TEXAS BIOTECHNOLOGY CORP /DE/, S-3/A, 2000-03-17

TEXAS BIOTECHNOLOGY CORP /DE/
S-3/A, 2000-03-17
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 2000

REGISTRATION NO. 333-31932
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO

FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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TEXAS BIOTECHNOLOGY CORPORATION
(Exact name of Registrant as Specified in its Charter)

<TABLE>
<S> <C>
DELAWARE 13-3532643
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
</TABLE>

<TABLE>
<S> <C>
7000 FANNIN, 20TH FLOOR DAVID B. MCWILLIAMS
HOUSTON, TEXAS 77030 PRESIDENT AND CHIEF EXECUTIVE OFFICER
(713) 796-8822 7000 FANNIN, 20TH FLOOR
(Address, Including Zip Code, and HOUSTON, TEXAS 77030
Telephone Number, Including Area Code, (713) 796-8822
of Registrant's Principal Executive Offices) (Name, Address, Including Zip Code and
Telephone Number, Including Area Code,
of Agent for Service)
</TABLE>

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COPIES TO:

<TABLE>
<S> <C>
ROBERT G. REEDY, ESQ. JI HOON HONG, ESQ.
PORTER & HEDGES, LLP SHEARMAN & STERLING
700 LOUISIANA, 35TH FLOOR 599 LEXINGTON AVENUE
HOUSTON, TEXAS 77002 NEW YORK, NEW YORK 10022
TELEPHONE: (713) 226-0674 TELEPHONE: (212) 848-4000
TELECOPY: (713) 226-0274 TELECOPY: (212) 848-7179
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
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, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

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

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

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THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS
NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE
OFFER OF SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED MARCH 17, 2000

5,000,000 SHARES

[LOGO] TEXAS BIOTECHNOLOGY CORPORATION

COMMON STOCK

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We are offering shares of common stock in this offering.

Our common stock is quoted on the American Stock Exchange under the symbol
"TXB." The last reported sale price of our common stock on March 14, 2000 was
$17.00 per share.

INVESTING IN OUR COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 7 OF THIS PROSPECTUS.

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<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discount....................................... $ $
Proceeds, before expenses, to Texas Biotechnology
Corporation............................................... $ $
</TABLE>

The underwriters may also purchase up to an additional 750,000 shares at
the public offering price from us and the selling stockholders, less the
underwriting discount, within 30 days from the date of the prospectus to cover
over-allotments.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

PAINEWEBBER INCORPORATED
PRUDENTIAL VECTOR HEALTHCARE
A UNIT OF PRUDENTIAL SECURITIES
FIRST UNION SECURITIES, INC.
SANDERS MORRIS HARRIS
THE DATE OF THIS PROSPECTUS IS , 2000.
<PAGE> 3

[THERAPEUTIC PROGRAMS AND PRODUCTS IN DEVELOPMENT TABLE HERE]

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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."

TEXAS BIOTECHNOLOGY CORPORATION

Texas Biotechnology is a biopharmaceutical company focused on the
discovery, development and commercialization of novel synthetic small molecule
compounds for the treatment of a variety of vascular diseases, including
heparin-induced thrombocytopenia (decrease in platelet count), commonly referred
to as HIT, pulmonary hypertension, hypertension and heart failure. We are also
developing compounds to treat inflammatory diseases such as asthma and
psoriasis. Our research and development programs are focused on inhibitors,
commonly referred to as antagonists or blockers, that can interrupt or prevent
thrombosis (blood clots), vasospasm (narrowing of blood vessels), hypertension
(high blood pressure), inflammation, apoptosis (programmed cell death) and
inappropriate angiogenesis (tumor-related vascular growth). Our expertise in
vascular biology and the development of small molecule drugs has produced a deep
product pipeline, including one compound, NOVASTAN(R), which recently received
an approvable letter from the U.S. Food and Drug Administration, commonly
referred to as the FDA, two compounds in Phase II clinical trials and several
preclinical compounds.

RECENT EVENTS

WE RECEIVED AN FDA APPROVABLE LETTER FOR NOVASTAN(R)

On February 18, 2000, we received an approvable letter from the FDA for our
lead product NOVASTAN(R) (argatroban) as an anticoagulant for prevention or
treatment of thrombosis in patients with HIT and HIT with thrombosis syndrome
(HIT with blood clots), or HITTS. We refer to both HIT and HITTS as HIT. The
approvable letter specifies certain conditions, typically required by the FDA to
gain final approval, which include final language for the product label and
commitments for Phase IV studies. We believe we will satisfy FDA requirements
for securing the final approval for NOVASTAN(R) some time in the second quarter
of 2000. In addition, we have filed a Canadian New Drug Submission seeking
approval for NOVASTAN(R) as a treatment for HIT. The Therapeutic Products
Program, the Canadian equivalent of the FDA, classified this submission as a
priority review, and we expect notice in the third quarter of 2000.

NOVASTAN(R) is targeted at patients who have adverse immune reactions to
heparin, the most widely used injectable anticoagulant. Over 10 million patients
receive heparin in the U.S. annually. Over 300,000 patients treated with heparin
develop HIT each year, which can lead to the formation of potentially life
threatening blood clots. NOVASTAN(R) does not promote the adverse immune
response that characterizes HIT. Over 100,000 patients have been treated with
NOVASTAN(R) in Japan since 1990 for ischemic (blood-clot related) stroke,
peripheral arterial occlusion and hemodialysis in patients with antithrombin III
deficiency (who do not respond to heparin).

WE ARE PREPARING FOR THE COMMERCIALIZATION OF NOVASTAN(R)

We expect the commercial launch of NOVASTAN(R) to occur in the second half
of 2000 following formal FDA approval. We are working with our U.S./Canadian
partner, SmithKline Beecham plc to prepare for the marketing, manufacturing and
distribution of NOVASTAN(R). SmithKline has made upfront cash payments,
milestone payments, and equity investments of $16.5 million, and may make
additional milestone payments. SmithKline will also pay us royalties based on
sales of NOVASTAN(R). We

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have retained the right to co-promote NOVASTAN(R) in the U.S. and Canada for
indications other than HIT on a profit sharing basis.

WE ARE PREPARING A SUPPLEMENTAL NDA FOR NOVASTAN(R) FOR USE IN HIT PATIENTS
UNDERGOING ANGIOPLASTY

We are preparing a supplemental new drug application for submission to the
FDA during 2000 for NOVASTAN(R)'s use in HIT patients undergoing angioplasty. We
expect FDA notification within twelve months after submission of this
application. Additionally, we are considering developing NOVASTAN(R) for other
indications, including some of those for which the drug has been licensed in
Japan.

OUR PRODUCT PIPELINE

SITAXSENTAN FOR THE POTENTIAL TREATMENT OF HYPERTENSION AND HEART FAILURE

Sitaxsentan is our lead compound for the treatment of vasospasm (the
constriction of blood flow through blood vessels), a cause of hypertension and
congestive heart failure. Sitaxsentan is a synthetic small molecule receptor
antagonist that selectively blocks endothelin(A), or ET(A), receptors that are
believed to be associated with vasospasm. To date we have completed two Phase II
open label clinical trials for sitaxsentan. We are currently conducting a Phase
IIA open label clinical trial of sitaxsentan as a treatment for pulmonary
hypertension. We expect to complete this trial during the third quarter of 2000
and to begin Phase IIB/III clinical trials by the first quarter of 2001.

We have a strategic alliance with LG Chemical, Ltd., a member of one of
Korea's largest conglomerates, to develop and market sitaxsentan and our second
endothelin antagonist compound TBC3711, in Korea, China, India and certain other
Asian countries, excluding Japan. We are also actively seeking a
pharmaceutical/biotechnology partner with which to collaborate on our endothelin
receptor antagonist program in the rest of the world. Human trials for TBC3711
are expected to commence in the second half of 2000.

TBC1269 FOR THE POTENTIAL TREATMENT OF ASTHMA AND PSORIASIS

TBC1269 is our lead compound for the treatment of inflammatory diseases.
TBC1269 is a synthetic small molecule compound that inhibits selectin-mediated
cellular adhesion that occurs during inflammation. TBC1269 has shown efficacy
both in cell-based and biochemical assays, and in animal models of inflammation.
We completed a Phase II clinical trial involving TBC1269's intravenous use in
asthma in 1998. Results of this trial, which involved 21 patients, were
positive, and we believe justify further development of the compound. Inhaled
and topical versions of the drug are in the preclinical stage for asthma and
psoriasis, respectively.

RESEARCH AND PRECLINICAL PROGRAMS

We have several products and drug development programs in the preclinical
or research stage. In the area of vasospasm, our compound TBC3711 is in
preclinical development for the prevention of congestive heart failure and
hypertension, and TBC3214 is in preclinical development for the treatment of
cancer. As noted above, in our vascular inflammation program we are developing
inhaled and topical forms of TBC1269 for use in asthma and psoriasis,
respectively. We are also researching vascular cell adhesion molecules, or VCAM,
and very late stage antigen 4, or VLA-4, a member of the integrin family,
antagonists for the treatment of asthma and rheumatoid arthritis. We also have
programs focused on blocking the activities of chemokine receptors, such as CCR1
and CCR3, and other integrins, such as (alpha)4(beta)7, for the treatment of
asthma, multiple sclerosis and inflammatory bowel disease.

In disease states promoted by improper apoptosis, we are researching
TBC4521, a caspase inhibitor for the treatment of acute myocardial infarction
and ischemic stroke. We are working with a receptor for age-dependent glycation
end-products, or RAGE antagonist, to prevent certain complications of diabetes.
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We are also researching a tumor necrosis factor (alpha)(TNF(alpha)) antagonist
for the treatment of rheumatoid arthritis.

We have two other programs in the research stage involving inappropriate
angiogenesis and vascular proliferative disease. TBC2576 is a vascular
endothelial growth factor, or VEGF, antagonist for the treatment of some
cancerous tumors and diabetic retinopathy -- a leading cause of blindness. This
compound is meant to halt the formation of new blood vessels that permits the
progression of these diseases. Our compound TBC1635 is a research stage
fibroblast growth factor, or FGF, antagonist for use in treating
post-angioplasty coronary restenosis.

BUSINESS STRATEGY

Our strategy is to identify proprietary, value-added product candidates for
targeted indications, and to commercialize selectively those candidates through
collaborations with other pharmaceutical and biotechnology companies. When and
if appropriate, we intend to co-promote the developed compounds.

Our research efforts are predominantly focused on one area, the endothelium
(inside lining) of the vasculature (blood vessels). Diseases of the vascular
endothelium involve substantial rates of mortality and morbidity. As a result,
our indications are generally suitable for fast track FDA approval and involve
substantial markets. We also focus on small molecule drugs that, when
appropriate, can be administered orally, on an outpatient basis, and are
cost-effective to manufacture.

Our executive offices are located at 7000 Fannin Street, 20th Floor,
Houston, Texas 77030. Our telephone number is 713-796-8822.

THE OFFERING

Common stock offered by
Texas Biotechnology
Corporation.............. 5,000,000 shares

Common stock to be
outstanding after this
offering................. 39,392,909 shares

Use of proceeds............ To fund further clinical development of our product
candidates, further development of NOVASTAN(R),
continued research and development and general
corporate purposes. See "Use of Proceeds."

American Stock Exchange
symbol................... TXB
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The number of shares of our common stock that will be outstanding after this
offering is based on 34,392,909 shares outstanding on December 31, 1999. This
number does not include:

- 3,224,219 shares issuable upon exercise of options outstanding under our
employee stock option plans, of which 2,282,057 are currently exercisable
at an average exercise price of $4.12 per share;

- 3,995,394 shares issuable upon exercise of outstanding public warrants
with an exercise price of $8.44 per share;

- 765,578 shares issuable upon exercise of other outstanding warrants with
exercise prices ranging from $3.05 to $14.00 per share; and

- 71,429 shares which are issuable to Genentech, Inc. upon final approval
by the FDA of a new drug application relating to NOVASTAN(R).

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

The following summary financial data should be read together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and related notes included elsewhere in
this prospectus.

The following table is a summary of our balance sheet at December 31, 1999.
The as adjusted data give effect to the estimated net proceeds from the sale of
5,000,000 shares of common stock in this offering at an assumed offering price
of $17.00 per share after deducting the estimated underwriting discounts and
commissions and estimated offering expenses.

<TABLE>
<CAPTION>
DECEMBER 31, 1999
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ACTUAL AS ADJUSTED
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<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term and long-term
investments............................................... $15,170 $ 94,714
Working capital............................................. 14,477 94,021
Total assets................................................ 20,805 100,349
Stockholders' equity........................................ 18,590 98,134
</TABLE>

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RISK FACTORS

This offering involves a high degree of risk. You should consider carefully
the risks and uncertainties described below and the other information in this
prospectus, including our financial statements and related notes, before
deciding to invest in shares of our common stock. If any of the following risks
or uncertainties actually occurs, our business, financial condition and
operating results would likely suffer. In that event, the market price of our
common stock could decline and you could lose all or part of the money you paid
to buy our common stock.

RISKS RELATED TO OUR BUSINESS, INDUSTRY AND STRATEGY

THERE IS UNCERTAINTY IN THE DEVELOPMENT OF OUR PRODUCTS AND IF WE DO NOT
SUCCESSFULLY COMMERCIALIZE OUR PRODUCTS, WE WILL NOT BE PROFITABLE.

We have not produced or marketed any products and, accordingly, have not
begun to generate revenues from the commercialization of our product candidates.
To date, our resources have been dedicated to the research and development of
NOVASTAN(R) and other small molecule drugs for certain vascular and related
inflammatory diseases. We have developed lead compounds in our vasospasm/
hypertension and vascular inflammation programs. The commercial applications of
our product candidates will require further investment, research, development,
preclinical and clinical testing and regulatory approvals, both foreign and
domestic. We cannot assure you that we will be able to develop, produce at
reasonable cost, or market successfully, any of our product candidates. Further,
these product candidates may require complex delivery systems that may prevent
or limit their commercial use. All of our products will require regulatory
approval before they may be commercialized. Products, if any, resulting from our
research and development programs other than NOVASTAN(R), are not expected to be
commercially available for a number of years, and we cannot assure you that any
successfully developed products will generate substantial revenues or that we
will ever be profitable.

WE FACE SUBSTANTIAL COMPETITION THAT MAY RESULT IN OTHERS DEVELOPING AND
COMMERCIALIZING PRODUCTS MORE SUCCESSFULLY THAN WE DO.

The biopharmaceutical industry is highly competitive. Our success will
depend on our ability to develop products and apply technology and to establish
and maintain a market for our 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 our
competitors have substantially greater research and development capabilities and
experience and greater manufacturing, marketing and financial resources than we
do. Accordingly, our competitors may develop products or other novel
technologies that are more effective, safer or less costly than any that have
been or are being developed by us or may obtain FDA approval for products more
rapidly than we are able.

We expect significant competition for NOVASTAN(R) for the treatment of HIT.
The products that compete with NOVASTAN(R) include:

- Refludan(R), which was approved by the FDA in 1997 for the treatment of
HITTS; and

- Orgaran(R), which is a low molecular weight heparinoid that has been
approved for the treatment of deep vein thrombosis, but is being used off-label
for the treatment of HIT.

We may also face competition for NOVASTAN(R) in indications other than HIT,
when and if such indications are approved by the FDA, including:

- Revasc(R), which is used in the treatment of deep vein thrombosis
following hip surgery and has received regulatory approval in Europe;

- Angiomax(R), which is being developed as an anticoagulant and is in Phase
III trials; and

- Melagatran, which is being developed as a treatment for deep vein
thrombosis and is in Phase II trials.

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We cannot assure you that technological development by others will not render
our products or product candidates uncompetitive or that we will be successful
in establishing or maintaining technological competitiveness.

WE ARE DEPENDENT ON SMITHKLINE, MITSUBISHI AND OTHER THIRD PARTIES TO FUND,
MARKET AND DEVELOP OUR PRODUCTS, INCLUDING NOVASTAN(R).

We rely on strategic relationships with our corporate partners to provide
the financing, marketing and technical support and, in certain cases, the
technology necessary to develop and commercialize certain of our product
candidates. We have entered into an agreement with Mitsubishi to license rights
and technology relating to NOVASTAN(R) in the U.S. and Canada for specified
therapeutic 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 becomes insolvent, or if a substantial portion
of its property is subject to levy. Unless terminated sooner due to the above
described termination provisions, the agreement with Mitsubishi expires on the
later of the termination of patent rights in a particular country or 20 years
after the first commercial sale of products in a particular country.

We also entered into an agreement with SmithKline in 1997 whereby we
granted an exclusive sublicense to SmithKline relating to the continued
development and commercialization of NOVASTAN(R). This agreement provides for
the payment of royalties and certain milestone payments upon the completion of
various regulatory filings and receipt of regulatory approvals. The agreement
generally terminates on a country by country basis upon the earlier of the
termination of our rights under the agreement with Mitsubishi, the expiration of
applicable patent rights, or in the case of certain royalty payments, the
introduction of a substantial competitor for NOVASTAN(R) by another
pharmaceutical company. SmithKline also has the right to terminate the agreement
on a country by country basis by giving us at least three months written notice
based on a reasonable determination by SmithKline that the commercial profile of
the therapeutic indication in question would not justify continued development
or marketing in that country. In addition, either we or SmithKline may terminate
our agreement on 60 days notice if the other party defaults in its obligations
under the agreement, declares bankruptcy or becomes insolvent.

Our strategic alliance with LG Chemical, which was signed in 1996 to
develop and market compounds derived from our endothelin receptor and selectin
antagonist programs, provides us with research and development funds. This
alliance gives LG Chemical commercialization rights on some of our products in
Korea, China, India and certain other Asian countries, excluding Japan. LG
Chemical has the right to terminate future research payments if we fail to meet
milestones that were established by the parties, in accordance with the
agreement, on an ongoing basis.

Our success will depend on these and any future strategic alliances. There
can be no assurance that we will satisfy the conditions required to obtain
additional research or milestone payments under the existing agreements or that
we can prevent the termination of these agreements. We cannot assure you that we
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 our ability to develop our
technology and may have a material adverse effect on our business or financial
condition.

RISKS RELATING TO CLINICAL AND REGULATORY MATTERS

THE REGULATORY APPROVAL PROCESS IS COSTLY AND LENGTHY AND WE MAY NOT BE ABLE
TO SUCCESSFULLY OBTAIN ALL REQUIRED REGULATORY APPROVALS.

The preclinical development, clinical trials, manufacturing, marketing and
labeling of pharmaceuticals are all subject to extensive regulation by numerous
governmental authorities and agencies in the U.S. and other countries. We must
obtain regulatory approval for each of our product candidates before marketing
or selling any of them. It is not possible to predict how long the approval
processes of the FDA or any other applicable federal, state or foreign
regulatory authority or agency for any of our products will take or whether any
such approvals ultimately will be granted. Positive results in preclinical
testing and/or early

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phases of clinical studies offer no assurance of success in later phases of the
approval process. Generally, preclinical and clinical testing of products can
take many years, and require the expenditure of substantial resources, and the
data obtained from these tests and trials can be susceptible to varying
interpretation that could delay, limit or prevent regulatory approval. Any delay
in obtaining, or failure to obtain, approvals could adversely affect the
marketing of our products and our ability to generate product revenue.

The risks associated with the approval process include:

- delays or rejections in the regulatory approval process based on the
failure of clinical or other data to meet expectations, or the failure of
the product to meet a regulatory agency's requirements for safety,
efficacy and quality; and

- regulatory approval, if obtained, may significantly limit the indicated
uses for which a product may be marketed.

OUR CLINICAL TRIALS COULD TAKE LONGER TO COMPLETE AND COST MORE THAN WE
EXPECT, WHICH MAY RESULT IN OUR DEVELOPMENT PLANS BEING SIGNIFICANTLY DELAYED.

We will need to conduct clinical studies of all of our product candidates.
These studies are costly, time consuming and unpredictable. Any unanticipated
costs or delays in our clinical studies could cause us to expend substantial
additional funds or to delay or modify our plans significantly, which would harm
our business, financial condition and results of operations. The factors that
could contribute to such cost, delays or modifications include:

- the cost of conducting human clinical trials for any potential product.
These costs can vary dramatically based on a number of factors, including
the order and timing of clinical indications pursued and the development
and financial support from corporate partners; and

- intense competition in the pharmaceutical market, which may make it
difficult for us to obtain sufficient patient populations or clinician
support to conduct our clinical trials as planned.

EVEN IF WE OBTAIN MARKETING APPROVAL, OUR PRODUCTS WILL BE SUBJECT TO ONGOING
REGULATORY OVERSIGHT WHICH MAY AFFECT THE SUCCESS OF OUR PRODUCTS.

Any regulatory approvals that we receive for a product may be subject to
limitations on the indicated uses for which the product may be marketed or
contain requirements for potentially costly post-marketing follow-up Phase IV
studies. After we obtain marketing approval for any product, the manufacturer
and the manufacturing facilities for that product will be subject to continual
review and periodic inspections by the FDA and other regulatory authorities. The
subsequent discovery of previously unknown problems with the product or with the
manufacturer or facility, may result in restrictions on the product or
manufacturer, including withdrawal of the product from the market.

If we fail to comply with applicable regulatory requirements, we may be
subject to fines, suspension or withdrawal of regulatory approvals, product
recalls, seizure of products, operating restrictions and criminal prosecution.

RISKS RELATING TO FINANCING OUR BUSINESS

WE HAVE A HISTORY OF OPERATING LOSSES AND AN ACCUMULATED DEFICIT, AND WE MAY
NOT BE SUCCESSFUL IN RAISING ADDITIONAL FUNDS IN THE FUTURE.

We have been unprofitable to date and expect to incur operating losses for
the next several years as we invest in product research and development,
preclinical and clinical testing and regulatory compliance. We will require
substantial additional funding to complete the research and development of our
product candidates, to establish commercial scale manufacturing facilities, if
necessary, and to market our products.

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We have accumulated approximately $99.9 million in net losses through December
31, 1999. Estimates of our future capital requirements will depend on many
factors, including:

- market acceptance and commercial success of NOVASTAN(R);

- continued scientific progress in our 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 and changes in our
existing research relationships;

- our ability to maintain and establish additional collaborative
arrangements;

- effective commercialization activities and arrangements; and

- the amount of proceeds, if any, that we receive upon the exercise of our
outstanding warrants.

Subject to these factors, we anticipate that the net proceeds from this
offering, together with our existing capital resources and other revenue
sources, should be sufficient to fund our cash requirements through the end of
2003 without considering the impact of revenues from NOVASTAN(R).
Notwithstanding revenues, which may be produced through sales of potential
future products if approved, we anticipate that we will need to secure
additional funds to continue the required levels of research and development to
reach our long-term goals. We intend to seek such additional funding through
collaborative arrangements and/or through public or private financings.

We cannot assure you 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, we may
be required to delay, scale back or eliminate one or more of our drug discovery
or development programs or obtain funds through arrangements with collaborative
partners or others that may require us to relinquish rights to certain of our
technologies, product candidates or products that we would not otherwise
relinquish.

WE MAY EXPERIENCE SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS.

We have historically experienced, and expect to continue to experience for
the foreseeable future, significant fluctuations in our quarterly operating
results. These fluctuations are due to a number of factors, many of which are
outside of our control, and may result in volatility of our stock price. Future
operating results will depend on many factors, including:

- demand for our products;

- regulatory approvals for our products;

- the timing of the introduction and market acceptance of new products by
us or competing companies; and

- the timing and magnitude of certain research and development expenses.

MANAGEMENT MAY INVEST OR SPEND THE PROCEEDS OF THIS OFFERING IN WAYS WITH
WHICH YOU MAY NOT AGREE AND IN WAYS THAT MAY NOT YIELD A RETURN.

We will retain broad discretion over the use of proceeds from this
offering. Stockholders may not deem such uses desirable, and our use of the
proceeds may not yield a significant return or any return at

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all. We intend to use a majority of the proceeds from this offering for research
and clinical development of our product candidates, further development of
NOVASTAN(R) and other general corporate purposes. Because of the number and
variability of factors that determine our use of the net proceeds from this
offering, we cannot assure you that these uses will not vary substantially from
our currently planned uses.

RISKS RELATED TO ONGOING OPERATIONS

WE ARE DEPENDENT ON QUALIFIED PERSONNEL.

Our success is highly dependent on our ability to attract and retain
qualified scientific and management personnel. The loss of the services of the
principal members of our management and scientific staff including David B.
McWilliams, our President and Chief Executive Officer, and Richard A.F. Dixon,
Ph.D., our Vice President of Research and Development, may impede our ability to
bring products to market. In order to commercialize products, we must maintain
and expand our personnel as needs arise in the areas of research, clinical trial
management, manufacturing, sales and marketing. We face intense competition for
such personnel from other companies, academic institutions, government entities
and other organizations. We cannot assure you that we will be successful in
hiring or retaining qualified personnel. Managing the integration of new
personnel and our growth in general could pose significant risks to our
development and progress.

We also rely on consultants and advisors to assist us in formulating our
research and development strategy. All our consultants and advisors are either
self-employed or employed by other organizations, and they may have other
commitments such as consulting or advisory contracts with other organizations
that may affect their ability to contribute to us.

THE HAZARDOUS MATERIAL WE USE IN OUR RESEARCH AND DEVELOPMENT COULD RESULT IN
SIGNIFICANT LIABILITIES, WHICH MAY EXCEED OUR INSURANCE COVERAGE.

Our research and development activities involve the use of hazardous
materials. While we believe that we are currently in substantial compliance with
federal, state and local laws and regulations governing the use of these
materials, accidental injury or contamination may occur. Any such accident or
contamination could result in substantial liabilities, which could exceed the
policy limits of our insurance coverage and financial resources. Additionally,
the cost of compliance with environmental and safety laws and regulations may
increase in the future.

WE MAY BE SUED FOR PRODUCT LIABILITY, WHICH MAY PREVENT OR INTERFERE WITH THE
DEVELOPMENT OR COMMERCIALIZATION OF OUR PRODUCTS.

Because our products and product candidates are new treatments, with
limited, if any, past use on humans, serious undesirable and unintended side
effects may arise. We may be subject to product liability claims that are
inherent in the testing, manufacturing, marketing and sale of pharmaceutical
products. These claims could expose us to significant liabilities that could
prevent or interfere with the development or commercialization of our products
and seriously impair our financial position. Product liability insurance is
generally expensive for biopharmaceutical companies such as ours. We maintain
product liability insurance coverage in the total amount of $2.0 million for
claims arising from the use of our products in clinical trials prior to FDA
approval. Under the agreements with Mitsubishi and SmithKline, we are obligated
to acquire additional coverage upon the commencement of sale of NOVASTAN(R). Our
existing coverage will not be adequate as we further develop products and start
to sell NOVASTAN(R). We cannot assure you that we will be able to maintain our
existing insurance coverage or obtain additional coverage on commercially
reasonable terms for liability arising from the use of our other products in the
future. Also, this insurance coverage and our resources may not be sufficient to
satisfy any liability resulting from product liability claims and a product
liability claim may have a material adverse effect on our business, financial
condition or results of operations.

11
<PAGE> 13

RISKS RELATING TO PRODUCT MANUFACTURING AND SALES

WE HAVE NO MANUFACTURING, MARKETING OR SALES EXPERIENCE.

We have no manufacturing, marketing or product sales experience. If we
develop any commercially marketable products, we cannot assure you that contract
manufacturing services will be available in sufficient capacity to supply our
product needs on a timely basis. If we decide to build or acquire commercial
scale manufacturing capabilities, we will require additional management and
technical personnel and additional capital.

If in the future, we decide to perform sales and marketing activities
ourselves, we would face a number of additional risks, including:

- we may not be able to attract and build a significant marketing or sales
force;

- the cost of establishing a marketing or sales force may not be
justifiable in light of product revenues; and

- our direct sales and marketing efforts may not be successful.

WE CANNOT ASSURE YOU THAT THE RAW MATERIALS NECESSARY FOR THE MANUFACTURE OF
OUR 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 our competitive position and potential profitability. We can give no
assurance that we will be able to enter into any other supply arrangements on
acceptable terms, if at all.

WE ARE DEPENDENT ON A SINGLE SUPPLIER OF NOVASTAN(R).

At the present time, Mitsubishi is the only manufacturer of NOVASTAN(R) in
bulk form. Mitsubishi has entered into a supply agreement with SmithKline to
supply NOVASTAN(R) in bulk to meet SmithKline's and our needs. Should Mitsubishi
fail during any consecutive nine-month period to supply SmithKline with at least
80% of its requirements, and such requirements cannot be satisfied by existing
inventories, the supply agreement with Mitsubishi 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, we cannot assure you 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, if at all. If SmithKline
cannot commence the manufacturing of NOVASTAN(R) or alternate sources of supply
are unavailable or are not available on commercially reasonable terms, it could
harm our profitability. In addition, finishing and packaging has only been
arranged with one manufacturing facility in the U.S.

OUR PRODUCTS, INCLUDING NOVASTAN(R), EVEN IF APPROVED BY THE FDA OR FOREIGN
REGULATORY AGENCIES, MAY NOT BE ACCEPTED BY HOSPITALS, INSURERS OR PATIENTS.

The FDA granted us an approvable letter on February 18, 2000 for our lead
product, NOVASTAN(R). A final approval from the FDA to market NOVASTAN(R) is
dependent upon our agreement with the FDA on final labeling and is contingent
upon any Phase IV clinical studies which may be required in post marketing
studies. We can give no guarantee that we will be able to attain final FDA
approval.

If any of our products, including NOVASTAN(R), after receiving FDA or other
foreign regulatory approval, fail to achieve market acceptance, our ability to
become profitable in the future will be adversely affected. We believe that
market acceptance will depend on our ability to provide acceptable evidence of
safety, efficacy and cost effectiveness. In addition, market acceptance depends
on the effectiveness of our marketing strategy and the availability of
reimbursement for our products.

12
<PAGE> 14

THE SUCCESSFUL COMMERCIALIZATION OF OUR PRODUCTS IS DEPENDENT ON
PHARMACEUTICAL PRICING AND THIRD-PARTY REIMBURSEMENT.

In recent years, there have been numerous proposals to change the health
care system in the United States. Some of these proposals have included measures
that would limit or eliminate payments for medical procedures and treatments or
subject the pricing of pharmaceuticals to government control. In addition,
government and private third-party payors are increasingly attempting to contain
health care costs by limiting both the coverage and the level of reimbursement
of drug products. Consequently, 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 us to maintain price levels sufficient to realize an appropriate
return on our investment in product development. Our long-term ability to market
products successfully may depend in part on the extent to which reimbursement
for the cost of such products and related treatment will be available.
Third-party payors are increasingly challenging the prices of medical products
and services. Furthermore, inadequate third-party coverage may reduce market
acceptance of our products. Significant changes in the health care system in the
United States or elsewhere could have a material adverse effect on our business
and financial performance.

RISKS RELATING TO INTELLECTUAL PROPERTY

WE MAY NOT BE ABLE TO PROTECT PROPRIETARY INFORMATION AND OBTAIN PATENT
PROTECTION.

We actively seek patent protection for our proprietary technology, both in
the U.S. and in other areas of the world. However, the patent positions of
pharmaceutical and biotechnology companies, including us, are generally
uncertain and involve complex legal, scientific and factual issues. Intellectual
property is an uncertain and developing area of the law that is potentially
subject to significant change. Our success will depend significantly on our
ability to:

- obtain patents;

- protect trade secrets;

- operate without infringing upon the proprietary rights of others; and

- prevent others from infringing on our proprietary rights.

We cannot assure you that patents issued to or licensed by us will not be
challenged, invalidated or circumvented, or that the rights granted will provide
competitive advantages to us. We cannot assure you that our patent applications
or pending patent applications, if and when issued, will be valid and
enforceable and withstand litigation. We cannot assure you that others will not
independently develop substantially equivalent or superseding proprietary
technology or that an equivalent product will not be marketed in competition
with our products, thereby substantially reducing the value of our proprietary
rights. We may experience a significant delay in obtaining patent protection for
our products as a result of a substantial backlog of pharmaceutical and
biotechnology patent applications at the U.S. Patent and Trademark Office,
commonly known as the PTO. Because patent applications in the U.S. are
maintained in secrecy until patents issue, other competitors may have filed or
maintained patent applications for technology used by us or covered by pending
applications without our being aware of these applications. In addition, patent
protection, even if obtained, is affected by the limited period of time for
which a patent is effective.

We could also 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 us in connection with one or more of our patents or patent
applications, and such proceedings could result in an adverse decision as to
priority of invention. The PTO or a comparable agency in a foreign jurisdiction
could also institute re-examination or opposition proceedings against us in
connection with one or more of our patents or patent applications and such
proceedings could result in an adverse decision as to the validity or scope of
the patents.

13
<PAGE> 15

We may be required to obtain licenses to patents or other proprietary
rights from third parties. We cannot assure you that any licenses required under
any patents or proprietary rights would be made available on acceptable terms,
if at all. If we are unable to obtain required licenses, we could encounter
delays in product introductions while we attempt to design around blocking
patents, or we could find that the development, manufacture or sale of products
requiring such licenses could be foreclosed.

IF WE ARE UNABLE TO KEEP OUR TRADE SECRETS CONFIDENTIAL, OUR TECHNOLOGY AND
INFORMATION MAY BE USED BY OTHERS TO COMPETE AGAINST US.

We rely significantly on trade secrets, know-how and continuing
technological advancement to maintain our competitive position. We try to
protect this information by entering into confidentiality agreements with our
employees and consultants, which contain assignment of invention provisions.
Notwithstanding these agreements, others may gain access to these trade secrets,
such agreements may not be honored and we may not be able to protect effectively
our rights to our unpatented trade secrets. Moreover, our trade secrets may
otherwise become known or independently developed by our competitors.

RISKS RELATED TO OUR COMMON STOCK OUTSTANDING

OUR STOCK PRICE COULD BE VOLATILE, WHICH COULD CAUSE YOU TO LOSE PART OR ALL
OF YOUR INVESTMENT.

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 our common stock, like
that of the securities of other biopharmaceutical companies, has been and may be
highly volatile. Factors such as announcements concerning technological
innovations, new commercial products or procedures by us or our 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 us or our 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 our common stock and public warrants.

From time to time, there has been limited trading volume with respect to
our common stock. In addition, there can be no assurance that there will
continue to be a trading market or that any securities research analysts will
continue to provide research coverage with respect to our common stock. It is
possible that such factors will adversely affect the market for our common
stock.

THE NUMBER OF SHARES OF OUR COMMON STOCK ELIGIBLE FOR FUTURE SALE, INCLUDING
WARRANTS WHICH ARE CURRENTLY EXERCISABLE, COULD ADVERSELY AFFECT THE MARKET
PRICE OF OUR STOCK.

As of December 31, 1999, substantially all of our outstanding shares of
common stock were eligible for immediate sale in the public market. Moreover,
the resale of approximately 2.5 million outstanding shares are covered by
currently effective Form S-3 registration statements.

As part of our initial public offering, warrants covering approximately 4.1
million shares of common stock were issued. Warrants covering 3,995,394 shares
remain outstanding and the shares of common stock issuable upon exercise are
registered for resale under a registration statement. These warrants trade on
AMEX and are presently exercisable at a price of $8.44. The warrants expire on
December 31, 2000 and are callable upon the stock reaching certain benchmarks.
If all of these warrants are exercised, our currently outstanding shares will
number 38,388,303, and we will receive $33.7 million in proceeds from the
exercise.

As of December 31, 1999, we have reserved approximately 8.1 million shares
of common stock for issuance under outstanding options, warrants (including the
publicly traded warrants) and other contingent agreements. Approximately 7.4
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. The issuance of a significant number of shares of

14
<PAGE> 16

common stock upon the exercise of stock options and warrants, or the sale of a
substantial number of shares of common stock under Rule 144 or otherwise, could
adversely affect the market price of the common stock.

INVESTORS IN THIS OFFERING WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION AND
WILL NOT RECEIVE ANY DIVIDENDS.

We expect that the public offering price of our common stock in this
offering will be substantially higher than the net tangible book value per share
of our outstanding common stock. As of December 31, 1999, our net tangible book
value was $18.6 million, and, on a pro forma basis, our net tangible book value
after this offering will be $98.1 million. Investors in our common stock through
this offering will experience immediate and substantial dilution of
approximately $14.51 per share of common stock. Future equity financings may
cause further dilution to investors. We have never paid dividends on our common
stock and will not pay dividends in the foreseeable future. See "Dilution."

CERTAIN ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND
DELAWARE LAW MAY DETER OR PREVENT A CHANGE IN CONTROL OF OUR COMPANY, EVEN IF
THAT CHANGE WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.

Our Certificate of Incorporation and the provisions of Section 203 of the
Delaware General Corporation Law contain certain provisions that may delay or
prevent an attempt by a third party to acquire control of us. In addition, the
severance provisions of employment agreements with certain members of management
could impede an attempted change of control by a third party.

15
<PAGE> 17

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All statements other than statements of historical fact
included in and incorporated by reference into this prospectus are forward-
looking statements. These forward looking statements include, without
limitation, statements regarding our estimate of the sufficiency of our existing
capital resources and our ability to raise additional capital to fund cash
requirements for future operations, and regarding the uncertainties involved in
the drug development process and the timing of regulatory approvals required to
market these drugs. Although we believe that the expectations reflected in these
forward looking statements are reasonable, we can not give any assurance that
such expectations reflected in these forward looking statements will prove to
have been correct. The ability to achieve our expectations is contingent upon a
number of factors, which include, without limitation:

- market acceptance and commercial success of NOVASTAN(R);

- ongoing cost of research and development activities;

- cost of clinical development of product candidates;

- attainment of research and clinical goals of product candidates;

- timely approval of our product candidates by appropriate governmental and
regulatory agencies;

- effect of any current or future competitive products;

- ability to manufacture and market products commercially;

- retention of key personnel; and

- capital market conditions.

When used in this prospectus, the words "expect," "anticipate," "intend,"
"plan," "believe," "seek," "estimate" and similar expressions are intended to
identify forward-looking statements, although not all forward-looking statements
contain these identifying words. Because these forward-looking statements
involve risks and uncertainties, actual results could differ materially from
those expressed or implied by these forward-looking statements for a number of
important reasons, including those discussed under "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this prospectus.

You should read these statements carefully because they discuss our
expectations about our future performance, contain projections of our future
operating results or our future financial condition, or state other
"forward-looking" information. Before you invest in our common stock, you should
be aware that the occurrence of any of the events described in these risk
factors and elsewhere in this prospectus could substantially harm our business,
results of operations and financial condition and that upon the occurrence of
any of these events, the trading price of our common stock could decline, and
you could lose all or part of your investment.

We cannot guarantee any future results, levels of activity, performance or
achievements. Except as required by law, we undertake no obligation to update
any of the forward-looking statements in this prospectus after the date of this
prospectus.

16
<PAGE> 18

USE OF PROCEEDS

We estimate that we will receive net proceeds of approximately $79.5
million from the sale of 5,000,000 shares of our common stock in this offering,
$87.8 million if the underwriters' over-allotment option is exercised in full,
at an assumed public offering price of $17.00 per share and after deduction of
the underwriting discounts and estimated offering expenses payable by us.

We intend to use the net proceeds from this offering for:

- further clinical development of our product candidates sitaxsentan,
TBC3711 and TBC1269;

- further development of NOVASTAN(R);

- further research and development of our other product candidates; and

- general corporate purposes, including capital expenditures, expansion of
facilities and other working capital requirements.

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 acceptance and sales results of NOVASTAN(R) in
the commercial markets, progress of our 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
we enter into and the availability of additional financing. These expenditures
are likely to be substantial and to exceed the net proceeds of this offering. We
may also use a portion of the net proceeds to acquire, by license, purchase or
other arrangement, businesses, technologies, or products that complement our
business, although we do not have any agreement or understanding, nor are we
presently engaged in any discussions or negotiations, with respect to any
acquisition, and there can be no assurance that any acquisition will be made.
Our board of directors has broad discretion in determining how the net proceeds
of this offering will be applied.

Pending ultimate use, the net proceeds from this offering will be invested
with other funds that we have on hand in cash equivalents and short-term and
long-term investments, including U.S. government securities and high-grade
corporate investments, commercial paper and bankers acceptances, at our
discretion.

17
<PAGE> 19

PRICE RANGE OF COMMON STOCK

Our common stock and our common stock purchase warrants are traded on the
American Stock Exchange. Our common stock trades under the symbol "TXB" and our
redeemable common stock purchase warrant trades under the symbol "TXB.WS." The
following table sets forth, for the periods indicated, the high and low sale
prices for the common stock and redeemable common stock purchase warrants as
reported by the consolidated transaction reporting system.

<TABLE>
<CAPTION>
COMMON STOCK PUBLIC WARRANTS
------------- ---------------
HIGH LOW HIGH LOW
---- --- ----- ----
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
First Quarter................................ 7 13/16 5 3/8 1 1/2 9/16
Second Quarter............................... 9 1/2 3 3/4 2 3/4 1/8
Third Quarter................................ 6 2 9/16 5/8 1/8
Fourth Quarter............................... 5 1/4 2 7/16 3/4 1/16
YEAR ENDED DECEMBER 31, 1999
First Quarter................................ 5 1/8 3 5/8 3/4 5/16
Second Quarter............................... 4 13/16 3 1/2 5/8 5/16
Third Quarter................................ 5 1/16 3 1/2 3/4 1/4
Fourth Quarter............................... 7 15/16 3 11/16 2 3/8
YEAR ENDED DECEMBER 31, 2000
First Quarter (through March 14)............. 23 3/4 6 3/8 15 1 1/2
</TABLE>

As of March 14, 2000 there were approximately 502 holders of our common
stock and approximately 19,500 beneficial holders. In addition, there were
approximately 19 holders of record of our redeemable common stock purchase
warrants and approximately 1,000 beneficial holders.

DIVIDEND POLICY

We have never declared or paid dividends on our common stock. We do not
anticipate paying any cash dividends in the foreseeable future. We intend to
retain any future earnings to finance our growth strategy and ongoing business.
Payment of future dividends, if any, will be at the discretion of the board of
directors after reviewing various factors, including our financial condition and
operating results, current and anticipated cash needs and restrictions which may
be in effect in any future financing agreement.

18
<PAGE> 20

CAPITALIZATION

The following table sets forth our capitalization at December 31, 1999:

- on an actual basis; and

- on an as adjusted basis to reflect our estimated net proceeds from the
sale of 5,000,000 shares of common stock after deducting the estimated
underwriting discounts and commissions and estimated offering expenses
payable by us based upon an assumed public offering price of $17.00 per
share.

<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' equity:
Preferred Stock, par value $.005 per share, 5,000,000
shares authorized; none outstanding.................... $ -- $ --
Common Stock, par value $.005 per share, 75,000,000 shares
authorized; 34,392,909 shares outstanding; 39,392,909
shares outstanding, as adjusted(1)..................... 172 197
Additional paid-in capital................................ 118,317 197,836
Accumulated deficit....................................... (99,899) (99,899)
-------- --------
Total stockholders' equity........................ 18,590 98,134
-------- --------
Total capitalization...................................... $ 18,590 $ 98,134
======== ========
</TABLE>

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

(1) This information is as of December 31, 1999 and does not include:

- 3,224,219 shares of common stock issuable upon exercise of options
outstanding under our stock option plans, which are currently exercisable
for 2,282,057 shares at a weighted average exercise price of $4.12;

- 3,995,394 shares of common stock issuable upon exercise of our redeemable
common stock purchase warrants at an exercise price of $8.44 per share;

- 765,578 shares of common stock issuable upon exercise of other
outstanding warrants with exercise prices ranging from $3.05 to $14.00
per share; and

- the issuance to Genentech of an additional 71,429 shares of common stock
upon final approval by the FDA of a new drug application relating to
NOVASTAN(R).

19
<PAGE> 21

DILUTION

Our net tangible book value as of December 31, 1999 was approximately $18.6
million, or $0.54 per share of common stock. "Net tangible book value" per share
represents the amount of our total tangible assets less total liabilities,
divided by the total number of shares of common stock outstanding. After giving
effect to this offering and the application of the estimated net proceeds as
described in "Use of Proceeds," our pro forma net tangible book value as of
December 31, 1999 would have been approximately $98.1 million or $2.49 per
share. This represents an immediate increase in net tangible book value of $1.95
per share to existing stockholders and an immediate dilution in net tangible
book value of $14.51 per share to investors purchasing shares of common stock in
this offering. The following table illustrates this per share dilution:

<TABLE>
<S> <C>
Assumed public offering price..................... $17.00
Net tangible book value prior to this
offering......................................0.54
Increase per share attributable to sales of shares
in this offering..............................1.95
- ----
Pro forma net tangible book value after this
offering.......................................... 2.49
------
Dilution in net tangible book value to investors
in this offering.................................. $14.51
======
</TABLE>

The following table summarizes, on a pro forma basis as of December 31,
1999, the number of shares of common stock purchased from us, the total
consideration paid and the average price per share paid by the existing
stockholders and by the investors purchasing shares of common stock in this
offering, before deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us:

<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
--------------------- ----------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
Existing shareholders............... 34,392,909 87.3% $126,497,000 59.8% $ 3.68
New investors....................... 5,000,000 12.7% 85,000,000 40.2% $17.00
---------- ------ ------------ ------
Total..................... 39,392,909 100.0% $211,497,000 100.0%
========== ====== ============ ======
</TABLE>

The foregoing tables assume no exercise of options or warrants after
December 31, 1999. As of December 31, 1999, these tables do not include:

- 3,995,394 shares of common stock issuable upon exercise of our redeemable
common stock purchase warrants at an exercise price of $8.44 per share;

- 765,578 shares of common stock issuable upon exercise of other
outstanding warrants with exercise prices ranging from $3.05 to $14.00
per share; and

- the issuance to Genentech of an additional 71,429 shares of common stock
upon final approval by the FDA of a new drug application relating to
NOVASTAN(R).

20
<PAGE> 22

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

The selected financial data set forth below for each of the years in the
five-year period ended December 31, 1999 are derived from our consolidated
audited financial statements. The selected financial data set forth below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our financial statements and notes
thereto included elsewhere in this prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues..................................... $ 7,234 $ 5,406 $16,908 $ 2,252 $ 2,083
Expenses:
Research and development................... 14,950 22,252 16,833 14,123 12,793
Charge for purchase of in-process research
and development......................... 2,061 -- 1,075 134 --
General and administrative................. 4,693 4,068 5,760 4,597 5,799
Restructuring and impairment of intangible
assets.................................. 644 421 -- -- --
------- ------- ------- ------- -------
Total expenses..................... 22,348 26,741 23,668 18,854 18,592
------- ------- ------- ------- -------
Operating loss............................... 15,114 21,335 6,760 16,602 16,509
------- ------- ------- ------- -------
Other income (expense):
Interest income............................ 1,201 898 1,123 2,088 1,212
Interest expense........................... (1) -- -- -- --
Other...................................... -- -- 2 --
------- ------- ------- ------- -------
Other income, net.................. 1,200 898 1,125 2,088 1,212
------- ------- ------- ------- -------
Net loss..................................... 13,914 20,437 5,635 14,514 15,297
Preferred dividend requirement............. -- -- 1,153 2 --
------- ------- ------- ------- -------
Net loss applicable to common shares....... $13,914 $20,437 $ 6,788 $14,516 $15,297
======= ======= ======= ======= =======
Net loss per share basic and diluted......... $ 0.83 $ 0.87 $ 0.24 $ 0.43 $ 0.45
======= ======= ======= ======= =======
Weighted average common shares used to
compute basic and diluted net loss per
share...................................... 16,749 23,616 27,746 33,930 34,226
======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short and
long-term investments...................... $13,920 $13,390 $43,707 $30,376 $15,170
Working capital.............................. 11,927 10,110 42,815 27,907 14,477
Total assets................................. 18,926 18,180 48,798 36,106 20,805
Shareholders' equity......................... 15,710 13,627 46,167 33,236 18,590
</TABLE>

21
<PAGE> 23

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

OVERVIEW

The following discussion of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and the related notes to the financial statements included elsewhere
in this prospectus.

Since our inception in 1989, we have primarily devoted our resources to
funding drug discovery research and development. We have been unprofitable to
date and expect to incur substantial operating losses for the next several years
as we invest in product research and development, preclinical and clinical
testing and regulatory compliance. We have sustained net losses of approximately
$99.9 million from the date of our inception to December 31, 1999. We have
primarily financed our operations to date through:

- private placements of common stock, which raised an aggregate of $34.3
million in net proceeds;

- our 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 5% preferred stock on March 14, 1997, which raised
approximately $6.0 million in net proceeds; and

- a subsequent public offering, which closed during October 1997 and raised
approximately $26.7 million in net proceeds.

On July 25, 1994, we acquired all of the outstanding stock of
ImmunoPharmaceutics in exchange for 1,599,958 shares of our common stock, and
later issued an additional 1,399,917 shares of our common stock upon
satisfaction of certain research milestones. ImmunoPharmaceutics' financial
results have been included in our financial statements since August 1, 1994. In
March 1996, ImmunoPharmaceutics' remaining operations in California were
consolidated into our Houston operations.

During October 1996, we signed a research and common stock purchase
agreement with LG Chemical. LG Chemical purchased 1,250,000 shares of our common
stock for $5.0 million and committed to pay us up to $10.7 million over a five
year period to develop two compounds in clinical development. Of this amount,
$6.1 million has been paid (of which $1.0 million was receivable at December 31,
1999). Furthermore, $1.0 million will be paid on June 30 and December 31, 2000,
and $1.3 million will be paid on June 30 and December 31, 2001.

In August 1997, we entered into an agreement with SmithKline whereby we
granted SmithKline the exclusive right to work with us in the development and
commercialization of NOVASTAN(R) in the U.S. and Canada for specified
indications. Upon execution of the agreement, SmithKline paid an $8.5 million
license fee, a $5.0 million milestone payment in October 1997 and has also
committed to pay up to a total of $15.0 million in additional milestone payments
based on the clinical development and FDA approval of NOVASTAN(R) for the
indications of HIT and acute myocardial infarction. Future milestone payments
for the acute myocardial infarction indication are subject to SmithKline's
agreement to market NOVASTAN(R) for the acute myocardial infarction indication.
At this time, SmithKline has no plans to conduct development work for the acute
myocardial infarction and stroke indications. We are evaluating the feasibility
of developing NOVASTAN(R) for ischemic stroke and possibly other indications. In
connection with the agreement, SmithKline purchased 176,922 shares of our common
stock for $1.0 million and an additional 400,000 shares of our common stock for
$2.0 million in conjunction with our public offering, which closed during
October 1997.

Our operating results have fluctuated significantly during each quarter,
and we anticipate that such fluctuations, which are largely attributable to
varying research and development commitments and expenditures, will continue for
the next several years.

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<PAGE> 24

RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

Revenues were $2.1 million, $2.3 million and $16.9 million during 1999,
1998 and 1997, respectively. For the years 1999, 1998 and 1997, revenues
included $2.0 million, $2.3 million and $16.9 million from research agreements,
commercialization agreements and collaborations with various other companies.
Revenues from research agreements in 1999 and 1998 include research payments
from LG Chemical. In 1997 revenues include research payments from LG Chemical
and a license fee of $8.5 million and a milestone payment of $5.0 million from
SmithKline. Interest income was $1.2 million, $2.1 million and $1.1 million, for
the years 1999, 1998 and 1997, respectively. Interest income for the year 1998
was significantly higher over 1999 and 1997 due to investment of funds received
in conjunction with the agreement with SmithKline and a secondary public
offering of common stock completed in October 1997.

Research and development expenses decreased 9% from $14.1 million in 1998
to $12.8 million in 1999 and decreased 16% from $16.8 million in 1997 to $14.1
million in 1998. The decrease from 1998 to 1999 was due primarily to the
completion of certain Phase II clinical trials related to sitaxsentan (TBC11251)
and the selectin antagonist programs net of expenses incurred during 1998 for a
new drug application, commonly referred to as an NDA, submission for
NOVASTAN(R). The decrease from 1997 to 1998 was due primarily to reduced
spending on clinical trials for NOVASTAN(R) that were completed in 1998 and
one-time charges during 1997 associated with the license of NOVASTAN(R).

Non-cash charges for the purchase of in-process research and development
decreased from $1.1 million in 1997 to $134,000 in 1998 because of common stock
issued pursuant to the NOVASTAN(R) license agreement and for stock issued under
a research collaboration agreement signed in 1998, respectively. During 2000, if
a final approval is granted by the FDA for NOVASTAN(R), we will issue 71,429
shares of common stock to Genentech, the prior licensee of NOVASTAN(R). Upon
approval, the value of the stock will be charged to expense over future periods
based on the remaining patent life of NOVASTAN(R).

General and administrative expenses increased 26% from $4.6 million in 1998
to $5.8 million in 1999 and decreased 20% from $5.8 million in 1997 to $4.6
million in 1998. The increase in 1999 over 1998 was due primarily to
approximately $187,500 accrued for settlement of a lawsuit, increased patent
legal fees and increased consulting fees related to NOVASTAN(R) incurred in
1999. The decrease in 1998 from 1997 was primarily because of a $1.0 million
non-cash charge related to the 1997 extension of the exercise period for certain
stock options and higher patent legal fees in 1997.

Rent and related building services, which are a component of both research
and development and general and administrative expenses, were approximately $1.0
million in 1999, 1998 and 1997. There was an increase of approximately $69,000
in 1999 from 1998 due primarily to an increase in leased space during 1999.

We incurred net losses applicable to common shares of $15.3 million, $14.5
million and $6.8 million for the years ended December 31, 1999, 1998 and 1997,
respectively.

LIQUIDITY AND CAPITAL RESOURCES

We have financed our research and development activities to date
principally through:

- private placements of our common and preferred stock;

- our initial public offering and subsequent offerings of our common stock;

- issuances of common stock in conjunction with acquisitions, research and
collaboration agreements and upon exercises of stock options and
warrants;

- milestone and research payments received in conjunction with research and
collaborative agreements; and

- investment income, net of interest expense.

23
<PAGE> 25

At December 31, 1999 we had cash, cash equivalents and short-term and
long-term investments of $15.2 million.

We expect to incur substantial research and development expenditures as we
design and develop biopharmaceutical products for the prevention and treatment
of cardiovascular and other diseases. We anticipate that our operating expenses
will increase during 2000 and subsequent years because:

- We will incur significant clinical trial costs for sitaxsentan and
TBC1269 compounds and expect to begin to incur costs for clinical trials
related to additional compounds. These costs include:

- hiring personnel to direct and carry out all operations related to
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.

- There will be additional costs in future periods related to NOVASTAN(R)
in complying with ongoing FDA requirements and possible clinical trial
expenditures for additional therapeutic indications.

Furthermore, we anticipate that the administrative costs associated with our
efforts will be significant. The amount and timing of expenditures will depend,
among other things, on our progress in ongoing research, clinical development
and commercialization efforts.

We anticipate that the net proceeds from this offering, together with our
existing capital resources and our other revenue sources, should be sufficient
to fund our cash requirements through the end of 2003 without considering the
impact of revenues from NOVASTAN(R). This date is contingent upon various
factors, including the rates of patient enrollment and spending associated with
clinical trials for sitaxsentan and TBC1269 and the level of research and
development expenditures for our other compounds. We cannot assure you that
there will be market acceptance and commercial success of NOVASTAN(R), which
could significantly impact our cash flow.

We anticipate that we 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. We expect 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. We
cannot assure you that we 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, our drug discovery or development
programs may be delayed, scaled back or eliminated; or we may be required to
obtain funds through arrangements with collaborative partners or others that may
require that we relinquish rights to certain of our technologies, product
candidates or products that would not otherwise be relinquished. Our ability to
raise additional funding is contingent upon a number of factors which include:

- the market acceptance and commercial success of NOVASTAN(R);

- the ongoing cost of research and development activities;

- the attainment of research and clinical goals of product candidates;

- the timely approval of our product candidates by appropriate governmental
and regulatory agencies;

- the presence and effect of competitive products;

- our ability to manufacture and market products commercially;

- the retention of key personnel; and

- conditions in the capital markets.

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<PAGE> 26

YEAR 2000

The Year 2000, or Y2K, problem has not caused any material disruptions to
our facilities or operations and has not resulted in any material costs. We have
developed reasonable contingency plans to avoid, to the extent practicable, Year
2000-related problems that may yet occur due to hidden defects in computer
hardware or software. We anticipate, but cannot guarantee, that the Year 2000
problem will not create material disruptions to our facilities or operations and
will not cause us to incur material costs.

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 our
operations.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS No. 133. Accounting for Derivative
Instruments and Hedging Activities. The statement is effective for the year
ended December 31, 2000. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities. We do not expect adoption of this statement to have a
material impact on our financial statements.

25
<PAGE> 27

BUSINESS

OVERVIEW

Texas Biotechnology is a biopharmaceutical company focused on the
discovery, development and commercialization of novel, synthetic, small molecule
compounds for the treatment of a variety of vascular and related inflammatory
diseases. Our research and development programs are focused on inhibitors (also
referred to as antagonists or blockers) that can interrupt certain disease
processes.

We currently have six programs:

- The Thrombosis Program. We have developed NOVASTAN(R), a synthetic, small
molecule drug for the prevention and treatment of HIT. We have received
an approvable letter from the FDA with respect to the HIT indications and
expect final FDA approval in the second quarter of 2000. SmithKline
Beecham is our marketing, manufacturing and distribution partner in this
endeavor.

- The Vasospasm/Hypertension Program. We are developing sitaxsentan as an
ET(A) receptor antagonist for the treatment of pulmonary hypertension,
hypertension and heart failure. We are currently in Phase II clinical
trials with sitaxsentan and have another compound in preclinical
development for the treatment of these same diseases.

- The Vascular Inflammation Program. We are developing a selectin
antagonist, TBC1269, for the treatment of asthma. The intravenous form of
the drug is currently in Phase II clinical trials. Inhaled and topically
applied TBC1269 are currently in the preclinical stage for the treatment
of asthma and psoriasis, respectively. We are also in research with
respect to VCAM/VLA-4, CCR1, CCR3, and (alpha)4(beta)7 antagonists for
the treatment of asthma, rheumatoid arthritis, multiple sclerosis and
inflammatory bowel disease.

- Apoptosis Program. We are conducting research into the development of
inhibitors of apoptosis. Apoptosis involves programmed cell death and is
thought to play a role in many vascular and inflammatory diseases.
Currently, we have three different groups of inhibitors of apoptosis -
caspase antagonists that could be useful in preventing cell death
following ischemic stroke or congestive heart failure; TNF(alpha)
antagonists that could potentially be useful in treating rheumatoid
arthritis; and RAGE antagonists that may be useful in preventing certain
complications of diabetes due to cell death in the blood vessels.

- Angiogenesis Program. Angiogenesis involves the formation of new blood
vessels from existing vessels and is associated with a number of diseases
including tumor growth, rheumatoid arthritis, atherosclerosis, various
retinopathies and certain skin diseases. Our research is focused on the
development of small molecule inhibitors of vascular endothelial growth
factor, or VEGF, for the treatment of cancer and diabetic retinopathy.

- Vascular Proliferation Disease Program. Smooth muscle cells in a blood
vessel proliferate in response to injury to the blood vessel and is the
cause of blood vessel thickening. Our research program for this area is
focused on identifying an antagonist to FGF to interrupt its role in
causing blood vessels to narrow due to excessive smooth muscle growth. We
believe our FGF antagonist could be useful in the treatment of coronary
restenosis that may occur as a result of vessel injury during
angioplasty.

BUSINESS STRATEGY

The key elements of our business strategy are as follows:

Commercialize and Gain Broader Approval for NOVASTAN(R)

We and our marketing, manufacturing and distribution partner SmithKline,
are preparing for the commercial launch of NOVASTAN(R) upon our receipt of final
FDA approval which we expect to receive in the second quarter of 2000. In
addition:

- we are preparing a supplemental NDA for NOVASTAN(R) for use in HIT
patients undergoing angioplasty;

26
<PAGE> 28

- we filed a Canadian New Drug Submission which has been approved for
priority review and expect a response from Canadian regulatory
authorities in the third quarter of 2000; and

- we are examining the use of NOVASTAN(R) for other indications, including
those for which it has been approved in Japan for over 10 years.

Focus on the identification and development of new drugs for the treatment of
diseases involving the vascular endothelium

Injury to the vascular endothelium is a common cause of many of the most
profound diseases affecting patients today, such as ischemic heart disease,
acute coronary syndrome, hypertension, congestive heart failure, and asthma. By
concentrating on this area, we can be relatively efficient in our drug
discovery, development and commercialization efforts. This efficiency extends to
the following areas:

- Research -- Our efforts are predominantly devoted toward the treatment
and prevention of interrelated diseases of the vascular endothelium, and
we employ a large group of vascular biologists;

- Computer aided drug design -- We utilize computers to develop rapidly
drug candidates derived from our vascular biological efforts and to
identify new targets from information discovered by the Human Genome
Project;

- Regulatory -- Since diseases of the vascular endothelium involve
substantial morbidity and mortality, our indications are generally
suitable for fast-track FDA approval; and

- Clinical investigators and consultants -- We work with key opinion
leaders and consultants experienced in diseases of the vascular
endothelium to assist in clinical development and the regulatory approval
process.

Focus on the identification and development of small molecule drug
candidates -- Small molecule therapeutics have many advantages over large
molecules, such as proteins, peptides and monoclonal antibodies. Small molecules
can frequently be administered orally on an outpatient basis. By contrast, to
date, large molecule therapeutics can very rarely be formulated to accommodate
oral outpatient administration. Since small molecules generally are not
immunogenic, use of small molecules avoids the potential for immune reactions
which can occur with protein therapeutics. In addition, small molecules can
typically be protected with composition-of-matter patents that generally provide
a large degree of intellectual property protection. Our emphasis on small
molecule therapeutics means that our drug candidates can be produced by
conventional pharmaceutical manufacturing methods with the potential for modest
cost of goods sold.

Participate in the sales and marketing in the United States and Canada of
the drugs we develop -- In the biopharmaceutical industry, a substantial
percentage of the profits generated from successful drug development are
typically retained by the entity directly involved in the sales and marketing of
the drug. Licensing our drug candidates to a third party who will complete
development and provide sales and marketing resources in exchange for upfront
payments, milestone payments and a royalty on sales may reduce some of our
risks, particularly for diseases outside our strategic interest or in
territories outside of the United States and Canada. However, in certain
instances, we may decide that the risk-return profile favors developing and then
marketing and selling products on a co-promotion basis or by ourselves.
Therefore, when and if we deem it appropriate, we intend to participate in the
sales and marketing of our products in the United States and Canada.

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<PAGE> 29

THERAPEUTIC PROGRAMS AND PRODUCTS IN DEVELOPMENT

The following table summarizes the potential therapeutic indications and
development status for certain of our clinical, preclinical and research product
candidates and is qualified in its entirety by the more detailed information
appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
TARGET COMPOUND/ POTENTIAL
PROGRAM DOSE FORM INDICATION STATUS(1)
- ---------------------- --------------------------- ------------------------------------- ---------------------------
<S> <C> <C> <C>
THROMBOSIS NOVASTAN(R)
Intravenous Anticoagulant therapy in HIT/HITTS Approvable Letter Received
patients February 18, 2000
Intravenous Anticoagulant therapy in HIT Phase III
patients undergoing angioplasty
- -----------------------------------------------------------------------------------------------------------------------
VASOSPASM/ ENDOTHELIN(A) RECEPTOR
HYPERTENSION ANTAGONIST
Sitaxsentan (TBC11251)
Intravenous Congestive Heart Failure Phase II
Oral Pulmonary Hypertension Phase II
Hypertension Phase II
Congestive Heart Failure Phase II
TBC3711
Oral Congestive Heart Failure Preclinical
Hypertension Preclinical
TBC3214
Oral Cancer Preclinical
- -----------------------------------------------------------------------------------------------------------------------
VASCULAR SELECTIN ANTAGONIST
INFLAMMATION TBC1269
Intravenous Asthma Phase II
Inhaled Asthma Preclinical
Topical Psoriasis Preclinical
VCAM/VLA-4 ANTAGONIST
TBC4257
Oral Asthma Research
Rheumatoid Arthritis Research
CCR 1 ANTAGONIST Multiple Sclerosis Research
CCR 3 ANTAGONIST
TBC4095
Oral Asthma Research
(alpha)4(beta)7 ANTAGONIST
TBC3804
Oral Inflammatory Bowel Disease Research
- -----------------------------------------------------------------------------------------------------------------------
APOPTOSIS CASPASE INHIBITOR
TBC4521 Acute Myocardial Infarction Research
Ischemic Stroke Research
RAGE ANTAGONIST Diabetic Complications Research
TNF(alpha) ANTAGONIST Rheumatoid Arthritis Research
- -----------------------------------------------------------------------------------------------------------------------
ANGIOGENESIS VEGF ANTAGONIST
TBC2576 Cancer and Diabetic Retinopathy Research
- -----------------------------------------------------------------------------------------------------------------------
VASCULAR FGF ANTAGONIST
PROLIFERATIVE DISEASE TBC1635 Post-Angioplasty Coronary Restenosis Research
</TABLE>

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

(1) Preclinical compounds are compounds undergoing toxicology and pharmaceutical
development in preparation for human clinical testing. Research compounds
are compounds undergoing basic evaluation and optimization to establish a
lead clinical candidate.

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<PAGE> 30

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 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.

Heparin, first discovered over 80 years ago, is the most widely used
injectable anticoagulant. In the U.S., approximately ten million patients
annually receive therapeutic heparin to treat a variety of conditions that
require inhibition of the body's natural clotting mechanism. Each year over
300,000 of these patients develop a profound immunological reaction to heparin
that is known as heparin-induced thrombocytopenia or HIT. The condition is
characterized by a strong tendency to clot that puts the patient at risk of
major complications such as acute myocardial infarction, ischemic stroke,
amputation or death. It is also very difficult to administer heparin dosages. A
small change in dosage levels can cause the anticoagulant action of the drug to
become ineffective or cause the patient to bleed.

Current Therapy. The current treatments for HIT include the cessation of
heparin use and the administration of Refludan(R) or other antithrombotic
agents. We believe Refludan(R) may only be used on a limited basis by physicians
because up to 40% of all patients on the drug develop an adverse immune response
that may limit the predictability of the drug's effect. Other antithrombotics
such as Orgaran(R) and low-molecular weight heparin can cross react with the
antiheparin antibody which causes HIT and thereby exacerbate the condition.
Additional measures, such as inline filters, are sometimes used to remove clots
but are highly invasive and involve significant patient trauma. Simply stopping
heparin alone may be insufficient as a significant number of patients will
progress to exhibit severe outcomes.

Product Candidate -- NOVASTAN(R). NOVASTAN(R) is a synthetic direct
thrombin inhibitor that directly and selectively binds to and inactivates
thrombin in the blood plasma. In conjunction with SmithKline, we are developing
NOVASTAN(R) as an anticoagulant alternative to heparin for the U.S. and Canadian
markets. NOVASTAN(R) is also effective against thrombin that is contained within
blood clots. NOVASTAN(R) is manufactured and marketed in Japan by Mitsubishi
where it is approved as a treatment for ischemic stroke, peripheral arterial
occlusion and hemodialysis in patients with antithrombin III deficiency, a
clotting disorder that does not respond to heparin. Since the product's
introduction in 1990, approximately 100,000 patients have been treated with
NOVASTAN(R) in Japan.

In the clinical studies that we have conducted in the U.S., a significant
correlation has been found between the administered dose of NOVASTAN(R) and the
degree of anticoagulation achieved. This is potentially important as it suggests
that the relationship between dose and effect of NOVASTAN(R) is generally very
predictable over the expected dose-range. As a result, there is little risk of
either insufficient or excessive anticoagulation occurring from small dose
changes of NOVASTAN(R). Other potential product advantages for NOVASTAN(R)
include a rapid onset of action, a relatively short half-life and an absence of
immunogenicity.

Clinical Trial Status. Because NOVASTAN(R) does not invoke the immune
reaction caused by heparin, we have developed NOVASTAN(R) initially as a
treatment for patients diagnosed with HIT, which if left untreated can progress
to HITTS. The clinical development plan for NOVASTAN(R) included two Phase III
trials designed to evaluate the efficacy and safety of NOVASTAN(R) as an
anticoagulant therapy in patients with HIT and HITTS. The data from the trials
were analysed using two statistical methods:

29
<PAGE> 31

time-to-event and categorical. A time-to-event analysis provides the incidence
of clinical endpoints, or outcomes, over a period of time. A categorical
analysis provides the incidence of clinical endpoints at a point in time.

Our first trial, ARG-911, was a multicenter Phase III study that compared
304 patients treated with NOVASTAN(R) for up to 14 days, with data outlining the
reaction of 193 patients previously treated with heparin. We call previously
treated patients historical control patients. While most clinical trials compare
the drug under evaluation with either a placebo or another active drug, due to
the life-threatening effects of HIT and the lack of existing treatments at the
time we were conducting clinical trials for NOVASTAN(R), the FDA asked that we
compare NOVASTAN(R) to data from historical HIT cases. The data for our
historical control patients were derived from hospital records of patients that
closely resembled the patient population that we treated with NOVASTAN(R).

In the ARG-911 time-to-event analysis (over 37 days), historical control
patients with HIT had a 68% greater risk of experiencing death, amputation or
new thrombosis; while historical control patients with HITTS exhibited a 75%
greater risk of experiencing one of the same endpoints. Statistical significance
was achieved in both the HIT and HITTS arm of this analysis. The ARG-911
categorical analysis (at 37 days) showed historical control patients with HIT
had a 51% greater risk of experiencing death, amputation or new thrombosis,
while historical control patients with HITTS exhibited a 30% greater risk of
experiencing one of these clinical endpoints. Statistical significance was
achieved only in the HIT arm of this analysis. We believe that we did not
demonstrate statistical significance in the HITTS arm due to the low number of
historical control patients used in this arm of the analysis.

A second study, ARG-915, involving 264 patients treated with NOVASTAN(R),
was also conducted and compared to the same group of historical control
patients. The primary endpoints in ARG-915's categorical analysis were the
composite or overall endpoints of all-cause death, all-cause amputation or new
thrombosis at 37 days. The secondary endpoints evaluated were the resolution of
thrombocytopenia and achievement of adequate anticoagulation. We also conducted
a time-to-event analysis (over 37 days) as part of the ARG-915 study involving
these same primary and secondary endpoints.

In both the ARG-911 and ARG-915 trials, NOVASTAN(R) significantly improved
clinical outcomes, provided rapid, adequate anticoagulation and, relative to
controls, a positive influence on restoring patient's platelet counts.
NOVASTAN(R) also proved to be safe and well-tolerated and it did not increase a
patient's risk of bleeding, a common side effect of anticoagulant drugs. Based
on these data and the additional data in the NDA that support the use and
marketing of NOVASTAN(R), the FDA issued an approvable letter for NOVASTAN(R) as
an anticoagulant for prevention or treatment of thrombosis in patients with HIT
and HITTS.

Competition in HIT. Primary competitors for NOVASTAN(R) in its initial
indication are Refludan(R) (lepirudin), manufactured by Aventis S.A., and
Orgaran(R)(danaparoid sodium), manufactured by N.V. Organon, a unit of Akzo
Nobel.

Refludan(R) (lepirudin, Aventis). This product received approval in
Europe in 1997 and in the U.S. in 1998 for anticoagulation in patients with
HITTS to prevent further thromboembolic (clotting) complications.
Refludan(R) has been associated with the development of an adverse immune
response in up to 40% of patients receiving that drug. Although the full
clinical impact of development of these antibodies is unknown, we
understand that the anticoagulant effects of Refludan(R) may become
unpredictable in patients developing these antibodies. Based on certain
information from clinical trials, we also believe NOVASTAN(R) has a
significantly better safety profile than Refludan(R).

Orgaran(R) (danaparoid, Organon). This product is a low molecular
weight heparinoid, a heparin-like compound extracted from pigs. The product
has been approved in the U.S. for prevention of deep venous thrombosis
following hip surgery. However, approximately one in ten HIT patients
receiving danaparoid will develop the HIT syndrome exactly as if the
patient received heparin. Danaparoid is not approved for HIT and is used on
an off-label basis only.

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<PAGE> 32

Other Indications. NOVASTAN(R) may be useful in other disease settings
where predictable anticoagulation is desired. NOVASTAN(R) may be effective in
hemodialysis, particularly in patients who are problematic when given heparin.
Additionally, due to its ability to inhibit clot bound thrombin, NOVASTAN(R) may
be useful as a treatment for ischemic stroke by itself or in combination with
the approved agent Activase(R), also known as tPA.

Competition for NOVASTAN(R) in Other Indications. Competitors for
NOVASTAN(R) in other applications include other direct thrombin inhibitors with
the same mechanism of action:

- Revasc(R) (desirudin, Aventis/Novartis A.G.), recombinant hirudin, is
approved in Europe for the prevention of deep vein thrombosis following
hip surgery, but has been associated with intracranial hemorrhage and
antibody production;

- Angiomax(R) (bivalirudin, The Medicines Company) is in Phase III trials
and has demonstrated improved safety versus the standard anticoagulant,
heparin, but only equivalent efficacy for its intended indications; and

- Melagatran (AstraZeneca plc) is in Phase II trials and is being developed
as a treatment for deep vein thrombosis.

VASOSPASM/HYPERTENSION PROGRAM

Background. Smooth muscle cells in the blood vessel are responsible
directly for mediating 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 organ failure
(myocardial infarction or kidney failure). Recently, it has been determined that
the vascular endothelium (innermost lining) 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 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 the
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
cardiovascular disorders, while ET(B) receptors are primarily associated with
vasodilatation. There is substantial evidence that endothelins are involved in a
variety of diseases where blood flow is important. These include vasospasm,
congestive heart failure and certain types of hypertension.

Current Therapies. Congestive heart failure, or CHF, and systemic
hypertension are currently treated with a combination of drugs depending on the
severity of the disease. CHF therapy may include diuretics to lower fluid
volume, digoxin and beta-blockers to improve heart performance and angiotensin
converting enzyme inhibitors (ACE inhibitors), which lower blood pressure. Even
with these existing therapies, five year mortality rates for CHF are greater
than 50%. Endothelin antagonists have been demonstrated to provide additional
benefits to animals and patients when used with these existing therapies. In the
case of hypertension, similar existing therapies are used; however, not all
patients respond to currently available drugs. The only approved therapy for
severe pulmonary hypertension is Flolan(R), a drug marketed by Glaxo Wellcome
plc, which is an intravenous form of prostacyclin. Patients must wear a
continuous delivery infusion pump and the cost of therapy is quite high. No drug
is currently approved for moderately ill patients with pulmonary hypertension,
who have a high mortality and morbidity rate. An oral endothelin antagonist, if
successful, may provide a significant benefit to these patients.

Product Candidate -- Sitaxsentan. Our research program in the
vasospasm/hypertension area is aimed at developing small molecules that inhibit
the binding of ET to its cell surface receptors. Our scientists believe that
specific agents for each receptor subtype may provide the best clinical utility
and

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safety. Our 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. Our scientists have
discovered a novel class of low molecular weight compounds, having a 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. We identified lead compounds which mimicked the ability of ET to
bind to the ET(A) receptor. We then used further optimization techniques to
develop more potent compounds until the current series of leads was identified.
In addition to their ability to block receptor binding, these compounds
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.

Sitaxsentan, a selective ET(A) inhibitor, has been identified as our lead
compound in this program. A second compound, TBC3711, has been selected as our
next clinical candidate. We believe that a substantial market opportunity for
sitaxsentan exists for the treatment of congestive heart failure and pulmonary
hypertension. Congestive heart failure is currently estimated to affect
approximately five million people in the U.S. annually, and pulmonary
hypertension afflicts approximately 100,000 people in the U.S.

Clinical Trial Status. We filed an investigational new drug application,
also referred to as an IND, with the FDA for sitaxsentan in late 1996. To date,
we have completed two Phase IIA clinical trials, one in congestive heart failure
patients and one in hypertension patients. Based on these positive results, we
are moving forward with a third Phase IIA trial in pulmonary hypertension and
expect to complete this trial during the third quarter of 2000. With additional
resources or upon entering into a collaboration agreement with a partner, we may
elect to conduct further studies in the congestive heart failure and
hypertension indications. We are currently seeking a partner to collaborate on
our endothelin program.

Other Indications. We believe endothelin antagonist compounds may provide
therapeutic value in several other indications. We are in preclinical studies
with TBC3711 for systematic hypertension and with TBC3214 for prostate cancer.

Competition. A number of companies including Abbott Laboratories, Knoll
Pharmaceuticals, Ltd., Bristol-Meyers Squibb Company and Tanabe Seiyaku Co.,
Ltd., have ET(A) receptor selective antagonist compounds in Phase I/II clinical
development. ET(A) receptor-selective compounds from Abbott and Knoll are in
early Phase II development in indications of interest to us. We believe our
compounds are competitive with those from the other companies in terms of
bioavailability (how much reaches the appropriate body system), half-life (how
long the drugs last in the body) and potency. Several companies have
non-selective ET antagonists in development. In particular, Actelion Ltd., a
biotechnology company located in Switzerland, is developing bosentan, a
non-selective ET blocker in-licensed from Roche Holding, Ltd. for pulmonary
hypertension and chronic heart failure. Actelion is believed to be enrolling
patients in a Phase II trial for pulmonary hypertension. We believe that
selective ET blockers like sitaxsentan will be preferred therapy by physicians
and patients for cardiopulmonary diseases since selective ET(A) blockers are
likely to block the negative effects of endothelin by blocking the ET(A)
receptor while preserving the beneficial effects of endothelin by not inhibiting
the ET(B) receptor. Non-selective antagonists block both the ET(A) and the ET(B)
receptors.

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 a
foreign 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 foreign 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, such as during
an acute asthma attack where an immediate inflammatory reaction occurs. In
addition, in diseases such as atherosclerosis or

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rheumatoid arthritis, the inflammatory reaction leads to a build up of white
blood cells and debris at the inflammation site that causes tissue damage over
longer periods of time.

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, also referred to as
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 white blood cells or leukocytes through the bloodstream. This
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, referred to as VCAM, mediated white blood cell attachment and
migration which helps to localize white blood cells in areas of injury or
infection. The presence of VCAM at sites of endothelial injury leads to an
accumulation at these sites of the integrin very late antigen-4, or VLA-4, which
are contained in white blood cells. Such accumulation can provoke an
inflammatory response.

Current Therapies. The major anti-inflammatory compounds are steroids,
leukotriene blockers and immunosuppressants such as cyclosporin. While
effective, the time to onset of action of these compounds may be significant.
Steroids also have significant side effects including growth suppression in
children, cataract formation, and general intolerance. The antagonist compounds
we are developing may provide efficacy with fewer of these side effects.

Product Candidate -- TBC1269. Our scientists have 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,
TBC1269, has shown efficacy both in cell-based and biochemical assays, and in
animal models of inflammation. A Phase IIA clinical trial for TBC1269's
intravenous use in asthma was completed in 1998. Results of this trial, which
involved 21 patients, demonstrated significant reductions in cellular
inflammation and allowed improved breathing. The inhaled form of TBC1269 is in
preclinical trials for use in the treatment of asthma (an estimated 14 million
U.S. patients) and the topical form is in preclinical trials for use in the
treatment of psoriasis (an estimated 5.5 million U.S. patients).

Product Candidate -- VCAM/VLA-4 Antagonists. We have also identified
antagonists for the VCAM-dependent intercellular adhesion observed in asthma
which block the ability of white blood cells to interact through VCAM and VLA-4.
These lead compounds are being modified in an attempt to develop an orally
available clinical candidate. In preclinical animal studies, our scientists have
demonstrated that a small molecule VLA-4 antagonist can be effective in blocking
acute inflammation, suggesting that VCAM/VLA-4 plays a role in this disease
process. We expect to have the clinical candidate begin human trials in the
first half of 2001.

Product Candidate -- Chemokine Receptor Antagonists. Chemokines, such as
MIP1(alpha) and eotaxin, are proteins which attract white blood cells to sites
of inflammation. They act by binding to the cell surface receptors CCR1 and
CCR3. Inhibitors of this action could be beneficial in treating inflammatory
diseases such as asthma and multiple sclerosis (an estimated 300,000 U.S.
patients). We have identified small molecule lead inhibitors which are being
optimized prior to selecting a clinical candidate.

Product Candidate -- (alpha)4(beta)7 Antagonists. The integrin
(alpha)4(beta)7, which is closely related to VLA-4, is present on leukocytes
which locate in the gastrointestinal system. Inhibitors of (alpha)4(beta)7 may
be useful in treating inflammatory conditions of the gut such as inflammatory
bowel disease (an estimated 300,000 U.S. patients).

Competition. We believe TBC1269 is the only small molecule selectin
antagonist in clinical development for asthma and other inflammatory conditions.
Several companies have programs aimed at inhibiting chemokines, like MIP1(alpha)
and eotaxin, and integrins, like (alpha)4(beta)7 and VCAM/VLA-4. We are not
aware of any competing product antagonists of these classes which are currently
in clinical development.

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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, contributes to the local irritation that
is observed. Evidence suggests this process may be stimulated by inflammatory
cells in the tissue. Thus, inhibitors of apoptosis may be useful in treating a
number of disease conditions.

Current Therapies. There are currently no therapies which prevent apoptotic
cell death. The current therapies for treating ischemic stroke include treatment
with tPA to reopen arteries, but only if the patient arrives at the hospital
within three hours of the onset of the stroke. Otherwise, symptomatic treatment
is all that can be done. For acute myocardial infarction, treatments include
thrombolytic therapy, angioplasty, and coronary artery bypass grafts. These
procedures are useful at restoring blood flow to the heart. However, they do not
address the role of apoptotic death in the growth of the necrotic area.

Product Candidates -- Caspase Inhibitors, TNF(alpha) Antagonist, and RAGE
Antagonists. Our 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 approximately 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, or TNF(alpha). Our scientists have identified small molecule
antagonists of this factor which block TNF(alpha)'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 acute
myocardial infarction or ischemic stroke, we estimate that there are
approximately two million rheumatoid arthritis patients in the U.S. that could
utilize a TNF(alpha) antagonist. Caspases are proteases which are responsible
for mediating the cell death signal in various cell types. We have identified
lead inhibitors of caspases which may be useful in preventing cell death
following ischemic stroke or acute myocardial infarction. The receptor for
age-dependent glycation end-products (RAGE) has been associated with the
induction of apoptotic death in the vasculature. This action may be responsible
for several complications related to diabetes, including vascular leakiness and
nonresponsiveness. Antagonists to RAGE may be useful for preventing these
complications. We are currently attempting to identify lead compounds that block
this receptor.

Competition. Although there are no competing small molecule drugs currently
approved, we are aware of many research programs into apoptosis. To the extent
one of these projects reaches the market ahead of ours, our sales results, if
any, in this program could be materially adversely affected. Two TNF(alpha)
antagonists, EMBREL(R) and REMICADE(R), have been approved for use in rheumatoid
arthritis and Crohn's disease. These are recombinant proteins. If and when
developed, our small molecule drugs may prove to have advantages over these
approved products because recombinant proteins cannot be administered orally and
are difficult to manufacture.

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 and certain skin diseases. One
of the key factors required for angiogenesis is Vascular Endothelial Growth
Factor, often referred to as VEGF. Increases in VEGF expression may be a common
mechanism underlying diverse, yet

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interrelated pathologies such as tumor growth, retinal neovascularization (new
blood vessel development in the back of the eye) and rheumatoid arthritis where
tissue hypoxia (loss of oxygen) 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.

Current Therapies. For solid tumors, current therapy includes tumor
removal, radiation therapy and chemotherapy aimed at eliminating the tumor mass.
Depending on the type of tumor, these therapies have a variable degree of
effectiveness, from highly effective to completely ineffective.

Product Candidate -- VEGF Antagonist. Our research program is directed
toward the development of small molecule inhibitors of VEGF. VEGF is a member of
the heparin binding growth factor family. Our lead compound has been shown to
prevent effectively VEGF function in vitro. The compound also prevents the
vascular actions of VEGF in rodent models of angiogenesis. We are currently
attempting to optimize further our VEGF inhibitor to identify a clinical
candidate. We estimate 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.

Competition. While there are many competitive programs aimed at preventing
angiogenesis, we believe that a selective, orally available VEGF blocker, which
is the type we are seeking to develop, may have significant advantages.

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 stenosis. 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 an acute myocardial infarction 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.

Current Therapies. There is currently no effective treatment to prevent
post angioplasty coronary restenosis.

Product Candidate -- FGF Antagonist. Our research program for vascular
proliferative disease is focused on identifying the factors that activate cell
proliferation and on developing small molecule antagonists to these factors.
Using their knowledge of the signaling pathways through which these factors
stimulate cells to proliferate, our scientists seek to develop compounds that
disrupt the signaling process between cells and prevent unnecessary smooth
muscle cell proliferation. We have focused on FGF because

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of a growing body of evidence that points to its central role in blood vessel
formation. Thus far, our research has shown that some components of the
signaling pathways used by FGF are important for smooth muscle cell
proliferation. Our current focus 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. We estimate that approximately 685,000
annual patient cases exist in the U.S. which could utilize an FGF antagonist in
the treatment of coronary restenosis.

Competition. Many companies are developing strategies for blocking FGF.
However, we are not aware of any FGF antagonists which have entered clinical
development.

RESEARCH AND DEVELOPMENT COLLABORATIONS AND LICENSING AGREEMENTS

We have established, and intend to continue to establish, collaborations
with a number of corporations, research institutions and scientists to further
our research and development objectives and expedite the commercialization of
our products. These collaborations are generally conducted pursuant to
agreements that:

- grant us a license to, or the option to license, technology; or

- grant other companies the right to develop and market certain technology,
patent rights or material that may be valuable to us and our
collaborators.

Our major licensing and collaboration agreements are summarized below:

Mitsubishi. We have entered into an agreement with 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). Under the agreement with Mitsubishi, we have 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. We are required to pay Mitsubishi
specified royalties on net sales of NOVASTAN(R) by us and our
sublicensees after its commercial introduction in the U.S. and Canada.
Either party may terminate the agreement with Mitsubishi on 60 days
notice if the other party defaults in its material obligations under the
agreement, declares bankruptcy or becomes insolvent, or if a substantial
portion of its property is subject to levy. Unless terminated sooner,
the agreement with Mitsubishi 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, we have 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. We have agreed to pay a consultant involved in
the negotiation of this agreement a royalty based on net sales of
NOVASTAN(R).

SmithKline. In connection with our development and
commercialization of NOVASTAN(R), on August 5, 1997, we entered an
agreement with SmithKline whereby SmithKline was granted an exclusive
sublicense in the U.S. and Canada for the indications of NOVASTAN(R)
that we have licensed from Mitsubishi. SmithKline has paid $8.5 million
in upfront license fees and $5.0 million in milestone payments and has
agreed to pay up to an additional $15.0 million in additional milestone
payments based on the clinical development and FDA approval of
NOVASTAN(R) for the HIT and acute myocardial infarction indications. At
this time, SmithKline has no plans to conduct development work for the
acute myocardial infarction and stroke indications. We are evaluating
the feasibility of development of NOVASTAN(R) for ischemic stroke and
other indications.

We were responsible for completing the HIT clinical trials.
SmithKline agreed to pay 60% of the costs for any additional HIT trials
other than Phase IV trials. SmithKline will pay 100% of the costs of
certain Phase IV trials, if such trials are needed. SmithKline is
responsible for the marketing of NOVASTAN(R) in the licensed territory
for those indications which SmithKline

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agrees to develop, subject to our right to use our sales force to
co-promote NOVASTAN(R) on a profit sharing basis following the
regulatory approval of NOVASTAN(R) for additional indications beyond
HIT.

The agreement with SmithKline provides for the formation of a joint
development committee to analyze the development of additional
NOVASTAN(R) indications (such as ischemic stroke) covered by our license
from Mitsubishi. The joint development is to be funded 60% by
SmithKline. Except as discussed below, 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 us and our
rights to co-promote these products through our own sales force in
certain circumstances. We will retain the rights to any indications that
SmithKline determines it does not wish to pursue, subject to the
requirement that we may not grant marketing rights to any third parties,
and must use our own sales force to commercialize any such indications.
Any indications that we and SmithKline elect not to develop will be
returned to Mitsubishi, subject to the rights of SmithKline and us 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 agreement with Mitsubishi
regarding such indication will revert to Mitsubishi subject to our and
SmithKline's right to commercialize the indication, with SmithKline
having the first opportunity to commercialize.

The agreement with SmithKline generally terminates on a country by
country basis upon the earlier of the termination of our rights under
the agreement with Mitsubishi, 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 us at
least three months written notice 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 agreement
on 60 days notice if the other party defaults in its obligations under
the agreement, declares bankruptcy or becomes insolvent. We agreed to
pay an agent involved in the negotiation of this agreement a fee based
on a percentage of all consideration we receive, including royalties,
from sales of NOVASTAN(R).

At present, Mitsubishi is the only manufacturer of NOVASTAN(R), and
has entered into an agreement with SmithKline to supply NOVASTAN(R) in
bulk to meet SmithKline's and our needs. 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 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, our results of operations would
be harmed.

In connection with the execution of our agreement with SmithKline,
SmithKline purchased 176,922 shares of common stock for $1.0 million and
an additional 400,000 shares of common stock for $2.0 million in
connection with the secondary public offering which closed on October 1,
1997.

LG Chemical. On October 10, 1996, we signed a strategic alliance
agreement with LG Chemical to develop and market compounds derived from
our endothelin receptor and selectin antagonist programs in Korea,
China, India and certain other Asian countries, excluding Japan 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. LG Chemical has committed to pay $10.7 million in research
payments. Of this amount, $6.1 million has already been paid, and $1.0
million will be paid on June 30 and December 31 of 2000, and $1.3
million will be paid on June 30 and December 31, 2001. LG Chemical has
the right to terminate future

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research payments if we fail to meet certain milestones, which
milestones will be established by the parties in accordance with the
agreement. LG Chemical will pay us royalties, based on net sales, in
those geographic areas covered by the agreement. We have agreed to pay
our agents in the contract negotiations a commission on all
consideration received including a royalty on net sales.

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. Our policy is to file patent applications
to protect technology, inventions and improvements that are important to the
development of our business. We have 22 pending U.S. patent applications (2 of
which have been allowed) and 19 issued U.S. patents covering compounds including
selectin inhibitors, endothelin antagonists and VCAM/VLA-4 antagonists. In
addition, we have exclusive licenses to three patents covering rational drug
design technology. We have also filed patent applications in certain foreign
jurisdictions covering projects that are the subject of U.S. applications and
intend to file additional patent applications as our research projects develop.
We in-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, we 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 us 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 we believe that the
expiration of the NOVASTAN(R) patents will not have a material adverse effect on
the commercialization of NOVASTAN(R), we cannot assure you that we will be able
to take advantage of either the patent term extension or NDA exclusivity
provisions of the Waxman/Hatch Act. Moreover, even if we receive either a patent
term extension or NDA exclusivity, we cannot assure you that generic
pharmaceutical manufacturers will not ultimately enter the market and compete
with us.

The patent positions of biopharmaceutical firms, including us, are
uncertain and involve complex legal and factual questions. Consequently, we do
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, we cannot be certain that we were the first creator of inventions
covered by our pending patent applications or that we were the first to file
patent applications for such inventions. Moreover, we may have to participate in
interference proceedings declared by the PTO to determine priority of invention,
which could result in substantial cost to us, even if the eventual outcome is
favorable to us. We have no interference proceedings pending which involve
compounds not currently of commercial interest to us. We cannot assure you that
our patents, if issued, would be held valid by a court of competent
jurisdiction. An adverse outcome could subject us to significant liabilities to
third parties, require disputed rights to be licensed from third parties or
require us 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 our applications or conflict in certain respects with claims
made under our applications. Such conflict could result in a significant
reduction of the coverage of our 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, we cannot assure you that we
would be able to obtain licenses to these patents at a reasonable cost or
develop or obtain alternative technology.

We also rely upon trade secret protection for our confidential and
proprietary information. We cannot assure you that others will not independently
develop substantially equivalent proprietary information and
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techniques or otherwise gain access to our trade secrets or disclose such
technology, or that we can meaningfully protect our trade secrets.

We require our employees, consultants, members of our scientific advisory
board, outside scientific collaborators and sponsored researchers and certain
other advisors to enter into confidentiality agreements with us 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 us is to be kept confidential and not disclosed
to third parties except in specific circumstances. In the case of our employees,
the agreements provide that all inventions conceived by the employee are our
exclusive property. We cannot assure you, however, that these agreements will
provide meaningful protection or adequate remedies for our trade secrets in the
event of unauthorized use or disclosure of such information.

GOVERNMENT REGULATION

The research, testing, manufacture and marketing of drug products are
extensively regulated by numerous governmental authorities in the United States
and other countries. In the United States, drugs are subject to rigorous
regulation by the FDA. The Federal Food, Drug and Cosmetic Act, and other
federal and state statutes and regulations, govern, among other things, the
research, development, testing, manufacture, storage, recordkeeping, labeling,
promotion and marketing and distribution of pharmaceutical products. Failure to
comply with applicable regulatory requirements may subject a company to
administrative or judicially imposed sanctions such as:

- warning letters;

- civil penalties;

- criminal prosecution;

- injunctions;

- product seizure;

- product recalls;

- total or partial suspension of production; and

- FDA refusal to approve pending NDA applications or NDA supplements to
approved applications.

The steps ordinarily required before a new pharmaceutical product may be
marketed in the United States include:

- preclinical laboratory tests, animal tests and formulation studies;

- the submission to the FDA of an IND, which must become effective before
clinical testing may commence;

- adequate and well-controlled clinical trials to establish the safety and
effectiveness of the drug for each indication;

- the submission of an NDA to the FDA; and

- FDA review and approval of the NDA prior to any commercial sale or
shipment of the drug.

Preclinical tests include laboratory evaluation of product chemistry and
formulation, as well as animal trials to assess the potential safety and
efficacy of the product. Preclinical tests must be conducted in compliance with
Good Laboratory Practice regulations and compounds for clinical use must be
formulated according to compliance with Good Manufacturing Practice, or cGMP,
requirements. The results of preclinical testing are submitted to the FDA as
part of an IND.

39
<PAGE> 41

A 30-day waiting period after the filing of each IND is required prior to
the commencement of clinical testing in humans. If the FDA has not commented on
or questioned the IND within this 30-day period, clinical trials may begin. If
the FDA has comments or questions, the questions must be answered to the
satisfaction of the FDA before initial clinical testing can begin. In addition,
the FDA may, at any time, impose a clinical hold on ongoing clinical trials. If
the FDA imposes a clinical hold, clinical trials cannot commence or recommence
without FDA authorization and then only under terms authorized by the FDA. In
some instances, the IND application process can result in substantial delay and
expenses.

Clinical trials involve the administration of the investigational new drug
to healthy volunteers or patients under the supervision of a qualified principal
investigator. Clinical trials are conducted in accordance with Good Clinical
Practice, under protocols detailing the objectives of the trial, the parameters
to be used in monitoring safety and the effectiveness criteria to be evaluated.
Each protocol must be submitted to the FDA as part of the IND. The study
protocol and informed consent information for patients in clinical trials must
also be approved by the institutional review board at each institution where the
trials will be conducted.

Clinical trials to support NDAs are typically conducted in three sequential
phases, but the phases may overlap. In Phase I, the initial introduction of the
drug into healthy human subjects or patients, the drug is tested to assess
metabolism, pharmacokinetics and pharmacological actions and safety, including
side effects associated with increasing doses. Phase II usually involves trials
in a limited patient population to:

- determine dosage tolerance and optimal dosage;

- identify possible adverse effects and safety risks; and

- preliminarily support the efficacy of the drug in specific, targeted
indications.

If a compound is found to be effective and to have an acceptable safety
profile in Phase II evaluation, Phase III trials are undertaken to further
evaluate clinical efficacy and to further test for safety within an expanded
patient population at geographically dispersed clinical trial sites. There can
be no assurance that Phase I, Phase II or Phase III testing of our product
candidates will be completed successfully within any specified time period, if
at all.

After completion of the required clinical testing, generally an NDA is
prepared and submitted to the FDA. FDA approval of the NDA is required before
marketing may begin in the United States. The NDA must include the results of
extensive clinical and other testing and the compilation of data relating to the
product's chemistry, pharmacology and manufacture. The cost of an NDA is
substantial.

The FDA has 60 days from its receipt of the NDA to determine whether the
application will be accepted for filing based on the threshold determination
that the NDA is sufficiently complete to permit substantive review. Once the
submission is accepted for filing, the FDA begins an in-depth review of the NDA.
Currently, the FDA takes approximately twelve months in which to review the NDA
and respond to the applicant. In 1997, Congress enacted the Food and Drug
Administration Modernization Act, in part, to ensure the availability of safe
and effective drugs by expediting the FDA review process for new products. This
act establishes a statutory program for the approval of fast track products.
Under this act, the FDA has six months in which to review the NDA and respond to
the applicant. The review process is often significantly extended by FDA
requests for additional information or clarification regarding information
already provided in the submission. The FDA typically will refer the application
to the appropriate advisory committee, typically a panel of clinicians, for
review, evaluation and a recommendation as to whether the application should be
approved. The FDA is not bound by the recommendation of an advisory committee.

If FDA evaluations of the NDA and the manufacturing facilities are
favorable, the FDA may issue an approval letter, or, in some cases, an
approvable letter followed by an approval letter. Both letters usually contain a
number of conditions that must be met in order to secure final approval of the
NDA. When and if those conditions have been met to the FDA's satisfaction, the
FDA will issue an approval letter. The approval letter authorizes commercial
marketing of the drug for specific indications. As a condition of
40
<PAGE> 42

NDA approval, the FDA may require postmarketing testing and surveillance to
monitor the drug's safety or efficacy, or impose other conditions, commonly
referred to as Phase IV clinical trials.

If the FDA's evaluation of either the NDA submission or manufacturing
facilities is not favorable, the FDA may refuse to approve the NDA or issue a
not approvable letter. The not approvable letter outlines the deficiencies in
the submission and often requires additional testing or information.
Notwithstanding the submission of any requested additional data or information
in response to an approvable or not approvable letter, the FDA ultimately may
decide that the application does not satisfy the regulatory criteria for
approval. Once granted, product approvals may be withdrawn if compliance with
regulatory standards is not maintained or problems occur following initial
marketing.

Manufacturing. Each domestic drug manufacturing facility must be registered
with FDA. Domestic drug manufacturing establishments are subject to periodic
inspection by the FDA and must comply with cGMP. Further, we or our third party
manufacturer must pass a preapproval inspection of its manufacturing facilities
by the FDA before obtaining marketing approval of any products. To supply
products for use in the United States, foreign manufacturing establishments must
comply with cGMP and are subject to periodic inspection by the FDA or
corresponding regulatory agencies in countries under reciprocal agreements with
the FDA. We use and will continue to use third party manufacturers to produce
our products in clinical and commercial quantities. There can be no guarantee
that future FDA inspections will proceed without any compliance issues requiring
the expenditure of money or other resources.

Foreign Regulation of Drug Compounds. Whether or not FDA approval has been
obtained, approval of a product by comparable regulatory authorities may be
necessary in foreign countries prior to the commencement of marketing of the
product in those countries. The approval procedure varies among countries and
can involve additional testing. The time required may differ from that required
for FDA approval. Although there are some procedures for unified filings for
some European countries with the sponsorship of the country which first granted
marketing approval, in general each country has its own procedures and
requirements, many of which are time consuming and expensive. Thus, there can be
substantial delays in obtaining required approvals from foreign regulatory
authorities after the relevant applications are filed.

In Europe, marketing authorizations may be submitted at a centralized, a
decentralized or a national level. The centralized procedure is mandatory for
the approval of biotechnology products and provides for the grant of a single
marketing authorization which is valid in all European Union member states. As
of January 1995, a mutual recognition procedure is available at the request of
the applicant for all medicinal products which are not subject to the
centralized procedure. We will choose the appropriate route of European
regulatory filing to accomplish the most rapid regulatory approvals. There can
be no assurance that the chosen regulatory strategy will secure regulatory
approvals on a timely basis or at all.

Hazardous Materials. Our research and development processes involve the
controlled use of hazardous materials, chemicals and radioactive materials and
produce waste products. We are subject to federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
hazardous materials and waste products. Although we believe that our safety
procedures for handling and disposing of hazardous materials comply with the
standards prescribed by laws and regulations, the risk of accidental
contamination or injury from these materials cannot be eliminated completely. In
the event of an accident, we could be held liable for any damages that result.
This liability could exceed our resources or not be covered by our insurance.
Although we believe that we are in compliance in all material respects with
applicable environmental laws and regulations, there can be no assurance that we
will not be required to incur significant costs to comply with environmental
laws and regulations in the future. There can also be no assurance that our
operations, business or assets will not be materially adversely affected by
current or future environmental laws or regulations.

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<PAGE> 43

COMPETITION

General. The development and sale of new drugs for the treatment of
vascular and other inflammatory diseases is highly competitive and we will face
intense competition from major pharmaceutical companies and biotechnology
companies all over the world. Competition is likely to increase as a result of
advances made in the commercial application of technologies and greater
availability of funds for investment in these fields. Companies that complete
clinical trials, obtain required regulatory approvals and initiate commercial
sales of their products before their competitors may achieve a significant
competitive advantage. In addition, significant research in biotechnology and
vascular 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 us in recruiting talented scientists.

We believe that our ability to compete successfully will depend on our
ability to create and maintain scientifically-advanced technology, develop
proprietary products, attract and retain scientific personnel, obtain patent or
other protection for our products, obtain required regulatory approvals and
manufacture and successfully market products through other companies, through
co-promotion agreements or alone. Many of our competitors have substantially
greater financial, marketing, and human resources than we do. We expect to
encounter significant competition.

MANUFACTURING AND MARKETING

We rely on our internal resources and third-party manufacturers to produce
compounds for preclinical development. Currently, we have no manufacturing
facilities for either the production of biochemicals or the manufacture of final
dosage forms. We believe small molecule drugs are less expensive to manufacture
than protein-based therapeutics, and that all of our existing compounds can be
produced using established manufacturing methods, including traditional
pharmaceutical synthesis.

We have established supply arrangements with third-party manufacturers for
certain clinical trials and have established and will establish supply
arrangements ultimately for commercial distribution, although there can be no
assurance that such arrangements will be established on reasonable terms. Our
long-range plan may involve establishing internal manufacturing of small
molecule therapeutics, including the ability to formulate, fill, label, package
and distribute our products. However, for the foreseeable future we plan to
outsource such manufacturing. We do not anticipate developing an internal
manufacturing capability for some time, nor are we able to determine which of
our potential products, if any, will be appropriate for internal manufacturing.
The primary factors we 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
our agreement with SmithKline, SmithKline entered into an agreement with
Mitsubishi regarding the manufacture and supply of NOVASTAN(R), and we will not,
therefore, have any direct responsibility regarding the manufacture and supply
of NOVASTAN(R) as it relates to the agreement with SmithKline.

FACILITIES

We lease 37,500 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,
computer modeling, administrative offices, storage space and additional offices
for scientists. Our lease expires in December 2000 and includes a renewal
option. We may require additional space to accommodate future research and
laboratory needs as necessary to bring products into development and clinical
trials. We believe that these facilities are adequate for our present needs.

EMPLOYEES

As of December 31, 1999, we employed 86 individuals. Of our work force, 71
employees are engaged directly in research and development activities and 15 in
general and administrative positions. None of our employees are represented by a
labor union. We have experienced no work stoppages and believe that
42
<PAGE> 44

relations with our employees are good. We also maintain consulting agreements
with a number of scientists at various universities and other research
institutions.

LEGAL PROCEEDINGS

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. The plaintiffs were two
individuals who purchased our shares on December 16, 1993 following our initial
public offering, or IPO. In their complaint, the plaintiffs sued us, certain
members of our board of directors and certain of our officers alleging
violations of Sections 11, 12 and 15 of the Securities Act of 1933, as amended.
A subsequently filed class action arising out of the initial public offering was
dismissed in June 1996, leaving the first class action as the only pending
litigation arising out of the initial public offering.

In May 1999, we reached an agreement in principle to settle the pending
class action. The agreement in principle achieved with the plaintiff's counsel
provided for dismissal of all claims against us and the officers and directors
named as defendants. The settlement amount is $800,000, of which approximately
$187,500 was paid by us into escrow during January 2000 and approximately
$612,500 will be paid by our insurer.

On December 21, 1999, we and the plaintiffs filed a stipulation of
settlement of all claims against certain defendants. Notification of the
settlement to potential class members was delivered on or about February 4,
2000, and a hearing to approve the settlement is scheduled for April 5, 2000.
The court's approval of the settlement and dismissal of all claims against us
and our directors and officers will become final upon expiration of the deadline
for appeal of that order.

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<PAGE> 45

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Our directors and executive officers and their respective ages and
positions as of December 31, 1999, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
John M. Pietruski...................... 66 Chairman of the Board of Directors
David B. McWilliams.................... 56 President, Chief Executive Officer and
Director
Richard A. F. Dixon, Ph.D.............. 46 Vice President, Research and Director
Stephen L. Mueller..................... 52 Vice President, Finance and
Administration, Secretary and Treasurer
Pamela M. Murphy....................... 49 Vice President, Corporate
Communications
Joseph M. Welch........................ 59 Vice President, Business Development
James T. Willerson, M.D................ 60 Chairman of the Scientific Advisory
Board and Director
Ron J. Anderson, M.D................... 53 Director
Frank C. Carlucci...................... 69 Director
Robert J. Cruikshank................... 69 Director
Suzanne Oparil, M.D.................... 58 Director
James A. Thomson, Ph.D. ............... 55 Director
</TABLE>

John M. Pietruski has served as Chairman of our board of directors 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 Professional Detailing, Inc. 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 our President and Chief Executive Officer
and as a member of the board of directors since July 1992. Mr. McWilliams joined
us after serving as President and Chief Executive Officer of Zonagen, Inc., a
pharmaceutical research company involved in reproductive health, from June 1989
to July 1992, where he was also a director. He was also President and Chief
Executive Officer of Kallestad Diagnostics, a medical diagnostics manufacturing
company, from 1984 to 1988. Mr. McWilliams served as president of E.M.
Industries, Harleco Diagnostics Division from 1980 to 1984. He 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. 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 served as our Vice President -- Research
since December 1992, and as a member of the board of directors since July 1990.
Dr. Dixon served as our scientific Director and Director of Molecular Biology
from July 1990 to December 1992. Dr. Dixon joined us after serving as a director
and head of molecular biology at Merck Sharp & Dohme Research Laboratories, a
division of Merck & Co. from 1988 to July 1990. 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 100
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.

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<PAGE> 46

Stephen L. Mueller has served as Vice President, Finance and Administration
since March 1998, 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 our Director of Finance and
Administration. Prior to joining us, 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.

Pamela M. Murphy joined us in March 1998 as Vice President, Corporate
Communications. In March, 1999, Mrs. Murphy was appointed a corporate executive
officer. Prior to joining us, from July 1997 through March 1998, Mrs. Murphy
served as President of PMM Partners, a marketing communication firm focused on
emerging technology companies. From April 1994 through January 1996, she was
Vice President, Corporate Communications at CYTOGEN Corporation and from
December 1989 through March 1994, she was Vice President, Corporate
Communications and Administration at Greenwich Pharmaceuticals. Mrs. Murphy
received her B.S. in education and psychology from Northern Arizona University
and is currently enrolled in the University of Pennsylvania's executive graduate
program.

Joseph M. Welch has served as Vice President, Business Development since
September 1993, after serving as a consultant to us from April to August 1993.
Prior to joining us, 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 our scientific advisory
board since January 1990 and has been a member of the board of directors 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. In 1995, he was appointed Medical Director of the Texas Heart Institute,
Houston, Texas. 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 nearly 700 manuscripts and
has been editor or co-editor of 18 textbooks. He was selected for membership in
the Institute of Medicine of the National Academy of Science in 1998 and named
"Distinguished Scientist" of the American College of Cardiology for 2000. 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.

Ron J. Anderson, M.D. has served as a member of the board of directors
since December 1997. He has been President and Chief Executive Officer of
Parkland Health & Hospital System since 1982. Parkland is the general public
hospital for Dallas County, Texas and the primary teaching hospital for The
University of Texas Southwestern Medical Center at Dallas. He previously served
as Parkland's Medical Director for Ambulatory Care and Emergency Services. He
served concurrently as head of the Division of Ambulatory Care, which became the
Division of General Internal Medicine under his guidance in the Department of
Internal Medicine at Southwestern. Dr. Anderson has remained on the faculty of
the Medical School as Professor of Internal Medicine. Dr. Anderson is also a
director of the Parkland Foundation and Texans Care for Children. He is the
Chief Executive Officer and serves on the board of directors of Parkland
Community Health Plan and is an advisory board member of Texas Health Choice.
Dr. Anderson is also the Chairman of the Texas Hospital Association, a member of
the boards of directors
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<PAGE> 47

of the National Association of Public Hospitals and National Public Health and
Hospital Institute. In 1997 he was elected to the Institute of Medicine of the
National Academy of Sciences. He has authored and co-authored more than 200
articles on medicine, ethics, and health policy. Dr. Anderson received his
medical degree from the University of Oklahoma and his pharmacy degree from
Southwestern Oklahoma State University where he was selected as a Distinguished
Alumni in 1987.

Frank C. Carlucci has served as a member of the board of directors 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., Pharmacia & Upjohn, Inc., and IRI
International, Inc. Mr. Carlucci is a graduate of Princeton University and
attended the Harvard Graduate School of Business Administration.

Robert J. Cruikshank has served as a member of the board of directors 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 Texas Medical Center. He also serves as a director of
Reliant Energy Incorporated, MAXXAM Incorporated, Kaiser Aluminum Corporation,
Weingarten Realty Investors and an advisory board member of Compass Bank of
Houston. Mr. Cruikshank is a past chairman of the American Heart Association, is
active at the affiliate levels and is a past Regent of the University of Texas
System. Mr. Cruikshank received a B.A. in economics and accounting from Rice
University and completed the Advanced Management Program at Harvard University.

Suzanne Oparil, M.D. has served as a member of the board of directors since
May 1999. She has been a professor of medicine since 1981, Director of the
Vascular Biology and Hypertension since 1985, and professor of physiology and
biophysics since 1993, in the Division of Cardiovascular Disease at The
University of Alabama at Birmingham. She has served as president of the American
Federation of Clinical Research. Dr. Oparil is also a member of the American
Society of Clinical Investigation, the Association of American Physicians, and
of the Institute of Medicine of the National Academy of Sciences. In addition,
she has held advisory positions with the National Institutes of Health,
including membership on a number of task forces, advisory committees and peer
review committees. Dr. Oparil was a past president of the American Heart
Association and is an active volunteer at both the national and affiliate
levels. She was a recipient of the University of Alabama President's Achievement
Award. Dr. Oparil has an extensive bibliography in clinical cardiology and
hypertension, including over 350 journal articles, books and book chapters. Dr.
Oparil received her medical degree from Columbia University, College of
Physicians and surgeons in 1965.

James A. Thomson, Ph.D. has served as a member of the board of directors
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 and analysis in such areas as national
defense, education and health. He also serves as a director of AK Steel Holding
Co. and of Entrust Technologies Corp. 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.

Directors are elected annually by our stockholders and hold office until
the next annual meeting of stockholders or until their resignation or removal.
Each executive officer holds office until his or her

46
<PAGE> 48

successor is elected and qualified or until his or her earlier resignation or
removal. There are no family relationships among any of our directors and
executive officers.

SCIENTIFIC ADVISORY BOARD AND CONSULTANTS

We have assembled a scientific advisory board composed of distinguished
professors from some of the most prestigious medical schools. The scientific
advisory board assists us in identifying research and development opportunities,
in reviewing with management the progress of our projects and in recruiting and
evaluating scientific staff. Although we expect to receive guidance from the
members of our scientific advisory board, all of its members are employed on a
full-time basis by others and, accordingly, are able to devote only a small
portion of their time to us. Management expects to meet with its scientific
advisory board members as a group approximately once each year and individually
from time to time on an informal basis. We have entered into a consulting
agreement with each member of the scientific advisory board. The Scientific
Advisory Board includes James T. Willerson, M.D., as Chairman, and the following
scientists.

Ferid Murad, M.D., Ph.D. is Professor and Chairman of the Department of
Integrative Biology and Pharmacology at the University of Texas-Houston Medical
School and the Director of the Institute of Molecular Medicine. Dr. Murad has
received many honors including the Nobel Prize in Medicine in 1998, the Ciba
Award in 1988 and the Albert and Mary Lasker Award in Basic Medical Research in
1996. He is also a member of many professional and honorary societies and is the
author or co-author of more than 300 scientific articles.

Joseph F. Sambrook, Ph.D. is a Professor of Pathology at Melbourne
University, Australia and Director of Research at Peter MacCallum Cancer
Institute. He is a member of various honorary and professional societies,
editorial boards and is the author of more than 150 scientific articles.
Professor Sambrook previously worked for 20 years in the U.S. where he served on
many blue ribbon government and non-government committees.

Ajit Varki, M.D. has been a Professor of Medicine since 1991 and is
currently serving in that position as well as leader of the glycobiology program
at the University of California, San Diego. Dr. Varki served as Instructor in
Medicine at Washington University School of Medicine from 1980 to 1982. He also
served as Assistant Professor of Medicine from 1982 to 1987 and as Associate
Professor of Medicine from 1987 to 1991 at the University of California, San
Diego. In 1975, Dr. Varki received an M.D. from Christian Medical College and
his Post-Doctorate in Biochemistry from Washington University from 1979 to 1982.
He is a member of various professional societies and has won numerous awards
since 1969. He is currently president of the American Society for Clinical
Investigation. Dr. Varki is the author or co-author of 160 scientific
publications.

Denton Cooley, M.D., Surgeon-in-Chief of the Texas Heart Institute, acts as
an advisory director to us.

We also have agreements with various outside scientific consultants who
assist us in formulating our research and development strategy. All of our
consultants and advisors are employed by other employers and may have
commitments to or consulting or advisory contracts with other entities that may
affect their ability to work with us.

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<PAGE> 49

SELLING STOCKHOLDERS

The following table sets forth the beneficial ownership of our common stock
as of March 1, 2000 by each of the selling stockholders. Each of the selling
stockholders has sole voting and investment power with respect to all shares of
common stock beneficially owned. The selling stockholders will only participate
in this offering if the underwriters exercise their over-allotment option.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
BEFORE OFFERING AFTER OFFERING
-------------------- NUMBER OF SHARES --------------------
NAME OF SELLING STOCKHOLDER(1) NUMBER PERCENT BEING OFFERED NUMBER PERCENT
- ------------------------------ --------- -------- ---------------- --------- --------
<S> <C> <C> <C> <C> <C>
Joseph M. Welch......................... 156,966 * 60,000 96,966 *
Richard A.F. Dixon, Ph.D................ 586,002 1.7% 50,000 536,002 1.3%
David B. McWilliams..................... 719,607 2.1% 50,000 669,607 1.7%
Stephen L. Mueller...................... 179,882 * 25,000 154,882 *
John M. Pietruski....................... 107,074 * 21,429 85,645 *
Ron J. Anderson, M.D. .................. 22,000 * 10,000 12,000 *
Pamela M. Murphy........................ 29,751 * 10,000 19,751 *
James A. Thomson, Ph.D.................. 43,905 * 7,000 36,905 *
</TABLE>

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

* Less than 1%

(1) All persons set forth above are either our directors or executive officers.

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<PAGE> 50

PRINCIPAL STOCKHOLDERS

The following table sets forth the beneficial ownership of our common stock
as of March 1, 2000 by:

- each person who is known by us to be the beneficial owner of more than 5%
of our outstanding common stock;

- each of our executive officers and directors; and

- all of our directors and executive officers as a group.

Unless otherwise noted, each person has sole investment and voting power of
the shares listed. Shares of common stock subject to under options and
outstanding public warrants that are presently exercisable or exercisable within
60 days are deemed to be beneficially owned by the person holding such options.
The information in the following table is based on information supplied by
officers, directors and principal stockholders and filings, if any, filed with
the Securities and Exchange Commission by each person.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
----------------------
PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER CLASS
- ------------------------------------ --------- ----------
<S> <C> <C>
Larry N. Feinberg(1)........................................ 3,476,124 10.0%
Ron J. Anderson, M.D.(2).................................... 22,000 *
Frank C. Carlucci(2)........................................ 81,012 *
Robert J. Cruikshank(2)..................................... 48,219 *
Richard A. F. Dixon, Ph.D.(2)............................... 586,002 1.7%
David B. McWilliams(2)...................................... 719,607 2.1%
Stephen L. Mueller(2)....................................... 179,882 *
Pamela M. Murphy(2)......................................... 29,751 *
Suzanne Oparil, M.D.(2)..................................... 5,000 *
John M. Pietruski(2)........................................ 107,074 *
James A. Thomson, Ph.D.(2).................................. 43,905 *
Joseph M. Welch(2).......................................... 156,966 *
James T. Willerson, M.D.(2)................................. 133,871 *
All directors and executive officers as a group (12
persons)(2)............................................... 2,113,289 6.1%
</TABLE>

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

* Less than 1%

(1) The address of Mr. Feinberg is 712 Fifth Avenue, 45th Floor, New York, New
York 10019. 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.

(2) Includes 42,077 shares, 38,219 shares, 658,745 shares, 146,632 shares,
62,801 shares, 154,966 shares and 29,751 shares of common stock issuable on
exercise of vested options held by Messrs. Carlucci, Cruikshank, McWilliams,
Mueller, Pietruski, Welch and Ms. Murphy respectively, and 22,000 shares,
500,288 shares, 5,000 shares, 32,707 shares and 33,872 shares of common
stock issuable on exercise of vested options held by Drs. Anderson, Dixon,
Oparil, Thomson and Willerson, respectively. These include 38,935 shares,
10,000 shares, 60,862 shares, 33,250 shares, 1,416 shares and 2,000 shares
held directly by Messrs. Carlucci, Cruikshank, McWilliams, Mueller,
Pietruski and Welch respectively, and 85,714 shares, 5,998 shares and 85,714
shares held directly by Drs. Dixon, Thomson and Willerson, respectively.
These include 42,857 shares held by the Pietruski Family Partnership, of
which Mr. Pietruski is the general partner, 200 shares held by Dr. Thomson's
granddaughter, 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 and 5,000 shares issuable on exercise of redeemable
common stock purchase warrants held by Dr. Thomson.

49
<PAGE> 51

UNDERWRITING

PaineWebber Incorporated, Prudential Securities Incorporated, First Union
Securities, Inc. and Sanders Morris Harris are acting as representatives of the
underwriters named below. The underwriters have severally agreed to purchase,
and we have agreed to sell, subject to the terms and conditions set forth in the
underwriting agreement, the number of shares of common stock set forth opposite
their names below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
PaineWebber Incorporated....................................
Prudential Securities Incorporated..........................
First Union Securities, Inc. ...............................
Sanders Morris Harris.......................................
---------
Total............................................. 5,000,000
=========
</TABLE>

In the underwriting agreement, the underwriters have severally agreed,
subject to the terms and conditions set forth therein, to purchase all of the
shares of common stock being sold under the underwriting agreement, other than
those covered by the over-allotment option described below, if any shares of
common stock are purchased. The underwriting agreement provides that the
obligations of the underwriters to purchase shares of common stock are subject
to conditions precedent outlined in the underwriting agreement. The underwriting
agreement also provides that in the event of a default by any underwriter, the
purchase commitments of the nondefaulting underwriters may be increased or the
underwriting agreement may be terminated.

The underwriters propose to offer shares of common stock to the public
initially at the public offering price set forth on the cover page of this
prospectus and to certain selected dealers at such public offering price less a
concession not to exceed $ per share. The underwriters or such selected
dealers may reallow a commission to certain other dealers not to exceed $
per share. After the offering to the public, the public offering price, the
concession to selected dealers and the reallowance to other dealers may be
changed by the underwriters.

We and the selling stockholders have granted the underwriters an option
exercisable for 30 days after the date of this prospectus to purchase up to
750,000 additional shares of common stock to cover over-allotments, if any, at
the offering price less the underwriting discount and commissions. If the
underwriters exercise this option, each underwriter will have a firm commitment,
subject to conditions outlined in the underwriting agreement, to purchase
approximately the same pro rata percentage of additional shares of common stock
as each underwriter purchases in the offering. The underwriters may purchase
these shares of common stock only to cover over-allotments made in connection
with the offering. The following table provides information regarding the amount
of the discount to be paid to the underwriters by us and the selling
stockholders.

<TABLE>
<CAPTION>
TOTAL WITHOUT TOTAL WITH FULL
EXERCISE OF EXERCISE OF
OVER-ALLOTMENT OVER-ALLOTMENT
PER SHARE OPTION EXERCISE
--------- -------------- ---------------
<S> <C> <C> <C>
Texas Biotechnology............................. $ $ $
Selling Stockholders............................
------- ------- -------
Total................................. $ $ $
======= ======= =======
</TABLE>

We will pay all of our and the selling stockholders' expenses associated
with the offering, excluding underwriting discount, which expenses we estimate
to be approximately $10,000.

We have agreed to indemnify the several underwriters against certain civil
liabilities, including liabilities under the federal securities laws or to
contribute to payments which the underwriters may be required to make as a
result of these liabilities.

50
<PAGE> 52

We, our officers and directors have agreed that, for a period of 90 days
from the date of this prospectus, we and they will not, without the prior
written consent of PaineWebber Incorporated, on behalf of the representatives,
offer to sell, sell, contract to sell, grant any option to sell, or otherwise
dispose of, or file with the Securities and Exchange Commission a registration
statement under the Securities Act to register any shares of our common stock or
securities convertible into or exchangeable for any shares of our common stock
or warrants or other rights to acquire shares of our common stock. However, we
are allowed to grant options pursuant to employee stock plant or agreements and
to issue common stock upon the exercise of options granted under these plans or
agreements or the exercise of outstanding warrants.

We expect that the shares of common stock will be ready for delivery in New
York, New York on or about , 2000.

Our common stock is quoted on the American Stock Exchange under the symbol
"TXB".

Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
some 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
transactions that stabilize the price of common stock. These transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the common stock.

In addition, if the representatives sell more shares of common stock than
are set forth on the cover page of this prospectus, or "over-allot," and thereby
create a short position in the common stock in connection with the offering,
then the representatives may reduce that short position by purchasing common
stock in the open market. The representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option.

The representatives may also impose a penalty bid on certain underwriters
and selling group members. This means that if the representatives purchase
shares of common stock in the open market to reduce the underwriters' short
position or to stabilize the price of the common stock, the representatives may
reclaim the amount of the selling concession from the underwriters and selling
group members who sold these shares as part of the offering.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might otherwise be in the absence of these purchases. The imposition of a
penalty bid might also have an effect on the price of a security to the extent
that it were to discourage resales of the security by purchasers in the
offering.

Neither we nor any of the underwriters make 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
we 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.

Prudential Securities Incorporated facilitates the marketing of new issues
online through its PrudentialSecurities.com division. Clients of Prudential
Advisor(sm), a full service brokerage firm program, may view offering terms and
a prospectus online and place orders through their financial advisors.

LEGAL MATTERS

Certain legal matters in connection with the common stock offered hereby
will be passed on for us by Porter & Hedges, L.L.P., Houston, Texas. Shearman &
Sterling, New York, New York has represented the underwriters.

EXPERTS

The consolidated financial statements of Texas Biotechnology Corporation as
of December 31, 1999 and 1998, and for each of the years in the three-year
period ended December 31, 1999, have been
51
<PAGE> 53

included herein and in the registration statement, and have been incorporated by
reference herein and in the registration statement, in reliance upon the report
of KPMG LLP, independent certified public accountants, appearing elsewhere
herein and incorporated by reference herein, and upon the authority of said firm
as experts in accounting and auditing.

The statements in this prospectus in the Risk Factors under the caption
Risks Relating to Intellectual Property, Business and other references herein to
intellectual property matters have been reviewed and approved by Rockey,
Milnamow & Katz, Ltd., Chicago, Illinois, our patent counsel, as experts on such
matters, and are included herein in reliance upon their review and approval.

WHERE YOU CAN FIND MORE INFORMATION

We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, also known as the Exchange Act, and in accordance
therewith, file reports, proxy statements and other information with the
Securities and Exchange Commission, also known as the Commission. These 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. These 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.

We have filed a registration statement with the Commission on Form S-3
(including any amendments thereto, known as the registration statement) under
the Securities Act of 1933 with respect to the shares of common stock offered
hereby. This prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules thereto. You may refer to
the registration statement and the exhibits and schedules thereto for more
information about us and our common stock. 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 us with the
Commission under the Exchange Act are incorporated herein by reference:

(1) Our annual report on Form 10-K for the fiscal year ended December
31, 1999.

(2) A description of our common stock contained in our registration
statement on Form 8-A effective December 15, 1993 (Commission File No.
1-12574), as amended by our proxy materials dated April 22, 1994 and April
4, 1996 relating to its 1994 and 1996 annual shareholders' meetings,
respectively.

(3) Our current report on Form 8-K dated February 22, 2000.

All documents filed by us 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

52
<PAGE> 54

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 us. Requests for such
copies should be directed to Stephen L. Mueller, Vice President, Finance and
Administration, Secretary and Treasurer, at 7000 Fannin Street, 20th Floor,
Houston, Texas 77030, or at (713) 796-8822.

53
<PAGE> 55

TEXAS BIOTECHNOLOGY CORPORATION

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-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 56

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Texas Biotechnology Corporation:

We have audited the accompanying consolidated balance sheets of Texas
Biotechnology Corporation and subsidiary (the "Company") as of December 31, 1999
and 1998, 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, 1999. 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 as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.

KPMG LLP

Houston, Texas
February 25, 2000

F-2
<PAGE> 57

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,804,270 $ 4,176,911
Short-term investments.................................... 11,366,066 24,199,091
Other current receivables................................. 1,067,738 1,426,959
Prepaid expenses.......................................... 1,453,090 963,590
Other current assets...................................... -- 10,400
----------- -----------
Total current assets.............................. 16,691,164 30,776,951
Long-term investments....................................... 1,000,000 2,000,000
Equipment and leasehold improvements, net................... 2,998,431 3,269,438
Other assets................................................ 115,096 59,591
----------- -----------
Total assets...................................... $20,804,691 $36,105,980
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable.......................................... $ 556,664 $ 912,396
Accrued expenses.......................................... 1,657,706 1,957,364
----------- -----------
Total current liabilities......................... 2,214,370 2,869,760
Commitments and contingencies............................... -- --

Stockholders' equity:
Preferred stock, par value $.005 per share. At December
31, 1999 and 1998, 5,000,000 shares authorized; none
outstanding............................................ -- --
Common stock, par value $.005 per share. At December 31,
1999, 75,000,000 shares authorized; 34,392,909 shares
issued and outstanding. At December 31, 1998,
75,000,000 shares authorized; 34,128,017 shares issued
and outstanding........................................ 171,964 170,640
Additional paid-in capital................................ 118,317,599 117,667,479
Accumulated deficit....................................... (99,899,242) (84,601,899)
----------- -----------
Total stockholders' equity........................ 18,590,321 33,236,220
----------- -----------
Total liabilities and stockholders' equity........ $20,804,691 $36,105,980
=========== ===========
</TABLE>

See accompanying notes to consolidated financial statements

F-3
<PAGE> 58

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Research agreements................................. $ 2,082,924 $ 2,251,681 $ 8,400,280
License fee income.................................. -- -- 8,500,000
Products and services............................... -- -- 7,500
----------- ----------- -----------
Total revenues.............................. 2,082,924 2,251,681 16,907,780
----------- ----------- -----------
Expenses:
Research and development............................ 12,793,282 14,122,671 16,833,135
Charge for purchase of in-process research and
development...................................... -- 133,875 1,075,191
General and administrative.......................... 5,798,966 4,597,014 5,759,792
----------- ----------- -----------
Total expenses.............................. 18,592,248 18,853,560 23,668,118
----------- ----------- -----------
Operating loss.............................. 16,509,324 16,601,879 6,760,338
----------- ----------- -----------
Other income:
Interest income..................................... 1,211,981 2,087,707 1,122,900
Other............................................... -- -- 2,253
----------- ----------- -----------
Total other income.......................... 1,211,981 2,087,707 1,125,153
----------- ----------- -----------
Net loss.................................... 15,297,343 14,514,172 5,635,185
Preferred dividend requirement........................ -- 1,690 1,153,282
----------- ----------- -----------
Net loss applicable to common shares........ $15,297,343 $14,515,862 $ 6,788,467
=========== =========== ===========
Net loss per share basic and diluted.................. $ 0.45 $ 0.43 $ 0.24
=========== =========== ===========
Weighted average common shares used to compute basic
and diluted net loss per share................... 34,226,224 33,930,276 27,745,700
=========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements

F-4
<PAGE> 59

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
---------------- --------------------- ADDITIONAL TOTAL
SHARES SHARES PAID-IN ACCUMULATED STOCKHOLDERS'
ISSUED AMOUNT ISSUED AMOUNT CAPITAL DEFICIT EQUITY
------- ------ ---------- -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997............... -- $ -- 25,490,269 $127,451 $ 77,808,331 $(64,308,376) $ 13,627,406
Issuance of common stock for stock option
exercises.............................. -- -- 58,841 294 183,925 -- 184,219
Issuance of common stock for warrant
exercises.............................. -- -- 548,438 2,742 2,028,206 -- 2,030,948
Issuance of convertible preferred stock
through private placement, net of
expenses............................... 6,000 30 -- -- 5,925,239 -- 5,925,269
Issuance of common stock in lieu of board
fees................................... -- -- 2,944 15 14,900 -- 14,915
Compensation expense related to stock
option extensions...................... -- -- -- -- 1,303,094 -- 1,303,094
Conversion of preferred stock into common
shares................................. (5,700) (28) 1,344,149 6,721 123,872 -- 130,565
Issuance of common stock to SmithKline
Beecham plc for cash, net of
expenses............................... -- -- 176,992 885 964,714 -- 965,599
Issuance of common stock through public
offering, net of expenses.............. -- -- 5,750,000 28,750 26,658,771 -- 26,687,521
Issuance of common stock to Genentech,
Inc. pursuant to contract.............. -- -- 214,286 1,071 1,074,120 -- 1,075,191
Net loss................................. -- -- (5,635,185) (5,635,185)
Preferred dividends...................... -- -- -- -- -- (142,476) (142,476)
------- ---- ---------- -------- ------------ ------------ ------------
Balance at December 31, 1997........... 300 $ 2 33,585,919 $167,929 $116,085,172 $(70,086,037) $ 46,167,066
Issuance of common stock for stock option
exercises.............................. -- -- 127,947 640 322,141 -- 322,781
Issuance of common stock for warrant
exercises.............................. -- -- 304,850 1,524 1,091,335 -- 1,092,859
Issuance of common stock in lieu of board
fees................................... -- -- 4,506 23 21,876 -- 21,899
Conversion of preferred stock into common
shares................................. (300) (2) 64,795 324 13,280 -- 13,602
Issuance of common stock to Hedral
Therapeutics, Inc. pursuant to
contract............................... -- -- 40,000 200 133,675 -- 133,875
Net loss................................. -- -- -- -- -- (14,514,172) (14,514,172)
Preferred dividends...................... -- -- -- -- -- (1,690) (1,690)
------- ---- ---------- -------- ------------ ------------ ------------
Balance at December 31, 1998........... -- $ -- 34,128,017 $170,640 $117,667,479 $(84,601,899) $ 33,236,220
Issuance of common stock for stock option
exercises.............................. -- -- 257,720 1,289 514,541 -- 515,830
Issuance of common stock for warrant
exercises.............................. -- -- 1,400 7 11,809 -- 11,816
Issuance of common stock in lieu of board
fees................................... -- -- 5,772 28 23,877 -- 23,905
Compensation expense related to stock
options................................ -- -- -- -- 99,893 -- 99,893
Net loss................................. -- -- -- -- -- (15,297,343) (15,297,343)
------- ---- ---------- -------- ------------ ------------ ------------
Balance at December 31, 1999........... -- $ -- 34,392,909 $171,964 $118,317,599 $(99,899,242) $ 18,590,321
======= ==== ========== ======== ============ ============ ============
</TABLE>

See accompanying notes to consolidated financial statements

F-5
<PAGE> 60

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $(15,297,343) $(14,514,172) $ (5,635,185)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................. 890,822 806,251 751,397
Charge for purchase of in-process research and
development................................. -- 133,875 1,075,191
Expenses paid with stock...................... 23,905 21,899 14,914
Compensation expense related to stock
options..................................... 99,893 -- 1,303,094
Preferred dividends payable not included in
net loss.................................... -- 11,912 (11,912)
Loss on disposition of fixed assets........... 227 11,620 --
Change in operating assets and liabilities:
Increase in prepaid expenses.................. (489,500) (410,005) (6,833)
(Increase) decrease in other current
receivables................................. 359,221 (251,679) (462,205)
Decrease in other current assets.............. 10,400 -- 2,000
Increase in other assets...................... (55,505) -- --
Increase (decrease) in current liabilities.... (655,390) 238,544 (1,296,499)
Decrease in deferred revenue.................. -- -- (625,000)
------------ ------------ ------------
Net cash used in operating activities.... (15,113,270) (13,951,755) (4,891,038)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of equipment and leasehold
improvements.................................. (620,773) (798,247) (585,446)
Proceeds from disposition of equipment and
leasehold improvements........................ 731 3,000 --
Purchase of investments.......................... (17,184,214) (54,391,953) (39,163,424)
Maturity of investments.......................... 30,826,040 57,455,360 21,537,653
Decrease (increase) in interest receivable
included in short-term investments............ 191,199 121,293 (495,727)
------------ ------------ ------------
Net cash provided by (used in) investing
activities............................. 13,212,983 2,389,453 (18,706,944)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net...... -- -- 26,687,521
Proceeds from sale of preferred stock, net....... -- -- 5,925,269
Proceeds from sale of common stock and option and
warrant exercises, net........................ 527,646 1,415,640 3,180,766
------------ ------------ ------------
Net cash provided by financing
activities............................. 527,646 1,415,640 35,793,556
------------ ------------ ------------
Net (decrease) increase in cash and cash
equivalents............................ (1,372,641) (10,146,662) 12,195,574
Cash and cash equivalents at beginning of year..... 4,176,911 14,323,573 2,127,999
------------ ------------ ------------
Cash and cash equivalents at end of year........... $ 2,804,270 $ 4,176,911 $ 14,323,573
============ ============ ============
Supplemental schedule of noncash financing
activities: Issuance of Common Stock for research
and development and services..................... $ 23,905 $ 155,774 $ 1,090,105
============ ============ ============
</TABLE>

See accompanying notes to consolidated financial statements

F-6
<PAGE> 61

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

(a) Organization

Texas Biotechnology Corporation (the "Company" or "TBC") is a
biopharmaceutical company focused on the discovery, development and
commercialization of novel synthetic small molecule compounds for the treatment
of a variety of vascular diseases. Since its formation in 1989, the Company has
been engaged principally in research and drug discovery programs and clinical
development of certain drug compounds. On July 25, 1994, the Company acquired
all of the outstanding Common Stock of ImmunoPharmaceutics, Inc. ("IPI") in
exchange for Common Stock of the Company.

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 compounds and services produced and sold by
IPI, a wholly-owned subsidiary, the Company has not sold any products.

(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 balances
and transactions have been eliminated.

Cash equivalents are considered to be those securities or instruments with
original maturities, when purchased, of three months or less. At December 31,
1999, approximately $996,000 was invested in demand and money market accounts.
Short-term investments are those investments which have a remaining maturity of
less than one year at the balance sheet date. At December 31, 1999, the
Company's short-term investments consisted of approximately $11,366,000 in
Corporate Commercial Paper and Government Agency bonds, and long-term
investments consisted of $1,000,000 in a Government Agency bond with a remaining
maturity of more than one year. Cash equivalents, short-term and long-term
investments are stated at cost plus accrued interest, which approximates market
value. Interest income is accrued as earned. The Company classifies all
short-term and long-term investments as held to maturity.

(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.

(e) Intangible Assets

Intangible assets are amortized on a straight line basis over the estimated
useful lives. As of December 31, 1999 and 1998, the Company had no intangible
assets.

(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 and
benefits for the year ended December 31, 1999, 1998 and 1997, totaled
approximately $6,781,000, $6,286,000 and $5,645,000, respectively, of which
approximately $5,129,000, $4,725,000 and $4,262,000, respectively, was

F-7
<PAGE> 62
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

charged to research and development. Payments related to the acquisition of
in-process research and development are expensed as incurred.

(g) Net Loss Per Common Share

Basic net loss per common share is calculated by dividing the net loss
applicable to common shares after preferred dividend requirements by the
weighted average number of common and common equivalent shares outstanding
during the period. For the years 1999, 1998 and 1997, there were no potential
common shares used in the calculation of weighted average common shares
outstanding. Preferred dividend requirements for the period ended December 31,
1997 included $142,476 of accrued dividends and deemed dividends attributable to
the conversion discount factor at issuance of the Preferred Stock of $1,010,806.
For the years ended December 31, 1999, 1998 and 1997, the weighted average
common shares used to compute basic net loss per common share totaled
34,226,224, 33,930,276 and 27,745,700, respectively. The conversion of
securities convertible into Common Stock and the exercise of stock options and
warrants were not assumed in the calculation of diluted net loss per common
share because the effect would have been antidilutive.

(h) Reclassifications

Certain reclassifications have been made to prior period financial
statements to conform with the December 31, 1999 presentation with no effect on
net loss previously reported.

(i) Revenue Recognition

Revenue from service contracts is recognized as the services are performed
and/or as milestones are achieved. Milestone payments related to contractual
agreements are recognized as the milestones are achieved. Revenue from products
and services is recognized when the products are shipped or the services are
performed. Revenue from licensing fees is recorded when the license is granted.
Revenue from grants is recognized as earned under the terms of the related grant
agreements. 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.

(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.

(2) CAPITAL STOCK

In December, 1993, the Company completed an initial public offering
comprised of 4,082,500 units, each unit consisting of one share of Common Stock
(par value $.005 per share) 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
subsequently separated into its Common Stock and warrant components. The
warrants are exercisable at $8.44 per share. On December 13, 1998, the
expiration date of the warrants was extended from December 14, 1998 to September
30, 1999 for those warrant holders electing such extension. On September 13,
1999, the expiration date of the warrants was further extended to December 31,
2000. There are 3,995,394 warrants

F-8
<PAGE> 63
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

outstanding as of December 31, 1999. 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 for $.001 each and expired on December
15, 1998.

In February 1996, the Company completed a private placement of Common
Stock. The Company issued 6,550,990 shares of Common Stock at $2.125 per share
with proceeds of approximately $13.0 million, net of selling commissions and
expenses of approximately $900,000. In connection with the private placement,
the Company paid selling commissions of $759,283 and issued 730,461 warrants to
purchase Common Stock. These warrants expire on February 13, 2001, with exercise
prices of between $3.05 and $4.58 per share. The resale of the underlying Common
Stock is subject to certain registration rights.

On October 10, 1996 the Company signed a strategic alliance agreement and
Common Stock purchase agreement with LG Chemical, Ltd. ("LG Chemical"), a Korean
corporation. In conjunction with the agreement, LG Chemical purchased 1,250,000
shares of Common Stock for $4.00 per share for a total of $5 million. The
Company's agents in the contract negotiations received $420,000 in commissions
and 113,636 warrants to purchase Common Stock, expiring on October 10, 2001,
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 $5.9 million. The 5%
Preferred was 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. During 1997 and 1998, all 6,000 shares of the 5%
Preferred and accrued dividends of $144,166 on such shares were converted into
1,408,944 shares of Common Stock.

During August 1997 the Company sold 176,992 shares of Common Stock for $1
million less commissions and expenses of approximately $34,000 pursuant to a
commercialization agreement. These shares are subject to certain registration
rights. See note 10.

In October 1997 the Company sold 5,750,000 shares of Common Stock for $5.00
per share pursuant to an underwritten secondary public offering. The net
proceeds to the Company for the 5,750,000 shares sold were approximately $26.7
million after deducting selling commissions and expenses of approximately $2.1
million related to the offering.

In addition, during October 1997 the Company issued 214,286 shares of
Common Stock and a warrant to purchase 142,858 shares of Common Stock
exercisable at $14.00 per share until October 9, 2004, pursuant to a license
agreement. These shares are subject to certain registration rights. See note 9.

(3) STOCK OPTIONS AND WARRANTS

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

F-9
<PAGE> 64
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

independent contractors and non-employee directors, pursuant to which
202,967 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 1,172,079 shares of Common Stock
are reserved for issuance out of authorized but unissued shares of the
Company.

The Amended and Restated Stock Option Plan for Non-Employee Directors
("Director Plan") allows for the issuance of non-qualified options to
non-employee directors, pursuant to which 34,242 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. No new issuances are being made under the
Director Plan.

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 1,953,149 shares of Common Stock
are reserved for issuance out of authorized but unissued shares of the
Company.

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 275,869 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.

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 during 1997. Of the total, approximately $350,000 was charged to
research and development expenses and the remainder to general and
administrative expenses for the difference between the original option
exercise price and fair market value as of the effective date of election.

The 1999 Stock Incentive Plan ("1999 Plan") allows for the issuance of
incentive and non-qualified options, shares of restricted stock and stock
bonuses to directors, employees, officers and non-employee independent
contractors, pursuant to which 1,000,000 shares of Common Stock are
reserved for issuance out of authorized but unissued shares of the Company.

A summary of stock options as of December 31, 1999, 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-$5.59 285,715 152,260 82,748 150,428 50,707
1992 Plan............. $1.41-$5.36 1,700,000 1,038,512 527,921 864,962 133,567
Director Plan......... $3.50-$4.54 71,429 34,242 37,187 34,242 --
1995 Plan............. $1.31-$8.13 2,000,000 1,781,700 46,851 1,063,920 171,449
1995 Director Plan.... $1.38-$5.69 300,000 217,505 24,131 168,505 58,364
1999 Plan............. -- 1,000,000 -- -- -- 1,000,000
--------- --------- ------- ----------- ---------
TOTALS......... 5,357,144 3,224,219 718,838 2,282,057 1,414,087
========= ========= ======= =========== =========
</TABLE>

The Company applies APB Opinion 25 and related interpretations in
accounting for its stock option plans. Had compensation costs for the Company's
stock-based compensation plans been determined
F-10
<PAGE> 65
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

consistent with SFAS No. 123, the Company's pro forma net loss and pro forma net
loss applicable to common shares for the year ended December 31, 1999 would have
been $17,178,428 and $0.50, respectively, for December 31, 1998 would have been
$16,758,119 and $0.49, respectively and for December 31, 1997 would have been
$9,438,748 and $0.34, respectively.

The fair value of options granted during the years ended December 31, 1999,
1998 and 1997 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 4.45 and 6.63 percent, expected life of
between 2 and 7 years, expected volatility of between 57 and 75 percent and no
dividends.

A summary of the status of the Company's stock option plans as of December
31, 1999, 1998 and 1997 and the changes during the years then ended is presented
below:

<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at January 1, 1997............................ 2,168,764 $3.22
Granted................................................. 1,682,909 4.34
Canceled................................................ (986,534) 3.13
Exercised............................................... (58,841) 3.32
Prior Period Adjustments................................ 55,718 --
---------
Outstanding at December 31, 1997.......................... 2,862,016 3.85
Granted................................................. 850,025 6.41
Canceled................................................ (250,800) 5.60
Exercised............................................... (127,947) 2.52
---------
Outstanding at December 31, 1998.......................... 3,333,294 4.42
Granted................................................. 441,050 4.27
Canceled................................................ (292,405) 5.13
Exercised............................................... (257,720) 2.51
---------
Outstanding at December 31, 1999.......................... 3,224,219 $4.53
=========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Weighted-average fair value of options granted during
the period at an exercise price equal to market at
issue date............................................ $2.16 $4.06 $3.45
</TABLE>

The following tables summarize information about the Company's stock
options outstanding as of December 31, 1999, 1998 and 1997, respectively:

<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
OPTIONS AVERAGE AVERAGE OPTIONS AVERAGE
OPTION OUTSTANDING REMAINING EXERCISE PRICE EXERCISABLE EXERCISE PRICE
EXERCISE PRICE AS OF 12/31/99 CONTRACTUAL LIFE OF OUTSTANDING AS OF 12/31/99 OF EXERCISABLE
- -------------- -------------- ---------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$1.31-$3.50 890,096 3.77 $2.33 888,430 $2.33
$3.51-$5.88 1,793,473 6.92 $4.81 1,187,886 $4.93
$5.89-$8.13 540,650 8.17 $7.20 205,741 $7.20
--------- ---------
$1.31-$8.13 3,224,219 6.26 $4.53 2,282,057 $4.12
</TABLE>

F-11
<PAGE> 66
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
OPTIONS AVERAGE AVERAGE OPTIONS AVERAGE
OPTION OUTSTANDING REMAINING EXERCISE PRICE EXERCISABLE EXERCISE PRICE
EXERCISE PRICE AS OF 12/31/98 CONTRACTUAL LIFE OF OUTSTANDING AS OF 12/31/98 OF EXERCISABLE
- -------------- -------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$1.31-$3.50 1,141,454 4.27 $2.23 1,126,954 $2.21
$3.51-$5.88 1,640,190 7.21 $5.01 976,128 $4.95
$5.89-$8.13 551,650 9.17 $7.20 38,167 $7.19
--------- ---------
$1.31-$8.13 3,333,294 6.53 $4.42 2,141,249 $3.55
</TABLE>

<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
OPTIONS AVERAGE AVERAGE OPTIONS AVERAGE
OPTION OUTSTANDING REMAINING EXERCISE PRICE EXERCISABLE EXERCISE PRICE
EXERCISE PRICE AS OF 12/31/97 CONTRACTUAL LIFE OF OUTSTANDING AS OF 12/31/97 OF EXERCISABLE
- -------------- -------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$1.31-$3.50 1,222,528 5.16 $2.17 1,047,958 $2.28
$3.51-$5.88 1,639,488 7.94 $5.09 573,482 $4.75
--------- ---------
$1.31-$5.88 2,862,016 6.75 $3.85 1,621,440 $3.16
</TABLE>

The fair value of warrants issued during the years ended December 31, 1999,
1998 and 1997 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 between 6.12 and 6.63 percent, expected
life of between 3 and 7 years, expected volatility of between 57 and 75 percent
and no dividends. During 1999, 105,000 new warrants were issued for non-employee
services at an exercise price of $4.25 expiring on August 14, 2004. Several
existing warrants were exchanged by the original holder for the benefit of a new
holder with terms identical to those of the original.

A summary of the status of the Company's warrants as of December 31, 1999,
1998 and 1997, and changes during the years then ended is presented below:

<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
WARRANTS EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Outstanding at January 1, 1997........................... 5,490,541 $ 7.23
Issued................................................. 142,858 14.00
Forfeited.............................................. -- --
Canceled............................................... (356,453) 3.60
Exercised.............................................. (549,095) 3.69
Reissued............................................... 356,453 3.60
----------
Outstanding at December 31, 1997......................... 5,084,304 7.80
Issued................................................. -- --
Forfeited.............................................. (40,662) 3.50
Canceled............................................... (4,366,218) 8.14
Exercised.............................................. (304,850) 3.58
Reissued............................................... 4,283,398 8.13
----------
Outstanding at December 31, 1998......................... 4,655,972 8.10
Issued................................................. 105,000 4.25
Forfeited.............................................. -- --
Canceled............................................... (54,773) 3.60
Exercised.............................................. (1,400) 8.44
Reissued............................................... 56,173 3.60
----------
Outstanding at December 31, 1999......................... 4,760,972 $ 8.01
==========
</TABLE>

F-12
<PAGE> 67
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On November 12, 1998, the Company announced an extension of the exercise
period of the Company's publicly traded redeemable common stock purchase
warrants from December 14, 1998 to September 30, 1999 for those warrant holders
electing such extension. On September 13, 1999, the expiration date of the
warrants was further extended to December 31, 2000. These publicly traded
warrants comprise 3,995,394 of the 4,760,972 warrants outstanding at December
31, 1999. The exercise price of $8.44 remains unchanged. The publicly traded
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.

In addition, at December 31, 1997, there were outstanding underwriter
purchase options ("UPOs"), which were issued to the underwriters in the
Company's initial public offering in 1993, to purchase 355,000 units at $11.14
each. Each unit consists of one share of Common Stock and a warrant to purchase
one share of Common Stock at an exercise price equal to $11.14. The UPOs expired
on December 15, 1998.

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Weighted-average fair value of warrants issued
during the year ended at an exercise price
equal to market at issue date................. $1.98 $ -- $ --
Weighted-average fair value of warrants issued
during the year ended at an exercise price
greater than market at issue date............. $ -- $ -- $2.71
</TABLE>

The warrants shown above for 1999 were issued in connection with
non-employee services at an exercise price equal to market price at issue date.
The warrants shown above for 1997 were issued pursuant to a license agreement at
an exercise price in excess of market price at issue date. See note 9.

(4) INCOME TAXES

The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, 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
carryforwards. 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, 1999 and 1998, the net deferred tax asset, representing
primarily net operating loss carryforwards and start-up costs deferred for tax
purposes, totaled approximately $35,235,000 and $29,572,000, respectively. The
Company has established a valuation allowance for the full amount of these
deferred tax assets, as management believes that it is not more likely than not
that the Company will recover these assets. The Company did not incur any tax
expense in any year due to operating losses and the related increase in the
valuation allowance.

At December 31, 1999, 1998 and 1997, the Company had net operating loss
carryforwards of approximately $64,276,000, $54,192,000 and $44,375,000,
respectively, for federal income tax return purposes. Utilization of the
Company's net operating loss carryforwards is subject to certain limitations due
to specific stock ownership changes which have occurred or may occur. To the
extent not utilized, the carryforwards will expire during the years beginning
2002 through 2019.

F-13
<PAGE> 68
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(5) EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Laboratory and office equipment............................ $ 5,760,113 $ 5,418,849
Leasehold improvements..................................... 3,974,942 3,701,772
----------- -----------
9,735,055 9,120,621
Less accumulated depreciation and amortization............. 6,736,624 5,851,183
----------- -----------
$ 2,998,431 $ 3,269,438
=========== ===========
</TABLE>

(6) COMMON STOCK RESERVED

The Company has reserved Common Stock for issuance as of December 31, 1999
as follows:

<TABLE>
<S> <C> <C>
Stock option plans.......................................... 4,638,306
Common Stock issuable under licensing agreement (see note
9)........................................................ 71,429
Publicly traded warrants outstanding........................ 3,995,394
Other warrants outstanding.................................. 765,578
---------
Total shares reserved............................. 9,470,707
=========
</TABLE>

(7) CLINICAL RESEARCH AGREEMENTS

In November 1997, the Company entered into an agreement with Coromed, Inc.
to coordinate the clinical evaluation of TBC11251 to determine acute hemodynamic
efficacy and safety in congestive heart failure. Coromed, Inc. is currently
completing the final report for this study.

(8) RESEARCH AGREEMENTS

On October 10, 1996, the Company signed a strategic alliance agreement with
LG Chemical, a Korean corporation, to develop and market compounds derived from
the Company's endothelin receptor antagonist and selectin antagonist programs
for certain disease indications. Upon consummation of the transaction, LG
Chemical purchased 1,250,000 shares of Common Stock for $4.00 per share for a
total of $5 million. In addition, LG Chemical has committed to pay $10.7 million
in research payments. Of this amount, $6.1 million has been paid (of which $1.0
million was a receivable at December 31, 1999) and $1.0 million will be paid on
June 30 and December 31, 2000, and $1.3 million 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 from time to time 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 will pay its agents in the contract negotiations, a
commission on all future research payments as well as a royalty on net sales.

During 1998, the Company entered into an agreement to license rights to
certain technology related to the research programs licensed from Hedral
Therapeutics, Inc. Upon execution of the agreement, the Company paid a license
fee of 40,000 shares of restricted Common Stock valued at $133,875. The
agreement includes a total of 40,000 additional shares of Common Stock to be
paid upon reaching certain milestones and cash royalty payments based on net
sales in the event a product is developed and commercialized under this
agreement.

F-14
<PAGE> 69
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(9) LICENSE AGREEMENT

TBC has entered into an agreement with Mitsubishi-Tokyo Pharmaceuticals
("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 all 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). See note 10.

In exchange for the license to the Genentech, Inc, (the "Former Licensor")
NOVASTAN(R) technology, TBC issued the Former Licensor 285,714 shares of Common
Stock during 1993 and issued an additional 214,286 shares of Common Stock on
October 9, 1997, after acceptance of the filing of the first New Drug
Application ("NDA") with the United States Food and Drug Administration (the
"FDA") for NOVASTAN(R). The Company recorded a $1,075,191 noncash charge to
in-process research and development expense during the fourth quarter of 1997.
An additional 71,429 shares of Common Stock will be issued to the Former
Licensor within ten days after the FDA's first approval of an NDA for
NOVASTAN(R). Upon approval, the value of the stock will be charged to expense
over future periods based on the remaining patent life of NOVASTAN(R).
Additionally, on October 9, 1997, upon acceptance of the filing of the first NDA
for NOVASTAN(R) with the FDA, the Company granted 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, which expires on October 9, 2004. The
Company will not be required to make any cash payment if the approval of the NDA
does 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"). In conjunction with this
agreement, the Company agreed to make certain payments to Mitsubishi, which are
included in research and development expense, 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. In certain
circumstances, Mitsubishi and TBC will share equally in all upfront payments and
royalties should Mitsubishi use TBC's regulatory documents and data for
registration in certain territories. See note 10.

F-15
<PAGE> 70
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(10) COMMERCIALIZATION AGREEMENT

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. SmithKline paid $8.5 million in upfront license fees during August
1997, a $5 million milestone payment in October 1997, and will make additional
milestone payments based on the clinical development and FDA approval of
NOVASTAN(R) for the heparin-induced thrombocytopenia ("HIT") and HIT with
thrombosis syndrome and acute myocardial infarction indications. Future
milestone payments for the acute myocardial infarction indication are subject to
SmithKline's agreement to market NOVASTAN(R) for such indication. 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. At this
time, SmithKline has no plans to conduct development work for the acute
myocardial infarction and stroke indications. TBC is evaluating the feasibility
of development of NOVASTAN(R) for ischemic stroke and other indications.
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 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 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, SmithKline
purchased 176,992 shares of TBC's Common Stock for $1.0 million and additional
400,000 shares of Common Stock for $2.0 million in connection with the secondary
public offering, which closed on October 1, 1997.

F-16
<PAGE> 71
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(11) REGULATORY FILING

On February 18, 2000, the Company received an approvable letter from the
FDA for NOVASTAN(R) as an anticoagulant for prevention or treatment of
thrombosis in patients with HIT. The Company is in the process of satisfying FDA
requirements for securing the final approval letter for NOVASTAN(R).

(12) 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 $10,000 per employee in 1999. 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
1999.

(13) 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 six
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
months to three years of annual base salary and annual bonus, if any. The base
salary portion of the agreements would aggregate approximately $2.2 million at
the 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 months to three 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.

(b) Lease Agreements

The Company renegotiated its noncancelable lease agreement which began
December 1, 1990 for its facilities in Houston, Texas and executed a new lease
agreement. The new lease was effective January 1, 1995 and calls for a lease
term of six years. Currently, the lease calls for an annual rate of $871,856
through December 2000, subject to adjustments based on certain variable building
operating expenses. In addition, the lease has a five year renewal provision.
For the years ended December 31, 1999, 1998, 1997, rent and related building
services totaled approximately $1,027,000, $958,000 and $956,000, respectively,
of which approximately $863,000, $820,000 and $851,000, respectively, was
charged to research and development expense.

Total committed lease payments from January 1, 2000 through December 31,
2000 equal $871,856. The Company has also committed to pay for seventy-four
parking spaces during the lease at the facility established rate charged, which
currently approximates $44,000 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 $262,000 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, 1999
totaled approximately $50,000, and which are being amortized on a straight line
basis over the lease term.

F-17
<PAGE> 72
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 were two
individuals who purchased the Company's shares on December 16, 1993 following
the Company's initial public offering ("IPO"). In their complaint, plaintiffs
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 of 1933, as
amended. A subsequently filed class action arising out of the IPO was dismissed
in June 1996, leaving the first class action as the only pending litigation
arising out of the IPO.

In May 1999, the Company reached an agreement in principle to settle the
pending class action. The agreement in principle achieved with plaintiff's
counsel provides for dismissal of all claims against the Company and the
officers and directors named as defendants. The settlement amount is $800,000,
of which approximately $187,500 was paid by the Company into escrow during
January 2000 and approximately $612,500 will be paid by the Company's insurer.

On December 21, 1999, the Company and the plaintiffs filed a Stipulation of
Settlement of All Claims Against Certain Defendants. Notification of the
settlement to potential class members was delivered on or about February 4,
2000, and a hearing to approve the settlement is scheduled for April 5, 2000.
The Court's approval of the settlement and dismissal of all claims against the
Company and its directors and officers will become final upon expiration of the
deadline for appeal of that Order.

F-18
<PAGE> 73

[INSIDE BACK COVER GRAPHICS AND TEXT TO COME]
<PAGE> 74

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

WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM
THAT CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS
TO BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF
THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY
SALE OF OUR COMMON STOCK.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 7
Use of Proceeds............................ 17
Price Range of Common Stock................ 18
Dividend Policy............................ 18
Capitalization............................. 19
Dilution................................... 20
Selected Financial Data.................... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 22
Business................................... 26
Management................................. 45
Selling Stockholders....................... 48
Principal Stockholders..................... 49
Underwriting............................... 50
Legal Matters.............................. 51
Experts.................................... 51
Where You Can Find More Information........ 52
Incorporation of Certain Documents by
Reference................................ 52
Index to Consolidated Financial
Statements............................... F-1
</TABLE>

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

5,000,000 SHARES

[LOGO]

TEXAS BIOTECHNOLOGY CORPORATION

COMMON STOCK

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

PROSPECTUS

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

PAINEWEBBER INCORPORATED

PRUDENTIAL VECTOR HEALTHCARE
A UNIT OF PRUDENTIAL SECURITIES

FIRST UNION SECURITIES, INC.

SANDERS MORRIS HARRIS
, 2000

- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 75

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the various expenses, all of which will be
borne by us, in connection with the sale and distribution of the securities
being registered, other than the underwriting discounts and commissions. All
amounts shown are estimates except for the Securities and Exchange Commission
registration fee, the NASD filing fee and the American Stock Exchange listing
fee.

<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 32,779
NASD Fee.................................................... 12,916
American Stock Exchange Listing Fee......................... 17,500
Transfer agent and Registrar fees........................... 5,000
Accounting fees and expenses................................ 100,000
Legal fees and expenses..................................... 175,000
Printing and mailing expenses............................... 150,000
Miscellaneous............................................... 75,305
--------
Total............................................. $568,500
========
</TABLE>

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

All expenses are estimated except for the SEC registration fee, the NASD
fee and the American Stock Exchange listing fee.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the General Corporation Law of Delaware, commonly referred
to as 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.

II-1
<PAGE> 76

As permitted by the DGCL, our By-laws provide that it will indemnify the
directors, officers, employees and agents of ours against certain liabilities
that they may incur in their capacities as directors, officers, employees and
agents. Furthermore, our Certificate of Incorporation, as amended, indemnifies
the directors, officers, employees, and our agents to the maximum extent
permitted by the DGCL. We have also entered into indemnification agreements with
its officers and directors providing for indemnification to the maximum extent
permitted under the DGCL. We have director and officer liability insurance
policies that provide coverage of up to $10.0 million.

ITEM 16. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1(1) -- Form of Underwriting Agreement
4.1 -- Article Fourth and Ninth of the Certificate of
Incorporation, as amended (Incorporated by reference to
Exhibit 3.1 to our 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 our 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 our 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 our 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 our Form 10-Q
(File No. 1-12574) for the quarter ended September 30,
1996.)
5.1(2) -- Opinion of Porter & Hedges, L.L.P. with respect to
legality of the securities, including consent.
23.1(3) -- Consent of KPMG LLP
23.2(2) -- Consent of Porter & Hedges, L.L.P. (included in Exhibit
5)
23.3(2) -- Consent of Rockey, Milnamow & Katz, Ltd.
24.1(2) -- Power of Attorney (contained in signature page)
27.1(2) -- Financial Data Schedule
</TABLE>

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

(1) To be filed by amendment.

(2) Previously filed.

(3) Filed herewith.

ITEM 17. UNDERTAKINGS

Item 512(b) of Regulation S-K

The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in this Registration Statement shall
be deemed to be a new registration statement relating to the securities offered
therein and the offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof.

Item 512(h) of Regulation S-K

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the indemnification provisions described herein, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and
II-2
<PAGE> 77

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

Item 512(i) of Regulation S-K

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act will be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-3
<PAGE> 78

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, 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 15th day of
March, 2000.

TEXAS BIOTECHNOLOGY CORPORATION

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

Pursuant to the requirements of the Securities Act of 1933, Amendment No. 1
to this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

* Director, Chairman of the Board March 15, 2000
- ----------------------------------------------------- of Directors
John M. Pietruski

/s/ DAVID B. MCWILLIAMS Director, President and Chief March 15, 2000
- ----------------------------------------------------- Executive Officer (Principal
David B. McWilliams Executive Officer)

* Director, Vice President, March 15, 2000
- ----------------------------------------------------- Research
Richard A. F. Dixon, Ph.D.

/s/ STEPHEN L. MUELLER Vice President, Finance and March 15, 2000
- ----------------------------------------------------- Administration, Secretary and
Stephen L. Mueller Treasurer (Principal Financial
and Accounting Officer)

* Director March 15, 2000
- -----------------------------------------------------
Frank C. Carlucci

* Director March 15, 2000
- -----------------------------------------------------
James T. Willerson, M.D.

* Director March 15, 2000
- -----------------------------------------------------
Robert J. Cruikshank

* Director March 15, 2000
- -----------------------------------------------------
Suzanne Oparil, M.D.

* Director March 15, 2000
- -----------------------------------------------------
James A. Thomson, Ph.D.

* By: /s/ STEPHEN L. MUELLER March 15, 2000
-----------------------------------------------
Stephen L. Mueller
individually and as attorney in fact
</TABLE>

II-4
<PAGE> 79

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ----------------------
<C> <S>
1.1(1) -- Form of Underwriting Agreement
4.1 -- Article Fourth and Ninth of the Certificate of
Incorporation, as amended (Incorporated by reference to
Exhibit 3.1 to our 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 our 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 our 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 our 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 our Form 10-Q
(File No. 1-12574) for the quarter ended September 30,
1996.)
5.1(2) -- Opinion of Porter & Hedges, L.L.P. with respect to
legality of the securities, including consent.
23.1(3) -- Consent of KPMG LLP
23.2(2) -- Consent of Porter & Hedges, L.L.P. (included in Exhibit
5)
23.3(2) -- Consent of Rockey, Milnamow & Katz, Ltd.
24.1(2) -- Power of Attorney (contained in signature page)
27.1(2) -- Financial Data Schedule
</TABLE>

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

(1) To be filed by amendment.

(2) Previously filed.

(3) Filed herewith.

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Texas Biotechnology Corporation:

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

/s/ KPMG LLP
KPMG LLP

Houston, Texas
March 15, 2000