TEXAS BIOTECHNOLOGY CORP /DE/, S-3/A, 1997-09-03

TEXAS BIOTECHNOLOGY CORP /DE/
S-3/A, 1997-09-03
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 3, 1997

REGISTRATION NO. 333-33473

================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------

AMENDMENT NO. 1 TO

FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
TEXAS BIOTECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)

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<S> <C>
DELAWARE 13-3532643
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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7000 FANNIN STREET, SUITE 1920
HOUSTON, TEXAS 77030
(713) 796-8822
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
---------------------
DAVID B. MCWILLIAMS
TEXAS BIOTECHNOLOGY CORPORATION
7000 FANNIN STREET, SUITE 1920
HOUSTON, TEXAS 77030
(713) 796-8822
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
With copies to:

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ROBERT G. REEDY, ESQ. JI HOON HONG, ESQ.
PORTER & HEDGES, L.L.P. SHEARMAN & STERLING
700 LOUISIANA, SUITE 3500 599 LEXINGTON AVENUE
HOUSTON, TEXAS 77002 NEW YORK, NEW YORK 10022
(713) 226-0600 (212) 848-4000
</TABLE>

Approximate date of commencement of proposed sale to the public: as soon as
practicable after this Registration Statement becomes effective.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]

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, other than securities offered only in connection with dividend or interest
reinvestment plans, 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 of 1933, please check the
following box and list the Securities Act of 1933 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 of 1933, check the following box and list the
Securities Act of 1933 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. [ ]
CALCULATION OF REGISTRATION FEE

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========================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
- --------------------------------------------------------------------------------------------------------
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Common stock, $.005 par value........................ $32,703,125 $9,910.04
========================================================================================================
</TABLE>

(1) Estimated pursuant to Rule 457(o) solely for the purpose of calculating the
registration fee.

(2) Of this amount, $8,617.43 has previously been paid.

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

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

SUBJECT TO COMPLETION, DATED SEPTEMBER 3, 1997

PROSPECTUS

[Texas Biotechnology 5,000,000 SHARES
Corporation Logo] TEXAS BIOTECHNOLOGY CORPORATION
COMMON STOCK
---------------------------

All of the shares of Common Stock (the "Common Stock") offered hereby are
being sold by Texas Biotechnology Corporation (the "Company" or "TBC"). The
Common Stock is traded on the American Stock Exchange, Inc. ("AMEX") under the
symbol "TXB." On August 29, 1997, the last reported sale price of the Common
Stock was $5.00 per share. See "Price Range of Common Stock."

SmithKline Beecham plc ("SmithKline") will purchase $2,000,000 of the
Common Stock being sold in this offering at the public offering price, which
purchase will equal shares (the "SmithKline Shares"). Such shares are
being purchased by SmithKline for investment purposes and not with a view toward
resale. See "Underwriting."

THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

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Price to Underwriting Discounts Proceeds to
Public and Commissions(1) Company(2)
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<S> <C> <C> <C>
Per Share................................ $ $ $
- ---------------------------------------------------------------------------------------------------------------
Total(3)................................. $ $ $
===============================================================================================================
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(1) The Underwriters will receive a fee with respect to the sale of the
SmithKline Shares of $ per share. The Company has agreed to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."

(2) Before deducting expenses estimated at $350,000, payable by the Company.

(3) The Company has granted the Underwriters a 45-day option to purchase up to
750,000 additional shares of Common Stock on the same terms and conditions
as set forth herein solely to cover over-allotments, if any. If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."

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

The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters, and
subject to their right to reject orders in whole or in part. It is expected that
delivery of the certificates representing such shares of Common Stock will be
made at the offices of Lehman Brothers Inc., New York, New York, on or about
, 1997.

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

LEHMAN BROTHERS PAINEWEBBER INCORPORATED

, 1997
<PAGE> 3

GRAPHICS

(TBC to add graphics and text)

The graphic depicts a cutaway view of an artery which displays the
Company's targeted indications, and which is labeled with the Company's programs
and target compounds including: (i) thrombosis -- NOVASTAN(R); (ii)
vasospasm/hypertension -- endothlin receptor antagonist/TBC 11251; (iii)
vascular inflammation -- selectin inhibitor/TBC 1269, vascular cell adhesion
molecule; (iv) vascular proliferative disease -- fibroblast growth factor
antagonist; (v) angiogenesis -- vascular endothelial growth factor; and
(vi) apoptosis -- tumor necrosis factor and caspases antagonists.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK PRIOR TO THE
PRICING OF THE OFFERING FOR THE PURPOSES OF MAINTAINING THE PRICE OF THE COMMON
STOCK, THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING THE PRICING OF THE
OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK OR FOR THE
PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."

This Prospectus may contain trademarks and service marks of other companies.

2
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AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and Seven
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. Such materials also can be inspected at the offices of
AMEX, 86 Trinity Place, New York, New York 10006, on which the Common Stock is
listed. In addition, the Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements, and
other information regarding registrants that file electronically with the
Commission.

The Company has filed with the Commission a Registration Statement on Form
S-3 (including any amendments thereto, the "Registration Statement") under the
Securities Act with respect to the shares of Common Stock offered hereby (this
"Offering"). This Prospectus does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the Common Stock, reference
is made to the Registration Statement and the exhibits and schedules thereto.
Statements made in this Prospectus regarding the contents of any contract or
document filed as an exhibit to the Registration Statement are not necessarily
complete and, in each instance, reference is hereby made to the copy of such
contract or document so filed. Each such statement is qualified in its entirety
by such reference.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents which have previously been filed by the Company
with the Commission under the Exchange Act are incorporated herein by reference:

(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.

(2) A description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A effective December 15, 1993
(Commission File No. 1-12574), as amended by the Company's proxy materials
dated April 22, 1994 and April 4, 1996 relating to its 1994 and 1996 annual
shareholders' meetings, respectively.

(3) The Company's Current Reports on Form 8-K dated April 2, 1997 and
August 25, 1997.

(4) The Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997 and June 30, 1997.

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of this Offering shall be deemed to be incorporated in this
Prospectus by reference and to be a part hereof from the date of filing of such
documents. Any statement contained herein, or in a document incorporated or
deemed to be incorporated by reference herein, shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.

This Prospectus incorporates documents by reference which are not delivered
herewith. Copies of these documents, other than the exhibits thereto (unless
such exhibits are specifically incorporated by reference in such documents), are
available upon written or oral request, at no charge, from the Company. Requests
for such copies should be directed to Stephen L. Mueller, vice president of
administration, secretary and treasurer of the Company, at 7000 Fannin Street,
Suite 1920, Houston, Texas 77030, or at (713) 796-8822.

3
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere in this Prospectus and the
documents incorporated herein by reference. Unless otherwise indicated, the
information in this Prospectus assumes that the Underwriters' over-allotment
option will not be exercised. This Offering involves a high degree of risk.
Investors should carefully consider the information set forth under the heading
"Risk Factors."

THE COMPANY

Texas Biotechnology Corporation is a biopharmaceutical company engaged in
discovering, developing and commercializing synthetic small molecule drugs
primarily for cardiovascular indications. TBC's research philosophy is based
upon combining its expertise in vascular biology with its advanced computational
chemistry capabilities to identify and develop small molecule compounds. The
Company's research and development programs are currently focused on inhibitors
(also referred to as antagonists or blockers) of thrombosis,
vasospasm/hypertension, vascular inflammation, vascular proliferative disease,
angiogenesis and apoptosis. The Company has filed a new drug application ("NDA")
with the United States ("U.S.") Food and Drug Administration (the "FDA") for its
lead product candidate, NOVASTAN(R) (argatroban) for use as an anticoagulant in
patients with heparin-induced thrombocytopenia ("HIT"). This NDA has been
granted priority review status by the FDA, and a decision on approval from the
FDA is anticipated by the end of the second quarter of 1998. NOVASTAN(R) is also
in Phase II clinical trials for the treatment of acute myocardial infarction
("AMI"). The Company has begun Phase II clinical trials for TBC 11251 (TBC's
lead compound for vasospasm/hypertension) in congestive heart failure ("CHF")
and expects to begin Phase II clinical trials for TBC 1269 (TBC's lead compound
for vascular inflammation) in allergic asthma during the third quarter of 1997.
TBC has licensed the U.S. and Canadian rights to NOVASTAN(R) from Mitsubishi
Chemical Corporation ("Mitsubishi"). The Company has entered into a
collaboration with SmithKline Beecham plc ("SmithKline") regarding the
commercialization and development of NOVASTAN(R) and has entered into
collaborations with Synthelabo S.A., the pharmaceutical division of L'Oreal S.A.
("Synthelabo"), and LG Chemical, Ltd. ("LG Chemical") regarding other compounds,
as described below.

The Company's lead product candidate is NOVASTAN(R), a direct thrombin
inhibitor that is being developed for various indications as an anticoagulant
alternative to heparin. Approximately 275,000 patients treated with heparin in
the U.S. annually develop the immunological reaction known as HIT which may lead
to a potentially life-threatening thrombosis (blood clot). Because there is no
current drug treatment for HIT in the U.S., the Company has initially focused on
the therapeutic and commercial potential of NOVASTAN(R) in this indication. In
addition, TBC is developing NOVASTAN(R) for patients who have an AMI and receive
thrombolytic therapy (approximately 250,000 patients in the U.S. annually).
NOVASTAN(R) is marketed in Japan for ischemic stroke, peripheral arterial
occlusion and hemodialysis in patients with antithrombin III deficiency.
Approximately 133,000 patients have been treated with NOVASTAN(R) in Japan since
its introduction in 1990.

TBC's internal research has produced several small molecule product
candidates in the areas of vasospasm, hypertension and vascular inflammation.
The Company's lead compound for the treatment of CHF is TBC 11251, a synthetic
small molecule receptor antagonist that selectively blocks endothelin(A)
receptors which are believed to be associated with vasoconstriction
(constriction of blood flow through blood vessels). In the area of vascular
inflammation (which can result in asthma, reperfusion injury, or psoriasis), the
Company has identified several compounds, including TBC 1269, which in
preclinical studies have shown efficacy in inhibiting acute inflammation. The
Company has begun Phase II clinical trials for TBC 11251 in CHF and expects to
begin Phase II clinical trials for TBC 1269 in allergic asthma during the third
quarter of 1997.

treatments for the consequences of excess angiogenesis (the formation of new
blood vessels from pre-existing blood vessels) and apoptosis (programmed cell
death). The Company has identified a number of compounds which are undergoing
further optimization prior to selection of clinical candidates.

TBC has developed an approach to rational drug discovery, the
PHARMACEUTICAL TOOLBOX(TM), that permits the conversion of bioactive peptides,
oligosaccharides or proteins into small molecule drugs. The PHARMACEUTICAL
TOOLBOX(TM) is comprised of a number of proprietary and non-proprietary
components including rational drug design and focused compound libraries. TBC
has refined its rational drug design approach to take advantage of
pharmacological information already present in these biologically active
molecules to develop inhibitors to their actions. This information is used in
parallel with other inhibitor design technology, where appropriate, to
accelerate the selection of lead compounds. The PHARMACEUTICAL TOOLBOX(TM) was
used in the design of TBC 11251 and TBC 1269. The Company intends to continue
the use and development of the PHARMACEUTICAL TOOLBOX(TM), and will also
consider commercial applications such as licensing of this technology system to
third parties.

TBC's strategy is to identify proprietary value-added product candidates
for targeted indications, and to selectively commercialize those candidates
through collaborations with other pharmaceutical and biotechnology companies. In
the future, the Company intends to directly commercialize its compounds for
cardiovascular indications by establishing a targeted hospital-based sales
force, and intends to out-license the compounds in territories outside its
targeted markets, as well as the rights to any non-strategic use of its
compounds.

Licensing and Collaboration Agreements. TBC is developing and
commercializing NOVASTAN(R) pursuant to licensing and collaboration agreements
with Mitsubishi, SmithKline and Synthelabo. TBC has an exclusive license from
Mitsubishi to use and sell NOVASTAN(R) in the U.S. and Canada for all
cardiovascular, renal, neurological and immunological purposes other than use
for the coating of stents. TBC is required to pay Mitsubishi specified royalties
on net sales of NOVASTAN(R). TBC has also entered into several agreements with
Synthelabo regarding the exchange of clinical trial data relating to TBC's and
Synthelabo's respective NOVASTAN(R) clinical trials.

On August 5, 1997, TBC entered into a Product Development, License and
Co-Promotion Agreement with SmithKline (the "SmithKline Agreement"), which
provides for the commercialization and development of NOVASTAN(R) in the U.S.
and Canada. The SmithKline Agreement grants SmithKline exclusive marketing
rights in the U.S. and Canada, subject to TBC's rights to co-promote NOVASTAN(R)
under certain circumstances. Under the SmithKline Agreement, SmithKline will (i)
make upfront cash payments, equity investments and milestone payments to TBC
totalling up to $31.5 million, (ii) pay royalties or a percentage of profits to
TBC on net sales of NOVASTAN(R), and (iii) fund a portion of TBC's clinical
development of certain indications. TBC believes the SmithKline Agreement
provides the financial resources and marketing expertise necessary to
commercialize NOVASTAN(R). In connection with the SmithKline Agreement,
Mitsubishi entered into a Supply Agreement (the "Mitsubishi Supply Agreement")
with SmithKline, whereby Mitsubishi will manufacture and supply all of
SmithKline's requirements for bulk NOVASTAN(R).

TBC has also entered into collaborations with Synthelabo regarding TBC's
vascular proliferation program against the action of FGF, and with LG Chemical
regarding TBC's endothelin receptor and selectin antagonist programs. Both of
these agreements provide Synthelabo and LG Chemical with exclusive rights to
these compounds in selected territories and provide for cash payments to TBC in
the form of license fees, milestone payments and equity investments, which will
be used in the ongoing development of these product candidates. To date,
Synthelabo and LG Chemical have provided approximately $14.8 million and $6.1
million, respectively, to TBC in connection with these collaborations. See
"Business -- Research and Development Collaborations and Licensing Agreements."

The Company's executive offices are located at 7000 Fannin Street, Suite
1920, Houston, Texas 77030. Its telephone number is (713) 796-8822.
5
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THE OFFERING

Common Stock offered.................... 5,000,000 shares

Common Stock to be outstanding after
this Offering........................... 31,003,000 shares(1)

Use of proceeds......................... To fund preclinical and clinical
testing of the Company's product
candidates, continued research and
development, and capital
expenditures. See "Use of
Proceeds."

American Stock Exchange symbol.......... TXB
- ---------------

(1) As of June 30, 1997, does not include (i) 2,896,913 shares issuable upon
exercise of options outstanding under the Company's employee stock option
plan, which are currently exercisable for 1,473,628 shares, (ii) 4,082,500
shares issuable upon exercise of outstanding warrants (at $8.44 per share)
and 1,264,769 shares issuable upon exercise of outstanding warrants (at
$3.05 to $4.58 per share), (iii) 710,000 shares reserved for issuance upon
exercise of certain options and warrants underlying such options, all of
which are exercisable at $11.14 per share, (iv) the issuance of an
additional 285,715 shares and warrants to acquire 142,858 shares (at an
exercise price of $14.00 per share) upon acceptance of the filing and/or
approval of an NDA relating to NOVASTAN(R), (v) approximately 1.0 million
shares issuable upon conversion of the 4,600 outstanding shares of 5%
Cumulative Convertible Preferred Stock (the "5% Preferred"), assuming that
such shares were converted on June 30, 1997 at a conversion price of $4.52
and (vi) 176,992 shares purchased by SmithKline. See Notes 2, 3 and 9 to
"Consolidated Financial Statements."

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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

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JUNE 30, 1997
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ACTUAL AS ADJUSTED(1)
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(UNAUDITED)
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CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short term investments........... $ 9,294 $32,516
Working capital............................................. $ 7,891 $31,113
Total assets................................................ $14,673 $37,895
Stockholders' equity........................................ $11,329 $34,551
</TABLE>

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(1) Adjusted to reflect the sale of five million shares of Common Stock offered
hereby (including the SmithKline Shares) at an assumed offering price of
$5.00 per share and application of the net proceeds therefrom as described
in "Use of Proceeds."

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RISK FACTORS

In evaluating the Company and its business, prospective investors should
carefully consider all of the information set forth in this Prospectus and the
documents incorporated herein by reference and should give particular attention
to the following risk factors.

NO ASSURANCE OF REGULATORY APPROVAL; NEED FOR EXTENSIVE CLINICAL TRIALS

The production and marketing of the Company's products, as well as its
ongoing research and development activities, are subject to regulation by
governmental agencies in the U.S. and other countries. Any drug developed by the
Company will be subject to rigorous preclinical and clinical testing and
approval pursuant to regulations administered by the FDA, comparable agencies in
other countries and, to a lesser extent, by state regulatory authorities. This
approval process is likely to take several years and will involve significant
expenditures.

For example, in August 1997, the Company filed with the FDA its NDA
regarding NOVASTAN(R) for use in the treatment of HIT. The NDA was subsequently
granted priority review status. However, the FDA has 60 days to formally accept
the filing, and will then commence a further review that is anticipated to take
approximately 6 months regarding final approval of the NDA. The FDA's refusal to
accept the NDA filing or to approve the NDA on this schedule could significantly
impair the Company's plans to commence marketing of NOVASTAN(R) for use in the
treatment of HIT.

The cost to the Company of conducting human clinical trials for any
potential product can vary dramatically based on a number of factors, including
the order and timing of clinical indications pursued and the extent of
development and financial support, if any, from corporate partners. Because of
the intense competition in the cardiovascular market, the Company may have
difficulty obtaining sufficient patient populations or clinician support to
conduct its clinical trials as planned and may have to expend substantial
additional funds to obtain access to such resources, or delay or modify its
plans significantly. There is no assurance that the Company will have sufficient
resources to complete the required regulatory review process or that the Company
could survive the inability to obtain, or delays in obtaining, such approvals.
There can be no assurance that clinical testing of the Company's products will
provide evidence of safety and efficacy in humans, that regulatory approvals
will be granted for any of the Company's products or that it will be
economically feasible to commercialize any products for which regulatory
approvals are granted. Approvals that may be granted will be subject to
continual review, and later discovery of previously unknown problems may result
in restrictions on a product's future use or withdrawal of the product from the
market. Substantial changes in regulatory and reimbursement policy may affect
the Company's research and development expenditures and regulatory approval of
the Company's product candidates.

DEPENDENCE ON STRATEGIC RELATIONSHIPS

The Company will rely on strategic relationships with corporate partners to
provide the financing, marketing and technical support and, in certain cases,
the technology necessary to develop and commercialize certain of its product
candidates. TBC has entered into an agreement with Mitsubishi to license
Mitsubishi's rights and technology relating to NOVASTAN(R) (the "Mitsubishi
Agreement") in the U.S. and Canada for specified indications. Either party may
terminate the Mitsubishi Agreement on 60 days notice if the other party defaults
in its material obligations under the agreement, declares bankruptcy or is
insolvent, or if a substantial portion of its property is subject to levy.
Unless terminated sooner pursuant to the above described termination provisions,
the Mitsubishi Agreement expires on the later of termination of patent rights in
a particular country or 20 years after the first commercial sale of products in
a particular country. Under the Mitsubishi Agreement, TBC has access to an
improved formulation patent granted in 1993 which expires in 2010 and a use
patent which expires in 2009.

In connection with the Company's research, development and
commercialization of NOVASTAN(R), in August 1997, the Company signed the
SmithKline Agreement whereby the Company granted an exclusive sublicense to
SmithKline relating to the continued development and commercialization of
NOVASTAN(R). The SmithKline Agreement provides for the payment of royalties and
certain milestone payments upon the

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<PAGE> 10

completion of various regulatory filings and receipt of regulatory approvals.
The SmithKline Agreement generally terminates on a country by country basis upon
the earlier of the termination of TBC's rights under the Mitsubishi Agreement,
the expiration of applicable patent rights or, in the case of certain royalty
payments, the commencement of substantial third-party competition. SmithKline
also has the right to terminate the agreement on a country by country basis by
giving TBC at least three months written notice based on a reasonable
determination by SmithKline that the commercial profile of the indication in
question would not justify continued development or marketing in that country.
In addition, either party may terminate the SmithKline Agreement on 60 days
notice if the other party defaults in its obligations under the agreement,
declares bankruptcy or is insolvent.

In October 1994, the Company signed a collaborative agreement with
Synthelabo to develop and market compounds for vascular proliferative disease
derived from the Company's research programs. Synthelabo has the right to
terminate the agreement any time on or after October 15, 1997 for any reason and
either party has the right to terminate the contract for breach of any material
obligation. If Synthelabo exercises this termination right, the license granted
to Synthelabo will terminate and TBC will pay Synthelabo a royalty on net sales
of any products sold in a certain territory (Europe, Middle East, Africa and
countries of the former Soviet Union) for a period of time. In addition,
Synthelabo may, at its option, require that the technology be transferred to and
the development program be conducted by a joint venture owned by TBC and
Synthelabo should TBC's "net worth", as defined in the agreement, be less than
$5.0 million as of the end of any calendar quarter during the term of the
agreement.

In October 1996, the Company signed a strategic alliance agreement with LG
Chemical to develop and market compounds derived from the Company's endothelin
receptor and selectin antagonist programs for certain disease indications in
certain territories. LG Chemical has committed to pay $10.7 million in research
payments and has the right to terminate future research payments if TBC fails to
meet certain milestones to be established by the parties in accordance with the
agreement.

The Company's success will depend on these and any future strategic
alliances. There can be no assurance that the Company will satisfy the
conditions required to obtain additional milestone payments under the existing
agreements or to prevent these agreements from being terminated, some of which
conditions will not be within the control of the Company. There can be no
assurance that the Company will be able to enter into future strategic alliances
on acceptable terms. The termination of any existing strategic alliances or the
inability to establish additional collaborative arrangements may limit the
Company's ability to develop its technology and may have a material adverse
effect on the Company's business or financial condition.

DEVELOPMENT STAGE; TECHNOLOGICAL UNCERTAINTY

The Company is in a development stage and has not produced or marketed any
material products and, accordingly, has not begun to generate revenues from the
commercialization of its product candidates. To date, the Company's resources
have been dedicated to the research and development of small-molecule drugs for
certain cardiovascular indications. The Company has developed lead compounds in
its vasospasm/ hypertension, vascular inflammation and vascular proliferative
disease programs. The commercial applications of the Company's product
candidates will require further investment, research, development, preclinical
and clinical testing and regulatory approvals, both foreign and domestic. There
can be no assurance that the Company will be able to develop, produce at
reasonable cost, or market successfully, any of its product candidates. Further,
these product candidates may prove to have undesirable and unintended side
effects and, in some cases, may require complex delivery systems that may
prevent or limit their commercial use. All of the Company's products will
require regulatory approval before they may be commercialized. Products, if any,
resulting from the Company's research and development programs are not expected
to be commercially available for a number of years, and there can be no
assurance that any successfully developed products will generate substantial
revenues or that the Company will ever be profitable.

9
<PAGE> 11

NEED FOR ADDITIONAL FUNDS; HISTORY OF OPERATING LOSSES

Because the Company has been unprofitable to date and expects to incur
losses for the next several years as the Company invests in product research and
development, preclinical and clinical testing and regulatory compliance, the
Company will require substantial additional funds to complete the research and
development of its product candidates, to establish commercial scale
manufacturing facilities and to market its products. The Company has accumulated
approximately $74.5 million in net losses through June 30, 1997. Estimates of
the Company's future capital requirements will depend on many factors,
including: continued scientific progress in its drug discovery programs; the
magnitude of these programs; progress with preclinical testing and clinical
trials; the time and costs involved in obtaining regulatory approvals; the costs
involved in filing, prosecuting and enforcing patent claims; competing
technological and market developments; changes in its existing research
relationships; the ability of the Company to maintain and establish additional
collaborative arrangements; and effective commercialization activities and
arrangements. Subject to these factors, the Company anticipates that the net
proceeds of this Offering, together with its existing capital resources and its
other revenue sources, should be sufficient to fund its cash requirements
through the second quarter of 1999. Significant expenditures may be required if
unanticipated clinical trials are required to obtain regulatory approval for
NOVASTAN(R) or the Company's other product candidates. As a result, the Company
may need additional funds before any of its product candidates achieves
regulatory approval. Notwithstanding revenues which may be produced through
sales of potential future products if approved, the Company anticipates that
additional funds will need to be secured to continue the required levels of
research and development to reach its long term goals. The Company intends to
seek such additional funding through collaborative arrangements and/or through
public or private financings. There can be no assurance that additional
financing will be available, or, if available, that it will be available on
acceptable terms. If additional funds are raised by issuing securities, further
dilution of the equity ownership of existing stockholders will result. If
adequate funds are not available, the Company may be required to delay, scale
back or eliminate one or more of its drug discovery or development programs or
obtain funds through arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain of its technologies, product
candidates or products that the Company would not otherwise relinquish.

TECHNOLOGICAL CHANGE AND COMPETITION

The biopharmaceutical industry is undergoing rapid and significant
technological change and is highly competitive. The Company's success will
depend on its ability to develop and apply its technology and on its ability to
establish and maintain a market for its products. Potential competitors in the
U.S. and other countries include major pharmaceutical and chemical companies,
specialized biotechnology firms, universities and other research institutions,
many of which have substantially greater financial, technical, manufacturing and
marketing capabilities than the Company. Competitors may develop products or
other novel technologies that are more effective than any that have been or are
being developed by the Company or may obtain FDA approval for products more
rapidly than the Company. There can be no assurance that technological
development by others will not render the Company uncompetitive or that the
Company will be successful in establishing or maintaining its technological
competitiveness.

DEPENDENCE ON QUALIFIED PERSONNEL

The Company's success is highly dependent on its ability to attract and
retain qualified scientific and management personnel. The loss of the services
of the principal members of the Company's management and scientific staff may
impede the Company's ability to commercialize its products. In order to
commercialize its products, the Company must maintain and expand its personnel,
particularly in the areas of clinical trial management, manufacturing, sales and
marketing. The Company faces intense competition for such personnel from other
companies, academic institutions, government entities and other organizations.
There can be no assurance that the Company will be successful in hiring or
retaining qualified personnel. Managing the integration of new personnel and
company growth in general could pose significant risks to the Company's
development and progress.

10
<PAGE> 12

The continued employment of David B. McWilliams, president and chief
executive officer, Richard A. F. Dixon, Ph.D., vice president of research, and
Richard P. Schwarz, Jr., Ph.D., vice president of clinical development and
regulatory affairs is key to the Company's success. Each of these employees has
an employment agreement with the Company. Mr. McWilliams' and Dr. Dixon's
agreements are effective through July 15, 1998 and provide for continuing
one-year extensions. Dr. Schwarz's agreement is "at will" with no specified
term.

The Company relies on consultants and advisors, including its scientific
advisors, to assist the Company in formulating its research and development
strategy. All of the Company's consultants and advisors are employed by
employers other than the Company and may have commitments to or consulting or
advisory contracts with other entities that may affect their ability to
contribute to the Company.

DEPENDENCE ON SUPPLIER

At present, Mitsubishi is the only manufacturer of NOVASTAN(R), and has
entered into the Mitsubishi Supply Agreement with SmithKline to supply
NOVASTAN(R) in bulk in order to meet SmithKline's and TBC's needs under the
SmithKline Agreement. Should Mitsubishi fail during any consecutive nine-month
period to supply SmithKline at least 80% of its requirements, and such
requirements cannot be satisfied by existing inventories, the Mitsubishi Supply
Agreement provides for the nonexclusive transfer of the production technology to
SmithKline. However, in the event Mitsubishi terminates manufacturing
NOVASTAN(R) or defaults in its supply commitment, there can be no assurance that
SmithKline will be able to commence manufacturing of NOVASTAN(R) in a timely
manner or that alternate sources of bulk NOVASTAN(R) will be available at
reasonable cost, or at all. If SmithKline cannot commence manufacturing of
NOVASTAN(R) or alternate sources of supply are unavailable or uneconomic, the
Company's results of operations would be materially and adversely affected.

UNCERTAINTY REGARDING PATENTS AND PROPRIETARY INFORMATION

The Company actively seeks patent protection for its proprietary
technology, both in the U.S. and abroad. The Company's success will depend, in
part, on its ability to obtain patents and to operate without infringing on the
proprietary rights of others. There can be no assurance that patents issued to
or licensed by the Company will not be challenged, invalidated or circumvented,
or that the rights granted thereunder will provide competitive advantages to the
Company. There can be no assurance that the Company's pending patent
applications or patent applications in preparation presently or in the future,
if and when issued, will be valid and enforceable and withstand litigation.
There can be no assurance that others will not independently develop
substantially equivalent or superseding proprietary technology or that an
equivalent product will not be marketed in competition with the Company's
products, thereby substantially reducing the value of the Company's proprietary
rights. There is a substantial backlog of pharmaceutical and biotechnology
patent applications at the U.S. Patent and Trademark Office ("PTO"). Because
patent applications in the U.S. are maintained in secrecy until patents issue,
and because publication of discoveries in the scientific or patent literature
tend to lag behind actual discoveries by several months, there can be no
assurance that the Company will obtain patent protection for its inventions. In
addition, patent protection, even if obtained, is affected by the limited period
of time for which a patent is effective. Furthermore, patent positions of
pharmaceutical and biotechnology companies, as well as those of academic and
research institutions, are highly uncertain and involve complex legal and
factual questions. This is an uncertain and developing area of the law that is
potentially subject to significant change. Therefore, the scope or
enforceability of claims allowed in the patents on which the Company will rely
cannot be predicted with any certainty.

The Company also relies on trade secrets, know-how and continuing
technological advancement to maintain its competitive position. Although the
Company has entered into confidentiality agreements with its employees and
consultants, which contain assignment of invention provisions, no assurance can
be given that others will not gain access to these trade secrets, that such
agreements will be honored or that the Company will be able to effectively
protect its rights to its unpatented trade secrets. Moreover, no assurance can
be given that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the Company's
trade secrets.

11
<PAGE> 13

In addition to protecting its proprietary technology and trade secrets, the
Company may be required to obtain licenses to patents or other proprietary
rights from third parties. No assurance can be given that any licenses required
under any patents or proprietary rights would be made available on acceptable
terms, if at all. If the Company does not obtain required licenses, it could
encounter delays in product introductions while it attempts to design around
blocking patents, or it could find that the development, manufacture or sale of
products requiring such licenses could be foreclosed.

The Company could incur substantial costs in defending any patent
infringement suits or in asserting any patent rights, including those granted by
third parties, in a suit with another party. The PTO could institute
interference proceedings involving the Company in connection with one or more of
the Company's patents or patent applications, and such proceedings could result
in an adverse decision as to priority of invention. TBC has one interference
proceeding pending which involves compounds not currently of commercial interest
to TBC. The PTO or a comparable agency of a foreign jurisdiction could also
institute re-examination or opposition proceedings against the Company in
connection with one or more of the Company's patents or patent applications and
such proceedings could result in an adverse decision as to the validity or scope
of the patents.

POSSIBLE VOLATILITY OF STOCK PRICE; TRADING MARKET FOR COMMON STOCK

The stock market has from time to time experienced significant price and
volume fluctuations that may be unrelated to the operating performance of
particular companies. In particular, the market price of the Company's
securities, like that of the securities of other biopharmaceutical companies,
may be highly volatile. Factors such as announcements by the Company or its
competitors concerning technological innovations, new commercial products or
procedures by the Company or its competitors, proposed governmental regulations
and developments in both the U.S. and foreign countries, disputes relating to
patents or proprietary rights, publicity regarding actual or potential medical
results relating to products under development by the Company or its
competitors, public concern as to the safety of biotechnology products, and
economic and other external factors, as well as period-to-period fluctuations
and financial results, may have a significant effect on the market price of the
Company's securities.

From time to time, there has been limited trading volume with respect to
the Common Stock. In addition, there can be no assurance that there will
continue to be a trading market or that any analysts will continue to provide
research coverage with respect to the Common Stock. Accordingly, with respect to
the Common Stock being offered hereby, no assurances can be made that such
factors will not affect the market for the Common Stock.

NO MANUFACTURING, MARKETING OR SALES ACTIVITIES

The Company has no manufacturing, marketing or product sales experience. If
the Company develops any commercially marketable products, there can be no
assurance that contract manufacturing services will be available in sufficient
capacity to supply the Company's product needs on a timely basis. If the Company
decides to build or acquire commercial scale manufacturing capabilities, the
Company will require additional management and technical personnel and
additional capital. No assurance can be given that the raw materials necessary
for the manufacture of the Company's products will be available in sufficient
quantities or at a reasonable cost. Complications or delays in obtaining raw
materials or in product manufacturing could delay the submission of products for
regulatory approval and the initiation of new development programs, each of
which could materially impair the Company's competitive position and potential
profitability. There can be no assurance that the Company will be able to enter
into any other supply arrangements on acceptable terms, if at all. If at some
point in the future, the Company decides to perform its own sales and marketing
activities, the Company will require additional management, will need to hire
sales and marketing personnel and will require additional capital. No assurance
can be given that qualified personnel will be available in adequate numbers or
at a reasonable cost and there can be no assurance that the Company's sales
staff will achieve success in its marketing efforts.

12
<PAGE> 14

PRODUCT LIABILITY EXPOSURE

Product liability risk is inherent in the testing, manufacture, marketing
and sale of the Company's products, and there can be no assurance that the
Company will be able to avoid significant product liability exposure. Product
liability insurance for the pharmaceutical industry, when available, is
expensive. The Company has obtained $2.0 million of product liability insurance
to cover its clinical trial programs. Pursuant to the Mitsubishi Agreement and
the SmithKline Agreement, the Company is obligated to acquire additional
coverage as the Company develops products. Existing coverage will not be
adequate as the Company further develops products and there can be no assurance
that adequate insurance coverage will be available at a reasonable cost in the
future. A future product liability claim may have a material adverse effect on
the business or financial condition of the Company.

UNCERTAINTY OF PHARMACEUTICAL PRICING AND RELATED MATTERS; NEED FOR
REIMBURSEMENT

The future revenues and profitability of, and availability of capital for
biotechnology companies may be affected by the continuing efforts of
governmental and third-party payers to contain or reduce the costs of health
care through various means. For example, in certain foreign markets, the pricing
and profitability of prescription pharmaceuticals is subject to government
control. There have been, and there may continue to be, a number of federal and
state proposals to implement similar government control in the U.S. It is
uncertain what form any health care reform legislation may take or what actions
the federal, state and private payers may take in response to the suggested
reforms. The Company cannot predict when any reforms will be implemented, if
ever, or the effect of any implemented reform on the Company's business. There
can be no assurance that any implemented reform will not have a material adverse
effect on the Company's future results of operations. The Company's long-term
ability to market its products successfully may depend in part on the extent to
which reimbursement for the cost of such products and related treatment will be
available from public and private health insurers and other organizations.
Third-party payers are increasingly challenging the prices of medical products
and services. The reimbursement status of newly-approved health care products is
highly uncertain, and there can be no assurance that third-party coverage will
be available or that available third-party coverage will enable the Company to
maintain price levels sufficient to realize an appropriate return on its
investment in product development.

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS

As of June 30, 1997, substantially all of the Company's shares of Common
Stock were eligible for immediate sale in the public market, subject in the case
of approximately 1.3 million shares to a contractual arrangement to not sell
such shares until October 1997. Moreover, the resale of approximately 4.3
million shares are covered by currently effective Form S-3 registration
statements. As part of the Company's initial public offering of securities in
1993 (the "Initial Public Offering"), warrants covering approximately 4.1
million shares (with an exercise price of $8.44 per share) were issued and
remain outstanding and the shares issuable upon exercise are registered for sale
on a Form S-1 registration statement. In addition, as part of the Initial Public
Offering, the underwriters were issued 355,000 options to purchase units (each
unit consisting of one share of Common Stock and one warrant to purchase Common
Stock) at an exercise price of $11.14 per share (the warrants are also
exercisable at $11.14 per share). The sale of the Common Stock underlying the
units is registered on a Form S-1 registration statement. Furthermore, the
resale of an aggregate of approximately 718,000 shares issuable upon exercise of
other warrants (with exercise prices from $3.36 to $4.58 per share) are
registered on currently effective Form S-3 registration statements. Other
warrants exercisable for approximately 500,000 shares (with an exercise price of
$3.66) are not currently registered for resale, but have piggyback registration
rights. Approximately 2.9 million shares of Common Stock are issuable upon
exercise of outstanding employee stock options and will become eligible for sale
in the public markets at prescribed times in the future under Form S-8
registration statements. As of June 30, 1997, such options were exercisable to
purchase approximately 1.5 million shares of Common Stock. TBC has agreed to
issue to Genentech, Inc. ("Genentech"), a former licensor of NOVASTAN(R), an
additional 214,286 shares of Common Stock within ten days after acceptance of
the filing of the first NDA for NOVASTAN(R), and an additional 71,429 shares of
Common Stock within ten days after the FDA's first approval of an NDA

13
<PAGE> 15

for NOVASTAN(R). The Company has also agreed to grant Genentech a warrant to
purchase an additional 142,858 shares of Common Stock at an exercise price of
$14.00 per share, subject to adjustment, within ten days after acceptance of the
filing of the first NDA for NOVASTAN(R) with the FDA. The Company has granted
Genentech registration rights for all of these 428,573 shares. As of June 30,
1997, the Company has reserved 2.6 million shares of Common Stock for issuance
upon conversion of the outstanding 5% Preferred and estimates that approximately
1.0 million of such reserved shares may be issued. These 2.6 million shares of
Common Stock reserved for issuance are registered for resale on a currently
effective Form S-3 registration statement. If the price for the Common Stock
falls below $2.00 per share, the number of shares issuable upon conversion of
the 5% Preferred will exceed 2.6 million and any excess shares shall also be
registered for resale on a Form S-3 registration statement. In total, as of June
30, 1997 the Company has reserved approximately 12.0 million shares of Common
Stock for issuance pursuant to outstanding options, warrants, other contingent
agreements and the 5% Preferred. Approximately 11.0 million of these shares of
reserved Common Stock are registered for sale or resale on currently effective
registration statements, and substantially all of the remaining shares of
reserved Common Stock are entitled to registration rights under the Securities
Act. In addition, LG Chemical has the option to purchase $5.0 million of Common
Stock on September 30, 1997 or December 31, 1997 at a price that must be agreed
to by TBC and LG Chemical. The issuance of a significant number of shares of
Common Stock upon the exercise of stock options and warrants, or the sales of a
substantial number of shares of Common Stock pursuant to Rule 144 or otherwise,
could adversely affect the market price of the Common Stock.

ANTI-TAKEOVER PROVISIONS

The Company's Certificate of Incorporation and the Delaware General
Corporation Law (the "DGCL") contain certain provisions that may delay or
prevent an attempt by a third-party to acquire control of the Company. In
addition, the severance provisions of employment agreements with certain members
of management could impede an attempted change of control of the Company.

DILUTION RESULTING FROM 5% PREFERRED STOCK

Each of the outstanding shares of the 5% Preferred is convertible at any
time at the option of the holder thereof into such number of shares of Common
Stock as is determined by dividing: (i) $1,000 (plus any accrued dividends or
default payments) by (ii) the Conversion Price (defined below) in effect on the
date the election to convert is made. The "Conversion Price" is calculated by
determining the average of the daily low trading price of the Common Stock
during the ten consecutive trading days immediately preceding the date of the
conversion election and then decreasing that average price by a discount factor
ranging from 6% to 17%. In addition, certain penalties related to the Company's
possible inability to register for resale the Common Stock underlying the 5%
Preferred may have the effect of further decreasing the Conversion Price,
thereby increasing the number of shares of Common Stock issuable to the holders
of the 5% Preferred upon conversion. As of June 30, 1997, the 4,600 outstanding
shares of the 5% Preferred are convertible, in the aggregate, into approximately
1.0 million shares of Common Stock (exclusive of shares of Common Stock issuable
upon conversion of the 5% Preferred dividends), but this amount may prove to be
significantly greater in light of the factors outlined above including a
decrease in the average market price for the Common Stock. Purchasers of Common
Stock may therefore experience substantial dilution of their investment in the
event that the holders of the 5% Preferred elect to convert their holdings of
such stock into shares of Common Stock.

DILUTION AND ABSENCE OF DIVIDENDS

The public offering price is higher than the net tangible book value per
share of the Common Stock. Assuming a public offering price of $5.00, investors
purchasing shares of Common Stock as of June 30, 1997, will incur immediate and
substantial dilution in the amount of $4.03 per share. Future equity financings
may cause further dilution to investors. The Company has never paid dividends on
its Common Stock and will not pay dividends in the foreseeable future. See
"Dilution."

14
<PAGE> 16

LEGAL PROCEEDINGS

The Company and certain of its officers and directors are parties to
certain litigation arising out of the Company's Initial Public Offering. Given
the early stage of this case, the Company is unable to evaluate its potential
outcome at this time. The Company disputes these claims and intends to contest
them vigorously. There can be no assurance, however, that the final disposition
of this case will be favorable to the Company. See "Business -- Legal
Proceedings."

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

All statements other than statements of historical fact included in this
Prospectus are "forward looking statements." Such forward looking statements
include, without limitation, statements under "Risk Factors -- Need for
Additional Funds; History of Operating Losses" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" regarding TBC's estimate of sufficiency of existing capital
resources and ability to raise additional capital to fund cash requirements for
future operations. Although TBC believes that the expectations reflected in such
forward looking statements are reasonable, it can give no assurance that such
expectations reflected in such forward looking statements will prove to have
been correct. The ability to achieve TBC's expectations is contingent upon a
number of factors which include, without limitation, (i) ongoing cost of
research and development activities, (ii) cost of clinical development of
product candidates, (iii) attainment of research and clinical goals of product
candidates, (iv) timely approval of TBC's product candidates by appropriate
governmental and regulatory agencies, (v) effect of any current or future
competitive products, (vi) ability to manufacture and market products
commercially, (vii) retention of key personnel and (viii) capital market
conditions.

USE OF PROCEEDS

The net proceeds to the Company from this Offering are estimated to be
approximately $23.2 million (approximately $26.7 million if the Underwriters'
over-allotment option is exercised in full), assuming a public offering price of
$5.00 per share and after deduction of the underwriting discounts and
commissions and estimated offering expenses. The Company anticipates that
approximately $12.5 million of the net proceeds will be used for the clinical
development of product candidates, including NOVASTAN(R), and approximately $9.8
million of the net proceeds will be used to fund the continued research and
development of biopharmaceuticals for the treatment of cardiovascular and other
diseases. The remaining net proceeds are expected to be used to fund capital
expenditures for laboratory and office expansion, laboratory equipment and
scientific instrumentation.

The preceding represents estimates only, and actual allocation of the net
proceeds for such purposes and timing of the expenditures will be dependent on
various factors, including the progress of the Company's research and
development programs, the results of preclinical and clinical trials, the timing
of regulatory approvals, competitive developments, payments, if any, under any
collaborative arrangements entered into by the Company and the availability of
additional financing. Such expenditures are likely to be substantial and to
exceed the net proceeds of this Offering. The Company may also use a portion of
the net proceeds to acquire, by license, purchase or other arrangement,
businesses, technologies, or products that complement the Company's business,
although the Company does not have any agreement or understanding, nor is it
presently engaged in any discussions or negotiations, with respect to any
acquisition, and there can be no assurance that any acquisition will be made.
The Company's board of directors has broad discretion in determining how the
proceeds of this Offering will be applied.

Pending ultimate application, the net proceeds from this Offering will be
invested with other funds of the Company in cash equivalents and short-term
investments, including U.S. government securities and high-grade corporate
investments, commercial paper and bankers acceptances, at the discretion of the
Company.

15
<PAGE> 17

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is traded on the AMEX under the symbol "TXB."
The following table sets forth for the periods indicated, the high and low sale
prices of the Common Stock as reported by the consolidated transaction reporting
system.

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1995
First Quarter............................................... $ 1 3/4 $ 1 1/4
Second Quarter.............................................. 1 15/16 1 3/16
Third Quarter............................................... 3 3/4 1 5/16
Fourth Quarter.............................................. 2 13/16 1 11/16
YEAR ENDED DECEMBER 31, 1996
First Quarter............................................... $ 5 1/2 $ 2
Second Quarter.............................................. 6 9/16 3 1/2
Third Quarter............................................... 4 7/16 2 3/8
Fourth Quarter.............................................. 4 3/4 2 15/16
YEAR ENDING DECEMBER 31, 1997
First Quarter............................................... $ 7 1/4 $ 3 7/8
Second Quarter.............................................. 6 3/16 3 3/4
Third Quarter (through August 29, 1997)..................... 6 1/2 4 5/8
</TABLE>

As of August 29, 1997 there were approximately 5,600 holders of Common
Stock. On August 29, 1997, the last sale price reported on the AMEX was $5.00
per share.

DIVIDEND POLICY

The Company has never paid dividends on its Common Stock and does not
anticipate paying any cash dividends in the foreseeable future. The Company
intends to retain any future earnings and capital for use in its business.

16
<PAGE> 18

CAPITALIZATION

The following table sets forth the capitalization of the Company at June
30, 1997, and as adjusted to give effect to the sale by the Company of Common
Stock offered hereby and the application of the estimated $23.2 million net
proceeds therefrom as described in "Use of Proceeds." This table should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Consolidated Financial Statements."

<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' equity:
Preferred Stock, par value $.005 per share -- 5,000,000
shares authorized; 4,600 shares of 5% cumulative
convertible outstanding................................ $ -- $ --
Common Stock, par value $.005 per share -- 75,000,000
shares authorized; 26,003,000 shares outstanding;
31,003,000 shares outstanding, as adjusted(1).......... 130 155
Additional paid-in capital................................ 85,683 108,880
Deficit accumulated during development stage.............. (74,484) (74,484)
-------- -------
Total stockholders' equity........................ 11,329 34,551
-------- -------
Total capitalization...................................... $ 11,329 $34,551
======== =======
</TABLE>

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

(1) As of June 30, 1997, does not include (i) 2,896,913 shares issuable upon
exercise of options outstanding under the Company's employee stock option
plan, which are currently exercisable for 1,473,628 shares, (ii) 4,082,500
shares issuable upon exercise of outstanding warrants (at $8.44 per share)
and 1,264,769 shares issuable upon exercise of outstanding warrants (at
$3.05 to $4.58 per share), (iii) 710,000 shares reserved for issuance upon
exercise of certain options and warrants underlying such options, all of
which are exercisable at $11.14 per share, (iv) the issuance of an
additional 285,715 shares and warrants to acquire 142,858 shares (at an
exercise price of $14.00 per share) upon acceptance of the filing and/or
approval of an NDA relating to NOVASTAN(R), (v) approximately 1.0 million
shares issuable upon conversion of the 4,600 outstanding shares of 5%
Preferred, assuming that such shares were converted on June 30, 1997 at a
conversion price of $4.52 and (vi) 176,922 shares purchased by SmithKline.
See Notes 2, 3 and 9 to "Consolidated Financial Statements."

17
<PAGE> 19

DILUTION

The net tangible book value of the Company at June 30, 1997 was
approximately $6.8 million or $0.26 per share of Common Stock. "Net tangible
book value" per share is equal to the Company's total tangible assets less its
total liabilities and the 5% Preferred Stock liquidation value, divided by the
number of shares of Common Stock outstanding. After giving effect to this
Offering and the application of the estimated net proceeds therefrom as
described in "Use of Proceeds," the pro forma net tangible book value of the
Company at June 30, 1997 would have been approximately $30.0 million or $.97 per
share. This represents an immediate increase in net tangible book value of $.71
per share to existing stockholders and an immediate dilution in net tangible
book value of $4.03 per share to purchasers of Common Stock in this Offering
(including SmithKline). The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed public offering price(1)............................ $5.00
Net tangible book value prior to this Offering............ 0.26
Increase per share attributable to sales of shares in this
Offering............................................... 0.71
-----
Pro forma net tangible book value after this Offering....... .97
-----
Dilution in net tangible book value to purchasers in this
Offering.................................................. $4.03
=====
</TABLE>

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

(1) Before deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company.

The following table summarizes, on a pro forma basis as of June 30, 1997,
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by the existing
stockholders and by the purchasers of shares in this Offering (including
SmithKline).

<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
-------------------- ---------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
Existing shareholders........... 26,003,000 83.9% $ 87,210,000 77.7% $ 3.35
New investors................... 5,000,000 16.1% 25,000,000 22.3% $ 5.00
---------- ------ ------------ ------
Total................. 31,003,000 100.0% $112,210,000 100.0%
========== ====== ============ ======
</TABLE>

The information in the foregoing tables does not give effect to the exercise of
any options or warrants subsequent to June 30, 1997. As of June 30, 1997, such
information does not include (i) 2,896,913 shares issuable upon exercise of
options outstanding under the Company's employee stock option plan, which are
currently exercisable for 1,473,628 shares, (ii) 4,082,500 shares issuable upon
exercise of outstanding warrants (at $8.44 per share) and 1,264,769 shares
issuable upon exercise of outstanding warrants (at $3.05 to $4.58 per share),
(iii) 710,000 shares reserved for issuance upon exercise of certain options and
warrants underlying such options, all of which are exercisable at $11.14 per
share, (iv) the issuance of an additional 285,715 shares and warrants to acquire
142,858 shares (at an exercise price of $14.00 per share) upon acceptance of the
filing and/or approval of an NDA relating to NOVASTAN(R), (v) approximately 1.0
million shares issuable upon conversion of the 4,600 outstanding shares of 5%
Preferred, assuming that such shares were converted on June 30, 1997 at a
conversion price of $4.52 and (vi) 176,922 shares purchased by SmithKline. See
Notes 2, 3 and 9 to "Consolidated Financial Statements." To the extent these
options and warrants are exercised and the 5% Preferred is converted, there may
be further dilution to new investors.

18
<PAGE> 20

SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The selected financial data presented below for each of the years in the
five-year period ended December 31, 1996 are derived from the Company's
consolidated audited financial statements. The financial data for the six months
ended June 30, 1996 and 1997 and for the period from August 2, 1989 to June 30,
1997 have been derived from financial statements which have not been audited,
but which, in the opinion of management, include all adjustments necessary for a
fair presentation of such data. The results of operations for the six months
ended June 30, 1997 are not necessarily indicative of the results for the full
year. These selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Consolidated Financial Statements."

<TABLE>
<CAPTION>
AUGUST 2, 1989
(DATE OF
SIX MONTHS ENDED INCORPORATION)
YEAR ENDED DECEMBER 31, JUNE 30, TO
-------------------------------------------------- ------------------- JUNE 30,
1992 1993 1994 1995 1996 1996 1997 1997
------- ------- -------- -------- -------- -------- -------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues........................... $ -- $ 150 $ 4,719 $ 7,234 $ 5,406 $ 3,201 $ 1,490 $ 18,998
Expenses:
Research and development......... 3,013 6,098 8,936 14,950 22,252 11,504 8,830 64,670
Charge for purchase of in-process
research and development....... -- 1,000 6,404 2,061 -- -- -- 9,466
General and administrative....... 1,995 2,591 3,992 4,693 4,068 2,125 3,071 22,543
Restructuring and impairment of
intangible assets.............. -- -- -- 644 421 421 -- 1,065
------- ------- -------- -------- -------- -------- -------- --------
Total expenses............. 5,008 9,689 19,332 22,348 26,741 14,050 11,901 97,744
------- ------- -------- -------- -------- -------- -------- --------
Operating loss..................... (5,008) (9,539) (14,613) (15,114) (21,335) (10,849) (10,411) (78,746)
------- ------- -------- -------- -------- -------- -------- --------
Other income (expense):
Interest income.................. 475 212 1,011 1,201 898 497 323 4,441
Interest expense................. -- (1) (2) (1) -- -- -- (92)
Other............................ -- -- -- -- -- -- (6) (6)
------- ------- -------- -------- -------- -------- -------- --------
Total other income (expense)... 475 211 1,009 1,200 898 497 317 4,343
Net loss....................... $(4,533) $(9,328) $(13,604) $(13,914) $(20,437) $(10,352) $(10,094) $(74,403)
Preferred dividend
requirement.................. -- -- -- -- -- -- (847) (847)
Net loss applicable to common
shares....................... $(4,533) $(9,328) $(13,604) $(13,914) $(20,437) $(10,352) $(10,941) $(75,250)
Net loss per share............. $ (0.52) $ (1.05) $ (0.97) $ (0.83) $ (0.87) $ (0.46) $ (0.43) $ (6.59)
======= ======= ======== ======== ======== ======== ======== ========
Weighted average common shares used
to compute net loss per share.... 8,635 8,897 14,018 16,749 23,616 22,480 25,647 11,421
======= ======= ======== ======== ======== ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and
short term investments........... $ 9,812 $23,808 $ 25,051 $ 13,920 $ 13,390 $ 17,064 $ 9,294
Working capital.................... 9,680 23,189 22,930 11,927 10,110 15,469 7,891
Total assets....................... 14,658 27,996 31,192 18,926 18,180 21,946 14,673
Short-term debt.................... -- 80 -- -- -- -- --
Stockholders' equity............... 14,320 27,087 27,558 15,710 13,627 18,949 11,329
</TABLE>

19
<PAGE> 21

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

OVERVIEW

The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in the forward-looking statements as a result of certain
factors including those set forth herein under "Risk Factors" and elsewhere in
this Prospectus.

Since its inception in 1989, the Company has primarily devoted its
resources to fund research, drug discovery and development. The Company has been
unprofitable to date and expects to incur substantial losses for the next
several years as the Company invests in product research and development,
preclinical and clinical testing and regulatory compliance. The Company has
sustained net losses of $74.5 million from inception to June 30, 1997. The
Company has primarily financed its operations to date through certain private
placements of Common Stock and shareholder loans, which have raised an aggregate
of $21.3 million in net proceeds, the Initial Public Offering which raised an
aggregate of $24.2 million in net proceeds including the over-allotment sold in
January 1994, a private placement of Common Stock on February 13, 1996, which
raised $13.0 million in net proceeds and a private placement of the 5% Preferred
on March 14, 1997, which raised approximately $6.0 million in net proceeds.

On July 25, 1994, the Company acquired all of the outstanding stock of
ImmunoPharmaceutics, Inc. ("IPI") in exchange for 1,599,958 shares of Common
Stock, 999,956 shares of escrowed Common Stock which were released upon
satisfaction of certain research milestones, and contingent stock issue rights
to acquire 1,400,000 shares of which 399,961 shares were issued upon
satisfaction of certain research milestones. IPI's financial results have been
included in the Company's financial statements beginning August 1, 1994. In
March 1996, IPI's remaining operations in California were consolidated with the
Company's Houston operations.

The Company signed a collaborative agreement with Synthelabo on October 11,
1994. Upon consummation of the transaction, Synthelabo purchased 1,428,571
shares of Common Stock for a total of $5.0 million and paid a licensing fee of
$3.0 million. In addition, Synthelabo has paid $3.0 million annually in research
payments (payable in quarterly installments) for two years and paid $750,000 for
the third year. During 1996, TBC signed agreements with Synthelabo to provide
copies of certain clinical data. Over the life of the agreements TBC may receive
as much as $2.9 million, of which $2.3 million has been received as of June 30,
1997. During October 1996, the Company executed a research and Common Stock
purchase agreement with LG Chemical. LG Chemical purchased 1,250,000 shares of
Common Stock for $5.0 million and committed to pay up to $10.7 million over a
five-year period to develop two compounds in clinical development. Of this
amount, $1.1 million has been paid and $1.0 million will be paid on December 31,
1997 and on each of June 30 and December 31 of 1998, 1999 and 2000, and $1.3
million will be paid on June 30 and December 31, 2001. LG Chemical also has the
option to purchase $5.0 million of Common Stock on September 30, 1997 or
December 31, 1997 at a price that must be agreed to by TBC and LG Chemical.

In August 1997, the Company entered into the SmithKline Agreement, whereby
SmithKline was granted exclusive rights to collaborate with TBC in the
development and commercialization of NOVASTAN(R) in the U.S. and Canada for
specified indications. SmithKline has paid an $8.5 million license fee to TBC
and is committed to pay up to $20.0 million in milestone payments based on the
clinical development and FDA approval of NOVASTAN(R) for the indications of HIT,
HIT with thrombosis syndrome ("HITTS") and AMI. In connection with the
SmithKline Agreement, SmithKline purchased 176,922 shares of Common Stock for
$1.0 million. See "Business -- Research and Development Collaborations and
License Agreements -- SmithKline."

The Company's operating results have fluctuated significantly during each
quarter, and the Company anticipates that such fluctuations, largely
attributable to varying research and development commitments and expenditures,
will continue for the next several years.

20
<PAGE> 22

RESULTS OF OPERATIONS

Six-month periods ended June 30, 1996 and June 30, 1997

Revenues decreased from $3,200,776 in the six-month period ended June 30,
1996 to $1,490,000 in the same period of 1997, a decrease of 53%. Revenues were
primarily composed of earned revenues under research agreements. Such revenues
decreased primarily because of the revision to the payment terms of the
Synthelabo collaborative agreement effective November 1, 1996, which
substantially reduced the research payments associated with this agreement. In
addition, data payments from Synthelabo were lower in 1997 as the contracts
neared completion.

Total operating expenses decreased 15% from $14,050,347 in the six-month
period ended June 30, 1996 to $11,901,673 in the same period of 1997 primarily
because of the decrease in research and development expenses. Research and
development expenses decreased 23% from $11,504,545 in the six-month period
ended June 30, 1996 to $8,830,365 in the same period of 1997. This decrease was
primarily attributable to continued decreases in research and development
activity related to the completion of enrollment in certain clinical trials for
the compound NOVASTAN(R). General and administrative expenses increased 45% from
$2,124,637 in the six-month period ended June 30, 1996 to $3,071,308 in the same
period of 1997 primarily because of a non-cash charge related to the extension
of the exercise period for certain stock options. Excluding the effect of the
stock option extensions, general and administrative expenses decreased less than
1% to $2,118,389 in the six-month period ended June 30, 1997 compared with
$2,124,637 for the same period of 1996. Restructuring and impairment charges
during 1996 related to the consolidation of the IPI operations into TBC did not
reoccur in 1997. However, the 1997 period included market research expenses
related to NOVASTAN(R) and higher legal fees.

Other income and expense is composed of investment income on invested
funds, interest expense and foreign currency exchange gains and losses. The
decrease is caused by a 36% decrease in investment income from $497,278 in the
six-month period ended June 30, 1996 to $323,476 in the same period of 1997,
attributed primarily to lower investment balances.

Years Ended December 31, 1994, 1995 and 1996

Revenues were $4,718,785, $7,234,002 and $5,405,776 during 1994, 1995 and
1996, respectively. Revenues included National Institutes of Health federal
research grant income of $289,522, $227,938 and $1,727 in 1994, 1995 and 1996,
respectively. For the years 1994, 1995 and 1996, respectively, revenues also
included $178,934, $217,707 and $8,939 of product sales from the Company's
subsidiary IPI and $4,250,329, $6,788,357 and $5,395,110 from research
agreements, data exchange agreements and collaborations with various other
companies. In March 1996, IPI's operations in California were consolidated with
the Company's Houston operations. Revenues from research agreements in 1994
include a $3.0 million license fee and $500,000 in research payments related to
the agreement with Synthelabo. Revenues from research agreements in 1995 include
$3.0 million in research payments related to the agreement with Synthelabo and a
$2.0 million additional research payment from Eisai Co., Ltd. ("Eisai") for
attainment of a milestone. This Eisai research agreement expired in March 1996.
Revenues from research agreements in 1996 includes $2.6 million in research
payments from Synthelabo and $2.3 million for data supplied to Synthelabo.
Interest income was $1,011,251, $1,200,921 and $898,039, for the years 1994,
1995 and 1996, respectively. Interest income for the year 1995 was significantly
higher over 1994 due to funds received in conjunction with the Synthelabo and
Eisai agreements and generally higher interest rates. From 1995 to 1996,
interest income declined approximately $300,000 due to lower average invested
balances and a general decline in interest rates.

Total operating expenses increased 16% from $19,332,414 in 1994 to
$22,347,974 in 1995 and 20% from $22,347,974 in 1995 to $26,740,565 in 1996. The
Company recorded noncash charges for the purchase of in-process research and
development of $6,404,227 and $2,061,383 during 1994 and 1995, respectively. The
Company impaired the remaining goodwill associated with the IPI purchase,
$643,750 at December 31, 1995, due to the expected consolidation of IPI
operations into TBC's in the first half of 1996 and charged $421,165 to expense
during 1996 related to restructuring IPI. The change in operating expenses would
have been 52% and 34% for the years 1994 to 1995 and 1995 to 1996, respectively,
without these charges. The increase from

21
<PAGE> 23

1994 to 1995 was primarily due to inclusion of a full year of costs for IPI and
increased costs associated with the clinical trials of NOVASTAN(R). The increase
from 1995 to 1996 was primarily due to increases related to the costs associated
with the clinical trials of NOVASTAN(R). The Company had 97 employees at
December 31, 1994, of which 35 were IPI employees, 98 at December 31, 1995, of
which 25 were IPI employees, and 73 at December 31, 1996.

Research and development expenses increased 67% from $8,936,004 in 1994 to
$14,949,822 in 1995 and 49% from $14,949,822 in 1995 to $22,251,895 in 1996,
without including the noncash charge for purchase of in-process research and
development of $6,404,227 and $2,061,383 for the years 1994 and 1995,
respectively. The increase from 1994 to 1995 was primarily due to inclusion of a
full year of costs for IPI and increased costs associated with the clinical
trials of NOVASTAN(R). The increase from 1995 to 1996 was primarily due to the
increase in clinical development expenses related to the ongoing clinical trials
of NOVASTAN(R).

General and administrative expenses increased 18% from $3,992,183 in 1994
to $4,693,019 in 1995 and decreased 13% from $4,693,019 in 1995 to $4,067,505 in
1996. The increase in 1995 was primarily due to including a full year of IPI's
general and administrative expenses of $814,724 and legal expenses related to
shareholder lawsuits and patent applications for TBC's compounds. The decrease
in 1996 was primarily due to the restructuring of IPI and the related decrease
in general and administrative expenses. In addition, legal expenses decreased
approximately $300,000 due primarily to lower litigation expenses in 1996.

Rent and related expenses, which are a component of both research and
development and general and administrative expenses were approximately
$1,416,000 in 1994, $1,218,000 in 1995 and $1,025,000 in 1996. The decrease of
approximately $198,000 from 1994 to 1995 was a result of lower rent and
utilities expenses for the Houston space due to renegotiation of the lease,
partially offset by a full year of rent from the IPI office and lab space. The
decrease of approximately $193,000 in 1996 from 1995 was due to the elimination
of leased space as a result of the consolidation of IPI with the Houston
operations, and credits applied to the Houston space due to the lease
renegotiation.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its research and development activities to date
principally through (i) private placements of Common Stock and 5% Preferred
Stock and the Initial Public Offering of a unit security, (ii) issuances of
Common Stock in conjunction with acquisitions and research and collaboration
agreements and exercises of stock options and warrants, (iii) milestone and
research payments received in conjunction with research and collaborative
agreements, and (iv) investment income, net of interest expense. During the
first six months of 1997, the Company utilized net cash of $10,357,855 in
operating activities. The use of cash in operations was caused primarily by the
Company's net loss of $10,094,037. Investing activities primarily reflect the
utilization of $5,925,269 in net proceeds from the 1997 private placement of the
5% Preferred, net of redemptions of short-term investments during the first
quarter. At June 30, 1997, the Company had cash, cash equivalents and short-term
investments of $9,294,331.

The Company expects to incur substantial research and development
expenditures as it designs and develops biopharmaceutical products for the
prevention and treatment of cardiovascular diseases. The Company anticipates
that operating expenses may continue to increase during 1997 and subsequent
years. The Company began to incur costs to develop NOVASTAN(R) during the third
quarter of 1993. These costs will continue during 1997 because of ongoing
NOVASTAN(R) clinical trials and will continue to be significant through the FDA
approval process and as clinical trial work for additional clinical indications
is performed. The Company also began incurring clinical trial costs in 1997 for
the compounds TBC 11251 and TBC 1269. In 1998, the Company expects to begin to
incur costs for clinical trials related to additional compounds. These costs
include, among other things, hiring personnel to direct and carry out all
operations related to the clinical trials, hospital and procedural costs,
services of a contract research organization, and purchasing and formulating
large quantities of the compound to be used in such trials. Furthermore, the
Company anticipates that the administrative costs associated with this effort
will be significant. The amounts and timing of expenditures will depend on the
progress of the Company's ongoing research, clinical development and
commercialization efforts.

22
<PAGE> 24

The Company anticipates that the net proceeds of this Offering, together
with its existing capital resources and its other revenue sources, should be
sufficient to fund its cash requirements through the second quarter of 1999.
This date is contingent upon various factors, including the rates of patient
enrollment and spending associated with clinical trials for NOVASTAN(R), the
compounds TBC 11251 and TBC 1269, and the level of research and development
expenditures for other compounds. The Company's existing capital resources may
not be sufficient to fund the Company's operations through commercialization of
its first product, NOVASTAN(R). Moreover, TBC's agreement with Synthelabo
requires the Company to maintain a "net worth", as defined in the agreement, of
at least $5.0 million during the term of the agreement. If the Company fails to
maintain at least $5.0 million of "net worth", Synthelabo may require that the
technology be transferred to, and the development program be conducted by, a
joint venture owned by TBC and Synthelabo. The outcome of certain lawsuits that
have been filed against the Company could also have an impact on liquidity. See
"Business -- Legal Proceedings."

The Company anticipates that it may need to raise substantial funds for
future operations in addition to the net proceeds of this Offering, which may be
raised through collaborative arrangements, public or private issuance of debt
and equity, or other arrangements. The Company expects that additional
expenditures will be required if additional product candidates enter clinical
trials which may require additional expenditures for laboratory space,
scientific and administrative personnel, and services of contract research
organizations. There can be no assurance that the Company will be able to obtain
such additional financings on acceptable terms or in time to fund any necessary
or desirable expenditures. In the event such financings are not obtained, the
Company's drug discovery or development programs may be delayed, scaled back or
eliminated; or it may be required to obtain funds through arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies, product candidates or products that it
would not otherwise relinquish. TBC's ability to raise additional funding is
contingent upon a number of factors which include (i) ongoing cost of research
and development activities, (ii) cost of clinical development of product
candidates, (iii) attainment of research and clinical goals of product
candidates, (iv) timely approval of TBC's product candidates by appropriate
governmental and regulatory agencies, (v) effect of any current or future
competitive products, (vi) ability to manufacture and market products
commercially, (vii) retention of key personnel and (viii) capital market
conditions. See "Risk Factors -- Need for Additional Funds; History of Operating
Losses."

IMPACT OF INFLATION AND CHANGING PRICES

The pharmaceutical research industry is labor intensive, and wages and
related expenses increase in inflationary periods. The lease of space and
related building services for the Houston facility contains a clause that
escalates rent and related services each year based on the increase in building
operating costs and the increase in the Houston Consumer Price Index,
respectively. To date, inflation has not had a significant impact on the
operations of the Company.

23
<PAGE> 25

BUSINESS

THE COMPANY

Texas Biotechnology Corporation is a biopharmaceutical company engaged in
discovering, developing and commercializing synthetic small molecule drugs
primarily for cardiovascular indications. TBC's research philosophy is based
upon combining its expertise in vascular biology with its advanced computational
chemistry capabilities to identify and develop small molecule compounds. The
Company's research and development programs are currently focused on inhibitors
(also referred to as antagonists or blockers) of thrombosis,
vasospasm/hypertension, vascular inflammation, vascular proliferative disease,
angiogenesis and apoptosis. The Company has filed a NDA with the FDA for its
lead product candidate, NOVASTAN(R) (argatroban) for use as an anticoagulant in
patients with HIT. This NDA has been granted priority review status by the FDA,
and a decision on approval from the FDA is anticipated by the end of the second
quarter of 1998. NOVASTAN(R) is also in Phase II clinical trials for the
treatment of AMI. The Company has begun Phase II clinical trials for TBC 11251
(TBC's lead compound for vasospasm/hypertension) in CHF and expects to begin
Phase II clinical trials for TBC 1269 (TBC's lead compound for vascular
inflammation) in allergic asthma during the third quarter of 1997. TBC has
licensed the U.S. and Canadian rights to NOVASTAN(R) from Mitsubishi. The
Company has entered into a collaboration with SmithKline regarding the
commercialization and development of NOVASTAN(R) and has entered into
collaborations with Synthelabo and LG Chemical regarding other compounds, as
described below.

The Company is conducting research in the vascular proliferative disease
area (which can result in coronary restenosis after angioplasty) to identify
antagonists against the biological activity of FGF, a protein which triggers
growth of smooth muscle cells in blood vessels, and is continuing to optimize
lead compounds to obtain a clinical candidate. The Company is also conducting
research into treatments for the consequences of excess angiogenesis (the
formation of new blood vessels from pre-existing blood vessels) and apoptosis
(programmed cell death). The Company has identified a number of compounds which
are undergoing further optimization prior to selection of clinical candidates.

24
<PAGE> 26

molecules to develop inhibitors to their actions. This information is used in
parallel with other inhibitor design technology, where appropriate, to
accelerate the selection of lead compounds. The PHARMACEUTICAL TOOLBOX(TM) was
used in the design of TBC 11251 and TBC 1269. The Company intends to continue
the use and development of the PHARMACEUTICAL TOOLBOX(TM), and will also
consider commercial applications such as licensing of this technology system to
third parties.

On August 5, 1997, TBC entered into the SmithKline Agreement, which
provides for the commercialization and development of NOVASTAN(R) in the U.S.
and Canada. The SmithKline Agreement grants SmithKline exclusive marketing
rights in the U.S. and Canada, subject to TBC's rights to co-promote NOVASTAN(R)
under certain circumstances. Under the SmithKline Agreement, SmithKline will (i)
make upfront cash payments, equity investments and milestone payments to TBC
totalling up to $31.5 million, (ii) pay royalties or a percentage of profits to
TBC on net sales of NOVASTAN(R), and (iii) fund a portion of TBC's clinical
development of certain indications. TBC believes the SmithKline Agreement
provides the financial resources and marketing expertise necessary to
commercialize NOVASTAN(R). In connection with the SmithKline Agreement,
Mitsubishi entered into the Mitsubishi Supply Agreement with SmithKline, whereby
Mitsubishi will manufacture and supply all of SmithKline's requirements for bulk
NOVASTAN(R).

TBC has also entered into collaborations with Synthelabo regarding TBC's
vascular proliferation program against the action of FGF, and with LG Chemical
regarding TBC's endothelin receptor and selectin antagonist programs. Both of
these agreements provide Synthelabo and LG Chemical with exclusive rights to
these compounds in selected territories and provide for cash payments to TBC in
the form of license fees, milestone payments and equity investments, which will
be used in the ongoing development of these product candidates. To date,
Synthelabo and LG Chemical have provided approximately $14.8 million and $6.1
million, respectively, to TBC in connection with these collaborations. See
"-- Research and Development Collaborations and Licensing Agreements."

25
<PAGE> 27

PRODUCTS IN DEVELOPMENT AND RESEARCH

The following table summarizes the potential indications and the current
status of TBC's compounds in development and research. A more detailed
description of these compounds follows the table.

<TABLE>
<CAPTION>
COMPOUND PIPELINE
- --------------------------------------------------------------------------------------------------------------------
TARGET COMPOUND/ CORPORATE
PROGRAM DOSE FORM POTENTIAL INDICATION PARTNERS STATUS(1)
- ---------------- ---------------------- ---------------------------------------- -------------- ----------------
<S> <C> <C> <C> <C>
THROMBOSIS NOVASTAN(R)
Intravenous Anticoagulate therapy in HIT patients Mitsubishi & NDA Filed(3)
SmithKline
Intravenous Acute Myocardial Infarction(2) Mitsubishi & Phase II
SmithKline
- ------------------------------------------------------------------------------------------------------------------
VASOSPASM/ ENDOTHELIN(A) RECEPTOR
HYPERTENSION ANTAGONIST
TBC 11251
Intravenous Congestive Heart Failure LG Chemical Phase II
Oral Congestive Heart Failure LG Chemical Phase I
Secondary Pulmonary Hypertension LG Chemical Phase I
Chronic Obstructive Pulmonary Disease LG Chemical Phase I
TBC 2009
Oral Primary Pulmonary Hypertension -- Preclinical
Congestive Heart Failure -- Preclinical
Hypertension -- Preclinical
TBC 11299
Intravenous Congestive Heart Failure (acute) -- Preclinical
TBC 2576
Topical Glaucoma -- Research
- ------------------------------------------------------------------------------------------------------------------
VASCULAR SELECTIN ANTAGONIST
INFLAMMATION
TBC 1269
Intravenous Asthma LG Chemical Phase I(4)
Inhaled Asthma LG Chemical Preclinical
TBC 427
Oral Asthma -- Research
VCAM/VLA-4 Rheumatoid Arthritis -- Research
- ------------------------------------------------------------------------------------------------------------------
VASCULAR FGF ANTAGONIST Coronary Restenosis Post Angioplasty Synthelabo Research
PROLIFERATIVE
DISEASE
- ------------------------------------------------------------------------------------------------------------------
ANGIOGENESIS VEGF ANTAGONIST Diabetic Retinopathy -- Research
Cancer -- Research
- ------------------------------------------------------------------------------------------------------------------
APOPTOSIS TNFa ANTAGONIST Rheumatoid Arthritis -- Research
CASPASE INHIBITOR Stroke -- Research
Acute Myocardial Infarction -- Research
</TABLE>

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

(1) See "-- Government Regulation."

(2) For patients who are receiving thrombolytics.

(3) The Company filed the NDA in August 1997, and has been granted priority
review status. A decision on approval by the FDA is anticipated by the end
of the second quarter of 1998.

(4) Phase II trials for this product candidate are expected to begin in the
third quarter of 1997.

26
<PAGE> 28

THROMBOSIS PROGRAM

Background. Thrombosis, the lodging of a blood clot in a vessel, causes
various vascular diseases, depending on the location of the clot. An arterial
clot may lead to heart attack if lodged in a coronary artery, or to stroke if
lodged in an artery that supplies oxygen to the brain. Venous clots occur
principally in the arms or legs (deep vein thrombosis), and may cause local
inflammation, chronic pain and other complications. In some cases, a venous clot
can cause lung injury (pulmonary embolism) by migrating from the veins to the
lungs.

Thrombosis can be treated surgically or through drug therapy with
anticoagulant and thrombolytic drugs. Anticoagulant drugs, which prevent clots
from forming, are characterized as either antithrombotic or antiplatelet drugs.
Antithrombotic drugs block the action of the blood protein thrombin and may be
used to treat both arterial and venous clots. Antiplatelet drugs prevent
platelets from clumping together and are only effective in treating arterial
clots. Heparin and aspirin are the most widely-used antithrombotic and
antiplatelet drugs, respectively. Thrombolytic drugs dissolve existing clots in
veins or arteries, but do not block the formation of new blood clots. Tissue
plasminogen activator ("t-PA") and streptokinase ("SK") are the most commonly
used thrombolytic drugs. A combination of an anticoagulant and a thrombolytic
often achieves the best therapeutic effect.

Heparin, first discovered over 80 years ago, is the most widely used
injectable anticoagulant. In the U.S., approximately five million patients
annually receive therapeutic heparin to treat a variety of conditions that
require inhibition of the body's natural clotting mechanism. Each year
approximately 275,000 patients develop a profound immunological reaction to
heparin which is known as HIT for which there is no drug treatment. This
reaction may lead to a potentially life threatening thrombosis (blood clot).

Heparin is marketed by many companies and is relatively inexpensive.
However, the Company believes heparin therapy contains many hidden costs,
including those associated with monitoring the level of anticoagulation, those
incurred because of bleeding complications (estimated to occur in up to five
percent of patients treated with heparin) and the costs of treatment failures or
delays in achieving therapeutic anticoagulation. In one study, only 66% of
patients had achieved "therapeutic anticoagulation" within 24 hours of starting
heparin treatment and only 81% had achieved this target within 48 hours.
Generally, "therapeutic anticoagulation" is desired as quickly as possible.

Thrombolytics such as t-PA and SK are commonly prescribed for the treatment
of AMI, the blockage of blood vessels in the heart. It is estimated that
approximately 250,000 people per year in the U.S. receive t-PA or SK in the
course of treatment of AMI.

Product Candidate -- NOVASTAN(R). TBC's lead compound, NOVASTAN(R), is a
non-protein, synthetic small molecule thrombin inhibitor that directly and
selectively binds to and inactivates thrombin in the blood plasma. NOVASTAN(R)
is also effective against thrombin that is bound in blood clots. NOVASTAN(R) is
manufactured and marketed in Japan by Mitsubishi where it is approved for the
treatment of ischemic stroke, peripheral arterial occlusion and hemodialysis in
patients with antithrombin III deficiency. Since the product's introduction in
1990, approximately 133,000 patients have been treated with NOVASTAN(R) in
Japan. TBC is developing NOVASTAN(R) as an anticoagulant alternative to heparin
for the U.S. and Canadian markets in conjunction with SmithKline. See
"-- Research and Development Collaborations and Licensing Agreements."

In studies conducted by TBC in the U.S., as well as by Mitsubishi in Japan
and Synthelabo in Europe, a significant correlation was identified between the
administered dose of NOVASTAN(R) and the degree of anticoagulation achieved.
Moreover, these studies suggest that the relationship between dose and effect
may be generally predictable over the expected dose-range. As a result, the
Company believes the risk of either insufficient or excessive anticoagulation
associated with small dose changes, as is the case with heparin, should be
reduced. TBC further believes that NOVASTAN(R) could have a superior profile, as
compared with heparin, for efficacy, ease of dosing, speed of achieving
"therapeutic anticoagulation", risk of bleeding and total economic costs of
anticoagulation.

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Indication -- HIT/HITTS. Because NOVASTAN(R) does not invoke the immune
reaction caused by heparin, the Company believes it should provide a safe and
effective anticoagulant for patients diagnosed with HIT. The Company conducted a
multicenter Phase III study ("ARG-911") that compared 304 patients treated with
NOVASTAN(R) for up to 14 days (160 with HIT and 144 with HITTS), with 217
historical control patients. The results of ARG-911 demonstrated statistical
significance in the primary efficacy endpoint, assessed by an overall composite
index. The index included evaluation of development of new thrombosis,
amputation and death. The index was improved by 18% in the HIT population
(p=0.038) and by 20% in the HITTS population (p=0.001). The trial demonstrated
that NOVASTAN(R) was effective in resolving the clinically significant
thrombocytopenia by producing increases in platelet counts of 129%
(p = less than 0.001) in HIT patients. Platelet counts in HITTS patients
improved by 198% (p = less than 0.001). The thrombotic composite index, a
measurement of the development of new thrombosis, amputation due to ischemic
complications and death due to thrombosis, was improved in the treated
population by 73% (p = less than 0.001) in HIT patients and 44%
(p = less than 0.001) in HITTS patients. Development of new thrombosis, a
component of the thrombotic composite index, was reduced by 74%
(p = less than 0.001) and 54% (p = less than 0.001) in the HIT and HITTS
populations, respectively. A second component of the thrombotic composite
index, death due to thrombosis, was reduced by 100% (p = less than 0.013) in
the HIT population and by 86% (p=0.002) in the HITTS population. There
was no change in the number of amputations due to ischemic complications, the
third major component of the thrombotic composite index. However, the data
indicate that the majority of amputations were deemed necessary prior to a
patient entering the trial. The thrombotic composite endpoint demonstrated
greater improvement than the overall composite index because the overall
composite index was impacted negatively by the overall patient population being
substantially more compromised than the historical control group. While FDA
approval will be based on both indices, TBC believes that the thrombotic
composite index more accurately reflects the effects of NOVASTAN(R). In
addition, there was no increase in major bleeding, the most common side effect
of anticoagulant therapy, in the NOVASTAN(R)-treated population. Minor bleeding,
which was reported as slightly higher in the treated population, was quickly
resolved and not considered serious.

In August 1997, the Company filed an NDA with the FDA for NOVASTAN(R) as
anticoagulant therapy for HIT/HITTS patients. The FDA has granted priority
review status to the Company's NDA. The FDA has 60 days to formally accept the
filing, and will then commence a further review regarding final approval of the
NDA that is anticipated to take approximately 6 months.

Indication -- Adjunctive Therapy to Thrombolytics in AMI. In light of
NOVASTAN(R)'s ability to inhibit clot-bound thrombin, the Company believes that
NOVASTAN(R) may also prove effective in treating AMI when used in conjunction
with thrombolytics such as t-PA and SK because, in contrast to heparin, it is
effective at inhibiting thrombin trapped within blood clots. This may reduce
reocclusion, a continuing problem in therapy for AMI. To evaluate the benefits
of NOVASTAN(R) in conjunction with thrombolytic therapy, the Company and
Synthelabo, the European licensee of NOVASTAN(R), designed a clinical trial
program which encompassed a total of 2,400 patients with each party responsible
for 1,200 patients. The Company and Synthelabo have also agreed to exchange
certain data from these trials.

The results of the Phase II ARG-231 trial evaluating NOVASTAN(R) as
adjunctive therapy to the thrombolytic agent t-PA demonstrated a safety benefit
and a 29% improvement (p=0.02) in coronary artery reperfusion at the highest
dose as compared to heparin based on the TIMI Frame Count, an objective measure
of artery reperfusion. The trial, which included 120 patients, evaluated the
potential of NOVASTAN(R) to accelerate reperfusion in coronary arteries, in a
double-blind, randomized angiographic reperfusion study of NOVASTAN(R) as
adjunctive therapy with t-PA. A companion angiographic trial (ARG-230A) of the
same design with SK in 180 patients, demonstrated improvement of coronary artery
reperfusion by 34% compared to placebo within a six-hour therapeutic window, and
by 52% (p=0.03) if given within three hours of symptom onset.

The results of the ARG-230 trial demonstrated no evidence of increased
bleeding risk (stroke, major bleeding) versus placebo. This randomized,
double-blind, placebo-controlled trial included 900 patients and was designed to
assess safety, as well as effect on a 30-day composite endpoint index which
measured

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recurrent myocardial infarction ("MI"), urgent angioplasty ("PTCA"), coronary
bypass, shock/congestive heart failure and death.

In ARG-230, a trend toward improvement in clinical outcomes (death,
recurrent MI, new onset congestive heart failure/shock, need for urgent PTCA or
bypass surgery) was observed at the 3.0 mcg/kg/ minute dose of NOVASTAN(R) for
patients treated within the first three hours. The positive trends in the
individual endpoints or composite endpoints, while encouraging (ranging from 13%
to 55%), did not achieve statistical significance due to the small sample size
of the trial. In particular, these trends were accompanied by improvements in
the left ventricular function, an important clinical correlate of reduction in
death and other adverse outcomes. The improvements in left ventricular function
may indicate a reduction in infarct size when thrombolytic therapy is combined
with NOVASTAN(R). This may be due to more rapid reperfusion as was shown by the
improvement in TIMI Frame Counts in ARG-231.

Synthelabo will evaluate the results of Synthelabo's ARGAMI-2 trial, a
randomized, double-blind, heparin-controlled Phase II study in 1,200 patients.
This study compares NOVASTAN's(R) ability to accelerate blood vessel opening
during MI when used together with either SK or t-PA versus heparin at doses
higher than those used by TBC. The ARGAMI-2 results are expected to be released
by December 31, 1997. Following analysis of the results, and exchange of data,
the Company, SmithKline and Synthelabo plan to determine whether further
development work should be pursued.

VASOSPASM/HYPERTENSION PROGRAM

Background. Smooth muscle cells in the blood vessel, via a series of
biochemical and morphological events, are responsible directly for mediating
changes in vessel diameter. The regulation of blood flow depends on a delicate
balance between physical and chemical stimuli that cause smooth muscle cells to
relax (vasodilatation) or contract (vasoconstriction). Chronic periods of
excessive vasoconstriction in the peripheral circulation can lead to
disturbances in blood pressure (hypertension) or heart function (congestive
heart failure), whereas acute episodes of intense vasoconstriction (vasospasm)
can restrict blood flow leading to severe tissue damage and loss of function
(myocardial infarction or kidney failure). An essential component of blood
vessels is the vascular endothelium, which are the cells comprising the
innermost lining of all blood vessels. Recently, it has been determined that the
vascular endothelium plays a pivotal role in maintaining normal blood vessel
tone, including blood flow, by producing substances that regulate the balance
between vasodilatation and vasoconstriction.

Endothelins ("ETs") are a family of three peptides that are believed to
play a critical role in the control of blood flow. It has been determined that
this multiplicity of endothelin actions on different cell types can be explained
by endothelins' interactions with two distinct receptors, ET(A) and ET(B), on
cell surfaces. In general, ET(A) receptors are associated with vasoconstriction
and disorders of the cardiovascular and renal systems, while ET(B) receptors are
primarily associated with vasodilatation and disorders of the central nervous
system. There is substantial evidence that endothelins are involved in a variety
of diseases where blood flow is important. These include vasospasm, myocardial
infarction, congestive heart failure, renal disease, subarachnoid hemorrhage,
and certain types of hypertension.

Product Candidate -- TBC 11251. The Company's research program in the
vasospasm/hypertension area is aimed at developing small molecules that inhibit
the binding of ET to its cell surface receptors. The Company believes that
specific agents for each receptor subtype may provide the best clinical utility
and safety. The Company's initial focus has been to develop a highly potent and
selective small-molecule based ET(A) receptor antagonist. An antagonist (or
inhibitor) blocks the effects of a ligand at its receptor. A ligand is a
chemical messenger which binds to a specific site on a target molecule or cell.
TBC scientists have discovered a novel class of low molecular weight compounds
(molecular weight of less than 500 daltons) that antagonize ET binding to the
ET(A) receptor with high potency (these compounds block ET binding at low
compound concentration). The Company identified lead compounds which mimicked
the ability of ET to bind to the ET(A) receptor. Further optimization was then
used to develop more potent compounds until the current series of leads was
identified. In addition to their ability to block receptor binding, these
compounds

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functionally inhibit ET action on isolated blood vessels in vitro acting as
full, competitive antagonists. The lead compounds in this series have been shown
to exhibit in vivo efficacy using various animal models.

TBC 11251, a selective ET(A) inhibitor, has been identified as the
Company's lead compound in this program. The Company believes that a substantial
market opportunity for TBC 11251 exists for the treatment of CHF, which is
currently estimated to affect approximately five million people in the U.S.
annually. TBC filed an investigational new drug application ("IND") with the FDA
for TBC 11251 in late 1996 and has begun Phase II clinical trials in CHF.

Other Indications. The Company believes endothelin antagonist compounds may
have other indications. For example, an endothelin antagonist may be used to
treat chronic obstructive pulmonary disease, primary and secondary pulmonary
hypertension, systemic hypertension and glaucoma. The Company intends to license
these non-strategic indications to third parties, although no assurance can be
given that the Company will be successful in entering into any such license.

VASCULAR INFLAMMATION PROGRAM

Background. Inflammation is the body's natural defense mechanism that fends
off bacterial, viral and parasitic infections. The inflammatory response
involves a series of events by which the body attempts to limit or destroy an
injurious agent. These steps include the production of proteins that attract
white blood cells, or leukocytes, to the site of inflammation, the production of
chemicals to destroy the injurious agent and the removal of the resulting
debris. This process is normally self-limiting and not harmful to the
individual. However, in certain instances, the process may be overly active, as
during an acute inflammatory reaction leading to a build up of white blood cells
and debris at the inflammation site that causes tissue damage.

The initial interaction between white blood cells and the endothelial cell
layer is mediated by a group of adhesion molecules known as selectins. The
selectins are a family of three proteins, two of which are found on inflamed
endothelium, which bind to the carbohydrate sialyl Lewis x (sLe(x)) found on the
surface of white blood cells. White blood cells are able to migrate into
inflamed areas because sLe(x) present on the surface of white blood cells binds
to selectin molecules present on activated endothelium. This binding slows the
flow of leukocytes through the bloodstream, which is one of the first steps in
the movement of white blood cells from the blood into the tissue. The second
step in this process is Vascular Cell Adhesion Molecule ("VCAM") mediated white
blood cell attachment and migration which helps to localize white blood cells in
areas of injury or infection.

The selectins may be involved in acute and chronic inflammatory diseases
such as reperfusion injury (tissue injury caused when blood flow is restored
following removal of an obstruction) and asthma, both primary areas of interest
for the Company. The Company estimates that there are approximately 675,000
patient cases of coronary reperfusion injury in the U.S. annually and that ten
million persons in the U.S. suffer from asthma. The presence of VCAM at sites of
endothelial injury leads to an accumulation at these sites of Very Late
Antigen-4 ("VLA-4")-containing white blood cells. Diseases that are associated
with chronic inflammation include asthma, atherosclerosis or the accumulation of
fatty deposits in the artery, psoriasis and rheumatoid arthritis.

Product Candidate -- TBC 1269. The Company has developed a computer model
of the selectin/sLe(x) complex and used it to produce a novel class of synthetic
small molecule compounds that inhibit the selectin-mediated cellular adhesion
that occurs during inflammation. The lead compound in the series, TBC 1269, has
shown efficacy both in cell-based and biochemical assays, and in animal models
of inflammation. Phase II clinical trials for the treatment of TBC 1269's
primary indication, allergic asthma, is intended to be initiated during the
third quarter of 1997.

Product Candidate -- VCAM/VLA-4. TBC has also identified antagonists for
the VCAM-dependent intercellular adhesion observed in atherosclerosis. The
Company's initial lead compounds block the ability of white blood cells to
interact through VCAM and VLA-4. These lead compounds are being modified in an
attempt to improve efficacy. TBC has demonstrated efficacy of its lead cyclic
peptide in an animal model of acute inflammation, suggesting that VCAM/VLA-4
plays a role in this disease process. TBC chemists have

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also identified small molecule antagonists of the VCAM/VLA-4 interaction. These
compounds are still in research.

Other Indications. The Company believes these anti-inflammatory compounds
may have applicability in other indications. For example, a selectin antagonist
may be used to treat psoriasis, or a VCAM antagonist may be used to treat
asthma, rheumatoid arthritis and multiple sclerosis. The Company intends to
license these non-cardiovascular indications to third parties, although no
assurance can be given that the Company will be successful in entering into any
such license.

VASCULAR PROLIFERATIVE DISEASE PROGRAM

Background. Smooth muscle cells in the blood vessel wall proliferate in
response to injury to the vessel. When the endothelial cell layer is damaged,
platelets attach to the vessel surface. Platelets and other cells begin to
release cellular growth factors, including the proteins FGF, platelet-derived
growth factor and thrombin. In response to these growth factors, specific genes
are activated in the smooth muscle cells. The products of these genes stimulate
the smooth muscle cells to move and divide. When the initial damage is slight,
the proliferation is limited to endothelial cell repair. If the damage is more
extensive, the smooth muscle cells continue to proliferate. Eventually, the
proliferation process thickens the vessel wall, reduces the interior size of the
blood vessel and produces a stenosis (a blood vessel with reduced lumen
diameter). This stenosis is comprised primarily of smooth muscle cells and
protein called fibroproliferative material. The process of producing this
fibroproliferative material is referred to as the fibroproliferative response.
Fibroproliferative stenosis differs from stenosis produced by atherosclerotic
plaque, which contains smooth muscle cells, fatty deposits and macrophages (a
type of white blood cell). As with atherosclerotic plaque stenosis, however,
blood flow is restricted, and the tissue served by the vessel is deprived of
oxygen. If the stenosis occurs in a coronary artery, the heart muscle is
deprived of oxygen, and a heart attack may result.

Fibroproliferative material is generally produced in response to extensive
damage to the blood vessel wall as a result of a mechanical injury. Mechanical
injury sufficient to produce the fibroproliferative response often occurs during
procedures designed to repair blood vessels that are occluded by plaque or
thrombus material, such as mechanical reopening of arteries (angioplasty) and
coronary artery bypass graft surgery. Other surgical procedures, including vein
grafts and organ transplants, can also produce fibroproliferative stenosis. When
fibroproliferative stenosis occurs following the removal of the stenosis by
surgical or other means, it is referred to as restenosis. Irrespective of how
the injury is produced, the conditions which lead to the fibroproliferative
response are termed vascular proliferative diseases.

Product Candidate -- FGF Antagonist. The Company's research program for
vascular proliferative disease is focused on identifying the factors that
activate cells to proliferate and developing small molecule antagonists to these
factors. Using its knowledge of the signaling pathways through which these
factors stimulate cells to proliferate, the Company seeks to develop compounds
that disrupt the signaling process between cells and prevent unnecessary smooth
muscle cell proliferation.

The Company has focused on FGF because of a growing body of evidence as to
its central role in blood vessel formation. The Company's research has shown
that some components of the signaling pathways used by FGF are important for
smooth muscle cell proliferation. TBC's current effort on FGF involves the
development of small molecules designed to prevent activation of latent FGF, and
to block FGF receptor targets. These compounds are currently undergoing
additional optimization prior to selection of a clinical candidate. The Company
estimates that approximately 425,000 annual patient cases exist in the U.S.
which could utilize an FGF antagonist in the treatment of coronary restenosis.

Other Applications. The Company believes an FGF antagonist may have other
applications. For example, an FGF antagonist might be developed to treat
rheumatoid arthritis or cancer. The Company intends to license any
non-cardiovascular indications to third parties, although no assurance can be
given that the Company will be successful in entering into any such license.

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ANGIOGENESIS PROGRAM

Background. Angiogenesis, the formation of new blood vessels from
pre-existing vessels, depends on a delicate balance of local physical and
chemical stimuli acting on the vascular endothelium. Angiogenesis is associated
with numerous physiological processes, including embryogenesis, wound healing,
organ regeneration, and the female reproductive cycle. However, angiogenesis
also plays a major role in the pathogenesis of tumor growth, rheumatoid
arthritis, atherosclerosis, various retinopathies, certain skin diseases and
gingivitis. One of the key factors required for angiogenesis is Vascular
Endothelial Growth Factor ("VEGF"). Increases in VEGF expression may be a common
mechanism underlying diverse, yet inter-related pathologies such as tumor
growth, retinal neovascularization (new blood vessel development in the back of
the eye) and rheumatoid arthritis where tissue hypoxia is a central component.
The VEGF protein is produced by smooth muscle cells and other tissues, including
tumor cells, and is essential for the formation of the new blood vessels.
Antagonists to VEGF may be useful for the prevention of the vascular
complications of diabetes and for limiting the growth of solid tumors and
rheumatoid arthritis.

Product Candidate -- VEGF Antagonist. The Company's research program is
directed towards the development of small molecule inhibitors of VEGF. VEGF is a
member of the heparin binding growth factor family, as is FGF. Using similar
technology to that used for the FGF antagonist program, the Company has
discovered small molecule inhibitors of VEGF action. The lead compound has been
shown to effectively prevent VEGF function in vitro. The compound also prevents
the vascular actions of VEGF in a rodent model of angiogenesis. TBC scientists
are currently attempting to further optimize this inhibitor series to identify a
clinical candidate. The Company estimates that approximately 700,000 diabetic
retinopathy cases and approximately three million solid organ cancer patient
cases occur in the U.S. annually which could utilize a VEGF antagonist in their
treatment.

APOPTOSIS PROGRAM

Background. Over the past few years it has become evident that cells have a
built-in mechanism for programmed death, termed apoptotic death, which is
important in the formation, organization and remodeling of tissues during
development. This mechanism contrasts with necrotic death which is often the
result of hypoxic injury to tissues. There appear to be certain conditions,
however, where apoptosis appears to contribute to the progression of a disease
state. In particular, much of the tissue damage which develops over time
following an ischemic stroke (resulting from a blood clot) or a heart attack is
thought to be the result of apoptotic death occurring in the tissue.
Additionally, diseases such as rheumatoid arthritis may have components of
apoptosis. In this case, the death of certain cells in a joint, in combination
with over-proliferation of other cells, contribute to the local irritation that
is observed. Evidence suggests this apoptotic process may be stimulated by
inflammatory cells in the tissue. Thus, inhibitors of apoptosis may be useful in
treating a number of disease conditions.

Product Candidates -- TNFa Antagonist, Caspase Inhibitors. The Company's
research in this area is focused on the identification of factors which
contribute to apoptotic death in the heart and brain following a heart attack or
stroke, which occur in 1.5 million and 450,000 patients, respectively, in the
U.S. annually. One of the factors which has been identified as being important
in these and other disease settings is Tumor Necrosis Factor a ("TNFa"). TBC
scientists have identified small molecule antagonists of this factor which block
TNFa's ability to bind to and kill cells in vitro. These compounds are currently
undergoing additional optimization prior to selection of a clinical candidate.
In addition to use in heart attack or stroke, the Company estimates that
approximately two million U.S. patient cases occur annually which could utilize
a TNFa antagonist in the treatment of rheumatoid arthritis. Caspases are
proteases which are responsible for mediating the cell death signal in various
cell types. TBC has identified lead inhibitors of caspases which may be useful
in preventing cell death following stroke or AMI.

Other Indications. The Company believes a TNFa antagonist may have other
indications. For example, a TNFa antagonist might be developed to treat
inflammatory bowel disease. The Company intends to license any
non-cardiovascular indications to third parties, although no assurance can be
given that the Company will be successful in entering into any such license.

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RESEARCH AND DEVELOPMENT COLLABORATIONS AND LICENSING AGREEMENTS

The Company has established collaborations with a number of corporations,
research institutions and scientists to further its research and development
objectives. These collaborations are generally conducted pursuant to agreements
that (i) grant the Company a license to, or the option to license, or (ii) grant
other companies the right to develop and market certain technology, patent
rights or material that may be valuable to the Company and its collaborators.
The Company's major licensing and collaboration agreements are summarized below.

Mitsubishi. TBC has entered into the Mitsubishi Agreement to license
Mitsubishi's rights and technology relating to NOVASTAN(R) and to license
Mitsubishi's own proprietary technology developed with respect to NOVASTAN(R).
Under the Mitsubishi Agreement, the Company has an exclusive license to use and
sell NOVASTAN(R) in the U.S. and Canada for all cardiovascular, renal,
neurological and immunological purposes other than use for the coating of
stents. The Company is required to pay Mitsubishi specified royalties on net
sales of NOVASTAN(R) by the Company and its sublicensees after its commercial
introduction in the U.S. and Canada. Either party may terminate the Mitsubishi
Agreement on 60 days notice if the other party defaults in its material
obligations under the agreement, declares bankruptcy or is insolvent, or if a
substantial portion of its property is subject to levy. Unless terminated sooner
pursuant to the above described termination provisions, the Mitsubishi Agreement
expires on the later of termination of patent rights in a particular country or
20 years after first commercial sale of products in a particular country. Under
the Mitsubishi Agreement, TBC has access to an improved formulation patent
granted in the U.S. in 1993 which expires in 2010 and a use patent in the U.S.
which expires in 2009. The Company has agreed to pay a consultant involved in
the negotiation of these agreements a royalty based on net sales of products.

SmithKline. In connection with TBC's development and commercialization of
NOVASTAN(R), on August 5, 1997, TBC entered the SmithKline Agreement whereby
SmithKline was granted an exclusive sublicense in the U.S. and Canada for the
indications of NOVASTAN(R) that TBC has licensed from Mitsubishi. SmithKline has
paid $8.5 million in upfront license fees and has agreed to pay up to $20.0
million in additional milestone payments based on the clinical development and
FDA approval of NOVASTAN(R) for the HIT/HITTS and AMI indications. TBC will be
responsible for completing the ongoing HIT/HITTS clinical trials, with
SmithKline providing 60% of the funding for any additional HIT/HITTS trials
(except that SmithKline will pay 100% of the costs of certain Phase IV trials,
if such trials are needed). SmithKline will be responsible for the marketing of
NOVASTAN(R) in the licensed territory for those indications which SmithKline
agrees to develop, subject to TBC's rights to use its own sales force to
co-promote NOVASTAN(R) on a profit sharing basis following the regulatory
approval of NOVASTAN(R) for an additional indication beyond HIT.

The parties have also formed a joint development committee to analyze the
development of additional NOVASTAN(R) indications (such as AMI and stroke)
covered by TBC's license from Mitsubishi to be funded 60% by SmithKline. TBC and
SmithKline have agreed to make a determination to pursue the AMI indication
within three months after TBC has received data from Synthelabo's AMI clinical
trials (in a form practical for evaluation), and have agreed to decide to pursue
the stroke indication by December 1998. SmithKline has the exclusive right to
commercialize all products arising out of the collaboration, subject to the
obligation to pay royalties on net sales to TBC and to the rights of TBC to
co-promote these products through its own sales force in certain circumstances.
TBC will retain the rights to any indications which SmithKline determines it
does not wish to pursue, subject to the requirement that TBC may not grant
marketing rights to any third parties and must use its own sales force to
commercialize any such indications. Any indications which TBC and SmithKline
elect not to develop will be returned to Mitsubishi, subject to the rights of
SmithKline and TBC to commercialize these indications at their election, with
SmithKline having the first opportunity to commercialize. Mitsubishi may also
request the joint development committee to develop new indications inside or
outside the licensed field of use, and if the joint development committee
determines that it does not want to proceed with any such indication, all rights
under the Mitsubishi Agreement regarding such indication will revert to
Mitsubishi subject to the right of SmithKline and TBC to commercialize the
indication, with SmithKline having the first opportunity to commercialize.

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The SmithKline Agreement generally terminates on a country by country basis
upon the earlier of the termination of TBC's rights under the Mitsubishi
Agreement, the expiration of applicable patent rights or in the case of certain
royalty payments the commencement of substantial third-party competition.
SmithKline also has the right to terminate the agreement on a country by country
basis by giving TBC at least three months written notice based on a reasonable
determination by SmithKline that the commercial profile of the product in
question would not justify continued development or marketing in that country.
In addition, either party may terminate the SmithKline Agreement on 60 days
notice if the other party defaults in its obligations under the agreement,
declares bankruptcy or is insolvent. The Company has agreed to pay an agent
involved in the negotiation of the SmithKline Agreement a fee based on a
percentage of all consideration received by TBC including royalties.

At present, Mitsubishi is the only manufacturer of NOVASTAN(R), and has
entered into the Mitsubishi Supply Agreement with SmithKline to supply
NOVASTAN(R) in bulk in order to meet SmithKline's and TBC's needs under the
SmithKline Agreement. Should Mitsubishi fail during any consecutive nine-month
period to supply SmithKline at least 80% of its requirements, and such
requirements cannot be satisfied by existing inventories, the Mitsubishi Supply
Agreement provides for the nonexclusive transfer of the production technology to
SmithKline. If SmithKline cannot commence manufacturing of NOVASTAN(R) in a
timely manner or if alternate sources of supply are unavailable or uneconomic,
the Company's results of operations would be materially and adversely affected.

In connection with the execution of the SmithKline Agreement, SmithKline
purchased 176,922 shares of TBC's Common Stock for $1.0 million and agreed to
purchase, at TBC's option, an additional $2.0 million in Common Stock on or
before August 5, 1998, based on the average trading price for the Common Stock
for the period beginning ten days before and ending on the ninth day after TBC's
exercise of the option. TBC granted limited piggyback registration rights
regarding these shares which expire when the shares may be sold pursuant to Rule
144(k) under the Securities Act. SmithKline has, however, subsequently agreed to
purchase $2.0 million of Common Stock in this Offering at the public offering
price and to enter into a lockup agreement identical to the lockup agreement
entered into by the Company's officers and directors. Upon the purchase of those
shares in the Offering, the parties have agreed that TBC's option to require
SmithKline to purchase $2.0 million in Common Stock will be terminated. See
"Underwriting."

Synthelabo. On October 11, 1994, the Company signed a collaborative
agreement with Synthelabo to develop and market compounds for vascular
proliferative disease derived from the Company's research programs. Upon
consummation of the transaction, Synthelabo purchased 1,428,571 shares of Common
Stock for a total of $5.0 million becoming the Company's largest shareholder at
that time and paid the Company a non-refundable licensing fee of $3.0 million.
The Company has granted limited piggyback registration rights regarding these
shares. In addition, Synthelabo committed to pay $3.0 million annually in
research payments (payable in quarterly installments of $750,000). For the years
ended December 31, 1995 and December 31, 1996, TBC received $3.0 million related
to the Synthelabo agreement. Beginning October 31, 1996, the parties agreed to
revise the terms of the payment for the third year to be $750,000, which amount
has already been paid. No such payments will be made in 1997. Synthelabo will
pay royalties to TBC based on the net sales in those areas covered in the
agreement. In exchange for the above consideration, Synthelabo received an
exclusive license to manufacture, use, and sell any products generated from the
research, in Europe, the Middle East, Africa and the countries of the former
Soviet Union.

Synthelabo has the right to terminate the agreement any time on or after
October 15, 1997 for any reason and either party has the right to terminate the
contract for breach of any material obligation. If Synthelabo exercises this
termination right, the license granted to Synthelabo will terminate and TBC will
pay Synthelabo a royalty on net sales of any products sold in a certain
territory (Europe, Middle East, Africa and countries of the former Soviet Union)
for a period of time. In addition, Synthelabo may, at its option, require that
the technology be transferred to and the development program be conducted by a
joint venture owned by TBC and Synthelabo should TBC's "net worth", as defined
in the agreement, be less than $5.0 million as of the end of any calendar
quarter during the term of the agreement.

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<PAGE> 36

In conjunction with the clinical development of NOVASTAN(R), the Company
and Synthelabo, the European licensee, have mutually agreed to exchange certain
clinical data from the clinical studies of NOVASTAN(R). In addition, the Company
agreed to provide certain data from its studies in exchange for up to $2.9
million as certain milestones are met of which approximately $2.3 million has
been paid. See "--Thrombosis Program -- Product Candidate -- NOVASTAN(R)" for a
discussion of the clinical trial programs.

LG Chemical. On October 10, 1996, the Company signed a strategic alliance
agreement with LG Chemical to develop and market compounds derived from the
Company's endothelin receptor and selectin antagonist programs for certain
disease indications. Upon consummation of the transaction, LG Chemical purchased
1,250,000 shares of Common Stock for a total of $5.0 million. In addition, LG
Chemical has the option to purchase $5.0 million dollars of Common Stock on
September 30, 1997 or December 31, 1997. LG Chemical and TBC must agree on the
purchase price or the option can not be exercised. LG Chemical has committed to
pay $10.7 million in research payments. Of this amount, $1.1 million has already
been paid, and $1.0 million will be paid December 31, 1997 and on each of June
30 and December 31 of 1998, 1999 and 2000, and $1.3 million will be paid on June
30 and December 31, 2001. LG Chemical has the right to terminate future research
payments if TBC fails to meet certain milestones, which milestones will be
established by the parties in accordance with the agreement. LG Chemical will
pay royalties to TBC, based on net sales, in those geographic areas covered by
the agreement, which include Korea, China, India and certain other Asian
countries, excluding Japan. The Company has agreed to pay its agents in the
contract negotiations a commission on all consideration received including a
royalty on net sales.

TBC TECHNOLOGY

TBC uses a wide variety of technologies to develop pharmaceutical
treatments for cardiovascular diseases. The Company applies its understanding of
vascular biology and advanced drug design techniques to discover novel
therapeutics and to test these therapeutics in-house using in vitro and in vivo
test systems. TBC has assembled a team of scientists with expertise in the
cultivation of human and animal endothelial and smooth muscle cells, signal
transduction in vascular cells, the role of growth factors in blood vessel
formation, the molecular biology of vascular cells, the development and
production of monoclonal antibodies to various targets, the interaction of white
blood cells and endothelial cells and the development of relevant animal models
of human disease. TBC believes that its scientists can study the behavior of
product candidates at all stages of development, from isolated biochemical
assays to whole cells to intact animals and ultimately, to humans.

To aid in the rapid discovery of novel drugs, TBC has developed the
PHARMACEUTICAL TOOLBOX(TM). Management believes that use of the PHARMACEUTICAL
TOOLBOX(TM) allows TBC to discover a broader class of drug candidates more
quickly and at a lower cost than is possible through other current
structure-based discovery methods. For example, TBC has developed a number of
proprietary, highly potent, orally active non-peptide ET(A) and ET(B) receptor
antagonists. These compounds have no chiral centers, are easily scaleable, and
may be synthesized in a small number of chemical steps. TBC has also generated
proprietary low molecular weight, small molecule inhibitors of E-, P-, and
L-selectin, potent peptide and small molecule VCAM/VLA-4 inhibitors, FGF
antagonists and vascular endothelial growth factor antagonists.

The PHARMACEUTICAL TOOLBOX(TM) is comprised of a number of proprietary and
non-proprietary components. The choice of individual components is based on the
needs of each individual drug development program, and the structure information
available. The PHARMACEUTICAL TOOLBOX(TM) has the following three major
components:

Rational Drug Design. The selection of targets for synthesis is
derived from a computational design group equipped with a high-speed
parallel processing supercomputer/server networked to a number of high
speed graphic workstations. Software capabilities include a suite of
Molecular Simulations Inc. commercial packages, an extensive suite of MDL
Information Systems Inc. databases and software, including both compound
and reaction databases, selected software tools licensed from academic
laboratories, as well as proprietary software for ab initio peptide
conformation determination. Compounds are then synthesized by a highly
skilled team of medicinal chemists.

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<PAGE> 37

Random Library & Selected Library High Throughput Screening. This
component utilizes a number of structurally diverse compound libraries from
commercial, academic and in-house sources to identify leads in any
available assays. Current compound availability is approximately 35,000
individual compounds. Additionally, over 1,000,000 compounds in a computer
database in 3D format for structural searching and selection for assay are
available to TBC. This database is continually updated to include newly
available libraries, as they appear. Assay data is monitored by the MDL
software 'Screen,' which permits the integration of chemical and biological
data and easy access to SAR relationships.

Virtual Libraries/Focused Compound Libraries. This component couples
structural information with the generation of libraries of related
(focused) compounds. Proprietary software written at TBC is used to build a
library of virtual compounds (the structures exist only in the computer
database), all of which can be produced in approximately three chemical
steps from commercial starting materials. These structures can be searched
against any three dimensional query, thereby only compounds with preferred
configurations will be selected for synthesis. Sets of compounds can be
synthesized using a solid-phase combinatorial approach with a Tecan
CombiTec synthesizer for bioassay. TBC has recently developed novel
synthetic approaches for the synthesis of solid phase libraries of
sulfonamides, ureas or carbamates, each of which can be targeted for
specific queries.

LICENSES AND PATENTS

Because of the substantial length of time and expense associated with
developing new pharmaceutical products, the biotechnology industry places
considerable importance on obtaining patent and trade secret protection for new
technologies, products and processes. The Company's policy is to file patent
applications to protect technology, inventions and improvements that are
important to the development of its business. The Company has 15 pending U.S.
patent applications (one of which has been allowed) and nine issued U.S. patents
covering compounds including selectin inhibitors, endothelin antagonists and
VCAM/VLA-4 antagonists. In addition, the Company has exclusive licenses to three
patents covering rational drug design technology. The Company has also filed
patent applications in certain foreign jurisdictions covering projects that are
the subject of U.S. applications and intends to file additional patent
applications as its research projects develop. The Company licensed the U.S. and
Canadian rights to NOVASTAN(R) in 1993, which included access to an improved
formulation patent granted in 1993 which expires in 2010 and a use patent which
expires in 2009. If any of the NOVASTAN(R) patents remain outstanding at the
time NOVASTAN(R) receives FDA approval, the Company may apply, under the
Waxman/Hatch Act, for up to a five-year extension of one such patent. If all
such patents have expired at the time NOVASTAN(R) receives FDA approval, the
Waxman/Hatch Act will grant the Company NDA exclusivity for up to five years,
during which time the FDA may not accept or approve abbreviated applications for
generic variations of NOVASTAN(R). Although the Company believes that the
expiration of the NOVASTAN(R) patents will not have a material adverse effect on
the commercialization of NOVASTAN(R), there can be no assurance that the Company
will be able to take advantage of either the patent term extension or NDA
exclusivity provisions of the Waxman/Hatch Act. Moreover, even if the Company
receives either a patent term extension or NDA exclusivity, there can be no
assurance that generic pharmaceutical manufacturers will not ultimately enter
the market and compete with the Company.

The patent positions of biopharmaceutical firms, including the Company, are
uncertain and involve complex legal and factual questions. Consequently, the
Company does not know whether any of its applications will result in the
issuance of patents or, if any patents are issued, whether they will provide
significant proprietary protection or will be circumvented or invalidated. Since
patent applications in the U.S. are maintained in secrecy until patents issue,
and since publication of discoveries in the scientific or patent literature
often lags behind actual discoveries, the Company cannot be certain that it was
the first creator of inventions covered by its pending patent applications or
that it was the first to file patent applications for such inventions. Moreover,
the Company may have to participate in interference proceedings declared by the
PTO to determine priority of invention, which could result in substantial cost
to the Company, even if the eventual outcome is favorable to the Company. TBC
has one interference proceeding pending which involves compounds not currently
of commercial interest to TBC. There can be no assurance that the Company's

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<PAGE> 38

patents, if issued, would be held valid by a court of competent jurisdiction. An
adverse outcome could subject the Company to significant liabilities to third
parties, require disputed rights to be licensed from third parties or require
the Company to cease using such technology.

The development of therapeutic products for cardiovascular applications is
intensely competitive. Many pharmaceutical companies, biotechnology companies,
universities and research institutions have filed patent applications or
received patents in this field. Some of these applications or patents may be
competitive with the Company's applications or conflict in certain respects with
claims made under the Company's applications. Such conflict could result in a
significant reduction of the coverage of the Company's patents, if issued. In
addition, if patents are issued to other companies that contain competitive or
conflicting claims and such claims are ultimately determined to be valid, no
assurance can be given that the Company would be able to obtain licenses to
these patents at a reasonable cost or develop or obtain alternative technology.

The Company also relies upon trade secret protection for its confidential
and proprietary information. No assurance can be given that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's trade secrets or disclose
such technology, or that the Company can meaningfully protect its trade secrets.

The Company requires its employees, consultants, members of its scientific
advisory board, outside scientific collaborators and sponsored researchers and
certain other advisors to enter into confidentiality agreements with the Company
that contain assignment of invention clauses. These agreements provide that all
confidential information developed or made known to the individual during the
course of the individual's relationship with the Company is to be kept
confidential and not disclosed to third parties except in specific
circumstances. In the case of employees, the agreements provide that all
inventions conceived by the employee are the exclusive property of the Company.
There can be no assurance, however, that these agreements will provide
meaningful protection or adequate remedies for the Company's trade secrets in
the event of unauthorized use or disclosure of such information.

GOVERNMENT REGULATION

Regulation by governmental authorities in the U.S. and other countries will
be a significant factor in the production and marketing of any products which
may be developed by the Company. The nature and extent to which such regulation
may apply to the Company will vary depending on the nature of the specific
product. Virtually all of the Company's products will require regulatory
approval by governmental agencies prior to commercialization. In particular,
human therapeutic products are subject to rigorous preclinical and clinical
testing and other approval procedures by the FDA and similar health authorities
in foreign countries. Various federal statutes and regulations also govern or
influence the manufacturing, safety, labeling, storage, record keeping and
marketing of such products. The process of obtaining these approvals and the
subsequent compliance with appropriate federal and foreign statutes and
regulations requires the expenditure of substantial resources.

The effect of government regulation may be to delay for a considerable
period of time or prevent the marketing of any product that the Company may
develop and/or to impose costly procedures on the Company's activities, the
result of which may be to furnish an advantage to the Company's competitors. Any
delay in obtaining or failure to obtain such approvals would adversely affect
the marketing of the Company's products and its ability to earn product revenue.

In order to perform clinical tests and to produce and market products for
diagnostic or therapeutic use, a company must comply with mandatory procedures
and safety standards established by the FDA, the Health Protection Branch in
Canada, and comparable agencies in foreign countries. The FDA requires that
before beginning human clinical testing of a potential new drug, a company must
file an IND and receive its concurrence. This application is a summary of the
preclinical studies that were conducted to characterize the drug, including
toxicity and safety studies, as well as an in-depth discussion of the human
clinical studies which are being proposed.

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The pre-marketing program required for approval of a new drug typically
involves a time-consuming and costly three-phase process. In Phase I, trials are
conducted with a small number of patients to determine a drug's early safety
profile, the pattern of its distribution and metabolism. In Phase II, trials are
conducted with groups of patients afflicted with a target disease in order to
determine a drug's preliminary efficacy and optimal dosages and to expand
evidence of safety. In Phase III, large scale, multi-center comparative trials
are conducted with patients afflicted with a target disease in order to provide
enough data for statistical proof of efficacy and safety required by the FDA and
others. The FDA closely monitors the progress of each of the three phases of
clinical testing and may, in its discretion, reevaluate, alter, suspend or
terminate the testing based on the data that have been accumulated to that point
and its assessment of the risk/benefit ratio to the patient. Upon completion of
such clinical testing, a company typically submits a NDA to the FDA that
summarizes the results and observations of the drug during the clinical testing.
An NDA prefiling submission of the Chemistry, Manufacturing and Control section
may be made prior to the data and other sections of the NDA. Based on its review
of the NDA, the FDA will decide whether or not to approve the drug. This review
process can be quite lengthy, and approval for the production and marketing of a
new pharmaceutical product can require a number of years and substantial
funding. There can be no assurance that any approvals will be granted on a
timely basis, if at all.

Once the sale of a product is approved for marketing, FDA regulations
govern the production process and marketing activities, and a post-marketing
testing and surveillance program may be required to monitor continuously a
product's usage and effects. Product approvals may be withdrawn if compliance
with regulatory standards is not maintained. Other countries in which any
products developed by the Company may be marketed impose a similar regulatory
process.

COMPETITION

General. The development and sale of new drugs for the treatment of
cardiovascular diseases is highly competitive and the Company will face intense
competition from major pharmaceutical companies and biotechnology companies
worldwide. Competition may increase further as a result of advances made in the
commercial applicability of technologies and greater availability of capital for
investment in these fields. Companies that complete clinical trials, obtain
required regulatory approvals and commence commercial sales of their products
before their competitors may achieve a significant competitive advantage. In
addition, significant research in biotechnology and cardiovascular medicine may
occur in universities and other nonprofit research institutions. These entities
have become increasingly active in seeking patent protection and licensing
revenues for their research results. They also compete with the Company in
recruiting talented scientists.

TBC has developed the PHARMACEUTICAL TOOLBOX(TM) for expediting rational
drug design. A number of other biopharmaceutical companies (such as Arris
Pharmaceutical Corporation, Vertex Pharmaceutical Incorporated, Agouron
Pharmaceuticals, Inc. and BioCyrst Pharmaceuticals, Inc.) use rational drug
design as part of their effort to identify novel pharmaceutical agents. Many of
these companies have invested considerable resources in developing in-house
x-ray crystallography facilities. While proprietary structural information is
advantageous -- for example, both endothelin and selectin x-ray structural data
have been publicly available for some time -- the conversion of this information
to clinical candidates has been the major obstacle to drug discovery. TBC
believes that use of the PHARMACEUTICAL TOOLBOX(TM) is a more cost effective
method to develop clinical drug candidates in both the endothelin and selectin
antagonist areas.

The Company believes that its ability to compete successfully will depend
on its capability to create and maintain scientifically advanced technology,
develop proprietary products, attract and retain scientific personnel, obtain
patent or other protection for its products, obtain required regulatory
approvals and manufacture and successfully market products either alone or
through other parties. Many competitors have substantially greater financial,
marketing, and human resources than those of the Company. The Company expects to
encounter significant competition.

NOVASTAN(R). Primary competitors for NOVASTAN(R) in the intravenous heparin
replacement market are initially expected to be Hirulog (bivalirudin), Revasc
(desirudin) and Refludan (lepirudin), manufactured

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<PAGE> 40

by The Medicines Co., Novartis Pharmaceuticals Corporation ("Novartis") and
Hoechst Marion Roussel ("HMR"), respectively. Hirulog and Revasc have completed
Phase III clinical trials. Refludan has received approval in Europe for proven
Type II heparin associated thrombocytopenia.

Biogen, the originator of Hirulog, has completed a large Phase III trial on
Hirulog which demonstrated improved safety versus heparin but only equal
efficacy. As a result of this study, Biogen halted development of Hirulog and
outlicensed the compound earlier in 1997 to The Medicines Co. The Company
anticipates the Hirulog peptide will have a relatively high cost of goods. An
improved manufacturing process for Hirulog with a lower cost of goods has been
reported, and may become a competitive factor should the product be approved for
marketing.

A hirudin compound, Refludan (lepirudin), from HMR has received approval in
Europe for HITTS. Refludan is also in development as an adjunct to thrombolytic
therapy in AMI. Another hirudin compound, Revasc, from Novartis has been studied
in two large Phase III trials for acute myocardial infarction and unstable
angina. Both trials, TIMI-9 and GUSTO II, were halted in late 1994 due to
increased hemorrhagic stroke. Both trials resumed with reduced Revasc dosing.
The bleeding complications with Revasc may handicap the product in the
marketplace. As a result, development of Revasc for acute coronary syndrome has
been halted.

If either Hirulog, Revasc or Refludan obtains regulatory approval in the
U.S. or Canada prior to NOVASTAN(R), these drugs may gain a competitive
advantage. Other compounds which may be competitive with NOVASTAN(R) include
napsagatran from Roche and inogatran and malagatran from Astra. These compounds
are very similar to NOVASTAN(R) and could have similar pharmacologic profiles.
Napsagatran is in Phase II trials for various indications including unstable
angina. Inogatran has been tested in a Phase II trial for unstable angina.
Malagatran is in early clinical development.

A defibrinogenating snake venom, Arvin (ancrod) from Knoll Pharmaceuticals
may be submitted for approval to the FDA for HIT in the near future. This drug,
which is available in Canada, is believed to have certain competitive
disadvantages including difficulty in dosing, allergic reactions to the
medication, limited efficacy and high cost.

Low Molecular Weight Heparins ("LMWH") are newer forms of heparin and are
used in prophylaxis for deep vein thrombosis following orthopedic surgery. Most
LMWHs also carry an immunological risk for precipitating HIT, and are
contraindicated as therapy in patients with HIT. A low molecular weight
heparinoid, Orgaran (danaparoid) from Organon, Inc. has been approved for deep
vein thrombosis. Organon, Inc. has conducted trials with this drug in HIT,
although the Company is not aware of an FDA filing for HIT.

Endothelin Receptor Antagonist. TBC 11251 is a small molecule ET(A)
receptor antagonist in Phase I clinical trials. A number of other companies
including Abbott Laboratories, Knoll Pharmaceuticals, Bristol-Meyers Squibb and
Zeneca Pharmaceuticals have ET(A) receptor selective antagonist compounds in
Phase I clinical development. An ET(A) receptor selective compound from
Parke-Davis is expected to begin Phase I clinical trial in 1997. The Company
believes its compounds are competitive with those from the other companies in
terms of bioavailability, half life and potency.

Selectin Antagonist. TBC 1269 is a small molecule selectin antagonist in
clinical development. Cytel Corporation has developed Cylexin, a carbohydrate
selectin antagonist in development for similar disease targets. This compound
has recently completed Phase IIa trials for organ reperfusion injury. Although
the results of these trials may negatively impact one of the TBC indications
(reperfusion injury), the results should have no impact on TBC 1269's primary
indication, asthma. The Company believes TBC 1269 to have advantages over
Cylexin in terms of potency and cost of manufacture.

MANUFACTURING AND MARKETING

TBC relies on its internal resources and third-party manufacturers to
produce compounds for preclinical development. Currently, the Company has no
manufacturing facilities for either the production of biochemicals or the
manufacture of final dosage forms. The Company believes small molecule drugs are
less expensive

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<PAGE> 41

to manufacture than protein-based therapeutics, and that all of its existing
compounds can be produced using established manufacturing methods, including
traditional pharmaceutical synthesis.

TBC has established supply arrangements with third-party manufacturers for
certain clinical trials and will establish supply arrangements ultimately for
commercial distribution, although there can be no assurance that such
arrangements will be established on reasonable terms. The Company's long-range
plan may involve establishing internal manufacturing of small molecule
therapeutics, including the ability to formulate, fill, label, package and
distribute its products. Under certain circumstances the Company plans to
outsource such manufacturing. However, the Company does not anticipate
developing an internal manufacturing capability for some time, nor is it able to
determine which of its potential products, if any, will be appropriate for
internal manufacturing. The primary factors the Company will consider in making
this determination are the availability and cost of third-party sources, the
expertise required to manufacture the product and the anticipated manufacturing
volume. Pursuant to the SmithKline Agreement, SmithKline has entered into the
Mitsubishi Supply Agreement regarding the manufacture and supply of NOVASTAN(R),
and the Company will not, therefore, have any direct responsibility regarding
the manufacture and supply of NOVASTAN(R) as it relates to the SmithKline
Agreement. See "-- Research and Development Collaborations and Licensing
Agreements."

TBC intends to market products for which it gains approval either directly
or through co-promotion or other licensing arrangements with large
pharmaceutical, biopharmaceutical or biotechnology companies. NOVASTAN(R) will
be initially commercialized by SmithKline through a collaboration. In the
future, the Company also plans to establish (i) a targeted, hospital-based sales
force to sell its compounds and (ii) strategic partner relationships for
non-strategic products and for customer groups outside TBC's targeted markets
or, in some cases, to co-promote in such markets with partners to optimize the
value of its products.

LEGAL PROCEEDINGS

On November 21, 1994, a class action shareholders' suit was filed in the
U.S. District Court for the Southern District of Texas, Houston Division seeking
damages in the amount of $16.0 million. Plaintiffs are two individuals who
purchased shares of the Company on December 16, 1993 following the Company's
Initial Public Offering. In their complaint, plaintiffs have sued the Company,
certain members of the board of directors and certain officers alleging
violations of Sections 11, 12 and 15 of the Securities Act. Plaintiffs have also
named David Blech, D. Blech & Co., Incorporated ("D. Blech & Co.") and Isaac
Blech as defendants. On January 23, 1995, the Company and the members of the
board of directors filed a motion to dismiss the plaintiffs' complaint pursuant
to Rule 9(b) and Rule 12b(6) of the Federal Rules of Civil Procedure. In
addition, defendant John Pietruski, chairman of the board of directors, filed a
motion to dismiss the plaintiffs' complaint pursuant to Rule 12(b)(2) of the
Federal Rules of Civil Procedure. On February 7, 1995, the plaintiffs filed a
motion for class certification. The Court denied the motion by the Company and
by John Pietruski.

On March 28, 1995, a second class action shareholders' suit was filed in
the U.S. District Court for the Southern District of New York seeking
unspecified damages. Plaintiffs are eight individuals who purchased shares in
various companies for which D. Blech & Co. acted as an underwriter (or
co-underwriter) or marketmaker. In their complaint, the plaintiffs have sued the
Company alleging violations of Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder by the Commission. Plaintiffs have named a number of
defendants, including David Blech and D. Blech & Co., four individuals, two
brokerage firms, one investment management company and ten other companies for
which D. Blech & Co. acted as underwriter or marketmaker.

On August 14, 1995, the Judicial Panel on the Multi-District Litigation
ordered that the action filed in the U.S. District Court for the Southern
District of Texas, Houston Division be transferred to the U.S. District Court
for the Southern District of New York for coordinated or consolidated pretrial
proceedings with the action pending there. In light of the transfer and
consolidation of the Texas case with similar cases against other companies for
which D. Blech & Co. acted as underwriter, the Company requested that the Court
in New York reconsider the Texas Court's denial of its motion to dismiss as a
part of the New York Court's

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consideration of similar motions to dismiss filed by those companies. All of
these motions were presented to the Court on February 6, 1996. On June 6, 1996,
the New York District Court entered two memorandum opinions in the consolidated
cases. In one of its opinions, the Court dismissed all of the Exchange Act and
common law fraud claims filed against the Company and its officers and
directors, but afforded those plaintiffs the right to attempt to preserve those
claims by repleading them. The Court ordered that those claims be repleaded no
later than July 26, 1996. Plaintiffs did not replead those claims by the
deadline, resulting in the dismissal of all claims against the Company in that
litigation. In its opinion in the second case, i.e., the case filed on November
21, 1994, the Court granted the Company's and its officers' and directors'
motion for reconsideration, but together with all other similar pending motions,
denied the requested relief. Pursuant to the court's order, the Company
therefore filed an answer in that case. The Company also filed a motion seeking
leave of court to prosecute an immediate appeal of the Court's denial of the
Company's motion to dismiss. The Court heard argument on that Motion on October
10, 1996. The motion was denied on January 16, 1997. Given the early stage of
that case, which is the only remaining litigation against the Company, the
Company is unable to evaluate its potential outcome at this time. The Company
disputes these claims and intends to contest them vigorously. There can be no
assurance, however, that the final disposition of this case will be favorable to
the Company.

HAZARDOUS MATERIALS AND ENVIRONMENTAL MATTERS

The Company's research and development activities involve the controlled
use of hazardous and radioactive materials. The Company is subject to federal,
state, and local laws and regulations governing the use, manufacture, storage,
handling and disposal of such materials and certain waste products. Management
believes that the Company is in compliance with such laws, regulations and
standards currently in effect and that the cost of compliance with such laws,
regulations, and standards will not have a material adverse effect on the
Company. The Company does not expect to incur any material capital expenditures
for environmental control in the foreseeable future.

FACILITIES

TBC leases 28,909 square feet of office and laboratory space in Houston,
Texas, including a 16,671 square foot laboratory facility and a 3,909 square
foot animal facility. The remaining area is being used for clinical development
and administrative offices, storage space and additional offices for scientists.
The Company's lease expires in December 2000. The Company may require additional
space to accommodate future research and laboratory needs as necessary to bring
products into development and clinical trials and has an option on additional
space in its present facility. The Company believes that these facilities are
adequate for its present needs.

EMPLOYEES

As of June 30, 1997, TBC employed 80 individuals, 67 of whom were engaged
directly in research and development activities and 13 in general and
administrative positions. None of the Company's employees is represented by a
labor union. The Company has experienced no work stoppages and believes that its
relations with its employees are good.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John M. Pietruski.................... 64 Chairman of the Board of Directors
David B. McWilliams.................. 54 President, Chief Executive Officer and Director
Richard A. F. Dixon, Ph.D. .......... 43 Vice President of Research and Director
Stephen L. Mueller................... 49 Vice President of Administration, Treasurer and
Secretary
Richard P. Schwarz, Jr., Ph.D. ...... 46 Vice President of Clinical Development and
Regulatory Affairs
Joseph M. Welch...................... 57 Vice President of Business Development
James T. Willerson, M.D. ............ 57 Chairman of the Scientific Advisory Board and
Director
Frank C. Carlucci.................... 66 Director
Rita R. Colwell, Ph.D., D.Sc......... 62 Director
Robert J. Cruikshank................. 66 Director
James A. Thomson, Ph.D. ............. 52 Director
</TABLE>

All directors hold office until the next annual meeting of stockholders of
the Company and the election and qualification of their successors. Officers are
elected annually by, and serve at the discretion of, the Company's board of
directors.

John M. Pietruski has been chairman of the board of directors of the
Company since May 1990. Mr. Pietruski has served as president of Dansara
Company, a private investment consulting firm, since 1988. He served as chairman
of the board of directors and chief executive officer of Sterling Drug Inc., a
pharmaceutical company, from 1985 to 1988 and as president and chief operating
officer from 1983 to 1985. Mr. Pietruski currently serves as a director of
General Public Utilities Corporation, Hershey Foods Corporation, Lincoln
National Corporation and McKesson Corporation. Mr. Pietruski received a B.S.
degree with honors in business administration from Rutgers University, where he
graduated Phi Beta Kappa.

David B. McWilliams has served as president and chief executive officer of
the Company and as a member of the board of directors since July 1992. Mr.
McWilliams served as president, chief executive officer and a director of
Zonagen, Inc., a pharmaceutical research company involved in reproductive
health, from June 1989 to July 1992 and as president and chief executive officer
of Kallestad Diagnostics, a medical diagnostics manufacturing company, from 1984
to 1988. He served as president of E.M. Industries, Harleco Diagnostics Division
from 1980 to 1984. Mr. McWilliams has held various executive and senior
management positions with Abbott Laboratories, McKinsey & Company and Amoco
Chemicals Corporation and currently serves as a director of Structural
Bioinformatics, Inc. and Zonagen, Inc. Mr. McWilliams received a B.S. from
Washington and Jefferson College in chemistry, graduating magna cum laude and
Phi Beta Kappa, and received an M.B.A. from the University of Chicago.

Richard A.F. Dixon, Ph.D. has been a director of the Company since July
1990. Dr. Dixon served as a scientific director and director of molecular
biology of the Company from July 1990 to December 1992, at which time he was
appointed vice president of research. From 1988 to July 1990, Dr. Dixon was
director and head of molecular biology at Merck Sharp & Dohme Research
Laboratories, a division of Merck & Co. In addition, Dr. Dixon serves as a
professor of the department of internal medicine at The University of Texas
Medical School at Houston. Dr. Dixon is the author or co-author of more than 80
scientific papers and has invented twelve patented therapeutic technologies. He
received a B.S. degree from Texas A & M University, graduating cum laude, and
received a Ph.D. in virology from the Baylor College of Medicine.

42
<PAGE> 44

Stephen L. Mueller has served as vice president of administration since
March 1995, as Secretary since May 1994 and as Treasurer since December 1991.
From September 1991 to March 1995, Mr. Mueller served as the Company's director
of finance and administration. Prior to joining the Company, Mr. Mueller was a
financial consultant for wholesale distribution and oil and gas companies. Mr.
Mueller was vice president and controller of Bado Equipment Co., Inc. in
Houston, Texas from 1976 to 1990. He was associated with Deloitte & Touche,
Certified Public Accountants in Houston, Texas from 1973 to 1976. Mr. Mueller
received a B.B.A. from The University of Texas at Austin in accounting and is a
Certified Public Accountant in the State of Texas.

Richard P. Schwarz Jr., Ph.D. joined the Company in February 1995 as vice
president of clinical and regulatory affairs. From 1993 to December 1994, Dr.
Schwarz was executive director of clinical development for Immunomedics, Inc.
From 1991 to 1993, he served as senior director of Clinical Development, Astra
Pharmaceuticals USA. From 1982 to 1990, Dr. Schwarz held positions of increasing
responsibility in the Sterling Research Group of Sterling Drug, Inc. From 1977
to 1982, Dr. Schwarz was on the staff of the National Heart, Lung and Blood
Institute of the National Institutes of Health, where he was deputy director of
the cardiac diseases program. Dr. Schwarz is the author, co-author, or editor of
more than 30 publications and two books, dealing primarily with cardiovascular
clinical research and clinical trials methodology. He received a B.S. degree in
physics from the State University of New York at Albany and a Ph.D. in
physiology and biophysics from Rensselaer Polytechnic Institute.

Joseph M. Welch joined the Company as vice president of business
development in September 1993, after serving as a consultant to the Company from
April to August 1993. Prior to joining the Company, Mr. Welch spent 26 years
with the Pharmaceutical Division of DuPont and the DuPont Merck Pharmaceutical
Company. From January 1991 to February 1993, Mr. Welch was associate director of
licensing for DuPont Merck Pharmaceutical Company. Prior to that, Mr. Welch
spent seven years in business development. In these positions, he participated
in the evaluation and negotiation of a number of major projects, including the
DuPont/Merck joint venture. Mr. Welch has an M.B.A. from the University of
Denver.

James T. Willerson, M.D. has served as chairman of the Company's scientific
advisory board since January 1990 and has been a director of the Company since
May 1990. Dr. Willerson has served as a professor and chairman of the Department
of Internal Medicine at The University of Texas Medical School at Houston since
1989. He was chief of cardiology of Parkland Memorial Hospital in Dallas, Texas
from 1975 to 1989, director and principal investigator of The University of
Texas Southwestern Medical School Ischemic Heart Disease, Specialized Center of
Research, in Dallas from 1975 to 1989, director of the cardiology division at
The University of Texas Southwestern Medical School from 1977 to 1989, and
professor of medicine and professor of radiology from 1979 to 1989. He also
served as co-director of the Bugher Molecular Biology and Cardiology Research
Center at The University of Texas Health Science Center in Dallas from 1986 to
1989. Dr. Willerson has published more than 600 manuscripts and has been editor
or co-editor of eight textbooks. In 1961, Dr. Willerson received a B.A. from The
University of Texas at Austin, graduating Phi Beta Kappa. In 1965, he received
an M.D. from the Baylor College of Medicine, graduating as a member of Alpha
Omega Alpha. Dr. Willerson's medical and cardiology training was undertaken at
the Massachusetts General Hospital, Boston, Massachusetts.

Frank C. Carlucci has served as a director of the Company since May 1990.
He has been principally employed as chairman of The Carlyle Group, a private
merchant bank, since 1989. Mr. Carlucci served as Secretary of Defense of the
U.S. from January 1988 through January 1989. Prior to his appointment as
Secretary of Defense, Mr. Carlucci was chairman and chief executive officer of
Sears World Trade Inc. from 1986 to 1987, after having served as president and
chief operating officer from 1983 to 1984. Mr. Carlucci is also a director of
Ashland Inc., Neurogen Corporation, Quaker Oats Co., Kaman Corporation, Northern
Telecom, Ltd., SunResorts, Ltd., Westinghouse Electric Corporation, General
Dynamics Corporation, Pharmacia & Upjohn, Inc., and BDM International, Inc. Mr.
Carlucci is a graduate of Princeton University and attended the Harvard Graduate
School of Business Administration.

43
<PAGE> 45

Rita R. Colwell, Ph.D., D.Sc. (Hon) has served as a director of the Company
since May 1997. She has been president of the University of Maryland
Biotechnology Institute since 1991. She also serves as a director of Life
Technologies, Inc., Biospherics, Inc. and Dynamac, Inc. From 1987 until 1991 she
served as a founding director of the Maryland Biotechnology Institute and was a
founding director of the Center for Marine Biotechnology at the University of
Maryland. Dr. Colwell held various faculty and director appointments prior to
1987 including vice president for academic affairs, University of Maryland,
1983-1987. Dr. Colwell has served as president of the American Society for
Microbiology, the International Union of Microbiological Societies, Sigma Xi,
and the American Association for the Advancement of Science (the largest
scientific society in the world). Dr. Colwell has served, or is a member of,
advisory boards and/or committees for the National Science Foundation, the
National Institutes of Health; U.S. Environmental Protection Agency and the Food
and Drug Administration. Dr. Colwell graduated from Purdue University in 1956,
received an M.S. in Genetics from Purdue in 1958 and a Ph.D. from the University
of Washington in 1961.

Robert J. Cruikshank has served as a director of the Company since May
1993. Mr. Cruikshank was a senior partner at Deloitte & Touche LLP from 1989
until retiring in March 1993. Mr. Cruikshank was a partner, office managing
partner and member of the board of directors of the predecessor firms to
Deloitte & Touche LLP in Houston from 1968 until 1989. He is a trustee of the
Ray C. Fish Foundation and Hermann Hospital. He also serves as a director of
Houston Industries Incorporated, American Residential Services, Inc., MAXXAM
Incorporated, Compass Bank of Houston, Kaiser Aluminum Corporation, Texas
Medical Center, the National Jewish Center for Immunology and Respiratory
Medicine, and Weingarten Realty Investors. Mr. Cruikshank received a B.A. in
economics and accounting from Rice University and completed the Advanced
Management Program at Harvard University.

James A. Thomson, Ph.D. has served as a director of the Company since May
1994. He has been president and chief executive officer of the RAND Corporation
since 1989 and has served the institution in a variety of roles beginning in
1981. The RAND Corporation is a non-profit institution that seeks to improve
public policy through research analysis in such areas as national defense,
education and health. He also serves as a director of AK Steel Holders Co. From
1977 until 1981, he served on the National Security Council, at the White House.
From 1974 until 1977, Dr. Thomson served as an operations research analyst in
the Office of the Secretary of Defense, the Pentagon. Dr. Thomson is the author
of numerous scholarly articles and reports on defense and scientific subjects.
Dr. Thomson graduated from the University of New Hampshire in 1967 and received
an M.S. and Ph.D. in Physics from Purdue University.

44
<PAGE> 46

PRINCIPAL STOCKHOLDERS

The following table presents certain information as of June 30, 1997, as to
(i) each stockholder known by the Company to be the beneficial owner of more
than five percent of the outstanding shares of Common Stock, (ii) each executive
officer of the Company and (iii) all directors and executive officers as a
group:

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
-----------------------
NAME AND ADDRESS PERCENT OF
OF BENEFICIAL OWNER(2)(6) NUMBER CLASS
------------------------- --------- ----------
<S> <C> <C>
Larry N. Feinberg (3)....................................... 2,699,424 10.4%
712 Fifth Avenue, 45th Floor
New York, New York 10019
Bernard B. Levine, M.D...................................... 1,941,980 7.5%
c/o Howard S. Breslow, Esq.
Breslow & Walker
875 Third Avenue
New York, New York 10022
Sylamerica, Inc. (4)........................................ 1,428,571 5.5%
660 White Plains Road, Suite 400
Tarrytown, New York 10591
David B. McWilliams (5)..................................... 428,744 1.6%
Richard A. F. Dixon, Ph.D. (5).............................. 329,770 1.3%
Stephen L. Mueller (5)...................................... 66,500 *
Richard P. Schwarz Jr., Ph.D. (5)........................... 54,334 *
Joseph M. Welch (5)......................................... 61,500 *
All directors and executive officers as a group (11
persons)(5)............................................... 1,246,426 4.6%
</TABLE>

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

* Less than 1%

(1) Except as otherwise indicated, all shares are beneficially owned, and the
sole investment and voting power is held, by the person named. This table is
based on information supplied by officers, directors and principal
stockholders and reporting forms, if any, filed with the Securities and
Exchange Commission on behalf of such persons.

(2) Unless otherwise indicated, the address of all persons set forth above is
7000 Fannin, Suite 1920, Houston, Texas 77030.

(3) Mr. Feinberg is the deemed beneficial holder of shares of Common Stock held
by various partnerships and by managed accounts over which Oracle Investment
Management, Inc. has investment discretion.

(4) Sylamerica, Inc., a subsidiary of Synthelabo, holds shares of Common Stock
purchased by Synthelabo in October 1994 pursuant to a collaborative
agreement with the Company.

(5) Includes 43,380 shares, 428,744 shares, 244,056 shares, 66,500 shares,
33,667 shares, 61,500 shares, 14,451 shares, 24,513 shares, 5,000 shares,
20,655 shares and 15,143 shares of Common Stock issuable on exercise of
options held by Messrs. Pietruski, McWilliams, Dixon, Mueller, Schwarz,
Welch, Willerson, Carlucci, Colwell, Cruikshank and Thomson, respectively.
Includes 22,196 shares, 10,000 shares, 85,714 shares, 20,667 shares, 2,384
shares, 85,714 shares held directly by Messrs. Carlucci, Cruikshank, Dixon,
Schwarz, Thomson and Willerson, respectively. Also includes 42,857 shares
held by the Pietruski Family Partnership, of which Mr. Pietruski is the
general partner and 14,285 shares owned by The James T. Willerson Fund,
Inc., a not-for-profit corporation, of which Dr. Willerson is the chairman
of the board of directors. Includes 5,000 shares issuable on exercise of
redeemable common stock purchase warrants held by James A. Thomson.

(6) Does not include shares pursuant to conversion of the 5% Preferred, and
Common Stock issuable for dividends thereon since the Common Stock held by
the owners of the 5% Preferred together with the Common Stock obtainable
upon conversion is less than five percent. As of June 30, 1997,
approximately 1.0 million shares would be issuable upon conversion. Since
the number of shares is dependent upon the market price of the Common Stock,
the amount issuable could be greater in the future should such price
decrease.

45
<PAGE> 47

UNDERWRITING

The Underwriters named below (the "Underwriters"), for whom Lehman Brothers
Inc. and PaineWebber Incorporated are acting as representatives (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement among the Company and the Underwriters (the
"Underwriting Agreement"), to purchase from the Company, and the Company has
agreed to sell to the Underwriters, the number of shares of Common Stock set
forth opposite the name of such Underwriter below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Lehman Brothers Inc.........................................
PaineWebber Incorporated....................................

---------
Total............................................. 5,000,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the shares of Common Stock listed above are subject to
certain conditions. The Underwriting Agreement also provides that the
Underwriters are committed to purchase, and the Company is obligated to sell,
all of the shares offered hereby if any of the shares being sold pursuant to the
Underwriting Agreement are purchased (without consideration of any shares that
may be purchased through the exercise of the Underwriters' over-allotment
option).

The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public (other than the SmithKline
Shares) at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession to other dealers not in excess of $ per share.
After the public offering of the Common Stock, the public offering price, the
concessions to selected dealers and the reallowance to other dealers may be
changed by the Representatives. The SmithKline Shares will be covered by the
Underwriting Agreement, and the Underwriters will receive a fee with respect to
the sale of such shares equal to $ per share.

The Company has granted to the Underwriters an option, exercisable during
the 45-day period after the date of this Prospectus, to purchase up to 750,000
additional shares of Common Stock at the public offering price set forth on the
cover page of this Prospectus, less underwriting discounts and commissions. The
Underwriters may exercise such option only to cover over-allotments, if any,
incurred in the sales of shares of Common Stock. To the extent the Underwriters
exercise such option, each of the Underwriters will become obligated, subject to
certain conditions, to purchase such percentage of such additional shares of
Common Stock as is approximately equal to the percentage of shares of Common
Stock that it is obligated to purchase as shown in the table set forth above.

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

The Company and each of its executive officers and directors and SmithKline
have agreed not to offer, sell, contract to sell, or grant any option to
purchase or otherwise dispose of, directly or indirectly, any shares of capital
stock of the Company or any securities convertible into or exercisable or
exchangeable for any capital stock of the Company owned by any of them prior to
the expiration of 90 days from the date of this Prospectus, except (i) for the
shares of Common Stock offered hereby, (ii) with the prior written consent of
Lehman Brothers and (iii) in the case of the Company, for the issuance of shares
of Common Stock upon the

46
<PAGE> 48

exercise of options or outstanding warrants or the conversion of the 5%
Preferred, or the grant of options to purchase shares of Common Stock.

Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase shares of Common Stock. As
an exception to these rules, the Representatives are permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions may consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Common Stock.

In addition, if the Representatives over-allot (i.e., if they sell more
shares of Common Stock than are set forth on the cover page of this Prospectus),
and thereby create a short position in the Common Stock in connection with this
Offering, the Representatives may reduce that short position by purchasing
Common Stock in the open market. The Representatives also may elect to reduce
any short position by exercising all or part of the over-allotment option
described herein.

In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases.

Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.

LEGAL MATTERS

Certain legal matters in connection with the Common Stock offered hereby
will be passed on for the Company by Porter & Hedges, L.L.P., Houston, Texas.
Certain legal matters in connection with the Common Stock offered hereby will be
passed on for the Underwriters by Shearman & Sterling, New York, New York.

EXPERTS

The consolidated financial statements of the Company as of December 31,
1996 and 1995 and for each of the years in the three year period ended December
31, 1996 included herein and elsewhere in this Registration Statement have been
included herein and in the Registration Statement in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.

The statements in this Prospectus under the caption "Risk
Factors -- Uncertainty Regarding Patents and Proprietary Information," and
"Business -- Licenses and Patents" and other references herein to intellectual
property matters have been reviewed and approved by Dressler, Rockey, Milnamow &
Katz, Ltd., Chicago, Illinois, patent counsel for the Company, as experts on
such matters, and are included herein in reliance upon that review and approval.

47
<PAGE> 49

TEXAS BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENT
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-8
Notes to Consolidated Financial Statements.................. F-9
</TABLE>

F-1
<PAGE> 50

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Texas Biotechnology Corporation:

We have audited the accompanying consolidated balance sheets of Texas
Biotechnology Corporation and subsidiary (a development stage enterprise) (the
Company) as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Texas
Biotechnology Corporation and subsidiary (a development stage enterprise) as of
December 31, 1996 and 1995, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.

KPMG PEAT MARWICK LLP

Houston, Texas
February 21, 1997

F-2
<PAGE> 51

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents...................... $ 5,724,264 2,127,999 1,374,844
Short term investments......................... 8,195,307 11,262,292 7,919,487
Short term note receivable..................... 122,500 122,500 122,500
Prepaids....................................... 554,208 546,752 387,070
Inventory...................................... -- 167,560
Other current assets........................... 547,391 602,975 1,262,679
------------ ------------ ------------
Total current assets................... 15,143,670 14,662,518 11,234,140
Equipment and leasehold improvements, at cost
less accumulated depreciation and amortization
(note 5)....................................... 3,782,829 3,458,012 3,378,806
Other assets..................................... -- 59,591 59,591
------------ ------------ ------------
Total assets........................... $ 18,926,499 18,180,121 14,672,537
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... $ 1,370,708 1,661,339 2,583,722
Accrued expenses............................... 1,195,556 2,266,376 509,581
Deferred revenue (note 8)...................... 650,110 625,000 250,000
------------ ------------ ------------
Total current liabilities.............. 3,216,374 4,552,715 3,343,303
Commitments and contingencies (notes 6, 8, 9 and
11)
Stockholders' equity (notes 2, 3 and 6):
Preferred stock, par value $.005 per share. At
December 31, 1995 and 1996, 5,000,000 shares
authorized; none outstanding. At June 30,
1997, 5,000,000 shares authorized; 4,600
shares of 5% cumulative convertible issued
and outstanding............................. -- -- 23
Common stock, par value $.005 per share. At
December 31, 1995, 40,000,000 shares
authorized; 17,439,365 shares issued and
outstanding. At December 31, 1996,
75,000,000 shares authorized; 25,490,269
shares issued and outstanding. At June 30,
1997, 75,000,000 shares authorized;
26,003,000 shares issued and outstanding.... 87,198 127,451 130,014
Additional paid-in capital..................... 59,540,730 77,808,331 85,683,271
Deferred compensation expense.................. (46,177) -- --
Deficit accumulated during the development
stage....................................... (43,871,626) (64,308,376) (74,484,074)
------------ ------------ ------------
Total stockholders' equity.................. 15,710,125 13,627,406 11,329,234
------------ ------------ ------------
Total liabilities and stockholders'
equity............................... $ 18,926,499 18,180,121 14,672,537
============ ============ ============
</TABLE>

See accompanying notes to consolidated financial statements

F-3
<PAGE> 52

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
AUGUST 2, 1989
(DATE OF
SIX MONTHS ENDED INCORPORATION)
YEAR ENDED DECEMBER 31, JUNE 30, TO
--------------------------------------- ------------------------- JUNE 30,
1994 1995 1996 1996 1997 1997
----------- ----------- ----------- ----------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Research agreements (note 8)............. $ 4,250,329 6,788,357 5,395,110 3,195,110 1,485,002 17,918,798
Products and services.................... 178,934 217,707 8,939 3,939 4,998 410,578
Grant revenue............................ 289,522 227,938 1,727 1,727 -- 668,951
----------- ----------- ----------- ----------- ----------- -----------
Total revenues..................... 4,718,785 7,234,002 5,405,776 3,200,776 1,490,000 18,998,327
----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Research and development................. 8,936,004 14,949,822 22,251,895 11,504,545 8,830,365 64,669,915
Charge for purchase of in-process
research and development (notes 9 and
10).................................... 6,404,227 2,061,383 -- -- -- 9,465,610
General and administrative............... 3,992,183 4,693,019 4,067,505 2,124,637 3,071,308 22,543,447
Restructuring & impairment charges (note
10).................................... -- 643,750 421,165 421,165 -- 1,064,915
----------- ----------- ----------- ----------- ----------- -----------
Total expenses..................... 19,332,414 22,347,974 26,740,565 14,050,347 11,901,673 97,743,887
----------- ----------- ----------- ----------- ----------- -----------
Operating loss......................... 14,613,629 15,113,972 21,334,789 10,849,571 10,411,673 78,745,560
----------- ----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest income.......................... 1,011,251 1,200,921 898,039 497,278 323,476 4,440,634
Interest expense......................... (1,315) (1,068) -- -- -- (91,647)
Other.................................... -- -- -- -- (5,840) (5,840)
----------- ----------- ----------- ----------- ----------- -----------
Total other income (expense)....... 1,009,936 1,199,853 898,039 497,278 317,636 4,343,147
Net loss........................... $13,603,693 13,914,119 20,436,750 10,352,293 10,094,037 74,402,413
Preferred dividend requirement..... -- -- -- -- 847,394 847,394
Net loss applicable to common
shares........................... $13,603,693 13,914,119 20,436,750 10,352,293 10,941,431 75,249,807
Net loss per share......................... $ 0.97 0.83 0.87 0.46 0.43 6.59
=========== =========== =========== =========== =========== ===========
Weighted average common shares used to
compute net loss per share............... 14,018,269 16,748,995 23,616,033 22,479,819 25,647,058 11,421,006
=========== =========== =========== =========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements

F-4
<PAGE> 53

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD AUGUST 2, 1989 (DATE OF INCORPORATION) TO JUNE 30, 1997

<TABLE>
<CAPTION>
DEFICIT
PREFERRED STOCK COMMON STOCK ACCUMULATED
-------------------- -------------------- ADDITIONAL DEFERRED DURING THE
SHARES SHARES PAID-IN COMPENSATION DEVELOPMENT
ISSUED AMOUNT ISSUED AMOUNT CAPITAL EXPENSE STAGE TOTAL
---------- ------- ---------- ------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of shares for cash
pursuant to subscription
agreements between March
and April 1990............. 1,885,700 $9,428 56,572 -- -- 66,000
Repurchase and retirement of
shares (note 2)............ (107,140) (536) (3,214) -- -- (3,750)
Net loss..................... -- -- -- -- (692,951) (692,951)
---------- ------- ---------- ------- ---------- -------- ----------- ----------
Balance at December 31,
1990..................... -- -- 1,778,560 $8,892 53,358 -- (692,951) (630,701)
---------- ------- ---------- ------- ---------- -------- ----------- ----------
Issuance of shares upon
conversion of notes payable
and accrued interest to
stockholders and related
trusts..................... 554,355 2,772 1,937,483 -- -- 1,940,255
Issuance of common stock and
warrants through private
placement,
net of expenses............ 6,302,314 31,512 19,310,948 -- -- 19,342,460
Net loss..................... -- -- -- -- (1,799,746) (1,799,746)
---------- ------- ---------- ------- ---------- -------- ----------- ----------
Balance at December 31,
1991..................... -- -- 8,635,229 $43,176 21,301,789 -- (2,492,697) 18,852,268
---------- ------- ---------- ------- ---------- -------- ----------- ----------
Net loss..................... -- -- -- -- (4,532,623) (4,532,623)
---------- ------- ---------- ------- ---------- -------- ----------- ----------
Balance at December 31,
1992..................... -- -- 8,635,229 $43,176 21,301,789 -- (7,025,320) 14,319,645
---------- ------- ---------- ------- ---------- -------- ----------- ----------
Issuance of shares related to
Genentech license
acquisition................ 285,714 1,429 998,571 -- -- 1,000,000
Issuance of shares pursuant
to research and consulting
agreements................. 6,999 35 24,465 -- -- 24,500
Deferred compensation
expense.................... -- -- 287,158 (287,158) -- --
Compensation expense related
to certain stock options... -- -- -- 52,265 -- 52,265
Issuance of common stock,
warrants and underwriter's
purchase options through
initial public offering,
net of expenses............ 3,550,000 17,750 21,001,399 -- -- 21,019,149
Net loss..................... -- -- -- -- (9,328,494) (9,328,494)
---------- ------- ---------- ------- ---------- -------- ----------- ----------
Balance at December 31,
1993, carry forward...... -- -- 12,477,942 $62,390 43,613,382 (234,893) (16,353,814) 27,087,065
========== ======= ========== ======= ========== ======== =========== ==========
</TABLE>

See accompanying notes to consolidated financial statements

F-5
<PAGE> 54

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED

<TABLE>
<CAPTION>
DEFICIT
PREFERRED STOCK COMMON STOCK ACCUMULATED
-------------------- -------------------- ADDITIONAL DEFERRED DURING THE
SHARES SHARES PAID-IN COMPENSATION DEVELOPMENT
ISSUED AMOUNT ISSUED AMOUNT CAPITAL EXPENSE STAGE TOTAL
---------- ------- ---------- ------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993, brought forward..... -- -- 12,477,942 $62,390 43,613,382 (234,893) (16,353,814) 27,087,065
---------- ------- ---------- ------- ---------- -------- ----------- -----------
Issuance of shares related
to initial public offering
overallotment............. 532,500 2,663 3,206,002 -- -- 3,208,665
Issuance of common stock to
former
ImmunoPharmaceutics'
shareholders.............. 1,599,958 8,000 5,799,848 -- -- 5,807,848
Issuance of common stock to
former
ImmunoPharmaceutics'
shareholders held in
escrow.................... 999,956 -- -- -- -- --
Issuance of shares for
common stock option
exercise.................. 477 2 1,667 -- -- 1,669
Issuance of common stock to
Synthelabo for cash, net
of expenses............... 1,428,571 7,143 4,952,948 -- -- 4,960,091
Compensation expense related
to stock options.......... -- -- -- 95,951 -- 95,951
Net loss.................... -- -- -- -- (13,603,693) (13,603,693)
---------- ------- ---------- ------- ---------- -------- ----------- -----------
Balance at December 31,
1994.................... -- -- 17,039,404 $80,198 57,573,847 (138,942) (29,957,507) 27,557,596
---------- ------- ---------- ------- ---------- -------- ----------- -----------
Issuance of common stock to
former
ImmunoPharmaceutics'
shareholders held in
escrow.................... -- 5,000 1,404,938 -- -- 1,409,938
Issuance of common stock to
former
ImmunoPharmaceutics'
shareholders pursuant to
issue rights.............. 399,961 2,000 561,945 -- -- 563,945
Compensation expense related
to stock options.......... -- -- -- 92,765 -- 92,765
Net loss.................... -- -- -- -- (13,914,119) (13,914,119)
---------- ------- ---------- ------- ---------- -------- ----------- -----------
Balance at December 31,
1995, carry forward..... -- -- 17,439,365 $87,198 59,540,730 (46,177) (43,871,626) 15,710,125
========== ======= ========== ======= ========== ======== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements

F-6
<PAGE> 55

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED

<TABLE>
<CAPTION>
DEFICIT
PREFERRED STOCK COMMON STOCK ACCUMULATED
--------------- --------------------- ADDITIONAL DEFERRED DURING THE
SHARES SHARES PAID-IN COMPENSATION DEVELOPMENT
ISSUED AMOUNT ISSUED AMOUNT CAPITAL EXPENSE STAGE TOTAL
------ ------ ---------- -------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995,
brought forward............. -- -- 17,439,365 $ 87,198 59,540,730 (46,177) (43,871,626) 15,710,125
------ --- ---------- -------- ---------- ------- ----------- -----------
Issuance of common stock and
warrants through private
placement, net of expenses.... 6,550,990 32,754 12,958,327 -- -- 12,991,081
Issuance of common stock for
stock option exercises........ 192,640 963 590,092 -- -- 591,055
Issuance of common stock for
warrant exercises............. 57,274 286 200,173 -- -- 200,459
Issuance of common stock to LG
Chem for cash, net of
expenses...................... 1,250,000 6,250 4,519,009 -- -- 4,525,259
Compensation expense related to
stock options................. -- -- -- 46,177 -- 46,177
Net loss........................ -- -- -- -- (20,436,750) (20,436,750)
------ --- ---------- -------- ---------- ------- ----------- -----------
Balance at December 31,
1996........................ -- -- 25,490,269 $127,451 77,808,331 -- (64,308,376) 13,627,406
------ --- ---------- -------- ---------- ------- ----------- -----------
Issuance of common stock for
stock option exercises
(unaudited)................... -- -- 13,503 67 24,411 -- -- 24,478
Issuance of common stock for
warrant exercises
(unaudited)................... -- -- 142,615 713 605,336 -- -- 606,049
Issuance of convertible
preferred stock through
private placement, net of
expenses (unaudited).......... 6,000 30 -- -- 5,925,239 -- -- 5,925,269
Issuance of common stock in lieu
of board fees (unaudited)..... -- -- 1,152 6 5,466 -- -- 5,472
Compensation expense related to
stock option extensions
(unaudited)................... -- -- -- -- 1,303,094 -- -- 1,303,094
Conversion of preferred stock
into common shares
(unaudited)................... (1,400) (7) 355,461 1,777 11,394 -- -- 13,164
Net loss (unaudited)............ -- -- -- -- -- -- (10,094,037) (10,094,037)
Preferred dividends
(unaudited)................... -- -- -- -- -- -- (81,661) (81,661)
------ --- ---------- -------- ---------- ------- ----------- -----------
Balance at June 30, 1997
(unaudited)................. 4,600 23 26,003,000 130,014 85,683,271 -- (74,484,074) 11,329,234
====== === ========== ======== ========== ======= =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements

F-7
<PAGE> 56

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
AUGUST 2,
1989
SIX MONTHS ENDED (DATE OF
YEAR ENDED DECEMBER 31, JUNE 30, INCORPORATION)
------------------------------------------ --------------------------- TO
1994 1995 1996 1996 1997 JUNE 30, 1997
------------ ------------ ------------ ------------ ------------ --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................ $(13,603,693) (13,914,119) (20,436,750) (10,352,293) (10,094,037) (74,402,413)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Write-off of deferred offering
costs related to delayed
offering........................ -- -- 24,140 -- -- 349,078
Depreciation and amortization..... 1,098,602 800,614 759,328 369,612 373,107 4,985,274
Interest expense converted on
notes payable................... -- -- -- -- -- 87,755
Non cash acquisition costs
expensed (notes 9 and 10)....... 6,404,227 2,061,383 -- -- -- 9,465,610
Expenses paid with stock (note
3).............................. -- -- -- -- 5,472 29,972
Compensation expense related to
stock options (note 3).......... 95,951 92,765 46,177 42,927 1,303,094 1,590,252
Loss on disposition of fixed
assets.......................... -- -- 7,056 -- -- 7,056
Impairment of intangible assets... -- 643,750 -- -- -- 643,750
Preferred dividends payable not
included
in net loss..................... -- -- -- -- (68,497) (68,497)
Change in operating assets and
liabilities, net of effect of
acquisition:
(Increase) decrease in prepaids..... (15,031) (108,799) 7,456 58,144 159,682 (209,412)
(Increase) decrease in
receivables....................... (125,064) 71,843 -- 7,291 -- (90,286)
(Increase) in other current
assets............................ (435,682) (219,601) (55,584) (243,175) (659,704) (1,370,571)
(Increase) in other assets.......... -- -- (33,594) -- -- (33,594)
(Increase) decrease in
inventories....................... 2,127 59,118 -- -- (167,560) (106,315)
Increase (decrease) in current
liabilities....................... (419,508) 2,010,466 1,361,451 180,799 (834,412) 3,027,187
Increase (decrease) in deferred
revenue........................... 1,406,829 (2,428,841) (25,110) (400,110) (375,000) (1,422,122)
------------ ------------ ------------ ------------ ------------ ------------
Net cash used in operating
activities.................. (5,591,242) (10,931,421) (18,345,430) (10,336,805) (10,357,855) (57,517,276)
------------ ------------ ------------ ------------ ------------ ------------
Cash flows from investing activities:
Purchases of equipment and leasehold
improvements...................... (1,169,128) (199,750) (494,965) (66,895) (293,901) (8,009,821)
Proceeds from disposition of fixed
assets............................ -- -- 27,400 -- -- 27,400
Purchase of short term
investments....................... (28,472,640) (23,448,580) (31,176,391) (17,548,480) (7,919,487) (91,017,098)
Maturity of short term
investments....................... 10,621,840 33,104,073 28,109,406 10,311,249 11,262,292 83,097,611
Acquisition of subsidiary, net of
cash acquired..................... (167,331) -- -- -- -- (167,331)
------------ ------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
investing
activities...................... (19,187,259) 9,455,743 (3,534,550) (7,304,126) 3,048,904 (16,069,239)
------------ ------------ ------------ ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from notes payable to
stockholders and related trusts... -- -- -- -- -- 1,852,500
Proceeds from sale of common stock
and options and warrant exercises,
net............................... 8,170,427 -- 18,307,855 13,548,074 630,527 67,536,418
Proceeds from sale of preferred
stock, net........................ -- -- -- -- 5,925,269 5,925,269
Repurchase of common stock.......... -- -- -- -- -- (3,750)
Cost of delayed offering............ -- -- (24,140) -- -- (349,078)
------------ ------------ ------------ ------------ ------------ ------------
Net cash provided by financing
activities.................. 8,170,427 -- 18,283,715 13,548,074 6,555,796 74,961,359
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents............ (16,608,074) (1,475,678) (3,596,265) (4,092,857) (753,155) 1,374,844
Cash and cash equivalents at beginning
of period........................... 23,808,016 7,199,942 5,724,264 5,724,264 2,127,999 --
------------ ------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at end of
period.............................. $ 7,199,942 5,724,264 2,127,999 1,631,407 1,374,844 1,374,844
============ ============ ============ ============ ============ ============
Supplemental schedule of noncash
financing activities (notes 2 and
9).................................. $ 6,404,227 2,061,383 -- -- 13,164 11,419,029
============ ============ ============ ============ ============ ============
</TABLE>

See accompanying notes to consolidated financial statements

F-8
<PAGE> 57

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995, 1996 AND JUNE 30, 1997
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

(a) Organization

Texas Biotechnology Corporation (the "Company" or "TBC"), a
biopharmaceutical company, applies innovative drug discovery techniques and its
specialized knowledge of the role of vascular cell biology in cardiovascular
disease to the design and development of novel pharmaceutical compounds. The
Company was incorporated in the State of Delaware in 1989.

During the period from August 2, 1989, (date of incorporation) through
March 1990, the Company was largely inactive. Since that time, the Company has
been engaged principally in research and drug discovery programs and clinical
development of a drug compound. On July 25, 1994, the Company acquired all of
the outstanding common stock of ImmunoPharmaceutics, Inc. ("IPI") (now
discontinued), a San Diego, California based company, in exchange for Common
Stock of the Company. TBC consolidated the IPI operation into TBC in the first
half of 1996. (See note 13)

The Company is presently working on a number of long-term development
projects which involve experimental and unproven technology, which may require
many years and substantial expenditures to complete, and which may be
unsuccessful. To date, other than small amounts of monoclonal antibody compounds
and services produced and sold by IPI, the Company has not developed or sold any
products, and no assurance can be given that the Company will be able to
develop, manufacture or market any products in the future. In addition, no
assurance exists that future revenues will be significant, that any sales will
be profitable, or that the Company will have sufficient funds available to
complete its research and development programs or market any products which it
may develop. Accordingly, the Company is considered to be in the development
stage as it has not to date derived significant revenues from its planned
principal operations.

(b) Basis of Consolidation

The Company's consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, IPI. All material intercompany
transactions have been eliminated. The Company's consolidated financial
statements include the activity related to IPI since August 1, 1994.

Cash equivalents are considered to be those securities or instruments with
original maturities, when purchased, of three months or less. At June 30, 1997,
approximately $280,000 was invested in demand and money market accounts and
approximately $1,095,000 was invested in Corporate Commercial Paper. Short term
investments are those investments which have an original maturity of less than
one year and greater than three months. At June 30, 1997, the Company's short
term investments consisted of approximately $967,000 in Government Agency
Discount Notes and $6,953,000 in Corporate Commercial Paper. Cash equivalents
and short term investments are stated at cost, which approximates market value.
Interest income is accrued as earned.

(d) Equipment and Leasehold Improvements

Equipment and leasehold improvements are stated at cost less accumulated
depreciation and amortization. Depreciation of furniture and equipment is
provided on the straight-line method over the estimated useful lives of the
respective assets (3 to 10 years). Amortization of leasehold improvements is
provided on the straight-line method over the remaining minimum lease term.

F-9
<PAGE> 58

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(e) Intangible Assets

Intangible assets are amortized on a straight line basis over ten years.

(f) Research and Development Costs

All research and development costs are expensed as incurred and include
salaries of research and development employees, certain rent and related
building services, research supplies and services, clinical trial expenses and
other associated costs. With respect to research and development, salaries, for
the years ended December 31, 1994, 1995 and 1996, totaled approximately
$4,841,000, $7,005,000 and $6,233,000, respectively, of which approximately
$3,420,000, $5,612,000 and $4,893,000, respectively, was charged to research and
development. For the six months ended June 30, 1996 and 1997, and the period
from August 2, 1989 (date of incorporation) through June 30, 1997, salaries and
benefits totaled approximately $3,482,000, $4,200,000 and $27,486,000,
respectively, of which approximately $2,709,000, $2,600,000 and $19,545,000,
respectively, was charged to research and development. Payments related to the
acquisition of in-process research and development are expensed.

(g) Loss Per Common Share

Loss per common share is based upon the loss applicable to common shares
after preferred dividend requirements and upon the weighted average of common
shares outstanding during the period. Preferred dividend requirements for the
six months ended June 30, 1997 included $81,661 of accrued dividends and,
pursuant to a Securities and Exchange Commission Staff Position, deemed
dividends attributable to the conversion discount factor at issuance of the
Preferred Stock of $765,733. For the years ended December 31, 1994, 1995 and
1996, the weighted average common shares used to compute net loss per share
totaled 14,018,269, 16,748,995 and 23,616,033, respectively. For the six months
ended June 30, 1996 and 1997, and the period from August 2, 1989 (date of
incorporation) through June 30, 1997, the weighted average common shares used to
compute net loss per common share totaled 22,479,819, 25,647,058 and 11,421,006,
respectively. The conversion of securities convertible into Common Stock and the
exercise of stock options and warrants were not assumed in the calculation of
loss per common share because the effect would have been antidilutive. Shares
held in escrow through June 30, 1995, pending satisfaction of certain future
conditions, and shares related to contingent stock issue rights related to the
IPI acquisition have been excluded from the net loss per share calculation until
such shares were released or issued.

(h) Reclassifications

Certain reclassifications have been made to prior period financial
statements to conform with the June 30, 1997 presentation with no effect on net
loss reported.

(i) Revenue Recognition

Revenue from grants is recognized as earned under the terms of the related
grant agreements. Revenue from service contracts is recognized as the services
are performed and/or as milestones are achieved. Revenue from products and
services is recognized when the products are shipped or the services are
performed. Amounts received in advance of services to be performed under
contracts are recorded as deferred revenue.

(j) Patent Application Costs

Costs incurred in filing for patents are expensed as incurred.

F-10
<PAGE> 59

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(k) Use of Estimates

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from these estimates.

(l) Accounting Pronouncements

In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" (Statement 121). The Company has adopted the statement
effective December 31, 1995. Statement 121 requires that long-lived assets and
certain identifiable intangible assets to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In addition,
Statement 121 requires that certain long-lived assets and certain identifiable
intangible assets to be disposed of be reported at the lower of carrying amount
or fair value less costs to sell. The Company believes the goodwill associated
with IPI, $643,750, is impaired due to the decision to cease operations at IPI
and the sale of the QED business unit and has recorded a charge to expense
during 1995. (See note 13)

In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation" (Statement 123). Statement
123 establishes financial accounting and reporting standards for stock-based
employee compensation plans using a fair value based methodology as an
alternative to intrinsic value based methodology. In addition, Statement 123
establishes the fair value as the measurement basis for transactions in which an
entity issues its equity instruments to acquire goods or services from non-
employees. The accounting and reporting requirements of Statement 123 are
effective beginning January 1, 1996. The Company continues to use the intrinsic
value method as allowed by Statement 123 for employee related issuances and has
included the disclosure requirements of Statement 123. (See note 3)

In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" (Statement 128), which the Company is required to
adopt for both interim and annual periods ending after December 15, 1997.
Statement 128 simplifies the EPS calculation by replacing primary EPS with basic
EPS. Basic EPS is computed by dividing reported earnings available to common
stockholders by the weighted average shares outstanding. Since the Company has
incurred net losses in the six months ended June 30, 1997 and 1996, there is no
effect on net loss per share as reported.

(m) Interim Financial Information

The Consolidated Balance Sheet as of June 30, 1997, and the related
Consolidated Statements of Operations for the six month periods ended June 30,
1997 and 1996, and for the period from August 2, 1989 (date of incorporation)
through June 30, 1997 and Consolidated Statements of Cash Flows for the six
month periods ended June 30, 1997 and 1996, and for the period from August 2,
1989 (date of incorporation) through June 30, 1997, are unaudited. In the
opinion of management, all adjustments necessary for a fair presentation of such
financial statements have been included. Such adjustments consisted of normal
recurring items, except as stated in note 2 below. Interim results are not
necessarily indicative of results for a full year.

(2) CAPITAL STOCK

At June 30, 1997, the Company's authorized capital stock consisted of
75,000,000 shares of Common Stock (in May 1996, the Board of Directors proposed,
and stockholders approved, an amendment to the Company's Certificate of
Incorporation to increase the authorized number of shares of the Company's

F-11
<PAGE> 60

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Common Stock from 40 million shares to 75 million shares), par value $.005 per
share, and 5,000,000 shares of Preferred Stock, par value $.005 per share,
issuable in one or more series.

During March and April 1990, 1,885,700 shares of Common Stock were sold
pursuant to subscription agreements for $.035 per share. Certain stockholders
sold a total of 107,140 shares back to the Company. In addition, certain
employees and consultants who purchased stock were granted registration rights
in certain circumstances, limited pre-emptive rights and limited rights of
co-sale with two principal stockholders.

During 1991, 6,302,314 shares of Common Stock were sold pursuant to a
private placement. Proceeds to the Company were approximately $19.3 million, net
of selling expenses. The sales agent, D. Blech & Company, Incorporated ("D.
Blech & Co.") (whose sole stockholder was a principal stockholder of the
Company), received approximately $2.3 million in commissions and expense
reimbursement, and purchased 629,566 warrants for $.035 each. Each warrant
entitles the holder to purchase one share of Common Stock at $3.50 per share and
expires between August 1, 1998 and October 25, 1998. The warrant holder has
certain piggyback and demand registration rights with respect to the warrants
and underlying shares. As of December 31, 1996, 261,599 of the 629,566
outstanding warrants for shares of stock were assigned to selected dealers who
participated in the private placement and others. A total of 57,274 of these
warrants had been exercised as of December 31, 1996.

Between December 1989 and July 1991, two principal stockholders (and
certain related trusts) who were also members of the Board of Directors made
loans to the Company totaling $1,852,500. Notes were executed for the loans
which carried mandatory conversion provisions. At the time of the 1991 private
placement, all principal and accrued interest on such loans, which totaled
$1,940,255, was converted into 554,355 shares of Common Stock.

During May 1993, the Company issued 285,714 shares of Common Stock to
Genentech, Inc. (the "Former Licensor") in connection with the Stock Agreement
and Sublicense and License Agreement entered into with the Former Licensor on
the same date. (See note 9) In August 1993, the Company issued 6,999 shares of
Common Stock in connection with certain collaboration and consulting agreements.

In December 1993, D. Blech & Co. acted as underwriter for an initial public
offering of Company securities. Pursuant to this offering, 4,082,500 units were
sold including the over-allotment, each unit consisting of one share of Common
Stock and one warrant to purchase one share of Common Stock. Proceeds to the
Company were approximately $24.2 million, net of selling expenses of
approximately $3.3 million. The securities included in the unit were
transferable only as a unit until November 7, 1994, at such time when the
Company separated the unit into its Common Stock and warrant components. The
warrants are exercisable at $8.44 per share and expire on December 15, 1998. The
warrants are redeemable for $.05 per warrant, at the option of the Company, upon
30 days' prior written notice at any time after the last sale price of the
Common Stock has been at least $11.82 for 30 consecutive business days ending
within 15 days of the date of the notice of redemption. All of the warrants must
be redeemed if any are redeemed. The underwriter received approximately $2.9
million in commissions and expense reimbursement and purchased options to
purchase 355,000 units at an exercise price of $11.14. These options were sold
by the Company to D. Blech & Co. for $.001 each and expire on December 15, 1998.

In July 1994, the Company acquired all of the outstanding common stock of
IPI in exchange for Common Stock of the Company. TBC issued (i) 1,599,958 shares
of Common Stock which was distributed to the existing IPI shareholders, (ii)
999,956 shares of Common Stock, in the names of IPI shareholders that were held
in escrow pending satisfaction of certain research and development milestones
and released from escrow on June 30, 1995, and (iii) contingent stock issue
rights to issue an aggregate of 1,400,000 shares of Common Stock, the conversion
of which is pending satisfaction of research and development milestones, in
exchange for all the issued and outstanding shares of IPI. On June 30, 1995, the
Company issued

F-12
<PAGE> 61

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

399,961 shares pursuant to the contingent stock issue rights, upon attainment of
certain of the research and development milestones. In conjunction with the
acquisition, in addition to granting piggyback registration rights under certain
circumstances, the Company has filed a registration statement on Form S-3
covering the resale of the TBC Common Stock, which became effective on December
6, 1995. (See note 13)

In October 1994, the Company signed a collaborative agreement with
Synthelabo, S.A. ("Synthelabo") a French pharmaceutical group. In conjunction
with the agreement, Synthelabo purchased 1,428,571 shares of Common Stock for
$3.50 per share for a total of $5 million. In addition, the Company has granted
demand and piggyback registration rights with respect to such shares under
certain circumstances. (See note 8)

In February 1996, the Company completed a private placement of Common
Stock. The Company issued 6,550,990 shares of Common Stock at $2 1/8 per share
with proceeds of approximately $13.0 million, net of selling commissions and
expenses of approximately $900,000. In accordance with the terms of the
offering, the Company filed, pursuant to Rule 415 of the Securities Act of 1933,
as amended (the "Securities Act"), a Shelf Registration Statement as to the
resale of the shares of Common Stock sold to the purchasers in the private
placement which became effective on June 4, 1996. In connection with the private
placement, one of the co-exclusive agents, Harris, Webb & Garrison received a
$634,630 selling commission, 49,775 warrants with an exercise price of $3.05 per
share and no registration rights, and 497,749 warrants with an exercise price of
$3.66 per share with the underlying Common Stock being registered, under certain
circumstances, on a piggyback basis in the event of a public offering of Common
Stock by the Company. The other co-exclusive agent, Aurora Capital Corp.
("Aurora"), received a $124,653 selling commission, 25,587 warrants with an
exercise price of $3.36 per share, and 157,350 warrants, of which 8,348 were
canceled pursuant to an agreement for services with one of the selected dealers,
with an exercise price of $4.58 per share. The Common Stock underlying Aurora's
warrants were registered with the Common Stock issued in the private placement.
The co-exclusive agents assigned some of these warrants to others.

On October 10, 1996 the Company signed a strategic alliance agreement and a
Common Stock purchase agreement with LG Chemical, Ltd. ("LG Chem"), a Korean
corporation. In conjunction with the agreement, LG Chem purchased 1,250,000
shares of Common Stock for $4.00 per share for a total of $5 million. In
addition, LG Chem has the option to purchase $5 million of Common Stock on
September 30, 1997 or December 31, 1997. LG Chem and TBC must agree on the
purchase price or the option cannot be exercised. These shares were issued
pursuant to Regulation S under the Securities Act and may not be sold by LG Chem
for a period of one year per the agreement. The Company's agents in the contract
negotiations received a commission and 113,636 warrants exercisable at $4.40 per
share with the resale of the underlying Common Stock being subject to certain
piggyback registration rights.

On March 14, 1997, the Company completed a $6.0 million private placement
of 5% Cumulative Convertible Preferred Stock (the "5% Preferred") which provided
net proceeds to the Company of approximately $5.8 million. The 5% Preferred is
convertible into Common Stock at discounts ranging from 6% to 17% from the
average of the daily low trading price of the Common Stock for the ten
consecutive trading days immediately preceding the conversion date. A total of
6,000 shares of 5% Preferred were sold at a price of $1,000 per share to two
institutional investors. In accordance with the terms of the private placement,
the Company filed, pursuant to Rule 415 of the Securities Act, a Shelf
Registration Statement as to the resale of the shares of the underlying Common
Stock which became effective on May 23, 1997. The 5% Preferred holds
preferential rights compared to all other classes of stock regarding dividend
payments and liquidation. Dividends have been accrued at the rate of five
percent (5%) per annum on the amount of 5% Preferred outstanding during the
quarter and are payable quarterly commencing June 30, 1997 when and as declared
by the Board of Directors. In accordance with the Certificate of Designations of
5% Cumulative Convertible Preferred, dividends not declared and paid are
considered additions to the 5% Preferred amount at the time of conversion and
can be paid in Common Stock of the Company at time of conversion. Dividends and
the

F-13
<PAGE> 62

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

discount related to the conversion of the 5% Preferred has been shown as an
increase of net loss applicable to common shareholders. The liquidation
preference (which included accrued dividends) amount of the 5% Preferred at June
30, 1997 is $4,668,496. As of June 30, 1997, 1,400 shares of the 5% Preferred
and accrued dividends of $13,164 on such shares have been converted into 355,461
shares of Common Stock.

(3) STOCK OPTIONS

The Company has in effect the following stock option plans:

The Amended and Restated 1990 Incentive Stock Option Plan ("1990 Plan")
allows for the issuance of incentive and non-qualified options to employees,
directors, officers, non-employee independent contractors and non-employee
directors, pursuant to which 229,756 shares of Common Stock are reserved for
issuance out of authorized but unissued shares of the Company.

The Amended and Restated 1992 Incentive Stock Option Plan ("1992 Plan")
allows for the issuance of incentive and non-qualified options to employees,
directors, officers, non-employee independent contractors and non-employee
directors, pursuant to which 1,549,339 shares of Common Stock are reserved for
issuance out of authorized but unissued shares of the Company.

The Stock Option Plan for Non-Employee Directors ("Director Plan") allows
for the issuance of non-qualified options to non-employee directors, pursuant to
which 71,429 shares of Common Stock are reserved for issuance out of authorized
but unissued shares of the Company to be issued to non-employee members of the
Board of Directors of the Company based on a formula.

The Amended and Restated 1995 Stock Option Plan ("1995 Plan") allows for
the issuance of incentive and non-qualified options, shares of restricted stock
and stock bonuses to employees, officers, and non-employee independent
contractors, pursuant to which 2,000,000 shares of Common Stock are reserved for
issuance out of authorized but unissued shares of the Company. The Board of
Directors amended the 1995 Plan effective March 4, 1997 to allow 2,000,000
shares to be reserved for issuance, which amendment was approved by stockholders
at the annual meeting on May 6, 1997.

The Amended and Restated 1995 Non-Employee Director Stock Option Plan
("1995 Director Plan") allows for the issuance of non-qualified options to
non-employee directors, pursuant to which 298,848 shares of Common Stock are
reserved for issuance out of authorized but unissued shares of the Company to be
issued to non-employee members of the Board of Directors of the Company based on
a formula. In June 1996, the 1995 Director Plan was amended with respect to the
election date requirement for a director to request stock in lieu of cash
payment of director fees. The Board of Directors amended the 1995 Director Plan
effective March 4, 1997 to allow 300,000 shares to be reserved for issuance and
also to revise the formula for issuing options. Both amendments were approved by
stockholders at the annual meeting on May 6, 1997.

A summary of stock options as of June 30, 1997, follows:

<TABLE>
<CAPTION>
EXERCISE PRICE EXERCISED/ AVAILABLE
STOCK OPTION PLANS PER SHARE AUTHORIZED OUTSTANDING OTHER EXERCISABLE FOR GRANT
------------------ -------------- ---------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
1990 Plan............... $1.38 - $5.19 285,715 182,622 55,959 172,841 47,134
1992 Plan............... $1.41 - $5.36 1,700,000 1,333,509 150,661 964,727 215,830
Director Plan........... $2.40 - $4.54 71,429 42,576 -- 38,862 28,853
1995 Plan............... $1.31 - $5.88 2,000,000 1,202,900 -- 225,676 797,100
1995 Director Plan...... $1.38 - $5.19 300,000 135,306 1,152 71,522 163,542
--------- --------- ------- --------- ---------
TOTALS 4,357,144 2,896,913 207,772 1,473,628 1,252,459
========= ========= ======= ========= =========
</TABLE>

F-14
<PAGE> 63

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As of March 4, 1997, the Board of Directors approved increases in the
number of shares authorized of 1,000,000 shares in the 1995 Plan and 100,000
shares in the 1995 Director Plan respectively, which were approved by
stockholders at the annual meeting on May 6, 1997, and are included above.

The Company applies APB Opinion 25 and related interpretations on
accounting for its plans. The Company has recorded deferred compensation for the
difference between the grant price and the deemed fair value for financial
statement presentation purposes related to certain options granted in the period
subsequent to May 27, 1993 and prior to the initial public offering. Such amount
totaled $287,158, of which $92,765 was charged to expense in 1995. The
unamortized deferred compensation expense of $46,177 at December 31, 1995 was
expensed during 1996. Had compensation costs for the Company's stock-based
compensation plans been determined consistent with SFAS No. 123, the Company's
proforma net loss and proforma net loss per share for the year ended December
31, 1995 would have been $14,116,842 and $0.84, respectively and for December
31, 1996 would have been $21,057,088 and $0.89, respectively.

The fair value of options granted during the years ended December 31, 1995
and 1996 for employee services were estimated on the date of grant using the
Black-Scholes Pricing Model with the following weighted average assumptions:
risk-free interest rate of between 5.82 and 6.65 percent, expected life of
between 3 and 8 years, expected volatility of 69 percent and no dividends. There
were no options granted for other than employee services.

A summary of the status of the Company's stock option plans as of December
31, 1995 and 1996 and the changes during the years then ended is presented
below:

<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at December 31, 1994................. 1,546,800 $3.62
Granted.......................................... 717,154 1.51
Canceled......................................... (208,523) 3.43
Exercised........................................ -- --
---------
Outstanding at December 31, 1995................. 2,055,431 2.90
Granted.......................................... 600,102 4.42
Canceled......................................... (294,129) 3.52
Exercised........................................ (192,640) 3.07
---------
Outstanding at December 31, 1996................. 2,168,764 $3.22
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Weighted-average fair value of options granted during
the period at an exercise price equal to market at
issue date......................................... $0.88 $2.72
</TABLE>

F-15
<PAGE> 64

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following tables summarize information about the Company's stock
options outstanding as of December 31, 1995 and December 31, 1996, respectively:

<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
OPTIONS AVERAGE AVERAGE OPTIONS AVERAGE
OPTION OUTSTANDING REMAINING EXERCISE PRICE EXERCISABLE EXERCISE PRICE
EXERCISE PRICE AS OF 12/31/95 CONTRACTUAL LIFE OF OUTSTANDING AS OF 12/31/95 OF EXERCISABLE
- -------------- -------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$1.31-$3.50 1,463,029 5.10 $2.21 477,225 $3.12
$3.59-$5.36 592,402 3.32 $4.60 208,833 $4.58
--------- -------
$1.31-$5.36 2,055,431 4.59 $2.90 686,058 $3.56
</TABLE>

<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
OPTIONS AVERAGE AVERAGE OPTIONS AVERAGE
OPTION OUTSTANDING REMAINING EXERCISE PRICE EXERCISABLE EXERCISE PRICE
EXERCISE PRICE AS OF 12/31/96 CONTRACTUAL LIFE OF OUTSTANDING AS OF 12/31/96 OF EXERCISABLE
- -------------- -------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$1.31-$3.50 1,238,673 4.39 $2.18 727,483 $2.56
$3.56-$5.36 930,091 6.53 $4.61 241,750 $4.94
--------- -------
$1.31-$5.36 2,168,764 5.31 $3.22 969,233 $3.15
</TABLE>

The fair value of warrants issued during the years ended December 31, 1995
and 1996 for other than employee services were estimated on the date of grant
using the Black-Scholes Pricing Model with the following weighted average
assumptions: risk-free interest rate of 6.06 percent, expected life of 5 years,
expected volatility of 69 percent and no dividends.

The following table summarizes the status of the Company's warrants as of
December 31, 1995 and 1996, and changes during the periods then ended is
presented below:

<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
WARRANTS EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at December 31, 1994............... 4,712,066 $7.78
Issued......................................... -- --
Forfeited...................................... -- --
Canceled....................................... (373,633) 3.50
Reissued....................................... 373,633 3.50
---------
Outstanding at December 31, 1995............... 4,712,066 7.78
Issued......................................... 844,097 3.89
Forfeited...................................... -- --
Canceled....................................... (124,732) 3.93
Exercised...................................... (57,274) 3.50
Reissued....................................... 116,384 3.88
---------
Outstanding at December 31, 1996............... 5,490,541 $7.23
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Weighted-average fair value of warrants
issued during the year ended at an
exercise price equal to market price at
issue date............................... $0.00 $0.00
Weighted-average fair value of warrants
issued during the year ended at an
exercise price less than market at issue
date..................................... $0.00 $2.26
Weighted-average fair value of warrants
issued during the year ended at an
exercise price greater than market at
issue date............................... $0.00 $2.17
</TABLE>

F-16
<PAGE> 65

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The warrants shown above were issued in connection with equity transactions
of the Company and, therefore, there is no effect on net income.

During December, 1996, the Compensation and Personnel Committee of the
Board of Directors authorized the extension of options originally granted for a
five year period to ten years upon election by individual option holders. During
1997, option holders elected to extend 1,022,833 options, originally expiring
during 1997, 1998, 1999 and 2000, for an additional five years. Accordingly, the
Company recorded a non-cash charge of $1,303,094 for the six months ended June
30, 1997 of which $1,149,829 was recorded in the second quarter. Of the total
for the six months, approximately $350,000 was charged to research and
development and the remainder to general and administrative for the difference
between the original option exercise price and fair market value as of the
effective date of election.

In April 1997, 1,152 shares of stock were issued pursuant to the 1995
Director Plan to two directors for board fees in lieu of cash and are included
in the amount exercised for that plan.

(4) INCOME TAXES

The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method of Statement 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years 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
rates is recognized in income in the period that includes the enactment date.

At December 31, 1995 and 1996, and June 30, 1997, the net deferred tax
asset totaled approximately $15,355,000, $22,000,000 and $25,568,000,
respectively, and was fully reserved. The Company did not incur any tax expense
in any year due to operating losses.

At December 31, 1994, 1995 and 1996, the Company had net operating loss
carry forwards of approximately $19,411,000, $28,292,000 and $45,496,000,
respectively, for federal income tax return purposes. Utilization of the
Company's net operating loss carry forwards is subject to certain limitations
due to specific stock ownership changes which have occurred or may occur. To the
extent not utilized, the carry forwards will expire during the years beginning
2002 through 2011.

(5) EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements consist of the following :

<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------- -------------
<S> <C> <C> <C>
Laboratory and office equipment........ $ 3,827,643 $ 4,079,728 $ 4,373,629
Leasehold improvements................. 3,701,772 3,701,772 3,701,772
----------- ----------- -----------
7,529,415 7,781,500 8,075,401
Less accumulated depreciation and
amortization......................... (3,746,586) (4,323,488) (4,696,595)
----------- ----------- -----------
$ 3,782,829 $ 3,458,012 $ 3,378,806
=========== =========== ===========
</TABLE>

F-17
<PAGE> 66

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(6) COMMON STOCK RESERVED

The Company has reserved Common Stock for issuance as of June 30, 1997 as
follows:

<TABLE>
<S> <C> <C>
Stock option plans.............. 4,149,372
Agreement with Genentech,
Inc........................... 285,715
Warrants issuable under the
Genentech Agreement........... 142,858
Warrants outstanding............ 5,347,269
Underwriters purchase options
and related warrants.......... 710,000
IPI acquisition (contingent
shares)....................... 1,000,000 (see note 13)
Conversion of Preferred Stock... 2,644,539 (see note 2)
-----------
Total shares reserved......... 14,279,753
===========
</TABLE>

In addition to the above, LG Chem has the option to purchase up to $5
million of Common Stock on September 30, 1997 or December 31, 1997. TBC must
agree on the purchase price or the option cannot be exercised.

(7) CLINICAL RESEARCH AGREEMENTS

On February 10, 1995, the Company entered into an agreement with Coromed,
Inc. ("Coromed"), a contract research organization, to coordinate the clinical
evaluation of NOVASTAN(R) as an adjunct to streptokinase in acute myocardial
infarction. Coromed is responsible for managing all aspects of the clinical
trial and making all financial remuneration to testing sites. The term of the
agreement is 19 months, subject to extension upon the mutual written agreement
of both parties. The parties have agreed to a total budget of approximately
$3,196,000. Of this amount, $106,000 was paid upon execution of a letter of
intent and approximately $450,000 was paid upon execution of the agreement.
Subsequent payments will be made monthly on a per patient basis, to a maximum
total of approximately $2,490,000. Three additional payments of $50,000 each
will be made upon completion of specified tasks by Coromed. In addition, the
Company has engaged Coromed to provide various services related to other ongoing
NOVASTAN(R) trials being conducted by the Company.

On May 1, 1996, the Company amended the above agreement with Coromed. The
term of the contract was extended to 24 months with an additional cost of
$1,200,000.

On April 1, 1995, the Company entered into an agreement with Coromed for
data management services for the clinical trial related to use of NOVASTAN(R) in
patients with heparin-induced thrombocytopenia ("HIT"). The term of the
agreement is 17 months, subject to extension upon the mutual written agreement
of both parties. The parties have agreed to a total budget of $245,295. Of this
amount, $24,530 was paid upon execution of the contract. Subsequent payments
will be paid upon completion of certain tasks. In addition, the Company has
engaged Coromed to provide various services related to other ongoing NOVASTAN(R)
trials being conducted by the Company.

On June 1, 1995, the Company entered into an agreement with Coromed to
coordinate the clinical evaluation of NOVASTAN(R) as an adjunct to t-PA in acute
myocardial infarction. Coromed is responsible for managing all aspects of the
clinical trial and making all financial remuneration to testing sites. The term
of the agreement is 16 months, subject to extension upon the mutual written
agreement of both parties. The term of the contract expired on October 1, 1996,
but was extended on April 11, 1997 for one year through September 30, 1997 or
until all services detailed in the original contract are completed. The parties
have agreed to a total budget of $961,659. Of this amount, $44,000 was paid upon
execution of a letter of intent and

F-18
<PAGE> 67

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$138,566 was paid upon execution of the agreement. Subsequent payments will be
made monthly on a per patient basis, to a maximum total of approximately
$734,000. Three additional payments of $15,000 each will be made upon completion
of specified tasks by Coromed.

On July 1, 1995 the Company entered into an agreement with Coromed for
program management services and clinical monitoring services for a clinical
trial comparing the efficacy and safety of NOVASTAN(R) versus Arvin(R) in
patients with HIT or HIT with thrombosis syndrome ("HITTS"). The original term
of the agreement was 15 months, and was extended until March 31, 1997. The
parties have agreed to a total budget of $409,270 including the extension. Of
this amount, $30,000 was paid upon execution of a letter of intent. Subsequent
payments will be paid upon completion of certain tasks.

(8) RESEARCH AGREEMENTS

During September 1993, IPI entered into an agreement to provide research
and development services, over a period of 30 months to Eisai Co., Ltd.
("Eisai"). The agreement guaranteed $3,900,000 in contract research funding and
allowed for additional amounts to be received upon the attainment of certain
milestones. In addition, the contract provided for an extension for up to two
additional years at the sole discretion of Eisai, if TBC received written
notification from Eisai in September 1995. Eisai did not send written
notification extending the contract. The agreement provides for payment of
royalties under certain conditions. As of December 31, 1995, the total
$3,900,000 in contract payments had been received, of which approximately
$400,000 was included in current deferred revenue at December 31, 1995. On
August 10, 1995, IPI received a $2,000,000 milestone payment from Eisai, which
was recognized as income in the third quarter. In conjunction with the
agreement, IPI remunerated a former director of the Company as a third party
consultant under an agreement which provides for compensation based upon cash
received from Eisai pursuant to the Eisai agreement. The agreement expired in
March 1996.

On October 11, 1994, the Company signed a collaborative agreement with
Synthelabo to develop and market compounds for vascular proliferative disease
derived from the Company's research programs. Upon consummation of the
transaction, Synthelabo purchased 1,428,571 shares of Common Stock for $3.50 per
share for a total of $5 million becoming the Company's largest shareholder at
that time and paid the Company a non-refundable licensing fee of $3 million. In
addition, Synthelabo committed to pay $3 million annually in research payments
(payable in quarterly installments of $750,000). Beginning October 31, 1996, the
parties to the agreement agreed to revise the terms of the payment for the third
year to be $750,000, which amount has already been paid. No such payments will
be made in 1997. Synthelabo has agreed, upon the achievement of certain
milestones, to make further payments of up to $3 million per year for up to $18
million in total. Synthelabo has the right to terminate the agreement any time
on or after October 15, 1997 for any reason and either party has the right to
terminate the contract for breach of any material obligation. If Synthelabo
exercises this termination right, the license granted to Synthelabo will
terminate and TBC will pay Synthelabo a royalty on net sales of any products
sold in a certain territory (Europe, Middle East, Africa and countries of the
former Soviet Union) for a period of time. In addition, Synthelabo may, at its
option, require that the technology be transferred to and the development
program be conducted by a joint venture owned by TBC and Synthelabo should "net
worth" of TBC, as defined in the agreement, be less than $5 million as of the
end of any calendar quarter during the term of the agreement. For the years
ended December 31, 1995 and December 31, 1996, TBC received $3 million related
to the Synthelabo agreement. In exchange for the above consideration, Synthelabo
has received an exclusive license to manufacture, use, and sell any products
generated from the research, in Europe, the Middle East, Africa and the
countries of the former Soviet Union. The first quarterly research payment of
$750,000 was received on October 31, 1994, of which $500,000 was recognized in
1994. During the year ended December 31, 1996, research payments of $3,000,000
were received of which $2,625,000 was recognized as income during the year. As
of December 31, 1996, $625,000 is included in current deferred revenue. As of
June 30, 1997, $375,000 has been recognized as revenue and

F-19
<PAGE> 68

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$250,000 is included in current deferred revenue. Synthelabo will pay royalties
to TBC, based on the net sales in those geographic areas covered in the
agreement.

During 1995 and 1997, the Company and Synthelabo mutually agreed to
exchange certain clinical data with regard to NOVASTAN(R). Additionally, during
1996, the Company signed two agreements with Synthelabo with respect to the
supply of information related to certain clinical studies of NOVASTAN(R). Over
the term of the agreements as certain milestones are met, Synthelabo has
committed to pay TBC up to $2,920,000. These payments are dependent on rate of
enrollment in certain clinical studies, the completion of certain clinical
studies and date of completion of certain clinical studies. As of December 31,
1996 and June 30, 1997, TBC has recognized approximately $2.3 million and $2.4
million, respectively, of revenue related to these agreements. Synthelabo is the
licensee for NOVASTAN(R) in certain territories other than those which were
sublicensed to TBC.

On October 10, 1996, the Company signed a strategic alliance agreement with
LG Chem to develop and market compounds derived from the Company's endothelin
receptor and selectin antagonist programs for certain disease indications. Upon
consummation of the transaction, LG Chem purchased 1,250,000 shares of Common
Stock for $4.00 per share for a total of $5 million. LG Chem has committed to
pay $10.7 million in research payments. Of this amount, $1.1 million has been
paid and $1.0 million will be paid on December 31, 1997 and on each of June 30
and December 31 of 1998, 1999 and 2000, and $1.3 million will be paid on June 30
and December 31, 2001. LG Chem has the right to terminate future research
payments if TBC fails to meet certain agreement milestones, which milestones
will be established by the parties in accordance with the agreement. LG Chem
will pay royalties to TBC, based on net sales, in those geographic areas covered
by the agreement, which include Korea, China, India and certain other Asian
countries, excluding Japan. The Company will pay its agents in the contract
negotiations with LG Chem a commission on all consideration received including a
royalty on net sales.

(9) LICENSE AGREEMENT

TBC has entered into an agreement with Mitsubishi Chemical Corporation
("Mitsubishi") to license Mitsubishi's rights and technology relating to
NOVASTAN(R) and to license Mitsubishi's own proprietary technology developed
with respect to NOVASTAN(R) (the "Mitsubishi Agreement"). Under the Mitsubishi
Agreement, the Company has an exclusive license to use and sell NOVASTAN(R) in
the U.S. and Canada for specified indications. The Company is required to pay
Mitsubishi specified royalties on net sales of NOVASTAN(R) by the Company and
its sublicensees after its commercial introduction in the U.S. and Canada.
Either party may terminate the Mitsubishi Agreement on 60 days notice if the
other party defaults in its material obligations under the agreement, declares
bankruptcy or is insolvent, or if a substantial portion of its property is
subject to levy. Unless terminated sooner pursuant to the above described
termination provisions, the Mitsubishi Agreement expires on the later of
termination of patent rights in a particular country or 20 years after first
commercial sale of products. Under the Mitsubishi Agreement, TBC has access to
an improved formulation patent granted in 1993 which expires in 2010 and a use
patent which expires in 2009. In conjunction with the Mitsubishi Agreement, a
consulting firm involved in negotiations related to the agreement will receive a
percentage of net sales received as a result of the agreement.

Mitsubishi further agreed to supply the Company with its requirements of
bulk NOVASTAN(R) throughout the term of the Mitsubishi Agreement for TBC's
clinical testing and commercial sales of NOVASTAN(R) in the U.S. and Canada. In
the event Mitsubishi should discontinue the manufacture of NOVASTAN(R),
Mitsubishi and TBC have agreed to discuss in good faith the means by which, and
the party to whom, NOVASTAN(R) production technology will be transferred. The
transferee may be a person or entity other than TBC. At present, Mitsubishi is
the only manufacturer of NOVASTAN(R). Should Mitsubishi terminate or default in
its supply commitment, there can be no assurance that alternate sources of bulk

F-20
<PAGE> 69

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOVASTAN(R) will be available to the Company at reasonable cost, if at all. If
such alternate sources of supply (see note 15) are unavailable or uneconomic,
the Company's results of operations would be materially adversely affected.

In exchange for the license to the Former Licensor's NOVASTAN(R)
technology, TBC issued the Former Licensor 285,714 shares of Common Stock and
agreed to issue (i) an additional 214,286 shares of Common Stock within 10 days
after acceptance of the filing of the first New Drug Application ("NDA") with
the FDA for NOVASTAN(R), and (ii) an additional 71,429 shares of Common Stock to
the Former Licensor within 10 days after the FDA's first approval of an NDA for
NOVASTAN(R). The Company has also agreed to grant the Former Licensor a warrant
to purchase an additional 142,858 shares of Common Stock at an exercise price of
$14.00 per share, subject to adjustment, within ten days of acceptance of the
filing of the first NDA for NOVASTAN(R) with the FDA. If the Company is unable
to issue any of the additional shares of Common Stock or the warrant to the
Former Licensor due to circumstances beyond the Company's control, the Company
has agreed to pay the Former Licensor, in lieu thereof, an amount equal to the
value of the securities plus interest from May 27, 1993 at the prime rate plus
one percent, compounded annually. The value of the Common Stock is deemed to be
$7.00 per share, which represents the cash consideration the Company will be
obligated to pay to the Former Licensor as liquidated damages, and the value of
the warrants is to be determined by appraisal, based on the warrants' market
value. The Company will not be required to make any cash payment if both of the
filing and approval of the NDA do not occur. TBC has also granted the Former
Licensor demand and piggyback registration rights with regard to shares of
Common Stock issued to the Former Licensor.

During the third quarter of 1997, the Company sublicensed certain rights to
NOVASTAN(R) to SmithKline Beecham plc ("SmithKline"). (see note 15) In
conjunction with this agreement, the Company agreed to make certain payments to
Mitsubishi, to pay an additional royalty to Mitsubishi beginning January 1, 2001
and to provide access to certain NOVASTAN(R) clinical data to Mitsubishi in
certain circumstances.

(10) 401(K) PLAN

The Company adopted a 401(k) plan which became effective on September 1,
1993. Under the plan, all employees with three months of service are eligible to
participate in the plan and may contribute up to 15 percent of their
compensation, with a maximum of $9,500 per employee in 1996. At the present
time, no matching contributions have been authorized by the Board of Directors.
Costs associated with administering the plan totaled approximately $10,000 in
1996. During 1995, the existing 401(k) plan of IPI was merged into the Company's
plan.

(11) COMMITMENTS AND CONTINGENCIES

(a) Employment Agreements

Since inception, the Company has entered into employment agreements with
certain officers and key employees. The Company has signed agreements with five
of its officers to provide certain benefits in the event of a "change of
control" as defined in these agreements and the occurrence of certain other
events. The agreements provide for a lump-sum payment in cash equal to eighteen
(18) months to three (3) years of annual base salary and annual bonus, if any.
The base salary portion of the agreements would aggregate approximately $1.6
million at current rate of compensation. In addition, the agreements provide for
gross-up for certain taxes on the lump-sum payment, continuation of certain
insurance and other benefits for periods of eighteen (18) months to three (3)
years and reimbursement of certain legal expenses in conjunction with the
agreements. These provisions are intended to replace compensation continuation
provisions of any other agreement in effect for an officer if the specified
event occurs.

F-21
<PAGE> 70

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(b) Lease Agreements

The Company has renegotiated its noncancelable lease agreement which began
December 1, 1990 for its facilities in Houston, Texas and executed a new lease
agreement in 1995. The new lease was effective January 1, 1995 and calls for a
lease term of six years at an annual rate of $706,663 for 1995 and $712,449 for
1996 through December 2000 subject to adjustments based on certain variable
building operating expenses. The Company subsequently amended the lease
effective for the period from October 1, 1996 through June 30, 1997 to include
additional expansion space for research and development. For the years ended
December 31, 1994, 1995 and 1996, rent and related building services totaled
approximately $1,416,000, $1,218,000 and $1,025,000, respectively, of which
approximately $1,225,000, $1,076,000 and $924,000, respectively, was charged to
research and development expense.

Total committed lease payments from January 1, 1997 through December 31,
2000 equal $2,849,796. The Company has also committed to pay for seventy-four
parking spaces during the lease at the facility established rate charged which
currently approximates $45,000 per annum. The lease also includes a provision
for the Company to pay certain additional charges to obtain utilities and
building services during off-business hours. Currently, the amount of these
charges is approximately $250,000 per annum, payable in monthly installments.
These charges are subject to annual adjustments based on the local consumer
price index. Should the Company terminate the use of non-standard services, an
additional amount of up to $4,167 per month shall be due in addition to base
rent on the remaining lease payments through December 2000. In addition, the
lease grants certain credits to rent and utilities which at December 31, 1996
totaled approximately $225,000, and which will be amortized on a straight line
basis over the lease term.

The Company leases certain scientific equipment and computer hardware and
software. These have been classified as operating leases. The future minimum
lease payments for noncancelable equipment leases are $45,310 and $3,776 for the
years ended December 31, 1997 and 1998. For the year ended December 31, 1996,
lease expenses totaled $114,321.

On November 21, 1994, a class action shareholders' suit was filed in the
United States District Court for the Southern District of Texas, Houston
Division seeking damages in the amount of $16 million. Plaintiffs are two
individuals who purchased shares of the Company on December 16, 1993 following
the Company's initial public offering. In their complaint, plaintiffs have sued
the Company, certain members of the board of directors and certain officers
alleging violations of Sections 11, 12 and 15 of the Securities Act. Plaintiffs
have also named David Blech, D. Blech & Co. and Isaac Blech as defendants. On
January 23, 1995, the Company and the members of the board of directors filed a
motion to dismiss the plaintiffs' complaint pursuant to Rule 9(b) and Rule
12b(6) of the Federal Rules of Civil Procedure. In addition, defendant John
Pietruski, Chairman of the Board of Directors, filed a motion to dismiss the
plaintiffs' complaint pursuant to Rule 12(b)(2) of the Federal Rules of Civil
Procedure. On February 7, 1995, the plaintiffs filed a motion for class
certification. The Court denied the motion by the Company and by John Pietruski.

On March 28, 1995, a second class action shareholders' suit was filed in
the United States District Court for the Southern District of New York seeking
unspecified damages. Plaintiffs are eight individuals who purchased shares in
various companies for which D. Blech & Co. acted as an underwriter (or
co-underwriter) or marketmaker. In their complaint, the plaintiffs have sued the
Company alleging violations of Section 10(b) of the Securities Exchange Act of
1934, as Amended (the "Exchange Act") and Rule 10b-5 promulgated thereunder by
the Securities and Exchange Commission (the "Commission"). Plaintiffs have named
a number of defendants, including David Blech and D. Blech & Co., four
individuals, two brokerage firms, one investment management company and ten
other companies for which D. Blech & Co. acted as underwriter or marketmaker.

F-22
<PAGE> 71

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On August 14, 1995, the Judicial Panel on The Multi-District Litigation
ordered that the action filed in the United States District Court for the
Southern District of Texas, Houston Division be transferred to the United States
District Court for the Southern District of New York for coordinated or
consolidated pretrial proceedings with the action pending there. In light of the
transfer and consolidation of the Texas case with similar cases against other
companies for which D. Blech & Co. acted as underwriter, the Company requested
that the Court in New York reconsider the Texas Court's denial of its motion to
dismiss as a part of the Court's consideration of similar motions to dismiss
filed by those companies. All of these motions were presented to the Court on
February 6, 1996. On June 6, 1996, the New York District Court entered two
memorandum opinions in the consolidated cases. In one of its opinions, the Court
dismissed all of the Exchange Act and common law fraud claims filed against the
Company and its officers and directors, but afforded those plaintiffs the right
to attempt to preserve those claims by repleading them. The Court ordered that
those claims be repleaded no later than July 26, 1996. Plaintiffs did not
replead those claims by the deadline, resulting in the dismissal of all claims
against the Company in that litigation. In its opinion in the second case, i.e.,
the case filed on November 21, 1994, the Court granted the Company's and its
officers' and directors' motion for reconsideration, but together with all other
similar pending motions, denied the requested relief. Pursuant to the court's
order, the Company therefore filed an answer in that case. The Company also
filed a motion seeking leave of court to prosecute an immediate appeal of the
Court's denial of the Company's motion to dismiss. The Court heard argument on
that Motion on October 10, 1996. The motion was denied on January 16, 1997.
Given the early stage of that case, which is the only remaining litigation
against the Company, the Company is unable to evaluate its potential outcome at
this time. The Company disputes these claims and intends to contest them
vigorously. There can be no assurance, however that the final disposition of
this case will be favorable to the Company.

(12) SHORT TERM NOTE RECEIVABLE

On April 12, 1994, the Company loaned $350,000 to D. Blech & Co. in
exchange for a non-interest bearing promissory note of even amount. The loan
represented advance payment of a success fee pursuant to a consulting agreement
with D. Blech & Co. payable in connection with the IPI acquisition (note 13). As
of December 31, 1996, $227,500 of the fee had been earned. The remaining amount
of the note would have been considered earned as fees upon issuance of the
remaining Company stock related to the IPI acquisition upon the satisfaction of
the conditions to issuance. Since the conditions of issuance were not met, the
remaining $122,500 is due and payable.

(13) ACQUISITION OF IMMUNOPHARMACEUTICS, INC.

On July 25, 1994, the Company acquired all of the outstanding common stock
of IPI in exchange for Common Stock of the Company. TBC issued (i) 1,599,958
shares of Common Stock which was distributed to the existing IPI shareholders,
(ii) 999,956 shares of Common Stock in the names of IPI shareholders that was
held in escrow pending satisfaction of certain research and development
milestones and released from escrow on June 30, 1995, and (iii) contingent stock
issue rights to issue an aggregate of 1,400,000 shares of Common Stock, the
conversion of which is pending satisfaction of research and development
milestones, in exchange for all the issued and outstanding shares of IPI (after
conversion of the IPI Series A and Series B Preferred Stock and all options and
warrants). On June 30, 1995, the Company issued 399,961 shares pursuant to the
contingent stock issue rights, upon attainment of certain research and
development milestones.

The acquisition of IPI was accounted for under the purchase method of
accounting. The aggregate purchase price (consisting of the fair value of
non-contingent TBC shares issued, transaction expenses and liabilities assumed)
was allocated to the tangible and intangible assets acquired based on their
estimated fair value as of the date of the acquisition. The Common Stock issued
on July 25, 1994 was valued at $3.63 per share which was derived by discounting
the value of the TBC shares without the attached warrant on July 25,

F-23
<PAGE> 72

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1994. The Common Stock issued on June 30, 1995 and the Common Stock released
from escrow was valued at $1.41 per share which was derived by discounting the
value of the TBC shares on June 30, 1995. During the second quarter of 1995, the
Company charged $1,973,883 to in-process research and development expense which
represented the value of the 1,399,917 shares of TBC Common Stock (including
999,956 shares released from escrow and 399,961 shares issued pursuant to the
contingent stock issue rights) given as consideration for acquired technology.
The value of the remaining shares issuable upon conversion of the contingent
stock issue rights will be determined when the research and development
milestones are met by IPI, if ever, and additional in-process research and
development expense will be recorded at such time. As of December 31, 1996, the
Company had determined that the contractual requirements for issuance of
additional shares pursuant to the contingent stock issue rights had not been
met. The Company has received notification from the committee representing
former IPI shareholders that it does not agree with this determination. Any
further discussion would be by arbitration pursuant to the Acquisition
Agreement.

The following is an allocation of the purchase price to the tangible and
intangible assets acquired based on their estimated fair value as of the date of
the IPI acquisition:

<TABLE>
<S> <C>
Common Stock issued to IPI shareholders on July
25, 1994....................................... $5,807,848
Common Stock released from escrow on June 30,
1995........................................... 1,409,938
Common Stock issued pursuant to contingent stock
issue rights on June 30, 1995.................. 563,945
Costs and expenses of acquisition................ 461,368
Liabilities assumed.............................. 1,738,238
----------
Total purchase price................... $9,981,337
==========
Current assets................................... $ 457,263
Equipment, furniture and fixtures and leasehold
improvements................................... 308,464
Intangible assets................................ 750,000
In-process research and development.............. 8,465,610
----------
$9,981,337
==========
</TABLE>

The Company consolidated the IPI operation into TBC's in the first half of
1996. The Company believes that $643,750 of goodwill was impaired due to the
decision to cease operations at IPI and the sale of the QED business unit and
has charged it to expense in the year ended December 31, 1995. The restructuring
costs associated with the consolidation of the IPI operation were approximately
$421,000 and were expensed in 1996. These costs included waste disposal, future
lease commitments, severance pay and related taxes.

(14) ASSET SALE

On October 2, 1995, IPI sold the assets of a division, QED, which
manufactures and sells monoclonal antibodies. The buyer was QED Bioscience,
Inc., a California corporation ("QEDB"), owned by Dr. Edward T. Maggio, an
officer of QEDB, two former IPI employees and two other individuals. The Company
received $150,000 in cash, payment for certain prepaid items and inventory and
royalty payments of $30,000 to be paid at the rate of $10,000 per year. Five IPI
employees that were assigned to QED resigned and are now employed by QEDB. The
divestiture of the QED assets will have no material future impact on the
operations of the Company.

During the fourth quarter of 1996, the Company concluded an agreement with
Structural BioInformatics, Inc. ("SBI"), wherein the Company received 468,334
shares of common stock of SBI in exchange for certain

F-24
<PAGE> 73

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

assets and use of a portion of facilities and equipment. The common stock was
valued at $59,591 which is comprised of $25,997 in net book value of assets
given up and $33,594 representing the value of facilities and equipment use
provided. Pursuant to the agreement, the Company has the right to certain
databases developed by SBI. Dr. Maggio is an officer of SBI.

(15) SUBSEQUENT EVENTS

In connection with TBC's development and commercialization of NOVASTAN(R),
in August 1997, TBC entered into a Product Development, License and CoPromotion
Agreement with SmithKline Beecham plc (the "SmithKline Agreement") whereby
SmithKline was granted exclusive rights to work with TBC in the development and
commercialization of NOVASTAN(R) in the U.S. and Canada for specified
indications. The SmithKline Agreement provides that SmithKline will pay $8.5
million in upfront license fees and up to $20 million in additional milestone
payments based on the clinical development and FDA approval of NOVASTAN(R) for
the HIT/HITTS and AMI indications. SmithKline has also agreed to provide 60% of
the funding for clinical trials for the HIT/HITTS and AMI indications. The
parties have also formed a joint development committee to analyze the
development of additional NOVASTAN(R) indications to be funded 60% by SmithKline
except for certain Phase IV trials which shall be funded entirely by SmithKline.
Pursuant to the Mitsubishi Agreement, TBC and SmithKline must make a
determination as to their desire to pursue the stroke indication by December
1998. SmithKline has the exclusive right to commercialize all products arising
out of the collaboration, subject to the obligation to pay royalties on net
sales to TBC and to the rights of TBC to copromote these products through its
own sales force in certain circumstances. TBC will retain the rights to any
indications which SmithKline determines it does not wish to pursue, subject to
the requirement that TBC must use its own sales force to commercialize any such
indications. Any indications which TBC elects not to pursue will be returned to
Mitsubishi. In conjunction with the SmithKline Agreement, a consulting firm
involved in negotiations related to the agreement will receive a percentage of
all consideration received by TBC as a result of the agreement.

At present, Mitsubishi is the only manufacturer of NOVASTAN(R), and has
entered into the Mitsubishi Supply Agreement with SmithKline to supply
NOVASTAN(R) in bulk in order to meet SmithKline's and TBC's needs under the
SmithKline Agreement. Should Mitsubishi fail during any consecutive nine-month
period to supply SmithKline at least 80% of its requirements, and such
requirements cannot be satisfied by existing inventories, the Mitsubishi Supply
Agreement provides for the nonexclusive transfer of the production technology to
SmithKline. If SmithKline cannot commence manufacturing of NOVASTAN(R) or
alternate sources of supply are unavailable or uneconomic, the Company's results
of operations would be materially and adversely affected.

The SmithKline Agreement generally terminates on a country by country basis
upon the earlier of the termination of TBC's rights under the Mitsubishi
Agreement, the expiration of applicable patent rights or, in the case of royalty
payments, the commencement of substantial third-party competition. SmithKline
also has the right to terminate the agreement on a country by country basis by
giving TBC at least three months written notice at any time before SmithKline
first markets products in that country based on a reasonable determination by
SmithKline that the commercial profile of the product in question would not
justify continued development in that country. SmithKline has similar rights to
terminate the SmithKline Agreement on a country by country basis after marketing
has commenced. In addition, either party may terminate the SmithKline Agreement
on 60 days notice if the other party defaults in its obligations under the
agreement, declares bankruptcy or is insolvent.

In connection with the execution of the SmithKline Agreement, an affiliate
of SmithKline purchased 176,992 shares of TBC's Common Stock for $1.0 million
and agreed to purchase, at TBC's option, an additional $2.0 million in Common
Stock anytime before August 5th, 1998, based on the average trading price

F-25
<PAGE> 74

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

for the Common Stock for the period beginning 10 days before and ending on the
9th day after TBC's exercise of the option. TBC granted limited piggyback
registration rights regarding these shares which expire when the shares may be
sold pursuant to Rule 144(k) under the Securities Act. SmithKline and TBC
subsequently have agreed that TBC's option to require SmithKline to purchase
$2.0 million in Common Stock will be terminated upon SmithKline's purchase of
$2.0 million of Common Stock in a public offering by the Company.

F-26
<PAGE> 75

GRAPHICS

The graphic depicts an anatomical view of a human body highlighting
the areas effected by the indications of the Company's endothlin receptor
antagonist compounds including: (i) the brain -- subarachnoid hemorrhage; (ii)
the heart -- congestive heart failure (the only indication currently in clinical
trials); (iii) the kidneys -- renal failure; (iv) the peripheral circulation --
hypertension; and (v) the lungs -- pulmonary hypertension.
<PAGE> 76
===============================================================================
No dealer, sales person or any other person has been authorized to give any
information or to make any representations not contained in this Prospectus,
and, if given or made, such other information and representations must not be
relied upon as having been authorized by the Company or the Underwriters. This
Prospectus does not constitute an offer of any securities other than those to
which it relates or an offer to sell, or a solicitation of an offer to buy, to
any person in any jurisdiction where such an offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that the information
contained herein is correct as of any time subsequent to the date hereof.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................... 3
Incorporation of Certain Documents by
Reference.............................. 3
Prospectus Summary....................... 4
Risk Factors............................. 8
Use of Proceeds.......................... 15
Price Range of Common Stock.............. 16
Dividend Policy.......................... 16
Capitalization........................... 17
Dilution................................. 18
Selected Financial Data.................. 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 20
Business................................. 24
Management............................... 42
Principal Stockholders................... 45
Underwriting............................. 46
Legal Matters............................ 47
Experts.................................. 47
Index to Consolidated Financial
Statements............................. F-1
</TABLE>
===============================================================================

===============================================================================

5,000,000 SHARES

[TEXAS BIOTECHNOLOGY CORPORATION LOGO]

TEXAS BIOTECHNOLOGY CORPORATION

COMMON STOCK

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

PROSPECTUS
, 1997

---------------------------
LEHMAN BROTHERS

PAINEWEBBER INCORPORATED

===============================================================================
<PAGE> 77

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The Registrant estimates that expenses in connection with the offering
described in this Registration Statement will be as follows:

<TABLE>
<S> <C>
Commission registration fee................................. $ 9,910
National Association of Securities Dealers, Inc. fee........ 3,344
AMEX listing fees........................................... 17,500
Legal fees and expenses..................................... 150,000
Accounting fees and expenses................................ 50,000
Printing expenses........................................... 100,000
Blue sky fees and expenses (including legal fees)........... 10,000
Transfer agent and registrar fees and expenses.............. 5,000
Miscellaneous............................................... 4,246
--------
Total............................................. $350,000
========
</TABLE>

All such expenses are estimated except for the Commission registration fee,
the National Association of Securities Dealers, Inc. fee and the AMEX listing
fee.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the DGCL permits a corporation to indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action.

In an action brought to obtain a judgment in the corporation's favor,
whether by the corporation itself or derivatively by a stockholder, the
corporation may only indemnify for expenses, including attorney's fees, actually
and reasonably incurred in connection with the defense or settlement of such
action, and the corporation may not indemnify for amounts paid in satisfaction
of a judgment or in settlement of the claim. In any such action, no
indemnification may be paid in respect of any claim, issue or matter as to which
such person shall have been adjudged liable to the corporation except as
otherwise approved by the Delaware Court of Chancery or the court in which the
claim was brought. In any other type of proceeding, the indemnification may
extend to judgments, fines and amounts paid in settlement, actually and
reasonably incurred in connection with such other proceeding, as well as to
expenses (including attorneys' fees).

The statute does not permit indemnification unless the person seeking
indemnification has acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the corporation and, in the
case of criminal actions or proceedings, the person had no reasonable cause to
believe his conduct was unlawful. There are additional limitations applicable to
criminal actions and to actions brought by or in the name of the corporation.
The determination as to whether a person seeking indemnification has met the
required standard of conduct is to be made (i) by a majority vote of a quorum of
disinterested members of the board of directors, (ii) by independent legal
counsel in a written opinion, if such a quorum does not exist or if the
disinterested directors so direct, or (iii) by the stockholders.

As permitted by the DGCL, the Company's Bylaws provide that it will
indemnify the directors, officers, employees and agents of the Company against
certain liabilities that they may incur in their capacities as directors,
officers, employees and agents. Furthermore, the Company's Certificate of
Incorporation, as

II-1
<PAGE> 78
amended, indemnifies the directors, officers, employees, and agents of the
Company to the maximum extent permitted by the DGCL. The Company has also
entered into Indemnification Agreements with its officers and directors
providing for indemnification to the maximum extent permitted under the DGCL.
The Company has director and officer liability insurance policies that provide
coverage of up to $5.0 million except that no current coverage is provided for
any liabilities arising from the existing lawsuits. The existing lawsuits are
covered under prior policies.

ITEM 16. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
1.1+ -- Form of Underwriting Agreement
2.1* -- Plan and Agreement of Merger, dated June 17, 1994, among
the Company, TBC Acquisition Company No. 1 and certain
major shareholders of ImmunoPharmaceutics, Inc.
(Incorporated by reference to Exhibit A to the Company's
Form 8-K (File No. 0-20117) filed with the Commission on
October 5, 1994, as amended.)
4.1 -- Article Fourth and Ninth of the Certificate of
Incorporation, as amended (Incorporated by reference to
Exhibit 3.1 to the Company's Form 10 (File No. 0-20117)
effective June 26, 1992, as amended.)
4.2 -- Article Fourth of the Amendment to the Certificate of
Incorporation dated November 30, 1993 (Incorporated by
reference to Exhibit 3.4 to the Company's Form 10-Q (File
No. 0-20117) filed with the Commission on November 14,
1994.)
4.3 -- Article Fourth of the Amendment to the Certificate of
Incorporation dated May 20, 1994 (Incorporated by
reference to Exhibit 3.5 to the Company's Form 10-Q (File
No. 0-20117) filed with the Commission on November 14,
1994.)
4.4 -- Article Fourth of the Certificate of Amendment of
Certificate of Incorporation (Incorporated by reference
to Exhibit 3.6 to the Company's Form 10-Q (File No.
1-12574) for the quarter ended June 30, 1996.)
4.5 -- Article II of the Amended and Restated By-laws
(Incorporated by reference to Exhibit 3.7 to the
Company's Form 10-Q (File No. 1-12574) for the quarter
ended September 30, 1996.)
5+ -- Opinion of Porter & Hedges, L.L.P. with respect to
legality of the securities, including consent.
23.1 -- Consent of KPMG Peat Marwick LLP
23.2+ -- Consent of Porter & Hedges, L.L.P. (included in Exhibit
5)
23.3 -- Consent of Dressler, Rockey, Milnamow & Katz, Ltd.
24++ -- Power of Attorney
27.1 -- Financial Data Schedule for 1996 (Incorporated by
reference to Exhibit 27 to the Company's Form 10-K for
the year ended December 31, 1996.)
27.2 -- Financial Data Schedule for the six months ended June 30,
1997 (Incorporated by reference to Exhibit 27 to the
Company's Form 10-Q for the quarter period ended June 30,
1997.)
</TABLE>

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

+ To be filed by amendment.

++ Previously filed.

* The Company has omitted certain portions of this agreement in reliance on
Rule 24b-2 under the Securities and Exchange Act of 1934, as amended.

II-2
<PAGE> 79

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to section 15(d) of the Exchange Act) that is incorporated by
reference in the Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.

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 a registration statement in reliance
upon Rule 430A and contained in the form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of the registration statement as of the time it was declared
effective; and (2) for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

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

II-3
<PAGE> 80

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused Amendment No. 1 to this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston and State of Texas on the 3rd day of
September, 1997.

TEXAS BIOTECHNOLOGY CORPORATION

By: /s/ DAVID B. MCWILLIAMS
----------------------------------
David B. McWilliams
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act, Amendment No. 1 to this
Registration Statement has been signed below by the following persons and in the
capacities indicated on the 3rd day of September, 1997.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <C>
* Director, Chairman of the Board of Directors
- -----------------------------------------------------
John M. Pietruski

/s/ DAVID B. MCWILLIAMS Director, President and Chief Executive
- ----------------------------------------------------- Officer
David B. McWilliams (Principal Executive Officer)

* Director, Vice President of Research
- -----------------------------------------------------
Richard A.F. Dixon, Ph.D.

* Vice President of Administration
- ----------------------------------------------------- Secretary and Treasurer
Stephen L. Mueller (Principal Financial and Accounting Officer)

* Director and Chairman of the
- ----------------------------------------------------- Scientific Advisory Board
James T. Willerson, M.D.

* Director
- -----------------------------------------------------
Frank C. Carlucci

* Director
- -----------------------------------------------------
Rita R. Colwell, Ph.D., D.Sc.

* Director
- -----------------------------------------------------
Robert J. Cruikshank

* Director
- -----------------------------------------------------
James A. Thomson, Ph.D.

*By: /s/ STEPHEN L. MUELLER
------------------------------------------------
Individually and as attorney in fact
</TABLE>

II-4
<PAGE> 81
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>

1.1+ -- Form of Underwriting Agreement
2.1* -- Plan and Agreement of Merger, dated June 17, 1994, among
the Company, TBC Acquisition Company No. 1 and certain
major shareholders of ImmunoPharmaceutics, Inc.
(Incorporated by reference to Exhibit A to the Company's
Form 8-K (File No. 0-20117) filed with the Commission on
October 5, 1994, as amended.)
4.1 -- Article Fourth and Ninth of the Certificate of
Incorporation, as amended (Incorporated by reference to
Exhibit 3.1 to the Company's Form 10 (File No. 0-20117)
effective June 26, 1992, as amended.)
4.2 -- Article Fourth of the Amendment to the Certificate of
Incorporation dated November 30, 1993 (Incorporated by
reference to Exhibit 3.4 to the Company's Form 10-Q (File
No. 0-20117) filed with the Commission on November 14,
1994.)
4.3 -- Article Fourth of the Amendment to the Certificate of
Incorporation dated May 20, 1994 (Incorporated by
reference to Exhibit 3.5 to the Company's Form 10-Q (File
No. 0-20117) filed with the Commission on November 14,
1994.)
4.4 -- Article Fourth of the Certificate of Amendment of
Certificate of Incorporation (Incorporated by reference
to Exhibit 3.6 to the Company's Form 10-Q (File No.
1-12574) for the quarter ended June 30, 1996.)
4.5 -- Article II of the Amended and Restated By-laws
(Incorporated by reference to Exhibit 3.7 to the
Company's Form 10-Q (File No. 1-12574) for the quarter
ended September 30, 1996.)
5+ -- Opinion of Porter & Hedges, L.L.P. with respect to
legality of the securities, including consent.
23.1 -- Consent of KPMG Peat Marwick LLP
23.2+ -- Consent of Porter & Hedges, L.L.P. (included in Exhibit
5)
23.3 -- Consent of Dressler, Rockey, Milnamow & Katz, Ltd.
24++ -- Power of Attorney
27.1 -- Financial Data Schedule for 1996 (Incorporated by
reference to Exhibit 27 to the Company's Form 10-K for
the year ended December 31, 1996.)
27.2 -- Financial Data Schedule for the six months ended June 30,
1997 (Incorporated by reference to Exhibit 27 to the
Company's Form 10-Q for the quarter period ended June 30,
1997.)
</TABLE>

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

+ To be filed by amendment.

++ Previously filed.

* The Company has omitted certain portions of this agreement in reliance on
Rule 24b-2 under the Securities and Exchange Act of 1934, as amended.

<PAGE> 1
EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

The Board of Directors
Texas Biotechnology Corporation:

We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.

/s/ KPMG PEAT MARWICK LLP
---------------------
KPMG PEAT MARWICK LLP

Houston, Texas
August 29, 1997

<PAGE> 1

EXHIBIT 23.3

CONSENT OF DRESSLER, ROCKEY, MILNAMOW & KATZ, LTD.

As patent counsel for Texas Biotechnology Corporation, we hereby
consent to the reference to our firm under the heading "Experts" in the
Prospectus, which is a part of this Registration Statement of Texas
Biotechnology Corporation on Form S-3.

/s/ MARTIN L. KATZ
--------------------------------
Martin L. Katz
Dressler, Rockey,
Milnamow & Katz, LTD

Chicago, Illinois
September 2, 1997