IMMUSOL INC, S-1/A, 1996-08-30

IMMUSOL INC
S-1/A, 1996-08-30
PHARMACEUTICAL PREPARATIONS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 30, 1996

REGISTRATION NO. 333-07645
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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IMMUSOL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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<S> <C> <C>
CALIFORNIA 2834 33-0502473
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

3050 SCIENCE PARK ROAD
SAN DIEGO, CALIFORNIA 92121
(619) 677-0182
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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TSVI GOLDENBERG, PH.D.
CHIEF EXECUTIVE OFFICER
IMMUSOL, INC.
3050 SCIENCE PARK ROAD, 2ND FLOOR
SAN DIEGO, CALIFORNIA 92121
(619) 677-0182
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------

WITH COPIES TO:

<TABLE>
<S> <C>
CRAIG S. ANDREWS, ESQ. WILLIAM H. HINMAN, JR., ESQ.
FAYE H. RUSSELL, ESQ. SHEARMAN & STERLING
MARTIN C. NICHOLS, ESQ. 555 CALIFORNIA STREET
BROBECK, PHLEGER & HARRISON LLP SAN FRANCISCO, CALIFORNIA 94101-1522
550 WEST "C" STREET, SUITE 1300 (415) 616-1100
SAN DIEGO, CALIFORNIA 92101
(619) 234-1966
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: /X/
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2

IMMUSOL, INC.

CROSS REFERENCE SHEET

PURSUANT TO ITEM 501(b) OF REGULATION S-K SHOWING LOCATION
IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1

<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN
FORM S-1 REGISTRATION STATEMENT CAPTION IN PROSPECTUS
--------------------------------------------- -------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Facing Page; Cross Reference Sheet; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus................................. Inside Front and Outside Back Cover Pages
of Prospectus; Additional Information
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Prospectus Summary; Risk Factors
4. Use of Proceeds.............................. Prospectus Summary; Use of Proceeds
5. Determination of Offering Price.............. Underwriting
6. Dilution..................................... Dilution
7. Selling Security Holders..................... Inapplicable
8. Plan of Distribution......................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to Be Registered... Outside Front Cover Page of Prospectus;
Description of Capital Stock
10. Interests of Named Experts and Counsel....... Inapplicable
11. Information with Respect to the Registrant... Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors;
Dividend Policy; Capitalization; Selected
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Transactions;
Principal Shareholders; Description of
Capital Stock; Shares Eligible for Future
Sale; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Inapplicable
</TABLE>
<PAGE> 3

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED AUGUST 30, 1996

3,000,000 SHARES

LOGOIMMUSOL
COMMON STOCK

------------------------

All the shares of Common Stock offered hereby are being sold by Immusol,
Inc. Prior to this Offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $9.00 and $11.00 per share. See "Underwriting."

Application has been made to have the Common Stock approved for quotation
on the Nasdaq National Market under the symbol IMSL.

THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" AT PAGE 5.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<S> <C> <C> <C>
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Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
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Per Share..................... $ $ $
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Total......................... $ $ $
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Total Assuming Full Exercise
of Over-Allotment
Option(3)................... $ $ $
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</TABLE>

(1) See "Underwriting."
(2) Before deducting expenses estimated at $600,000, which are payable by the
Company.
(3) Assuming exercise in full of the 30-day option granted by the Company to the
Underwriters to purchase up to 450,000 additional shares, on the same terms,
solely to cover over-allotments. See "Underwriting."

------------------------

The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters, and
subject to their right to reject orders in whole or in part. It is expected that
the delivery of the Common Stock will be made in New York City on or about
, 1996.
------------------------
PAINEWEBBER INCORPORATED
NEEDHAM & COMPANY, INC.
SUTRO & CO. INCORPORATED
------------------------
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE> 4

[DRAWING DESCRIBING IMMUSOL'S APPROACH TO USE VIRAL VECTORS (IN A VIAL) TO
DELIVER THERAPEUTIC RIBOZYME GENES BY INJECTION INTO THE PATIENT.]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

The Company intends to furnish to its shareholders annual reports
containing audited financial statements certified by an independent public
accounting firm and quarterly reports containing unaudited interim financial
information for the first three quarters of each year.

HIVase I(TM) is a trademark of the Company. This Prospectus also includes
names and trademarks of companies other than the Company.
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus has been adjusted to reflect the conversion into one share of
Common Stock of each share of the Company's outstanding preferred stock (the
"Preferred Stock") and assumes no exercise of the Underwriters' over-allotment
option and no purchase of shares by Pfizer Inc. in connection with the Offering.
The shares of Common Stock offered hereby involve a high degree of risk. See
"Risk Factors" and "Business -- Strategic Alliances and Licenses -- Pfizer Inc."

THE COMPANY

Immusol, Inc. ("Immusol" or the "Company") is a biopharmaceutical company
dedicated to the discovery, development and commercialization of products based
on proprietary technologies in the areas of ribozyme gene therapy and
ribozyme-mediated gene functional analysis. Ribozymes are naturally occurring
ribonucleic acid ("RNA") molecules that can be engineered to cleave and
inactivate other RNA molecules in a specific, sequence-dependent fashion. Thus,
ribozymes can be designed to selectively inactivate RNA molecules and their
corresponding proteins that play a role in human disease. The Company intends to
initiate a Phase I clinical trial with its lead compound, HIVase I(TM), in 1996.
HIVase I is being developed through a collaboration with Pfizer Inc. ("Pfizer")
for the treatment of HIV-infected individuals. In addition, the Company has
three other ribozyme gene therapy programs in various stages of research and
preclinical development for the prevention of coronary restenosis and the
treatment of hepatitis C and hepatitis B viral infections.

Ribozyme therapies can be based on (i) ribozyme gene therapy which involves
inserting specific sequences that lead to the production of ribozymes within the
patient's cells or (ii) synthetic, chemically-modified ribozymes administered as
drugs. The gene therapy approach to ribozyme therapy utilizes the patient's own
cellular machinery to produce a constant and continuous supply of ribozymes
inside the cell where the disease-causing gene is produced. The Company has
utilized a number of different viral vectors (gene delivery vehicles), including
retroviral, adeno-associated viral ("AAV") and adenoviral vectors, to provide
optimal periods of in vivo production of ribozymes. The Company believes that
ribozyme gene therapy is a new, versatile modality which will be applicable in
the treatment of a wide range of viral diseases, coronary disease, genetic
diseases, cancers and other medical conditions.

The Company believes its ribozyme gene therapy technology will have certain
advantages over conventional drug development, including: (i) the high
specificity of ribozymes can be used to inactivate certain undesirable target
genes whose sequences are known; (ii) ribozymes can have application to a broad
spectrum of human diseases; (iii) ribozymes can be highly potent due to their
natural catalytic activity by which one ribozyme can inactivate many target
molecules; and (iv) ribozymes can result in fewer side effects due to their high
degree of target specificity. The Company believes its ribozyme gene therapy
technology has several advantages over synthetic ribozymes, including: (i)
efficient intracellular delivery and potential lack of immune response; (ii)
providing a constant and continuous supply of ribozymes inside the cell; and
(iii) the ability to deliver multiple ribozymes on one vector.

In May 1995, the Company and Pfizer entered into a research collaboration
for the discovery and development of products for ribozyme-based gene therapy
useful in treating or preventing HIV infection. In preclinical studies to date,
the Company has demonstrated potent activity of its multi-ribozyme gene therapy
against all strains of HIV known to the Company isolated from HIV-infected
individuals. In addition, the Company has found no evidence of
ribozyme-resistant mutants of HIV to date. The Company intends to initiate a
Phase I clinical trial with its first generation compound, HIVase I, in 1996 in
HIV-infected individuals.

Immusol believes that its ribozyme technology can be useful in drug
discovery in conjunction with gene sequence knowledge to characterize the
function of recently discovered genes that may be suitable therapeutic targets.
Since ribozymes can be designed to act on specific target genetic sequences,
ribozymes may be useful to identify the function of these sequences. As a
result, the Company believes its ribozyme technology can provide an important
link between gene dysfunction and disease.

The Company was incorporated in the State of California in March 1992. The
Company's principal executive offices are located at 3050 Science Park Road, San
Diego, California 92121, and its telephone number is (619) 677-0182.

3
<PAGE> 6

THE OFFERING

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<S> <C>
Common Stock Offered by the Company................... 3,000,000 shares
Common Stock to be Outstanding after this
Offering(1)......................................... 13,024,477 shares
Use of Proceeds....................................... To fund research and development and
for working capital and general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol................ IMSL
</TABLE>

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(1) Does not include (i) 2,002,500 shares of Common Stock issuable upon exercise
of options outstanding at a weighted average exercise price of $0.10 per
share pursuant to the Company's stock option plans at June 30, 1996 and (ii)
1,354 shares of Common Stock issued upon exercise of options subsequent to
June 30, 1996 and 11,500 shares of Common Stock issuable upon exercise of
options granted subsequent to June 30, 1996. See "Capitalization,"
"Management -- Benefit Plans," "Certain Transactions" and "Shares Eligible
for Future Sale."

SUMMARY FINANCIAL INFORMATION

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- ------------------------
1993 1994 1995 1995 1996
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<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue................. $ -- $ 204,475 $3,174,515 $ 621,937 $2,941,489
Costs and expenses:
Research and development.... 157,101 492,513 2,831,860 1,246,189 1,982,939
General and
administrative........... 47,948 127,360 487,234 238,491 396,571
--------- --------- ---------- --------- ----------
Total costs and
expenses............... 205,049 619,873 3,319,094 1,484,680 2,379,510
Income (loss) from
operations.................. (205,049) (415,398) (144,579) (862,743) 561,979
Interest income............... 50,743 57,798 275,564 99,230 200,795
Interest expense.............. -- -- (5,343) (2,326) (3,386)
--------- --------- ---------- --------- ----------
Net income (loss)............. $(154,306) $(357,600) $ 125,642 $(765,839) 759,388
========= ========= ========== ========= ==========
Pro forma net income (loss)
per share(1)................ $ (0.02) $ (0.05) $ 0.01 $ (0.10) $ 0.06
========= ========= ========== ========= ==========
Shares used in computing pro
forma net income (loss) per
share(1).................... 7,342,653 7,471,420 11,830,427 7,479,860 12,404,535
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------
ACTUAL AS ADJUSTED(2)
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments................. $7,684,784 $ 34,984,784
Working capital................................................... 6,724,715 34,024,715
Total assets...................................................... 8,439,891 35,739,891
Long-term liabilities, less current portion....................... 185,047 185,047
Accumulated deficit............................................... (12,105) (12,105)
Total shareholders' equity........................................ 7,154,642 34,454,642
</TABLE>

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(1) See Note 1 of Notes to Financial Statements for information concerning the
computation of pro forma net income (loss) per share and shares used in
computing pro forma net income (loss) per share.

(2) As adjusted to reflect the sale of the Common Stock offered hereby and the
application of the net proceeds of this Offering, based on an assumed public
offering price of $10.00 per share (the midpoint of the range set forth on
the cover page of this Prospectus). See "Use of Proceeds."

4
<PAGE> 7

RISK FACTORS

An investment in the shares being offered hereby involves a high degree of
risk. Prospective investors should carefully consider the following risk
factors, in addition to the other information contained in this Prospectus,
before purchasing the shares of Common Stock offered hereby. This Prospectus
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in the following risk factors and in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," as well as those discussed elsewhere in this Prospectus.

EARLY STAGE OF DEVELOPMENT; NO COMMERCIAL PRODUCTS; NO ASSURANCE OF SUCCESSFUL
PRODUCT DEVELOPMENT

Immusol's programs are at an early stage of development and, to date, none
of the Company's potential products has been the subject of any human clinical
testing. Since the Company's inception in 1992, substantially all of the
Company's resources have been dedicated to the research and development of
potential products based on ribozyme technology, and no revenues have been
generated from product sales. Products, if any, resulting from the Company's
research and development efforts are not expected to be commercially available
for a number of years. There can be no assurance that any of the Company's
potential products will prove safe and effective in clinical trials, meet
applicable regulatory standards, be capable of being produced in commercial
quantities at acceptable cost or be successfully commercialized. In addition,
there can be no assurance that preclinical or clinical testing will accurately
predict safety or efficacy in broader human use, or that delays in the
regulatory approval process will not delay commercialization of any potential
product. Even if any of the Company's products proves to be safe and effective
and is approved for marketing by the United States Food and Drug Administration
("FDA") and other regulatory authorities, there can be no assurance that health
care providers, payors and patients will accept such product. Any failure by the
Company to achieve technical feasibility, demonstrate safety and efficacy,
obtain regulatory approval or, either alone or together with any collaborator,
successfully market products would have a material adverse effect on the
Company. See "Government Regulation; Uncertainty of Obtaining Regulatory
Approval" and "Business -- Government Regulation."

TECHNOLOGICAL UNCERTAINTY; RISKS ASSOCIATED WITH RIBOZYME GENE THERAPY; RISKS
ASSOCIATED WITH THE USE OF VIRAL VECTORS; NO RIBOZYME PRODUCTS IN CLINICAL
TRIALS

Drug discovery and development based upon ribozymes is relatively new, and
there can be no assurance that this approach will lead to the discovery or
development of commercial pharmaceutical products, that the Company will be able
to employ these methods of drug development successfully or that ribozyme
products will be deliverable, safe or efficacious in humans. While the Company
has demonstrated the utility of ribozyme technology in in vitro model systems
and in preclinical models, no ribozyme-based compound has been tested in humans.
As a result, it is unclear as to whether the FDA will apply the same standards
for the review of ribozyme gene therapy products that it applies to traditional
therapeutics. There can be no assurance that any of the Company's potential
products will enter clinical trials. A significant amount of additional research
and development, requiring many years and substantial resources, will be
required to determine the potential of the Company's ribozyme technology for
therapeutic products. The Company's technology may, during the course of further
research, prove to be ineffective in the treatment of human disease or in other
areas. The Company must conduct significant additional research and development
on determining safe and effective methods of delivering ribozymes into the human
body for each indication for the Company's potential therapeutic products and
must overcome a number of other technological challenges, such as enhancing the
activity and stability of ribozymes and manufacturing ribozyme-based therapeutic
products on a commercial scale.

A significant amount of additional research and development is required to
determine whether ribozymes can be delivered systemically, including research
and development directed toward improving the delivery of ribozymes to specific
tissues and improving cellular uptake. There can be no assurance that effective
systemic delivery of ribozyme-based products can be achieved.

5
<PAGE> 8

Safety concerns have been raised by the use of retroviral and adenoviral
vectors since both are derived from pathogenic viruses. During the manufacture
of these vectors, there is a possibility of generating a small amount of natural
virus. Although considered a low risk, such a possibility necessitates
additional costly product testing. In addition, the Company's use of vector
delivery of ribozymes will require that the Company overcome concerns relating
to mutagenicity (permanent DNA alteration) or inflammatory responses. Retroviral
vectors randomly integrate genetic material into the target cell and AAV vectors
may do the same. Any gene therapy approach that involves the random integration
of genetic material into the target cell's DNA could, theoretically, cause the
activation of an undesirable gene or the inactivation of a beneficial gene,
although it is generally believed that such events would be rare.

Many of the technological and developmental challenges associated with
ribozyme gene therapy may be significantly greater than those typically
associated with traditional drug development, and may never be overcome. There
can be no assurance that even if the Company's potential products are found to
be safe and effective, or otherwise have utility, the Company will be able to
manufacture them on a commercial scale or market them in an economical way.
Further, it is possible that the proprietary rights of third parties will
preclude the Company or its collaborative partners from marketing products or
that third parties will market superior or equivalent products. As a result,
there can be no assurance that the Company's research and development activities
will result in any commercially viable products.

HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY

The Company incurred an accumulated deficit of $12,000 through June 30,
1996. The Company anticipates that it will incur substantial and increasing
losses over at least the next several years as the Company's research and
development efforts, preclinical and clinical testing activities and
manufacturing scale-up efforts expand. All of the Company's revenues to date
have consisted of contract revenues, grant revenues and interest income. No
revenues have been generated from product sales. There can be no assurance that
the Company can generate sufficient product or contract revenue to achieve
sustained profitability. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING

The development and commercialization of the Company's products will
require substantial funds to conduct research and development and preclinical
and clinical testing of products and to manufacture and commercialize any
products that are approved for commercial sale. The Company's future capital
requirements will depend on many factors, including the scope and results of
preclinical testing and clinical trials, the time and costs involved in
obtaining regulatory approvals, the costs involved in preparing, filing,
prosecuting, maintaining and enforcing patent claims, competing technological
and market developments, changes in existing collaborative research
relationships, the ability of the Company to establish additional collaborative
arrangements, the cost of manufacturing scale-up and effective commercialization
activities and arrangements, continued scientific progress in its research and
development programs and the magnitude of such programs.

The Company anticipates that its existing available cash, cash equivalents
and short-term investments, combined with the anticipated proceeds of this
Offering, its committed future contract revenue and interest income, will be
adequate to satisfy its capital requirements and fund anticipated operating
losses through 1999. There can be no assurance that the underlying assumed
levels of revenue and expense will prove to be accurate. The Company will need
to raise substantial additional capital to fund its operations. The Company
intends to seek additional funding through collaborative arrangements, contract
research or through public or private financings. There can be no assurance that
additional financing will be available on acceptable terms, or at all. If
additional funds are raised by issuing equity securities, further dilution to
then existing shareholders could result. If adequate funds are not available,
the Company could be required to delay, scale back or eliminate one or more of
its research and development programs or obtain funds through arrangements with
collaborative partners or others that could require the Company to relinquish
certain rights to certain of its technologies or products that the Company would
not otherwise relinquish. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

6
<PAGE> 9

UNCERTAINTY OF PRODUCT DEVELOPMENT

Before obtaining regulatory approval for the commercial sale of any of its
potential products, the Company must demonstrate, through preclinical studies
and clinical trials, that a potential product is safe and efficacious for use in
each target indication. The Company has not commenced clinical testing of any
products for safety or efficacy in humans. There can be no assurance that
results generated by preclinical animal testing will be indicative of results of
clinical testing in humans when, and if, those tests are conducted. There can be
no assurance that the Company will be permitted to undertake human clinical
testing of any of the Company's potential products, or, if permitted, that such
potential products will be demonstrated to be safe and efficacious or will
receive necessary regulatory approvals.

The Company may also experience delays in the clinical trial process due to
a variety of factors, including preclinical study results, delays or
difficulties in patient enrollment, delays in regulatory approvals and other
factors. The Company's potential products may prove to have undesirable and
unintended side effects or other characteristics that may prevent or limit their
commercial use. In addition, there can be no assurance that any of the Company's
potential products will ultimately obtain FDA, other regulatory or foreign
marketing approval for any indication, that an approved product will be capable
of being produced in commercial quantities at reasonable cost or that any
approved product will achieve market acceptance. The Company will also be
dependent on the efforts of others to advance the development of certain of its
products. See "Dependence Upon Collaborators."

GOVERNMENT REGULATION; UNCERTAINTY OF OBTAINING REGULATORY APPROVAL

The FDA and comparable agencies in foreign countries impose substantial
requirements on biotechnology and pharmaceutical companies prior to the
introduction of therapeutic products. These requirements include lengthy and
detailed laboratory and clinical testing procedures, sampling activities and
other costly and time-consuming procedures. Satisfaction of these requirements
typically takes a number of years and varies substantially based on the type,
complexity and novelty of the pharmaceutical. The Company cannot accurately
predict when it might submit product applications or submissions for FDA or
other regulatory review. Governmental regulation also affects the manufacture
and marketing of pharmaceutical products.

Any future FDA or other governmental approval of products developed by the
Company may entail limitations on the indicated uses for which such products may
be marketed. Approved products may be subject to additional testing and
surveillance programs as required by regulatory agencies. In addition, product
approvals may be withdrawn or limited for noncompliance with regulatory
standards or the occurrence of unforeseen problems following initial marketing.
In the event that the Company were to manufacture therapeutic products for
commercial sale, it would be required to adhere to applicable standards for
manufacturing practices and to engage in extensive record keeping and reporting,
and its manufacturing facilities would be subject to periodic inspections by
state and federal agencies, including the FDA and comparable agencies in foreign
countries. See "Business -- Governmental Regulation."

The effect of governmental regulation may be to delay marketing new
products for a considerable period of time, to impose costly requirements on the
Company's activities or to provide a competitive advantage to other companies
that compete with the Company. There can be no assurance that FDA or other
regulatory approval for any products developed by the Company will be granted on
a timely basis, if at all. Adverse clinical results by others could have a
negative impact on the regulatory process and timing. A delay in obtaining or
failure to obtain regulatory approvals could adversely affect the marketing of
the Company's products and the Company's liquidity and capital resources. The
extent of potentially adverse governmental regulation that might arise from
future legislation or administrative action cannot be predicted.

The Company is also subject to various federal, state and local laws,
regulations and recommendations relating to safe working conditions, laboratory
and manufacturing practices, the experimental use of animals and the use and
disposal of hazardous or potentially hazardous substances, including radioactive
compounds and infectious disease agents, used in connection with its research
work. The extent and character of governmental regulation that might result from
future legislation or administrative action cannot be accurately predicted.

7
<PAGE> 10

DEPENDENCE ON COLLABORATORS

The Company does not currently possess the resources necessary to develop,
complete the FDA approval process for and commercialize any of its potential
therapeutic products. The Company intends to enter into collaborative
arrangements with other companies to fund research, development and clinical
trials, to assist in obtaining regulatory approvals in the United States and
internationally and to commercialize certain of its products. While the Company
has entered into a collaboration with Pfizer, there can be no assurance that the
Company will be able to enter into additional collaborations to develop
commercial applications of its ribozyme technology. In addition, there can be no
assurance that the Company will be able to enter into or maintain existing or
future collaborations or that such collaborations will be successful. The
failure to enter into or maintain existing or future collaborations would have a
material adverse effect on the Company.

The Company's collaborators may pursue parallel development of other
products or technologies that may compete with the Company's ribozyme
technology. Continued collaborator participation will depend not only on the
achievement of research objectives by the Company and its collaborators, which
cannot be assured, but also on each collaborator's own financial, competitive,
marketing and strategic considerations, which are outside the Company's control.
Such strategic considerations may include the relative advantages of alternative
products being marketed or developed by others, including relevant patent and
proprietary positions. There can be no assurance that the interests and
motivations of the Company's collaborators are, or will remain, aligned with
those of the Company or that such collaborators will successfully perform their
development, regulatory compliance, manufacturing or marketing functions or that
current or future collaborations will continue. Any parallel development by a
collaborator of alternate technologies, preclusion from entering into
competitive arrangements, failure to obtain timely regulatory approvals,
premature termination of a collaborative agreement or failure by a collaborator
to devote sufficient resources to the development and commercialization of the
Company's products could have a material adverse effect on the Company. In
addition, definitive agreements negotiated with such collaborators may provide
that these collaborators may terminate the collaboration at any time without
significant penalty. Further, the failure of the Company to attract and retain
qualified personnel, consultants and advisers could negatively impact the
Company's relationships with such collaborators. Pfizer has the ability to
terminate the collaboration at certain intervals and with advance notice.
Termination of the collaboration with Pfizer would have a material adverse
effect on the Company. See "Business -- Strategic Alliances and Licenses."

RAPID TECHNOLOGICAL CHANGE

Immusol is engaged in a field characterized by extensive research efforts
and rapid technological change. Other products and therapies that may compete
directly with the products that the Company is seeking to develop currently
exist or are being developed. Many other companies are actively seeking to
develop products, including ribozymes and other products designed to modulate
gene expression, such as antisense oligonucleotides, that have disease targets
similar to those being pursued by the Company. Some of these competitive
products are in clinical trials. There can be no assurance that the Company's
competitors will not succeed in developing products based on ribozyme or other
technologies, existing or new, that are more effective than any that are being
developed by the Company or that would render the Company's ribozyme
technologies obsolete and noncompetitive.

COMPETITION

The Company is engaged in a highly competitive field. There currently are
commercially available products for the treatment of certain disease targets
being pursued by the Company, including reverse transcriptase inhibitors and
protease inhibitors for the treatment of HIV and Intron(R)A for both hepatitis B
and hepatitis C. ReoPro(R) and coronary stents are being evaluated for the
prevention of coronary restenosis.

8
<PAGE> 11

through collaborative arrangements with large pharmaceutical and biotechnology
companies. Many of these competitors have products that have been approved or
are in development and operate large, well funded research and development
programs. Academic institutions, governmental agencies and other public and
private research organizations also conduct research, seek patent protection and
establish collaborative arrangements for products and clinical development and
marketing. These companies and institutions compete with the Company in
recruiting and retaining highly qualified scientific and management personnel.
In addition to the above factors, Immusol faces competition based on product
efficacy, safety, timing and scope of regulatory approvals, availability of
supply, marketing and sales capability, reimbursement coverage, price and patent
position. There can be no assurance that the Company's competitors will not
develop more effective or more affordable products, achieve earlier product
commercialization or have, or will achieve, a patent position superior to that
of the Company. See "Business -- Competition."

LIMITED CLINICAL TESTING, REGULATORY, MANUFACTURING AND SALES CAPABILITIES

Because of the relatively early stage of the Company's research and
development programs, the Company has not yet invested significantly in
clinical, regulatory, manufacturing, marketing, distribution or product sales
resources. The Company currently has only limited in-house clinical and
regulatory capabilities. Although the Company intends to develop clinical,
regulatory, manufacturing and other resources in the future, there can be no
assurance that the Company will be able to develop such resources successfully.
See "Business -- Manufacturing" and "Business -- Human Resources."

PATENTS AND PROPRIETARY TECHNOLOGY; RELIANCE UPON LICENSES

Immusol relies on a combination of technical leadership, patents, trade
secrets and nondisclosure agreements to protect its proprietary rights. There
can be no assurance that the Company will be issued any patents or that, if any
patents are issued, they will provide the Company with significant protection or
will not be challenged. Even if such patents are enforceable, the Company
anticipates that any attempt to enforce its patents would be time consuming and
costly. Moreover, the laws of some foreign countries do not protect the
Company's proprietary rights in the products to the same extent as do the laws
of the United States. The United States Patent and Trademark Office ("PTO") has
instituted changes to the United States patent law including changing the term
to 20 years from the date of filing for applications filed after June 8, 1995.
Certain of the patent applications under which the Company is developing its
products were filed after June 8, 1995. The Company cannot predict the effect
that such changes on the patent laws may have on its business, or on the
Company's ability to protect its proprietary information and sustain the
commercial viability of its products.

The patent positions of pharmaceutical, biotechnology and gene therapy
companies, including Immusol, can be uncertain and involve complex legal and
factual issues. Additionally, the coverage claimed in a patent application can
be significantly reduced before the patent is issued. As a consequence, there
can be no assurance that any of the Company's patent applications will result in
the issuance of patents or, if any patents issue, that they will provide
significant proprietary protection or will not be circumvented or invalidated.
Because patent applications in the United States are maintained in secrecy until
patents issue and publication of discoveries in the scientific or patent
literature often lag behind actual discoveries, the Company cannot be certain
that it was the first inventor of inventions covered by its pending patent
applications or that it was the first to file patent applications for such
inventions. Moreover, the Company may have to participate in interference
proceedings declared by the PTO to determine priority of invention that could
result in substantial cost to the Company, even if the eventual outcome is
favorable to the Company. There can be no assurance that the Company's patents,
if issued, would be held valid by a court of competent jurisdiction. An adverse
outcome could subject the Company to significant liabilities to third parties,
require disputed rights to be licensed from or to third parties or require the
Company to cease using the technology in dispute.

9
<PAGE> 12

development programs. Based on its review of these patents and advice of outside
patent counsel, the Company believes its technology does not infringe any valid
claims of such patents and that these patents will not impede the advancement of
the Company's programs. There can be no assurance that third parties will not
assert infringement claims against the Company in the future with respect to
these patents or otherwise, or that any such assertions will not result in
costly litigation or require the Company to obtain a license to intellectual
property rights of such parties. There can be no assurance that any such
licenses would be available on terms acceptable to the Company, if at all.
Furthermore, parties making such claims may be able to obtain injunctive or
other equitable relief that could effectively block the Company's ability to
further develop or commercialize its products in the United States and abroad
and could result in the award of substantial damages. Defense of any lawsuit or
failure to obtain any such license could have a material adverse affect on the
Company. Finally, litigation, regardless of outcome, could result in substantial
cost to and a diversion of efforts by the Company.

In December 1993, the Company entered into an Exclusive License Agreement
with the Regents of the University of California ("The Regents"), pursuant to
which The Regents exclusively licensed rights to certain intellectual property
relating to the use of ribozyme technology in HIV and AIDS, including the
corresponding patents and patent applications for such property (the "UC
Technology"). As consideration for the exclusive license of the UC Technology,
Immusol will pay The Regents an earned royalty on net sales by Immusol of
products incorporating the UC Technology and prior to sales of such products
will pay a license maintenance fee. In addition, beginning the year of the first
commercial sale of a FDA approved product, Immusol will pay The Regents a
minimum annual royalty. The Regents retain the right to terminate the agreement
or to reduce the exclusive license to a nonexclusive license in the event that
the Company does not satisfy certain milestone obligations and minimum research
and development funding levels. Additional termination events include an uncured
breach of the agreement by Immusol. The termination of the Exclusive License
Agreement or the conversion of its exclusivity to a nonexclusive agreement would
have a material adverse effect on the Company.

As part of its confidentiality procedures, the Company generally enters
into nondisclosure agreements with its employees and suppliers, and limits
access to and distribution of its proprietary information. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use the Company's technology without authorization. Accordingly, there can
be no assurance that the Company will be successful in protecting its
proprietary technology or that Immusol's proprietary rights will preclude
competitors from developing products or technology equivalent or superior to
that of the Company.

The Company may require additional technology to which the Company
currently does not have rights. If the Company determines that this additional
technology is relevant to the development of future products and further
determines that a license to this additional technology is needed, there can be
no assurance that the Company can obtain a license from the relevant party or
parties on commercially reasonable terms, if at all. There can be no assurance
that the Company can obtain any license to any technology that the Company
determines it needs, on reasonable terms, if at all, or that the Immusol could
develop or otherwise obtain alternate technology. The failure of the Company to
obtain licenses, if needed, would have a material adverse affect on the Company.
See "Business -- Patents and Proprietary Rights."

DEPENDENCE ON KEY PERSONNEL

The Company is highly dependent on its corporate officers and principal
members of its scientific and management staff, the loss of any of whose
services might have an adverse impact on the Company. In addition, the Company
relies on consultants and advisors, including the members of its Scientific
Advisory Board, to assist the Company in its research and development efforts.
Since May 1995, the Company has employed a consultant as acting chief financial
officer. The Company is actively seeking to hire a permanent chief financial
officer and intends to make such hire as soon as practicable after the Offering.
Retaining and attracting qualified personnel, consultants and advisors is
critical to the Company's success. In order to pursue its product development
and marketing plans, the Company may be required to hire additional qualified
scientific personnel to perform research and development, as well as personnel
with expertise in clinical testing, regulatory affairs, manufacturing and
marketing. These requirements are also expected to demand the

10
<PAGE> 13

addition of management personnel and the development of additional expertise by
existing management personnel. Competition for qualified individuals is intense
and the Company faces competition for qualified people from numerous
pharmaceutical and biotechnology companies, universities and other research
institutions. There can be no assurance that the Company will be able to attract
and retain such individuals on acceptable terms, if at all, and the failure to
do so could have a material adverse effect on the Company, including its ability
to conclude collaborations with additional corporate partners. See "Management."

PRODUCT LIABILITY; LIMITED INSURANCE

The design, development and manufacture of therapeutic products involve an
inherent risk of product liability claims and associated adverse publicity. The
Company has arranged for clinical trial product liability insurance for its
anticipated Phase I human clinical trial and intends to obtain insurance for
future clinical trials of other products under development and for potential
product liability associated with the manufacture and commercial sale of the
Company's products. There can be no assurance, however, that the Company will be
able to obtain or maintain insurance for any of its clinical trials or
commercial products. Although the Company currently maintains general liability
insurance, there can be no assurance that the coverage limits of the Company's
insurance policies will be adequate. Such insurance is expensive, difficult to
obtain and may not be available in the future on acceptable terms or at all. A
successful claim brought against the Company in excess of the Company's
insurance coverage would have a material adverse effect on the Company.

HAZARDOUS MATERIALS

The Company's research and development involves the controlled use of
hazardous materials, chemicals and various radioactive compounds. Although the
Company believes that its safety procedures for handling and disposing of such
materials comply with the standards prescribed by state and federal regulations,
the risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of such an accident, the Company could be
held liable for any damages that result and any such liability could exceed the
resources of the Company. The Company may incur substantial cost to comply with
environmental regulations.

UNCERTAIN AVAILABILITY OF THIRD-PARTY REIMBURSEMENT AND PRODUCT PRICING

The Company's ability to commercialize products successfully will depend
substantially on reimbursement of the costs of such products and related
treatments at acceptable levels from government authorities, private health
insurers and other organizations, such as health maintenance organizations
("HMOs"). There can be no assurance that reimbursement in the United States or
foreign countries will be available for any products the Company may develop or,
if available, will not be decreased in the future, or that reimbursement amounts
will not reduce the demand for, or the price of, the Company's products, thereby
adversely affecting its business.

Third-party payors are increasingly challenging the prices charged for
medical products and services. Also, the trend toward managed healthcare in the
United States and the concurrent growth of organizations, such as HMOs, which
can control or significantly influence the purchase of health care products and
services, as well as legislative proposals to reform healthcare or reduce
government insurance programs, may result in lower prices for therapeutic
products. The cost-containment measures that healthcare providers are
instituting, including practice protocols and guidelines and clinical pathways,
and the effect of any healthcare reform could materially adversely affect the
Company's ability to sell products if successfully developed and approved.
Moreover, the Company is unable to predict what additional legislation or
regulation, if any, relating to the healthcare industry or third-party coverage
and reimbursement may be enacted in the future or what effect such legislation
or regulation would have on the Company's business.

SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of shares of the Common Stock in the public
market following this Offering could adversely affect the market price of the
Common Stock. Upon completion of this Offering, the

11
<PAGE> 14

Company will have outstanding 13,024,477 shares of Common Stock (without taking
into account shares of Common Stock issuable upon exercise of outstanding
options). As of June 30, 1996, 2,002,500 shares of Common Stock are subject to
outstanding options and 473,500 additional shares are reserved for issuance
under the Company's stock option plans. See "Management -- Benefit Plans."

The 3,000,000 shares of Common Stock sold in this Offering will be freely
tradeable without restrictions under the Securities Act of 1933, as amended (the
"Securities Act"), except for any such shares held by an "affiliate" of the
Company, which will be subject to the resale limitations of Rule 144 under the
Securities Act. The remaining 10,024,477 shares held by existing shareholders
were issued by the Company in private transactions in reliance upon one or more
exemptions under the Securities Act, are "restricted securities" as that term is
defined in Rule 144 promulgated under the Securities Act and may be sold in
compliance with such Rule, pursuant to registration under the Securities Act or
pursuant to an exemption therefrom. Of the outstanding shares, 7,045,000 shares
are currently freely tradeable without limitation under Rule 144, subject to the
lock-up period described below. Future sales of shares by existing shareholders
pursuant to Rule 144 of the Securities Act or through the exercise of
outstanding registration rights could have an adverse effect on the market price
of the Common Stock and could impair the Company's efforts to obtain additional
capital in the future.

Any employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701 under the Securities
Act. An aggregate of 124,000 shares of Common Stock issued on exercise of stock
options will be tradeable pursuant to Rule 701, subject to the lock-up period
described below. Such options were exercised at prices below the initial public
offering price. Shareholders owning an aggregate of 9,574,477 shares of Common
Stock, representing approximately 96% of the total shares outstanding (and
1,887,500 shares issuable upon exercise of outstanding options), including
shares held by all employees, officers and directors and certain other
shareholders of the Company, have agreed not to directly or indirectly offer or
sell, contract to sell, grant any option to purchase, transfer or otherwise
dispose of or make a distribution of any of their shares or securities
convertible or exchangeable for Common Stock for a period of 180 days from the
date of this Prospectus without the prior written consent of PaineWebber
Incorporated ("PaineWebber"). See "Shares Eligible for Future Sale."

REGISTRATION RIGHTS

Holders of 2,915,477 shares of Common Stock are entitled to certain demand
and other registration rights with respect to such shares of Common Stock. Any
sales under such registration rights may have an adverse effect on the Company's
ability to raise needed capital and may adversely affect the market price of the
Common Stock. Such registration rights are not exercisable prior to 180 days
after this Offering. See "Description of Capital Stock -- Amended Shareholder
Rights Agreement."

DILUTION

The initial public offering price of the Common Stock is substantially
higher than the net tangible book value per share of the Common Stock. Assuming
an initial offering price of $10.00 per share (the midpoint of the range set
forth on the cover page of this Prospectus), investors participating in this
Offering will incur an immediate, substantial dilution in net tangible book
value of $7.35 per share and may incur additional dilution upon exercise of
outstanding stock options. See "Dilution."

NO DIVIDENDS

The Company currently intends to retain any and all earnings for use in its
business and does not anticipate paying any dividends within the foreseeable
future. The Company has never declared or paid dividends on its capital stock.
See "Dividend Policy."

12
<PAGE> 15

CONCENTRATION OF OWNERSHIP

Following this Offering, the present officers and directors of the Company
and their affiliates will beneficially own approximately 74% of the outstanding
shares of Common Stock (assuming exercise of all stock options beneficially
owned by officers and directors). Accordingly, they will have the ability to
exercise significant influence over the management and policies of the Company.

BROAD DISCRETION IN USE OF PROCEEDS

The net proceeds of the Offering will be used to fund the Company's
research and development and will be added to the Company's working capital.
Other than those outlined in this Prospectus, the Company cannot set forth with
certainty additional research and development programs or other uses for the net
proceeds. Accordingly, management will have broad discretion in the application
of such net proceeds. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Conditions and Results of Operations."

POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS AND AUTHORIZED
PREFERRED STOCK

Amendments to the Company's Articles of Incorporation have been approved,
effective upon the closing of this Offering, which may discourage certain types
of transactions involving an actual or potential change in control of the
Company, including transactions in which the shareholders might otherwise
receive a premium for their shares over then current market prices, and may
limit the ability of the shareholders to approve transactions that they may deem
to be in their best interests. The Board of Directors also has the authority to
issue up to 5,000,000 shares of Preferred Stock in one or more series and to fix
the rights, priorities, preferences, qualifications, limitations and
restrictions, including the dividend rates, conversion rights, voting rights,
terms of redemption, terms of sinking funds, liquidation preferences and the
number of shares constituting any series, without any further vote or action by
the shareholders, which could decrease the amount of earnings and assets
available for distribution to holders of Common Stock or adversely affect the
rights and powers, including voting rights, of the holders of the Common Stock.
The issuance of Preferred Stock may have the effect of delaying or preventing a
change in control of the Company and may adversely affect the rights of the
holders of Common Stock. In November 1996, Pfizer is obligated to purchase
264,600 shares of B-2 Preferred Stock at a price per share of $7.56. In May
1998, Pfizer is obligated to purchase 304,300 shares of B-3 Preferred Stock at a
price per share of $9.86, subject to Pfizer's ability to terminate the
Collaboration Agreement (as defined herein) and its obligations thereunder. See
"Business -- Strategic Alliances and Licenses," "Management," "Principal
Shareholders," "Description of Capital Stock -- Preferred Stock" and
"Description of Capital Stock -- Possible Anti-Takeover Effect of Certain
Charter Provisions."

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to this Offering, there has been no public market for the Common
Stock and there can be no assurance that an active trading market will develop
or be sustained after this Offering. The initial public offering price for the
Common Stock was determined by negotiations between the Company and PaineWebber,
Needham & Company, Inc. and Sutro & Co. Incorporated. See "Underwriting." There
can be no assurance that an active public market will develop or be sustained
after the Offering or that the market price of the Common Stock will not decline
below the public offering price. Factors such as the announcements of
technological innovations or new products by the Company, its competitors and
other third parties, as well as variations in the Company's results of
operations, market conditions, analysts' estimates and the stock market may
cause the market price of the Common Stock to fluctuate significantly. Also,
future sales of shares by existing shareholders pursuant to Rule 144 of the
Securities Act or through the exercise of outstanding registration rights, could
have an adverse effect on the price of the Common Stock. See "Description of
Capital Stock -- Amended Shareholder Rights Agreement" and "Shares Eligible for
Future Sale."

13
<PAGE> 16

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered hereby are estimated to be approximately $27,300,000
($31,400,000 if the Underwriters' over-allotment option is exercised in full),
based on an assumed public offering price of $10.00 per share (the midpoint of
the range set forth on the cover page of this Prospectus), and after deducting
underwriting discounts and commissions and other estimated offering expenses.

The Company expects to use the net proceeds, including the interest
thereon, (i) to fund research and development programs (approximately 80%) and
(ii) for general corporate purposes, including capital expenditures and working
capital (approximately 20%). The amounts actually used for each purpose may vary
significantly depending upon numerous factors, including the progress of the
Company's research and development programs, the results of preclinical and
clinical trials, the timing of regulatory approvals, technological advances, the
commercial potential of proposed compounds and the status of competitive
products. In addition, expenditures will also depend upon the establishment of
collaborative research agreements with other companies, the availability of
additional financing and other factors. The Company believes that its existing
cash, cash equivalents and short-term investments, combined with the anticipated
proceeds of this Offering and its committed future contract revenue and interest
income, will be adequate to satisfy its capital requirements and to fund
anticipated operating losses through 1999. Pending application of the proceeds
as described above, the Company intends to invest the net proceeds of this
Offering in investment-grade securities.

Other than those outlined in this Prospectus, the Company cannot set forth
with certainty additional research and development programs or other uses for
the net proceeds. Accordingly, management will have broad discretion in the
application of such net proceeds. The Company believes that it will need to
raise substantial additional capital to fund its future operations. The Company
intends to seek additional funding through collaborative arrangements, contract
research or through public or private financings. See "Risk Factors -- Future
Capital Needs; Uncertainty of Additional Funding."

DIVIDEND POLICY

The Company has never declared or paid dividends on its capital stock. The
Company currently intends to retain any and all earnings for use in the
operation and expansion of its business. The Company does not anticipate paying
any dividends within the foreseeable future.

14
<PAGE> 17

CAPITALIZATION

The following table sets forth the capitalization of the Company (i) as of
June 30, 1996 and (ii) as adjusted to give effect to the sale by the Company of
3,000,000 shares of Common Stock offered hereby at an assumed public offering
price of $10.00 per share (the midpoint of the range set forth on the cover page
of this Prospectus), less underwriting discounts and commissions and other
estimated expenses of this Offering:

<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
Long-term liabilities, less current portion........................ $ 185,047 $ 185,047
Shareholders' equity:
Convertible Preferred Stock, $.001 par value: 3,491,700 shares
authorized, 2,915,477 issued and outstanding actual; 5,000,000
shares authorized, none issued and outstanding as
adjusted(1)................................................... 2,915 --
Common Stock, $.001 par value: 20,000,000 shares authorized,
7,109,000 shares issued and outstanding actual; 30,000,000
shares authorized, 13,024,477 shares issued and outstanding as
adjusted(2)................................................... 7,109 13,024
Deferred compensation related to stock options................... (1,445,377) (1,445,377)
Additional paid-in capital....................................... 8,602,100 35,899,100
Accumulated deficit.............................................. (12,105) (12,105)
---------- -----------
Total shareholders' equity(2)................................. 7,154,642 34,454,642
---------- -----------
Total capitalization........................................ $7,339,689 $34,639,689
========== ===========
</TABLE>

- ---------------
(1) Shares of Preferred Stock may be issued to Pfizer under its collaboration
with the Company. See "Business -- Strategic Alliances and Licenses" and
"Description of Capital Stock."

(2) Does not include (i) 2,002,500 shares of Common Stock issuable upon exercise
of options outstanding at a weighted average exercise price of $0.10 per
share pursuant to the Company's stock option plans at June 30, 1996 and (ii)
1,354 shares of Common Stock issued upon exercise of options subsequent to
June 30, 1996 and 11,500 shares of Common Stock issuable upon exercise of
options granted subsequent to June 30, 1996. See "Management -- Benefit
Plans," "Certain Transactions" and "Shares Eligible for Future Sale."

15
<PAGE> 18

DILUTION

The net tangible book value of the Company at June 30, 1996 was $7,154,642,
or $0.71 per share. Net tangible book value per share represents the amount of
total tangible assets of the Company less total liabilities divided by the
number of shares of Common Stock outstanding, after giving effect to the
conversion of the outstanding shares of Preferred Stock into shares of Common
Stock. After giving effect to the sale of the 3,000,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $10.00 per share
(the midpoint of the range set forth on the cover page of this Prospectus) and
after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company, the Company's net tangible book value as of
June 30, 1996 would have been $34,454,642, or $2.65 per share. This represents
an immediate increase in net tangible book value per share of $1.94 to existing
holders and immediate dilution in net tangible book value of $7.35 per share to
new investors purchasing Common Stock in this Offering. The following table
illustrates the per share dilution:

<TABLE>
<S> <C> <C>
Assumed public offering price....................................... $ 10.00
Net tangible book value before the Offering....................... $ 0.71
Increase attributable to new investors............................ 1.94
-----
Net tangible book value after this Offering......................... 2.65
------
Dilution of net tangible book value to new investors................ $ 7.35
======
</TABLE>

The following table summarizes, as of June 30, 1996, the number of shares
of Common Stock purchased from the Company, the total consideration paid and the
average price per share paid by the existing shareholders and by new investors
(before deduction of underwriting discounts and commissions and estimated
offering expenses):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
----------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders................. 10,024,477 77.0% $ 7,146,842 19.2% $ 0.72
New investors......................... 3,000,000 23.0% 30,000,000 80.8% $ 10.00
---------- ----- ----------- -----
Total....................... 13,024,477 100.0% $37,146,842 100.0%
========== ===== =========== =====
</TABLE>

All of the above computations assume no exercise of outstanding options. As
of June 30, 1996, options to purchase 2,002,500 shares of Common Stock were
outstanding at a weighted average exercise price of approximately $0.10 per
share under the Company's stock option plans. 1,354 shares of Common Stock were
issued upon exercise of options subsequent to June 30, 1996 and 11,500 shares of
Common Stock are issuable upon the exercise of options granted subsequent to
June 30, 1996. To the extent these options become vested and are exercised,
there will be further dilution to new investors. As of June 30, 1996, the
Company also has an additional 473,500 shares of Common Stock reserved for
issuance pursuant to the Company's stock option plans. See "Capitalization,"
"Management -- Benefit Plans," "Certain Transactions" and "Shares Eligible for
Future Sale."

16
<PAGE> 19

SELECTED FINANCIAL DATA

The selected financial data set forth below with respect to the Company's
statements of operations for each of the three years in the period ended
December 31, 1995, and with respect to the Company's balance sheets at December
31, 1994 and 1995, are derived from the financial statements of the Company that
have been audited by Ernst & Young LLP, independent auditors, which are included
elsewhere herein and are qualified by reference to such Financial Statements and
Notes related thereto. The statement of operations data for the period from
inception to December 31, 1992, and the balance sheet data at December 31, 1992
and 1993, have been derived from financial statements that have been audited by
Ernst & Young LLP which are not included herein. The statement of operations
data for the six months ended June 30, 1995 and 1996 and the balance sheet data
at June 30, 1996 have been derived from unaudited financial statements; however,
management believes such financial statements include all adjustments,
consisting only of normal recurring adjustments, that the Company considers
necessary for a fair presentation of the financial position and results of
operations for these periods. Operating results for the six months ended June
30, 1996 are not necessarily indicative of the results that may be expected for
the entire year ending December 31, 1996. The selected financial data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Company's Financial
Statements and Notes thereto appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
MARCH 6, 1992 YEARS ENDED DECEMBER 31, JUNE 30,
(INCEPTION) THROUGH ----------------------------------- -----------------------
DECEMBER 31, 1992 1993 1994 1995 1995 1996
------------------- --------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue............... $ -- $ -- $ 204,475 $ 3,174,515 $ 621,937 $2,941,489
Costs and expenses:
Research and
development............. 376,753 157,101 492,513 2,831,860 1,246,189 1,982,939
General and
administrative.......... 32,761 47,948 127,360 487,234 238,491 396,571
--------- --------- --------- ---------- --------- ----------
Total costs and
expenses............. 409,514 205,049 619,873 3,319,094 1,484,680 2,379,510
Income (loss) from
operations................ (409,514) (205,049) (415,398) (144,579) (862,743) 561,979
Interest income............. 24,285 50,743 57,798 275,564 99,230 200,795
Interest expense............ -- -- -- (5,343) (2,326) (3,386)
--------- --------- --------- ---------- --------- ----------
Net income (loss)........... $(385,229) $(154,306) $(357,600) $ 125,642 $ (765,839) $ 759,388
========= ========= ========= ========== ========= ==========
Pro forma net income (loss)
per share(1).............. $ (0.06) $ (0.02) $ (0.05) $ 0.01 $ (0.10) $ 0.06
========= ========= ========= ========== ========= ==========
Shares used in computing pro
forma net income (loss)
per share(1).............. 6,413,620 7,342,653 7,471,420 11,830,427 7,479,860 12,404,535
========= ========= ========= ========== ========= ==========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- JUNE 30,
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments............................ $1,814,472 $1,739,197 $1,113,904 $6,867,245 $7,684,784
Working capital.......................... 1,674,364 1,548,896 1,049,333 6,048,413 6,724,715
Total assets............................. 1,817,879 1,741,874 1,484,911 7,343,737 8,439,891
Long-term liabilities, less current
portion................................ -- -- -- 37,874 185,047
Accumulated deficit...................... (385,229) (539,535) (897,135) (771,493) (12,105)
Total shareholders' equity............... 1,677,771 1,551,573 1,215,865 6,341,331 7,154,642
</TABLE>

- ---------------
(1) See Note 1 of Notes to Financial Statements for information concerning the
computation of net income (loss) per share and shares used in computing net
income (loss) per share.

17
<PAGE> 20

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following should be read in conjunction with "Selected Financial Data"
and the Company's Financial Statements and Notes thereto appearing elsewhere in
this Prospectus. This Management's Discussion and Analysis of Financial
Condition and Results of Operations and other parts of this Prospectus contain
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in "Risk Factors."

OVERVIEW

Since inception in March 1992, Immusol has devoted substantially all of its
resources to the development of its ribozyme gene therapy technology. Although
Immusol was profitable in 1995, to date the Company has not received any
revenues from the sale of products and does not expect to receive revenues from
the sale of products for several years. The Company has incurred an accumulated
deficit of approximately $12,000 through June 30, 1996. While the Company could
report a profit in 1996, it anticipates that it will incur substantial and
increasing losses over at least the next several years as the Company's research
and development efforts, preclinical and clinical testing activities and
manufacturing scale-up efforts expand. All of the Company's revenues to date
have consisted of contract revenues, grant revenues and interest income. No
revenues have been generated from product sales. There can be no assurance that
the Company can generate sufficient product or contract revenue to achieve
sustained profitability.

In May 1995, the Company and Pfizer entered into a Collaboration Agreement,
a License and Royalty Agreement and a Preferred Stock Purchase Agreement
(together, the "Pfizer Agreements") for the discovery and development of
ribozyme-based gene therapy useful in treating or preventing HIV infection.
Under the Pfizer Agreements, Pfizer has agreed to provide research support, make
milestone payments and equity investments which could total up to $49 million
through May 2000. In addition, Pfizer has agreed to fund certain clinical trial,
patent filing and patent maintenance costs. Amounts received by Immusol under
the Pfizer Agreements totalled approximately $11.2 million through June 30,
1996. See "Business -- Strategic Alliances and Licenses-Pfizer Inc."

In September 1994, the National Institutes of Health ("NIH") awarded the
University of California at San Diego ("UCSD"), Immusol and its collaborators a
Strategic Program for Innovative Research on AIDS Treatment ("SPIRAT") grant
totaling $4.6 million over the next four years for the development and clinical
evaluation of gene therapy for HIV, of which Immusol is entitled to receive up
to $508,000. Through June 30, 1996, the Company had received $439,000 under the
SPIRAT grant. The Company expects to receive an additional $69,000 during fiscal
year 1996 which would complete its participation in the SPIRAT grant.

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1996 AND 1995

The Company had total revenues of $2.9 million for the six months ended
June 30, 1996 compared to revenues of $622,000 for the same period in 1995. The
1996 revenues were primarily derived from the Company's collaborative
arrangement with Pfizer. Revenues may fluctuate from period to period depending
on the achievement of milestones under the Collaboration Agreement.

Research and development expenses increased to $1,983,000 for the six
months ended June 30, 1996 from $1,246,000 for the same period in 1995 primarily
due to a significant increase in research and development activities, including
additions to research and development personnel and the expansion of laboratory
facilities. Research and development expenses are expected to continue to
increase through 1996 due to the increased activities associated with the
anticipated commencement of a Phase I clinical trial for HIVase I in the United
States and the expansion of preclinical and clinical testing of existing and new
product development programs. General and administrative expenses increased to
$397,000 during this period from

18
<PAGE> 21

$238,000 a year earlier primarily due to increases in staffing, facilities and
business development expenses. General and administrative expenses are expected
to continue to increase through 1996.

Interest income was $201,000 for the six months ended June 30, 1996
compared to $99,000 for the same period in 1995 due to higher average cash
investment balances. Interest expense was $3,400 for the six months ended June
30, 1996 compared to $2,300 for the same period in 1995 due to obligations under
capital leases and long-term debt in 1996.

YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

The Company had revenues of $3.2 million for the year ended December 31,
1995 compared to $204,000 in the same period in 1994. The Company had no
revenues in 1993. The increase in revenues resulted primarily from the Company's
collaborative arrangement with Pfizer.

Research and development expenses increased to $2.8 million in 1995 from
$493,000 in 1994 and $157,000 in 1993. Factors contributing to these increases
include substantial increases in research and development expenditures,
including additions to research and development personnel, the purchase of
additional laboratory supplies, technology acquisition and maintenance costs,
the expansion of laboratory facilities and increases in equipment depreciation.
General and administrative expenses increased to $487,000 in 1995 from $127,000
in 1994 and $48,000 in 1993. These increases were due primarily to expansion in
staffing, facilities and higher business development expenses.

Interest income increased to $276,000 in 1995 from $58,000 in 1994 and
$51,000 in 1993 due to interest earned on the higher average cash investment
balances. Interest expense increased to $5,000 in 1995 from none in 1994 and
1993 due to obligations under capital leases.

At December 31, 1995, the Company had federal tax net operating loss
carryforwards of approximately $592,000, which expire beginning in 2008 unless
previously utilized. Pursuant to Internal Revenue Code Sections 382 and 383, use
of the Company's net operating loss carryforwards may be limited because of
cumulative changes of ownership of more than 50% which occurred within a
three-year period. The Company does not believe, however, that such limitation
will have a material impact on the utilization of the carryforwards.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, Immusol has financed its operations primarily through
private placements of equity securities, which provided aggregate proceeds of
approximately $7.0 million through June 30, 1996, and to a lesser extent, grant
funding of $531,000 under the SPIRAT and other NIH grants. Under its agreements
with Pfizer, the Company has received $11.2 million in funding and could receive
up to $49 million in total through May 2000.

Working capital increased to $6.7 million as of June 30, 1996 compared to
$6.0 million as of December 31, 1995. The increase in working capital primarily
reflects net cash generated from operations of $991,000. The increase in working
capital during this period may not be indicative of changes in working capital
for future periods as the Company expects to use cash and working capital to
fund anticipated operating losses. As of June 30, 1996, Immusol had cash, cash
equivalents and short-term investments totaling $7.7 million.

Through June 30, 1996, the Company has invested an aggregate of $714,000 in
leasehold improvements, laboratory and office equipment and other assets, of
which $58,000 has been funded through capital leases. The Company has funded the
majority of its office and research and development facilities and related
leasehold improvements through operating lease arrangements. In addition, the
Company has in place a term loan with Silicon Valley Bank in an aggregate amount
of up to $500,000 to be used by the Company to fund the purchase of laboratory,
research and development and office equipment of which the Company has received
proceeds of $153,000. As of June 30, 1996, the Company had no significant
commitments for capital expenditures. The Company expects its cash needs will
increase significantly in future periods due to

19
<PAGE> 22

expansion of research and development programs, increased clinical testing
activities, growth of research and development and administrative activities and
their related equipment and space needs.

The Company's operations to date have consumed substantial amounts of cash,
which is expected to continue over the foreseeable future. It is the Company's
intention to fund certain product research and development costs through
additional collaborative relationships with suitable corporate collaborators.
There can be no assurance that any such agreements will successfully reduce the
Company's funding requirements. Additional equity or debt financing will be
required, and there can be no assurance that such financing will be available on
favorable terms, if at all. If adequate funds are not available, the Company may
be required to delay, scale back or eliminate one or more of its product
development programs or obtain funds through arrangements with collaborative
partners or others that may require the Company to relinquish rights to certain
of its technologies, product candidates or products that the Company would not
otherwise relinquish.

Immusol anticipates that its existing available cash, cash equivalents and
short-term investments, combined with the anticipated net proceeds of this
Offering and its committed future contract revenue and interest income, will be
adequate to satisfy its capital requirements and fund anticipated operating
losses through 1999. The Company's future capital requirements will depend on
many factors, including continued scientific progress in its products and
process development programs, progress with preclinical testing and clinical
trials, the time and costs involved in obtaining regulatory approvals, the costs
involved in filing patents, competing technological and market developments,
changes in existing collaborative relationships, the ability of the Company to
establish development arrangements, the cost of manufacturing scale-up and the
establishment of effective sales and marketing arrangements.

20
<PAGE> 23

BUSINESS

SUMMARY

Immusol is a biopharmaceutical company dedicated to the discovery,
development and commercialization of products based on proprietary technologies
in the areas of ribozyme gene therapy and ribozyme-mediated gene functional
analysis. Ribozymes are naturally occurring ribonucleic acid (RNA) molecules
that can be engineered to cleave and inactivate other RNA molecules in a
specific, sequence-dependent fashion. Thus, ribozymes can be designed to
selectively inactivate RNA molecules and their corresponding proteins that play
a role in human disease. The Company intends to initiate a Phase I clinical
trial with its lead compound, HIVase I, in 1996. HIVase I is being developed
through a collaboration with Pfizer for the treatment of HIV-infected
individuals. In addition, the Company has three other ribozyme gene therapy
programs in various stages of research and preclinical development for the
prevention of coronary restenosis and the treatment of hepatitis C and hepatitis
B viral infections.

Ribozyme therapies can be based on (i) ribozyme gene therapy which involves
inserting specific sequences that lead to the production of ribozymes within the
patient's cells or (ii) synthetic, chemically-modified ribozymes administered as
drugs. The gene therapy approach to ribozyme therapy utilizes the patient's own
cellular machinery to produce a constant and continuous supply of ribozymes
inside the cell where the disease-causing gene is produced. The Company has
utilized a number of different viral vectors (gene delivery vehicles), including
retroviral, adeno-associated viral (AAV) and adenoviral vectors, to provide
optimal periods of in vivo production of ribozymes. The Company believes that
ribozyme gene therapy is a new, versatile modality which will be applicable in
the treatment of a wide range of viral diseases, coronary disease, genetic
diseases, cancers and other medical conditions.

The Company was incorporated in the State of California in March 1992.

BACKGROUND

GENE EXPRESSION AND PROTEIN SYNTHESIS

Genes are regions of DNA that contain instructions that direct cells to
produce proteins, one of the basic building blocks of all cells. Genes produce,
or express, proteins in a two-step process. First, information from the DNA of
the gene is transcribed to ribonucleic acid ("RNA"). Second, RNA and the
information

21
<PAGE> 24

contained therein is translated into a protein. The production of a particular
protein requires specific DNA and RNA molecules.

Many disease states are caused by abnormal production or function of gene
products such as proteins. The abnormality may be due to an inborn defective
gene, due to excessive or inappropriate production of a protein by a normal gene
or due to the expression of exogenous genes from infectious agents, such as
viruses. Such abnormal or excessive production of a protein may have direct
effects on the cells within the body or it may initiate a cascade of events
involving other proteins within the body, in each case leading to disease.

GENE THERAPY

Gene therapy is an approach to the treatment of certain inherited and
acquired diseases in which genes are delivered into a patient's cells in order
to direct the cells to produce therapeutic proteins or to disrupt the production
of harmful proteins. The development of vectors that can practically,
efficiently and safely deliver genes into cells is one of the most critical
factors for the success of gene therapy. The process of gene transfer may be
accomplished either in vivo by administering the vector directly to patients or
ex vivo by removing patients' cells and combining them with the vector. There
are primarily two types of vectors used in gene therapy: viral vectors derived
from naturally occurring viruses and non-viral vectors produced by standard
recombinant DNA techniques.

Viral vectors take advantage of the natural efficiency with which viruses
transport their own genetic material into cells. Viral vectors are constructed
by removing some or all of the harmful viral genes from the viral genome and
replacing them with the desired therapeutic gene which directs RNA production by
the cell. As a result of the removal of the harmful viral genes, viral vectors
are capable of efficient delivery and expression of a gene, but are not capable
of replication. Viral vectors have been extensively studied and most gene
therapy applications involve the use of viral vectors.

Drawing depicting delivery and expression of a ribozyme gene into a cell

22
<PAGE> 25

Viral vectors have limitations that may affect their safety or efficacy.
For example, viral vectors based on retroviruses (retroviral vectors) require
that target cells be dividing or multiplying in order to achieve gene delivery.
Because most cells in the body are not dividing or divide very slowly, and
because retroviral vectors become rapidly inactivated in the blood, most
clinical applications currently under evaluation employing retroviral vectors
involve a complex and expensive procedure whereby patient cells are removed, are
stimulated to divide and the gene is delivered to these cells ex vivo. The cells
are subsequently returned to the patient.

Another type of viral vector is derived from the adenovirus. Adenoviral
vectors are exceptionally efficient at delivering and expressing genes to
dividing and non-dividing cells for a short period of time. Adenoviral vectors,
however, retain and express some genes from the naturally-occurring virus and,
as a result, the body's immune system is triggered following their
administration. It is generally accepted that the immune response limits the
length of time that gene expression can be maintained in the target cell and may
lead to inflammatory responses.

Safety concerns have been raised by the use of retroviral and adenoviral
vectors since both vectors are derived from pathogenic viruses. During the
manufacture of these viruses, there is a possibility of generating a small
amount of natural virus. Although considered a low risk, such a possibility
necessitates additional costly product testing.

Adeno-associated virus (AAV) vectors are derived from a non-pathogenic
human virus. In spite of its name, AAV is genetically unrelated to adenovirus.
AAV, as it exists in nature, can only reproduce in the presence of another
virus. AAV vectors are derived from the wild type virus by removing all of the
viral genes and replacing them with the appropriate genetic material.

Retroviral vectors randomly integrate genetic material into the target cell
and AAV vectors may do the same. Any gene therapy approach that involves the
random integration of genetic material into the target cell's DNA could,
theoretically, cause the activation of an undesirable gene or the inactivation
of a beneficial gene, although it is generally believed that such events would
be rare.

Non-viral vectors are produced by standard recombinant DNA techniques and
are delivered to target cells either unmodified (naked DNA) or combined with
lipids (for example, liposomes) or proteins designed to facilitate the entry of
DNA into cells. Because they lack components derived from viruses, they are
perceived to be safer. In addition, non-viral vectors are capable of delivering
large segments of DNA to target cells. Non-viral vectors, however, are
relatively inefficient at delivering genes to cells and, in general, have
resulted in temporary or low levels of gene expression in target cells.

Immusol believes that AAV vectors offer several potential advantages over
other viral and non-viral vectors. These advantages include: (i) efficient
delivery of genes to both dividing and non-dividing target cells; (ii) absence
of viral genes that may be responsible for causing an undesirable immune
response; (iii) capacity for long-term gene expression; (iv) capacity for in
vivo administration to patients; (v) higher levels of gene expression; and (vi)
improved stability allowing AAV vectors to be manufactured, stored and handled
like more traditional pharmaceutical products. AAV vectors are also less complex
than other viral vector systems which makes them more amenable to genetic
engineering of such enabling advancements as targeting to a specific cell type.

IMMUSOL RIBOZYME GENE THERAPY TECHNOLOGY

Ribozymes are RNA molecules that were originally discovered in certain
viruses and other organisms. Naturally-occurring ribozymes normally function to
catalyze their own cleavage but can be engineered to cleave and inactivate other
RNA molecules in a specific, sequence-dependent fashion. By cleaving a target
RNA, ribozymes inhibit the translation of RNA into protein, thus stopping the
expression of a specific gene. Ribozymes can be chemically synthesized in the
laboratory and structurally modified to increase their stability and catalytic
activity. Synthetic ribozymes may also be able to be formulated so that
injectable administration is feasible.

The Company's approach to ribozyme therapy employs a ribozyme referred to
as a "hairpin" ribozyme, so named because of its shape. The Company believes
hairpin ribozymes have advantages over other types of

23
<PAGE> 26

ribozymes. Unlike smaller ribozymes that may only assume a stable shape upon
binding to their substrates, the larger-sized hairpin ribozymes apparently
assume such stable shape immediately after synthesis and are therefore more
resistant to ribonucleases (enzymes that degrade RNA) in the cellular
environment. In addition, unlike other ribozymes whose optimal cleavage
conditions may require high temperature and high concentrations of certain
cellular co-factors, the hairpin ribozyme works best under near-physiological
conditions. The Company believes hairpin ribozymes to be a better choice as a
human therapeutic than other ribozymes.

Ribozyme gene therapy involves engineering a gene into a vector which, when
delivered to the patient's cells, will direct the synthesis of a specific
ribozyme. The ribozyme gene vector is then delivered in vivo by injection. The
ribozyme genes are then transcribed in the patient's target cells to generate
the ribozymes which in turn cleave the target RNA, inhibiting synthesis of a
specific protein. The gene therapy approach to ribozyme therapy utilizes the
patient's own cellular machinery to produce a constant and continuous supply of
ribozymes inside the cell where the disease-causing gene is produced.

The Company has utilized a number of different viral vectors to provide
optimal periods of in vivo production of ribozymes. For instance, the Company's
adenovirus vector does not integrate into the host genome and promotes protein
expression for only a short period of time, measured in weeks. The Company's
retrovirus and AAV vectors, on the other hand, integrate into the host cell
genome and promote gene expression for months to years in animal models, and
such expression is expected to be longer in humans due to the construction of
the vector containing the human gene-controlling element.

ADVANTAGES OF IMMUSOL RIBOZYME GENE THERAPY

The Company believes its ribozyme technology will have certain advantages
over conventional drug development:

- RIBOZYMES CAN BE ENGINEERED TO INACTIVATE CERTAIN UNDESIRABLE TARGET
GENES WHOSE SEQUENCES ARE KNOWN. Numerous genes and their expressed
proteins have been identified as having causative roles in human
diseases. Once a gene has been identified, ribozymes can generally be
engineered to inhibit the expression of the associated RNA of a target
gene, thereby preventing protein production. In addition, identification
of new genes is rapidly increasing and it is expected that all of the
genes which comprise the human genome will be identified within the
current decade.

- RIBOZYMES CAN HAVE APPLICATION TO A BROAD SPECTRUM OF HUMAN
DISEASES. All diseases for which a causative inappropriately-expressed
protein or gene target can be identified present a potential application
for the Company's ribozyme technology. The Company believes that its
ribozyme technology is an important bridge between the growing body of
knowledge regarding the sequence of the human genome and the development
of human therapeutics.

- RIBOZYMES CAN BE HIGHLY POTENT DUE TO THEIR NATURAL CATALYTIC
ACTIVITY. Ribozymes are not consumed in the act of cleaving the target
RNA, but are catalytically-active enzymes. Therefore, one ribozyme
molecule can inactivate many target RNA molecules. The Company believes
that the dosage requirements for ribozymes may be reduced by engineering
ribozymes to increase their rate of catalytic activity.

- RIBOZYMES CAN RESULT IN FEWER SIDE EFFECTS DUE TO THEIR HIGH DEGREE OF
TARGET SPECIFICITY. The mechanism by which traditional drugs act on a
target gene or protein often is not well understood. Consequently, side
effect profiles of such drugs are often difficult to predict and
characterize. The Company believes that side effects may be reduced or
avoided with ribozymes due to their high selectivity in cleaving a
specific RNA target sequence. The Company believes ribozymes may be
constructed with a nucleotide binding sequence that will match only one
corresponding target RNA, thereby offering a high degree of specificity.

In addition, the Company believes that its ribozyme gene therapy has
several advantages over the direct application of synthetic ribozymes as a
therapeutic:

- EFFICIENT INTRACELLULAR DELIVERY AND POTENTIAL LACK OF IMMUNE
RESPONSE. In order to effectively inactivate a gene for therapeutic
purposes, the ribozyme must be able to penetrate into the cells of the

24
<PAGE> 27

body. The chemical properties of ribozymes, however, do not allow the
ribozymes to freely pass into the cell. Immusol has shown in preclinical
studies that ribozymes can be efficiently delivered into a cell by
introducing ribozyme genes with the Company's viral vectors. The cell
itself then utilizes the ribozyme gene to direct the production of
ribozymes. In this way, the ribozyme is present only inside cells where
it can carry out its desired effect, which should prevent undesirable
side effects, such as immunogenicity, that could occur if a synthetic
ribozyme were directly injected into the body.

- BENEFICIAL PHARMACOLOGICAL PROPERTIES. Ribozymes directly injected as a
drug would be highly unstable due to the ubiquitous presence of enzymes
(ribonucleases) that rapidly degrade RNA. The Company's proprietary
ribozyme gene delivery and expression technology, however, should provide
a constant and continuous supply of ribozymes inside the patients' cells.
Therefore, ribozymes that become degraded will be replaced by newly
synthesized ribozymes. As a result of this persistent synthesis and
subsequent degradation, the level of ribozymes should remain constant.
Direct injection of synthetic ribozymes, on the other hand, would result
in variable systemic levels of the drug, with high levels present
immediately after dosing followed by decreasing levels as the drug is
degraded. Constant levels of ribozymes are particularly important in
anti-viral therapies, where transient decreases in the ribozyme, like any
drug, would favor the production of drug-resistant viruses. Additionally,
the relatively stable production of ribozymes by ribozyme gene therapy
should require less frequent dosing than with directly injected synthetic
ribozymes.

- UTILIZATION OF MULTI-RIBOZYME VECTORS. The efficacy of many therapeutic
applications of ribozymes would be improved by administering multiple
ribozymes, each directed against a different region of the target gene.
For instance, ribozymes directed against two different sites in a virus,
such as HIV, would decrease the chance of generating a ribozyme-resistant
mutant virus, since such a virus would have to simultaneously contain a
mutation at both sites in order to replicate. The Company has
demonstrated in tissue culture that a viral vector expressing ribozyme
genes directed against two different regions of the HIV RNA more
effectively inhibits HIV replication than a viral vector that expresses
either single ribozyme gene alone. The Company plans to test the multiple
ribozyme approach with a two ribozyme gene vector in its Phase I clinical
trial for HIVase I, to be initiated in 1996. The Company plans to
incorporate four ribozyme genes into its second generation HIV
therapeutic product.

The Company's proprietary technology allows multiple ribozymes to be
expressed from a single vector. HIVase I, the Company's two ribozyme gene
product, which was submitted to the FDA by Dr. Flossie Wong-Staal as a
physician-sponsored IND, was allowed to proceed by the FDA to Phase I
clinical trials as a single product. The Company believes multi-ribozyme
gene products can be evaluated and licensed for sale more easily than a
combination of synthetic ribozymes which the Company believes should be
evaluated individually as drugs.

PRODUCT DEVELOPMENT PROGRAMS

Immusol is focusing its efforts on the development of proprietary ribozyme
gene therapy products. The Company is currently pursuing the following
development programs:

<TABLE>
<CAPTION>
PROGRAM REGULATORY STATUS(1) COLLABORATOR
------------------------------------------ ------------------------- ------------
<S> <C> <C>
HIV Phase I to begin in 1996 Pfizer
Prevention of coronary restenosis Preclinical none
Hepatitis C virus Research none
Hepatitis B virus Research none
</TABLE>

- ---------------
(1) Phase I means initial human studies designed to establish the safety, dose
tolerance and pharmacokinetics of a compound.

Preclinical means pharmacology and toxicology testing in in vitro and in
vivo models, product formulation, dosage studies and manufacturing scale-up
for submission of the necessary data to comply with applicable regulations
prior to commencement of human clinical trials. Research means drug
optimization and testing in in vitro models. See "Government Regulation."

25
<PAGE> 28

HIV

The Center for Disease Control estimates that as of December 1995, there
were one million HIV-infected individuals and over 500,000 cases of AIDS in the
United States. HIV, the cause of AIDS, is spread by a transfer of bodily fluids,
primarily through sexual contact, blood transfusions, sharing intravenous
needles, accidental needle sticks or transmission from infected mothers to
newborns.

HIV is a retrovirus containing an RNA genome which is "reverse transcribed"
into DNA and integrated into the host cell chromosome ("early" events in the
viral life cycle). The viral DNA then generates RNA which directs the synthesis
of viral proteins and ultimately more viral particles ("late" events in the
viral life cycle).

There are several therapies approved for the treatment of HIV infection.
Reverse transcriptase inhibitors, such as AZT, inhibit early events in HIV
replication. Protease inhibitors, such as Saquinavir, inhibit late events in HIV
replication. Combining both types of anti-HIV drugs may be the most effective
mode of treatment. The issue of drug-resistant mutations, however, remains.

Immusol is developing drugs to treat HIV-infected individuals through the
inhibition of both early- and late-stage HIV replication. The Company believes
that both genomic RNA (present during early events) and protein-coding RNA
(present during late events) of HIV should be degraded by ribozyme gene therapy
and, as a result, HIV infection may be inhibited over the long-term.

Drawing illustrating the HIV infectious cycle divided into early events
(pre-integration) and late events (post integration) and indicates how ribozymes
can inactivate both events.

The Company has developed ribozymes directed against highly conserved
regions seen in different strains of HIV. Furthermore, the Company's
multi-ribozyme gene therapy approach will target several of these conserved
sequences simultaneously in the HIV genome, minimizing the possibility of drug
resistant HIV mutations.

26
<PAGE> 29

Drawing demonstrating how multiple ribozyme genes, delivered with a single
vector product, can effectively cleave and inactivate HIV RNA in an infected
cell.

In preclinical studies conducted to date, the Company has demonstrated
potent activity of its first generation multi-ribozyme gene therapy product,
HIVase I, against all tested strains of HIV isolated from HIV-infected
individuals. In addition, the Company has found no evidence of
ribozyme-resistant mutants of HIV to date.

In May 1995, the Company and Pfizer entered into a research collaboration
for the discovery and development of products for ribozyme-based gene therapy
useful in treating or preventing HIV infection. The Company intends to initiate
a Phase I clinical trial with HIVase I in 1996 in HIV-infected individuals.
HIVase I utilizes retroviral vectors to deliver two of the Company's proprietary
HIV inhibitory ribozyme genes to cells ex vivo which are then returned to the
patient. The Company contemplates that its second generation multi-ribozyme gene
therapy products will utilize the Company's proprietary AAV vectors for in vivo
delivery of ribozyme genes for relatively long-term expression in non-dividing
cells.

Under the terms of the collaboration, Pfizer is responsible for conducting
and funding all future clinical trial activities, if any. In addition, Pfizer
will commercialize the resulting products, if any. The Company will receive
royalties on the net sales of products resulting from the collaborative efforts
with Pfizer and payments upon the completion of certain milestones. The Company
has retained certain manufacturing rights, allowing it to co-manufacture any
products resulting from the collaborative efforts with Pfizer. See "Strategic
Alliances and Licenses -- Pfizer Inc."

In conjunction with the Phase I clinical trial, the Company is producing
clinical grade retroviral vector and gene-modified T cells under current good
manufacturing practices ("cGMP"). The Company will also evaluate patients
enrolled in the Phase I clinical trial for resistance to HIV replication using
internally-developed technology.

27
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The Company is aware of other companies pursuing ribozyme approaches to
treating HIV infections. See "Competition" and "Risk Factors -- Competition;
Rapid Technological Change."

PREVENTION OF CORONARY RESTENOSIS

Angioplasty is a procedure performed on coronary artery disease patients as
a less invasive and more economical alternative to open-heart bypass surgery. In
the United States, over 300,000 angioplasty procedures are performed annually.
Restenosis, or narrowing of the coronary arteries, affects between 30% and 50%
of angioplasty patients within six months of their procedure. Restenosis is
caused in part by smooth muscle cell proliferation following angioplasty. As a
result, repeat angioplasty and coronary artery bypass graft surgery procedures
are estimated to cost over $1 billion annually in the United States.

Currently, there are no approved drugs in the United States for the
treatment of vascular smooth muscle cell proliferation in coronary restenosis.
Stents, artificial bridges installed in the patient's clogged coronary artery,
may reduce restenosis by approximately one-third. In addition, ReoPro, a
monoclonal antibody, was recently approved by the FDA for inhibition of platelet
aggregation. The Company believes ReoPro is currently under investigation as a
potential therapy for coronary restenosis. Intravascular radiation therapy is
also being evaluated for the prevention of coronary restenosis. Other new
therapeutic regimes are in preclinical and clinical development by other
companies.

The Company is currently pursuing the application of its ribozyme gene
therapy technology to the prevention of coronary restenosis. The goal of the
Company's program is to develop ribozyme gene therapy products aimed at
inactivating certain critical genes involved in the proliferation of smooth
muscle cells following angioplasty. The Company is pursuing this goal through
two approaches: (i) ribozyme genes delivered by viral vectors and (ii)
chemically modified synthetic ribozymes delivered by lipids. The Company
believes that synthetic ribozymes may represent a viable alternative to ribozyme
gene therapy for the specific instance of coronary restenosis since: (1)
delivery will be localized to the arterial wall during angioplasty; (2)
long-term persistence of the ribozyme may not be necessary; and (3)
multi-ribozymes may not be necessary since normal cellular genes, which are not
highly mutagenic, are targeted.

To date, the Company has successfully engineered ribozyme genes into viral
vectors and synthesized chemically-modified ribozymes to treat restenosis. In
preclinical studies, these synthetic ribozymes reduced restenosis in a rat
carotid artery restenosis model. The Company is currently optimizing ribozymes
and the appropriate delivery vehicle and intends to evaluate the
pharmacokinetics and toxicology of these optimized ribozymes and ribozyme
vectors in a porcine model as part of its preclinical evaluation. The Company is
collaborating with Frank Litvack, M.D., Co-Director of Cardiovascular
Intervention Center, at Cedars-Sinai Medical Center, Los Angeles
("Cedars-Sinai") and a member of the Company's Board of Directors, on this
program and retains all commercial rights to any ribozyme therapy for the
prevention of restenosis.

HEPATITIS C VIRUS

Between 1% and 2% of the worldwide population is infected with hepatitis C.
In the United States, 3 to 4 million people are infected with hepatitis C.
Approximately 150,000 new cases are diagnosed annually in the United States.
Currently, interferon-alpha-2b (Intron A) is the only approved therapy in the
United States for treatment of hepatitis C. Intron A, however, is effective in
less than 25% of those treated and often does not prevent recurrences.
Additional formulations of interferon-alpha are currently in clinical trials and
other new therapeutic regimes are in preclinical and clinical development by
other companies.

Immusol's hepatitis C program intends to inhibit viral infection using the
Company's proprietary ribozyme gene therapy technology by targeting the genes
necessary for the hepatitis viral life cycle. The Company intends to develop
several ribozymes targeted against conserved regions of the viral genome, and
intends to deliver its ribozymes genes in vivo to hepatocytes. The Company
believes that the hepatitis C virus will be particularly amenable to ribozyme
gene therapy since the virus replicates entirely through RNA intermediates that
therefore should be susceptible to ribozyme cleavage.

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To date, the Company has successfully engineered ribozyme genes directed
against conserved sequences in the hepatitis C virus genome. Ribozymes produced
from these genes cleave the appropriate RNA targets in vitro and the ribozyme
genes inhibit gene expression in tissue culture model systems. The Company is
currently formulating ribozyme genes for intracellular delivery in collaboration
with Cedars-Sinai and UCSD, and retains all commercial rights to any ribozyme
therapy for the prevention of hepatitis C virus.

HEPATITIS B VIRUS

Approximately 40% of the worldwide population has been exposed to hepatitis
B, with over 300 million chronically-infected carriers worldwide. Prevalence of
hepatitis B is less than 2% in developed countries. Despite the existence of an
FDA approved hepatitis B vaccine, approximately 150,000 new cases are diagnosed
annually in the United States. Currently, interferon-alpha-2b (Intron A) is the
only approved therapy in the United States for treatment of hepatitis B. Intron
A, however, is effective in less than 50% of those treated and often does not
prevent recurrences. Additional formulations of interferon-alpha are currently
in clinical trials and other new therapeutic regimes are in preclinical and
clinical development by pharmaceutical companies.

Immusol's hepatitis B program intends to inhibit virus replication using
the Company's proprietary ribozyme gene therapy technology by targeting the
genes necessary for the hepatitis viral life cycle. The Company is developing
several ribozymes targeted against conserved regions of the viral genome, and
intends to deliver its ribozyme genes in vivo to liver cells.

To date, the Company has successfully engineered ribozyme genes directed
against conserved sequences in the hepatitis B virus genome. Ribozymes produced
from these genes cleave the appropriate RNA targets in vitro and the ribozyme
genes inhibit viral particle production in tissue culture model systems. The
Company is currently formulating ribozyme genes for intracellular delivery in
collaboration with Cedars-Sinai and UCSD, and retains all commercial rights to
any ribozyme therapy for the prevention of hepatitis B virus.

OTHER IMMUSOL TECHNOLOGIES

HEMATOPOIETIC STEM CELL BIOLOGY

Hematopoietic stem cells are unspecialized (pluripotent) cells in the blood
that give rise to differentiated blood cells. The capacity of hematopoietic stem
cells for self-renewal, proliferation and differentiation into all the lineages
of blood cells offers an ideal and easily accessible target for ribozyme gene
therapy. Advances in the characterization, isolation, culture, gene delivery and
gene expression in pluripotent stem cells can allow long-term expression of
therapeutic genes in multiple cell types.

The Company is developing technology for delivery and expression of genes
in hematopoietic stem cells without the loss of the cells' ability to
differentiate into multiple cell types. The Company believes that its
proprietary ribozyme gene therapy technology can be combined with its stem cell
biology capabilities to develop a new application of ribozyme gene therapy. To
date, the Company has generated human stem cells transduced with anti-HIV
ribozyme genes in tissue culture. Macrophages differentiated from the stem cell
progenitors have proven resistant to HIV infection, indicating that ribozyme
genes can be active throughout the maturation process of blood cells from stem
cells.

RIBOZYME-MEDIATED GENE FUNCTIONAL ANALYSIS

Over the last decade, there has been an increasing awareness and growing
recognition that many major diseases and health problems have a genetic basis,
at least in part. The existence of genes that play an important role in cancer,
cardiovascular disease, psychiatric disorders, obesity and metabolic disorders
is now well-established. The goal of the human genome project is to sequence,
map and identify all of the genes in the human genome. These developments have
increased the number of genes discovered. Commercial application, however,
necessitates the determination of the functionality of these genes.

Immusol is utilizing the technologies developed for its ribozyme gene
therapy to form the basis of a gene functional analysis program, Ribozyme
Mediated Gene Functional Analysis ("RiMGFA"). Immusol's

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expertise in ribozyme target site identification, ribozyme enzymatic
optimization, polyribozyme design and ribozyme gene delivery and expression can
be used to inhibit expression of target genes whose sequences have been
identified but whose functions are not known. This type of analysis can help to
determine gene function by identifying cellular changes that occur as a result
of sequence-specific inhibition of gene expression with ribozymes in tissue
culture model assay systems. The Company believes that its unique combination of
efficient and stable gene delivery and the catalytic efficiency of ribozymes to
inhibit gene expression can be useful in determining gene function.

Immusol plans to partner its RiMGFA technology with gene discovery
companies and pharmaceutical and biotechnology companies that have gene sequence
information, but that need information regarding the function of the gene
sequences for potential therapeutic purposes. Information gained may potentially
be used by the Company for future ribozyme gene therapies.

Diagram showing schematically how RIMGFA can be used to determine gene function
from a gene whose sequence is known

STRATEGIC ALLIANCES AND LICENSES

The Company has entered into, and expects to enter into in the future,
strategic alliances to facilitate the development and marketing of certain of
its products. The Company seeks partners whose interests, development and
marketing capabilities are complementary to those of the Company or partners
that wish to pursue areas the Company would otherwise not develop. The Company
expects to market and sell certain of its products, if successfully developed,
directly and through co-promotion or other licensing arrangements with third
parties, including its collaborative partners.

PFIZER INC.

In May 1995, the Company and Pfizer entered into the Collaboration
Agreement, a License and Royalty Agreement ("License Agreement") and a Preferred
Stock Purchase Agreement ("Stock Purchase Agreement") (together, the "Pfizer
Agreements") for the discovery and development of ribozyme-based gene therapy
useful in treating or preventing HIV infection. Under the Pfizer Agreements,
Pfizer has agreed to provide research support, and make milestone payments and
equity investments which could total up to $49 million through May 2000. In
addition, Pfizer has agreed to fund certain clinical trial, patent filing and
patent maintenance costs. Amounts received by Immusol under the Pfizer
Agreements totalled approximately $11.2 million through June 30, 1996.

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Pursuant to the License Agreement, Immusol granted to Pfizer an exclusive,
worldwide license to manufacture, use and sell human therapeutic products aimed
at the treatment of HIV in consideration of the payment of certain milestone
payments and royalties based on net sales. Pfizer is responsible for funding
expenses associated with clinical trials under the collaboration. In addition,
the License Agreement provides that if Immusol or its designee has a cGMP
facility of ample size to manufacture Pfizer's requirements of the products in
certain countries, Immusol may, upon notice to Pfizer, elect to manufacture such
products for commercialization in such countries itself or through a designee.

The collaboration may be terminated by Pfizer or Immusol in the event of a
material uncured breach of the terms of the contract. In addition, the
Collaboration Agreement may be terminated by Pfizer if a key consultant's
association with Immusol terminates and the parties are unable to agree on a
mutually acceptable successor within a certain number of days. Pfizer also has
the right to terminate the Collaboration Agreement after the agreement has been
in effect for a certain period of months (and again a certain number of months
later), upon a payment of a predetermined amount of funding to Immusol.

In May 1995, Pfizer purchased 915,477 shares of Series B-1 Preferred Stock
pursuant to the terms of the Stock Purchase Agreement. The Series B-1 Preferred
Stock will be converted to Common Stock immediately prior to Closing of the
Offering. In November 1996, Pfizer is obligated to purchase 264,600 shares of
Series B-2 Preferred Stock at a price per share of $7.56. In May 1998, Pfizer is
obligated to purchase 304,300 shares of Series B-3 Preferred Stock at a price
per share of $9.86, subject to Pfizer's ability to terminate the Collaboration
Agreement and its obligations to purchase Series B-3 Preferred Stock.

In addition to the Pfizer Agreements, Pfizer is a party to an Amended
Shareholders' Agreement (as defined) with the Company pursuant to which it is
obligated, under certain circumstances, to purchase Common Stock from the
Company concurrent with the closing of this Offering. The Amended Shareholders'
Agreement provides that if the valuation of the Company upon the close of this
Offering is greater than $150 million and this Offering raises at least $15
million in the aggregate, then concurrently with the closing of this Offering,
Pfizer is obligated to purchase from the Company a pro rata number of shares of
Common Stock based upon Pfizer's original holdings. See "Description of Capital
Stock -- Amended Shareholder Rights Agreement."

UNIVERSITY OF CALIFORNIA

In December 1993, the Company entered into an Exclusive License Agreement
with The Regents (the "Exclusive License Agreement"), pursuant to which The
Regents exclusively licensed rights to the UC Technology. As consideration for
the exclusive license of the UC Technology, Immusol will pay The Regents an
earned royalty on net sales by Immusol of products incorporating the UC
Technology and prior to sales of such products will pay to the Regents a license
maintenance fee. In addition, beginning the year of the first commercial sale of
a FDA approved product incorporating the UC Technology, Immusol will pay The
Regents a minimum annual royalty. The Regents retain the right to terminate the
agreement or to reduce the exclusive license to a nonexclusive license in the
event that the Company does not satisfy certain milestone obligations and
minimum research and development funding levels. Additional termination events
include an uncured breach of the agreement by Immusol. The termination of the
Exclusive License Agreement or the conversion of its exclusivity to a
nonexclusive agreement would have a material adverse effect on the Company's
ability to continue utilizing this technology and could permit competitors to
utilize the technology.

SPIRAT

In September 1994, the NIH awarded UCSD, Immusol and its collaborators a
SPIRAT grant totaling $4.6 million over the next four years for the development
and clinical evaluation of gene therapy for HIV, of which Immusol is entitled to
receive up to $508,000. Through June 30, 1996, the Company had received $439,000
under the SPIRAT grant. The Company expects to receive an additional $69,000
during fiscal year 1996 which would complete its participation in the SPIRAT
grant.

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MANUFACTURING

As part of its strategy, the Company intends to retain certain
manufacturing rights for products developed through collaborative arrangements.
Consequently, the Company will be required to build and scale-up a commercial
manufacturing facility. The Company currently has a clean room in its facilities
that it uses to manufacture clinical grade material for clinical trials. A
larger cGMP manufacturing facility will need to be developed if any Company
product progresses to its first Phase II clinical trial. To date, the Company
has manufactured its products only on the small scale needed for clinical trials
of certain potential therapeutic products and has no experience manufacturing
products for commercial purposes. The Company will need to scale-up
significantly its current manufacturing processes and comply with cGMPs and
other regulations prescribed by various regulatory agencies in the United States
and other countries to achieve the required levels of production of such
products.

GOVERNMENT REGULATION

Regulation by governmental authorities in the United States and foreign
countries is a significant factor in the manufacture and marketing of the
Company's potential products and in its ongoing research and product development
activities. Virtually all the Company's products will require regulatory
approval by governmental agencies prior to commercialization. In particular,
human therapeutic products are subject to rigorous preclinical and clinical
testing and other approval requirements by the FDA and comparable agencies in
foreign countries. The time required for completing such testing and obtaining
such approvals is uncertain. Any delay in testing may delay product development.
In addition, delays or rejections may be encountered based on changes in FDA or
foreign regulatory policy during the period of product development and testing.
Various federal statutes and regulations also regulate the manufacturing,
safety, labeling, storage, record keeping and marketing of such products. The
lengthy process of obtaining regulatory approvals and ensuring compliance with
appropriate federal statutes and regulations requires the expenditure of
substantial resources. Any delay or failure by the Company or its collaborators
or licensees to obtain regulatory approval could adversely affect the
commercialization of products being developed by the Company, its ability to
receive product or royalty revenue and its liquidity and capital resources.
Immusol will also be subject to regulations under the food and drug statutes and
regulations of the State of California.

Preclinical studies are generally conducted in the laboratory to evaluate
the potential efficacy and the safety of a therapeutic product. The results of
these studies are submitted to the FDA as part of an IND application, which must
be reviewed by FDA personnel before clinical testing can begin. Once the FDA is
satisfied with the submission, the clinical trial process can commence.
Typically, clinical evaluation involves three sequential phases, which may
overlap. During Phase I, clinical trials are conducted with a relatively small
number of subjects to determine the early safety profile of a drug, as well as
the pattern of drug distribution and drug metabolism by the subject. The Phase
II, trials are conducted with groups of patients afflicted by a specific target
disease to determine preliminary efficacy, dosage tolerance and optimal dosages,
and to gather additional safety data. In Phase III, large-scale, multicenter
comparative trials are conducted with patients afflicted with a specific target
disease to provide data for the statistical proof of efficacy and safety as
required by the FDA and others. The FDA, the clinical trial sponsor or the
investigator may suspend clinical trials at any time if it believes that
clinical subjects are being exposed to an unacceptable health risk.

The results of preclinical and clinical testing are presently required to
be submitted to the FDA in the form of a New Drug Application ("NDA") for small
molecule products or a Product License Application ("PLA") accompanied by an
Establishment License Application ("ELA") for biological products. In responding
to an NDA, PLA or ELA, the FDA may grant marketing approval, request additional
information, or deny the application if the FDA determines that the application
does not satisfy its regulatory approval criteria. There can be no assurance
that approvals will be granted on a timely basis, if at all. The failure to
obtain timely permission for clinical testing or timely approval for product
marketing would materially affect the Company. Product approvals may
subsequently be withdrawn if compliance with regulatory standards is not
maintained or if problems occur after the product reaches the market. The FDA
may require testing and surveillance programs to monitor the effect of a new
product and may prevent or limit future marketing of the product based on the
results of these postmarketing programs.

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In addition to regulations enforced by the FDA and the State of California,
the Company also is subject to regulation under the Occupational Safety and
Health Act, the Environmental Protection Act, the Toxic Substances Control Act,
the Resource Conservation and Recovery Act and other similar federal, state and
local regulations governing permissible laboratory activities, waste disposal
handling of toxic, dangerous or radioactive materials and other matters. The
Company believes that it is in compliance with such regulations. These
regulations are subject to change, however, and may, in the future, require
substantial effort and cost to the Company to comply with each of the
regulations, and may possibly restrict the Company's business activities.

For marketing outside the United States before FDA approval to market, the
Company must submit an export permit application to the FDA. The Company also
will be subject to foreign regulatory requirements governing human clinical
trials and marketing approval for drugs. The requirements relating to the
conduct of clinical trials, product licensing, pricing and reimbursement vary
widely from country to country.

PATENTS AND PROPRIETARY RIGHTS

Immusol relies on a combination of technical leadership, patent, trade
secret and nondisclosure agreements to protect its proprietary rights. The
Company has exclusive rights under its license agreement with UCSD to pending
patent applications in the areas of ribozyme gene therapy for AIDS and ribozyme
gene therapy for HIV infection and AIDS. In its own name, the Company has
pending patent applications in the areas of viral vectors, ribozyme therapy for
hepatitis B, ribozyme therapy for restenosis and hepatitis C virus ribozymes.
The Company intends to file additional patent applications in the future. There
can be no assurance that the Company will be issued any patents or that, if any
patents are issued, they will provide the Company with significant protection or
will not be challenged. Even if such patents are enforceable, the Company
anticipates that any attempt to enforce its patents would be time consuming and
costly. Moreover, the laws of some foreign countries do not protect the
Company's proprietary rights in the products to the same extent as do the laws
of the United States. The PTO has instituted changes to the United States patent
law including changing the term to 20 years from the date of filing for
applications filed after June 8, 1995. Certain of the above applications were
filed after June 8, 1995. The Company cannot predict the effect that such
changes on the patent laws may have on its business, or on the Company's ability
to protect its proprietary information and sustain the commercial viability of
its products.

Specifically, the Company is aware of issued patents and patent
applications in the area of ribozymes which may affect the Company's ability to
make, use and sell its products. In particular, the Company is aware of a series
of issued patents that purport to cover the production and use of enzymatic RNA.
Immusol has investigated the breadth and validity of this series of patents to
determine their impact upon the Company's product development programs. Based on
its review of these patents and advice of outside patent counsel, the Company
believes it does not infringe any valid claims of such patents and that these
patents will not impede the advancement of the Company's programs. There can be
no assurance that third parties will not assert infringement claims against the
Company in the future with respect to these patents or otherwise or that

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any such assertions will not result in costly litigation or require the Company
to obtain a license to intellectual property rights of such parties. There can
be no assurance that any such licenses would be available on terms acceptable to
the Company, if at all. Furthermore, parties making such claims may be able to
obtain injunctive or other equitable relief that could effectively block the
Company's ability to further develop or commercialize its products in the United
States and abroad and could result in the award of substantial damages. Defense
of any lawsuit or failure to obtain any such license could have a material
adverse affect on the Company. Finally, litigation, regardless of outcome, could
result in substantial cost to and a diversion of efforts by the Company.

The Company may require additional technology to which the Company
currently does not have rights. If the Company determines that this additional
technology is relevant to the development of future products and further
determines that a license to this additional technology is needed, there can be
no assurance that the Company can obtain a license from the relevant party or
parties on commercially reasonable terms, if at all. There can be no assurance
that the Company can obtain any license to any technology that the Company
determines it needs, on reasonable terms, if at all, or that the Immusol could
develop or otherwise obtain alternate technology. The failure of the Company to
obtain licenses, if needed, could have a material adverse affect on the Company.

COMPETITION

Immusol is engaged in a rapidly changing, highly competitive field. Other
products and therapies that may compete directly with the products that the
Company is seeking to develop and market currently exist or are being developed.
Many other companies are actively seeking to develop products, including
ribozymes and other products designed to modulate gene expression, such as
antisense oligonucleotides, that have disease targets similar to those being
pursued by the Company. Some of these competitive products are in clinical
trials. There can be no assurance that the Company's competitors will not
succeed in developing products based on ribozyme or other technologies, existing
or new, that are more effective than any that are being developed by the
Company, or that would render the Company's ribozyme technologies obsolete and
noncompetitive.

Moreover, there currently are commercially available products for the
treatment of certain disease targets being pursued by the Company, including
protease inhibitors and reverse transcriptase inhibitors for the treatment of
HIV and Intron A for both hepatitis B and hepatitis C. ReoPro, coronary stents
and intravascular radiation therapy are being evaluated for the prevention of
coronary restenosis.

Competition from pharmaceutical and biotechnology companies is intense and
is expected to increase. Most of these companies have significantly greater
financial resources and expertise in research and development, manufacturing,
preclinical studies and clinical trials, obtaining regulatory approvals and
marketing than the Company. Smaller companies may also prove to be significant
competitors, particularly through collaborative arrangements with large
pharmaceutical and biotechnology companies. Many of these competitors have
products that have been approved or are in development and operate large, well
funded research and development programs. Academic institutions, governmental
agencies and other public and private research organizations also conduct
research, seek patent protection and establish collaborative arrangements for
products and clinical development and marketing. These companies and
institutions compete with the Company in recruiting and retaining highly
qualified scientific and management personnel. In addition to the above factors,
Immusol faces competition based on product efficacy, safety, timing and scope of
regulatory approvals, availability of supply, marketing and sales capability,
reimbursement coverage, price and patent position. There can be no assurance
that the Company's competitors will not develop more

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effective or more affordable products, achieve earlier product commercialization
or have, or will achieve, a patent position superior to that of the Company.

HUMAN RESOURCES

As of July 31, 1996, Immusol had approximately 39 full-time employees,
including 34 in research, development and operations, and five in finance and
administration. Of these employees, 19 hold advanced degrees, of which 16 are
M.D.s or Ph.D.s. The Company's employees are not represented by any collective
bargaining agreements, and the Company has never experienced a work stoppage.
The Company believes that its employee relations are good.

FACILITIES

The Company currently maintains its headquarters in leased facilities in
San Diego, California, that contain all research, development and administrative
functions in 19,345 square feet of space. The Company leases this space under an
operating lease that lasts through June 2001. The Company believes that the
existing facility will be sufficient to meet its needs through at least 1998.

LEGAL PROCEEDINGS

As of the date of this Prospectus, the Company is not a party to any legal
proceedings. From time to time, however, Immusol may be involved in litigation
relating to claims arising out of its operations in the normal course of
business.

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MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

The executive officers, directors and key employees of the Company as of
July 31, 1996, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- --------------------------------------------------
<S> <C> <C>
Tsvi Goldenberg, Ph.D. ...... 46 Co-founder, Chairman of the Board and Chief
Executive Officer
Jack R. Barber, Ph.D. ....... 40 Vice President, Research and Development
Flossie Wong-Staal, Ph.D. ... 49 Co-Founder, Director and Chairperson of the
Scientific Advisory Board
Mang Yu, Ph.D. .............. 39 Scientific co-founder and Director of HIV Gene
Therapy
J. Stanhope Blackburn........ 40 Director of Finance and Acting Chief Financial
Officer
Anchie Kuo, M.D. ............ 36 Director
Frank Litvack, M.D. ......... 40 Co-Founder and Director
Melvin Perelman, Ph.D. ...... 65 Director
</TABLE>

TSVI GOLDENBERG, PH.D. Dr. Goldenberg is a co-founder of the Company and
has served as the Company's Chairman of the Board and Chief Executive Officer
since April 1994. From October 1986 through April 1994, Dr. Goldenberg served as
Vice President of Research and Development at Advanced Interventional Systems, a
vascular disease products company, with primary responsibility for clinical
trials. Beginning in 1981, Dr. Goldenberg founded and managed a series of
companies involved in the diagnosis and therapy of cardiovascular diseases,
including the use of digital subtraction angiography in interventional
radiology. Dr. Goldenberg received a B.S. in minerals from the Israel Institute
of Technology and a Ph.D. in material science from Ohio State.

JACK R. BARBER, PH.D. Dr. Barber joined the Company in September 1994 as
Senior Director of Research and Development. Since January 1996, Dr. Barber has
served as Vice-President, Research and Development. Prior to joining Immusol,
Dr. Barber served, from February 1988 through September 1994, as Associate
Director of Oncology at Viagene, Inc., a gene therapy company, where he led a
team investigating various cancer therapeutics and was involved in the first
clinical application of gene therapy for HIV infection. Dr. Barber received a
B.S. and Ph.D. in biochemistry from the University of California, Los Angeles
("UCLA").

FLOSSIE WONG-STAAL, PH.D. Dr. Wong-Staal is a co-founder of the Company
and has served as a member of the Company's Board of Directors since September
1994. Dr. Wong-Staal has served as a Professor of Medicine and Biology at UCSD
since January 1990. Dr. Wong-Staal received a Ph.D. in molecular biology and a
B.A. in bacteriology from UCLA.

MANG YU, PH.D. Dr. Yu is a scientific co-founder of the Company and
currently serves as director of HIV gene therapy. Dr. Yu established ribozyme
gene therapy in Dr. Wong-Staal's laboratory from January 1992 until joining
Immusol in September 1994. Dr. Yu received a Ph.D. in molecular biology from
Indiana University, School of Medicine, an M.S. in biochemistry from Shanghai
Medical University and a B.S. in biochemistry from Fudan University, China.

J. STANHOPE BLACKBURN. Mr. Blackburn joined the Company in May 1995 as its
director of finance and acting chief financial officer. Mr. Blackburn is a
principal of RCG Management ("RCG"), a management services company providing
financial and accounting services. Mr. Blackburn has been associated with RCG
since January 1989. From October 1985 through August 1988, Mr. Blackburn was
controller of Western Pacific Data Systems ("Western Pacific"), a software
developer and re-seller. Prior to joining Western Pacific, he was with Arthur
Andersen & Co., LLP, for eight years. Mr. Blackburn received a B.S. in
accounting from the University of Illinois.

ANCHIE KUO, M.D. Dr. Kuo has served as a member of the Company's Board of
Directors since May 1996. Since November 1994, Dr. Kuo has served as a Managing
Director of BankAmerica Ventures, a venture

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capital firm. From September 1990 through November 1994, Dr. Kuo served as a
general partner at Ventures Medical, a venture capital firm. Currently Dr. Kuo
is Chairman of the Board of Collegiate Healthcare, Inc., a privately-held
healthcare service company, as well as being a director of several other
privately-held companies. Dr. Kuo received an M.D. from Dartmouth Medical School
and an A.B. in economics from Dartmouth College.

FRANK LITVACK, M.D. Dr. Litvack is a co-founder of the Company and has
served as a member of the Company's Board of Directors since March 1992. Dr.
Litvack has served as the co-director of the Cardiovascular Intervention Center
at Cedars-Sinai since July 1987 and as an Associate Professor of Medicine at
UCLA. Currently he is Chairman of the Board of Progressive Angioplasty Systems
Inc., a privately-held medical device company. Dr. Litvack received an M.D. and
D.C.S. from McGill University.

MELVIN PERELMAN, PH.D. Dr. Perelman has served as a member of the
Company's Board of Directors since May 1996. From December 1986 until his
retirement in December 1993, Dr. Perelman served as executive vice president of
Eli Lilly & Co. ("Lilly") and president of Lilly Research Laboratories. Prior to
1986, he served in a number of capacities with Lilly, beginning his career in
1957 as an organic chemist and subsequently serving as president of Lilly
International. Currently, Dr. Perelman is a director of three publicly-held
companies: Cinergy, Inc., an electric and gas utility company, Immune Response
Corp., a biotech company and Inhale Therapeutics Systems, Inc., a drug delivery
system company, as well as several privately-held companies. Dr. Perelman
received a B.S. in chemistry from Northwestern University and a Ph.D. in organic
chemistry from Rice University.

Members of the Board of Directors hold office and serve until the next
annual meeting of the shareholders of the Company or until their respective
successors have been elected and qualified. The Company's By-laws authorize the
Board of Directors to be comprised of not less than five nor more than nine
directors. The number of directors is currently fixed at five. Executive
officers are appointed by and serve at the discretion of the Board of Directors.

COMMITTEES OF THE BOARD OF DIRECTORS

The Company does not currently have standing Audit or Compensation
Committees and the functions of those committees are performed by the entire
Board of Directors. Dr. Goldenberg, the Company's Chief Executive Officer,
participated in the deliberations of the Board of Directors regarding executive
compensation since his hiring in 1994, but did not take part in the
deliberations regarding his own compensation. Following this Offering, the Board
of Directors will have two standing committees: a Compensation Committee and an
Audit Committee. The Compensation Committee, consisting of Drs. Kuo, Litvack and
Perelman, will provide recommendations concerning salaries and incentive
compensation for executive officers and key personnel, including stock options.
The Audit Committee, consisting of Drs. Kuo and Litvack, will recommend the
Company's independent auditors and will review the results and scope of audit
and other services provided by such auditors.

37
<PAGE> 40

SCIENTIFIC ADVISORY BOARD

The Company relies upon its scientific advisory board (the "SAB") to
provide it with strategic and analytic support in developing and expanding the
scope of its technologies. The SAB is composed of leading scientists who meet
several times each year to review the Company's research and development
activities. The following individuals are members of the SAB:

<TABLE>
<S> <C>
Flossie Wong-Staal, Ph.D. ... Chairperson of the Scientific Advisory Board,
Professor of Medicine and Biology, UCSD
Ken Berns, M.D., Ph.D. ...... R.A. Rees Pritchett Professor and Chairman, Department
of Microbiology, Cornell University Medical College
James Forrester, M.D. ....... Chief of Research in Cardiology, Cedars-Sinai Medical
Center
Anthony Ho, M.D. ............ Director of Stem Cell Transplantation, UCSD
David Ho, M.D. .............. Director of Aaron Diamond AIDS Research Center,
New York
Frank Litvack, M.D. ......... Co-Director of Cardiovascular Intervention Center at
Cedars-Sinai Medical Center and Associate Professor of
Medicine at UCLA
Arun Srivastava, Ph.D. ...... Professor, Department of Microbiology & Immunology,
Indiana University School of Medicine
James Trempe, Ph.D. ......... Associate Professor, Department of Biochemistry and
Molecular Biology, Medical College of Ohio
</TABLE>

Each member of the SAB has entered into an exclusive scientific advisory
board agreement, or similar agreement, with Immusol in the fields of HIV, AAV,
coronary restonosis, Hepatitis B, Hepatitis C and ribozyme gene therapy
("Specialty Area"), whereby the member agrees to provide research, investigation
and consultation services to the Company in exchange for the grant of stock
options. The scientific advisors are employed by employers other than the
Company and may have commitments to, or consulting contracts with, other
entities that may limit their availability to the Company. Although generally
each scientific advisor agrees not to perform services for another person or
entity which would create a conflict of interest with the scientific advisor's
services for the Company, there can be no assurance that such a conflict will
not arise. Inventions or processes discovered by a scientific advisor in the
above areas will become the property of the Company. The scientific advisory
board agreements contain confidentiality and non-disclosure provisions.

38
<PAGE> 41

EXECUTIVE COMPENSATION

Summary of Cash and Certain Other Compensation

The following table sets forth the aggregate compensation paid by the
Company to the current Chief Executive Officer and to the one additional most
highly compensated executive officer (the "Named Executive Officers") for
services rendered in all capacities to the Company for the year ended December
31, 1995:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
---------------
ANNUAL COMPENSATION SECURITIES
---------------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR(1) SALARY BONUS OPTIONS/SARS(#)
- ------------------------------------------- ------- -------- ------- ---------------
<S> <C> <C> <C> <C>
Tsvi Goldenberg, Ph.D. .................... 1995 $150,000(2) $35,000 -0-
Chief Executive Officer and Director
Jack R. Barber, Ph.D. ..................... 1995 $100,000(3) $15,000 15,000
Vice President, Research and Development
</TABLE>

- ---------------
(1) Pursuant to Instruction to Item 402(b) of Regulation S-K promulgated by the
Securities and Exchange Commission (the "Commission"), information with
respect to fiscal years prior to 1995 has not been included as the Company
was not a reporting company pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
information has not been previously reported to the Commission in response
to a filing requirement.

(2) Effective January 1, 1996, Dr. Goldenberg's annual salary was increased to
$200,000.

(3) Effective January 1, 1996, Dr. Barber's annual salary was increased to
$120,000.

Stock Options

The following table sets forth information concerning stock option grants
made to each of the Named Executive Officers for the year ended December 31,
1995. The Company granted no stock appreciation rights ("SARs") to Named
Executive Officers during 1995. See "Benefit Plans."

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------- ANNUAL RATES OF STOCK
NUMBER OF % OF TOTAL PRICE APPRECIATION
SECURITIES OPTIONS FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(3)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED(1) FISCAL YEAR ($/SH)(2) DATE 5%($) 10%($)
- --------------------------- ---------- ------------ ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Tsvi Goldenberg............ -0- 0.0% -0- -- -0- -0-
Jack R. Barber(4).......... 15,000 1.8% $0.30 7/7/2005 $ 239,835 $ 384,600
</TABLE>

- ---------------
(1) All of the options were granted under the Prior Plan (as defined below). All
such options have been incorporated into the Plan (as defined below) but
will continue to be governed by the terms and conditions of the specific
instruments evidencing those options. The shares subject to each option will
immediately vest in the event the Company is acquired by a merger or asset
sale, unless the Company's repurchase rights with respect to those shares
are transferred to the acquiring entity. The grant dates for the above
options are as follows:

<TABLE>
<CAPTION>
NAME OPTIONS GRANTED(#) GRANT DATE
--------------- ------------------ ----------
<S> <C> <C>
Jack R. Barber 15,000 7/7/95
</TABLE>

(2) The exercise price per share of options granted represented the fair market
value of the underlying shares of Common Stock on the dates the respective
options were granted as determined by the Board of

39
<PAGE> 42

Directors. The exercise price may be paid in cash or in shares of Common
Stock valued at fair market value on the exercise date or a combination of
cash or shares or any other form of consideration approved by the Board of
Directors. The fair market value of shares of Common Stock has been
determined in the past by the Company's Board of Directors considering all
relevant factors, including the Company's book value, financial condition,
the perceived markets for its products, the status of its collaborations and
prospects for future business. After the effective date of the Registration
Statement of which this Prospectus is a part, the fair market value of
shares of Common Stock will be determined in accordance with certain
provisions of the Plan based on the closing selling price per share of a
share of Common Stock on the date in question on the primary exchange on
which the Company's common stock is listed or reported. If shares of the
Common Stock are not listed or admitted to trading on any stock exchange nor
traded on the Nasdaq National Market, then the fair market value shall be
determined by the Plan Administrator (as defined below) after taking into
account such factors as the Plan Administrator shall deem appropriate.

(3) There is no assurance provided to any executive officer or any other holder
of the Company's securities that the actual stock price appreciation over
the 10-year option term will be at the assumed 5% or 10% levels or at any
other defined level. Unless the market price of the Common Stock does in
fact appreciate over the option term, no value will be realized from the
option grants made to the executive officers. Assuming the fair market value
of the Common Stock at the date of grant is equal to an assumed initial
public offering price of $10 (the midpoint of the range set forth on the
cover page of this Prospectus), the potential realizable value of these
options (a) at a 5% assumed annual rate of stock price appreciation would be
$239,835 and (b) at a 10% assumed annual rate of stock price appreciation
would be $384,600.

(4) Options to purchase 3,750 shares became exercisable on August 23, 1995 and
the remainder of options held by optionee become exercisable in 48 equal
monthly installments upon completion of each month of service beginning
August 23, 1995.

Option Exercises and Holdings

The following table provides information concerning option exercises during
1995 by the Named Executive Officers and the value of unexercised options held
by each of the Named Executive Officers as of December 31, 1995. No SARs were
exercised during 1995 or outstanding as of December 31, 1995.

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1995(#) DECEMBER 31, 1995(1)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Tsvi Goldenberg.......... -0- -0- -0- -0- $ -0- $ -0-
Jack R. Barber........... -0- -0- 45,313 99,687 $10,156 $22,344
</TABLE>

- ---------------
(1) Value is defined as fair market price of the Common Stock at fiscal
year-end, less exercise price.

EMPLOYMENT ARRANGEMENTS

Dr. Goldenberg is employed by the Company at will under the terms of an
offer letter dated April 26, 1994. Such offer letter provides, however, that in
the event Dr. Goldenberg's employment is terminated as a result of mutual
agreement or if the Company terminates his employment for any reason, he will
receive a severance payment in an amount equal to nine months of his then-annual
salary. He will also receive the Company's standard vacation, family medical and
dental benefits and other benefits enjoyed by the Company's officers for a
period of nine months following termination under the circumstances discussed
above.

40
<PAGE> 43

Dr. Barber is employed by the Company at will under the terms of an offer
letter dated August 23, 1994. Such offer letter provides that he will receive
the Company's standard vacation, family medical and dental benefits and other
benefits enjoyed by the Company's officers. In addition, the offer letter
entitles Dr. Barber to certain stock option grants, of which 20,000 are
conditioned upon the completion of certain milestones.

DIRECTOR COMPENSATION

Directors are not currently compensated for serving on the Board of
Directors. Dr. Wong-Staal is a party to a consulting agreement with the Company.
Outside directors will also be eligible to receive stock options under the
Company's 1996 Stock Option/Stock Issuance Plan following the closing of this
Offering. See"-- Benefit Plans -- 1996 Stock Option/Stock Issuance Plan." See
"Scientific Advisory Board" and "Certain Transactions."

BENEFIT PLANS

1996 Stock Option/Stock Issuance Plan

The Company's 1996 Stock Option/Stock Issuance Plan (the "Plan") was
adopted by the Board of Directors and shareholders on June 27, 1996. The Plan
will become effective on the effective date of a Registration Statement on Form
S-8 covering the shares of Common Stock issuable under the Plan (which the
Company intends to file with the Commission on the effective date of this
Offering). The Plan will serve as the successor equity incentive program to the
Company's 1992 Stock Plan (the "Prior Plan"), and no further option grants or
stock issuances will be made under the Prior Plan following the effective date
of the Plan. All outstanding stock options and unvested share issuances under
the Prior Plan have been incorporated into the Plan but will continue to be
governed by the terms and conditions of the specific instruments evidencing
those options and issuances. In general, the Plan altered the provisions of the
Prior Plan by: (1) increasing the number of authorized shares by 300,000 shares
to a total of 2,600,000 authorized shares; (2) adding a Stock Issuance Program,
allowing eligible individuals to purchase shares from the Company at discounts
of up to 15% from the fair market value of such shares; and (3) adding other
miscellaneous provisions relating to corporate changes, loans, guarantees, and
tax withholding.

A total of 2,600,000 shares of Common Stock are authorized for issuance
under the Plan, including 2,300,000 shares available under the Prior Plan plus
an additional 300,000 shares. Under the Prior Plan, 2,009,000 shares were
reserved for issuance under options outstanding on July 31, 1996, leaving
465,646 shares available for future option grants or share issuances on such
date. Shares reserved for issuance under granted options which are not actually
issued will again become available for option grants under the terms of the
Plan.

The total number of shares authorized, as well as shares subject to
outstanding options, will be appropriately adjusted in the event of certain
changes to the Company's capital structure, such as stock dividends, stock
splits or other recapitalizations.

The Plan is divided into two separate programs: the option grant program
and the stock issuance program. The Plan will be administered by the Board or by
a committee of two or more Board members appointed by the Board (the "Plan
Administrator"). The Plan Administrator will have complete discretion under the
option grant program and the stock issuance program to determine which eligible
individuals are to receive option grants or stock issuances, the number of
shares subject to each such grant or issuance, the status of any granted option
as either an incentive option (which potentially qualify for certain favorable
treatment under federal tax law) or a non-statutory option, the vesting schedule
to be in effect for the option grant or stock issuance and the maximum term for
which any granted option is to remain outstanding. Participation in such
programs is limited to employees (including officers), directors and consultants
of the Company or its subsidiary corporations.

The exercise price for each incentive stock option must be at least 100% of
the fair market value of the stock on the date of the option grant. The exercise
price for each non-statutory option or for any share issuance under the Plan
must be at least 85% of the fair market value of the shares on the date of the
option grant or stock issuance. The purchase price for any shares may be paid in
cash, by delivery of shares of Common Stock or through a same-day sale program
pursuant to which the purchased shares will be sold immediately and a

41
<PAGE> 44

portion of the sale proceeds applied to the payment of the purchase price. The
Plan Administrator may also permit a participant to deliver a promissory note in
payment of the purchase price and any tax liability incurred in connection with
the purchase.

Options granted under the option grant program may be immediately
exercisable for all the option shares, on either a vested or unvested basis, or
may become exercisable for shares in one or more installments over the
participant's period of service. Shares issued under the stock issuance program
may either be fully-vested or subject to a vesting schedule tied to future
service. All unvested shares will be subject to repurchase by the Company, at
the original purchase price paid for such shares, upon the participant's
cessation of service prior to vesting in the shares. However, the Plan
Administrator will have full discretionary authority to accelerate the
exercisability of any outstanding option grant or the vesting of any issued
shares.

Each option granted under the Plan will have a maximum term of ten years
and will be subject to earlier termination in the event of the optionee's
cessation of service. Incentive stock options are not assignable or transferable
by the optionee except in connection with the participant's death. Other options
are not assignable or transferable without the consent of the Plan
Administrator. The participant will have no shareholder rights with respect to
the shares subject to his or her outstanding options until such options are
exercised and the purchase price is paid for the shares. The participant will,
however, have full shareholder rights with respect to any shares issued under
the Plan.

Participants subject to federal or state tax withholding in connection with
any issuance of shares under the Plan may be permitted to apply a portion of the
shares issuable upon the exercise of their outstanding options to the
satisfaction of the federal and state withholding taxes incurred in connection
with such exercise. Alternatively, such participants may be permitted to deliver
existing shares of Common Stock in satisfaction of such tax liability. In either
case, the Company will pay cash to the appropriate government authority equal to
the fair market value of the stock as a deposit of taxes withheld.

Officers and directors of the Company may also be granted special stock
appreciation rights in connection with their options under which the outstanding
options can be surrendered for cancellation upon a hostile take-over of the
Company in return for a cash distribution from the Company, based on the excess
of the price per share paid by the acquiring entity in effecting the take-over
above the option exercise price. The limited stock appreciation rights may be
given to officers and directors receiving option grants. The Plan Administrator
may grant other stock appreciation rights with respect to option grants. The
other stock appreciation rights would provide the holders with the right to
receive an appreciation distribution from the Company equal to the excess of the
fair market value (on the date such right is exercised) of the shares of Common
Stock in which the optionee is at the time vested under the surrendered option
over the aggregate exercise price payable for such shares. Such appreciation
distribution would be able to be made, at the Plan Administrator's discretion,
in shares of Common Stock valued at fair market value on the exercise date, in
cash or in a combination of cash and Common Stock.

In the event the Company is acquired, whether by merger or asset sale, each
outstanding option which is not to be assumed by the successor corporation or
replaced with a comparable option to purchase the capital stock of the successor
corporation will automatically accelerate in full, and all unvested shares will
automatically vest, except to the extent such accelerated vesting is precluded
by the terms of the agreements evidencing those unvested shares. The Plan
Administrator can apply this acceleration to options outstanding under the Prior
Plan.

The Plan provides for the automatic acceleration of outstanding options and
the vesting of unvested shares upon the following change in control events: (i)
the acquisition of more than 50% of the Company's voting stock by hostile tender
offer or (ii) a change in the composition of the Board effected through one or
more contested Board elections, except that the Plan Administrator may at the
time of a option grant or stock issuance, provide that no such acceleration
shall occur. However, no unvested options or stock issuances under the Prior
Plan will accelerate in connection with any such change in control unless the
Plan Administrator has determined to grant such acceleration.

42
<PAGE> 45

To the extent outstanding options terminate prior to exercise, the shares
subject to those options will be available for subsequent grant. In addition,
the Plan Administrator may effect cancellation/regrant programs pursuant to
which outstanding options under the option grant program (including options
incorporated from the Prior Plan) are cancelled and new options are granted for
the same or different number of option shares at an exercise price per share not
less than 85% of the fair market value of the Common Stock on the new grant
date.

The Board may amend or modify the Plan at any time, and may make any such
amendment subject to shareholder approval. The Plan will terminate ten years
from the date on which shares of the Company's Common Stock are first registered
under the Exchange Act, unless sooner terminated by the Board.

LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS

The Company has adopted provisions in its Articles of Incorporation that
eliminate to the fullest extent permissible under California law the liability
of its directors to the Company for monetary damages. Such limitation of
liability does not affect the availability of equitable remedies such as
injunctive relief or rescission.

The Company's Articles of Incorporation and Bylaws provide that the Company
shall indemnify its directors and officers to the fullest extent permitted under
California law. In addition the Company has entered into indemnification
agreements with its officers and directors which provide for indemnification in
circumstances in which indemnification is otherwise discretionary under
California law. In particular, such indemnification agreements contain
provisions that may require the Company, among other things, to indemnify the
officers and directors against certain liabilities that may arise by reason of
their status or service as directors or officers (other than liabilities arising
from intentional or knowing and culpable violations of law) and to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified. The Company has obtained an insurance policy covering
officers and directors for claims made that such officers or directors may
otherwise be required to pay or for which the Company is required to indemnify
them, subject to certain exclusions.

There is no pending litigation or proceeding involving a director or
officer of the Company as to which indemnification is being sought, nor is the
Company aware of any pending or threatened litigation that may result in claims
for indemnification by any director or officer.

43
<PAGE> 46

CERTAIN TRANSACTIONS

Since its incorporation in March 1992, the Company sold Preferred Stock in
private financings as follows: 2,000,000 shares of Series A Preferred Stock at a
price of $1.00 per share; and 915,477 shares of Series B-1 Preferred Stock at a
price of $5.46 per share. As of July 31, 1996, the purchasers of Preferred Stock
included the following holders of more than 5% of the Company's outstanding
stock (all shares of Preferred Stock are convertible into Common Stock on a
one-for-one basis):

<TABLE>
<CAPTION>
PREFERRED STOCK
EXECUTIVE OFFICERS, DIRECTORS ------------------------ TOTAL
AND 5% SHAREHOLDERS SERIES A SERIES B-1 CONSIDERATION
------------------------------------------------- --------- ---------- -------------
<S> <C> <C> <C>
BankAmerica Ventures............................. 2,000,000 -0- $ 2,000,000
Pfizer Inc....................................... -0- 915,477 $ 4,998,504
</TABLE>

In May 1995, Immusol and Pfizer entered into the Pfizer Agreements. In May
1995, Pfizer purchased 915,477 shares of Series B-1 Preferred Stock pursuant to
the terms of the Stock Purchase Agreement. The Series B-1 Preferred Stock will
be converted to Common Stock immediately prior to closing of the Offering. In
November 1996, Pfizer is obligated to purchase 264,600 shares of Series B-2
Preferred Stock at a price per share of $7.56. In May 1998, Pfizer is obligated
to purchase 304,300 shares of Series B-3 Preferred Stock at a price per share of
$9.86, subject to Pfizer's ability to terminate the Collaboration Agreement and
its obligations to purchase Series B-3 Preferred Stock. See
"Business -- Strategic Alliances and Licenses" and "Description of Capital
Stock."

Holders of Preferred Stock are entitled to certain registration rights with
respect to the Common Stock issued or issuable upon conversion thereof. See
"Description of Capital Stock -- Amended Shareholder Rights Agreement."

The Company has entered into certain additional transactions with its
directors and officers, as described under the captions,
"Management -- Executive Compensation", "Management -- Employment Arrangements"
and "Management -- Scientific Advisory Board."

44
<PAGE> 47

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of July 31, 1996, and as adjusted to reflect
the sale of the shares of the Common Stock offered hereby by the Company by (i)
all those known by the Company to be beneficial owners of more than 5% of its
outstanding Common Stock, (ii) each director and each of the Named Executive
Officers of the Company and (iii) all directors and executive officers of the
Company as a group.

<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY OWNED (2)
NUMBER OF ------------------------------------
OFFICERS, DIRECTORS AND 5% SHAREHOLDERS (1) SHARES (2) PRIOR TO OFFERING AFTER OFFERING
- ---------------------------------------------------- ---------- ----------------- --------------
<S> <C> <C> <C>
BankAmerica Ventures (3)............................ 2,000,000 20.0% 15.4%
950 Tower Lane
Suite 700
Foster City, CA 94404
Pfizer Inc. ........................................ 915,477 9.1% 7.0%
Eastern Point Road
Groton, CT 06340
Anchie Kuo (3)...................................... 2,000,000 20.0% 15.4%
Frank Litvack (4)................................... 2,777,000 27.7% 21.3%
Melvin Perelman (5)................................. 3,333 * *
Flossie Wong-Staal (6).............................. 1,432,916 13.5% 10.5%
Tsvi Goldenberg (7)................................. 2,822,000 28.1% 21.7%
Jack R. Barber (8).................................. 74,583 * *
All directors and executive officers as a group (6
persons) (9)...................................... 9,109,832 85.3% 66.6%
</TABLE>

- ---------------
* Less than 1%

(1) Except as otherwise indicated, the address of all individuals listed below
is: 3050 Science Park Road, San Diego, California 92121.

(2) Unless otherwise indicated in the footnotes to this table and subject to the
community property laws where applicable, each of the shareholders named in
this table has sole voting and investment power with respect to the shares
shown as beneficially owned by them. Share ownership in each case includes
shares issuable on exercise of certain outstanding options held by the
particular beneficial owners as described in the footnotes below. See
"Certain Transactions."

(3) Dr. Kuo, a director of the Company, is a Managing Director of BankAmerica
Ventures. Dr. Kuo disclaims beneficial ownership of these shares.

(4) Dr. Litvack is the trustee of one trust for the benefit of his children.

(5) Includes 3,333 shares issuable upon exercise of stock options that are
exercisable within 60 days of July 31, 1996.

(6) Dr. Wong-Staal is the trustee of two trusts for the benefit of her children.
Also includes 572,916 shares issuable upon exercise of stock options
exercisable within 60 days of July 31, 1996.

(7) Dr. Goldenberg is the custodian of three accounts for the benefit of his
children.

(8) Includes 74,583 shares issuable upon exercise of stock options that are
exercisable within 60 days of July 31, 1996.

(9) Includes 8,459,000 shares and 650,832 shares issuable upon exercise of stock
options that are exercisable within 60 days of July 31, 1996.

45
<PAGE> 48

DESCRIPTION OF CAPITAL STOCK

Upon the closing of this Offering, the authorized capital stock of the
Company will consist of 30,000,000 shares of Common Stock, par value $0.001 per
share ("Common Stock"), and 5,000,000 shares of Preferred Stock, par value
$0.001 per share ("Preferred Stock").

COMMON STOCK

At June 30, 1996, there were 10,024,477 shares of Common Stock outstanding
(as adjusted to reflect the conversion of all outstanding shares of Series A and
Series B-1 Preferred Stock into Common Stock immediately prior to this Offering)
and held of record by approximately 17 shareholders. The holders of Common Stock
are entitled to one vote for each share held of record on all matters submitted
to a vote of the shareholders. Subject to preferences that may be applicable to
any outstanding shares of Preferred Stock, holders of Common Stock are entitled
to receive ratably such dividends as may be declared by the Board of Directors
out of funds legally available. See "Dividend Policy."

Effective immediately prior to the closing of this Offering, holders of
Preferred Stock will no longer have a liquidation preference. All outstanding
shares of Common Stock are fully paid and nonassessable. See "Possible
Anti-Takeover Effect of Certain Charter Provisions."

PREFERRED STOCK

Effective immediately prior to the closing of this Offering, the Board of
Directors will have the authority to issue up to 5,000,000 shares of the
preferred stock in one or more series and to fix the rights, priorities,
preferences, qualifications, limitations and restrictions, including the
dividend rates, conversion rights, voting rights, terms of redemption, terms of
sinking funds, liquidation preferences and the number of shares constituting any
series or the designation of such series, without any further vote or action by
the shareholders, which could decrease the amount of earnings and assets
available for distribution to holders of Common Stock or adversely affect the
rights and powers, including voting rights, of the holders of the Common Stock.
The issuance of Preferred Stock may have the effect of delaying or preventing a
change in control of the Company and may adversely affect the rights of the
holders of Common Stock.

Effective immediately prior to the closing of this Offering, there will be
no shares of Preferred Stock outstanding.

AMENDED SHAREHOLDER RIGHTS AGREEMENT

The Company, BankAmerica Ventures and Pfizer are parties to an Amended and
Restated Shareholder Rights Agreement dated as of May 3, 1995 (the "Amended
Shareholders' Agreement"). Pursuant to the terms of the Amended Shareholders'
Agreement, Pfizer and BankAmerica Ventures, which as of the date of this
Prospectus are the holders of approximately 2,915,477 shares of Common Stock
(the "Registrable Securities"), or their permitted transferrees (the "Holders")
are entitled to certain rights with respect to the registration of such
Registrable Securities under the Securities Act. The Amended Shareholders'
Agreement provides that if the Company proposes to register any of its
securities under the Securities Act for its own account, the Holders are
entitled to notice of such registration and are entitled to include shares of
such Common Stock therein, provided, among other conditions, that the
underwriters of any such offering have the right to limit the number of shares
included in such registration. The Amended Shareholders' Agreement further
provides that the Holders at least 500,000 shares of outstanding Registrable
Securities have the right to demand on two occasions at any time after 180 days
following the effective date of the Registration Statement

46
<PAGE> 49

of which this Prospectus is a part that the Company register all or a portion of
such shares under the Securities Act for resales by such Holders. The Holders of
approximately 2,915,477 shares of Registrable Securities may also request the
Company to register such shares on Form S-3 when such registration form becomes
available for use by the Company provided the shares registered have an
aggregate market value of at least $1,000,000. Generally, the Company is
required to bear the expense of all such registrations. The registration rights
of the Holders expire on the date five years from the closing of this Offering.

The Amended Shareholders' Agreement provides that if the valuation of the
Company upon the close of this Offering is greater than $150 million and this
Offering raises at least $15 million in the aggregate, then concurrently with
the closing of this Offering, Pfizer is obligated to purchase from the Company a
pro rata number of shares of Common Stock based upon Pfizer's original holdings.

POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS

The holders of Common Stock are currently entitled to one vote for each
share held of record on all matters submitted to a vote of the shareholders
other than the election of directors, in which event any holder may demand
cumulative voting. Under cumulative voting, the holders of Common Stock are
entitled to cast for each share held the number of votes equal to the number of
directors to be elected, which is currently five. A holder may cast all of his
or her votes for one nominee or distribute them among any number of nominees for
election. Effective immediately prior to the closing of this Offering, the
Company's Articles of Incorporation will be amended to provide that the
shareholders' right to cumulative voting will terminate when the Company's
shares are qualified for trading on the Nasdaq National Market if the Company
has at least 800 shareholders as of the record date for the most recent annual
meeting of shareholders. The Company presently expects that upon consummation of
this Offering, the Common Stock will be qualified for trading on Nasdaq National
Market and the Company will have at least 800 shareholders. The absence of
cumulative voting may have the effect of limiting the ability of minority
shareholders to effect changes in the Board of Directors and, as a result, may
have the effect of deterring hostile takeovers or delaying or preventing changes
in control or management of the Company.

Effective immediately prior to the closing of this Offering, the Company's
Articles of Incorporation also will be amended to require that any action
required or permitted to be taken by shareholders of the Company must be
effected at a duly called annual or special meeting of shareholders and may not
be effected by written consent. The Company's Articles of Incorporation and
Bylaws, as amended, will further provide that newly created directorships
resulting from any increase in the authorized number of directors may only be
filled by a majority vote of the directors then in office. In addition, the
Articles of Incorporation and Bylaws of the Company, as amended, will require
that shareholders give advance notice to the Company's secretary of any
directorship nominations or other business to be brought by shareholders at any
shareholders' meeting. These provisions may have the effect of deterring hostile
takeovers or delaying changes in control or management of the Company. See "Risk
Factors -- Concentration of Ownership; Possible Anti-Takeover Effect of Certain
Charter Provisions" and "Management."

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock is
Continental Stock Transfer.

47
<PAGE> 50

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this Offering, there has been no public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices. Upon completion of this
Offering, the Company will have outstanding 13,024,477 shares of Common Stock
(without taking into account shares of Common Stock issuable upon exercise of
outstanding options).

The 3,000,000 shares of Common Stock sold in this Offering will be freely
tradeable without restriction under the Securities Act, except for any shares
held by an "affiliate" of the Company, which will be subject to the resale
limitations of Rule 144 under the Securities Act. The remaining 10,024,477
shares held by existing shareholders were issued by the Company in private
transactions in reliance upon one or more exemptions under the Securities Act,
are "restricted securities" as that term is defined in Rule 144 promulgated
under the Securities Act and may be sold in compliance with such Rule, pursuant
to registration under the Securities Act or pursuant to an exemption therefrom.
Generally, under Rule 144, each person holding restricted securities for a
period of two years may, every three months after such two-year holding period,
sell in ordinary brokerage transactions or to market makers an amount of shares
equal to the greater of one percent of the Company's then outstanding Common
Stock (approximately 130,000 shares immediately after this Offering) or the
average weekly trading volume during the four weeks prior to the proposed sale.
In addition, sales under Rule 144 may be made only through unsolicited "broker's
transactions" or to a "market maker" and are subject to various other
conditions. The limitation on the number of shares which may be sold under the
Rule and the "broker's transaction" requirement do not apply to restricted
securities sold for the account of a person who is not and has not been an
"affiliate" of the Company (as that term is defined in the Act) during the three
months prior to the proposed sale and who has beneficially owned the securities
for at least three years. Of the outstanding shares, 7,045,000 shares are
currently freely tradeable without limitation under Rule 144, subject to the
lock-up period described below.

Shareholders owning an aggregate of 9,574,477 shares of Common Stock,
representing approximately 96% of the total shares outstanding (and 1,887,500
shares issuable upon exercise of outstanding options), including shares held by
all employees, officers and directors and certain other shareholders of the
Company, have agreed not to directly or indirectly offer, sell, contract to
sell, grant any option to purchase, transfer or otherwise dispose of or make a
distribution of any of their shares or securities exercisable or convertible
into or exchangeable for the Common Stock without the prior written consent of
PaineWebber for a period of 180 days after the date of this Prospectus.

Any employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701, which permits
nonaffiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding period restrictions. An aggregate of 124,000
shares of Common Stock issued on exercise of stock options will be tradeable
pursuant to Rule 701 subject to the lock-up period described above. Such options
were exercised at prices below the initial public offering price.

As of June 30, 1996, 124,000 shares are outstanding under the Prior Plan,
2,802,500 shares of Common Stock are subject to outstanding options and 473,500
additional shares are reserved for issuance under the Prior Plan. See
"Management -- Benefit Plans." The Company intends to file a registration
statement under the Securities Act on Form S-8 covering an aggregate of
approximately 2,600,000 shares of Common Stock reserved for issuance under the
Plan. Such registration statement is expected to be filed on the effective date
of this Offering and will automatically become effective upon filing.
Accordingly, shares registered under such registration statement will be
available for resale by nonaffiliates in the public market, subject to any
vesting restrictions with the Company or any contractual restrictions.

48
<PAGE> 51

UNDERWRITING

The Underwriters named below (the "Underwriters"), for whom PaineWebber
Incorporated, Needham & Company, Inc. and Sutro & Co. Incorporated are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions of the Underwriting Agreement among the Company and the
Underwriters (the "Underwriting Agreement"), to purchase from the Company, and
the Company has agreed to sell to the Underwriters, the number of shares of
Common Stock set forth opposite their names below at the price per share set
forth on the cover page of this Prospectus under "Proceeds to Company":

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
------------------------------------------------------------------ ----------
<S> <C>
PaineWebber Incorporated..........................................
Needham & Company, Inc............................................
Sutro & Co. Incorporated..........................................

---------
Total................................................... 3,000,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the shares of Common Stock listed above are subject to
certain conditions. The Underwriters are committed to purchase all of the shares
of Common Stock offered by this Prospectus (other than those covered by the
over-allotment option described below), if any are purchased. The Underwriting
Agreement provides that, in the event of a default by an Underwriter, in certain
circumstances, the purchase commitments of non-defaulting Underwriters may be
increased or the Underwriting Agreement may be terminated.

The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the initial public offering
price set forth on the cover page of this Prospectus and to selected dealers at
such price less a concession not in excess of $ per share, and that the
Underwriters and such dealers may reallow a concession to other dealers,
including the Underwriters, not in excess of $ per share. After the
commencement of the public offering of the shares of Common Stock, the initial
public offering price, the concessions to selected dealers and the discount to
other dealers may be changed by the Representatives.

The Company has granted the Underwriters an option, expiring at the close
of 30 business days after the date of this Prospectus, to purchase up to 450,000
additional shares of Common Stock from the Company at the initial public
offering price set forth on the cover page of this Prospectus less the
underwriting discounts and commissions. To the extent such option is exercised,
each Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares of Common
Stock as the percentage it was obligated to purchase pursuant to the
Underwriting Agreement. The Underwriters may exercise the option only to cover
over-allotments, if any, made in connection with the offering of the shares of
Common Stock offered hereby.

The Company, its directors and all employees and certain of the Company's
current shareholders have agreed not to offer, sell or otherwise dispose of any
shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of PaineWebber. See "Shares
Eligible for Future Sale."

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.

49
<PAGE> 52

The Underwriters do not intend to confirm sales of the Common Stock offered
hereby to any accounts over which they exercise discretionary authority.

Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock was determined by
negotiations between the Company and the Representatives. Among the factors
considered in determining the initial public offering price were the technology
base of the Company, the quality and experience of the Company's scientific
talent, the previous experience of the Company's executive officers, the medical
and research applications and potential markets to be addressed by the Company's
product development programs, the market prices of publicly traded stock of
comparable companies in recent periods and the general condition of the
securities markets at the time of the Offering.

The initial public offering price set forth on the cover page of this
Prospectus should not be considered an indication of the actual value of the
Common Stock. Such price is subject to change as a result of market conditions
and other factors and no assurance can be given that the Common Stock can be
sold.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, San Diego, California. Certain legal
matters will be passed upon for the Underwriters by Shearman & Sterling, San
Francisco, California.

EXPERTS

The financial statements of Immusol, Inc. at December 31, 1994 and 1995 and
for each of the three years in the period ended December 31, 1995 appearing in
this Prospectus have been audited by Ernst & Young LLP, independent auditors, as
set forth in their report thereon appearing elsewhere herein and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act, with respect to the
Common Stock offered hereby. This Prospectus, which is part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules filed therewith. For further
information with respect to the Company and the Common Stock offered hereby,
reference is hereby made to such Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus regarding the
contents of any contract or other document are not necessarily complete, and in
each instance reference is made to the copy of such contract or document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. The Registration Statement, including the
exhibits and schedules thereto, may be inspected without charge at the principal
office of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the Commission located at Seven World Trade Center,
Suite 1300, New York, New York 10048, and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and copies of all or any part
thereof may be obtained at prescribed rates from the Commission's Public
Reference Section at such addresses. Also, the Commission maintains a World Wide
Web site on the Internet at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. Upon approval of the Common Stock for
quotation on the Nasdaq National Market, such reports, proxy and information
statements and other information also can be inspected at the office of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.

50
<PAGE> 53

IMMUSOL, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors...................................... F-2
Balance Sheets at December 31, 1994 and 1995 and at June 30, 1996 (Unaudited).......... F-3
Statements of Operations for the years ended December 31, 1993, 1994 and 1995 and for
the six months ended June 30, 1995 and 1996 (Unaudited).............................. F-4
Statements of Shareholders' Equity for the years ended December 31, 1993, 1994 and 1995
and for the six months ended June 30, 1996 (Unaudited)............................... F-5
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and for
the six months ended June 30, 1995 and 1996 (Unaudited).............................. F-6
Notes to Financial Statements.......................................................... F-7
</TABLE>

F-1
<PAGE> 54

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Immusol, Inc.

We have audited the accompanying balance sheets of Immusol, Inc. as of
December 31, 1994 and 1995, and the related statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Immusol, Inc. at December
31, 1994 and 1995, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.

ERNST & YOUNG LLP

San Diego, California

June 27, 1996

F-2
<PAGE> 55

IMMUSOL, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
UNAUDITED PRO
FORMA
SHAREHOLDERS'
DECEMBER 31, EQUITY AT
------------------------- JUNE 30,
1994 1995 1996
---------- ---------- JUNE 30, -------------------
1996
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $1,113,904 $1,414,163 $ 1,628,235
Short-term investments (Note 3)... -- 5,453,082 6,056,549
Other current assets.............. 204,475 145,700 140,133
---------- ---------- ----------
Total current assets................ 1,318,379 7,012,945 7,824,917
Property and equipment, net (Note
4)................................ 56,011 282,135 302,023
Other assets........................ 110,521 48,657 312,951
---------- ---------- ----------
$1,484,911 $7,343,737 $ 8,439,891
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................. $ 269,046 $ 499,783 $ 557,506
Accrued expenses.................. -- 18,113 95,533
Deferred contract revenue (Note
2)............................. -- 436,330 436,330
Current portion of capital lease
obligations.................... -- 10,306 10,833
---------- ---------- ----------
Total current liabilities........... 269,046 964,532 1,100,202
Capital lease obligations, less
current portion (Note 5).......... -- 37,874 32,322
Long-term debt (Note 5)............. -- -- 152,725
Commitments (Note 5)
Shareholders' equity (Note 6):
Preferred stock, $.001 par value;
3,491,700 shares authorized
(5,000,000 shares pro forma),
issuable in series:
Series A convertible; 2,000,000
shares authorized, issued and
outstanding (no shares pro
forma), liquidation preference
of $2,000,000.................. 2,000 2,000 2,000 $ --
Series B-1 convertible; 1,491,700
shares authorized; 915,477
shares issued and outstanding
(no shares pro forma),
liquidation preference of
$4,998,504..................... -- 915 915 --
Common stock, $.001 par value;
20,000,000 shares authorized,
7,045,000, 7,069,000 and
7,109,000 shares issued and
outstanding at December 31,
1994 and 1995 and June 30,
1996, respectively (30,000,000
shares authorized and
10,024,477 shares issued and
outstanding pro forma)......... 7,045 7,069 7,109 10,024
Deferred compensation............. -- -- (1,445,377) (1,445,377)
Additional paid-in capital........ 2,103,955 7,102,840 8,602,100 8,602,100
Accumulated deficit............... (897,135) (771,493) (12,105) (12,105)
---------- ---------- ---------- ----------
Total shareholders' equity.......... 1,215,865 6,341,331 7,154,642 $ 7,154,642
==========
---------- ---------- ----------
$1,484,911 $7,343,737 $ 8,439,891
========== ========== ==========
</TABLE>

See accompanying notes.

F-3
<PAGE> 56

IMMUSOL, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
--------- --------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Total revenue (Note 2)..... $ -- $ 204,475 $ 3,174,515 $ 621,937 $ 2,941,489
Costs and expenses:
Research and
development......... 157,101 492,513 2,831,860 1,246,189 1,982,939
General and
administrative...... 47,948 127,360 487,234 238,491 396,571
--------- --------- ----------- --------- -----------
Total costs and expenses... 205,049 619,873 3,319,094 1,484,680 2,379,510
--------- --------- ----------- --------- -----------
Income (loss) from
operations............... (205,049) (415,398) (144,579) (862,743) 561,979
Interest income............ 50,743 57,798 275,564 99,230 200,795
Interest expense........... -- -- (5,343) (2,326) (3,386)
--------- --------- ----------- --------- -----------
Net income (loss).......... $(154,306) $(357,600) $ 125,642 $(765,839) $ 759,388
========= ========= =========== ========= ===========
Pro forma net income (loss)
per share................ $ (0.02) $ (0.05) $ 0.01 $ (0.10) $ 0.06
========= ========= =========== ========= ===========
Shares used in computing
pro forma net income
(loss) per share......... 7,342,653 7,471,420 11,830,427 7,479,860 12,404,535
========= ========= =========== ========= ===========
</TABLE>

See accompanying notes.

F-4
<PAGE> 57

IMMUSOL, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
PREFERRED STOCK
-------------------------------------
SERIES A SERIES B COMMON STOCK ADDITIONAL
------------------ ---------------- ------------------ PAID-IN NOTE DEFERRED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE COMPENSATION
--------- ------ ------- ------ --------- ------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992... 2,000,000 $2,000 -- $ -- 6,045,000 $6,045 $2,054,955 $ -- $ --
Issuance of common stock..... -- -- -- 1,000,000 1,000 49,000 (50,000) --
Reduction in note
receivable................. -- -- -- -- -- -- -- 28,108 --
Net loss..................... -- -- -- -- -- -- -- -- --
--------- ------ ------- ---- --------- ------ ---------- -------- ---------
Balance at December 31, 1993... 2,000,000 2,000 -- -- 7,045,000 7,045 2,103,955 (21,892) --
Reduction in note
receivable................. -- -- -- -- -- -- -- 21,892 --
Net loss..................... -- -- -- -- -- -- -- -- --
--------- ------ ------- ---- --------- ------ ---------- -------- ---------
Balance at December 31, 1994... 2,000,000 2,000 -- -- 7,045,000 7,045 2,103,955 -- --
Issuance of common stock..... -- -- -- -- 24,000 24 1,296 -- --
Issuance of Series B
convertible preferred
stock...................... -- -- 915,477 915 -- -- 4,997,589 -- --
Net income................... -- -- -- -- -- -- -- -- --
--------- ------ ------- ---- --------- ------ ---------- -------- ---------
Balance at December 31, 1995... 2,000,000 2,000 915,477 915 7,069,000 7,069 7,102,840 -- --
Issuance of common stock
(unaudited)................ -- -- -- -- 40,000 40 3,960 -- --
Deferred compensation related
to issuance of stock
options (unaudited)........ -- -- -- -- -- -- 1,495,300 -- (1,495,300)
Amortization of deferred
compensation (unaudited)... -- -- -- -- -- -- -- -- 49,923
Net income (unaudited)....... -- -- -- -- -- -- -- -- --
--------- ------ ------- ---- --------- ------ ---------- -------- ---------
Balance at June 30, 1996
(unaudited).................. 2,000,000 $2,000 915,477 $915 7,109,000 $7,109 $8,602,100 $ -- $(1,445,377)
========= ====== ======= ==== ========= ====== ========== ======== =========

TOTAL
ACCUMULATED SHAREHOLDERS'
DEFICIT EQUITY
----------- -------------
<S> <C> <C>
Balance at December 31, 1992... $(385,229) $ 1,677,771
Issuance of common stock..... -- --
Reduction in note
receivable................. -- 28,108
Net loss..................... (154,306) (154,306)
--------- ----------
Balance at December 31, 1993... (539,535) 1,551,573
Reduction in note
receivable................. -- 21,892
Net loss..................... (357,600) (357,600)
--------- ----------
Balance at December 31, 1994... (897,135) 1,215,865
Issuance of common stock..... -- 1,320
Issuance of Series B
convertible preferred
stock...................... -- 4,998,504
Net income................... 125,642 125,642
--------- ----------
Balance at December 31, 1995... (771,493) 6,341,331
Issuance of common stock
(unaudited)................ -- 4,000
Deferred compensation related
to issuance of stock
options (unaudited)........ -- --
Amortization of deferred
compensation (unaudited)... -- 49,923
Net income (unaudited)....... 759,388 759,388
--------- ----------
Balance at June 30, 1996
(unaudited).................. $ (12,105) $ 7,154,642
========= ==========
</TABLE>

See accompanying notes.

F-5
<PAGE> 58

IMMUSOL, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30
------------------------------------- -----------------------
1993 1994 1995 1995 1996
---------- ---------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................... $ (154,306) $ (357,600) $ 125,642 $ (765,839) $ 759,388
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization..... 730 7,917 50,395 15,212 40,942
Stock issued for consulting
services..................... 28,108 21,892 -- -- --
Stock compensation expense..... -- -- -- -- 49,923
Changes in operating assets and
liabilities:
Other current assets......... -- (204,475) 58,775 (65,899) 5,567
Accounts payable............. 50,193 78,745 230,737 186,120 57,724
Accrued expenses............. -- -- 18,113 115,887 77,420
Deferred contract revenue.... -- -- 436,330 773,438 --
------- ------- ------- ------ ------
Net cash provided by (used in)
operating activities.............. (75,275) (453,521) 919,992 258,919 990,964
INVESTING ACTIVITIES
Purchases of property and
equipment......................... -- (62,282) (219,012) (24,106) (60,648)
Purchases of short-term
investments....................... -- -- (6,453,082) (2,405,265) (1,903,467)
Proceeds from maturities of
short-term investments............ -- -- 1,000,000 -- 1,300,000
Other assets........................ -- (109,490) 61,864 (1,000) (264,476)
------- ------- ------- ------ ------
Net cash used in investing
activities........................ -- (171,772) (5,610,230) (2,430,371) (928,591)
FINANCING ACTIVITIES
Payments on capital lease
obligations....................... -- -- (9,327) -- (5,026)
Proceeds from long-term debt........ -- -- -- -- 152,725
Proceeds from issuance of Series B
convertible preferred stock....... -- -- 4,998,504 4,998,504 --
Proceeds from issuance of common
stock............................. -- -- 1,320 1,320 4,000
------- ------- ------- ------ ------
Net cash provided by financing
activities........................ -- -- 4,990,497 4,995,277 151,699
------- ------- ------- ------ ------
Net increase (decrease) in cash and
cash equivalents.................. (75,275) (625,293) 300,259 2,823,825 214,072
Cash and cash equivalents at
beginning of period............... 1,814,472 1,739,197 1,113,904 1,113,904 1,414,163
------- ------- ------- ------ ------
Cash and cash equivalents at end of
period............................ $1,739,197 $1,113,904 $ 1,414,163 $3,937,729 $1,628,235
======= ======= ======= ====== ======
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING
ACTIVITIES:
Property and equipment acquired
under capital lease obligations... $ -- $ -- $ 57,507 $ 57,507 $ --
======= ======= ======= ====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid....................... $ -- $ -- $ 5,343 $ 2,326 $ 3,386
======= ======= ======= ====== ======
</TABLE>

See accompanying notes.

F-6
<PAGE> 59

IMMUSOL, INC.

NOTES TO FINANCIAL STATEMENTS

(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995 AND FOR THE SIX MONTHS

ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Immusol, Inc. (the "Company") was incorporated in California on March 6,
1992. The Company is a biopharmaceutical company dedicated to the discovery,
development and commercialization of products based on its proprietary
technologies in the area of ribozyme gene therapy and ribozyme-mediated gene
functional analysis.

INTERIM FINANCIAL INFORMATION

The financial statements at June 30, 1996 and for the six-month periods
ended June 30, 1995 and 1996 are unaudited, but include all adjustments
(consisting only of normal recurring adjustments) which management considers
necessary for a fair statement of the financial position at such dates and the
operating results and cash flows for those periods. Results for interim periods
are not necessarily indicative of results for the entire year or any future
periods.

CONCENTRATION OF CREDIT RISK

The Company invests its excess cash in U.S. Government securities and debt
instruments of corporations with strong credit ratings. The Company has
established guidelines relative to diversification of its cash investments and
their maturities that should maintain liquidity and safety. The Company has not
experienced any losses on these investments.

In 1995, 92% of the Company's revenue was related to a single collaborative
research and development agreement with Pfizer, Inc., a related party (Note 2).

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of
three months or less from the date of purchase that are readily convertible into
cash to be cash equivalents.

SHORT-TERM INVESTMENTS

The Company accounts for its short-term investments in accordance with
Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities. In accordance with SFAS No.
115, available-for-sale securities are carried at fair value, with unrealized
gains and loses, net of tax, reported in shareholders' equity. At December 31,
1995 and June 30, 1996, the net unrealized losses were not material.

The amortized cost of debt securities in this category is adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization is included in investment income. Realized gains and losses and
declines in value judged to be other-than-temporary on available-for-sale
securities are included in investment income. The cost of securities sold is
based on the specific identification method. Interest on securities classified
as available-for-sale is included in interest income.

PROPERTY AND EQUIPMENT

Property and equipment consist primarily of laboratory and office equipment
and leasehold improvements and are stated at cost. Depreciation and amortization
are calculated using the straight-line method over an estimated useful life of
five years, or the lease term, as appropriate.

F-7
<PAGE> 60

IMMUSOL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

ACCOUNTING STANDARD ON IMPAIRMENT OF LONG-LIVED ASSETS

In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. SFAS No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company adopted SFAS No. 121 effective January 1, 1996 and such adoption had no
effect on the financial statements.

RESEARCH AND DEVELOPMENT REVENUE

Revenue under collaborative research agreement is recognized over the term
of the agreement or upon the achievement of certain milestones. Payments
received in excess of amounts earned are classified as deferred revenue.

STOCK OPTIONS

The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25) and related
Interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.

HISTORICAL NET INCOME (LOSS) PER SHARE

Except as noted below, historical net income (loss) per share is computed
using the weighted average number of common shares outstanding. Common
equivalent shares from stock options, warrants and convertible preferred stock
are also included in the shares used in computing net income per share. Such
common equivalent shares are excluded from the computation of net loss per share
as their effect is antidilutive. In addition, pursuant to the Securities and
Exchange Commission Staff Accounting Bulletins, common and common equivalent
shares issued during the period beginning twelve months prior to the initial
filing of the proposed public offering at prices substantially below the initial
public offering price have been included in the calculation of historical net
income (loss) per share as if they were outstanding for all periods presented
(using the treasury stock method and the assumed public offering price for stock
options and warrants and the if-converted method for convertible preferred
stock).

Historical net income (loss) per share information is as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net income (loss) per share................... $(0.02) $(0.05) $0.01 $(0.10) $0.06
====== ====== ======= ====== =======
Shares used in computing net income (loss) per
share (in thousands)........................ 7,343 7,471 11,830 7,480 12,405
====== ====== ======= ====== =======
</TABLE>

PRO FORMA NET INCOME (LOSS) PER SHARE AND UNAUDITED PRO FORMA SHAREHOLDERS'
EQUITY

Pro forma net income per share is unchanged from historical net income per
share as described above. Pro forma net loss per share has been computed as
described above and also gives effect to the conversion of the preferred shares,
which will automatically convert upon completion of the Company's initial
offering, using the if-converted method from the original date of issuance. If
the offering contemplated by this Prospectus is consummated, all of the
convertible preferred stock outstanding as of the closing date will
automatically be

F-8
<PAGE> 61

IMMUSOL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

converted into 2,915,477 shares of common stock, based on the shares of
convertible preferred stock outstanding at June 30, 1996. Unaudited pro forma
shareholders' equity at June 30, 1996, as adjusted for the conversion of
preferred stock, is disclosed in the accompanying balance sheet.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

2. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT

In May 1995, the Company and Pfizer, Inc. ("Pfizer") entered into a
Collaborative Agreement, a License and Royalty Agreement and a Preferred Stock
Agreement (together, the "Pfizer Agreements") for ribozyme-based gene therapy
useful in treating or preventing HIV infection. Pursuant to the Preferred Stock
Agreement, Pfizer purchased 915,477 shares of the Company's Series B-1 Preferred
Stock at $5.46 per share. In addition, the Pfizer Agreements provide for
additional purchases of Series B-2 Preferred Stock of 264,600 shares at $7.56
per share and Series B-3 Preferred Stock of 304,300 shares at $9.86 per share in
October 1996 and April 1998, respectively. Under the Pfizer Agreements, Pfizer
has agreed to provide research support, make milestone payments and equity
investments which could total up to $49 million through May 2000. In addition,
Pfizer has agreed to fund certain clinical trial and patent filing and
maintenance costs. Amounts received by Immusol under the Pfizer Agreements
totalled approximately $11.2 million through June 30, 1996.

The agreement may be terminated at certain intervals with advance notice
upon payment of a predetermined amount to the Company.

3. SHORT-TERM INVESTMENTS

Investments consist of debt securities with maturities greater than three
months at the date of purchase.

The following is a summary of available-for-sale securities at cost (which
approximates market):

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ ----------
<S> <C> <C>
U.S. treasury notes........................................ $ 801,215 $ --
Corporate debt securities.................................. 4,651,867 6,056,549
---------- ----------
Short-term investments................................ $5,453,082 $6,056,549
========== ==========
</TABLE>

Maturities of short-term investments are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ ----------
<S> <C> <C>
1996....................................................... $3,054,414 $ 755,747
1997....................................................... 2,398,668 3,788,297
1998....................................................... -- 1,512,505
---------- ----------
$5,453,082 $6,056,549
========== ==========
</TABLE>

F-9
<PAGE> 62

IMMUSOL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Laboratory equipment................................ $60,249 $294,101 $338,149
Office equipment.................................... 3,864 27,448 44,049
Leasehold improvements.............................. -- 18,719 18,719
------- -------- --------
64,113 340,268 400,917
Less accumulated depreciation and amortization...... (8,102) (58,133) (98,894)
------- -------- --------
$56,011 $282,135 $302,023
======= ======== ========
</TABLE>

Included in laboratory equipment is $57,507 of equipment under a capital
lease. Accumulated depreciation related to this asset at December 31, 1995 and
June 30, 1996 amounted to $12,459 and $17,253, respectively.

5. COMMITMENTS

LEASE OBLIGATIONS

The Company leased its offices and laboratory facility under a
noncancellable operating lease which expired in June, 1996. Thereafter, the
Company entered into a new facilities noncancellable operating lease which
expires in June, 2001. These leases require the Company to pay for all
maintenance, insurance and property taxes. The Company has the option to
terminate the lease after two years with prior notice.

The Company leases equipment under both capital and operating lease
agreements.

Future minimum payments at December 31, 1995 are as follows:

<TABLE>
<CAPTION>
CAPITAL LEASE OPERATING
OBLIGATIONS LEASES
------------- ---------
<S> <C> <C>
Year ending December 31,
1996.................................................... $ 14,670 $192,526
1997.................................................... 14,670 61,626
1998.................................................... 14,670 22,586
1999.................................................... 14,670 --
----- ------
58,680 $276,738
======
Less amount representing interest......................... (10,500)
-----
Present value of net minimum payments..................... 48,180
Less current portion...................................... (10,306)
-----
Long-term capital lease obligations....................... $ 37,874
=====
</TABLE>

Rent expense was approximately $67,000 and $318,000 for the years ended
December 31, 1994 and 1995, respectively, and $151,000 and $178,000 for the six
months ended June 30, 1995 and 1996, respectively.

LICENSING AND RESEARCH AGREEMENT

The Company has entered into a licensing agreement with a university under
which it has obtained exclusive licenses to technology, or technology claimed,
in certain patents or patent applications. The Company is required to make
payments of royalties on future sales of products which employ the technology,

F-10
<PAGE> 63

IMMUSOL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

or technology claimed, under this agreement. Upon commercial sale of licensed
products, the Company is required to pay certain minimum royalty payments.

LONG-TERM DEBT

In April 1996, the Company executed an equipment term loan with a financial
institution. The Company can borrow up to $500,000 through December 31, 1996 at
the Prime Rate plus 1.5% (9.75% at June 30, 1996), when the balance at that date
converts to a 42 month term loan with monthly installments including interest at
a fixed rate determined at the U.S. Treasury Note rate plus 4.25%. The note
payable is fully collateralized by the related equipment. As of June 30, 1996,
the Company had borrowings of $152,725 against this facility.

6. SHAREHOLDERS' EQUITY

COMMON STOCK

The majority of the outstanding shares of common stock have been issued to
founders and directors of, and consultants to, the Company. In connection with a
certain stock purchase agreement, the Company has the option to repurchase, at
the original issue price, the unvested shares in the event of termination of
services. Shares issued under this agreement vest over a period no longer than
five years. At December 31, 1995 and June 30, 1996, 395,833 and 333,333 shares,
respectively, were subject to repurchase by the Company.

CONVERTIBLE PREFERRED STOCK

The holders of Series A and Series B-1 preferred stock are entitled to
receive noncumulative dividends at the rate of $0.08 and $0.44 per share,
respectively, per annum, or if greater, an amount equal to that paid on any
other outstanding shares of the Company, payable when, as and if, declared by
the Board of Directors. As of December 31, 1995, no dividends have been
declared. The Series A and Series B-1 preferred stock, which have equal priority
over any other stock issuance, have liquidation preferences of $1.00 and $5.46
per share, respectively, plus any declared but unpaid dividends. The Company
currently does not anticipate paying any dividends within the foreseeable
future.

At the option of the holder, the Series A and Series B-1 preferred stock
are convertible into common shares on a one-for-one basis, subject to adjustment
for antidilution, and will automatically convert into common shares concurrent
with the closing of qualified underwritten public offering of common stock. The
preferred shareholders have voting rights equal to the common shares they would
own upon conversion. The Company has reserved 2,915,477 shares of common stock
for issuance upon the conversion of the Series A and Series B convertible
preferred stock.

1996 STOCK OPTION PLAN/STOCK ISSUANCE PLAN

In 1992, the Company adopted the 1992 Stock Plan. During 1995, the Plan was
amended to increase the number of shares available under the Plan to 2,300,000.
The Company's 1996 Stock Option/Stock Issuance Plan (the "Plan") was adopted by
the Board of Directors and shareholders on June 27, 1996. The Plan will serve as
the successor equity incentive program to the Company's 1992 Stock Plan (the
"Prior Plan"), and no further option grants or stock issuances will be made
under the Prior Plan following the effective date of the Plan. All outstanding
stock options and unvested share issuances under the Prior Plan have been
incorporated into the Plan but will continue to be governed by the terms and
conditions of the specific instruments evidencing those options and issuances. A
total of 2,600,000 shares of Common Stock are authorized for issuance under the
Plan, including 2,300,000 shares available under the Prior Plan plus an
additional 300,000 shares.

The Plan provides for the grant of incentive and nonstatutory stock
options, stock bonuses and rights to purchase stock to employees, directors or
consultants of the Company. The Plan provides that incentive stock

F-11
<PAGE> 64

IMMUSOL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

options will be granted only to employees at no less than the fair value of the
Company's common stock (no less than 85% of the fair value for nonstatutory
stock options), as determined by the Board of Directors at the date of the
grant. Options expire no more than ten years after the date of grant, or earlier
if the employment terminates.

The purchase price under each stock purchase agreement resulting from stock
bonuses and purchase rights granted will be at no less than 85% of the fair
value of the Company's common stock on the award date. Shares of stock sold or
awarded under the Plan may be subject to a repurchase option by the Company as
determined by the Board of Directors.

The options vest over a period not to exceed five years. The following
table summarizes stock option activity:

<TABLE>
<CAPTION>
WEIGHTED
EXERCISE AVERAGE
NUMBER OF PRICE PER EXERCISE
SHARES SHARE PRICE
--------- ------------- --------
<S> <C> <C> <C>
Outstanding at December 31, 1992................. 30,000 $.10 $.10
Granted.......................................... 60,000 $.05 $.07
---------
Outstanding at December 31, 1993................. 90,000 $.05 - $.10 $.07
Granted.......................................... 1,024,000 $.05 - $.055 $.05
---------
Outstanding at December 31, 1994................. 1,114,000 $.05 - $.055 $.05
Granted.......................................... 835,000 $.05 - $.30 $.10
Exercised........................................ (24,000) $.055 $.09
Cancelled........................................ (170,000) $.05 - $.10 $.09
---------
Outstanding at December 31, 1995................. 1,755,000 $.05 - $.30 $.09
Granted.......................................... 287,500 $.60 $.10
---------
Exercised........................................ (40,000) $.10 $.10
Outstanding at June 30, 1996..................... 2,002,500 $.05 - $.60 $.10
=========
</TABLE>

At December 31, 1995, options exercisable and available for future grant
totalled 586,208 and 461,000, respectively. At June 30, 1996, options
exercisable and available for future grant totalled 781,656 and 473,500,
respectively.

DEFERRED COMPENSATION

The Company records and amortizes over the related vesting periods deferred
compensation representing the difference between the exercise price of stock
options granted and the deemed fair value (for accounting purposes) of the
Company's common stock at the date of grant. Stock options vest over a period
not to exceed five years. Shares included in the computation of deferred
compensation include option grants to employees, directors and consultants of
the Company from November 1995 through May 1996.

7. INCOME TAXES

Significant components of the Company's deferred tax assets are shown
below. A valuation allowance of $269,000 has been recognized to offset the
deferred tax assets as realization of such assets is uncertain.

F-12
<PAGE> 65

IMMUSOL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................... $ 240,000 $ 290,000
Research and development credits........................... 35,000 35,000
Other -- net............................................... (6,000) (3,000)
------ ------
Net deferred tax assets...................................... 269,000 322,000
Valuation allowance for deferred tax assets.................. (269,000) (322,000)
------ ------
Total deferred tax assets.................................... $ -- $ --
====== ======
</TABLE>

A reconciliation between the amount of tax computed by multiplying income
(loss) before taxes by the applicable statutory rates and the amount of reported
taxes is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1993 1994 1995
-------- --------- --------
<S> <C> <C> <C>
Federal income taxes at 34%....................... $(52,000) $(122,000) $ 43,000
State income taxes, net of federal tax benefit.... (9,000) (21,000) 8,000
Nondeductible expenses............................ -- 10,000 2,000
-------- --------- --------
(61,000) (133,000) 53,000
Change in valuation allowance..................... 61,000 133,000 (53,000)
-------- --------- --------
$ -- $ -- $ --
======== ========= ========
</TABLE>

At December 31, 1995, the Company had federal and California tax net
operating loss carryforwards of approximately $592,000 and $646,000,
respectively. The federal and California tax loss carryforwards will begin
expiring in 2008 and 1999, respectively, unless previously utilized. The Company
also has federal and California research and development tax credit
carryforwards totalling $28,000 and $11,000, respectively, which will expire
beginning in 2009 unless previously utilized.

Pursuant to Internal Revenue Code Sections 382 and 383, use of the
Company's net operating loss and credit carryforwards may be limited because of
cumulative changes in ownership of more than 50% which occurred within a three
year period. However, the Company does not believe such limitation will have a
material impact upon the utilization of these carryforwards.

8. PROFIT SHARING AND 401(K) PLAN

All employees of the Company are eligible to participate in the profit
sharing and 401(k) Plan. Profit sharing contributions, if any, are based on a
discretionary amount determined by the Company and are allocated to each
participant based on the relative compensation of the participant, subject to
certain limitations, to the compensation of all participants. The 401(k)
matching contributions, if any, are determined by the Company in its sole
discretion. To date, there have been no Company contributions under the Plan.

F-13
<PAGE> 66

- ------------------------------------------------------------
- ------------------------------------------------------------

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
The Company................................ 3
Risk Factors............................... 5
Use of Proceeds............................ 14
Dividend Policy............................ 14
Capitalization............................. 15
Dilution................................... 16
Selected Financial Data.................... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 18
Business................................... 21
Management................................. 36
Certain Transactions....................... 44
Principal Shareholders..................... 45
Description of Capital Stock............... 46
Shares Eligible for Future Sale............ 48
Underwriting............................... 49
Legal Matters.............................. 50
Experts.................................... 50
Additional Information..................... 50
Index to Financial Statements.............. F-1
</TABLE>

------------------------

UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------

3,000,000 SHARES

LOGOIMMUSOL

COMMON STOCK

------------------------

PROSPECTUS
------------------------

PAINEWEBBER INCORPORATED
NEEDHAM & COMPANY, INC.
SUTRO & CO. INCORPORATED
------------------------
, 1996

- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 67

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. All the amounts shown are estimates,
except for the registration fee, the Nasdaq National Market filing fee and the
NASD fee.

<TABLE>
<S> <C>
Registration fee.................................................. $ 13,087
Nasdaq National Market fee........................................ 22,250
NASD fee.......................................................... 4,295
Blue Sky fees and expenses........................................ 22,500
Printing and engraving expenses................................... 100,000
Legal fees and expenses........................................... 250,000
Accounting fees and expenses...................................... 100,000
Transfer Agent and Registrar fees................................. 5,000
Miscellaneous expenses............................................ 82,868
--------
Total................................................... $600,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

(a) Section 317 of the California General Corporation Law provides for the
indemnification of officers and directors of the Company against expenses,
judgments, fines and amounts paid in settlement under certain conditions and
subject to certain limitations.

(b) Article VI of the Bylaws of the Company provides that the Company shall
have power to indemnify any person who is or was an agent of the Company as
provided in Section 317 of the California General Corporation Law. The rights to
indemnity thereunder continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of the person. In addition, expenses incurred by a
director or officer in defending a civil or criminal action, suit or proceeding
by reason of the fact that he or she is or was a director or officer of the
Company (or was serving at the Company's request as a director or officer of
another corporation) shall be paid by the Company in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that he or she is not entitled to be indemnified by the
Company as authorized by the relevant section of the California General
Corporation Law.

(c) Article IV of the Company's Articles of Incorporation provides that the
liability of the directors of the Company for monetary damages shall be
eliminated to the fullest extent permissible under California law. Accordingly,
a director will not be liable for monetary damages for breach of duty to the
Company or its shareholders in any action brought by or in the right of the
Company. However, a director remains liable to the extent required by law (i)
for acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law, (ii) for acts or omissions that a director believes
to be contrary to the best interests of the Company or its shareholders or that
involve the absence of good faith on the part of the director, (iii) for any
transaction from which a director derived an improper personal benefit, (iv) for
acts or omissions that show a reckless disregard for the director's duty to the
Company or its shareholders in circumstances in which the director was aware, or
should have been aware, in the ordinary course of performing a director's
duties, of a risk of serious injury to the Company or its shareholders, (v) for
acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the Company or its
shareholders, (vi) for any act or omission occurring prior to the date when the
exculpation provision became effective and (vii) for any act or omission as an
officer, notwithstanding that the officer is also a director or that his or her
actions, if negligent or improper, have been ratified by the directors. The
effect of the provisions in the Articles of Incorporation is to eliminate the
rights of the Company and its shareholders (through shareholders' derivative
suits on behalf of the Company) to recover monetary damages against a director
for

II-1
<PAGE> 68

breach of duty as a director, including breaches resulting from negligent
behavior in the context of transactions involving a change of control of the
Company or otherwise, except in the situations described in clauses (i) through
(vii) above. These provisions will not alter the liability of directors under
federal securities laws.

(d) Pursuant to authorization provided under the Articles of Incorporation,
in connection with this Offering, the Company will enter into indemnification
agreements with each of its directors and officers. Generally, the
indemnification agreements attempt to provide the maximum protection permitted
by California law as it may be amended from time to time. Moreover, the
indemnification agreements provide for certain additional indemnification. Under
such additional indemnification provisions, however, an individual will not
receive indemnification for judgments, settlements or expenses if he or she is
found liable to the Company (except to the extent the court determines he or she
is fairly and reasonably entitled to indemnity for expenses), for settlements
not approved by the Company or for settlements and expenses if the settlement is
not approved by the court. The indemnification agreements provide for the
Company to advance to the individual any and all reasonable expenses (including
legal fees and expenses) incurred in investigating or defending any such action,
suit or proceeding. In order to receive an advance of expenses, the individual
must submit to the Company copies of invoices presented to him or her for such
expenses. Also, the individual must repay such advances upon a final judicial
decision that he or she is not entitled to indemnification. The Company's Bylaws
contain a provision of similar effect relating to advancement of expenses to a
director or officer, subject to an undertaking to repay if it is ultimately
determined that indemnification is unavailable.

(e) The Underwriting Agreement (Exhibit 1.1 hereto) contains provisions by
which the Underwriters have agreed to indemnify the Company, each person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act, each director of the Company, and each officer of the Company who signs
this Registration Statement, with respect to information furnished in writing by
or on behalf of the Underwriters for use in the Registration Statement.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Since May 31, 1993, the Company has sold and issued the following
unregistered securities:

(1) From May 31, 1993 to May 31, 1996, the Company issued an aggregate
of 1,886,500 options to purchase shares of Common Stock under the Prior
Plan and an aggregate of 64,000 shares of Common Stock were issued through
the exercise of options granted under the Prior Plan. For additional
information concerning these transactions, reference is made to the
information contained under the caption "Management -- Benefit Plans" in
the form of the Prospectus included herein.

(2) On May 3, 1995, the Company issued an aggregate of 915,477 shares
of Series B-1 Preferred Stock to Pfizer Inc. for an aggregate consideration
of $4,998,594.

The sales and issuances of securities in the above transactions were deemed
to be exempt under the Act by virtue of Section 4(2) thereof and/or Regulation D
and Rule 701 promulgated thereunder as transactions not involving any public
offering. The purchasers in each case represented their intention to acquire the
securities for investment only and not with a view to the distribution thereof.
Appropriate legends were affixed to the stock certificates issued in such
transactions. Similar representations of investment intent were obtained and
similar legends imposed in connection with any subsequent transfers of any such
securities. The Company believes that all recipients had adequate access,
through employment or other relationships, to information about the Company to
make an informed investment decision.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S>
dagger1.1 Form of Underwriting Agreement.
dagger3.1 Amended and Restated Articles of Incorporation of the Company.
</TABLE>

II-2
<PAGE> 69

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S>
+3.2 Form of Second Amended and Restated Articles of Incorporation of the Company to be
effective immediately prior to this Offering.
+3.3 Bylaws of the Company, as amended.
+3.4 Form of Amended and Restated Bylaws of the Company to be effective upon completion
of this Offering.
dagger4.1 Form of Certificate for Common Stock.
dagger5.1 Opinion of Brobeck, Phleger & Harrison LLP with respect to the Common Stock being
registered.
dagger10.1 Waiver of Registration Rights by BankAmerica Ventures, effective June 25, 1996.
+10.2 Amended and Restated Shareholder Rights Agreement among the Company and certain
shareholders of the Company, dated May 3, 1995.
+10.3 Immusol, Inc. Preferred Stock Purchase Agreement among the Company and the
purchasers identified on Exhibit A to the Agreement, dated May 3, 1995.
+10.4 Loan and Security Agreement between the Company and Silicon Valley Bank dated April
3, 1996.
+10.5 Amendment to Loan and Security Agreement between the Company and Silicon Valley
Bank dated May 15, 1996.
+10.6 Sublease for the Company's facilities at 3050 Science Park Road, dated March 11,
1996.
+10.7 First Amendment to Sublease for the Company's facilities at 3050 Science Park Road,
dated June 6, 1996.
+*10.8 Exclusive License Agreement between the Company and The Regents of the University
of California, dated December 7, 1993.
+*10.9 Collaborative Research Agreement between the Company and Pfizer Inc., dated May 3,
1995.
+*10.10 License and Royalty Agreement between the Company and Pfizer Inc., dated May 3,
1995.
+10.11 Co-Founder Agreement between the Company and Flossie Wong-Staal, Ph.D., dated
February 16, 1993.
+10.12 Offer Letter to Dr. Tsvi Goldenberg dated April 26, 1994.
+10.13 Offer Letter to Jack Barber dated August 23, 1994.
dagger10.14 Pfizer Letter dated July 1, 1996.
+10.15 The Company's 1992 Stock Plan, as amended.
+10.16 1992 Stock Option Plan Form of Incentive Stock Option Agreement and Exercise
Notice.
+10.17 1992 Stock Option Plan Form of Nonstatutory Option Agreement and Exercise Notice.
+10.18 1996 Stock Option/Stock Issuance Plan.
+10.19 1996 Stock Option/Stock Issuance Plan Form of Notice of Grant.
+10.20 1996 Stock Option/Stock Issuance Plan Form of Stock Option Agreement.
+10.21 Form of Proprietary Information Agreement.
+10.22 Form of Scientific Advisory Board Agreement.
+10.23 Form of Indemnification Agreements between the Company and each of its directors.
+10.24 Form of Indemnification Agreement between the Company and each of its officers.
11.1 Computation of pro forma net income (loss) per share.
dagger14.1 List of Material Foreign Patents.
+23.1 Consent of Brobeck, Phleger & Harrison LLP (contained in their opinion filed as
Exhibit 5.1).
</TABLE>

II-3
<PAGE> 70

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S>
23.2 Consent of Ernst & Young LLP, Independent Auditors (see Page II-6).
+24.1 Power of Attorney (See Page II-5).
27.1 Financial Data Schedule
</TABLE>

- ---------------
dagger To be filed by Amendment.

* Certain confidential portions of this Exhibit were omitted by means of marking
such portions with an asterisk (the "Mark"). This Exhibit has been filed
separately with the Secretary of the Commission without the Mark pursuant to
the Company's Application Requesting Confidential Treatment under Rule 406
under the Securities Act.

+ Previously filed.

(b) Financial Statement Schedules included separately in the Registration
Statement. All other schedules are omitted because they are not required, are
not applicable or the information is included in the Financial Statements or
Notes thereto.

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described in Item 14, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 71

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Diego, County of San
Diego, State of California, on the 29th day of August, 1996.

IMMUSOL, INC.

By: /s/ TSVI GOLDENBERG, PH.D.

------------------------------------
Tsvi Goldenberg, Ph.D.
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- -------------------------------------- ----------------
<C> <S> <C>
/s/ TSVI GOLDENBERG Chairman of the Board, Chief Executive August 29, 1996
- ------------------------------------- Officer and Director (Principal
Tsvi Goldenberg Executive Officer)
* Director of Finance and Acting Chief August 29, 1996
- ------------------------------------- Financial Officer (Principal
J. Stanhope Blackburn Financial and Accounting Officer)
Director August 29, 1996
- -------------------------------------
Anchie Kuo
* Director August 29, 1996
- -------------------------------------
Frank Litvack
* Director August 29, 1996
- -------------------------------------
Melvin Perelman
* Director August 29, 1996
- -------------------------------------
Flossie Wong-Staal
*By: /s/ TSVI GOLDENBERG
- -------------------------------------
Tsvi Goldenberg
Attorney-in-Fact
</TABLE>

II-5
<PAGE> 72

EXHIBIT 23.2

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated June 27, 1996 in
Amendment No. 2 to the Registration Statement (Form S-1) and the related
prospectus of Immusol, Inc. for the registration of shares of its common stock.

ERNST & YOUNG LLP

San Diego, California

August 29, 1996

II-6
<PAGE> 73

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ------------------------------------------------------------------------- ------------
<C> <S> <C>
dagger 1.1 Form of Underwriting Agreement.
+3.1 Amended and Restated Articles of Incorporation of the Company.
+3.2 Form of Second Amended and Restated Articles of Incorporation of the
Company to be effective immediately prior to this Offering.
+3.3 Bylaws of the Company, as amended.
+3.4 Form of Amended and Restated Bylaws of the Company to be effective upon
completion of this Offering.
dagger 4.1 Form of Certificate for Common Stock.
dagger 5.1 Opinion of Brobeck, Phleger & Harrison LLP with respect to the Common
Stock being registered.
dagger10.1 Waiver of Registration Rights by BankAmerica Ventures, effective June 25,
1996.
+10.2 Amended and Restated Shareholder Rights Agreement among the Company and
certain shareholders of the Company, dated May 3, 1995.
+10.3 Immusol, Inc. Preferred Stock Purchase Agreement among the Company and
the purchasers identified on Exhibit A to the Agreement, dated May 3,
1995.
+10.4 Loan and Security Agreement between the Company and Silicon Valley Bank
dated April 3, 1996.
+10.5 Amendment to Loan and Security Agreement between the Company and Silicon
Valley Bank dated May 15, 1996.
+10.6 Sublease for the Company's facilities at 3050 Science Park Road, dated
March 11, 1996.
+10.7 First Amendment to Sublease for the Company's facilities at 3050 Science
Park Road, dated June 6, 1996.
+*10.8 Exclusive License Agreement between the Company and The Regents of the
University of California, dated December 7, 1993.
+*10.9 Collaborative Research Agreement between the Company and Pfizer Inc.,
dated May 3, 1995.
+*10.10 License and Royalty Agreement between the Company and Pfizer Inc., dated
May 3, 1995.
+10.11 Co-Founder Agreement between the Company and Flossie Wong-Staal, Ph.D.,
dated February 16, 1993.
+10.12 Offer Letter to Dr. Tsvi Goldenberg dated April 26, 1994.
+10.13 Offer Letter to Jack Barber dated August 23, 1994.
dagger10.14 Pfizer Letter dated July 1, 1996.
+10.15 The Company's 1992 Stock Plan, as amended.
+10.16 1992 Stock Option Plan Form of Incentive Stock Option Agreement and
Exercise Notice.
+10.17 1992 Stock Option Plan Form of Nonstatutory Option Agreement and Exercise
Notice.
+10.18 1996 Stock Option/Stock Issuance Plan.
+10.19 1996 Stock Option/Stock Issuance Plan Form of Notice of Grant.
+10.20 1996 Stock Option/Stock Issuance Plan Form of Stock Option Agreement.
+10.21 Form of Proprietary Information Agreement.
+10.22 Form of Scientific Advisory Board Agreement.
+10.23 Form of Indemnification Agreements between the Company and each of its
directors.
+10.24 Form of Indemnification Agreement between the Company and each of its
officers.
11.1 Computation of pro forma net income (loss) per share.
</TABLE>

<PAGE> 74

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ------------------------------------------------------------------------- ------------
<C> <S> <C>
dagger14.1 List of Material Foreign Patents.
dagger23.1 Consent of Brobeck, Phleger & Harrison LLP (contained in their opinion
filed as Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, Independent Auditors (see Page II-6).
+24.1 Power of Attorney (See Page II-5).
27.1 Financial Data Schedule
</TABLE>

- ---------------
dagger To be filed by Amendment.

+ Previously filed.

<PAGE> 1

EXHIBIT 11.1

COMPUTATION OF PRO FORMA NET INCOME PER SHARE

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Net income (loss)................ $ (154,306) $ (357,600) $ 125,642 $ (765,839) $ 759,388
Weighted average common shares
outstanding.................... 6,916,233 7,045,000 7,061,241 7,053,440 7,081,088
Adjustments to reflect stock
options as common
equivalents.................... 1,738,300 1,981,550
Adjustments to reflect
requirements of the Securities
and Exchange commission (Effect
of SAB 83)..................... 426,420 426,420 426,420 426,420 426,420
---------- ---------- ----------- ---------- -----------
Adjusted shares outstanding...... 7,342,653 7,471,420 9,225,961 7,479,860 9,489,058
Historical net income (loss) per
share reflecting requirements
of the SEC..................... $ (0.02) $ (0.05) $ 0.01 $ (0.10) $ 0.08
========== ========== =========== ========== ===========
Effect of assumed conversion of
preferred shares from date of
issuance....................... 2,000,000 2,000,000 2,604,466 2,291,745 2,915,477
---------- ---------- ----------- ---------- -----------
Adjusted shares outstanding...... 9,342,653 9,471,420 11,830,427 9,771,605 12,404,535
Pro forma net income (loss) per
share.......................... $ (0.02) $ (0.04) $ 0.01 $ (0.08) $ 0.06
========== ========== =========== ========== ===========
</TABLE>

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Immusol, Inc. financial statements at December 31, 1995 and for the year then
ended and at June 30, 1996 and for the 6 months ended and is qualified in its
entirety by reference to such financial statements included in the Immusol,
Inc. registration statement on Form S-1.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS

<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<EXCHANGE-RATE> 1 1
<CASH> 1,414,163 1,628,235
<SECURITIES> 5,453,082 6,056,549
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 7,012,945<F1> 7,824,917<F1>
<PP&E> 340,268 400,917
<DEPRECIATION> 58,133 98,894
<TOTAL-ASSETS> 7,343,737<F3> 8,439,891<F3>
<CURRENT-LIABILITIES> 964,532 1,100,202
<BONDS> 37,874<F4> 185,047<F4>
0 0
2,915 2,915
<COMMON> 7,069 7,109
<OTHER-SE> 6,331,347 8,429,867
<TOTAL-LIABILITY-AND-EQUITY> 6,341,331 8,439,891
<SALES> 0 0
<TOTAL-REVENUES> 3,450,079<F2> 3,142,284<F2>
<CGS> 0 0
<TOTAL-COSTS> 3,319,094 2,379,510
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5,343 3,386
<INCOME-PRETAX> 125,642 759,388
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 125,642 759,388
<EPS-PRIMARY> 0.01 0.06
<EPS-DILUTED> 0 0
<FN>
<F1>Includes 145,700 and 140,133 of other current assets for the YEAR and 6-MOS,
respectively.
<F2>Includes 275,564 and 200,795 of interest income for the YEAR and 6-MOS,
respectively.
<F3>Includes 48,657 and 312,951 of other assets for the YEAR and 6-MOS,
respectively.
<F4>Capital lease obligations and long-term note payable, less current portion.
</FN>

</TABLE>