ESPERION THERAPEUTICS INC/MI, S-1/A, 2000-08-09

ESPERION THERAPEUTICS INC/MI
S-1/A, 2000-08-09
PHARMACEUTICAL PREPARATIONS

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<PAGE>

As filed with the Securities and Exchange Commission on August 9, 2000
Registration Statement No. 333-31032
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--------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

AMENDMENT NO. 3
to
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933

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ESPERION THERAPEUTICS, INC.
(Exact name of Registrant as specified in its charter)

Delaware 2834 38-3419139
(State or other (Primary Standard Industrial (IRS Employer
jurisdiction of Classification Code No.) Identification Number)
incorporation or
organization)

3621 S. State Street, 695 KMS Place
Ann Arbor, MI 48108
734/332-0506
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------

ROGER S. NEWTON, PH.D.
President and Chief Executive Officer
Esperion Therapeutics, Inc.
3621 S. State Street, 695 KMS Place
Ann Arbor, MI 48108
(734) 332-0506
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

------------------
Copies to:
David R. King Mitchell S. Bloom
Morgan, Lewis & Bockius LLP Testa, Hurwitz & Thibeault, LLP
1701 Market Street 125 High Street
Philadelphia, PA 19103 Boston, MA 02110
(215) 963-5000 (617) 248-7000

Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this registration statement.
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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

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>

EXPLANATORY NOTE

This registration statement contains two forms of prospectus front cover pages
and two underwriting sections: (a) one to be used in connection with an offering
in the United States and Canada and (b) one to be used in with a covenant
offering outside of the United States and Canada. The US/Canada prospectus and
the international prospectus are otherwise identical in all respects. The
international versions of the front cover page and the underwriting section are
included immediately before Part II of this registration statement.

<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION, DATED AUGUST 9, 2000

[LOGO OF ESPERION THERAPEUTICS]

6,000,000 Shares

Common Stock

Esperion is offering 6,000,000 shares of its common stock. This is our
initial public offering. We have applied to have our common stock approved for
quotation on the Nasdaq National Market under the symbol "ESPR." We anticipate
that the initial public offering price will be between $8 and $10 per share.

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

Investing in our common stock involves risks.
See "Risk Factors" beginning on page 5.

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

<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Public Offering Price.............................................. $ $
Underwriting Discounts and Commissions............................. $ $
Proceeds to Esperion............................................... $ $
</TABLE>

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

Esperion has granted the underwriters a 30-day option to purchase up to an
additional 900,000 shares of common stock to cover over-allotments.

In addition, this prospectus also covers the 500,000 shares of our common
stock which will be made available for sale to our employees pursuant to the
employee stock purchase plan which will be established concurrently with our
initial public offering.

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

Robertson Stephens Chase H&Q

U.S. Bancorp Piper Jaffray

The date of this Prospectus is , 2000
<PAGE>

You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus. In this prospectus, the "Company," "Esperion,"
"Esperion Therapeutics," "we," "us," and "our" refer to Esperion Therapeutics,
Inc., a Delaware corporation.

Until , 2000, all dealers that effect transactions of these securities,
whether or not participating in this offering, 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.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 5
Forward-Looking Statements............................................... 15
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Consolidated Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 20
Business................................................................. 25
Management............................................................... 41
Certain Relationships and Related Transactions........................... 54
Principal Stockholders................................................... 56
Description of Capital Stock............................................. 58
Shares Eligible for Future Sale.......................................... 61
Underwriting............................................................. 63
Employee Stock Purchase Plan............................................. 65
Lawyers.................................................................. 65
Experts.................................................................. 65
Additional Esperion Information.......................................... 65
Index to Financial Statements............................................ F-1
</TABLE>
<PAGE>

SUMMARY

This summary highlights information contained in this prospectus. You
should read the entire prospectus, especially "Risk Factors" and the
consolidated financial statements and notes, before deciding to invest in
shares of our common stock.

Esperion Therapeutics, Inc.

We discover and develop pharmaceutical products for the treatment of
cardiovascular disease, which is disease of the heart and the body's blood
vessels and related organs. We intend to commercialize a novel class of drugs
that focus on a new treatment approach we call "HDL Therapy," which is based on
our understanding of high density lipoprotein, or HDL, function. HDL is the
primary facilitator of the reverse lipid transport, or RLT, pathway. The RLT
pathway is responsible for removing excess cholesterol from arteries and other
tissues and for its transport to the liver for elimination from the body. Our
goal is to develop drugs that exploit the beneficial functions of HDL within
the RLT pathway. We currently have five product candidates under development
for the treatment of cardiovascular disease.

According to the American Heart Association, or AHA, cardiovascular
disease is the largest killer of American men and women. Currently, over $15
billion is spent annually on the drug treatment of cardiovascular disease in
the United States, in addition to the costs of surgical treatment and care. Two
prominent forms of cardiovascular disease are coronary disease, which involves
the heart itself, and atherosclerosis, which is the buildup of fatty deposits
on artery walls limiting blood flow to the heart, brain and extremities. These
two conditions can result in heart attacks, chest pain, known as angina, and a
variety of other complications, and are responsible for over half the deaths
from cardiovascular disease.

The buildup of fats on artery walls in atherosclerosis is usually caused
by an imbalance between the "bad" cholesterol, known as low density
lipoprotein, or LDL, and the "good" cholesterol, known as high density
lipoprotein, or HDL. The generally accepted medical viewpoint is that low
levels of HDL and/or high levels of LDL lead to the progression of
atherosclerosis.

A current treatment for atherosclerosis is the use of pharmaceutical
lipid regulating agents, including statins, which limit the progression of the
disease by lowering levels of LDL. In 1999 statin sales totaled approximately
$9 billion. Statins generally do not promote the regression of atherosclerosis.
As a result, invasive surgical procedures, such as balloon angioplasty (the
mechanical reopening of closed vessels) or coronary artery bypass surgery, are
often required to increase blood supply to the heart. We are developing our
product candidates to complement the use of existing lipid regulating agents
and minimize the necessity of invasive procedures.

We are developing ApoA-I Milano, or AIM, for the treatment of acute
coronary disease and restenosis, which is the reclosure of an artery following
surgical procedures. We believe AIM, a natural variant of the protein ApoA-I,
facilitates the removal and transport of cholesterol and other lipids from
arteries. Published studies suggest that human carriers of this protein are
protected against the early onset of atherosclerosis. Third-party preclinical
studies conducted to evaluate AIM's therapeutic potential indicate that
intravenous infusion of AIM can limit the progression and promote regression of
atherosclerosis, as well as inhibit restenosis following balloon angioplasty.
We plan to initiate clinical trials with AIM in the second half of 2000.

We are developing ProApoA-I, a precursor of ApoA-I, the major protein of
HDL, for the treatment of life-threatening acute coronary disease, such as
unstable angina and ischemia. Third-party published reports of preliminary
human clinical studies of ProApoA-I suggest that when it is infused into people
with high blood cholesterol levels elimination of cholesterol from the body is
increased. We plan to initiate clinical trials with ProApoA-I in the first half
of 2001.

1
<PAGE>

We are also developing three other product candidates. The first, an RLT
peptide, which is a small protein fragment, has been designed to remove
cholesterol from arteries and activate specific steps in the RLT pathway. The
second, an HDL elevator, is an orally active, small molecule for the sustained
elevation of HDL, which we believe increases the efficiency of the RLT pathway.
We are also developing large unilamellar vesicles, or LUVs, for the treatment
of acute coronary disease. LUVs are made of naturally occurring lipids and
enhance the RLT pathway. When injected into the bloodstream, we believe LUVs
will have a high capacity to accept cholesterol and deliver it to the liver for
elimination from the body.

We are managed by an experienced group of drug developers with
significant expertise in cardiovascular research and drug development. Roger S.
Newton, Ph.D., our President and Chief Executive Officer, was the co-discoverer
and chairman of the discovery team and members of the development team
responsible for the introduction of Lipitor at Warner-Lambert. Sales of the
statin Lipitor, the most frequently prescribed cholesterol lowering drug,
exceeded $3.5 billion in 1999.

We have devoted substantially all of our resources since we began our
operations in May 1998 to the in-licensing and research and development of
pharmaceutical product candidates for the treatment of cardiovascular disease.
We are a development stage pharmaceutical company and have not generated any
revenues from product sales. We have not been profitable and have incurred a
cumulative net loss of approximately $17.5 million from inception through March
31, 2000.

Additional Information

Our principal executive offices are located at 3621 S. State St., 695 KMS
Place, Ann Arbor, MI 48108, and our telephone number is (734) 332-0506.

We have applied for federally registered trademarks for "Esperion" and
"Esperion Therapeutics." Although these applications were inadvertently
abandoned, we have filed petitions to revive both of these applications. This
prospectus also includes trademarks and tradenames of other parties.
Recent Development

On July 31, 2000, we agreed to negotiate a non-binding letter of intent
providing for our acquisition of Talaria Therapeutics, Inc., or Talaria, by way
of a merger. We believe the completion of the acquisition should advance our
development of LUVs. We expect that the proposed letter of intent would provide
for the exchange of all of the outstanding shares of stock of Talaria for a
number of shares of our common stock equal to $6.0 million divided by the
initial public offering price per share discounted by 18%. Assuming an initial
offering price of $9.00 per share, we would issue 813,008 shares of our common
stock to Talaria stockholders. We expect that the proposed letter of intent
would provide for additional payments by us to Talaria stockholders of up to
$6.25 million in cash or common stock upon the achievement of future
milestones, of which $750,000 may become payable within the next twelve months,
and deferred contingent payments in cash or common stock based upon net sales
of LUVs in North America. Assuming the execution of a letter of intent, the
acquisition is not expected to close until after this offering is completed and
would be subject to the negotiation of a definitive acquisition agreement and
related documents, which would include customary closing conditions, including
approval by each company's board of directors and Talaria's stockholders.
Signing of the definitive agreement must occur by August 17, 2000, unless this
deadline is extended. As a result, the acquisition may not occur, in which case
the parties would be required to resume litigation. Investors should not rely
on the consummation of the acquisition in purchasing the shares offered hereby.

The acquisition of Talaria would also be subject to approval by the other
plaintiff and the defendants other than us in a lawsuit that Talaria filed on
March 22, 2000 against various persons including us. In this lawsuit, Talaria
alleges, among other things, that a patent application that we sublicense
improperly incorporates within it confidential information belonging to the
person named as the inventor in certain patents that claim the use of LUVs to
treat diseases including atherosclerosis.

2
<PAGE>

The Offering

<TABLE>
<C> <S>
Common stock offered by Esperion.................... 6,000,000 shares

Common stock to be outstanding after this offering.. 24,024,855 shares

Use of proceeds..................................... For further development
and commercialization of
our product candidates,
payments under licensing
agreements, ongoing
research and development,
and general corporate and
working capital purposes.

Proposed Nasdaq National Market symbol.............. ESPR
</TABLE>

The number of shares to be outstanding after this offering excludes, as
of July 7, 2000:

. 1,274,514 shares of common stock issuable upon the exercise of
outstanding stock options under our 1998 Stock Option Plan, consisting
of 1,257,812 options granted prior to March 31, 2000 at a weighted
average exercise price of $1.86 per share and 16,702 options granted
after March 31, 2000 at a weighted average exercise price of $5.64 per
share;

. the shares of common stock that may be issued if we acquire Talaria,
estimated to be 813,008 shares based upon an assumed initial public
offering price of $9.00 per share; and

. the shares issuable under our Employee Stock Purchase Plan.

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

Generally, the information in this prospectus, unless otherwise noted:

. assumes that the over-allotment option is not exercised;

. reflects a 0.7225-for-one reverse split of our common stock to holders
of record as of March 24, 2000;

. reflects the conversion of all outstanding shares of preferred stock
into an aggregate of 15,814,961 shares of common stock, as adjusted for
the reverse stock split, upon the closing of this offering;

. does not reflect any purchase of shares of our common stock by our
employees under our Employee Stock Purchase Plan, or upon exercise of
stock options by them; and

. does not give effect to our potential acquisition of Talaria.

3
<PAGE>

Summary Financial Data
(in thousands except share and per share data)

The following table presents summary historical and pro forma consolidated
financial information for Esperion. The pro forma consolidated statement of
operations and consolidated balance sheet data gives effect to our potential
acquisition of Talaria. The pro forma as adjusted balance sheet data excludes
the effect of the potential acquisition of Talaria and reflects the sale by
Esperion of 6,000,000 shares of common stock in this offering at an assumed
public offering price of $9.00 per share less underwriting discounts and
estimated offering expenses, and the conversion of all outstanding shares of
the convertible preferred stock, as though such events had occurred on
March 31, 2000. You should read this data together with the consolidated
financial statements and notes and the pro forma combined financial statements
and notes included in this prospectus.

<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------
Period from Period from
Inception Inception
(May 18, 1998) Year Ended (May 18, 1998)
Through December 31, 1999 2000 Through
December 31, ----------------------- ----------------------- March 31,
1998 Actual Pro Forma 1999 Actual Pro Forma 2000
-------------- --------- ------------ ------------ ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Operating expenses:
Research and
development........... $ 1,923 $ 8,484 $ 10,431 $ 1,270 $ 4,063 $ 4,678 $ 14,470
General and
administrative ....... 464 2,518 2,653 315 1,006 1,161 3,988
Amortization of
goodwill and other
intangible assets..... -- -- 567 -- -- 142 --
--------- --------- --------- --------- ---------- --------- --------
Operating loss........ (2,387) (11,002) (13,651) (1,585) (5,069) (5,981) (18,458)
Net other income........ 244 332 396 135 376 398 952
--------- --------- --------- --------- ---------- --------- --------
Net loss................ (2,143) (10,670) (13,255) (1,450) (4,693) (5,583) (17,506)
Beneficial conversion
feature(1) ........... -- -- -- -- (22,870) (22,870) (22,870)
--------- --------- --------- --------- ---------- --------- --------
Net loss attributable to
common stockholders.... $ (2,143) $ (10,670) $ (13,255) $ (1,450) $ (27,563) $ (28,453) $(40,376)
========= ========= ========= ========= ========== ========= ========
Basic and diluted net
loss per share......... $ (1.46) $ (5.91) $ (5.06) $ (0.85) $ (13.91) $ (10.18)
========= ========= ========= ========= ==========
Shares used in computing
basic and diluted net
loss per share......... 1,466,615 1,806,255 2,619,263 1,705,099 1,980,933 2,793,941
========= ========= ========= ========= ========== =========
Pro forma basic and
diluted net loss per
share (unaudited)...... $ (1.14) $ (1.64)
========= ==========
Shares used in computing
pro forma basic and
diluted net loss per
share (unaudited)...... 9,392,499 16,836,802
========= ==========
<CAPTION>
March 31, 2000
--------------------------------------
December 31, December 31, Pro Forma
1998 1999 Actual Pro Forma As Adjusted
------------ ------------ ---------- ----------- --------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents......................... $ 12,541 $ 5,904 $ 27,698 $ 28,894 $ 76,318
Working capital................................... 12,390 3,143 24,827 25,307 73,447
Total assets...................................... 13,414 7,999 30,489 34,529 79,109
Long-term debt, less current portion.............. -- 2,284 2,123 2,123 2,123
Convertible preferred stock....................... 105 105 219 219 --
Deficit accumulated during the development stage.. (2,143) (12,813) (17,506) (21,506) (17,506)
Total stockholders' equity........................ 13,187 2,815 25,085 28,402 74,605
</TABLE>
-------
(1) We recorded approximately $22.9 million relating to the beneficial
conversion feature of the series C and series D preferred stock in the first
quarter of fiscal 2000 through equal and offsetting adjustments to additional
paid-in capital with no net impact on stockholders' equity. The beneficial
conversion feature was considered in the determination of our loss per common
share amounts.

4
<PAGE>

RISK FACTORS

You should carefully consider the following risk factors, together with
all of the other information contained in this prospectus before purchasing our
common stock. If any of the following risks actually occur, our business,
financial condition and operating results could be seriously harmed, the
trading price of our common stock could decline and you may lose all or part of
your investment.

Risks Related to Our Business

If we fail to obtain the capital necessary to fund our operations, we will be
unable to successfully develop our product candidates or retain rights to our
product candidates.

Significant additional capital will be required in the future to fund our
operations. We do not know whether additional financing will be available on
acceptable terms when needed. We have consumed substantial amounts of cash
resources to date and expect capital outlays and operating expenditures to
increase over the next several years as we expand our infrastructure and
research and development activities. If adequate funds are unavailable, we may
be required to:

. delay, reduce the scope of, or eliminate one or more of our research
or development programs;

. license rights to technologies, product candidates or products on
terms that are less favorable to us than might otherwise be
available; or

. obtain funds through arrangements that may require us to relinquish
rights to product candidates or products that we would otherwise seek
to develop or commercialize ourselves.

If we raise additional funds by issuing equity securities, our existing
stockholders will own a smaller percentage of Esperion, and new investors may
pay less on average for their securities than, and could have rights superior
to, existing stockholders.

Even if our product candidates are approved and commercialized, we may never be
profitable.

We have incurred substantial losses since our inception. As of March 31,
2000, we had a cumulative net loss of approximately $17.5 million. These losses
have resulted principally from costs incurred in our research and development
programs, and from our general and administrative expenses. To date, we have no
revenue from product sales or royalties, and we do not expect to achieve any
revenue from product sales or royalties until we receive regulatory approval
and begin commercialization of our product candidates. We are not certain of
when, if ever, that will occur. We expect to incur additional operating losses
in the future and these losses could increase significantly, whether or not we
generate revenue, as we expand our development and clinical trial efforts.

In the near term, we expect our quarterly and annual operating results to
fluctuate significantly, depending primarily on the following factors:

. timing of preclinical and clinical trials;

. interruption or delays in the supply of our product candidates or
components;

. timing of payments to licensors and corporate partners;

. timing of investments in new technologies; and

. other costs, including the Talaria litigation.

5
<PAGE>

All of our product candidates are at early stages of product development and
may never be commercialized. The progress and results of our preclinical
testing and any future clinical trials are uncertain, and if our product
candidates do not receive regulatory approvals, we will not be permitted to
sell them.

Our company is only two years old, and we have no products that have
received regulatory approval for commercial sale, and we have not yet initiated
clinical testing of any of our product candidates. All of our product
candidates are in early stages of development, and we face the risks of failure
inherent in developing drugs based on new technologies. In addition, most of
our product candidates were recently in-licensed from third parties. As a
result, we have limited in-house experience with these product candidates. Our
product candidates are not expected to be commercially available for several
years, if at all.

Our product candidates must satisfy rigorous standards of safety and
efficacy before they can be approved by the United States Food and Drug
Administration, or FDA, and international regulatory authorities for commercial
use. The FDA and foreign regulatory authorities have full discretion over this
approval process. We will need to conduct significant additional research,
testing involving animals and humans before we can file applications for
product approval. Typically, in the pharmaceutical industry there is a high
rate of attrition for product candidates in preclinical testing and clinical
trials. Also, satisfaction of regulatory requirements typically takes many
years, is dependent upon the type, complexity and novelty of the product and
requires the expenditure of substantial resources. Success in preclinical
testing and early clinical trials does not ensure that later clinical trials
will be successful. For example, a number of companies in the pharmaceutical
industry, including biotechnology companies, have suffered significant setbacks
in advanced clinical trials, even after promising results in earlier trials and
in interim analyses. In addition, delays or rejections may be encountered based
upon additional government regulation, including any changes in FDA policy,
during the process of product development, clinical trials and regulatory
approvals.

In order to receive FDA approval or approval from foreign regulatory
authorities to market a product, we must demonstrate through human clinical
trials that the product candidate is safe and effective for the treatment of a
specific condition. We do not know whether planned clinical trials will begin
on time or will be completed on schedule or at all. For example, any of our
future clinical studies might be delayed or halted because:

. the drug is not effective, or physicians think that the drug is not
effective;

. patients experience severe side effects during treatment;

. patients die during a clinical study because their disease is too
advanced or because they experience medical problems that are not
related to the drug being studied;

. patients do not enroll in the studies at the rate we expect; or

. drug supplies are not sufficient to treat the patients in the
studies.

If the delays in testing or approvals we experience are significant, or if we
need to perform more or larger clinical trials than planned, our product
development costs will increase.

If the FDA grants regulatory approval of a product, this approval will be
limited to those disease states and conditions for which the product has
demonstrated through clinical trials to be safe and effective. Any product
approvals we receive in the future could also include significant restrictions
on the use or marketing of our products. Product approvals, if granted, can be
withdrawn for failure to comply with regulatory requirements or upon the
occurrence of adverse events following commercial introduction of the products.
Failure to comply with applicable FDA or other applicable regulatory
requirements may result in criminal prosecution, civil penalties, recall or
seizure of products, total or partial suspension of production or injunction,
as well as other regulatory action against our product candidates or us. If
approvals are withdrawn for a product, or if a product were seized or recalled,
we would be unable to sell that product and our revenues would

6
<PAGE>

suffer. In addition, outside the United States, our ability to market any of
our potential products is contingent upon receiving market application
authorizations from the appropriate regulatory authorities and these foreign
regulatory approval processes include all of the risks associated with the FDA
approval process described above.

Our product candidates may not be commercially successful because physicians,
patients, and government agencies and other third-party payors may not accept
them.

Even if regulatory authorities approve our product candidates, they may
not be commercially successful. Third parties may develop superior products or
have proprietary rights that preclude us from marketing our products. We also
expect that most of our product candidates will be very expensive, if approved.
Patient acceptance of and demand for any product candidates we obtain
regulatory approval for will depend largely on the following factors:

. acceptance by physicians and patients of our products as safe and
effective therapies;

. the extent, if any, of reimbursement of drug and treatment costs by
government agencies and other third-party payors;

. pricing of alternative products;

. acceptance by physicians and patients of intravenous administration
for some of our proposed products; and

. prevalence and severity of side effects associated with our products.

In addition, any of our product candidates could cause adverse events,
such as immunologic or allergic reactions. These reactions may not be observed
in clinical trials, but may nonetheless occur after commercialization. If any
of these reactions occur, they may render our product candidates ineffective in
some patients and our sales would suffer.

If our current and future manufacturing and supply strategies are unsuccessful,
then we may be unable to complete any future clinical trials and/or
commercialize our product candidates in a timely manner, if at all.

Completion of our future clinical trials and commercialization of our
product candidates will require access to, or development of, facilities to
manufacture a sufficient supply of our product candidates. We do not have the
resources, facilities or experience to manufacture our product candidates on
our own and do not intend to develop or acquire facilities for the manufacture
of product candidates for clinical trials or commercial purposes in the
foreseeable future. We currently rely, and will continue to rely for at least
the next few years, on contract manufacturers to produce sufficient quantities
of our product candidates. All of our contract manufacturers are sole source
and most of them have limited experience at manufacturing, formulating,
analyzing, filling and finishing our particular product candidates. Our
manufacturing strategy presents the following risks:

. we may not be able to locate acceptable manufacturers or enter into
favorable long-term agreements with them;

. third parties may not be able to successfully manufacture our product
candidates and even if they can they may not be able to do so in a
cost effective and/or timely manner;

. the manufacturing processes for our product candidates have not been
tested in quantities needed for clinical trials or commercial sales;

. delays in scale-up to commercial quantities could delay clinical
studies, regulatory submissions and commercialization of our product
candidates;

. we may not have intellectual property rights, or may have to share
intellectual property rights, to many improvements in the
manufacturing processes or new manufacturing processes for our
product candidates;

7
<PAGE>

. manufacturing and validation of manufacturing processes and materials
are complicated and time-consuming;

. because many of our current third-party manufacturers are located
outside of the U.S., there may be difficulties in importing our
product candidates and/or their components into the U.S., as a result
of, among other things, FDA import inspections, incomplete or
inaccurate import documentation, or defective packaging; and

. manufacturers of our product candidates are subject to the FDA's
current Good Manufacturing Practices regulations, or cGMPs, the FDA's
Good Laboratory Practices, or GLPs and similar foreign standards and
we do not have control over compliance with these regulations by our
third-party manufacturers.

We also rely, and intend to continue to rely, on third parties to supply
the components, such as proteins, peptides, phospholipids and bulk chemical
materials, that we need to develop and commercialize all of our product
candidates. There is currently a limited supply of these components. We have
not entered into any agreements that provide us assurance of continued
availability of these components from any supplier. Our current and/or future
suppliers may not be able to adequately supply us with the components necessary
to successfully conduct our clinical trials and to commercialize our product
candidates. If we cannot acquire an acceptable supply of components to produce
our product candidates, we will not be able to complete clinical trials and
will not commercialize our product candidates.

If the third-party clinical research organizations we intend to rely on to
conduct our future clinical trials do not perform in an acceptable and timely
manner, our clinical trials could be delayed or unsuccessful.

We do not have the ability to independently conduct clinical trials and
obtain regulatory approvals for our product candidates, and we intend to rely
on clinical investigators and third-party clinical research organizations to
perform these functions. If we cannot locate acceptable contractors to run our
clinical trials or enter into favorable agreements with them, or if these third
parties do not successfully carry out their contractual duties or meet expected
deadlines, we will be unable to obtain required approvals and will be unable to
commercialize our product candidates on a timely basis, if at all.

If our licensing arrangements and strategic relationships with third parties
are breached, terminated or proven to be unsuccessful, we may lose rights with
respect to product candidates, and we may not be able to develop and
commercialize our product candidates on a timely basis, if at all.

We are only two years old and most of our product candidates were
recently in-licensed from third parties. We depend, and will continue to
depend, on these and other licensing arrangements and other strategic
relationships with third parties for the research, development, manufacturing
and commercialization of our product candidates. Our rights may be terminated
if we do not perform as required under these arrangements. In addition, these
third parties may also breach or terminate their agreements with us or
otherwise fail to conduct their activities in connection with our relationships
in a timely manner. If any of our licenses or relationships are terminated or
breached, we may:

. lose our rights to develop and market our product candidates;

. lose patent and/or trade secret protection for our product
candidates;

. experience significant delays in the development or commercialization
of our product candidates;

. not be able to obtain any other licenses on acceptable terms, if at
all; and

. incur liability for damages.

Licensing arrangements and strategic relationships in our industry can be
very complex, particularly with respect to intellectual property rights.
Disputes may arise in the future regarding ownership rights to

8
<PAGE>

technology developed by or with other parties. These and other possible
disagreements between us and third parties with respect to our licenses or our
strategic relationships could lead to delays in the research, development,
manufacture and commercialization of our product candidates. These third
parties may also pursue alternative technologies or product candidates either
on their own or in strategic relationships with others in direct competition
with us. These disputes could also result in litigation or arbitration, both of
which are time-consuming and expensive.

If we fail to secure and then enforce patents and other intellectual property
rights underlying our product candidates and technologies, we may be unable to
develop our product candidates or compete effectively.

The pharmaceutical industry places considerable importance on obtaining
patent and trade secret protection for new technologies, products and
processes. Our success will depend, in part, on our ability, and the ability of
our licensors, to obtain and to keep protection for our products and
technologies under the patent laws of the United States and other countries, so
that we can stop others from using our inventions. Our success also will depend
on our ability to prevent others from using our trade secrets. In addition, we
must operate in a way that does not infringe, or violate, the patent, trade
secret, and other intellectual property rights of other parties.

The standards which the U.S. Patent and Trademark Office uses to grant
patents can change. Consequently, we may be unable to determine the type and
extent of patent claims that will be issued to us or to our licensors in the
future. Any patents which do issue may not contain claims which will permit us
to stop competitors from using the same or similar technology.

The standards which courts use to interpret patents can change,
particularly as new technologies develop. Consequently, we cannot know how much
protection, if any, our patents will provide, if we attempt to enforce them and
they are challenged in court. If we choose to go to court to stop someone else
from using the inventions claimed in our patents, that individual or company
has the right to ask the court to rule that our patents are invalid and should
not be enforced against them. This type of lawsuit is expensive and will
consume time and other resources, even if we are successful in stopping the
violation of our patents. In addition, there is a risk that the court will
decide that our patents are not valid and that we do not have the right to stop
the other party from using the inventions. There is also the risk that, even if
the validity of our patents is upheld, that the court will refuse to stop the
other party on the ground that its activities are not covered by, that is, do
not infringe, the patent.

We may face significant expense and liability as a result of litigation or
other proceedings relating to patents and other intellectual property rights of
others.

Should third parties file patent applications, or be issued patents,
claiming technology also claimed by us in pending applications, we may be
required to participate in interference proceedings in the United States Patent
and Trademark Office to determine priority of invention. We, or our licensors,
also could be required to participate in interference proceedings involving our
issued patents and pending applications of another entity. An adverse outcome
in an interference proceeding could require us to cease using the technology or
to license rights from prevailing, third parties. There is no guarantee that
any prevailing party would offer us a license or that such a license, if made
available to us, could be acquired on commercially-acceptable terms.

A third party may claim that we are using inventions claimed by their
patents and may go to court to stop us from engaging in our normal operations
and activities, such as research and development, and the sale of any future
products. Such lawsuits are expensive and would consume time and other
resources. There is a risk that the court will decide that we are infringing
the third party's patents and will order us to stop the activities claimed by
the patents. In addition, there is a risk that a court will order us to pay the
other party damages for having infringed their patents. Moreover, there is no
guarantee that the prevailing patent owner

9
<PAGE>

would offer us a license so that we could continue to engage in activities
claimed by the patent, or that such a license, if made available to us, could
be acquired on commercially-acceptable terms. In addition, third parties may,
in the future, assert other intellectual property infringement claims against
us with respect to our product candidates, technologies or other matters.

Our success also depends upon the skills, knowledge and experience of our
scientific and technical personnel. The confidentiality agreements required of
our employees and that we enter into with other parties may not provide
adequate protection for our trade secrets, know-how or other confidential
information or prevent any unauthorized use or disclosure or the unlawful
development by others. If any of our confidential intellectual property is
disclosed, our business may suffer. In addition, many of our scientific and
management personnel were previously employed by other biotechnology and
pharmaceutical companies, where they were conducting research in areas similar
to those that we now pursue. As a result, we could be subject to allegations of
trade-secret violations and other claims relating to the intellectual property
rights of these companies.

If we cannot settle the Talaria litigation, we may face significant legal
expense and may have to divest or reduce our LUV program.

There are issued patents that name Dr. Kevin Williams as an inventor and
are assigned to Talaria, that claim use of LUVs to treat diseases including
atherosclerosis. We do not believe that the manufacture, use or sale of LUVs by
us does or would infringe any valid and enforceable claim of these patents.
However, if these patents are found to contain claims infringed by the
manufacture, use or sale of LUVs and such claims are ultimately found to be
valid and enforceable, we may not be able to obtain a license to the
intellectual property in such patents at an acceptable cost, if at all, or
develop or obtain alternative technology, which would prevent us from
commercializing our LUV technology.

On March 22, 2000, Talaria filed a lawsuit against us and Inex
Pharmaceuticals Corp., or Inex, the University of British Columbia, or UBC, and
the two inventors named on patent applications we sub-licensed from Inex. One
of these inventors is now employed by us. One of the allegations in the
lawsuit, which was filed in the United States District Court for the Eastern
District of Virginia, is the improper incorporation into a UBC patent
application of certain confidential information of Dr. Williams. This UBC
patent application is exclusively licensed to Inex and sublicensed to us. In
addition to seeking damages, Talaria is asking to be named as the owner or co-
owner of the UBC patent application. The parties to the lawsuit have agreed
that UBC would take appropriate action in the United States Patent and
Trademark Office to prevent issuance of the UBC patent application as a patent
until the court had an opportunity to decide certain motions. These motions
include one filed by Talaria for a preliminary injunction that would have UBC
withdraw the UBC patent applications pending a full trial of the lawsuit or
prevent UBC from prosecuting the patent applications. We, and the other
defendants, after preliminary investigation, believe that the lawsuit is
without merit. We also believe that Inex is required to indemnify us against
damages or settlement amounts and costs associated with the defense of the
lawsuit arising out of the allegations by Talaria and Dr. Williams relating to
misuse of confidential information, which indemnification would likely not be
broad enough to cover all of our costs and any damages or settlement amounts in
connection with this lawsuit. However, an adverse result in the litigation
could lead us to discontinue our efforts to commercialize the LUV technology
sublicensed by us from Inex.

10
<PAGE>

twelve months, and deferred contingent payments in cash or common stock based
upon net sales of LUVs in

North America. Assuming the execution of a letter of intent, the acquisition is
not expected to close until after this offering is completed and would be
subject to the negotiation of a definitive acquisition agreement and related
documents, which would include customary closing conditions, including approval
by each company's board of directors and Talaria's stockholders. Signing of the
definitive agreement must occur by August 17, 2000, unless this deadline is
extended. As a result, the acquisition may not occur, in which case the parties
would be required to resume litigation. In addition, the acquisition of Talaria
would also be subject to the approval of the other plaintiff and the defendants
other than us in the lawsuit that Talaria filed and the signing of settlement
and release documents by all parties to the lawsuit. No assurance can be given
that any acquisition of Talaria, or any settlement of litigation, can be
negotiated.

If we cannot settle the Talaria litigation, we will be required to defend
the litigation in court. While, as noted above, we believe that there are valid
defenses to Talaria's claims as well as certain indemnification rights against
Inex, any such defense would be expensive and would divert management's
attention, and there can be no assurances as to the ultimate outcome.

If we fail to recruit, retain and motivate skilled personnel our product
development programs and our research and development efforts may be delayed.

We are a small company with 48 employees, and our success depends on our
continued ability to recruit, retain and motivate highly qualified management
and scientific personnel, for which competition is intense. In particular, our
product development programs depend on our ability to recruit and retain highly
skilled chemists and clinical development personnel. Our loss of the services
of any key personnel, in particular, Roger S. Newton, Ph.D., our Chief
Executive Officer, could significantly impede the achievement of our research
and development objectives and could delay our product development programs and
approval and commercialization of any of our product candidates. We maintain
key man life insurance on Dr. Newton in the amount of $5 million, but do not
have similar insurance on any of our other key employees. In addition, we will
need to hire additional personnel as we continue to expand our research and
development activities. We do not know if we will be able to recruit, retain or
motivate personnel.

If our competitors develop and commercialize products faster than we do or
which are superior to our product candidates, our commercial opportunities will
be reduced or eliminated.

The extent to which any of our product candidates achieve market
acceptance will depend on competitive factors, many of which are beyond our
control. Competition in the pharmaceutical industry is intense and has been
accentuated by the rapid pace of technology development. Our competitors
include large integrated pharmaceutical companies, biotechnology companies that
currently have drug and target discovery efforts, universities and public and
private research institutions. Almost all of these entities have substantially
greater research and development capabilities and financial, scientific,
manufacturing, marketing and sales resources than we do, as well as more
experience in research and development, clinical trials, regulatory matters,
manufacturing, marketing and sales. These organizations also compete with us
to:

. attract parties for acquisitions, joint ventures or other
collaborations;

. license the proprietary technology that is competitive with the
technology we are practicing;

. attract funding; and

. attract and hire scientific talent.

Our competitors may succeed in developing and commercializing products
earlier and obtaining regulatory approvals from the FDA more rapidly than we
do. Our competitors may also develop products or technologies that are superior
to those we are developing, and render our product candidates or technologies
obsolete or non-competitive. If we cannot successfully compete with new or
existing products our marketing and sales will suffer and we may not ever be
profitable.

If we are unable to create sales, marketing and distribution capabilities or
enter into agreements with third parties to perform these functions, we will
not be able to successfully commercialize any of our product candidates.

11
<PAGE>

We currently have no sales, marketing or distribution capability. In
order to successfully commercialize any of our product candidates, we must
either internally develop sales, marketing and distribution capabilities or
make arrangements with third parties to perform these services.

If we do not develop a marketing and sales force with technical expertise
and supporting distribution capabilities, we will be unable to market any of
our products directly. To promote any of our products through third parties, we
will have to locate acceptable third parties for these functions and enter into
agreements with them on acceptable terms and we may not be able to do so. In
addition, any third-party arrangements we are able to enter into may result in
lower revenues than we could have achieved by directly marketing and selling
our products.

If product liability lawsuits are successfully brought against us, we may incur
substantial liabilities and may be required to limit commercialization of our
products.

Our business exposes us to potential product liability risks, which are
inherent in the testing, manufacturing, marketing and sale of pharmaceutical
products. We may not be able to avoid product liability claims. Product
liability insurance for the pharmaceutical industry is generally expensive, if
available at all. We do not currently have any product liability insurance. If
we are unable to obtain sufficient insurance coverage on reasonable terms or to
otherwise protect against potential product liability claims, we may be unable
to commercialize our product candidates. A successful product liability claim
brought against us in excess of our insurance coverage, if any, may cause us to
incur substantial liabilities and our business may fail.

If we use biological and hazardous materials in a manner that causes injury, we
may be liable for damages.

Our research and development activities involve the controlled use of
potentially harmful biological materials as well as hazardous materials,
chemicals and various radioactive compounds. We cannot completely eliminate the
risk of accidental contamination or injury from the use, storage, handling or
disposal of these materials. In the event of contamination or injury, we could
be held liable for damages that result, and any liability could exceed our
resources. We are subject to federal, state and local laws and regulations
governing the use, storage, handling and disposal of these materials and
specified waste products. The cost of compliance with these laws and
regulations could be significant.

Risks Related to the Offering

Our stock price is likely to be highly volatile, and if the market price of our
common stock after this offering is lower than the price you paid, you will not
be able to sell your shares without incurring a loss.

Prior to this offering, there has been no public market for our common
stock. If you purchase shares of our common stock in this offering, you will
not pay a price that was established in a competitive market. Rather, you will
pay a price that we negotiated with the representatives of the underwriters.
The price of our common stock that will prevail in the market after this
offering may be lower than the price you pay. After this offering, an active
trading market in our stock might not develop or continue.

The market price of our common stock may fluctuate significantly in
response to many factors, some of which are beyond our control, including the
following:

. results of preclinical studies and clinical trials conducted by us or
by others;

. timing of regulatory approvals;

. announcements of technological innovations or new commercial products
by us, or by others;

. developments or disputes concerning patents or other proprietary
rights;

12
<PAGE>

. regulatory developments in both the United States and foreign
countries;

. changes in reimbursement policies;

. rate of product acceptance;

. fluctuations in our operating results;

. failure to meet estimates of or changes in recommendations by
securities analysts;

. public concern as to the safety and efficacy of product candidates
developed by us, or by others;

. lack of adequate trading liquidity as a public company; or

. general market conditions.

In addition, the market price for securities of early-stage drug
companies has been particularly volatile. In the past, following periods of
volatility in the market price of a particular company's securities, securities
class action litigation has often been brought against that company. We may
become subject to this type of litigation in the future. Litigation of this
type is often extremely expensive and diverts management's attention.

You will incur immediate and substantial dilution of the value of your shares.

The assumed offering price of our common stock is substantially higher
than the net tangible pro forma book value per share of our outstanding common
stock. As a result, investors purchasing common stock in this offering will
incur immediate and substantial dilution in the net tangible book value of
their common stock of $5.89 per share on a pro forma basis at March 31, 2000
based on the assumed public offering price of $9.00 per share. In the past, we
issued options to acquire capital stock at prices significantly below the
assumed public offering price. There will be further dilution to investors when
any of these outstanding options are exercised.

If a large number of shares of our common stock are sold after this offering,
or if there is the perception that such sales could occur, the market price of
our common stock may decline.

The market price of our common stock could decline due to sales of a
large number of shares in the market after this offering or the perception that
such sales could occur, including sales or distributions of shares by our large
stockholders. Any such sales could also make it more difficult for us to sell
equity securities in the future at a time and price that we deem appropriate to
raise funds through future offerings of common stock and could also make it
more difficult for us to pay in stock for any acquisitions we decide to pursue
in the future.

Because our officers, directors and principal stockholders will own over 50% of
our outstanding shares of common stock upon the completion of this offering,
they could control our actions in a manner that conflicts with the interests of
our other stockholders.

Our officers, directors and principal stockholders, if they choose to act
together, may be able to exert considerable influence over us, including in the
election of directors and the approval of actions submitted to our
stockholders. In addition, without the consent of these officers, directors and
principal stockholders, we may be prevented from entering into transactions
that could be beneficial to us, such as a change in control.

We may have contingent liability arising out of a possible violation of Section
5 of the Securities Act of 1933 in connection with electronic mail sent to
employees in the proposed directed share program.

As part of the offering, the underwriters and we had initially determined
to make available up to 7% of the common stock to be issued by us and offered
for sale in this offering, at the initial public offering price to our
directors, officers, employees, business associates and related persons. In
March 2000, we sent electronic mail with respect to this proposed directed
share program to all of our employees. In addition, company officials

13
<PAGE>

responded by electronic mail to follow-up inquiries from employees and other
potential participants by providing further information on the logistics and
other matters concerning the program. We believe that 20 employees who have
expressed an interest in participating in the program received the electronic
mail.

The electronic mail set forth certain procedural aspects of the proposed
directed share program and informed the recipients that they might have an
opportunity to participate in the proposed directed share program. We did not
deliver a preliminary prospectus for our initial public offering to the
employees who received the electronic mail prior to sending the electronic
mail, but we later provided a preliminary prospectus to each of our employees
who received the electronic mail. We may have contingent liability arising out
of a possible violation of Section 5 of the Securities Act of 1933 in
connection with the electronic mail sent to employees who participate in the
proposed directed share program. Any liability would depend upon the number of
shares purchased by the recipients of such electronic mail. If any such
liability is asserted, we will contest the matter strenuously. We do not
believe that any such liability would be material to our financial condition.
We believe that approximately 47,000 shares may be sold to the employees and
others that may have received the electronic mail. Assuming an initial public
offering price of $9.00 per share, the maximum exposure under Section 5 would
be approximately $423,000 plus interest.

14
<PAGE>

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements under the captions
"Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere.

When used in this prospectus, the words "aim," "believe," "anticipate,"
"estimate," "expect," "seek," "intend," "may" and similar expressions are
generally intended to identify "forward-looking statements." Our forward-
looking statements involve known and unknown risks, uncertainties and other
factors which may cause our actual results, performance or achievements, or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by these forward-looking
statements. These factors are discussed in more detail elsewhere in this
prospectus, including under the captions "Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." Because of these uncertainties, you should not
place undue reliance on our forward-looking statements. In addition, the safe
harbor for forward-looking statements contained in the Securities Litigation
Reform Act of 1995 is not available under the Securities Act of 1933, as
amended, for this offering in respect of our forward-looking statements
contained in this prospectus.

15
<PAGE>

USE OF PROCEEDS

We estimate our net proceeds from the sale of 6,000,000 shares of common
stock to the public in this offering will be approximately $48.6 million, or
approximately $56.2 million if the underwriters' over-allotment option is
exercised in full. This is based upon an assumed public offering price of $9.00
per share, less underwriting discounts and estimated offering expenses, and
does not reflect the sale of any shares of common stock under our Employee
Stock Purchase Plan.

We expect to use these proceeds for the following purposes:

. approximately $38.0 million for further development and
commercialization of our product candidates;

. approximately $1.3 million for payments under current licensing
agreements;

. ongoing research and development activities; and

. the balance for general corporate and working capital purposes.

In addition, a portion of the net proceeds may be used to acquire
businesses, products and technologies that are comparable to ours. Other than
the potential acquisition of Talaria, we currently have no agreements with
respect to acquisitions.

We will retain broad discretion in the allocation of the net proceeds of
this offering, and the amounts and timing of our actual expenditures for each
purpose may vary significantly depending upon numerous factors, including:

. the size, scope and progress of our product candidate development
efforts;

. regulatory approvals;

. competition;

. marketing and sales activities;

. the market acceptance of any products introduced by us;

. future revenue growth, if any; and

. the amount of cash, if any, we generate from operations.

Pending uses described above, we intend to invest the net proceeds of
this offering in short-term, investment-grade, interest-bearing securities.

DIVIDEND POLICY

We have never declared or paid cash dividends on our capital stock. We do
not anticipate paying any cash dividends in the foreseeable future. We
currently intend to retain any future earnings to fund the continued
development of our business. In addition, our existing U.S. credit facility
prohibits the payment of dividends.

16
<PAGE>

CAPITALIZATION

The following table sets forth, as of March 31, 2000, (1) our actual
capitalization derived from our unaudited consolidated financial statements,
(2) our pro forma capitalization to reflect the conversion of 21,889,242 shares
of preferred stock into 15,814,961 shares of common stock upon the closing of
this offering, and (3) our pro forma capitalization as adjusted to reflect the
sale of 6,000,000 shares of common stock offered hereby at an assumed public
offering price of $9.00 per share, less underwriting discounts and estimated
offering expenses, and the conversion of all outstanding shares of convertible
preferred stock into common stock upon the closing of the offering.

<TABLE>
<CAPTION>
As of March 31, 2000
------------------------------------
(unaudited)
Pro Forma
Actual Pro Forma As Adjusted
-------- -------------- -----------
(in thousands)
<S> <C> <C> <C>
Long-term debt, less current portion...... $ 2,123 $ 2,123 $ 2,123
-------- -------- --------
Stockholders' equity:
Preferred stock, $0.01 par value,
25,525,251 shares authorized at March
31, 2000:
Series A convertible preferred,
500,000 shares issued and
outstanding actual, none issued and
outstanding pro forma and pro forma
as adjusted........................ 5 -- --
Series B convertible preferred,
10,000,000 shares issued and
outstanding actual, none issued and
outstanding pro forma and pro forma
as adjusted........................ 100 -- --
Series C convertible preferred,
10,252,879 shares issued and
outstanding actual, none issued and
outstanding pro forma and pro forma
as adjusted........................ 103 -- --
Series D convertible preferred,
1,136,363 shares issued and
outstanding actual, none issued and
outstanding pro forma and pro forma
as adjusted........................ 11 -- --
-------- -------- --------
Total convertible preferred stock.. 219 -- --
-------- -------- --------
Common stock, $0.001 par value,
30,611,112 shares authorized,
2,202,128 shares issued and
outstanding actual, 18,017,089 issued
and outstanding pro forma, and
24,017,089 issued and outstanding pro
forma as adjusted..................... 2 18 24
Additional paid-in capital.............. 45,960 46,163 95,677
Notes receivable........................ (99) (99) (99)
Deferred stock compensation............. (3,487) (3,487) (3,487)
Accumulated deficit during the
development stage..................... (17,506) (17,506) (17,506)
Accumulated other comprehensive loss.... (4) (4) (4)
-------- -------- --------
Total stockholders' equity......... 25,085 25,085 74,605
-------- -------- --------
Total capitalization............... $ 27,208 $ 27,208 $75,828
======== ======== ========
</TABLE>

The number of shares of common stock to be outstanding after this
offering on a pro forma as adjusted basis as of March 31, 2000, is based on the
2,202,128 shares outstanding as of March 31, 2000 plus 15,814,961 shares
issuable upon the conversion of all outstanding shares of convertible preferred
stock into common stock upon the closing of this offering, and the 6,000,000
shares offered hereby. The number of shares to be outstanding after this
offering excludes, as of March 31, 2000, 1,265,939 shares of common stock
issuable upon the exercise of outstanding options under our 1998 Stock Option
Plan at a weighted average exercise price of $1.85 per share; 813,008 shares of
common stock that may be issued in connection with the closing of our potential
acquisition of Talaria based upon an assumed initial public offering price of
$9.00 per share; and 500,000 shares issuable under our Employee Stock Purchase
Plan.

17
<PAGE>

DILUTION

As of March 31, 2000, our pro forma, unaudited, net tangible book value
was $25,085,131, or $1.39 per share. Pro forma net tangible book value per
share is determined by dividing pro forma net tangible book value (total
tangible assets less total liabilities) by the pro forma number of shares of
common stock after giving effect to the conversion of all outstanding shares of
preferred stock into an aggregate of 15,814,961 shares of common stock, upon
the closing of this offering.

Without taking into effect any changes in pro forma net tangible book
value after March 31, 2000, after giving effect to the sale of the 6,000,000
shares of common stock offered hereby at an assumed public offering price of
$9.00 per share, the pro forma as adjusted net tangible book value would have
been $74,605,131, or $3.11 per share. This represents an immediate increase in
pro forma net tangible book value of $1.72 per share to existing stockholders
and dilution in pro forma as adjusted net tangible book value of $5.89 per
share to new investors who purchase shares in this offering. The following
table illustrates this dilution:

<TABLE>
<S> <C> <C>
Assumed offering price per share.................................. $9.00
Pro forma net tangible book value per share at March 31, 2000... $1.39
Increase per share attributable to new investors................ 1.72
-----
Pro forma as adjusted net tangible book value per share after the
offering........................................................ 3.11
-----
Dilution in net tangible book value per share to new investors.... $5.89
=====
</TABLE>

If the underwriters' over-allotment option were exercised in full, the
pro forma as adjusted net tangible book value per share as of March 31, 2000,
after giving effect to the offering, would be $3.30 per share, the increase in
net tangible book value per share to existing stockholders would be $1.91 per
share and the dilution in net tangible book value to new investors would be
$5.70 per share.

If the proposed acquisition of Talaria occurs, and the estimated 813,008
shares of our common stock are issued, the pro forma as adjusted net tangible
book value per share as of March 31, 2000, after giving effect to the offering
and excluding the underwriters' over-allotment option would be $3.02 per share.
The increase in net tangible book value per share to existing stockholders
would be $1.63 per share and the dilution in net tangible book value to new
investors would be $5.98 per share.

The following table summarizes, on a pro forma as adjusted basis as of
March 31, 2000, the differences between the total consideration and the average
price per share paid by the existing stockholders and the new investors with
respect to the number of shares of common stock purchased from us based on an
assumed offering price of $9.00 per share:

<TABLE>
<CAPTION>
Average
Shares Total Consideration Price
------------------ ------------------- Per
Number Percent Amount Percent Share
---------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 18,017,089 75.0% $42,822,497 44.2% $2.38
New investors................. 6,000,000 25.0 54,000,000 55.8% 9.00
---------- ----- ----------- -----
Total.................... 24,017,089 100.0% $96,822,497 100.0%
========== ===== =========== =====
</TABLE>

These tables do not assume exercise of stock options outstanding at March
31, 2000, including options for 7,766 shares exercised since such date.

As of July 7, 2000 there were 1,274,514 shares issuable upon exercise of
outstanding stock options, consisting of 1,257,812 options granted prior to
March 31, 2000 at a weighted average exercise price of $1.86 per share and
16,702 options granted after March 31, 2000 at a weighted average exercise
price of $5.64 per share.

18
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands except share and per share data)

The following historical and pro forma selected consolidated financial
data of Esperion should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on page 20, the
consolidated financial statements and notes beginning on page F-3 and the pro
forma combined financial information beginning on page F-27. The selected
consolidated financial data for the period from inception (May 18, 1998)
through December 31, 1998 and the year ended December 31, 1999 are derived from
our audited consolidated financial statements. The selected financial data for
each of the interim periods ended March 31, 1999 and 2000, and for the period
from inception through March 31, 2000 are derived from unaudited consolidated
financial statements. We have prepared this unaudited information on the same
basis as the audited financial statements and have included all adjustments,
consisting only of normal recurring adjustments, that we consider necessary for
a fair presentation of our financial position and operating results for such
periods. The pro forma consolidated statements of operations data gives effect
to our potential acquisition of Talaria as if it occurred at the beginning of
the pro forma periods presented. The pro forma consolidated balance sheet data
gives effect to our pending acquisition of Talaria as if it occurred as of that
date. The completion of this offering is not contingent on the consummation of
the acquisition, which is not expected to close until after the completion of
this offering and is subject to certain conditions. The pro forma as adjusted
balance sheet data reflect the sale by Esperion of 6,000,000 shares of common
stock in this offering at an assumed public offering price of $9.00 per share,
less underwriting discounts and estimated offering expenses, and the conversion
of all outstanding shares of the convertible preferred stock, as though such
events had occurred on March 31, 2000 and excludes the issuance of an estimated
813,008 shares in the potential acquisition of Talaria based on an assumed
initial public offering price of $9.00 per share.

<TABLE>
<CAPTION>
Period from Period from
Inception Year Ended Three Months Ended March 31, Inception
(May 18, 1998) December 31, ------------------------------------ (May 18, 1998)
Through 1999 2000 Through
December 31, ---------------------- ------------------------ March 31,
1998 Actual Pro Forma 1999 Actual Pro Forma 2000
-------------- --------- ----------- ----------- ----------- ----------- --------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of Operations
Data:
Operating expenses:
Research and
development........... $ 1,923 $ 8,484 $ 10,431 $ 1,270 $ 4,063 $ 4,678 $ 14,470
General and
administrative ....... 464 2,518 2,653 315 1,006 1,161 3,988
Amortization of
goodwill and other
intangible assets..... -- -- 567 -- -- 142 --
--------- --------- --------- --------- ---------- --------- --------
Operating loss........ (2,387) (11,002) (13,651) (1,585) (5,069) (5,981) (18,458)
Net other income........ 244 332 396 135 376 398 952
--------- --------- --------- --------- ---------- --------- --------
Net loss................ (2,143) (10,670) (13,255) (1,450) (4,693) (5,583) (17,506)
Beneficial conversion
feature(1) ........... -- -- -- -- (22,870) (22,870) (22,870)
--------- --------- --------- --------- ---------- --------- --------
Net loss attributable to
common stockholders.... $ (2,143) $ (10,670) $ (13,255) $ (1,450) $ (27,563) $ (28,453) $(40,376)
========= ========= ========= ========= ========== ========= ========
Basic and diluted net
loss per share......... $ (1.46) $ (5.91) $ (5.06) $ (0.85) $ (13.91) $ (10.18)
========= ========= ========= ========= ========== =========
Shares used in computing
basic and diluted net
loss per share......... 1,466,615 1,806,255 2,619,263 1,705,099 1,980,933 2,793,941
========= ========= ========= ========= ========== =========
Pro forma basic and
diluted net loss per
share (unaudited)...... $ (1.14) $ (1.64)
========= ==========
Shares used in computing
pro forma basic and
diluted net loss per
share (unaudited)...... 9,392,499 16,836,802
========= ==========
</TABLE>

<TABLE>
<CAPTION>
March 31, 2000
-----------------------------------
December 31, December 31, Pro Forma
1998 1999 Actual Pro Forma As Adjusted
------------ ------------ ---------- ----------- -----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash and cash
equivalents............ $12,541 $ 5,904 $ 27,698 $28,894 $76,318
Working capital......... 12,390 3,143 24,827 25,307 73,447
Total assets............ 13,414 7,999 30,489 34,529 79,109
Long-term debt, less
current portion........ -- 2,284 2,123 2,123 2,123
Convertible preferred
stock.................. 105 105 219 219 --
Deficit accumulated
during the development
stage.................. (2,143) (12,813) (17,506) (21,506) (17,506)
Total stockholders'
equity................. 13,187 2,815 25,085 28,402 74,605
</TABLE>
-------
(1) We recorded approximately $22.9 million relating to the beneficial
conversion feature of the series C and series D preferred stock in the
first quarter of fiscal 2000 through equal and offsetting adjustments to
additional paid-in-capital with no net impact on stockholders' equity. The
beneficial conversion feature was considered in the determination of our
loss per common share amounts.

19
<PAGE>

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

Overview

Background

We have devoted substantially all of our resources since we began our
operations in May 1998 to the research and development of pharmaceutical
product candidates for cardiovascular disease. We are a development stage
pharmaceutical company and have not generated any revenues from product sales.
We have not been profitable and have incurred a cumulative net loss of
approximately $17.5 million from inception through March 31, 2000. These losses
have resulted principally from costs incurred in research and development
activities, and general and administrative expenses. We expect to incur
significant additional operating losses for at least the next several years and
until such time as we generate sufficient revenue to offset expenses. Research
and development costs relating to product candidates will continue to increase.
Manufacturing, sales and marketing costs will increase as we prepare for the
commercialization of our products.

Equity Financings

We have financed our operations primarily from the net proceeds generated
from the issuance of convertible preferred stock. As of July 7, 2000, we have
received total proceeds of approximately $42.4 million from the following sales
of preferred stock:

. 500,000 shares of series A preferred stock were sold in July 1998
raising total proceeds of approximately $500,000;

. 10,000,000 shares of series B preferred stock were sold in August 1998
raising total proceeds of approximately $15.0 million;

. 10,252,879 shares of series C preferred stock were sold in January
2000 raising total proceeds of approximately $21.9 million; and

. 1,136,363 shares of series D preferred stock were sold in February
2000 raising total proceeds of approximately $5.0 million.

Each of such shares will be convertible into 0.7225 shares of common
stock upon the closing of this offering.

Milestone Payments, Royalties and License Fees

In June 1998, we acquired exclusive, worldwide rights to AIM from
Pharmacia Corporation. Under our agreement with Pharmacia, we acquired four
U.S. patents and four pending U.S. patent applications, and other related
foreign patents and patent applications covering various aspects of AIM. Under
this agreement, at the completion of Phase II clinical trials, Pharmacia has
the exclusive right of election to co-develop and the exclusive right to market
AIM in countries outside of the United States and Canada. In addition, if we
pursue a co-development and co-promotion arrangement in the United States and
Canada with another party, Pharmacia has the right of first negotiation to co-
develop and co-promote in the United States and Canada. We paid Pharmacia
$750,000 at the time we entered into our agreement for AIM in June 1998. Our
agreement with Pharmacia requires us to make payments to Pharmacia as
milestones are achieved, and to pay Pharmacia royalties on sales of products
that are covered by the Pharmacia patents or developed using the Pharmacia
technology. The first milestone payment will be paid in cash or by issuance of
a promissory note to Pharmacia if and when we have completed clinical trials
showing preliminary safety and initial proof-of-concept (which may include
early Phase IIa studies). We believe that this would mean clinical trials which
show favorable trends in safety and efficacy, allowing us to better define the
details of any Phase III pivotal trials. If Pharmacia exercises its exclusive
right to co-develop and market AIM in countries other than the United States
and Canada, then we will make additional milestone payments to Pharmacia. If
Pharmacia does not exercise its right to co-develop and market AIM in countries
other than the United States and Canada, then we will make several milestone
payments to Pharmacia starting if and when we enroll the first patient in the
first Phase III clinical trial for AIM in the United States. Instead of paying
milestones in cash, if the milestone payments are greater than 10% of our cash
reserves at the time of payment, we may instead make these payments by issuing
Pharmacia a promissory note. This license, unless earlier terminated, will
continue until the later of 20 years from the date of the license or the last
expiration date of any patent rights covered by this license.

20
<PAGE>

In September 1999, we exclusively licensed from a group of inventors, the
RLT peptide technology, including one issued United States patent and 13
pending United States patent applications, and certain corresponding foreign
patent applications pending. We paid the inventors of our RLT peptide an
initial license fee of $50,000 in January 2000. Our license agreement with the
inventors requires us to make payments to them as milestones are achieved, and
to pay them royalties on sales of products that are covered by the inventors'
patents or developed using the inventors' technology. Additional milestone
payments will be paid to the inventors if and when we achieve various future
development milestones outlined in the agreement with the inventors. This
license terminates on the later of ten years from the date of the license
execution or the last expiration date of any patent rights covered by this
license.

In February 2000, we entered into a license agreement with Region
Wallonne in which we were granted exclusive worldwide rights to its patents and
applications, proprietary information and know-how concerning ProApoA-I. As
part of this license, we have also agreed to purchase supplies of ProApoA-I
from, and to enter into a research collaboration with, Region Wallonne. We paid
Region Wallonne $25,000 at the time we entered into our license agreement in
February 2000. Our license agreement with Region Wallonne requires us to pay
royalties on sales of products that are covered by the Region Wallonne patents.
This license remains in effect, unless earlier terminated, until the later to
occur of 20 years from the date of the agreement or the last expiration date of
any patent rights covered by the license.

In March 1999, we exclusively sub-licensed for Europe and the United
States certain LUV technology from Inex Pharmaceuticals Corporation which had
licensed the technology from the University of British Columbia. We paid Inex
$250,000 at the time we entered into our sub-license agreement for LUVs in
March 1999. Our license agreement with Inex requires us to make payments to
Inex as milestones are achieved, and to pay Inex royalties on sales of products
that are covered by the UBC patents or developed using the licensed technology.
A milestone payment will be paid to Inex if and when we enroll our first
patient in a Phase II clinical trial. Other milestone payments will be paid to
Inex if and when we achieve various future development milestones outlined in
the agreement with Inex. This license remains in effect, unless earlier
terminated, until the later of ten years from the first commercial sale of a
product covered by this license or the last expiration date of any patent
rights covered by this license. This license is the subject of litigation.

In addition to the initial license fees discussed above, we may be
obligated to make additional milestone payments, up to an aggregate amount of
$25.2 million, based on the achievement of certain clinical trials and
regulatory approval. These milestone payments include up to $14.5 million, $8.5
million and $2.2 million pursuant to the agreements with Pharmacia Corporation,
Inex Pharmaceuticals Corporation and the group of inventors, respectively. The
agreement with Region Wallone provides only for royalties on future sales and
is not included in the aggregate milestone payments disclosed above. In
addition to the milestone payments, the agreements provide for the payment of
royalties on future product sales, as defined in the agreements. Based on our
current development timelines, approximately $300,000 of the $25.2 million
could become due during the next twelve months. If payable, the $300,000 in
obligations will be funded from our existing cash balance. At the present time,
it is uncertain as to whether we will be required to make any additional
payments.

Recent Development

On July 31, 2000, we agreed to negotiate a non-binding letter of intent
providing for our acquisition of Talaria by way of a merger. We expect that the
proposed letter of intent would provide for the exchange of all of the
outstanding shares of stock of Talaria for a number of shares of our common
stock equal to $6.0 million divided by the initial public offering price per
share discounted by 18%. Assuming an initial public offering price of $9.00 per
share, we would issue 813,008 shares of our common stock to Talaria
stockholders. We expect that the proposed letter of intent would provide for
additional payments by us to Talaria stockholders of up to $6.25 million in
cash or common stock upon the achievement of four future development
milestones, of which $750,000 may become due within the next twelve months.
These milestone payments would become due upon the enrollment of the first
patient in certain future clinical trials and each of the filing and approval
of a new drug application in the United States. We also expect that the
proposed letter of intent would provide for deferred contingent payments in
cash or common stock payable to Talaria stockholders based on net sales of

21
<PAGE>

LUVs in North America, as defined in the proposed letter of intent. We expect
that the deferred contingent payments would be calculated at a rate of
approximately 6% of such net sales, or 25% of sublicensing royalties that we
would receive based upon such net sales, all subject to a maximum aggregate
amount of deferred contingent payments of $20.0 million.

The acquisition, if completed, would be accounted for under the purchase
method of accounting. The initial purchase price for amounts due at closing
would be allocated to both tangible and intangible assets. As a result of this
initial estimated allocation, we expect to write-off approximately $4.0 million
of acquired in-process research and development. Any remaining purchase price
would be allocated to goodwill and amortized over a five-year period. The final
allocation would be based on an independent appraisal of the fair values on the
closing date. We expect that we would account for the milestone payments as
increases to the initial purchase price in the period when the milestone is
achieved and we would include these additional amounts as part of goodwill. We
expect to account for any deferred contingent payments relating to sales of the
LUV product as cost of sales in the period when the related sales are
recognized.

We expect to allocate $4.0 million of the initial purchase price to
acquired in-process research and development based on the assumption that the
development of LUVs has not yet reached technological feasibility, and that no
alternative future uses have been identified. Significant further investment is
required to complete the development of the acquired technology, including
completion of clinical trials, manufacturing scale-up and successful regulatory
approvals. Talaria had spent approximately $3.2 million on the development of
the in-process project since its inception in 1998; the patent holders spent
additional amounts on scientific research prior to 1998. We expect to spend an
additional $20.0 million in third party costs over all phases of the project
prior to commercialization. Of these remaining costs, approximately $15.0
million would relate to a Phase III clinical trial which is expected to
commence after the Phase II clinical trials are completed, but not sooner than
2002. Our expectations with respect to these additional costs, adjustments and
periods are preliminary and therefore subject to substantial sequential
adjustments. Assuming the execution of a letter of intent, the acquisition is
not expected to close until after this offering is completed.

Results of Operations

Three Months Ended March 31, 2000

Research and Development Expenses. Research and development expenses
increased to approximately $4.1 million for the three months ended March 31,
2000 compared to approximately $1.3 million for the three months ended March
31, 1999. This increase is primarily due to the costs associated with
developing our product candidates as well as higher personnel costs.
Specifically, during the three months ended March 31, 2000, we incurred costs
related to the scale-up of preclinical and clinical testing on the AIM project,
including manufacturing of material for these studies. Also, we incurred
professional fees to secure certain intellectual property in connection with
our RLT peptide program during the three months ended March 31, 2000.

General and Administrative Expenses. General and administrative expenses
increased to approximately $1.0 million for the three months ended March 31,
2000 compared to approximately $315,000 for the three months ended March 31,
1999. This increase is primarily due to a $413,000 compensation charge related
to the issuance of series C preferred stock in exchange for services rendered
by an employee and a director. Amortization expense of deferred stock
compensation amounted to approximately $251,000 for the three months ended
March 31, 2000 compared to approximately $70,000 for the three months ended
March 31, 1999. This amortization expense relates to deferred stock
compensation of $1.1 million and $2.9 million recorded in 1999 and 2000,
respectively. These amounts will be expensed over the four-year vesting periods
of the underlying options. In addition, we experienced higher personnel costs
and higher facility costs in support of our additional product candidates and
technologies.

22
<PAGE>

Other Income (Expense). Interest income increased to approximately
$351,000 for the three months ended March 31, 2000 compared to approximately
$136,000 for the three months ended March 31, 1999. The increase is
attributable to higher levels of cash and cash equivalents available for
investment in 2000. Interest expense for the same periods was approximately
$129,000 and $1,000 and represents interest incurred on an equipment financing
facility and a special project loan in 2000. During the three months ended
March 31, 2000, we recorded approximately $154,000 of foreign currency
transaction gains on transactions denominated in various currencies of European
countries.

Net Loss. The net loss was approximately $4.7 million for the three
months ended March 31, 2000 compared to approximately $1.5 million for the
three months ended March 31, 1999. The increase reflects increases in research
and development and general and administrative expenses, offset in part by the
increase in interest income.

Net Loss Attributable to Common Stockholders. The net loss attributable
to common stockholders for the three months ended March 31, 2000 includes a
one-time $22.9 million charge related to the beneficial conversion feature on
the series C and series D convertible preferred stock. The total of the non-
cash beneficial conversion feature was reflected through equal and offsetting
adjustments to additional paid-in-capital with no net impact on stockholders'
equity. The beneficial conversion feature was considered in the determination
of our loss per common share amounts.

Year Ended December 31, 1999.

Research and Development Expenses. Research and development expenses
increased to approximately $8.5 million for the year ended December 31, 1999,
compared to approximately $1.9 million for the period from inception (May 18,
1998) to December 31, 1998. This increase is primarily due to the full year
period for 1999 as compared with a partial year for 1998 and costs associated
with developing AIM and LUVs, and to a lesser extent expanded efforts to
develop new product candidates.

General and Administrative Expenses. General and administrative expenses
increased to approximately $2.5 million for the year ended December 31, 1999
compared to approximately $464,000 for the period from inception to December
31, 1998. This increase is primarily due to the full year period for 1999 as
compared with a partial year for 1998, higher personnel costs, higher facility
costs and the acquisition of additional product candidates and technologies.

Net Interest Income (Expense). Interest income increased to approximately
$424,000 for the year ended December 31, 1999, compared to approximately
$246,000 for the period from inception to December 31, 1998. The increase is
attributable to the full year period for 1999 as compared to a partial year for
1998, offset by lower levels of cash and cash equivalents available for
investment in 1999. Interest expense for the same periods was approximately
$92,000 and $0 and represents interest incurred on an equipment financing
facility and a special project loan in 1999.

Net Loss. The net loss was approximately $10.7 million for the year ended
December 31, 1999, compared to approximately $2.1 million for the period from
inception to December 31, 1998. The increase reflects the full year period for
1999 as compared to a partial year in 1998, increases in research and
development and general and administrative expenses, offset in part by the
increase in interest income.

Liquidity and Capital Resources

As of March 31, 2000, the Company had cash and cash equivalents of
approximately $27.7 million, an increase of approximately $21.8 million from
December 31, 1999 resulting primarily from the issuance of series C and series
D preferred stock financings in January 2000 and February 2000, offset by
approximately $4.4 million in cash used to fund operations. We believe that our
current cash position, available borrowings under our credit facilities and the
proceeds of this offering will be sufficient to fund our operations and capital
expenditures until at least the end of 2001.

23
<PAGE>

During the three months ended March 31, 2000 and the year ended December
31, 1999, net cash used in operating activities was approximately $4.4 and
$7.9 million, respectively. This cash was used to fund our net losses for the
periods, adjusted for non-cash expenses and changes in operating assets and
liabilities.

Net cash used in investing activities for the three months ended March
31, 2000 and the year ended December 31, 1999 was $574,000 and $1.6 million,
respectively, primarily the result of the acquisition of laboratory equipment,
furniture and fixtures and office equipment.

Net cash proceeds from financing activities was $26.8 million for the
three months ended March 31, 2000, $2.8 million for the year ended December 31,
1999 and $15.3 million for the period from inception to December 31, 1998. The
net cash proceeds from financing activities for the three months ended March
31, 2000 were primarily from the issuance of preferred stock. The net cash
proceeds from financing activities during the year ended December 31, 1999 were
from borrowings on a special project loan and an equipment loan. The net cash
proceeds from financing activities during the period from inception to
December 31, 1998 were from the issuance of preferred and common stock.

We anticipate that our capital expenditures will be approximately $2.5
million in 2000. These expenditures include an agreement we have entered into
with a scientific instrument manufacturer to purchase a specialized piece of
equipment for $1.0 million. We expect delivery in the second half of 2000.

As of March 31, 2000, we had approximately $1.1 million outstanding under
a credit facility with a U.S. bank. This credit facility was used to finance
purchases of equipment. Borrowings under the facility bear interest at the
bank's prime rate plus 1.0%. We also have a credit facility with a Swedish
entity totaling 50 million Swedish kronor (approximately $1.5 million of which
was outstanding as of March 31, 2000) that may only be used to finance the
development of our AIM product candidate. If a related product is not developed
or does not succeed in the market, our obligation to repay the loan may be
forgiven. Borrowings under the loan facility bear interest at 17.0% of which
9.5% is payable quarterly. The remaining 7.5% of interest together with
principal are payable in five equal annual installments starting December 2004.
We made an initial draw on the loan facility of $1.5 million in December 1999.

We have signed a commitment letter with a U.S. lender for a credit
facility that may be used to finance past and future purchases of equipment. If
final loan documents are signed relating to this facility, the aggregate
borrowings available under the facility would be $2.5 million. This facility is
subject to completion of the final loan documents and approval from the lender.

We lease our corporate and research and development facilities under
operating leases expiring at various times through June 2002. We may extend
these leases for additional periods. Minimum annual payments under these leases
are approximately $491,000 as of March 31, 2000.

We expect that our operating expenses and capital expenditures will
increase in future periods. We also intend to hire additional research and
development, clinical testing and administrative staff. Our capital expenditure
requirements will depend on numerous factors, including the progress of our
research and development programs, the time required to file and process
regulatory approval applications, the development of commercial manufacturing
capability, the ability to obtain additional licensing arrangements, and the
demand for our product candidates, if and when approved by the FDA or other
regulatory authorities.

Income Taxes

As of March 31, 2000, we had net operating loss carryforwards of
approximately $14.4 million. These net operating loss carryforwards expire in
2019. Additionally, utilization of net operating loss carryforwards may be
limited under Section 382 of the Internal Revenue Code. These and other
deferred income tax assets are fully reserved by a valuation allowance as
management has determined that it is more likely than not that the deferred tax
assets will not be realized.

24
<PAGE>

BUSINESS

Introduction

We discover and develop pharmaceutical products for the treatment of
cardiovascular disease. The cardiovascular system is comprised of the heart,
brain, blood vessels, kidneys and lungs. Together, the components of the
cardiovascular system deliver oxygen and other nutrients to the tissues of the
body and remove waste products. The heart propels blood through a network of
arteries and veins. The kidneys regulate the blood volume, and the lungs put
oxygen in the blood and remove carbon dioxide. To accomplish these tasks, the
cardiovascular system must maintain adequate blood flow, or cardiac output,
which can be dramatically reduced by the excessive deposit of a fat called
"cholesterol" in the arteries. Our focus is on understanding and controlling
through drugs the removal of that cholesterol.

We believe that the therapies that we are developing could enhance the
naturally occurring processes in the body for the removal of excess
cholesterol. We intend to commercialize a novel class of drugs that focus on a
new treatment approach we call "HDL Therapy," which is based upon our
understanding of HDL function. Through HDL Therapy we intend to exploit the
beneficial properties of HDL in cardiovascular and metabolic diseases with a
portfolio of product candidates. Preclinical studies suggest that our product
candidates may either increase HDL levels or its function and may enhance
removal of excess cholesterol and lipids from arteries. Third-party published
reports of preliminary human clinical studies with respect to some of our
product candidates suggest that these compounds may increase elimination of
cholesterol from the body by enhancing the efficiency of the RLT pathway.

Background

General

Our bodies are made of building blocks called cells. Cells are primarily
made of protein, carbohydrate and fat, or lipid molecules. Cholesterol, a well
known lipid, is essential for cells to function normally. Our bodies obtain
cholesterol both through the foods we eat and by manufacturing cholesterol
inside some of our cells and organs. Cholesterol either remains within the cell
or is transported by the blood to various organs. The major carriers for
cholesterol in the blood are lipoproteins, which are particles composed of fat
and protein, including low density lipoprotein, or LDL, and high density
lipoprotein, or HDL. LDL delivers cholesterol to organs where it can be used to
produce hormones, maintain healthy cells or be transformed into natural
products which assist in the digestion of other lipids. HDL removes excess
cholesterol from arteries and tissues to transport it back to the liver for
elimination.

[Graphic depicting HDL and LDL]

The RLT pathway, which is a process comprised of four steps, is
responsible for removal of cholesterol from arteries and its transport to the
liver for elimination from the body. The first step is the removal of
cholesterol from arteries by HDL in a process termed cholesterol removal. In
the second step, cholesterol is converted to a new form that is more tightly
associated with HDL as it is carried in the blood; this process is called
cholesterol conversion. The third step is the transport and delivery of that
converted cholesterol to the

25
<PAGE>

liver in a process termed cholesterol transport. The final step is the
transformation and discarding of cholesterol by the liver in a process termed
cholesterol elimination. We believe our product candidates have the potential
to affect these four steps to enhance the RLT pathway in humans.

[Graphic depicting RLT pathway]
In a healthy human body, there is a balance between the delivery and
removal of cholesterol. Over time, however, there is often an imbalance that
occurs in our bodies in which there is too much cholesterol delivery by LDL and
too little removal by HDL. When people have a high level of LDL and low level
of HDL, the imbalance results in more cholesterol being deposited in the
arteries than that being removed. This imbalance can also be exaggerated by,
among other factors, age, gender, high blood pressure, smoking, diabetes,
obesity, genetic factors, physical inactivity, disease of the extremities or
the brain and consumption of a high-fat diet. The excess cholesterol carried in
the blood on LDL particles is deposited throughout the body, but frequently
ends up in the lining of arteries, especially those found in the heart. As a
consequence, repeated deposits of cholesterol, called plaque, form and narrow
or block the arteries.

Cardiovascular Disease

According to the American Heart Association, cardiovascular disease is
the largest killer of American men and women. Currently, over $15 billion is
spent annually on the drug treatment of cardiovascular disease in the United
States, in addition to the costs of surgical treatment and care. Two prominent
forms of cardiovascular disease are coronary disease, which involves the heart
itself, and atherosclerosis, which is the buildup of plaque on artery walls
limiting blood flow to the heart, brain and extremities. These two conditions
can result in heart attacks, chest pain, known as angina, and a variety of
other complications, and are responsible for over half of the deaths from
cardiovascular disease.

Importance of HDL in Cardiovascular Disease

Numerous studies involving thousands of people have identified the causes
and determined the distribution of cardiovascular disease in different
populations around the world. Physicians now recognize high LDL and low HDL
levels as risk factors for cardiovascular disease in general, and
atherosclerosis in particular. In addition, high HDL levels generally are
associated with lower incidence of cardiovascular disease. These studies have
suggested that:

. Low levels of HDL are a risk factor for cardiovascular disease. The
first study suggesting that people with low HDL had increased
incidence of cardiovascular disease was reported in 1951. Since that
time, a number of studies have confirmed that low HDL levels are a
risk factor for cardiovascular disease.

. Increasing HDL reduces risk of coronary heart disease. The Helsinki
Heart Study, completed in 1987, suggested that increasing HDL levels
reduced incidence of coronary heart disease in individuals at risk due
to low HDL, high LDL, and high triglycerides, another type of lipid.

. Increasing HDL levels reduces the incidence of death from coronary
artery disease, heart attack and stroke. The Veterans Affairs
Cooperative Studies Program High Density Lipoprotein

26
<PAGE>

Cholesterol Intervention Trial, completed in 1999, suggested that men
with coronary artery disease who took a lipid regulating drug for five
years experienced on average a 6% increase in HDL, resulting in a 24%
reduction in death due to coronary artery disease, heart attack and
stroke.

. Low levels of HDL translate to a low survival rate following coronary
bypass surgery. A 20-year study completed in 1999 suggested that
people with low HDL levels have a lower survival rate following
coronary bypass surgery. This study suggests the importance of HDL in
minimizing the necessity of post-operative treatments.

There are several risk factors besides low levels of HDL and high levels
of LDL that determine the likelihood of a person developing cardiovascular
disease. Some examples include age, gender, high blood pressure, smoking,
diabetes, obesity, genetic factors, physical inactivity, vascular disease of
the extremities or the brain, or a high-fat diet. Unlike many of these risk
factors that cannot be altered, such as age, gender, and family history, we
believe HDL levels can be beneficially modulated. Clinical evidence suggests
that an increase in HDL results in greater protection from cardiovascular
disease than a corresponding reduction in LDL. In addition, published studies
suggest other protective properties of HDL, such as reducing inflammation in
arteries.

Current Treatments for Cardiovascular Disease

The initial recommendation for a patient with cardiovascular disease is
frequently a change in lifestyle involving exercise combined with a low-fat,
low-cholesterol diet. If a patient's condition does not improve, then a
physician moves to the next level of treatment to achieve acceptable levels of
cholesterol in the blood.

Following the initial diet/exercise regimen, treatments are either
short-term solutions, termed "acute" by physicians, or long-term solutions,
termed "chronic." Acute treatments are reserved for more life-threatening
cardiovascular conditions, such as ischemia, a condition where there is a
shortage of oxygen-rich blood available to the heart. In contrast, chronic
treatments are used to prevent cardiovascular disease from growing worse and
having to resort to acute treatments. Acute treatments usually involve costly
surgical procedures, while chronic treatments are usually in tablet or pill
form.

Acute Treatments

Acute treatments are required when blood flow to the heart is severely
restricted and the patient is at immediate risk for further complications.
Three common surgical procedures are used to restore blood flow; bypass
surgery, balloon angioplasty and atherectomy. In bypass surgery, the
cardiologist redirects blood flow around the blocked arteries by grafting a
healthy vessel removed from another location in the patient. In balloon
angioplasty, a thin flexible tube with an inflatable balloon at its end is
positioned in the artery at the point of blockage. During the surgical
procedure, the balloon is inflated and this pushes aside the plaque that
causes the blockage, resulting in a reopening of the artery to allow greater
blood flow. Frequently, a cardiologist reinforces the newly opened artery with
a wire-mesh cylinder called a stent. In atherectomy the plaque is removed from
the artery using a rotating blade.

The primary benefit of acute treatments is the immediate restoration of
oxygen-rich blood flow to the heart. However, the major drawbacks are:

. Restenosis, or reclosing of the artery, even after stenting, occurs in
up to 40% of patients who have had these invasive surgical procedures.
This may require an additional surgical procedure within six months.

. These treatments are invasive to the patient and involve opening up
the chest cavity to expose the heart, as in coronary bypass surgery,
or snaking a wire through a leg artery to the heart, as in balloon
angioplasty or atherectomy. Invasive procedures by their nature
involve a risk of complications, including death. For example,
approximately 3.5% of coronary bypass patients die from post-operative
complications.

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. Since acute treatments are invasive procedures by their nature, there
is significant recovery time after the surgical procedure.

. Many patients are not eligible for invasive procedures due to their
anatomy, physical condition, age, or past medical history.

. Atherosclerosis affects the entire cardiovascular system. Acute
procedures are localized and treat only one segment of a diseased
artery at a time. Therefore, many diseased arteries are left untreated
using these invasive surgical procedures.

In 1997, 607,000 coronary bypass surgeries were performed on 366,000
patients in the United States with an average cost of about $45,000. Almost
half of the patients that have a coronary bypass require a repeat coronary
bypass because the grafted vessels become blocked again. In the United States,
in 1997, approximately 450,000 balloon angioplasty procedures were performed.
The average cost of a balloon angioplasty is $20,000 and more when a stent is
used. Thirty to forty percent of balloon angioplasty procedures result in
reclosing of the diseased artery within the first few months due to restenosis.
In 1995, about 50,000 people in the United States underwent atherectomy. The
average cost of an atherectomy is approximately $12,000.

Chronic Treatments

Chronic treatments for cardiovascular disease have the goal of preventing
or limiting progression of the disease so that acute treatments will not be
required in the near future, if at all. Physicians frequently will prescribe a
statin drug that lowers the level of LDL in the blood by inhibiting cholesterol
production in the body. These drugs can also lower other lipids and have the
ability to slightly raise HDL. Recent studies have shown that the statins
reduce the incidence of illness and death from cardiovascular disease by
approximately 30%. It usually takes at least two years, if at all, for the
drugs to have an effect on death rates. These drugs neither treat the existing
atherosclerosis nor reverse the disease in a majority of patients. In addition,
in post-operative patients, they have also failed to prevent restenosis, the
reclosure of an artery following surgical procedures.

Our Products in Development

Our initial product development efforts are focused on developing a novel
class of drugs designed to treat both acute and chronic atherosclerotic disease
using HDL Therapy. Our five product candidates are designed to enhance HDL
function and address all four steps of the RLT pathway. Our product development
to date has used in vitro assays, testing procedures performed outside the
body, or animal models which we believe are appropriate at this stage of
development. However, these assays and models are not substitutes for human
clinical testing, and we plan to initiate clinical trials with four of our five
product candidates within the next six to eighteen months. Our human clinical
trials may not commence or proceed as anticipated and we may not be able to
demonstrate the same levels of safety and efficacy in clinical trials that have
been suggested in preclinical trials.

AIM

We are developing apolipoprotein A-I Milano, or AIM, for the treatment of
restenosis and acute coronary diseases, including angina. AIM is a variant form
of the ApoA-I protein lipid complex and is present in a small fraction of the
population with low HDL levels. Low HDL levels in this population normally
would correlate with high risk for cardiovascular disease. However, those
people with the AIM variant show low incidence of cardiovascular disease.

We believe infusion of AIM lipid complexes in humans will enhance the RLT
pathway at the cholesterol removal step. Published reports in 1994 and 1995
showed that AIM inhibited restenosis following balloon angioplasty in two
animal models. Additional published reports in 1998 and 1999 have showed that
in

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animal models, AIM caused reduction in atherosclerotic lesions and prevented
inflammation and clotting. A 1999 report of in vitro tests showed that AIM
increased cholesterol removal. No adverse effects were reported in any of the
preclinical animal studies. The material used in these studies is similar to
the AIM that we are currently developing. Additionally, none of these studies
noted were conducted for us or on our behalf.

Our goal is to establish in human clinical trials that intravenous
infusions of AIM are safe and can help open arteries, thus increasing blood
flow and reducing the symptoms associated with atherosclerosis. We intend to
initiate Phase I clinical trials in Europe with AIM in the second half of 2000.

We acquired exclusive worldwide rights for AIM from Pharmacia in July
1998. Under this license agreement, at the completion of Phase II clinical
trials, Pharmacia has the exclusive right of election to co-develop and the
exclusive right to market AIM in countries outside of United States and Canada.
In addition, if we pursue a co-development and co-promotion arrangement in
United States and Canada, Pharmacia has the right of first negotiation.

ProApoA-I

We are developing ProapolipoproteinA-I, or ProApoA-I, as an acute
treatment which we believe will improve blood flow to the arteries of the
heart, brain and body. ProApoA-I is a naturally occurring protein found in all
humans that forms particles with lipids similar to natural HDL.

In the blood, ProApoA-I is converted to ApoA-I which is responsible for
all four steps of the RLT pathway. A 1995 published report of in vitro tests
showed that synthetic ProApoA-I had properties important to the removal of
cholesterol from cells. Results from animal studies in several species
demonstrated that ProApoA-1 activated the RLT pathway. Recent third-party
published reports of preliminary human clinical studies of ProApoA-I showed
that when ProApoA-I was infused into people with high cholesterol levels they
showed increased elimination of cholesterol from the body by enhancing the RLT
pathway. No adverse effects were reported in any of these studies. The material
used in these studies is similar to the ProApoA-I that we are currently
developing. Additionally, none of the studies noted were conducted for us or on
our behalf.

Our goal is to initiate human clinical trials to show that intravenous
infusions of ProApoA-I can help arteries remain open, thus increasing blood
flow and reducing the symptoms associated with atherosclerosis. We intend to
initiate Phase II clinical trials in Europe with ProApoA-I in the first half of
2001.

RLT Peptide

We are developing an RLT peptide as an acute treatment to alleviate
ischemia and angina caused by atherosclerosis. Our RLT peptide is a smaller
version of ApoA-I which we believe mimics ApoA-I's key biological properties
when mixed with lipids. We believe that our RLT peptide removes cholesterol
from arteries and activates the second step in the RLT pathway, the conversion
of cholesterol into a form which is more tightly associated with HDL.

The patent applications that were filed in 1997 for our RLT peptide
describe experiments of the compound in human blood samples. These experiments
showed that the RLT peptide interacts with and activates important enzymes in
the RLT pathway which includes the stimulation of cholesterol removal. The
results of a preclinical animal model study described in the patents showed
that the administration of an RLT peptide increased HDL levels in the blood.
The RLT peptide used in this study is similar to the RLT peptide that we are
developing. No adverse effects were reported in this study. This study was not
conducted for us or on our behalf.

Our goal is to establish in human clinical trials that intravenous
infusions of our RLT peptide are safe and can help arteries remain open, thus
increasing blood flow and reducing the symptoms associated with
atherosclerosis. We intend to initiate Phase I clinical trials with our RLT
peptide in the first half of 2001.

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HDL Elevators

We are developing classes of drugs designed to increase HDL levels. We
have identified a lead compound from this class. Our goal is to develop an
orally active, small molecule designed to elevate HDL levels. We believe that
the HDL elevators enhance the synthesis of new HDL to stimulate the entire RLT
pathway and promote regression of atherosclerosis.

Preclinical studies demonstrated that administration of our compounds may
increase HDL cholesterol concentration. Our goal is to establish in human
clinical trials that orally administered HDL elevators can be a safe, chronic
treatment to enhance the RLT pathway. We intend to initiate Phase I clinical
trials in the first half of 2001.

LUVs

We are developing large unilamellar vesicles, or LUVs, as an acute
treatment for ischemia, or reduced blood flow to the heart, caused by
atherosclerosis. LUVs are spherical particles made of naturally occurring
lipids that can remove cholesterol from cells. LUVs can cycle back through
arteries several times to remove more cholesterol. We believe this process will
allow the body to significantly increase the amount of cholesterol it is able
to remove and improve cardiovascular health and function. We believe that LUVs
have a high capacity to transport cholesterol, the third step in the RLT
pathway, and deliver it to the liver for elimination from the body.

Two preclinical animal studies were published involving administration of
LUVs. They showed the removal of cholesterol from arteries and the regression
of atherosclerosis, thereby helping arteries regain their flexibility and
function. The material used in these studies was similar to the LUVs that we
are developing. No adverse effects were reported in these studies of LUVs. None
of the studies were conducted by us or on our behalf. Our goal is to establish
in a human clinical trial, that intravenous infusion of LUVs is safe and can
help arteries remain open, thus increasing blood flow and reducing the symptoms
associated with atherosclerosis.

Commercialization of LUVs is subject to, among other things, satisfactory
resolution of outstanding litigation regarding our rights to the underlying
technology in the United States.

Research and Development

We have devoted substantially all of our resources since we began our
operations in May 1998 to the research and development of pharmaceutical
product candidates for cardiovascular disease. Our research and development
expenses were $8.5 million and $1.9 million in 1999 and 1998, and $4.1 million
during the three months ended March 31, 2000, respectively. Some of those
expenses funded research to study the potential connection between the presence
of low HDL levels and the incidence of metabolic disorders such as diabetes and
obesity. While all of our current product candidates are for the treatment of
cardiovascular disease, we also intend to discover and develop product
candidates for the treatment of metabolic disorders such as diabetes and
obesity.

We have developed proprietary technologies and techniques designed to
discover new drug candidates. We intend to capitalize on our knowledge of
chemistry, drug action and the RLT pathway to discover and refine new chemical
structures that possess beneficial properties for the treatment of diseases and
disorders. To accelerate this process, we are employing advanced
instrumentation and a number of drug discovery tools, including:

. genomics, which is the analysis of genetic material, proteins and
metabolites using techniques which catalog various chemical responses
in the body to provide an understanding of drug effects;

. protein engineering, which focuses on discovering, designing and
producing new proteins or peptides to develop novel therapies;

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. bioinformatics, which is computer storage and analysis of biological
information that allows us to perform in-depth analysis of the changes
to identify new drug targets, enhance drug discovery, and improve the
clinical development process; and

. chemical library screening, a laboratory testing process that focuses
on identifying new chemicals to develop possible oral therapies.

By integrating these drug discovery tools, we believe we can rapidly
identify and evaluate drug candidates and improve our prediction of their
clinical success.

In addition, we have implemented a clinical development strategy with
early involvement of regulatory agencies to better define the most appropriate
clinical trial development process. This strategy involves defining the best
clinical parameters for safety and efficacy in targeted populations.

Our Strategy

We are taking a product-focused approach towards drug development. The
key elements of our business strategy are as follows:

. Develop several different drug candidates for HDL Therapy. Based on
our understanding of the RLT pathway, we have identified a portfolio
of five product candidates we believe could provide a broad spectrum
of treatment options for cardiovascular disease. These product
candidates are focused on improving HDL function in the RLT pathway
and the removal of excess cholesterol from arteries. We do not believe
that loss of the LUV program, if we do not acquire Talaria and decide
to divest all or a portion of this program because of the Talaria
litigation, would materially impact our portfolio strategy.

. Leverage experienced scientific and drug development expertise. We are
managed by an experienced group of drug developers with significant
expertise in cardiovascular research and drug development.
Roger S. Newton, Ph.D., President and Chief Executive Officer of
Esperion, was the co-discoverer and chairman of the discovery team and
a member of the development team of Lipitor. Sales of Lipitor, the
most frequently prescribed cholesterol lowering drug, exceeded $3.5
billion in 1999. In addition, we have discovered an HDL elevator and
have successfully recruited the inventors of two of our drug
candidates.

. Optimize clinical and regulatory strategies to shorten time to
market. We believe that by initially focusing on acute treatments, we
can achieve an abbreviated development time, and faster time to
market, which will benefit patients with cardiovascular disease. We
intend to perform clinical trials to rapidly assess effectiveness for
well-defined cardiovascular endpoints in the treatment of acute
coronary syndromes, atherosclerosis and restenosis.

. Retain significant marketing rights to our product candidates. Our
goal is to retain marketing rights to our product candidates for as
long as it is commercially advantageous. By completing as much of the
preclinical and clinical development work by ourselves as is feasible,
we hope to be able to negotiate more favorable terms for any such
marketing arrangements.

We believe that the net proceeds from the offering and existing cash and
investment securities will be sufficient to support our current operating plan
through at least the end of 2001. We anticipate that our most significant
expenditures for the remainder of fiscal year 2000 and for the first six months
of fiscal year 2001 will be for further development of our product candidates,
payments under current licensing agreements, ongoing research and development
activities and general corporate and working capital purposes.

Clinical Testing

We do not have the ability to independently conduct clinical studies and
obtain regulatory approvals for our product candidates. We intend to rely on
third-party clinical research organizations, or CROs, to

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perform these functions. However, we have not yet finalized agreements with any
CROs to perform these functions. We have entered into an agreement with a CRO,
Inveresk Research, for study set up, including protocol preparation, expert
toxicology review and ethics submission, for AIM and we have agreed on a price
for the study, subject to executing a contract amendment to cover that work. We
are also in discussions with other CROs but have not yet negotiated agreements
for additional clinical studies. We intend to have contracts in place with CROs
at least 1 to 2 months prior to commencement of work under each such contract.

Marketing and Sales

We currently have no sales, marketing or distribution capabilities. In
order to commercialize any of our product candidates, we must either internally
develop sales, marketing and distribution capabilities or make arrangements
with third parties to perform these services. We intend to sell, market and
distribute some products directly and rely on relationships with third parties
to sell, market and distribute other products. To market any of our products
directly, we must develop a marketing and sales force with technical expertise
and with supporting distribution capabilities.

Our licensors have granted us exclusive rights to market our product
candidates except for AIM. We acquired exclusive worldwide rights for AIM from
Pharmacia in July 1998. Under this agreement, at the completion of Phase II
clinical trials, Pharmacia has the exclusive right of election to co-develop
and the exclusive right to market AIM in countries outside of the United States
and Canada. In addition, if we pursue a co-development and co-promotion
arrangement in the United States and Canada, Pharmacia has the right of first
negotiation.

In the United States, we do not intend to enter into co-promotion
arrangements or out-license our product candidates until our product candidates
are in the later stages of development, but we may promote our product
candidates through marketing relationships with one or more companies that have
established distribution systems and direct sales forces. In international
markets, initially we intend to seek strategic relationships to market, sell
and distribute our product candidates, but we may eventually become involved in
direct sales and marketing activities in other parts of the world.

Manufacturing

Manufacturing and Materials Supply

We currently rely, and will continue to rely, for at least the next few
years on contract manufacturers to produce sufficient quantities of our product
candidates for use in our preclinical and anticipated clinical trials. We also
rely, and intend to continue to rely, on third parties to provide the
components of these product candidates, such as proteins, peptides,
phospholipids and bulk chemical materials.

There is currently a limited supply of some of these components.
Furthermore, the contract manufacturers that we have identified to date only
have limited experience at manufacturing, formulating, analyzing, and fill and
finishing our product candidates in quantities sufficient for conducting
clinical trials or for commercialization.

For ProApo-A-I, Eurogentec S.A. manufactures the protein while Nattermann
International supplies the lipid for the process. For AIM, Pharmacia
manufactures the protein and we expect that BioChemie will manufacture the
protein, Genzyme Corporation and/or Chemi SpA supply the lipid and OctoPlus
b.v. formulates the product candidate. For LUVs, Applied Analytical Industries,
Inc. (AAI) manufactures the product, while Genzyme Corporation supplies the
lipid. Neosystem S.A. manufactures the RLT peptide and Avanti Polar Lipids,
Inc., and Genzyme Corporation supply the lipid. For HDL Elevator, Alchem
Laboratories Incorporated manufactures the HDL Elevator. All contract
manufacturers for proteins and peptides are sole source providers except
Pharmacia and BioChemie.

We have executed agreements with OctoPlus b.v., AAI, Eurogentec S.A. and
Neosystem S.A. The OctoPlus b.v. agreement, executed on April 4, 1999, provides
for the development and supply of toxicology and clinical supplies of AIM. The
OctoPlus b.v. agreement may be terminated at any time by either party upon
sixty days notice and remains in effect until terminated. The Eurogentec S.A.
agreement, executed on March 7, 2000, provides for the supply of clinical
supplies of ProApo A-I. The Eurogentec S.A. agreement

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lasts for five years or until a specified amount of ProApoA-I has been supplied
to us. We also may terminate this agreement for any reason upon thirty days
notice. Under the AAI agreement, AAI provides manufacturing services for LUVs.
We may terminate this agreement at anytime upon thirty days notice to AAI. The
Neosystem S.A. agreement, executed on April 17, 2000, provides for the
manufacturing and supply of the RLT peptide. The Neosystem S.A. agreement lasts
for sixty months, but is automatically renewed for additional one-year terms
thereafter unless either party terminates through written notice given to the
other party at least ninety days prior to the end of either the initial term or
any renewal term. We are currently negotiating agreements for either provision
of materials or formulation of product candidates with other suppliers and
manufacturers.

The process for manufacturing proteins and formulating them into protein
lipid complexes is complicated. We have no experience in commercial-scale
manufacture of ProApoA-I, AIM, RLT peptide, HDL elevators and LUVs. Our product
candidates will need to be manufactured in facilities and using processes that
comply with the FDA's cGMP requirements, GLPs, and other similar regulations,
including foreign regulations. It takes a substantial period of time to begin
producing proteins, peptides, phospholipids and HDL elevators in compliance
with such regulations. If we are unable to establish and maintain relationships
with third parties for manufacturing sufficient quantities of our product
candidates and their components that meet our planned time and cost parameters,
the development and timing of our clinical trials may be adversely affected.

Intellectual Property and License Agreements

Our ability to protect and use our intellectual property rights in the
development and commercialization of our product candidates is crucial to our
continued success. We will be able to protect our proprietary rights from
unauthorized use by third parties only to the extent that our proprietary
rights are covered by valid and enforceable patents or are effectively
maintained as trade secrets, or other proprietary information or know how. We
currently rely on a combination of patents and pending patent applications,
some of which we license and some of which have been assigned to us,
proprietary information, trade secrets and know how to protect our interests in
developing and commercializing our product candidates and technologies.

In connection with the license agreements described below, we may be
obligated to make various milestone and future royalty payments as defined in
the agreements, up to an aggregate amount of $25.2 million. At the present
time, it is uncertain as to whether we will be required to make these
additional payments.

ProApoA-I

In February 2000, we entered into a license agreement with Region
Wallonne to obtain exclusive, worldwide rights to its patents, proprietary
information and know-how concerning a precursor protein known as
proapolipoprotein A-I, or ProApoA-I. We have an exclusive license to a United
States patent relating to a gene sequence for ProApoA-I; expression vectors,
which are the DNA sequences for the purpose of bacterial production; and a
process for producing ProApoA-I. This patent expires in 2008.

We paid Region Wallonne $25,000 at the time we entered into this license
agreement. We are further obligated to pay Region Wallonne royalties on sales
of products that are covered by its patents. As part of this license, we have
also agreed to purchase supplies of ProApoA-I from, and to enter into a
research collaboration with, Region Wallonne.

AIM

In June 1998, we acquired exclusive, worldwide rights to AIM from
Pharmacia, subject to Pharmacia's exclusive right to co-develop and market AIM
in countries other than the United States and Canada. Under our license
agreement with Pharmacia, subject to Pharmacia's exclusive right to co-develop
and market AIM in countries other than the United States and Canada, we
acquired four U.S. patents and four pending U.S. patent applications, and other
related foreign patents and patent applications covering various aspects of
AIM. These patents and patent applications claim methods and materials for
producing AIM in bacteria and yeast, methods for purification and methods for
treating atherosclerosis and other forms of cardiovascular disease with AIM.
Two of the issued U.S. patents expire in 2015 and the other two issued U.S.
patents expire in 2016.

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Corresponding patents are in effect and patent applications are pending in
other countries where we believe the market potential for AIM is significant,
including most European countries and some Asian countries including Japan.

We paid Pharmacia $750,000 at the time we entered into our license
agreement in June 1998. Our license agreement with Pharmacia requires us to
make payments to Pharmacia as milestones are achieved, and to pay Pharmacia
royalties on sales of products that are covered by the Pharmacia patents or
developed using the Pharmacia technology. The first milestone payment of $1.0
million will be paid in cash or by issuance of a promissory note to Pharmacia
if and when we have completed clinical trials showing preliminary safety and
initial proof-of-concept (which may include early Phase IIa studies). We
believe that this would mean clinical trials which show favorable trends in
safety and efficacy, allowing us to better define the details of any potential
Phase III pivotal trials.

If Pharmacia exercises its exclusive right to co-develop and market AIM
in countries other than the United States and Canada, then we will make
additional milestone payments, up to an aggregate of $2.5 million, to
Pharmacia. If Pharmacia does not exercise its right to co-develop and market
AIM in countries other than the United States and Canada, then we will make
additional milestone payments, up to an aggregate of $13.5 million, to
Pharmacia starting if and when we enroll the first patient in the first Phase
III clinical trial for AIM in the United States. Instead of paying milestones
in cash, if the milestone payments are greater than 10% of our cash reserves at
the time of payment, we may instead make these payments by issuing Pharmacia a
promissory note.

Under this license agreement, at the completion of Phase II clinical
trials, Pharmacia has the exclusive right of election to co-develop and the
exclusive right to market AIM in countries outside of the United States and
Canada. In addition, if we pursue a co-development and co-promotion arrangement
in the United States and Canada with a third party, Pharmacia has the right of
first negotiations to co-develop and co-promote in the United States and
Canada. This license expires on the latter of 2018 or upon the last of the
Pharmacia patents to expire.

RLT Peptide

Under the agreement entered into in September 1999, we exclusively
licensed from a group of inventors, the RLT peptide technology, including three
issued United States patents and eleven pending United States, and
corresponding foreign pending, patent applications. The RLT peptide technology
relates to peptides and proteins that have activity equal to, or greater than,
ApoA-I. The issued U.S. patents expire in 2017 and are directed to peptides
having ApoA-I activity or pharmaceutical compositions. The pending patent
applications are directed to peptides, drug forms containing the peptides,
methods of using the peptides, pharmaceutical dosage forms of the peptides and
methods for preparing the dosage forms.

We paid the inventors of our RLT peptide an initial license fee of
$50,000 in January 2000. Our license agreement with the inventors requires us
to make payments to them as milestones are achieved, and to pay them royalties
on sales of products that are covered by the inventors' patents or developed
using the inventors' technology. Additional milestone payments, up to an
aggregate of $2.2 million, will be paid to the inventors if and when we achieve
future development milestones as defined in the agreement with the inventors.
This license continues until 2009 or the last to expire of any of the
inventors' patents.

HDL Elevators

We are also in the process of researching and developing small organic
molecules that increase HDL levels and also molecules which possess anti-
diabetic and anti-obesity properties. We have filed three United States patent
applications and equivalent international applications directed to a class of
compounds having this activity, the use of these compounds and compositions
containing these compounds and related to their preparation. We are also
pursuing, and will continue to pursue, patent protection for other classes of
compounds having this activity, which have been or will be identified in our
laboratories.

LUVs

In March 1999, we exclusively licensed certain LUV technology from Inex
on a worldwide basis. Inex owns issued patents in 13 European countries
covering the LUV technology and exclusively licenses, from the

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University of British Columbia, two pending U.S. patent applications. The
European patents claim methods for treatment of atherosclerosis using
liposomes. The U.S. patent applications claim liposome structure and chemical
makeup and methods for treatment of disease, including atherosclerosis. The
European patents expire in 2011.

We paid Inex $250,000 at the time we entered into our license agreement
with Inex for LUVs in March 1999. Our license agreement with Inex requires us
to make payments to Inex as milestones are achieved, and to pay Inex royalties
on sales of products that are covered by the licensed patents or developed
using the licensed technology. The first milestone payment will be paid to
Inex if and when we enroll our first patient in a Phase II clinical trial.
Additional milestone payments will be paid to Inex if and when we achieve
future development milestones as defined in the agreement, up to an aggregate
amount of $8.5 million.

There are issued patents that name Dr. Kevin Williams as an inventor and
are assigned to Talaria that claim use of LUVs to treat diseases including
atherosclerosis. We do not believe that the manufacture, use or sale of LUVs
by us does or would infringe any valid and enforceable claim of these patents.
However, if these patents are found to contain claims infringed by the
manufacture, use or sale of LUVs and such claims are ultimately found to be
valid and enforceable, we may not be able to obtain a license to the
intellectual property in such patents at an acceptable cost, if at all, or
develop or obtain alternative technology, which would prevent us from
commercializing our LUV technology.

On March 22, 2000, Talaria filed a lawsuit against us and Inex, UBC, and
the two inventors named on patent applications we sub-licensed from Inex. One
of these inventors is now employed by us. One of the allegations in the
lawsuit, which was filed in the United States District Court for the Eastern
District of Virginia, is the improper incorporation into a UBC patent
application of certain confidential information of Dr. Williams. This UBC
patent application is exclusively licensed to Inex and sublicensed to us. In
addition to seeking damages, Talaria is asking to be named as the owner or co-
owner of the UBC patent application. The parties to the lawsuit agreed that
UBC would take appropriate action in the United States Patent and Trademark
Office to prevent issuance of the UBC patent application as a patent until the
court had an opportunity to decide certain motions. These motions include one
filed by Talaria for a preliminary injunction that would have UBC withdraw the
UBC patent applications pending a full trial of the lawsuit or prevent UBC
from prosecuting the patent applications. We, and the other defendants, after
preliminary investigation, believe that the lawsuit is without merit. We also
believe that Inex is required to indemnify us against damages and costs
associated with the defense of the lawsuit arising out of the allegations by
Talaria and Dr. Williams relating to misuse of confidential information, which
indemnification would likely not be broad enough to cover all of our costs and
any damages in connection with this lawsuit. However, an adverse result in the
litigation could lead us to discontinue our efforts to commercialize the LUV
technology sublicensed by us from Inex.

Before the court could rule on the motions filed by Talaria, or those
filed by us and Inex in response thereto, we engaged in settlement discussions
with Talaria. The settlement discussions have led us to agree to negotiate a
non-binding letter of intent providing for our acquisition of Talaria by way
of a merger. We expect that the proposed letter of intent would provide for
the exchange of all of the outstanding shares of stock of Talaria for a number
of shares of our common stock equal to $6.0 million divided by the initial
public offering price per share discounted by 18%. Assuming an initial public
offering price of $9.00 per share, we would issue 813,008 shares of our common
stock to Talaria stockholders. We expect that the proposed letter of intent
would provide for additional payments by us to Talaria stockholders of up to
$6.25 million in cash or common stock upon the achievement of future
milestones, of which $750,000 may become due within the next twelve months,
and deferred contingent payments in cash or common stock based upon net sales
of LUVs in North America. Assuming the execution of a letter of intent, the
acquisition is not expected to close until after this offering is completed
and would be subject to the negotiation of a definitive acquisition agreement
and related documents, which would include customary closing conditions,
including approval by each company's board of directors and Talaria's
stockholders. Signing of the definitive agreements must occur by August 17,
2000, unless this deadline is extended. As a result, the acquisition may not
occur, in which case the parties would be required to

35
<PAGE>

resume litigation. In addition, the acquisition of Talaria would also be
subject to the approval of the other plaintiff and the defendants other than us
in the lawsuit that Talaria filed and the signing of settlement and release
documents by all parties to the lawsuit. No assurance can be given that any
acquisition of Talaria, or any settlement of litigation, can be negotiated.

Government Regulation

The U.S. FDA and comparable regulatory agencies in state and local
jurisdictions and in foreign countries impose substantial requirements on the
clinical development, manufacture and marketing of pharmaceutical product
candidates. These agencies and other federal, state and local entities regulate
research and development activities and the testing, manufacture, quality
control, safety, effectiveness, labeling, storage, record-keeping, approval and
promotion of our product candidates. All of our product candidates will require
regulatory approval before commercialization. In particular, therapeutic
product candidates for human use are subject to rigorous preclinical and
clinical testing and other requirements of the Federal Food, Drug, and Cosmetic
Act, or FDC Act, implemented by the FDA, as well as similar statutory and
regulatory requirements of foreign countries. Obtaining these marketing
approvals and subsequently complying with ongoing statutory and regulatory
requirements is costly and time-consuming. Any failure by us or our
collaborators, licensors or licensees to obtain, or any delay in obtaining
regulatory approvals or in complying with other requirements could adversely
affect the commercialization of product candidates and our ability to receive
product or royalty revenues.

The steps required before a new drug product candidate may be distributed
commercially in the U.S. generally include:

. conducting appropriate preclinical laboratory evaluations of the
product candidate's chemistry, formulation and stability, and
preclinical studies to assess the potential safety and efficacy of the
product candidate;

. submitting the results of these evaluations and tests to the FDA,
along with manufacturing information and analytical data, in an
Investigational New Drug application, or IND;

. making the IND effective after the resolution of any safety or
regulatory concerns of the FDA;

. obtaining approval of Institutional Review Boards, or IRBs, to
introduce the drug into humans in clinical studies;

. conducting adequate and well-controlled human clinical trials that
establish the safety and efficacy of the product candidate for the
intended use, typically in the following three sequential, or slightly
overlapping, stages:

Phase I: The product candidate is initially introduced into healthy
human subjects or patients and tested for safety, dose tolerance,
absorption, metabolism, distribution and excretion;

Phase II: The product candidate is studied in patients to identify
possible adverse effects and safety risks, to determine dosage
tolerance and the optimal dosage, and to collect some efficacy data;
and

36
<PAGE>

Phase III: The product candidate is studied in an expanded patient
population at multiple clinical study sites, to confirm efficacy and
safety at the optimized dose, by measuring a primary endpoint
established at the outset of the study;

. submitting the results of preliminary research, preclinical studies,
and clinical trials as well as chemistry, manufacturing and control
information on the product candidate to the FDA in a New Drug
Application, or NDA; and

. obtaining FDA approval of the NDA and final product labeling prior to
any commercial sale or shipment of the product candidate.

Each NDA must be accompanied by a user fee, pursuant to the requirements
of the Prescription Drug User Fee Act (PDUFA) and its amendments. According to
the FDA, in 2000 the user fee for an application requiring clinical data, such
as a full NDA, is $235,940. The FDA adjusts the PDUFA user fees on an annual
basis.

This process can take a number of years and require substantial financial
resources. The results of preclinical studies and initial clinical trials are
not necessarily predictive of the results from large-scale clinical trials, and
clinical trials may be subject to additional costs, delays or modifications due
to a number of factors, including the difficulty in obtaining enough patients,
clinical investigators, product candidate supply, or financial support. The FDA
may also require testing and surveillance programs to monitor the effect of
approved product candidates that have been commercialized, and the FDA has the
power to prevent or limit further marketing of a product candidate based on the
results of these post-marketing programs. Upon approval, a product candidate
may be marketed only in those dosage forms and for those indications approved
in the NDA. However, pursuant to recent Federal Court decisions concerning
commercial free speech, drug marketers are in some limited circumstances
permitted to distribute peer-reviewed scientific materials concerning
indications outside of the FDA labeling for product candidates.

In addition to obtaining FDA approval for each indication to be treated
with each product candidate, each domestic product candidate manufacturing
establishment must register with the FDA, list its product candidates with the
FDA, comply with cGMPs and permit and pass manufacturing plant inspections by
the FDA. Moreover, the submission of applications for approval may require
additional time to complete manufacturing stability studies. Foreign companies
that manufacture product candidates for distribution in the United States also
must list their product candidates with the FDA and comply with cGMPs. They are
also subject to periodic inspection by the FDA or by local authorities under
agreement with the FDA.

Under the FDC Act and related statutes, developers of new drugs are
afforded certain limited protections against competition from generic drug
companies. Under the Drug Price Competition and Patent Term Restoration Act,
drug companies can have Medical Product Patents extended to counter balance, in
part, the duration of FDA's review of their marketing applications. This Act
also provides for defined marketing exclusivity (i.e., protection from generic
competition regardless of any available patent protection) which are dependent
on the type and scope of clinical investigations a company undertakes in
support of a marketing application. Also, the FDA Modernization Act of 1997
permits marketing applications, under certain circumstances, to obtain an
additional six months of marketing exclusively if the applicant files reports
of investigations studying use of the drugs in the pediatric population.

Any product candidates that we manufacture or distribute pursuant to FDA
approvals are subject to extensive continuing regulation by the FDA, including
record-keeping requirements and reporting of adverse experiences with the
product candidate. In addition to continued compliance with standard regulatory
requirements, the FDA may also require further studies, including post-
marketing studies and surveillance to monitor the safety and efficacy of the
marketed product candidate. Results of post-marketing studies may limit or
expand the further marketing of the products. Adverse experiences with the
product candidate must be reported to the FDA. Product candidate approvals may
be withdrawn if compliance with regulatory requirements is not maintained or if
problems concerning safety or efficacy of the product candidate are discovered
following approval. In addition, if we propose any modifications to a product,
including changes in indication, manufacturing process, manufacturing facility
or labeling, a supplement to our NDA may be required to be submitted to the
FDA.

37
<PAGE>

The FDC Act also mandates that product candidates be manufactured
consistent with cGMPs. In complying with the FDA's regulations on cGMPs,
manufacturers must continue to spend time, money and effort in production,
recordkeeping, quality control, and auditing to ensure that the marketed
product candidate meets applicable specifications and other requirements. The
FDA periodically inspects manufacturing facilities to ensure compliance with
cGMPs. Failure to comply subjects the manufacturer to possible FDA action, such
as Warning Letters, suspension of manufacturing, seizure of the product,
voluntary recall of a product or injunctive action, as well as possible civil
penalties. We currently rely on, and intend to continue to rely on, third
parties to manufacture our compounds and product candidates. These third
parties will be required to comply with cGMPs.

Because many of our current third-party manufacturers are located outside
of the U.S., there may be difficulties in importing our product candidates
and/or their components into the U.S., as a result of, among other things, FDA
import inspections, incomplete or inaccurate import documentations, or
defective packaging.

Even after FDA approval has been obtained, further studies, including
post-marketing studies, may be required.

Products manufactured in the U.S. for distribution abroad will be subject
to FDA regulations regarding export, as well as to the requirements of the
country to which they are shipped. These latter requirements are likely to
cover the conduct of clinical trials, the submission of marketing applications,
and all aspects of manufacturing and marketing. Such requirements can vary
significantly from country to country. As part of our strategic relationships,
our collaborators may be responsible for the foreign regulatory approval
process for our product candidates, although we may be legally liable for
noncompliance.

We are also subject to various federal, state and local laws, rules,
regulations and policies 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 used in connection
with our research work. Although we believe that our safety procedures for
handling and disposing of such materials comply with current federal, state and
local laws, rules, regulations and policies, the risk of accidental injury or
contamination from these materials cannot be entirely eliminated.

The extent of government regulation that might result from future
legislation or administrative action cannot be accurately predicted. In this
regard, although the FDA Modernization Act of 1997 modified and created
requirements and standards under the FDC Act with the intent of facilitating
product candidate development and marketing, the FDA is still in the process of
developing regulations implementing the FDA Modernization Act of 1997.
Consequently, the actual effect of these developments on our business is
uncertain and unpredictable.

Competition

The pharmaceutical and biopharmaceutical industries are intensely
competitive and are characterized by rapid and significant technological
progress. Our competitors include large integrated pharmaceutical companies and
biotechnology companies and universities and public and private research
institutions which currently engage in, have engaged in or may engage in
efforts related to the discovery and development of new pharmaceuticals and
biopharmaceuticals, some of which may be competitive. Almost all of these
entities have substantially greater research and development capabilities and
financial, scientific, manufacturing, marketing and sales resources than we do,
as well as more experience in research and development, clinical trials,
regulatory matters, manufacturing, marketing and sales.

We are aware of companies that are developing invasive procedures for the
acute treatment of cardiovascular disease, such as atherosclerosis, ischemia
and restenosis, that may compete with our own acute treatments. In addition,
new non-invasive medical procedures and technologies are also under development
for the acute treatment of cardiovascular disease. These include potential
drugs, such as the LUV compound being

38
<PAGE>

developed by Talaria, which may compete with any LUV product that we could
develop, or with our other proposed products for acute treatment. In addition,
another organization is purifying ApoA-I from outdated human blood, for the
treatment of an infectious disease known as septic shock. Other companies with
substantially greater research and development resources may attempt to develop
products that are competitive with our product candidates for the acute
treatment of cardiovascular disease or seek approval for drugs in later stages
of development that have similar effects on cardiovascular disease as our acute
treatments.

We are also aware of companies that are developing products for the
chronic treatment of cardiovascular disease that may compete with our own HDL
elevating drug candidates. For example, several third parties have HDL
elevators under development, which could compete with our HDL elevating drug
candidates. Other companies with substantially greater research and development
resources may attempt to develop products that are competitive with our product
candidates or seek approval for drugs in later stages of development that have
similar effects as our product candidates.

If regulatory approvals are received, our products may compete with
several classes of existing drugs for the treatment of restenosis,
atherosclerosis, and ischemia, some of which are available in generic form. For
example, drugs available for the treatment of atherosclerosis include fibrates,
statins, niacin and hormones, all of which are available in pill or tablet, as
opposed to the intravenous administration method we intend to use for most of
our product candidates. Such existing drugs were not specifically designed to
elevate HDL levels and when administered only raise HDL levels to a limited
extent. In addition, administration of our product candidates designed to raise
HDL in conjunction with therapeutics designed to lower LDL could reduce the
overall market available to us. There are also surgical treatments such as
coronary bypass surgery and balloon angioplasty that may be competitive with
our products. However, for those patients who do not respond adequately to
existing therapies and remain symptomatic despite maximal treatment with
existing drugs and who are not candidates for these surgical procedures, there
is no currently effective treatment. In certain patients who are candidates for
these surgical procedures, there is no effective pharmacologic treatment
available.

Our products are still under development, and it is not possible to
predict our relative competitive position in the future. However, we think that
the principal competitive factors in the markets for ProApoA-I, AIM, the
RLT peptide, the class of HDL elevators, and the LUVs will likely include:

. safety and efficacy profile;

. product price;

. ease of administration;

. duration of treatment;

. product supply;

. enforceability of patent and other proprietary rights; and

. marketing and sales capability.

Our competitors also compete with us to:

. attract qualified personnel;

. attract parties for acquisitions, joint ventures or other
collaborations;

. license the proprietary technology that is competitive with the
technology we are practicing; and

. attract funding.

Employees

As of July 7, 2000, we had 48 employees. Of these employees, 39 were
engaged in research, preclinical and clinical development, regulatory affairs,
intellectual property activities, and/or manufacturing activities and 9 were
engaged in finance and general administrative activities. None of our employees
is covered by collective bargaining agreements. We consider relations with our
employees to be good.

39
<PAGE>

Facilities

Our leased principal corporate and research facilities, located in Ann
Arbor, Michigan, currently occupy approximately 24,000 square feet. These
leases expire at various times starting in December 2000. We also lease
research and office space in Solna, Sweden, which currently occupies
approximately 4,000 square feet. This lease expires in June 2002. We believe
that our existing facilities are adequate for our current needs. When our
leases expire, we may look for additional or alternate space for our operations
and we believe that suitable additional or alternative space will be available
in the future on commercially reasonable terms.

Our Solna, Sweden facility is located near the Strangnas, Sweden facility
of Pharmacia, at which Pharmacia manufactures supplies of AIM for use in
preclinical and clinical trials. Our employees work closely with Pharmacia in
the manufacturing of these compounds.

Legal Proceedings

As described elsewhere in this prospectus, we are involved in litigation
relating to our rights to the LUV technology sub-licensed from Inex.

40
<PAGE>

MANAGEMENT

Executive Officers and Directors

The following table presents information about our executive officers and
directors. Our board of directors is divided into three classes serving
staggered three-year terms.

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Roger S. Newton, Ph.D... 50 President, Chief Executive Officer and Director
Hans Ageland............ 39 Vice President, Production
Jan Johansson, M.D.,
Ph.D.................. 47 Vice President, Clinical Affairs
Timothy M. Mayleben..... 40 Vice President, Finance and Chief Financial Officer
David I. Scheer(1)...... 47 Chairman
Christopher Moller,
Ph.D.(1)(2)........... 46 Director
Eileen M. More(1)(2).... 53 Director
Seth A. Rudnick,
M.D.(2)............... 51 Director
Anders Wiklund.......... 59 Director
</TABLE>
--------
(1) Member of Compensation Committee
(2) Member of Audit Committee

Dr. Newton has served as our President and Chief Executive Officer and as
a director of Esperion since July 1998. From August 1981 until May 1998, Dr.
Newton was employed at Parke-Davis Pharmaceutical Research, Warner-Lambert
Company, as a Distinguished Research Fellow in Vascular and Cardiac Diseases
where he was the co-discoverer and chairman of the Lipitor discovery team and a
member of the development team. Dr. Newton received an A.B. in biology from
Lafayette College, an M.S. in nutritional biochemistry from the University of
Connecticut and a Ph.D. in nutrition from the University of California, Davis.
He also specialized in atherosclerosis research during a post-doctoral
fellowship at the University of California, San Diego. He currently holds a
faculty appointment in the Department of Pharmacology at the University of
Michigan Medical School.

Mr. Ageland has served as our Vice President, Production since February
1999. From 1998 to 1999, Mr. Ageland served as a consultant to Esperion. From
1997 to 1998, Mr. Ageland served as Director of Production at Medivir AB. From
1988 to 1997, Mr. Ageland served as Project Manager at Pharmacia & Upjohn where
he was responsible for developing and managing the AIM production process. Mr.
Ageland has more than 12 years of experience in recombinant protein production
and purification as well as more than a decade of experience in project
management. Dr. Ageland received an M.S. in chemical engineering, biochemistry
and biotechnology from the Royal Institute of Technology, Stockholm.

Dr. Johansson has served as our Vice President, Clinical Affairs, since
May 1999. From 1998 to May 1999, he served as a consultant to Esperion. From
1987 to 1998, Dr. Johansson directed research and multinational clinical trials
focused on abnormalities in lipid metabolism and atherosclerosis at the
Institute of Medicine at the Karolinska Hospital, where he also served as
associate professor in the Department of Internal Medicine since 1995. Dr.
Johansson served as medical advisor to Pharmacia & Upjohn for the AIM project
while working as a consultant with Non Nocere AB from 1995 to 1997. Dr.
Johansson received his M.D. and Ph.D. from the Karolinska Institute.

Mr. Mayleben has served as our Vice President, Finance and Chief
Financial Officer since January 1999. Mr. Mayleben has more than 15 years
experience working with high-growth technology companies. Prior to joining
Esperion, Mr. Mayleben served as a Director of Business Development for
Engineering Animation, Inc., a publicly held company, from September 1999 to
December 1999. From July 1997 to September 1999, Mr. Mayleben served as Chief
Operating Officer and Chief Financial Officer of Transom Technologies, Inc., a
privately held company that was acquired by Engineering Animation, Inc. From
November 1994 to July 1997, Mr. Mayleben served as Director of Operations, of
Applied Intelligent Systems, Inc., a privately held company. Prior to that, Mr.
Mayleben was a manager with the Enterprise Group of Arthur Andersen & Co. Mr.
Mayleben received a BBA from the University of Michigan and an MBA from the
Northwestern University Kellogg Graduate School of Management.

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<PAGE>

Mr. Scheer, our chairman, has been a director of Esperion since July
1998. He has been President of Scheer & Company, Inc., a firm with activities
in venture capital, corporate strategy, and transactional advisory services
focused on the life sciences industry since 1981. Scheer & Company, Inc. is the
managing member of Scheer Investment Holdings II, LLC, one of our stockholders.
Mr. Scheer was involved in the founding of our company, as well as ViroPharma,
Inc., OraPharma, Inc. and Achillon Pharmaceuticals, Inc. and is a member of the
board of directors of OraPharma, Inc. and Achillon Pharmaceuticals, Inc. Mr.
Scheer received his A.B. from Harvard College and his M.S. from Yale
University.

Dr. Moller has been a director of Esperion since July 1998. Since 1990,
he has served as Vice President of TL Ventures, a company which manages a
series of private equity funds. Since 1994, Dr. Moller has served as a Managing
Director of the following funds managed by TL Ventures; Radnor Venture
Partners, Technology Leaders, Technology Leaders II, TL Ventures III and TL
Ventures IV. He is principally responsible for the life science portfolio at TL
Ventures, specializing in financing and development of early-stage
biotechnology, bioinformatics and e-health companies. Dr. Moller also currently
serves as a director on the boards of Adolor Corporation, Assurance Medical,
OraPharma, Inc., Immunicon Corporation, eMerge Interactive, Inc., ChromaVision
Systems, Inc. and Genomics Collaborative. Dr. Moller holds a Ph.D. in
immunology from the University of Pennsylvania.

Ms. More has been a director of Esperion since September, 1999. She has
been associated with Oak Investment Partners, a venture capital firm, since
1978. She is currently a Special Limited Partner and had been a General Partner
or Managing Member since 1980. She currently serves as a director of several
companies including Halox Technologies, OraPharma, Inc., Psychiatric Solutions
and Teloquent Communications Corporation. Ms. More was also a founding investor
in Genzyme and has been responsible for early-stage investments in numerous
companies including Alkermes, Alexion Pharmaceuticals, Dyax, OraPharma, Inc.,
Kera Vision, Osteotech, Pharmacopeia, Trophix Pharmaceuticals, Compaq Computer,
Network Equipment Technologies, Octel Communications and Stratus Computer.

Dr. Rudnick has been a director of Esperion since January 2000. He has
been a Venture Partner at Canaan Equity Partners, a venture capital firm, since
1998, and serves as a director of OraPharma, Inc. and NaPro BioTherapeutics,
Inc. He was Chairman and Chief Executive Officer of Cytotherapeutics, Inc. from
1995 through 1998. Prior to that, Dr. Rudnick served as Senior Vice President
of the R.W. Johnson Pharmaceutical Research Group of Ortho Pharmaceutical
Corporation, Senior Vice President of Development with Biogen Research
Corporation and Director of Clinical Research with Schering-Plough. Dr. Rudnick
has held various faculty appointments with Brown University, the University of
North Carolina and Yale University, and received his M.D. from the University
of Virginia, with fellowships at Yale in oncology and epidemiology.

Mr. Wiklund has been a director of Esperion since July 1998. He has been
an advisor to the biotechnology and pharmaceutical industries since January of
1997 when he formed Wiklund International Inc. In 1997 he was appointed Sr.
Vice President of Biacore Holding, Inc., a supplier of affinity biosensor
systems. Mr. Wiklund served as President of Pharmacia Development Corporation
from August 1993 to December 1994, as Executive Vice President of Pharmacia US,
Inc. from January 1995 to December 1995 and as Vice President of Pharmacia &
Upjohn from January 1995 to December 1996. Between 1984 and 1993, he was
President & CEO of Kabi Vitrum, Inc. and Kabi Pharmacia, Inc. Mr. Wiklund
serves as a director of InSite Vision, Inc., Medivir AB, Ribozyme
Pharmaceuticals, Inc., Bioreason Inc., and Glyco Design, Inc. He has a Master
of Pharmacy from the Pharmaceutical Institute in Stockholm and studied business
administration at the University of Stockholm.

Board of Directors

Our board of directors is divided into the following three classes, with
the members of the respective classes serving for staggered three-year terms:

. Class 1 directors, whose terms expire at the next annual meeting of
stockholders which will be held in 2001;

42
<PAGE>

. Class 2 directors, whose terms expire at the annual meeting of
stockholders to be held in 2002; and

. Class 3 directors, whose terms expire at the annual meeting of
stockholders to be held in 2003.

Anders Wiklund and Seth A. Rudnick, MD. are our Class 1 directors,
Christopher Moller, Ph.D. and Eileen M. More are our Class 2 directors, and
David I. Scheer and Roger S. Newton, Ph.D. are our Class 3 directors. At each
annual meeting of stockholders following this offering, our stockholders will
elect the successors to directors whose terms expire to serve from the time of
election and qualification until the third annual meeting following election.

All directors were nominated and elected as directors by the holders of
our common and preferred stock in accordance with provisions of a stockholders
agreement that will terminate upon the completion of this offering. Each of the
individuals will remain as a director until resignation or until the
stockholders elect their replacements in accordance with our certificate of
incorporation.

Our executive officers are appointed by the board of directors and serve
until their successors have been duly elected and qualified. There are no
family relationships among any of our executive officers or directors.

Audit Committee

We have established an audit committee. Our audit committee consists of
three independent directors. Our audit committee is responsible for reviewing
with management our financial controls and accounting and reporting activities.
In addition, our audit committee is also responsible for reviewing the
qualifications of our independent auditors, making recommendations to the board
of directors regarding the scope, fees and results of any audit and reviewing
any non-audit services and related fees.

Compensation Committee and Compensation Committee Interlocks and Insider
Participation

We have established a compensation committee. Our compensation committee
is responsible for the evaluation, approval and administration of all salary,
incentive compensation, benefit plans and other forms of compensation for our
officers, directors and other employees including, bonuses and options granted
under our 1998 Stock Option Plan, our 2000 Equity Compensation Plan, and our
Employee Stock Purchase Plan. None of the Compensation Committee members has
served as an officer or employee of Esperion or its subsidiary, except Roger S.
Newton, Ph.D., who has been our President and Chief Executive Officer since our
inception in 1998. Effective March 24, 2000, Dr. Newton resigned from the
Compensation Committee, which currently consists solely of non-employee
directors.

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<PAGE>

Esperion Scientific Advisors

We currently retain scientific advisors who advise us concerning long-
term scientific planning and research and development, periodically evaluate
our research programs and periodically review development plans for our product
candidates. Our current scientific advisors are as follows:

<TABLE>
<CAPTION>
Member Professional Affiliation Expertise
---------------------- ----------------------------- --------------------------------
<S> <C> <C>
Prediman K. Shah, M.D. Cedars Sinai Medical Center, Interventional cardiology
Director, Department of
Cardiology
Cesare Sirtori, M.D. University Center E. Grossi Pharmacology of lipid and
Paoletti, Institute of lipoprotein metabolism
Pharmacological Science,
University of Milan, Italy
Guido Franceschini, University Center E. Grossi Pharmacology of lipid and
Ph.D. Paoletti, Institute of lipoprotein metabolism
Pharmacological Science,
University of Milan, Italy
Daniel Rader, M.D. University of Pennsylvania, Human genetics of lipid
Department of Medicine and disorders
Experimental Therapeutics
Charles Sing, Ph.D. University of Michigan, Human genetics of cardiovascular
Department of Human Genetics risk factors
</TABLE>

Director and Scientific Advisors Compensation

We reimburse each member of our board of directors and each of our
scientific advisors for out-of-pocket expenses incurred in connection with
attending our meetings. We also pay each of our scientific advisors a fee for
each meeting attended. In addition, on July 17, 2000, we granted each outside
member of our board of directors options to purchase 15,000 shares of our
common stock at an exercise price per share equal to the initial public
offering price per share. The options vest in three equal annual installments.

44
<PAGE>

Executive Compensation

The following table presents information concerning the compensation we
paid for the year ended December 31, 1999 to our chief executive officer and
the other executive officers who earned over $100,000 in compensation during
the year ended December 31, 1999.

1999 Summary Compensation Table

<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation Awards
---------------- ------------------------
Restricted Securities
Name and Principal Stock Underlying All Other
Position Salary Bonus Awards(#) Options(#) Compensation(1)
------------------ -------- ------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Roger S. Newton,
Ph.D. ............... $200,000 $60,000 -- -- $717,736
President, Chief
Executive Officer
Timothy M. Mayleben.... 145,000 32,000 -- 72,250 735
Vice President, Chief
Financial Officer
Jan Johansson, M.D.,
Ph.D.(2)............. 177,615 10,000 86,700(/4/) 173,400 60,096
Vice President,
Clinical Affairs
Hans Ageland(3)........ 164,405 10,000 86,700(/4/) 173,400 5,235
Vice President,
Production
</TABLE>
--------
(1) For Dr. Newton, this includes $517,000 as the deemed value of 95,841 shares
of series C preferred stock that were issued to Dr. Newton, and $200,000
that was paid to Dr. Newton, in January 1999 to reimburse Dr. Newton for a
portion of the tax expense he incurred in connection with the early
exercise of stock options from his prior employer in 1998 when he joined
Esperion. Includes $4,500 forgiveness of loans to Dr. Johansson and Mr.
Ageland and term life insurance premiums in the amount of $735 paid by us
for Dr. Newton, Mr. Mayleben, Dr. Johansson and Mr. Ageland during 1999.
Includes $54,861 of relocation expenses reimbursement to Dr. Johansson
during 1999.
(2) Dr. Johansson's employment with Esperion began in May 1999. His salary for
1999 was $106,667. Prior to his employment, Dr. Johansson served as a
consultant to us. He was paid $70,948 in 1999 for his services as a
consultant.
(3) Mr. Ageland's employment with Esperion began in February 1999. His salary
for 1999 was $146,667. Prior to his employment, Mr. Ageland served as a
consultant to us. He was paid $17,738 in 1999 for his services as a
consultant.
(4) The fair market value of these shares at the date of grant was deemed by
the board at such time to be $18,000, or $0.21 per share.

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<PAGE>

Stock Option Grants

The following table contains information concerning options to purchase
common stock that we granted in 1999 to each of the executive officers named in
the summary compensation table. We generally grant stock options at 100% of the
fair market value of the common stock as determined by our board of directors
on the date of grant. In reaching the determination of fair market value at the
time of each grant, the board of directors considers a range of factors,
including the price at which the company was able to raise funds from venture
capital investors through the sale of convertible preferred stock in recent
transactions and the rights of the common stock compared to this preferred
stock, and the illiquidity of an investment in the common stock.

Option Grants in 1999

<TABLE>
<CAPTION>
Individual Grants
------------------------------------------
Potential Realizable
Value at Assumed
Percent of Annual Rates
Number of Total of Stock Price
Securities Options Appreciation
Underlying Granted to Exercise for Option Term
Options Employees Price Per Expiration ---------------------
Name Granted in 1999 Share Date 5% 10%
---- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Roger S. Newton,
Ph.D. ................ -- -- -- -- -- --
Jan Johansson M.D.,
Ph.D. ................ 173,400 31.9% $0.21 06/2008 $2,384,589 $3,643,399
Hans Ageland............ 173,400 31.9 0.21 06/2008 2,384,589 3,643,399
Timothy M. Mayleben..... 72,250 13.3 0.21 01/2008 993,579 1,518,083
</TABLE>

The following table contains information covering options to purchase
common stock that we granted in 2000 prior to July 7, 2000. The percentage of
total options granted is based on a total of 680,840 options granted in 2000
prior to July 7, 2000.

Option Grants in 2000

<TABLE>
<CAPTION>
Individual Grants
------------------------------------------
Potential Realizable
Value at Assumed
Percent of Annual Rates
Number of Total of Stock Price
Securities Options Appreciation
Underlying Granted to Exercise for Option Term
Options Employees Price Per Expiration ---------------------
Name Granted in 2000 Share Date 5% 10%
---- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Roger S. Newton,
Ph.D. ................ 126,437 18.6% $2.21 01/2009 $1,485,882 $2,403,761
Jan Johansson M.D.,
Ph.D. ................ -- -- -- -- -- --
Hans Ageland............ -- -- -- -- -- --
Timothy M. Mayleben..... 90,312 13.3 2.21 01/2009 1,061,342 1,716,969
</TABLE>

Amounts reported in the "potential realizable value" tables column above
are hypothetical values that may be realized upon exercise of the options
immediately prior to the expiration of their term, calculated using an assumed
public offering price of $9.00 per share as the base and assuming appreciation
at the indicated annual rate compounded annually for the entire term of the
option (nine years). The 5% and 10% assumed rates of appreciation are mandated
by the rules of the Securities and Exchange Commission and do not represent our
estimate or projection of our future common stock price. The gains shown are
net of the option exercise price, but do not include deductions for taxes or
other expenses associated with the exercise of the option or the sale of the
underlying shares.

The following table contains information concerning options to purchase
common stock held as of December 31, 1999 by each of the executive officers
named in the summary compensation table. There was no

46
<PAGE>

public trading market for the common stock as of December 31, 1999.
Accordingly, these values have been calculated on the basis of an assumed
public offering price of $9.00 per share minus the applicable per share
exercise price.

1999 Year-End Option Values

<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Year End at Year End
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Roger S. Newton, Ph.D... -- -- $ -- $ --
Jan Johansson, M.D,
Ph.D.................. 54,187 119,213 476,304 1,047,882
Hans Ageland............ 54,187 119,213 476,304 1,047,882
Timothy M. Mayleben..... 13,546 58,704 119,069 516,008
</TABLE>

Employment, Change of Control and Termination of Employment Arrangements

Roger S. Newton, Ph.D., holds the position of President and Chief
Executive Officer and receives an annual salary of $215,000 per year, and is
eligible to receive a bonus of up to 30% of his base salary per year. The
amount of his bonus, if any, is dependent upon achievement of a series of
performance milestones, set by our board of directors. He has also received
578,000 shares of restricted common stock which are subject to a repurchase
right, lapsing over a four-year period, at the original price, exercisable upon
the termination of Dr. Newton's employment and options to purchase 126,437
shares of our common stock at $2.21 per share. These options are exercisable
for nine years from the grant date and will vest over a four-year period of
time from the date of issuance. If we terminate Dr. Newton's employment without
cause, he will receive his salary and benefits for six months after his
termination, and 25% of his unvested options and unvested restricted stock will
automatically vest.

Jan Johansson, M.D., holds the position of Vice President, Clinical
Affairs and receives an annual salary of $160,000 per year and is eligible to
receive a bonus of up to 20% of his base salary per year. The amount of his
bonus, if any, is dependent on the achievement of a series of performance
milestones set by our board of directors. Dr. Johansson holds options to
purchase 173,400 shares of Esperion's common stock at $0.21 per share. These
options are exercisable for nine years from the grant date and will vest over a
four-year period of time from the date of issuance. We will award to Dr.
Johansson options to purchase an additional 18,062 shares of our stock upon the
completion of a clinical trial of AIM, indicating proof of concept, if such an
event occurs by November 2000. If we terminate Dr. Johansson's employment
without cause, he will receive his salary and benefits for nine months after
his termination and 25% of his options will automatically vest. In July 1999,
Dr. Johansson purchased 86,700 shares of common stock at a purchase price of
$0.21 per share, and paid for these shares by delivery of a promissory note.
These shares are subject to a repurchase right, lapsing over a three-year
period, at the original price, exercisable upon the termination of Dr.
Johansson's employment. The note bears interest at the rate of prime plus one
percent per year and is due upon the earlier to occur of Dr. Johansson's
termination as an employee or August 1, 2003. However, the note is forgiven
ratably over a three-year period if Dr. Johansson's employment is terminated
without cause by us, and we have elected to forgive this portion of the note so
that it will be forgiven in full on August 1, 2002.

Hans Ageland holds the position of Vice President, Production and
receives an annual salary of $160,000 per year and is eligible to receive a
bonus of up to 20% of his base salary per year. The amount of his bonus, if
any, is dependent on the achievement of a series of performance milestones set
by our board of directors. Mr. Ageland holds options to purchase 173,400 shares
of the our common stock at $0.21 per share. These options are exercisable for
nine years from the grant date and will vest over a four year period of time
from the date of issuance. We will award options to purchase an additional
18,062 shares of our common stock upon the completion of a clinical trial of
AIM indicating proof of concept, if such an event occurs by November 2000. If
we terminate Mr. Ageland's employment without cause, he will receive his salary
and benefits for nine months after his termination and 25% of his options will
automatically vest. In July 1999,

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<PAGE>

Mr. Ageland purchased 86,700 shares of common stock at a purchase price of
$0.21 per share, and paid for these shares by delivery of a promissory note.
These shares are subject to a repurchase right, lapsing over a four-year
period, at the original price, exercisable upon Mr. Ageland's termination of
employment. The note bears interest at the rate of prime plus one percent per
year and is due upon the earlier to occur of Mr. Ageland's termination as an
employee or July 1, 2004. However, the note is forgiven ratably over a four-
year period if Mr. Ageland's employment is terminated without cause by us, and
we have elected to forgive this portion of the note so that it will be forgiven
in full on the fourth anniversary of his date of employment.

Timothy M. Mayleben holds the position of Vice President, Finance and
Chief Financial Officer and receives an annual salary of $175,000 per year and
is eligible to receive a bonus of up to 20% of his salary. The amount of his
bonus, if any, is dependent upon achievement of performance milestones set by
our board of directors. Mr. Mayleben holds options to purchase 72,250 shares of
our common stock at $0.21 per share and options to purchase 90,312 shares of
common stock at $2.21 per share. These options are exercisable for nine years
from the date of grant and will vest quarterly over a four-year period of time
from the date of issuance. If we terminate Mr. Mayleben's employment without
cause, he will receive his salary and benefits for six months after his
termination, and 25% of his unvested options will automatically vest.

Equity Compensation Plans

1998 Stock Option Plan

We maintain the 1998 Stock Option Plan which has been approved by our
board of directors and our stockholders. The 1998 plan provides for grants of
incentive stock options and nonqualified stock options to our directors,
officers, employees, advisors and consultants. All options granted to date have
been granted under the 1998 Stock Option Plan.

General. The plan authorizes up to 1,784,575 shares of our common stock
for issuance under the plan. As of July 7, 2000, 236,466 of these authorized
shares were available for issuance under the plan. If options granted under the
plan terminate, expire or are cancelled for any reason without being exercised,
the shares of common stock underlying the grants will be available for grant of
new options under the plan. As of July 7, 2000, options for 1,274,514 shares of
our common stock were outstanding under the plan.

Administration of the Plan. The compensation committee of the board of
directors administers and makes grants under the plan.

Grant of Options. Options granted under the plan shall be designated
either as options intended to qualify as incentive stock options within the
meaning of Section 422 of the Internal Revenue Code or as nonqualified stock
options intended not to so qualify.

Eligibility for Participation. Options may be granted to any of our
directors, officers, employees or advisors.

Option Price and terms. The committee determines the exercise price of
each stock option. The exercise price of an incentive stock option must be at
least equal to the market value of the common stock subject to the option at
the time of grant. If the committee grants an incentive stock option to an
owner of 10 percent or more of the outstanding shares of common stock, the
option price must be at least 110 percent of the market value of the stock
subject to the option.

When granting an option, the committee shall specify one or more of the
following forms of payment to be used by the grantee:

. in cash;

. by delivering shares of common stock owned by the grantee and having
a fair market value on the date of exercise equal to the exercise
price of the option; or

. payment through a broker.

48
<PAGE>

Options become exercisable according to the terms determined by the
compensation committee and set forth in the option agreement. Generally,
options granted to date have vested in 16 equal quarterly installments
beginning on the first quarter from the date of grant. The compensation
committee may accelerate the exercisability of any or all outstanding options
at any time upon its discretion. The term for any stock option may not exceed
ten years, and all options granted to date have had a 9 year term. The term of
an incentive stock option granted to an employee who owns more than 10% of our
stock may not exceed five years from the date of grant.

Grants are generally not transferable by the optionee, except in the
event of death.

Amendment and Termination of the Plan. The board of directors may amend
or terminate the plan at any time. However, the board of directors may not make
any amendment without stockholder approval if such stockholder approval is
required by Section 422 of the Internal Revenue Code or under Rule 16b-3 under
the Securities Exchange Act of 1934. The plan will terminate on the earliest to
occur of a.) the tenth anniversary of its approval by the board of directors,
b.) the tenth anniversary of its approval by the stockholders or c.) the date
in which the board of directors terminates the plan.

Antidilution. In the event the common stock is changed through a stock
split, stock dividend, merger or other transaction identified in the plan, the
committee will make appropriate adjustments to outstanding options and to the
options authorized for issuance under the plan.

Change of Control. In the event of a merger or other transaction in which
we are not the surviving entity or all or substantially all of our assets are
sold, the committee or the board of directors has the discretion to:

. accelerate the exercisability of outstanding stock options;

. terminate all outstanding options, if their exercisability has been
accelerated;

. pay to option holders the difference between the fair market value and
the option price of the shares subject to outstanding stock options,
in return for the surrender of outstanding options; or

. provide for the assumption of outstanding options, or the substitution
of new options, by the successor corporation or entity.

2000 Equity Compensation Plan

We also maintain the 2000 Equity Compensation Plan which has been
approved by our board of directors and our stockholders. The 2000 plan provides
for grants of incentive stock options, nonqualified stock options, stock awards
and performance units to our employees, advisors, consultants and non-employee
directors.

General. The 2000 plan authorizes up to 1,000,000 shares of our common
stock for issuance under the terms of the plan. No more than 500,000 shares in
the aggregate may be granted to any individual in any calendar year. If options
granted under the plan expire or are terminated for any reason without being
exercised, or if stock awards or performance units are forfeited, the shares of
common stock underlying the grants will again be available for purposes of the
plan. No options, stock awards or performance units have been granted to date
under the 2000 plan.

Administration of the Plan. The compensation committee of the board of
directors administers and makes grants under the plan.

Grants. Grants under the plan may consist of:

. options intended to qualify as incentive stock options;

. nonqualified stock options;

. stock awards; and

. performance units.

49
<PAGE>

Eligibility for Participation. Grants may be made to any of our
employees, members of our board of directors, and consultants and advisors who
perform services for us.

Options. The exercise price of options will be determined by the
compensation committee, and may be equal to or greater than the fair market
value of our common stock on the date the option is granted.

Participants may pay the exercise price:

. in cash;

. with the approval of the compensation committee, by delivering shares
of common stock owned by the grantee and having a fair market value on
the date of exercise equal to the exercise price of the option;

. by payment through a broker; or

. by such other method as the compensation committee may approve.

Options become exercisable according to the terms determined by the
compensation committee and specified in the grant instrument. The compensation
committee may accelerate the exercisability of any or all outstanding options
at any time for any reason. The compensation committee will determine the term
of each option, up to a maximum ten-year term. The term of an incentive stock
option granted to an employee who owns more than 10% of our stock may not
exceed five years from the date of grant.

Stock Awards. The compensation committee may issue shares of stock to
participants subject to restrictions or no restrictions. Unless the
compensation committee determines otherwise, during the restriction period,
grantees will have the right to vote shares of stock awards and to receive
dividends or other distributions paid on such shares. If a grantee's employment
or service terminates during the restriction period or if any other conditions
are not met, the stock awards will terminate as to all shares on which
restrictions are still applicable, and the shares must be immediately returned
to us, unless the compensation committee determines otherwise.

Performance Units. The compensation committee may make grants of
performance units to employees, consultants and advisors. Performance units may
be payable partly in cash or shares of our common stock, provided that the cash
portion does not exceed 50% of the amount to be distributed at the end of a
specific performance period. Payment will be contingent on achieving
performance goals by the end of the performance period. The measure of a
performance unit will be equal to the fair market value of a share of our
common stock. The compensation committee will determine the performance
criteria, the length of the performance period, the maximum payment value of an
award, the minimum performance goals required before payment will be made, and
any other conditions the compensation committee deems appropriate and
consistent with the plan and Section 162(m) of the Internal Revenue Code.

Performance-Based Compensation. The compensation committee may grant
performance units and stock awards that are intended to be "qualified
performance-based compensation" under Section 162(m) of the Internal Revenue
Code. In that event, the compensation committee will establish in writing the
objective performance goals that must be met and other conditions of the grant
at the beginning of the performance period. The performance goals may relate to
the employee's business unit or to our performance as a whole, or any
combination of the two. The compensation committee will use objectively
determinable performance goals based on one or more of the following criteria:
stock price, earnings per share, net earnings, operating earnings, return on
assets, stockholder return, return on equity, growth in assets, unit volume,
sales, market share, scientific goals, preclinical or clinical goals,
regulatory approvals, or strategic business criteria consisting of one or more
objectives based on meeting specified revenue goals, market penetration goals,
geographic business expansion goals, cost targets, goals relating to
acquisitions or divestitures, or strategic partnerships. With respect to stock
awards or performance units granted as "qualified performance-based
compensation," not more than 500,000 shares of stock may be granted to an
employee under the performance units or stock awards for any performance
period. At the end of each performance period, the compensation committee will
certify the

50
<PAGE>

results of the performance goals and the extent to which the performance goals
have been met. The compensation committee may provide for payment of grants in
the event of death or disability of a participant, or a change of control
during a performance period.

Deferrals. The compensation committee may permit or require that a
grantee defer the receipt of cash or the delivery of shares that would
otherwise be due to the grantee in connection with any option, stock awards, or
performance units.

Transferability. Grants are generally not transferable by the
participant, except in the event of death. However, the compensation committee
may permit participants to transfer nonqualified stock options to family
members or related entities on such terms as the compensation committee deems
appropriate.

Amendment and Termination of the Plan. The board of directors may amend
or terminate the plan at any time. However, the board of directors may not make
any amendment without stockholder approval if stockholder approval is required
by Section 162(m) or Section 422 of the Internal Revenue Code or is required by
an applicable stock exchange. The plan will terminate on the day immediately
preceding the tenth anniversary of its effective date, unless the board of
directors terminates the plan earlier or extends it with approval of the
stockholders.

Adjustment Provisions. Upon a merger, spin-off, stock split or other
transaction identified in the plan, the compensation committee may
appropriately adjust:

. the maximum number and kind of shares available for grants under the
plan and to any individual;

. the number and kind of shares covered by outstanding grants; and

. the price per share or the applicable market value of grants.

Change of Control. Upon a change of control where we are not the
surviving entity or where we survive only as a subsidiary of another entity,
unless the compensation committee determines otherwise, all outstanding grants
will be assumed by or replaced with comparable options or other grants by the
surviving corporation. In addition, upon a change of control, the compensation
committee may:

. accelerate the vesting and exercisability of outstanding stock options
and stock awards;

. determine that grantees holding performance units will receive a
payment in settlement of such performance units;

. require that grantees surrender their outstanding options in exchange
for payment by us, in cash or common stock, in an amount equal to the
amount by which the fair market value of the shares of common stock
subject to the options exceeds the exercise price; and

. after giving grantees an opportunity to exercise their outstanding
options, terminate any and all unexercised options.

A "change of control" is defined to occur if:

. any person becomes a beneficial owner, directly or indirectly, of
stock representing more than 50% of the voting power of the then-
outstanding shares of our stock;

. the stockholders or the directors, as appropriate, approve:

. any merger or consolidation with another corporation where our
stockholders, immediately before such transaction, will not
beneficially own, immediately after the transaction, shares
entitling such stockholders to more than 50% of all votes to which
all stockholders of the surviving corporation would be entitled in
the election of directors;

51
<PAGE>

. a sale or other disposition of all or substantially all our assets;
or

. a liquidation or dissolution.

Foreign Grantees. For grantees who are subject to taxation in countries
other than the United States, the compensation committee may make grants on
such terms and conditions as the compensation committee deems appropriate to
comply the laws of applicable countries.

Section 162(m)

Under Section 162(m) of the Internal Revenue Code, we may be precluded
from claiming a federal income tax deduction for total remuneration in excess
of $1,000,000 paid to our chief executive officer or to any of our other four
most highly compensated officers in any one year. Total remuneration includes
amounts received upon the exercise of stock options granted under the plan and
the value of shares or cash paid pursuant to other grants. An exception exists,
however, for "qualified performance-based compensation."

The compensation committee may make grants under the 1998 plan and the
2000 plan that meet the requirements of "qualified performance-based
compensation." Stock options generally will meet the requirements of
performance-based compensation. Not all such awards and performance units are
considered performance-based compensation under section 162(m). The
compensation committee may grant stock awards and performance units under the
2000 plan that are subject to attainment of objective performance goals and are
intended to meet the requirements of performance-based compensation under
Section 162(m).

Employee Stock Purchase Plan

Concurrently with our initial public offering, we will establish an
employee stock purchase plan under which a total of 500,000 shares of our
common stock will be made available for sale to our employees. We intend the
purchase plan to qualify as an employee stock purchase plan within the meaning
of Section 423 of the Internal Revenue Code. The compensation committee will
administer the purchase plan. Employees are eligible to participate in the
purchase plan if they are employed by us or a designated subsidiary, work more
than 20 hours per week and for more than five months in any calendar year, and
do not own five percent or more of our stock. The purchase plan permits
eligible employees to purchase stock through after-tax payroll deductions,
which may not exceed 15% of an employee's compensation. The maximum number of
shares that a participant may purchase during a purchase period is 250,000
shares.

The purchase plan will be implemented as a series of consecutive offering
periods, each approximately three months long. The first offering period will
begin on the effective date of the plan and will end on September 30, 2000.
Each subsequent offering period will begin on the first trading day after each
October 1, January 1, April 1 and July 1 of every year, and will end on the
last trading day in the period three months later. Each participant will be
granted an option to purchase stock on the first day of the three-month period
and the option will automatically be exercised on the last day of the offering
period. The purchase price of each share of stock during the initial purchase
period will be the lesser of the fair market value per share of our stock on
the effective date of the plan or 85% of the fair market value of our stock on
the purchase date. Thereafter, the purchase price of each share of common stock
under the purchase plan will be equal to 85% of the lesser of the fair market
value per share of our common stock on the start date of the offering period or
on the date of purchase. Employees may modify or end their participation in the
offering at any time during the offering period. Participation ends
automatically upon termination of employment or if the participant ceases to be
an eligible employee. The board of directors may amend the purchase plan at any
time. However, the board of directors may not amend the plan without
stockholder approval if such approval is required by Section 423 of the
Internal Revenue Code. The purchase plan will terminate ten years after its
effective date, unless it is terminated sooner under the terms of the plan or
our board of directors terminates it.

52
<PAGE>

401(k) Plan

We maintain a tax-qualified employee savings and retirement plan, our
401(k) plan, for our eligible employees. At the discretion of the board of
directors, we may make matching contributions on behalf of all participants who
have elected to make deferrals to the 401(k) plan. To date, we have not made
any matching contributions to the 401(k) plan. Any contributions to the 401(k)
plan by us or by our participants are paid to a trustee. The 401(k) plan, and
the accompanying trust, are intended to qualify under Section 401(k) of the
Internal Revenue Code, as amended, so that contributions and income earned, if
any, are not taxable to employees until withdrawn. The contributions made by us
vest in increments according to a vesting schedule. At the direction of each
participant, the trustee invests the contributions made to the 401(k) plan in
any number of investment options.

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<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Previous Capital Stock Financings

We sold 500,000 shares of series A preferred stock in July 1998 and
10,000,000 shares of series B preferred stock in August 1998. We sold
10,252,879 shares of series C preferred stock in January 2000 and 1,136,363
shares of series D preferred stock in February 2000. Substantially all of our
shares of preferred stock have been sold to venture capital funds.

The detailed description of the various venture capital funds that have
purchased our preferred stock is contained in the footnotes to the Principal
Stockholder's table on page 54. Each share of outstanding preferred stock will
convert into 0.7225 shares of common stock upon completion of this offering.

Series A Preferred Stock. We sold 500,000 shares of series A preferred
stock in July 1998 at a purchase price per share of $1.00 for a total of
$500,000. In these transactions, we sold 275,000 shares to Oak Investment
Partners, 175,000 shares to TL Ventures III, and 50,000 shares to Scheer
Investment Holdings II, L.L.C.

Series B Preferred Stock. We sold 10,000,000 shares of series B preferred
stock in August 1998 at a purchase price per share of $1.50, for a total of $15
million. In these transactions, we sold 3,750,000 shares of series B preferred
stock to each of Oak Investment Partners and TL Ventures III, 2,133,333 shares
to HealthCap KB, 33,334 shares to Scheer Investment Holdings II, L.L.C., and
333,333 shares to Dr. Cesare Sirtori.

Series C Preferred Stock. We sold 10,125,465 shares of series C preferred
stock in January 2000 at a purchase price per share of $2.16 for a total of
approximately $21.9 million. In these transactions, we sold:

. 2,280,093 shares to Canaan Equity Partners;

. 1,851,852 shares to Oak Investment Partners;

. 1,851,852 shares to TL Ventures III;

. 1,388,889 shares to HealthCap KB;

. 1,157,408 shares to Avalon Investments;

. 925,926 shares to TL Ventures IV;

. 462,963 shares to Serventia SA;

. 46,296 shares to Scheer Investment Holdings II, L.L.C.;

. 34,722 shares to Seth A. Rudnick; and

. 125,464 to other investors.

In addition, we issued an aggregate of 127,414 shares of series C preferred
stock to Roger S. Newton, Ph.D., our President and Chief Executive Officer, and
Anders Wiklund, one of our directors, for services rendered.

Series D Preferred Stock. We sold 1,136,363 shares of series D preferred
stock in February 2000 at a purchase price per share of $4.40 for a total of
approximately $5.0 million to Investor AB.

Common Stock

At the time of the series A preferred stock transactions, we also sold
shares of common stock at a price of $.001 per share. We sold 216,749 shares to
Oak Investment Partners and 361,250 shares to Scheer Investment Holdings II,
L.L.C. We also sold 578,000 shares to Roger Newton, Ph.D., which shares are
subject

54
<PAGE>

to a repurchase right, lapsing quarterly over the four-year period after the
purchase, at the original purchase price, exercisable upon termination of Dr.
Newton's employment.

In July 1999, Dr. Johansson, our Vice President, Clinical Affairs,
purchased 86,700 shares of common stock at a purchase price of $0.21 per share,
and paid for these shares by delivery of a promissory note. These shares are
subject to a repurchase right, lapsing over a three-year period, at the
original price, exercisable upon Dr. Johansson's termination of employment. The
note bears interest at the rate of prime plus one percent per year and is due
upon the earlier to occur of Dr. Johansson's termination as an employee or
August 1, 2003. However, the note is forgiven ratably over a three-year period
if Dr. Johansson's employment is terminated without cause by us, and we have
elected to forgive this portion of the note so that it will be forgiven in full
on August 1, 2002.

In July 1999, Mr. Ageland, our Vice President, Production, purchased
86,700 shares of common stock at a purchase price of $0.21 per share, and paid
for these shares by delivery of a promissory note. The shares are subject to a
repurchase right, lapsing over a four-year period, at the original price,
exercisable upon Mr. Ageland's termination of employment. The note bears
interest at the rate of prime plus one percent per year and is due upon the
earlier to occur of Mr. Ageland's termination as an employee or July 1, 2004.
However, the note is forgiven ratably over a four-year period if Mr. Ageland's
employment is terminated without cause by us, and we have elected to forgive
this portion of the note so that it will be forgiven in full on the fourth
anniversary of his date of employment.

In September 1998, Anders Wiklund, one of our directors, purchased
144,500 shares of common stock at a purchase price of $0.21 per share, and paid
for such shares by delivery of a promissory note. The note bears interest at
the rate of prime plus one percent per year and is due upon the earlier to
occur of Mr. Wiklund's termination as a consultant or September 1, 2003.
However, the note is forgiven ratably over a four- year period if Mr. Wiklund's
engagement as a consultant is terminated without cause by us.

Other Transactions with Directors

Since our inception, Scheer and Company, Inc., a company owned and
controlled by David I. Scheer, our chairman, has provided corporate strategy
consulting services and assisted us in our efforts to develop corporate
relationships. Scheer and Company, Inc. receives compensation for these
services in the amount of $30,000 per quarter plus out-of-pocket expenses. From
inception through December 31, 1998, Scheer and Company, Inc. received $10,000
per quarter plus out-of-pocket expenses for these services.

Anders Wiklund, one of our directors, provides business consulting
services to us which includes assisting in our efforts to secure new product
candidates and technologies. Mr. Wiklund was paid $12,000 in 1998 and $27,000
in 1999 for these services plus reimbursement of his out of pocket expenses. He
has been paid $3,000 per month to date in 2000, and will be paid $1,500 per
month from August 1, 2000.

Transactions with Scientific Advisors

Dr. Cesare Sirtori provides product candidate research and consulting
services to us. For providing these services, we have funded Dr. Sirtori's
laboratory at a cost of $50,000 per quarter since January 1999.

Dr. Prediman K. Shah provides product candidate development services to
us for which we have paid him $5,000 per month, plus out-of-pocket expenses
since November 1998.

55
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table provides information regarding the beneficial
ownership of our common stock as of July 7, 2000, and as adjusted to reflect
the sale of the shares of our common stock offered hereby, by:

. each person or entity who beneficially owns more than 5% of our stock;

. each of our directors;

. our named executive officers; and

. all executive officers and directors as a group.

Unless otherwise indicated, the address of each executive officer named
in the table below is care of Esperion Therapeutics, Inc., 3621 S. State Street
695 KMS Place, Ann Arbor, MI 48108. The amounts and percentages of common stock
beneficially owned are reported on the basis of regulations of the Securities
and Exchange Commission governing the determination of beneficial ownership of
securities. Under the rules of the Commission, a person is deemed to be a
"beneficial owner" of a security if that person has or shares "voting power,"
which includes the power to vote or to direct the voting of such security, or
"investment power," which includes the power to dispose of or to direct the
disposition of such security. A person is also deemed to be a beneficial owner
of any securities of which that person has a right to acquire beneficial
ownership within 60 days. Under these rules, more than one person may be deemed
a beneficial owner of the same securities and a person may be deemed to be the
beneficial owner of securities as to which such person has no economic
interest.

<TABLE>
<CAPTION>
Percentage of Shares
Beneficially Owned
------------------------------
Number of Shares
Name of Beneficial Owner Beneficially Owned Before Offering After Offering
------------------------ ------------------ --------------- --------------
5% Stockholders
---------------
<S> <C> <C> <C>
Oak Investment Partners
(1)....................... 4,462,772 24.76% 18.58%

Canaan Equity Partners (2).. 1,647,367 9.14 6.86

TL Ventures III (3)......... 4,173,771 23.16 17.37

TL Ventures IV (4).......... 668,980 3.71 2.78

HealthCap KB (5)............ 2,544,804 14.12 10.59

<CAPTION>
Directors and Executive
Officers
-----------------------
<S> <C> <C> <C>
Eileen M. More (1).......... 4,462,772 24.76% 18.58%

Seth Rudnick (2)............ 1,672,453 9.28 6.96

Christopher Moller (3) (4).. 4,842,751 26.87 20.16

Roger S. Newton (6)......... 662,978 3.67 2.76

David I. Scheer (7)......... 454,906 2.52 1.89

Jan Johansson (8)........... 173,404 * *

Hans Ageland (9)............ 173,404 * *

Timothy M. Mayleben (10).... 38,386 * *

Anders Wiklund (11)......... 185,447 1.03 *
---------- ----- ------
All directors and executive
officers as a group (12).. 12,666,501 69.90% 52.52%
</TABLE>
--------
* less than one percent

56
<PAGE>

(1) Includes 4,353,436 shares owned by Oak Investment Partners VII, Limited
Partnership and 109,336 shares owned by Oak VII Affiliates Fund Limited
Partnership. Ms. More is a Special Limited Partner of Oak Associates VII,
Limited Partnership and Oak VII Affiliates, Limited Partnership, the
general partners of Oak Investment Partners VII, Limited Partnership and
Oak VII Affiliates Fund, Limited Partnership, respectively. The General
Partners have sole authority and responsibility for all investment, voting
and disposition decisions for Oak Investment Partners VII, Limited
Partnership and Oak VII Affiliates Fund, Limited Partnership,
respectively. Ms. More disclaims beneficial ownership of shares in which
she does not have a pecuniary interest. The address of both Oak Investment
Partners VII, Limited Partnership and Oak VII Affiliates Limited
Partnership is One Gorham Island, Westport, CT 06880.

(2) Includes 1,079,029 shares owned by Canaan Equity II L.P., 482,680 shares
owned by Canaan Equity II L.P. (QP) and 85,658 shares owned by Canaan
Equity II Entrepreneurs LLC. Dr. Rudnick, a venture partner at Canaan
Equity Partners, owns 25,086 shares. Dr. Rudnick disclaims ownership of
shares in which he does not have a recurring interest. The address of each
of the Canaan Equity Partners entities is 105 Rowayton Avenue, Rowayton,
CT 06853.

(3) Includes 3,360,595 shares owned by TL Ventures III L.P., 703,446 shares
owned by TL Ventures III Offshore L.P. and 109,730 shares owned by TL
Ventures III Interfund L.P. TL Ventures III L.P., TL Ventures III Offshore
L.P., and TL Ventures III Interfund L.P. are referred to as TL Ventures
III. TL Ventures III L.P., TL Ventures III Offshore L.P., and TL Ventures
III Interfund L.P. are venture capital partnerships that are required by
their governing documents to make all investment, voting and disposition
actions in tandem. TL Ventures III Management L.P., a limited partnership,
is the sole general partner of TL Ventures III L.P. TL Ventures III
Offshore Partners L.P. is the sole general partner of TL Ventures III
Offshore L.P. TL Ventures III LLC is the sole general partner of TL
Ventures III Interfund L.P. The general partners have sole authority and
responsibility for all investment, voting and disposition decisions for TL
Ventures III. The general partners of TL Ventures III Management L.P., TL
Ventures III Offshore Partners L.P. and TL Ventures III LLC are Safeguard
Scientifics (Delaware), Inc., Robert E. Keith, Jr., Gary J. Anderson, Mark
J. DeNino, Robert A. Fabbio and Christopher Moller, a director of
Esperion. Dr. Moller disclaims beneficial ownership of shares in which he
does not have a pecuniary interest. The address for each of the TL
Ventures investment funds is 700 Building, 435 Devon Park Drive, Wayne, PA
19087.

(4) Includes 651,758 shares owned by TL Ventures IV L.P. and 17,222 shares
owned by TL Ventures IV Interfund L.P. TL Ventures IV L.P., TL and TL
Ventures IV Interfund L.P. are referred to as TL Ventures IV. TL and TL
Ventures IV Interfund L.P. are venture capital partnerships that are
required by their governing documents to make all investment, voting and
disposition actions in tandem. TL Ventures IV Management L.P., a limited
partnership, is the sole general partner of TL Ventures IV L.P. TL
Ventures IV LLC is the sole general partner of TL Ventures III Interfund
L.P. The general partners have sole authority and responsibility for all
investment, voting and disposition decisions for TL Ventures IV. The
general partners of TL Ventures IV Management L.P., and TL Ventures IV LLC
are Safeguard Scientifics (Delaware), Inc. Robert E. Keith, Jr., Gary J.
Anderson, Mark J. DeNino, Robert A. Fabbio and Christopher Moller, a
director of Esperion. Dr. Moller disclaims beneficial ownership of shares
in which he does not have a pecuniary interest. The address for each of
the TL Ventures investment funds is 700 Building, 435 Devon Park Drive,
Wayne, PA 19087.

(5) Includes 1,068,819 shares owned by HealthCap KB and 1,475,985 shares owned
by HealthCap CoInvest KB. The address for HealthCap KB and HealthCap
CoInvest KB is Sturegatan 34, S-11436 Stockholm, Sweden. HealthCap KB and
HealthCap CoInvest KB are Swedish limited partnerships.

(6) Includes 15,806 shares of common stock issuable upon the exercise of stock
options within sixty days. Includes certain shares subject to repurchase
by the Company.

(7) Includes 454,906 shares owned by Scheer Investment Holdings II, L.L.C. Mr.
Scheer is President of Scheer & Company, Inc., the managing member of
Scheer Investment Holdings II, L.L.C. Mr. Scheer disclaims beneficial
ownership of any shares in which he does not have a pecuniary interest.

(8) Includes 21,679 shares of common stock issuable upon the exercise of stock
options within sixty days. Includes certain shares subject to repurchase
by the Company.

(9) Includes 32,517 shares of common stock issuable upon exercise of stock
options within sixty days. Includes certain shares subject to repurchase
by the Company.

(10) Includes 20,324 shares of common stock issuable upon the exercise of stock
options within sixty days.

(11) Includes 4,518 shares of common stock issuable upon exercise of stock
options within sixty days.

(12) Includes 94,844 shares of common stock issuable upon exercise of stock
options within sixty days. Includes certain shares subject to repurchase
by the Company.

57
<PAGE>

DESCRIPTION OF CAPITAL STOCK

Our Authorized Capital Stock Upon the Closing of this Offering

. 50 million shares of common stock, par value $.001 per share

. 5 million shares of preferred stock, par value $.01 per share

Immediately after the sale of the shares of common stock in this
offering, we will have 24,024,855 shares of common stock outstanding and no
shares of preferred stock outstanding (without giving effect to the sale of any
shares to employees under our Employee Stock Purchase Plan or upon exercise of
any stock options by them).

Common Stock

Voting:

. one vote for each share held of record on all matters submitted to a
vote of stockholders

. no cumulative voting rights

. election of directors by plurality of votes cast

. all other matters by majority of votes cast

Dividends:

. subject to preferential dividend rights of outstanding shares of
preferred stock, if any, common stockholders are entitled to receive
declared dividends

. the board of directors may only declare dividends out of legally
available funds

Additional Rights:

. subject to the preferential liquidation rights of outstanding shares
of preferred stock, if any, common stockholders are entitled to
receive net assets, available after the payment of all debts and
liabilities, upon our liquidation, dissolution or winding up

. no preemptive rights

. no redemption or sinking fund rights

The rights and preferences of common stockholders are subject to the
rights of the holders of any series of preferred stock we may issue in the
future.

Preferred Stock

We may, by resolution of our board of directors, and without any further
vote or action by our stockholders, authorize and issue, subject to limitations
prescribed by law, up to an aggregate of five million shares of preferred
stock. The preferred stock may be issued in one or more classes or series of
shares. With respect to any classes or series, the board of directors may
determine the designation and the number of shares, preferences, limitations
and special rights, including dividend rights, conversion rights, voting
rights, redemption rights and liquidation preferences. Because of the rights
that may be granted, the issuance of preferred stock may delay, defer or
prevent a change of control.

58
<PAGE>

Prior to this offering, we had 500,000 shares of series A preferred
stock, 10,000,000 shares of series B preferred stock, 10,252,879 shares of
series C preferred stock and 1,136,363 shares of series D preferred stock
issued and outstanding. Upon the completion of this offering, all of our
outstanding shares of preferred stock will convert into a total of 15,814,961
shares of common stock.

Stockholders' Meeting

Our next annual meeting of stockholders will be held in 2001.

Limitations on Liability

Our certificate of incorporation limits or eliminates the liability of
our directors to us or our stockholders for monetary damage to the fullest
extent permitted by the Delaware General Corporation Law. As permitted by the
Delaware General Corporation Law, our certificate of incorporation provides
that our directors shall not be personally liable to us or our stockholders for
monetary damages for a breach of fiduciary duty as a director, except for
liability:

. for any breach of such person's duty of loyalty;

. for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law;

. for unlawful payments of dividends or unlawful stock repurchases or
redemption; and

. for any transaction resulting in receipt by such person of an improper
personal benefit.

Our certificate of incorporation also contains provisions indemnifying
our directors and officers to the fullest extent permitted by the Delaware
General Corporation Law.

We currently have directors' and officers' liability insurance to provide
our directors and officers with insurance coverage for losses arising from
claims based on breaches of duty, negligence, errors and other wrongful acts.

Anti-Takeover Effects of Provisions of Charter Documents and Delaware Law

Upon the closing of this offering our certificate of incorporation will
provide for the division of our board of directors into three classes. Each
class must be as nearly equal in number as possible. Additionally, each class
must serve a three-year term. The terms of each class are staggered so that
each term ends in a different year over a three-year period. Our bylaws provide
that a director may only be removed for cause and only by the vote of more than
50% of the shares entitled to vote for the election of directors. Our
certificate of incorporation prohibits stockholder action by written consent.

Our certificate of incorporation also provides that our board of
directors may establish the rights of, and cause us to issue, substantial
amounts of preferred stock without the need for stockholder approval. Further,
our board of directors may determine the terms, conditions, rights, privileges
and preferences of the preferred stock. Our board is required to exercise its
business judgment when making such determinations. Our board of directors' use
of the preferred stock may inhibit the ability of third parties to acquire
Esperion. Additionally, our board may use the preferred stock to dilute the
common stock of entities seeking to obtain control of Esperion. The rights of
the holders of common stock will be subject to, and may be adversely affected
by, any preferred stock that may be issued in the future. Our preferred stock
provides desirable flexibility in connection with possible acquisitions,
financings and other corporate transactions. However, it may have the effect of
discouraging, delaying or preventing a change in control of Esperion. We have
no present plans to issue any shares of preferred stock.

After this offering is completed, Section 203 of the Delaware General
Corporation Law will apply to Esperion. Section 203 of the Delaware General
Corporation Law generally prohibits certain "business

59
<PAGE>

combinations" between a Delaware corporation and an "interested stockholder."
An "interested stockholder" is generally defined as a person who, together
with any affiliates or associates of such person, beneficially owns, or within
three years did own, directly or indirectly, 15% or more of the outstanding
voting shares of a Delaware corporation. The statute broadly defines business
combinations to include:

. mergers;

. consolidations;

. sales or other dispositions of assets having an aggregate value in
excess of 10% of the consolidated assets of the corporation or
aggregate market value of all outstanding stock of the corporation;
and

. certain transactions that would increase the "interested
stockholder's" proportionate share ownership in the corporation.

The statute prohibits any such business combination for a period of
three years commencing on the date the "interested stockholder" becomes an
"interested stockholder," unless:

. the business combination is approved by the corporation's board of
directors prior to the date the "interested stockholder" becomes an
"interested stockholder";

. the "interested stockholder" acquired at least 85% of the voting stock
of the corporation (other than stock held by directors who are also
officers or by certain employee stock plans) in the transaction in
which it becomes an "interested stockholder"; and

. the business combination is approved by a majority of the board of
directors and by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the "interested
stockholder."

The Delaware General Corporation Law contains provisions enabling a
corporation to avoid Section 203's restrictions if stockholders holding a
majority of the corporation's voting stock approve an amendment to the
corporation's certificate of incorporation or by-laws to avoid the
restrictions. In addition, the restrictions contained in Section 203 are not
applicable to any of our existing stockholders. We have not and do not
currently intend to "elect out" of the application of Section 203 of the
Delaware General Corporation Law.

The existence of the foregoing provisions of the Delaware General
Corporation Law and of our certificate of incorporation and our bylaws could
make it more difficult for third parties to acquire or attempt to acquire
control of us or substantial amounts of our common stock.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is StockTrans,
Inc., Ardmore, Pennsylvania.

60
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market or a distribution of shares by the venture capital funds that hold our
shares to their respective investors, could adversely affect prevailing market
prices. Furthermore, since no shares will be available for sale shortly after
this offering because of the contractual and legal restrictions on resale
described below, sales of substantial amounts of common stock in the public
market after these restrictions lapse or are waived could adversely affect the
prevailing market price and our ability to raise equity capital in the future.

Upon completion of this offering, we will have outstanding an aggregate
of 24,024,855 shares of common stock, assuming no exercise of the underwriters'
over-allotment option, and excluding 1,274,514 shares issuable upon exercise of
outstanding options and 500,000 shares that may be sold under our Employee
Stock Purchase Plan. All of the shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act
of 1933, unless such shares are purchased by "affiliates" as that term is
defined in Rule 144 under the Securities Act. The remaining shares of common
stock that will be outstanding upon completion of this offering are "restricted
securities" as that term is defined in Rule 144 under the Securities Act.
Restricted shares may be sold in the public market only if registered or if
they qualify for an exemption from registration described below under Rules
144, 144(k) or 701 promulgated under the Securities Act.

Beginning 180 days after the date of this prospectus, substantially all
restricted shares subject to lock-up agreements between the underwriters and
most of our stockholders, including officers and directors, will become
eligible for sale in the public market under Rule 144(k), Rule 144 or Rule 701.
The lock-up agreements provide that the stockholders will not sell or otherwise
dispose of any shares of common stock without the prior written consent of
FleetBoston Robertson Stephens Inc. for a period of 180 days from the date of
this prospectus. Bona fide gifts or distributions to the stockholders or
limited partners of stockholders are excepted from the restrictions of the
lock-up agreements, provided the transferee agrees to be bound by similar
restrictions. FleetBoston Robertson Stephens may release all or any portion of
the securities subject to the lock-up agreements without notice.

We intend to file a registration statement under the Securities Act
covering 1,784,575 shares of common stock authorized for issuance under our
1998 Stock Option Plan; and 1,000,000 shares of common stock authorized for
issuance under our 2000 Equity Compensation Plan.

We also intend to file an additional registration statement immediately
following completion of this offering pertaining to the sale of up to 500,000
shares of common stock authorized for issuance under our Employee Stock
Purchase Plan covered under this registration statement.

Thereafter, shares which are issued under these plans will, subject to
Rule 144 volume limitations applicable to affiliates, be available for sale in
the open market.

Rule 144

Under Rule 144, beginning 90 days after the date the registration
statement of which this prospectus is a part is declared effective, a person,
or persons whose shares are aggregated and who has beneficially owned
restricted shares for at least one year, which includes the holding period of
any prior owner other than an affiliate, would generally be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of:

. 1% of the outstanding shares of our common stock then outstanding,
which will equal approximately 240,249 shares immediately after this
offering; or

61
<PAGE>

. The average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing
of a notice on Form 144 with respect to such sale.

Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about us.

Rule 144(k)

Under Rule 144(k), a person who was not an affiliate of our's at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, which includes the holding period
of any prior owner except an affiliate, is entitled to sell such shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.

Rule 701

In general, under Rule 701 of the Securities Act, any of our employees,
consultants or advisors, other than affiliates, who purchases or receives
shares from us in connection with a compensatory stock purchase plan or option
plan or other written agreement will be eligible to resell such shares
beginning 90 days after the effective date of the registration statement of
which this prospectus is a part, subject only to the manner of sale provisions
of Rule 144, and by affiliates under Rule 144 without compliance with its
holding period requirements.

Registration Rights

Following completion of this offering, holders of 15,814,961 shares of
common stock will have the right to have their shares registered for resale
under the Securities Act of 1933. These rights are provided under the terms of
an agreement between us and the holders of such securities. In addition,
pursuant to this agreement, the holders of 15,814,961 shares of common stock
are entitled to require us to include their registrable securities in future
registration statements we file under the Securities Act of 1933. Registration
of shares of common stock pursuant to the exercise of these registration rights
would result in such shares becoming freely tradable without restriction under
the Securities Act of 1933 immediately upon the effectiveness of such
registration and may adversely affect our stock price. In addition, if we
complete the acquisition of Talaria, the holders of the shares issued pursuant
to the acquisition will be entitled to rights with respect to the registration
of such shares beginning one year after the completion of this offering.

62
<PAGE>

UNDERWRITING

The underwriters, acting through their representatives, FleetBoston
Robertson Stephens Inc., Chase Securities Inc. and U.S. Bancorp Piper Jaffray
Inc., have severally agreed to purchase from us the number of shares of common
stock next to their respective names below. The underwriters are committed to
purchase and pay for all the shares if any are purchased.

<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
FleetBoston Robertson Stephens Inc...............................
Chase Securities Inc.............................................
U.S. Bancorp Piper Jaffray Inc...................................
---------
Total.......................................................... 6,000,000
=========
</TABLE>

The underwriters propose to offer the shares of common stock to the
public at the public offering price set forth on the cover page of this
prospectus and to specific dealers at that price less a concession of $
per share, of which $ may be reallowed to other dealers. After this
offering, the public offering price, concession and reallowance to dealers may
be reduced by the representatives. However, no reduction will change the amount
of proceeds to be received by us as set forth on the cover page of this
prospectus. The common stock is offered by the underwriters subject to receipt
and acceptance by them and subject to their right to reject any order in whole
or in part.

The underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.

Overallotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 900,000 additional shares of common stock at the same price per
share as we will receive for the shares that the underwriters have agreed to
purchase. If the underwriters exercise this option, each of the underwriters
will have a firm commitment, subject to limited conditions, to purchase
approximately the same percentage of these additional shares that the number of
shares of common stock to be purchased by it shown in the above table
represents as a percentage of the total shares offered in this offering. If
purchased, these additional shares will be sold by the underwriters on the same
terms as those on which the shares offered in this offering are being sold. We
will be obligated to sell shares to the underwriters to the extent the option
is exercised. The underwriters may exercise such option only to cover
overallotments made in connection with the sale of the shares of common stock
offered in this offering.

Indemnity. The underwriting agreement contains covenants of indemnity
among the underwriters and us against identified civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement. In
addition, the underwriting agreement contains a covenant that the Company shall
obtain Directors and Officers liability insurance in the minimum amount of $10
million and cause FleetBoston Robertson Stephens Inc. to be added to such
policy such that up to $500,000 of certain of its expenses shall be paid
directly by such insurers.

Lock-Up Agreements. Each executive officer, director, and substantially
all of our stockholders, agreed with the representatives for a period of 180
days after the date of this prospectus, subject to certain exceptions, not to
offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or
grant any rights with respect to any shares of common stock, any options or
warrants to purchase any shares of common stock, or any securities convertible
into or exchangeable for shares of common stock, owned as of the date of this
prospectus or thereafter acquired directly by such holders or with respect to
which they have or hereafter acquire the power of disposition, without the
prior written consent of FleetBoston Robertson Stephens Inc. FleetBoston
Robertson Stephens Inc. may, in its sole discretion and at any time or from
time to time without notice, release all or any portion of the securities
subject to the lock-up agreements. There are no agreements between the
representatives and any of our stockholders who have executed a lock-up
agreement providing consent to the sale of shares prior to the expiration of
the lock-up period.

63
<PAGE>

Future Sales. In addition, we have agreed that during the 180 days after
the date of this prospectus we will not, subject to certain exceptions, without
the prior written consent of FleetBoston Robertson Stephens Inc. issue, sell,
contract to sell, or otherwise dispose of, any shares of common stock, any
options or warrants to purchase any shares of common stock or any securities
convertible into, exercisable for or exchangeable for shares of common stock
other than the sale of shares in this offering, the issuance of common stock
upon the exercise of outstanding options or warrants, the issuance of options
or shares under our existing stock option plan, stock purchase plan or other
equity compensation plan, the issuance of common stock in connection with a
potential acquisition of Talaria, and the issuance of common stock in
connection with strategic relationships, so long as the recipient of such
shares executes a lock-up.

Listing. We have applied to have the common stock approved for quotation
on The Nasdaq National Market under the symbol "ESPR."

No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price
for the common stock offered hereby will be determined through negotiations
between us and the representatives of the underwriters. Among the factors to be
considered in such negotiations are prevailing market conditions, certain of
our financial information, market valuations of other companies that we and the
representatives, believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.

Syndicate Short Sales. The representatives have advised us that, on
behalf of the underwriters, they may make short sales of our common stock in
connection with this offering, resulting in the sale by the underwriters of a
greater number of shares than they are required to purchase pursuant to the
underwriting agreement. The short position resulting from those short sales
will be deemed a "covered" short position to the extent that it does not exceed
the 900,000 shares subject to the underwriters' over-allotment option and will
be deemed a "naked" short position to the extent that it exceeds that number. A
naked short position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the trading price of the
common stock in the open market that could adversely affect investors who
purchased shares in the offering. The underwriters may reduce or close out
their covered short positions either by exercising the over-allotment option or
by purchasing shares in the open market. In determining which of these
alternatives to pursue, the underwriters will consider the price at which
shares are available for purchase in the open market as compared to the price
at which they may purchase shares through the over-allotment option. Any
"naked" short position will be closed out by purchasing shares in the open
market. Similar to the other stabilizing transactions described below, open
market purchasers made by the underwriters to cover all or a portion of their
short position may have the effect of preventing or retarding a decline in the
market price of our common stock following this offering. As a result, our
common stock may trade at a price that is higher than the price that otherwise
might prevail in the open market.

Stabilization. The representatives have advised us that, pursuant to
Regulation M under the Securities Act of 1934, they may engage in transactions,
including stabilizing bids or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the shares of common
stock at a level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of shares of common stock on
behalf of the underwriters for the purpose of fixing or maintaining the price
of the common stock. A "penalty bid" is an arrangement permitting the
representatives to claim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with the offering if the common
stock originally sold by that underwriter or syndicate member is purchased by
the representatives in the open market pursuant to a stabilizing bid or to
cover all or part of a syndicate short position. The representatives have
advised us that stabilizing bids and open market purchases may be effected on
the Nasdaq National Market or otherwise and, if commenced, may be discontinued
at any time.

Directed Share Program. At our request, the underwriters have reserved
up to 7% of the common stock to be issued by us and offered for sale in this
offering, at the initial public offering price, to our directors, officers,
employees, business associates and related persons. The number of shares of
common stock available for sale to the general public will be reduced to the
extent such individuals purchase such reserved shares. Any
reserved shares which are not so purchased will be offered by the underwriters
to the general public on the same basis as the other shares offered in this
offering.

64
<PAGE>

EMPLOYEE STOCK PURCHASE PLAN

Concurrently with this initial public offering, we will establish an
employee stock purchase plan under which a total of 500,000 shares of our
common stock will be made available for purchase by our employees. For a
description of our Employee Stock Purchase Plan, see "Equity Compensation
Plans--Employee Stock Purchase Plan."

LAWYERS

The validity of the shares of common stock offered hereby will be passed
upon for Esperion by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania.
Certain legal matters will be passed upon for the Underwriters by Testa,
Hurwitz and Thibeault, LLP, Boston, Massachusetts.

EXPERTS

The consolidated financial statements of Esperion Therapeutics, Inc. as
of December 31, 1999 and 1998 and for the periods then ended included in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.

The financial statements of Talaria Therapeutics, Inc. as of December 31,
1999 and 1998 and for the periods then ended included in this prospectus and
elsewhere in the registration statement have been audited by Goldenberg
Rosenthal, LLP, independent public accountants, as indicated in their report
with respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports.

ADDITIONAL ESPERION INFORMATION

We have filed with the SEC a registration statement on Form S-1 with
respect to the common stock offered hereby. This prospectus, which constitutes
a part of the registration statement, does not contain all of the information
set forth in the registration statement or the exhibits and schedules which are
part of the registration statement. For further information with respect to
Esperion and our common stock, reference is made to the registration statement
and the exhibits and schedules thereto. You may read and copy any document we
file at the SEC's public reference facilities in Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and the SEC's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. Please call the SEC at 1-800-SEC-0330 for further information about the
public reference rooms. Our SEC filings are also available to the public from
the SEC's web site at http://www.sec.gov. Upon completion of this offering, we
will become subject to the information and periodic reporting requirements of
the Securities Exchange Act and, in accordance therewith, will file periodic
reports, proxy statements and other information with the SEC. Such periodic
reports, proxy statements and other information will be available for
inspection and copying at the SEC's public reference rooms and the Web site of
the SEC referred to above.

65
<PAGE>

INDEX TO FINANCIAL STATEMENTS

ESPERION THERAPEUTICS, INC.
(A Company in the Development Stage)

<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Arthur Andersen LLP, Independent Public Accountants............ F-2

Consolidated Balance Sheets as of December 31, 1998 and 1999 and March
31, 2000 (unaudited)................................................... F-3

Consolidated Statements of Operations for the periods ended December 31,
1998 and 1999 and the three months ended March 31, 1999 and 2000
(unaudited) and the period from inception to March 31, 2000
(unaudited)............................................................ F-4

Consolidated Statements of Stockholders' Equity for the periods ended
December 31, 1998 and 1999 and for the three months ended March 31,
2000 (unaudited)....................................................... F-5

Consolidated Statements of Cash Flows for the periods ended December 31,
1998 and 1999 and the three months ended March 31, 1999 and 2000
(unaudited) and the period from inception to March 31, 2000
(unaudited)............................................................ F-6

Notes to Consolidated Financial Statements............................... F-7

TALARIA THERAPEUTICS, INC.
(A Company in the Development Stage)

Report of Goldenberg Rosenthal, LLP, Independent Public Accountants...... F-18

Balance Sheets as of December 31, 1998 and 1999 and March 31, 2000
(unaudited)............................................................ F-19

Statements of Operations for the periods ended December 31, 1998 and 1999
and the three months ended March 31, 1999 and 2000 (unaudited) and the
period from inception to March 31, 2000 (unaudited).................... F-20

Statements of Stockholders' Equity for the periods ended December 31,
1998 and 1999 and for the three months ended March 31, 2000
(unaudited)............................................................ F-21

Statements of Cash Flows for the periods ended December 31, 1998 and 1999
and the three months ended March 31, 1999 and 2000 (unaudited) and the
period from inception to March 31, 2000 (unaudited).................... F-22

Notes to Financial Statements............................................ F-23

PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Introduction............................................................. F-29

Pro Forma Condensed Combined Balance Sheet as of March 31, 2000.......... F-30

Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1999...................................................... F-31

Pro Forma Condensed Combined Statement of Operations for the three months
ended March 31, 2000................................................... F-32

Notes to Pro Forma Condensed Combined Financial Information.............. F-33
</TABLE>

F-1
<PAGE>

Report of Independent Public Accountants

To Esperion Therapeutics, Inc.:

We have audited the accompanying consolidated balance sheets of ESPERION
THERAPEUTICS, INC. (a Delaware corporation in the development stage) AND
SUBSIDIARY as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year
ended December 31, 1999, and for the period from inception (May 18, 1998) to
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Esperion
Therapeutics, Inc. and subsidiary as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the year ended December
31, 1999, and for the period from inception to December 31, 1998, in conformity
with accounting principles generally accepted in the United States.

Arthur Andersen LLP

Ann Arbor, Michigan,
February 17, 2000
(except with respect to the matters
discussed in Notes 9 and 10 as to which
the date is July 31, 2000).

F-2
<PAGE>

ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31, December 31, March 31,
1998 1999 2000
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........... $ 12,540,963 $ 5,903,932 $ 27,698,068
Prepaid expenses and other.......... 75,868 139,002 409,148
------------ ------------ ------------
Total current assets............... 12,616,831 6,042,934 28,107,216
Furniture and equipment, less
accumulated depreciation of
$67,619, $471,622 and $625,623 at
December 31, 1998, 1999 and March
31, 2000, respectively............. 796,877 1,955,932 1,925,495
Deposits and other assets............ -- -- 456,000
------------ ------------ ------------
$13,413,708 $ 7,998,866 $ 30,488,711
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt... $ -- $ 495,495 $ 495,495
Accounts payable.................... 108,114 1,425,249 1,038,421
Accrued liabilities................. 118,750 979,638 1,746,195
------------ ------------ ------------
Total current liabilities.......... 226,864 2,900,382 3,280,111
------------ ------------ ------------
Long-term debt, less current portion
above.............................. -- 2,283,781 2,123,469
------------ ------------ ------------
Commitments and Contingencies (Note
6)
Stockholders' Equity:
Convertible preferred stock, $0.01
par value; 15,000,000 and
25,525,251 shares authorized at
December 31, 1999 and March 31,
2000, respectively, 10,500,000
shares issued and outstanding at
December 31, 1998 and 1999,
respectively, and 21,889,242
shares issued and outstanding at
March 31, 2000; aggregate
liquidation preference of
$15,500,000 and $42,646,216 at
December 31, 1999 and March 31,
2000, respectively................ 105,000 105,000 218,892
Common stock, $0.001 par value;
20,000,000 and 30,611,112 shares
authorized at December 31, 1999
and March 31, 2000, respectively,
1,705,099, 1,936,299 and 2,202,128
shares issued and outstanding at
December 31, 1998, 1999 and March
31, 2000, respectively............ 1,705 1,936 2,202
Additional paid-in capital.......... 15,302,157 16,466,806 45,960,126
Notes receivable.................... (78,000) (106,500) (98,625)
Accumulated deficit during the
development stage................. (2,143,063) (12,813,247) (17,506,399)
Deferred stock compensation......... -- (837,660) (3,486,605)
Accumulated other comprehensive
loss.............................. (955) (1,632) (4,460)
------------ ------------ ------------
Total stockholders' equity......... 13,186,844 2,814,703 25,085,131
------------ ------------ ------------
$ 13,413,708 $ 7,998,866 $ 30,488,711
============ ============ ============
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

F-3
<PAGE>

ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Three Months Ended
March 31,
Inception Year Ended Inception to
to December December 31, March 31,
31, 1998 1999 1999 2000 2000
----------- ------------ ----------- ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Operating expenses:
Research and
development......... $ 1,923,074 $ 8,484,125 $ 1,270,181 $ 4,063,357 $ 14,470,556
General and
administrative...... 463,928 2,517,903 314,559 1,005,715 3,987,546
----------- ------------ ----------- ------------ ------------
Total operating
expenses......... 2,387,002 11,002,028 1,584,740 5,069,072 18,458,102
----------- ------------ ----------- ------------ ------------
Loss from
operations....... (2,387,002) (11,002,028) (1,584,740) (5,069,072) (18,458,102)
----------- ------------ ----------- ------------ ------------
Other income (expense):
Interest income....... 245,509 423,801 135,595 350,710 1,020,020
Interest expense...... -- (91,957) (885) (128,582) (220,539)
Other................. (1,570) -- -- 153,792 152,222
----------- ------------ ----------- ------------ ------------
Total other
income........... 243,939 331,844 134,710 375,920 951,703
----------- ------------ ----------- ------------ ------------
Net loss before taxes... (2,143,063) (10,670,184) (1,450,030) (4,693,152) (17,506,399)
Provision for income
taxes................. -- -- -- -- --
----------- ------------ ----------- ------------ ------------
Net loss................ (2,143,063) (10,670,184) (1,450,030) (4,693,152) (17,506,399)
Beneficial conversion
feature upon issuance
of preferred stock.... -- -- -- (22,869,760) (22,869,760)
----------- ------------ ----------- ------------ ------------
Net loss attributable to
common stockholders... $(2,143,063) $(10,670,184) $(1,450,030) $(27,562,912) $(40,376,159)
=========== ============ =========== ============ ============
Basic and diluted net
loss per share........ $ (1.46) $ (5.91) $ (0.85) $ (13.91)
=========== ============ =========== ============
Shares used in computing
basic and diluted net
loss per share........ 1,466,615 1,806,255 1,705,099 1,980,933
=========== ============ =========== ============
Pro forma basic and
diluted net loss per
share (unaudited)..... $ (1.14) $ (1.64)
============ ============
Shares used in computing
pro forma basic and
diluted net loss
per share
(unaudited)........... 9,392,499 16,836,802
============ ============
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

F-4
<PAGE>

ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
Accumulated
Deficit Accumulated
Convertible Additional During the Deferred Other Total
Date of Preferred Common Paid-In Notes Development Stock Comprehensive Stockholders'
Transaction Stock Stock Capital Receivable Stage Compensation Loss Equity
----------- ----------- ------ ----------- ---------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance--
Inception
(May 18, 1998).. $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of
1,329,399
shares of
common stock
for cash....... July 6 -- 1,329 511 -- -- -- -- 1,840
Issuance of
500,000 shares
of Series A
preferred stock
for cash....... July 6 5,000 -- 463,645 -- -- -- -- 468,645
Issuance of
10,000,000
shares of
Series B
preferred stock
for cash....... August 11 100,000 -- 14,760,377 -- -- -- -- 14,860,377
Issuance of
144,500 shares
of common
stock.......... September 1 -- 145 29,855 (30,000) -- -- -- --
Issuance of
86,700 shares
of common stock
for note
receivable..... November 1 -- 87 17,913 (18,000) -- -- -- --
Issuance of
144,500 shares
of common stock
for note
receivable..... December 11 -- 144 29,856 (30,000) -- -- -- --
Net loss........ -- -- -- -- (2,143,063) -- -- (2,143,063)
Foreign currency
translation
adjustment..... -- -- -- -- -- -- (955) (955)
-------- ------ ----------- -------- ------------ ----------- ------- ------------
Comprehensive
loss...........
Balance--
December 31,
1998............ 105,000 1,705 15,302,157 (78,000) (2,143,063) -- (955) 13,186,844
Issuance of
57,800 shares
of common stock
for notes
receivable..... June 4 -- 58 11,942 (12,000) -- -- -- --
Issuance of
173,400 shares
of common stock
for notes
receivable..... July 1 -- 173 35,827 (36,000) -- -- -- --
Decrease in
notes
receivables.... -- -- -- 19,500 -- -- -- 19,500
Deferred stock
compensation
related to
stock options.. -- -- 1,116,880 -- -- (1,116,880) -- --
Amortization of
deferred stock
compensation... -- -- -- -- -- 279,220 -- 279,220
Net loss........ -- -- -- -- (10,670,184) -- -- (10,670,184)
Foreign currency
translation
adjustment..... -- -- -- -- -- -- (677) (677)
-------- ------ ----------- -------- ------------ ----------- ------- ------------
Comprehensive
loss...........
Balance--
December 31,
1999............ 105,000 1,936 16,466,806 (106,500) (12,813,247) (837,660) (1,632) 2,814,703
Issuance of
265,829 shares
of common stock
upon exercise March 21-
of options..... March 28 -- 266 48,175 -- -- -- -- 48,441
Issuance of
10,125,465
shares of
Series C
preferred stock
for cash....... January 7 101,255 -- 21,769,751 -- -- -- -- 21,871,006
Issuance of
127,414 shares
of Series C
preferred stock
for services... January 7 1,274 -- 686,760 -- -- -- -- 688,034
Issuance of
1,136,363
shares of
Series D
preferred stock
for cash....... February 22 11,363 -- 4,988,634 -- -- -- -- 4,999,997
Deferred stock
compensation
related to
stock options.. -- -- 2,900,000 -- -- (2,900,000) --
Amortization of
deferred stock
compensation... -- -- -- -- -- 251,055 -- 251,055
Costs incurred
in connection
with assumed
initial public
offering....... -- -- (900,000) -- -- -- -- (900,000)
Decrease in
notes
receivable..... -- -- -- 7,875 -- -- -- 7,875
Net loss........ -- -- -- -- (4,693,152) -- -- (4,693,152)
Foreign currency
translation
adjustment..... -- -- -- -- -- -- (2,828) (2,828)
-------- ------ ----------- -------- ------------ ----------- ------- ------------
Comprehensive
loss...........
Balance--March
31, 2000
(unaudited)..... $218,892 $2,202 $45,960,126 $(98,625) $(17,506,399) $(3,486,605) $(4,460) $ 25,085,131
======== ====== =========== ======== ============ =========== ======= ============
<CAPTION>
Comprehensive
Loss
--------------
<S> <C>
Balance--
Inception
(May 18, 1998)..
Issuance of
1,329,399
shares of
common stock
for cash.......
Issuance of
500,000 shares
of Series A
preferred stock
for cash.......
Issuance of
10,000,000
shares of
Series B
preferred stock
for cash.......
Issuance of
144,500 shares
of common
stock..........
Issuance of
86,700 shares
of common stock
for note
receivable.....
Issuance of
144,500 shares
of common stock
for note
receivable.....
Net loss........ $ (2,143,063)
Foreign currency
translation
adjustment..... (955)
--------------
Comprehensive
loss........... $ (2,144,018)
==============
Balance--
December 31,
1998............
Issuance of
57,800 shares
of common stock
for notes
receivable.....
Issuance of
173,400 shares
of common stock
for notes
receivable.....
Decrease in
notes
receivables....
Deferred stock
compensation
related to
stock options..
Amortization of
deferred stock
compensation...
Net loss........ $(10,670,184)
Foreign currency
translation
adjustment..... (677)
--------------
Comprehensive
loss........... $(10,670,861)
==============
Balance--
December 31,
1999............
Issuance of
265,829 shares
of common stock
upon exercise
of options.....
Issuance of
10,125,465
shares of
Series C
preferred stock
for cash.......
Issuance of
127,414 shares
of Series C
preferred stock
for services...
Issuance of
1,136,363
shares of
Series D
preferred stock
for cash.......
Deferred stock
compensation
related to
stock options..
Amortization of
deferred stock
compensation...
Costs incurred
in connection
with assumed
initial public
offering.......
Decrease in
notes
receivable.....
Net loss........ $ (4,693,152)
Foreign currency
translation
adjustment..... (2,828)
--------------
Comprehensive
loss........... $ (4,695,980)
==============
Balance--March
31, 2000
(unaudited).....
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

F-5
<PAGE>

ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Three Months Ended
Inception Year Ended March 31, Inception to
to December December 31, ------------------------ March 31,
31, 1998 1999 1999 2000 2000
----------- ------------ ----------- ----------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from
Operating Activities:
Net loss.............. $(2,143,063) $(10,670,184) $(1,450,030) $(4,693,152) $(17,506,399)
Adjustments to
reconcile net loss
to net cash used in
operating activities--
Depreciation......... 67,619 404,003 61,738 154,001 625,623
Deferred stock
compensation
amortization....... -- 279,220 69,805 251,055 530,275
Stock based
compensation
expense............ -- 275,215 -- 412,819 688,034
Decrease in notes
receivable......... -- 19,500 -- 7,875 27,375
Increase (decrease) in
cash resulting from
changes in--
Prepaid expenses and
other.............. (75,060) (63,134) 69,243 (276,146) (414,340)
Accounts payable..... 78,114 1,317,135 768,446 (386,828) 1,008,421
Accrued
liabilities........ 147,850 585,673 (118,750) 141,772 875,295
----------- ------------ ----------- ----------- ------------
Net cash used in
operating
activities...... (1,924,540) (7,852,572) (599,548) (4,388,604) (14,165,716)
----------- ------------ ----------- ----------- ------------
Cash Flows from
Investing Activities:
Purchases of furniture
and equipment....... (864,496) (1,563,058) (671,643) (123,564) (2,551,118)
Deposit on equipment.. -- -- -- (450,000) (450,000)
----------- ------------ ----------- ----------- ------------
Net cash used in
investing
activities...... (864,496) (1,563,058) (671,643) (573,564) (3,001,118)
----------- ------------ ----------- ----------- ------------
Cash Flows from
Financing Activities:
Net proceeds from
issuance of
convertible
preferred stock.... 15,329,022 -- -- 26,871,003 42,200,025
Proceeds from
issuance of common
stock.............. 1,840 -- -- 48,441 50,281
Proceeds from long-
term debt.......... -- 3,027,025 -- -- 3,027,025
Repayments of long-
term debt.......... -- (247,749) -- (160,312) (408,061)
----------- ------------ ----------- ----------- ------------
Net cash provided
by financing
activities...... 15,330,862 2,779,276 -- 26,759,132 44,869,270
----------- ------------ ----------- ----------- ------------
Effect of Exchange Rate
Changes on Cash...... (863) (677) 955 (2,828) (4,368)
----------- ------------ ----------- ----------- ------------
Increase (Decrease) in
Cash and Cash
Equivalents.......... 12,540,963 (6,637,031) (1,270,236) 21,794,136 27,698,068
Cash and Cash
Equivalents--
Beginning of Period.. -- 12,540,963 12,540,963 5,903,932 --
----------- ------------ ----------- ----------- ------------
Cash and Cash
Equivalents--End of
Period............... $12,540,963 $ 5,903,932 $11,270,727 $27,698,068 $ 27,698,068
=========== ============ =========== =========== ============
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

F-6
<PAGE>

ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the three months ended March 31, 1999 and 2000 is unaudited)

(1) Description of the Business

Esperion Therapeutics, Inc. (formerly Metapharma, Inc.) was incorporated
on May 18, 1998. Esperion Therapeutics, Inc. and its Swedish subsidiary,
Esperion AB (collectively referred to as "the Company"), are devoting
substantially all of their efforts towards conducting drug discovery and
development, initiating clinical trials, pursuing regulatory approval for
products under development, recruiting personnel, raising capital and building
infrastructure. The Company's main focus is the research and development of
pharmaceutical product candidates for cardiovascular disease.

In the course of such activities, the Company has sustained significant
operating losses and expects such losses, which will likely increase as the
Company expands its research and development activities, to continue for at
least the next several years. The Company has not generated any revenues or
product sales and has not achieved profitable operations or positive cash flows
from operations. The Company's accumulated deficit during the development stage
totaled approximately $17.5 million through March 31, 2000. The Company plans
to finance its operations with a combination of stock issuances, license
payments, payments from strategic research and development arrangements and, in
the longer term, revenues from product sales. There are no assurances that the
Company will be successful in obtaining an adequate level of financing needed
for the long-term development and commercialization of its planned products.

In February 2000, the Company's Board of Directors authorized management
to file a registration statement with the Securities and Exchange Commission
permitting the Company to sell shares of its common stock to the public. If the
initial public offering is closed under the terms presently anticipated, all of
the Company's convertible preferred stock will convert into shares of common
stock (Note 3).

(2) Significant Accounting Policies

Principles of Consolidation and Translation

The accompanying consolidated financial statements include the accounts
of Esperion Therapeutics, Inc. and Esperion AB ("Sweden"). All significant
intercompany accounts and transactions have been eliminated in consolidation.

The financial statements of Sweden are translated using exchange rates in
effect at the end of the period for assets and liabilities and at average rates
during the period for results of operations. The resulting foreign currency
translation adjustment is reflected as a separate component of stockholders'
equity. Other foreign currency transaction gains and losses are included in
determining net loss.

Interim Financial Information

The consolidated financial statements as of March 31, 2000, for the three
months ended March 31, 1999 and 2000 and for the period from inception to March
31, 2000 are unaudited and have been prepared on the same basis as the audited
consolidated financial statements and, in the opinion of management, include
all adjustments, consisting of only normal recurring adjustments, necessary for
a fair presentation of the financial position at such date, and the operating
results and cash flows for such periods, in accordance with generally accepted
accounting principles. Results for the interim period are not necessarily
indicative of the results to be expected for any subsequent period.

F-7
<PAGE>

ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the three months ended March 31, 1999 and 2000 is unaudited)

Research and Development

Research and development expenses include all employee payroll and other
related costs attributable to research and development activities and are
expensed as incurred.

Licensed Technology and Patents

Costs incurred in obtaining the license rights to certain technology and
patents in the development stage are expensed as incurred due to the
uncertainty regarding potential alternative future uses and the uncertainty
regarding future operating cash flows expected to be derived from the licensed
technology and patents.

Cash and Cash Equivalents

The Company considers all financial instruments purchased with maturities
of three months or less to be cash equivalents.

Furniture and Equipment

Additions to furniture and equipment are recorded at cost. Depreciation
is provided using the straight-line method over the estimated useful lives of
the respective assets ranging from three to seven years.

Impairment of Long-Lived Assets

In accordance with SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of," if indicators of
impairment exist, the Company assesses the recoverability of the affected long-
lived assets by determining whether the carrying value of such assets can be
recovered through undiscounted future operating cash flows. If impairment is
indicated, the Company measures the amount of such impairment by comparing the
carrying value of the assets to the present value of the expected future cash
flows associated with the use of the asset. The Company's long-lived assets
consist primarily of computer and lab equipment that are depreciated over short
useful lives to prevent impairment issues. The Company believes that the fair
value of the assets approximates the assets' carrying value, and accordingly
the Company has not recognized any impairment losses through March 31, 2000.

Accrued Liabilities

Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
December 31, March 31,
1998 1999 2000
-------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Accrued professional fees......................... $ 70,000 $205,000 $ 737,000
Accrued compensation.............................. -- 434,301 127,936
Accrued manufacturing costs....................... -- 230,706 530,706
Accrued other..................................... 48,750 109,631 350,553
-------- -------- ----------
$118,750 $979,638 $1,746,195
======== ======== ==========
</TABLE>

F-8
<PAGE>

ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the three months ended March 31, 1999 and 2000 is unaudited)

Stock-Based Compensation

The Company accounts for stock-based compensation to employees using the
intrinsic value method prescribed in Accounting Principles Board Opinion No.
25 (APB 25), "Accounting for Stock Issued to Employees", and related
interpretations. Accordingly, compensation cost for stock options is measured
as the excess, if any, of the fair value of the Company's common stock at the
date of the grant over the amount the employee must pay to acquire the stock.
As supplemental information, the Company has provided pro forma disclosures of
stock options in Note 4, in accordance with the requirements of Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-
Based Compensation."

Supplemental Disclosures of Cash Flow Information

The Company paid cash for interest of approximately $0 and $66,000 in
1998 and 1999, respectively. Cash paid for interest for the three months ended
March 31, 1999 and March 31, 2000 was $0 and $65,623, respectively.

Basic, Diluted and Pro Forma Loss per Share

Basic and diluted loss per share amounts have been calculated using the
weighted average number of shares of common stock outstanding during the
respective period.

In 1998 and 1999, options for the purchase of common stock were not
included in the calculation of diluted loss per share as doing so would have
been anti-dilutive.

The following table presents the calculation of pro forma basic and
diluted net loss per share:

<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
------------ ------------
(unaudited)
<S> <C> <C>
Net loss to common stockholders................... $(10,670,184) $(27,562,912)
============ ============
Shares used in computing basic and diluted net
loss per share.................................. 1,806,255 1,980,933
Pro forma adjustment to reflect assumed conversion
of Series A and Series B convertible preferred
stock (unaudited)............................... 7,586,244 7,586,244
Pro forma adjustment to reflect assumed conversion
of Series C and Series D convertible preferred
stock (unaudited)............................... -- 7,269,625
------------ ------------
Shares used in computing pro forma basic and
diluted net loss per share (unaudited).......... 9,392,499 16,836,802
============ ============
Pro forma basic and diluted net loss per share
(unaudited) .................................... $ (1.14) $ (1.64)
============ ============
</TABLE>

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 expenses during the reporting period.
Actual results could differ from those estimates.

Reclassifications

Certain amounts from fiscal 1998 have been reclassified to conform to
the fiscal 1999 presentation.

F-9
<PAGE>

ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the three months ended March 31, 1999 and 2000 is unaudited)

(3) Preferred Stock

Series A, Series B, Series C and Series D preferred stock ("Series A",
"Series B", "Series C" and "Series D", respectively, together "Preferred
Stock") provide the following rights, preferences, privileges and restrictions:

Dividends

The holders of Preferred Stock are entitled to receive dividends, when
and if declared by the Company's Board of Directors on shares of common stock,
equal to the dividends declared on the number of shares of common stock into
which such preferred stock could then be converted.

Conversion

The holders of Preferred Stock may, at any time, require the Company to
convert each share of Preferred Stock into 0.7225 shares of common stock,
subject, to adjustment, as defined in the Company's certificate of
incorporation.

Each share of the Preferred Stock will automatically be converted into
shares of common stock, at the same ratio as determined above: 1) upon written
agreement of 51% of the Preferred Stockholders, or 2) the closing of a firm-
commitment underwritten public offering, as long as the price per share is at
least three times the Series C Original Cost ($2.16 per share), as adjusted for
the reverse stock split, and the total Company proceeds are at least $30
million.

The Company has reserved for issuance such number of shares of its
authorized but unissued common stock necessary to effect conversion of all
outstanding Preferred Stock and exercise of all outstanding stock options.

Voting Rights

The holders of Preferred Stock have the right to one vote for each share
of common stock into which such preferred stock could then be converted.

Liquidation Preference

In the event of any liquidation, dissolution or winding up of the affairs
of the Company, either voluntarily or involuntarily, the holders of Preferred
Stock are entitled to receive, prior to and in preference to any distributions
to the stockholders of common stock or any other security, an amount initially
equal to $1.00, $1.50, $2.16 and $4.40 per share, respectively, subject to
adjustment for stock splits and similar transactions, plus accrued but unpaid
dividends. Upon any sale of the Company, merger or other transaction in which
there is a change in control, as defined, the holders of Preferred Stock shall
be entitled to the above liquidation preference.

Right of First Refusal

The Company and its stockholders have entered into various agreements
generally providing the Company or other stockholders the first right to
purchase any shares of stock offered for sale by a stockholder, under the same
terms of a bona fide offer.

F-10
<PAGE>

ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the three months ended March 31, 1999 and 2000 is unaudited)

Series C and Series D

In January and February 2000, the Company issued shares of Series C and
Series D. Total cash proceeds to the Company were approximately $21.9 million
and $5.0 million relating to the issuance of 10,252,879 shares of Series C and
1,136,363 shares of Series D, respectively. As a part of the Series C, the
Company issued 127,414 shares to the chief executive officer and another member
of the Board of Directors for services rendered to the Company during 1999. The
Company recorded the related expense of $275,215 as an increase to compensation
expense during 1999 and recorded the related liability as an increase in
accrued liabilities as of December 31, 1999.

In accordance with EITF 98-5, the Company recorded approximately $22.9
million relating to the beneficial conversion feature of the Series C and
Series D in the first quarter of fiscal 2000 through equal and offsetting
adjustments to additional paid-in capital with no net impact on stockholders'
equity, as the preferred stock was convertible immediately on the date of
issuance. The beneficial conversion feature was considered in the determination
of the Company's loss per common share amounts. The Company also recorded an
additional $412,819 relating to the Series C shares issued to the chief
executive officer and a Board member in the first quarter of fiscal 2000. This
non-cash charge was reflected through entries to compensation expense and
additional paid-in-capital.

F-11
<PAGE>

ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the three months ended March 31, 1999 and 2000 is unaudited)

(4) Stock Options

In 1998, the Company established a stock option plan to increase its
ability to attract and retain key individuals. Options granted may be either
incentive stock options, which are granted at the fair market value of the
common stock on the date of grant or higher (as determined under the plan), or
nonqualified stock options, which may be granted at less than the fair market
value of the common stock on the date of grant. Options are granted at the
discretion of the Board of Directors. The maximum number of shares that may be
granted under the plan is 1,784,575. Options granted generally become
exercisable over a period of four years from the date of grant. Outstanding
options generally expire nine years after the date of grant.

Activity related to stock options is summarized as follows:

<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
--------- --------
<S> <C> <C>
Outstanding at inception (May 18, 1998)............... --
Options granted..................................... 324,763 $0.15
Options cancelled................................... --
Options exercised................................... --
---------
Outstanding at December 31, 1998...................... 324,763 $0.15
Options granted..................................... 542,867 $0.29
Options cancelled................................... --
Options exercised................................... --
---------
Outstanding at December 31, 1999...................... 867,630 $0.24
Options granted..................................... 664,138 $3.29
Options cancelled................................... --
Options exercised................................... (265,829) $0.21
---------
Outstanding at March 31, 2000 (unaudited)............. 1,265,939 $1.73
=========
</TABLE>

The options outstanding and exercisable at December 31, 1998 are as
follows:

<TABLE>
<CAPTION>
Weighted- Weighted-
Average Average
Price Per Options Remaining Options Exercise
Share Outstanding Life Exercisable Price
--------- ----------- ----------- ----------- ---------
(years)
<S> <C> <C> <C> <C>
$0.14 260,100 8.5 16,256 $0.14
$0.21 64,663 8.7 3,680 $0.21
------- -------
324,763 19,936
======= =======

The options outstanding and exercisable at December 31, 1999 are as
follows:

<CAPTION>
Weighted-
Average Weighted-
Contractual Average
Price Per Options Remaining Options Exercise
Share Outstanding Life Exercisable Price
--------- ----------- ----------- ----------- ---------
(years)
<S> <C> <C> <C> <C>
$0.14 260,100 7.5 81,281 $0.14
$0.21 586,127 8.3 158,952 $0.21
$0.32 5,057 8.9 -- $0.32
$2.91 16,346 8.7 16,346 $2.91
------- -------
867,630 256,579
======= =======
</TABLE>

F-12
<PAGE>

ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the three months ended March 31, 1999 and 2000 is unaudited)

The options outstanding and exercisable at March 31, 2000 are as follows
(unaudited):

<TABLE>
<CAPTION>
Weighted-
Average Weighted-
Contractual Average
Price Per Options Remaining Options Exercise
Share Outstanding Life Exercisable Price
--------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
$0.14-$0.32 585,809 7.5 27,634 $0.21
$2.21-$2.91 381,378 8.8 28,988 $2.91
$4.57 298,752 8.9 --
--------- ------
1,265,939 56,622
========= ======
</TABLE>

Using the intrinsic value method under APB 25, no compensation expense
has been recognized in the accompanying consolidated statement of operations
for options granted to employees at fair value. Had compensation expense been
determined based on the fair value at the date of grant consistent with SFAS
123, the reported net loss would have increased to the following pro forma
amounts, which may not be representative of that to be expected in future
years:

<TABLE>
<CAPTION>
December 31,
------------------------- March 31,
1998 1999 2000
----------- ------------ ------------
(unaudited)
<S> <C> <C> <C>
Net loss:
As Reported................... $(2,143,063) $(10,670,184) $(27,562,912)
Pro Forma..................... $(2,144,354) $(10,687,568) $(27,599,115)
Basic and diluted loss per share:
As Reported................... $ (1.46) $ (5.91) $ (13.91)
Pro Forma..................... $ (1.46) $ (5.92) $ (13.93)
</TABLE>

The fair value of options was estimated at the date of grant using the
minimum value option valuation method under SFAS 123 with the following
assumptions as of December 31, 1998, 1999 and March 31, 2000, respectively:
weighted average risk free interest rate of 5.33%, 5.32% and 6.57%; dividend
yield of 0%; and expected life of options of five years. The weighted-average
fair value of options granted during 1998, 1999 and March 31, 2000 were $0.03,
$0.18 and $0.90 per share, respectively. Option valuation models require the
input of highly subjective assumptions. Because changes in subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing model does not necessarily provide a reliable single
measure of the fair value of the Company's stock options.

The Company recorded approximately $1.1 million and $2.9 million of
deferred stock compensation in 1999 and 2000, respectively, relating to stock
options granted to employees at less than management's estimate of fair value.
These amounts are included as a reduction in stockholders' equity and are being
amortized straight-line to expense over the related vesting periods. For the
year ended December 31, 1999 and the three months ended March 31, 2000, the
Company recorded deferred stock compensation amortization of approximately
$279,000 and $251,000, respectively, which is included in operating expenses.

(5) Income Taxes

As of December 31, 1999 and March 31, 2000, the Company had net operating
loss carryforwards of approximately $9.8 million and $14.4 million,
respectively. These net operating loss carryforwards expire in 2018 and 2019.
Additionally, utilization of net operating loss carryforwards may be limited
under Section 382 of the Internal Revenue Code. These and other deferred income
tax assets are fully reserved by a valuation allowance as management has
determined that it is more likely than not that the deferred tax assets will
not be realized.

F-13
<PAGE>

ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the three months ended March 31, 1999 and 2000 is unaudited)

The effective tax rate of zero differs from the statutory rate primarily
due to providing a valuation allowance against deferred tax assets.

Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets for financial reporting and
the amount used for income tax purposes. Significant components of the
Company's deferred tax assets are as follows:

<TABLE>
<CAPTION>
December 31,
---------------------- March 31,
1998 1999 2000
--------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Start-up costs............................. $ 191,000 $ 191,000 $191,000
Net operating loss carryforward............ 527,000 3,317,000 4,902,000
Asset basis differences.................... -- (150,000) (170,000)
Less--Valuation allowance.................. (718,000) (3,358,000) (4,923,000)
--------- ----------- -----------
$ -- $ -- $ --
========= =========== ===========
</TABLE>

(6) Commitments and Contingencies

Lease Commitments

The Company leases its office space under operating leases which expire
at various dates through January 2001. Total rent expense under all leases was
approximately $124,000 in 1998 and $386,000 in 1999, and was approximately
$105,000 and $147,000 for the three months ended March 31, 1999 and 2000,
respectively. Future minimum payments under noncancellable operating leases at
March 31, 2000, are as follows (unaudited):

License Agreements

In June 1998 and March 1999, the Company entered into license agreements
with separate pharmaceutical companies for different product candidates ("the
1998 Agreement" and "the 1999 Agreement", respectively). The Company paid
initial license fees of $750,000 under the 1998 Agreement and $250,000 under
the 1999 Agreement and these amounts were charged to operations and included in
research and development expense.

In September 1999, the Company entered into a license agreement with a
group of inventors for a series of product candidates. The initial license fee
of $50,000 is included in accrued liabilities as of December 31, 1999 and was
charged to research and development expense.

In February 2000, the Company entered into a license agreement with a
European entity for a new product candidate. The Company made an initial
license payment of $25,000 and may be obligated to make royalty payments on
future sales.

In connection with the above agreements, the Company may be obligated to
make various milestone and future royalty payments, as defined per the
agreements, up to an aggregate amount of $25.2 million, not

F-14
<PAGE>

ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the three months ended March 31, 1999 and 2000 is unaudited)

including royalty payments on future sales. At the present time, the Company
can give no assurances as to the likelihood that such future milestones will be
achieved.

Purchase Commitment

On November 23, 1999, the Company entered into an agreement with a
scientific instrument manufacturer to purchase a specialized piece of
equipment. The Company is obligated to pay a total of $1,000,000 for the
equipment. As of March 31, 2000 the equipment has not been received, however, a
deposit of $450,000 was paid and is included in deposits and other assets in
the accompanying consolidated balance sheet. No liability or expense was
recorded in 1999 relating to this purchase commitment.

Legal Proceeding

On March 22, 2000, Talaria Therapeutics, Inc. filed a lawsuit, in which
the Company was one of several named defendants, regarding intellectual
property and other matters. In this lawsuit, Talaria alleges among other
things, that a patent application that the Company sublicenses improperly
incorporates within it confidential information belonging to the person named
as the investor in certain patents. On July 31, 2000 the Company agreed to
negotiate a non-binding letter of intent providing for the acquisition of
Talaria (see Note 10). The acquisition, if completed, would resolve such
litigation and remove the uncertainty about the patent application, that the
Company sublicenses. The completion of the acquisition of Talaria is subject to
certain closing conditions. If the acquisition is not completed, the Company is
prepared to defend this litigation in court. At this time, the Company is not
able to determine with any certainty the potential outcome of this action or
the potential liability, if any, and as such, no reserve has been recorded in
the accompanying consolidated balance sheets at March 31, 2000.

Contingent repurchase of stock

The Company may be required to repurchase approximately 47,000 shares of
common stock that may be sold to certain employees and others under the
Company's proposed direct share program. The Company believes that the maximum
liability arising from this repurchase would be approximately $423,000 plus
interest. A liability has not been recorded in the financial statements as
management believes that the potential repurchase of these shares is not
likely.

(7) Long-Term Debt

In April 1999, the Company entered into an equipment loan facility with a
bank whereby the Company may borrow up to $1.5 million for equipment purchases.
Borrowings under the facility are collateralized by the related equipment, bear
interest at the bank's prime rate (8.5% and 9.0% at December 31, 1999 and March
31, 2000, respectively) plus 1%, and are payable in equal monthly principal
payments over 36 months. As of December 31, 1999 and March 31, 2000,
outstanding borrowings under this facility were $1,238,738 and $1,114,865,
respectively. The loan facility subjects the Company to various financial
covenants which, among other restrictions, requires the Company to maintain
certain minimum levels of tangible net worth and liquidity. Management has
determined that the Company is in compliance with these covenants at
December 31, 1999.

The Company has a credit facility, totalling 50 million Swedish kronor
(approximately $5.9 million and $5.8 million at December 31, 1999 and March 31,
2000, respectively), with a Swedish entity, that may only be used to finance
the development of a certain product candidate. If a related product is not
developed or does not succeed in the market, as defined, the Company's
obligation to repay the loan may be forgiven. Borrowings

F-15
<PAGE>

ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the three months ended March 31, 1999 and 2000 is unaudited)

under the loan agreement bear interest at 17.0% of which 9.5% is payable
quarterly. The remaining 7.5% of interest along with principal are payable in
five equal annual installments starting December 30, 2004. In December 1999,
the Company made an initial draw on the loan facility of 13 million Swedish
kronor. This outstanding principal balance has been classified as long-term
debt. Management has determined that the carrying value of the debt
approximates fair value in accordance with SFAS No. 107 "Disclosures about Fair
Value of Financial Instruments". Management's estimate of fair value is
determined by reference to various market data for comparable financial
instruments, requires considerable judgment by management, and is not
necessarily indicative of the amounts that could be realized in a current
market exchange.

As of December 31, 1999, maturities of long-term debt are as follows:

<TABLE>
<S> <C>
2000........................................................... $ 495,495
2001........................................................... 495,495
2002........................................................... 247,748
2003........................................................... --
2004........................................................... 385,135
Thereafter..................................................... 1,155,403
----------
2,779,276
Less--current portion.......................................... (495,495)
----------
$2,283,781
==========
</TABLE>

The Company's bank has provided a guarantee on behalf of the Company for
$394,000 related to a supply agreement. This amount is held as restricted cash
and is included in cash and cash equivalents as of March 31, 2000. The
guarantee expires in October 2000.

(8) Related Party Transactions

Certain stockholders have provided consulting and other professional
services to the Company. Total expense for these services was $108,000 in 1998
and $236,000 in 1999, and $17,000 and $132,000 for the three months ended March
31, 1999 and March 31, 2000, respectively. At December 31, 1998 and 1999 and
March 31, 2000, amounts due to related parties totaled $30,000, $42,000 and
$60,000, respectively, and are classified as accounts payable in the
accompanying consolidated balance sheets.

(9) Reverse Stock Split

The Company effected a 0.7225-for-1 reverse stock split of all
outstanding common stock and stock options as of March 24, 2000. The Company
also increased its authorized common shares to 30,611,112. All references to
the number of shares and per share amounts have been retroactively restated to
reflect this reverse stock split.

(10) Subsequent Event

F-16
<PAGE>

ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the three months ended March 31, 1999 and 2000 is unaudited)

Assuming an initial public offering price of $9.00 per share, Esperion would
issue 813,008 shares of its common stock to Talaria stockholders. The Company
expects that the proposed letter of intent would provide for additional
payments by the Company to Talaria stockholders of up to $6.25 million in cash
or common stock upon the achievement of four future development milestones.
These milestones would become due upon the enrollment of the first patient in
certain clinical trials and each of the filing and approval of a new drug
application in the United States. These milestone payments would increase the
amount of the initial purchase price in the period when the milestone is
achieved, and the Company would include these additional amounts as part of
goodwill. The Company also expects that the proposed letter of intent would
provide for deferred contingent payments in cash or common stock due to Talaria
stockholders based on future net sales of the product in North America, as
defined in the proposed letter of intent. The deferred contingent payments
would be calculated at a rate of approximately 6% of such net sales or 25% of
any sublicensing royalties that the Company receives based upon such net sales,
all subject to a maximum aggregate amount of deferred contingent payments of
$20.0 million. These deferred contingent payments would be included in cost of
sales in the period when the respective sales are recognized. Assuming the
execution of a letter of intent, the acquisition would be subject to the
negotiation of a definitive acquisition agreement and related documents, which
would include customary closing conditions, including approval by each
company's board of directors and Talaria's stockholders. The acquisition, if
completed, would be accounted for under the purchase method of accounting. The
purchase price would be allocated to both tangible and intangible assets. As a
result of this allocation, the Company expects to write-off approximately $4.0
million of acquired in-process research and development. Any remaining purchase
price would be allocated to goodwill and amortized over a period of five years.
The final allocation would be based on an independent appraisal of the fair
values on the closing date.

F-17
<PAGE>

Independent Auditor's Report

August 1, 2000

Board of Directors
Talaria Therapeutics, Inc.
(A Development Stage Enterprise)
Conshohocken, Pennsylvania

We have audited the accompanying balance sheets of TALARIA THERAPEUTICS,
INC. (A Development Stage Enterprise) as of December 31, 1999 and 1998 and the
related statements of operations, of stockholders' equity and of cash flows for
the year ended December 31, 1999, for the period from October 2, 1998
(inception) to December 31, 1998, and for the period from October 2, 1998
(inception) to December 31, 1999. 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 audit.

We conducted our audit 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 audit provides 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 TALARIA THERAPEUTICS, INC.
(A Development Stage Enterprise) as of December 31, 1999 and 1998 and the
results of its operations and its cash flows for the year ended December 31,
1999, for the period from October 2, 1998 (inception) to December 31, 1998, and
for the period from October 2, 1998 (inception) to December 31, 1999 in
conformity with accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has not generated any revenues and has not
yet achieved profitable operations, nor has it ever generated positive cash
flows from operations. These factors raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

/s/ Goldenberg Rosenthal, LLP

Jenkintown, Pennsylvania

F-18
<PAGE>

TALARIA THERAPEUTICS, INC.
(A Development Stage Enterprise)

BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
----------------------- March 31,
1998 1999 2000
---------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............... $1,040,531 $ 1,816,322 $ 1,195,541
Other current assets.................... -- 7,101 7,410
---------- ----------- -----------
Total Assets........................... $1,040,531 $ 1,823,423 $ 1,202,951
========== =========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses... $ 13,277 $ 312,644 $ 440,344
Other current liabilities............... 3,505 -- --
---------- ----------- -----------
Total current liabilities.............. 16,782 312,644 440,344
---------- ----------- -----------
Commitments and Contingency

Stockholders' equity
Preferred stock, $.0001 par value;
Authorized, 2,666,666 shares, no
shares issued......................... -- -- --
Series A convertible preferred stock,
$.0001 par value; Authorized, issued
and outstanding 1,500,000 shares...... 150 150 150
Series B convertible preferred stock,
$.0001 par value; Authorized 833,334
shares; Issued and outstanding 833,334
shares in 1999 and 2000, no shares in
1998.................................. -- 83 83
Common stock, $.0001 par value;
Authorized 9,000,000 shares Issued and
outstanding 2,333,000 shares.......... 233 233 233
Additional paid-in capital.............. 2,733,026 5,237,322 5,237,322
Deficit accumulated during the
development stage..................... (1,709,660) (3,727,009) (4,475,181)
---------- ----------- -----------
Net stockholders' equity................ 1,023,749 1,510,779 762,607
---------- ----------- -----------
Total Liabilities and Stockholders'
Equity............................... $1,040,531 $ 1,823,423 $ 1,202,951
========== =========== ===========
</TABLE>

See notes to financial statements

F-19
<PAGE>

TALARIA THERAPEUTICS, INC.
(A Development Stage Enterprise)

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
October 2,
1998
Three Months Ended (inception)
October 2, 1998 Year Ended March 31, to
(Inception) to December -------------------- March 31,
December 31, 1998 31, 1999 1999 2000 2000
----------------- ----------- --------- --------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Operating expenses
incurred in the
development stage:
Research and
development......... $ 1,666,464 $ 1,946,436 $ 329,328 $ 615,045 $ 4,227,945
General and
administrative...... 43,823 135,513 40,492 154,901 334,237
----------- ----------- --------- --------- -----------
Total operating
expenses............ 1,710,287 2,081,949 369,820 769,946 4,562,182
Interest income......... 627 64,600 11,348 21,774 87,001
----------- ----------- --------- --------- -----------
Net loss................ $(1,709,660) $(2,017,349) $(358,472) $(748,172) $(4,475,181)
=========== =========== ========= ========= ===========
Basic and diluted net
loss per share........ $ (0.73) $ (0.86) $ (0.15) $ (0.32)
=========== =========== ========= =========
Shares used in computing
basic and diluted net
loss per share........ 2,333,000 2,333,000 2,333,000 2,333,000
=========== =========== ========= =========
Pro forma basic and
diluted net loss per
share (unaudited)..... $ (0.47) $ (0.16)
=========== =========
Shares used in computing
pro forma basic and
diluted net loss per
share (unaudited)..... 4,249,667 4,666,334
=========== =========
</TABLE>

See notes to financial statements

F-20
<PAGE>

TALARIA THERAPEUTICS, INC
(A Development Stage Enterprise)

STATEMENT OF STOCKHOLDERS' EQUITY
OCTOBER 2, 1998 (INCEPTION) TO MARCH 31, 2000

<TABLE>
<CAPTION>
Series A Series B
Convertible Convertible Deficit
Preferred Stock Preferred Stock Common Stock Accumulated
---------------- ---------------- ---------------- Additional During the Net
Number Number Number Paid-in Development Stockholders'
of Shares Amount of Shares Amount of Shares Amount Capital Stage Equity
--------- ------ --------- ------ --------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series A
convertible preferred
stock.................. 1,500,000 $150 -- $-- -- $-- $1,499,850 $ -- $1,500,000
Issuance of common stock
to founders............ -- -- -- -- 1,090,000 109 109,000 -- 109,109
Issuance of common stock
in exchange for a
license for a patent
and for technology..... -- -- -- -- 1,243,000 124 1,124,176 -- 1,124,300
Net loss for the period
ended December 31,
1998................... -- -- -- -- -- -- -- (1,709,660) (1,709,660)
--------- ---- ------- ---- --------- ---- ---------- ----------- ----------
Balance, December 31,
1998................... 1,500,000 150 -- -- 2,333,000 233 2,733,026 (1,709,660) 1,023,749
Issuance of Series B
convertible preferred
stock.................. -- -- 833,334 83 -- -- 2,499,919 -- 2,500,002
Issuance of stock
options in exchange for
research and
development services... -- -- -- -- -- -- 4,377 -- 4,377
Net loss for the year
ended December 31,
1999................... -- -- -- -- -- -- -- (2,017,349) (2,017,349)
--------- ---- ------- ---- --------- ---- ---------- ----------- ----------
Balance, December 31,
1999................... 1,500,000 150 833,334 83 2,333,000 233 5,237,322 (3,727,009) 1,510,779
Net loss for the three
months ended March 31,
2000 (unaudited)....... -- -- -- -- -- -- -- (748,172) (748,172)
--------- ---- ------- ---- --------- ---- ---------- ----------- ----------
Balance, March 31, 2000
(unaudited)............ 1,500,000 $150 833,334 $ 83 2,333,000 $233 $5,237,322 $(4,475,181) $ 762,607
========= ==== ======= ==== ========= ==== ========== =========== ==========
</TABLE>

See notes to financial statements.

F-21
<PAGE>

TALARIA THERAPEUTICS, INC.
(A Development Stage Enterprise)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
October 2,
1998 Year Ended Three Months Ended October 2,
(Inception) to December March 31, 1998
December 31, 31, ---------------------- (Inception) to
1998 1999 1999 2000 March 31, 2000
-------------- ----------- ---------- ---------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities
Net loss............... $(1,709,660) $(2,017,349) $ (358,472) $ (748,172) $(4,475,181)
Adjustments to
reconcile net loss to
net cash used in
operating activities
Noncash research and
development and
compensation
expense.............. 1,233,300 4,377 -- -- 1,237,677
Increase in other
current assets...... -- (7,101) (300) (309) (7,410)
Increase in accounts
payable and accrued
expenses............ 13,277 299,367 21,822 127,700 440,344
Increase (decrease)
in other current
liabilities......... 3,505 (3,505) (3,505) -- --
----------- ----------- ---------- ---------- -----------
Net cash used in
operating
activities......... (459,578) (1,724,211) (340,455) (620,781) (2,804,570)
----------- ----------- ---------- ---------- -----------
Cash flows from
financing activities
Proceeds from the
issuance of preferred
stock................. 1,500,000 2,500,002 -- -- 4,000,002
Proceeds from the
issuance of common
stock................. 109 -- -- -- 109
----------- ----------- ---------- ---------- -----------
Net cash provided by
financing
activities......... 1,500,109 2,500,002 -- -- 4,000,111
----------- ----------- ---------- ---------- -----------
Net increase (decrease)
in cash and cash
equivalents............ 1,040,531 775,791 (340,455) (620,781) 1,195,541
Cash and cash
equivalents, beginning
of period.............. -- 1,040,531 1,040,531 1,816,322 --
----------- ----------- ---------- ---------- -----------
Cash and cash
equivalents, end of
period................. $ 1,040,531 $ 1,816,322 $ 700,076 $1,195,541 $ 1,195,541
=========== =========== ========== ========== ===========

<CAPTION>
SUPPLEMENTAL INFORMATION
REGARDING NONCASH
ACTIVITIES

<S> <C> <C> <C> <C> <C>
Exchange of common
stock for a patent
license and for
technology............ $ 1,124,300 -- -- -- $ 1,124,300

Exchange of stock
options for research
and development
services.............. -- $ 4,377 -- -- $ 4,377
Compensation in
conjunction with stock
issuance.............. $ 109,000 -- -- -- $ 109,000
</TABLE>

See notes to financial statements.

F-22
<PAGE>

TALARIA THERAPEUTICS, INC.
(A Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS
(Information for the three months ended March 31, 1999 and 2000 is unaudited)

NOTE 1 Nature of Business and Summary of Significant Accounting Policies

Nature of Business

Talaria Therapeutics, Inc. (the "Company") was incorporated in Delaware
on September 24, 1998. The Company is a development stage enterprise engaged in
the development of treatments for cardiovascular diseases using therapeutic
liposomes.

Since inception, the Company has been engaged in organizational
activities, including raising capital and research and development activities.
The Company has not generated any revenues and has not yet achieved profitable
operations, nor has it ever generated positive cash flows from operations.
There is no assurance that profitable operations, if achieved, could be
sustained on a continuing basis. Further, the Company's future operations are
dependent on the success of the Company's efforts to raise additional capital,
its research and commercialization efforts, and ultimately, the market
acceptance of the Company's products.

The accompanying financial statements have been prepared on a going-
concern basis which contemplates the continuation of operations, realization of
assets and liquidation of liabilities in the ordinary course of business. The
Company incurred a net loss of $2,017,349 for the year ended December 31, 1999
and a net loss of $748,172 (unaudited) for the three months ended March 31,
2000. The Company has a deficit accumulated during the development stage of
$4,475,181 (unaudited) as of March 31, 2000. The net losses incurred by the
Company have consumed working capital. The Company plans to obtain additional
financing through joint ventures or the sale of preferred stock. There can be
no assurance that these efforts will be successful. The financial statements do
not include any adjustments relating to the recoverability and classifications
of reported asset amounts or the amounts of liabilities that might result from
the outcome of that uncertainty.

Use of Estimates

The presentation 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.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.

Research and Development Expense

Costs incurred for research and product development, including acquired
technology and costs incurred for technology in the development stage, are
expensed as incurred.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to credit
risk consist principally of cash and cash equivalents. All cash and cash
equivalents are held in United States financial institutions and money market
funds. Cash balances as of December 31, 1999 and 1998 and March 31, 2000
(unaudited) were in excess of federally-insured amounts.

F-23
<PAGE>

TALARIA THERAPEUTICS, INC.
(A Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the three months ended March 31, 1999 and 2000 is unaudited)

Tax Status

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are recorded using enacted tax rates
expected to apply to taxable income in the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rate is recognized in income in the
period that includes the enactment date.

Stock-Based Compensation

The Company accounts for its stock-based compensation to non-employees at
fair value in accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation."

Equity Securities Transactions

Since inception, the Board of Directors has established the fair value of
equity securities based upon facts and circumstances existing at the date such
equity transactions occurred, including the price at which equity instruments
were sold to independent third parties.

Interim Financial Information

The financial statements as of March 31, 2000, for the three months ended
March 31, 1999 and 2000 and for the period from October 2, 1998 (inception) to
March 31, 2000 are unaudited and have been prepared on the same basis as the
audited financial statements and, in the opinion of management, include all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of the financial position at such date, and the operating
results and cash flows for such periods, in accordance with generally accepted
accounting principles. Results for the interim period are not necessarily
indicative of the results to be expected for any subsequent period.

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consist of the following:

<TABLE>
<CAPTION>
December 31,
---------------- March 31,
1998 1999 2000
------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Accrued professional fees.......................... $ 91 $ 15,050 $143,548
Accrued compensation............................... 3,505 -- --
Accrued manufacturing costs........................ 13,186 282,427 292,054
Accrued other...................................... -- 15,167 4,742
------- -------- --------
$16,782 $312,644 $440,344
======= ======== ========
</TABLE>

Basic Diluted and Pro Forma Loss per Share

Basic and diluted loss per share amounts have been calculated using the
weighted average number of shares of common stock outstanding during the
respective period.

In 1999 and 2000 (unaudited), options for the purchase of common stock
were not included in the calculation of diluted loss per share as doing so
would have been anti-dilutive.

F-24
<PAGE>

TALARIA THERAPEUTICS, INC.
(A Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the three months ended March 31, 1999 and 2000 is unaudited)

Convertible preferred stock was not included in the calculation of
diluted loss per share because doing so would have been antidilutive. However,
the convertible preferred stock could potentially be dilutive in the future.

The following table presents the calculation of pro forma basic and
diluted net loss per share:

<TABLE>
<CAPTION>
Year ended Three Months
December ended March
31, 1999 31, 2000
----------- ------------
<S> <C> <C>
Net loss to common stockholders...................... $(2,017,349) $ (748,172)
=========== ==========
Shares used in computing basic and diluted net loss
per share.......................................... 2,333,000 2,333,000
Pro forma adjustment to show assumed conversion of
Series A and Series B convertible preferred stock
(unaudited)........................................ 1,916,667 2,333,334
----------- ----------
Shares used in computing pro forma basic and diluted
net loss per share (unaudited)..................... 4,249,667 4,666,334
=========== ==========
Pro forma basic and diluted net loss per share
(unaudited)........................................ $ (0.47) $ (0.16)
=========== ==========
</TABLE>

NOTE 2 Stockholders' Equity

On October 2, 1998, the Company issued 1,090,000 shares of common stock
for $109 to three founders. Imputed compensation of $109,000 was recorded in
connection with this transaction.

On October 2, 1998, the Company completed a private placement of
1,275,000 shares of Series A convertible preferred stock ("Series A") at $1 per
share.

On October 2, 1998, the Company issued 1,243,000 shares of common stock
in exchange for a license for a patent and for certain technology to be
utilized in the Company's research and development activities. Accordingly, the
estimated fair value of the license and technology of $1,124,300 has been
recorded as research and development expense in the accompanying statement of
operations during the period ended December 31, 1998.

On October 30, 1998, the Company completed a second private placement of
225,000 shares of Series A at $1 per share.

On July 1, 1999, the Company completed a private placement of 833,334
shares of Series B convertible preferred stock ("Series B") at $3 per share.

In the event of liquidation, dissolution or winding-up of the Company,
holders of Series A and Series B shall be entitled to either convert their
preferred stock into common stock (see below) or retain their liquidation
preference to the common stockholders. In the latter case, the holders of the
Series A and Series B shall be entitled to receive the original issuance price
($1 and $3, respectively) plus declared and unpaid dividends from the assets of
the Company in preference to the common stockholders. After the Series A and
Series B stockholders have been paid in full the original issuance price, the
remaining assets of the Company shall be distributed ratably to the Series A,
Series B and common stockholders in accordance with their respective
shareholdings at the time of distribution. The Series A and Series B
stockholders are entitled to receive, in addition to the original issuance
price plus declared and unpaid dividends, a maximum return of 40% per year on
the original issuance price, prorated for any portion of a year. After the
maximum distribution to the Series A and Series B stockholders has been paid,
the Series A and Series B stockholders have no further

F-25
<PAGE>

TALARIA THERAPEUTICS, INC.
(A Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS
(Information for the three months ended March 31, 1999 and 2000 is unaudited)

participation in the distribution of the assets of the Company. If the assets
available for distribution are insufficient to permit the payment of their full
preferential amounts, the Series A and Series B stockholders shall share
ratably in the distribution of assets. The stockholders have the right to
purchase shares in future equity offerings, except in a specified public
offering (see below), in proportion to their current ownership, at the offering
price. The holders of common and preferred stock are entitled to dividends only
if and when declared by the Board of Directors. Holders of the common stock
shall not receive dividends in preference to the preferred stockholders.

Each share of Series A and Series B preferred stock is convertible into
one share of common stock (i) at the option of the holder thereof at any time
or, (ii) automatically at the closing of a registration statement under the
Securities Act of 1933 covering the offer and sale of the Company's common
stock with a gross offering price of at least $10 million and a per share price
of at least $6.50, subject to adjustment. In the event of a stock split or
stock dividend or other dividend or other adjustment to the capital structure
of the Company, including any adjustments to the common stock, the preferred
stock will be adjusted proportionately.

The Series A and Series B stockholders are entitled to vote based on the
number of shares of common stock to which their holdings could be converted.
Common stockholders are entitled to one vote for each share of common stock.

NOTE 3 Equity Incentive Plan

In October, 1998, the Company adopted an Equity Incentive Plan (the
"Plan") which provides for the granting of incentive and nonstatutory options
to consultants and key employees to purchase up to 100,000 shares of the
Company's common stock. Such options are exercisable for a period of 10 years
and generally vest over a four-year period. As of December 31, 1999, there were
30,000 shares available for grant under the Plan.

A summary of activity under the Plan is as follows:
<TABLE>
<CAPTION>
Weighted
Number average
of Exercise
Shares Price
------ --------
<S> <C> <C>
Outstanding at inception (October 2, 1998)................... -- --
Outstanding at December 31, 1998............................. -- --
Options Granted............................................ 70,000 $0.10
------ -----
Outstanding at December 31, 1999............................. 70,000 $0.10
------ -----
Outstanding at March 31, 2000 (unaudited).................... 70,000 $0.10
====== =====
Options exercisable as of December 31, 1999.................. -- --
====== =====
</TABLE>

In 1999, the Company granted options to two non-employees to purchase
35,000 shares each of common stock at an exercise price of $0.10 per share. The
Company recorded compensation expense of $4,377 in 1999, based on the fair
market value at the grant date as determined using a Black-Scholes option
pricing model.

As of December 31, 1999 and March 31, 2000 (unaudited) the exercise price
per share, weighted-average exercise price per share and weighted-average
remaining contractual life of outstanding options were $0.10, $0.10 and 9
years, respectively.

F-26
<PAGE>

TALARIA THERAPEUTICS, INC.
(A Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the three months ended March 31, 1999 and 2000 is unaudited)

The options granted become exercisable over four years beginning in 2000.
As of December 31, 1999, no options were exercisable and as of March 31, 2000,
17,500 options (unaudited) were exercisable. The stock option agreement
provides that all options granted shall vest in full and become immediately
exercisable upon a change in control of the Company. See footnote No. 7.

The per share weighted-average fair value of stock options granted during
1999 was $0.06, on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions: expected dividend yield
of 0%, risk-free interest rate of 6%, volatility of 80% and an expected life of
4 years.

NOTE 4 Income Taxes

As of December 31, 1999, the Company had available net operating loss
carryforwards ("NOL") of approximately $3,711,000 for federal and state income
tax reporting purposes which are available to offset future federal and state
taxable income, if any, through 2019 and 2009, respectively. The Company also
has research and development tax credit carryforwards of approximately $107,000
for federal income tax reporting purposes which are available to reduce federal
income taxes, if any, through 2019.

As of March 31, 2000, the Company had available net operating loss
carryforwards of approximately $4,459,000 (unaudited) for federal and state
income tax reporting purposes which are available to offset future federal and
state taxable income, if any, through 2020 and 2010, respectively. The Company
also has research and development tax credit carryforwards of approximately
$130,000 (unaudited) for federal income tax reporting purposes which are
available to reduce federal income taxes, if any, through 2020.

The Tax Reform Act of 1986 (the "Act") provides for a limitation on the
annual use of NOL and research and development tax credit carryforwards
(following certain ownership changes, as defined by the Act) that could
significantly limit the Company's ability to utilize these carryforwards. The
Company has experienced and expects in the foreseeable future to experience
additional ownership changes, as defined by the Act, as a result of past and
anticipated future financings. Accordingly, the Company's ability to utilize
the aforementioned carryforwards may be limited. Additionally, because tax laws
limit the time during which these carryforwards may be applied against future
taxes, the Company may not be able to take full advantage of these attributes
for federal and state income tax purposes.

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets are presented below:

<TABLE>
<CAPTION>
December 31 March 31, 2000
------------------- --------------
1998 1999
-------- ---------- (unaudited)
<S> <C> <C> <C>
Deferred tax assets
Net operating loss carryforwards..... $676,000 $1,485,000 $1,784,000
Stock-based compensation............. -- 2,000 2,000
Research credit carryforward......... 14,000 107,000 130,000
Organizational costs................. 8,000 8,000 8,000
-------- ---------- ----------
Total gross deferred tax assets..... 698,000 1,602,000 1,924,000
Less valuation allowance.............. 698,000 1,602,000 1,924,000
-------- ---------- ----------
Net deferred taxes.................. $ -- $ -- $ --
======== ========== ==========
</TABLE>

F-27
<PAGE>

TALARIA THERAPEUTICS, INC.
(A Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the three months ended March 31, 1999 and 2000 is unaudited)

The gross deferred tax assets and the valuation allowance shown above
represent the items which reduce the income tax benefit which would result from
applying the federal statutory tax rate to the pre-tax loss and cause no income
tax expense or benefit to be recorded for the periods ended December 31, 1998
and 1999 and March 31, 2000 (unaudited).

The net change in the valuation allowance for the periods ended December
31, 1998 and 1999 and March 31, 2000 was an increase of $698,000, $904,000 and
$322,000 (unaudited), respectively, related primarily to net operating losses
incurred by the Company which are not currently deductible.

The effective tax rate of zero differs from the statutory rate primarily
due to the provision of an allowance against deferred tax assets.

NOTE 5 Management Agreement

On October 2, 1998, the Company entered into a management agreement with
a company (the "Management Company") to provide strategic guidance to the
Company, as well as day-to-day management of the business, administrative and
financial aspects of the Company, including payroll, personnel, insurance,
employee benefits, accounting and tax matters. An officer of the Company serves
as an executive of the Management Company and the Management Company is
affiliated with certain Series A and Series B investors. The management
agreement has an initial one-year term and is automatically renewed for
successive one-year terms unless either party gives written notice 60 days
prior to the expiration of a term. Under terms of the agreement, the Management
Company is paid a management fee of $6,250 per month and an administrative
support fee of $1,000 per month.

Costs incurred for the periods ended December 31, 1998 and 1999 and March
31, 2000 totalled $21,750, $87,000 and $21,750 (unaudited), respectively, and
are included in general and administrative expenses in the accompanying
statement of operations.

In August 1999, the Company entered into another management agreement
related to certain technical aspects of the Company's operations. The agreement
was for a one year term with annual renewals. Initial fees were $30,000 per
month through August 2000, with escalation terms for subsequent renewals. The
agreement will terminate immediately upon a change of control of the Company.
See footnote No. 7.

Costs incurred under this agreement for the periods ended December 31,
1999 and March 31, 2000 were $124,378 and $90,000 (unaudited), respectively.

Note 6 Contingency

The Company has entered into an indemnification agreement with two other
plaintiffs in the patent infringement lawsuit filed by the Company. The Company
has agreed to indemnify those two other parties against any loss they incur
from actions against them arising from the patent infringement litigation.

Note 7 Subsequent Event

On July 31, 2000, the Company agreed to negotiate a non-binding letter of
intent providing for the purchase of the Company by Esperion Therapeutics, Inc.
("Esperion"). Pursuant to the proposed letter of intent, all of the outstanding
shares of stock of the Company would be exchanged for Esperion common stock.
Upon the achievement of certain future milestones, Esperion would make
additional payments in cash or Esperion stock to the Company's stockholders.
The Company's stockholders would also receive deferred contingent payments in
cash or common stock based on future net sales of the product in North America.

F-28
<PAGE>

PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The unaudited pro forma condensed combined financial information for
Esperion set forth below gives effect to the acquisition of Talaria
Therapeutics, Inc. ("Talaria") using the purchase method of accounting, after
giving effect to the adjustments described in the accompanying notes. The
historical financial information set forth below has been derived from, and is
qualified by reference to, the consolidated financial information of Esperion
and Talaria and should be read in conjunction with those financial statements
and the notes thereto included elsewhere in this prospectus.

Based on the timing of the closing of the transaction, the final purchase
adjustments may differ materially from those presented in the pro forma
financial information. A final appraisal of the net assets will be performed as
of the closing date and the allocation adjusted accordingly. The effect of
these adjustments on the results of operations will depend on the nature and
amount of the assets or liabilities adjusted.

The pro forma condensed combined financial information does not purport
to represent what the consolidated results of operations or financial condition
of Esperion would actually have been if the Talaria acquisition, in fact, had
occurred on March 31, 2000 or at the beginning of the periods presented or to
project the consolidated financial position or results of operations as of any
future date or any future period. The information set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
and related notes of Esperion and Talaria included elsewhere in this
prospectus.

F-29
<PAGE>

ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)

PRO FORMA CONDENSED COMBINED BALANCE SHEET

March 31, 2000
(unaudited)

<TABLE>
<CAPTION>
Pro forma
Esperion Talaria adjustments Pro forma
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS

Current Assets:
Cash and cash
equivalents.......... $ 27,698,068 $ 1,195,541 $ -- $ 28,893,609
Prepaid expenses and
other................ 409,148 7,410 -- 416,558
------------ ----------- ----------- ------------
Total current assets.. 28,107,216 1,202,951 -- 29,310,167
Furniture and equipment,
net................... 1,925,495 -- -- 1,925,495
Deposits and other
assets................ 456,000 -- -- 456,000
Goodwill and other
intangible assets..... -- -- 2,837,393 (A) 2,837,393
------------ ----------- ----------- ------------
$ 30,488,711 $ 1,202,951 $ 2,837,393 $ 34,529,055
============ =========== =========== ============

LIABILITIES AND
STOCKHOLDERS' EQUITY

Current Liabilities:
Current portion of
long-term debt....... $ 495,495 $ -- $ -- $ 495,495
Accounts payable....... 1,038,421 440,344 -- 1,478,765
Accrued liabilities.... 1,746,195 -- 282,928 (B) 2,029,123
------------ ----------- ----------- ------------
Total current
liabilities......... 3,280,111 440,344 282,928 4,003,383
------------ ----------- ----------- ------------
Long-term debt, less
current portion
above................. 2,123,469 -- -- 2,123,469
------------ ----------- ----------- ------------

Stockholders' Equity:
Convertible preferred
stock................ 218,892 233 (233)(E) 218,892
Common stock........... 2,202 233 580 (E) 3,015
Additional paid-in-
capital.............. 45,960,126 5,237,322 2,078,937 (E) 53,276,385
Notes receivable....... (98,625) -- -- (98,625)
Accumulated deficit
during the
development stage.... (17,506,399) (4,475,181) 4,475,181 (21,506,399)
(4,000,000)(C)
Deferred stock
compensation......... (3,486,605) -- -- (3,486,605)
Accumulated other
comprehensive loss... (4,460) -- -- (4,460)
------------ ----------- ----------- ------------
Total stockholder's
equity.............. 25,085,131 762,607 2,554,465 28,402,203
------------ ----------- ----------- ------------
$ 30,488,711 $ 1,202,951 $ 2,837,393 $ 34,529,055
============ =========== =========== ============
</TABLE>

The accompanying notes are an integral part of this balance sheet.

F-30
<PAGE>

ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

Year ended December 31, 1999
(unaudited)

<TABLE>
<CAPTION>
Pro forma
Esperion Talaria adjustments Pro forma
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Operating expenses:
Research and
development......... $ 8,484,125 $ 1,946,436 $ -- $ 10,430,561
General and
administrative...... 2,517,903 135,513 -- 2,653,416
Amortization of
goodwill and other
intangible assets... -- -- 567,479(D) 567,479
------------ ----------- --------- ------------
Total operating
expenses........... 11,002,028 2,081,949 567,479 13,651,456
------------ ----------- --------- ------------
Loss from
operations......... (11,002,028) (2,081,949) (567,479) (13,651,456)
Total other income... 331,844 64,600 -- 396,444
------------ ----------- --------- ------------
Net loss................ $(10,670,184) $(2,017,349) $(567,479) $(13,255,012)
============ =========== ========= ============
Basic and diluted net
loss per share........ $ (5.91) $ (5.06)
============ ============
Shares used in computing
basic and diluted net
loss per share........ 1,806,255 2,619,263(F)
============ ============
</TABLE>

The accompanying notes are an integral part of this statement.

F-31
<PAGE>

ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

Three months ended March 31, 2000
(unaudited)

<TABLE>
<CAPTION>
Pro forma
Esperion Talaria adjustments Pro forma
------------ --------- ----------- ------------
<S> <C> <C> <C> <C>
Operating expenses:
Research and
development......... $ 4,063,357 $ 615,045 $ -- $ 4,678,402
General and
administrative...... 1,005,715 154,901 -- 1,160,616
Amortization of
goodwill and other
intangible assets... -- -- 141,870(D) 141,870
------------ --------- --------- ------------
Total operating
expenses.......... 5,069,072 769,946 141,870 5,980,888
------------ --------- --------- ------------
Loss from
operations........ (5,069,072) (769,946) (141,870) (5,980,888)
Total other income.. 375,920 21,774 -- 397,694
------------ --------- --------- ------------
Net loss................ (4,693,152) (748,172) (141,870) (5,583,194)
Beneficial conversion
feature upon issuance
of preferred stock ... (22,869,760) -- -- (22,869,760)
------------ --------- --------- ------------
Net loss attributable to
common stockholders... $(27,562,912) $(748,172) $(141,870) $(28,452,954)
============ ========= ========= ============
Basic and diluted net
loss per share........ $ (13.91) $ (10.18)
============ ============
Shares used in computing
basic and diluted net
loss per share........ 1,980,933 2,793,941(F)
============ ============
</TABLE>

The accompanying notes are an integral part of this statement.

F-32
<PAGE>

ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)

NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

(1) Description of the Proposed Acquisition

On July 31, 2000, the Company agreed to negotiate a non-binding letter of
intent providing for the acquisition of Talaria Therapeutics, Inc. The Company
expects that the proposed letter of intent would provide for the exchange of
all of the outstanding shares of stock of Talaria for the number of shares of
Esperion common stock equal to $6.0 million divided by the initial public
offering price per share discounted by 18%. Assuming an initial public offering
price of $9.00 per share, Esperion would issue 813,008 shares of its common
stock to Talaria stockholders. The Company expects that the proposed letter of
intent would provide for additional payments to Talaria stockholders of up to
$6.25 million in cash or common stock upon the achievement of four future
development milestones. These milestones would become due upon the enrollment
of the first patient in certain future clinical trials and each of the filing
and approval of a new drug application in the United States. These milestone
payments would increase the initial purchase price in the period when the
milestone is achieved, and the Company would include these additional amounts
as part of goodwill. The Company also expects that the proposed letter of
intent would provide for deferred contingent payments in cash or common stock
due to Talaria stockholders based on future net sales of the product in North
America, as defined in the proposed letter of intent. The Company expects that
the deferred contingent payments would be calculated at a rate of approximately
6% of such net sales or 25% of any sublicensing royalties that the Company
receives based upon such net sales, all subject to a maximum aggregate amount
of deferred contingent payments of $20.0 million. These deferred contingent
payments would be included in cost of sales in the period when the respective
sales are recognized. The acquisition, if completed, would be accounted for
under the purchase method of accounting. If the acquisition is consummated, the
purchase price would be allocated to both tangible and intangible assets. As a
result of this allocation, the Company expects to write-off approximately $4.0
million of acquired in-process research and development. Any remaining purchase
price would be allocated to goodwill and amortized over a period of five years.
The final allocation would be based on an independent appraisal of the fair
values on the closing date.

(2) Basis of Presentation

The unaudited pro forma condensed combined balance sheet as of March 31,
2000 gives effect to the acquisition of Talaria as if it occurred on that date.
The unaudited pro forma condensed combined statements of operations data for
the year ended December 31, 1999 and the three months ended March 31, 2000 give
effect to the acquisition as if it occurred on the first day of each of those
periods under the purchase method of accounting by combining the results for
the year ended December 31, 1999 of Esperion with the results for the same
period of Talaria, and combining the results for the three months ended March
31, 2000 of Esperion with the same period of Talaria. As required by Article 11
of Regulation S-X the unaudited pro forma condensed statements of operations
for the year ended December 31, 1999 and the three months ended March 31, 2000,
exclude material non-recurring charges which result directly from the merger
and which will be recorded within the twelve months following the merger. The
selected unaudited pro forma combined financial information reflects certain
adjustments, including adjustments to reflect the amortization of goodwill
resulting from the acquisition.

The total estimated purchase price for the acquisition has been allocated
on a preliminary basis to assets and liabilities based on management's best
estimates of their fair values with the excess purchase price over the net
assets acquired allocated to goodwill, which is being amortized over a period
of five years. The estimated purchase price includes estimated merger expenses
of approximately $283,000. This allocation is subject to change pending a final
analysis of the value of the assets acquired and liabilities assumed.

F-33
<PAGE>

ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)

NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION--(Continued)

The estimated purchase price is as follows:

<TABLE>
<S> <C>
Tangible net assets............................................ $ 762,607
In-process research and development............................ 4,000,000
Goodwill and other intangible assets........................... 2,837,393
----------
$7,600,000
==========
</TABLE>

(3) Pro Forma Adjustments

Pro forma adjustments for the unaudited pro forma condensed combined
balance sheet as of March 31, 2000 and statements of operations for the year
ended December 31, 1999 and the three months ended March 31, 2000 are as
follows:

(A.) To reflect the identifiable intangible assets and the excess
purchase price over the fair value of the net assets acquired.

(B.) To accrue the estimated merger costs.

(C.) To reflect the write-off of acquired in-process research and
development.

(D.) To reflect amortization of goodwill and other intangible assets
resulting from the acquisition.

(E.) To reflect the acquisition of all of the outstanding stock of
Talaria and the issuance of 813,008 shares of Esperion common
stock.

(F.) Basic and diluted net loss per share has been adjusted to reflect
the issuance of 813,008 shares of the Company's common stock, as if
these shares had been outstanding for the entire period.

(4) Acquired In-Process Research and Development

Acquired in-process research and development ("IPR&D") consists of
development work on the project in process at Talaria as of the date the
Company agreed to enter into a non-binding letter of intent for the proposed
acquisition. The development of this project has not yet reached technological
feasibility and is not expected to reach technological feasibility until 2004.
Under the terms of SFAS No. 2, the IPR&D offers no alternative future use.

After a preliminary assessment, the Company has allocated $4.0 million of
the estimated purchase price to the IPR&D project. The allocation was
determined by estimating the costs to develop the acquired technology into a
commercially viable product, estimating the resulting net cash flows from the
project and discounting the resulting net cash flows to their present value.
The Company expects to spend an additional $20.0 million in third party costs
over all phases of the research and development. Of these remaining costs,
approximately $15.0 million would relate to a Phase III clinical trial which is
expected to commence after the Phase II clinical trials are completed, but not
sooner than 2002. A discount rate of 35% was used to discount the cash flows.
All costs related to the IPR&D will be expensed at the closing date of the
acquisition.

The allocation of the purchase price among the identifiable tangible and
intangible assets and IPR&D is based on preliminary estimates of the fair
market value of those assets. Final determination of the allocation of the
purchase price will be based on independent appraisals that we expect to have
completed upon the closing of the acquisition.

F-34
<PAGE>

[LOGO OF ESPERION THERAPEUTICS]

Until , 2000 (25 days after the date of this prospectus), all
dealers that buy, sell or trade our common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This requirement is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
<PAGE>

SUBJECT TO COMPLETION, DATED AUGUST 9, 2000

[LOGO OF ESPERION THERAPEUTICS]

6,000,000 Shares

Common Stock

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

Investing in our common stock involves risks.
See "Risk Factors" beginning on page 5.

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

Esperion has granted the underwriters a 30-day option to purchase up to an
additional 900,000 shares of common stock to cover over-allotments.

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

Robertson Stephens International Chase H&Q

U.S. Bancorp Piper Jaffray

The date of this Prospectus is , 2000
<PAGE>

UNDERWRITING

<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
FleetBoston Robertson Stephens Inc................................
Chase Securities Inc..............................................
U.S. Bancorp Piper Jaffray Inc....................................

<CAPTION>
International Underwriter
-------------------------
<S> <C>
FleetBoston Robertson Stephens International Limited..............
---------
Total........................................................... 6,000,000
=========
</TABLE>

The underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.

61
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The expenses (other than underwriting discounts and commissions and the
underwriter's non-accountable expense allowance) payable in connection with
this offering of the rights and the sale of the Common Stock offered hereby are
as follows:

<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee............ $ 36,432
NASD filing fee................................................ 14,300
Nasdaq filing fee.............................................. 100,000
Printing and engraving expenses................................ 400,000
Legal fees and expenses........................................ 550,000
Accounting fees and expenses................................... 300,000
Blue Sky fees and expenses (including legal fees).............. 10,000
Transfer agent and rights agent and registrar fees and
expenses..................................................... 25,000
Miscellaneous.................................................. 164,268
----------
Total........................................................ $1,600,000
==========
</TABLE>

All expenses are estimated except for the SEC fee and the NASD fee.

Item 14. Indemnification of Directors and Officers

The Registrant's Certificate of Incorporation permits indemnification to
the fullest extent permitted by Delaware law. The Registrant's By-laws require
the Registrant to indemnify any person who was or is an authorized
representative of the Registrant, and who was or is a party or is threatened to
be made a party to any corporate proceeding, by reason of the fact that such
person was or is an authorized representative of the Registrant, against
expenses, judgments, penalties, fines and amounts paid in settlement actually
and reasonably incurred by such person in connection with such third party
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in, or not opposed to, the best interests of the
Registrant and, with respect to any criminal third party proceeding (including
any action or investigation which could or does lead to a criminal third party
proceedings had no reasonable cause to believe such conduct was unlawful. The
Registrant shall also indemnify any person who was or is an authorized
representative of the Registrant and who was or is a party or is threatened to
be made a party to any corporate proceeding by reason of the fact that such
person was or is an authorized representative of the Registrant, against
expenses actually and reasonably incurred by such person in connection with the
defense or settlement of such corporate action if such person acted in good
faith and in a manner reasonably believed to be in, or not opposed to, the best
interests of the Registrant, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Registrant unless and only to the extent that the
Delaware Court of Chancery or the court in which such corporate proceeding was
pending shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such authorized
representative is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper. Such
indemnification is mandatory under the Registrant's Bylaws as to expenses
actually and reasonably incurred to the extent that an authorized
representative of the Registrant had been successful on the merits or otherwise
in defense of any third party or corporate proceeding or in defense of any
claim, issue or matter therein. The determination of whether an individual is
entitled to indemnification may be made by a majority of disinterested
directors, independent legal counsel in a written legal opinion or the
stockholders. Delaware law also permits indemnification in connection with a
proceeding brought by or in the right of the Registrant to procure a judgment
in its favor. Insofar as indemnification for

II-1
<PAGE>

liabilities arising under the Securities Act of 1933, as amended (the "Act")
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in that Act and is therefore unenforceable.
The Registrant expects to obtain a directors and officers liability insurance
policy prior to the effective date of this Registration Statement.

The Underwriting Agreement provides that the underwriter is obligated,
under certain circumstances, to indemnify directors, officers, and controlling
persons of the Registrant against certain liabilities, including liabilities
under the Act. Reference is made to the form of Underwriting Agreement which
will be filed by amendment as Exhibit 1.1 hereto.

Item 15. Recent Sales of Unregistered Securities

In the preceding three years, the Registrant has issued the following
securities that were not registered under the Act:

Since our inception, we have issued an aggregate of 2,202,128 shares of
common stock, par value $0.001 per share. These shares include: (i) 1,329,399
shares of common stock issued on July 6, 1998 at a purchase price per share of
$0.001, for a total of $1,840 in cash; (ii) 144,500 shares of common stock
issued on September 1, 1998 at a purchase price per share of $0.21, for a total
of $30,000 paid with a note receivable to Esperion; (iii) 86,700 shares of
common stock issued on November 1, 1998 at a purchase price per share of $0.21,
for a total of $18,000 paid with a note receivable to Esperion; (iv) 144,500
shares of common stock issued on December 11, 1998 at a purchase price per
share of $0.21 per share, for a total of $30,000 paid with a note receivable to
Esperion; (v) 57,800 shares of common stock issued on June 4, 1999 at a
purchase price per share of $0.21 per share, for a total of $12,000 paid with a
note receivable to Esperion; (vi) 173,400 shares of common stock issued on July
1, 1999 at a purchase price per share of $0.21 per share, for a total of
$36,000 paid with a note receivable to Esperion; and (vii) 265,829 shares of
common stock issued upon the exercise of stock options at an average exercise
price of $0.18 per share for a total of $48,441 in cash. All such sales and
issuances were deemed to be exempt from registration under Section 4(2) of the
Act, or Regulation D or Regulation S promulgated under the Act.

Since our inception, we have also issued an aggregate of 21,889,242
shares of preferred stock, par value $0.01 per share. These shares include (i)
500,000 shares of series A preferred stock issued in July 1998 at a purchase
price per share of $1.00, for a total of $500,000; (ii) 10,000,000 shares of
series B preferred stock issued in August 1998 at a purchase price per share of
$1.50, for a total of approximately $15 million; (iii) 10,252,879 shares of
series C preferred stock issued in January 2000 at a purchase price per share
of $2.16 for a total of approximately $22.1 million, and 1,136,363 shares of
series D preferred stock issued in February 2000 at a purchase price per share
of $4.40 for a total of approximately $5.0 million. All such sales and
issuances were deemed to be exempt from registration under the Securities Act
by virtue of Section 4(2) or Regulation D or Regulation S promulgated under the
Act.

Pursuant to our 1998 Stock Option Plan, since our inception, we have
granted options to purchase a total of 1,548,470 shares of common stock,
consisting of 1,531,768 options granted prior to March 31, 2000 at a weighted
average exercise price of $1.56 per share and 16,702 options granted after
March 31, 2000 at a weighted average exercise price of $5.64 per share. For a
more detailed description of our 1998 Stock Option Plan, see "Equity
Compensation Plans--1998 Stock Option Plan." In granting the options and
selling the underlying securities upon exercises of the options, we are relying
upon exemptions from registration set forth in Section 4(2) of the Act and/or
Rule 701, Regulation D or Regulation S promulgated under the Act.

Common stock issuances and option grants reflect our 0.7225-for-one
reverse stock split of our common stock to holders of record as of March 24,
2000. Preferred stock issuances have not been adjusted for the common stock
split.

II-2
<PAGE>

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits:

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Fourth Amended and Restated Certificate of Incorporation of the
Company, which is currently in effect.!
3.2 Bylaws of the Company, which are currently in effect.!
3.3 Form of Fifth Amended and Restated Certificate of Incorporation of the
Company, to become effective upon the closing of this offering.!
3.4 Form of Amended and Restated Bylaws of the Company, to become
effective upon the closing of this offering.!
4.1 Form of Common Stock Certificate of the Company.!
5.1 Opinion of Morgan, Lewis & Bockius LLP.!
10.1 Esperion Therapeutics, Inc. 1998 Stock Option Plan.!
10.2 Collaboration and License Agreement between Esperion Therapeutics,
Inc. and Pharmacia & Upjohn
AB dated June 24, 1998.*@
10.3 License Agreement among Esperion Therapeutics, Inc., Jean-Louis
Dasseux as the Inventors'
Representative and the Inventors named therein dated September 15,
1999.*@
10.4 License Agreement between Inex Pharmaceuticals Corporation and
Esperion Therapeutics, Inc. dated
March 16, 1999.!@
10.5 Letter Agreement among Esperion Therapeutics, Inc., Inex
Pharmaceuticals Corporation and the University of British Columbia
dated March 12, 1999.!
10.6 License Agreement between Esperion Therapeutics, Inc. and Region
Wallonne dated February 17, 2000.!
10.7 Lease between Esperion Therapeutics, Inc. and State-94 Limited
Partnership dated November 30, 1998, as amended.!
10.8 Lease between Esperion Therapeutics, Inc. and Maxey, LLC dated January
4, 1999.!
10.9 Loan and Security Agreement between Silicon Valley Bank, doing
business as Silicon Valley East,
and Esperion Therapeutics, Inc., dated March 31, 1999.!
10.10 2000 Equity Compensation Plan.!
10.11 Employee Stock Purchase Plan.!
Loan Agreement between Stiftelson Industrifonden and Esperion
10.12 Therapeutics, Inc. dated May 19, 1999.!
10.13 Investors' Rights Agreement among Esperion Therapeutics, Inc. and the
parties set forth therein dated
July 6, 1998!
10.14 Amendment No. 1 to the Investors' Rights Agreement among Esperion
Therapeutics, Inc. and the
parties set forth therein dated August 11, 1998!
10.15 Amendment No. 2 to the Investors' Rights Agreement among Esperion
Therapeutics, Inc. and the
parties set forth therein dated January 7, 2000!
10.16 Amendment No. 3 to the Investors' Rights Agreement among Esperion
Therapeutics, Inc. and the
parties set forth therein dated February 22, 2000!
10.17 Restricted Stock Purchase Agreement between Esperion Therpeutics, Inc.
and Roger S. Newton dated
July 6, 1998.!
10.18 Advisory Relationship letter between Scheer & Company, Inc. and
Esperion Therapeutics, Inc. dated
March 31, 1999.!
10.19 Consulting Agreement between Anders Wiklund and Esperion Therapeutics,
Inc. dated August 12, 1998.!
10.20 Development Agreement between Esperion AB and OctoPlus b.v. dated
April 5, 1999.!
10.21 Production Agreement between Esperion Therapeutics, Inc. and
Eurogentec S.A. dated March 7, 2000.!
10.22 Service Agreement between Esperion Therapeutics, Inc. and Applied
Analytical Industries, Inc. dated February 4, 2000.!
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.23 Form of Restricted Stock Purchase Agreement.!
10.24 Form of Promissory Note.!
10.25 Form of Stock Pledge Agreement.!
10.26 Peptide Supply Agreement between Esperion Therapeutics, Inc. and
Neosystem S.A. dated April 17, 2000.!
21.1 Subsidiary of Esperion Therapeutics, Inc.!
23.1 Consent of Arthur Andersen LLP.*
23.2 Consent of Morgan, Lewis & Bockius LLP (to be included in Exhibit 5.1).!

23.3 Consent of Goldenberg Rosenthal, LLP.*

24.1 Power of Attorney (included on signature page).!
27.1 Financial Data Schedule.!
27.2 Financial Data Schedule.!
</TABLE>
--------
*Filed herewith.
#To be filed by amendment.
!Filed previously.
@Confidential Treatment Requested.

(b) Financial Statement Schedules

All information for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission is either included in the
financial statements or is not required under the related instructions or is
inapplicable, and therefore has been omitted.

Item 17. Undertakings.

The undersigned Registrant hereby undertakes to provide 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 indemnified for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.

In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

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

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has duly reasonable grounds to believe that it
meets all of the requirements for filing on Form S-1 and has duly caused this
Amendment No. 3 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Ann Arbor, Michigan, on August 9,
2000.

Esperion Therapeutics, Inc.

/s/ Roger S. Newton
By: _________________________________
Roger S. Newton
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 3 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ Roger S. Newton President, Chief Executive August 9, 2000
______________________________________ Officer and Director
Roger S. Newton (Principal Executive
Officer)

/s/ Timothy M. Mayleben Vice President and Chief August 9, 2000
______________________________________ Financial Officer
Timothy M. Mayleben (Principal Financial
Officer and Principal
Accounting Officer)
* Chairman August 9, 2000
______________________________________
David I. Scheer

* Director August 9, 2000
______________________________________
Anders Wiklund

* Director August 9, 2000
______________________________________
Christopher Moller

* Director August 9, 2000
______________________________________
Eileen M. More

* Director August 9, 2000
______________________________________
Seth A. Rudnick

/s/ Timothy M. Mayleben
*By: _________________________________
Timothy M. Mayleben
Attorney-in-Fact
</TABLE>

II-5
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------

<C> <S>
1.1 Form of Underwriting Agreement.*

3.1 Fourth Amended and Restated Certificate of Incorporation of the
Company, which is currently in effect.!

3.2 Bylaws of the Company, which are currently in effect.!

3.3 Form of Fifth Amended and Restated Certificate of Incorporation of the
Company, to become effective upon the closing of this offering.!

3.4 Form of Amended and Restated Bylaws of the Company, to become
effective upon the closing of this offering.!

4.1 Form of Common Stock Certificate of the Company.!

5.1 Opinion of Morgan, Lewis & Bockius LLP.!

10.1 Esperion Therapeutics, Inc. 1998 Stock Option Plan.!

10.2 Collaboration and License Agreement between Esperion Therapeutics,
Inc. and Pharmacia & Upjohn AB dated June 24, 1998.*@

10.3 License Agreement among Esperion Therapeutics, Inc., Jean-Louis
Dasseux as the Inventors' Representative and the Inventors named
therein dated September 15, 1999.*@

10.4 License Agreement between Inex Pharmaceuticals Corporation and
Esperion Therapeutics, Inc. dated March 16, 1999.!@

10.5 Letter Agreement among Esperion Therapeutics, Inc., Inex
Pharmaceuticals Corporation and the University of British Columbia
dated March 12, 1999.!

10.6 License Agreement between Esperion Therapeutics, Inc. and Region
Wallonne dated February 17, 2000.!

10.7 Lease between Esperion Therapeutics, Inc. and State-94 Limited
Partnership dated November 30, 1998, as amended.!

10.8 Lease between Esperion Therapeutics, Inc. and Maxey, LLC dated January
4, 1999.!

10.9 Loan and Security Agreement between Silicon Valley Bank, doing
business as Silicon Valley East, and Esperion Therapeutics, Inc.,
dated March 31, 1999.!

10.10 2000 Equity Compensation Plan.!

10.11 Employee Stock Purchase Plan.!

10.12 Loan Agreement between Stiftelson Industrifonden and Esperion
Therapeutics, Inc. dated May 19, 1999.!

10.13 Investors' Rights Agreement among Esperion Therapeutics, Inc. and the
parties set forth therein dated July 6, 1998!

10.14 Amendment No. 1 to the Investors' Rights Agreement among Esperion
Therapeutics, Inc. and the parties set forth therein dated August
11, 1998!

10.15 Amendment No. 2 to the Investors' Rights Agreement among Esperion
Therapeutics, Inc. and the parties set forth therein dated January
7, 2000!

10.16 Amendment No. 3 to the Investors' Rights Agreement among Esperion
Therapeutics, Inc. and the parties set forth therein dated February
22, 2000!

10.17 Restricted Stock Purchase Agreement between Esperion Therapeutics,
Inc. and Roger S. Newton dated July 6, 1998.!
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.18 Advisory Relationship letter between Scheer & Company, Inc. and
Esperion Therapeutics, Inc. dated March 31, 1999.!

10.19 Consulting Agreement between Anders Wiklund and Esperion Therapeutics,
Inc. dated August 12, 1998.!

10.20 Development Agreement between Esperion AB and OctoPlus b.v. dated
April 5, 1999.!

10.21 Production Agreement between Esperion Therapeutics, Inc. and
Eurogentec S.A. dated March 7, 2000.!

10.22 Service Agreement between Esperion Therapeutics, Inc. and Applied
Analytical Industries, Inc. dated February 4, 2000.!

10.23 Form of Restricted Stock Purchase Agreement.!

10.24 Form of Promissory Note.!

10.25 Form of Stock Pledge Agreement.!

10.26 Peptide Supply Agreement between Esperion Therapeutics, Inc. and
Neosystem S.A. dated April 17, 2000.!

21.1 Subsidiary of Esperion Therapeutics, Inc.!

23.1 Consent of Arthur Andersen LLP.*

23.2 Consent of Morgan, Lewis & Bockius LLP (to be included in Exhibit 5.1).!

23.3 Consent of Goldenberg Rosenthal, LLP.*

24.1 Power of Attorney (included on signature page).!

27.1 Financial Data Schedule.!

27.2 Financial Data Schedule.!
</TABLE>
--------
*Filed herewith.
#To be filed by amendment.
!Filed previously.
@Confidential Treatment Requested.