<HTML> <HEAD> <TITLE>Biocryst Pharmaceuticals</TITLE> </HEAD> <BODY> <!-- *************************************************************************** --> <!-- MARKER LABEL="sheet: 1, page: 1" --> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><HR SIZE=5 NOSHADE> <BR><BR> <!-- MARKER FORMAT-SHEET="Reg Cover SEC Line 1" --> <P ALIGN=CENTER><FONT SIZE=3> </FONT><BR> <!-- MARKER FORMAT-SHEET="Reg Cover SEC Line 1" --> <P ALIGN=CENTER><FONT SIZE=3>UNITED STATES<BR>SECURITIES AND EXCHANGE COMMISSION </FONT><BR> <!-- MARKER FORMAT-SHEET="Reg Cover SEC Line 2" --> <FONT SIZE=2>Washington, D.C. 20549 </FONT></P> <!-- MARKER FORMAT-SHEET="Head Major 10" --> <A NAME="A005"></A> <H1 ALIGN=CENTER><FONT SIZE=2>FORM 10-Q</FONT></H1> <P ALIGN=CENTER><FONT SIZE=2>[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 </FONT></P> <!-- MARKER FORMAT-SHEET="Head Major 10" --> <A NAME="A006"></A> <H1 ALIGN=CENTER><FONT SIZE=2>For the quarterly period ended March 31, 2000</FONT></H1> <!-- MARKER FORMAT-SHEET="Para Center 10" --> <P ALIGN=CENTER><FONT SIZE=2>OR </FONT></P> <!-- MARKER FORMAT-SHEET="Para Center 10" --> <P ALIGN=CENTER><FONT SIZE=2> [ ] TRANSITION REPORT PURSUANT TO SECTION 13 0R 15(d) <BR>OF THE SECURITIES EXCHANGE ACT OF 1934 </FONT></P> <!-- MARKER FORMAT-SHEET="Head Major 10" --> <A NAME="A008"></A> <H1 ALIGN=CENTER><FONT SIZE=2>For the transition period from ____ to ____</FONT></H1> <P ALIGN=CENTER><FONT SIZE=2>Commission File Number 000-23186 </FONT></P> <H1 ALIGN=CENTER><FONT SIZE=2>BIOCRYST PHARMACEUTICALS, INC.<BR> (Exact name of registrant as specified in its charter) </FONT></H1> <!-- MARKER FORMAT-SHEET="Para Italic 8" --> <P><FONT SIZE=1> <I> </I></FONT></P> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <!-- MARKER FORMAT-SHEET="Reg Cover Table 2 Col 10" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0 BORDER=0> <TR VALIGN=TOP> <TD ALIGN=CENTER WIDTH=50%><FONT SIZE=2>DELAWARE<BR>(State or other jurisdiction of<BR> incorporation or organization)</FONT></TD> <TD ALIGN=CENTER WIDTH=50%><FONT SIZE=2>62-1413174<BR>(I.R.S. employer identification no.)</FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD> <!-- MARKER FORMAT-SHEET="Para Center 10" --> <P ALIGN=CENTER><FONT SIZE=2>2190 Parkway Lake Drive; Birmingham, Alabama 35244 <BR> (Address and zip code of principal executive offices)</FONT></P> <!-- MARKER FORMAT-SHEET="Para Center 10" --> <P ALIGN=CENTER><FONT SIZE=2>(205) 444-4600 <BR> (Registrant’s telephone number, including area code)</FONT></P> <!-- MARKER FORMAT-SHEET="Para Center 10" --> <P ALIGN=CENTER><FONT SIZE=2>NONE<BR> (Former name, former address and former fiscal year, if changed since last report)</FONT></P> <!-- MARKER FORMAT-SHEET="Para Flush 10" --> <P><FONT SIZE=2>Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: </FONT></P> <!-- MARKER FORMAT-SHEET="Para Center 10" --> <P ALIGN=CENTER><FONT SIZE="2">Yes <U> </U><U>X</U><U> </U> No</FONT> </P> <!-- MARKER FORMAT-SHEET="Para Flush 10" --> <P><FONT SIZE=2>Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 17,429,994 shares of the Company’s Common Stock, $.01 par value, were outstanding as of April 28, 2000. </FONT></P> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <BR><BR> <!-- *************************************************************************** --> <!-- MARKER LABEL="sheet: 2, page: 2" --> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD> <HR SIZE=5 NOSHADE> <BR><BR> <!-- MARKER FORMAT-SHEET="Head Major 10" --> <A NAME="A015"></A> <H1 ALIGN=CENTER><FONT SIZE=2>BIOCRYST PHARMACEUTICALS, INC.</FONT></H1> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><!-- MARKER FORMAT-SHEET="Head Major 10" --> <H1 ALIGN=CENTER><FONT SIZE=2>INDEX</FONT></H1> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600"> <TR VALIGN="BOTTOM"> <TH COLSPAN="4"><FONT SIZE="2">Part I. Financial Information</FONT></TH> <TH COLSPAN="2"><FONT SIZE="1">Page No.<BR></FONT><HR WIDTH=55% SIZE=1 NOSHADE></TH> </TR> <TR VALIGN="BOTTOM"> <TD WIDTH="10%" ALIGN="LEFT"><FONT SIZE="2">Item 1.</FONT></TD> <TD WIDTH="1%" ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD WIDTH="80%" ALIGN="LEFT"><FONT SIZE="2">Financial Statements:</FONT></TD> <TD WIDTH="3%" ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD WIDTH="4%" ALIGN="right"><FONT SIZE="2"> </FONT></TD> <TD WIDTH="2%" ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"></FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">Condensed Balance Sheets - March 31, 2000 and December 31, 1999</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="right"><FONT SIZE="2">2</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"></FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">Condensed Statements of Operations - Three Months Ended March 31, 2000 and 1999</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="right"><FONT SIZE="2">3</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"></FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">Condensed Statements of Cash Flows - Three Months Ended March 31, 2000 and 1999</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="right"><FONT SIZE="2">4</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"></FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">Notes to Condensed Financial Statements</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="right"><FONT SIZE="2">5</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Item 2.</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">Management’s Discussion and Analysis of Financial Condition and Results of Operations</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="right"><FONT SIZE="2">5</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Item 3.</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">Quantitative and Qualitative Disclosures about Market Risk</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="right"><FONT SIZE="2">15</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"></FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"></FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="CENTER"><FONT SIZE="2"><B>Part II. Other Information</B></FONT> </TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Item 1.</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">Legal Proceedings</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="right"><FONT SIZE="2">16</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Item 2.</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">Changes in Securities and Use of Proceeds</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="right"><FONT SIZE="2">16</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Item 3.</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">Defaults Upon Senior Securities</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="right"><FONT SIZE="2">16</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Item 4.</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">Submission of Matters to a Vote of Security Holders</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="right"><FONT SIZE="2">16</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Item 5.</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">Other Information</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="right"><FONT SIZE="2">16</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Item 6.</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">Exhibits and Reports on Form 8-K</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="right"><FONT SIZE="2">16</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"></FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">Signatures</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="right"><FONT SIZE="2">18</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> </TABLE> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><!-- MARKER FORMAT-SHEET="Head Major 10" --> <!-- MARKER FORMAT-SHEET="Para Center 10" --> <BR> <BR> <P ALIGN=CENTER><FONT SIZE=2>1</FONT></P> <BR><BR> </TD> </TR> </TABLE> <!-- *************************************************************************** --> <!-- MARKER LABEL="sheet: 3, page: 3" --> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><HR SIZE=5 NOSHADE> <BR><BR> <!-- MARKER FORMAT-SHEET="Head Major 10" --> <A NAME="A018"></A> <H1 ALIGN=CENTER><FONT SIZE=2>PART I. FINANCIAL INFORMATION</FONT></H1> <!-- MARKER FORMAT-SHEET="Head Minor" --> <A NAME="A019"></A> <H2 ALIGN=LEFT><FONT SIZE=2>Item 1. Financial Statements</FONT></H2> <!-- MARKER FORMAT-SHEET="Head Major 10" --> <H1 ALIGN=CENTER><FONT SIZE=2>BIOCRYST PHARMACEUTICALS, INC. <BR>CONDENSED BALANCE SHEETS <BR>March 31, 2000 and December 31, 1999</FONT></H1> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600"> <TR VALIGN="BOTTOM"> <TH COLSPAN="2"><FONT SIZE="1"></FONT></TH> <TH COLSPAN="2"><FONT SIZE="1">2000<BR>(Unaudited) </FONT></TH> <TH COLSPAN="2"><FONT SIZE="1">1999<BR>(Note 1)</FONT></TH></TR> <TR VALIGN="BOTTOM"> <TD WIDTH="65%" ALIGN="center"> <FONT SIZE="2"> <B>ASSETS</B></FONT></TD> <TD WIDTH="3%" ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE="2"></FONT></TD> <TD WIDTH="4%" ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE="2"></FONT></TD> <TD WIDTH="2%" ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Cash and cash equivalents</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">$9,786,180</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">$8,631,447</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Securities held-to-maturity</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">16,903,763</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">14,545,471</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Prepaid expenses and other current assets</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">705,813</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">1,376,734</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR> <TD COLSPAN="6"><HR NOSHADE SIZE="1"></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"> Total current assets</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">27,395,756</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">24,553,652</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Securities held-to-maturity</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">46,369,099</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">46,870,573</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Furniture and equipment, net</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">1,875,285</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">1,780,900</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Patents</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">188,701</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">181,771</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR> <TD COLSPAN="6"><HR NOSHADE SIZE="1"></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"> Total assets</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">$75,828,841</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">$73,386,896</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR> <TD COLSPAN="6"><HR NOSHADE SIZE="2"></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="center"> <FONT SIZE="2"> <B>LIABILITIES AND STOCKHOLDERS’ EQUITY</B></FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Accounts payable</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">$405,236</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">$291,545</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Accrued expenses</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">290,033</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">670,012</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Deferred revenue</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">581,504</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">700,000</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Current maturities of capital lease obligations</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">26,299</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">14,970</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR> <TD COLSPAN="6"><HR NOSHADE SIZE="1"></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"> Total current liabilities</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">1,303,072</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">1,676,527</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Obligations under capital lease obligations</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">2,731</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">6,896</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Deferred license fee</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">300,000</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">300,000</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR> <TD COLSPAN="6"><HR NOSHADE SIZE="1"></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"> Total liabilities</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">1,605,803</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">1,983,423</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR> <TD COLSPAN="6"><HR NOSHADE SIZE="1"></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Stockholders’ equity:</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"> Convertible preferred stock, $.01 par value, shares</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"> authorized - 5,000,000; shares issued and outstanding - none</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"> Common stock, $.01 par value, shares authorized -</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"> 45,000,000; shares issued and outstanding -</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"> 17,429,994 in 2000 and 17,263,878 in 1999</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">174,300</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">172,639</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"> Additional paid-in capital</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">130,657,803</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">129,698,040</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"> Accumulated deficit</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">(56,609,065</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">)</FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">(58,467,206</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">)</FONT></TD></TR> <TR> <TD COLSPAN="6"><HR NOSHADE SIZE="1"></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"> Total stockholders’ equity</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">74,223,038</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">71,403,473</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR> <TD COLSPAN="6"><HR NOSHADE SIZE="1"></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"> Total liabilities and stockholders’ equity</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">$75,828,841</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">$73,386,896</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR> <TD COLSPAN="6"><HR NOSHADE SIZE="2"></TD></TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD> <!-- MARKER FORMAT-SHEET="Para Flush 10" --> <P><FONT SIZE=2>See accompanying notes to condensed financial statements. </FONT></P> <!-- MARKER FORMAT-SHEET="Para Center 10" --> <P ALIGN=CENTER><FONT SIZE=2>2</FONT></P> <BR><BR> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <BR><BR> <!-- *************************************************************************** --> <!-- MARKER LABEL="sheet: 4, page: 4" --> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><HR SIZE=5 NOSHADE> <BR><BR> <!-- MARKER FORMAT-SHEET="Head Major 10" --> <H1 ALIGN=CENTER><FONT SIZE=2>BIOCRYST PHARMACEUTICALS, INC. <BR>CONDENSED STATEMENTS OF OPERATIONS <BR>Three Months Ended March 31, 2000 and 1999</FONT></H1> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600"> <TR VALIGN="BOTTOM"> <TH COLSPAN="2"><FONT SIZE="1"></FONT></TH> <TH COLSPAN="2"><FONT SIZE="1">2000</FONT><HR WIDTH=55% SIZE=1 NOSHADE></TH> <TH COLSPAN="2"><FONT SIZE="1">1999</FONT><HR WIDTH=55% SIZE=1 NOSHADE></TH></TR> <TR VALIGN="BOTTOM"> <TD WIDTH="62%" ALIGN="LEFT"><FONT SIZE="2">Collaborative and other research and development</FONT></TD> <TD WIDTH="3%" ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE="2">$4,146,417</FONT></TD> <TD WIDTH="3%" ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE="2">$216,133</FONT></TD> <TD WIDTH="2%" ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Interest and other</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">1,076,809</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">322,748</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR> <TD COLSPAN="6"><HR NOSHADE SIZE="1"></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"> Revenues</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">5,223,226</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">538,881</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR> <TD COLSPAN="6"><HR NOSHADE SIZE="1"></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Research and development</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">1,936,380</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">2,169,876</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">General and administrative</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">1,027,619</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">768,043</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Royalty expense</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">400,000</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">0</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Interest</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">1,086</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">1,452</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR> <TD COLSPAN="6"><HR NOSHADE SIZE="1"></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"> Expenses</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">3,365,085</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">2,939,371</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR> <TD COLSPAN="6"><HR NOSHADE SIZE="1"></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Income/(loss) before income taxes</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">1,858,141</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">(2,400,490</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">)</FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Income taxes</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">0</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">0</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR><TR> <TD COLSPAN="6"><HR NOSHADE SIZE="1"></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Net income/(loss)</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">$1,858,141</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">$(2,400,490</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">)</FONT></TD></TR><TR> <TD COLSPAN="6"><HR NOSHADE SIZE="2"></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Net income/(loss) per share (Note 2):</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"> Basic</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">$.11</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">$(.16</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">)</FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"> Diluted</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">$.10</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">$(.16</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">)</FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Weighted average shares outstanding (Note 2):</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"> Basic</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">17,341,943</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">14,975,433</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"> Diluted</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">18,961,290</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">14,975,433</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD> <!-- MARKER FORMAT-SHEET="Para Flush 10" --> <P><FONT SIZE=2>See accompanying notes to condensed financial statements. </FONT></P> <!-- MARKER FORMAT-SHEET="Para Center 10" --> <P ALIGN=CENTER><FONT SIZE=2>3</FONT></P> <BR><BR> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <BR> <!-- *************************************************************************** --> <!-- MARKER LABEL="sheet: 5, page: 5" --> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><HR SIZE=5 NOSHADE> <BR><BR> <!-- MARKER FORMAT-SHEET="Head Major 10" --> <H1 ALIGN=CENTER><FONT SIZE=2>BIOCRYST PHARMACEUTICALS, INC.<BR>CONDENSED STATEMENTS OF CASH FLOWS <BR>Three Months Ended March 31, 2000 and 1999</FONT></H1> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600"> <TR VALIGN="BOTTOM"> <TH COLSPAN="2"><FONT SIZE="1"></FONT></TH> <TH COLSPAN="2"><FONT SIZE="1">2000</FONT><HR WIDTH=55% SIZE=1 NOSHADE></TH> <TH COLSPAN="2"><FONT SIZE="1">1999</FONT><HR WIDTH=55% SIZE=1 NOSHADE></TH></TR> <TR VALIGN="BOTTOM"> <TD WIDTH="65%" ALIGN="LEFT"><FONT SIZE="2"><B>Operating activities</B></FONT></TD> <TD WIDTH="3%" ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE="2"></FONT></TD> <TD WIDTH="4%" ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE="2"></FONT></TD> <TD WIDTH="2%" ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Net income/(loss)</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">$ 1,858,141</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">$(2,400,490</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">)</FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Depreciation and amortization</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">154,780</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">124,362</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Non-monetary compensation</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">27,765</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">12,267</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Changes in operating assets and liabilities, net</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">286,137</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">(381,734</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">)</FONT></TD></TR> <TR> <TD COLSPAN="6"><HR NOSHADE SIZE="1"></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"> Net cash provided/(used) by operating activities</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">2,326,823</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">(2,645,595</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">)</FONT></TD></TR> <TR> <TD COLSPAN="6"><HR NOSHADE SIZE="1"></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"><B>Investing activities</B></FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Purchases of capital assets</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">(256,095</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">)</FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">(183,216</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">)</FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Purchase of marketable securities</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">(4,926,986</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">)</FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">(4,975,912</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">)</FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Maturities of marketable securities</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">3,070,168</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">3,572,218</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR> <TD COLSPAN="6"><HR NOSHADE SIZE="1"></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"> Net cash (used)/provided by investing activities</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">(2,112,913</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">)</FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">(1,586,910</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">)</FONT></TD></TR> <TR> <TD COLSPAN="6"><HR NOSHADE SIZE="1"></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"><B>Financing activities</B></FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Principal payments on debt and capital lease obligations</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">(4,295</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">)</FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">(2,951</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">)</FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Proceeds of sale/leasebacks</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">11,459</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Proceeds from sale of common stock, net of issuance cost</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">933,659</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">137,048</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR> <TD COLSPAN="6"><HR NOSHADE SIZE="1"></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2"> Net cash provided by financing activities</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">940,823</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">134,097</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR> <TD COLSPAN="6"><HR NOSHADE SIZE="1"></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Increase/(decrease) in cash and cash equivalents</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">1,154,733</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">(4,098,408</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2">)</FONT></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Cash and cash equivalents at beginning of period</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">8,631,447</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">12,311,348</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR> <TD COLSPAN="6"><HR NOSHADE SIZE="1"></TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE="2">Cash and cash equivalents at end of period</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">$ 9,786,180</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD> <TD ALIGN="RIGHT"><FONT SIZE="2">$ 8,212,940</FONT></TD> <TD ALIGN="LEFT"><FONT SIZE="2"> </FONT></TD></TR> <TR> <TD COLSPAN="6"><HR NOSHADE SIZE="2"></TD></TR> </TABLE> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD> <!-- MARKER FORMAT-SHEET="Para Flush 10" --> <P><FONT SIZE=2>See accompanying notes to condensed financial statements. </FONT></P> <!-- MARKER FORMAT-SHEET="Para Center 10" --> <P ALIGN=CENTER><FONT SIZE=2>4</FONT></P> <BR><BR> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <BR> <!-- *************************************************************************** --> <!-- MARKER LABEL="sheet: 5, page: 5" --> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><HR SIZE=5 NOSHADE> <BR><BR> <!-- MARKER FORMAT-SHEET="Head Major 10" --> <H1 ALIGN=CENTER><FONT SIZE=2>BIOCRYST PHARMACEUTICALS, INC.<BR>NOTES TO CONDENSED FINANCIAL STATEMENTS</FONT></H1> <!-- MARKER FORMAT-SHEET="Head Minor" --> <H2 ALIGN=LEFT><FONT SIZE=2>Note 1. Basis of Preparation</FONT></H2> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> The condensed balance sheet as of March 31, 2000 and the condensed statements of operations and cash flows for the three months ended March 31, 2000 and 1999 have been prepared in accordance with generally accepted accounting principles by BioCryst Pharmaceuticals, Inc. (the “Company” or “BioCryst”) and have not been audited. Such financial statements reflect all adjustments which are, in management’s opinion, necessary to present fairly, in all material respects, the financial position at March 31, 2000 and the results of operations and cash flows for the three months ended March 31, 2000 and 1999. These condensed financial statements should be read in conjunction with the financial statements for the year ended December 31, 1999 and the notes thereto included in the Company’s 1999 Annual Report on Form 10-K. Interim operating results are not necessarily indicative of operating results for the full year. The balance sheet as of December 31, 1999 has been prepared from the audited financial statements included in the previously mentioned Annual Report. </FONT></P> <!-- MARKER FORMAT-SHEET="Head Minor" --> <A NAME="A032"></A> <H2 ALIGN=LEFT><FONT SIZE=2>Note 2. Net Income/(Loss) Per Share</FONT></H2> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> The Company computes net income/(loss) per share in accordance with Statement of Financial Accounting Standards No. 128, Earnings per Share. Basic net income/(loss) per share is based upon the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is based upon the weighted average number of common shares outstanding and dilutive common stock equivalents during the period. Common stock equivalents are options under the Company’s stock option plan and common shares expected to be issued under the Company’s employee stock purchase plan and are calculated under the treasury stock method. Common equivalent shares from unexercised stock options are excluded from the computation when there is a loss as their effect is anti-dilutive. </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> Common stock equivalents of approximately 1,619,347 shares (2,576,098 shares of common stock equivalents less 956,751 shares considered repurchased under the treasury stock method) were included in the weighted average shares outstanding used to calculate diluted income per share for the three months ending March 31, 2000. For the three months ended March 31, 1999, common stock equivalents of approximately 2,488,174 shares were not included in the weighted average shares outstanding used to calculate diluted income (loss) per share because of their anti-dilutive effect. There were no reconciling items in calculating the numerator for basic and diluted income (loss) per share for any of the periods presented. </FONT></P> <!-- MARKER FORMAT-SHEET="Para Flush 10" --> <P><FONT SIZE=2><B>Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations</B> </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> <I>This Quarterly Report on Form 10-Q contains certain statements of a forward-looking nature relating tofuture events or the future financial performance of the Company. Such statements are only predictions and the actual events or results may differ materially from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed below as well as those discussed in other filings made by the Company with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K.</I></FONT></P> <!-- MARKER FORMAT-SHEET="Head Minor" --> <A NAME="A033"></A> <H2 ALIGN=LEFT><FONT SIZE=2>Overview</FONT></H2> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> Since our inception in 1986, we have been engaged in research and development activities and organizational efforts, including: </FONT></P> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2>identification and licensing of enzyme targets; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> drug discovery; </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><!-- MARKER FORMAT-SHEET="Head Major 10" --> <!-- MARKER FORMAT-SHEET="Para Center 10" --> <P ALIGN=CENTER><FONT SIZE=2>5</FONT></P> <BR><BR> </TD> </TR> </TABLE> <!-- *************************************************************************** --> <!-- MARKER LABEL="sheet: 6, page: 6" --> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><HR SIZE=5 NOSHADE> <BR><BR> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> structure-based design of drug candidates; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> small-scale synthesis of compounds; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> conducting preclinical studies and clinical trials; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> recruiting our scientific and management personnel; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> establishing laboratory facilities; and </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> raising capital. </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> Our revenues have generally been limited to license fees, milestone payments, interest income, collaboration research, development and option fees. Research and development revenue on cost-reimbursing agreements is recognized as expenses are incurred up to contractual limits. Research and development revenues, license fees, milestone payments and option fees are recognized as revenue when irrevocably due. Payments received that are related to future performance are deferred and taken into income as earned over a specified future performance period. We have not received any revenue from the sale of pharmaceutical products. It could be several years, if ever, before we will recognize significant revenues from royalties received pursuant to our license agreements, and we do not expect to ever generate revenues directly from product sales. Future revenues, if any, are likely to fluctuate substantially from quarter to quarter. </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> We have incurred operating losses since our inception. Our accumulated deficit at March 31, 1999 was $56.6 million. We will require substantial expenditures relating to the development of our current and future drug candidates. During the three years ended December 31, 1999, we spent 39.0% of our research and development expenses on contract research and development, including: </FONT></P> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> payments to consultants; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> funding of research at academic institutions; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> large scale synthesis of compounds; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> preclinical studies; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> engaging investigators to conduct clinical trials; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> hiring contract research organizations to monitor and gather data on clinical trials; and </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> using statisticians to evaluate the results of clinical trials. </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> The above expenditures for contract research and development for our current and future drug candidates will vary from quarter to quarter depending on the status of our research and development projects. Changes in our existing and future research and development and collaborative relationships will also impact the status of our research and development projects. While we may, in some cases, be able to control the timing of development expenses, in part by accelerating or decelerating certain of these costs, many of these costs will be incurred irrespective of whether or not we are able to discover drug candidates or obtain collaborative partners for commercialization. As a result, we believe that quarter-to-quarter comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. If we fail to meet the clinical and financial expectations of securities analysts and investors, it could have a material adverse effect on the price of our common stock. </FONT></P> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><!-- MARKER FORMAT-SHEET="Head Major 10" --> <!-- MARKER FORMAT-SHEET="Para Center 10" --> <P ALIGN=CENTER><FONT SIZE=2>6</FONT></P> <BR><BR> </TD> </TR> </TABLE> <!-- *************************************************************************** --> <!-- MARKER LABEL="sheet: 7, page: 7" --> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><HR SIZE=5 NOSHADE> <BR><BR> <!-- MARKER FORMAT-SHEET="Para Flush 10" --> <P><FONT SIZE="2"><B><I>Results of Operations (first three months of 2000 compared to the first three months of 1999)</I></B></FONT> </P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> Revenues increased 869.3% to $5,223,226 in the first three months of 2000 from $538,881 in the first three months of 1999. The increase was primarily attributable a $4.0 million milestone payment received from our licensee for the start of Phase III clinical trials with our influenza neuraminidase inhibitor and interest earned on the proceeds from our November 1999 public offering. </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> Research and development expenses decreased 10.8% to $1,936,380 in the first three months of 2000 from $2,169,876 in the first three months of 1999. The decrease is primarily attributable to a decrease in costs associated with conducting clinical trials. These costs tend to fluctuate from period to period depending upon the status of the Company’s research projects and collaborative efforts. </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> General and administrative expenses increased 33.8% to $1,027,619 in the first three months of 2000 from $768,043 in the first three months of 1999. The increase is primarily the result of a new state of Alabama shares tax being greater than the replaced franchise tax, increased personnel costs and increased legal costs. </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> Royalty expense in 2000 represents the payment to The University of Alabama at Birmingham in connection with the milestone payment received from our licensee. </FONT></P> <!-- MARKER FORMAT-SHEET="Head Minor" --> <A NAME="A034"></A> <P><FONT SIZE="2"><B><I>Liquidity and Capital Resources</I></B></FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> Cash expenditures have exceeded revenues since the Company’s inception. Our operations have principally been funded through various sources, including the following: </FONT></P> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> public offerings and private placements of equity and debt securities, </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> equipment lease financing, </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> facility leases, </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> collaborative and other research and development agreements (including licenses and options for licenses), </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> research grants and </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> interest income. </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> In addition, we have attempted to contain costs and reduce cash flow requirements by renting scientific equipment and facilities, contracting with other parties to conduct certain research and development and using consultants. We expect to incur additional expenses, potentially resulting in significant losses, as we continue and expand our research and development activities and undertake additional preclinical studies and clinical trials of compounds which have been or may be discovered. We also expect to incur substantial expenses related to the filing, prosecution, maintenance, defense and enforcement of patent and other intellectual property claims. </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> At March 31, 2000, our cash, cash equivalents and securities held-to-maturity were $73.1 million, an increase of $3.1 million from December 31, 1999, principally due to the $4.0 million milestone payment and interest earned on the proceeds of our November 1999 public offering offset by the cash used in operations. </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> We have financed some of our equipment purchases with lease lines of credit. We currently have a $500,000 line of credit with our bank to finance capital equipment. In January 1992, we entered into an operating lease for our current facilities which expires on June 30, 2003. We have an option to renew the lease for an additional three years at current market rates. The operating lease requires us to pay monthly rent ranging from $23,803 and escalating annually to a minimum of $26,011 per month in the final year, and a pro rata share of operating expenses and real estate taxes in excess of base year amounts. </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> At December 31, 1999, we had long-term capital lease and operating lease obligations which provide for aggregate minimum payments of $301,171 in 2000, $299,253 in 2001 and $300,828 in 2002. </FONT></P> <BR> <BR> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><!-- MARKER FORMAT-SHEET="Head Major 10" --> <!-- MARKER FORMAT-SHEET="Para Center 10" --> <P ALIGN=CENTER><FONT SIZE=2>7</FONT></P> <BR><BR> </TD> </TR> </TABLE> <!-- *************************************************************************** --> <!-- MARKER LABEL="sheet: 8, page: 8" --> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><HR SIZE=5 NOSHADE> <BR><BR> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> Under the terms of our license agreement with The R.W. Johnson Pharmaceutical Research Institute and Ortho-McNeil for the development and commercialization of our influenza neuraminidase inhibitors, we received an initial $6.0 million payment from Ortho-McNeil and an additional $6.0 million common stock equity investment from Johnson & Johnson Development Corporation in 1998. In June 1999, we received a $2.0 million milestone payment from Ortho-McNeil in connection with the initiation of Phase II clinical testing in the United States. In February 2000, we received a $4.0 million milestone payment from Ortho-McNeil in connection with the initiation of Phase III clinical testing. In addition, we may receive cash payments upon specified developmental and regulatory milestones and royalties on product sales, if any. We cannot assure you that The R.W. Johnson Pharmaceutical Research Institute or Ortho-McNeil will continue to develop the product or, if they do so, that such development will result in receiving milestone payments, obtaining regulatory approval or achieving future sales of licensed products. </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> We previously entered into an exclusive license agreement with Torii under which Torii paid us $1.5 million in initial license fees and made a $1.5 million equity investment in us in 1996. The first milestone payment of $1.0 million was received in 1997. This exclusive license agreement was terminated by Torii in July 1999. </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> We plan to finance our needs principally from the following: </FONT></P> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> our existing capital resources and interest earned on that capital; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> payments under collaborative and licensing agreements with corporate partners; and </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> through lease or loan financing and future public or private financings. </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> We believe that our available funds will be sufficient to fund our operations at least through 2002. However, this is a forward-looking statement, and there may be changes that would consume available resources significantly before such time. Our long-term capital requirements and the adequacy of our available funds will depend upon many factors, including: </FONT></P> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> the progress of our research, drug discovery and development programs; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> changes in existing collaborative relationships; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> our ability to establish additional collaborative relationships; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> the magnitude of our research and development programs; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> the scope and results of preclinical studies and clinical trials to identify drug candidates; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> competitive and technological advances; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> the time and costs involved in obtaining regulatory approvals; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> our dependence on others, including The R.W. Johnson Pharmaceutical Research Institute and Ortho-McNeil, for development and commercialization of our product candidates, in particular, our neuraminidase inhibitors; and </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> successful commercialization of our products consistent with our licensing strategy. </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><!-- MARKER FORMAT-SHEET="Head Major 10" --> <!-- MARKER FORMAT-SHEET="Para Center 10" --> <P ALIGN=CENTER><FONT SIZE=2>8</FONT></P> <BR><BR> </TD> </TR> </TABLE> <!-- *************************************************************************** --> <!-- MARKER LABEL="sheet: 9, page: 9" --> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><HR SIZE=5 NOSHADE> <BR><BR> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> Additional funding, whether through additional sales of securities or collaborative or other arrangements with corporate partners or from other sources, may not be available when needed or on terms acceptable to us. The issuance of preferred or common stock or convertible securities, on terms and prices significantly more favorable than those of the currently outstanding common stock, could have the effect of diluting or adversely affecting the holdings or rights of our existing stockholders. In addition, collaborative arrangements may require us to transfer certain material rights to such corporate partners. Insufficient funds may require us to delay, scale-back or eliminate certain of our research and development programs. </FONT></P> <!-- MARKER FORMAT-SHEET="Para Flush 10" --> <P><FONT SIZE=2><B>Certain Risk Factors That May Affect Future Results, Financial Condition and the Market Price of Securities</B> </FONT></P> <!-- MARKER FORMAT-SHEET="Para Flush 10" --> <P><FONT SIZE=2><I>We have incurred substantial losses since our inception in 1986, expect to continue to incur such losses, may never be profitable and may need additional financing</I> </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> Since our inception in 1986, we have not been profitable. We expect to incur additional losses for the foreseeable future, and our losses could increase as our research and development efforts progress. As of March 31, 2000, our accumulated deficit was approximately $56.6 million. To become profitable, we must successfully develop drug candidates, enter into profitable agreements with other parties and our drug candidates must receive regulatory approval. These other parties must then successfully manufacture and market our drug candidates. It could be several years, if ever, before we receive royalties under our existing license agreements or any future license agreements. In addition, we never expect to generate revenue directly from product sales. If we do not generate revenue, or if our drug development expenses increase, we may need to raise additional funds through new or existing collaborations or through private or public equity or debt financings. If financing is not available on acceptable terms, or not available at all, we may not have enough capital to continue our current business strategy. </FONT></P> <!-- MARKER FORMAT-SHEET="Para Flush 10" --> <P><FONT SIZE=2><I>If The R.W. Johnson Pharmaceutical Research Institute and Ortho-McNeil were to terminate, substantially modify or fail to fulfill their obligations under their license agreement with us, we would lose substantially all of our revenue</I> </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> If The R.W. Johnson Pharmaceutical Research Institute and Ortho-McNeil change their exclusive worldwide license agreement with us, including by terminating it or failing to fulfill their obligations, we would lose substantially all of our revenue. Approximately 79.4% of our revenues for the three months ended March 31, 2000, approximately 46.9 % of our revenues for the year ended December 31, 1999 and approximately 83.5% of our revenues for the year ended December 31, 1998 resulted from this license agreement. These revenues represent approximately 48.1% of our total revenues since our inception in 1986. </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> Under this agreement, The R.W. Johnson Pharmaceutical Research Institute and Ortho-McNeil have several rights that could delay or stop the development of our flu drug candidate, including sole discretion on all elements of research and development of RWJ-270201, including timing and design of further clinical trials, sole control over the amount of resources devoted to the research and development of RWJ-270201 and the right to terminate or cancel the agreement, which they may do at any time on four months notice. </FONT></P> <!-- MARKER FORMAT-SHEET="Para Flush 10" --> <P><FONT SIZE=2><I>If our development collaborations with other parties fail, the development of our drug candidates will be delayed or stopped</I> </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> We rely completely upon other parties for many important stages of our drug development programs, including: </FONT></P> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> discovery of proteins that cause or enable biological reactions necessary for the progression of the disease or disorder, called enzyme targets; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> execution of some preclinical studies and late-stage development for our compounds and drug candidates; and </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> manufacturing, sales, marketing and distribution of our drug candidates. </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><!-- MARKER FORMAT-SHEET="Head Major 10" --> <!-- MARKER FORMAT-SHEET="Para Center 10" --> <P ALIGN=CENTER><FONT SIZE=2>9</FONT></P> <BR><BR> </TD> </TR> </TABLE> <!-- *************************************************************************** --> <!-- MARKER LABEL="sheet: 10, page: 10" --> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><HR SIZE=5 NOSHADE> <BR><BR> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> Our failure to engage in successful collaborations at any one of these stages would greatly impact our business. For example, if we do not license enzyme targets from academic institutions or from other biotechnology companies on acceptable terms, our product development efforts would suffer. Similarly, if the contract research organizations that conduct our initial clinical trials breached their obligations to us, this would delay or prevent the development of our drug candidates. </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> Even more critical to our success is our ability to enter into successful collaborations for the late-stage clinical development, regulatory approval, manufacture, marketing, sales and distribution of our drug candidates. Our strategy is to rely upon other parties for all of these steps so that we can focus exclusively on the key areas of our expertise. This heavy reliance upon third parties for these critical functions presents several risks, including: </FONT></P> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> these contracts may expire or the other parties to the contract may terminate them, as was the case with our Torii Pharmaceutical Co., Ltd. contract; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> our partners may choose to pursue alternative technologies, including those of our competitors; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> we may have disputes with a partner that could lead to litigation or arbitration; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> our partners may not devote sufficient capital or resources towards our drug candidates; and </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> our partners may not comply with applicable government regulatory requirements. </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> Any problems encountered with our partners could delay or prevent the development of our compounds, which would severely affect our business, because if our compounds do not reach the market in a timely manner, or at all, we will experience a significant decrease in milestone payments received by us and may never receive any royalty payments. </FONT></P> <!-- MARKER FORMAT-SHEET="Para Flush 10" --> <P><FONT SIZE=2><I>If the clinical trials of our drug candidates fail, our drug candidates will not be marketed, which would result in a decrease in, or complete absence of, revenue</I> </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> To receive the regulatory approvals necessary for the sale of our drug candidates, we or our licensees must demonstrate through preclinical studies and clinical trials that each drug candidate is safe and effective. If we or our licensees are unable to demonstrate that our drug candidates are safe and effective, our drug candidates will not receive regulatory approval and will not be marketed, which would result in a decrease in, or complete absence of, revenue. The clinical trial process is complex and uncertain. Positive results from preclinical studies and early clinical trials do not ensure positive results in clinical trials designed to permit application for regulatory approval, called pivotal clinical trials. We may suffer significant setbacks in pivotal clinical trials, even after earlier clinical trials show promising results. Any of our drug candidates may produce undesirable side effects in humans. These side effects could cause us or regulatory authorities to interrupt, delay or halt clinical trials of a drug candidate. These side effects could also result in the FDA or foreign regulatory authorities refusing to approve the drug candidate for any targeted indications. We, our licensees, the FDA or foreign regulatory authorities may suspend or terminate clinical trials at any time if we or they believe the trial participants face unacceptable health risks. Clinical trials may fail to demonstrate that our drug candidates are safe or effective. </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> Clinical trials are lengthy and expensive. We or our licensees incur substantial expense for, and devote significant time to, preclinical testing and clinical trials, yet cannot be certain that the tests and trials will ever result in the commercial sale of a product. For example, clinical trials require adequate supplies of drug and sufficient patient enrollment. Delays in patient enrollment can result in increased costs and longer development times. Even if we or our licensees successfully complete clinical trials for our product candidates, our licensees might not file the required regulatory submissions in a timely manner and may not receive regulatory approval for the drug candidate. </FONT></P> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><!-- MARKER FORMAT-SHEET="Head Major 10" --> <!-- MARKER FORMAT-SHEET="Para Center 10" --> <P ALIGN=CENTER><FONT SIZE=2>10</FONT></P> <BR><BR> </TD> </TR> </TABLE> <!-- *************************************************************************** --> <!-- MARKER LABEL="sheet: 11, page: 11" --> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><HR SIZE=5 NOSHADE> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> We licensed our drug candidate, RWJ-270201, to Ortho-McNeil and to PRI, who is conducting Phase III clinical trials. However, the Phase III clinical trials may not be successful. Even if PRI completes the Phase III trials, we do not know when, if ever, it will receive FDA or foreign regulatory agency approvals for, or when Ortho-McNeil will begin marketing of, RWJ-270201. If PRI is unable to complete the clinical trials or demonstrate the safety and efficacy of our compounds, the loss of our future revenues that depend on the success of RWJ-270201 will harm our business. Even if the results of PRI’s trials are positive, a product is not likely to be commercially available for one or more years, if at all. </FONT></P> <!-- MARKER FORMAT-SHEET="Para Flush 10" --> <P><FONT SIZE=2><I>If we or our licensees do not obtain and maintain governmental approvals for our products under development, we or our partners will not be able to sell these potential products, which would significantly harm our business because we will receive no revenue</I> </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> We or our licensees must obtain regulatory approval before marketing or selling our future drug products. If we or our licensees are unable to receive regulatory approval and do not market or sell our future drug products, we will never receive any revenue from such product sales. In the United States, we or our partners must obtain FDA approval for each drug that we intend to commercialize. The FDA approval process is typically lengthy and expensive, and approval is never certain. Products distributed abroad are also subject to foreign government regulation. The FDA or foreign regulatory agencies have not approved any of our drug candidates. If we or our licensees fail to obtain regulatory approval we will be unable to market and sell our future drug products. We have several drug products in various stages of preclinical and clinical development, however, we are unable to determine when, if ever, any of these products will be commercially available. Because of the risks and uncertainties in biopharmaceutical development, our drug candidates could take a significantly longer time to gain regulatory approval than we expect or may never gain approval. If the FDA delays regulatory approval of our drug candidates, our management’s credibility, our company’s value and our operating results may suffer. Even if the FDA or foreign regulatory agencies approve a drug candidate, the approval may limit the indicated uses for a drug candidate and/or may require post-marketing studies. </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> The FDA regulates, among other things, the record-keeping and storage of data pertaining to potential pharmaceutical products. We currently store all of our preclinical research data at our. While we do store duplicate copies of some of our data offsite, we could lose important preclinical data if our facilities incur damage. </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> If we get approval to market our potential products, whether in the United States or internationally, we will continue to be subject to extensive regulatory requirements. These requirements are wide ranging and govern, among other things: </FONT></P> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> adverse drug experience reporting regulations; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> product promotion; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> product manufacturing, including good manufacturing practice requirements; and </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> product changes or modifications. </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> Our failure to comply with existing or future regulatory requirements, or our loss of, or changes to, previously obtained approvals, could have a material adverse effect on our business because we will not receive royalty revenues if our licensees do not receive approval of our products for marketing. </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> In June 1995, we notified the FDA that we submitted incorrect efficacy data for our Phase II trials of BCX-34 applied to the skin for the treatment of cutaneous T-cell lymphoma and psoriasis. Cutaneous T-cell lymphoma is a skin cancer in which T-cells, which normally help fight disease in the body, duplicate rapidly and cause skin cancer. Psoriasis is a disease where the immune system attacks the body’s own skin cells. The FDA inspected us and issued to us Lists of Inspectional Observations, on Form FDA 483, that cited our failure to follow good clinical practices. The FDA also issued a Form FDA 483 to a principal investigator at a clinical trial site, and the FDA notified us that they will not accept any work performed by this investigator without further validation. Because of these investigations by the FDA, our ongoing and future clinical studies or trials may receive increased scrutiny, which would delay the regulatory review process. </FONT></P> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><!-- MARKER FORMAT-SHEET="Head Major 10" --> <!-- MARKER FORMAT-SHEET="Para Center 10" --> <P ALIGN=CENTER><FONT SIZE=2>11</FONT></P> <BR><BR> </TD> </TR> </TABLE> <!-- *************************************************************************** --> <!-- MARKER LABEL="sheet: 12, page: 12" --> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><HR SIZE=5 NOSHADE> <!-- MARKER FORMAT-SHEET="Para Flush 10" --> <P><FONT SIZE=2><I>If our drug candidates do not achieve broad market acceptance, our business may never become profitable</I></FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> Our drug candidates, including our influenza neuraminidase inhibitors, may not gain the market acceptance required for us to be profitable even after they receive approval for sale by the FDA or foreign regulatory agencies. Influenza neuraminidase inhibitors are drugs designed to stop the spread of the flu virus in the body. The degree of market acceptance of any drug candidates that we or our partners develop will depend on a number of factors, including: </FONT></P> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> cost-effectiveness of our drug candidates; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> their safety and effectiveness relative to alternative treatments, such as existing drugs amantadine and rimantadine, Hoffmann-La Roche’s and Glaxo Wellcome’s influenza neuraminidase inhibitors; or vaccines for prevention of influenza; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> reimbursement policies of government and third-party payors; and </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> marketing and distribution support for our drug candidates. </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> Physicians, patients, payors or the medical community in general may not accept or use our drug candidates even after the FDA or foreign regulatory agencies approve the drug candidates. If our drug candidates do not achieve significant market acceptance, we will not have enough revenues to become profitable. </FONT></P> <!-- MARKER FORMAT-SHEET="Para Flush 10" --> <P><FONT SIZE=2><I>If competitive products from other companies are better than our product candidates, our future revenues might fail to meet expectations</I> </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> The biotechnology and pharmaceutical industries are highly competitive and are subject to rapid and substantial technological change. Other products and therapies that either currently exist on the market or are under development could compete directly with some of the compounds that we are seeking to develop and market. These other products may render some or all of our compounds under development noncompetitive or obsolete. </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> If our influenza neuraminidase inhibitor drug candidate, RWJ-270201, receives FDA or foreign regulatory approval, it will have to compete with a number of products that are already on the market such as vaccines, the two influenza neuraminidase inhibitors already on the market, the drugs amantadine and rimantadine and with additional products that may beat RWJ-270201 to the market. If approved, RWJ-270201 will be, at best, the third neuraminidase inhibitor to the market, because the FDA approved Glaxo-Wellcome plc’s neuraminidase inhibitor product in the U.S. and in several other countries, and because the FDA also approved Hoffman-La Roche’s neuraminidase inhibitor. Both Glaxo-Wellcome and Hoffmann-La Roche, the companies responsible for the development and marketing of the two neuraminidase inhibitors that reached the market before RWJ-270201, are large multinational pharmaceutical companies that have significant financial, technical and human resources and could therefore establish brand recognition and loyalty with consumers before RWJ-270201 is on the market. In addition, a vaccine is currently in preclinical development that may immunize people against all strains of the flu virus, rendering flu drug products like ours obsolete. Products marketed by our competitors may prove to be more effective than our own, and our products, if any, may not offer an economically feasible or preferable alternative to existing therapies. If we fail to adequately protect or enforce our intellectual property rights or secure rights to patents of others, the value of those rights would diminish. </FONT></P> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><!-- MARKER FORMAT-SHEET="Head Major 10" --> <!-- MARKER FORMAT-SHEET="Para Center 10" --> <P ALIGN=CENTER><FONT SIZE=2>12</FONT></P> <BR><BR> </TD> </TR> </TABLE> <!-- *************************************************************************** --> <!-- MARKER LABEL="sheet: 13, page: 13" --> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><HR SIZE=5 NOSHADE> <BR><BR> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> Our success will depend in part on our ability and the abilities of our licensors to obtain patent protection for our products, methods, processes and other technologies to preserve our trade secrets, and to operate without infringing the proprietary rights of third parties. If we or our partners are unable to adequately protect or enforce our intellectual property rights for our products, methods, processes and other technologies, the value of the drug candidates that we license to derive revenue would diminish. Additionally, if our products, methods, processes and other technologies infringe the proprietary rights of other parties, we could incur substantial costs. To date, the U.S. Patent and Trademark Office has issued to us nine U.S. patents for our various inventions. We have filed additional patent applications and provisional patent applications with the U.S. Patent and Trademark Office. We have filed a number of corresponding foreign patent applications and intend to file additional foreign and U.S. patent applications, as appropriate. We cannot assure you as to: </FONT></P> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> the degree and range of protection any patents will afford against competitors with similar products; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> if and when patents will issue; or </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> whether or not others will obtain patents claiming aspects similar to those covered by our patent applications. </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> If the U.S. Patent and Trademark Office upholds patents issued to others or if the U.S. Patent and Trademark Office grants patent applications filed by others, we may have to: </FONT></P> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> obtain licenses or redesign our products or processes to avoid infringement; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> stop using the subject matter claimed in those patents; or </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2> pay damages. </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> We may initiate, or others may bring against us, litigation or administrative proceedings related to intellectual property rights, including proceedings before the U.S. Patent and Trademark Office. Any judgement adverse to us in any litigation or other proceeding arising in connection with a patent or patent application could materially and adversely affect our business, financial condition and results of operations. In addition, the costs of any such proceeding may be substantial whether or not we are successful. </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> Our success is also dependent upon the skills, knowledge and experience, none of which is patentable, of our scientific and technical personnel. To help protect our rights, we require all employees, consultants, advisors and collaborators to enter into confidentiality agreements that prohibit the disclosure of confidential information to anyone outside of our company and require disclosure and assignment to us of their ideas, developments, discoveries and inventions. These agreements may not provide adequate protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure or the lawful development by others of such information, and if any of our proprietary information is disclosed, our business will suffer because our revenues depend upon our ability to license our technology and any such events would significantly impair the value of such a license. </FONT></P> <!-- MARKER FORMAT-SHEET="Para Flush 10" --> <P><FONT SIZE=2><I>If we fail to retain our existing key personnel or fail to attract and retain additional key personnel, the development of our drug candidates and the expansion of our business will be delayed or stopped</I> </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> We are highly dependent upon our senior management and scientific team, the loss of whose services might impede the achievement of our development and commercial objectives. Although we maintain, and are the beneficiary of, a $1.8 million key-man insurance policy on the life of Charles E. Bugg, Ph.D., Chairman of the Board of Directors and Chief Executive Officer, we do not believe the proceeds would be adequate to compensate for his loss. We are actively seeking additional members for our senior management team. Competition for key personnel with the experience that we require is intense and is expected to continue to increase. Our inability to attract and retain the required number of skilled and experienced management, operational and scientific personnel, will harm our business because we rely upon these personnel for many critical functions of our business. In addition, we rely on members of our scientific advisory board and consultants to assist us in formulating our research and development strategy. All of the members of the scientific advisory board and all of our consultants are otherwise employed and each such member or consultant may have commitments to other entities that may limit their availability to us. </FONT></P> <BR> <BR> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><!-- MARKER FORMAT-SHEET="Head Major 10" --> <!-- MARKER FORMAT-SHEET="Para Center 10" --> <P ALIGN=CENTER><FONT SIZE=2>13</FONT></P> <BR><BR> </TD> </TR> </TABLE> <!-- *************************************************************************** --> <!-- MARKER LABEL="sheet: 14, page: 14" --> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><HR SIZE=5 NOSHADE> <BR><BR> <!-- MARKER FORMAT-SHEET="Para Flush 10" --> <P><FONT SIZE=2><I>If users of our drug products are not reimbursed for use, future sales of our drug products will decline</I> </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> The lack of reimbursement for the use of our product candidates by hospitals, clinics, patients or doctors will harm our business. Medicare, Medicaid, health maintenance organizations and other third-party payors may not authorize or otherwise budget for the reimbursement of our products. Governmental and third-party payors are increasingly challenging the prices charged for medical products and services. We cannot be sure that third-party payors would view our product candidates as cost-effective, that reimbursement will be available to consumers or that reimbursement will be sufficient to allow our product candidates to be marketed on a competitive basis. Changes in reimbursement policies, or attempts to contain costs in the health care industry, limit or restrict reimbursement for our product candidates, would materially and adversely affect our business, because future product sales would decline and we would receive less royalty revenue. </FONT></P> <!-- MARKER FORMAT-SHEET="Para Flush 10" --> <P><FONT SIZE=2><I>If we face clinical trial liability claims related to the use or misuse of our compounds in clinical trials, our management’s time will be diverted and we will incur litigation costs</I> </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> We face an inherent business risk of liability claims in the event that the use or misuse of our compounds results in personal injury or death. We have not experienced any clinical trial liability claims to date, but we may experience these claims in the future. After commercial introduction of our products we may experience losses due to product liability claims. We currently maintain clinical trial liability insurance coverage in the amount of $1.0 million per occurrence and $2.0 million in the aggregate, with an additional $5.0 million potentially available under our umbrella policy. The insurance policy may not be sufficient to cover claims that may be made against us. Clinical trial liability insurance is expensive, difficult to obtain and may not be available in the future on acceptable terms, if at all. Any claims against us, regardless of their merit, could materially and adversely affect our financial condition, because litigation related to these claims would strain our financial resources in addition to consuming the time and attention of our management. </FONT></P> <!-- MARKER FORMAT-SHEET="Para Flush 10" --> <P><FONT SIZE=2><I>If our computer systems fail, our business will suffer harm</I> </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> Our drug development activities depend on the security, integrity and performance of the computer systems supporting them, and the failure of our computer systems would delay or stop our drug development efforts. We currently store all of our preclinical and clinical data at our facilities, do not store duplicate copies of all data off-site and could lose important data if our systems were impaired. Any significant degradation or failure of our computer systems could cause us to inaccurately calculate or lose our data. Loss of data could result in significant delays in our drug development process. We have not undertaken formal system protections, do not have a detailed emergency plan and any system failure could harm our business and operations. We are in the process of upgrading our computer network and systems company-wide. Software we are currently installing is designed to automatically archive critical scientific raw data. We are purchasing additional hardware that is designed to keep us operational in case of computer system failure. </FONT></P> <!-- MARKER FORMAT-SHEET="Para Flush 10" --> <P><FONT SIZE=2><I>If, because of our use of hazardous materials, we violate any environmental controls or regulations that apply to such materials, we may incur substantial costs and expenses in our remediation efforts</I> </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> Our research and development involves the controlled use of hazardous materials, chemicals and various radioactive compounds. We are subject to federal, state and local laws and regulations governing the use, storage, handling and disposal of these materials and some waste products. Accidental contamination or injury from these materials could occur. In the event of an accident, we could be liable for any damages that result and any liabilities could exceed our resources. Compliance with environmental laws and regulations could require us to incur substantial unexpected costs which would materially and adversely affect our results of operations. </FONT></P> <!-- MARKER FORMAT-SHEET="Para Flush 10" --> <P><FONT SIZE=2><I>Because stock ownership is concentrated, you and other investors will have minimal influence on stockholder decisions</I> </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> Our directors, executive officers and some principal stockholders and their affiliates, including Johnson & Johnson Development Corporation, beneficially own approximately 31.5% of our outstanding common stock. As a result, these holders, if acting together, are able to significantly influence matters requiring stockholder approval, including the election of directors. This concentration of ownership may delay, defer or prevent a change in our control. </FONT></P> <BR> <BR> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><!-- MARKER FORMAT-SHEET="Head Major 10" --> <!-- MARKER FORMAT-SHEET="Para Center 10" --> <P ALIGN=CENTER><FONT SIZE=2>14</FONT></P> <BR><BR> </TD> </TR> </TABLE> <!-- *************************************************************************** --> <!-- MARKER LABEL="sheet: 15, page: 15" --> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><HR SIZE=5 NOSHADE> <BR><BR> <!-- MARKER FORMAT-SHEET="Para Flush 10" --> <P><FONT SIZE=2><I>We have anti-takeover provisions in our corporate charter documents that may result in outcomes with which you do not agree</I> </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> Our board of directors has the authority to issue up to 5,000,000 shares of undesignated preferred stock and to determine the rights, preferences, privileges and restrictions of those shares without further vote or action by our stockholders. The rights of the holders of any preferred stock that may be issued in the future may adversely affect the rights of the holders of common stock. The issuance of preferred stock could make it more difficult for third parties to acquire a majority of our outstanding voting stock. </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> In addition, our certificate of incorporation provides for staggered terms for the members of the board of directors and super majority approval of the removal of any member of the board of directors and prevents our stockholders from acting by written consent. Our certificate also requires supermajority approval of any amendment of these provisions. These provisions and other provisions of our by-laws and of Delaware law applicable to us could delay or make more difficult a merger, tender offer or proxy contest involving us. </FONT></P> <!-- MARKER FORMAT-SHEET="Para Flush 10" --> <P><FONT SIZE=2><I>Our stock price is likely to be highly volatile and the value of your investment could decline significantly</I> </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> The market prices for securities of biotechnology companies in general have been highly volatile and may continue to be highly volatile in the future. Moreover, our stock price has fluctuated frequently, and these fluctuations are often not related to our financial results. The 52-week range of the market price of our stock has ranged from $6.94 to $37.25 per share, which is a significantly greater change than that experienced by many other companies. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our common stock: </FONT></P> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2>announcements of technological innovations or new products by us or our competitors; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2>developments or disputes concerning patents or proprietary rights; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2>our licensees achieving or failing to achieve development milestones; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2>publicity regarding actual or potential medical results relating to products under development by us or our competitors; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2>regulatory developments in both the United States and foreign countries; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2>public concern as to the safety of pharmaceutical products; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2>actual or anticipated fluctuations in our operating results; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2>changes in financial estimates or recommendations by securities analysts; </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2>economic and other external factors or other disasters or crises; and </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Para Hang Bullet 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>•</FONT></TD> <TD WIDTH=94%><FONT SIZE=2>period-to-period fluctuations in our financial results. </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD> <!-- MARKER FORMAT-SHEET="Para Flush 10" --> <P><FONT SIZE=2><B>Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</B> </FONT></P> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> The primary objective of our investment activities is to preserve principal while at the same time maximize the income we receive from our investments without significantly increasing our risk. We invest excess cash principally in U.S. marketable securities from a diversified portfolio of institutions with strong credit ratings and in U.S. government and agency bills and notes, and by policy, limit the amount of credit exposure at any one institution. Some of the securities we invest in may have market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. To minimize this risk, we schedule our investments to coincide with our cash flow needs, thus avoiding the need to redeem an investment prior to its maturity date. Accordingly, we believe we have no material exposure to interest rate risk arising from our investments. Therefore, no quantitative tabular disclosure is provided. </FONT></P> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><!-- MARKER FORMAT-SHEET="Head Major 10" --> <!-- MARKER FORMAT-SHEET="Para Center 10" --> <P ALIGN=CENTER><FONT SIZE=2>15</FONT></P> <BR><BR> </TD> </TR> </TABLE> <!-- *************************************************************************** --> <!-- MARKER LABEL="sheet: 16, page: 16" --> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><HR SIZE=5 NOSHADE> <BR><BR> <!-- MARKER FORMAT-SHEET="Head Major 10" --> <A NAME="A035"></A> <H1 ALIGN=CENTER><FONT SIZE=2>PART II. OTHER INFORMATION</FONT></H1> <!-- MARKER FORMAT-SHEET="Head Minor" --> <A NAME="A036"></A> <H2 ALIGN=LEFT><FONT SIZE=2>Item 1. Legal Proceedings:</FONT></H2> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> None. </FONT></P> <!-- MARKER FORMAT-SHEET="Head Minor" --> <H2 ALIGN=LEFT><FONT SIZE=2>Item 2. Changes in Securities and Use of Proceeds:</FONT></H2> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> None </FONT></P> <!-- MARKER FORMAT-SHEET="Head Minor" --> <A NAME="A037"></A> <H2 ALIGN=LEFT><FONT SIZE=2>Item 3. Defaults Upon Senior Securities:</FONT></H2> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> None </FONT></P> <!-- MARKER FORMAT-SHEET="Head Minor" --> <H2 ALIGN=LEFT><FONT SIZE=2>Item 4. Submission of Matters to a Vote of Security Holders:</FONT></H2> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> None </FONT></P> <!-- MARKER FORMAT-SHEET="Head Minor" --> <A NAME="A038"></A> <H2 ALIGN=LEFT><FONT SIZE=2>Item 5. Other Information:</FONT></H2> <!-- MARKER FORMAT-SHEET="Para 10" --> <P><FONT SIZE=2> None </FONT></P> <!-- MARKER FORMAT-SHEET="Head Minor" --> <A NAME="A039"></A> <H2 ALIGN=LEFT><FONT SIZE=2>Item 6. Exhibits and Reports on Form 8-K:</FONT></H2> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <!-- MARKER FORMAT-SHEET="Para Hang Arabic 10 In 1" --> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>a. </FONT></TD> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=91%><FONT SIZE=2>Exhibits:</FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2><B>Number</B></FONT></TD> <TD WIDTH=80%><FONT SIZE=2><B> Description</B> </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2>3.1</FONT></TD> <TD WIDTH=80%><FONT SIZE=2> Composite Certificate of Incorporation of Registrant. Incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q for the second quarter ending June 30, 1995 dated August 11, 1995. </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2>3.2</FONT></TD> <TD WIDTH=80%><FONT SIZE=2> Bylaws of Registrant. Incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q for the second quarter ending June 30, 1995 dated August 11, 1995. </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2>4.1</FONT></TD> <TD WIDTH=80%><FONT SIZE=2> See Exhibits 3.1 and 3.2 for provisions of the Composite Certificate of Incorporation and Bylaws of the Registrant defining rights of holders of Common Stock of the Registrant. </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2>10.1</FONT></TD> <TD WIDTH=80%><FONT SIZE=2> 1991 Stock Option Plan, as amended and restated. Incorporated by reference to Exhibit 99.1 to the Company’s Form S-8 Registration Statement (Registration No. 333-30751). </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2>10.2</FONT></TD> <TD WIDTH=80%><FONT SIZE=2> Amendment No. 1 to the 1991 Stock Option Plan, as amended and restated. Incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the second quarter ending June 30, 1999 dated August 12, 1999. </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2>10.3</FONT></TD> <TD WIDTH=80%><FONT SIZE=2> Form of Notice of Stock Option Grant and Stock Option Agreement. Incorporated by reference to Exhibit 99.2 and 99.3 to the Company’s Form S-8 Registration Statement (Registration No. 33-95062). </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2>10.4</FONT></TD> <TD WIDTH=80%><FONT SIZE=2> Warehouse Lease dated January 17, 1992 between Principal Mutual Life Insurance Company and the Registrant. Incorporated by reference to Exhibit 10.21 to the Company’s Form S-1 Registration Statement (Registration No. 33-73868). </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2>10.5</FONT></TD> <TD WIDTH=80%><FONT SIZE=2> First Amendment to Lease Agreement between Registrant and Principal Mutual Life Insurance Company, Inc. for office/warehouse space. Incorporated by reference to Exhibit 10.21 to the Company’s Form 10-K for the year ending December 31, 1994 dated March 28, 1995. </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><!-- MARKER FORMAT-SHEET="Head Major 10" --> <!-- MARKER FORMAT-SHEET="Para Center 10" --> <P ALIGN=CENTER><FONT SIZE=2>16</FONT></P> <BR><BR> </TD> </TR> </TABLE> <!-- *************************************************************************** --> <!-- MARKER LABEL="sheet: 17, page: 17" --> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><HR SIZE=5 NOSHADE> <BR><BR> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2>10.6</FONT></TD> <TD WIDTH=80%><FONT SIZE=2> Second Amendment to Lease Agreement between Registrant and Principal Mutual Life Insurance Company, Inc. for office/warehouse space. Incorporated by reference to Exhibit 10.24 to the Company’s Form 10-Q for the first quarter ending March 31, 1997 dated May 12, 1997. </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2>10.7</FONT></TD> <TD WIDTH=80%><FONT SIZE=2> Third Amendment to Lease Agreement between Registrant and Principal Mutual Life Insurance Company, Inc. for office/warehouse space. Incorporated by reference to Exhibit 10.24 to the Company’s Form 10-Q for the first quarter ending March 31, 1998 dated April 29, 1998. </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2>10.8</FONT></TD> <TD WIDTH=80%><FONT SIZE=2> Fourth Amendment to Lease Agreement between Registrant and Principal Mutual Life Insurance Company, Inc. for office/warehouse space. Incorporated by reference to Exhibit 10.22 to the Company’s Form 10-Q for the second quarter ending June 30, 1998 dated April 29, 1998. </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2>10.9</FONT></TD> <TD WIDTH=80%><FONT SIZE=2> Fifth Amendment to Lease Agreement between Registrant and Principal Mutual Life Insurance Company, Inc. for office/warehouse space. Incorporated by reference to Exhibit 10.9 to the Company’s Form 10-Q for the second quarter ending June 30, 1999 dated August 12, 1999. </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2>10.10</FONT></TD> <TD WIDTH=80%><FONT SIZE=2> Employment Agreement dated December 27, 1999 between the Registrant and Charles E. Bugg, Ph.D. Incorporated by reference to Exhibit 10.10 to the Company’s Form 10-K for the year ending December 31, 199 dated March 24, 2000. </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2>10.11</FONT></TD> <TD WIDTH=80%><FONT SIZE=2> Employment Agreement dated December 18, 1996 between the Registrant and J. Claude Bennett. Incorporated by reference to Exhibit 10.12 to the Company’s Form 10-K for the year ended December 31, 1996 dated March 28, 1997. </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2>10.12#</FONT></TD> <TD WIDTH=80%><FONT SIZE=2> License Agreement dated April 15, 1993 between Ciba-Geigy Corporation (now merged into Novartis) and the Registrant. Incorporated by reference to Exhibit 10.40 to the Company’s Form S-1 Registration Statement (Registration No. 33-73868). </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2>10.13</FONT></TD> <TD WIDTH=80%><FONT SIZE=2> Employee Stock Purchase Plan. Incorporated by reference to Exhibit 99.4 to the Company’s Form S-8 Registration Statement (Registration No. 33-95062). </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2>10.14</FONT></TD> <TD WIDTH=80%><FONT SIZE=2> Form of Stock Purchase Agreement dated May 1995 between Registrant and various parties to purchase 1,570,000 shares of common stock. Incorporated by reference to Exhibit 10.22 to the Company’s Form 10-Q for the second quarter ending June 30, 1995 dated August 11, 1995. </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2>10.15</FONT></TD> <TD WIDTH=80%><FONT SIZE=2> Form of Registration Rights Agreement dated May 1995 between Registrant and various parties. Incorporated by reference to Exhibit 10.23 to the Company’s Form 10-Q for the second quarter ending June 30, 1995 dated August 11, 1995. </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2>10.16</FONT></TD> <TD WIDTH=80%><FONT SIZE=2> Form of Stock Purchase Agreement dated March 22, 1996 among Registrant and certain investors to purchase 1,000,000 shares of common stock. Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated March 22, 1996. </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2>10.17</FONT></TD> <TD WIDTH=80%><FONT SIZE=2> Form of Registration Rights Agreement dated March 22, 1996 among Registrant and certain investors. Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K dated March 22, 1996. </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2>10.18#</FONT></TD> <TD WIDTH=80%><FONT SIZE=2> License Agreement, dated May 31, 1996, between Registrant and Torii Pharmaceutical Co., Ltd. (“Torii”). Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K/A dated May 3, 1996 and filed August 2, 1996. </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2>10.19#</FONT></TD> <TD WIDTH=80%><FONT SIZE=2> Stock Purchase Agreement, dated May 31, 1996, between Registrant and Torii. Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K/A dated May 3, 1996 and filed August 2, 1996. </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2>10.20#</FONT></TD> <TD WIDTH=80%><FONT SIZE=2> License Agreement dated as of September 14, 1998 between Registrant and The R.W. Johnson Pharmaceutical Research Institute and Ortho-McNeil Pharmaceutical, Inc. Incorporated by reference to Exhibit 10.23 to the Company’s Form 10-Q for the third quarter ending September 30, 1998 dated November 10, 1998. </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2>10.21</FONT></TD> <TD WIDTH=80%><FONT SIZE=2> Stock Purchase Agreement dated as of September 14, 1998 between Registrant and Johnson & Johnson Development Corporation. Incorporated by reference to Exhibit 10.24 to the Company’s Form 10-Q for the third quarter ending September 30, 1998 dated November 10, 1998. </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><!-- MARKER FORMAT-SHEET="Head Major 10" --> <!-- MARKER FORMAT-SHEET="Para Center 10" --> <P ALIGN=CENTER><FONT SIZE=2>17</FONT></P> <BR><BR> </TD> </TR> </TABLE> <!-- *************************************************************************** --> <!-- MARKER LABEL="sheet: 18, page: 18" --> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><HR SIZE=5 NOSHADE> <BR> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2>10.22</FONT></TD> <TD WIDTH=80%><FONT SIZE=2> Stockholder’s Agreement dated as of September 14, 1998 between Registrant and Johnson & Johnson Development Corporation. Incorporated by reference to Exhibit 10.25 to the Company’s Form 10-Q for the third quarter ending September 30, 1998 dated November 10, 1998. </FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=2></FONT></TD> <TD WIDTH=10%><FONT SIZE=2>27.1</FONT></TD> <TD WIDTH=80%><FONT SIZE=2> Financial Data Schedule. </FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD> <P><FONT SIZE=2>__________ </FONT></P> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2># </FONT></TD> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=91%><FONT SIZE=2>Confidential treatment granted.</FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=91%><FONT SIZE=2></FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=3%><FONT SIZE=2>b. </FONT></TD> <TD WIDTH=3%><FONT SIZE=2></FONT></TD> <TD WIDTH=91%><FONT SIZE=2>Reports on Form 8-K:</FONT></TD> </TR> </TABLE> <BR> <!-- MARKER FORMAT-SHEET="Page Width Start" --> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD> <P><FONT SIZE=2> None. </FONT></P> <!-- MARKER FORMAT-SHEET="Head Major 10" --> <A NAME="A040"></A> <H1 ALIGN=CENTER><FONT SIZE=2>SIGNATURES</FONT></H1> <!-- MARKER FORMAT-SHEET="Para Flush 10" --> <P><FONT SIZE=2>Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. </FONT></P> <!-- MARKER FORMAT-SHEET="Page Width End" --> </TD> </TR> </TABLE> <BR> <TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600"> <TR VALIGN="BOTTOM"> <TD WIDTH="20%" ALIGN="LEFT"></TD> <TD WIDTH="14%" ALIGN="LEFT"> </TD> <TD WIDTH="62%" ALIGN="LEFT"><FONT SIZE=2>BIOCRYST PHARMACEUTICALS, INC.</FONT><BR><BR> </TD> <TD WIDTH="2%" ALIGN="LEFT"> </TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE=2>Date: May 5, 2000</FONT></TD> <TD ALIGN="LEFT"> </TD> <TD ALIGN="LEFT"><FONT SIZE=2><U>/s/ Charles E. Bugg </U></FONT></TD> <TD ALIGN="LEFT"> </TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"> </TD><TD ALIGN="LEFT"> </TD> <TD ALIGN="LEFT"><FONT SIZE=2>Charles E. Bugg</FONT></TD><TD ALIGN="LEFT"> </TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"> </TD><TD ALIGN="LEFT"> </TD> <TD ALIGN="LEFT"><FONT SIZE=2>Chairman and Chief Executive Officer<BR><BR></FONT></TD><TD ALIGN="LEFT"> </TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"><FONT SIZE=2>Date: May 5, 2000</FONT></TD><TD ALIGN="LEFT"> </TD> <TD ALIGN="LEFT"><FONT SIZE=2><U>/s/ W. Randall Pittman </U></FONT></TD><TD ALIGN="LEFT"> </TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"> </TD><TD ALIGN="LEFT"> </TD> <TD ALIGN="LEFT"><FONT SIZE=2>W. Randall Pittman</FONT></TD><TD ALIGN="LEFT"> </TD></TR> <TR VALIGN="BOTTOM"> <TD ALIGN="LEFT"> </TD><TD ALIGN="LEFT"> </TD> <TD ALIGN="LEFT"><FONT SIZE=2>Chief Financial Officer and Chief Accounting Officer</FONT></TD><TD ALIGN="LEFT"> </TD></TR> </TABLE> <TABLE WIDTH=600 CELLSPACING=0 CELLPADDING=0 BORDER=0> <TR VALIGN=TOP> <TD><!-- MARKER FORMAT-SHEET="Head Major 10" --> <!-- MARKER FORMAT-SHEET="Para Center 10" --> <P ALIGN=CENTER><FONT SIZE=2>18</FONT></P> <BR><BR> </TD> </TR> </TABLE> </BODY> </HTML>