR>
    <TD width="85%"><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 align="center" nowrap><B><FONT size="1">Year Ending December&nbsp;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">2004
    </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">393,113</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">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">282,502</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">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">161,645</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">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">29,437</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 align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total future minimum lease payments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">866,697</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">Less amount representing interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(104,436</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 valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Present value of future minimum lease payments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">762,261</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">Less current portion of capital 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">(330,408</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 valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term portion of capital lease 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">431,853</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><I><FONT size="2">Notes
Payable.</FONT></I></B><FONT size="2"> In January 1999,
Inhibitex entered into a loan and security agreement (the
&#147;Security Agreement&#148;) with a financial institution.
Under the terms of the Security Agreement, Inhibitex could
borrow up to $1,000,000 through December&nbsp;31, 1999,
evidenced by senior secured promissory notes (the &#147;Senior
Notes&#148;). In February and June 1999, Inhibitex executed
three Senior Notes in the aggregate amount of $447,584 under the
Security Agreement. During 2003, two of the Senior Notes were
repaid in full. The outstanding balance of the Senior Notes at
December&nbsp;31, 2002 and 2003 was $107,843 and $15,244,
respectively. Remaining monthly payments are $3,941 through
April 2004. In conjunction with the Security Agreement, the
financial institution received a warrant to purchase
20,000&nbsp;shares of Series&nbsp;B Redeemable Convertible
Preferred Stock at an exercise price of $1.50&nbsp;per share.
Using the Black-Scholes method, the warrant was recorded at its
estimated fair value of $0.37&nbsp;per share, assuming no
dividend yield, expected life of four&nbsp;years, risk-free
interest rate of 5.64% and volatility of 50%. The principal
balance of the related promissory notes was discounted in an
amount equal to such value.
</FONT>

<P align="left">
<FONT size="2">In April 1999, the Company issued two promissory
notes to a related party in connection with certain leasehold
improvements. The notes bear interest at 7%&nbsp;per annum. One
note was repaid in full in December 1999. Remaining monthly
payments are $3,799 through December 2005, and the outstanding
balance as of December&nbsp;31, 2002 and 2003 was $123,037 and
$84,852, respectively. In connection with these promissory
notes, the Company issued a warrant to purchase
11,250&nbsp;shares of Series&nbsp;B Redeemable Convertible
Preferred Stock at an exercise price of $1.50&nbsp;per share.
Using the Black-Scholes method, the warrant was recorded at its
estimated fair value of $0.59&nbsp;per share, assuming no
dividend yield, an expected life of three&nbsp;years, risk-free
interest rate 5.97% and volatility of 50%. The principal balance
of the related notes was discounted in an amount equal to such
value.
</FONT>

<P align="left">
<FONT size="2">On February&nbsp;11, 2003, Inhibitex entered into
a loan and security agreement (the &#147;Loan Agreement&#148;)
with a commercial bank. In June 2003, the Company borrowed
$2.5&nbsp;million under the Loan Agreement (&#147;Term
Note&#148;) and paid two interest-only payments in June and July
2003. Beginning August 2003, the Company began to make the first
of 36&nbsp;equal monthly installments of principal of $69,444.
The Term Note bears interest at 6.5%&nbsp;per year. The
outstanding balance of the Term Note at December&nbsp;31, 2003
was $2,152,778. The Loan Agreement is secured by all
unencumbered tangible assets of the Company.
</FONT>

<P align="center"><FONT size="2">F-16
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">INHIBITEX, INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Company)</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">Future minimum payments due under notes payable
as of December&nbsp;31, 2003 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&nbsp;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">2004
    </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">889,523</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">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">877,239</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">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">486,112</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 align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total future payments
    </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">2,252,874</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>

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

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">8.</FONT></B></TD>
    <TD align="left">
    <B><FONT size="2">Income Taxes</FONT></B></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">At December&nbsp;31, 2002 and 2003, Inhibitex had
available net operating loss (&#147;NOL&#148;) carryforwards of
approximately $36,548,000, and $58,852,000, respectively, which
will begin to expire in the year 2019. Inhibitex also has
approximately $470,000 and $657,000 of research and development
(&#147;R&#38;D&#148;) tax credit carryforwards as of
December&nbsp;31, 2002 and 2003, respectively. The NOL and
R&#38;D tax credit carryforwards are available to offset future
income taxes payable, if any. The Tax Reform Act of 1986
contains provisions that may limit NOL and R&#38;D tax credit
carryforwards available for use in any given year in the event
of significant changes in ownership interests, as defined.
</FONT>

<P align="left">
<FONT size="2">Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of
Inhibitex&#146;s deferred tax asset are as follows:
</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="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="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&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">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>
</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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">Net operating loss carryforwards
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,881,900</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,340,200</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 tax credit carryforwards
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">470,200</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">657,100</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 revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">512,500</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">447,600</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">Other, 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">172,100</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">235,200</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>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total 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">15,036,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,680,100</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">Less 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">(15,036,700</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">(23,680,100</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>
    <TD colspan="2" 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="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">
<FONT size="2">For financial reporting purposes,
SFAS&nbsp;No.&nbsp;109 requires that a valuation allowance be
recorded to reduce the balance of deferred income tax assets if
it is more likely than not that some portion or all of the
deferred income tax assets will not be realized in the future.
Inhibitex has established a full valuation allowance equal to
the amount of its deferred tax asset due to uncertainties with
respect to the Company&#146;s ability to generate sufficient
taxable income in the future. The valuation allowance increased
by $8,643,400 from December&nbsp;31, 2002 to December&nbsp;31,
2003.
</FONT>

<P align="center"><FONT size="2">F-17
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">INHIBITEX, INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Company)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>
<P>

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

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">9.</FONT></B></TD>
    <TD align="left">
    <B><FONT size="2">Redeemable Convertible Preferred Stock and
    Warrants</FONT></B></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">The following table outlines redeemable
convertible preferred stock and related warrants:
</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="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">Series&nbsp;B redeemable convertible preferred
    stock, $.001 par value; 4,500,000 and 2,600,000&nbsp;shares
    authorized at December&nbsp;31, 2002 and 2003, respectively;
    2,288,670&nbsp;shares issued and outstanding for both periods
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,911,936</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">2,911,936</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="9"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Series&nbsp;C redeemable convertible preferred
    stock, $.001&nbsp;par value; 8,000,000&nbsp;shares authorized
    and 5,576,240&nbsp;shares issued and outstanding for both periods
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,801,857</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,073,240</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="9"><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">Series&nbsp;D redeemable convertible preferred
    stock, $.001&nbsp;par value; 17,500,000&nbsp;shares authorized
    for both periods; 11,420,794&nbsp;shares issued and outstanding
    for both periods
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44,960,960</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49,864,860</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="9"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Series&nbsp;E redeemable convertible preferred
    stock, $.001&nbsp;par value; no shares authorized, issued or
    outstanding at December&nbsp;31, 2002; 9,600,000&nbsp;shares
    authorized at December&nbsp;31, 2003; 5,087,740&nbsp;shares
    issued and outstanding at December&nbsp;31, 2003
    </FONT></DIV>
    </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">18,192,203</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="9"><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">Subscription receivable for purchase of
    Series&nbsp;E 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">(1,499,997</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="9"><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">4,259,307</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,065,467</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 colspan="9"><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 redeemable convertible preferred stock and
    warrants
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,934,060</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">95,607,709</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">
<FONT size="2">During 1997, the Company issued
644,340&nbsp;shares of Series&nbsp;B Redeemable Convertible
Preferred Stock (&#147;Series&nbsp;B&#148;) for $750,012 in
cash. During 1998, the Company issued an additional
1,644,330&nbsp;shares of Series&nbsp;B for $2,250,000 in cash.
</FONT>

<P align="left">
<FONT size="2">In April and June 2000, the Company issued an
aggregate of 2,300,329&nbsp;shares of Series&nbsp;C Redeemable
Convertible Preferred Stock (&#147;Series&nbsp;C&#148;) for
total consideration of $6,555,938, which included the conversion
of $2,000,000 in bridge loans, accrued interest of $124,576, and
cash proceeds of $4,431,365. In October and November 2000, the
Company sold an additional 3,275,911&nbsp;shares of
Series&nbsp;C for total cash consideration of $9,336,346.
</FONT>

<P align="left">
<FONT size="2">In February, March, and April 2002, the Company
issued an aggregate of 11,420,794&nbsp;shares of Series&nbsp;D
Redeemable Convertible Preferred Stock
(&#147;Series&nbsp;D&#148;) and warrants to purchase
2,855,200&nbsp;shares of Series&nbsp;D for total cash
consideration of $44,997,928. Net proceeds to the Company, after
legal and other issuance costs, were $44,746,579. The total
proceeds were allocated between Series&nbsp;D and the related
warrants based on their relative fair values. The amount
allocated to the warrants was $4,140,040, which was recorded as
a discount to Series&nbsp;D. This discount is being accreted to
the Series&nbsp;D on a straight-line basis through April&nbsp;6,
2006, the date that Series&nbsp;D becomes redeemable. The
current year accretion is recorded in the statement of
operations to arrive at the net loss attributable to common
stockholders.
</FONT>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">INHIBITEX, INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Company)</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">In connection with the Series&nbsp;D financing,
in February 2002 the Board of Directors approved three
additional series of preferred stock Series&nbsp;B-1 Convertible
Preferred Stock (the &#147;Series&nbsp;B-1&#148;),
Series&nbsp;C-1 Convertible Preferred Stock (the
&#147;Series&nbsp;C-1&#148;), and Series&nbsp;D-1 Convertible
Preferred Stock (the &#147;Series&nbsp;D-1&#148;). The Company
is authorized to issue up to 2,600,000&nbsp;shares of
Series&nbsp;B-1, 8,000,000&nbsp;shares of Series&nbsp;C-1 and
17,500,000&nbsp;shares of Series&nbsp;D-1. Series&nbsp;B-1,
Series&nbsp;C-1 and Series&nbsp;D-1 have the same rights and
preferences as the Series&nbsp;B, Series&nbsp;C and
Series&nbsp;D, respectively, except for certain provisions
relating to anti-dilution rights and rights of first refusal
with respect to additional issuances of equity securities. No
shares of these series of preferred stock were outstanding as of
December&nbsp;31, 2002 and 2003.
</FONT>

<P align="left">
<FONT size="2">In December&nbsp;2003, the Company issued an
aggregate of 5,087,740&nbsp;shares of Series&nbsp;E Redeemable
Convertible Preferred Stock (&#147;Series&nbsp;E&#148;) and
warrants to purchase 1,271,930&nbsp;shares of Series&nbsp;E for
total cash consideration of $20,045,696. Net proceeds to the
Company, after legal and other issuance costs, were $19,972,511.
Of this amount, $1,499,997 was recorded as a subscription
receivable at December&nbsp;31, 2003, as these proceeds were not
received by the Company until January&nbsp;5, 2004. The total
proceeds were allocated between Series&nbsp;E and the related
warrants based on their relative fair values. The amount
allocated to the warrants was $1,806,141, which was recorded as
a discount to Series&nbsp;E. This discount is being accreted to
Series&nbsp;E on a straight-line basis through April&nbsp;6,
2006, the date the Series&nbsp;E becomes redeemable. The current
year accretion is recorded in the statement of operations to
arrive at the net loss attributable to common stockholders.
</FONT>

<P align="left">
<FONT size="2">In connection with the Series&nbsp;E financing,
in December 2003 the Board of Directors approved an additional
series of preferred stock, Series&nbsp;E-1 Convertible Preferred
Stock (the &#147;Series&nbsp;E-1&#148;). The Company is
authorized to issue up to 9,600,000&nbsp;shares of Series&nbsp;E
and Series&nbsp;E-1. Series&nbsp;E-1 has the same rights and
preferences as Series&nbsp;E, except for certain provisions
relating to anti-dilution rights and rights of first refusal
with respect to additional issuances of equity securities. No
shares of this series of preferred stock were outstanding as of
December&nbsp;31, 2002 and 2003.
</FONT>

<P align="left">
<B><I><FONT size="2">Voting
Rights.</FONT></I></B><FONT size="2"> All holders of redeemable
convertible preferred stock have voting rights equal to the
number of shares of common stock into which the respective
preferred stock is convertible.
</FONT>

<P align="left">
<B><I><FONT size="2">Dividends.</FONT></I></B><FONT size="2">
Dividends on Series&nbsp;B are payable when and as declared by
the Board of Directors. Dividends on Series&nbsp;C and D are
cumulative and accrue at the rate of 8%&nbsp;per annum from the
date of issuance through the earlier of: (i)&nbsp;the date on
which the liquidation value is paid in connection with the
liquidation of the Company or redemption of such shares;
(ii)&nbsp;the date on which such shares are converted, or
(iii)&nbsp;the date on which such shares are otherwise acquired
by the Company. Dividends on Series&nbsp;C and&nbsp;D are also
convertible into shares of Series&nbsp;C and D at their
respective liquidation values per share. All dividends have been
accrued and included in the carrying value of the respective
redeemable convertible preferred stock in the accompanying
balance sheets. As of December&nbsp;31, 2003, the Company had
accrued cumulative preferred stock dividends of $11,064,505,
which were convertible into 3,223,185&nbsp;shares of preferred
stock. No dividends have been declared by the Board of
Directors, or paid by the Company.
</FONT>

<P align="left">
<B><I><FONT size="2">Liquidation.</FONT></I></B><FONT size="2">
Upon a liquidation event, which includes a liquidation,
dissolution, winding-up of the Company, or a merger,
consolidation or reorganization of the Company that results in
the transfer of 50% or more of the outstanding voting power of
the Company or a sale of substantially all the assets of the
Company, the holders of Series&nbsp;B, Series&nbsp;C,
Series&nbsp;D and Series&nbsp;E are entitled to, prior and in
preference to any other stockholders, a liquidation preference
distribution of their respective liquidation values plus all
</FONT>

<P align="center"><FONT size="2">F-19
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">INHIBITEX, INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Company)</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">accrued but unpaid dividends or if greater, the
amount per share as would have been payable had each share of
preferred stock been converted in the Company&#146;s common
stock prior to a liquidation event. The liquidation value of
Series&nbsp;B issued before July&nbsp;2, 1998 and on or after
July&nbsp;2, 1998 is $1.164 and $1.50&nbsp;per share,
respectively. The liquidation value of Series&nbsp;C issued on
or before June&nbsp;8, 2000 and after June&nbsp;8, 2000 is $5.70
and $2.85&nbsp;per share, respectively. The liquidation value of
Series&nbsp;D and&nbsp;E is $3.94&nbsp;per share. The following
table summarizes the liquidations preferences of convertible
redeemable preferred stock as of December&nbsp;31, 2003:
</FONT>

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

<TR>
    <TD width="81%"><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></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Liquidation</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Preference</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">Series&nbsp;B
    </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">3,000,012</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">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">26,722,817</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">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">51,787,839</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">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">20,045,695</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">101,556,363</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><I><FONT size="2">Conversion.</FONT></I></B><FONT size="2">
The holders of Series&nbsp;B, Series&nbsp;C, Series&nbsp;D, and
Series&nbsp;E may convert at any time shares of their preferred
stock into common stock on a one-for-one basis subject to
certain adjustments including dilutive issuances, adjustments or
splits, as defined. All redeemable preferred stock will be
automatically converted to common stock upon the closing of an
initial public offering with gross proceeds of not less than
$50.0&nbsp;million.
</FONT>

<P align="left">
<B><I><FONT size="2">Redemption.</FONT></I></B><FONT size="2">
At any time after April&nbsp;6, 2006, the holders of
Series&nbsp;B, Series&nbsp;C, Series&nbsp;D and Series&nbsp;E
have the option to require Inhibitex to redeem any or all of
their respective outstanding shares of redeemable preferred
stock. If so elected, the redemption price for each share of
preferred stock is the original purchase price paid for such
stock as adjusted for stock splits, stock dividends, or other
recapitalizations, plus all accrued but unpaid dividends. Prior
to the Series&nbsp;E financing in December 2003, the holders of
Series&nbsp;B, Series&nbsp;C and Series&nbsp;D could redeem
their preferred stock at any time after April&nbsp;6, 2005.
</FONT>

<P align="left">
<B><I><FONT size="2">Preferred Stock
Warrants.</FONT></I></B><FONT size="2"> The preferred stock
issuable upon the exercise of outstanding warrants to purchase
shares of the Company&#146;s redeemable convertible preferred
stock shall convert into common stock based upon a conversion
rate of one to one.
</FONT>

<P align="left">
<FONT size="2">The following table outlines outstanding warrants
to purchase preferred stock:
</FONT>

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

<TR>
    <TD width="59%"><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="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></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">Number of Shares of</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Per Share</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Preferred Stock</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">Series&nbsp;B
    </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">1.50</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">222,328</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">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">2.85</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,119</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">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">3.94&nbsp;&#150; 5.91</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,860,317</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">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">5.91</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,271,930</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>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <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 align="right" valign="bottom" nowrap><FONT size="2">4,359,694</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>

</TR>

</TABLE>
</CENTER>

<P align="left">
<FONT size="2">Warrants to purchase shares of redeemable
preferred stock issued in connection with notes payable and
capital leases are described in Note&nbsp;7.
</FONT>

<P align="center"><FONT size="2">F-20
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">INHIBITEX, INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Company)</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">In connection with bridge loans provided to the
Company in March and August 1999, the Company issued warrants to
purchase a total of 170,000&nbsp;shares of Series&nbsp;B at an
exercise price of $1.50&nbsp;per share. The warrants became
exercisable on December&nbsp;31, 1999 and expire on
June&nbsp;19, 2004. Using the Black-Scholes method, the warrants
have been recorded at their estimated fair value of $0.53 to
$0.59&nbsp;per share, assuming no dividend yield, risk-free
rates ranging from 5.19% to 5.97%, expected life of
three&nbsp;years and volatility of 50%.
</FONT>

<P align="left">
<FONT size="2">In connection with another bridge loan provided
to the Company in March 2000, the Company issued warrants to
purchase a total of 40,000&nbsp;shares of Series&nbsp;B at an
exercise price of $1.50&nbsp;per share. The warrants became
exercisable on May&nbsp;15, 2000 and expire on June&nbsp;19,
2004. Using the Black-Scholes method, the warrants have been
recorded at their estimated fair value of $0.69&nbsp;per share,
assuming no dividend yield, risk-free interest rate of 6.43%,
expected life of four&nbsp;years and volatility of 50%.
</FONT>

<P align="left">
<FONT size="2">In connection with the issuance of shares of
Series&nbsp;D in February, March and April 2002, the Company
issued warrants to purchase 2,855,200&nbsp;shares of
Series&nbsp;D at an exercise price of $5.91&nbsp;per share. The
warrants may be exercised at any time by the holders through
February&nbsp;7, 2007. The warrants have been recorded at their
estimated fair value of $1.45&nbsp;per share using the
Black-Scholes method assuming no dividend yield, risk-free
interest rate of 4.3%, expected life of five&nbsp;years, and
volatility of 50%. The Series&nbsp;D was discounted by an amount
equal to such value.
</FONT>

<P align="left">
<FONT size="2">In connection with the issuance of Series&nbsp;E
in December 2003, the Company issued warrants to purchase a
total of 1,271,930&nbsp;shares of Series&nbsp;E at an exercise
price of $5.91&nbsp;per share. The warrants may be exercised at
any time through December&nbsp;19, 2008. The warrants have been
recorded at their estimated fair value of $1.42&nbsp;per share
using the Black-Scholes method assuming no dividend yield,
risk-free interest rate of 3.7%, expected life of
five&nbsp;years, and volatility of 50%. The Series&nbsp;E was
discounted by an amount equal to such value.
</FONT>

<P align="left">
<FONT size="2">The Company recorded aggregate accretion related
to warrants of $0, $1,164,476 and $1,329,899 in 2001, 2002 and
2003, respectively.
</FONT>

<P align="left">
<FONT size="2">In the event of an initial public offering of the
Company&#146;s common stock of at least $50.0&nbsp;million in
gross proceeds, the warrants issued in conjunction with sales of
Series&nbsp;D and Series&nbsp;E will be mandatorily exercisable
by their holders through a net issuance feature and the
Series&nbsp;D and Series&nbsp;E preferred stock issued pursuant
to this exercise will automatically be converted into common
shares upon the closing of such offering. The number of shares
of common stock that will ultimately be issuable pursuant to
this mandatory exercise will be dependent upon the price per
share of common stock upon the closing of an initial public
offering.
</FONT>
<P>

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

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">10.</FONT></B></TD>
    <TD align="left">
    <B><FONT size="2">Stockholders&#146; (Deficit) Equity</FONT></B></TD>
</TR>

</TABLE>

<P align="left">
<B><I><FONT size="2">Convertible Preferred
Stock.</FONT></I></B><FONT size="2"> On January&nbsp;3, 1996,
the Company issued 216,000&nbsp;shares of Series&nbsp;A
Preferred Stock (&#147;Series&nbsp;A&#148;) for total
consideration of $540,000, which included the conversion of a
$220,000 bridge loan and $320,000 in cash consideration (the
&#147;Series&nbsp;A Financing&#148;).
</FONT>

<P align="left">
<FONT size="2">Series&nbsp;A is convertible into common stock at
the option of the holder, or automatically upon the completion
of an initial public offering of the Company&#146;s common stock
providing net proceeds of at least $50.0&nbsp;million. The
initial conversion rate for Series&nbsp;A is one to one, which
is to be adjusted in the event of a subdivision or combination
of the stock or a reorganization, dividend, consolidation,
merger or sale of the
</FONT>

<P align="center"><FONT size="2">F-21
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">INHIBITEX, INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Company)</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">Company or sale of additional shares of common
stock for consideration less than the original purchase price of
the Series&nbsp;A. Dividends on Series&nbsp;A are payable when
and as declared by the Board of Directors. In the event of a
liquidation of the Company, the Series&nbsp;A stockholders are
entitled to receive, prior to and in preference to the common
stockholders, an amount equal to the Series&nbsp;A liquidation
value. The liquidation value of Series&nbsp;A shares is
$1.164&nbsp;per share plus all declared and accrued but unpaid
dividends. As of December&nbsp;31, 2003, this liquidation value
was $251,424. The holders of Series&nbsp;A have voting rights
equal to the number of shares of common stock into which the
shares are convertible. The holders of Series&nbsp;A and common
stock (voting as a class) may elect one director.
</FONT>

<P align="left">
<B><I><FONT size="2">Common Stock.</FONT></I></B><FONT size="2">
As of December&nbsp;31, 2003, the Company is authorized to issue
43,100,000&nbsp;shares of common stock. Each holder of common
stock is entitled to one vote for each share of common stock
held of record on all matters on which stockholders generally
are entitled to vote.
</FONT>

<P align="left">
<FONT size="2">As of December&nbsp;31, 2003, the Company had
reserved shares of common stock for issuance as follows:
</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="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 valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common 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">3,185,490</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">Conversion of 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">216,000</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">Conversion of 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">2,288,670</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">Conversion of 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">5,576,240</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">Conversion of 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">11,420,794</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">Conversion of 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">5,087,740</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">Dividends accrued on Series&nbsp;C and 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">3,223,185</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">Warrants to purchase shares of common stock and
    Series&nbsp;B, Series&nbsp;C, Series&nbsp;D, and 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">4,374,694</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>

</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">35,372,813</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">
<FONT size="2">Since inception and through December&nbsp;31,
2003 the Company issued a total of 1,275,688&nbsp;shares of
common stock. Of this amount, 100,000&nbsp;shares were purchased
by an investor in 1994, 878,055 have been issued to founders,
senior management and consultants and 297,633 have been issued
pursuant to the exercise of stock options and warrants.
</FONT>
<P>

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

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">11.</FONT></B></TD>
    <TD align="left">
    <B><FONT size="2">Stock Option Plans</FONT></B></TD>
</TR>

</TABLE>

<P align="left">
<B><I><FONT size="2">1998 Equity Ownership
Plan.</FONT></I></B><FONT size="2"> In May 1998, the Board of
Directors approved the 1998 Equity Ownership Plan (the
&#147;Plan&#148;), which provided for the grant of stock options
to directors, officers, employees and consultants. Under the
Plan, both incentive stock options and non-qualified stock
options, among other equity related awards, could be granted.
The Board of Directors may determine the term and vesting dates
of all options at their grant date, provided that such price
shall not be less than the fair market value of the
Company&#146;s stock on the date of grant. Under the Plan, the
maximum term for an option grant is 10&nbsp;years from the grant
date, and options generally vest ratably over a period of four
years from the grant date. As of December&nbsp;31, 2003, there
were 1,002,242 outstanding options under the Plan to purchase
the Company&#146;s common stock. Upon the adoption of the 2002
Stock Incentive Plan (&#147;2002 Plan&#148;) as discussed below,
no additional grants of stock options or equity awards were
authorized under the 1998 Equity Ownership Plan. However, future
forfeitures of any stock options granted under the 1998 Equity
Ownership Plan are added to the number of shares available under
the 2002 Plan.
</FONT>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">INHIBITEX, INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Company)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<P align="left">
<B><I><FONT size="2">2002 Inhibitex, Inc. Stock Incentive Plan
and 2002 Non-Employee Directors Stock Option
Plan.</FONT></I></B><FONT size="2"> In February 2002, the Board
of Directors approved the 2002 Plan, which provides for the
grant of incentive stock options, non-qualified stock options
and other equity related awards to employees, contractors and
consultants of the Company. In addition, the Company adopted the
2002 Non-Employee Directors Stock Option Plan (the
&#147;Director Plan&#148;) which provides for the grant of
non-qualified stock options and other equity related awards to
non-employee members of the Board of Directors. The 2002 Plan
and the Director Plan are administered by the compensation
committee of the Board of Directors, which has the authority to
select the individuals to whom awards are to be granted, the
number of shares granted, and the vesting schedule. As of
December&nbsp;31, 2003, an aggregate of 2,528,191 and 250,000
shares of common stock were reserved for issuance under the 2002
Plan and the Director Plan, respectively. Under the 2002 Plan
and Director Plan, the maximum term for an option grant is ten
and six years from the grant date, respectively. Options granted
under the 2002 Plan and Director Plan generally vest ratably
over a period of four years and three years, respectively, from
the grant date. As of December&nbsp;31, 2003, there were
2,029,999 outstanding options to purchase the Company&#146;s
common stock and 493,128 options available for grant under the
2002 Plan. As of December&nbsp;31, 2003, there were 120,000
outstanding options to purchase the Company&#146;s common stock
and 130,000 options were available for grant under the Director
Plan.
</FONT>

<P align="left">
<FONT size="2">The following is a summary of the stock option
activity and related information related to the Company&#146;s
stock option plans, and 35,000&nbsp;shares issued outside these
plans, from inception of such plans through the period ended
December&nbsp;31, 2003:
</FONT>

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

<TR>
    <TD width="54%"><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="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="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"></TD>
    <TD></TD>
    <TD colspan="3"></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">Number of</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">Exercise Price</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" align="center" nowrap><B><FONT size="1">Per Share</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Per Share</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">Granted during 1998
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">123,241</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.10</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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">Balance at December&nbsp;31, 1998
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">123,241</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.10</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">0.10</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">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">159,000</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">0.12-0.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.13</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">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">(4,250</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">0.10</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">0.10</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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">Balance at December&nbsp;31, 1999
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">277,991</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.10-0.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.12</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">728,382</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.12-0.285</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.16</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">(18,250</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">0.10-0.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.12</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">(19,750</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">0.12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.12</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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">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">968,373</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.10-0.285</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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">497,250</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">0.285</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.285</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">(106,646</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">0.10-0.285</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.12</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">(38,750</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">0.10-0.285</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.19</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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">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">1,320,227</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.10-0.285</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.20</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">1,523,000</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">0.285-0.80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.80</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">(112,859</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">0.10-0.285</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.16</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">(146,190</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">0.10-0.80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.31</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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">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">2,584,178</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.10-0.80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.55</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">679,500</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">0.80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.80</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">(54,378</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">0.10-0.80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.35</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">(23,810</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">0.12-0.80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.65</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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">Balance at December&nbsp;31, 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,185,490</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.10-0.80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.60</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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">F-23
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">INHIBITEX, INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Company)</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 following table summarizes information
relating to outstanding and exercisable options as of
December&nbsp;31, 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="24%"><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="6%"><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>
    <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="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Outstanding</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></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><B><FONT size="1">Exercisable</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">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="2"></TD>
    <TD></TD>
    <TD colspan="3"></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"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted Average</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></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">Contractual Life</FONT></B></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">Number of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><B><FONT size="1">Exercise Prices</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">(in Years)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Price</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">Price</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>
    <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">$0.10
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">92,240</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.10</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">92,240</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">0.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="22"><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">0.12
    </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">377,001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">300,167</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">0.12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="22"><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">0.15
    </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">33,250</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">5.35</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,250</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">0.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="22"><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">0.285
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">548,000</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">7.08</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.285</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">293,130</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">0.285</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="22"><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">0.80
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,134,999</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">4.89</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">361,294</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">0.80</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</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"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,185,490</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.40</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,080,081</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.39</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT 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="left">
<FONT size="2">The Company applies the measurement principles of
APB No.&nbsp;25 in accounting for stock options granted to its
employees and directors.
</FONT>
<P>

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

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">12.</FONT></B></TD>
    <TD align="left">
    <B><FONT size="2">Research and License Agreements</FONT></B></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">To date, the Company has entered into a number of
license and collaborative agreements with various institutions
to obtain intellectual property rights and patents relating to
MSCRAMM proteins, and its product candidates. Inhibitex has also
entered into an exclusive worldwide license and collaboration
agreement with Wyeth with respect to its use of the MSCRAMM
proteins to develop staphylococcal vaccines. The significant
arrangements are described further below.
</FONT>

<P align="left">
<B><I><FONT size="2">Wyeth.</FONT></I></B><FONT size="2"> In
August&nbsp;2001, Inhibitex entered into an exclusive worldwide
license and development collaboration agreement with Wyeth for
the development of staphylococcal vaccines for humans. In
connection with this agreement, the Company received an up-front
license fee of $1.5&nbsp;million. It is also entitled to receive
annual research support payments and, if specified milestones
are achieved, additional milestone payments. Under the terms of
this agreement, Inhibitex granted Wyeth an exclusive worldwide
license to its MSCRAMM protein intellectual property with
respect to human vaccines against staphylococcal organisms. The
development, manufacture and sale of any products resulting from
the collaboration are the responsibility of Wyeth. The Company
is entitled to royalties on net sales of licensed products
manufactured, sold or distributed by Wyeth. Inhibitex may
terminate the agreement if Wyeth fails to use reasonable
commercial efforts to bring related products to market. Wyeth
may terminate the agreement, without cause, upon six months
notice. Otherwise, this agreement will terminate upon the
expiration of all of the licensed patents.
</FONT>

<P align="left">
<B><I><FONT size="2">Texas A&#38;M University Health Science
Center.</FONT></I></B><FONT size="2"> Inhibitex has licensed, on
an exclusive basis, from the Texas A&#38;M University System a
number of issued United States patents, related United States
divisional applications and foreign counterpart applications
directed to one of the MSCRAMM proteins that the Company&#146;s
lead product candidate, Veronate, targets. Texas A&#38;M may
terminate the license if the Company fails to use commercially
reasonable efforts to bring product candidates to market.
Inhibitex may terminate the license without cause upon
60&nbsp;days written notice. Otherwise, this agreement will
terminate
</FONT>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">INHIBITEX, INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Company)</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">upon the expiration of all of the licensed
patents. The Company has agreed to pay Texas A&#38;M a royalty
based on net sales for any products sold utilizing these patents.
</FONT>

<P align="left">
<B><I><FONT size="2">BioResearch Ireland (BRI)/ Trinity College
Dublin.</FONT></I></B><FONT size="2"> Inhibitex has also
obtained a license from BioResearch Ireland (&#147;BRI&#148;)
under certain patents and related applications licensed to it
from Texas A&#38;M, as described above. Scientists from both
Texas A&#38;M and BRI are co-inventors on these applications.
The license also covers pending international applications. BRI
may terminate the license if Inhibitex fails to use commercially
reasonable efforts to bring one or more products that use the
licensed technology to market. Otherwise, this license will
terminate upon the expiration of the licensed patents. The
earliest of the related United States patents will expire in
2014, if not extended. BRI is entitled to a royalty on the net
sales of products sold utilizing these patents.
</FONT>

<P align="left">
<B><I><FONT size="2">Other
Agreements.</FONT></I></B><FONT size="2"> In November&nbsp;2001,
Inhibitex entered into a research evaluation and worldwide
non-exclusive license agreement with Lonza Biologics for
intellectual property and materials relating to the expression
of recombinant monoclonal antibodies to bacterial surface
proteins for use in the manufacture of Aurexis. Under the terms
of the agreement, Inhibitex agreed to pay an annual fee and a
royalty on the net sales of any products that it may sell that
utilize this technology. Inhibitex may terminate the agreement
upon 60&nbsp;days notice. The agreement terminates upon the
expiration of the last valid patent or 15&nbsp;years, whichever
is longer.
</FONT>

<P align="left">
<FONT size="2">In June 2003, Inhibitex obtained a non-exclusive,
worldwide royalty-bearing license from Genentech for a patent
relating to the production of monoclonal antibodies for use in
the manufacture of Aurexis. Under the agreement, the Company
paid Genentech an up-front license fee and it is obligated to
pay Genentech a milestone payment due upon the approval of
Aurexis and a royalty on the sale of any of its products that
utilize the underlying technology. Inhibitex may terminate this
agreement without cause upon 90&nbsp;days notice. Otherwise,
this license will terminate upon the expiration of the patent,
which will occur in 2018 if not extended.
</FONT>

<P align="left">
<FONT size="2">In July&nbsp;2003, Inhibitex obtained a
non-exclusive, worldwide royalty-bearing license from the
University of Iowa for patents relating to technology used in
the expression of recombinant proteins for use in the
manufacture of Aurexis. Under this agreement, the Company paid
the University of Iowa an up-front license fee and it is
obligated to pay a royalty on the sale of any of its products
that utilize the underlying technology. The Company may
terminate this agreement at any time. Otherwise, this license
will terminate upon the expiration of the patents, which will be
2009 and 2012, respectively.
</FONT>

<P align="left">
<B><FONT size="2">13.&nbsp;Employee Benefit Plan</FONT></B>

<P align="left">
<FONT size="2">Inhibitex sponsors a 401(k) plan for the benefit
of its employees that is a defined contribution plan intended to
qualify under Section&nbsp;401(a) of the Internal Revenue Code
of 1986, as amended. Eligible employees may make pre-tax
contributions to the 401(k) plan of up to 20% of their eligible
earnings, subject to the statutorily prescribed annual limit.
The 401(k) plan permits the Company to make discretionary
matching and profit sharing contributions. The Company&#146;s
contributions to the plan were approximately $62,000, $112,000
and $108,000 in 2001, 2002 and 2003, respectively. Under the
401(k) plan, each employee is fully vested in his or her
deferred salary contributions. The Company&#146;s contributions
vest over a three-year period.
</FONT>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">INHIBITEX, INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Development Stage Company)</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">14.&nbsp;Quarterly Financial Data
(Unaudited)</FONT></B>

<P align="left">
<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.
</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="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="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><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="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="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="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Net Loss</FONT></B></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"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Attributable</FONT></B></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"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">to Common</FONT></B></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">Net Loss</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Stockholders</FONT></B></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">Attributable</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Per Share&nbsp;&#151;</FONT></B></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">to Common</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Basic and</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Revenue</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Loss from Operations</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">Diluted</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 valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Year Ended December&nbsp;31, 2002</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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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">First Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">225,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,017,972</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">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,927,667</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,888,603</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">(3.48</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">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">225,000</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">(4,586,897</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">(4,428,398</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">(5,981,627</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">(5.23</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">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">225,000</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">(4,887,392</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">(4,752,731</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">(6,308,550</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">(5.50</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">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">225,000</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">(5,550,122</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">(5,503,927</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">(7,059,747</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">(5.80</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">
    <B><FONT size="2">Year Ended December&nbsp;31, 2003</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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&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">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">225,000</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">(4,716,231</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">(4,647,137</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">(6,195,560</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">(5.02</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">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">225,000</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">(6,235,947</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">(6,206,087</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">(7,754,510</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">(6.21</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">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">183,333</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,055,302</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">(6,054,360</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">(7,602,782</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">(6.03</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">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">462,500</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">(5,644,833</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">(5,425,437</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">(6,981,285</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">(5.51</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">15.&nbsp;Subsequent Events</FONT></B>

<P align="left">
<FONT size="2">On February&nbsp;20, 2004, the Board of Directors
approved a reverse stock split to be effective prior to an
initial public offering of the Company&#146;s common stock. The
exact amount of the reverse stock split will be approved by the
Board of Directors prior to the completion of such an offering.
</FONT>

<P align="left">
<FONT size="2">On February&nbsp;20, 2004 the Compensation
Committee of the Board of Directors also approved the grant of
stock options to officers and employees to purchase
406,000&nbsp;shares of common stock under the Company&#146;s
stock option plans.
</FONT>

<P align="left">
<FONT size="2">On February&nbsp;20, 2004, the Board of Directors
approved a number of amendments to the Company&#146;s stock
option plans. The Company&#146;s 2002 Plan was renamed the 2004
Stock Incentive Plan and was amended to increase the number of
shares of common stock reserved for issuance hereunder by
3,400,000 to an aggregate of 5,928,191. Further, the 2004 Stock
Incentive Plan was amended to include future grants of stock
options to members of the Board of Directors. Accordingly, the
Board of Directors amended the Director Plan such that no future
grants would be made from that plan.
</FONT>

<P align="left">
<FONT size="2">On February&nbsp;20, 2004, the Company&#146;s
Board of Directors approved an amended and restated certificate
of incorporation. The restated certificate of incorporation,
which will become effective upon the closing of an initial
public offering, will increase the Company&#146;s authorized
common stock to 75,000,000&nbsp;shares and will authorize
5,000,000&nbsp;shares of preferred stock, issuable in one or
more series to be designated by the Company&#146;s Board of
Directors.
</FONT>

<P align="center"><FONT size="2">F-26
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<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;Shares
</FONT>

<P align="center">
<B><FONT size="5">INHIBITEX, INC.</FONT></B>

<P align="center">
<B><FONT size="4">Common Stock</FONT></B>

<P align="center">
<IMG src="g87401g8740101.gif" alt="(Inhibitex Logo)">

<P align="center">
<HR size="1" width="37%" align="center" noshade>

<P align="center">
<B><FONT size="4">PROSPECTUS</FONT></B>

<P align="center">
<HR size="1" width="37%" align="center" noshade>

<P align="left">
<FONT size="2">Until &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2004, all dealers that effect transaction in these securities,
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">
<B><FONT size="5">Piper Jaffray</FONT></B>

<P align="center">
<B><FONT size="5">Lazard</FONT></B>

<P align="center">
<B><FONT size="5">Thomas Weisel Partners LLC</FONT></B>

<P align="center">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2004</FONT></B>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">PART&nbsp;II</FONT></B>

<P align="center">
<B><FONT size="2">INFORMATION NOT REQUIRED IN
PROSPECTUS</FONT></B>

<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">
<FONT size="2">The following table sets forth the costs and
expenses, other than underwriting discounts and commissions,
payable by us in connection with the sale of our common stock
being registered. All amounts are estimates, other than the SEC
registration fee and the National Association of Securities
Dealers, Inc. 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="84%"><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 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">10,923</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="6"><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">National Association of Securities Dealers, Inc.
    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">9,125</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="6"><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 Stock 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 valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="6"><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">Accountants&#146; 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="6"><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 valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="6"><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">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="6"><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">Transfer Agent&#146;s 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="6"><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>
    <TD colspan="6"><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
    </FONT></DIV>
    </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="6"><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 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">*</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>

<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.</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Indemnification of Directors and
    Officers.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">Section&nbsp;145 of the General Corporation Law
of the State of Delaware permits a corporation, under specified
circumstances, to indemnify its directors, officers, employees
or agents against expenses (including attorney&#146;s fees),
judgments, fines and amounts paid in settlements actually and
reasonably incurred by them in connection with any action, suit
or proceeding brought by third parties by reason of the fact
that they were or are directors, officers, employees or agents
of the corporation, if such directors, officers, employees or
agents acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or
proceeding, had no reason to believe their conduct was unlawful.
In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses
actually or reasonably incurred by directors, officers,
employees or agents in connection with the defense or settlement
of an action or suit, and only with respect to a matter as to
which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification
shall be made if such person shall have been adjudged liable to
the corporation, unless and only to the extent that the court in
which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or
agents are fairly and reasonably entitled to indemnify for such
expenses despite such adjudication of liability.
</FONT>

<P align="left">
<FONT size="2">Our amended and restated certificate of
incorporation provides that we shall indemnify our directors,
officers and employees (and those serving at our request as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise or as a
trustee or administrator under an employee benefit plan) against
all expenses (including attorney&#146;s fees), liability and
loss in any action, suit or proceeding arising out of his or her
status as a director, officer, employee or agent or
</FONT>

<P align="center"><FONT size="2">II-1
</FONT>

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<DIV align="left">
<FONT size="2">activities in any of those capacities. We shall
pay expenses incurred by a director, officer, employee or agent
in defending an action, suit or proceeding, or appearing as a
witness at a time when he or she has not been named as a
defendant or a respondent, in advance of the final disposition
of the action, suit or proceeding upon receipt of an undertaking
by or on behalf of the director, officer, employee or agent to
repay the amount if it shall ultimately be determined that he or
she is not entitled to be indemnified by us.
</FONT>
</DIV>

<P align="left">
<FONT size="2">We also carry liability insurance covering each
of our directors and officers.
</FONT>

<P align="left">
<FONT size="2">Our amended and restated certificate of
incorporation states that our directors will not have personal
liability for monetary damages for any breach of fiduciary duty
as a director, except for liability (i)&nbsp;for any breach of
the director&#146;s duty of loyalty to us or our stockholders,
(ii)&nbsp;for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law,
(iii)&nbsp;under Section&nbsp;174 of the General Corporation Law
of the State of Delaware, which makes directors liable for
unlawful dividends or unlawful stock repurchases or redemptions,
or (iv)&nbsp;for any transaction from which the director derived
an improper personal benefit.
</FONT>

<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.</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Recent Sales of Unregistered
    Securities.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">In the three years preceding January&nbsp;31,
2004, the registrant has issued the following securities that
were not registered under the Securities Act:
</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">(1)&nbsp;The registrant granted stock options to
    employees, directors and consultants under its Amended and
    Restated 1998 Equity Ownership Plan, 2004 Stock Incentive Plan
    and 2002 Non-Employee Directors Stock Option Plan covering an
    aggregate of 2,461,500&nbsp;shares of the registrant&#146;s
    common stock, at a weighted average exercise price of
    $0.74&nbsp;per share. Of these, options covering an aggregate of
    212,501&nbsp;shares were canceled without being exercised.
    During the same period, the registrant sold an aggregate of
    368,165&nbsp;shares of its common stock to employees, directors,
    and consultants for cash consideration in the aggregate amount
    of $61,000 upon the exercise of stock options granted under the
    Amended and Restated 1998 Equity Ownership Plan, 2004 Stock
    Incentive Plan and 2002 Non-Employee Directors Stock Option Plan.
    </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">(2)&nbsp;In April 2001, the registrant issued
    warrants exercisable into an aggregate of 15,000&nbsp;shares of
    common stock to Cordova Technology Partners for representation
    on the board of directors of the registrant by a principal of
    Cordova Technology Partners. The warrants have an exercise price
    of $0.12&nbsp;per share.
    </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">(3)&nbsp;In August 2001, in connection with an
    equipment term loan, the registrant issued warrants exercisable
    into an aggregate of 5,119&nbsp;shares of Series&nbsp;C
    Preferred Stock to General Electric Capital Corporation. The
    warrants have an exercise price of $2.85&nbsp;per share.
    </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">(4)&nbsp;In February, March and April 2002, the
    registrant sold an aggregate of 11,420,794&nbsp;shares of its
    Series&nbsp;D Preferred Stock, convertible into
    11,420,794&nbsp;shares of its common stock, at $3.94&nbsp;per
    share and warrants exercisable into an aggregate of
    2,855,200&nbsp;shares of Series&nbsp;D Preferred Stock at an
    exercise price of $5.91 for an aggregate offering price of
    $44,997,928 to a group of investors including Essex Woodlands
    Health Ventures&nbsp;V, L.P., William Blair Capital Partners VI,
    L.P., New Enterprise Associates&nbsp;10, Limited Partnership,
    and Alliance Technology Ventures&nbsp;III, L.P. and affiliated
    entities.
    </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">(5)&nbsp;In September 2002, in connection with an
    equipment term loan, the registrant issued warrants exercisable
    into an aggregate of 1,914&nbsp;shares of Series&nbsp;D
    Preferred Stock to General Electric Capital Corporation. The
    warrants have an exercise price of $3.94&nbsp;per share.
    </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">(6)&nbsp;In June, July and December 2003, in
    connection with an equipment term loan, the registrant issued
    warrants exercisable into an aggregate of 756, 1,682 and 765,
    shares of Series&nbsp;D Preferred
    </FONT></TD>
</TR>

</TABLE>

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

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><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">
    <FONT size="2">Stock, respectively, to General Electric Capital
    Corporation. The warrants have an exercise price of
    $3.94&nbsp;per share.
    </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">(7)&nbsp;In December 2003, the registrant sold an
    aggregate of 5,087,740&nbsp;shares of its Series&nbsp;E
    Preferred Stock, convertible into 5,087,740&nbsp;shares of its
    common stock, at $3.94&nbsp;per share and warrants exercisable
    into an aggregate of 1,271,930&nbsp;shares of Series&nbsp;E
    Preferred Stock at an exercise price of $5.91 for an aggregate
    offering price of $20,045,696 to a group of investors including
    Essex Woodlands Health Ventures&nbsp;V, L.P., William Blair
    Capital Partners VI, L.P., New Enterprise Associates&nbsp;10,
    Limited Partnership and Alliance Technology Ventures&nbsp;III,
    L.P. and affiliated entities.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">The registrant claimed exemption from
registration under the Securities Act for the sales and
issuances of securities in the transactions described in
paragraph (1)&nbsp;above under Section&nbsp;4(2) under the
Securities Act in that such sales and issuances did not involve
a public offering or under Rule&nbsp;701 promulgated under the
Securities Act, in that they were offered and sold either
pursuant to written compensatory benefit plans or pursuant to a
written compensation contract, as provided by Rule&nbsp;701.
</FONT>

<P align="left">
<FONT size="2">The registrant claimed exemption from
registration under the Securities Act for the sale and issuance
of securities in the transactions described in
paragraphs&nbsp;(2), (3), (4), (5), (6)&nbsp;and (7)&nbsp;by
virtue of Section&nbsp;4(2) and/or Regulation&nbsp;D promulgated
there under as transactions not involving any public offering.
All of the purchasers of unregistered securities for which the
registrant relied on Regulation&nbsp;D and/or Section&nbsp;4(2),
except for one institutional lender, represented that they were
accredited investors as defined under the Securities Act. The
registrant claimed such exemption on the basis that (a)&nbsp;the
purchasers in each case represented that they intended to
acquire the securities for investment only and not with a view
to the distribution thereof and that they either received
adequate information about the registrant or had access, through
employment or other relationships, to such information and
(b)&nbsp;appropriate legends were affixed to the stock
certificates issued in such transactions.
</FONT>

<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>

<P align="left">
<B><FONT size="2">(A)&nbsp;Exhibits.</FONT></B>

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

<TR>
    <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="79%"><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">No.</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">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 Purchase Agreement.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Certificate of Incorporation.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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 Amendment to Certificate of Incorporation.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Bylaws, as amended.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Eighth Amended and Restated Certificate of
    Incorporation to be effective immediately following the closing
    of the offering.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amended and Restated Bylaws to be effective
    immediately following the closing of the offering.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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 certificate evidencing the common stock.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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 Swidler Berlin Shereff Friedman, LLP,
    as to the legality of the common stock.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Amended and Restated 1998 Equity Ownership Plan
    and related form of option agreement.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">2004 Stock Incentive Plan and related form of
    option agreement.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">2002 Non-Employee Directors Stock Option Plan and
    related form of option agreement.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">2004 Employee Stock Purchase Plan.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Form of Warrant to purchase shares of
    Series&nbsp;B Preferred Stock.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Form of Warrant to purchase shares of
    Series&nbsp;D Preferred Stock.
    </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"><A HREF="#tocpage">Table of Contents</A></H5><P>

<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="80%"><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">No.</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">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">.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Amendment to Warrant to purchase shares
    of Series&nbsp;D Preferred Stock, dated February&nbsp;20, 2004.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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 Warrant to purchase shares of
    Series&nbsp;E Preferred Stock.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Form of Amendment to Warrant to purchase shares
    of Series&nbsp;E Preferred Stock.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Amended and Restated Master Rights Agreement,
    dated December&nbsp;19, 2003, by and among the registrant and
    holders of the registrant&#146;s capital stock.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Amendment No.&nbsp;1 to Amended and Restated
    Master Rights Agreement dated February&nbsp;20, 2004.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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 Indemnity Agreement.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Employment Agreement, dated as of
    February&nbsp;20, 2004, by and between the registrant and
    William&nbsp;D. Johnston.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Amended and Restated Employment Agreement, dated
    as of February&nbsp;20, 2004, by and between the registrant and
    Seth&nbsp;V. Hetherington.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Amended and Restated Employment Agreement, dated
    as of February&nbsp;20, 2004, by and between the registrant and
    Joseph&nbsp;M. Patti.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Amended and Restated Employment Agreement, dated
    as of February&nbsp;20, 2004, by and between the registrant and
    Russell&nbsp;H. Plumb.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Amended and Restated Employment Agreement, dated
    as of February&nbsp;20, 2004, by and between the registrant and
    David&nbsp;M. Wonnacott.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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&#134;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">License and Development Collaboration Agreement,
    dated August&nbsp;2, 2001, by and between the registrant and
    American Home Products Corporation, acting through its
    Wyeth-Ayerst Laboratories Division.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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&#134;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">License Agreement, dated February&nbsp;4, 2000,
    between the registrant and The Texas A&#38;M University System.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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&#134;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amendment No.&nbsp;1 to License Agreement, dated
    April&nbsp;29, 2002, between the registrant and The Texas
    A&#38;M University System.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Amendment No.&nbsp;2 to License Agreement, dated
    April&nbsp;29, 2002, between the registrant and The Texas
    A&#38;M University System.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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&#134;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Exclusive License Agreement, dated April&nbsp;8,
    1999, between the registrant and Enterprise Ireland, trading as
    BioResearch Ireland.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.23&#134;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">License Agreement, dated December&nbsp;23, 2002,
    between the registrant and Lonza Biologics PLC.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.24&#134;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Non-Exclusive Cabilly License Agreement, dated
    June&nbsp;30, 2003, between the registrant and Genentech, Inc.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.25&#134;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Patent License Agreement, dated March&nbsp;2,
    2004, between the registrant and the National Institutes of
    Health.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.26&#134;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">License Agreement, dated July&nbsp;1, 2003,
    between the registrant and the University of Iowa Research
    Foundation.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.27&#134;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Plasma Supply Agreement, dated October&nbsp;22,
    2002, between the registrant and DCI Management Group, Inc.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amendment to Plasma Supply Agreement, dated
    February&nbsp;3, 2003, between the registrant and DCI Management
    Group, LLC.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amendment to Plasma Supply Agreement, dated
    July&nbsp;3, 2003, between the registrant and DCI Management
    Group, LLC.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.30&#134;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Production Agreement, dated December&nbsp;5,
    2001, between the registrant and Nabi.
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<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="80%"><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">No.</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">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">.31&#134;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">First Amendment to Production Agreement between
    the registrant and Nabi Pharmaceuticals.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Sublease Agreement, dated January&nbsp;1, 2001,
    between the registrant and AtheroGenics, Inc.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.33</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Non-Negotiable Promissory Note, dated
    January&nbsp;1, 2002 issued by the registrant to AtheroGenics,
    Inc.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.34</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Sublease Agreement, dated December&nbsp;23, 2002,
    between the registrant and Lucent Technologies, Inc.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.35</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Lease Agreement, dated December&nbsp;31, 2003,
    between the registrant and Cousins Properties Incorporated.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.36</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Loan and Security Agreement, dated
    February&nbsp;11, 2003, between the registrant and Silicon
    Valley Bank.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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 Ernst&nbsp;&#38; Young LLP.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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 Swidler Berlin Shereff Friedman, LLP
    (included in Exhibit&nbsp;5.1).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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 in 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="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&#134;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Confidential treatment requested as to certain
    portions.
    </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"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">
<B><FONT size="2">(B)&nbsp;Financial Statement
Schedules</FONT></B>

<P align="left">
<FONT size="2">None.
</FONT>

<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">
<FONT size="2">(a)&nbsp;The undersigned registrant hereby
undertakes to provide to the underwriters at the closing
specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
</FONT>

<P align="left">
<FONT size="2">(b)&nbsp;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 SEC,
such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
</FONT>

<P align="left">
<FONT size="2">(c)&nbsp;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">(i)&nbsp;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 the form of prospectus filed by the registrant
    pursuant to Rule&nbsp;424(b) (1)&nbsp;or (4)&nbsp;or 497(h)
    under the Securities Act shall be deemed to be part of the
    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">(ii)&nbsp;For purposes of determining any
    liability under the Securities Act, each post-effective
    amendment that contains a form of prospectus shall be deemed to
    be a new registration statement relating to the securities
    offered therein, and the offering of such securities at that
    time shall be deemed to be the initial bona fide offering
    thereof.
    </FONT></TD>
</TR>

</TABLE>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

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

<P align="left">
<FONT size="2">Pursuant to the requirements of the Securities
Act of 1933, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Alpharetta, Georgia on
this 3rd&nbsp;day of March, 2004.
</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">INHIBITEX, INC.
    </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="center">
    <FONT size="2">/s/ WILLIAM D. JOHNSTON, PH.D.
    </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">William D. Johnston,&nbsp;Ph.D.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <I><FONT size="2">President and Chief Executive
    Officer</FONT></I></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below hereby constitutes and
appoints William&nbsp;D. Johnston and Russell&nbsp;H. Plumb, and
each of them, his true and lawful attorneys-in-fact and agents
with full power of substitution and resubstitution, for him and
in his name, place, and stead, in any and all capacities, to
sign any and all amendments (including post-effective
amendments) and additions to this Registration Statement on
Form&nbsp;S-1, and any subsequent registration statements
pursuant to Rule&nbsp;462(b) under the Securities Act of 1933,
and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, and hereby grants to such attorneys-in-fact
and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to
be done, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
</FONT>

<P align="left">
<FONT size="2">Pursuant to the requirements of the Securities
Act of 1933, this registration statement has been signed by the
following persons in the capacities and on the dates indicated.
</FONT>

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

<TR>
    <TD width="7%"><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="39%"><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 colspan="3"></TD>
    <TD></TD>
    <TD></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>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Date</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>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ WILLIAM D. JOHNSTON, PH.D.<BR>
    <HR size="1" noshade>William D. Johnston,&nbsp;Ph.D.
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">President, Chief Executive Officer and Director
    (Principal Executive Officer)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">March&nbsp;3, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ RUSSELL H. PLUMB<BR>
    <HR size="1" noshade>Russell H. Plumb
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Chief Financial Officer (Principal Financial and
    Accounting Officer)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">March&nbsp;3, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ MICHAEL A. HENOS<BR>
    <HR size="1" noshade>Michael A. Henos
    </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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">March&nbsp;3, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ M. JAMES BARRETT, PH.D.<BR>
    <HR size="1" noshade>M. James Barrett,&nbsp;Ph.D.
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">March&nbsp;3, 2004
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

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

<TR>
    <TD width="7%"><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="39%"><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 colspan="3"></TD>
    <TD></TD>
    <TD></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>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Date</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>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ CARL E. BROOKS<BR>
    <HR size="1" noshade>Carl E. Brooks
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">March&nbsp;3, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ J. DOUGLAS EPLETT, M.D.<BR>
    <HR size="1" noshade>J. Douglas Eplett,&nbsp;M.D.
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">March&nbsp;3, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ RUSSELL M. MEDFORD, M.D., PH.D.<BR>
    <HR size="1" noshade>Russell M. Medford,&nbsp;M.D.,&nbsp;Ph.D.
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">March&nbsp;3, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ ARDA M. MINOCHERHOMJEE, PH.D.<BR>
    <HR size="1" noshade>Arda M. Minocherhomjee,&nbsp;Ph.D.
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">March&nbsp;3, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ JOSEPH M. PATTI, M.S.P.H., PH.D.<BR>
    <HR size="1" noshade>Joseph M. Patti, M.S.P.H.,&nbsp;Ph.D.
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">March&nbsp;3, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ MARC L. PREMINGER<BR>
    <HR size="1" noshade>Marc L. Preminger
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">March&nbsp;3, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ LOUIS W. SULLIVAN, M.D.<BR>
    <HR size="1" noshade>Louis W. Sullivan,&nbsp;M.D.
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">March&nbsp;3, 2004
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">II-8
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<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="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="80%"><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">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 Purchase Agreement.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Certificate of Incorporation.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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 Amendment to Certificate of Incorporation.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Bylaws, as amended.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Eighth Amended and Restated Certificate of
    Incorporation to be effective immediately following the closing
    of the offering.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amended and Restated Bylaws to be effective
    immediately following the closing of the offering.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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 certificate evidencing the common stock.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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 Swidler Berlin Shereff Friedman, LLP,
    as to the legality of the common stock.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Amended and Restated 1998 Equity Ownership Plan
    and related form of option agreement.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">2004 Stock Incentive Plan and related form of
    option agreement.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">2002 Non-Employee Directors Stock Option Plan and
    related form of option agreement.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">2004 Employee Stock Purchase Plan.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Form of Warrant to purchase shares of
    Series&nbsp;B Preferred Stock.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Form of Warrant to purchase shares of
    Series&nbsp;D Preferred Stock.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Form of Amendment to Warrant to purchase shares
    of Series&nbsp;D Preferred Stock, dated February&nbsp;20, 2004.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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 Warrant to purchase shares of
    Series&nbsp;E Preferred Stock.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Form of Amendment to Warrant to purchase shares
    of Series&nbsp;E Preferred Stock.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Amended and Restated Master Rights Agreement,
    dated December&nbsp;19, 2003, by and among the registrant and
    holders of the registrant&#146;s capital stock.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Amendment No.&nbsp;1 to Amended and Restated
    Master Rights Agreement dated February&nbsp;20, 2004.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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 Indemnity Agreement.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Employment Agreement, dated as of
    February&nbsp;20, 2004, by and between the registrant and
    William D. Johnston.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Amended and Restated Employment Agreement, dated
    as of February&nbsp;20, 2004, by and between the registrant and
    Seth V. Hetherington.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Amended and Restated Employment Agreement, dated
    as of February&nbsp;20, 2004, by and between the registrant and
    Joseph M. Patti.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Amended and Restated Employment Agreement, dated
    as of February&nbsp;20, 2004, by and between the registrant and
    Russell H. Plumb.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Amended and Restated Employment Agreement, dated
    as of February&nbsp;20, 2004, by and between the registrant and
    David M. Wonnacott.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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&#134;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">License and Development Collaboration Agreement,
    dated August&nbsp;2, 2001, by and between the registrant and
    American Home Products Corporation, acting through its
    Wyeth-Ayerst Laboratories Division.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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&#134;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">License Agreement, dated February&nbsp;4, 2000,
    between the registrant and The Texas A&#38;M University System.
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<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="80%"><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">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">.20&#134;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amendment No.&nbsp;1 to License Agreement, dated
    April&nbsp;29, 2002, between the registrant and The Texas
    A&#38;M University System.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">Amendment No.&nbsp;2 to License Agreement, dated
    April&nbsp;29, 2002, between the registrant and The Texas
    A&#38;M University System.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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&#134;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Exclusive License Agreement, dated April&nbsp;8,
    1999, between the registrant and Enterprise Ireland, trading as
    BioResearch Ireland.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.23&#134;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">License Agreement, dated December&nbsp;23, 2002,
    between the registrant and Lonza Biologics PLC.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.24&#134;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Non-Exclusive Cabilly License Agreement, dated
    June&nbsp;30, 2003, between the registrant and Genentech, Inc.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.25&#134;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Patent License Agreement, dated March&nbsp;2,
    2004, between the registrant and the National Institutes of
    Health.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.26&#134;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">License Agreement, dated July&nbsp;1, 2003,
    between the registrant and the University of Iowa Research
    Foundation.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.27&#134;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Plasma Supply Agreement, dated October&nbsp;22,
    2002, between the registrant and DCI Management Group, Inc.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amendment to Plasma Supply Agreement, dated
    February&nbsp;3, 2003, between the registrant and DCI Management
    Group, LLC.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amendment to Plasma Supply Agreement, dated
    July&nbsp;3, 2003, between the registrant and DCI Management
    Group, LLC.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.30&#134;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Production Agreement, dated December&nbsp;5,
    2001, between the registrant and Nabi.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.31&#134;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">First Amendment to Production Agreement between
    the registrant and Nabi Pharmaceuticals.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Sublease Agreement, dated January&nbsp;1, 2001,
    between the registrant and AtheroGenics, Inc.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.33</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Non-Negotiable Promissory Note, dated
    January&nbsp;1, 2002 issued by the registrant to AtheroGenics,
    Inc.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.34</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Sublease Agreement, dated December&nbsp;23, 2002,
    between the registrant and Lucent Technologies, Inc.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.35</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Lease Agreement, dated December&nbsp;31, 2003,
    between the registrant and Cousins Properties Incorporated.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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">.36</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Loan and Security Agreement, dated
    February&nbsp;11, 2003, between the registrant and Silicon
    Valley Bank.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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 Ernst&nbsp;&#38; Young LLP.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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 Swidler Berlin Shereff Friedman, LLP
    (included in Exhibit&nbsp;5.1).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</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 in 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="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&#134;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Confidential treatment requested as to certain
    portions.
    </FONT></TD>
</TR>

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{"company-data": {"conformed-name": "INHIBITEX INC", "cik": "0001274913"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-113243", "film-number": "04645253"}, "business-address": {"street1": "1165 SANCTURAY PARKWAY", "street2": "SUITE 400", "city": "ALPHAETTA", "state": "GA", "zip": "30004", "phone": "678-746-1100"}, "mail-address": {"street1": "1165 SANCTUARY PARKWAY", "street2": "SUITE 400", "city": "ALPHARETTA", "state": "GA", "zip": "30004"}}
INHIBITEX, INC.
Table of Contents
As Filed with the Securities and Exchange
Commission on March 3, 2004.
Registration No.
333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Inhibitex, Inc.
(Exact name of Registrant as specified in its
charter)
Delaware
2836
74-2708737
(State or Other Jurisdiction
of Incorporation or Organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification Number)
1165 Sanctuary Parkway
Suite 400
Alpharetta, GA 30004
(678) 746-1100
(Address Including Zip Code, and Telephone
Number,
Including Area Code, of Registrant's
Principal Executive Offices)
William D. Johnston, Ph.D.
President and Chief Executive
Officer
1165 Sanctuary Parkway
Suite 400
Alpharetta, GA 30004
(678) 746-1100
(Name, Address Including Zip Code and
Telephone Number,
Including Area Code of Agent for
Service)
Copies to:
David S. Rosenthal, Esq.
Swidler Berlin Shereff Friedman, LLP
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
(212) 973-0111
Mitchell S. Bloom, Esq.
Testa, Hurwitz & Thibeault, LLP
125 High Street
Boston, Massachusetts 02110
(617) 248-7000
Approximate
date of commencement of proposed sale to the public:
As soon
as practicable after this Registration Statement is declared
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, as amended (the
"Securities Act"), 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 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 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, please check the following
box.
o
CALCULATION OF REGISTRATION FEE
Proposed Maximum
Aggregate
Amount of Registration
Title of Each Class of Securities to be Registered
Offering Price(1)
Fee(2)
Common Stock, .001 par value per share
$86,250,000
$10,927.88
(1)
Estimated solely for the purpose of calculating
    the amount of the registration fee pursuant to Rule 457(o)
    under the Securities Act of 1933, as amended.
(2)
Calculated pursuant to Rule 457(o) based on
    an estimate of the proposed maximum aggregate offering price.
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, as amended, or until the
Registration Statement shall become effective on such date as
the Commission, acting pursuant to said Section 8(a), may
determine.
Table of Contents
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 we are not
soliciting offers to buy these securities in any jurisdiction
where the offer or sale is not permitted.
Subject to Completion, dated
March 3, 2004
Shares
INHIBITEX, INC.
Common Stock
$                            per
share
•
We are
    offering                                shares
    of our common stock.
•
We anticipate that the initial public offering
    price per share will be between
    $                    and
    $                     per
    share.
•
This is our initial public offering and no public
    market currently exists for our shares.
•
Proposed trading symbol:
Nasdaq National Market — INHX.
This investment involves risks. See "Risk
Factors" beginning on page 7.
Per Share
Total
Initial public offering price
$
$
Underwriting discount
$
$
Proceeds, before expenses, to Inhibitex, Inc.
$
$
The underwriters have a 30-day option to
purchase up
to                     additional
shares of common stock from us to cover over-allotments, if
any.
Neither the Securities and Exchange Commission
nor any state securities commission has approved of
anyone's investment in these securities or determined if
this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
The underwriters expect to deliver the shares to
purchasers
on                               ,
2004.
Piper Jaffray
Lazard
Thomas Weisel Partners LLC
The date of this prospectus
is                     ,
2004.
TABLE OF CONTENTS
Page
Summary
1
Risk Factors
7
Special Note on
    Forward-Looking Statements
21
Use of Proceeds
22
Dividend Policy
22
Capitalization
23
Dilution
25
Selected Financial Data
27
Management's Discussion
    and Analysis of Financial Condition and Results of Operations
28
Business
37
Management
56
Related Party
    Transactions
69
Principal Stockholders
72
Description of Capital
    Stock
76
Shares Eligible for Future
    Sale
80
Underwriting
83
Legal Matters
86
Experts
86
Where You Can Find More
    Information
86
Index to Financial
    Statements
F-1
EX-1.1 FORM OF PURCHASE AGREEMENT
EX-3.1 CERTIFICATE OF INCORPORATION
EX-3.3 BYLAWS
EX-3.4 RESTATED CERTIFICATE OF INCORPORATION
EX-3.5 AMENDED AND RESTATED BYLAWS
EX-10.1 AMENDED AND RESTATED 1998 OWNERSHIP PLAN
EX-10.3 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
EX-10.4 2004 EMPLOYEE STOCK PURCHASE PLAN
EX-10.5 FORM OF WARRANT / SERIES B PREFERRED STOCK
EX-10.6 FORM OF WARRANT / SERIES D PREFERRED STOCK
EX-10.7 AMENDMENT TO WARRANT / SERIES D PREFERRED
EX-10.8 FORM OF WARRANT / SERIES E PREFERRED STOCK
EX-10.9 AMENDMENT TO WARRANT / SERIES E PREFERRED
EX-10.10 AMENDED AND RESTATED MASTER RIGHTS AGRMNT
EX-10.11 AMENDMENT NO.1 TO MASTER RIGHTS AGREEMENT
EX-10.12 FORM OF INDEMNITY AGREEMENT
EX-10.13 EMPLOYMENT AGREEMENT / WILLIAM JOHNSTON
EX-10.14 AMENDED EMPLOYMENT AGREEMENT/HETHERINGTON
EX-10.15 AMENDED EMPLOYMENT AGREEMENT / J. PATTI
EX-10.16 AMENDED EMPLOYMENT AGREEMENT / R. PLUMB
EX-10.17 AMENDED EMPLOYMENT AGREEMENT/D. WONNACOTT
EX-10.18 LICENSE & DEV. COLLABORATION AGMT
EX-10.19 LICENSE AGREEMENT DATED FEBRUARY 4, 2000
EX-10.20 AMENDMENT #1 TO LICENSE AGREEMENT
EX-10.21 AMENDMENT #2 TO LICENSE AGREEMENT
EX-10.22 EXCLUSIVE LICENSE AGMT DATED 4/8/1999
EX-10.23 LICENSE AGREEMENT DATED DECEMBER 23, 2002
EX-10.24 NON-EXCLUSIVE CABILLY LICENSE AGMT
EX-10.25 PATENT LICENSE AGREEMENT
EX-10.26 LICENSE AGREEMENT DATED JULY 1, 2003
EX-10.27 PLASMA SUPPLY AGMT DATED OCTOBER 22, 2002
EX-10.28 AMENDMENT TO PLASMA SUPPLY AGREEMENT
EX-10.29 AMENDMENT TO SUPPLY AGREEMENT
EX-10.30 PRODUCTION AGREEMENT DATED 12/5/2001
EX-10.31 1ST AMENDMENT TO PRODUCTION AGREEMENT
EX-10.32 SUBLEASE AGREEMENT DATED 1/1/2001
EX-10.33 NON-NEGOTIABLE PROMISSORY NOTE
EX-10.34 SUBLEASE AGREEMENT DATED 12/23/02
EX-10.35 LEASE AGREEMENT DATED 12/31/03
EX-10.36 LOAN & SECURITY AGREEMENT DATED 2/11/03
EX-23.1 CONSENT OF ERNST AND YOUNG LLP
You should rely only on the information contained
in this prospectus. We have not, and the underwriters have not,
authorized any other person to provide you with different
information. This prospectus is not an offer to sell, nor is it
seeking an offer to buy, these securities in any state where the
offer or sale is not permitted. The information in this
prospectus is complete and accurate as of the date on the front
cover, but the information may have changed since that date.
For investors outside the United States: Neither
we nor any of the underwriters have done anything that would
permit this offering or possession or distribution of this
prospectus in any jurisdiction where action for that purpose is
required, other than in the United States. You are required to
inform yourselves about and to observe any restrictions relating
to this offering and the distribution of this prospectus.
Table of Contents
SUMMARY
This summary highlights information about our
business and this offering contained elsewhere in this
prospectus. This summary does not contain all of the information
you should consider before investing in our common stock. Prior
to deciding to invest 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 to those financial statements that appear
elsewhere in this prospectus. References in this summary and in
the entire prospectus to our amended and restated certificate of
incorporation and bylaws refer to those that shall be in effect
immediately after the completion of this offering. Unless
otherwise specified, references in this prospectus to
"Inhibitex," the "Company," "we,"
"our" and "us" refer to Inhibitex,
Inc.
Inhibitex®, MSCRAMM®, Veronate®
and Aurexis® are registered trademarks of Inhibitex, Inc.
MSCRAMM is an acronym for Microbial Surface Components
Recognizing Adhesive Matrix Molecules.
Our Business
We are a biopharmaceutical company engaged in the
discovery, development and commercialization of novel
antibody-based products for the prevention and treatment of
serious bacterial and fungal infections in the hospital setting.
We currently have two product candidates in late-stage clinical
development and three product candidates in preclinical
development. Our product candidates have been developed based on
our expertise in MSCRAMM proteins for which we own or have
licensed numerous patents and patent applications. MSCRAMM
proteins are located on the surface of pathogenic organisms,
such as bacteria and fungi, and play a prominent role in the
process of infection. These proteins enable organisms to
initiate and maintain an infection by adhering to specific sites
on human tissue or implanted medical devices. Our antibody-based
product candidates are designed to bind to specific MSCRAMM
proteins, thereby preventing infections or reducing their
severity.
Our lead product candidate, Veronate, which we
expect will enter a Phase III clinical trial in the second
half of 2004, is being developed for the prevention of
hospital-associated infections in premature, very low birth
weight, or VLBW, infants. Veronate has been granted Fast Track
and Orphan Drug status by the FDA. Our second product candidate,
Aurexis, is currently being evaluated in a Phase II
clinical trial as a first-line therapy, in combination with
standard of care antibiotics, to treat serious, life-threatening
Staphylococcus aureus,
or
S. aureus,
bloodstream infections in hospitalized patients. We have
retained worldwide commercialization rights to both Veronate and
Aurexis and two of our three preclinical product candidates. We
expect to commercialize Veronate, and potentially Aurexis, in
the United States by establishing a specialized, hospital-based
sales force.
Our Product Candidates
Veronate
We are developing Veronate as a prophylactic
product to prevent hospital-associated infections in VLBW
infants. Veronate contains concentrated amounts of antibodies
that target specific MSCRAMM proteins found on the surface of
staphylococci.
According to the United States Census Bureau,
there were approximately 60,000 VLBW infants born in the United
States in 2001. VLBW infants are typically cared for in neonatal
intensive care units for, on average, the first two months of
their lives. During this time, VLBW infants are highly
susceptible to infection given the intensity of medical care,
duration of hospitalization, and the use of intravenous
catheters to deliver nutritional fluids and medication. Studies
indicate that 30-50% of all VLBW infants weighing
1,250 grams or less at birth will develop at least one
hospital-associated infection. Hospital-associated infections
result in significant mortality and morbidity among VLBW
infants. The mortality rate
1
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among VLBW infants who acquire a
hospital-associated infection caused by
S. aureus
or
candida, a fungus, is approximately 17% and 34%, respectively.
In addition to this associated mortality, VLBW infants who
develop a hospital-associated infection spend, on average, 19
additional days in the hospital as compared to those that do not
develop such an infection.
In December 2003, we completed a 512-patient,
multi-center, randomized, double-blind, placebo-controlled
Phase II clinical trial of Veronate for the prevention of
hospital-associated infections in VLBW infants weighing 500 to
1,250 grams at birth. The trial was designed to evaluate the
safety, dosing and preliminary efficacy of Veronate in this
patient population. Results from the trial demonstrated that
Veronate was generally safe and well tolerated among treated
infants. The preliminary efficacy findings from the
Phase II trial comparing Veronate at a dose of
750 mg/kg to placebo were:
•
a 63% reduction in the frequency of infection due
    to
S. aureus
;
•
a 67% reduction in the frequency of infection due
    to candida; and
•
a 36% reduction in mortality.
Based on these results, we expect to initiate a
multi-center, randomized, double-blind, placebo-controlled
Phase III clinical trial for Veronate in the second half of
2004. This trial will be designed to further evaluate and
confirm the efficacy and safety of Veronate at a dose of
750 mg/kg in VLBW infants weighing 500 to 1,250 grams
at birth.
Aurexis
Aurexis is a humanized monoclonal antibody being
developed as a first-line therapy, in combination with standard
of care antibiotics, for serious, life-threatening
S. aureus
bloodstream infections in hospitalized
patients. Aurexis and Veronate target the same MSCRAMM protein
on
S. aureus
. We believe the results from our
Phase II Veronate trial and our preclinical efficacy
studies provide validation for the
S. aureus
MSCRAMM
protein.
S. aureus
is
one of the leading causes of hospital-associated infections.
There were an estimated one million hospital-associated
S. aureus
infections worldwide in 2002, of which
approximately 225,000 occurred in the United States. Of the
estimated 225,000
S. aureus
infections in the United
States, we estimate that approximately 50,000 were serious
bloodstream infections.
S. aureus
is becoming
increasingly resistant to antibiotics. According to the Centers
for Disease Control and other sources, the percentage of
hospital-associated
S. aureus
infections caused by
methicillin-resistant
S. aureus
, or MRSA, in
intensive care units in the United States doubled between 1994
and 2002, increasing from 30% to nearly 60%. The mortality rate
for bloodstream infections associated with MRSA is 30-50%, as
compared to the mortality rate associated with
methicillin-susceptible
S. aureus
bloodstream
infections of approximately 20%.
S. aureus
infections are typically treated with intravenous antibiotics,
including vancomycin, which is generally administered to
patients with MRSA. We believe Aurexis will be used adjunctively
as a first-line therapy to treat
S. aureus
bloodstream infections, regardless of which antibiotic is
prescribed for treatment.
We are currently conducting a 60-patient,
multi-center, randomized, double-blind, placebo-controlled
Phase II clinical trial for Aurexis. Hospitalized patients
with documented
S. aureus
bloodstream infections are
randomized to receive standard of care antibiotic therapy
combined with either Aurexis or placebo. The Phase II trial
is designed to evaluate the safety, pharmacokinetics and
preliminary efficacy of Aurexis. We expect to complete
enrollment of this trial by the end of 2004 and have final data
from this trial during the first half of 2005. We are also
exploring the use of Aurexis in patients with cystic fibrosis and
2
Table of Contents
end stage renal disease and those who are
undergoing cardiac surgery. We may initiate additional
Phase II clinical trials in one or more of these
indications in the future.
Preclinical Product
Candidates
We currently have three product candidates in
preclinical development, all of which are based on the use of
MSCRAMM proteins. Two of these candidates are humanized
monoclonal antibodies, one of which targets hospital-associated
enterococcal infections, the other of which targets
hospital-associated candida infections. Our third candidate is a
human staphylococcal vaccine being developed by Wyeth that is
the subject of a worldwide license and collaboration agreement.
Benefits of Our MSCRAMM Protein
Approach
We believe that antibody-based product candidates
developed utilizing MSCRAMM proteins may provide the following
advantages over existing anti-infective therapies:
•
the ability to be used prophylactically in
    patients where the preventive use of antibiotics is not
    appropriate or recommended;
•
improved patient outcomes by reducing the
    incidence of secondary site infections, relapse rates, mortality
    and length of hospital stay;
•
a lower likelihood of inducing patterns of drug
    resistance due to their novel mechanisms of action; and
•
fewer side effects.
Our Strategy
Our goal is to become a leading biopharmaceutical
company that discovers, develops and commercializes novel,
antibody-based products to prevent and treat serious bacterial
and fungal infections in the hospital setting. In order to
achieve this goal, we are focused on the following key
strategies:
•
complete the Phase III clinical trial and
    obtain regulatory approval for Veronate;
•
advance the development of Aurexis and our
    preclinical product candidates;
•
establish a specialized, hospital-based sales
    force in the United States to sell our products;
•
utilize our expertise in MSCRAMM proteins to
    discover and develop additional first-in-class products; and
•
expand our product portfolio through in-licensing
    and acquisitions.
Corporate Information
We were incorporated in Delaware in May 1994. Our
principal executive offices are located at 1165 Sanctuary
Parkway, Suite 400, Alpharetta, Georgia 30004. Our
telephone number is (678)746-1100. Our website is
www.inhibitex.com.
Information contained on our website
is not incorporated by reference into and does not constitute
part of this prospectus.
3
Table of Contents
The Offering
Common stock offered
shares
Common stock to be outstanding after this offering
shares
Initial public offering price
$
per share
Use of proceeds
We plan to use the net proceeds from this offering for the continued development of our product candidates, working capital and general corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol
INHX
The number of shares to be outstanding
immediately after this offering is based
on                      shares
of our common stock outstanding as of December 31, 2003,
and excludes:
•
3,185,490 shares of common stock issuable
    upon the exercise of options outstanding as of December 31,
    2003, with a weighted average exercise price of $0.60 per
    share;
•
247,564 shares of common stock issuable upon
    the exercise of warrants outstanding as of December 31,
    2003, with a weighted average exercise price of $1.49 per
    share;
•
shares
    of common stock issuable upon the conversion of preferred stock
    to be paid in respect of dividends that will accrue on our
    outstanding preferred stock between January 1, 2004 and the
    closing of this offering; and
•
623,128 shares reserved for future issuance
    or grant under our stock incentive plans. In February 2004, an
    additional 3,400,000 shares were reserved for future
    issuance or grant under our stock incentive plans.
Except as otherwise noted, all of the information
presented in this prospectus is based on the following
assumptions:
•
a        for        reverse
    split of our capital stock effective prior to the completion of
    this offering;
•
the conversion of all shares of preferred stock
    outstanding as of December 31, 2003 into
    24,589,444 shares of common stock immediately prior to the
    closing of this offering;
•
the conversion of all cumulative preferred stock
    dividends accrued as of December 31, 2003 into
    3,223,185 shares of common stock immediately prior to the
    closing of this offering;
•
the issuance
    of                      shares
    of common stock subject to the mandatory cashless exercise of
    warrants to purchase 4,127,130 shares of preferred stock
    upon the completion of this offering, at an assumed initial
    public offering price of
    $           per
    share. The exercise price of these warrants is $5.91 per
    share; and
•
the underwriters do not exercise their right to
    purchase up to an
    additional                      shares
    to cover over-allotments.
4
Table of Contents
SUMMARY FINANCIAL DATA
The following summary financial data should be
read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
included later in this prospectus, and our Financial Statements
and related Notes included in the back of this prospectus. The
summary financial data for the years ended December 31,
2001, 2002 and 2003 and for the period from inception on
May 13, 1994 through December 31, 2003 are derived
from our audited financial statements, which are included
elsewhere in this prospectus. The summary financial data for the
years ended December 31, 1999 and 2000 are derived from
audited financial statements which are not included in this
prospectus. Historical results are not indicative of results in
any future period.
The pro forma as adjusted balance sheet data
reflect (i) the conversion of all of our preferred stock
outstanding as of December 31, 2003 into shares of common
stock immediately prior to the closing of this offering,
(ii) the conversion of all cumulative preferred stock
dividends accrued through December 31, 2003 into
3,223,185 shares of common stock immediately prior to the
closing of this offering, (iii) the issuance
of                      shares
of common stock subject to the mandatory cashless exercise of
warrants to purchase 4,127,130 shares of preferred stock
upon the completion of this offering, at an assumed initial
public offering price of
$           per
share, and (iv) the sale of shares of common stock in this
offering at
$           per
share, after deducting underwriting discounts and commissions
and our estimated offering expenses.
5
Table of Contents
Period From
Inception
(May 13,
1994)
Through
Years Ended December 31,
December 31,
2003
1999
2000
2001
2002
2003
(in thousands, except per share data)
Statement of Operations Data:
Revenue
$
3,162
$
261
$
634
$
271
$
900
$
1,096
Operating expenses:
Research and development
52,620
2,747
5,864
7,099
15,615
19,071
General and administrative
12,277
683
1,121
1,847
3,328
4,677
Total operating expenses
64,897
3,430
6,985
8,946
18,943
23,748
Loss from operations
(61,735
)
(3,169
)
(6,351
)
(8,675
)
(18,043
)
(22,652
)
Interest and other income (expense), net
1,074
(175
)
(112
)
568
430
319
Net loss
(60,661
)
(3,344
)
(6,463
)
(8,107
)
(17,613
)
(22,333
)
Dividends and accretion to redemption value of
    redeemable preferred stock
(13,559
)
—
(461
)
(1,271
)
(5,626
)
(6,201
)
Net loss attributable to common stockholders
$
(74,220
)
$
(3,344
)
$
(6,924
)
$
(9,378
)
$
(23,239
)
$
(28,534
)
Basic and diluted net loss attributable to common
    stockholders per share
$
(3.44
)
$
(7.08
)
$
(8.90
)
$
(20.10
)
$
(22.77
)
Pro forma basic and diluted net loss attributable
    to common stockholders per share (unaudited)
(1)
$
(1.18
)
Weighted average shares used to compute basic and
    diluted net loss attributable to common stockholders per share
971
978
1,054
1,156
1,253
Pro forma weighted average shares used to compute
    basic and diluted net loss attributable to common stockholders
    per share (unaudited)
(1)
24,145
As of December 31, 2003
Pro Forma
Actual
As Adjusted
(in thousands)
Balance Sheet Data:
Cash and cash equivalents
$
26,649
Short-term investments
1,499
Working capital
23,529
Total assets
30,662
Long-term debt and capital leases, less current
    portion
1,795
Redeemable convertible preferred stock and
    warrants
95,608
Deficit accumulated during the development stage
(74,220
)
Total stockholders' (deficit) equity
(73,226
)
(1)
See
    Note 3 of Notes to Financial Statements for a description
    of the method used to compute pro forma basic and diluted net
    loss per common share and number of shares used in computing pro
    forma basic and diluted net loss per common share.
6
Table of Contents
RISK FACTORS
If you purchase our common stock, you will be
taking on a high degree of financial risk. In deciding whether
to invest in our common stock, you should carefully consider the
following discussion of risks, together with the other
information contained in this prospectus. The occurrence of any
of the following risks, as well as other risks and uncertainties
discussed elsewhere in this prospectus, could materially harm
our business and financial condition and our ability to raise
additional capital in the future. In that event, the market
price of our common stock could decline and you could lose all
or part of your investment.
Risks Relating to Our Business
We depend heavily on the success of our lead
product candidate, Veronate, which is still in clinical
development. If we are unable to commercialize Veronate, or
experience significant delays in doing so, our business could be
materially harmed.
Since our inception, we have invested a
significant portion of our time and financial resources on the
development of Veronate. We anticipate that in the near-term,
our ability to generate significant product revenues will depend
solely on the successful development and commercialization of
Veronate. The commercial success of Veronate will depend on
several factors, including the following:
•
the successful completion of a Phase III
    clinical trial;
•
the receipt of an approved biological license
    application, or BLA, and the successful ongoing maintenance of
    approvals in the indications we are seeking from the United
    States Food and Drug Administration, or FDA, and similar foreign
    regulatory authorities;
•
maintaining satisfactory commercial manufacturing
    and supply arrangements with third-parties;
•
establishing our own hospital-based sales force
    and launching the product;
•
the acceptance of Veronate by the clinical and
    hospital community;
•
the willingness of third-party payors to provide
    adequate reimbursement for Veronate; and
•
no other entity first obtains a final Orphan Drug
    approval of a BLA for the same indication targeted by Veronate
    and thereby prevents us from marketing Veronate for up to seven
    years.
If the data from our Phase III clinical
trial for Veronate are not satisfactory, we will not be able to
proceed with the filing of a BLA for Veronate or we may be
forced to withdraw the filing or narrow the indication for which
we seek marketing approval. If we believe the results of the
Phase III trial are satisfactory and we file a BLA for
Veronate, the FDA may not accept our filing, may request
additional information, require additional clinical trials,
limit the approved use of such product or ultimately not grant
marketing approval for Veronate. Veronate has been granted Fast
Track status by the FDA. Fast Track status may qualify Veronate
for expedited review by the FDA, but does not assure such an
expedited review. Fast Track status may be withdrawn if the FDA
believes that such status is no longer supported by data from
our clinical development program. If we are not successful in
commercializing Veronate, or are significantly delayed in doing
so, our business will be materially harmed and we may need to
curtail or cease operations.
No antibody-based products that target MSCRAMM
proteins have been developed or approved.
All of our product candidates, including Veronate
and Aurexis, target various MSCRAMM proteins. MSCRAMM proteins
have not yet been used by us or others to successfully develop
or commercialize any
7
Table of Contents
approved products. We may fail to produce an
approved product that targets MSCRAMM proteins, which could
materially harm our business. If Veronate clinical trial results
are unsatisfactory, this may cast doubt on the viability of our
MSCRAMM protein approach and our entire portfolio of product
candidates.
If the clinical trials for our product
candidates are unsuccessful or delayed, we could be delayed or
precluded from further developing, or ultimately selling our
product candidates.
You must evaluate us in light of the
uncertainties and complexities present in a development stage
biopharmaceutical company. In order to receive regulatory
approval for the commercialization of our product candidates, we
must conduct extensive clinical trials to demonstrate their
safety and efficacy. Clinical testing is expensive and can take
many years to complete, and its outcome is uncertain. Delays or
clinical setbacks may occur at any time.
The results of preclinical studies and early
clinical trials of our product candidates may not predict the
results of later-stage clinical trials. Product candidates in
later stages of clinical trials may fail to show the desired
safety and efficacy traits despite having progressed through
initial clinical testing. The data collected from clinical
trials of our product candidates may not be sufficient to
support the submission of a BLA or to obtain regulatory approval
in the United States or elsewhere. We have conducted a single
512-patient Phase II trial for Veronate and a single
19-patient Phase I trial for Aurexis. The results of these
trials are not statistically significant. There can be no
assurance that the results of these trials are predictive of the
outcomes in our later-stage trials for Veronate and Aurexis. In
addition, we will have no control over the standard of care
antibiotic treatment used by investigators in conjunction with
Aurexis in our Phase II trial for Aurexis. This may make
our Phase II clinical trial data for Aurexis difficult to
interpret, which may require us to conduct additional clinical
trials.
We must comply with extensive government
regulations in order to obtain and maintain marketing approval
for our products in the United States and abroad.
Our product candidates are subject to extensive
and rigorous domestic and foreign 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 product candidates are
successfully developed and marketed abroad, they will also be
subject to similar extensive regulation by foreign governments.
We must provide the FDA and foreign regulatory authorities, if
applicable, with clinical data that appropriately demonstrate
our product candidates' safety and efficacy in humans
before they can be approved for the targeted indications. None
of our product candidates has been approved for sale in the
United States or any foreign market, and we cannot predict
whether regulatory approval will be obtained for any product
candidate that we are developing or plan to develop. The
regulatory review and approval process can take many years, is
dependent upon the type, complexity and novelty of the product,
requires the expenditure of substantial resources, involves
post-marketing surveillance, and may involve ongoing
requirements for post-marketing studies. In addition, we may
encounter delays or rejections based upon additional
governmental regulation resulting from future legislative or
administrative action or changes in FDA policy or interpretation
during the period of product development. Delays or failures in
obtaining regulatory approvals may:
•
adversely affect the commercialization of any
    product candidates that we develop;
•
diminish any competitive advantages that we may
    have or attain; and
•
adversely affect revenues or receipt of royalties
    from the sale of our products.
8
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Furthermore, any required regulatory approvals,
if granted, may be withdrawn. If we fail to comply with
applicable FDA and other regulatory requirements at any stage
during the regulatory process, we may be subject to
restrictions, including:
•
delays in clinical trials or commercialization;
•
refusal by the FDA to review pending applications
    or supplements to approved applications;
•
product recalls or seizures;
•
suspension of manufacturing;
•
withdrawals of previously approved marketing
    applications; and
•
fines, civil penalties and criminal prosecutions.
The ability to market a product outside of the
United States is contingent upon receiving a marketing
authorization from the appropriate regulatory authorities.
Foreign regulatory approval processes typically include many, if
not all, of the risks associated with the FDA as described above
and may include additional risks.
If our third-party vendors upon whom we rely
to conduct our clinical trials do not perform or fail to comply
with strict regulations, the clinical trials for our product
candidates may be delayed or unsuccessful.
We have limited experience in conducting and
managing large clinical trials. We rely on third parties,
including clinical research organizations, outside consultants
and principal investigators to assist us in managing, monitoring
and conducting our clinical trials. We rely on these vendors to
assist in the recruitment of sites for participation in clinical
trials, to maintain positive relations with the clinical sites
and to ensure that these sites are conducting the trial in
compliance with the protocol and our instructions. If these
third parties fail to perform satisfactorily or do not
adequately fulfill their obligations under the terms of our
agreements with them, the clinical trials for our product
candidates may be delayed or unsuccessful. Furthermore, the FDA
may inspect some of the clinical sites participating in our
clinical trials, or our third party vendors' sites, to
determine if our clinical trials are being conducted according
to current good clinical practices. If the FDA determines that
our third-party vendors are not in compliance with applicable
regulations, we may be required to delay, repeat or terminate
such clinical trials. Any delay, repetition or termination of
our clinical trials could materially harm our business.
If our third-party suppliers upon whom we rely
to provide us with critical raw materials do not perform or fail
to comply with strict regulations, our clinical trials for, and
commercialization of, our product candidates could be delayed or
adversely affected.
We purchase plasma, which contains the antibodies
needed to make Veronate, from a third-party supplier under a
long-term supply contract. We currently depend on this supplier
as our sole source of this critical raw material, and we
currently do not have arrangements with an alternative supplier.
It may be difficult or impossible for us to find alternative
suppliers on commercially acceptable terms, if at all.
The collection of plasma, including screening
procedures for plasma donors, is subject to extensive and strict
regulation by the FDA and other foreign regulatory authorities.
These stringent measures could adversely affect our
supplier's ability to provide us with an adequate supply of
plasma for use in the manufacture of Veronate. While we
anticipate securing additional sources of plasma in the future,
until such time, the failure of our existing supplier to supply
us or otherwise perform its contractual obligations could have
an adverse effect on our ability to produce Veronate.
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If our third-party contract manufacturers upon
whom we rely to manufacture our product candidates do not
perform or fail to comply with strict regulations, our clinical
trials and the commercialization of our products could be
delayed or suspended.
We do not own or operate any manufacturing
facilities. We have contracted with third-party manufacturers to
make our product candidates for our clinical trials. We also
intend to rely on third-party contract manufacturers, at least
for the foreseeable future, to manufacture our products if and
when approved to be sold. Our reliance on third-party contract
manufacturers exposes us to a number of risks, any of which
could delay or prevent the completion of our clinical trials,
the approval or commercialization of our products, result in
higher costs, or deprive us of potential product revenues. Some
of these risks include:
•
Each of our current product candidates is and
    will likely be made by a single third-party contract
    manufacturer. We do not have alternate manufacturing plans for
    our product candidates at this time. It may be difficult or
    impossible for us to find alternative manufacturers on
    commercially acceptable terms, if at all. In addition, under our
    agreement with Nabi Biopharmaceuticals, Inc., we may not be able
    to engage any other party to manufacture Veronate until the
    agreement with Nabi is terminated.
•
Changing our current or future manufacturers may
    be difficult for us, as the number of potential contract
    manufacturers that would be able to make our products is limited
    and a change may interrupt our ability to supply our products to
    the marketplace. In accordance with FDA-mandated current good
    manufacturing practices, or cGMPs, changing manufacturers will
    require re-validation of the manufacturing processes and
    procedures and may require further clinical trials, which may be
    costly and time-consuming.
•
Our contract manufacturers may not perform as
    agreed or may not remain in the contract manufacturing business.
•
Our manufacturer's plant may be closed as a
    result of a natural disaster.
•
To date, our product candidates have been
    manufactured in small quantities for preclinical studies and
    clinical trials. If we are unable to increase the manufacturing
    scale of, or increase the capacity for, our product candidates,
    their regulatory approval or commercial launch may be delayed or
    we may experience a shortage in supply. We cannot assure you
    that we will be able to find manufacturers acceptable to us who
    can manufacture our products in commercial quantities in a
    timely or economic manner, if at all.
•
Nabi is our contract manufacturer for Veronate.
    Nabi is a potential competitor which may, in the future, impact
    its willingness to perform under the terms of, or renew, our
    contract manufacturing agreement.
Drug manufacturers are subject to ongoing
periodic inspections by the FDA, the United States Drug
Enforcement Agency, or the DEA, and corresponding state and
foreign agencies to ensure strict compliance with cGMPs, other
government regulations and corresponding foreign standards.
While we are obligated to audit their performance, we do not
have control over our third-party manufacturers' compliance
with these regulations and standards. Failure by our third-party
manufacturers, or us, to comply with applicable regulations
could result in sanctions being imposed on us, including fines,
injunctions, civil penalties, failure of the government to grant
premarket approval of drugs, delays, suspension or withdrawal of
approvals, seizures or recalls of product, operating
restrictions and criminal prosecutions, any of which could
significantly and adversely affect our business.
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We have experienced losses since our
inception. We expect to continue to incur such losses for the
foreseeable future and we may never become profitable.
Since inception through December 31, 2003,
we have incurred a cumulative loss from operations of
approximately $61.7 million. Our losses to date have
resulted principally from:
•
costs related to our research programs and the
    development of our product candidates; and
•
general and administrative costs relating to our
    operations.
We anticipate incurring substantial and
increasing losses for the foreseeable future as we further
develop our product candidates, which will require us to conduct
significant research and laboratory testing, conduct clinical
trials, as well as seek regulatory approvals. In addition, we
intend to establish a hospital-based sales force in the United
States to market and sell Veronate. We also expect that our
general and administrative expenses will increase as we add
additional personnel to support our operations. We cannot assure
you that we will ever become profitable.
We may be forced to delay or curtail the
development or commercialization of our product candidates if we
are unable to obtain additional funding.
We expect that our need for additional capital
will be substantial and the extent of this need will depend on
many factors, some of which are beyond our control, including:
•
the successful and continued development of our
    product candidates in preclinical and clinical testing;
•
the establishment of marketing and sales
    capabilities and the costs to launch our product candidates;
•
the costs associated with protecting and
    expanding our patent and other intellectual property rights;
•
future payments, if any, received or made under
    existing or possible future collaborative arrangements;
•
the timing of regulatory approvals needed to
    market our product candidates;
•
market acceptance of our products; and
•
the need to acquire licenses to new products or
    compounds.
We have no committed sources of additional
capital. We cannot assure you that funds will be available to us
in the future on favorable terms, if at all. If adequate funds
are not available to us on terms that we find acceptable, or at
all, we may be required to delay, reduce the scope of, or
eliminate research and development efforts or clinical trials on
any or all of our product candidates. We may also be forced to
curtail or restructure our operations, obtain funds by entering
into arrangements with collaborators on unattractive terms or
relinquish rights to certain technologies or product candidates
that we would not otherwise relinquish in order to continue
independent operations.
We may be unable to successfully develop or
commercialize product candidates that are the subject of
collaborations if our collaborators do not perform.
We expect to enter into and rely on
collaborations with third parties to develop and/or
commercialize our product candidates outside of the United
States and in certain markets in the United States. In
particular,
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we plan to establish a partnership for Aurexis.
If we do so, such collaborators may not perform as agreed, fail
to comply with strict regulations or elect to delay or terminate
their efforts in developing or commercializing our product
candidates. Our only current collaboration is with Wyeth to
develop a vaccine to prevent staphylococcal infections in
humans. We believe this collaboration is necessary for us to
fund research and development activities, provide a suitable
manufacturer, obtain regulatory approvals and to successfully
commercialize a vaccine product candidate. We cannot assure you
that any product candidates derived from our relationship with
Wyeth, or other collaborations we may enter into in the future
with respect to Aurexis or our other product candidates, will
result in commercially successful products.
If we are unable to attract and retain key
employees, advisors or consultants, we may be unable to
successfully develop and commercialize our product candidates or
otherwise manage our business effectively.
Our success depends in part on our ability to
attract and retain highly qualified management and personnel and
academic scientists and clinicians as advisors or consultants.
In order to pursue our product development and commercialization
strategies, we will need to attract and hire additional
personnel with experience in a number of disciplines, including
clinical testing, government regulation, manufacturing, sales
and marketing, drug reimbursement and information systems. We
may not be able to attract and retain such personnel on
acceptable terms, if at all. If we lose any key employees, or
are unable to attract and retain qualified personnel and
advisors, our business may be harmed.
Our industry is highly competitive and subject
to rapid technological changes. As a result we may be unable to
compete successfully or develop innovative products, which could
harm our business.
The biotechnology and pharmaceutical industries
are highly competitive and subject to significant and rapid
technological change as researchers learn more about diseases
and develop new technologies and treatments. Our current and
potential competitors generally include, among others, major
multinational pharmaceutical companies, biotechnology firms,
universities and other research institutions. We are aware of
several pharmaceutical and biotechnology companies that are
actively engaged in the research and development of novel
products for bacterial and fungal infectious disease
applications. Some of these companies have commenced clinical
trials for products targeting the same markets and indications
that we are addressing. Some of these companies and
institutions, either alone or together with their collaborators,
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
collaborators, have significantly greater experience than we do
in discovering, developing, 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, for attracting investigators and sites capable of
conducting our clinical trials and for licenses of proprietary
technology. These competitors, either alone or with their
collaborators, may succeed in developing technologies or
products that are more effective, less expensive or easier to
administer than ours. Accordingly, our competitors may succeed
in obtaining FDA or other regulatory approvals for their drug
candidates more rapidly than we can. Companies that complete
clinical trials, obtain required regulatory approvals and
commercialize their drugs before their competitors may achieve a
significant competitive advantage, including certain patent and
FDA marketing exclusivity rights that could delay the ability of
competitors to market certain products. We cannot assure you
that product candidates resulting from our research and
development efforts, or from joint efforts with our
collaborators, will be able to compete successfully with our
competitors' existing products or products under
development.
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Most of our product candidates target Orphan
Drug indications. If we fail to obtain approval in an orphan
indication before one of our competitors does, we may be
prevented from selling our products for a period of
time.
Our lead product candidate, Veronate, has been
granted Orphan Drug status by the FDA for the reduction of
nosocomial bacteremia caused by staphylococci in very low birth
weight, or VLBW infants, and most of our other product
candidates also target Orphan Drug indications. A product that
has Orphan Drug status and is the first to receive FDA approval
for the designated indication is entitled, subject to certain
limited exceptions, to market exclusivity in the United States
for seven years. We are aware of a number of other companies
that have received Orphan Drug status for product candidates
that are potentially competitive with Veronate and our other
product candidates. If we are not first to receive FDA approval
for our Orphan Drug indications, we may be prevented from having
our product candidates approved in those indications for up to
seven years. In addition, even if we are first to obtain
approval for our Orphan Drug indications, clinicians may choose
to use products approved for other indications "off
label" to treat patients who suffer from conditions for
which our products have received Orphan Drug approval.
If our future products do not gain meaningful
acceptance in their intended markets, we are not likely to
generate significant revenues or become profitable.
Even if we successfully develop our product
candidates and obtain the requisite regulatory approvals to sell
them in the future, they may not gain market acceptance or
utilization among physicians and patients and reimbursement and
support from third-party payors. The degree of market acceptance
for any product that we commercialize will depend on a number of
factors, including:
•
the demonstration of its safety and efficacy in
    clinical trials;
•
the product's potential advantages over
    existing or alternative therapies;
•
the actual or perceived safety of similar classes
    of products;
•
the reimbursement policies of government and
    third-party payors;
•
the effectiveness of our sales, marketing and
    distribution capabilities;
•
the scope of the product label approved by the
    FDA; and
•
the cost effectiveness of the products.
There can be no assurance that hospitals or
physicians will choose to administer our products to the entire
intended market, if at all. If our products do not achieve
meaningful market acceptance or if the market for our products
proves to be smaller than anticipated, we are not likely to
generate significant revenues or become profitable.
If we are unable to adequately protect our
intellectual property, our business prospects could be
harmed.
Our success depends in part on our ability to:
•
obtain patents or rights to patents and maintain
    their validity;
•
protect our trade secrets;
•
operate without infringing upon the proprietary
    rights of others; and
•
prevent others from infringing on our proprietary
    rights or patents.
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We will be able to protect our proprietary
intellectual property 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. The patent position of
biopharmaceutical companies involves complex legal and factual
questions, and, therefore, we cannot predict with certainty
whether we will be able to ultimately enforce our patents or
proprietary rights. Any patents that we own or license may be
challenged, invalidated or circumvented and may not provide us
with the protection against competitors that we anticipate.
Accordingly, we may be forced to engage in costly and time
consuming litigation in order to protect our intellectual
property rights. Our pending patent applications, or those we
may file or license from third parties in the future, may not
result in patents being issued. Until a patent is issued, the
claims covered by the patent may be narrowed or removed entirely
and therefore we may not obtain adequate patent protection. As a
result, we may face unanticipated competition, or conclude that
without patent rights the risk of bringing product candidates to
the market is too great, thus adversely affecting our operating
results. Because of the extensive time required for the
development, testing and regulatory review of a product
candidate, it is possible that before any of our product
candidates can be approved for sale and commercialized, our
relevant patent rights may expire or remain in force for only a
short period following commercialization. Patent expiration
could adversely affect our ability to protect future product
development and, consequently, our operating results and
financial position. Also, patent rights may not provide us with
adequate proprietary protection or competitive advantages
against competitors with similar technologies. The laws of
certain foreign countries do not protect our intellectual
property rights to the same extent as do the laws of the United
States.
In addition to patents, we rely on trade secrets
and proprietary know-how. We seek protection, in part, through
confidentiality and non-disclosure agreements. These agreements
may not provide meaningful protection or adequate remedies for
our technology in the event of unauthorized use or disclosure of
confidential and proprietary information. Failure to protect our
trade secrets and proprietary know-how could seriously impair
our competitive position and harm our business. We may become
involved in costly litigation in order to enforce patent rights
or protect trade secrets or know-how that we own or license.
If a third party claims we are infringing on
its intellectual property rights, we could incur significant
litigation or licensing expenses, or be prevented from further
developing or commercializing our products.
Our commercial success depends in part on our
ability to operate without infringing the patents and other
proprietary rights of third parties. The biotechnology and
pharmaceutical industries are characterized by extensive
litigation regarding patents and other intellectual property
rights. The defense and prosecution of intellectual property
claims, United States Patent and Trademark Office interference
proceedings and related legal and administrative proceedings in
the United States and internationally involve complex legal and
factual questions. As a result, such proceedings are lengthy,
costly and time-consuming and their outcome is uncertain. We may
become involved in litigation in order to determine the
enforceability, scope and validity of the proprietary rights of
others.
Scientific research has been conducted for many
years in the areas in which we have focused our research and
development efforts, which has resulted in third parties having
a number of issued patents and still-pending patent
applications. Patent applications in the United States are, in
most cases, maintained in secrecy until the patent is issued.
The publication of discoveries in the scientific or patent
literature frequently occurs substantially later than the date
on which the underlying discoveries were made. Therefore, patent
applications relating to products similar to our product
candidates may have already been filed by others without our
knowledge. In the event an infringement claim is brought against
us, we may be required to pay substantial legal and other
expenses to defend such a claim and, if we are unsuccessful in
defending the claim, we may be prevented from pursuing related
product development and commercialization and may be subject to
damage awards.
If we become involved in any patent litigation,
interference or other administrative proceedings, we will incur
substantial expense and the efforts of our technical and
management personnel will be significantly
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diverted. A detrimental outcome of such
litigation or proceedings may expose us to loss of our
proprietary position or to significant liabilities, or require
us to seek licenses that may not be available from third parties
on commercially acceptable terms, if at all. We may be
restricted or prevented from developing, manufacturing and
selling our product candidates in the event of an adverse
determination in a judicial or administrative proceeding or if
we fail to obtain necessary licenses.
Our current and future product candidates may be
covered by third-party patents or other intellectual property
rights, in which case we would need to obtain a license or
sublicense to these rights in order to develop or commercialize
them. Any required licenses may not be available to us on
acceptable terms, if at all. If we do not obtain any required
licenses or sublicenses, we could encounter delays in the
development of our product candidates or be prevented from
manufacturing and commercializing our products. If it is
determined that we have infringed an issued patent, we could be
compelled to pay significant damages, including punitive
damages. In cases where we have in-licensed intellectual
property, our failure to comply with the terms and conditions of
such agreements could harm our business.
Biosynexus, Inc. filed suit against us in
January 2003 in the Superior Court of Fulton County,
Georgia, alleging the misappropriation of trade secrets, which
we purportedly received through a large, nationally recognized
third-party contract research organization. In its suit,
Biosynexus is seeking injunctive relief as well as financial
damages. As described under "Competition," we believe
Biosynexus is developing a monoclonal antibody against
staphylococcal organisms for use in the pediatric market. As
such, Biosynexus is potentially a direct competitor. In
July 2003, the court denied Biosynexus' request for
injunctive relief, and further ruled that we made a preliminary
showing that we had not misappropriated, converted or benefited
from the use of any property, including trade secrets, of
Biosynexus. The court's ruling also indicated that
Biosynexus had not shown a substantial likelihood that it would
ultimately prevail on the merits of its case at trial. In
August 2003, Biosynexus filed a notice of appeal of the
court's ruling. We can provide no assurance that the appeal
filed by Biosynexus will not be successful or that we will not
be subject to similar suits in the future.
If we fail to establish marketing and sales
capabilities or fail to enter into effective sales, marketing
and distribution arrangements with third parties, we may not be
able to successfully commercialize our products.
We intend to sell Veronate, and possibly Aurexis,
through our own hospital-based sales force in the United States
and establish relationships with other companies to
commercialize them in other countries around the world. We
currently have no internal sales and marketing capabilities, or
an infrastructure to support such activities, and have no
experience in the commercialization of pharmaceutical products.
Therefore, our future profitability will depend in part on our
ability to efficiently develop a hospital-based sales force and
related marketing capabilities. The development of our own
hospital-based sales and marketing force will result in us
incurring significant costs before the time that we may generate
significant revenues. We may not be able to attract and retain
qualified marketing or sales people, or be able to establish an
effective sales force. To the extent that we enter into
marketing and sales arrangements with other companies to sell
our products in the United States or abroad, our product
revenues will depend on their efforts, which may not be
successful.
Hospital-based products are typically distributed
through third-party distributors rather than directly through
the organization conducting the sale and marketing of the
product. Our ability to accurately forecast our sales will be
directly linked to the quality and timeliness of inventory
information provided by these third-party distributors.
If government and third-party payors fail to
provide coverage and adequate reimbursement rates for our
products, our revenues and potential for profitability will be
harmed.
In both the United States and foreign markets,
our product revenues will depend principally upon the
reimbursement rates established by third-party payors. Such
third-party payors include government health
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administration authorities, managed-care
providers, private health insurers and other organizations.
These third-party payors are increasingly challenging the price,
and examining the cost effectiveness, of medical products and
services. In addition, significant uncertainty exists as to the
reimbursement status, if any, of newly approved drugs or
pharmaceutical products. We may need to conduct post-marketing
clinical trials in order to demonstrate the cost-effectiveness
of our products. Such studies may require us to commit a
significant amount of management time and financial and other
resources. We cannot assure you that our products will be
reimbursed or covered by any of these third-party payors.
Domestic and foreign governments continue to
propose and pass legislation designed to reduce the cost of
healthcare, including drugs. In some foreign markets,
governments control prescription pharmaceuticals' pricing
and profitability. In the United States, we expect that there
will continue to be federal and state proposals to implement
similar governmental control. In addition, increasing emphasis
on managed care in the United States will continue to put
pressure on the pricing of pharmaceutical products. Cost control
initiatives could decrease the price that we receive for any
products in the future, which would limit our revenues and
profitability. Accordingly, legislation and regulations
affecting the pricing of pharmaceutical products may change
before our product candidates are approved for sale, which could
further limit or eliminate reimbursement rates for our products.
Veronate is a blood product derived from human
plasma. The administration of blood products could result in the
transmission of infectious diseases that could prevent us from
selling Veronate or expose us to liability.
Veronate is derived from human plasma, which is a
component of blood. Certain harmful pathogenic organisms are
found in blood. While the collection, processing and manufacture
of Veronate are designed to eliminate harmful pathogens, we
cannot assure you that this will prevent transmission of both
known and unknown pathogens to patients being treated with
Veronate. If Veronate were known to have transmitted any harmful
pathogens, approval of Veronate may be delayed, suspended or
withdrawn, we could be forced to recall the product, and we may
be subject to product liability claims. Further, if public
concern arises that any blood product may transmit a disease,
approval for Veronate may be delayed or withdrawn, or use of
Veronate may be reduced or limited due to these concerns.
If a product liability claim is successfully
brought against us for uninsured liabilities or exceeds our
insurance coverage, we could be forced to pay substantial damage
awards.
The use of any of our product candidates in
clinical trials, and the sale of any approved products, may
expose us to product liability claims. We have limited product
liability insurance coverage for our clinical trials. Such
insurance coverage may not protect us against any or all of the
product liability claims which may be brought against us in the
future. We may not be able to maintain adequate insurance
coverage at a commercially reasonable cost or in sufficient
amounts or scope to protect us against potential losses. In the
event a product liability claim is brought against us, we may be
required to pay legal and other expenses to defend the claim, as
well as uncovered damage awards resulting from a claim brought
successfully against us. Defending any product liability claim
or claims could require us to expend significant financial and
managerial resources, which could have an adverse effect on our
business.
Our revenues, expenses and results of
operations will be subject to significant fluctuations, which
will make it difficult to compare our operating results from
period to period.
Until we have successfully developed and
commercialized a product candidate, we expect that substantially
all of our revenues will result from payments under
collaborative arrangements. To date, these payments have been in
the form of up-front license and research and development
support payments. We may not be able to generate additional
revenues under existing or future collaborative agreements.
Furthermore, payments to us under our existing and any future
collaborative arrangements, including any milestone and up-front
payments, are subject to significant fluctuation in both timing
and amount, or may never be paid. Therefore, our historical and
current revenues may not be indicative of our ability to
continue to achieve
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additional payment-generating milestones. In
addition, our supply agreement and our manufacturing agreement
with respect to Veronate require us to purchase certain minimum
amounts that we may not need and therefore may be uneconomic to
us. We expect that our operating results will increase or
decrease significantly from quarter to quarter and year to year
as a result of the timing of our research and development
efforts, the execution or termination of collaborative
arrangements, the initiation, success or failure of clinical
trials, the timing of the manufacture of lots of our product
candidates, or other development related factors. Accordingly,
our revenues and results of operations for any period may not be
comparable to the revenues or results of operations for any
other period.
If we succeed in implementing our strategy, we
may encounter difficulties in managing our growth and expanding
our operations successfully.
If we successfully advance our product candidates
through clinical development and regulatory approvals, we will
need to add or expand research and clinical development,
regulatory, manufacturing, marketing and sales capabilities or
contract with third parties to provide these capabilities for
us. If our operations expand, we will need to hire additional
personnel and add corporate functions that we currently do not
have. Our ability to manage our operations and growth will
require us to continue to improve our operational, financial and
management controls, reporting systems and procedures. We may
not be able to implement such improvements to our management
information and control systems in an efficient or timely manner
and may discover deficiencies in existing systems and controls.
If our use of hazardous materials results in
contamination or injury, we could suffer significant financial
loss.
Our research and manufacturing activities involve
the controlled use of certain hazardous materials and medical
waste. Notwithstanding the regulations controlling the use of
these materials and the safety procedures we undertake, we
cannot eliminate the risk of accidental contamination or injury
from these materials. In the event of an accident or
environmental discharge or exposure, we may be held liable for
any resulting damages, which may exceed our financial resources.
Risks Related to this Offering and Ownership
of Our Common Stock
Our common stock price will likely be highly
volatile, and your investment could suffer a decline in
value.
Prior to this offering, you could not buy or sell
our common stock publicly. An active public market for our
common stock may not develop or, if developed, be sustained
after this offering. We will negotiate and determine the initial
public offering price with the representatives of the
underwriters. This price may vary from the market price of our
common stock after this offering. You may be unable to sell your
shares of common stock at or above the initial public offering
price or the price you paid.
The market price of our common stock is likely to
be highly volatile and could be subject to wide fluctuations in
response to various factors and events, including but not
limited to:
•
disclosure of our or our competitors'
    clinical trial data;
•
the disclosure of decisions by regulatory
    authorities regarding our or our competitors' product
    candidates or products;
•
the approval or commercialization of new products
    by us or our competitors;
•
announcements of scientific innovations by us or
    our competitors;
•
rumors relating to us or our competitors;
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•
public concern about the safety of our product
    candidates, products or similar classes of products;
•
litigation to which we may become subject;
•
actual or anticipated variations in our annual
    and quarterly operating results;
•
changes in general conditions or trends in the
    biotechnology and pharmaceutical industries;
•
changes in drug reimbursement rates or policies;
•
announcements by us of significant acquisitions,
    strategic partnerships, joint ventures or capital commitments;
•
additions or loss of key personnel;
•
new regulatory legislation adopted in the United
    States or abroad;
•
our failure to achieve or meet equity research
    analysts' expectations or their estimates of our business,
    or a change in their recommendations concerning our company, the
    value of our common stock or our industry in general;
•
termination or delay in any of our existing or
    future collaborative arrangements;
•
future sales of equity or debt securities,
    including large block trades;
•
changes in accounting principles;
•
sales of our common stock by insiders or
    affiliates; and
•
general economic conditions.
In addition, the stock market in general, and the
Nasdaq National Market and the market for biotechnology stocks
in particular, have historically experienced significant price
and volume fluctuations. Volatility in the market price for a
particular company's stock has often been unrelated or
disproportionate to the operating performance of that company.
Market and industry factors may seriously harm the market price
of our common stock, regardless of our operating performance.
If we raise additional capital in the future,
your ownership in us could be diluted.
We expect that we will need to raise additional
capital in the future. We may not be able to do so on favorable
terms, if at all. Additional equity financings we may undertake
may be dilutive to the holders of our common stock or cause the
price of our common stock to decline. If we obtain funds through
a credit facility or through the issuance of debt or preferred
securities, these securities would have rights senior to your
rights as a common stockholder. If we cannot obtain sufficient
capital on commercially acceptable terms, we will not be able to
fully carry out our business strategy.
Future sales of shares of our common stock may
cause our stock price to decline, even if our business is doing
well.
Our current stockholders hold a substantial
number of shares of our common stock that they will be able to
sell in the future. Sales of a significant number of shares of
our common stock, or the perception that these sales could
occur, particularly with respect to affiliates, directors,
executive officers or other insiders, could materially and
adversely affect the market price of our common stock and impair
our ability to raise
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capital through the sale of additional equity
securities. See "Underwriting" and "Shares
Eligible for Future Sale" for a description of lock-up
agreements with respect to certain shares of common stock.
Insiders will continue to have substantial
control over us after this offering, which could delay or
prevent a change in our control.
After this offering, our directors, executive
officers and principal stockholders, together with their
affiliates, will beneficially own, in the aggregate,
approximately      % of our outstanding
shares of common stock. As a result, these stockholders, acting
together, would have the ability to delay or prevent a change in
control that may be favored by other stockholders and otherwise
exercise significant influence over all corporate actions
requiring stockholder approval, irrespective of how our other
stockholders may vote, including:
•
the election of directors;
•
any amendment of our certificate of incorporation
    or bylaws;
•
the approval of some mergers and other
    significant corporate transactions, including a sale of
    substantially all of our assets; or
•
the defeat of any non-negotiated takeover attempt
    that might otherwise benefit the public stockholders.
Investors in this offering will suffer
immediate and substantial dilution.
If you purchase common stock in this offering,
you will pay more for your shares than the amounts paid by
existing stockholders for their shares. As a result, you will
incur immediate and substantial dilution of
$           per
share, representing the difference between our pro forma net
tangible book value per share after giving effect to this
offering and the initial public offering price. We also have
outstanding options and warrants to acquire common stock at
exercise prices below the initial public offering price. To the
extent these outstanding options or warrants are ultimately
exercised, you will incur further dilution.
Our amended and restated certificate of
incorporation, our amended and restated bylaws and Delaware law
contain provisions that could discourage, delay or prevent a
change in our control or our management.
Provisions of our amended and restated
certificate of incorporation, bylaws and the laws of Delaware,
the state we are incorporated in, may discourage, delay or
prevent a change in control of us or a change in management that
stockholders may consider favorable. These provisions:
•
establish a classified, or staggered, board of
    directors, so that not all members of our board may be elected
    at one time;
•
set limitations on the removal of directors;
•
limit who may call a special meeting of
    stockholders;
•
establish advance notice requirements for
    nominations for election to our board of directors or for
    proposing matters that can be acted upon at stockholder meetings;
•
prohibit stockholder action by written consent,
    thereby requiring all stockholder actions to be taken at a
    meeting of our stockholders; and
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•
provide our board of directors the ability to
    designate the terms of and issue new series of preferred stock
    without stockholder approval.
These provisions could discourage proxy contests
and make it more difficult for you and other stockholders to
remove and elect directors and take other corporate actions.
These provisions could also limit the price that investors might
be willing to pay in the future for shares of our common stock.
Future circumstances or events may cause us to
change our planned use of the net proceeds of this offering. We
may use, invest or spend the net proceeds of this offering in
ways in which we have not planned or with which you may not
agree.
We will have broad discretion over the use of the
net proceeds from this offering. Because of the number and
variability of factors that will determine our use of such
proceeds, our ultimate use might vary substantially from our
planned uses. You may not agree with how we spend or intend to
use these proceeds, and our use of the proceeds may not result
in an increase in the market value of our common stock.
We are at risk of securities class action
litigation, which could harm our business.
Securities class action litigation has often been
brought against a company following a decline in the market
price of its securities. This risk is especially relevant for us
because biotechnology and biopharmaceutical companies are
subject to and have experienced significant stock price
volatility. If such litigation is brought against us, we may
incur substantial costs and a diversion of management's
attention and resources, which could harm our business.
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SPECIAL NOTE ON FORWARD-LOOKING
STATEMENTS
This prospectus contains forward-looking
statements. These forward-looking statements are principally
contained in the sections entitled "Prospectus
Summary," "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations." These forward-looking statements involve known
and unknown risks, uncertainties and other factors that may
cause actual results, performance or achievements to be
materially different from any future results, performance or
achievements expressed or implied by the forward-looking
statements. In some cases, you can identify forward-looking
statements by terms such as "may," "will,"
"should," "could," "would,"
"expect," "plan," "intend,"
"anticipate," "believe,"
"estimate," "project," "predict,"
"forecast," "potential," as well as the
negative of such expressions, and similar expressions intended
to identify forward-looking statements. These statements reflect
our current views with respect to future events and are based on
assumptions and subject to risks and uncertainties. Given these
uncertainties, you should not place undue reliance on these
forward-looking statements. We discuss many of these risks in
greater detail under the heading "Risk Factors." Also,
these forward-looking statements represent our estimates and
assumptions only as of the date of this prospectus.
There may be events in the future that we are
unable to predict accurately, or over which we have no control.
Before you invest in our common stock, you should read this
prospectus and the documents that we reference in this
prospectus and have filed as exhibits to the registration
statement of which this prospectus is part, completely and with
the understanding that our actual future results may be
materially different from what we expect. Our business,
financial condition, results of operations, and prospects may
change. We may not update these forward-looking statements, even
though our situation may change in the future, unless we have
obligations under the Federal securities laws to update and
disclose material developments related to previously disclosed
information. We qualify all of the information presented in this
prospectus, and particularly our forward-looking statements, by
these cautionary statements.
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USE OF PROCEEDS
We estimate that the net proceeds from the sale
of our common stock in this offering will be approximately
$           million,
assuming an initial public offering price of
$           per
share and after deducting the underwriting discounts and
commissions and our estimated offering expenses. If the
underwriters exercise their option to purchase additional shares
of common stock in full to cover over-allotments, we estimate
our aggregate net proceeds will be approximately
$           million.
We anticipate using the net proceeds from this offering
approximately as follows:
•
80% for the discovery, development and
    manufacturing of our product candidates; and
•
20% for working capital and general corporate
    purposes.
The amount and timing of our use of these
proceeds will depend on a number of factors, including the
status of our development and commercialization efforts, the
amount of proceeds actually raised in this offering and the
amount of proceeds generated, if any, by entering into future
partnerships or collaborations with third-parties. We may also
use a portion of the proceeds for the acquisition of, or
investment in, companies, technologies or assets that complement
our technology or business strategy. However, we have no present
understandings, commitments or agreements to enter into any
potential acquisitions or investments at this time. We will have
broad discretion to determine the ultimate use of the net
proceeds from this offering, which may differ substantially from
the estimated uses outlined above.
We intend to invest the net proceeds of the
offering, pending their use, in short-term and medium-term
interest-bearing, investment grade securities, money market
funds, certificates of deposit and direct or guaranteed
obligations of the United States government.
DIVIDEND POLICY
We have never paid or declared any cash dividends
on our common stock. We currently intend to retain future
earnings, if any, to finance the growth and development of our
business and we do not expect to pay any cash dividends on our
common stock in the foreseeable future.
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CAPITALIZATION
The following table sets forth our cash, cash
equivalents and short-term investments and capitalization as of
December 31, 2003, and is presented on an actual basis and
on a pro forma as adjusted basis. The pro forma as adjusted
column reflects (i) the conversion of all of our
outstanding shares of preferred stock into
24,589,444 shares of common stock, (ii) the conversion
of all cumulative preferred stock dividends accrued as of
December 31, 2003 into 3,223,185 shares of common
stock immediately prior to the closing of this offering,
(iii) the issuance
of                      shares
of common stock subject to the mandatory cashless exercise of
warrants to purchase 4,127,130 shares of preferred stock
upon the completion of this offering, at an assumed initial
public offering price of
$           per
share and (iv) our sale
of                      shares
of common stock in this offering at an assumed initial public
offering price of
$           per
share, after deducting underwriting discounts and commissions
and our estimated offering expenses. You should read this table
in conjunction with "Selected Financial Data,"
"Use of Proceeds," "Management's Discussion
and Analysis of Financial Condition and Results of
Operations," and our Financial Statements and related Notes
included elsewhere in this prospectus.
As of December 31, 2003
Pro Forma
Actual
As Adjusted
Cash, cash equivalents, and short-term investments
$
28,148,130
$
Long-term debt, net of current portion
$
1,795,204
$
Redeemable convertible preferred stock,
    $0.001 par value; 37,700,000 shares authorized,
    24,373,444 issued and outstanding, actual; no shares authorized,
    issued or outstanding, pro forma as adjusted
89,542,242
—
Warrants
6,065,467
Total redeemable convertible preferred stock and
    warrants
95,607,709
Stockholders' (deficit) equity
Preferred stock, $0.001 par value; no shares
    authorized, issued or outstanding, actual; 5,000,000 shares
    authorized, no shares issued and outstanding, pro forma as
    adjusted
—
—
Convertible preferred stock, $0.001 par
    value; 216,000 shares authorized, issued and outstanding,
    actual; no shares authorized, issued and outstanding, pro forma
    as adjusted
216
Common stock, $0.001 par value;
    43,100,000 shares authorized, actual;
    75,000,000 shares authorized, pro forma as adjusted;
    1,275,688 shares issued and outstanding, actual;
    [     ] shares issued and
    outstanding, pro forma as adjusted
1,275
Additional paid-in capital
1,797,059
Deferred stock compensation
(804,310
)
Deficit accumulated during development stage
(74,220,495
)
Total stockholders' (deficit) equity
(73,226,255
)
Total capitalization
$
24,176,658
The number of shares of our common stock shown as
issued and outstanding in the table above as of
December 31, 2003 excludes:
•
3,185,490 shares of common stock issuable
    upon the exercise of options outstanding as of December 31,
    2003, with a weighted average exercise price of $0.60 per
    share;
23
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•
247,564 shares of common stock issuable upon
    the exercise of warrants outstanding as of December 31,
    2003, with a weighted average exercise price of $1.49 per
    share;
•
shares
    of common stock issuable upon the conversion of preferred stock
    to be paid in respect of dividends that will accrue on our
    outstanding preferred stock between January 1, 2004 and the
    closing of this offering; and
•
623,128 shares reserved for future issuance
    or grant under our stock incentive plans. In February 2004,
    3,400,000 additional shares were reserved for future issuance or
    grant under our stock incentive plans.
In                     ,
2004 we completed
a                      for                     reverse
split of our common stock.
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DILUTION
Our historical net tangible book value as of
December 31, 2003 was approximately $(73.2) million,
or $(57.40) per share of common stock, based on
1,275,688 shares of common stock outstanding. Historical
net tangible book value per share is determined by dividing our
total tangible assets less total liabilities and redeemable
preferred stock by the actual number of outstanding shares of
our common stock. Our pro forma net tangible book value as of
December 31, 2003 was approximately $22.4 million, or
$0.80 per share of common stock, based on
27,812,629 shares of common stock outstanding after giving
effect to the conversion of all outstanding shares of our
convertible preferred stock and dividends accrued as of
December 31, 2003 into common stock. Pro forma net tangible
book value per share represents our total tangible assets less
our total liabilities, divided by the pro forma number of shares
of common stock outstanding before giving effect to this
offering.
After giving effect to the issuance and sale
of                      shares
of common stock in this offering, less underwriting discounts
and commissions and our estimated offering expenses, and the
issuance
of                      shares
of common stock subject to the mandatory cashless exercise of
warrants to purchase 4,127,130 shares of preferred stock
upon the completion of this offering, at an assumed initial
public offering price of
$           per
share of common stock, our pro forma net tangible book value as
of December 31, 2003 would have been
$           million
or
$           per
share. This represents an immediate increase in pro forma net
tangible book value to existing stockholders of
$           per
share and an immediate dilution in pro forma net tangible book
value of
$           per
share to new investors purchasing our common stock in the
offering at an assumed initial public offering price of
$           per
share. Dilution per share to new investors is determined by
subtracting pro forma net tangible book value per share after
this offering from the initial public offering price per share
paid by a new investor. The following table illustrates the per
share dilution without giving effect to the over-allotment
option granted to the underwriters:
Assumed initial public offering price per share
Historical net tangible book value per share as
    of December 31, 2003
$
(57.40
)
Increase attributable to the conversion of
    convertible preferred stock and dividends
58.20
Pro forma net tangible book value per share as of
    December 31, 2003
0.80
Increase per share attributable to new investors
    in this offering
Pro forma net tangible book value per share after
    this offering
Dilution of net tangible book value per share to
    new investors
$
The following table sets forth, as of
December 31, 2003, on the pro forma basis discussed above,
the number of shares of our common stock purchased from us, the
total consideration paid to us and the average price per share
paid to us by existing stockholders and to be paid by new
investors purchasing shares of our common stock in this
offering. The table assumes an initial public offering price of
$           per
share, before deducting underwriting discounts and commissions
and our estimated offering expenses:
Shares Purchased
Total Consideration
Average Price
Number
Percent
Amount
Percent
Per Share
Existing stockholders
%
$
%
$
New investors
Total
100
%
$
100
%
$
The information in the two tables above excludes:
•
3,185,490 shares of common stock issuable
    upon the exercise of options outstanding as of December 31,
    2003, with a weighted average exercise price of $0.60 per
    share;
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•
247,564 shares of common stock issuable upon
    the exercise of warrants outstanding as of December 31,
    2003, with a weighted average exercise price of $1.49 per
    share;
•
shares
    of common stock issuable upon the conversion of preferred stock
    to be paid in respect of dividends that will accrue on our
    outstanding preferred stock between January 1, 2004 and the
    closing of this offering; and
•
623,128 shares reserved for future issuance
    or grant under our stock incentive plans. In February 2004,
    3,400,000 additional shares were reserved for future issuance or
    grant under our stock incentive plans.
If the underwriters exercise their over-allotment
option in full to
purchase                     additional
shares of our common stock in this offering, the pro forma net
tangible book value per share after the offering would be
$           per
share, the increase in pro forma net tangible book value per
share to existing stockholders would be
$           per
share and the dilution to new stockholders purchasing shares in
this offering would be
$           per
share.
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Table of Contents
SELECTED FINANCIAL DATA
The following selected financial data should be
read in conjunction with, and are qualified by reference to,
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our Financial
Statements and related Notes included elsewhere in this
prospectus. The statement of operations data for the years ended
December 31, 2001, 2002 and 2003 and for the period from
inception on May 13, 1994 through December 31, 2003,
and the balance sheet data as of December 31, 2002 and 2003
are derived from our audited financial statements, which are
included elsewhere in this prospectus. The statements of
operations data for the years ended December 31, 1999 and
2000 and the balance sheet data as of December 31, 1999,
2000 and 2001 are derived from our audited financial statements
which are not included in this prospectus. The selected
financial data set forth below for the year ended
December 31, 2003 are not indicative of results in any
future period.
Period
From Inception
(May 13, 1994)
Through
Years Ended December 31,
December 31,
2003
1999
2000
2001
2002
2003
(in thousands, except per share data)
Statement of Operations Data:
Revenue
$
3,162
$
261
$
634
$
271
$
900
$
1,096
Operating expenses:
Research and development
52,620
2,747
5,864
7,099
15,615
19,071
General and administrative
12,277
683
1,121
1,847
3,328
4,677
Total operating expenses
64,897
3,430
6,985
8,946
18,943
23,748
Loss from operations
(61,735
)
(3,169
)
(6,351
)
(8,675
)
(18,043
)
(22,652
)
Interest and other income (expense), net
1,074
(175
)
(112
)
568
430
319
Net loss
(60,661
)
(3,344
)
(6,463
)
(8,107
)
(17,613
)
(22,333
)
Dividends and accretion to redemption value of
    redeemable preferred stock
(13,559
)
—
(461
)
(1,271
)
(5,626
)
(6,201
)
Net loss attributable to common stockholders
$
(74,220
)
$
(3,344
)
$
(6,924
)
$
(9,378
)
$
(23,239
)
$
(28,534
)
Basic and diluted net loss attributable to common
    stockholders per share
$
(3.44
)
$
(7.08
)
$
(8.90
)
$
(20.10
)
$
(22.77
)
Pro forma basic and diluted net loss attributable
    to common stockholders per share (unaudited)
(1)
$
(1.18
)
Weighted average shares used to compute basic and
    diluted net loss attributable to common stockholders per share
971
978
1,054
1,156
1,253
Pro forma weighted average shares used to compute
    basic and diluted net loss attributable to common stockholders
    per share (unaudited)
(1)
24,145
As of December 31,
1999
2000
2001
2002
2003
(in thousands)
Balance Sheet Data:
Cash and cash equivalents
$
481
$
7,982
$
1,404
$
28,658
$
26,649
Short-term investments
—
—
—
1,000
1,499
Working capital (deficit)
3,025
5,737
(1,360
)
25,838
23,529
Total assets
1,637
9,708
3,622
31,942
30,662
Long-term debt and capital leases, less current
    portion
501
387
572
459
1,795
Redeemable convertible preferred stock and
    warrants
2,955
19,276
20,558
70,934
95,608
Deficit accumulated during the development stage
(6,146
)
(13,070
)
(22,448
)
(45,686
)
(74,220
)
Total stockholders' (deficit) equity
(5,510
)
(12,304
)
(21,666
)
(44,886
)
(73,226
)
(1)
See Note 3 of Notes to Financial Statements
    for a description of the method used to compute pro forma basic
    and diluted net loss per common share and number of shares used
    in computing pro forma basic and diluted net loss per common
    share.
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Table of Contents
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read this discussion together with
the financial statements, related notes and other financial
information included elsewhere in this prospectus. The following
discussion contains assumptions, estimates and other
forward-looking statements that involve a number of risks and
uncertainties, including those discussed under "Risk
Factors," "Special Note on Forward-Looking
Statements" and elsewhere in this prospectus. These risks
could cause our actual results to differ materially from those
anticipated in these forward-looking statements.
Overview
We are a biopharmaceutical company engaged in the
discovery, development and commercialization of novel
antibody-based products for the prevention and treatment of
serious bacterial and fungal infections in the hospital setting.
We currently have two product candidates in late-stage clinical
development. Our lead product candidate is Veronate, which we
expect will enter a Phase III clinical trial in the second
half of 2004. We are developing Veronate for the prevention of
hospital-associated infections in premature, very low birth
weight, or VLBW, infants. We recently completed a 512-patient
Veronate Phase II clinical trial. Veronate has been granted
Fast Track and Orphan Drug status by the FDA. Our second product
candidate, Aurexis, is currently being evaluated in a
Phase II clinical trial as a first-line therapy, in
combination with standard of care antibiotics, to treat serious,
life-threatening
Staphylococcus aureus,
or
S. aureus,
bloodstream infections in hospitalized
patients. In addition, we have three preclinical product
candidates that are being developed to prevent and treat serious
infections.
We are a development stage company that has
generated significant losses since our inception in
May 1994. We expect to incur substantial and increasing
losses for at least the next several years as we continue the
development of Veronate and Aurexis, continue our other research
and development activities and establish a commercial
infrastructure. To date, we have devoted substantially all of
our efforts towards research and development activities related
to our product candidates, which are based on our expertise in
MSCRAMM proteins. As of December 31, 2003 we had an
accumulated deficit of $74.2 million, which includes
non-cash expenses of $13.6 million related to the accrual
of cumulative preferred stock dividends and the accretion to the
redemption value of our redeemable convertible preferred stock
and $176,000 related to the amortization of deferred stock
compensation. We anticipate that our quarterly and annual
results of operations will fluctuate due to several factors,
including progress made in our research and development efforts,
the timing and outcome of regulatory approvals, if any, and
payments made or received pursuant to existing or future
licensing or collaboration agreements. Therefore, meaningful
predictions of our future operations are difficult to make.
Financial Operations Overview
Revenue.
Since our inception, we have not generated any revenue from the
sale of products and do not expect product-related revenues
until we obtain regulatory approval for and commercialize a
product candidate. Currently, our revenues represent the
amortization of an up-front license fee and quarterly research
and development support payments received in connection with a
license and collaboration agreement with Wyeth. If our
development efforts result in regulatory approval and the
successful commercialization of any of our product candidates,
we expect the majority of our future revenues will result from
product sales. In addition, in the future we may generate
revenues from up-front or milestone payments in connection with
collaborative or strategic relationships and royalties resulting
from the licensing of our intellectual property.
Research and Development
Expense.
Research and development
expense consists of expenses incurred in discovering,
developing, testing and manufacturing our product candidates.
These expenses consist primarily of professional fees paid to
third-party service providers in conjunction with monitoring
patients enrolled in our clinical trials as well as accumulating
and evaluating the related data, salaries and related
28
Table of Contents
expenses for personnel, costs of raw materials,
contract manufacturing services, supplies used in clinical
trials and research and development activities, consulting,
license and sponsored research fees paid to third parties and
facilities costs.
We expect our research and development costs to
increase. In the near-term, we expect to expend greater
resources on the development of our two most advanced product
candidates, Veronate and Aurexis, than on the development of our
preclinical product candidates due to the number of patients
enrolled in the clinical trials for these product candidates and
the related cost of manufacturing clinical trial materials. Due
to the progress and timing of clinical trials, such expenditures
are likely to be uneven in future periods. Although we are
currently focused primarily on advancing Veronate through a
Phase III clinical trial and Aurexis through Phase II
clinical trials, we will make determinations as to which product
candidates to pursue and how much funding to direct to each on
an on-going basis in response to their scientific and clinical
success. From inception through December 31, 2003, we have
spent approximately $52.6 million on research and
development activities.
General and Administrative
Expense.
General and
administrative expense consists primarily of salaries and other
related costs for personnel in executive, finance, accounting,
information technology and human resource functions. Other
significant costs include professional fees for marketing
research, legal, accounting and other consulting services. We
expect our general and administrative expenses to increase as we
add personnel, become subject to the reporting obligations
applicable to publicly-held companies and prepare for the
commercialization of our product candidates. From inception
through December 31, 2003, we have spent approximately
$12.3 million in general and administrative expenses.
Interest and Other Income (Expense),
net.
Interest income consists of
interest earned on our cash, cash equivalents and short-term
investments. Interest expense consists of interest incurred on
capital leases and notes payable. Other income and expense
consists of the proceeds from the sale of excess raw materials
and the gain or loss on the disposal of equipment.
Dividends and Accretion to Redemption Value
of Redeemable Preferred Stock.
We
accrue for an 8% cumulative annual dividend payable on our
Series C Redeemable Convertible Preferred Stock, or
Series C, and on our Series D Redeemable Convertible
Preferred Stock, or Series D. Upon completion of this
offering, all existing preferred stock will be converted into
common stock. Accordingly, there will be no further accrual of
preferred stock dividends. In addition, since our redeemable
preferred stock has been discounted to reflect the value of any
attached warrants, we accrete, or increase, our redeemable
preferred stock to equal its redemption value by the earliest
redemption date. This accretion decreases stockholders'
equity and increases the loss per share attributable to common
stockholders. Upon the completion of this offering and the
conversion of all existing preferred stock to common stock, the
remaining discount of approximately $3.5 million at
December 31, 2003 related to our redeemable preferred stock
will be recognized as additional accretion, which will further
increase the net loss attributable to common stockholders.
Critical Accounting Policies and
Estimates
This discussion and analysis of our current
financial condition and historical results of operations is
based on our audited financial statements, which have been
prepared in accordance with accounting principles generally
accepted in the United States. The preparation of our financial
statements requires us to make estimates and judgments with
respect to the selection and application of accounting policies
that affect the reported amounts of assets, liabilities,
revenues and expenses, and the disclosures of contingent assets
and liabilities. We base our estimates on historical experience
and various other assumptions that we believe are reasonable
under the circumstances at the time, the results of which form
the basis for making judgments about the carrying values of
certain assets and liabilities. Actual future results may differ
from these estimates under different assumptions or conditions.
29
Table of Contents
We believe the following critical accounting
policies are important in understanding our financial statements:
Revenue
Recognition.
We recognize revenue
primarily under licensing and other collaborative research and
development agreements as we perform services or meet
contractual obligations. Accordingly, up-front, non-refundable
license fees under agreements where we have an ongoing research
and development commitment are amortized, on a straight-line
basis, over the term of our ongoing obligations under the
agreement. Revenues received for ongoing research and
development activities under collaborative arrangements are
recognized as the research and development activities are
performed pursuant to the terms of the related agreements. In
the event we receive milestone payments in the future, we will
recognize such payments when all of the terms of such milestone
are achieved. Our revenue recognition policies are in compliance
with the Securities and Exchange Commission's, or
SEC's, Staff Accounting Bulletin, or SAB, No. 101,
Revenue Recognition in Financial Statements,
SAB
No. 104,
Revenue Recognition,
and Emerging Issues
Task Force No. 00-21,
Revenue Arrangements with Multiple
Deliverables.
Accrued
Expenses.
The preparation of our
financial statements requires us to estimate expenses that we
believe we have incurred, but for which we have not yet received
invoices from our vendors. This process involves identifying
services and activities that have been performed by third-party
vendors on our behalf and estimating the level to which they
have been performed and the associated cost incurred for such
service as of each balance sheet date. Examples of expenses for
which we accrue based on estimates include fees for services,
such as those provided by certain clinical research and data
management organizations and investigators in conjunction with
clinical trials and fees owed to contract manufacturers in
conjunction with the manufacture of materials for our clinical
trials.
In connection with these service-related 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. In order
to estimate costs incurred to date, but not yet invoiced, we
analyze the progress of the clinical trial and related
activities, invoices received and budgeted costs when evaluating
the adequacy of the accrued liability for these related costs.
The majority of our service providers invoice us monthly in
arrears for services performed or based upon meeting
pre-determined milestones. In the event that we are not notified
of or we do not identify certain costs that have been incurred,
or we underestimate or overestimate the level or costs of
services performed, our reported expenses for such period might
be too low or too high. We must sometimes estimate the date on
which certain services commence and the level or costs of
services performed on or before a given date. We make these
estimates based upon the facts and circumstances known to us at
the time and in accordance with generally accepted accounting
principles.
Stock-based
Compensation.
We have elected to
follow Accounting Principles Board, or 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 Statement of Financial Accounting Standards,
or SFAS, No. 123,
Accounting for Stock-Based
Compensation.
Accordingly, we have not recorded stock-based
compensation expense related to stock options issued to
employees if the exercise prices of the options are equal to or
greater than the fair value of the underlying common stock on
the date of grant. In the notes to our financial statements we
provide pro forma disclosures in accordance with
SFAS No. 123 and related pronouncements.
To date, the determination of the fair value of
our common stock for purposes of stock option grants has
involved significant judgment on our part because our shares
have not been publicly traded. In determining the fair value of
our common stock from time to time, our board of directors
considered the price at which we sold shares of convertible
preferred stock to investors, comparative values of public
companies discounted for the risk and limited liquidity provided
for in the shares we have issued, prior valuations of our common
stock and the impact of events or milestones that had occurred
since. Upon the completion
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of this offering, the determination of the fair
market value of our common stock will be based upon the trading
price of our common stock.
Recent Accounting Pronouncements
In January 2003, the Financial Accounting
Standards Board, or FASB, issued FASB Interpretation
No. 46, or FIN 46,
Consolidation of Variable
Interest Entities.
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 new
variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or
acquired prior to February 1, 2003, the provisions of
FIN 46 must be applied for the first interim or annual
period beginning after March 31, 2004. The adoption of this
statement did not have a material impact on our results of
operations or financial position.
In May 2003, the FASB issued
SFAS No. 150,
Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity.
SFAS No. 150 affects the issuer's
accounting for three types of freestanding financial
instruments. These are mandatorily redeemable shares, which the
issuing company is obligated to buy back in exchange for cash or
other assets; put options and forward purchase contracts; and
obligations that can be settled with shares, the monetary value
of which is fixed, tied solely or predominantly to a variable
such as a market index, or varies inversely with the value of
the issuers' shares. Most of the guidance in
SFAS No. 150 is effective for all 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. The adoption of this
statement did not have a material effect on our results of
operations or financial position.
Results of Operations
Fiscal Years Ended December 31, 2003
and 2002
Revenue.
Revenue increased to $1.1 million in 2003 from $900,000 in
2002. This increase of $196,000, or 22%, resulted from a
$300,000 grant from the FDA in 2003 offset by a reduction in
quarterly collaborative research and development support fees
from Wyeth.
Research and Development
Expense.
Research and development
expense increased to $19.1 million for 2003 from
$15.6 million in 2002. This increase of $3.5 million,
or 22.4%, resulted primarily from expenditures related to the
clinical development of our two most advanced product
candidates, Veronate and Aurexis. During 2003, we enrolled
substantially all 512 patients in a Phase II clinical trial
for Veronate and we initiated and completed a 19-patient
Phase I clinical trial for Aurexis. During 2002, we
initiated and completed a 37-patient Phase I clinical trial
for Veronate. Approximately $2.0 million of this increase
represented direct clinical trial related costs, including fees
paid to third-party vendors that performed clinical monitoring,
data accumulation, statistical analysis and evaluation for our
clinical trials, as well as costs associated with the
manufacture of clinical trial materials. The other significant
factor contributing to the increase in 2003 was additional
license fees paid to secure intellectual property rights
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related to the manufacture of Aurexis. The
following table summarizes the components of our research and
development expenses for 2003 and 2002.
December 31,
2003
2002
(in thousands)
Clinical and manufacturing related expenses
$
9,846
$
7,866
Personnel, benefits and related expenses
4,664
4,403
License fees and other expenses
3,069
2,080
Depreciation and facility related expenses
1,492
1,266
Total research and development expense
$
19,071
$
15,615
General and Administrative
Expense.
General and
administrative expense increased to $4.7 million in 2003
from $3.3 million in 2002. This increase of
$1.4 million, or 42.4%, resulted from increased legal and
professional fees primarily related to litigation to which we
are a party. This increase was offset, in part, by costs
incurred during 2002 for certain marketing studies that were not
conducted in 2003.
Interest and Other Income (Expense),
net.
Interest and other income
(expense), net, decreased to $319,000 in 2003 from $430,000 in
2002. This decrease of $111,000, or 25.8%, resulted from a
decrease in interest income of $343,000, an increase in interest
expense of $83,000 and an increase in other income of $315,000
primarily due to the sale of unusable raw materials. The
decrease in interest income was primarily due to reduced yields
on investments resulting from lower interest rates and lower
average cash and cash equivalent balances in 2003.
Dividends and Accretion to Redemption Value
of Redeemable Preferred Stock.
Dividends and accretion to redemption value of redeemable
preferred stock increased to $6.2 million in 2003 from
$5.6 million in 2002. This increase of $600,000, or 10.7%,
resulted from the accrual of cumulative dividends and the
accretion to redemption value associated with our Series D
preferred stock. Our Series D financing was completed in
February 2002. Accordingly, 2003 reflected the full-year
effect of these items.
Fiscal Years Ended December 31, 2002
and 2001
Revenue.
Revenue increased to $900,000 in 2002 from $271,000 in 2001.
This increase of $629,000, or 232.1%, in 2002 was due to a full
year of revenue recognition in 2002 related to our license and
collaborative agreement with Wyeth.
Research and Development
Expense.
Research and development
expense increased to $15.6 million in 2002 from
$7.1 million in 2001. This increase of $8.5 million,
or 119.7%, resulted primarily from expenses related to the
clinical development of Veronate. In 2002, we initiated and
completed a 36-patient Phase I clinical trial for Veronate
and in late 2002, we began enrollment of a Phase II
clinical trial for Veronate. Of this $8.5 million increase,
$3.3 million was attributable to fees paid to contract
research organizations that performed clinical monitoring, data
accumulation and patient evaluation on our behalf. In addition,
$3.1 million of the increase was related to the manufacture
of clinical trial material for the Phase II Veronate
clinical trial and the Phase I Aurexis clinical trial. The
remainder of the increase was primarily due to hiring
20 additional personnel to support these clinical trials
and other research and development
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programs. The following table summarizes the
components of our research and development expenses for 2002 and
2001.
December 31,
2002
2001
(in thousands)
Clinical and manufacturing related expenses
$
7,866
$
1,358
Personnel, benefits and related expenses
4,403
2,653
License fees and other expenses
2,080
2,004
Depreciation and facility related expenses
1,266
1,084
Total research and development expense
$
15,615
$
7,099
General and Administrative
Expense.
General and
administrative expense increased to $3.3 million in 2002
from $1.8 million in 2001. This increase of
$1.5 million, or 83.3%, resulted primarily from legal,
market research and other professional fees incurred to support
our development efforts as well as the hiring of seven
additional personnel.
Interest and Other Income (Expense),
net.
Interest and other income
(expense), net, decreased to $430,000 in 2002 from $569,000 in
2001. This decrease of $139,000, or 24.4%, resulted largely from
a decrease in other income of $516,000 offset by an increase in
interest income of $377,000. The decrease in other income in
2002 resulted from the sale of excess raw materials in 2001 that
we had acquired for a development program that we discontinued.
The increase in interest income in 2002 was attributable to
higher average cash balances in 2002 as compared to 2001.
Dividends and Accretion to Redemption Value
of Redeemable Preferred Stock.
Dividends and accretion to redemption value of redeemable
preferred stock increased to $5.6 million in 2002 from
$1.3 million in 2001. This increase of $4.3 million,
or 330.7%, in 2002 resulted primarily from the accrual of
cumulative dividends and the accretion to redemption value
associated with our Series D preferred stock.
Liquidity and Capital Resources
Sources of Liquidity
Since inception in May 1994 through
December 31, 2003, we have funded our operations primarily
with $84.5 million raised from a series of five private
equity financings as follows:
Preferred Stock
Year
Amount
Series A
1995
$
540,000
Series B
Round I
1997
1,500,012
Round II
1998
1,500,000
Series C
2000
15,892,284
Series D
2002
44,997,928
Series E
2003
20,045,696
Total
$
84,475,920
From inception through December 31, 2003, we
borrowed a total of $4.7 million under notes payable,
credit facilities and capital leases and received approximately
$4.3 million in license fees and collaborative research
payments, of which $1.2 million, $1.3 million, and
$1.7 million were recorded as deferred revenue as of
December 31, 2003, 2002 and 2001, respectively.
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At December 31, 2003, cash, cash equivalents
and short-term investments were $28.1 million and we held
no investments with a maturity greater than 12 months. Our
cash, cash equivalents and short-term investments are generally
held in a variety of interest-bearing instruments, consisting of
United States government and agency securities, high-grade
United States corporate bonds, municipal bonds, asset-backed
securities, commercial paper and money market accounts. We may
increase the average maturity date of our investments upon the
completion of this offering.
Cash Flows
For the year ended December 31, 2003, cash
and cash equivalents decreased by $2.0 million. We used net
cash of $21.6 million in operating activities. This use of
cash consisted of a net loss of $22.3 million, an increase
in prepaid expenses and other current assets and accounts
receivable of $401,000, and a decrease in deferred revenue of
$171,000, offset by a net increase in accounts payable and
accrued expenses of $347,000 and depreciation and amortization
expense of $768,000. We used approximately $720,000 for
investing activities in 2003, which consisted of purchases of
property and equipment of $176,000 and net purchases of
marketable securities of $544,000. We received
$20.3 million from financing activities during 2003 which
consisted of $18.5 million related to the issuance of
convertible preferred stock and warrants in connection with our
Series E financing and $2.5 million in proceeds from a
credit facility, offset by the repayment of capital lease
obligations and notes payable of $710,000. In addition, in 2003,
we financed the purchase of $421,000 of equipment under capital
leases.
For the year ended December 31, 2002, cash
and cash equivalents increased by $27.3 million. We used
net cash of $15.9 million in operating activities. This use
of cash primarily consisted of a net loss of $17.6 million,
an increase in prepaid expenses and other assets of $371,000,
and a decrease in deferred revenue of $379,000, offset by an
increase in accounts payable and accrued expenses of
$1.6 million and depreciation expense of $772,000. We used
$1.3 million for investing activities in 2002, which
consisted primarily of purchases of marketable securities of
$1.0 million and purchases of property and equipment of
$264,000. We received $44.4 million from financing
activities during 2002 relating primarily to the issuance of
convertible preferred stock and warrants in connection with our
Series D financing of $44.8 million, offset in part by
the repayment of notes payable and capital leases of $348,000.
In addition, during 2002, we financed the purchase of $251,000
of equipment under capital leases.
For the year ended December 31, 2001, cash
and cash equivalents decreased by $6.6 million. We used net
cash of $5.8 million in operating activities. This use of
cash primarily consisted of a net loss of $8.1 million, a
decrease in accounts payable of $207,000, offset by an increase
in deferred revenue of $1.7 million and depreciation
expense of $659,000. We used $662,000 for investing activities
in 2001, which consisted of purchases of property and equipment.
We used $69,000 for financing activities in 2001 which consisted
primarily of payments on promissory notes and capital leases. In
addition, during 2001, we financed the purchase of $486,000 of
equipment under capital leases.
Funding Requirements
We anticipate that we will need to raise
additional capital in the future. Our future capital
requirements will depend on a number of factors, including the
timing and costs involved in conducting clinical trials and
obtaining regulatory approvals for our product candidates;
payments received or made under existing or future license or
collaboration agreements; the commercialization of our products;
the cost of filing, prosecuting and enforcing patent and other
intellectual property claims; and the need to acquire licenses
to new products or compounds. We may also need additional funds
for possible future strategic acquisitions of businesses,
products or technologies complementary to our business, although
none are currently anticipated.
With the estimated proceeds from this offering,
we believe that our existing cash, cash equivalents and
short-term investments will be sufficient to fund our planned
operations for at least the next 18 months. We may raise
additional funds from time to time through public or private
sales of equity securities or
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from borrowings. Such funds may not be available
on acceptable terms, or at all, and our failure to raise capital
could have a materially adverse impact on our growth plans, our
financial condition and results of operations. If adequate funds
are not available in the future, we may be required to delay,
reduce the scope of or eliminate one or more of our research and
development programs, delay or curtail our commercialization
efforts or obtain funds through collaborative arrangements that
may require us to relinquish rights to certain product
candidates that we might otherwise choose to develop or
commercialize independently. Additional equity financings may be
dilutive to holders of our common stock and debt financing, if
available, may involve significant payment obligations and
covenants that restrict how we operate our business.
Contractual Obligations
Our material contractual obligations relate
primarily to a credit facility and notes payable, capital
leases, facility leases and certain minimum purchase obligations
we have under third-party supply and manufacturing agreements.
Our purchase obligations relate to the supply of raw materials
and a manufacturing agreement where we have made certain minimum
commitments.
The following table summarizes our contractual
obligations as of December 31, 2003 and the effect such
obligations are expected to have on our liquidity and cash flows
in future periods.
Payments Due by Period
Less than
More than
Contractual Obligations
Total
1 Year
1-3 Years
4-5 Years
5 Years
(In thousands)
Short and long-term debt
$
2,253
$
890
$
1,363
—
—
Capital lease obligations
762
330
432
—
—
Operating lease obligations
416
207
209
—
—
Purchase obligations
875
750
125
—
—
Total contractual cash obligations
$
4,306
$
2,177
$
2,129
—
—
In December 2003, we entered into an agreement to
lease a facility to be built to our specifications. Until
March 30, 2004, we may terminate this agreement at any time
provided that we reimburse the developer for any out-of-pocket
costs it incurs through the date of termination, up to $325,000.
We anticipate that we will occupy this new facility in the
second or third quarter of 2005, at which time we expect that
our lease obligations for such facility will approximate
$1.0 million per annum for the lease term of ten years.
Quantitative and Qualitative Disclosures about
Market Risk
As of December 31, 2003 and 2002 we had
cash, cash equivalents and short-term investments of
$28.1 million and $29.7 million, respectively. The
primary objective of our investment activities is to preserve
principal. To achieve this objective, we invest in highly liquid
and high-quality investment grade debt instruments of financial
institutions, corporations and United States government
securities with a weighted average maturity of no longer than
12 months. Due to the relatively short-term nature of these
investments, we believe that we are not subject to any material
market risk exposure, and as a result, the estimated fair value
of our cash, cash equivalents and short-term investments
approximates their principal amounts. If market interest rates
were to increase immediately and uniformly by 10% from levels at
December 31, 2003, we estimate that the fair value of our
investment portfolio would decline by an immaterial amount. We
do not have any foreign currency or other derivative financial
instruments and we do not have significant interest rate risk
associated with our debt obligations. While our cash, cash
equivalents and short-term investment balances will increase
upon completion of this offering, we will have the ability to
hold our fixed income investments until maturity, and therefore
we would not expect our operating results or cash flows to be
affected to any significant degree by the effect of a change in
market interest rates on our investments.
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Effects of Inflation
The majority of our assets are monetary,
consisting of cash, cash equivalents and short-term investments.
Because of their liquidity, these assets are not generally
directly affected by inflation. We also believe that we have
significant intangible assets in the value of our technology and
product candidates. In accordance with generally accepted
accounting principles, we have not recorded the value of any
intellectual property or intangible assets that we have
developed on our balance sheet. Due to the nature of these
intangible assets, we do not believe they are 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.
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BUSINESS
Overview
We are a biopharmaceutical company engaged in the
discovery, development and commercialization of novel
antibody-based products for the prevention and treatment of
serious bacterial and fungal infections in the hospital setting.
We currently have two product candidates in late-stage clinical
development. Our lead product candidate is Veronate, which we
expect will enter a Phase III clinical trial in the second
half of 2004. We are developing Veronate for the prevention of
hospital-associated infections in premature, very low birth
weight, or VLBW, infants. We recently completed a 512-patient
Veronate Phase II clinical trial. Veronate has been granted
Fast Track and Orphan Drug status by the FDA. Our second product
candidate, Aurexis, is currently being evaluated in a
Phase II clinical trial as a first-line therapy, in
combination with standard of care antibiotics, to treat serious,
life-threatening
Staphylococcus aureus,
or
S. aureus,
bloodstream infections in hospitalized
patients. In addition, we have three preclinical product
candidates that are being developed to prevent or treat serious
infections.
All of our product candidates have been developed
based on our expertise in MSCRAMM proteins for which we own or
have licensed numerous patents and patent applications. The
development of our product candidates is based on the discovery
that MSCRAMM proteins found on the surface of pathogenic
organisms play a prominent role in the process of infection. We
have demonstrated that antibodies that bind to these MSCRAMM
proteins will prevent or reduce the severity of infections by
interfering with the attachment of the pathogenic organisms to
human tissue or implanted medical devices. We believe our
expertise in MSCRAMM proteins and antibodies that target them
will enable us to discover additional novel therapies, as well
as to identify, license or acquire products that prevent and
treat life-threatening infections.
We have retained worldwide commercialization
rights to Veronate and Aurexis. We expect to commercialize
Veronate in the United States by establishing a specialized,
hospital-based sales force. While we expect to establish a
worldwide collaboration for Aurexis, we anticipate retaining
co-promotion rights to Aurexis in the United States. In markets
outside the United States, we intend to enter into
collaborations to develop and commercialize our product
candidates.
Hospital-Associated Infections
Hospital-associated infections generally refer to
infections that patients acquire while being treated or cared
for in a hospital setting and include, among others, pneumonia,
endocarditis and bloodstream infections, or bacteremia. These
infections are for the most part caused by bacterial or fungal
organisms that are present in the hospital. Most healthy
individuals generally are not susceptible to these organisms,
but immunocompromised persons, such as VLBW infants and the
elderly, or persons who have had surgical procedures or have
in-dwelling catheters or medical devices are particularly
vulnerable. According to the Centers for Disease Control, or
CDC, the most prevalent organisms causing hospital-associated
infections in the United States are bacterial organisms such as
S. aureus, Staphylococcus epidermidis,
or
S. epidermidis,
enterococcal species and fungal
organisms such as candida species.
Based on data from the CDC and Decision
Resources, a market research firm, there are an estimated six
million hospital-associated infections worldwide each year, of
which approximately 85-90% are caused by bacteria and 8% by
fungi. The CDC estimates that approximately two million
hospital-associated infections occur in the United States each
year, which are implicated in approximately 90,000 deaths
per annum. This represents more deaths per annum than are caused
by breast cancer and prostate cancer combined. These infections
also result in an estimated $4.5 billion in healthcare
costs annually in the United States.
Antibiotics are the predominant agents used to
treat hospital-associated infections. Antibiotics are small
molecule compounds whose primary mechanisms of action are
killing or inhibiting the growth of bacteria. Antibiotics
commonly used to treat hospital-associated infections include
methicillin and vancomycin.
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Many bacteria have become increasingly resistant,
or unresponsive, to antibiotics, leading to an increase in the
incidence of antibiotic-resistant infections. Drug resistance is
the result of bacteria undergoing a biochemical mutation that
circumvents the mechanisms of action that generally allow
antibiotics to work. Some of the most virulent organisms that
demonstrate significant patterns of drug resistance include
methicillin-resistant
S. aureus,
or MRSA, and
vancomycin-resistant enterococci, or VRE.
As bacterial resistance has become more
prevalent, there has been an increase in infection relapse rates
and secondary site infections. In addition, some infections
caused by MRSA can have associated mortality rates of 30-50%.
Clinicians have become increasingly reliant on the use of
vancomycin, which is an intravenous antibiotic generally
regarded as the drug of last resort, for the treatment of
serious antibiotic-resistant hospital-associated infections.
However, over the past several years, the emergence of
vancomycin-resistant
S. aureus,
or VRSA, has been
documented in the United States and Japan. In light of
increasing antibiotic resistance, there is a significant unmet
medical need for novel anti-infective therapies that prevent or
treat serious, life-threatening hospital-associated infections.
Our Solution
We believe there is a substantial opportunity to
utilize our expertise in MSCRAMM proteins to discover, develop
and commercialize novel antibody-based products that address the
increasing prevalence of life-threatening hospital-associated
infections and the lack of effective therapies available to
treat these infections.
The human immune system normally protects the
body against a variety of infections and other illnesses by
recognizing, neutralizing and eliminating pathogens and
malignant cells from the body. One of the primary functions of
the immune system is the production of antibodies. Antibodies
are soluble proteins found in the plasma portion of whole blood
capable of recognizing and binding to pathogens that are
potentially harmful to the human body. Antibodies recognize and
bind to cellular proteins generally referred to as antigens,
such as MSCRAMM proteins present on the surface of bacteria and
fungi. In order for an effective immune response to occur
without harming normal cells, the immune system generates
antibodies that recognize and bind tightly to one specific
antigen. Once an antibody binds to its targeted antigen, it
triggers the cellular components of the immune system to clear
the pathogen from the body.
We have identified antibodies that specifically
bind to a number of different MSCRAMM proteins located on the
surface of many pathogenic organisms. MSCRAMM proteins enable
organisms to initiate and maintain an infection by adhering to
specific binding sites within human tissue. In addition, MSCRAMM
proteins allow these organisms to adhere to implanted or
in-dwelling materials, such as orthopedic implants, catheters
and vascular grafts. We believe that antibodies that target
MSCRAMM proteins can reduce the incidence and severity of
bacterial and fungal infections through two important biological
mechanisms of action. First, by binding to the MSCRAMM proteins,
these antibodies inhibit or block the invading organism from
attaching to tissue or implanted or in-dwelling medical devices.
Second, these antibodies coat the invading organism, identifying
it for clearance by other cellular components of the immune
system.
We believe that antibody-based product candidates
developed utilizing our expertise in MSCRAMM proteins may
provide the following advantages over existing anti-infective
therapies:
•
the ability to be used prophylactically in
    patients where the preventive use of antibiotics is not
    appropriate or recommended;
•
improved patient outcomes by reducing the
    incidence of secondary site infections, relapse rates, mortality
    and length of hospital stay;
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•
a lower likelihood of inducing patterns of drug
    resistance due to their novel mechanisms of action; and
•
fewer side effects.
Our Product Candidates
Our antibody-based product candidates are
summarized in the chart below:
Stage of
Worldwide
Product Candidate
Intended Use
Development
Commercial Rights
Veronate
Prevention of hospital-associated infections in
    VLBW infants
Phase III expected second half 2004
Inhibitex
Aurexis
First-line therapy for serious
S. aureus
infections in combination with standard of care antibiotics
Phase II
Inhibitex
Enterococcal monoclonal antibodies
Hospital-associated enterococcal infections
Preclinical
Inhibitex
Candida monoclonal antibodies
Hospital-associated candida infections
Preclinical
Inhibitex
Staphylococcal vaccine
Prevention of staphylococcal infections
Preclinical
Wyeth
Veronate
Veronate is a polyclonal antibody-based product
candidate that we are developing for the prevention of
hospital-associated infections in VLBW infants that occur after
the second day of life. Infections that occur after the second
day of life are generally referred to by neonatologists as
late-onset sepsis. We expect to begin a Phase III clinical
trial for this indication in the second half of 2004. Veronate
contains concentrated amounts of antibodies that target specific
MSCRAMM proteins found on the surface of staphylococci. Based on
our Phase II clinical trial results, we believe that
Veronate can reduce the number of hospital-associated infections
caused by
S. aureus
and candida organisms in VLBW
infants. Further, because infections caused by
S. aureus
and candida organisms have high associated
mortality rates, approximately 17% and 34%, respectively, we
believe the prophylactic use of Veronate will also reduce the
overall mortality rate in VLBW infants.
Veronate has been granted Fast Track status by
the FDA. Fast Track status may allow for expedited review by the
FDA and is afforded to those proposed products that the FDA
believes address life-threatening and unmet medical needs.
Veronate has also been granted Orphan Drug status for the
reduction of nosocomial bacteremia caused by staphylococci in
VLBW infants, which may provide for market exclusivity for seven
years from the date of FDA approval in certain circumstances. We
have also received a peer-reviewed, merit-based $300,000 grant
from the Office of Orphan Product Development of the FDA for the
development of Veronate.
Market Opportunity for the Prevention of
Hospital-Associated Infections in VLBW Infants
According to the United States Census Bureau, in
2001 there were approximately 60,000 VLBW infants born in the
United States. The term VLBW infants refers to those infants
that weigh less than 1,500 grams at birth or that are generally
less than 32 weeks gestational age. Approximately 43,000 of
these VLBW infants weighed 1,250 grams or less at birth. The
vast majority of surviving VLBW infants are cared for in
neonatal intensive care units, or NICUs. The average length of
stay in the NICU for these infants is approximately two months.
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VLBW infants are highly susceptible to infection
while in the NICU, given the intensity of medical care, duration
of hospitalization, and the use of intravenous catheters to
deliver nutritional fluids and medication. Various studies
indicate that 30-50% of all VLBW infants weighing 1,250 grams or
less at birth will develop at least one hospital-associated
infection. There is an inverse relationship between a VLBW
infant's birth weight and the risk of acquiring a
hospital-associated infection.
The most frequent causes of hospital-associated
infections in VLBW infants, in order of incidence, are coagulase
negative staphylococcus, or CoNS,
S. aureus
and
candida, which collectively account for almost two-thirds of the
hospital-associated infections in this patient population. CoNS
accounts for approximately 50% of hospital-associated
infections, while
S. aureus
and candida each account
for approximately 9%. Although CoNS is the most prevalent
organism causing these infections, it is not as virulent as
S. aureus
and candida. The mortality rate among VLBW
infants who acquire a hospital-associated infection caused by
S. aureus
or candida is approximately 17% and 34%,
respectively, as compared to 7% and 9%, respectively, for those
VLBW infants who either develop no infection or are infected
with CoNS.
In addition to associated mortality, several
studies indicate that VLBW infants that develop a
hospital-associated infection stay, on average, 19 additional
days in the hospital when compared to those that do not acquire
an infection. In the United States, reimbursement to the
hospital for a day in the NICU generally ranges from $1,500 to
$3,000, which excludes the costs associated with physicians and
other required specialists.
Veronate Clinical Trials
Phase III.
We
plan to initiate a multi-center, randomized, double-blind,
placebo-controlled Phase III clinical trial for Veronate in
the second half of 2004. This trial will be designed to further
evaluate and confirm the efficacy and safety of Veronate at a
dose of 750 mg/kg in VLBW infants weighing 500 to 1,250
grams at birth. If the primary endpoint is achieved, we expect
to submit a biological license application, or BLA, for Veronate
to the FDA for the prevention of
S. aureus
hospital-associated infections in VLBW infants that occur after
the infant's second day of life.
Phase II.
In
December 2003, we completed a 512-patient, multi-center,
randomized, double-blind, placebo-controlled Phase II
clinical trial of Veronate for the prevention of
hospital-associated infections in VLBW infants weighing 500 to
1,250 grams at birth. This trial was designed to evaluate the
safety, dosing and preliminary efficacy of Veronate in this
patient population. Infants in this trial were initially
randomized by birth weight to receive one of four intravenous
treatments: placebo, or Veronate at a dose of 250mg/kg, 500mg/kg
or 750mg/kg. This trial was conducted at 53 different NICUs
across the United States, and no single site accounted for more
than 7% of the subjects.
Due to the prophylactic nature of the indication
and the estimated rates of incidence, the Phase II trial
was not powered to demonstrate statistically significant
differences among the treatment arms in measures of efficacy.
The results of the Phase II clinical trial demonstrated
that Veronate was generally safe and well tolerated among
treated patients. There were no adverse events that differed
among treatment cohorts. Only 4 of 1,280 infusions were
discontinued or interrupted due to adverse events possibly
related to Veronate. There were no dose related trends observed
for adverse events, severe adverse events or morbidities
associated with prematurity. All Veronate-related adverse events
were few (14 events among 9 infants) and were
generally limited to changes in vital signs or apnea.
The preliminary efficacy findings from this trial
comparing Veronate at a dose of 750 mg/kg to placebo were:
•
a 63% reduction in the frequency of infection due
    to
S. aureus
;
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•
a 67% reduction in the frequency of infection due
    to candida; and
•
a 36% reduction in mortality.
Phase I.
We
conducted a Phase I dose-escalating clinical trial of
Veronate in 36 VLBW infants weighing 500 to
1,250 grams. Two cohorts of 18 infants each were
studied. One cohort received 500mg/kg of Veronate and the second
cohort received 750mg/kg, both intravenously. The infants were
monitored for a period of 70 days subsequent to their first
infusion. Results from this trial indicated that Veronate was
generally safe and well tolerated in VLBW infants.
Aurexis
Aurexis is a humanized monoclonal antibody
currently in a Phase II clinical trial for evaluation as a
first-line therapy, in combination with standard of care
antibiotics, for the treatment of serious, life-threatening
S. aureus
bloodstream infections in hospitalized
patients. Aurexis and Veronate target the same MSCRAMM protein
on
S. aureus
. We believe the results from the
Veronate Phase II clinical trial and our preclinical
efficacy studies provide validation for the
S. aureus
MSCRAMM protein. We are also exploring the
use of Aurexis in patients with cystic fibrosis and end stage
renal disease and those who are undergoing cardiac surgery. We
may initiate additional Phase II clinical trials in
patients with one or more of these indications in the future.
Market Opportunity for the Treatment of
S. aureus Infections
S. aureus
is
one of the leading causes of hospital-associated infections.
There were an estimated one million hospital-associated
S. aureus
infections worldwide in 2002, of which
approximately 225,000 occurred in the United States. Of the
estimated 225,000
S. aureus
infections that occurred
in the United States, we estimate that approximately 50,000 were
serious bloodstream infections.
According to the CDC and other sources, the
percentage of hospital-associated
S. aureus
infections in intensive care units in the United States caused
by methicillin-resistant
S. aureus,
or MRSA, doubled
between 1994 and 2002, increasing from 30% to nearly 60%. The
mortality rate for bloodstream infections associated with MRSA
is 30-50%, as compared to the mortality rate associated with
methicillin-susceptible
S. aureus
bloodstream
infections of approximately 20%. Studies indicate that patients
that acquire a MRSA bloodstream infection, as compared to those
that do not, require, on average, an additional 12 days in
an intensive care unit, at an average cost of $27,000.
The current clinical treatment of serious
infections due to
S. aureus
is dictated by a number
of factors including the type or location of the infection, the
antibiotic resistance pattern of the infecting strain, the
clinical characteristics of the patient and the infections
commonly found in any specific hospital or hospital department.
These infections are typically treated with intravenous
antibiotics. If the patient is thought to be infected with MRSA,
the current standard of care is administration of vancomycin,
which is generally considered to be the antibiotic of last
resort.
We believe that Aurexis will be used adjunctively
as a first-line therapy to treat
S. aureus
bloodstream infections regardless of which antibiotic is
prescribed for treatment. We also believe that the degree to
which the medical community will adopt the use of Aurexis will
be based on its ability to reduce the relapse rate of infection,
the frequency of secondary site infections, the incidence of
infection-associated mortality and the number of days patients
with infections stay in the hospital.
Aurexis Clinical Trials
Phase II.
We
are currently conducting a 60-patient, multi-center, randomized,
double-blind, placebo-controlled Phase II clinical trial
for Aurexis. We expect to conduct the trial at 14 hospitals
in the United States. Patients with documented
S. aureus
bloodstream infections are randomized to
receive standard of
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care antibiotic therapy combined with either
Aurexis, 20 mg/kg, or placebo. Both Aurexis and placebo are
administered intravenously as a single dose. For the purpose of
this protocol, standard of care antibiotic therapy is selected
by the individual investigators. Subjects will be followed for
57 days or until early termination from the trial.
The primary objectives of the Phase II trial
for Aurexis are to evaluate:
•
the safety of a single administration of Aurexis;
•
the pharmacokinetics of a single dose of
    Aurexis; and
•
the preliminary efficacy of a single dose of
    Aurexis.
We expect to complete enrollment of this trial by
the end of 2004 and to have final data during the first half of
2005.
Phase I.
We
completed an open-label, randomized, dose-escalating
Phase I clinical trial in 19 healthy volunteers to
assess the safety of Aurexis and determine dose-related
pharmacokinetics. Patients were intravenously administered four
dose levels of Aurexis at 2, 5, 10, or 20 mg/kg. The
volunteers were monitored for a period of 56 days
subsequent to the administration of the drug. Safety was
monitored by physical examinations, clinical and laboratory
tests, and adverse experience assessments.
Results from this trial indicate Aurexis was well
tolerated by the healthy volunteers. Six adverse events were
noted, although none were considered related to Aurexis. No
other safety issues were identified and no dose reached the
protocol-specified definition of maximum tolerated dose.
Pharmacokinetic analysis demonstrated that doses of 10mg/kg or
greater achieved plasma levels of Aurexis associated with
therapeutic efficacy in preclinical animal models. The half life
of Aurexis was determined to be approximately 21 days. We
selected the 20mg/kg dose for our Phase II trial of Aurexis.
Preclinical Results.
We have conducted a number of preclinical studies in animals to
assess both the safety and efficacy of Aurexis. These studies
included using Aurexis both prophylactically as a monotherapy to
prevent, and in combination with vancomycin to treat, MRSA
infections. In these studies, no safety or toxicity issues were
observed. These studies demonstrated that when used
prophylactically, a single dose of Aurexis administered
intravenously provided statistically significant levels of
protection against MRSA infections as compared to the control.
The therapeutic administration of Aurexis intravenously, in
combination with vancomycin, significantly enhanced the
clearance of MRSA from the animals' critical organs as
compared to vancomycin alone. We believe that the preclinical
models that yielded these results are generally viewed by the
scientific community as supportive and appropriate for assessing
the efficacy of anti-infective product candidates in humans.
Other Product Candidates
In addition to Veronate and Aurexis, we currently
have three product candidates in preclinical development, all of
which are based on the use of MSCRAMM proteins. Two of these
candidates are humanized monoclonal antibodies, and the third is
a staphylococcal vaccine being developed by our partner, Wyeth.
Enterococcal Monoclonal Antibodies
Enterococci account for approximately 8% of all
hospital-associated infections and have been reported as the
second most common cause of nosocomial endocarditis in the
United States. The overuse of antibiotics has resulted in the
emergence of drug-resistant strains of enterococci, including
vancomycin-resistant enterrococci. The problem in the United
States is serious, in that greater than 24% of confirmed
enterococcal infections reported in the June 2000 report of the
hospitals included in the National
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Nosocomial Infectious Surveillance System were
vancomycin-resistant. The reported incidence of
vancomycin-resistant strains of enterococci increased by 40% for
those same hospitals from 1994 to 1998. We have identified and
characterized MSCRAMM protein targets expressed by enterococci
and we have generated monoclonal antibodies that recognize these
targets. Preclinical studies are ongoing to evaluate these
monoclonal antibodies.
Candida Monoclonal Antibodies
Candida albicans,
or
C. albicans,
is a significant cause of invasive
fungal infections in an expanding population of immunosuppressed
or immunocompromised patients such as those undergoing
chemotherapy, those with organ transplants or those with AIDS.
We have identified and characterized MSCRAMM proteins on the
surface of
C. albicans
and we have generated
monoclonal antibodies that target these proteins.
Staphylococcal Vaccine
There are a number of patient groups, including
approximately 300,000 end stage renal disease patients in the
United States, patients receiving chronic long-term care, and
patients undergoing certain elective surgeries, who are at risk
of acquiring a staphylococcal infection. For these high-risk
groups, we believe an active vaccine may be a less costly and
preferred mode of therapy. We have entered into a license and
collaboration agreement with Wyeth to develop human vaccines
against staphylococcal organisms.
Our Strategy
Our goal is to become a leading biopharmaceutical
company that discovers, develops and commercializes novel,
antibody-based products to prevent and treat serious bacterial
and fungal infections in the hospital setting. In order to
achieve this goal, we are focused on the following key
strategies:
Complete the Phase III Trial and
Obtain Regulatory Approval for
Veronate.
We are focused on
completing the clinical and regulatory development of Veronate.
We intend to initiate and complete a Phase III clinical
trial evaluating Veronate for the prevention of
hospital-associated infections in VLBW infants. Veronate has
also been granted Fast Track status, which may allow for
expedited review by the FDA. Veronate has received Orphan Drug
status for the reduction of nosocomial bacteremia caused by
staphylococci in VBLW infants, which may provide for market
exclusivity for seven years from the date of approval in certain
circumstances.
Advance the Development of Aurexis and Our
Preclinical Product Candidates.
We
are developing Aurexis as a first-line therapy for the treatment
of serious
S. aureus
infections in combination with
standard of care antibiotics. Aurexis is currently in a
Phase II clinical trial. We are also advancing the
development of our two preclinical product candidates focused on
enterococcal and candida monoclonal antibodies.
Establish a Specialized, Hospital-Based
Sales Force In The United States.
We have retained all worldwide commercial rights for Veronate
and Aurexis. We intend to establish a specialized hospital-based
sales force of approximately fifty individuals to promote
Veronate, and potentially Aurexis, in the United States. We
believe that the vast majority of the potential United States
demand for Veronate exists in approximately 1,000 hospitals
that operate NICUs. As a result, we believe a relatively small
sales force can effectively be deployed to fully and efficiently
address this market. While we expect to enter into a worldwide
collaboration to further develop and commercialize Aurexis, we
intend to leverage our hospital-based sales force by retaining
certain co-promotion rights to Aurexis in the United States. In
markets outside of the United States, we currently plan to
establish partnerships with other companies to commercialize our
products.
Utilize Our Expertise in MSCRAMM Proteins
to Discover and Develop Additional
First-in-Class Products.
Our
goal is to be the first to market antibody-based products to
prevent and treat specific
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bacterial and fungal infections. We have used our
expertise in MSCRAMM proteins to discover and develop Veronate,
Aurexis and three preclinical candidates that may represent
first-in-class products. We believe that first-in-class drugs
capture superior market share and have competitive advantages
over drugs subsequently introduced. We will continue to devote
resources to the discovery and development of product candidates
that originate from our expertise in MSCRAMM proteins.
Expand Our Product Portfolio through
In-Licensing and Acquisitions.
We
intend to capitalize upon our expertise in MSCRAMM proteins,
antibody development, commercialization and infectious diseases
to in-license or acquire selected product candidates in various
stages of development. We will also evaluate opportunities to
leverage our sales force by in-licensing or acquiring and
promoting additional therapeutics which target the
hospital-based market.
Sales and Marketing
There are approximately 5,000 hospitals in the
United States; however, we believe that the vast majority of the
demand for Veronate will occur in approximately
1,000 hospitals where there are NICUs equipped to handle
the special needs of VLBW infants. Furthermore, 80% of the NICU
beds are concentrated in approximately 500 of these hospitals.
We believe that a specialized, hospital-based sales force of
approximately 50 qualified individuals can effectively promote
and sell Veronate in this market. We intend to establish this
sales force and create a commercial infrastructure capable of
supporting the independent commercialization of Veronate in the
United States.
We have retained worldwide rights to Aurexis and
two of our product candidates in preclinical development. While
we plan to establish a worldwide collaboration for Aurexis, we
anticipate retaining co-promotion rights to Aurexis in the
United States. Assuming Veronate is approved for sale by the FDA
and we successfully develop a sales force, we may promote or
co-promote our other product candidates in the United States
through this sales force. The 1,000 hospitals that contain
NICUs also account for 45% of all hospital beds in the United
States. By accessing approximately half the hospital beds in the
United States, we believe our sales force will be able to
effectively market Aurexis and our other product candidates. We
anticipate partnering or collaborating with other companies to
develop and commercialize our product candidates in countries
and regions outside of the United States.
Raw Materials and Manufacturing
Raw
Materials.
Veronate is a
polyclonal antibody-based product candidate derived from human
plasma. Accordingly, the critical raw material used in the
manufacture of Veronate is plasma that contains sufficient
concentrations of naturally occurring antibodies that
specifically target MSCRAMM proteins. This plasma is collected
at FDA-approved donor centers in the United States. The
qualification of donors, the collection process and the
operation of donor centers are highly regulated by the FDA and
other domestic and foreign regulatory bodies. We currently do
not, nor do we intend to, own or operate any such donor centers.
We outsource, and intend to continue to outsource, the
collection of this critical raw material to qualified
FDA-approved third-party collectors who own and operate these
donor centers. We currently have a long-term supply agreement
with one third-party supplier of plasma, which we believe can
meet our current, near-term and product launch supply needs.
Pursuant to this supply agreement, no later than 90 days
prior to each calendar-year end, we and our supplier must agree
on the quantity of plasma that we intend to purchase, and they
will provide, for the next calendar year. Once this quantity is
established, we are generally obligated to purchase at least 90%
of this predetermined quantity during the subsequent year. While
we have no current arrangements with any other supplier of
plasma, we believe there are suitable alternative sources of
plasma for Veronate.
Manufacturing.
We do not own or operate any manufacturing facilities. We
currently outsource the manufacture of our product candidates to
qualified contract manufacturers. We anticipate we will continue
to rely on these or other qualified contract manufacturers for
the foreseeable future. Our contract manufacturers are currently
located in the United States, although, in the future, we may
consider using
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qualified manufacturers located in Europe or
other regions. Since the manufacturing processes used to
manufacture Veronate and Aurexis are vastly different, we use
different manufacturers for each of these product candidates.
The manufacturing process for Veronate is
referred to as fractionation. The fractionation process, which
involves separating plasma into various components or fractions,
has been used for over thirty years by major pharmaceutical
companies to manufacture high quality antibody-based products.
In December 2001, we entered into a ten-year contract
manufacturing agreement with Nabi Biopharmaceuticals, Inc., or
Nabi, to manufacture Veronate on our behalf. Nabi operates an
FDA-approved facility in the United States, and is approved to
manufacture its proprietary, as well as third-party,
immunoglobulin products. Pursuant to our contract with Nabi, we
must, on a two-year rolling basis, commit to Nabi as to how much
Veronate we want Nabi to manufacture on our behalf. If we then
cancel or postpone any manufacturing runs over the two-year
period, cancellation penalties will apply. We believe Nabi is
qualified, and has the available capacity, to manufacture
Phase III clinical trial material and commercial quantities
of Veronate. Nabi has manufactured four lots of Veronate to
date. Under this agreement, we may not grant any rights allowing
any other party to manufacture Veronate, and therefore we may
not engage an alternative manufacturer until the agreement is
terminated. We may terminate the agreement with Nabi if Nabi
materially breaches the agreement, subject to a 20-day cure
period. We do not have alternative manufacturing plans for
Veronate at this time. If our agreement with Nabi were
terminated for any reason, it may be difficult or impossible for
us to find alternative manufacturers on commercially acceptable
terms, if at all. Because Nabi is developing a product to
prevent
S. aureus
and a staphylococcal vaccine, we
consider Nabi to be a competitor.
We also used a contract manufacturer to produce
clinical trial materials for Aurexis for use in our Phase I
and II clinical trials. We may contract with a different
contract manufacturer capable of producing Phase III
clinical trial material, and if Aurexis is approved for sale,
commercial quantities. A change in contract manufacturers may
require further clinical trials for Aurexis. We currently have
not entered into any arrangement with a contract manufacturer to
produce Phase III clinical trial material for Aurexis. We
cannot assure you that we will be able to enter into an
agreement with another suitable contract manufacturer for
Aurexis on commercially acceptable terms, if at all, or in a
time-frame that does not delay the clinical development of
Aurexis.
Competition
Our industry is highly competitive and
characterized by rapid technological change. Significant
competitive factors in our industry include, among others,
product efficacy and safety; the timing and scope of regulatory
approvals; the government reimbursement rates for and the
average selling price of products; the availability of raw
materials and qualified manufacturing capacity; manufacturing
costs; intellectual property and patent rights and their
protection; and sales and marketing capabilities.
Any product candidates that we successfully
develop that are approved for sale by the FDA or similar
regulatory authorities in other countries may compete with
existing products and products that may become available in the
future. Many organizations, including large pharmaceutical and
biopharmaceutical companies, such as Cubist Pharmaceuticals,
Inc. and Vicuron Pharmaceuticals, Inc., as well as academic and
research organizations and government agencies, continue to
pursue the research and development of novel anti-infective
therapies that target staphylococcal as well as other bacterial
and fungal organisms. Many of these organizations have more
substantial capital resources than we have, and greater
capabilities and experience than we do in basic research,
conducting preclinical studies and clinical trials, regulatory
affairs, manufacturing, marketing and sales. As a result, we may
face competitive disadvantages relative to these organizations
should they develop or commercialize a competitive product.
Therefore, we cannot assure you that any of our product
candidates, if approved for sale, will compete successfully and
that another organization will not succeed in developing and
commercializing products that render our technology or product
candidates non-competitive or obsolete.
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Currently, we are not aware of any antibody-based
products approved by the FDA specifically for the prevention or
treatment of
S. aureus,
CoNS, candida or
enterococcal infections in any patient population. However, we
are aware of several biopharmaceutical companies developing
antibody-based therapies directed towards the prevention or
treatment of bacterial, and particularly staphylococcal,
infections.
Nabi Biopharmaceuticals, Inc. is a publicly-held
biopharmaceutical company that discovers, develops, manufactures
and markets antibody-based therapies. Nabi has two
antibody-based product candidates currently in clinical trials
that are directed towards preventing or treating staphylococcal
infections. One of these product candidates has received Orphan
Drug status from the FDA. Nabi is our contract manufacturer for
Veronate.
Biosynexus, Inc. is a privately-held
biotechnology company that is developing a portfolio of
protein-based products, including monoclonal antibodies, enzymes
and peptides, for the prevention and treatment of staphylococcal
infections. NeuTec, PLC is a privately-held biopharmaceutical
company that is developing a portfolio of antibody-based
therapeutic products designed to treat life-threatening
infections, particularly hospital-acquired infections such as
MRSA and candida.
Intellectual Property Rights and
Patents
We are licensed under 23 issued United
States patents and 24 pending United States patent
applications, as well as corresponding international filings in
the field of MSCRAMMs generally. We own nine pending United
States patent applications and co-own one issued United States
patent and one pending United States patent application, as well
as corresponding international and foreign applications. The
issued United States patents expire between 2009 and 2018. In
addition to our patents and patent applications, we have
registered trademarks for Inhibitex, MSCRAMM, Aurexis and
Veronate.
Of the patents and applications in our portfolio,
the following pertain directly to Veronate and Aurexis:
•
Our United States patent describing Veronate is
    directed to purified human immunoglobulin antibodies to
S. aureus
and
S. epidermidis
MSCRAMM
    proteins. This patent will expire in 2018 if not extended. Our
    pending United States Veronate patent application includes
    claims directed to methods used in preparing Veronate.
    Corresponding international applications are pending.
•
Our United States SdrG patent is directed to the
    nucleic acid sequence, or DNA, encoding the SdrG protein of
S. epidermidis.
The SdrG MSCRAMM protein is used in
    identifying donors for the preparation of Veronate. This patent
    will expire in 2018 if not extended. Our pending United States
    SdrG patent applications are directed to the SdrG protein and
    related methods. Corresponding international applications are
    pending.
•
Our two United States ClfA patents relate to both
    Veronate and Aurexis and are directed to the DNA and the ClfA
    MSCRAMM protein of
S. aureus.
These patents will
    expire in 2016 and 2014, respectively, if not extended. The ClfA
    protein is used in the identification of donors for the
    preparation of Veronate and is also the protein recognized by
    the Aurexis monoclonal antibody. There are no corresponding
    foreign rights available for the ClfA protein and nucleic acid
    sequences. Our pending United States ClfA patent application
    claims antibodies to the ClfA protein. Our pending United States
    ClfA monoclonal antibody patent application relates to Aurexis
    and claims a composition of matter for a monoclonal antibody to
    the ClfA protein. Corresponding international applications are
    pending.
Patent rights and other proprietary rights are
important in our business and for the development of our product
candidates. We have sought, and intend to continue to seek
patent protection for our inventions and rely upon patents,
trade secrets, know-how, continuing technological innovations
and licensing
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opportunities to develop and maintain a
competitive advantage. In order to protect these rights,
know-how and trade secrets, we typically require employees,
consultants, collaborators and advisors to enter into
confidentiality agreements with us, generally stating that they
will not disclose any confidential information about us to third
parties for a certain period of time, and will otherwise not use
confidential information for anyone's benefit but ours.
The patent positions of companies like ours
involve complex legal and factual questions and, therefore,
their enforceability cannot be predicted with any certainty. Our
issued patents, those licensed to us, and those that may issue
to us in the future may be challenged, invalidated or
circumvented, and the rights granted thereunder may not provide
us with proprietary protection or competitive advantages against
competitors with similar technology. Furthermore, our
competitors may independently develop similar technologies or
duplicate any technology developed by us. Because of the
extensive time required for development, testing and regulatory
review of a potential product, it is possible that, before any
of our product candidates can be approved for sale and
commercialized, our relevant patent rights may expire or remain
in force for only a short period following commercialization.
Expiration of patents we own or license could adversely affect
our ability to protect future product development and,
consequently, our operating results and financial position.
We have filed two opposition proceedings with the
European Patent Office, or EPO, to revoke or substantially
narrow two patents issued to the Henry M. Jackson
Foundation for the Advancement of Military Medicine relating to
staphylococcal surface proteins. These patents have been
licensed to Biosynexus. In the first opposition, on
November 5, 2003 an oral proceeding took place in which the
EPO concluded that the patent was limited to a single claim
having no relevance to our products. The patentee announced
their intent to appeal the decision and, if an appeal is filed,
a decision is expected to occur in late 2006. No preliminary
recommendation has been issued in the second opposition
proceeding, which we anticipate will occur in late 2004. We
believe that we do not infringe the corresponding United States
patents, which have narrower claims than those issued in Europe.
In December 2003, we filed a Notice of Opposition
before the United States Patent and Trademark office opposing
the applications of Auxeris Therapeutics, Inc. to register
"Auxeris" as a trademark. In addition, we have
notified Auxeris of our intention to seek injunctive relief in
Federal court if it does not cease the use of the Auxeris name.
The grounds for opposition are that it is too similar to our
trademark "Aurexis," and both marks are intended to be
used for pharmaceutical products.
Licensing and Collaborative
Agreements
To date, we have entered into a number of license
and collaborative agreements with various institutions to obtain
intellectual property rights and patents relating to MSCRAMM
proteins and our product candidates. We have also entered into
an exclusive worldwide license and collaboration agreement with
Wyeth with respect to their use of our MSCRAMM protein
intellectual property to develop human staphylococcal vaccines.
Our strategy includes possible future in-licensing of
intellectual property or product candidates, as well as
collaborations with companies to develop, co-develop, market and
sell our product candidates in markets outside of the United
States.
Texas A&M University Health Science
Center
We have an exclusive royalty-bearing license from
the Texas A&M University System, or Texas A&M, for an
issued United States patent with claims directed toward the SdrG
nucleic acid sequence and related pending United States
divisional applications directed toward the SdrG protein and
antibodies to it, as well as corresponding foreign applications.
SdrG is the MSCRAMM protein that we target on
S. epidermidis
and is used in the manufacture of
Veronate. We also have an exclusive royalty-bearing license to
Texas A&M's rights in an allowed United States patent
application and foreign counterparts directed to the methods we
use for screening and selecting donor plasma using MSCRAMMs for
both SdrG and ClfA in the manufacture of Veronate. BioResearch
Ireland/ Trinity College Dublin is a co-owner of these patents
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and applications. All of these licenses are
subject to certain research rights retained by Texas A&M.
Texas A&M may terminate the license if we fail to use
commercially reasonable efforts to bring our products candidates
to market. We may terminate the license without cause upon
60 days written notice. Otherwise, this agreement will
terminate upon the expiration of all of the licensed patents,
the earliest of which relates to the SdrG patent which will
expire, if not extended, in 2018. We have agreed to pay Texas
A&M a royalty based on net sales for any product sold
utilizing these licenses.
In connection with these license agreements, in
1995 we entered into the first of several cooperative research
agreements with Texas A&M. Pursuant to these agreements, we
have the exclusive worldwide right to any discoveries resulting
from this collaboration, subject to research rights retained by
Texas A&M and certain rights of the United States
government. We also have a right of first refusal to acquire the
rights to and file patents on discoveries made by Texas A&M
in the field of MSCRAMM proteins that are made outside of the
scope of the collaboration. Texas A&M is entitled to a
royalty on revenues that we receive for products that
incorporate technology developed through the collaboration. We
may terminate this collaboration upon 90 days written
notice if the work is not performed satisfactorily.
BioResearch Ireland (BRI)/Trinity College
Dublin
We have obtained a royalty-bearing license from
BioResearch Ireland, or BRI, under the United States SdrG
patents and related applications licensed to us from Texas
A&M, as described above. Scientists from both Texas A&M
and BRI are co-inventors on these applications. We have an
exclusive royalty-bearing license from BRI under two issued
United States patents and a pending United States patent
application directed to the ClfA nucleic acid and protein. The
license also covers pending international applications relating
to antibodies to ClfA. BRI may terminate the license if we fail
to use commercially reasonable efforts to bring one or more
products that use the licensed technology to market. Otherwise,
this license will terminate upon the expiration of the licensed
patents. The earliest of the United States ClfA patents will
expire in 2014, if not extended. Since 1996, we have entered
into several cooperative research agreements with BRI for
technologies relating to staphylococcal surface proteins. We
have exclusive worldwide rights to, and are entitled to file
patents on, any discoveries resulting from this collaboration.
All licenses from BRI are subject to research rights retained by
BRI. BRI is entitled to a royalty on any revenues that we
receive from the sale of products that incorporate technology
developed through the collaborative arrangement. We may
terminate the collaboration agreement on two months written
notice. BRI may terminate in the event of an uncured material
breach by us.
Other Licensing Agreements
In August 2001, we entered into a license
and development collaboration agreement with Wyeth for the
development of human staphylococcal vaccines. In connection with
this agreement, we received an up-front license fee of
$1.5 million. We also receive annual research support
payments and if specified milestones are achieved, additional
milestone payments. Under the terms of this agreement, we
granted Wyeth an exclusive worldwide license to our MSCRAMM
protein intellectual property with respect to human vaccines
against staphylococcal organisms. The development, manufacture
and sale of any products resulting from the collaboration will
be the responsibility of Wyeth. We are entitled to royalties on
net sales of licensed products manufactured, sold or distributed
by Wyeth. We may terminate this agreement if Wyeth fails to use
reasonable commercial efforts to bring related products to
market. Wyeth may terminate the agreement without cause on six
months notice. Otherwise, this agreement will terminate upon the
expiration of all of the licensed patents, the first of which
expires in 2009.
In November 2001, we entered into a research
evaluation and worldwide non-exclusive license agreement with
Lonza Biologics for intellectual property and materials relating
to the expression of recombinant monoclonal antibodies to
bacterial surface proteins for use in the manufacture of
Aurexis. Under the terms of the agreement, we agreed to pay an
annual fee and a royalty on the net selling price of any
products that we market that utilize this technology. We may
terminate the agreement upon 60 days notice. The agreement
terminates upon the expiration of the last valid patent or
15 years, whichever is longer.
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In June 2003, we obtained a non-exclusive,
worldwide royalty-bearing license from Genentech for a patent,
commonly known as the Cabilly patent, relating to the production
of monoclonal antibodies for use in the manufacture of Aurexis.
Under the agreement, we paid Genentech an up-front license fee
and we are further obligated to pay a milestone payment due upon
the approval of Aurexis and a royalty on the sale of any of our
products that utilize the underlying technology. We may
terminate this agreement without cause upon 90 days notice.
Otherwise, this license will terminate upon the expiration of
the patent, which will occur in 2018 if not extended.
In July 2003, we also obtained a
non-exclusive, worldwide royalty-bearing license from the
University of Iowa for patents, commonly known as the CMV
promoter patents, or Stinski patents, relating to the expression
of recombinant proteins used in the manufacture of Aurexis.
Under this agreement, we paid the University of Iowa an up-front
license fee and we are further obligated to pay a royalty on the
sale of any of our products that utilize the underlying
technology. We may terminate this agreement at any time.
Otherwise, this license will terminate upon the expiration of
the two in-licensed patents, which will be 2009 and 2012,
respectively.
In March 2004, we obtained a non-exclusive,
worldwide royalty-bearing license from the National Institutes
of Health for patent applications relating to technology used in
the humanization of monoclonal antibodies. Under this agreement
we paid an up-front license fee, and we agreed to pay a minimum
annual royalty, royalties on sales of our products that would
otherwise infringe any patent that may issue from the pending
applications, and milestone payments. We may terminate this
agreement upon 60 days notice. This agreement terminates
upon the expiration of the patent, which will occur in 2011 if
not extended.
Pharmaceutical Pricing and
Reimbursement
In both the United States and foreign markets,
the revenue associated with our products will depend in part
upon the availability of reimbursement from third-party payors.
Third-party payors include various government health authorities
such as The Centers for Medicare and Medicaid Services, or CMS,
which administers Medicare and Medicaid, managed-care providers,
private health insurers and other organizations. Third-party
payors are increasingly challenging the price and examining the
cost-effectiveness of medical products and services, including
pharmaceuticals. In addition, significant uncertainty exists as
to the reimbursement status of newly approved pharmaceutical
products. Our products may ultimately not be considered
cost-effective, and adequate third-party reimbursement may not
be available to enable us to maintain price levels sufficient to
support a profitable operation or generate an appropriate return
on our investment in product development.
The United States and foreign governments
periodically propose and pass legislation designed to reduce the
cost of healthcare. Accordingly, legislation and regulations
affecting the pricing of pharmaceuticals may change before our
product candidates are approved for marketing. Adoption of new
legislation could further limit reimbursement for
pharmaceuticals. In addition, an increasing emphasis on managed
care in the United States has and will continue to increase the
pressure on pharmaceutical pricing. The marketability of our
products may suffer if the government and other third-party
payors fail to provide adequate coverage and reimbursement rates
for our product candidates.
We intend to obtain coverage and reimbursement
for our products from these third-party payors, however we
cannot assure you that we will be successful in obtaining
adequate coverage, reimbursement, or pricing, if any.
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Regulatory Matters
Overview
The preclinical and clinical testing,
manufacture, labeling, storage, distribution, promotion, sale
and export, reporting and record-keeping of our product
candidates are subject to extensive regulation by numerous
governmental authorities in the United States, principally the
FDA and corresponding state agencies, and regulatory agencies in
foreign countries.
Non-compliance with applicable regulatory
requirements can result in, among other things, fines,
injunctions, seizure of products, total or partial suspension of
product manufacturing and marketing, failure of the government
to grant approval, withdrawal of marketing approvals and
criminal prosecution.
United States Regulatory
Approval
Pursuant to FDA regulations, we are required to
undertake a long and rigorous process before any of our product
candidates may be marketed or sold in the United States. This
regulatory process typically includes the following general
steps:
•
the performance of satisfactory preclinical
    laboratory and animal studies under the FDA's Good
    Laboratory Practices regulation;
•
the development and demonstration of
    manufacturing processes which conform to FDA-mandated current
    Good Manufacturing Practices, or cGMPs;
•
the submission and acceptance of an
    Investigational New Drug application, or IND, which must become
    effective before human clinical trials may begin in the United
    States;
•
obtaining the approval of Institutional Review
    Boards, or IRBs, at each site where we plan to conduct a
    clinical trial to protect the welfare and rights of human
    subjects in clinical trials;
•
the successful completion of a series of adequate
    and well-controlled human clinical trials to establish the
    safety and efficacy of any product candidate for its intended
    use; and
•
the submission to, and review and approval by the
    FDA of, a Biologic License Application, or BLA, or for
    non-biologic pharmaceutical products, a New Drug Application, or
    NDA, prior to any commercial sale or shipment of a product.
This process requires a substantial amount of
time and financial resources. We cannot assure you or be certain
that this process will result in the granting of an approval for
any of our product candidates on a timely basis, if at all. In
2002, the FDA announced a reorganization that has resulted in
the shift of the oversight and approval process for certain
therapeutic biologic drugs and the related staff from the Center
for Biologic Evaluation and Research, or CBER, to the Center for
Drug Evaluation and Research, or CDER. Our lead drug candidate,
Veronate, is being regulated through CBER, while Aurexis, and
any other monoclonal product candidates that we may develop, are
being regulated as drug products through CDER.
Preclinical Testing
Preclinical tests generally include laboratory
evaluation of a product candidate, its chemistry, formulation,
stability and toxicity, as well as certain animal studies to
assess its potential safety and efficacy. We must submit the
results of these preclinical tests, together with manufacturing
information, analytical data and the clinical trial protocol, to
the FDA as part of an IND, which must become effective before we
may begin any human clinical trials. An IND automatically
becomes effective 30 days after receipt by the FDA, unless
the FDA, within this 30-day time period, raises concerns or
questions about the intended
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conduct of the trials and imposes what is
referred to as a clinical hold. If one or more of our products
is placed on clinical hold, we would be required to resolve any
outstanding issues to the satisfaction of the FDA before we
could begin clinical trials. Preclinical studies generally take
several years to complete, and there is no guarantee that an IND
based on those studies will become effective, allowing clinical
testing to begin.
In addition to FDA review of an IND, each medical
site that desires to participate in a proposed clinical trial
must have the clinical protocol reviewed and approved by an
independent IRB. The IRB considers, among other things, ethical
factors, and the selection and safety of human subjects.
Clinical trials must be conducted in accordance with the
FDA's Good Clinical Practices requirements.
Clinical Trials
Human clinical trials are typically conducted in
three sequential phases:
Phase I.
In
Phase I clinical trials, a product candidate is typically
introduced either into healthy human subjects, or patients with
the medical condition for which the new drug is intended to be
used. The main purpose of the trial is to assess a product
candidate's safety and the ability of the human body to
tolerate the product candidate. Absorption, metabolism,
distribution and pharmacokinetic trials are also generally
performed at this stage. Phase I clinical trials generally
include less than 50 subjects or patients.
Phase II.
During this phase, a product candidate is studied in an
exploratory trial or trials in a limited number of patients with
the disease or medical condition for which it is intended to be
used in order to (i) further identify any possible adverse
side effects and safety risks, (ii) assess the preliminary
or potential efficacy of the product candidate for specific
targeted diseases or medical conditions, and (iii) assess
dosage tolerance and determine the optimal dose for a
Phase III trial. Phase II trials generally involve 20
to 500 patients, who are typically divided into one or more
groups that will get one of several dose levels of the product
candidate and a control group that will receive a placebo.
Phase III.
If
and when one or more Phase II trials demonstrate that a
specific dose or range of doses of a product candidate is likely
to be effective and has an acceptable safety profile, one or
more Phase III trials are generally undertaken to
demonstrate clinical efficacy and to further test for safety in
an expanded patient population with the goal of evaluating the
overall risk-benefit relationship of the product candidate.
Phase III trials will generally be designed to reach a
specific goal or endpoint, the achievement of which is intended
to demonstrate the product candidate's clinical efficacy.
The successful demonstration of clinical efficacy and safety in
one or more Phase III trials is typically a prerequisite to
the filing of a BLA or a NDA for a product candidate.
We cannot be certain that we will successfully
complete the Phase I, Phase II or Phase III
testing of our product candidates within any specific time
period, if at all. Furthermore, we, the FDA or an IRB may
suspend or terminate a clinical trial at any time on various
grounds, including a finding that the subjects or patients are
being exposed to an unacceptable health risk.
Biologic License Applications
Once clinical trials have been completed, we must
submit a BLA to the FDA in order to obtain approval for the
marketing and sale of a product candidate. Among many other
items, a BLA typically includes a description of the
manufacturing process and quality control methods, as well as
the results of preclinical and toxicology studies and clinical
trials. The FDA must approve the BLA prior to the marketing and
sale of the related product. The FDA may deny a BLA if all
applicable regulatory criteria are not satisfied or may require
additional data, including clinical, toxicology, safety or
manufacturing data. It can take several years for the FDA to
approve a BLA once it is submitted, and the actual time required
for any product candidate may vary substantially, depending upon
the nature, complexity and novelty of the product candidate. We
cannot be certain that the FDA, or any other similar regulatory
agency in other countries,
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will grant approval for any of our product
candidates on a timely basis, if at all. Success in preclinical
or early-stage clinical trials does not assure success in later
stage clinical trials. Data obtained from preclinical and
clinical activities is not always conclusive and may be
susceptible to varying interpretations that could delay, limit
or prevent regulatory approval. Even if such regulatory approval
is granted, additional post-marketing, or Phase IV clinical
trials, may be required that would add additional product
development costs beyond those incurred through Phase III
testing.
Post-Approval Regulations
Even if a product candidate receives regulatory
approval, the approval is typically limited to specific clinical
indications. Further, even after regulatory approval is
obtained, subsequent discovery of previously unknown problems
with a product may result in restrictions on its use or even
complete withdrawal of the product from the market.
Any FDA-approved products manufactured or
distributed by us are subject to continuing regulation by the
FDA, including record-keeping requirements and reporting of
adverse events or experiences. Further, drug manufacturers and
their subcontractors are required to register their
establishments with the FDA and state agencies, and are subject
to periodic inspections by the FDA and state agencies for
compliance with cGMP, which impose rigorous procedural and
documentation requirements upon us and our contract
manufacturers. Manufacturers of biologics must also comply with
the FDA's general biologic standards. We cannot be certain
that we, or our present or future contract manufacturers or
suppliers, will be able to comply with cGMP regulations and
other FDA regulatory requirements. Failure to comply with these
requirements may result in, among other things, total or partial
suspension of production activities, failure of the FDA to grant
approval for marketing, and withdrawal, suspension, or
revocation of marketing approvals.
If the FDA approves one or more of our product
candidates, we and our contract manufacturers must provide
certain updated safety and efficacy information. Product
changes, as well as certain changes in the manufacturing process
or facilities where the manufacturing occurs or other
post-approval changes may necessitate additional FDA review and
approval.
The labeling, advertising, promotion, marketing
and distribution of a drug or biologic product also must be in
compliance with FDA and Federal Trade Commission, or FTC,
requirements which include, among others, standards and
regulations for direct-to-consumer advertising, off-label
promotion, industry sponsored scientific and educational
activities, and promotional activities involving the Internet.
The FDA and FTC have very broad enforcement authority, and
failure to abide by these regulations can result in penalties,
including the issuance of a Warning Letter directing the company
to correct deviations from regulatory standards and enforcement
actions that can include seizures, fines, injunctions and
criminal prosecution.
The FDA's policies may change and additional
government regulations may be enacted which could prevent or
delay regulatory approval of our product candidates. Moreover,
increased attention to the containment of health care costs in
the United States and in foreign markets could result in new
government regulations that could have a material adverse effect
on our business. We cannot predict the likelihood, nature or
extent of adverse governmental regulation that might arise from
future legislative or administrative action, either in the
United States or abroad.
Orphan Drug and Fast Track Status
Veronate, our lead product candidate, has been
designated Fast Track status as provided for under various FDA
regulations. Veronate has also been designated as an Orphan Drug
by the FDA for the reduction of nosocomial bacteremia caused by
staphylococci in VLBW infants. If our other product candidates
meet the criteria, we may also apply for Orphan Drug and/or Fast
Track status for such product candidates.
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The FDA may grant Orphan Drug status to drugs
intended to treat a "rare disease or condition," which
is generally a disease or condition that affects fewer than
200,000 individuals in the United States. If and when the FDA
grants Orphan Drug status, the generic name and trade name of
the therapeutic agent and its potential orphan use are disclosed
publicly by the FDA. Aside from guidance concerning the
non-clinical laboratory studies and clinical investigations
necessary for approval of the BLA, Orphan Drug status does not
convey any advantage in, or shorten the duration of, the
regulatory review and approval process. However, a product that
has been designated as an Orphan Drug that subsequently receives
FDA approval for the indication for which it has received such
designation is entitled to Orphan Drug exclusivity, which means
the FDA may not approve any other applications to market the
same drug for the same indication, except in very limited
circumstances, for seven years from the date of FDA approval.
Orphan Drug status may also provide certain tax benefits.
The FDA has also developed "Fast Track"
policies, which provide for the potential for expedited review
of a BLA. However, there is no assurance that the FDA will, in
fact, accelerate the review process for a Fast Track product
candidate. Fast Track status is provided only for those new and
novel therapies that are intended to treat persons with
life-threatening and severely debilitating diseases, where there
is a defined unmet medical need, especially where no
satisfactory alternative therapy exists or the new therapy is
significantly superior to alternative therapies. During the
development of product candidates that qualify for this status,
the FDA may expedite consultations and reviews of these
experimental therapies. Further, an accelerated approval process
is potentially available to product candidates that have been
studied for their safety and effectiveness in treating serious
or life-threatening illnesses. The FDA can base approval of a
marketing application for a Fast Track product on an effect on a
clinical endpoint, or on a surrogate endpoint that is reasonably
likely to predict clinical benefit. The FDA may condition the
approval of an application for certain Fast Track products on
additional post-approval studies to validate the surrogate
endpoint or confirm the effect on the clinical endpoint. Fast
Track status also provides for the potential for a product
candidate to have a "Priority Review." A Priority
Review allows for portions of the BLA to be submitted to the FDA
for review prior to the completion of the entire application,
which could result in a reduction in the length of time it would
otherwise take the FDA to complete its review of the BLA.
Fast Track status may be revoked by the FDA at
any time if the clinical results of a trial fail to continue to
support the assertion that the respective product candidate has
the potential to address an unmet medical need.
Foreign Regulatory Approval
Outside of the United States, our ability to
market our product candidates will also be contingent upon us
receiving marketing authorizations from the appropriate foreign
regulatory authorities whether or not FDA approval has been
obtained. The foreign regulatory approval process in most
industrialized countries generally includes risks that are
similar with the FDA approval process we have described herein.
The requirements governing conduct of clinical trials and
marketing authorizations, and the time required to obtain
requisite approvals may vary widely from country to country and
differ from that required for FDA approval.
Europe
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. This procedure is currently mandatory for products
developed by means of a biotechnological process including
monoclonal antibodies, such as Aurexis and our other monoclonal
products that are being developed, and optional for
plasma-derived biological products, such as Veronate, new active
substances and other "innovative medicinal products with
novel characteristics." 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 applications and
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assessment report, each member state must decide
whether to recognize approval. The mutual recognition process
results in separate national marketing authorizations in the
reference member state and each concerned member state.
With respect to Veronate, and any other product
candidates for which we are entitled to choose, 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.
Employees
As of December 31, 2003, we had
62 full-time employees, 52 of whom were engaged in research
and development and 10 of whom were engaged in administration,
finance and marketing. All of our employees have entered into
non-disclosure agreements with us regarding our intellectual
property, trade secrets and other confidential information. None
of our employees is represented by a labor union or covered by a
collective bargaining agreement, nor have we experienced any
work stoppages. We believe that we maintain satisfactory
relations with our employees.
Facilities
Our offices and laboratory facilities are
currently located in two separate leased properties in
Alpharetta, Georgia, a northern suburb of Atlanta. We lease our
office space, which is approximately 13,500 square feet,
under a lease which expires in March 2004. We expect to enter
into a new lease for this office space with a term ending in
June 2005. We lease our laboratory facility, which is
approximately 12,500 square feet, under a separate
sub-lease which expires in December 2005. In December 2003, we
entered into an agreement to lease a 52,000 square foot
facility in Alpharetta, Georgia to be built to our
specifications where we intend to relocate both of our existing
facilities. Until March 30, 2004, we may terminate this
agreement at any time provided that we reimburse the developer
for any out-of-pocket costs it incurs through the date of
termination, up to $325,000. We anticipate that we will occupy
this new facility in the second or third quarter of 2005, at
which time we expect that our lease obligations for such
facility will approximate $1.0 million per annum for the
lease term of ten years.
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Legal Proceedings
In January 2003, Biosynexus commenced an
action against us in the Superior Court of Fulton County,
Georgia. The suit seeks injunctive relief and financial damages
of $10.0 million on each of the three claims of
(i) obtaining, (ii) converting and
(iii) benefiting from alleged trade secrets, which we
purportedly received through a large, nationally recognized
third-party contract research organization.
In July 2003, the court denied
Biosynexus' request for an interlocutory injunction. The
court's ruling also stated that we made a preliminary
showing that we did not misappropriate any Biosynexus
information; that we are not using the information at issue;
that our clinical trial protocol and approach to reporting
adverse events, which were the alleged trade secrets, are
substantially different than Biosynexus'; and that the
alleged trade secrets are in fact not trade secrets but well
known, widely-used and widely-reported concepts as applied to
premature babies in a NICU. The court's ruling also
indicated that Biosynexus had not shown a substantial likelihood
that it will ultimately prevail on the merits of its case at
trial. Following this ruling, we notified Biosynexus, and its
attorneys, of our intent to pursue an abusive litigation claim,
as provided for under Georgia law, against Biosynexus to seek
full recovery of all legal fees and expenses related to the suit
if they did not drop such claim within 30 days. In
August 2003, Biosynexus filed notice in the Superior Court
of Fulton County of its intent to appeal the court's
ruling. Our motion for summary judgment filed in
August 2003 has been stayed pending the appeal to the
Georgia Supreme Court. We can provide no assurance that the
appeal filed by Biosynexus will not be successful or that we
will not be subject to similar suits in the future.
Otherwise, we are not a party to or engaged in
any material legal proceedings.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth information
concerning our executive officers and directors as of
December 31, 2003:
Name
Age
Position
William D. Johnston, Ph.D.
59
President and Chief Executive Officer; Director
Seth V. Hetherington, M.D.
51
Vice President, Clinical Development and Chief
    Medical Officer
Joseph M. Patti, M.S.P.H., Ph.D.
39
Vice President, Preclinical Development and Chief
    Scientific Officer; Director
Russell H. Plumb
44
Vice President, Finance and Administration and
    Chief Financial Officer
Robert T. Schweiger
58
Vice President, Business Development
David M. Wonnacott, Ph.D.
57
Vice President, Quality and Regulatory Affairs
Michael A. Henos
(1)
54
Chairman of the Board of Directors
M. James Barrett, Ph.D
(1)(3)
61
Director
Carl E. Brooks
(1)(3)
66
Director
J. Douglas Eplett, M.D
(2)
44
Director
Russell M. Medford, M.D., Ph.D
(2)
49
Director
Arda M. Minocherhomjee. Ph.D.
(1)(2)
50
Director
Marc L. Preminger
(2)
54
Director
Louis W. Sullivan, M.D.
(3)
70
Director
(1)
Member of Compensation Committee.
(2)
Member of Audit Committee.
(3)
Member of the Nominating and Corporate Governance
    Committee.
William D.
Johnston, Ph.D.
has served as
our President and Chief Executive Officer and a member of our
board of directors since 1997. From 1991 to 1997,
Dr. Johnston was Vice President and General Manager of the
Gene Therapy Business Unit of Baxter Healthcare Corporation.
From 1975 to 1991, Dr. Johnston held various executive
positions at Baxter Healthcare Corporation, including Vice
President of Applied Sciences, which was the central research
and development unit of Baxter. Dr. Johnston currently
serves as a director of ACTx, a privately held medical device
company. Dr. Johnston is also a member of both the Emerging
Companies Section Governing Body of the Biotechnology
Industry Organization and its executive committee. Since 1999,
Dr. Johnston has served on the board of the Georgia
Biomedical Partnership; additionally, he is the vice-chairman
for the bioscience council executive committee for the Metro
Atlanta Chamber of Commerce, and is an advisory member to the
board of directors for the Georgia Department of Economic
Development. Dr. Johnston received both a B.S. in Chemistry
and a Ph.D. in Chemistry from Brigham Young University.
Seth V.
Hetherington, M.D.
has served
as our Vice President, Clinical Development and Chief Medical
Officer since June 2002. From 1998 to June 2002,
Dr. Hetherington directed clinical programs in infectious
diseases at GlaxoSmithKline. From 1984 to 2001, he held clinical
appointments at various institutions, including the University
of North Carolina, University of Tennessee, St. Jude
Children's Research Hospital in Memphis and Albany Medical
College. Dr. Hetherington received a B.S. from Yale
University and a M.D. from the University of North Carolina in
Chapel Hill. Dr. Hetherington is board certified in
pediatrics and infectious diseases.
Joseph M. Patti,
M.S.P.H., Ph.D.
is a
co-founder of Inhibitex, Inc. and has served as our Vice
President, Preclinical Development and Chief Scientific Officer
since April 1998 and as a member of our board of directors since
July 1997. From 1994 to 1998, Dr. Patti was an
assistant professor at Texas A&M's Institute of
Biosciences and Technology. From 1996 to 1998, he served on the
faculty at the University of
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Texas Health Science Center Graduate School of
Biomedical Sciences. He currently holds an adjunct faculty
position in the biology department at Georgia State University.
Dr. Patti received a B.S. in Microbiology from the
University of Pittsburgh, a M.S.P.H. from the University of
Miami, School of Medicine and a Ph.D. in Biochemistry from the
University of Alabama at Birmingham.
Russell H.
Plumb
has served as our Vice
President, Finance and Administration and Chief Financial
Officer since August 2000. From December 1999 to
July 2000, Mr. Plumb served as Chief Financial Officer
of Emory Vision, a healthcare company. From 1994 to
November 1999, he served as Chief Financial Officer and
Vice President, Finance of Serologicals Corporation, a
publicly-held biopharmaceutical company. Mr. Plumb received
both a B. Comm. and a M.B.A. from the University of Toronto.
Mr. Plumb has received designations as a certified public
accountant in Michigan and Georgia.
Robert T.
Schweiger
has served as our Vice
President, Business Development since May 2001. From
March 1999 to April 2001, Mr. Schweiger was Vice
President, Business Development and Planning at UCB Pharma, a
Belgian multinational pharmaceutical company. From
August 1998 to February 1999, he was a consultant to
various multinational pharmaceutical companies. Prior to that,
Mr. Schweiger held various executive level positions with
several large pharmaceutical companies, including 18 years
with SmithKline Pharmaceuticals. Mr. Schweiger received a
B.S. in Finance from Rider College and a M.B.A. from St.
John's University Graduate School of Business.
David M.
Wonnacott, Ph.D.
has served
as our Vice President, Quality and Regulatory Affairs since
May 2002. From May 2000 to March 2002,
Mr. Wonnacott served as the Vice President of Regulatory
Affairs at Aviron, Inc., a biopharmaceutical company. From 1988
to February 2000, he held several senior regulatory
positions at Merck & Co. Inc. Prior to that, he held a
quality operations position at Eastman Pharmaceutical, a
division of Eastman Kodak. Dr. Wonnacott received a B.S. in
Chemistry from Brigham Young University and a Ph.D. in
Biochemistry from Utah State University.
Michael A.
Henos
has served as a member of
our board of directors since July 1997 and as chairman of
our board of directors since April 2001. Mr. Henos
also served as chairman of our board of directors from
July 1997 to January 2000. Since 1991, Mr. Henos
has served as Managing General Partner of Alliance Technology
Ventures, L.P., a venture capital firm. From 1991 to 2001,
Mr. Henos served as a General Partner of Aspen Ventures, a
venture capital partnership. He currently serves as chairman of
the board of directors of AtheroGenics, Inc., a publicly-held
biopharmaceutical company. He is also a member of the board of
directors of several privately-held biotechnology companies:
Neuronyx, Inc., Genoptix, Inc., GlycoMimetics, Inc., Sensys
Medical, Inc.; as well as ValuBond, Inc., a company providing
services to the brokerage industry. Mr. Henos received a
B.S. in Economics and a M.B.A. in Finance from the University of
California, Los Angeles.
M. James
Barrett, Ph.D.
has served as
a member of our board of directors since February 2002.
Since August 2001, Dr. Barrett has served as a general
partner of NEA Partners 10, Limited Partnership, the general
partner of New Enterprise Associates 10, Limited
Partnership, a venture capital fund. From January 1997 to
August 2001, he served as Chairman and Chief Executive
Officer of Sensors for Medicine and Science, Inc., a medical
device company, which he founded in 1997 and continues to serve
as the chairman of its board of directors. Dr. Barrett also
serves on the boards of directors of two publicly-held
biopharmaceutical companies: MedImmune, Inc. and Pharmion, Inc.,
as well as GlycoMimetics, Inc., Iomai Corporation, Peptimmune
Inc. and Targacept, Inc., which are privately-held life science
companies. Dr. Barrett received a B.S. in Chemistry from
Boston College, a Ph.D. in Biochemistry from the University of
Tennessee and a M.B.A. from the University of Santa Clara.
Carl E.
Brooks
has served as a member of
our board of directors since May 1999 and served as
chairman from January 2000 to April 2001.
Mr. Brooks is president of Brooks & Associates, a
consulting firm for the biopharmaceutical and blood banking
industries, which he founded in 1996. He previously served as
the president of the Hyland division of Baxter Healthcare
Corporation. He also serves as chairman of the
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board of directors of Bluebird Bioscience, Inc.,
a generic pharmaceuticals company and on the board of directors
of Quantumcor, Inc., a cardiovascular device company, both of
which are privately-held. Mr. Brooks received a B.S. in
Chemical Engineering from the Ohio State University.
J. Douglas
Eplett, M.D.
has served as a
member of our board of directors since February 2002. Since
September 2000, Dr. Eplett has served as a general
partner of Essex Woodlands Health Ventures, a venture capital
firm. From July 2000 to August 2000, he worked as a
private consultant. From May 1999 to June 2000, he
served as a general partner of Pacific Horizon Ventures, LLC, a
venture capital firm. From August 1998 to March 1999,
he served as a consultant for Vanguard Venture Partners, a
venture capital firm. Dr. Eplett serves on the boards of
directors of Thermage, Inc., Walnut Technologies, Inc. and St.
Francis Medical Technologies, Inc., which are privately-held
medical device companies. He received a B.A. from the University
of Vermont, a M.D. from Tufts University and a M.B.A. from
Stanford University.
Russell M.
Medford, M.D., Ph.D.
has
served as a member of our board of directors since July 1997.
Since 1995, Dr. Medford has served as the President and
Chief Executive Officer of AtheroGenics, Inc., a publicly-held
biopharmaceutical company, and currently serves as a member of
its board of directors. He also serves on the board of directors
of SELSA (Southeastern Life Sciences Association), on the
Biotechnology Industry Organization's Emerging Companies
Section Governing Body, the Biosciences Executive Committee
for the Metro Atlanta Chamber of Commerce and is vice chairman
of the board of directors of the Georgia Biomedical Partnership.
He received a B.A. from Cornell University, and a M.D. and a
Ph.D. in Molecular and Cell Biology from the Albert Einstein
College of Medicine. Dr. Medford completed his residency in
internal medicine at the Beth Israel Hospital, Boston,
Massachusetts, and his fellowship in cardiology at the Brigham
and Women's Hospital, Boston, Massachusetts, and Harvard
Medical School, where he also served on the faculty of medicine.
Arda M.
Minocherhomjee, Ph.D.
has
served as a member of our board of directors since June 2000.
Dr. Minocherhomjee joined William Blair & Co. as a
senior healthcare analyst in 1992, since 1998 has served as a
managing director of William Blair Capital Partners, LLC, a
venture capital firm and is currently a principal of William
Blair & Co. He also serves on the board of directors of
several privately-held companies: CryoCor, Inc., Cypress Medical
Products, LP and NuVasive Inc., which are medical device
companies, and Point Biomedical Corporation, Zycos Inc., and
Targagen, Inc., which are pharmaceutical companies. He received
a M.Sc. in Pharmacology from the University of Toronto and a
Ph.D. and a M.B.A. from the University of British Columbia.
Dr. Minocherhomjee has indicated that he intends to resign
from our board of directors shortly after the closing of this
offering.
Marc L.
Preminger
has served as a member
of our board of directors since August 2003. From 1977 to
September 2002, Mr. Preminger served in various capacities
with CIGNA Healthcare, a healthcare insurance company, the most
recent of which was as its Senior Vice President and Chief
Financial Officer. He has been retired since September 2002. He
also serves on the board of directors of Gifts of Love, a
not-for-profit social services agency. Mr. Preminger
received a B.S. in Economics from Lafayette College and a
Masters of Actuarial Science from Georgia State University.
Louis W.
Sullivan, M.D.
has served as
a member of our board of directors since August 2003.
Dr. Sullivan is the founding Dean, Director and President
Emeritus of the Morehouse School of Medicine. From 1993 until
his retirement in June 2002 and from 1981 to 1989,
Dr. Sullivan served as President of Morehouse School of
Medicine. From 1989 to 1993, he served as Secretary, United
States Department of Health and Human Services.
Dr. Sullivan serves on the boards of directors of 3M
Corporation, Bristol-Myers Squibb Company, CIGNA Corporation,
Equifax, Inc., Georgia-Pacific Corporation, Henry Schein and
United Therapeutics Corporation. He received a B.S. from
Morehouse College and a M.D. from Boston University.
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Composition of Our Board of
Directors
Several of our current directors were selected as
directors under voting agreements and provisions of our
certificate of incorporation that will automatically terminate
upon the closing of this offering. Immediately after the
completion of this offering based upon our amended and restated
certificate of incorporation, our board of directors will be
divided into three classes, each of whose members will serve for
a staggered term. At each annual meeting of stockholders, a
class of directors will be elected for a three-year term to
succeed the directors of the same class whose terms are then
expiring. The terms of the directors will expire upon the
election and qualification of successor directors at the annual
meeting of stockholders to be held during the years 2005 for the
Class I directors, 2006 for the Class II directors and
2007 for the Class III directors.
•
Our Class I directors will be Arda M.
    Minocherhomjee, J. Douglas Eplett and Russell M. Medford.
•
Our Class II directors will be Louis W.
    Sullivan, Carl E. Brooks and Joseph M. Patti.
•
Our Class III directors will be William D.
    Johnston, Michael A. Henos, Marc L. Preminger and M. James
    Barrett.
Our amended and restated certificate of
incorporation and by-laws provide that the number of our
directors shall be fixed from time to time by a resolution of
the majority of our board of directors. Any directorships
resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as
possible, each class will consist of one-third of the total
number of directors. Each officer serves at the discretion of
the board of directors and holds office until his successor is
elected and qualified or until his earlier resignation or
removal. There are no family relationships among any of our
directors or executive officers. The division of our board of
directors into three classes with staggered three-year terms may
delay or prevent a change of our management or a change in
control.
Director Compensation
Following the closing of this offering, our
directors who are not employees will receive an annual retainer
of $10,000 and an additional $2,000 for serving on a committee
of our board of directors. In addition to the foregoing $10,000
retainer, our chairman of the board, chairman of our audit
committee, chairman of our compensation committee and chairman
of our nominating and corporate governance committee will
receive additional annual retainers of $20,000, $7,500, $5,000
and $5,000, respectively. Our non-employee directors are also
eligible to participate in the 2004 Stock Incentive Plan,
pursuant to which upon their election to our board, they will be
entitled to an initial option grant to purchase
40,000 shares of common stock, as well as annual option
grants to purchase 12,000 shares of common stock; provided
that our chairman of the board is entitled to an annual option
grant to purchase 36,000 shares of common stock. See the
"Management—Employee Benefit Plans—2004 Stock
Incentive Plan" section for a further description of our
2004 Stock Incentive Plan. All of our non-employee directors are
reimbursed for out-of-pocket expenses incurred in attending
board and committee meetings.
Committees of the Board of Directors
Our board of directors has an audit committee, a
compensation committee and a nominating and corporate governance
committee, each of which will have the composition and
responsibilities described below. The board may also establish
other committees from time to time to assist in the discharge of
its responsibilities.
Audit
Committee.
Our audit committee
oversees our corporate accounting and financial reporting
process. Among other things, our audit committee monitors the
qualifications, independence and performance of the independent
auditors; determines the engagement and compensation of the
independent auditors;
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approves the retention of the independent
auditors to perform any proposed and permissible non-audit
services; reviews our financial statements; reviews our critical
accounting estimates; and discusses with management and the
independent auditors the results of the annual audit and the
review of our quarterly financial statements. Our audit
committee also reviews the effectiveness of internal controls
and the adequacy of our disclosure controls. In addition, our
audit committee maintains procedures for the receipt of
complaints and employee submissions of concerns regarding
accounting or auditing matters. Effective upon the closing of
this offering, the members of our audit committee will be
Mr. Preminger, chairman, and Drs. Eplett and Medford.
Mr. Preminger is our audit committee financial expert under
the SEC rule implementing Section 407 of the Sarbanes-Oxley
Act of 2002. We believe that the composition of our audit
committee meets the standards for independence under the current
applicable requirements of the Sarbanes-Oxley Act of 2002, the
Nasdaq National Market and SEC rules and regulations. Although
Dr. Medford is not independent (as such term is defined
under the rules of the Nasdaq National Market) due to the
relationship between AtheroGenics, Inc., of which
Dr. Medford is president and chief executive officer, as is
described under "Certain Relationships and Related Party
Transactions-Other Related Party Transactions," our board
of directors has determined, because of Dr. Medford's
experience as president and chief executive officer of a
publicly-traded biopharmaceutical company and his familiarity
with us and our business as one of our longest-standing board
members, that his membership on the audit committee is in our
best interests and the best interests of our stockholders, and
is therefore permitted under the rules of the Nasdaq National
Market. We intend that the functioning of our audit committee
will comply with the applicable requirements of the
Sarbanes-Oxley Act of 2002, the Nasdaq National Market and SEC
rules and regulations.
Compensation
Committee.
Our compensation
committee establishes, amends, reviews and approves our
compensation and benefit plans with respect to our officers and
employees, including reviewing the performance of and
determining individual elements of total compensation of the
Chief Executive Officer and other executive officers. The
compensation committee also determines annual retainer, meeting
fees, stock awards and other compensation for members of the
board of directors and will administer the issuance of stock
options and other awards under our equity incentive plans. The
current members of our compensation committee are
Dr. Minocherhomjee, chairman, Messrs. Henos and Brooks
and Dr. Barrett. We believe that the composition of our
compensation committee meets the standards for independence
under the current applicable requirements of the Sarbanes-Oxley
Act of 2002, the Nasdaq National Market and SEC rules and
regulations. We intend that the functioning of our compensation
committee will comply with the applicable requirements of the
Sarbanes-Oxley Act of 2002, the Nasdaq National Market and SEC
rules and regulations.
Nominating and Corporate Governance
Committee.
Our nominating and
corporate governance committee intends to develop and recommend
to the board of directors a set of corporate governance
principles and procedures applicable to the Company, identify
individuals qualified to become board members, determine the
director nominees for each annual meeting of the Company's
stockholders and ensure that the audit, compensation and
nominating and corporate governance committees of the board of
directors shall have the benefit of qualified and experienced
independent directors. The current members of our nominating and
corporate governance committee are Dr. Sullivan, chairman,
and Dr. Barrett and Mr. Brooks. We believe that the
composition of our nominating and corporate governance committee
will meet the standards for independence under the current
applicable requirements of the Sarbanes-Oxley Act of 2002, the
Nasdaq National Market and SEC rules and regulations. We intend
that the functioning of our nominating and corporate governance
committee will comply with the applicable requirements of the
Sarbanes-Oxley Act of 2002, the Nasdaq National Market and SEC
rules and regulations.
Compensation Committee Interlocks and Insider
Participation
None of our executive officers serves as a member
of the board of directors or compensation committee of any
entity that has one or more executive officers who serve on our
board or compensation committee. None of the members of our
compensation committee has ever been our employee.
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We lease office and laboratory facilities in
Alpharetta, Georgia from AtheroGenics, Inc. Michael A. Henos, a
member of our compensation committee, is the chairman of the
board of directors of AtheroGenics, Inc. This lease will expire
on December 31, 2005. Current monthly lease payments to
AtheroGenics pursuant to this lease are approximately $16,300.
In addition to these lease payments, we are also currently
paying AtheroGenics, Inc. $3,799 per month pursuant to a 7%
promissory note in connection with certain leasehold
improvements at our leased facility. As of December 31,
2003, the outstanding balance of the note was $84,852. The note
expires in December 2005. See "Certain Relationships and
Related Party Transactions—Stock Issuances" for
information regarding shares of our preferred stock issued to
entities affiliated with Alliance Technology Ventures, whose
managing partner is Michael A. Henos.
Clinical and Scientific Advisory
Board
We have a Clinical and Scientific Advisory Board,
the members of which include recognized scientific experts and
opinion leaders in the field of infectious diseases. This board
meets to assess our research and development programs, the
design and implementation of our clinical programs, our patent
and publication strategies, market opportunities, new
technologies relevant to our research and development programs
and specific scientific and technical issues relevant to our
business.
The current members of our Clinical and
Scientific Advisory Board are:
Name
Position
Institutional Affiliations
Magnus Höök, Ph.D.
Regents Professor, Director for Center of
    Extracellular Matrix Biology; co-founder of Inhibitex, Inc.
Texas A&M University System Health Science
    Center, Houston, TX
Arnold Bayer, M.D.
Associate Program Director Infectious Diseases
    and Professor of Medicine
UCLA School of Medicine, Torrance, CA
G. Ralph Corey, M.D.
Professor, Infectious Diseases and Program
    Director, Internal Medicine Residency Training Program
Duke University Medical Center, Durham, NC
Charles A. Dinarello, M.D.
Professor of Medicine
University of Colorado School of Medicine,
    Denver, CO
Timothy Foster, Ph.D.
Professor of Molecular Microbiology
Trinity College, Dublin, Ireland
Vance G. Fowler, Jr., M.D., M.H.S
Associate Professor, Division of Infectious
    Diseases, Department of Internal Medicine
Duke University Medical Center, Durham, NC
Norman Klinman, M.D., Ph.D.
Professor of Medicine
Scripps Research Institute, La Jolla, CA
Joseph M. Patti, M.S.P.H. Ph.D.
Vice President, Preclinical Development, Chief
    Scientific Officer and co-founder of Inhibitex, Inc.
Executive Compensation
The following table sets forth the total
compensation paid to or earned by our chief executive officer
and each of our four other most highly compensated executive
officers for the fiscal year ended December 31, 2003, who
were serving as executive officers on December 31, 2003 and
whose total annual cash
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compensation exceeded $100,000 for the year ended
December 31, 2003. We refer to these individuals elsewhere
in this prospectus as our "named executive officers."
Summary Compensation Table
Long-Term
Compensation
Awards
Annual Compensation
(1)
(Shares
Underlying
All Other
Name and Principal Position
Salary
Bonus
Options)
Compensation
(2)
William D. Johnston, Ph.D.
$
315,000
$
50,700
180,000
$
18,719
President and Chief Executive Officer; Director
Seth V. Hetherington, M.D.
306,000
35,100
27,500
12,431
Vice President, Clinical Development and Chief
    Medical Officer
Joseph M. Patti, M.S.P.H., Ph.D.
210,000
31,200
100,000
8,755
Vice President, Preclinical Development and Chief
    Scientific Officer; Director
Russell H. Plumb
210,000
31,200
35,000
7,727
Vice President, Finance and Administration and
    Chief Financial Officer
David M. Wonnacott
216,000
24,960
45,000
8,602
Vice President, Quality and Regulatory Affairs
(1)
We have omitted perquisites and other personal
    benefits that do not exceed the lesser of $50,000 or 10% of the
    executive officer's annual salary and bonus disclosed in
    this table. We have also omitted information regarding group
    life and health insurance benefits that do not discriminate in
    favor of our directors or executive officers and are generally
    available to all salaried employees.
(2)
The amounts on the table under "All Other
    Compensation" represent supplemental insurance and 401(k)
    matching contributions.
Stock Option Grants in
2003.
The following table sets
forth information concerning stock option grants made to each of
the named executive officers during the fiscal year ended
December 31, 2003. The potential realizable value is
calculated based on the term of the option at the time of its
grant, which is six years. This value is based on assumed rates
of stock appreciation of 5% and 10% compounded annually from the
date the options were granted until their expiration date. These
numbers are calculated based on the requirements of the SEC and
do not reflect our estimate of future stock price growth. Actual
gains, if any, on stock option exercises will depend on the
price of our common stock on the date on which the options are
ultimately exercised. All of the option grants vest annually
over four years.
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Percent of Total
Appreciation for
Number of Securities
Options Granted
Option Term
Underlying Options
to Employees in
Exercise Price
Expiration
Name
Granted
Fiscal Year
Per Share
Date
5%
10%
William D. Johnston
180,000
31.7
%
$
0.80
4/17/2009
$
48,974
$
111,105
Seth V. Hetherington
27,500
4.8
%
0.80
4/17/2009
7,482
16,974
Joseph M. Patti
100,000
17.6
%
0.80
4/17/2009
27,208
61,725
Russell H. Plumb
35,000
6.2
%
0.80
4/17/2009
9,523
21,604
David M. Wonnacott
45,000
7.9
%
0.80
4/17/2009
12,243
27,776
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Fiscal Year-End Option
Values.
The following table sets
forth certain information regarding the number and value of
unexercised options held by each of the named executive officers
as of December 31, 2003. There were no options exercised by
named executive officers in 2003. There was no public market for
our common stock as of December 31, 2003. Accordingly,
amounts described in the following table under the heading
"Value of Unexercised In-the-Money Options at Year
End" are determined by multiplying the number of shares
underlying the options by the difference between an assumed
initial public price offering of
$           per
share and the per share option exercise price.
Number of Shares of Common
Stock Underlying Unexercised
Value of Unexercised In-the-
Options at Year End
Money Options at Year End
Name
Exercisable
Unexercisable
Exercisable
Unexercisable
William D. Johnston
255,000
570,000
$
$
Seth V. Hetherington
45,000
162,500
Joseph M. Patti
184,702
290,000
Russell H. Plumb
115,000
155,000
David M. Wonnacott
35,000
150,000
Employment Agreements
William D.
Johnston.
Effective on
February 20, 2004, we entered into an employment agreement
with William D. Johnston, our chief executive officer and
president. The agreement has an initial term of one year and
will automatically renew on its anniversary date for an
additional one-year term unless employment is terminated in
accordance with the agreement. The agreement provides for an
annual base salary of $327,700, subject to annual increases as
approved by our compensation committee, and health and insurance
benefits. Dr. Johnston is eligible for bonus and incentive
(including stock option and other equity-based) compensation
plans as established by our compensation committee, with a
target bonus of up to 50% of base salary.
Under the agreement, we or Dr. Johnston may
terminate his employment at any time. If we terminate
Dr. Johnston without cause, or he resigns for good reason,
he will be entitled, subject to execution of a release of
Inhibitex, to receive severance payments representing
12 months of salary and health and insurance benefits. In
addition, if within one year after a change in control of
Inhibitex (or in contemplation of a change in control that is
reasonably likely to occur), Dr. Johnston is involuntarily
terminated for any reason other than for cause, or resigns for
good reason, he will be entitled, subject to execution of a
release of Inhibitex, to receive severance payments totaling
24 months of salary and health and insurance benefits. In
addition, vesting of options to purchase shares of our common
stock held by Dr. Johnston would accelerate upon a change
in control.
While employed by us and for a period equal to
the greater of one year or the severance period,
Dr. Johnston shall not directly or indirectly in the United
States (i) render substantially similar services to any
person or entity which competes with us; (ii) solicit for
employment any person who was employed by us; or (iii) call
on or solicit any of our customers or a potential customer with
which we were in negotiations.
Executive Officer Employment
Agreements.
On December 11,
2002, we entered into employment agreements with each of our
other named executive officers: Dr. Hetherington,
Dr. Patti, Mr. Plumb and Mr. Wonnacott. All of
these agreements were amended and restated as of
February 20, 2004. Each of the employment agreements has an
initial term of one year and will automatically renew on its
anniversary date for an additional one-year term unless
employment is terminated in accordance with the agreement.
Each employment agreement provides for annual
base salary, subject to annual increases as approved by our
compensation committee, and health and insurance benefits. The
2004 annual base salary for
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Dr. Hetherington, Dr. Patti,
Mr. Plumb and Mr. Wonnacott is $317,600, $218,500,
$218,500, and $224,000, respectively. Each employment agreement
also provides that these named officers are eligible for bonus
and incentive compensation plans, including stock options and
other equity-based compensation as established by our
compensation committee, with a target bonus of up to 30% of base
salary. In Dr. Hetherington's case, his employment
agreement also provides for a monthly automobile allowance of
$600 per month and a monthly housing allowance of
$1,970 per month.
Under these agreements, we, or any of these named
officers, may terminate his employment at any time. If we
terminate one of these named executive officers without cause,
or he resigns for good reason, such officer will be entitled,
subject to execution of a release of Inhibitex, to receive
severance payments representing 12 months of salary and
health and insurance benefits. In addition, if within one year
after a change in control of Inhibitex (or in contemplation of a
change in control that is reasonably likely to occur), one of
these named executive officers is involuntarily terminated for
any reason other than for cause, or resigns for good reason,
such executive officer will be entitled, subject to execution of
a release of Inhibitex, to receive severance payments totaling
18 months of salary and health and insurance benefits. In
addition, vesting of options to purchase shares of our common
stock held by such named executive officers would accelerate
upon a change in control.
While employed by us and for a period equal to
the greater of one year or the severance period, an executive
officer shall not directly or indirectly in the United States
(i) render substantially similar services to any person or
entity which competes with us; (ii) solicit for employment
any person who was employed by us; or (iii) call on or
solicit any of our customers or a potential customer with which
we were in negotiations.
Employee Benefit Plans
2004 Stock Incentive Plan
We adopted and our stockholders approved the 2002
Stock Incentive Plan in February 2002. We amended, restated and
renamed it as the 2004 Stock Incentive Plan, or the Stock
Incentive Plan, and our stockholders approved it as of
February 20, 2004. The Stock Incentive Plan provides for
the grant of incentive stock options, or ISOs, nonstatutory
stock options, deferred stock units, restricted stock awards,
dividend rights, stock appreciation rights, cash payments and
other forms of stock-based compensation, which may be granted to
employees, directors, contractors and consultants. The Stock
Incentive Plan will terminate upon the earlier of its
termination by the compensation committee or on
December 31, 2013.
Shares Reserved.
As
of December 31, 2003, 493,128 shares of common stock
were reserved for issuance under the Stock Incentive Plan. In
February 2004, 3,400,000 shares of common stock were added
to the number of reserved shares.
In addition, shares subject to stock awards
granted under our Amended and Restated 1998 Equity Ownership
Plan and our 2002 Non-Employee Directors Plan, as described
later in this section, that expire, are forfeited or otherwise
terminate without being exercised, will be available for
re-issuance under the Stock Incentive Plan. As of
December 31, 2003, outstanding stock options with respect
to a total of 2,063,249 shares of our common stock were
held by participants under the Stock Incentive Plan.
Substantially all of these outstanding stock options are
intended to be ISOs.
When a stock award expires, is settled in cash or
is terminated before it is exercised or shares are not issued or
are withheld upon the exercise of a stock award, the shares not
acquired, not issued or withheld pursuant to the stock awards
shall again become available for issuance under the Stock
Incentive Plan. Similarly, any shares tendered to pay an
exercise price or withheld in satisfaction of tax obligations
shall again become available for issuance under the Stock
Incentive Plan.
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Administration and Exercise
Price.
Our compensation committee
administers the Stock Incentive Plan. The compensation committee
may delegate authority to perform certain functions under the
Stock Incentive Plan to our executive officers. Subject to the
terms of the Stock Incentive Plan, the compensation committee
determines recipients, the numbers and types of equity awards to
be granted, any applicable performance goals and the terms and
conditions of the equity awards. The compensation committee
determines the exercise price of option grants, the purchase
price for rights to purchase restricted stock and the strike
price for stock appreciation rights. Pursuant to the terms of
the Stock Incentive Plan, each person who is elected for the
first time to be a non-employee director will be granted an
option to purchase 40,000 shares of common stock.
Subsequently, each non-employee director will be granted an
option to purchase 12,000 shares of common stock on
February 1 of each year (36,000 shares in the case of our
Chairman of the Board), provided, however, that each
non-employee director who has been a non-employee director for
less than 12 months at February 1 will receive an
annual grant that has been pro-rated from the date of
commencement of service as a non-employee director.
Vesting and Term.
Stock awards granted under the Stock Incentive Plan to employees
to date generally vest annually over four years. Annual stock
awards under the Stock Incentive Plan to directors following the
completion of this offering will vest in their entirety on the
first anniversary of the date of grant and initial grants to
directors upon joining our board will vest over three years
after the date of grant at the rate of 33% for each completed
year of service. The vesting and term of each stock award are
set by the compensation committee, provided that no term can
exceed ten years from the date of grant.
Transferability.
Subject to certain exceptions, each of the awards under the
Stock Incentive Plan may not be transferred other than by will
or by the laws of descent and distribution. However, a
participant may designate a beneficiary who may exercise the
rights under the stock-based award following the
participant's death. The compensation committee, in its
discretion, may provide for the transfer of stock awards granted
under the Stock Incentive Plan to certain trusts and
partnerships for the benefit of or held by immediate family
members of the participant.
Effect of a Change in
Control.
Upon a change in control, as
defined in the Stock Incentive Plan, under certain
circumstances, vesting of options is subject to acceleration
pursuant to a formula based upon the employee's length of
service so that, with respect to an employee who has been
employed by us for two years, all such options would vest.
Termination of
Service.
An non-employee director
whose service as a director ceases for any reason other than
removal of such non-employee director for cause may exercise
vested options for 12 months. In the case of removal for
cause, the options shall terminate immediately upon such removal.
2002 Non-Employee Directors Stock Option
Plan
We adopted our 2002 Non-Employee Directors Stock
Option Plan in February 2002. Upon the adoption of the 2004
Stock Incentive Plan in February 2004, no further options were
authorized to be granted under or from the 2002 Non-Employee
Directors Stock Option Plan, or Director Plan. All options
outstanding under the Director Plan will remain in full force
and effect until they expire or are exercised. As of
December 31, 2003, outstanding stock options to purchase a
total of 120,000 shares of our common stock were held by
participants under the Director Plan.
Administration and Exercise
Price.
Our compensation committee
administers the Director Plan.
Vesting and Term.
Awards granted under the Director Plan to date generally vest
over three years after the date of grant at the rate of 33% for
each completed year of service. Options granted under the
Director Plan may be exercised, once vested, up to ten years
from the date of grant.
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Transferability.
Awards granted under the Director Plan are generally not
transferable, other than by will or by the laws of descent and
distribution, and are exercisable during the life of the
non-employee director only by the non-employee director or his
or her guardian or legal representative. The compensation
committee, in its discretion, may provide for the transfer of
awards granted under the Director Plan to certain trusts and
partnerships for the benefit of or held by immediate family
members of the non-employee director.
Termination of
Service.
A non-employee director whose
service as a director ceases for any reason other than removal
of such non-employee director for cause may exercise vested
options for 12 months. In the case of removal for cause,
the options shall terminate immediately upon such removal.
Amended and Restated 1998 Equity Ownership
Plan
In May 1998 our board of directors adopted our
1998 Equity Ownership Plan, or the 1998 Plan, which was amended
and restated several times to increase the number of reserved
shares, the last of which occurred in December 2000. Upon the
adoption of the 2002 Stock Incentive Plan in February 2002, no
further options were authorized to be granted under or from the
1998 Plan. All options outstanding under the 1998 Plan will
remain in full force and effect until they expire or are
exercised. As of December 31, 2003, options to purchase
1,002,242 shares of our common stock were outstanding under
our 1998 Plan. The vast majority of the options granted under
the 1998 Plan are intended to be ISOs.
Administration.
Our
compensation committee administers the 1998 Plan, and may
delegate authority to perform certain functions under the 1998
Plan to our executive officers.
Vesting and Term.
Options granted under 1998 Plan generally vest over four years
and terminate on the tenth anniversary of the date of grant.
Transferability.
Unless otherwise provided in the 1998 Plan or in the individual
stock option agreement, options granted under the 1998 Plan may
not be transferred.
2004 Employee Stock Purchase
Plan
Our board of directors adopted, and our
stockholders approved as of February 20, 2004, our 2004
Employee Stock Purchase Plan, or the Purchase Plan, which will
become effective after the closing of this offering. The purpose
of the Purchase Plan is to provide an opportunity for our
employees to purchase a proprietary interest in us.
Administration.
The
Purchase Plan is administered by a committee appointed by the
board of directors for such purpose. The board of directors has
appointed our compensation committee to administer the Purchase
Plan.
Shares Reserved.
A
total of 500,000 shares of common stock are authorized for
issuance under the Purchase Plan.
Eligibility.
Employees who are customarily employed for more than
20 hours per week and for more than 5 months in any
calendar year and have been so employed for a six-month period
are eligible to participate in the Purchase Plan. Employees who
would own 5% or more of the total combined voting power or value
of all classes of our stock immediately after the grant may not
participate in the purchase plan.
Purchase Periods.
The Purchase Plan is intended to qualify under Section 423
of the Internal Revenue Code and provides for quarterly purchase
periods, except that the first such purchase period will
commence on October 1, 2004 and will end on
December 31, 2004.
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Payroll Deduction; Purchase
Limitations.
The Purchase Plan permits
participants to purchase common stock through payroll deductions
of up to 25% of their eligible base salary. For any calendar
year, a participant may not be granted rights to purchase shares
to the extent the fair market value of such shares exceeds
$25,000.
Amounts deducted and accumulated by the
participant are used to purchase shares of our common stock at
the end of each quarterly purchase period. The purchase price
per share is 85% of the lower of the fair market value of our
common stock at the beginning of a purchase period or at the end
of a purchase period. An employee's participation ends
automatically upon termination of employment with us.
Nontransferability.
A participant may not transfer rights to purchase our common
stock under the Purchase Plan other than by will or the laws of
descent and distribution.
Effect of a Change of
Control.
In the event of a change of
control, no further shares shall be available under the Purchase
Plan, but all payroll deductions scheduled for collection in
that purchase period will be immediately applied to purchase
whole shares of our common stock.
Additional
Provisions.
Our board of directors has
the authority to amend or terminate the Purchase Plan, except
that, subject to certain exceptions described in the Purchase
Plan, no such action may adversely affect any outstanding rights
to purchase stock under the Purchase Plan and the board of
directors may not increase the number of shares available under
the Purchase Plan, or amend the requirements as to the eligible
class of employees, without stockholder approval.
401(k) Plan
We sponsor a 401(k) plan for the benefit of our
employees that is a defined contribution plan intended to
qualify under Section 401(a) of the Internal Revenue Code
of 1986, as amended. Eligible employees may make pre-tax
contributions to the 401(k) plan subject to the statutorily
prescribed annual limit. Under the 401(k) plan, each employee is
fully vested in his or her deferred salary contributions. The
401(k) plan permits us to make discretionary matching and
profit-sharing contributions. During 2003 we matched 50% of an
employee's contributions, up to a maximum of 6% of that
employee's annual base compensation.
Limitation of Liability and Indemnification of
Directors and Officers
Our amended and restated certificate of
incorporation, as it will be in effect immediately after the
completion of this offering, contains certain provisions
permitted under Delaware General Corporation Law relating to the
liability of directors. These provisions eliminate a
director's personal liability for monetary damages
resulting from a breach of fiduciary duty, except in certain
circumstances involving a breach of their duty of loyalty to our
company or our stockholders, acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation
of law, unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of
the Delaware General Corporation Law or any transaction from
which the director derived an improper personal benefit.
These provisions do not limit or eliminate our
rights or the rights of any stockholder to seek non-monetary
relief, such as an injunction or rescission, in the event of a
breach of a director's fiduciary duty. These provisions
also will not alter a director's liability under federal
securities laws. Our amended and restated certificate of
incorporation and amended and restated by-laws also contain
provisions indemnifying our directors and officers to the
fullest extent permitted by the Delaware General Corporation
Law. We believe that these provisions will assist us in
attracting and retaining qualified individuals to serve as
officers and directors.
Upon the completion of this offering, we will
enter into separate, but identical, indemnity agreements with
each of our directors and executive officers and we expect to
enter into similar indemnity agreements with persons who become
directors or executive officers in the future. These indemnity
agreements provide that
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we will indemnify our directors or executive
officers, or the indemnitees, against any amounts that he or she
becomes legally obligated to pay in connection with any claim
against him or her based upon any act, omission, neglect or
breach of duty that he or she may commit, omit or suffer while
acting in his or her capacity as a director and/or officer of
Inhibitex; provided that such claim: (i) is not based upon
the indemnitee's gaining any personal profit or advantage
to which he or she is not legally entitled; (ii) is not for
an accounting of profits made from the purchase or sale by the
indemnitee of our securities within the meaning of
Section 16(b) of the Exchange Act or similar provisions of
any state law; and (iii) is not based upon the
indemnitee's knowingly fraudulent, deliberately dishonest
or willful misconduct. The indemnity agreements also provide
that all costs and expenses incurred by the indemnitee in
defending or investigating any such claim shall be paid by us in
advance of the final disposition thereof unless a majority of
our directors who are not parties to the action, independent
legal counsel in a written opinion, our stockholders or a court
of competent jurisdiction in a final, unappealable adjudication
determine that: (i) the indemnitee did not act in good
faith and in a manner that he or she reasonably believed to be
in or not opposed to our best interests or (ii) in the case
of any criminal action or proceeding, the indemnitee had
reasonable cause to believe his or her conduct was unlawful.
Each indemnitee has undertaken to repay us for any costs or
expenses so advanced if it shall ultimately be determined by a
court of competent jurisdiction in a final, nonappealable
adjudication that he or she is not entitled to indemnification
under the indemnity agreements.
In addition, we maintain directors' and
officers' liability insurance to provide our directors and
officers with insurance coverage for losses arising from claims
based on breaches of duty, negligence, error and other wrongful
acts.
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RELATED PARTY TRANSACTIONS
Other than employment agreements and other
arrangements that are described in "Management" and
the transactions described below, since January 1, 2001,
there has not been, and there is not currently proposed, any
transaction or series of similar transactions to which we were
or will be a party where the amount involved exceeded or will
exceed $60,000 and in which any director, executive officer,
holder of 5% or more of any class of our capital stock or any
member of their immediate family had or will have a direct or
indirect material interest.
We believe that we have executed all of the
transactions set forth below on terms no less favorable to us
than we could have obtained from unaffiliated third parties. It
is our intention to ensure that any and all future transactions
between us and our executive officers, directors and principal
stockholders and their affiliates, are approved by a majority of
the board of directors, including a majority of the independent
and disinterested members of the board of directors, and are on
terms no less favorable to us than those that we could obtain
from unaffiliated third parties.
Stock Issuances
The following is a summary of the participation
of persons and entities who are our directors, executive
officers or holders of 5% or more of any class of our capital
stock in our preferred and common stock and warrant transactions
since January 1, 2001.
Issuance of Series D Preferred
Stock
In February, March and April 2002, we issued an
aggregate of 11,420,794 shares of our Series D
preferred stock at a price per share of $3.94 for a total
purchase price of $44,997,928. We also issued warrants to
purchase an aggregate of 2,855,200 shares of Series D
preferred stock at an exercise price of $5.91 per share in
connection with our Series D financing. The following table
sets forth the number of shares of Series D preferred stock
and related warrants sold to our 5% stockholders and their
affiliates.
Number of Shares
of Series D
Number of Shares
Aggregate
Name
(1)
Preferred Stock
Underlying Warrants
Purchase Price
New Enterprise Associates 10, Limited
    Partnership
(2)
5,070,305
1,267,576
$
19,977,002
Essex Woodlands Health Ventures V,
    L.P.
(3)
1,776,650
444,163
7,000,001
Alliance Technology Ventures III, L.P. and
    affiliated entities
(4)
1,560,387
390,098
6,147,925
Capital Technologies CDPQ Inc.
1,269,035
317,259
4,999,998
William Blair Capital Partners VI,
    L.P.
(5)
913,707
228,427
3,600,006
Burrill Biotechnology Capital Fund, LP
761,421
190,355
2,999,999
(1)
See "Principal Stockholders" for more
    detail on shares held by these purchasers and their affiliated
    entities.
(2)
Dr. M. James Barrett, a member of our board
    of directors, is a general partner of NEA Partners 10,
    Limited Partnership, the general partner of New Enterprise
    Associates 10, Limited Partnership.
(3)
Dr. J. Douglas Eplett, a member of our board
    of directors, is a general partner of Essex Woodlands Health
    Ventures V, L.P.
(4)
Michael A. Henos, the chairman of our board of
    directors, is the general partner or manager of the general
    partner of each of the entities affiliated with Alliance
    Technology Ventures III, L.P.
(5)
Dr. Arda M. Minocherhomjee, a member of our
    board of directors, is a managing director of William Blair
    Capital Partners VI, L.L.C., the general partner of William
    Blair Capital Partners VI, L.P.
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Issuance of Series E Preferred
Stock
On December 19, 2003, we issued an aggregate
of 5,087,740 shares of our Series E preferred stock at
a price per share of $3.94 for a total purchase price of
$20,045,696. We also issued warrants to purchase an aggregate of
1,271,930 shares of Series E preferred stock at an
exercise price of $5.91 per share in connection with our
Series E financing. The following table sets forth the
number of shares of Series E preferred stock and related
warrants sold to our 5% stockholders and their affiliates.
Number of Shares
of Series E
Number of Shares
Aggregate
Name
(1)
Preferred Stock
Underlying Warrants
Purchase Price
New Enterprise Associates 10, Limited
    Partnership
(2)
2,284,263
571,065
$
8,999,996
William Blair Capital Partners VI,
    L.P.
(3)
761,421
190,355
2,999,999
Alliance Technology Ventures III, L.P. and
    affiliated entities
(4)
673,022
168,253
2,651,707
Burrill Biotechnology Capital Fund, LP
507,614
126,903
1,999,999
Essex Woodlands Health Ventures V,
    L.P.
(5)
380,710
95,177
1,499,997
Capital Technologies CDPQ Inc.
380,710
95,177
1,499,997
(1)
See "Principal Stockholders" for more
    detail on shares held by these purchasers and their affiliated
    entities
(2)
Dr. M. James Barrett, a member of our board
    of directors, is a general partner of NEA Partners 10,
    Limited Partnership, the general partner of New Enterprise
    Associates 10, Limited Partnership.
(3)
Dr. Arda M. Minocherhomjee, a member of our
    board of directors, is a managing director of William Blair
    Capital Partners VI, L.L.C., the general partner of William
    Blair Capital Partners VI, L.P.
(4)
Michael A. Henos, the chairman of our board of
    directors, is the general partner or manager of the general
    partner of each of the entities affiliated with Alliance
    Technology Ventures III, L.P.
(5)
Dr. J. Douglas Eplett, a member of our
    board of directors, is a general partner of Essex Woodlands
    Health Ventures V, L.P.
In June 2001, we issued 40,833 shares of our
common stock to Carl E. Brooks, a member of our board of
directors pursuant to the exercise of stock options at an
exercise price of $0.12 per share for a total purchase
price of $4,900. In October 2002, we issued an additional
21,667 shares of our common stock to Mr. Brooks
pursuant to the exercise of stock options at an exercise price
of $0.12 per share for a total purchase price of $2,600 and
1,562 shares of our common stock at an exercise price per
share of $0.285 for a total purchase price of $445.
In connection with the above preferred stock
transactions, we entered into agreements with all of the holders
of our convertible preferred stock providing for registration
rights with respect to these shares. See the "Description
of Capital Stock— Registration Rights" section.
Preferred Stock Dividends
Under the terms of our existing certificate of
incorporation, holders of shares of our Series C and
Series D preferred stock are entitled to receive a
cumulative annual dividend of 8% on their investment. The
cumulative dividend accrues daily, whether or not declared.
These holders can elect at any time to take these Series C
and D dividends in shares of Series C and Series D
preferred stock. The tables above exclude all Series C and
Series D preferred stock issuable upon the conversion of
these accrued dividends. Accrued cumulative dividends as of
December 31, 2003 were $4,274,595 and $6,789,910 for
Series C and Series D preferred stockholders,
respectively, and are convertible into 1,499,858 and
1,723,327 shares of common stock, respectively. Upon the
completion of this offering and the adoption of our amended and
restated certificate of incorporation, all preferred stock will
convert into shares of common stock and therefore, dividends on
these preferred shares will cease to accrue.
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Other Related Party Transactions
We lease office and laboratory facilities in
Alpharetta, Georgia from AtheroGenics, Inc. Michael A. Henos,
our chairman, and Russell M. Medford, a member of our board of
directors, are chairman of the board of directors and the
president and chief executive officer, respectively, of
AtheroGenics, Inc. This lease will expire on December 31,
2005. Current monthly lease payments to AtheroGenics pursuant to
this lease are approximately $16,300. In addition to these lease
payments, we are currently paying AtheroGenics, Inc.
$3,799 per month pursuant to a 7% promissory note in
connection with certain leasehold improvements at our leased
facility. As of December 31, 2003, the outstanding balance
of the note was $84,852. The note expires in December 2005.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain
information known to us with respect to the beneficial ownership
of our common stock as of December 31, 2003, as adjusted to
reflect the sale of common stock being offered in this offering,
by:
•
each person or group of affiliated persons known
    by us to be the beneficial owner of more than 5% of our common
    stock;
•
each of our directors;
•
each of our named executive officers; and
•
all directors and executive officers as a group.
The column entitled "Percentage of Shares of
Common Stock Beneficially Owned— Before Offering" is
based on 29,088,317 shares of common stock outstanding as
of December 31, 2003 assuming the conversion of all of our
outstanding convertible preferred stock, which includes the
conversion of all cumulative preferred stock dividends accrued
as of December 31, 2003, into 27,812,629 shares of
common stock. This excludes the assumed issuance
of                      shares
of common stock subject to the mandatory cashless exercise of
warrants to purchase shares of preferred stock upon the
completion of this offering. The column entitled
"Percentage of Shares of Common Stock Beneficially
Owned— After Offering" is based
on                      shares
of common stock to be outstanding after this offering after
giving effect to
the                      shares
we are selling in this offering, the conversion of all preferred
stock and accrued cumulative preferred stock dividends, the
issuance
of                      shares
of common stock subject to the mandatory cashless exercise of
warrants to purchase 4,127,130 shares of preferred stock
upon the completion of this offering, based on the assumed
initial public offering price of
$           per
share, a       for reverse
stock split, and assuming no further exercises of outstanding
option, warrants or the underwriters' over-allotment option.
Beneficial ownership is determined in accordance
with the rules of the SEC. The information does not necessarily
indicate beneficial ownership for any other purpose. For
purposes of calculating each person's or group's
percentage ownership, stock options and warrants exercisable
within 60 days after December 31, 2003 are included
for that person or group, but not the stock options or warrants
of any other person or group.
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Except as otherwise noted, the persons or
entities in this table have sole voting and investing power with
respect to all of the shares of common stock beneficially owned
by them, subject to community property laws, where applicable.
Except as otherwise set forth below, the street address of
beneficial owners of 5% or more of our common stock is
c/o Inhibitex, Inc., 1165 Sanctuary Parkway,
Suite 400, Alpharetta, Georgia 30004.
Percentage of Shares
of Common Stock
Beneficially Owned
Beneficial Owner
Shares Held
Before Offering
After Offering
5% or greater stockholders:
New Enterprise Associates 10, Limited Partnership
(1)
9,962,228
31.4
%
Alliance Technology Ventures, L.P. and affiliated
    entities
(2)
6,860,057
22.5
William Blair Capital Partners VI,
    L.P.
(3)
5,561,675
18.3
Essex Woodlands Health Ventures V,
    L.P.
(4)
2,966,167
9.9
Capital Technologies CDPQ Inc.
(5)
2,254,657
7.6
Burrill Biotechnology Capital Fund,
    LP
(6)
1,694,936
5.7
Named Executive Officers and
    Directors:
William D. Johnston, Ph.D.
(7)
714,423
2.4
Seth V. Hetherington, M.D.
(8)
45,000
*
Joseph M. Patti,
    M.S.P.H., Ph.D.
(9)
458,665
1.6
Russell H. Plumb
(10)
141,250
*
David M. Wonnacott
(11)
35,000
*
M. James Barrett, Ph.D.
(12)
9,962,228
31.4
Carl E. Brooks
(13)
94,689
*
J. Douglas Eplett, M.D.
(14)
2,966,167
9.9
Michael A. Henos
(15)
6,888,993
22.6
Russell M.
    Medford, M.D., Ph.D.
(16)
40,228
*
Arda M. Minocherhomjee, Ph.D.
(17)
5,561,675
18.3
Marc L. Preminger
—
—
Louis W. Sullivan
—
—
All current executive officers and directors
    as a group (14 persons)
(18)
26,908,318
74.8
*
Represents beneficial ownership of less than one
    percent of our common stock.
(1)
Includes 8,123,587 shares (including
    769,019 shares issuable upon the conversion of accrued
    preferred stock dividends) and 1,838,641 shares issuable
    under warrants beneficially owned by New Enterprise
    Associates 10, Limited Partnership. New Enterprise
    Associates 10, Limited Partnership is located at
    1119 St. Paul Street, Baltimore, Maryland 21202.
(2)
Includes 1,440,637 shares (including
    79,613 shares issuable upon the conversion of accrued
    cumulative preferred stock dividends) and 78,671 shares
    issuable under warrants beneficially owned by Alliance
    Technology Ventures, L.P.; 399,103 shares (which includes
    22,141 shares issuable upon the conversion of accrued
    cumulative preferred stock dividends) and 21,868 shares
    issuable under warrants beneficially owned by ATV/ GP Parallel
    Fund, L.P.; 109,175 shares (which includes
    6,033 shares issuable upon the conversion of accrued
    cumulative preferred stock dividends) and 5,961 shares
    issuable under warrants beneficially owned by ATV/ MJF Parallel
    Fund, L.P.; 1,616,146 shares (which includes
    268,528 shares issuable upon the conversion of accrued
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cumulative preferred stock dividends) and
    164,975 shares issuable under warrants beneficially owned
    by Alliance Technology Ventures II, L.P.;
    2,557,691 shares (which includes 333,092 shares
    issuable upon the conversion of accrued cumulative preferred
    stock dividends) and 380,711 shares issuable under warrants
    beneficially owned by Alliance Technology Ventures III,
    L.P.; 44,670 shares (which includes 5,203 shares
    issuable upon the conversion of accrued cumulative preferred
    stock dividends) and 6,357 shares issuable under warrants
    beneficially owned by ATV II Affiliates Fund, L.P.; and
    27,784 shares (which includes 2,551 shares issuable
    upon the conversion of accrued cumulative preferred stock
    dividends) and 6,308 shares issuable under warrants
    beneficially owned by ATV III Affiliates Fund, L.P.
    Alliance Technology Ventures is located at 8995 Westside
    Parkway, Alpharetta, Georgia 30004.
(3)
Includes 5,142,893 shares (including
    836,186 shares issuable upon the conversion of accrued
    cumulative preferred stock dividends) and 418,782 shares
    issuable under warrants beneficially owned by William Blair
    Capital Partners VI, L.P. William Blair Capital
    Partners VI, L.P. is located at
    227 W. Monroe Street, Suite 3500, Chicago,
    Illinois 60606.
(4)
Includes 2,426,827 shares (including
    269,467 shares issuable upon the conversion of accrued
    cumulative preferred stock dividends) and 539,340 shares
    issuable under warrants beneficially owned by Essex Woodlands
    Health Ventures V, L.P. Essex Woodlands Health Ventures is
    located at 190 S. LaSalle Street, Suite 2800,
    Chicago, Illinois 60603.
(5)
Includes 1,842,221 shares (including
    192,476 shares issuable upon the conversion of accrued
    cumulative preferred stock dividends) and 412,436 shares
    issuable under warrants beneficially owned by Capital
    Technologies CDPQ Inc. Capital Technologies CDPQ Inc. is located
    at Centre CDP Capital, 1000, place Jean-Paul-Riopelle,
    Montreal, Quebec H2Z 2B3, Canada.
(6)
Includes 1,377,678 shares (including
    108,643 shares issuable upon the conversion of accrued
    cumulative preferred stock dividends) and 317,258 shares
    issuable under warrants beneficially owned by Burrill
    Biotechnology Capital Fund, LP Burrill Biotechnology Capital
    Fund, LP is located at One Embarcadero Center,
    Suite 2100, San Francisco, California 94111.
(7)
Includes 150,000 shares owned by
    Susan D. Johnston, 32,000 shares owned by the
    Ryan D. Johnston Irrevocable Trust, 22,000 shares
    owned by each of the Kyle D. Johnston Irrevocable Trust,
    Kimberly D. Sites, Tiffany D. Hansen and Kirk D.
    Johnston, 10,000 shares owned by Lynn S. Thornock,
    91,473 shares owned by Dr. Johnston directly and
    342,950 shares issuable upon the exercise of stock options
    held by Dr. Johnston that are exercisable within
    60 days of December 31, 2003 (including currently
    exercisable options to purchase 14,200 shares granted in
    February 2004). Dr. Johnston disclaims beneficial ownership
    of the 76,000 shares collectively owned by Kimberly D.
    Sites, Tiffany D. Hansen, Kirk D. Johnston and
    Lynn S. Thornock.
(8)
Represents 45,000 shares issuable upon the
    exercise of stock options exercisable within 60 days of
    December 31, 2003.
(9)
Includes 241,463 shares and
    217,202 shares issuable upon the exercise of stock options
    exercisable within 60 days of December 31, 2003.
(10)
Represents 141,250 shares issuable upon the
    exercise of stock options exercisable within 60 days of
    December 31, 2003.
(11)
Represents 35,000 shares issuable upon the
    exercise of stock options exercisable within 60 days of
    December 31, 2003.
(12)
Dr. Barrett is a general partner of NEA
    Partners 10, Limited Partnership, the general partner of New
    Enterprise Associates 10, Limited Partnership, a venture
    capital fund. In such capacity, he may be deemed to share voting
    and investment power with respect to the 8,123,587 shares
    (which includes 769,019 shares issuable upon the conversion
    of accrued preferred stock dividends) and 1,838,641 shares
    issuable under warrants beneficially owned by New Enterprise
    Associates 10, Limited Partnership. Dr. Barrett
    disclaims beneficial ownership of the shares held by New
    Enterprise Associates 10, Limited Partnership, except to
    the extent of his proportionate pecuniary interest therein.
(13)
Includes 64,061 shares and
    30,628 shares issuable upon the exercise of stock options
    exercisable within 60 days of December 31, 2003.
(14)
Dr. Eplett is a general partner of Essex
    Woodlands Health Ventures V, L.P. In such capacity, he may
    be deemed to share voting and investment power with respect to
    the 2,426,827 shares (which includes 269,467 shares
    issuable upon the conversion of accrued preferred stock
    dividends) and 539,340 shares issuable under warrants
    beneficially owned by Essex Woodlands Health Ventures V,
    L.P. Dr. Eplett disclaims beneficial ownership of the
    shares held by this fund, except to the extent of his
    proportionate pecuniary interest therein.
(15)
Mr. Henos is a managing general partner of
    Alliance Technology Ventures, L.P., ATV/ GP Parallel
    Fund, L.P. and ATV/ MJF Parallel Fund, L.P., a manager
    of Alliance Associates II, L.L.C., the general partner of
    Alliance Technology Ventures II, L.P. and ATV II
    Affiliates Fund, L.P. and a manager of ATV III
    Partners, L.L.C., the general partner of Alliance
    Technology Ventures III, L.P. and ATV III
    Affiliates Fund, L.P. In such capacity, he may be deemed to
    share voting and investment power with respect to the
    1,440,637 shares (which includes 79,613 shares
    issuable upon the conversion of accrued cumulative preferred
    stock dividends) and 78,671 shares issuable under warrants
    beneficially owned by Alliance Technology Ventures, L.P.;
    399,103 shares (which includes 22,141 shares issuable
    upon the conversion of accrued cumulative preferred stock
    dividends) and 21,868 shares issuable under warrants
    beneficially owned by ATV/ GP Parallel Fund, L.P.;
    109,175 shares (which includes 6,033 shares issuable
    upon the conversion of accrued cumulative preferred stock
    dividends) and 5,961 shares issuable under warrants
    beneficially owned by ATV/ MJF Parallel Fund, L.P.;
    1,616,146 shares (which includes 268,528 shares
    issuable upon the
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conversion of accrued cumulative preferred stock
    dividends) and 164,975 shares issuable under warrants
    beneficially owned by Alliance Technology Ventures II,
    L.P.; 2,557,691 shares (which includes 333,092 shares
    issuable upon the conversion of accrued cumulative preferred
    stock dividends) and 380,711 shares issuable under warrants
    beneficially owned by Alliance Technology Ventures III,
    L.P.; 44,670 shares (which includes 5,203 shares
    issuable upon the conversion of accrued cumulative preferred
    stock dividends) and 6,357 shares issuable under warrants
    beneficially owned by ATV II Affiliates Fund, L.P.;
    and 27,784 shares (which includes 2,551 shares
    issuable upon the conversion of accrued cumulative preferred
    stock dividends) and 6,308 shares issuable under warrants
    beneficially owned by ATV III Affiliates Fund, L.P.
    Mr. Henos disclaims beneficial ownership of the shares held
    by this fund, except to the extent of his proportionate
    pecuniary interest therein. Mr. Henos also personally holds
    28,936 shares of our common stock.
(16)
Represents 40,228 shares issuable upon the
    exercise of stock options exercisable within 60 days of
    December 31, 2003.
(17)
Dr. Minocherhomjee is a managing director of
    William Blair Capital Partners VI, L.L.C., the general
    partner of William Blair Capital Partners VI, L.P. In such
    capacity, he may be deemed to share voting and investment power
    with respect to the 5,142,893 shares (which includes
    836,186 shares issuable upon the conversion of accrued
    cumulative preferred stock dividends) and 418,782 shares
    issuable under warrants beneficially owned by William Blair
    Capital Partners VI, L.P. Dr. Minocherhomjee disclaims
    beneficial ownership of the shares held by this fund, except to
    the extent of his proportionate pecuniary interest therein.
(18)
Includes 22,594,447 shares (including
    2,591,834 shares issuable upon the conversion of accrued
    cumulative preferred stock dividends) and an aggregate of
    4,313,872 shares issuable upon the exercise of stock
    options and warrants; also includes the shares and warrants
    described in Notes (1) through (4) above.
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DESCRIPTION OF CAPITAL STOCK
General
The following description of our capital stock
and provisions of our amended and restated certificate of
incorporation and by-laws is a summary of all of the material
terms and provisions of such instruments and is qualified by
reference to our amended and restated certificate of
incorporation and our amended and restated by-laws, copies of
which have been filed with the SEC as exhibits to the
registration statement of which this prospectus is a part. The
descriptions of the common stock and preferred stock reflect
changes to our capital structure that will occur immediately
after the closing of this offering in accordance with the terms
of the amended and restated certificate of incorporation.
Upon the completion of this offering, our
authorized capital stock will consist of 75,000,000 shares
of common stock, par value $0.001 per share, and
5,000,000 shares of preferred stock, par value
$0.001 per share. All of these shares of preferred stock
will be undesignated.
Common Stock
As of December 31, 2003, there were
29,088,317 shares of our common stock outstanding held by
51 stockholders of record. This amount assumes the
conversion of all outstanding shares of our preferred stock,
which includes the conversion of cumulative preferred stock
dividends accrued as of December 31, 2003 into common
stock, into 27,812,629 shares of common stock. This amount
excludes the issuance
of                      shares
of common stock subject to the mandatory cashless exercise of
warrants to purchase 4,127,130 shares of Series D and
Series E preferred stock upon the completion of this
offering, at an assumed initial public offering price of
$           per
share. In addition, as of December 31, 2003,
3,185,490 shares of our common stock were subject to
outstanding options and 247,564 shares of our common stock
which are subject to warrants that will remain outstanding after
the completion of this offering.
Holders of our common stock are entitled to one
vote for each share held on all matters submitted to a vote of
stockholders and do not have cumulative voting rights.
Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of
the directors standing for election. Holders of common stock are
entitled to receive proportionately any dividends as may be
declared by our board of directors, subject to any preferential
dividend rights of outstanding preferred stock.
In the event of our liquidation, dissolution or
winding up, the holders of common stock are entitled to
proportionately receive our net assets available for
distribution after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding
preferred stock. Holders of our common stock have no preemptive,
subscription, redemption or conversion rights. Our outstanding
shares of common stock are, and the shares offered by us in this
offering will be, when issued and paid for, fully paid and
nonassessable. The rights, preferences and privileges of holders
of common stock are subject to, and may be adversely affected
by, the rights of the holders of shares of any series of
preferred stock that we may designate and issue in the future.
Preferred Stock
Upon the closing of this offering, all of the
outstanding shares of our preferred stock (including all accrued
cumulative preferred stock dividends), will automatically
convert on a one for one basis into shares of our common stock.
After the closing of this offering, we will be
authorized, without further vote or action by the stockholders,
to issue up to an aggregate of 5,000,000 shares of
preferred stock in one or more series. Each series of preferred
stock will have such number of shares, designations,
preferences, voting powers, qualifications
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and special or relative rights or privileges as
shall be determined by our board of directors, which may
include, among others, dividend rights, voting rights,
redemption and sinking fund provisions, liquidation preferences,
conversion rights and pre-emptive rights.
The issuance of preferred stock, while providing
desired flexibility in connection with possible acquisitions and
other corporate purposes, could adversely affect the voting
power or other rights of the holders of common stock, and could
make it more difficult for a third party to acquire, or could
discourage a third party from attempting to acquire, a majority
of our outstanding voting stock. We cannot determine the actual
impact or effect of the issuance of any of this preferred stock
upon the rights of the holders of our common stock until the
board issues or determines the specific rights of this preferred
stock. Upon the closing of this offering, there will be no
shares of preferred stock outstanding, and we have no present
plans to issue any shares of preferred stock after the offering.
Warrants
As of December 31, 2003, we have outstanding
warrants to purchase 4,374,694 shares of common stock at
exercise prices ranging from $0.12 to $5.91 per share with
a weighted average exercise price of $5.66 per share. These
warrants expire on dates ranging from July 2004 to December
2013. All of these warrants include a cashless exercise feature,
and the holders are entitled to customary anti-dilution
protection including adjustments to the number of shares of
common stock issuable upon exercise of the warrants in the event
of a subdivision or combination of our common stock or the
payment of a stock dividend on our common stock.
Of these outstanding warrants, 4,127,130 were
issued in connection with the purchase of our Series D and
Series E preferred stock in 2002 and 2003. In the event of
a public offering of our common stock of at least
$50 million in gross proceeds, these warrants will be
mandatorily exercisable by their holders through a net issuance
feature and the Series D and Series E preferred stock
issued pursuant to this exercise will automatically be converted
into common shares upon the closing of such offering. Upon the
completion of this offering, at an assumed initial public
offering price
of                     per
share,                      shares
of common stock will be issued pursuant to this mandatory
exercise feature. The number of shares of common stock that will
ultimately be issuable pursuant to this mandatory exercise will
be dependent upon the price per share of our common stock upon
the closing of this offering.
Options
As of December 31, 2003, we had outstanding
options to purchase 3,185,490 shares of our common stock at
a weighted average exercise price of $0.60. Options to purchase
296,383 shares of our common stock have been exercised
under our various stock option plans as of December 31,
2003.
Registration Rights
Under the terms of our amended and restated
master rights agreement, the holders
of                      shares
of common stock,
including                      shares
of common stock subject to the mandatory cashless exercise of
warrants to purchase 4,127,130 shares of preferred stock
upon the completion of this offering, at an assumed initial
public offering price of
$           per
share, or their transferees, have been granted rights to
register these shares under the Securities Act of 1933, as
amended, or the Securities Act. If we propose to register any of
our securities under the Securities Act, either for our own
account or for the account of other stockholders, the holders of
these shares are entitled, under certain circumstances, to
include in the registration statement, at our expense, their
shares of common stock. In addition, the holders of these shares
may require us, at our expense and on not more than two
occasions at any time beginning approximately six months from
the date of the closing of this offering, to file a registration
statement under the Securities Act with respect to their shares
of common stock, and we will be required to use our reasonable
best efforts to effect the registration. Further, the holders of
these shares may require us, at our expense, to register their
shares on Form S-3 when we can avail ourselves of this
form. These registration
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rights are subject to certain conditions and
limitations, including the right of the underwriters to limit
the number of shares included in any such registration under
certain circumstances.
Provisions of Delaware Law and Our Amended and
Restated Certificate of Incorporation and By-laws
Upon the completion of this offering, we will be
subject to the provisions of Section 203 of the Delaware
General Corporation Law. Subject to certain exceptions,
Section 203 of the Delaware General Corporation Law
prohibits a publicly-held Delaware corporation from engaging in
a "business combination" with an "interested
stockholder" for a period of three years after the date of
the transaction in which the person became an interested
stockholder, unless the interested stockholder attained such
status with the approval of our board of directors or unless the
business combination is approved in a prescribed manner. A
"business combination" is defined generally as a
merger or asset sale involving the interested stockholder or
other transaction resulting in a financial benefit to the
interested stockholder. Subject to various exceptions, an
"interested stockholder" is a person who, together
with affiliates and associates, owns, or within the past three
years did own, 15% or more of a corporation's voting stock.
This statute could prohibit or delay the accomplishment of
mergers or other takeover or change in control attempts with
respect to us and, accordingly, may discourage attempts to
acquire us.
In addition, certain provisions of our amended
and restated certificate of incorporation and our amended and
restated by-laws may have the effect of delaying, deferring or
preventing a tender offer or takeover attempt that you, as a
stockholder, might deem to be in your best interest. These
provisions are designed to encourage persons seeking to acquire
us to initiate such a transaction through arm's-length
negotiations with our board of directors. The existence of these
provisions could adversely affect the prevailing price of our
common stock or limit the price that others might be willing to
pay in the future for shares of our common stock. These
provisions include:
Stockholder Action; Special Meeting of
Stockholders.
Stockholders may not
take action by written consent, but only at a duly called annual
or special meeting of our stockholders. Special meetings of our
stockholders may be called only by the chairman of our board of
directors, our chief executive officer, or a majority of our
board of directors, and in no event may stockholders call a
special meeting. Thus, without approval by the chairman of the
board of directors, our chief executive officer or a majority of
the board of directors, our stockholders may not take action
between annual meetings.
Advance Notice Requirements for Stockholder
Proposals and Director
Nominations.
A stockholder seeking
to bring business before an annual meeting of our stockholders,
or to nominate candidates for election as directors at an annual
meeting of our stockholders, must provide timely notice of his
or her intention in writing. To be timely, a stockholder's
notice must be delivered to our secretary, at our principal
executive offices, not less than 90 days nor more than
120 days prior to the first anniversary of the date of the
previous year's annual meeting of our stockholders.
However, if no annual meeting of stockholders was held in the
previous year or the date of the annual meeting of stockholders
has been changed to be more than 30 calendar days from the
time of the previous year's annual meeting, then a proposal
shall be received no later than the close of business on the
tenth day following the date on which notice of the date of the
meeting was mailed or a public announcement was made. Only our
board of directors or a committee thereof may nominate
candidates for election at a special meeting of our
stockholders. Our by-laws also specify requirements as to the
form and content of a stockholder's notice. These
provisions may preclude stockholders from bringing matters
before an annual meeting of our stockholders or from making
nominations for directors at an annual or special meeting of our
stockholders.
Authorized but Unissued
Shares.
Our authorized but
unissued shares of common and preferred stock are available for
future issuance without stockholder approval, subject to any
limitations imposed by the Nasdaq National Market. These
additional shares may be utilized for a variety of corporate
needs, including acquisitions and raising additional funds. The
existence of authorized but unissued and
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unreserved common and preferred stock could
discourage an attempt by third parties to obtain control of us
by means of a proxy contest, tender offer, merger or otherwise.
Classification of Board
Members.
Our board of directors is
classified into three different classes of members, as nearly
equal in size as possible, with each class having its own
three-year term. Any one or more, or all of the directors may be
removed by the holders of at least a majority of the shares then
entitled to vote at an election of directors only for cause. Any
vacancy on our board of directors, including a vacancy resulting
from an enlargement of the board, may only be filled by vote of
a majority of the directors then in office. This classification
of our board of directors, and the limitations on the removal of
directors and filling of vacancies, may have the effect of
making it more difficult for a third party to acquire control of
us, or of discouraging a third party from acquiring control of
us because at least two annual meetings of stockholders, instead
of one, generally will be required to change the majority of our
board of directors.
Transfer Agent and Registrar
Upon the closing of this offering, the transfer
agent and registrar for the common stock will be American Stock
Transfer & Trust Company.
Nasdaq National Market Listing
We have applied for the quotation of our common
stock on the Nasdaq National Market under the symbol
"INHX."
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, no public market existed
for our common stock, and we cannot assure you that after this
offering a liquid trading market will develop or be sustained
for our common stock. Sales of shares of our common stock after
this offering, including those shares issuable upon the exercise
of warrants and options, and the availability of authorized
shares for future sale, may reduce the market price of our
common stock. Further, sales of substantial amounts of our
common stock, or the perception that those sales could occur,
could adversely affect the prevailing market price for our
common stock and could impair our future ability to obtain
capital, especially through an offering of equity securities.
Upon the closing of this offering and after
giving effect for this offering, the conversion of all preferred
stock (including the conversion of accrued cumulative preferred
stock dividends) into shares of common stock,
a      for     reverse
stock split, and assuming no further exercises of outstanding
options, warrants or the underwriters' over-allotment
option, an aggregate
of                      shares
of common stock will be issued and outstanding and no shares of
preferred stock will be issued and outstanding.
Of these outstanding shares,
the                      shares
sold in this offering (assuming no exercise of the
underwriters' over-allotment option) will be freely
tradable without restrictions or further registration under the
Securities Act, unless the shares are purchased by our
affiliates as that term is defined under Rule 144 under the
Securities Act. The
remaining                      shares
of common stock outstanding after the offering are
"restricted securities" as defined under
Rule 144. Substantially all of these restricted securities
will be subject to the 180 day lock up period as described
below under "Lock-up Agreements."
Restricted securities may be sold in the public
market in the United States only if registered or if they
qualify for an exemption from registration under Rule 144
or 701 under the Securities Act. These exceptions are summarized
below.
Rule 144
In general, under Rule 144 as currently in
effect, beginning 90 days after the effective date of this
offering, a person who has beneficially owned restricted
securities for at least one year, including the holding period
of any prior owner other than one of our affiliates, is entitled
to sell a number of restricted shares within any three-month
period that does not exceed the greater of
•
1% of the number of shares of our common stock
    then outstanding, which will equal
    approximately                      shares
    immediately after this offering; and
•
the average weekly trading volume of our common
    stock on the Nasdaq National Market during the four calendar
    weeks preceding the filing of a notice on Form 144 with
    respect to the sale.
Sales of restricted shares under Rule 144
are also subject to requirements regarding the manner of sale,
notice and the availability of current public information about
us. Rule 144 also provides that affiliates that sell shares
of our common stock that are not restricted shares must
nonetheless comply with the same restrictions applicable to
restricted shares, other than the holding period requirement.
Upon completion of the 180-day lock-up
period,                     of
our outstanding restricted securities will be eligible for sale
under Rule 144.
Rule 144(k)
Subject to the lock-up agreements described
below, shares of our common stock eligible for sale under
Rule 144(k) may be sold immediately upon the completion of
this offering. In general, under Rule 144(k), a person may
sell shares of common stock acquired from us immediately upon the
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completion of this offering, without regard to
manner of sale, the availability of public information or
volume, if:
•
the person is not our affiliate and has not been
    our affiliate at any time during the three months preceding such
    a sale; and
•
the person has beneficially owned the shares
    proposed to be sold for at least two years, including the
    holding period of any prior owner other than an affiliate.
Upon expiration of the 180 day lock-up
period, unless held by our affiliates,
approximately            million
shares of common stock will be eligible for sale under
Rule 144(k). In addition, unless held by our affiliates,
approximately,            million
shares of common stock will be eligible for sale under
Rule 144(k) in December 2005.
Rule 701
Under Rule 701, shares of our common stock
acquired upon the exercise of currently outstanding options or
pursuant to other rights granted under our various stock plans
may be resold, to the extent they are not subject to lock-up
agreements, (1) by persons other than affiliates, beginning
90 days after the effective date of this offering, subject
only to the manner-of-sale provisions of Rule 144, and
(2) by affiliates, subject to the manner-of-sale, current
public information, and filing requirements of Rule 144, in
each case, without compliance with the one-year holding period
requirement of Rule 144. Subject to the 180-day lock-up
period
approximately                      shares
of common stock will be immediately eligible for sale in
accordance with Rule 701.
Registration Rights
Upon the completion of this offering,
stockholders that hold
approximately                     restricted
shares of our common stock have the right, subject to various
conditions and limitations, to demand the filing of and include
their shares in registration statements relating to our
securities. Upon registration pursuant to such rights, these
shares would become feely tradable without restriction under the
Securities Act. By exercising their registration rights and
causing a large number of shares to be registered and sold in
the public market, these holders could cause the price of our
common stock to be volatile and decrease. In addition, any
demand to include such shares in our registration statements
could have a material adverse effect on our ability to raise
capital. See the "Description of Capital Stock—
Registration Rights" section.
Options
As of December 31, 2003 we had outstanding
options to purchase 3,185,490 shares of our common stock of
which 1,080,081 were vested. Following this offering, we intend
to file one or more registration statements on Form S-8
under the Securities Act covering shares of our common stock
issued or reserved for issuance under our Amended and Restated
1998 Stock Option Plan, Stock Incentive Plan, 2002 Directors
Plan and 2004 Employee Stock Purchase Plan. Accordingly, shares
of our common stock that are registered under such registration
statements will be available for sale in the open market
immediately upon exercise of the related stock option by the
holders, subject to vesting restrictions with us, contractual
lock-up restrictions, and/or market stand-off provisions
applicable to each option agreement that prohibit the sale or
other disposition of the shares of common stock underlying the
options for a period of 180 days after the date of this
prospectus, if requested by us.
Warrants
Upon the closing of this offering, there will be
warrants outstanding to purchase 247,564 shares of common
stock at a weighted average exercise price of $1.49 per
share. Subject to the 180 day lock-up period and if
acquired pursuant to their cashless exercise feature, at an
assumed initial public offering of
$           per
share,                      shares
will be eligible to be sold pursuant to Rule 144, of
which                     will
be eligible
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to be sold pursuant to Rule 144(k). The
remaining                      shares
will be eligible to be sold pursuant to Rule 144 on dates
ranging from June 5, 2004 through December 23, 2004,
subject to the 180 day lock-up period.
Lock-up Agreements
We and all of our directors and officers and
holders of substantially all of our outstanding stock have
agreed that, without the prior written consent of Piper
Jaffray & Co. on behalf of the underwriters, we and
they will not, during the period ending 180 days after the
date of this prospectus: offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to
purchase, lend or otherwise transfer or dispose of directly or
indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common
stock; or enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic
consequences of ownership of our common stock; whether any such
transaction described above is to be settled by delivery of our
common stock or such other securities, in cash or otherwise.
These restrictions, and certain exceptions, are described in
more detail under "Underwriting."
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UNDERWRITING
The underwriters named below have agreed to buy,
subject to the terms of the purchase agreement, the number of
shares listed opposite their names below. Piper
Jaffray & Co. and Lazard Frères & Co. LLC
are acting as joint book-running managers for this offering and
are acting as representatives of the underwriters. The
underwriters are committed to purchase and pay for all of the
shares if any are purchased, other than those shares covered by
the over-allotment option described below.
Number
Underwriters
of Shares
Piper Jaffray & Co.
Lazard Frères & Co. LLC
Thomas Weisel Partners LLC
Total
The underwriters have advised us that they
propose to offer the shares to the public at
$           per
share. The underwriters propose to offer the shares to certain
dealers at the same price less a concession of not more than
$           per
share. The underwriters may allow and the dealers may reallow a
concession of not more than
$           per
share on sales to certain other brokers and dealers. After the
offering, these figures may be changed by the underwriters.
We have granted to the underwriters an option to
purchase up to an
additional                      shares
of common stock from us at the same price to the public, and
with the same underwriting discount, as set forth above. The
underwriters may exercise this option any time during the 30-day
period after the date of this prospectus, but only to cover
over-allotments, if any. To the extent the underwriters exercise
the option, each underwriter will become obligated, subject to
certain conditions, to purchase approximately the same
percentage of the additional shares as it was obligated to
purchase under the purchase agreement.
The following table shows the underwriting fees
to be paid to the underwriters in connection with this offering.
These amounts are shown assuming both no exercise and full
exercise of the over-allotment option.
No Exercise
Full Exercise
Per share
$
$
Total to be paid by us
$
$
We have agreed to indemnify the underwriters
against certain liabilities, including civil liabilities under
the Securities Act, or to contribute to payments that the
underwriters may be required to make in respect of those
liabilities.
The underwriters have informed us that neither
they, nor any other underwriter participating in the
distribution of the offering, will make sales of the common
stock offered by this prospectus to accounts over which they
exercise discretionary authority without the prior specific
written approval of the customer.
The offering of our shares of common stock is
made for delivery when, as and if accepted by the underwriters
and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters
reserve the right to reject an order for the purchase of shares
in whole or part.
We and each of our directors, executive officers
and substantially all of our stockholders have agreed to certain
restrictions on the ability to sell shares of our common stock
for a period of 180 days after the date of this prospectus.
We have also agreed not to directly or indirectly offer for
sale, sell, contract to sell,
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grant any option for the sale of, or otherwise
issue or dispose of, any shares of common stock, options or
warrants to acquire shares of common stock, or any related
security or instrument, without the prior written consent of
Piper Jaffray & Co. for a period of 180 days after
the date of this prospectus. The agreement provides exceptions
for sales to the underwriters pursuant to the purchase
agreement, the granting of options to purchase shares under our
existing stock option plan and other common exceptions.
Prior to the offering, there has been no
established trading market for our common stock. The initial
public offering price for the shares of common stock offered by
this prospectus will be negotiated by us and the underwriters.
The factors considered in determining the initial public
offering price include:
•
our future prospects and those of our industry in
    general;
•
the stage of development of our product
    candidates;
•
the anticipated market for our product candidates;
•
competition; and
•
certain other financial and operating information
    in recent periods for companies engaged in activities similar to
    ours.
There can be no assurance that the initial public
offering price of the common stock will correspond to the price
at which the common stock will trade in the public market
subsequent to this offering or that an active public market for
the common stock will develop and continue after this offering.
To facilitate the offering, the underwriters may
engage in transactions that stabilize, maintain or otherwise
affect the price of the common stock during and after the
offering. Specifically, the underwriters may over-allot or
otherwise create a short position in the common stock for their
own account by selling more shares of common stock than have
been sold to them by us and the selling stockholders. Short
sales involve the sale by the underwriters of a greater number
of shares than they are required to purchase in the offering.
"Covered" short sales are sales made in an amount not
greater than the underwriters' option to purchase
additional shares in the offering. The underwriters may close
out any covered short position by either exercising their option
to purchase additional shares or purchasing shares in the open
market. In determining the source of shares to close out the
covered 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. "Naked"
short sales are sales in excess of this option. The underwriters
must close out any naked short position by purchasing shares in
the open market. A naked short position is more likely to be
created if the underwriters are concerned that there may be
downward pressure on the price of the common stock in the open
market after pricing that could adversely affect investors who
purchase in the offering.
In addition, the underwriters may stabilize or
maintain the price of the common stock by bidding for or
purchasing shares of common stock in the open market and may
impose penalty bids. If penalty bids are imposed, selling
concessions allowed to syndicate members or other broker-dealers
participating in the offering are reclaimed if shares of common
stock previously distributed in the offering are repurchased,
whether in connection with stabilization transactions or
otherwise. The effect of these transactions may be to stabilize
or maintain the market price of the common stock at a level
above that which might otherwise prevail in the open market. The
imposition of a penalty bid may also effect the price of the
common stock to the extent that it discourages resales of the
common stock. The magnitude or effect of any stabilization or
other transactions is uncertain. These transactions may be
effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
84
Table of Contents
We have applied to have our common stock approved
for quotation on the Nasdaq National Market under the symbol
"INHX."
At our request, the underwriters have reserved
for sale, at the initial public offering price, up
to                      shares
offered by this prospectus to our directors, officers, employees
and others. The number of shares of common stock available for
sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares which
are not so purchased will be offered by the underwriters to the
general public on the same basis as the other shares offered by
this prospectus.
85
Table of Contents
LEGAL MATTERS
The validity of the common stock offered hereby
will be passed upon for us by Swidler Berlin Shereff Friedman,
LLP, New York, New York. Legal matters in connection
with this offering will be passed upon for the underwriters by
Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The financial statements of Inhibitex, Inc. at
December 31, 2002 and 2003, and for each of the three years
in the period ended December 31, 2003 and the period from
inception (May 13, 1994) through December 31, 2003,
appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report
given on the authority of such firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on
Form S-1 with the SEC for the stock we are offering by this
prospectus. This prospectus does not include all of the
information contained in the registration statement. You should
refer to the registration statement and its exhibits for
additional information. Whenever we make reference in this
prospectus to any of our contracts, agreements or other
documents, the references are not necessarily complete and you
should refer to the exhibits attached to the registration
statement for copies of the actual contract, agreement or other
document. When we complete this offering, we will also be
required to file annual, quarterly and special reports, proxy
statements and other information with the SEC.
You can read our SEC filings, including the
registration statement, over the Internet at the SEC's web
site at http://www.sec.gov. You may also read and copy any
document we file with the SEC at its public reference facilities
at 450 Fifth Street, NW, Washington, DC 20549.
You may also obtain copies of the documents at prescribed rates
by writing to the Public Reference Section of the SEC at
450 Fifth Street, NW, Washington, DC 20549.
Please call the SEC at 1-800-SEC-0330 for further information on
the operation of the public reference facilities. Our SEC
filings are also available at the office of the Nasdaq National
Market. For further information on obtaining copies of our
public filings at the Nasdaq National Market, you should call
(212) 656-5060.
86
Table of Contents
INHIBITEX, INC.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
Page
Report of Ernst & Young LLP, Independent
    Auditors
F-2
Balance Sheets
F-3
Statements of Operations
F-4
Statements of Stockholders' (Deficit) Equity
F-5
Statements of Cash Flows
F-7
Notes to Financial Statements
F-8
F-1
Table of Contents
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
The Board of Directors and
Stockholders
Inhibitex, Inc.
We have audited the accompanying balance sheets
of Inhibitex, Inc. (a Development Stage Company) as of
December 31, 2002 and 2003, and the related statements of
operations, stockholders' (deficit) equity and cash flows
for each of the three years in the period ended
December 31, 2003 and for the period from inception
(May 13, 1994) through December 31, 2003. These
financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial
position of Inhibitex, Inc. (a Development Stage Company) at
December 31, 2002 and 2003, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 2003, and for the period from
inception (May 13, 1994) through December 31, 2003, in
conformity with accounting principles generally accepted in the
United States.
ERNST & YOUNG LLP
February 16, 2004, except for Note 15,
as to which the date is February 20, 2004
Atlanta, Georgia
The foregoing report is in the form that will be
signed upon the completion of the restatement of capital
accounts described in Note 15 to the financial statements.
/s/  ERNST & YOUNG LLP
March 2, 2004
Atlanta, Georgia
F-2
Table of Contents
INHIBITEX, INC.
(A Development Stage Company)
Balance Sheets
December 31,
2002
2003
ASSETS
Current assets:
Cash and cash equivalents
$
28,658,078
$
26,649,150
Short-term investments
1,000,310
1,498,980
Prepaid expenses and other current assets
441,363
569,667
Accounts receivable
35,814
308,924
Total current assets
30,135,565
29,026,721
Property and equipment, net
1,806,916
1,635,544
Total assets
$
31,942,481
$
30,662,265
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
    STOCK AND
STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable
$
718,598
$
1,385,972
Accrued expenses
2,020,804
1,700,539
Current portion of notes payable
146,028
889,523
Current portion of capital lease obligations
199,907
330,408
Current portion of deferred revenue
212,500
191,667
Other current liabilities
1,000,000
1,000,000
Total current liabilities
4,297,837
5,498,109
Long-term liabilities:
Notes payable, net of current portion
84,852
1,363,351
Capital lease obligations, net of current portion
373,975
431,853
Deferred revenue, net of current portion
1,137,496
987,498
Total long-term liabilities
1,596,323
2,782,702
Redeemable convertible preferred stock,
    $.001 par value; 30,000,000 and 37,700,000 shares
    authorized at December 31, 2002 and 2003, respectively;
    19,285,704 and 24,373,444 shares issued and outstanding at
    December 31, 2002 and 2003, respectively; liquidation
    preference of $76,639,474 and $101,556,363 at December 31,
    2002 and 2003, respectively
66,674,753
89,542,242
Preferred stock warrants
4,259,307
6,065,467
Stockholders' (deficit) equity:
Series A convertible preferred stock,
    $.001 par value; 216,000 shares authorized, issued and
    outstanding for all periods; liquidation preference of $251,424
    for both periods
216
216
Common stock, $.001 par value; 35,000,000
    and 43,100,000 shares authorized at December 31, 2002
    and 2003, respectively, 1,221,310 and 1,275,688 shares
    issued and outstanding at December 31, 2002 and 2003,
    respectively
1,221
1,275
Additional paid-in capital
799,182
1,797,059
Deferred stock compensation
—
(804,310
)
Deficit accumulated during the development stage
(45,686,358
)
(74,220,495
)
Total stockholders' (deficit) equity
(44,885,739
)
(73,226,255
)
Total liabilities, redeemable convertible
    preferred stock and warrants and stockholders'
    (deficit) equity
$
31,942,481
$
30,662,265
F-3
Table of Contents
INHIBITEX, INC.
(A Development Stage Company)
Statements of Operations
Period from
Inception
(May 13, 1994)
through
Year Ended December 31,
December 31,
2003
2001
2002
2003
Revenue:
License fees and milestones
$
862,500
$
62,500
$
150,000
$
150,000
Collaborative research and development
1,999,455
208,335
750,000
645,833
Grant revenue
300,000
—
—
300,000
Total revenue
3,161,955
270,835
900,000
1,095,833
Operating expense:
Research and development
52,619,526
7,099,172
15,614,526
19,071,491
General and administrative
12,277,476
1,846,530
3,327,857
4,676,655
Total operating expense
64,897,002
8,945,702
18,942,383
23,748,146
Loss from operations
(61,735,047
)
(8,674,867
)
(18,042,383
)
(22,652,313
)
Other income (expense), net
599,358
471,732
(44,180
)
271,306
Interest income (expense), net
474,097
96,794
473,840
47,986
Net loss
(60,661,592
)
(8,106,341
)
(17,612,723
)
(22,333,021
)
Dividends and accretion to redemption value of
    redeemable preferred stock
(13,558,903
)
(1,271,383
)
(5,625,804
)
(6,201,116
)
Net loss attributable to common stockholders
$
(74,220,495
)
$
(9,377,724
)
$
(23,238,527
)
$
(28,534,137
)
Basic and diluted net loss attributable to common
    stockholders per share
$
(8.90
)
$
(20.10
)
$
(22.77
)
Weighted average shares used to compute basic and
    diluted net loss attributable to common stockholders per share
1,054,245
1,156,218
1,253,132
Pro forma basic and diluted net loss attributable
    to common stockholders per share (unaudited)
$
(1.18
)
Pro forma weighted average shares used to compute
    basic and diluted net loss attributable to common stockholders
    per share (unaudited)
24,145,289
F-4
Table of Contents
INHIBITEX, INC.
(A Development Stage Company)
Statements of Stockholders' (Deficit)
Equity
Series A
Preferred
Common Stock
Deficit
Stock
Subscription
Common Stock
Receivable
Accumulated
Total
Additional
Deferred
For
During the
Stockholders'
Par
Par
Par
Paid-in
Stock
Purchase of
Development
(Deficit)
Shares
Value
Shares
Value
Shares
Value
Capital
Compensation
Stock
Stage
Equity
Balance at inception (May 13, 1994)
—
$
—
—
$
—
—
$
—
$
—
$
—
$
—
$
—
$
—
Issuance of subscriptions for common stock to
    founders at $.005 per share
—
—
105,333
105
—
—
422
—
—
—
527
Issuance of common stock at $1.00 per share
—
—
—
—
100,000
100
99,900
—
—
—
100,000
Net loss
—
—
—
—
—
—
—
—
—
(54,088
)
(54,088
)
Balance at December 31, 1994
—
—
105,333
105
100,000
100
100,322
—
—
(54,088
)
46,439
Net loss
—
—
—
—
—
—
—
—
—
(266,491
)
(266,491
)
Balance at December 31, 1995
—
—
105,333
105
100,000
100
100,322
—
—
(320,579
)
(220,052
)
Issuance of Series A Preferred Stock at
    $2.50 per share, net of related costs of $18,641
216,000
216
—
—
—
—
521,143
—
—
—
521,359
Issuance of subscribed common stock at
    $.005 per share
—
—
(105,333
)
(105
)
105,333
105
—
—
—
—
—
Net loss
—
—
—
—
—
—
—
—
—
(248,510
)
(248,510
)
Balance at December 31, 1996
216,000
216
—
—
205,333
205
621,465
—
—
(569,089
)
52,797
Issuance of common stock at $.05 per share,
    net of receivable from shareholder
—
—
—
—
309,303
310
15,155
—
(3,867
)
—
11,598
Net loss
—
—
—
—
—
—
—
—
—
(508,304
)
(508,304
)
Balance at December 31, 1997
216,000
216
—
—
514,636
515
636,620
(3,867
)
(1,077,393
)
(443,909
)
Issuance of common stock at $.05 and
    $.075 per share, net of receivable from shareholder
—
—
—
—
455,419
455
26,335
—
(24,828
)
—
1,962
Net loss
—
—
—
—
—
—
—
—
—
(1,725,290
)
(1,725,290
)
Balance at December 31, 1998
216,000
216
—
—
970,055
970
662,955
—
(28,695
)
(2,802,683
)
(2,167,237
)
Issuance of common stock at $.10 per share
—
—
—
—
4,250
4
421
—
—
—
425
Net loss
—
—
—
—
—
—
—
—
—
(3,343,509
)
(3,343,509
)
Balance at December 31, 1999
216,000
216
—
—
974,305
974
663,376
—
(28,695
)
(6,146,192
)
(5,510,321
)
Forgiveness of receivable from shareholders
—
—
—
—
—
—
—
—
28,695
—
28,695
Issuance of warrant for the purchase of common
    stock at $.06 per share
—
—
—
—
—
—
75
—
—
—
75
Exercise of stock options
—
—
—
—
19,500
20
2,228
—
—
—
2,248
Cumulative effect of change in accounting
    principle
—
—
—
—
—
—
99,500
—
—
—
99,500
Preferred stock dividends
—
—
—
—
—
—
—
—
—
(460,600
)
(460,600
)
Net loss
—
—
—
—
—
—
—
—
—
(6,463,315
)
(6,463,315
)
Balance at December 31, 2000
216,000
216
—
—
993,805
994
765,179
—
—
(13,070,107
)
(12,303,718
)
F-5
Table of Contents
INHIBITEX, INC.
(A Development Stage Company)
Statements of Stockholders' (Deficit)
Equity — (Continued)
Series A
Preferred
Common Stock
Deficit
Stock
Subscription
Common Stock
Receivable
Accumulated
Total
Additional
Deferred
For
During the
Stockholders'
Par
Par
Par
Paid-in
Stock
Purchase of
Development
(Deficit)
Shares
Value
Shares
Value
Shares
Value
Capital
Compensation
Stock
Stage
Equity
Issuance of warrant for the purchase of common
    stock at $.23 per share
—
—
—
—
—
—
3,450
—
—
—
3,450
Exercise of stock options
—
—
—
—
114,646
114
12,360
—
—
—
12,474
Preferred stock dividends
—
—
—
—
—
—
—
—
—
(1,271,383
)
(1,271,383
)
Net loss
—
—
—
—
—
—
—
—
—
(8,106,341
)
(8,106,341
)
Balance at December 31, 2001
216,000
216
—
—
1,108,451
1,108
780,989
—
—
(22,447,831
)
(21,665,518
)
Exercise of stock options
—
—
—
—
112,859
113
18,193
—
—
—
18,306
Preferred stock dividends
—
—
—
—
—
—
—
—
—
(4,461,328
)
(4,461,328
)
Accretion of Series D Preferred Stock to
    redemption value
—
—
—
—
—
—
—
—
—
(1,164,476
)
(1,164,476
)
Net loss
—
—
—
—
—
—
—
—
—
(17,612,723
)
(17,612,723
)
Balance at December 31, 2002
216,000
216
—
—
1,221,310
1,221
799,182
—
—
(45,686,358
)
(44,885,739
)
Exercise of stock options
—
—
—
—
54,378
54
17,332
—
—
—
17,386
Preferred stock dividends
—
—
—
—
—
—
—
—
—
(4,871,217
)
(4,871,217
)
Accretion of Series D and E Preferred Stock
    to redemption value
—
—
—
—
—
—
—
—
—
(1,329,899
)
(1,329,899
)
Deferred stock compensation
—
—
—
—
—
—
980,545
(980,545
)
—
—
—
Amortization of deferred stock compensation
—
—
—
—
—
—
—
176,235
—
—
176,235
Net loss
—
—
—
—
—
—
—
—
—
(22,333,021
)
(22,333,021
)
Balance at December 31, 2003
216,000
$
216
—
$
—
1,275,688
$
1,275
$
1,797,059
$
(804,310
)
$
—
$
(74,220,495
)
$
(73,226,255
)
F-6
Table of Contents
INHIBITEX, INC.
(A Development Stage Company)
Statements of Cash Flows
Period from
Inception
(May 13, 1994)
through
Year Ended December 31,
December 31,
2003
2001
2002
2003
Cash flows from operating activities
Net loss
$
(60,661,592
)
$
(8,106,341
)
$
(17,612,723
)
$
(22,333,021
)
Adjustments to reconcile net loss to net cash
    used in operating activities:
Depreciation and amortization
2,644,756
659,037
772,139
768,245
Amortization of deferred stock compensation
176,235
—
—
176,235
Loss on sale of equipment
48,134
—
48,134
—
Amortization of investment premium
45,249
—
—
45,249
Forgiveness of receivables from stockholders
28,695
—
—
—
Amortization of warrants and discount on debt
122,792
13,227
4,153
—
Stock issued for interest
124,576
—
—
—
Cumulative effect of change in accounting
    principle
99,500
—
—
—
Changes in operating assets and liabilities:
Prepaid expenses and other assets
(569,667
)
6,297
(344,888
)
(128,304
)
Accounts receivable
(308,924
)
(9,640
)
(26,174
)
(273,110
)
Accounts payable and other current liabilities
2,385,972
(206,772
)
248,573
667,374
Accrued expenses
1,700,539
67,859
1,390,736
(320,265
)
Deferred revenue
1,179,165
1,729,165
(379,169
)
(170,831
)
Net cash used in operating activities
(52,984,570
)
(5,847,168
)
(15,899,219
)
(21,568,428
)
Cash flows from investing activities
Purchases of property and equipment
(2,611,359
)
(661,843
)
(264,034
)
(176,208
)
Purchases of short-term investments
(16,551,409
)
—
(1,000,310
)
(15,551,099
)
Proceeds from maturities of short-term investments
15,007,180
—
—
15,007,180
Net cash used in investing activities
(4,155,588
)
(661,843
)
(1,264,344
)
(720,127
)
Cash flows from financing activities
Proceeds from promissory notes and related
    warrants
3,013,492
65,908
—
2,500,000
Payments on promissory notes and capital leases
(1,715,432
)
(147,210
)
(347,609
)
(710,292
)
Proceeds from bridge loan and related warrants
2,220,000
—
—
—
Net proceeds from the issuance of preferred stock
    and warrants
80,106,322
—
44,746,579
18,472,533
Proceeds from the issuance of common stock
164,926
12,474
18,306
17,386
Net cash provided by (used in) financing
    activities
83,789,308
(68,828
)
44,417,276
20,279,627
Increase (decrease) in cash and cash equivalents
26,649,150
(6,577,839
)
27,253,713
(2,008,928
)
Cash and cash equivalents at beginning of period
—
7,982,204
1,404,365
28,658,078
Cash and cash equivalents at end of period
$
26,649,150
$
1,404,365
$
28,658,078
$
26,649,150
Supplemental cash flow information:
Interest paid
$
583,177
$
61,551
$
86,227
$
163,149
Supplemental non-cash investing and financing
    activities:
Fixed assets capitalized using promissory notes
    and capital leases
1,717,075
486,276
251,379
420,665
Conversion of bridge loans and interest payable
    into Series C Preferred Stock
2,124,576
—
—
—
Preferred stock dividends and accretion of
    preferred stock to redemption value
13,558,903
1,271,383
5,625,804
6,201,116
F-7
Table of Contents
INHIBITEX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
1.
Operations
Inhibitex, Inc. ("Inhibitex" or the
"Company") was incorporated in the state of Delaware
in May 1994. Inhibitex is a biopharmaceutical company engaged in
the discovery, development and commercialization of novel
antibody-based products for the prevention and treatment of
serious bacterial and fungal infections in the hospital setting.
The Company's primary activities since incorporation have
been establishing its offices, recruiting personnel, conducting
research, conducting pre-clinical and clinical trials,
performing business and financial planning, and raising capital.
Accordingly, the Company is considered to be in the development
stage for financial reporting purposes.
The Company has incurred operating losses since
inception and expects such losses to continue for the
foreseeable future. These losses have largely been the result of
research and development expenses related to Veronate, the
Company's lead product candidate, and to a lesser extent,
Aurexis, its second product candidate. Veronate is being
developed to prevent hospital-associated infections in very low
birth weight infants. Aurexis is being developed to treat, in
combination with standard of care antibiotics, serious,
life-threatening
Staphylococcus aureus (S. aureus)
infections in hospitalized patients. Both Veronate and Aurexis
are currently being evaluated in clinical trials. The Company
plans to continue to finance its operations with equity and/or
other financings or proceeds from potential future partnerships.
The Company's ability to continue its operations is
dependent, in the near term, upon the successful execution of
such financings and ultimately upon achieving profitable
operations. There can be no assurance that these funds will be
available on terms acceptable to the Company or that the Company
will become profitable.
2.
Summary of Significant Accounting
    Policies
Use of
Estimates.
The preparation of
financial statements in conformity with accounting principles
generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets
and liabilities as of the date of the financial statements and
the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those
estimated.
Cash, Cash Equivalents and Short-Term
Investments.
Cash equivalents
consist of short-term, highly liquid investments with original
maturities of 90 days or less when purchased. Cash
equivalents are carried at cost, which approximates their fair
market value. Investments with original maturities beyond
90 days when purchased are considered to be short-term
investments. These investments are accounted for in accordance
with Statement of Financial Accounting Standards
("SFAS") No. 115,
Accounting for Certain
Investments in Debt and Equity Securities
("SFAS 115"). The Company is required to maintain
a cash balance equal to the greater of $5.0 million or 25%
of its total cash, cash equivalents, and short-term investments
on deposit with a lender pursuant to a loan and security
agreement as discussed in Note 7.
The Company has classified its entire investment
portfolio as available-for-sale. These securities are recorded
as either cash equivalents or short-term investments. Short-term
investments are carried at estimated fair value based upon
quoted market prices with unrealized gains and losses, if any,
reported in other comprehensive income. The amortized cost of
debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization and
accretion are included in interest and other income (expense),
net. Realized gains and losses are included in interest and
other income (expense), net. The cost basis of all securities
sold is based on the specific identification method.
F-8
Table of Contents
INHIBITEX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
Available-for-sale securities as of
December 31, 2003 and 2002 consisted of commercial paper
and money-market funds.
Property and Equipment,
Net.
Property and equipment are
recorded at cost and depreciated using the straight-line method
over the following estimated useful lives of the related assets:
Asset
Estimated Life
Computer software and equipment
3 years
Furniture and fixtures
7 years
Laboratory equipment
5 years
Leasehold improvements
Lesser of estimated useful life or life of lease
The Company also capitalizes costs related to
computer software developed for internal use in accordance with
Statement of Position 98-1,
Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use.
When assets are retired or sold, the assets and accumulated
depreciation are removed from the respective accounts and any
gain or loss is recognized in interest and other income
(expense), net. Expenditures for repairs and maintenance are
charged to expense as incurred.
Revenue
Recognition.
The Company
recognizes revenue primarily under licensing and other
collaborative research and development agreements. The Company
follows the revenue recognition criteria outlined in Staff
Accounting Bulletin ("SAB") No. 101,
Revenue
Recognition in Financial Statements
("SAB
No. 101") as amended by SAB 104
"Revenue
Recognition"
, and Emerging Issues Task Force
("EITF") Issue 00-21,
Revenue Arrangements
with Multiple Deliverables
("EITF Issued 00
-21"). Accordingly, up-front, non-refundable license fees
under agreements where the Company has an ongoing research and
development commitment are amortized, on a straight-line basis,
over the term of such commitment. Revenues received for ongoing
research and development activities under collaborative
arrangements are recognized as these activities are performed
pursuant to the terms of the related agreements (see
Note 12). Any amounts received in advance of performance
are recorded as deferred revenue until earned.
Accrued
Expenses.
As part of the process
of preparing its financial statements, management is required to
estimate expenses that the Company has incurred but for which it
has not been invoiced. This process involves identifying
services that have been performed on the Company's behalf
and estimating the level of services performed by third parties
and the associated cost incurred for such services as of each
balance sheet date. Examples of expenses for which the Company
accrues based on estimates include fees for services, such as
those provided by clinical research and data management
organizations, investigators and fees owed to contract
manufacturers in conjunction with the manufacture of clinical
trial materials. In connection with such service fees, these
estimates are most affected by management's understanding
of the status and timing of services provided relative to the
actual levels of services incurred by such service providers.
The majority of the Company's service providers invoice the
Company monthly in arrears for services performed. Management
makes these estimates based upon the facts and circumstances
known to it at the time and in accordance with accounting
principles generally accepted in the United States.
Prepaid Expenses and Other Current
Assets.
Prepaid expenses and other
current assets consist primarily of license payments, insurance
premiums and payments to clinical research organizations that
the Company has made in advance.
Stock-based
Compensation.
The Company accounts
for employee stock options using the intrinsic-value method in
accordance with Accounting Principles Board ("APB")
Opinion No. 25,
Accounting for Stock
F-9
Table of Contents
INHIBITEX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
Issued to Employees
("APB No. 25"), and Financial Accounting
Standards Board Interpretation ("FIN") No. 44
("FIN 44"),
Accounting for Certain
Transactions Involving Stock Compensation, an Interpretation of
APB No. 25, and Related Interpretations
and has adopted
the disclosure only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation
("SFAS No. 123"). The Company accounts for
equity instruments issued to non-employees in accordance with
the provisions of the SFAS No. 123, 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.
In December 2002, the
Financial Accounting Standards Board issued
SFAS No. 148,
Accounting for Stock-Based
Compensation — Transition and Disclosure
("SFAS No. 148"). SFAS No. 148
amends SFAS No. 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, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 and APB No. 28,
Interim Financial Reporting
, to require disclosure in the
summary of significant accounting policies of the effects of an
entity's accounting policy with respect to employee stock
compensation on reported net loss. The Company has adopted the
disclosure requirements of SFAS No. 148.
Under APB No. 25, if the exercise price of
the Company's employee and director stock options equals or
exceeds the estimated fair value of the underlying stock on the
date of grant, no compensation expense is recognized. In the
event that stock options are granted with an exercise price
below the estimated fair value of the Company's common
stock on the date of such grant, APB No. 25 requires that
the difference between the estimated fair value and the exercise
price be recorded as deferred compensation and amortized over
the related vesting period. No stock compensation expense is
reflected in the Company's reported net loss in any period
prior to December 31, 2002 as all options granted had an
exercise price equal to the fair value of the underlying common
stock on the date of grant.
The Company has recorded deferred stock
compensation of $980,545 for the year ended December 31,
2003, which represents the difference between the exercise price
per share and the fair value at the respective grant dates for
options granted in 2003. Deferred stock compensation is
recognized and amortized on a straight-line basis over the
vesting period of the related options, which for employees is
generally four years. The amortization of deferred stock
compensation related to stock options granted to the
Company's employees and directors was $176,235 for the year
ended December 31, 2003. The expected future amortization
of deferred stock compensation related to the options granted in
2003 is $245,136 in each of 2004, 2005 and 2006 and $68,902 in
2007.
The option valuation models used to value options
under SFAS No. 123 were developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective
assumptions, including the expected volatility. Because the
Company's employee stock options have characteristics
significantly different from those of traded options and because
changes in the subjective input assumptions can materially
affect the fair value estimate, in the Company's opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
As a result, the Company has elected to continue
to follow the intrinsic value method of accounting as prescribed
by APB No. 25. The information regarding net loss as
required by SFAS No. 123 has been determined as if the
Company had accounted for its stock-based compensation under the
fair value method of that Statement. The following table
illustrates the effect on net loss attributable to common
F-10
Table of Contents
INHIBITEX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
stockholders and basic and diluted net loss per
share attributable to common stockholders had the Company
applied the fair value provisions of SFAS No. 123 to
employee stock-based compensation:
December 31,
2001
2002
2003
Net loss attributable to common
    stockholders — as reported
$
(9,377,724
)
$
(23,238,527
)
$
(28,534,137
)
Add: Amortization of deferred stock compensation
    expense included in net loss — as reported
—
—
176,235
Deduct: Stock compensation expense determined
    under fair value method
(10,967
)
(45,046
)
(412,845
)
Net loss attributable to common
    stockholders — pro forma
$
(9,388,691
)
$
(23,283,573
)
$
(28,770,747
)
Net loss attributable to common stockholders per
    share (basic and diluted):
As reported
$
(8.90
)
$
(20.10
)
$
(22.77
)
Pro forma
$
(8.91
)
$
(20.14
)
$
(22.96
)
The fair value of each stock option was estimated
at the date of grant using the minimum value method with the
following assumptions:
December 31,
2001
2002
2003
Risk-free interest rate
5.77%
4.01%
3.05%
Expected life
4 years
4 years
4 years
Weighted average fair value of options granted
$0.04
$0.12
$1.52
For purposes of pro forma disclosure, the
estimated fair value of the options is amortized to expense over
the vesting period of the related options.
Fair Value of Financial
Instruments.
The carrying amounts
of the Company's financial instruments, which include cash,
cash equivalents, short-term investments, accounts payable,
accrued expenses, and capital lease and debt obligations,
approximate their fair values.
Concentrations of Credit Risk and Limited
Suppliers.
Cash and cash
equivalents consist of financial instruments that potentially
subject the Company to concentrations of credit risk to the
extent recorded on the balance sheets. The Company believes that
it has established guidelines for investment of its excess cash
that maintains principal and liquidity through its policies on
diversification and investment maturity.
The Company relies on certain materials used in
its development process that are procured from a single source
supplier as well as certain third-party contract manufacturers
that make its product candidates. The failure of its supplier or
a contract manufacturer to deliver on schedule, or at all, could
delay or interrupt the development process and adversely affect
the Company's operating results.
F-11
Table of Contents
INHIBITEX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
Research and Development
Expense.
Research and development
expense primarily consists of expenses incurred in the
discovery, development, and manufacturing of the Company's
product candidates. These expenses consist primarily of
(i) fees paid to third-party service providers to monitor
and accumulate data related to the Company's clinical
trials, (ii) costs related to obtaining patents and license
and research agreements, (iii) the costs to procure and
manufacture materials used in clinical trials, and
(iv) salaries and related expenses for personnel. These
costs are charged to expense as incurred.
Income Taxes.
The Company utilizes the liability method of accounting for
income taxes as required by SFAS No. 109,
Accounting for Income Taxes
("SFAS No. 109"). Under this method,
deferred tax assets and liabilities are determined based on the
differences between the financial reporting and tax reporting
bases of assets and liabilities and are measured using the
enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse. A valuation
allowance is recorded to reduce the carrying amounts of net
deferred tax assets to an amount the Company expects to realize
in the future based upon the available evidence at the time.
Reclassifications.
Certain reclassifications have been made to prior period amounts
to conform to the current year presentation.
Recent Accounting
Pronouncements.
In
January 2003, the FASB issued FIN No. 46,
Consolidation of Variable Interest Entities
("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 new
variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or
acquired prior to February 1, 2003, the provisions of
FIN 46 must be applied for the first interim or annual
period beginning after March 31, 2004. The adoption of this
statement did not have a material impact on the Company's
results of operations or financial position.
In May 2003, the FASB issued
SFAS No. 150,
Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity
("SFAS No. 150").
SFAS No. 150 affects the issuer's accounting for
three types of freestanding financial instruments. These are
mandatorily redeemable shares, which the issuing company is
obligated to buy back in exchange for cash or other assets; put
options and forward purchase contracts; and obligations that can
be settled with shares, the monetary value of which is fixed,
tied solely or predominantly to a variable such as a market
index, or varies inversely with the value of the issuer's
shares. Most of the guidance in SFAS No. 150 is
effective for all 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. The adoption of this statement did not have
a material effect on the Company's results of operations or
financial position.
3.
Net Loss Per Share
The Company calculates net loss per share in
accordance with SFAS No. 128,
Earnings Per
Share
("SFAS No. 128") and SEC Staff
Accounting Bulletin No. 98 ("SAB No. 98").
Under the provisions of SFAS No. 128 and SAB
No. 98, basic net loss per share is computed by dividing
the net loss attributable to common stockholders for the period
by the weighted average number of common shares outstanding for
the period. Diluted net loss per share attributable to common
stockholders is computed by dividing the net loss attributable
to common stockholders by the weighted average number of common
shares and dilutive common stock equivalents then outstanding.
Common stock equivalents consist of common shares issuable upon
the conversion of preferred stock and upon the exercise of stock
options, and the conversion of
F-12
Table of Contents
INHIBITEX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
preferred stock upon the exercise of warrants.
Dilutive earnings per share is the same as basic earnings per
share since common stock equivalents are excluded from the
calculation, due to their effect being anti-dilutive.
The pro forma net loss per share attributable to
common stockholders and the shares used to compute basic and
diluted pro forma net loss per share attributable to common
stockholders are calculated assuming all of the Company's
outstanding preferred stock was converted into common stock as
of its date of issuance and the conversion of all cumulative
preferred stock dividends as of the date they were accrued. This
calculation excludes the assumed issuance of shares of common
stock subject to the mandatory cashless exercise, upon the
closing of an initial public offering, of warrants that were
outstanding at December 31, 2003.
The following table set forth the computation of
historical and pro forma basic and diluted net loss attributable
to common stockholders per share:
Year Ended December 31,
2001
2002
2003
Historical
Numerator:
Net loss attributable to common stockholders
$
(9,377,724
)
$
(23,238,527
)
$
(28,534,137
)
Denominator:
Weighted average common shares outstanding
1,054,245
1,156,218
1,253,132
Basic and diluted net loss per share attributable
    to common stockholders
$
(8.90
)
$
(20.10
)
$
(22.77
)
Pro forma
Net loss attributable to common stockholders
$
(28,534,137
)
Pro forma basic and diluted net loss per share
    attributable to common stockholders (unaudited)
$
(1.18
)
Shares used above
1,253,132
Pro forma adjustment to reflect assumed weighted
    average effect of conversion of preferred stock and cumulative
    preferred stock dividends (unaudited)
22,892,157
Shares used to compute pro forma basic and
    diluted net loss per share (unaudited)
24,145,289
The following table outlines potentially dilutive
common stock equivalents outstanding that are not included in
the above historical calculations as the effect of their
inclusion was anti-dilutive.
December 31,
2001
2002
2003
Redeemable convertible preferred stock and
    related dividends
8,472,569
21,149,204
27,596,629
Common stock options
1,320,228
2,584,178
3,185,490
Warrants
261,369
3,118,483
4,374,694
Convertible preferred stock
216,000
216,000
216,000
Total
10,270,166
27,067,865
35,372,813
F-13
Table of Contents
INHIBITEX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
4.
Property and Equipment
December 31,
2002
2003
Laboratory equipment
$
1,601,297
$
1,948,952
Leasehold improvements
986,455
994,617
Computer software and equipment
745,613
735,563
Office furniture and fixtures
197,464
198,570
3,530,829
3,877,702
Less accumulated depreciation and amortization
(1,723,913
)
(2,242,158
)
Total property and equipment, net
$
1,806,916
$
1,635,544
Included in the property and equipment are assets
recorded under capital leases with a cost of approximately
$547,000 and $737,000 at December 31, 2002 and 2003,
respectively. Amortization of the assets recorded under capital
leases is included in depreciation expense. The accumulated
amortization related to these assets under capital leases was
approximately $191,000 and $421,000 at December 31, 2002
and 2003, respectively. Depreciation expense was approximately
$659,000, $772,000 and $768,000 for the years ended
December 31, 2001, 2002 and 2003, respectively.
5.
Accrued Expenses
The components of accrued expenses are as follows:
December 31,
2002
2003
Clinical development expenses
$
979,063
$
476,456
Payroll and related expenses
443,398
481,495
Manufacturing expenses
287,178
83,750
Professional fees
187,265
236,746
Other operating expenses
123,900
222,092
License fee
—
200,000
$
2,020,804
$
1,700,539
6.
Commitments and Contingencies
Lease
Commitments.
The Company leases
laboratory and office facilities in Alpharetta, Georgia under
two operating leases, one of which is with a related party. The
Company also leases office equipment under various
non-cancelable operating leases. Future minimum lease payments
under operating leases primarily relate to the laboratory and
office facility leases. One of the these leases includes annual
rent increases based upon increases in the Consumer Price Index,
which are considered to be contingent rentals and are charged to
expense when incurred. During the years ended December 31,
2001, 2002 and 2003, rent expense totaled approximately
$240,000, $270,000 and $421,000, respectively.
F-14
Table of Contents
INHIBITEX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
Future minimum payments under these operating
leases at December 31, 2003 are as follows:
Year Ending December 31,
2004
$
206,858
2005
205,722
2006
3,396
Total minimum lease payments
$
415,976
Purchase
Commitments.
In December 2001, the
Company entered into a ten-year contract manufacturing agreement
for Veronate. Pursuant to the terms of the agreement, the
Company is obligated to pay its contract manufacturer on a per
batch basis. The Company is required to provide the manufacturer
with a three-year rolling commitment that outlines the number of
batches it desires to be manufactured in each of the next three
years. In the event that Inhibitex cancels the production of any
of these batches, certain cancellation penalties may apply.
Specific prices per batch were established at the time of the
agreement and are subject to increases based upon increases in
certain cost of living indexes. The agreement may be terminated
by either party in the event of a default by the other party, or
upon mutual agreement.
In October 2002, Inhibitex entered into a
ten-year plasma supply agreement with a supplier. Inhibitex is
required to purchase a certain number of liters of plasma per
year that shall be agreed upon by both parties no later than
90 days prior to the beginning of such calendar year. The
Company is generally obligated to purchase 90% of the agreed
upon quantity in any given year. A price per liter was
established at the time of the agreement and is subject to
increases based upon increases in certain cost of living indexes
and other adjustments. The agreement may be terminated by either
party only in the event of a default by the other party, by the
Company upon 30 days written notice if the clinical
development of Veronate is halted or terminated, or upon mutual
agreement.
Contingencies.
In December 2003, the Company entered into an agreement to lease
a to-be built research and office facility. The lease is
immediately cancelable by the Company until March 30, 2004,
provided that the Company reimburses the developer for
out-of-pocket expenses it incurs through the date of termination
up to $325,000.
7.
Long-term Debt
Capital Lease
Obligations.
In 2002 and 2003,
Inhibitex entered into capital lease transactions related to the
acquisition of certain laboratory and other equipment. The
amortization of assets acquired under these capital leases has
been recorded as depreciation expense. These capital leases bear
interest at a rate of 10.2% and expire at various dates from
March 2005 to June 2007. In connection with these capital
leases, the lessor was granted warrants to purchase
5,117 shares of Series D Redeemable Convertible
Preferred Stock at an exercise price of $3.94 per share.
These warrants were recorded at their weighted average estimated
fair value of $2.49 per share, using the Black-Scholes method
assuming no dividend yield, expected life of seven years,
risk-free rate of 3.74% and volatility of 50%. This amount was
recorded as interest expense.
F-15
Table of Contents
INHIBITEX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
Future payments under capital lease agreements as
of December 31, 2003 are as follows:
Year Ending December 31,
2004
$
393,113
2005
282,502
2006
161,645
2007
29,437
Total future minimum lease payments
866,697
Less amount representing interest
(104,436
)
Present value of future minimum lease payments
762,261
Less current portion of capital lease obligations
(330,408
)
Long-term portion of capital lease obligations
$
431,853
Notes
Payable.
In January 1999,
Inhibitex entered into a loan and security agreement (the
"Security Agreement") with a financial institution.
Under the terms of the Security Agreement, Inhibitex could
borrow up to $1,000,000 through December 31, 1999,
evidenced by senior secured promissory notes (the "Senior
Notes"). In February and June 1999, Inhibitex executed
three Senior Notes in the aggregate amount of $447,584 under the
Security Agreement. During 2003, two of the Senior Notes were
repaid in full. The outstanding balance of the Senior Notes at
December 31, 2002 and 2003 was $107,843 and $15,244,
respectively. Remaining monthly payments are $3,941 through
April 2004. In conjunction with the Security Agreement, the
financial institution received a warrant to purchase
20,000 shares of Series B Redeemable Convertible
Preferred Stock at an exercise price of $1.50 per share.
Using the Black-Scholes method, the warrant was recorded at its
estimated fair value of $0.37 per share, assuming no
dividend yield, expected life of four years, risk-free
interest rate of 5.64% and volatility of 50%. The principal
balance of the related promissory notes was discounted in an
amount equal to such value.
In April 1999, the Company issued two promissory
notes to a related party in connection with certain leasehold
improvements. The notes bear interest at 7% per annum. One
note was repaid in full in December 1999. Remaining monthly
payments are $3,799 through December 2005, and the outstanding
balance as of December 31, 2002 and 2003 was $123,037 and
$84,852, respectively. In connection with these promissory
notes, the Company issued a warrant to purchase
11,250 shares of Series B Redeemable Convertible
Preferred Stock at an exercise price of $1.50 per share.
Using the Black-Scholes method, the warrant was recorded at its
estimated fair value of $0.59 per share, assuming no
dividend yield, an expected life of three years, risk-free
interest rate 5.97% and volatility of 50%. The principal balance
of the related notes was discounted in an amount equal to such
value.
On February 11, 2003, Inhibitex entered into
a loan and security agreement (the "Loan Agreement")
with a commercial bank. In June 2003, the Company borrowed
$2.5 million under the Loan Agreement ("Term
Note") and paid two interest-only payments in June and July
2003. Beginning August 2003, the Company began to make the first
of 36 equal monthly installments of principal of $69,444.
The Term Note bears interest at 6.5% per year. The
outstanding balance of the Term Note at December 31, 2003
was $2,152,778. The Loan Agreement is secured by all
unencumbered tangible assets of the Company.
F-16
Table of Contents
INHIBITEX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
Future minimum payments due under notes payable
as of December 31, 2003 are as follows:
Year Ending December 31,
2004
$
889,523
2005
877,239
2006
486,112
Total future payments
$
2,252,874
8.
Income Taxes
At December 31, 2002 and 2003, Inhibitex had
available net operating loss ("NOL") carryforwards of
approximately $36,548,000, and $58,852,000, respectively, which
will begin to expire in the year 2019. Inhibitex also has
approximately $470,000 and $657,000 of research and development
("R&D") tax credit carryforwards as of
December 31, 2002 and 2003, respectively. The NOL and
R&D tax credit carryforwards are available to offset future
income taxes payable, if any. The Tax Reform Act of 1986
contains provisions that may limit NOL and R&D tax credit
carryforwards available for use in any given year in the event
of significant changes in ownership interests, as defined.
Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of
Inhibitex's deferred tax asset are as follows:
December 31,
2002
2003
Deferred tax assets:
Net operating loss carryforwards
$
13,881,900
$
22,340,200
Research and development tax credit carryforwards
470,200
657,100
Deferred revenue
512,500
447,600
Other, net
172,100
235,200
Total deferred tax assets
15,036,700
23,680,100
Less valuation allowance
(15,036,700
)
(23,680,100
)
Net deferred tax assets
$
—
$
—
For financial reporting purposes,
SFAS No. 109 requires that a valuation allowance be
recorded to reduce the balance of deferred income tax assets if
it is more likely than not that some portion or all of the
deferred income tax assets will not be realized in the future.
Inhibitex has established a full valuation allowance equal to
the amount of its deferred tax asset due to uncertainties with
respect to the Company's ability to generate sufficient
taxable income in the future. The valuation allowance increased
by $8,643,400 from December 31, 2002 to December 31,
2003.
F-17
Table of Contents
INHIBITEX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
9.
Redeemable Convertible Preferred Stock and
    Warrants
The following table outlines redeemable
convertible preferred stock and related warrants:
2002
2003
Series B redeemable convertible preferred
    stock, $.001 par value; 4,500,000 and 2,600,000 shares
    authorized at December 31, 2002 and 2003, respectively;
    2,288,670 shares issued and outstanding for both periods
$
2,911,936
$
2,911,936
Series C redeemable convertible preferred
    stock, $.001 par value; 8,000,000 shares authorized
    and 5,576,240 shares issued and outstanding for both periods
18,801,857
20,073,240
Series D redeemable convertible preferred
    stock, $.001 par value; 17,500,000 shares authorized
    for both periods; 11,420,794 shares issued and outstanding
    for both periods
44,960,960
49,864,860
Series E redeemable convertible preferred
    stock, $.001 par value; no shares authorized, issued or
    outstanding at December 31, 2002; 9,600,000 shares
    authorized at December 31, 2003; 5,087,740 shares
    issued and outstanding at December 31, 2003
—
18,192,203
Subscription receivable for purchase of
    Series E redeemable convertible preferred stock
—
(1,499,997
)
Warrants
4,259,307
6,065,467
Total redeemable convertible preferred stock and
    warrants
$
70,934,060
$
95,607,709
During 1997, the Company issued
644,340 shares of Series B Redeemable Convertible
Preferred Stock ("Series B") for $750,012 in
cash. During 1998, the Company issued an additional
1,644,330 shares of Series B for $2,250,000 in cash.
In April and June 2000, the Company issued an
aggregate of 2,300,329 shares of Series C Redeemable
Convertible Preferred Stock ("Series C") for
total consideration of $6,555,938, which included the conversion
of $2,000,000 in bridge loans, accrued interest of $124,576, and
cash proceeds of $4,431,365. In October and November 2000, the
Company sold an additional 3,275,911 shares of
Series C for total cash consideration of $9,336,346.
In February, March, and April 2002, the Company
issued an aggregate of 11,420,794 shares of Series D
Redeemable Convertible Preferred Stock
("Series D") and warrants to purchase
2,855,200 shares of Series D for total cash
consideration of $44,997,928. Net proceeds to the Company, after
legal and other issuance costs, were $44,746,579. The total
proceeds were allocated between Series D and the related
warrants based on their relative fair values. The amount
allocated to the warrants was $4,140,040, which was recorded as
a discount to Series D. This discount is being accreted to
the Series D on a straight-line basis through April 6,
2006, the date that Series D becomes redeemable. The
current year accretion is recorded in the statement of
operations to arrive at the net loss attributable to common
stockholders.
F-18
Table of Contents
INHIBITEX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
In connection with the Series D financing,
in February 2002 the Board of Directors approved three
additional series of preferred stock Series B-1 Convertible
Preferred Stock (the "Series B-1"),
Series C-1 Convertible Preferred Stock (the
"Series C-1"), and Series D-1 Convertible
Preferred Stock (the "Series D-1"). The Company
is authorized to issue up to 2,600,000 shares of
Series B-1, 8,000,000 shares of Series C-1 and
17,500,000 shares of Series D-1. Series B-1,
Series C-1 and Series D-1 have the same rights and
preferences as the Series B, Series C and
Series D, respectively, except for certain provisions
relating to anti-dilution rights and rights of first refusal
with respect to additional issuances of equity securities. No
shares of these series of preferred stock were outstanding as of
December 31, 2002 and 2003.
In December 2003, the Company issued an
aggregate of 5,087,740 shares of Series E Redeemable
Convertible Preferred Stock ("Series E") and
warrants to purchase 1,271,930 shares of Series E for
total cash consideration of $20,045,696. Net proceeds to the
Company, after legal and other issuance costs, were $19,972,511.
Of this amount, $1,499,997 was recorded as a subscription
receivable at December 31, 2003, as these proceeds were not
received by the Company until January 5, 2004. The total
proceeds were allocated between Series E and the related
warrants based on their relative fair values. The amount
allocated to the warrants was $1,806,141, which was recorded as
a discount to Series E. This discount is being accreted to
Series E on a straight-line basis through April 6,
2006, the date the Series E becomes redeemable. The current
year accretion is recorded in the statement of operations to
arrive at the net loss attributable to common stockholders.
In connection with the Series E financing,
in December 2003 the Board of Directors approved an additional
series of preferred stock, Series E-1 Convertible Preferred
Stock (the "Series E-1"). The Company is
authorized to issue up to 9,600,000 shares of Series E
and Series E-1. Series E-1 has the same rights and
preferences as Series E, except for certain provisions
relating to anti-dilution rights and rights of first refusal
with respect to additional issuances of equity securities. No
shares of this series of preferred stock were outstanding as of
December 31, 2002 and 2003.
Voting
Rights.
All holders of redeemable
convertible preferred stock have voting rights equal to the
number of shares of common stock into which the respective
preferred stock is convertible.
Dividends.
Dividends on Series B are payable when and as declared by
the Board of Directors. Dividends on Series C and D are
cumulative and accrue at the rate of 8% per annum from the
date of issuance through the earlier of: (i) the date on
which the liquidation value is paid in connection with the
liquidation of the Company or redemption of such shares;
(ii) the date on which such shares are converted, or
(iii) the date on which such shares are otherwise acquired
by the Company. Dividends on Series C and D are also
convertible into shares of Series C and D at their
respective liquidation values per share. All dividends have been
accrued and included in the carrying value of the respective
redeemable convertible preferred stock in the accompanying
balance sheets. As of December 31, 2003, the Company had
accrued cumulative preferred stock dividends of $11,064,505,
which were convertible into 3,223,185 shares of preferred
stock. No dividends have been declared by the Board of
Directors, or paid by the Company.
Liquidation.
Upon a liquidation event, which includes a liquidation,
dissolution, winding-up of the Company, or a merger,
consolidation or reorganization of the Company that results in
the transfer of 50% or more of the outstanding voting power of
the Company or a sale of substantially all the assets of the
Company, the holders of Series B, Series C,
Series D and Series E are entitled to, prior and in
preference to any other stockholders, a liquidation preference
distribution of their respective liquidation values plus all
F-19
Table of Contents
INHIBITEX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
accrued but unpaid dividends or if greater, the
amount per share as would have been payable had each share of
preferred stock been converted in the Company's common
stock prior to a liquidation event. The liquidation value of
Series B issued before July 2, 1998 and on or after
July 2, 1998 is $1.164 and $1.50 per share,
respectively. The liquidation value of Series C issued on
or before June 8, 2000 and after June 8, 2000 is $5.70
and $2.85 per share, respectively. The liquidation value of
Series D and E is $3.94 per share. The following
table summarizes the liquidations preferences of convertible
redeemable preferred stock as of December 31, 2003:
Liquidation
Preference
Series B
$
3,000,012
Series C
26,722,817
Series D
51,787,839
Series E
20,045,695
$
101,556,363
Conversion.
The holders of Series B, Series C, Series D, and
Series E may convert at any time shares of their preferred
stock into common stock on a one-for-one basis subject to
certain adjustments including dilutive issuances, adjustments or
splits, as defined. All redeemable preferred stock will be
automatically converted to common stock upon the closing of an
initial public offering with gross proceeds of not less than
$50.0 million.
Redemption.
At any time after April 6, 2006, the holders of
Series B, Series C, Series D and Series E
have the option to require Inhibitex to redeem any or all of
their respective outstanding shares of redeemable preferred
stock. If so elected, the redemption price for each share of
preferred stock is the original purchase price paid for such
stock as adjusted for stock splits, stock dividends, or other
recapitalizations, plus all accrued but unpaid dividends. Prior
to the Series E financing in December 2003, the holders of
Series B, Series C and Series D could redeem
their preferred stock at any time after April 6, 2005.
Preferred Stock
Warrants.
The preferred stock
issuable upon the exercise of outstanding warrants to purchase
shares of the Company's redeemable convertible preferred
stock shall convert into common stock based upon a conversion
rate of one to one.
The following table outlines outstanding warrants
to purchase preferred stock:
Exercise Price
Number of Shares of
Per Share
Preferred Stock
Series B
$
1.50
222,328
Series C
2.85
5,119
Series D
3.94 – 5.91
2,860,317
Series E
5.91
1,271,930
Total
4,359,694
Warrants to purchase shares of redeemable
preferred stock issued in connection with notes payable and
capital leases are described in Note 7.
F-20
Table of Contents
INHIBITEX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
In connection with bridge loans provided to the
Company in March and August 1999, the Company issued warrants to
purchase a total of 170,000 shares of Series B at an
exercise price of $1.50 per share. The warrants became
exercisable on December 31, 1999 and expire on
June 19, 2004. Using the Black-Scholes method, the warrants
have been recorded at their estimated fair value of $0.53 to
$0.59 per share, assuming no dividend yield, risk-free
rates ranging from 5.19% to 5.97%, expected life of
three years and volatility of 50%.
In connection with another bridge loan provided
to the Company in March 2000, the Company issued warrants to
purchase a total of 40,000 shares of Series B at an
exercise price of $1.50 per share. The warrants became
exercisable on May 15, 2000 and expire on June 19,
2004. Using the Black-Scholes method, the warrants have been
recorded at their estimated fair value of $0.69 per share,
assuming no dividend yield, risk-free interest rate of 6.43%,
expected life of four years and volatility of 50%.
In connection with the issuance of shares of
Series D in February, March and April 2002, the Company
issued warrants to purchase 2,855,200 shares of
Series D at an exercise price of $5.91 per share. The
warrants may be exercised at any time by the holders through
February 7, 2007. The warrants have been recorded at their
estimated fair value of $1.45 per share using the
Black-Scholes method assuming no dividend yield, risk-free
interest rate of 4.3%, expected life of five years, and
volatility of 50%. The Series D was discounted by an amount
equal to such value.
In connection with the issuance of Series E
in December 2003, the Company issued warrants to purchase a
total of 1,271,930 shares of Series E at an exercise
price of $5.91 per share. The warrants may be exercised at
any time through December 19, 2008. The warrants have been
recorded at their estimated fair value of $1.42 per share
using the Black-Scholes method assuming no dividend yield,
risk-free interest rate of 3.7%, expected life of
five years, and volatility of 50%. The Series E was
discounted by an amount equal to such value.
The Company recorded aggregate accretion related
to warrants of $0, $1,164,476 and $1,329,899 in 2001, 2002 and
2003, respectively.
In the event of an initial public offering of the
Company's common stock of at least $50.0 million in
gross proceeds, the warrants issued in conjunction with sales of
Series D and Series E will be mandatorily exercisable
by their holders through a net issuance feature and the
Series D and Series E preferred stock issued pursuant
to this exercise will automatically be converted into common
shares upon the closing of such offering. The number of shares
of common stock that will ultimately be issuable pursuant to
this mandatory exercise will be dependent upon the price per
share of common stock upon the closing of an initial public
offering.
10.
Stockholders' (Deficit) Equity
Convertible Preferred
Stock.
On January 3, 1996,
the Company issued 216,000 shares of Series A
Preferred Stock ("Series A") for total
consideration of $540,000, which included the conversion of a
$220,000 bridge loan and $320,000 in cash consideration (the
"Series A Financing").
Series A is convertible into common stock at
the option of the holder, or automatically upon the completion
of an initial public offering of the Company's common stock
providing net proceeds of at least $50.0 million. The
initial conversion rate for Series A is one to one, which
is to be adjusted in the event of a subdivision or combination
of the stock or a reorganization, dividend, consolidation,
merger or sale of the
F-21
Table of Contents
INHIBITEX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
Company or sale of additional shares of common
stock for consideration less than the original purchase price of
the Series A. Dividends on Series A are payable when
and as declared by the Board of Directors. In the event of a
liquidation of the Company, the Series A stockholders are
entitled to receive, prior to and in preference to the common
stockholders, an amount equal to the Series A liquidation
value. The liquidation value of Series A shares is
$1.164 per share plus all declared and accrued but unpaid
dividends. As of December 31, 2003, this liquidation value
was $251,424. The holders of Series A have voting rights
equal to the number of shares of common stock into which the
shares are convertible. The holders of Series A and common
stock (voting as a class) may elect one director.
Common Stock.
As of December 31, 2003, the Company is authorized to issue
43,100,000 shares of common stock. Each holder of common
stock is entitled to one vote for each share of common stock
held of record on all matters on which stockholders generally
are entitled to vote.
As of December 31, 2003, the Company had
reserved shares of common stock for issuance as follows:
Common stock options
3,185,490
Conversion of Series A
216,000
Conversion of Series B
2,288,670
Conversion of Series C
5,576,240
Conversion of Series D
11,420,794
Conversion of Series E
5,087,740
Dividends accrued on Series C and D
3,223,185
Warrants to purchase shares of common stock and
    Series B, Series C, Series D, and Series E
4,374,694
Total
35,372,813
Since inception and through December 31,
2003 the Company issued a total of 1,275,688 shares of
common stock. Of this amount, 100,000 shares were purchased
by an investor in 1994, 878,055 have been issued to founders,
senior management and consultants and 297,633 have been issued
pursuant to the exercise of stock options and warrants.
11.
Stock Option Plans
1998 Equity Ownership
Plan.
In May 1998, the Board of
Directors approved the 1998 Equity Ownership Plan (the
"Plan"), which provided for the grant of stock options
to directors, officers, employees and consultants. Under the
Plan, both incentive stock options and non-qualified stock
options, among other equity related awards, could be granted.
The Board of Directors may determine the term and vesting dates
of all options at their grant date, provided that such price
shall not be less than the fair market value of the
Company's stock on the date of grant. Under the Plan, the
maximum term for an option grant is 10 years from the grant
date, and options generally vest ratably over a period of four
years from the grant date. As of December 31, 2003, there
were 1,002,242 outstanding options under the Plan to purchase
the Company's common stock. Upon the adoption of the 2002
Stock Incentive Plan ("2002 Plan") as discussed below,
no additional grants of stock options or equity awards were
authorized under the 1998 Equity Ownership Plan. However, future
forfeitures of any stock options granted under the 1998 Equity
Ownership Plan are added to the number of shares available under
the 2002 Plan.
F-22
Table of Contents
INHIBITEX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
2002 Inhibitex, Inc. Stock Incentive Plan
and 2002 Non-Employee Directors Stock Option
Plan.
In February 2002, the Board
of Directors approved the 2002 Plan, which provides for the
grant of incentive stock options, non-qualified stock options
and other equity related awards to employees, contractors and
consultants of the Company. In addition, the Company adopted the
2002 Non-Employee Directors Stock Option Plan (the
"Director Plan") which provides for the grant of
non-qualified stock options and other equity related awards to
non-employee members of the Board of Directors. The 2002 Plan
and the Director Plan are administered by the compensation
committee of the Board of Directors, which has the authority to
select the individuals to whom awards are to be granted, the
number of shares granted, and the vesting schedule. As of
December 31, 2003, an aggregate of 2,528,191 and 250,000
shares of common stock were reserved for issuance under the 2002
Plan and the Director Plan, respectively. Under the 2002 Plan
and Director Plan, the maximum term for an option grant is ten
and six years from the grant date, respectively. Options granted
under the 2002 Plan and Director Plan generally vest ratably
over a period of four years and three years, respectively, from
the grant date. As of December 31, 2003, there were
2,029,999 outstanding options to purchase the Company's
common stock and 493,128 options available for grant under the
2002 Plan. As of December 31, 2003, there were 120,000
outstanding options to purchase the Company's common stock
and 130,000 options were available for grant under the Director
Plan.
The following is a summary of the stock option
activity and related information related to the Company's
stock option plans, and 35,000 shares issued outside these
plans, from inception of such plans through the period ended
December 31, 2003:
Weighted Average
Number of
Exercise Price
Exercise Price
Shares
Per Share
Per Share
Granted during 1998
123,241
$
0.10
$
0.10
Balance at December 31, 1998
123,241
0.10
0.10
Granted
159,000
0.12-0.15
0.13
Exercised
(4,250
)
0.10
0.10
Balance at December 31, 1999
277,991
0.10-0.15
0.12
Granted
728,382
0.12-0.285
0.16
Exercised
(18,250
)
0.10-0.15
0.12
Cancelled
(19,750
)
0.12
0.12
Balance at December 31, 2000
968,373
0.10-0.285
0.15
Granted
497,250
0.285
0.285
Exercised
(106,646
)
0.10-0.285
0.12
Cancelled
(38,750
)
0.10-0.285
0.19
Balance at December 31, 2001
1,320,227
0.10-0.285
0.20
Granted
1,523,000
0.285-0.80
0.80
Exercised
(112,859
)
0.10-0.285
0.16
Cancelled
(146,190
)
0.10-0.80
0.31
Balance at December 31, 2002
2,584,178
0.10-0.80
0.55
Granted
679,500
0.80
0.80
Exercised
(54,378
)
0.10-0.80
0.35
Cancelled
(23,810
)
0.12-0.80
0.65
Balance at December 31, 2003
3,185,490
0.10-0.80
0.60
F-23
Table of Contents
INHIBITEX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
The following table summarizes information
relating to outstanding and exercisable options as of
December 31, 2003:
Outstanding
Exercisable
Weighted Average
Remaining
Weighted Average
Weighted Average
Number of
Contractual Life
Exercise
Number of
Exercise
Exercise Prices
Shares
(in Years)
Price
Shares
Price
$0.10
92,240
4.41
$
0.10
92,240
$
0.10
0.12
377,001
6.06
0.12
300,167
0.12
0.15
33,250
5.35
0.15
33,250
0.15
0.285
548,000
7.08
0.285
293,130
0.285
0.80
2,134,999
4.89
0.80
361,294
0.80
3,185,490
5.40
0.60
1,080,081
0.39
The Company applies the measurement principles of
APB No. 25 in accounting for stock options granted to its
employees and directors.
12.
Research and License Agreements
To date, the Company has entered into a number of
license and collaborative agreements with various institutions
to obtain intellectual property rights and patents relating to
MSCRAMM proteins, and its product candidates. Inhibitex has also
entered into an exclusive worldwide license and collaboration
agreement with Wyeth with respect to its use of the MSCRAMM
proteins to develop staphylococcal vaccines. The significant
arrangements are described further below.
Wyeth.
In
August 2001, Inhibitex entered into an exclusive worldwide
license and development collaboration agreement with Wyeth for
the development of staphylococcal vaccines for humans. In
connection with this agreement, the Company received an up-front
license fee of $1.5 million. It is also entitled to receive
annual research support payments and, if specified milestones
are achieved, additional milestone payments. Under the terms of
this agreement, Inhibitex granted Wyeth an exclusive worldwide
license to its MSCRAMM protein intellectual property with
respect to human vaccines against staphylococcal organisms. The
development, manufacture and sale of any products resulting from
the collaboration are the responsibility of Wyeth. The Company
is entitled to royalties on net sales of licensed products
manufactured, sold or distributed by Wyeth. Inhibitex may
terminate the agreement if Wyeth fails to use reasonable
commercial efforts to bring related products to market. Wyeth
may terminate the agreement, without cause, upon six months
notice. Otherwise, this agreement will terminate upon the
expiration of all of the licensed patents.
Texas A&M University Health Science
Center.
Inhibitex has licensed, on
an exclusive basis, from the Texas A&M University System a
number of issued United States patents, related United States
divisional applications and foreign counterpart applications
directed to one of the MSCRAMM proteins that the Company's
lead product candidate, Veronate, targets. Texas A&M may
terminate the license if the Company fails to use commercially
reasonable efforts to bring product candidates to market.
Inhibitex may terminate the license without cause upon
60 days written notice. Otherwise, this agreement will
terminate
F-24
Table of Contents
INHIBITEX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
upon the expiration of all of the licensed
patents. The Company has agreed to pay Texas A&M a royalty
based on net sales for any products sold utilizing these patents.
BioResearch Ireland (BRI)/ Trinity College
Dublin.
Inhibitex has also
obtained a license from BioResearch Ireland ("BRI")
under certain patents and related applications licensed to it
from Texas A&M, as described above. Scientists from both
Texas A&M and BRI are co-inventors on these applications.
The license also covers pending international applications. BRI
may terminate the license if Inhibitex fails to use commercially
reasonable efforts to bring one or more products that use the
licensed technology to market. Otherwise, this license will
terminate upon the expiration of the licensed patents. The
earliest of the related United States patents will expire in
2014, if not extended. BRI is entitled to a royalty on the net
sales of products sold utilizing these patents.
Other
Agreements.
In November 2001,
Inhibitex entered into a research evaluation and worldwide
non-exclusive license agreement with Lonza Biologics for
intellectual property and materials relating to the expression
of recombinant monoclonal antibodies to bacterial surface
proteins for use in the manufacture of Aurexis. Under the terms
of the agreement, Inhibitex agreed to pay an annual fee and a
royalty on the net sales of any products that it may sell that
utilize this technology. Inhibitex may terminate the agreement
upon 60 days notice. The agreement terminates upon the
expiration of the last valid patent or 15 years, whichever
is longer.
In June 2003, Inhibitex obtained a non-exclusive,
worldwide royalty-bearing license from Genentech for a patent
relating to the production of monoclonal antibodies for use in
the manufacture of Aurexis. Under the agreement, the Company
paid Genentech an up-front license fee and it is obligated to
pay Genentech a milestone payment due upon the approval of
Aurexis and a royalty on the sale of any of its products that
utilize the underlying technology. Inhibitex may terminate this
agreement without cause upon 90 days notice. Otherwise,
this license will terminate upon the expiration of the patent,
which will occur in 2018 if not extended.
In July 2003, Inhibitex obtained a
non-exclusive, worldwide royalty-bearing license from the
University of Iowa for patents relating to technology used in
the expression of recombinant proteins for use in the
manufacture of Aurexis. Under this agreement, the Company paid
the University of Iowa an up-front license fee and it is
obligated to pay a royalty on the sale of any of its products
that utilize the underlying technology. The Company may
terminate this agreement at any time. Otherwise, this license
will terminate upon the expiration of the patents, which will be
2009 and 2012, respectively.
13. Employee Benefit Plan
Inhibitex sponsors a 401(k) plan for the benefit
of its employees that is a defined contribution plan intended to
qualify under Section 401(a) of the Internal Revenue Code
of 1986, as amended. Eligible employees may make pre-tax
contributions to the 401(k) plan of up to 20% of their eligible
earnings, subject to the statutorily prescribed annual limit.
The 401(k) plan permits the Company to make discretionary
matching and profit sharing contributions. The Company's
contributions to the plan were approximately $62,000, $112,000
and $108,000 in 2001, 2002 and 2003, respectively. Under the
401(k) plan, each employee is fully vested in his or her
deferred salary contributions. The Company's contributions
vest over a three-year period.
F-25
Table of Contents
INHIBITEX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL
STATEMENTS — (Continued)
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.
Net Loss
Attributable
to Common
Net Loss
Stockholders
Attributable
Per Share —
to Common
Basic and
Revenue
Loss from Operations
Net Loss
Stockholders
Diluted
Year Ended December 31, 2002
First Quarter
$
225,000
$
(3,017,972
)
$
(2,927,667
)
$
(3,888,603
)
$
(3.48
)
Second Quarter
225,000
(4,586,897
)
(4,428,398
)
(5,981,627
)
(5.23
)
Third Quarter
225,000
(4,887,392
)
(4,752,731
)
(6,308,550
)
(5.50
)
Fourth Quarter
225,000
(5,550,122
)
(5,503,927
)
(7,059,747
)
(5.80
)
Year Ended December 31, 2003
First Quarter
225,000
(4,716,231
)
(4,647,137
)
(6,195,560
)
(5.02
)
Second Quarter
225,000
(6,235,947
)
(6,206,087
)
(7,754,510
)
(6.21
)
Third Quarter
183,333
(6,055,302
)
(6,054,360
)
(7,602,782
)
(6.03
)
Fourth Quarter
462,500
(5,644,833
)
(5,425,437
)
(6,981,285
)
(5.51
)
15. Subsequent Events
On February 20, 2004, the Board of Directors
approved a reverse stock split to be effective prior to an
initial public offering of the Company's common stock. The
exact amount of the reverse stock split will be approved by the
Board of Directors prior to the completion of such an offering.
On February 20, 2004 the Compensation
Committee of the Board of Directors also approved the grant of
stock options to officers and employees to purchase
406,000 shares of common stock under the Company's
stock option plans.
On February 20, 2004, the Board of Directors
approved a number of amendments to the Company's stock
option plans. The Company's 2002 Plan was renamed the 2004
Stock Incentive Plan and was amended to increase the number of
shares of common stock reserved for issuance hereunder by
3,400,000 to an aggregate of 5,928,191. Further, the 2004 Stock
Incentive Plan was amended to include future grants of stock
options to members of the Board of Directors. Accordingly, the
Board of Directors amended the Director Plan such that no future
grants would be made from that plan.
On February 20, 2004, the Company's
Board of Directors approved an amended and restated certificate
of incorporation. The restated certificate of incorporation,
which will become effective upon the closing of an initial
public offering, will increase the Company's authorized
common stock to 75,000,000 shares and will authorize
5,000,000 shares of preferred stock, issuable in one or
more series to be designated by the Company's Board of
Directors.
F-26
Table of Contents
Shares
INHIBITEX, INC.
Common Stock
PROSPECTUS
Until                     ,
2004, all dealers that effect transaction in these securities,
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.
Piper Jaffray
Lazard
Thomas Weisel Partners LLC
,
2004
Table of Contents
PART II
INFORMATION NOT REQUIRED IN
PROSPECTUS
Item 13.
Other Expenses of Issuance and
    Distribution.
The following table sets forth the costs and
expenses, other than underwriting discounts and commissions,
payable by us in connection with the sale of our common stock
being registered. All amounts are estimates, other than the SEC
registration fee and the National Association of Securities
Dealers, Inc. fee.
SEC registration fee
$
10,923
National Association of Securities Dealers, Inc.
    fee
9,125
Nasdaq Stock Market listing fee
*
Accountants' fees and expenses
*
Legal fees and expenses
*
Blue Sky fees and expenses
*
Transfer Agent's fees and expenses
*
Printing and engraving expenses
*
Miscellaneous
*
Total expenses
$
*
*
To be filed by amendment.
Item 14.
Indemnification of Directors and
    Officers.
Section 145 of the General Corporation Law
of the State of Delaware permits a corporation, under specified
circumstances, to indemnify its directors, officers, employees
or agents against expenses (including attorney's fees),
judgments, fines and amounts paid in settlements actually and
reasonably incurred by them in connection with any action, suit
or proceeding brought by third parties by reason of the fact
that they were or are directors, officers, employees or agents
of the corporation, if such directors, officers, employees or
agents acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or
proceeding, had no reason to believe their conduct was unlawful.
In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses
actually or reasonably incurred by directors, officers,
employees or agents in connection with the defense or settlement
of an action or suit, and only with respect to a matter as to
which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification
shall be made if such person shall have been adjudged liable to
the corporation, unless and only to the extent that the court in
which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or
agents are fairly and reasonably entitled to indemnify for such
expenses despite such adjudication of liability.
Our amended and restated certificate of
incorporation provides that we shall indemnify our directors,
officers and employees (and those serving at our request as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise or as a
trustee or administrator under an employee benefit plan) against
all expenses (including attorney's fees), liability and
loss in any action, suit or proceeding arising out of his or her
status as a director, officer, employee or agent or
II-1
Table of Contents
activities in any of those capacities. We shall
pay expenses incurred by a director, officer, employee or agent
in defending an action, suit or proceeding, or appearing as a
witness at a time when he or she has not been named as a
defendant or a respondent, in advance of the final disposition
of the action, suit or proceeding upon receipt of an undertaking
by or on behalf of the director, officer, employee or agent to
repay the amount if it shall ultimately be determined that he or
she is not entitled to be indemnified by us.
We also carry liability insurance covering each
of our directors and officers.
Our amended and restated certificate of
incorporation states that our directors will not have personal
liability for monetary damages for any breach of fiduciary duty
as a director, except for liability (i) for any breach of
the director's duty of loyalty to us or our stockholders,
(ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law
of the State of Delaware, which makes directors liable for
unlawful dividends or unlawful stock repurchases or redemptions,
or (iv) for any transaction from which the director derived
an improper personal benefit.
Item 15.
Recent Sales of Unregistered
    Securities.
In the three years preceding January 31,
2004, the registrant has issued the following securities that
were not registered under the Securities Act:
(1) The registrant granted stock options to
    employees, directors and consultants under its Amended and
    Restated 1998 Equity Ownership Plan, 2004 Stock Incentive Plan
    and 2002 Non-Employee Directors Stock Option Plan covering an
    aggregate of 2,461,500 shares of the registrant's
    common stock, at a weighted average exercise price of
    $0.74 per share. Of these, options covering an aggregate of
    212,501 shares were canceled without being exercised.
    During the same period, the registrant sold an aggregate of
    368,165 shares of its common stock to employees, directors,
    and consultants for cash consideration in the aggregate amount
    of $61,000 upon the exercise of stock options granted under the
    Amended and Restated 1998 Equity Ownership Plan, 2004 Stock
    Incentive Plan and 2002 Non-Employee Directors Stock Option Plan.
(2) In April 2001, the registrant issued
    warrants exercisable into an aggregate of 15,000 shares of
    common stock to Cordova Technology Partners for representation
    on the board of directors of the registrant by a principal of
    Cordova Technology Partners. The warrants have an exercise price
    of $0.12 per share.
(3) In August 2001, in connection with an
    equipment term loan, the registrant issued warrants exercisable
    into an aggregate of 5,119 shares of Series C
    Preferred Stock to General Electric Capital Corporation. The
    warrants have an exercise price of $2.85 per share.
(4) In February, March and April 2002, the
    registrant sold an aggregate of 11,420,794 shares of its
    Series D Preferred Stock, convertible into
    11,420,794 shares of its common stock, at $3.94 per
    share and warrants exercisable into an aggregate of
    2,855,200 shares of Series D Preferred Stock at an
    exercise price of $5.91 for an aggregate offering price of
    $44,997,928 to a group of investors including Essex Woodlands
    Health Ventures V, L.P., William Blair Capital Partners VI,
    L.P., New Enterprise Associates 10, Limited Partnership,
    and Alliance Technology Ventures III, L.P. and affiliated
    entities.
(5) In September 2002, in connection with an
    equipment term loan, the registrant issued warrants exercisable
    into an aggregate of 1,914 shares of Series D
    Preferred Stock to General Electric Capital Corporation. The
    warrants have an exercise price of $3.94 per share.
(6) In June, July and December 2003, in
    connection with an equipment term loan, the registrant issued
    warrants exercisable into an aggregate of 756, 1,682 and 765,
    shares of Series D Preferred
II-2
Table of Contents
Stock, respectively, to General Electric Capital
    Corporation. The warrants have an exercise price of
    $3.94 per share.
(7) In December 2003, the registrant sold an
    aggregate of 5,087,740 shares of its Series E
    Preferred Stock, convertible into 5,087,740 shares of its
    common stock, at $3.94 per share and warrants exercisable
    into an aggregate of 1,271,930 shares of Series E
    Preferred Stock at an exercise price of $5.91 for an aggregate
    offering price of $20,045,696 to a group of investors including
    Essex Woodlands Health Ventures V, L.P., William Blair
    Capital Partners VI, L.P., New Enterprise Associates 10,
    Limited Partnership and Alliance Technology Ventures III,
    L.P. and affiliated entities.
The registrant claimed exemption from
registration under the Securities Act for the sales and
issuances of securities in the transactions described in
paragraph (1) above under Section 4(2) under the
Securities Act in that such sales and issuances did not involve
a public offering or under Rule 701 promulgated under the
Securities Act, in that they were offered and sold either
pursuant to written compensatory benefit plans or pursuant to a
written compensation contract, as provided by Rule 701.
The registrant claimed exemption from
registration under the Securities Act for the sale and issuance
of securities in the transactions described in
paragraphs (2), (3), (4), (5), (6) and (7) by
virtue of Section 4(2) and/or Regulation D promulgated
there under as transactions not involving any public offering.
All of the purchasers of unregistered securities for which the
registrant relied on Regulation D and/or Section 4(2),
except for one institutional lender, represented that they were
accredited investors as defined under the Securities Act. The
registrant claimed such exemption on the basis that (a) the
purchasers in each case represented that they intended to
acquire the securities for investment only and not with a view
to the distribution thereof and that they either received
adequate information about the registrant or had access, through
employment or other relationships, to such information and
(b) appropriate legends were affixed to the stock
certificates issued in such transactions.
Item 16.
Exhibits and Financial Statement
    Schedules.
(A) Exhibits.
Exhibit
No.
Description
1
.1
Form of Purchase Agreement.
3
.1
Certificate of Incorporation.
3
.2*
Form of Amendment to Certificate of Incorporation.
3
.3
Bylaws, as amended.
3
.4
Eighth Amended and Restated Certificate of
    Incorporation to be effective immediately following the closing
    of the offering.
3
.5
Amended and Restated Bylaws to be effective
    immediately following the closing of the offering.
4
.1*
Specimen certificate evidencing the common stock.
5
.1*
Opinion of Swidler Berlin Shereff Friedman, LLP,
    as to the legality of the common stock.
10
.1
Amended and Restated 1998 Equity Ownership Plan
    and related form of option agreement.
10
.2*
2004 Stock Incentive Plan and related form of
    option agreement.
10
.3
2002 Non-Employee Directors Stock Option Plan and
    related form of option agreement.
10
.4
2004 Employee Stock Purchase Plan.
10
.5
Form of Warrant to purchase shares of
    Series B Preferred Stock.
10
.6
Form of Warrant to purchase shares of
    Series D Preferred Stock.
II-3
Table of Contents
Exhibit
No.
Description
10
.7
Form of Amendment to Warrant to purchase shares
    of Series D Preferred Stock, dated February 20, 2004.
10
.8
Form of Warrant to purchase shares of
    Series E Preferred Stock.
10
.9
Form of Amendment to Warrant to purchase shares
    of Series E Preferred Stock.
10
.10
Amended and Restated Master Rights Agreement,
    dated December 19, 2003, by and among the registrant and
    holders of the registrant's capital stock.
10
.11
Amendment No. 1 to Amended and Restated
    Master Rights Agreement dated February 20, 2004.
10
.12
Form of Indemnity Agreement.
10
.13
Employment Agreement, dated as of
    February 20, 2004, by and between the registrant and
    William D. Johnston.
10
.14
Amended and Restated Employment Agreement, dated
    as of February 20, 2004, by and between the registrant and
    Seth V. Hetherington.
10
.15
Amended and Restated Employment Agreement, dated
    as of February 20, 2004, by and between the registrant and
    Joseph M. Patti.
10
.16
Amended and Restated Employment Agreement, dated
    as of February 20, 2004, by and between the registrant and
    Russell H. Plumb.
10
.17
Amended and Restated Employment Agreement, dated
    as of February 20, 2004, by and between the registrant and
    David M. Wonnacott.
10
.18†
License and Development Collaboration Agreement,
    dated August 2, 2001, by and between the registrant and
    American Home Products Corporation, acting through its
    Wyeth-Ayerst Laboratories Division.
10
.19†
License Agreement, dated February 4, 2000,
    between the registrant and The Texas A&M University System.
10
.20†
Amendment No. 1 to License Agreement, dated
    April 29, 2002, between the registrant and The Texas
    A&M University System.
10
.21
Amendment No. 2 to License Agreement, dated
    April 29, 2002, between the registrant and The Texas
    A&M University System.
10
.22†
Exclusive License Agreement, dated April 8,
    1999, between the registrant and Enterprise Ireland, trading as
    BioResearch Ireland.
10
.23†
License Agreement, dated December 23, 2002,
    between the registrant and Lonza Biologics PLC.
10
.24†
Non-Exclusive Cabilly License Agreement, dated
    June 30, 2003, between the registrant and Genentech, Inc.
10
.25†
Patent License Agreement, dated March 2,
    2004, between the registrant and the National Institutes of
    Health.
10
.26†
License Agreement, dated July 1, 2003,
    between the registrant and the University of Iowa Research
    Foundation.
10
.27†
Plasma Supply Agreement, dated October 22,
    2002, between the registrant and DCI Management Group, Inc.
10
.28
Amendment to Plasma Supply Agreement, dated
    February 3, 2003, between the registrant and DCI Management
    Group, LLC.
10
.29
Amendment to Plasma Supply Agreement, dated
    July 3, 2003, between the registrant and DCI Management
    Group, LLC.
10
.30†
Production Agreement, dated December 5,
    2001, between the registrant and Nabi.
II-4
Table of Contents
Exhibit
No.
Description
10
.31†
First Amendment to Production Agreement between
    the registrant and Nabi Pharmaceuticals.
10
.32
Sublease Agreement, dated January 1, 2001,
    between the registrant and AtheroGenics, Inc.
10
.33
Non-Negotiable Promissory Note, dated
    January 1, 2002 issued by the registrant to AtheroGenics,
    Inc.
10
.34
Sublease Agreement, dated December 23, 2002,
    between the registrant and Lucent Technologies, Inc.
10
.35
Lease Agreement, dated December 31, 2003,
    between the registrant and Cousins Properties Incorporated.
10
.36
Loan and Security Agreement, dated
    February 11, 2003, between the registrant and Silicon
    Valley Bank.
23
.1
Consent of Ernst & Young LLP.
23
.2*
Consent of Swidler Berlin Shereff Friedman, LLP
    (included in Exhibit 5.1).
24
.1
Powers of Attorney (included in signature page).
*
To be filed by amendment.
†
Confidential treatment requested as to certain
    portions.
II-5
Table of Contents
(B) Financial Statement
Schedules
None.
Item 17.
Undertakings.
(a) The undersigned registrant hereby
undertakes to provide to the underwriters at the closing
specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
(b) 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 SEC,
such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby
undertakes that:
(i) 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 the 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 the
    registration statement as of the time it was declared effective.
(ii) For purposes of determining any
    liability under the Securities Act, each post-effective
    amendment that contains a form of prospectus shall be deemed to
    be a new registration statement relating to the securities
    offered therein, and the offering of such securities at that
    time shall be deemed to be the initial bona fide offering
    thereof.
II-6
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Alpharetta, Georgia on
this 3rd day of March, 2004.
INHIBITEX, INC.
By:
/s/ WILLIAM D. JOHNSTON, PH.D.
William D. Johnston, Ph.D.
President and Chief Executive
    Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below hereby constitutes and
appoints William D. Johnston and Russell H. Plumb, and
each of them, his true and lawful attorneys-in-fact and agents
with full power of substitution and resubstitution, for him and
in his name, place, and stead, in any and all capacities, to
sign any and all amendments (including post-effective
amendments) and additions to this Registration Statement on
Form S-1, and any subsequent registration statements
pursuant to Rule 462(b) under the Securities Act of 1933,
and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, and hereby grants to such attorneys-in-fact
and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to
be done, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities
Act of 1933, this registration statement has been signed by the
following persons in the capacities and on the dates indicated.
Signature
Title
Date
/s/ WILLIAM D. JOHNSTON, PH.D.
William D. Johnston, Ph.D.
President, Chief Executive Officer and Director
    (Principal Executive Officer)
March 3, 2004
/s/ RUSSELL H. PLUMB
Russell H. Plumb
Chief Financial Officer (Principal Financial and
    Accounting Officer)
March 3, 2004
/s/ MICHAEL A. HENOS
Michael A. Henos
Chairman of the Board of Directors
March 3, 2004
/s/ M. JAMES BARRETT, PH.D.
M. James Barrett, Ph.D.
Director
March 3, 2004
II-7
Table of Contents
Signature
Title
Date
/s/ CARL E. BROOKS
Carl E. Brooks
Director
March 3, 2004
/s/ J. DOUGLAS EPLETT, M.D.
J. Douglas Eplett, M.D.
Director
March 3, 2004
/s/ RUSSELL M. MEDFORD, M.D., PH.D.
Russell M. Medford, M.D., Ph.D.
Director
March 3, 2004
/s/ ARDA M. MINOCHERHOMJEE, PH.D.
Arda M. Minocherhomjee, Ph.D.
Director
March 3, 2004
/s/ JOSEPH M. PATTI, M.S.P.H., PH.D.
Joseph M. Patti, M.S.P.H., Ph.D.
Director
March 3, 2004
/s/ MARC L. PREMINGER
Marc L. Preminger
Director
March 3, 2004
/s/ LOUIS W. SULLIVAN, M.D.
Louis W. Sullivan, M.D.
Director
March 3, 2004
II-8
Table of Contents
EXHIBIT INDEX
Exhibit
Number
Description
1
.1
Form of Purchase Agreement.
3
.1
Certificate of Incorporation.
3
.2*
Form of Amendment to Certificate of Incorporation.
3
.3
Bylaws, as amended.
3
.4
Eighth Amended and Restated Certificate of
    Incorporation to be effective immediately following the closing
    of the offering.
3
.5
Amended and Restated Bylaws to be effective
    immediately following the closing of the offering.
4
.1*
Specimen certificate evidencing the common stock.
5
.1*
Opinion of Swidler Berlin Shereff Friedman, LLP,
    as to the legality of the common stock.
10
.1
Amended and Restated 1998 Equity Ownership Plan
    and related form of option agreement.
10
.2*
2004 Stock Incentive Plan and related form of
    option agreement.
10
.3
2002 Non-Employee Directors Stock Option Plan and
    related form of option agreement.
10
.4
2004 Employee Stock Purchase Plan.
10
.5
Form of Warrant to purchase shares of
    Series B Preferred Stock.
10
.6
Form of Warrant to purchase shares of
    Series D Preferred Stock.
10
.7
Form of Amendment to Warrant to purchase shares
    of Series D Preferred Stock, dated February 20, 2004.
10
.8
Form of Warrant to purchase shares of
    Series E Preferred Stock.
10
.9
Form of Amendment to Warrant to purchase shares
    of Series E Preferred Stock.
10
.10
Amended and Restated Master Rights Agreement,
    dated December 19, 2003, by and among the registrant and
    holders of the registrant's capital stock.
10
.11
Amendment No. 1 to Amended and Restated
    Master Rights Agreement dated February 20, 2004.
10
.12
Form of Indemnity Agreement.
10
.13
Employment Agreement, dated as of
    February 20, 2004, by and between the registrant and
    William D. Johnston.
10
.14
Amended and Restated Employment Agreement, dated
    as of February 20, 2004, by and between the registrant and
    Seth V. Hetherington.
10
.15
Amended and Restated Employment Agreement, dated
    as of February 20, 2004, by and between the registrant and
    Joseph M. Patti.
10
.16
Amended and Restated Employment Agreement, dated
    as of February 20, 2004, by and between the registrant and
    Russell H. Plumb.
10
.17
Amended and Restated Employment Agreement, dated
    as of February 20, 2004, by and between the registrant and
    David M. Wonnacott.
10
.18†
License and Development Collaboration Agreement,
    dated August 2, 2001, by and between the registrant and
    American Home Products Corporation, acting through its
    Wyeth-Ayerst Laboratories Division.
10
.19†
License Agreement, dated February 4, 2000,
    between the registrant and The Texas A&M University System.
Table of Contents
Exhibit
Number
Description
10
.20†
Amendment No. 1 to License Agreement, dated
    April 29, 2002, between the registrant and The Texas
    A&M University System.
10
.21
Amendment No. 2 to License Agreement, dated
    April 29, 2002, between the registrant and The Texas
    A&M University System.
10
.22†
Exclusive License Agreement, dated April 8,
    1999, between the registrant and Enterprise Ireland, trading as
    BioResearch Ireland.
10
.23†
License Agreement, dated December 23, 2002,
    between the registrant and Lonza Biologics PLC.
10
.24†
Non-Exclusive Cabilly License Agreement, dated
    June 30, 2003, between the registrant and Genentech, Inc.
10
.25†
Patent License Agreement, dated March 2,
    2004, between the registrant and the National Institutes of
    Health.
10
.26†
License Agreement, dated July 1, 2003,
    between the registrant and the University of Iowa Research
    Foundation.
10
.27†
Plasma Supply Agreement, dated October 22,
    2002, between the registrant and DCI Management Group, Inc.
10
.28
Amendment to Plasma Supply Agreement, dated
    February 3, 2003, between the registrant and DCI Management
    Group, LLC.
10
.29
Amendment to Plasma Supply Agreement, dated
    July 3, 2003, between the registrant and DCI Management
    Group, LLC.
10
.30†
Production Agreement, dated December 5,
    2001, between the registrant and Nabi.
10
.31†
First Amendment to Production Agreement between
    the registrant and Nabi Pharmaceuticals.
10
.32
Sublease Agreement, dated January 1, 2001,
    between the registrant and AtheroGenics, Inc.
10
.33
Non-Negotiable Promissory Note, dated
    January 1, 2002 issued by the registrant to AtheroGenics,
    Inc.
10
.34
Sublease Agreement, dated December 23, 2002,
    between the registrant and Lucent Technologies, Inc.
10
.35
Lease Agreement, dated December 31, 2003,
    between the registrant and Cousins Properties Incorporated.
10
.36
Loan and Security Agreement, dated
    February 11, 2003, between the registrant and Silicon
    Valley Bank.
23
.1
Consent of Ernst & Young LLP.
23
.2*
Consent of Swidler Berlin Shereff Friedman, LLP
    (included in Exhibit 5.1).
24
.1
Powers of Attorney (included in signature page).
*
To be filed by amendment.
†
Confidential treatment requested as to certain
    portions.