TRIMERIS INC, 424B1, 1997-10-07

TRIMERIS INC
424B1, 1997-10-07
COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH

Previous: TRIMERIS INC, S-1MEF, 1997-10-07

Next: GST TELECOMMUNICATIONS INC, 10-K/A, 1997-10-07

<PAGE>
PROSPECTUS

2,750,000 Shares

(logo appears here)

Trimeris, Inc.

Common Stock

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

All of the 2,750,000 shares of Common Stock offered hereby (the
"Offering") are being sold by Trimeris, Inc., a development stage company with a
limited operating history ("Trimeris" or the "Company"). The Company has
incurred losses since its inception, had an accumulated deficit of approximately
$21.4 million as of June 30, 1997, and expects to incur substantial losses for
the foreseeable future. Prior to this Offering, there has been no public market
for the Common Stock of the Company. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price. The Common
Stock has been approved for quotation on the Nasdaq National Market under the
symbol "TRMS."

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," BEGINNING ON PAGE 6.

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

[CAPTION]
<TABLE>
<S> <C> <C> <C>
Price to Underwriting Discounts Proceeds to
Public and Commissions(1) Company(2)
<S> <C> <C> <C>
Per Share............................... $12.00 $0.84 $11.16
Total(3)................................ $33,000,000 $2,310,000 $30,690,000
</TABLE>

1. For information regarding indemnification of the Underwriters, see
"Underwriting."
2. Before deducting expenses of the Offering payable by the Company, estimated
at approximately $800,000.
3. The Company has granted the Underwriters an option, exercisable within 30
days from the date hereof, to purchase up to 412,500 additional shares of
Common Stock on the same terms and conditions as set forth above, solely to
cover over-allotments, if any. If such option is exercised in full, total
Price to Public will be $37,950,000, Underwriting Discounts and Commissions
will be $2,656,500 and Proceeds to Company will be $35,293,500. See
"Underwriting."

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

The shares of Common Stock offered by the Underwriters are subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and to certain other
conditions. It is expected that delivery of such shares will be made through the
offices of UBS Securities LLC, 299 Park Avenue, New York, New York, on or about
October 10, 1997.

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

UBS Securities NationsBanc Montgomery Securities, Inc.

OCTOBER 7, 1997

<PAGE>
[Model for T-20 inhibition of HIV Fusion and
infection of a host cell as more fully described on page 25]

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

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE
IN THIS PROSPECTUS, INCLUDING THE INFORMATION UNDER "RISK FACTORS." THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE SET FORTH UNDER "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.

THE COMPANY

Trimeris is a biopharmaceutical company engaged in the discovery and
development of novel therapeutic agents that block viral infection by inhibiting
viral fusion with host cells. Viral fusion is a complex process by which viruses
attach to and penetrate host cells. The Company's lead product candidate, T-20,
inhibits fusion of the Human Immunodeficiency Virus-1 ("HIV") with host cells.
T-20 has been tested in a multidose Phase I/II clinical trial as a monotherapy
for HIV-infected patients in the United States. The results from this clinical
trial indicate that short-term administration of T-20 in an intravenous
formulation is safe and well tolerated. Furthermore, all four patients in the
clinical trial who received the highest dose of T-20 experienced a reduction in
HIV viral load to below detectable levels (less than 500 copies/ml) during the
treatment period. T-20 and the Company's other product candidates are designed
to inhibit viral fusion, unlike other currently approved therapeutic agents that
target replicating viruses inside already infected cells. The Company has
developed a proprietary technology platform in the field of fusion inhibition,
which is being applied to the discovery and development of novel products for
the treatment of a variety of viral diseases.

T-20 is a proprietary 36 amino acid synthetic peptide which has
demonstrated significant inhibition of HIV in preclinical testing. In the Phase
I/II clinical trial, no drug-related adverse events were recorded and no
dose-limiting toxicities were observed for any patient during the treatment
period. A dose-dependent decrease in HIV viral load and a dose-dependent
increase in the patients' CD4+ T-cell count were also observed. All four
patients who received the highest dose of T-20 (100 mg every 12 hours for 14
consecutive days) experienced a decrease in HIV viral load to below detectable
levels (less than 500 copies/ml) during the treatment period.

The Company is preparing to begin a Phase II clinical trial in HIV-infected
patients in the United States that will compare delivery of a constant
therapeutic dose by a continuous, subcutaneous infusion pump to delivery by
intermittent, subcutaneous injections. The Company believes that delivery of a
continuous therapeutic dose may inhibit viral fusion more effectively than other
delivery mechanisms. After completion of the continuous, subcutaneous infusion
Phase II trial, the Company intends to begin a Phase II pivotal trial in a
larger population of HIV-infected patients who are either resistant to, or
intolerant of, currently approved antiviral therapies. Concurrently with the
start of the pivotal Phase II clinical trial, the Company intends to begin a
trial of T-20 in HIV-infected pediatric patients. In addition, throughout the
T-20 clinical process, the Company intends to work with the United States Food
and Drug Administration (the "FDA") to design and implement a clinical trial
strategy involving the administration of T-20 to HIV-infected patients in
combination with approved HIV antiviral agents.

HIV infection causes Acquired Immunodeficiency Syndrome ("AIDS"), which is
one of the leading causes of death in the United States of men and women between
the ages of 25 and 44. Currently approved HIV antivirals inhibit reverse
transcriptase ("RT") and protease, two viral enzymes which are required for HIV
replication. RT and protease inhibitors must penetrate HIV-infected host cells
in order to be effective. HIV is prone to mutations that produce resistance to
RT and protease inhibitors. In an effort to overcome drug resistance, physicians
have begun to use RT and protease inhibitors in various combinations. While
combination therapy with RT and protease inhibitors represents an advance in the
treatment of HIV infection, it has not yet proven to be a cure. Moreover,
although these combinations have slowed the emergence of resistance, new mutant
strains have been identified which are resistant to several of the drugs
currently used in combination therapy. Due to the complexity of the dosing
regimens for many combination therapies, which can include 14-16 pills taken at
six to eight specific times

<PAGE>
during the day, and the toxic side effects that can result from the use of such
drugs, many patients are unable to, or fail to, follow the recommended dosing
regimens. Such noncompliance leads to a reduction in the effectiveness of such
drugs and an increased opportunity for the development of resistance.

The Company believes that T-20 may offer a new paradigm for the treatment
of HIV. Preclinical testing and early clinical trial results suggest that T-20
is less toxic than currently approved HIV antivirals. The Company believes that
T-20's reduced toxicity is due to its unique extracellular mechanism of action
and its chemical structure. Furthermore, the Company believes that the delivery
of a continuous therapeutic dose of T-20 by subcutaneous infusion will enhance
patient compliance, thereby reducing the likelihood of the development of
resistance.

Through its study of the HIV fusion process, the Company has developed a
proprietary technology platform aimed at discovering antiviral compounds to
treat other diseases. The cornerstone of this platform is the Company's
Computerized Anti-Fusion Searching Technology ("CAST"), a proprietary computer
algorithm which identifies target sequences within certain viral proteins that
have the potential to interact during the fusion process. CAST has enabled the
Company to design product candidates for Respiratory Syncytial Virus ("RSV") and
Human Parainfluenza Virus ("HPIV") fusion inhibition. The Company has
identified, and filed patent applications disclosing, numerous discrete peptide
sequences, which include potential fusion targets in other viruses such as
hepatitis B and C, influenza and herpes.

T-786 is the Company's lead product candidate for treatment of RSV
infection, which is a significant cause of pediatric bronchiolitis and
pneumonia. T-786 is a proprietary 35 amino acid synthetic peptide which shows
potent, specific and selective inhibition of RSV infection IN VITRO. T-786
significantly reduced the level of viral infection in an animal model.
Preclinical testing of T-786 is currently in progress. Upon successful
completion of these preclinical tests, the Company anticipates that it will
begin clinical trials with T-786 in 1998.

The Company was incorporated under Delaware law as SL-1 Pharmaceuticals,
Inc. on January 7, 1993 and changed its name to Trimeris, Inc. on February 11,
1993. The Company's principal executive office is located at 4727 University
Drive, Durham, North Carolina 27707, and its telephone number is (919) 419-6050.
------------------------

UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES
THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED, (II) REFLECTS THE
AUTOMATIC CONVERSION UPON THE COMPLETION OF THIS OFFERING OF ALL OUTSTANDING
SHARES OF PREFERRED STOCK INTO 6,261,615 SHARES OF COMMON STOCK (THE "PREFERRED
STOCK CONVERSION"), AND (III) REFLECTS THE FILING OF A THIRD AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION OF THE COMPANY WHICH, AMONG OTHER THINGS,
WILL AUTHORIZE 10,000,000 SHARES OF UNDESIGNATED PREFERRED STOCK. SEE
"DESCRIPTION OF CAPITAL STOCK," "CAPITALIZATION" AND "UNDERWRITING."

THE COMPANY HAS FILED FOR REGISTRATION OF "TRIMERIS" AND THE COMPANY'S LOGO
AS TRADEMARKS AND SERVICE MARKS OF THE COMPANY. THIS PROSPECTUS ALSO INCLUDES
TRADEMARKS AND TRADE NAMES OF COMPANIES OTHER THAN THE COMPANY.

<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered.................................. 2,750,000 shares
Common Stock Outstanding after this Offering.......... 10,114,676 shares (1)
Use of Proceeds....................................... To fund increased research and development activities, to
fund the expansion of facilities, to provide working
capital and to fund other general corporate purposes. See
"Use of Proceeds."
Nasdaq National Market Symbol......................... TRMS
</TABLE>

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

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

TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)

<TABLE>
<CAPTION>
FOR THE
PERIOD FROM INCEPTION FOR THE SIX MONTHS ENDED CUMULATIVE
(JANUARY 7, 1993) YEARS ENDED DECEMBER 31, JUNE 30, FROM INCEPTION
THROUGH --------------------------- ----------------- (JANUARY 7, 1993)
DECEMBER 31, 1993 1994 1995 1996 1996 1997 TO JUNE 30, 1997
--------------------- ------- ------- ------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Revenue....................... $ -- $ -- $ 104 $ 55 $ -- $ 212 $ 371
Research and development
expenses.................... 691 2,747 4,012 5,146 2,278 2,859 15,455
Operating loss................ (1,322) (3,694) (5,428) (6,852) (3,080) (3,433) (20,730)
Other income (expenses)....... 11 (250) (311) (120) (54) (45) (713)
Net loss...................... (1,311) (3,944) (5,739) (6,972) (3,134) (3,478) (21,443)
Pro forma net loss per share
(2) (3)..................... $ (1.48) $ (.59)
Pro forma weighted average
shares used in computing pro
forma net loss per share (2)
(3)......................... 4,705 5,880
</TABLE>

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
(UNAUDITED)
------------------------------------
PRO PRO FORMA AS
ACTUAL FORMA (3) ADJUSTED (4)
------- --------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................................... $ 8,912 $ 8,912 $ 38,802
Working capital.............................................................. 8,019 8,019 37,909
Total assets................................................................. 10,585 10,585 40,475
Notes payable and capital lease obligations, less current portion............ 488 488 488
Accumulated deficit.......................................................... (21,443) (21,443) (21,443)
Total stockholders' equity................................................... 8,847 8,847 38,737
</TABLE>

- ---------------
(1) Based on the number of shares outstanding as of June 30, 1997. Excludes (i)
260,361 shares of Common Stock reserved for issuance pursuant to stock
options outstanding as of June 30, 1997 and (ii) an aggregate of 56,684
shares of Common Stock issuable upon the exercise of warrants outstanding as
of June 30, 1997. Also excludes an aggregate of 254,188 shares of Common
Stock reserved for future issuance as of June 30, 1997 under the Company's
Amended and Restated Stock Incentive Plan (the "Stock Incentive Plan"). See
"Management -- Stock Option Plans," "Description of Capital Stock" and Note
5 of Notes to Financial Statements.

(2) Computed on the basis described in Note 1 of Notes to Financial Statements.

(3) Pro forma to give effect to the automatic conversion upon the completion of
this Offering of all outstanding shares of the Company's Series A, B, C and
D Preferred Stock, par value $.001 per share (the "Preferred Stock"), into
6,261,615 shares of Common Stock.

(4) Adjusted to give effect to the sale of 2,750,000 shares of Common Stock
offered hereby at an initial public offering price of $12.00 per share after
deducting the underwriting discounts and commissions and estimated offering
expenses payable by the Company. See "Use of Proceeds" and "Capitalization."

<PAGE>
RISK FACTORS

PROSPECTIVE INVESTORS IN THE SHARES OFFERED HEREBY SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE
FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS.

DEVELOPMENT STAGE COMPANY. The Company commenced operations in January 1993
and is subject to all of the business risks associated with a biopharmaceutical
company in the early stage of development, including constraints on the
Company's financial, personnel and other resources, and uncertainties regarding
the Company's novel product discovery and development programs. Prospective
investors, therefore, have limited historical financial information about the
Company upon which to base their evaluation of the Company's performance and an
investment in the shares offered hereby. Since its inception, substantially all
of the Company's resources have been dedicated to the development, patenting,
preclinical testing and a Phase I/II clinical trial of T-20, the development of
its proprietary technology platform, and research and development and
preclinical testing of other potential product candidates and compounds
discovered by the Company. The Company has yet to generate any revenues from
product sales or royalties, and there can be no assurance that it will be able
to generate any such revenues or royalties in the future. Product candidates and
compounds discovered by the Company and developed through the Company's product
development programs will require significant additional, time-consuming and
costly research and development, preclinical testing and extensive clinical
trials prior to submission of any regulatory application for commercial use. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."

HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY. The Company has incurred losses since its inception. As of June
30, 1997, the Company's accumulated deficit was approximately $21.4 million.
Such losses have resulted principally from expenses incurred in the Company's
research and development activities associated with the development, patenting,
preclinical testing and a Phase I/II clinical trial of T-20, the development of
its proprietary technology platform, research and development and preclinical
testing of other potential product candidates and compounds discovered by the
Company, and from general and administrative expenses. The Company expects to
incur substantial losses for the foreseeable future and expects losses to
increase as the Company's research and development, preclinical testing and
clinical trial efforts expand. The amount and timing of the Company's operating
expenses will depend on several factors, including the status of the Company's
research and development activities, product candidate and compound discovery
and development efforts, including preclinical testing and clinical trials, the
timing of regulatory actions, the costs involved in preparing, filing,
prosecuting, maintaining, protecting and enforcing patent claims and other
proprietary rights, the ability of the Company to establish, internally or
through relationships with third parties, manufacturing, sales, marketing and
distribution capabilities, technological and other changes in the competitive
landscape, changes in the Company's existing research and development
relationships and strategic alliances, evaluation of the commercial viability of
potential product candidates and other factors, many of which are outside of the
Company's control. As a result, the Company believes that period-to-period
comparisons of financial results in the future are not necessarily meaningful
and results of operations in prior periods should not be relied upon as an
indication of future performance. Any deviations in results of operations from
levels expected by securities analysts and investors could have a material
adverse effect on the market price of the Common Stock. The Company's ability to
achieve profitability will depend, in part, upon its or its collaborative
partners' ability to successfully develop and obtain regulatory approval for
T-20 and other product candidates and compounds discovered by the Company, and
to develop the capacity, either internally or through relationships with third
parties, to manufacture, sell, market and distribute approved products, if any.
There can be no assurance that the Company will ever generate significant
revenues or achieve profitable operations. See "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and "Business -- Programs and Product Candidates Under
Development."

DEPENDENCE ON A SINGLE PRODUCT CANDIDATE. T-20 is the only product
candidate developed by the Company which has been tested in humans. The
Company's success will depend, in significant part, upon the ability of the
Company to establish the safety and effectiveness of T-20 in humans, to obtain
the requisite regulatory approvals

<PAGE>
for the commercialization of T-20, to establish relationships for the
commercial-scale production of T-20 at acceptable cost and with appropriate
quality, to successfully market T-20, and to achieve market acceptance of T-20
by the medical community, including health care providers and third-party
payors. Failure of the Company or its collaborative partners to successfully
develop and commercialize T-20 would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Programs and Product Candidates Under Development."

TECHNOLOGICAL UNCERTAINTY. The Company's product development programs are
based upon a novel technology designed to facilitate the discovery of product
candidates and compounds which are designed to treat viral infection through the
inhibition of viral fusion. The Company is not aware of any other approved
antiviral pharmaceutical products which target the inhibition of viral fusion.
Accordingly, product development utilizing the Company's novel mechanism of
action involves a high degree of risk, is highly uncertain, and could result in
unanticipated developments, clinical or regulatory delays, unexpected adverse
side effects or inadequate therapeutic effectiveness, any of which could slow or
suspend the Company's product development efforts which could have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that the Company's technologies will lead
to the discovery and development of any commercially viable products, that the
Company's research or product development efforts as to any particular product
candidate or compound will be successfully completed, that any such product
candidates or compounds will be proven to be safe and effective, or that
required regulatory approvals will be obtained. The Company's development
programs are subject to the risks inherent in the development of new products
using new technologies and approaches. There can be no assurance that unforeseen
problems will not develop with these technologies or applications, that the
Company will be able to address successfully technological challenges it
encounters in its research and development programs or that commercially
feasible product candidates or compounds will ultimately be developed by the
Company. See "Business -- Programs and Product Candidates Under Development" and
" -- Clinical Development Programs."

UNCERTAINTIES RELATED TO CLINICAL TRIALS AND CLINICAL TRIAL STRATEGY.
Before obtaining required regulatory approvals for the commercial sale of any of
its product candidates or compounds, the Company must demonstrate through
preclinical testing and clinical trials that each product candidate or compound
is safe and effective for use in humans for each target indication. To date, the
Company has conducted initial preclinical testing of certain of its product
candidates and has conducted a Phase I/II clinical trial of T-20. The Company
intends to conduct a Phase II clinical trial and a pivotal clinical trial of
T-20. These clinical trials will involve a relatively small patient population.
No assurance can be given that the results of early clinical trials will support
the commencement of further clinical trials of T-20, that the results of the
clinical trials will support the Company's applications for regulatory approval,
or that regulatory authorities will not require the Company to conduct
additional clinical trials either prior to, or after, regulatory approval is
obtained. The Company may find, at any stage of this complex process, that
potential product candidates or compounds that appeared promising in preclinical
testing and early clinical trials do not demonstrate safety or effectiveness on
a larger scale in advanced clinical trials or do not receive the requisite
regulatory approvals. Accordingly, any product development program undertaken by
the Company may be curtailed, redirected or eliminated at any time, which could
result in delays in conducting further preclinical testing and clinical trials,
in unexpected adverse events in further preclinical testing and clinical trials,
and in additional development expenses. Furthermore, administration of the
Company's potential product candidates or compounds may prove to have
undesirable or unintended side effects in humans. The occurrence of side effects
could interrupt, delay or halt clinical trials of each such product candidate or
compound and could delay or prevent its approval by the FDA or foreign
regulatory authorities for any and all targeted indications. The Company or the
FDA may suspend or terminate clinical trials at any time if it is believed that
the trial participants are being exposed to unacceptable health risks. In
addition, this Prospectus reflects the Company's estimates regarding the timing
of future preclinical testing and clinical trials. Such preclinical testing and
clinical trials may be delayed or cancelled for a number of reasons, including
the receipt of unanticipated, adverse or ambiguous results from preclinical
testing or clinical trials, the demonstration of undesirable or unintended side
effects, the inability to locate, recruit and qualify sufficient numbers of
patients, lack of funding, the inability to locate or recruit scientists to
undertake or complete planned preclinical testing or clinical trials, the
redesign of the Company's preclinical testing or clinical trial programs, the
inability to manufacture or acquire sufficient quantities

<PAGE>
of the particular product candidate or any other components required for
preclinical testing or clinical trials, regulatory delays or other regulatory
actions, changes in focus of the Company's or its collaborators' development
efforts, and the disclosure of clinical trial results by competitors.
Accordingly, no assurance can be given that the Company's preclinical testing or
clinical trials will commence on their target dates, or at all. Delays in such
testing and trials could delay regulatory approval for the Company's product
candidates, delay commercialization of the Company's product candidates,
increase operating expenses, result in the expenditure of additional capital,
cause the diversion of management time and attention, or create adverse market
perception about the Company and its product candidates, any of which could have
a material adverse effect on the Company's business, financial condition and
results of operations.

The rate of completion of the Company's clinical trials will depend upon,
among other factors, obtaining or manufacturing adequate amounts of the
Company's product candidates from third-party manufacturers and sufficient
patient enrollment. See "Business -- Lack of Manufacturing Capabilities" for a
description of certain risks associated with the manufacturing of the Company's
product candidates and compounds. Patient enrollment is a function of many
factors, including the size of the patient population, the nature of the
protocol, the proximity of patients to clinical sites and the eligibility
criteria for the clinical trial. Delays in planned patient enrollment may result
in increased costs or delays or both, which could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business -- Programs and Product Candidates Under Development" and
" -- Government Regulation."

DEPENDENCE ON COLLABORATIONS AND LICENSES WITH OTHERS. The Company intends
to consider entering into collaborative and license arrangements with
collaborative partners, licensees and third parties to seek regulatory approval
of and to manufacture and commercialize certain of its existing and potential
product candidates and compounds. Accordingly, the Company's success will
depend, in part, upon the subsequent success of such third parties in performing
preclinical testing and clinical trials, obtaining the requisite regulatory
approvals, scaling up manufacturing, successfully commercializing the licensed
product candidates or compounds and otherwise performing their obligations.
There can be no assurance that the Company will be able to maintain its existing
arrangements or enter into acceptable collaborative and license arrangements in
the future on acceptable terms, if at all, that such arrangements will be
successful, that the parties with which the Company has or may establish
arrangements will perform their obligations under such arrangements, or that
potential collaborators will not compete with the Company by seeking alternative
means of developing therapeutics for the diseases targeted by the Company. There
can also be no assurance that the Company's existing or any future arrangements
will lead to the development of product candidates or compounds with commercial
potential, that the Company will be able to obtain proprietary rights or
licenses for the proprietary rights with respect to any technology or product
candidates or compounds developed in connection with these arrangements, or that
the Company will be able to ensure the confidentiality of any proprietary rights
and information developed in such arrangements or prevent the public disclosure
thereof. The Company currently has a license from Duke University, and in the
future may require additional licenses from these or other parties, to
effectively develop potential product candidates and compounds. Pursuant to a
license agreement with Duke University (the "Duke License"), the Company has
obtained an exclusive, worldwide license to existing and certain future
technologies in the field of antiviral therapeutics developed by several
researchers at Duke University for the life of each particular patent filed in
connection with such technologies. Unless the Duke License is renewed, the
Company will not be entitled to any additional technologies developed after 2000
or after any earlier termination. None of the technologies licensed by the
Company from Duke University is the subject of a separate individual license
agreement. Rather, the Company's rights to such technologies are licensed solely
pursuant to the Duke License. The early termination of the Duke License due to
the Company's failure to develop the licensed technologies or the failure of the
Company to renew the Duke License on acceptable terms, or at all, could have a
material adverse effect on the Company's business, financial condition and
results of operations. Pursuant to a Cooperative and Strategic Alliance
Agreement (the "MiniMed Agreement"), the Company and MiniMed Inc. ("MiniMed")
have agreed to jointly design, develop and implement a system for the continual
delivery of T-20 utilizing the MiniMed continuous infusion pump. The failure of
the Company and MiniMed to achieve their collective objectives could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company has received two Small

<PAGE>
Business Innovation Research ("SBIR") grants from the National Institutes of
Health and entered into an investigative contract with a third party to identify
certain pharmaceutical compounds. There can be no assurance that the funding
provided by such SBIR grants will be sufficient to complete the studies
contemplated by such programs or that the Company will receive any additional
future grants or funding under any of these programs. There can be no assurance
that such license or agreements can be maintained or that additional licenses
can be obtained on acceptable terms, if at all, or will be renewable if
obtained, or that the patents underlying such licenses, if any, will be valid
and enforceable, or that the proprietary nature of the patented technology
underlying such licenses will remain proprietary. See "Business -- License and
Collaborative Agreements."

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. The Company has
experienced negative cash flows from operations since its inception and does not
anticipate generating sufficient positive cash flows to fund its operations in
the foreseeable future. The Company has expended, and expects to continue to
expend in the future, substantial funds to pursue its product candidate and
compound discovery and development efforts, including expenditures for continued
clinical trials of T-20, research and development and preclinical testing of
other potential product candidates and compounds discovered by the Company and
the development of its proprietary technology platform. The Company expects that
its existing capital resources, together with the net proceeds of this Offering
and the interest earned thereon, will be adequate to fund its capital
requirements through 1998. However, the Company's future capital requirements
and the adequacy of available funds will depend on many factors, including the
results of the clinical trials relating to T-20, the progress and scope of the
Company's product development programs, the magnitude of these programs, the
results of preclinical testing and clinical trials, the need for additional
facilities based on the results of these clinical trials and other product
development programs, changes in the focus and direction of the Company's
product development programs, the costs involved in preparing, filing,
prosecuting, maintaining, protecting and enforcing patent claims and other
intellectual property rights, competitive factors and technological advances,
the cost, timing and outcome of regulatory reviews, changes in the requirements
of the FDA, administrative and legal expenses, evaluation of the commercial
viability of potential product candidates and compounds, the establishment of
capacity, either internally or through the establishment of relationships with
third parties, for manufacturing, sales, marketing and distribution functions
and other factors, many of which are outside of the Company's control. Thus,
there can be no assurance that the net proceeds of this Offering, together with
the interest earned thereon, will be sufficient to fund the Company's capital
requirements during the period discussed above. The Company believes that
substantial additional funds will be required to continue to fund its operations
and that the Company will be required to obtain additional funds through equity
or debt financings or licenses, agreements or other arrangements with partners
and others, or from other sources. The terms of any such equity financings may
be dilutive to stockholders, and the terms of any debt financings may contain
restrictive covenants which limit the Company's ability to pursue certain
courses of action. There can be no assurance that such funds will be available
to the Company on acceptable terms, if at all, or that any such financings will
be adequate to meet the Company's future capital requirements. If adequate funds
are not available, the Company may be required to delay, scale-back or eliminate
certain aspects of its preclinical testing, clinical trials and research and
development programs or attempt to obtain funds through arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies or product candidates or compounds, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS. The Company's success
will depend, in part, on its ability, and the ability of its collaborators or
licensors, to obtain protection for its products and technologies under United
States and foreign patent laws, to preserve its trade secrets, and to operate
without infringing the proprietary rights of third parties. Because of the
substantial length of time and expense associated with bringing new products
through development to the marketplace, the pharmaceutical and biotechnology
industries place considerable importance on obtaining, and maintaining, patent
and trade secret protection for new technologies, products and processes.

The Company has obtained rights to certain patents and patent applications
and may, in the future, seek rights from third parties to additional patents and
patent applications. In September 1997, the Company obtained from

<PAGE>
The New York Blood Center ("NYBC") an exclusive, worldwide, royalty-bearing
license under certain United States and foreign patents and patent applications
relating to HIV peptides. In addition to annual minimum royalty payments
commencing in 1998, the Company is obligated to pay a one-time fee to NYBC in
the event that a pivotal clinical trial utilizing a product covered by the
license is not commenced by September 2002. The license agreement further
provides that the Company may elect to pay NYBC sponsored research funds in lieu
of a certain percentage of royalties otherwise due. A sponsored research
agreement would be negotiated at that time giving the Company a right of first
negotiation for an exclusive, royalty-bearing license to all intellectual
property arising out of the sponsored research program. There can be no
assurance that patent applications relating to the Company's potential products
or technologies will result in patents being issued, that any issued patents
will afford adequate protection to the Company, or that such patents will not be
challenged, invalidated, infringed or circumvented. Furthermore, there can be no
assurance that others have not developed, or will not develop, similar products
or technologies that will compete with those of the Company without infringing
upon the Company's intellectual property rights.

Legal standards relating to the scope of claims and the validity of patents
in the biopharmaceutical industry are uncertain and still evolving, and no
assurance can be given as to the degree of protection that will be afforded any
patents issued to, or licensed by, the Company. There can be no assurance that,
if challenged by others in litigation, any patents assigned to or licensed by
the Company, will not be found invalid. Furthermore, there can be no assurance
that the Company's activities would not infringe patents owned by others.
Defense and prosecution of patent matters can be expensive and time-consuming
and, regardless of whether the outcome is favorable to the Company, can result
in the diversion of substantial financial, management and other resources. An
adverse outcome could subject the Company to significant liability to third
parties, require the Company to obtain licenses from third parties, or require
the Company to cease any related research and development activities and product
sales. No assurance can be given that any licenses required under any such
patents or proprietary rights would be made available on terms acceptable to the
Company, if at all. Moreover, the laws of certain countries may not protect the
Company's proprietary rights to the same extent as U.S. law.

The Company also relies on trade secrets, know-how and other proprietary
information, which it seeks to protect, in part, through the use of
confidentiality agreements with employees, consultants, advisors, and others.
There can be no assurance that such agreements will provide adequate protection
for the Company's trade secrets, know-how, or other proprietary information in
the event of any unauthorized use or disclosure, that employees of the Company,
consultants, advisors or others will maintain the confidentiality of such trade
secrets or proprietary information, or that the trade secrets or proprietary
know-how of the Company will not otherwise become known, or be independently
developed, by competitors.

In January 1997, the United States Patent and Trademark Office (the
"USPTO") instituted an interference proceeding between an issued patent licensed
by the Company from Duke University and a pending patent application owned by a
third party. An interference proceeding is an action, in the USPTO, to determine
which, of several parties, is entitled to a patent. An interference proceeding
may be instituted when the USPTO believes that a pending patent application and
an issued patent claim the same patentable subject matter. The Company believes
that no interference-in-fact exists, i.e., that the parties to the interference
are not claiming the same patentable invention, and, through its licensor, the
Company is taking all reasonable action to have the interference proceeding
dismissed. However, no assurance can be given that the interference proceeding
will be dismissed. Furthermore, no assurance can be given that, should the
interference proceeding continue, as between the two parties to the
interference, the Company's licensor will be found to be the first inventor of
the invention which is declared to be the subject matter of the interference
proceeding. Failure of the Company's licensor to prevail in the interference
proceeding and any loss of the involved patent rights could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Patents, Proprietary Technology and Trade Secrets."

EXTENSIVE GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL. Human
pharmaceutical products are subject to lengthy and rigorous preclinical testing
and clinical trials and other extensive, costly and time-consuming procedures
mandated by the FDA and foreign regulatory authorities. The regulatory approval
process, which includes the establishment of the safety and effectiveness of
each product candidate and compound for each

<PAGE>
target indication and confirmation by the FDA that good laboratory, clinical and
manufacturing practices were maintained during testing and manufacturing,
typically takes a number of years, varying based upon the type, complexity and
novelty of the pharmaceutical product. This process requires the expenditure of
substantial resources and gives larger companies with greater financial
resources a competitive advantage over the Company. To date, no product
candidate or compound being evaluated by the Company has been submitted for
approval by the FDA or any other regulatory authority for commercialization, and
there can be no assurance that any such product candidate or compound will ever
be approved for commercialization or that the Company will be able to obtain the
labeling claims desired for its product candidates or compounds. There can be no
assurance that submission to the FDA of a request for authorization to conduct
clinical trials on an investigational drug will be approved on a trial basis, if
at all. There can be no assurance that if clinical trials are successfully
completed, the Company will be able to submit a New Drug Application ("NDA") in
a timely manner or that any such NDA will be approved by the FDA. The approval
process is affected by a number of factors, including the severity of the
targeted indications, the availability of alternative treatments and the risks
and benefits demonstrated in the clinical trials. The FDA may reject an NDA if
applicable regulatory criteria are not satisfied, or may require additional
clinical trials or information with respect to the product candidate or
compound. Even if FDA approval is obtained, further clinical trials, including
post-market trials, may be required in order to provide additional data on
safety and will be required in order to obtain approval for the use of a product
as treatment for clinical indications other than those for which the product was
initially approved. The FDA will also require post-market reporting and may
require surveillance programs to monitor the side effects of any approved
products. Results of post-market programs may limit the further marketing,
manufacturing process or labeling, and an NDA supplement may be required to be
submitted to the FDA. Any failure of the Company to successfully complete its
clinical trials and obtain approvals of corresponding NDAs would have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company is and will continue to be dependent upon the
laboratories conducting its preclinical testing and clinical trials to maintain
both good laboratory and good clinical practices, and, if any of the Company's
product candidates or compounds obtain the requisite regulatory approvals, the
Company will be dependent upon any third-party manufacturers of its products to
maintain compliance with the FDA's good manufacturing practice ("GMP")
requirements. Various federal and foreign statutes and regulations also govern
or influence the manufacturing, safety, labeling, storage, record-keeping and
marketing of pharmaceutical products.

The process of obtaining these approvals and the subsequent compliance with
appropriate United States and foreign statutes and regulations are
time-consuming and will require the expenditure of substantial resources by the
Company. In addition, these requirements and processes vary widely from country
to country. The time required for completing preclinical testing and clinical
trials is uncertain, and the FDA approval process is unpredictable and
uncertain, and no assurance can be given that necessary approvals will be
granted on a timely basis, or at all. The Company may decide to replace a
product candidate or compound in preclinical testing and/or clinical trials with
a modified product candidate or compound, thus extending the development period.
In addition, the FDA or similar foreign regulatory authorities may require
additional clinical trials, which could result in increased costs and
significant development delays. Delays or rejections may also be encountered
based upon changes in legislation, administrative action or FDA policy during
the period of product development and FDA review, including changes in FDA
policy relating to clinical testing guidelines for the use of the Company's
product candidates or compounds in children. Similar delays or rejections may be
encountered in other countries.

While certain of the Company's product candidates and compounds, including
T-20, have been and will continue to be designed to treat serious or
life-threatening illnesses, such product candidates and compounds may not
qualify for accelerated development and/or approval under FDA regulations and,
even if some of the Company's product candidates or compounds qualify for
accelerated development and/or approval, they may not be approved for marketing
on an accelerated basis, or at all. There can be no assurance that, even after
substantial time and expenditures, any of the Company's product candidates or
compounds under development will receive commercialization approval in any
country on a timely basis, or at all. If the Company is unable to demonstrate
the safety and effectiveness of its product candidates and compounds to the
satisfaction of the FDA or foreign regulatory

<PAGE>
authorities, the Company will be unable to commercialize its product candidates
and compounds and the Company's business, financial condition and results of
operations would be materially and adversely affected. Furthermore, even if
regulatory approval of a product candidate or compound is obtained, the approval
may entail limitations on the indicated uses for which the product candidate or
compound may be marketed. A marketed product or compound, its manufacturer and
the manufacturer's facilities are subject to continual review and periodic
inspections, and subsequent discovery of previously unknown problems with a
product, compound, manufacturer or facility may result in restrictions on such
product, compound, manufacturer or facility, including withdrawal of the product
or compound from the market. The failure to comply with applicable regulatory
requirements can, among other things, result in fines, injunctions, civil
penalties, total or partial suspension of regulatory approvals, refusal to
approve pending applications, refusal to permit exports from the United States,
recalls or seizures of products or compounds, operating and production
restrictions and criminal prosecutions. Further, FDA policy may change and
additional government regulations may be established that could prevent or delay
regulatory approval of the Company's product candidates or compounds.

The effect of governmental regulation may be to delay the marketing of new
products or compounds for a considerable period of time, to impose costly
requirements on the Company's activities or to provide a competitive advantage
to other companies that compete with the Company. Adverse clinical results by
others could have a negative impact on the regulatory process and timing with
respect to the development and approval of the Company's product candidates or
compounds. A delay in obtaining or failure to obtain regulatory approvals could
have a material adverse effect on the Company's business, financial condition
and results of operations. The extent and character of potentially adverse
governmental regulation that may arise from future legislation or administrative
action cannot be predicted.

In April 1997, the Company and MiniMed entered into the MiniMed Agreement
pursuant to which the parties have agreed to jointly design, develop and
implement a system for the delivery of T-20 utilizing the MiniMed continuous
infusion pump. There can be no assurance that the FDA will approve, on a timely
basis, if at all, the delivery of T-20 utilizing the MiniMed continuous infusion
pump. The failure of the Company and MiniMed to collectively develop a continual
T-20 delivery system which receives FDA approval on a timely basis could have a
material adverse effect on the Company's business, financial condition and
results of operations.

The Company and its existing and potential future collaborative partners
are also subject to various federal, state and local laws and regulations
relating to safe working conditions, laboratory and manufacturing practices, the
experimental use of animals and the use and disposal of hazardous or potentially
hazardous substances, including radioactive compounds and infectious disease
agents, used in connection with the Company's product development programs.
Compliance with such laws, regulations and requirements may be costly and
time-consuming and the failure to maintain such compliance by the Company or its
existing and future collaborative partners could have a material adverse effect
on the Company's business, financial condition and results of operations.

INTENSE COMPETITION. The Company is engaged in segments of the
biopharmaceutical industry, including the treatment of HIV, that are intensely
competitive and rapidly changing. If successfully developed and approved, the
product candidates and compounds that the Company is currently developing will
compete with numerous existing therapies. For example, 11 drugs are currently
approved for the treatment of HIV. In addition, a number of companies are
pursuing the development of novel pharmaceutical products that target the same
diseases that the Company is targeting, and some companies, including several
multinational pharmaceutical companies, are simultaneously marketing several
different drugs and may therefore be able to market their own combination drug
therapies.

<PAGE>
The Company believes that a significant number of drugs are currently under
development and will become available in the future for the treatment of HIV.
The Company anticipates that it will face intense and increasing competition in
the future as new products enter the market and advanced technologies become
available. There can be no assurance that existing products or new products for
the treatment of HIV developed by the Company's competitors, including Glaxo
Wellcome plc ("Glaxo"), Merck & Co., Inc. ("Merck") and Abbott Laboratories,
Inc. ("Abbott"), will not be more effective, or more effectively marketed and
sold, than T-20, should it be successfully developed and receive regulatory
approval, or any other therapeutic for HIV that may be developed by the Company.
Competitive products or the development by others of a cure or new treatment
methods may render the Company's technologies and products and compounds
obsolete, noncompetitive or uneconomical prior to the Company's recovery of
development or commercialization expenses incurred with respect to any such
technologies or products or compounds. Many of the Company's competitors have
significantly greater financial, technical and human resources than the Company
and may be better equipped to develop, manufacture, sell, market and distribute
products. In addition, many of these companies have extensive experience in
preclinical testing and clinical trials, obtaining FDA and other regulatory
approvals and manufacturing and marketing pharmaceutical products. Many of these
competitors also have products that have been approved or are in late-stage
development and operate large, well-funded research and development programs.
Smaller companies may also prove to be significant competitors, particularly
through collaborative arrangements with large pharmaceutical and biotechnology
companies. Furthermore, academic institutions, governmental agencies and other
public and private research organizations are becoming increasingly aware of the
commercial value of their inventions and are more actively seeking to
commercialize the technology they have developed.

New developments in areas in which the Company is conducting its research
and development are expected to continue at a rapid pace in both industry and
academia. If the Company's product candidates and compounds are successfully
developed and approved, the Company will face competition based on the safety
and effectiveness of its products and compounds, the timing and scope of
regulatory approvals, availability of manufacturing, sales, marketing and
distribution capabilities, reimbursement coverage, price and patent position.
There can be no assurance that the Company's competitors will not develop more
effective or more affordable technologies or products, or achieve earlier patent
protection, product development or product commercialization than the Company.
Accordingly, the Company's competitors may succeed in commercializing products
more rapidly or effectively than the Company, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Competition."

LACK OF MANUFACTURING CAPABILITIES. The Company has no experience in
manufacturing pharmaceuticals and has no commercial manufacturing capacity. The
Company has established relationships and intends to establish additional
relationships with third-party manufacturers for the production of quantities of
its product candidates or compounds sufficient to conduct its planned
preclinical testing and clinical trials and the commercial production of any
approved products or compounds. There can be no assurance that the Company will
be able to retain or establish relationships with third-party manufacturers on
acceptable terms, if at all, or that such third-party manufacturers will be able
to manufacture products in commercial quantities under GMP requirements on a
cost-effective basis. The Company's anticipated peptide-based therapeutics are
difficult and expensive to manufacture using existing technologies. The Company,
and its third-party manufacturers, are currently using solid-phase sequential
peptide synthesis to manufacture T-20. This chemical methodology is inherently
inefficient and complex. Due to technical limitations, solid-phase sequential
peptide synthesis is the most expensive way to chemically assemble the Company's
current peptide product candidates, including T-20. There can be no assurance
that the Company or its third-party manufacturers will be able to manufacture
T-20 on a cost-effective basis or that the Company will be successful in its
efforts to develop an alternative, more efficient manufacturing method for T-20
or any of its other peptide product candidates. The Company's dependence upon
third parties for the manufacture of its products, product candidates and
compounds may materially and adversely affect the Company's profit margins and
its ability to develop and commercialize product candidates, products and
compounds on a timely and competitive basis. Further, there can be no assurance
that manufacturing or quality control problems will not arise in connection with
the manufacture of the Company's products, product candidates or compounds or
that third-party manufacturers will maintain the necessary governmental licenses
and approvals to continue manufacturing the Company's products, product
candidates or compounds. Any failure to maintain

<PAGE>
existing or establish new relationships with third parties for the Company's
manufacturing requirements on a timely basis and on acceptable terms would have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Manufacturing."

LACK OF SALES, MARKETING AND DISTRIBUTION CAPABILITIES. The Company has no
experience in sales, marketing or distribution of pharmaceuticals and currently
has no personnel employed in any such capacities. Some therapeutics for HIV can
be marketed to a concentrated group of physicians in a relatively narrow
geographic scope. The Company may consider developing internal sales, marketing
and distribution capabilities for T-20, should it be successfully developed and
receive regulatory approval. For the remainder of the Company's product
candidates and compounds, should they be successfully developed and receive
regulatory approval, the Company may rely on marketing partners or other
arrangements with third parties which have established distribution systems and
direct sales forces for the sales, marketing, and distribution of such products
and compounds. In the event that the Company is unable to reach agreement with
one or more marketing partners to market these other products and compounds, the
Company would be required to develop internal sales, marketing and distribution
capabilities for such products and compounds. There can be no assurance that the
Company will be able to establish sales, marketing or distribution capabilities
or make arrangements with third parties to perform such activities on acceptable
terms, if at all, or that any internal capabilities or third-party arrangements
will be cost-effective. The failure to establish such capabilities would have a
material adverse effect on the Company's business, financial condition and
results of operations.

In addition, any third parties with which the Company establishes sales,
marketing or distribution arrangements may have significant control over
important aspects of the commercialization of the Company's products and
compounds, including market identification, marketing methods, pricing,
composition of sales force and promotional activities. For example, the MiniMed
Agreement contemplates that MiniMed will participate in the sales, marketing and
distribution of any products jointly developed by the parties. There can be no
assurance that the Company will be able to control the amount and timing of
resources that MiniMed or any other third party may devote to the Company's
products or compounds or prevent any third party from pursuing alternative
technologies or products that could result in the development of products that
compete with the Company's products and the withdrawal of support for the
Company's products. See "Business -- Sales, Marketing and Distribution."

UNCERTAINTY OF MARKET ACCEPTANCE. The Company's success will depend upon
the acceptance by the medical community, including health care providers and
third-party payors, of the Company's antifusion technology as a safe and
effective means of treating viral infection. The Company's success will
additionally be dependent upon the acceptance by the medical community,
including health care providers and third-party payors, of any products or
compounds developed by the Company. The degree of market acceptance will depend
upon a number of factors, including the establishment and demonstration in
clinical trials of the safety and effectiveness of the Company's products and
compounds, the receipt and scope of regulatory approvals, the demonstration of
the potential advantages of the Company's products and compounds over existing
treatment methods, and the reimbursement policies of government and third-party
payors with respect to antiviral therapeutics based upon blocking viral fusion.
Moreover, companies that market and sell HIV antivirals and other HIV-related
therapeutics have from time to time been subject to protests and boycotts by
patient advocacy and activist groups. These protests and boycotts have focused
on, among other things, availability of such therapeutics and pricing concerns.
Market acceptance of such therapeutics, including any products or compounds that
the Company may develop, will be dependent, in part, on the continued support by
such groups. There can be no assurance that the Company's products or compounds
will achieve significant market acceptance on a timely basis, or at all. Failure
of some or all of the Company's products, if successfully developed, to achieve
significant market acceptance would have a material adverse effect on the
Company's business, financial condition and results of operations.

DEPENDENCE ON THIRD PARTIES FOR CLINICAL TRIALS. The Company has engaged,
and intends to continue to engage, third-party contract research organizations
("CROs") to perform certain functions in connection with the development of the
Company's product candidates and compounds. The Company intends to design
clinical trials, but have CROs conduct the clinical trials, and the Company will
rely on the CROs to perform many important aspects of the clinical trials. As a
result, these aspects of the Company's product development programs will be
outside the direct control of the Company. There can be no assurance that the
CROs or other third parties will

<PAGE>
perform all of their obligations under their arrangements with the Company. In
addition, there can be no assurance that any such arrangements will be renewed
or any new arrangements will be available on acceptable terms, if at all, or
that any such arrangements, if entered into, will be successful. In the event
that the CROs do not perform clinical trials in a satisfactory manner or breach
their obligations to the Company, the commercialization of any product candidate
or compound may be delayed or precluded, which could have a material adverse
effect on the Company's business, financial condition and results of operations.

UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT AND HEALTH CARE REFORM MEASURES.
In the United States and elsewhere, sales of prescription pharmaceuticals are
dependent, in part, on the availability of reimbursement to the consumer from
third-party payors, such as government agencies and private insurance plans.
Third-party payors are increasingly challenging the prices charged for medical
products and services in an effort to promote cost containment measures and
alternative health care delivery systems and they may mandate predetermined
discounts from list prices. If the Company succeeds in bringing one or more
products or compounds to the market, there can be no assurance that these
products or compounds will be considered cost-effective or that reimbursement to
the consumer will be available or will be sufficient to allow the Company or its
potential collaborative partners to sell the Company's products or compounds on
a competitive basis. The business and financial condition of pharmaceutical
companies will continue to be affected by economic, political and regulatory
influences, including the efforts of governments and third-party payors to
contain or reduce the cost of health care through various means. A number of
legislative and regulatory proposals aimed at changing the health care system
have been proposed in recent years. Because of the high cost of the treatment of
AIDS or HIV using combination therapy, many state legislatures are reassessing
reimbursement policies for such therapy. In addition, an increasing emphasis on
managed care in the United States to reduce the overall costs of health care has
and will continue to increase the pressure on pharmaceutical pricing. While the
Company cannot predict whether legislative or regulatory proposals will be
adopted or the effect those proposals or managed care efforts may have, the
announcement and/or adoption of such proposals or efforts could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Third Party Reimbursement and Health Care Reform
Measures."

HAZARDOUS MATERIALS. The Company's product development programs involve the
controlled use of hazardous materials, chemicals, viruses and various
radioactive compounds, including Class IV type hazardous materials. Although the
Company believes that its handling and disposing of such materials comply with
the standards prescribed by state and federal regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages or fines that result and any such liability could exceed the
resources of the Company. The Company may incur substantial additional costs to
comply with environmental regulations if the Company develops manufacturing
capacity.

ABSENCE OF PRODUCT LIABILITY INSURANCE; INSURANCE RISKS. The Company's
business will expose it to potential product liability risks that are inherent
in the testing, manufacturing and marketing of pharmaceutical products. There
can be no assurance that product liability claims will not be asserted against
the Company. In addition, the use of pharmaceutical products that may be
developed by the Company's potential collaborators in clinical trials and the
subsequent sale of products by the Company or its potential collaborators may
cause the Company to bear a portion of those risks. A successful product
liability claim or series of claims brought against the Company could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company does not currently have any product liability
insurance relating to clinical trials or any products or compounds it may
develop and there can be no assurance that the Company will be able to obtain or
maintain adequate product liability insurance on acceptable terms, if at all, or
that such insurance will provide adequate coverage against potential
liabilities. Furthermore, there can be no assurance that any collaborators or
licensees of the Company will agree to indemnify the Company, be sufficiently
insured, or have a net worth sufficient to satisfy any product liability claims.
Claims or losses in excess of any product liability insurance coverage that may
be obtained by the Company could have a material adverse effect on the Company's
business, financial condition and results of operations.

NEED TO ATTRACT AND RETAIN KEY OFFICERS, EMPLOYEES AND CONSULTANTS. The
Company is highly dependent upon the efforts of the principal members of its
scientific and management staff. The loss of the services of one or more

<PAGE>
members of the Company's scientific or management staff could significantly
delay or prevent the achievement of the Company's research, development or
business objectives and could have a material adverse effect on the Company's
business, financial condition and results of operations. At present, the Company
only has individual employment agreements with Dr. Johnson, the Company's
President, Chief Executive Officer and Chief Scientific Officer, and Mr. Megaro,
the Company's Chief Operating Officer, Chief Financial Officer, Executive Vice
President and Secretary. In addition, the Company relies on consultants and
advisors, including the members of its Scientific Advisory Board, to assist the
Company in formulating its research and development strategy. The loss of the
services of certain members of the Company's Scientific Advisory Board or
certain consultants could materially and adversely affect the Company to the
extent that the Company is pursuing research or development in areas of such
scientific advisor's or consultant's expertise. Due to the specialized
scientific nature of the Company's business, the Company is also highly
dependent upon its ability to attract and retain qualified scientific, technical
and key management personnel. There is intense competition for qualified
personnel in the areas of the Company's activities by academic institutions,
biotechnology companies and pharmaceutical companies and there can be no
assurance that the Company will be able to continue to attract and retain the
qualified personnel necessary for the development of its existing business and
its expansion into areas and activities requiring additional expertise. The loss
of, or failure to recruit, scientific, technical, and managerial personnel could
have a material adverse effect on the Company's business, financial condition
and results of operations.

The Company's scientific advisors and consultants may be employed by or
have consulting agreements with entities other than the Company, some of which
may compete with the Company. To the extent that members of the Company's
Scientific Advisory Board or the consultants have consulting arrangements with
or become employed by any competitor of the Company, the Company's business,
financial condition or results of operations could be materially and adversely
affected. Under certain circumstances, inventions or processes independently
discovered by the scientific advisors or the consultants will remain the
property of such persons or their employers. In addition, the institutions with
which the scientific advisors and the consultants are affiliated may make
available the research services of their scientific and other skilled personnel,
including the scientific advisors and the consultants, to competitors of the
Company pursuant to sponsored research agreements. Under such sponsored research
agreements, such institutions may be obligated to assign or license to a
competitor of the Company patents and other proprietary information that may
result from research sponsored by an entity other than the Company, including
research performed by a scientific advisor or a consultant for a competitor of
the Company.

The Company requires all employees, consultants and certain of its
contractors to enter into confidentiality agreements that prohibit the
disclosure of confidential information to anyone outside the Company and require
disclosure and assignment to the Company of their ideas, developments,
discoveries or inventions developed during the course of their service to the
Company. However, no assurance can be given that competitors of the Company will
not gain access to trade secrets and other proprietary information developed by
the Company and disclosed to the scientific advisors and the consultants. See
"Business -- Human Resources," " -- Scientific Advisory Board" and "Management."

SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of Common
Stock (including shares issued upon the exercise of outstanding options and
warrants) in the public market after this Offering or the prospect of such sales
could materially and adversely affect the market price of the Common Stock and
may have a material adverse effect on the Company's ability to raise any
necessary capital to fund its future operations. Upon completion of this
Offering, the Company will have 10,130,329 shares of Common Stock outstanding
(assuming no exercise of options and warrants outstanding as of September 30,
1997). Of these shares, the 2,750,000 shares offered hereby will be freely
tradeable without restrictions or further registration under the Securities Act
of 1933, as amended (the "Securities Act"), except that any shares held by
"affiliates" of the Company within the meaning of the Securities Act will be
subject to the resale limitations of Rule 144 promulgated under the Securities
Act ("Rule 144"). The remaining 7,380,329 outstanding shares are "restricted"
securities that may be sold only if registered under the Securities Act, or sold
in accordance with an applicable exemption from registration, such as Rule 144.
Rule 144 imposes a holding period with respect to securities purchased directly
from an issuer or an "affiliate" of an issuer.

The officers and directors of the Company and other holders of Common Stock
who together hold 7,366,307 shares of Common Stock have agreed not to sell,
offer, make any short sale or otherwise dispose of or enter into

<PAGE>
any contract, arrangement or commitment to sell or otherwise dispose of any
Common Stock without the prior written consent of UBS Securities LLC for a
period of 180 days from the date of this Prospectus (the "Lock-up Agreements").
Approximately 231,117 shares of Common Stock will be eligible for resale in the
public market without restriction in reliance on Rule 144(k) immediately
following the completion of this Offering, 225,944 shares of which are subject
to the Lock-up Agreements. An additional 769,238 (763,331 shares of which are
subject to the Lock-up Agreements) will be eligible for resale in the public
market pursuant to Rule 701 under the Securities Act beginning approximately 90
days after the effective date of this Prospectus, except to the extent that such
shares are subject to vesting restrictions or certain contractual restrictions
on sale or transfer pursuant to agreements with the Company. After the
expiration of the 180-day lock-up period, an additional 3,739,158 shares of
Common Stock will be eligible for resale in the public market pursuant to Rule
144. From time to time thereafter, the remaining shares of Common Stock
outstanding will become eligible for resale in the public market pursuant to
Rule 144.

Approximately 90 days after the completion of this Offering, the Company
intends to file a registration statement on Form S-8 under the Securities Act to
register the future issuance of shares of Common Stock reserved for issuance
under the Company's Stock Option Plan. As of September 30, 1997, 268,506 shares
of Common Stock were reserved for issuance pursuant to outstanding options and
230,394 shares of Common Stock were reserved for future issuance under the
Company's Stock Incentive Plan. Such registration statement will automatically
become effective upon filing. Accordingly, shares registered thereunder will,
subject to Rule 144 limitations applicable to affiliates, be available for sale
in the public market, except to the extent that such shares are subject to
vesting restrictions with the Company or certain contractual restrictions on
sale or transfer (including options covering 267,329 shares which are subject to
Lock-up Agreements). After this Offering, the holders of approximately 6,261,615
shares of Common Stock and the holders of warrants to purchase an aggregate of
56,684 shares of Common Stock will be entitled to certain demand and piggyback
rights with respect to the registration of such shares under the Securities Act.
If such holders, by exercising their demand registration rights, cause a large
number of securities to be registered and sold in the public market, such sales
could have an adverse effect on the market price of the Company's Common Stock.
If the Company, either on its own behalf or on behalf of certain stockholders,
were to initiate a registration and include shares held by such holders pursuant
to the exercise of their piggyback registration rights, such sales could have a
material adverse effect on the Company's ability to raise needed capital. See
"Certain Transactions," "Shares Eligible for Future Sale," "Description of
Capital Stock -- Registration Rights" and "Underwriting."

CONTROL BY DIRECTORS, EXECUTIVE OFFICERS AND AFFILIATED ENTITIES. The
Company's directors, executive officers and entities affiliated with them will,
in the aggregate, beneficially own approximately 32.4% of the Company's
outstanding shares of Common Stock following the completion of this Offering (or
approximately 31.2% if the Underwriters exercise their over-allotment option in
full). As a result, these stockholders, if acting together, would be able to
significantly influence all matters requiring approval by the stockholders of
the Company, including the election of directors and the approval of mergers and
consolidations, sales of all or substantially all of the assets of the Company
or other business combination transactions. This may discourage a tender offer
for the Company's Common Stock or a change in control of the Company. See
"Principal Stockholders" and "Description of Capital Stock."

ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS. The Company's
Board of Directors is authorized to issue up to 10,000,000 shares of Preferred
Stock and to determine the price, rights, preferences and limitations of those
shares without any further vote or action by the Company's stockholders. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be issued
in the future. While the Company has no present intention to issue shares of
Preferred Stock, such issuance could have the effect of making it more difficult
for a third party to acquire a majority of the outstanding voting stock of the
Company. In addition, the Company is subject to the provisions of Section 203 of
the Delaware General Corporation Law (the "DGCL") which, subject to certain
exceptions, prohibits the Company from engaging in certain business combinations
with certain stockholders (each, an "interested stockholder") for a period of
three years after the date of the transaction in which the stockholder became an
interested stockholder, unless the business combination is approved in a
prescribed manner. The application of Section 203 could have the effect of
delaying or preventing a change of control of the Company. The Company's Third
Amended and Restated Certificate of Incorporation provides for staggered terms
for the members of the Board of Directors. The staggered Board of Directors, the
Company's Third Amended and Certificate of Incorporation and certain provisions
of the

<PAGE>
DGCL may have the effect of delaying, deterring or preventing a change in
control of the Company, may discourage bids for the Common Stock at a premium
over the market price and may adversely affect the market price, and the voting
and other rights of the holders, of the Common Stock. See "Description of
Capital Stock -- Delaware Law and Certain Charter Provisions."

NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE. Prior
to this Offering, there has been no public market for the Company's Common Stock
and there can be no assurance that an active public market for the Common Stock
will develop or be sustained after this Offering or that the market price of the
Common Stock will not decline below the initial public offering price. The
initial public offering price has been determined by negotiations between the
Company and the representatives of the Underwriters and may not be indicative of
the market price at which the Common Stock of the Company will trade after this
Offering. Among the factors considered in such negotiations, in addition to
prevailing market conditions, were certain financial information of the Company,
market valuations of other companies that the Company and the representatives of
the several underwriters believed to be comparable to the Company, estimates of
the business potential of the Company, the present state of the Company's
development and other factors deemed relevant. The initial public offering price
set forth on the cover page of this Prospectus should not, however, be
considered an indication of the actual value of the Common Stock. Such price is
subject to change as a result of market conditions and other factors. There can
be no assurance that an active trading market will develop for the Common Stock
or that the Common Stock will trade in the public market subsequent to this
Offering at or above the initial offering price.

The market price of the Common Stock, like that of the securities of many
other biotechnology and pharmaceutical companies, is likely to be highly
volatile. Factors such as announcements of technological innovations or new
products by the Company or its competitors, preclinical testing or clinical
trial results relating to or regulatory approvals or disapprovals of the
Company's or competitors' product candidates, government regulation, health care
legislation, developments or disputes concerning patent or other proprietary
rights of the Company or its competitors, including litigation, fluctuations in
the Company's operating results, and market prices of the capital stock of
biotechnology and pharmaceutical companies in general could have a significant
impact on the future market price of the Common Stock. In addition, the stock
market has from time to time experienced extreme price and volume fluctuations
that may be unrelated to the operating performance of particular companies. In
addition, in the past, following periods of volatility in the market price of
the securities of companies in the biotechnology and pharmaceutical industries,
securities class action litigation has often been instituted against those
companies. Such litigation, if instituted against the Company, could result in
substantial costs and a diversion of management attention and resources, which
would have a material adverse effect on the Company's business, financial
condition and results of operations. The realization of any of the risks
described in these "Risk Factors" could have a dramatic and adverse impact on
the market price of the Common Stock. See "Underwriting."

BROAD DISCRETION IN USE OF PROCEEDS. The net proceeds of the Offering will
be added to the Company's working capital and will be available for research and
development, capital expenditures, working capital and general corporate
purposes. As of the date of this Prospectus, the Company cannot specify with
certainty the particular uses for the net proceeds to be received upon
completion of this Offering. Accordingly, the Company's management will have
broad discretion in the application of the net proceeds. See "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of the Common Stock offered
hereby will incur an immediate and substantial dilution in the net tangible book
value of the Common Stock from the initial public offering price. The current
stockholders of the Company, including the Company's directors and officers,
acquired their shares of Common Stock for consideration substantially less than
the initial public offering price of the shares of Common Stock offered hereby.
Additionally, the Company has issued options to acquire shares of the Common
Stock at prices significantly below the initial public offering price. To the
extent outstanding options to purchase the Common Stock are exercised, there
will be further dilution. See "Dilution."

NO DIVIDENDS. The Company has not paid cash dividends on its Common Stock
since its inception and does not anticipate paying cash dividends in the
foreseeable future. See "Dividend Policy."

<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,750,000 shares of
Common Stock offered hereby at an initial public offering price of $12.00 per
share are estimated to be approximately $29.9 million (approximately $34.5
million if the Underwriters' over-allotment option is exercised in full), after
deducting the underwriting discounts and commissions and estimated offering
expenses payable by the Company.

The Company intends to use the net proceeds of this Offering to fund the
continued clinical trials of T-20, increased research and development
activities, including ongoing development of the Company's technologies,
preclinical testing and clinical trials, and other costs associated with the
Company's product discovery and development programs. The Company also intends,
depending on the results of ongoing preclinical testing and clinical trials, to
use some of the net proceeds for the expansion of its facilities. The remainder
of the aggregate net proceeds will be used to provide working capital and to
fund other general corporate purposes. The amounts actually expended for each
purpose and the timing of such expenditures may vary significantly depending
upon a number of factors, including the status of the Company's research,
product candidate and compound discovery and development efforts, including
preclinical testing and clinical trials, the timing of regulatory actions, the
costs involved in preparing, filing, prosecuting, maintaining, protecting and
enforcing patent claims and other proprietary rights, the ability of the Company
to establish, internally or through relationships with third parties,
manufacturing, sales, marketing and distribution capabilities, technological and
other changes in the competitive landscape, changes in the Company's existing
research and development relationships and strategic alliances, evaluation of
the commercial viability of potential product candidates and compounds, needs
for additional facilities and other factors, many of which are outside of the
Company's control. As of the date of this Prospectus, the Company cannot specify
with certainty the particular uses for the net proceeds to be received upon
completion of this Offering. Accordingly, the Company's management will have
broad discretion in the application of the net proceeds. The Company may also
use a portion of the net proceeds to acquire or invest in businesses, products
and technologies that are complementary to those of the Company, although the
Company currently has no agreements and is not involved in any negotiations with
respect to any such transactions.

Pending such uses, the Company intends to invest the net proceeds in
investment grade, interest-bearing securities, including, without limitation,
obligations of the U.S. government or U.S. government agencies and other highly
rated liquid debt instruments.

DIVIDEND POLICY

The Company has not paid any dividends on its Common Stock since its
inception. The Company currently intends to retain any future earnings to fund
its operations and, therefore, does not anticipate paying any cash dividends in
the foreseeable future.

<PAGE>
CAPITALIZATION

The following table sets forth, as of June 30, 1997, (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company
after giving effect to the Preferred Stock Conversion and the filing of the
Company's Third Amended and Restated Certificate of Incorporation upon the
completion of the Offering, and (iii) the pro forma capitalization of the
Company as adjusted to give effect to the sale of the 2,750,000 shares of Common
Stock offered hereby at an initial public offering price of $12.00 per share and
after deducting the underwriting discounts and commissions and estimated
offering expenses payable by the Company. The table should be read in
conjunction with the Financial Statements and the related Notes thereto included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
Notes payable and obligations under capital leases,
excluding current installments.............................................. $ 488 $ 488 $ 488
Stockholders' equity (deficit):
Series A, B, C and D Preferred Stock........................................ 53 -- --
Preferred Stock, $.001 par value
per share, 10,000,000 shares authorized and no shares issued and
outstanding.............................................................. -- -- --
Common Stock, $.001 par value per share,
30,000,000 shares authorized; 1,092,472 shares issued
and outstanding, actual; 7,354,087 shares issued and outstanding, pro
forma and 10,104,087 shares issued and outstanding, pro forma as adjusted
(1)...................................................................... 1 7 10
Additional paid-in capital.................................................. 32,435 32,482 62,369
Deficit accumulated during the development stage............................ (21,443) (21,443 ) (21,443)
Deferred compensation....................................................... (1,935) (1,935 ) (1,935)
Notes receivable from stockholders............................................ (264) (264 ) (264)
-------- --------- -----------
Total stockholders' equity............................................... 8,847 8,847 38,737
-------- --------- -----------
Total capitalization..................................................... $ 9,335 $ 9,335 $ 39,225
-------- --------- -----------
-------- --------- -----------
</TABLE>

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

(1) Excludes (i) 10,589 shares of Common Stock issued by the Company after June
30, 1997, (ii) 260,361 shares of Common Stock reserved for issuance pursuant
to stock options outstanding as of June 30, 1997 at a weighted average
exercise price of $.36 per share, and (iii) 56,684 shares of Common Stock
issuable upon exercise of warrants outstanding as of June 30, 1997 at a
weighted average exercise price of $4.25 per share. Also excludes an
aggregate of 254,188 shares of Common Stock reserved for future issuance
under the Company's Stock Incentive Plan as of June 30, 1997. See
"Management -- Stock Option Plans," "Description of Capital Stock" and Note
1 of Notes to Financial Statements.

<PAGE>
DILUTION

The pro forma net tangible book value of the Company's Common Stock as of
June 30, 1997 was approximately $8.3 million, or $1.13 per share, after giving
effect to the Preferred Stock Conversion. After giving effect to the sale by the
Company of the 2,750,000 shares of Common Stock offered hereby at an initial
public offering price of $12.00 per share (after deducting the underwriting
discounts and commissions and estimated offering expenses payable by the
Company), the pro forma net tangible book value of the Company as of June 30,
1997 would have been approximately $38.2 million, or $3.78 per share. This
represents an immediate increase in net tangible book value of $2.65 per share
to existing stockholders and an immediate dilution in net tangible book value of
$8.22 per share to purchasers in this Offering. "Net tangible book value"
represents the amount of tangible assets of the Company less total liabilities.
Dilution represents the difference between the amount per share paid by
purchasers in this Offering and the pro forma net tangible book value per share
upon completion of this Offering. The following table illustrates this per share
dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share.................................. $12.00
Pro forma net tangible book value per share as of June 30, 1997........ $1.13
Increase in book value per share attributable to new investors......... 2.65
Pro forma net tangible book value per share after this Offering.......... 3.78
------
Dilution per share to new investors (1).................................. $ 8.22
------
------
</TABLE>

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

(1) If the Underwriters' over-allotment is exercised in full, the dilution to
new investors will be $7.76 per share.

The following table sets forth, on a pro forma basis as of June 30, 1997,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
the existing holders of Common Stock and by the new investors, after giving
effect to the Preferred Stock Conversion and before deducting the underwriting
discounts and commissions and estimated offering expenses payable by the
Company, at an initial public offering price of $12.00 per share:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................... 7,354,087 73% $30,488,588 48% $ 4.15
New investors....................................... 2,750,000 27 33,000,000 52 12.00
---------- ------- ----------- ------- ----------
Total........................................ 10,104,087 100% $63,488,588 100% $ 6.28
---------- ------- ----------- ------- ----------
---------- ------- ----------- ------- ----------
</TABLE>

The foregoing tables assume no exercise of outstanding options or warrants.
As of June 30, 1997, (i) 260,361 shares of Common Stock were issuable upon
exercise of outstanding stock options at a weighted average exercise price of
$.36 per share, and (ii) an aggregate of 56,684 shares of Common Stock were
issuable upon the exercise of outstanding warrants at a weighted-average
exercise price of $4.25 per share. Also excludes an aggregate of 254,188 shares
of Common Stock reserved for future issuance under the Company's Stock Incentive
Plan as of June 30, 1997. To the extent the outstanding options are exercised,
there will be further dilution to new investors. See "Capitalization," and
"Management -- Stock Option Plans," "Description of Capital Stock" and Note 1 of
Notes to Financial Statements.

<PAGE>
SELECTED FINANCIAL DATA

The selected financial data set forth below with respect to the Company's
Statement of Operations for the years ended December 31, 1994, 1995 and 1996 and
with respect to the Company's Balance Sheets as of December 31, 1995 and 1996
are derived from the audited Financial Statements of the Company which are
included elsewhere in this Prospectus and are qualified by reference to such
Financial Statements and the related Notes thereto. Statements of Operations
data for the period from inception (January 7, 1993) through December 31, 1993
and Balance Sheet data at December 31, 1993 and 1994 are derived from audited
Financial Statements of the Company not included herein. The selected financial
data as of June 30, 1997 and for the six months ended June 30, 1996 and 1997 are
derived from unaudited Financial Statements included elsewhere in this
Prospectus. The unaudited Financial Statements include all adjustments,
consisting only of normal recurring adjustments, that the Company considers
necessary for the fair presentation of its financial position and the results of
its operations for those periods. Operating results for the six months ended
June 30, 1997 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1997. The selected financial data set forth
below is qualified in its entirety by, and should be read in conjunction with,
the Financial Statements, the related Notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus.

TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)

<TABLE>
<CAPTION>
PERIOD FROM FOR THE
INCEPTION FOR THE SIX MONTHS ENDED CUMULATIVE
(JANUARY 7, 1993) YEARS ENDED DECEMBER 31, JUNE 30, FROM INCEPTION
THROUGH DECEMBER 31, --------------------------- ----------------- (JANUARY 7, 1993)
1993 1994 1995 1996 1996 1997 TO JUNE 30, 1997
-------------------- ------- ------- ------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) (UNAUDITED)
STATEMENTS OF OPERATIONS DATA:
Revenue......................... $ -- $ -- $ 104 $ 55 $ -- $ 212 $ 371
-------- ------- ------- ------- ------- ------- -----------------
Operating expense:
Research and development
expenses...................... 691 2,747 4,012 5,146 2,278 2,859 15,455
General and administrative
expenses...................... 631 947 1,520 1,761 802 786 5,646
-------- ------- ------- ------- ------- ------- -----------------
Total operating expenses.... 1,322 3,694 5,532 6,907 3,080 3,645 21,101
-------- ------- ------- ------- ------- ------- -----------------
Operating loss.................. (1,322) (3,694) (5,428) (6,852) (3,080) (3,433) (20,730)
-------- ------- ------- ------- ------- ------- -----------------
Interest income................. 16 8 49 47 32 33 154
Interest expense................ (5) (258) (360) (167) (86) (78) (867)
-------- ------- ------- ------- ------- ------- -----------------
Total other income
(expense)................... 11 (250) (311) (120) (54) (45) (713)
-------- ------- ------- ------- ------- ------- -----------------
Net loss.................... $ (1,311) $(3,944) $(5,739) $(6,972) $(3,134) $(3,478) $ (21,443)
-------- ------- ------- ------- ------- ------- -----------------
-------- ------- ------- ------- ------- ------- -----------------
Pro forma net loss per share
(1)(2)........................ $ (1.48) $ (.59)
------- -------
------- -------
Pro forma weighted average
shares used in computing pro
forma net loss per share
(1)(2)........................ 4,705 5,880
------- -------
------- -------
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------- JUNE 30,
1993 1994 1995 1996 1997
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS) (UNAUDITED)
BALANCE SHEET DATA:
Cash and cash equivalents................................................ $ 509 $ 277 $ 1,343 $ 132 $ 8,912
Working capital (deficiency)............................................. 183 (4,067) 322 (1,305) 8,019
Total assets............................................................. 1,802 1,873 3,058 1,684 10,585
Long-term notes payable and capital lease obligations, less current
portion................................................................ 401 751 703 576 488
Accumulated deficit...................................................... (1,311) (5,254) (10,994) (17,965) (21,443)
Total stockholders' equity............................................... 701 (3,236) 1,324 (409) 8,847
</TABLE>

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

(1) Computed on the basis described in Note 1 of Notes to Financial Statements.
(2) Pro forma to give effect to the Preferred Stock Conversion.

<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND THE RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED
UNDER "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," AND "BUSINESS," AS WELL AS THOSE DISCUSSED
ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

Trimeris commenced operations in January 1993, has a limited operating
history and is a development stage company. Since its inception, substantially
all of the Company's resources have been dedicated to the development,
patenting, preclinical testing and a Phase I/II clinical trial of T-20, the
development of its proprietary technology platform and research and development
and preclinical testing of other potential product candidates and compounds
discovered by the Company. The Company has incurred losses since its inception
and, as of June 30, 1997, had an accumulated deficit of approximately $21.4
million. The Company has received revenue solely from SBIR grants and an
investigative contract and has yet to generate any revenue from product sales or
royalties, and there can be no assurance that it will be able to generate any
such revenues or royalties in the future.

Product candidates and compounds discovered by the Company and developed
through the Company's product development programs will require significant
additional, time-consuming and costly research and development, preclinical
testing and extensive clinical trials prior to submission of any regulatory
application for commercial use. The Company has incurred losses since its
inception. Such losses have resulted principally from expenses incurred in the
Company's research and development activities associated with the development,
patenting, preclinical testing and a Phase I/II clinical trial of T-20, the
development of its proprietary technology platform, research and development and
preclinical testing of other potential product candidates and compounds
discovered by the Company, and from general and administrative expenses. The
Company expects to incur substantial losses for the foreseeable future and
expects losses to increase as the Company's research and development,
preclinical testing and clinical trial efforts expand. The amount and timing of
the Company's operating expenses will depend on several factors, including the
status of the Company's research and development activities, product candidate
and compound discovery and development efforts, including preclinical testing
and clinical trials, the timing of regulatory actions, the costs involved in
preparing, filing, prosecuting, maintaining, protecting and enforcing patent
claims and other proprietary rights, the ability of the Company to establish,
internally or through relationships with third parties, manufacturing, sales,
marketing and distribution capabilities, technological and other changes in the
competitive landscape, changes in the Company's existing research and
development relationships and strategic alliances, evaluation of the commercial
viability of potential product candidates and other factors, many of which are
outside of the Company's control. As a result, the Company believes that
period-to-period comparisons of financial results in the future are not
necessarily meaningful and results of operations in prior periods should not be
relied upon as an indication of future performance. Any deviations in results
from operations from levels expected by securities analysts and investors could
have a material adverse effect on the market price of the Common Stock. The
Company's ability to achieve profitability will depend, in part, upon its or its
collaborated partners' ability to successfully develop and obtain regulatory
approval for T-20 and other product candidates and compounds discovered by the
Company, and to develop the capacity, either internally or through relationships
with third parties, to manufacture, sell, market and distribute approved
products, if any. There can be no assurance that the Company will ever generate
significant revenues or achieve profitable operations. See "Risk
Factors -- Development Stage Company" and " -- History of Operating Losses;
Accumulated Deficit; Uncertainty of Future Profitability."

<PAGE>
RESULTS OF OPERATIONS

COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 AND 1997

REVENUE. There was no revenue recognized for the six months ended June 30,
1996. Revenue recognized for the six months ended June 30, 1997 consisted of
approximately $112,000 of income from SBIR grants, and $100,000 from an
investigative contract.

RESEARCH AND DEVELOPMENT EXPENSES. Total research and development expenses
increased from approximately $2.3 million for the six months ended June 30, 1996
to approximately $2.9 million for the six months ended June 30, 1997. The
increase is primarily due to increased costs related to additional personnel and
related laboratory research supplies to support these personnel and the
continuation of a Phase I/II clinical trial for T-20. Total research personnel
were 24 and 28 at June 30, 1996 and 1997, respectively. The Company expects its
research and development expenses to increase substantially in the future due to
continued expansion of product development activities, including preclinical
testing and clinical trials.

GENERAL AND ADMINISTRATIVE EXPENSES. Total general and administrative
expenses decreased from approximately $802,000 for the six months ended June 30,
1996 to approximately $786,000 for the six months ended June 30, 1997. The
Company expects its administrative expenses to increase in the future to support
the expansion of its product development activities.

OTHER INCOME (EXPENSE). Other income (expense) consists of interest income
and expense. Total other expenses decreased from approximately $55,000 for the
six months ended June 30, 1996 to $45,000 for the six months ended June 30,
1997. This change was primarily due to fluctuations in cash balances and
borrowings.

COMPARISON OF YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

REVENUE. Total revenue was approximately $0, $104,000 and $54,000 for 1994,
1995 and 1996, respectively. An SBIR grant was received in 1995, and revenue was
recognized as earned under this grant in 1995 and 1996.

RESEARCH AND DEVELOPMENT EXPENSES. Total research and development expenses
increased from $2.7 million in 1994 to approximately $4.0 million in 1995 and
increased to approximately $5.1 million in 1996. The increases are primarily due
to increased costs related to additional personnel and related laboratory
research supplies to support these personnel. During 1996, the Company began a
Phase I/II clinical trial for T-20 and incurred costs associated with these
clinical trials. Total research personnel were 17, 25 and 25 at December 31,
1994, 1995 and 1996, respectively.

GENERAL AND ADMINISTRATIVE EXPENSES. Total general and administrative
expenses increased from approximately $948,000 in 1994 to approximately $1.5
million in 1995, and increased to approximately $1.8 million in 1996. These
increases are primarily due to increased costs related to additional personnel
and professional fees incurred in the patent application process.

OTHER INCOME (EXPENSE). Other income (expense) consists of interest income
and expense. Total other expense increased from approximately $250,000 in 1994
to approximately $311,000 in 1995 and decreased to approximately $120,000 in
1996. The increase from 1994 to 1995 was primarily due to an increase in
interest expense of approximately $102,000 net of an increase in interest income
of approximately $41,000. The decrease from 1995 to 1996 was primarily due to a
reduction in interest expense of approximately $193,000 as a result of the
exchange of notes payable for preferred stock during 1995.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the Company has financed its operations primarily through
the private placement of equity securities, the issuance of notes to
stockholders and equipment lease financing. Net cash used by operating
activities was approximately $3.8 million, approximately $4.8 million and
approximately $5.8 million in 1994, 1995 and 1996, respectively, and
approximately $2.9 million and approximately $3.5 million for the six months
ended June 30, 1996 and June 30, 1997, respectively. The cash used by operating
activities was used primarily to fund research and development and general and
administrative expenses. Cash provided by financing activities was approximately
$3.6 million, approximately $6.1 million, and approximately $4.8 million in
1994, 1995 and 1996,

<PAGE>
respectively, and approximately $3.3 million and approximately $12.4 million for
the six months ended June 30, 1996 and 1997, respectively. The cash provided by
financing activities was primarily from the sale of equity securities and notes
to stockholders.

As of June 30, 1997, the Company had approximately $8.9 million in cash and
cash equivalents compared to approximately $132,000 as of December 31, 1996. The
increase resulted from the receipt of approximately $12.8 million from the sale
of equity securities during 1997, partially offset by approximately $3.5 million
used by operations.

The Company has experienced negative cash flows from operations since its
inception and does not anticipate generating sufficient positive cash flows to
fund its operations in the foreseeable future. The Company has expended, and
expects to continue to expend in the future, substantial funds to pursue its
product candidate and compound discovery and development efforts, including
expenditures for continued clinical trials of T-20, research and development and
preclinical testing of other product candidates and compounds discovered by the
Company and the development of its proprietary technology platform. As of June
30, 1997, the Company had commitments to purchase approximately $2.0 million of
product candidate materials and expects to expend approximately $900,000 in
capital expenditures through the end of 1997. These expenditures may be financed
with capital or operating leases, debt or working capital. The Company expects
that its existing capital resources, together with the net proceeds of the
Offering and the interest earned thereon, will be adequate to fund its capital
requirements through 1998. However, the Company's future capital requirements
and the adequacy of available funds will depend on many factors, including the
results of the clinical trials relating to T-20, the progress and scope of the
Company's product development programs, the magnitude of these programs, the
results of preclinical testing and clinical trials, the need for additional
facilities based on the results of these clinical trials and other product
development programs, changes in the focus and direction of the Company's
product development programs, the costs involved in preparing, filing,
processing, maintaining, protecting and enforcing patent claims and other
intellectual property rights, competitive factors and technological advances,
the cost, timing and outcome of regulatory reviews, changes in the requirements
of the FDA, administrative and legal expenses, evaluation of the commercial
viability of potential product candidates and compounds, the establishment of
capacity, either internally or through relationships with third parties, for
manufacturing, sales, marketing and distribution functions and other factors,
many of which are outside of the Company's control. Thus, there can be no
assurance that the net proceeds of this Offering, together with the interest
earned thereon, will be sufficient to fund the Company's capital requirements
during the period discussed above. The Company believes that substantial
additional funds will be required to continue to fund its operations and that
the Company will be required to obtain additional funds through equity or debt
financing or licenses, agreements or other arrangements with collaborative
partners and others, or from other sources. The terms of any such equity
financings may be dilutive to stockholders and the terms of any debt financings
may contain restrictive covenants which limit the Company's ability to pursue
certain courses of action. There can be no assurance that such funds will be
available to the Company on acceptable terms, if at all, or that such financings
will be adequate to meet the Company's future capital requirements. If adequate
funds are not available, the Company may be required to delay, scale-back or
eliminate certain aspects of its preclinical testing, clinical trials and
research and development programs or attempt to obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its technologies or product candidates or
compounds, which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors -- Future
Capital Needs; Uncertainty of Additional Funding" and "Use of Proceeds."

NET OPERATING LOSS CARRYFORWARDS

As of June 30, 1997, the Company had a net operating loss carryforward of
approximately $21 million. The Company has recognized a valuation allowance
equal to the deferred asset represented by this net operating loss carryforward
and therefore recognized no tax benefit. The Company's ability to utilize its
net operating loss carryforwards may be subject to an annual limitation in
future periods pursuant to the "change in ownership rules" under Section 382 of
the Internal Revenue Code of 1986, as amended (the "Code"). See Note 6 of Notes
to Financial Statements.

<PAGE>
BUSINESS

THE COMPANY

Trimeris is a biopharmaceutical company engaged in the discovery and
development of novel therapeutic agents that block viral infection by inhibiting
viral fusion with host cells. Viral fusion is a complex process by which viruses
attach to and penetrate host cells. The Company's lead product candidate, T-20,
inhibits fusion of HIV with host cells. T-20 has been tested in a multidose
Phase I/II clinical trial as a monotherapy for HIV-infected patients in the
United States. The results from this clinical trial indicate that short-term
administration of T-20 in an intravenous formulation is safe and well tolerated.
Furthermore, all four patients in the clinical trial who received the highest
dose of T-20 experienced a reduction in HIV viral load to below detectable
levels (less than 500 copies/ml) during the treatment period. T-20 and the
Company's other product candidates are designed to inhibit viral fusion, unlike
other currently approved therapeutic agents that target replicating viruses
inside already infected cells. The Company has developed a proprietary
technology platform in the field of fusion inhibition, which is being applied to
the discovery and development of novel products for the treatment of a variety
of viral diseases.

The Company is a development stage company. Since its inception,
substantially all of the Company's resources have been dedicated to the
development, patenting, preclinical testing and a Phase I/II clinical trial of
T-20, the development of the Company's proprietary technology platform, and
research and development and preclinical testing of other potential product
candidates and compounds discovered by the Company.

OVERVIEW OF VIRAL DISEASE

Viruses are infectious particles which contain either RNA or DNA and rely
on host cells to maintain their life cycle. Outside a host cell, a virus
particle cannot replicate. However, after infecting a host cell, a virus
exploits the metabolic mechanisms of that host cell to reproduce and make new
infectious virus particles that can infect other cells.

The genetic material of viruses is surrounded by a protein coat, called a
nucleocapsid. The nucleocapsid of certain viruses, known as enveloped viruses
(HIV, RSV, HPIV, influenza and hepatitis B and C), is surrounded by a bilayer
membrane consisting of both lipids and proteins. Certain of these viral proteins
facilitate the binding process of the virus to the host cell. These proteins
contain peptide domains that associate with one another to form coiled coils
during the infection process. These coiled-coil protein domains come together in
very specific structural rearrangements that help the viral membrane fuse with
the host cell membrane. This coiled-coil interaction permits the viral fusion
process to take place, thereby allowing the virus to inject its genetic material
into the host cell. Using HIV as an example, the following diagrams illustrate a
typical life cycle of a virus and the process by which certain viruses infect a
host cell.

HIV LIFE CYCLE

(Depiction of the HIV Life Cycle as more
fully described below)

STEP 1: HIV attaches to the surface of a human immune cell when the gp120
protein binds to a particular host cell receptor. After attachment, gp120 is
stripped away from the virus and certain peptide domains within the gp41
transmembrane protein

<PAGE>
rearrange and bind to each other very tightly to form coiled coils which mediate
the fusion of the viral and host cell membranes. STEP 2: The virus injects its
genetic material (RNA) into the cell. An HIV viral enzyme (reverse
transcriptase) then converts this RNA into DNA. STEP 3: The viral DNA is
transported to the nucleus and is integrated into the host cell's chromosomes.
STEP 4: The infected cell begins to produce new viral RNA, which then uses a
portion of the host cell's protein synthesis machinery to make many different
viral proteins. STEP 5: The viral enzyme called protease cuts these new proteins
into smaller pieces. STEP 6: These protein pieces assemble with the HIV RNA and
lipids to make new infectious virus particles. STEP 7: Mature HIV particles are
released from the surface of the infected cell to begin a new cycle of
infection.

MODEL FOR HIV FUSION

(Depiction of Model for HIV Fusion as more
fully described below)

(1) PRE-FUSION: The HIV gp41 protein contains two peptide domains which are
predicted to associate with one another to help the virus fuse with the host
cell membrane. However, these two peptide domains are presumably kept apart by
the gp120 protein in a pre-fusion state until the virus attaches to a host cell.
(2) ATTACHMENT: The gp120 protein is stripped away from the virus after gp120
binds to host cell receptors. The two specific peptide domains within the gp41
protein can then rearrange and bind to each other very tightly to form a
coiled-coil structure. In doing so, the tip of the gp41 protein is now
positioned to penetrate the host cell membrane. (3) FUSION: The virus is now
drawn closer to the host cell membrane surface and the viral and host cell
membranes fuse together. (4) PENETRATION: Once the membranes fuse together, the
virus can inject its genetic material into the host cell and the infection
process is completed. NOTE: The gp120 and gp41 protein structures are enlarged
in comparison to the size of the virus to show detail.

<PAGE>
THE COMPANY'S TECHNOLOGY

The Company's academic founders, Dr. Dani Bolognesi and Dr. Thomas
Matthews, both of the Duke University Center for AIDS Research, have discovered
a novel method to block HIV infection by inhibiting viral fusion with host
cells. This discovery was licensed to the Company and led to the Company's
development of its proprietary technology platform. The Company is using its
proprietary techonology platform to support its discovery and development
programs. Unlike therapeutic agents targeting viral replication processes inside
host cells, the Company's product candidates prevent one of the first steps in
the infection process that occurs outside of the host cell. The Company's goal
is to use its expertise in the field of fusion inhibition to discover, develop
and market novel peptides or small molecules to inhibit viral fusion for the
treatment of a variety of diseases.

T-20, the Company's lead product candidate, inhibits HIV infection. T-20 is
a proprietary 36 amino acid synthetic peptide that binds to a key peptide domain
of the HIV gp41 protein and blocks HIV viral fusion by interfering with the
interactions between peptide domains within viral proteins that are required for
HIV entry into a host cell. In a multidose Phase I/II clinical trial, T-20
exhibited dose-dependent anti-HIV activity while eliciting no drug-related
adverse events and no dose-limiting toxicities during the treatment period. The
following diagram illustrates the use of T-20 to inhibit viral fusion.

MODEL FOR T-20 INHIBITION OF HIV FUSION

(photo)

The gp120 protein is stripped away from the virus after gp120 binds to a
particular host cell receptor. Two specific peptide domains in the gp41 protein
are thus freed and can bind to one another to form a coiled coil. However, if
T-20 is present in the bloodstream, it binds very tightly to one of the two
peptide domains within the gp41 protein. Therefore, T-20 blocks the ability of
gp41 to form a natural, coiled-coil structure. As a result, the tip of the gp41
protein does not effectively penetrate the host cell membrane. Since the virus
cannot penetrate and inject its genetic material into the cell, HIV infection of
the host cell is inhibited. NOTE: The gp120 and gp41 protein structures are
enlarged in comparison to the size of the virus to show detail.

<PAGE>
Through its study of the HIV fusion process, the Company has developed a
proprietary technology platform aimed at discovering antiviral compounds. The
cornerstone of this platform is CAST, a proprietary computer algorithm which
identifies target sequences within certain viral proteins that have the
potential to interact during the fusion process. Once identified by the CAST
algorithm, these target sequences form the basis for designing highly selective
and potent peptide inhibitors of viral fusion. CAST has enabled the Company to
design product candidates for RSV and HPIV fusion inhibition. The Company has
identified, and has filed patent applications disclosing, numerous discrete
peptide sequences, which include potential fusion targets in other viruses such
as hepatitis B and C, influenza and herpes.

In addition to viral targets, CAST has identified protein sequences which
may have a role in bacterial pathogenesis, thus providing the Company with the
basis for future work aimed at the potential discovery of antibiotic agents.
Ultimately, the Company plans to explore CAST-identified sequences across a wide
range of targets, including those associated with cancer, immunology and
neurology.

PROGRAMS AND PRODUCT CANDIDATES UNDER DEVELOPMENT

The following table describes the various stages of development of the
Company's programs and product candidates.

<TABLE>
<CAPTION>
INDICATION PRODUCT CANDIDATE DEVELOPMENT STATUS(1)
- ------------------------------ ----------------------------- ------------------------------
<S> <C> <C>
HIV T-20 Phase I/II Completed
RSV T-786 Preclinical
HIV Second generation inhibitors Preclinical
RSV Small molecules Preclinical
HPIV T-205 Research
HPIV Small molecules Research
HIV Small molecules Research
Influenza Virus Small molecules Discovery
Hepatitis B Virus Small molecules Discovery
Hepatitis C Virus Small molecules Discovery
Epstein-Barr Virus Small molecules Discovery
- ---------------
(1) "Phase I/II Completed" indicates that the product candidate has been tested in a Phase I/II
clinical trial for safety and preliminary indications of biological activity in a limited
patient population. "Preclinical" indicates that the Company is testing a product candidate
in animal models. "Research" indicates the Company is pursuing the discovery of prototype
compounds and evaluating prototype compounds in IN VITRO testing. "Discovery" indicates that
the Company is developing assay systems to screen chemical libraries of small molecules. See
"Risk Factors -- Uncertainties Related to Clinical Trials and Clinical Trial Strategy,"
" -- Extensive Government Regulation; No Assurance of Regulatory Approval" and
"Business -- Government Regulation."
</TABLE>

CLINICAL DEVELOPMENT PROGRAM

T-20

T-20 is a proprietary compound which has demonstrated significant
inhibition of HIV in preclinical testing. T-20 has been tested in a Phase I/II
clinical trial in which T-20 exhibited dose-dependent anti-HIV activity while
eliciting no drug-related adverse events and no dose-limiting toxicities during
the treatment period. T-20 inhibits HIV viral fusion with host cells and thus
operates by a completely different mechanism of action than any other currently
approved HIV antiviral. HIV targets primarily the human immune cells known as
CD4+ T-cells and macrophages. HIV-infected cells ultimately lose their immune
function, leading to eventual degeneration of the immune system, which results
in opportunistic infections, neurological dysfunctions, neoplasms and death.

T-20 is a 36 amino acid synthetic peptide whose sequence is derived from
the gp41 protein of HIV. In preclinical testing, T-20 displayed potent antiviral
activity and reduced HIV viral load significantly in animal

<PAGE>
models. In those tests, T-20 displayed notable pharmaceutical properties,
including long half-life, significant bioavailability, chemical stability and
rapid distribution into lymphatic tissue, a major reservoir of HIV. In August
1997, the Company concluded a Phase I/II clinical trial in which an intravenous
formulation of T-20 was administered to HIV-infected patients. The clinical
trial consisted of four groups of four patients, with each group receiving a
different dose of T-20. Patients received doses of T-20 at either 3 mg, 10 mg,
30 mg or 100 mg by bolus intravenous infusion every 12 hours for 14 consecutive
days. No drug-related adverse events were recorded and no dose-limiting
toxicities were observed for any patient during the treatment period.
Furthermore, a dose-dependent decrease in HIV viral load and a dose-dependent
increase in CD4+ T-cell count were observed.

All four patients who received the 100 mg dose experienced a decrease in
HIV viral load to below detectable levels (less than 500 copies/ml) during the
treatment period. The lower limit of detection of the assay used for this trial
is 500 copies/ml, which is equivalent to 2.70 log10 . The data from the clinical
trial thus indicate that the 100 mg dose group of patients experienced a minimum
decrease of at least 1.50 log10 in HIV viral load. The following table
summarizes the results of this clinical trial.

T-20 PHASE I/II CLINICAL TRIAL RESULTS

<TABLE>
<CAPTION>
MEAN HIV VIRAL LOAD (1)
-------------------------------------------------------------------
CHANGE
-------------------------------
T-20 DOSE (2) BASELINE DAY 14 LOG10 PERCENT
- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
3 mg 4.82 4.71 (0.11) (22)%
10 mg 5.12 5.06 (0.06) (13)
30 mg 4.95 4.47 (0.48) (61)
100 mg 4.20 2.70(3) (1.50) (97)
</TABLE>

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

(1) Copies/ml plasma (reported in log10).

(2) Administered every 12 hours for 14 consecutive days.

(3) 2.70 log10 is the lower limit of detection of the assay used for this
trial.

The criteria for enrollment set forth in the trial protocol required that
participants (1) either have stopped taking antiretroviral drug therapy at least
15 days prior to initiating treatment with T-20 or have never received such drug
therapy, (2) have CD4+ T-cell counts above 100 cells/ml and (3) have HIV viral
loads of in excess of 10,000 copies/ml.

There can be no assurance that the results from the Phase I/II clinical
trial will support future clinical trials or will be predictive of results that
will be obtained in pivotal clinical trials.

T-20 CLINICAL DEVELOPMENT

The Company believes that delivery of a continuous therapeutic dose of T-20
using a subcutaneous infusion delivery system may suppress HIV more effectively
than other delivery mechanisms. Accordingly, the Company, together with MiniMed,
is developing a continuous, subcutaneous infusion delivery system for
administering T-20. The Company believes that the ease of use of a continuous,
subcutaneous infusion delivery system may increase patient compliance. In
addition, the Company believes that such a system may reduce the amount of T-20
necessary to maintain effective HIV suppression. The Company is preparing to
begin a Phase II clinical trial that will compare delivery of a constant
therapeutic dose of T-20 by a continuous, subcutaneous infusion pump to delivery
by intermittent, subcutaneous injections. The Company anticipates that this
clinical trial will be conducted at the University of Alabama at Birmingham
under the supervision of Dr. Michael Saag and at the UCLA Medical Center under
the supervision of Dr. Ron Mitsuyasu. Each site is expected to enroll 16 to 24
HIV-infected patients and measure pharmacokinetics of T-20 drug delivery using
the continuous, subcutaneous infusion pump and the effect of this treatment
approach on primary surrogate markers. This trial will also analyze the T-20
dosing range

<PAGE>
when using the MiniMed continuous, subcutaneous infusion pump. The Company
anticipates that this Phase II clinical trial will be completed in the first
quarter of 1998.

After completion of the continuous, subcutaneous infusion Phase II trial,
the Company intends to begin a pivotal Phase II trial in a larger population of
HIV-infected patients who are either resistant to, or intolerant of, currently
approved antiviral therapies (RT and protease inhibitors). Historically, pivotal
Phase II trials of this type involving HIV antivirals have included
approximately 300-400 patients and have taken approximately 18-24 months to
complete. The Company anticipates that this pivotal Phase II trial will begin in
the first half of 1998. Concurrently with the start of the pivotal Phase II
trial, the Company intends to begin a study of T-20 in HIV-infected pediatric
patients. Historically, studies of this type involving HIV antivirals have
included approximately 40-60 pediatric patients and have taken approximately
18-30 months to complete.

Throughout the T-20 clinical trial process, the Company intends to work
with the FDA to design and implement a clinical trial strategy involving the
administration of T-20 to HIV-infected patients in combination with approved HIV
antiviral agents. The Company also believes that it will be able to conduct its
T-20 clinical trial programs pursuant to the accelerated approval procedure
authorized by the FDA for drugs intended to treat serious or life-threatening
illnesses. However, there can be no assurance that T-20 will be eligible for
accelerated development and/or approval under these regulations. Further, there
can be no assurance that T-20 (if eligible for accelerated development and/or
approval under these regulations) will be approved by the FDA for marketing on
an accelerated basis, or at all. The anticipated timing of the Company's T-20
clinical trials may be delayed or cancelled for a number of reasons, including
the receipt of unanticipated T-20 clinical trial results, changes in the focus
of the Company or its collaborators, financial requirements and resources,
manufacturing issues, technological developments and competitive factors.
Accordingly, no assurance can be given that the Company's T-20 clinical trials
will commence on their target dates, or at all. Delays in such clinical trials
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors -- Extensive Government
Regulation; No Assurance of Regulatory Approval," " -- Uncertainties Related to
Clinical Trials and Clinical Trial Strategy" and "Business -- Government
Regulation."

HIV MARKET AND EXISTING THERAPIES

HIV infection causes AIDS, which is one of the leading causes of death in
the United States in men and women between the ages of 25 and 44. The World
Health Organization estimates that, as of late 1996, approximately 750,000
people were infected with HIV in the United States, and approximately 510,000
people were infected in Western Europe.

The first drugs approved in the United States to treat HIV infection
inhibit the synthesis of virus DNA from viral RNA in infected cells by targeting
RT, the viral enzyme essential for such synthesis. Approved RT inhibitors
include AZT, 3TC, ddI, ddC, d4T, nevirapine and delavirdine. Worldwide sales of
RT inhibitors were approximately $1.0 billion in 1996. A second class of HIV
antivirals inhibits HIV protease, a viral enzyme required to cleave newly
synthesized viral proteins into the correct size so the virus can assemble
itself into new infectious virus particles. Approved HIV protease inhibitors
include indinavir, ritonavir, saquinavir and nelfinavir mesilate. Worldwide
sales of protease inhibitors were approximately $400 million in 1996 and are
projected to grow significantly over the next several years.

HIV is prone to mutations that produce resistance to RT and protease
inhibitors. Once resistance emerges to one drug, these strains may also be
resistant to most, if not all, of the drugs in the same chemical or functional
class (a phenomenon known as cross-resistance). In an effort to overcome such
resistance, physicians have begun to use RT and protease inhibitors in various
combinations. While combination therapy with RT and protease inhibitors
represents an advance in treatment of HIV infection, combination therapy has not
yet proven to be a cure. Moreover, although these combination therapies have
slowed the emergence of resistance, new mutant strains have been identified
which are resistant to several of the drugs currently used in combination
therapy.

Equally problematic is that even brief instances of non-compliance with the
strict drug dosing regimens associated with these combination therapies may
reduce the effectiveness of combination therapy and can accelerate the emergence
of resistance. For example, in order to maintain a high blood level of the drug
and to present a

<PAGE>
continuous challenge to the targeted virus, many current drugs require complex
dosing, with some medications to be taken with meals and some on an empty
stomach. A typical combination therapy regimen includes 14 to 16 pills taken at
six to eight times during the day. This type of complex dosing regimen can
easily lead to noncompliance or only partial compliance. Orally administered,
small molecule drugs such as RT and protease inhibitors generally reach peak
levels in the bloodstream within a short period of time after being taken by the
patient. Drug levels then gradually fall over time as the drug is either
absorbed into tissues or is eliminated from the body. At the point in the day
when the drug level reaches its lowest concentration in the bloodstream (prior
to the patient's taking another dose), the drug level may not be sufficiently
high to effectively inhibit the virus. If a patient misses a dose or delays
taking the drug for a short period of time, the drug level in the body will fall
even lower, thus allowing the virus to replicate and potentially develop
resistant strains. The Company believes that one solution to this problem is
drug delivery using a continuous, subcutaneous infusion system through which a
controlled, programmable amount of the drug could be delivered throughout the
day.

Toxicity is also an issue associated with the use of RT and protease
inhibitors. Accumulating data indicate that certain patients are unable to take
RT and protease inhibitors, either alone or in combination, due to toxic side
effects, including gastrointestinal disorders, peripheral neuropathy and kidney
stones. Furthermore, recent information has suggested that protease inhibitors
may cause diabetes-like symptoms in some patients. Clinical studies with some RT
and protease inhibitors indicate that a significant number of HIV-positive
patients discontinue therapy soon after they begin treatment because (i) they
cannot tolerate the toxic side effects, (ii) they rapidly become resistant to
these therapies, or (iii) demands of the drug dosing regimen (the number of
pills the patients are required to take on a strict schedule) are too great. If
the side effects of the drugs prove too severe, or if a patient's virus becomes
resistant to available drug combinations, there are no other antiviral
treatments currently available.

T-20 COMMERCIALIZATION STRATEGY

The Company has entered into a strategic alliance with MiniMed under which
the parties will collaborate to deliver T-20 using MiniMed's continuous infusion
pump. MiniMed pumps, currently used for insulin therapy, are generally attached
to a belt, strapped to a leg or draped on a cord around the neck. These pumps
weigh approximately 3.5 ounces and are approximately the size of a pager. The
Company expects that MiniMed will play an active role in the marketing of its
pump for T-20 delivery and will provide patient support and product service for
the pump and related disposable products. The Company plans to work directly
with MiniMed to pursue necessary regulatory approvals for the delivery of T-20
using the MiniMed pump. See "Risk Factors -- Dependence on Collaborations and
Licenses with Others," " -- Extensive Government Regulation; No Assurance of
Regulatory Approvals," "Business -- License and Collaborative Agreements" and
" -- Government Regulation."

The manufacture of peptides requires significant expertise, facilities and
equipment. Accordingly, the Company has elected to work with several third-party
contract manufacturers to supply quantities of T-20 to be used in the Company's
currently planned clinical trials. The Company may continue to rely on
third-party manufacturers throughout the clinical and initial commercialization
phases of T-20 development. The Company has also established an in-house T-20
manufacturing process development and control team that is attempting to develop
an improved process for the synthetic manufacture of T-20, which may result in
increased production volume and lower unit costs. See
"Business -- Manufacturing" and "Risk Factors -- Lack of Manufacturing
Capabilities" for a discussion of manufacturing processes and certain risks
associated with manufacturing peptides.

The Company does not currently have sales, marketing or distribution
capabilities and is evaluating strategies for the sale, marketing and
distribution of T-20, including developing internal capabilities and entering
into collaborative arrangements. The Company believes that it may be feasible to
develop internal sales, marketing and distribution capability for T-20, since
the market for HIV therapeutics is comprised of a concentrated group of
physicians in medical practices that treat HIV patients. The Company will
continue to explore alternative opportunities to market T-20, either internally
or in conjunction with appropriate marketing partners. See "Risk Factors -- Lack
of Sales, Marketing and Distribution Capabilities" and "Business -- Sales,
Marketing and Distribution."

<PAGE>
PRECLINICAL DEVELOPMENT PROGRAMS

The Company is using its proprietary technology platform to discover and
develop fusion inhibitors for other viral diseases where there are substantial
unmet medical needs.

T-786

T-786 is the Company's lead product candidate for the treatment of RSV
infection, which is a significant cause of pediatric bronchiolitis and
pneumonia. Each year in the United States, 11 out of 100 children younger than
one year of age are infected with RSV, more than 90,000 infants are hospitalized
with RSV infections, and over 4,500 deaths are attributed to RSV. There is
currently only one product approved for the treatment of RSV infection, and the
Company believes that this product is used sparingly because its effectiveness
is limited and its side effects are significant.

T-786 is a proprietary 35 amino acid synthetic peptide derived from a CAST
predicted domain of the RSV fusion protein. T-786 shows potent, specific and
selective inhibition of RSV infection IN VITRO. In preclinical testing, T-786
significantly reduced the level of viral infection in an animal model. Because
RSV infects lung tissue primarily, the Company believes that aerosol delivery of
its RSV therapeutic directly to the lung may be the most effective method for
administering T-786. The Company is currently developing an aerosol formulation
of T-786 for preclinical evaluation. Preclinical testing of T-786 is currently
in progress. Upon successful completion of these tests, the Company anticipates
that it will begin clinical trials for T-786 in 1998.

SECOND-GENERATION HIV FUSION INHIBITORS

Using CAST, the Company has designed proprietary second-generation, peptide
HIV fusion inhibitors which bind to regions of the HIV fusion protein target
that are different from the region bound by T-20. In preclinical testing, these
second-generation compounds have been shown to be highly effective against a
wide range of HIV strains IN VITRO. In preclinical testing, these compounds have
demonstrated pharmaceutical characteristics distinct from T-20. The Company
believes that these second-generation compounds could provide a range of future
options for the continuing treatment of HIV infection. The Company expects to
begin testing its lead second-generation HIV fusion inhibitor in animal models
in the fourth quarter of 1997.

ANTI-RSV SMALL MOLECULES

The Company has identified a series of small-molecule inhibitors of RSV
infection using its high-throughput screening assays. These assays were designed
based upon the CAST platform. Using its proprietary knowledge of the chemical
structure of these compounds, the Company has developed a number of analogs
which have demonstrated potency against RSV in preclinical testing. Several of
these analogs have also demonstrated low toxicity. The Company is continuing to
synthesize analogs of these compounds to evaluate their pharmaceutical
properties and will continue preclinical testing to identify lead compounds.

RESEARCH AND DISCOVERY PROGRAMS

The Company is leveraging its proprietary technology platform and expertise
in viral fusion to discover and develop lead compounds and product candidates to
treat a variety of diseases caused by other viruses.

ANTI-HPIV COMPOUNDS

Using CAST, the Company has developed a series of proprietary peptides
which inhibit HPIV IN VITRO. T-205, the Company's lead anti-HPIV peptide, was
derived from a coiled-coil domain of the HPIV fusion protein. T-205 shows
specific, selective and potent inhibition of HPIV infection IN VITRO. HPIV is a
cause of respiratory disease in young infants. There are no drugs currently
approved for the treatment of HPIV. The Company is conducting a research program
to evaluate T-205 and other peptide candidates for possible advancement to
preclinical development.

The Company has also discovered several small-molecule inhibitors of HPIV
using the Company's high-throughput HPIV screening assay. This assay was
designed based on the CAST platform. These compounds show

<PAGE>
potent, dose-response inhibition of HPIV IN VITRO. The Company is currently
synthesizing analogs of these compounds to evaluate their pharmaceutical
properties.

ANTI-HIV SMALL MOLECULES

The Company has indentified a series of small-molecule compounds which
inhibit HIV infection IN VITRO using the Company's high-throughput HIV screening
assays. These assays were designed based on the CAST platform. The Company plans
to continue screening its chemical libraries to discover additional anti-HIV
small-molecule compounds.

INFLUENZA VIRUS

The Company has initiated an early-stage discovery program to create a
high-throughput screening assay based on CAST to identify potential
small-molecule inhibitors of influenza viral fusion. The Company has established
a collaboration with Dr. Judith White at the University of Virginia to assist in
the discovery and development of fusion inhibitors for influenza virus.

HEPATITIS B AND C VIRUS

The Company has initiated early-stage discovery programs to create
high-throughput screening assays that can identify potential small-molecule
inhibitors of the hepatitis B and C viruses. Additionally, in collaboration with
Dr. Timothy Block of the Thomas Jefferson Medical School, the Company plans to
synthesize and test peptides derived from CAST-identified regions of the
hepatitis B virus. The Company has been awarded a Phase I SBIR grant from the
Department of Health and Human Services for this program.

EPSTEIN-BARR VIRUS

The Company has initiated an early-stage discovery program in Epstein-Barr
virus ("EBV") through a collaboration with Dr. Joseph Pagano of the University
of North Carolina at Chapel Hill. EBV causes infectious mononucleosis and has
been linked to a variety of cancers. Dr. Pagano is working with the Company's
scientists to develop a strategy for inhibiting a key protein required for EBV
replication. Using CAST, the Company has identified key interactive peptide
domains within this molecular target and has synthesized peptide inhibitors for
the molecular target IN VITRO.

BUSINESS STRATEGY

The Company's goal is to become a leader in anti-fusion viral therapy. To
achieve this objective, the principal elements of the Company's strategy are to:

(Bullet) VALIDATE FUSION INHIBITION THERAPY BY OBTAINING REGULATORY
APPROVAL FOR T-20. T-20 has been shown in preclinical testing to
inhibit HIV fusion. T-20 has been tested in a Phase I/II clinical
trial, and the Company anticipates that a Phase II pivotal trial
will begin in the first half of 1998. The Company believes that it
will be able to conduct its pivotal T-20 clinical trials program
pursuant to the accelerated approval procedure authorized by the
FDA for drugs intended to treat serious or life-threatening
illnesses. The Company believes that regulatory approval of T-20,
if obtained, will provide important evidence to support the
validity of viral fusion inhibition therapy.

(Bullet) LEVERAGE ANTI-FUSION EXPERTISE TO DEVELOP OTHER ANTIVIRAL
THERAPIES. The Company believes that its proprietary technology
platform, including CAST, is applicable to many other viral
targets that may be susceptible to fusion inhibition. For example,
using CAST, the Company designed T-786 for treatment of RSV
infection. Upon the successful completion of preclinical testing,
the Company anticipates that it will begin clinical trials of
T-786 in 1998. The Company also has research and discovery
programs to identify compounds to inhibit fusion of other viruses,
including HPIV, influenza, hepatitis B and C, and EBV.
Additionally, as the Company refines and enhances CAST, the
Company believes that it will be able to develop new,
high-throughput screening assays for multiple targets.

<PAGE>
(Bullet) TAILOR COMMERCIALIZATION CAPABILITIES TO SPECIFIC PRODUCT MARKETS.
The Company intends to evaluate the appropriate commercializaton
strategy for each of its product candidates, depending on the size
and nature of the market. For example, the Company believes that
it may develop its own capability to sell and market T-20 in the
United States because a relatively small number of physicians
write the majority of prescriptions for HIV drugs in the United
States.

MANUFACTURING

The Company has no experience in manufacturing pharmaceuticals and has no
commercial manufacturing capacity. The Company has established relationships and
intends to establish additional relationships with third-party manufacturers for
the production of quantities of its product candidates or compounds sufficient
to conduct its planned preclinical testing and clinical trials and the
commercial production of any approved products or compounds.

Three different methods are currently available for the synthetic
manufacture of peptides such as T-20, namely solid-phase sequential peptide
synthesis, peptide synthesis by fragment condensation and solution-phase peptide
synthesis. In solid-phase sequential peptide synthesis, peptides are
synthetically manufactured by sequentially linking together amino acids to form
a peptide chain. The peptide chain is attached to a solid support from which the
finished peptide is chemically released after completion of this amino acid
assembly process. Because of certain technical limitations inherent in this
process that limit its efficiency, solid-phase sequential peptide synthesis is
the most expensive way to chemically assemble the Company's current peptide
product candidates, including T-20. Peptides may also be manufactured using a
process known as peptide synthesis by fragment condensation, in which peptide
segments that match sequential regions along the parent peptide sequence are
synthesized using solid-phase peptide chemistry techniques. This process is
technically more difficult to accomplish than solid-phase sequential peptide
synthesis and may not lead to a process that is commercially feasible. However,
if successful, this process is generally more economical than solid-phase
sequential peptide synthesis for peptides that are longer than approximately 15
amino acids in length. In the third peptide manufacturing method, solution-phase
peptide synthesis, peptides are synthetically manufactured by linking all amino
acids together in the peptide chain entirely in solution. This chemical assembly
process is technically the most difficult to design and implement and may be
technically infeasible on a commercial scale for peptides longer than
approximately 15 amino acids. However, the Company believes that cost savings
may be achieved beyond those possible using fragment condensation peptide
synthesis if technical difficulties with the technology are overcome.

The Company and its third-party manufacturers have manufactured sufficient
quantities of T-20 using solid-phase sequential peptide synthesis to complete
preclinical testing and the Phase I/II clinical trial. The Company has entered
into agreements with two contract manufacturers for the solid-phase sequential
peptide synthetic manufacture of T-20 for use in clinical trials. The Company
has also established a manufacturing process development and control team
consisting of four individuals with significant pharmaceutical experience in
peptide and small organic molecule process development and manufacturing. This
team is currently working to implement a strategy to manufacture T-20 using
peptide synthesis by fragment condensation. The Company anticipates that such a
process may be available to support later-stage T-20 clinical trial needs. This
team will also coordinate process implementation with third-party manufacturers
and help to ensure regulatory compliance in the manufacturing process. Although
the Company has no plans at present to evaluate solution-phase peptide synthesis
for T-20, the Company may chose to evaluate the use of this process for T-20 in
the future. There can be no assurance that the Company or its third-party
manufacturers will be able to manufacture T-20 on a cost-effective basis or that
the Company will be successful in its efforts to develop an alternative, more
efficient manufacturing method for T-20 or any of its other peptide product
candidates.

There can be no assurance that the Company will be able to retain or
establish relationships with any third-party manufacturers on acceptable terms,
if at all, or that such third-party manufacturers will be able to manufacture
products in commercial quantities under GMP requirements on a cost-effective
basis. The Company's dependence upon third parties for the manufacture of its
products, product candidates and compounds may adversely affect the Company's
profit margins and its ability to develop and commercialize product candidates,
products and compounds on a timely and competitive basis. Further, there can be
no assurance that manufacturing or quality

<PAGE>
control problems will not arise in connection with the manufacture of the
Company's products, product candidates or compounds or that third-party
manufacturers will maintain the necessary governmental licenses and approvals to
continue manufacturing the Company's products, product candidates or compounds.
Any failure to maintain existing or establish new relationships with third
parties for the Company's manufacturing requirements on a timely basis and on
acceptable terms would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors -- Lack of
Manufacturing Capabilities" and " -- Extensive Government Regulation; No
Assurance of Regulatory Approval."

LICENSING AND COLLABORATIVE AGREEMENTS

The Company intends to consider entering into collaborative and licensing
arrangements with collaborative partners, licensees and third parties to seek
regulatory approval of and to manufacture and commercialize certain of its
existing and potential product candidates and compounds. These collaborations
could provide the Company with funding, research and development resources,
access to libraries of diverse compounds and clinical development,
manufacturing, sales, marketing and distribution capabilities. Accordingly, the
Company's success will depend, in part, upon the subsequent success of such
third parties in performing preclinical testing and clinical trials, obtaining
the requisite regulatory approvals, scaling up manufacturing, successfully
commercializing the licensed product candidates or compounds and otherwise
performing their obligations. There can be no assurance that the Company will be
able to maintain its existing arrangements or enter into acceptable
collaborative and license arrangements in the future on acceptable terms, if at
all, that such arrangements will be successful, that the parties with which the
Company has or may establish arrangements will perform their obligations under
the arrangements, or that potential collaborators will not compete with the
Company by seeking alternative means of developing therapeutics for the diseases
targeted by the Company. There can also be no assurance that the Company's
existing or any future arrangements will lead to the development of product
candidates or compounds with commercial potential, that the Company will be able
to obtain proprietary rights or licenses for proprietary rights with respect to
any technology developed in connection with these arrangements, or that the
Company will be able to ensure the confidentiality of any proprietary rights and
information developed in such arrangements or prevent the public disclosure
thereof. The Company currently has a license from Duke University (as described
below), and in the future may require additional licenses from these or other
parties, to effectively develop potential product candidates and compounds.

The Company has received approximately $300,000 from SBIR grants. The first
grant, "Screens for Identifying HIV Fusion Inhibitors -- Phase I," was completed
during 1995. Phase II of that grant, in the amount of $365,000, is currently in
progress with a projected completion date in March 1998. Another grant, "Peptide
Therapeutics for the Liver Cancer Pathogen HBV," was begun during 1996 and
completed in 1997. There can be no assurance that the funding provided by such
grants will be sufficient to complete the studies contemplated by such programs
or that the Company will receive any additional future grants under any of these
programs.

The Company also received approximately $100,000 from a third party under
an investigative contract. The purpose of this contract was to identify
pharmaceutical compounds in late stage clinical development that may be licensed
for sale in the United States and other foreign countries. There can be no
assurance that the Company will receive any additional funding under this or any
other similar contract.

In April 1997, the Company and MiniMed entered into the MiniMed Agreement.
Under the agreement, the Company and MiniMed will collaborate in the development
and delivery of therapies for the treatment of targeted indications by combining
the continuous infusion delivery pump of MiniMed and the antiviral product
candidates and compounds being developed by the Company. The first collaborative
project under the terms of the agreement will involve the continuous delivery of
T-20. The parties intend to initiate clinical trials for the delivery of T-20
with MiniMed's continuous infusion delivery pump in the third quarter of 1997.
While MiniMed's continuous infusion pump has been approved for the continuous,
subcutaneous infusion of other therapies, there can be no assurance that the FDA
will approve on a timely basis, if at all, the use of the delivery of T-20
utilizing the MiniMed continuous infusion pump. The parties are evaluating other
product candidates and compounds for inclusion under the agreement. Under the
terms of the agreement, a joint management committee will determine an

<PAGE>
implementation strategy for each collaborative project. The agreement contains
certain exclusivity and noncompetition provisions, subject to the Company's
right, under certain circumstances, to terminate such obligations with respect
to T-20 in exchange for certain royalty payments. The failure of the Company and
MiniMed to achieve their collective objectives could have a material adverse
effect on the Company's business, financial condition and results of operations.

Pursuant to the Duke License, the Company has obtained from Duke University
an exclusive, worldwide, royalty-free license to all discoveries and inventions
in the field of antiviral therapeutics emanating from the laboratories of Drs.
Dani Bolognesi, Thomas J. Matthews, Michael Greenberg and Kent Weinhold of the
Duke University Center for AIDS Research for the period from February 3, 1993
until February 2, 2000. The Company's rights to each of these discoveries and
inventions expire upon the expiration of the life of the particular patent.
Multiple discoveries and inventions have flowed to the Company under the Duke
License and include those upon which United States patents have been issued.
None of the technologies licensed by the Company from Duke University is the
subject of a separate license agreement. Rather, the Company's rights to such
technologies are licensed solely pursuant to the Duke License. While the Company
believes it will be able to successfully negotiate an extension or renewal of
the Duke License, there can be no assurance that the Company will be able to
obtain such an extension or renewal or that such an extension or renewal will be
on acceptable terms. The early termination of the Duke License or the failure of
the Company to renew the Duke License on acceptable terms, if at all, could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors -- License and Collaborative
Agreements" and " -- Extensive Government Regulation; No Assurance of Regulatory
Approval."

SALES, MARKETING AND DISTRIBUTION

The Company has no experience in sales, marketing or distribution of
pharmaceuticals and currently has no personnel employed in any such capacities.
However, the Company intends to develop such capability in certain areas. For
example, because a relatively small number of physicians write the majority of
prescriptions for HIV drugs in the United States, the Company intends to
consider developing in-house sales, marketing and distribution capabilities to
address the market. In other areas, however, the Company may rely on marketing
partners or other arrangements with third parties which have established
distribution systems and direct sales forces for the sales, marketing and
distribution of such products and compounds. In the event that the Company is
unable to reach agreement with one or more marketing partners to market these
other products and compounds, it may be required to develop internal sales,
marketing and distribution capabilities for such products and compounds. There
can be no assurance that the Company will be able to establish sales, marketing
or distribution capabilities or make arrangements with third parties to perform
such activities on acceptable terms, if at all, or that any internal
capabilities or third-party arrangements will be cost-effective. The failure to
establish such capabilities would have a material adverse effect on the
Company's business, financial condition and results of operations.

In addition, any third parties with which the Company establishes sales,
marketing or distribution arrangements may have significant control over
important aspects of the commercialization of the Company's products, and
compounds including market identification, marketing methods, pricing,
composition of sales force and promotional activities. For example, the MiniMed
Agreement contemplates that MiniMed will participate in the sales, marketing and
distribution of any products jointly developed by the parties. There can be no
assurance that the Company will be able to control the amount and timing of
resources that MiniMed or any other third party may devote to the Company's
products or compounds or prevent any third party from pursuing alternative
technologies or products that could result in the development of products that
compete with the Company's products and compounds and the withdrawal of support
for the Company's products and compounds. See "Risk Factors -- Lack of Sales,
Marketing and Distribution Capabilities."

PATENTS, PROPRIETARY TECHNOLOGY AND TRADE SECRETS

The Company's success will depend, in part, on its ability, and the ability
of its collaborators or licensors, to obtain protection for its products and
technologies under United States and foreign patent laws, to preserve its trade
secrets and to operate without infringing the proprietary rights of third
parties. Because of the substantial

<PAGE>
length of time and expense associated with bringing new products through
development to the marketplace, the pharmaceutical and biotechnology industries
place considerable importance on obtaining, and maintaining, patent and trade
secret protection for new technologies, products and processes.

As of September 30, 1997, the Company was the sole assignee of one pending
United States patent application and one pending patent application under the
Patent Cooperation Treaty designating the United States, directed to
combinatorial therapy employing its proprietary antifusion peptides and other
therapeutic agents, and the owner of one pending provisional application,
directed to certain antifusion chemical compounds discovered by the Company's
proprietary screening method. In addition, as of September 30, 1997, the Company
was the assignee or owner, along with Duke University, of 16 pending United
States applications, along with certain corresponding foreign patent
applications, directed to numerous antifusion peptides and their therapeutic
uses. Under the Duke License, the Company is the exclusive licensee under Duke
University's rights in these jointly-owned patent applications, as well as the
exclusive licensee under three issued United States patents which expire in
2013, 2013 and 2014, respectively, six pending United States patent
applications, and certain corresponding foreign patent applications directed to
antifusion peptides. In September 1997, the Company obtained from NYBC an
exclusive, worldwide, royalty-bearing license under certain United States and
foreign patents and patent applications relating to HIV peptides. In addition to
annual minimum royalty payments commencing in 1998, the Company is obligated to
pay a one-time fee to NYBC in the event that a pivotal clinical trial utilizing
a product covered by the license is not commenced by September 2002. The license
agreement further provides that the Company may elect to pay NYBC sponsored
research funds in lieu of a certain percentage of royalties otherwise due. A
sponsored research agreement would be negotiated at that time giving the Company
a right of first negotiation for an exclusive, royalty-bearing license to all
intellectual property arising out of the sponsored research program.

Legal standards relating to the scope of claims and the validity of patents
in the biotechnology industry are uncertain and still evolving, and no assurance
can be given as to the degree of protection that will be afforded any patents
issued to, or licensed by, the Company. There can be no assurance that, if
challenged by others in litigation, any patents assigned to, or licensed by, the
Company, will not be found invalid. Furthermore, there can be no assurance that
the Company's activities will not infringe patents owned by others. Defense and
prosecution of patent matters can be expensive and time-consuming, and
regardless of whether the outcome is favorable to the Company, can result in the
diversion of substantial financial, management and other resources. An adverse
outcome could subject the Company to significant liability to third parties,
require the Company to obtain licenses from third parties, or require the
Company to cease any related product sales. No assurance can be given that any
licenses required under any such patents or proprietary rights would be made
available on terms acceptable to the Company, if at all. Moreover, the laws of
certain countries may not protect the Company's proprietary rights to the same
extent as U.S. law.

The Company also relies on trade secrets, know-how and other proprietary
information, which it seeks to protect, in part, through the use of
confidentiality agreements with employees, consultants, advisors and others.
There can be no assurance that such agreements will provide adequate protection
for the Company's trade secrets, know-how, or other proprietary information in
the event of any unauthorized disclosure, that employees of the Company,
consultants, advisors, or others, will maintain the confidentiality of such
trade secrets or proprietary information, or that the trade secrets or
proprietary know-how of the Company will not otherwise become known, or be
independently developed by, competitors.

In January 1997, the USPTO instituted an interference proceeding between an
issued patent licensed by the Company from Duke University and a pending patent
application owned by a third party. An interference proceeding is an action, in
the USPTO, to determine which, of several parties, is entitled to a patent. An
interference proceeding may be instituted when the USPTO believes that a pending
patent application and an issued patent claim the same patentable subject
matter. The Company believes that no interference-in-fact exists, i.e., that the
parties to the interference are not claiming the same patentable invention, and,
through its licensor, the Company is taking all reasonable action to have the
interference proceeding dismissed. However, no assurance can be given that the
interference proceeding will be dismissed. Furthermore, no assurance can be
given that, should the interference proceeding continue, as between the two
parties to the interference, the Company's licensor will be found to be the
first inventor of the invention which is declared to be the subject matter of
the interference proceeding.

<PAGE>
Failure of the Company's licensor to prevail in the interference proceeding and
any loss of the involved patent rights could have a material adverse effect on
the Company's business, financial results and results of operations. See "Risk
Factors -- Patents, Proprietary, Technology and Trade Secrets."

COMPETITION

The Company is engaged in segments of the biopharmaceutical industry,
including the treatment of HIV, that are intensely competitive and rapidly
changing. If successfully developed and approved, the product candidates and
compounds that the Company is currently developing will compete with numerous
existing therapies. For example, 11 drugs are currently approved for the
treatment of HIV. In addition, a number of companies are pursuing the
development of novel pharmaceutical products that target the same diseases that
the Company is targeting, and some companies, including several multinational
pharmaceutical companies, are simultaneously marketing several different drugs
and may therefore be able to market their own combination drug therapies. The
Company believes that a significant number of drugs are currently under
development and will become available in the future for the treatment of HIV.

Although the Company believes that there is a significant future market for
therapeutics that treat HIV and other viral diseases, the Company anticipates
that it will face intense and increasing competition in the future as new
products enter the market and advanced technologies become available. There can
be no assurance that existing products or new products for the treatment of HIV
developed by the Company's competitors, including Glaxo, Merck and Abbott, will
not be more effective, or more effectively marketed and sold, than T-20, should
it be successfully developed and receive regulatory approval, or any other
therapeutic for HIV that may be developed by the Company. Competitive products
or the development by others of a cure or new treatment methods may render the
Company's technologies and products and compounds obsolete, noncompetitive or
uneconomical prior to the Company's recovery of development or commercialization
expenses incurred with respect to any such technologies or products or
compounds. Many of the Company's competitors have significantly greater
financial, technical and human resources than the Company and may be better
equipped to develop, manufacture, sell, market and distribute products. In
addition, many of these companies have extensive experience in preclinical
testing and clinical trials, obtaining FDA and other regulatory approvals and
manufacturing and marketing pharmaceutical products. For use individually or in
combination therapy, many of these competitors also have products that have been
approved or are in late-stage development and operate large, well-funded
research and development programs. Smaller companies may also prove to be
significant competitors, particularly through collaborative arrangements with
large pharmaceutical and biotechnology companies. Furthermore, academic
institutions, governmental agencies and other public and private research
organizations are becoming increasingly aware of the commercial value of their
inventions and are more actively seeking to commercialize the technology they
have developed.

New developments in areas in which the Company is conducting its research
and development are expected to continue at a rapid pace in both industry and
academia. If the Company's product candidates and compounds are successfully
developed and approved, the Company will face competition based on the safety
and effectiveness of its products and compounds, the timing and scope of
regulatory approvals, availability of manufacturing, sales, marketing and
distribution capabilities, reimbursement coverage, price and patent position.
There can be no assurance that the Company's competitors will not develop more
effective or more affordable technology or products, or achieve earlier patent
protection, product development or product commercialization than the Company.
Accordingly, the Company's competitors may succeed in commercializing products
more rapidly or effectively than the Company, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors -- Intense Competition."

GOVERNMENT REGULATION

Human pharmaceutical products are subject to lengthy and rigorous
preclinical testing and clinical trials and other extensive, costly and
time-consuming procedures mandated by the FDA and foreign regulatory
authorities. The regulatory approval process, which includes the establishment
of the safety and effectiveness of each product candidate and compound for each
target indication and confirmation by the FDA that good laboratory, clinical and
manufacturing practices were maintained during testing and manufacturing,
typically takes a number of years,

<PAGE>
varying based upon the type, complexity and novelty of the pharmaceutical
product. This process requires the expenditure of substantial resources and
gives larger companies with greater financial resources a competitive advantage
over the Company. To date, no product candidate or compound being evaluated by
the Company has been submitted for approval by the FDA or any other regulatory
authority for commercialization, and there can be no assurance that any such
product candidate or compound will ever be approved for commercialization or
that the Company will be able to obtain the labeling claims desired for its
product candidates or compounds.

The steps required by the FDA before new drugs may be marketed in the
United States include: (i) preclinical studies; (ii) the submission to the FDA
of a request for authorization to conduct clinical trials on an investigational
drug (an "IND"); (iii) adequate and well-controlled clinical trials to establish
the safety and efficacy of the drug for its intended use; (iv) submission to the
FDA of an NDA; and (v) review and approval of the NDA by the FDA before the drug
may be shipped or sold commercially.

In the United States, preclinical testing includes both IN VITRO and IN
VIVO laboratory evaluation and characterization of the safety and efficacy of a
drug and its formulation. Laboratories involved in preclinical testing must
comply with FDA regulations regarding good laboratory practices. Preclinical
testing results are submitted to the FDA as part of the IND and, unless there is
objection by the FDA, the IND will become effective 30 days following its
receipt by the FDA. There can be no assurance that submission of an IND will
result in the commencement of human clinical trials.

Clinical trials, which involve the administration of the investigational
drug to healthy volunteers or to patients under the supervision of a qualified
principal investigator, are typically conducted in three sequential phases,
although the phases may overlap with one another. Clinical trials must be
conducted in accordance with good clinical procedures under protocols that
detail the objectives of the clinical trial, the parameters to be used to
monitor safety and the effectiveness criteria to be evaluated. Each protocol
must be submitted to the FDA as part of the IND. Further, each clinical trial
must be conducted under the auspices of an independent Institutional Review
Board (an "IRB") at the institution where the clinical trial will be conducted.
The IRB will consider, among other things, ethical factors, the safety of human
subjects and the possible liability of the institution. Compounds must be
formulated according to GMP requirements.

Phase I clinical trials represent the initial administration of the
investigational drug to a small group of healthy human subjects or, more rarely,
to a group of selected patients with a targeted disease or disorder. The goal of
Phase I clinical trials is typically to test for safety (adverse effects), dose
tolerance, absorption, bio-distribution, metabolism, excretion and clinical
pharmacokinetics.

Phase II clinical trials involve a small sample of the actual intended
patient population and seek to assess the effectiveness of the drug for the
specific targeted indications, to determine dose tolerance and the optimal dose
range and to gather additional information relating to safety and potential
adverse effects.

Once the investigational drug is found to have some effectiveness and the
acceptable safety profile in the targeted patient population, Phase III clinical
trials are initiated to establish further clinical safety and effectiveness of
the investigational drug in a broader sample of the general patient population
at geographically dispersed study sites in order to determine the overall
risk-benefit ratio of the drug and to provide an adequate basis for all
physician labeling. The results of the research and product development,
manufacturing, preclinical testing, clinical trials and related information are
submitted to the FDA in the form of an NDA for approval of the marketing and
shipment of the drug.

The approval process is affected by a number of factors, including the
severity of the targeted indications, the availability of alternative treatments
and the risks and benefits demonstrated in the clinical trials. The FDA may
reject an NDA if applicable regulatory criteria are not satisfied, or may
require additional testing or information with respect to the product candidate
or compound. Even if FDA approval is obtained, further clinical trials,
including post-market trials, may be required in order to provide additional
data on safety and will be required in order to obtain approval for the use of a
product as treatment for clinical indications other than those for which the
product was initially approved. The FDA will also require post-market reporting
and may require surveillance programs to monitor the side effects of any
approved products. Results of post-market programs may limit the

<PAGE>
further marketing, manufacturing process or labeling, and an NDA supplement may
be required to be submitted to the FDA. Any failure of the Company to
successfully complete its clinical trials and obtain approvals of corresponding
NDAs would have a material adverse effect on the Company's business, financial
condition and results of operations. The Company is and will continue to be
dependent upon the laboratories conducting its preclinical testing and clinical
trials to maintain both good laboratory and good clinical practices, and, if any
of the Company's product candidates or compounds obtain the requisite regulatory
approvals, the Company will be dependent upon the manufacturers of its products
to maintain compliance with GMP requirements. Various federal and foreign
statutes and regulations also govern or influence the manufacturing, safety,
labeling, storage, record-keeping and marketing of pharmaceutical products.

In 1988, the FDA issued regulations to expedite the development, evaluation
and marketing of drugs for life-threatening and severely debilitating illnesses,
especially where no alternative therapy exists. These procedures encourage early
consultation between the IND sponsors and the FDA in the preclinical testing and
clinical trial phases to determine what evidence will be necessary for marketing
approval and to assist the sponsors in designing clinical trials. Under this
program, the FDA works closely with the IND sponsors to accelerate and condense
Phase II clinical trials, which may, in some cases, eliminate the need to
conduct Phase III trials or limit the scope of Phase III trials. Under these
regulations, the FDA may require postmarketing clinical trials ("Phase IV
trials") to obtain additional information on the drug's risks, benefits and
optimal use. In 1992, the FDA issued regulations establishing an accelerated NDA
approval procedure for certain drugs under Subpart H of the agency's NDA
approval regulations ("Subpart H Regulations"). The Subpart H Regulations
provide for accelerated NDA approval for new drugs intended to treat serious or
life-threatening diseases where the drugs provide a meaningful therapeutic
advantage over existing treatment. Under this accelerated approval procedure,
the FDA may approve a drug based on evidence from adequate and well-controlled
studies of the drug's effect on a surrogate endpoint that reasonably suggest
clinical benefits, or on evidence of the drug's effect on a clinical endpoint
other than survival or irreversible morbidity. This approval is conditional on
the favorable completion of trials to establish and define the degree of
clinical benefits to the patient. Such post-market clinical trials would usually
be underway when the product obtains this accelerated approval. If, after
approval, a post-market clinical trial establishes that the drug does not
perform as expected, or if post-market restrictions are not adhered to or are
not adequate to ensure the safe use of the drug, or other evidence demonstrates
that the product is not safe and/or effective under its conditions of use, the
FDA may withdraw approval. These two accelerated approval procedures for
expediting the clinical evaluation and approval of certain drugs may shorten the
drug development process by as much as two to three years.

While certain of the Company's product candidates and compounds, including
T-20, have been designed to treat serious or life-threatening illnesses, such
product candidates and compounds may not qualify for accelerated development
and/or approval under FDA regulations and, even if some of the Company's product
candidates qualify for accelerated development and/or approval, they may not be
approved for marketing on an accelerated basis, or at all. There can be no
assurance that, even after substantial time and expenditures, any of the
Company's product candidates or compounds under development will receive
commercialization approval in any country on a timely basis, or at all. If the
Company is unable to demonstrate the safety and effectiveness of its product
candidates and compounds to the satisfaction of the FDA or foreign regulatory
authorities, the Company will be unable

<PAGE>
to commercialize its product candidates and compounds; and the Company's
business, financial condition and results of operations would be materially and
adversely affected. Furthermore, even if regulatory approval of a product
candidate or compound is obtained, the approval may entail limitations on the
indicated uses for which the product candidate or compound may be marketed. A
marketed product or compound, its manufacturer and the manufacturer's facilities
are subject to continual review and periodic inspections, and subsequent
discovery of previously unknown problems with a product, compound, manufacturer
or facility may result in restrictions on such product, compound, manufacturer
or facility, including withdrawal of the product or compound from the market.
The failure to comply with applicable regulatory requirements can, among other
things, result in fines, injunctions, civil penalties, total or partial
suspension of regulatory approvals, refusal to approve pending applications,
refusal to permit exports from the United States, recalls or seizures of
products, operating and production restrictions and criminal prosecutions.
Further, FDA policy may change and additional government regulations may be
established that could prevent or delay regulatory approval of the Company's
product candidates or compounds.

In April 1997, the Company and MiniMed entered into the MiniMed Agreement
pursuant to which the parties have agreed to jointly design, develop and
implement a system for the continual delivery of T-20 utilizing the MiniMed
continuous infusion pump. There can be no assurance that the FDA will approve
the delivery of T-20 utilizing the MiniMed continuous infusion pump on a timely
basis, if at all. The failure of the Company and MiniMed to collectively develop
a continual T-20 delivery system which receives FDA approval on a timely basis
could have a material adverse effect on the Company's business, financial
condition and results of operations.

In addition, this Prospectus reflects the Company's estimates regarding
future regulatory submission dates. Regulatory submissions can be delayed, or
plans to submit proposed products can be cancelled, for a number of reasons,
including the receipt of unanticipated, adverse or ambiguous results from
preclinical testing or clinical trials, the demonstration of undesirable or
unintended side effects, the inability to locate, recruit and qualify sufficient
numbers of patients, lack of funding, the inability to locate or recruit
scientists to undertake or complete planned preclinical testing or clinical
trials, the redesign of the Company's preclinical testing or clinical trial
programs, the inability to manufacture or acquire sufficient quantities of the
particular product candidate or any other components required for preclinical
testing or clinical trials, regulatory delays or other regulatory actions,
changes in focus of the Company's or its collaborators' development efforts, and
the disclosure of clinical trial results by competitors. Accordingly, no
assurances can be given that the Company's anticipated submissions will be made
on their target dates, or at all. Delays in such submissions could delay
regulatory approval for the Company's product candidates, delay
commercialization of the Company's product candidates, increase operating
expenses, result in the expenditure of additional capital, cause the diversion
of management time and attention, or create adverse market perception about the
Company and its product candidates, any of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Government Regulation."

<PAGE>
THIRD PARTY REIMBURSEMENT AND HEALTH CARE REFORM MEASURES

In the United States and elsewhere, sales of prescription pharmaceuticals
are dependent, in part, on the availability of reimbursement to the consumer
from third-party payors, such as government agencies and private insurance
plans. Third-party payors are increasingly challenging the prices charged for
medical products and services in an effort to promote cost containment measures
and alternative health care delivery systems and they may mandate predetermined
discounts from list prices. If the Company succeeds in bringing one or more
products or compounds to the market, there can be no assurance that these
products or compounds will be considered cost-effective or that reimbursement to
the consumer will be available or will be sufficient to allow the Company to
sell its products or compounds on a competitive basis. The business and
financial condition of pharmaceutical companies will continue to be affected by
economic, political and regulatory influences, including the efforts of
governments and third-party payors to contain or reduce the cost of health care
through various means. A number of legislative and regulatory proposals aimed at
changing the health care system have been proposed in recent years. Because of
the high cost of the treatment of AIDS or HIV using combination therapy, many
state legislatures are reassessing reimbursement policies for such therapy. In
addition, an increasing emphasis on managed care in the United States to reduce
the overall costs of health care has and will continue to increase the pressure
on pharmaceutical pricing. While the Company cannot predict whether legislative
or regulatory proposals will be adopted or the effect such proposals or managed
care efforts may have on its business, the announcement and/or adoption of such
proposals or efforts could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk
Factors -- Uncertainty of Third Party Reimbursement and Health Care Reform
Measures."

FACILITIES

The Company currently leases approximately 21,000 square feet of laboratory
and office space at 4727 University Drive, Suite 100, Durham, North Carolina.
The Company leases this space under a sublease agreement which expires on
September 30, 1999. Depending on the results of clinical trials and the progress
of the Company's product development programs, the Company may require
facilities in addition to those currently under lease. The Company believes that
there will be suitable facilities available as needed.

LEGAL PROCEEDINGS

The Company is not a party to any material legal proceedings.

HUMAN RESOURCES

As of June 30, 1997, the Company had 37 full-time employees, including a
technical scientific staff of 29. None of the Company's employees are covered by
collective bargaining arrangements, and management considers relations with its
employees to be good. See "Risk Factors -- Need to Attract and Retain Key
Officers, Employees and Consultants."

SCIENTIFIC ADVISORY BOARD

The Company has assembled a Scientific Advisory Board (the "SAB") comprised
of eight individuals (the "Scientific Advisors") who are leaders in the fields
of viral disease research and treatment.

Members of the SAB review the Company's research, development and operating
activities and are available for consultation with the Company's management and
staff relating to their respective areas of expertise. The SAB holds regular
meetings. Several of the individual Scientific Advisors have separate consulting
relationships with the Company and meet more frequently, on an individual basis,
with the Company's management and staff to discuss the Company's ongoing
research and development projects. Certain of the Scientific Advisors own Common
Stock and/or hold options to purchase Common Stock. The Scientific Advisors are
expected to devote only a small portion of their time to the business of the
Company.

The Scientific Advisors are all employed by entities other than the
Company. Each Scientific Advisor has entered into a letter agreement with the
Company that contains confidentiality and non-disclosure provisions that
prohibit the disclosure of confidential information to anyone outside the
Company. Such letter agreements also provide that all inventions, discoveries or
other intellectual property that come to the attention of or are discovered

<PAGE>
by the Scientific Advisor while performing services under the letter agreement
with the Company will be assigned to the Company. The current members of the SAB
are as follows:

DANI P. BOLOGNESI, PH.D. James B. Duke Professor of Surgery, Professor of
Microbiology/Immunology, Vice Chairman of the Department of Surgery for Research
and Development, Director of the Duke University Center for AIDS
Research -- Duke University.

ROBERT C. GALLO, M.D. Professor and Director, Institute of Human
Virology -- University of Maryland Biotechnology Institute.

ERIC HUNTER, PH.D. Professor of Microbiology, Director, Center for AIDS
Research -- The University of Alabama at Birmingham.

THOMAS J. MATTHEWS, PH.D. Associate Professor of Experimental
Surgery -- Duke University.

JOSEPH S. PAGANO, M.D. Professor of Medicine and Microbiology and
Immunology, Director of The Lineberger Comprehensive Cancer Center -- The
University of North Carolina at Chapel Hill.

JEROME J. SCHENTAG, PHARM.D. Professor of Pharmacy and Pharmaceutics,
Director, The Clinical Pharmacokinetics Laboratory, Millard Fillmore Hospital,
Director, Center for Clinical Pharmacy Research -- The State University of New
York at Buffalo School of Pharmacy.

JUDITH M. WHITE, PH.D. Professor of Cell Biology and
Microbiology -- University of Virginia.

RICHARD J. WHITLEY, M.D. Loeb Eminent Scholar Chair in Pediatrics,
Professor of Pediatrics, Microbiology and Medicine -- The University of Alabama
at Birmingham.

<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

The following table sets forth certain information with respect to
executive officers, directors and certain key employees of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------------- ------- -----------------------------------------------------

<S> <C> <C>
M. Ross Johnson, Ph.D............................... 52 President, Chief Executive Officer, Chief Scientific
Officer and Director

Matthew A. Megaro................................... 39 Chief Operating Officer, Chief Financial Officer,
Executive Vice President and Secretary

Samuel Hopkins, Ph.D................................ 39 Vice President of Medical Affairs

Dennis M. Lambert, Ph.D............................. 50 Vice President of Biological and Molecular Sciences

M.C. Kang, Ph.D..................................... 46 Director of Chemistry

Michael A. Recny, Ph.D.............................. 41 Director of Business Development

Timothy J. Creech................................... 36 Director of Finance

Jesse I. Treu, Ph.D.(1)............................. 50 Chairman of the Board of Directors

Dani P. Bolognesi, Ph.D.(2)......................... 56 Director

Brian H. Dovey(2)................................... 55 Director

Andrew S. McCreath(1)............................... 41 Director

Charles A. Sanders, M.D.(1)(2)...................... 65 Director
</TABLE>

- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.

M. ROSS JOHNSON, PH.D. joined the Company as Chief Scientific Officer and a
Director in January 1995 and was named President and Chief Executive Officer in
March 1996. Prior to joining the Company, Dr. Johnson was President and Chief
Executive Officer of Parnassus Pharmaceuticals, Inc. ("Parnassus"), a
biopharmaceutical company, from March 1994 to October 1994. In October 1994,
Parnassus filed for protection under the United States Bankruptcy Code. From
1987 to March 1994, Dr. Johnson served as Vice President of the Chemical
Development Division and Division of Chemistry, respectively, at Glaxo, a
multinational pharmaceutical company. Prior to joining Glaxo, Dr. Johnson held a
number of scientific management positions at Pfizer Inc., a multinational
pharmaceutical company. Dr. Johnson received his Ph.D. degree in Organic
Chemistry from the University of California at Santa Barbara.

MATTHEW A. MEGARO joined the Company as Chief Financial Officer and Vice
President of Business Development in March 1995 and was named Chief Operating
Officer, Executive Vice President and Secretary of the Company in June 1997.
Prior to joining the Company, Mr. Megaro was Chief Operating Officer of
Parnassus from January 1994 to October 1994. In October 1994, Parnassus filed
for protection under the United States Bankruptcy Code. Prior to joining
Parnassus, Mr. Megaro was Chief Financial Officer and Vice President of Finance
and Administration of Athena Neurosciences, Inc., a biopharmaceutical company,
from 1988 to January 1994.

SAMUEL HOPKINS, PH.D. joined the Company as Director of Drug Development in
April 1995 and was named Vice President of Medical Affairs in June 1997. Prior
to joining the Company, Dr. Hopkins was Director of Oncology and Antiviral Drug
Product Development and Senior Clinical Research Scientist, respectively, at
Cato Research, Ltd., a contract research organization from 1991 to April 1995.
From 1987 to 1991, Dr. Hopkins was a Senior Research Scientist in the Division
of Virology at Burroughs Wellcome Co., a multinational pharmaceutical company.
Dr. Hopkins received his Ph.D. degree in Biochemisty and Biophysics from the
Medical College of Virginia.

DENNIS M. LAMBERT, PH.D. joined the Company as Director of Virology in March
1993, was named Senior Director of Virology and Molecular Biology in September
1995, and was named Vice President of Biological Molecular

<PAGE>
Sciences in June 1997. Prior to joining the Company, Dr. Lambert was Assistant
Director, Department of Molecular Virology and Host Defense, at SmithKline
Beecham Corp., a pharmaceutical company, from 1988 to July 1993. Dr. Lambert
received his Ph.D. degree in Microbiology/Virology from Indiana State University
at Terre Haute.

M.C. KANG, PH.D. joined the Company as a consultant in October 1995 and was
named Director of Chemistry in August 1996. Prior to joining the Company, Dr.
Kang held various positions at Glaxo from 1990 to October 1995, most recently
serving as Director of Chemical Development. Prior to joining Glaxo, Dr. Kang
was a Development Chemist in the Medical Products Division at E.I. DuPont de
Nemours and Company, a chemical company from 1986 to 1990. Dr. Kang received his
Ph.D. degree in Synthetic Organic Chemistry from Oregon State University.

MICHAEL A. RECNY, PH.D. joined the Company as Director of Biochemical Sciences
in March 1995, and was named Director of Business Development in November 1996.
Prior to joining the Company, Dr. Recny was Senior Director of Biological
Sciences at Parnassus from November 1993 to October 1994. From 1988 to November
1993, Dr. Recny was Director of Protein Biochemistry at Procept, Inc., a
biopharmaceutical company. Prior to joining Procept, Inc., Dr. Recny was a Staff
Scientist/Laboratory Head at Genetics Institute Inc., a biopharmaceutical
company. Dr. Recny received his Ph.D. degree in Biochemistry from the University
of Illinois at Urbana-Champaign.

TIMOTHY J. CREECH, C.P.A. joined the Company as Director of Finance in July
1997. Prior to joining the Company, Mr. Creech was Corporate Controller at
Performance Awareness Corporation, a software company, from July 1996 to June
1997. From December 1993 to July 1996, Mr. Creech was Director of Finance at
Avant! Corporation, a software company. From 1990 to December 1993, Mr. Creech
was a senior manager at KPMG Peat Marwick LLP, independent auditors for the
Company.

JESSE I. TREU, PH.D. has been Chairman of the Board of Directors of the Company
since its inception. Dr. Treu has been a general partner of Domain Associates, a
venture capital firm specializing in investments in life sciences, since 1986.
Dr. Treu serves on the Boards of Directors of Biosite Diagnostics, Inc. and
GelTex Pharmaceuticals, Inc. Dr. Treu received his Ph.D. in Physics from
Princeton University.

DANI P. BOLOGNESI, PH.D. was a founder of the Company and has been a Director
since its inception. Dr. Bolognesi has held a number of positions at Duke
University since 1971, and now serves as James B. Duke Professor of Surgery,
Professor of Microbiology/Immunology, Vice Chairman of the Department of Surgery
for Research and Development and Director of the Duke University Center for AIDS
Research. Dr. Bolognesi is the Co-Chair of the National Institute of Allergy and
Infectious Diseases Vaccine Working Group ("NIAID"), Chair of the Office of AIDS
Research Coordinating Committee for Vaccines, Chair of the Office of AIDS
Research Task Force Vaccine Reasearch and Development Area Review Panel, Chair
of the panel to recommend strategies for the long-term care of the United States
biomedical chimpanzee population, and is a member of the NIAID Vaccine Selection
Committee. Dr. Bolognesi received his Ph.D. in Virology from Duke University.

BRIAN H. DOVEY has been a Director of the Company since its inception. Mr. Dovey
has been a general partner of Domain Associates, a venture capital firm
specializing in investments in life sciences, since 1988. Mr. Dovey is President
of the National Venture Capital Association and is a member of the Boards of
Trustees of the Coriell Institute and the University of Pennsylvania School of
Nursing. Mr. Dovey is Chairman of the Board of Directors of Creative
BioMolecules and also serves on the Boards of Directors of Connetics
Corporation, Geron Corporation, NABI and Vivus, Inc.

ANDREW S. MCCREATH, C.F.A. has been a Director of the Company since October
1996. In January 1996, Mr. McCreath became a founding partner of Lawrence &
Company Inc., a private investment firm in Toronto, Canada, which specializes in
the technology, health care, and leisure industries. From 1991 to December 1995,
Mr. McCreath served as a partner and director of Gordon Capital Corporation, a
Canadian investment bank. Mr. McCreath serves on the Board of Directors of
Galaxy Brands International.

CHARLES A. SANDERS, M.D. has been a Director of the Company since October 1996.
From 1989 to May 1995, Dr. Sanders was Chairman of the Board of Directors and
Chief Executive Officer of Glaxo and a member of the Board of Directors of Glaxo
plc. Prior to joining Glaxo, Dr. Sanders held a number of positions at Squibb
Corporation, a multinational pharmaceutical corporation, including Vice
Chairman, Chief Executive Officer of the Science

<PAGE>
and Technology Group and Chairman of the Science and Technology Committee of the
Board. Dr. Sanders serves on the Boards of Directors of Magainin
Pharmaceuticals, Vertex Pharmaceuticals and Staff Mark, Inc. Dr. Sanders
received an M.D. degree from Southwestern Medical College of the University of
Texas.

BOARD OF DIRECTORS

In accordance with the terms of the Company's Third Amended and Restated
Certificate of Incorporation to be filed upon the completion of this Offering,
the Board of Directors of the Company will be divided into three classes,
denominated Class I, Class II and Class III, with members of each class holding
office for staggered three-year terms. At each annual stockholder meeting
commencing with the 1998 annual meeting, the successors to the Directors whose
terms expire will be elected to serve from the time of their election and
qualification until the third annual meeting of stockholders following their
election or until a successor has been duly elected and qualified. Officers
serve at the discretion of the Board.

The Compensation Committee of the Board was established in April 1997 to
determine the salaries and incentive compensation of the executive officers of
the Company and to provide recommendations for the salaries and incentive
compensation of the other employees and consultants of the Company. The
Compensation Committee also administers the Company's benefit plans, including
the Stock Option Plan. Mr. Dovey serves as the Chairman of the Compensation
Committee and the other members of the committee are Drs. Bolognesi and Sanders.

The Audit Committee of the Board was established in July 1997 to review,
act on and report to the Board with respect to various auditing and accounting
matters, including the selection of the Company's independent auditors, the
scope of the annual audits, the fees to be paid to the independent auditors, the
performance of the Company's independent auditors and the accounting practices
of the Company. Dr. Treu serves as the Chairman of the Audit Committee and the
other members of the committee are Mr. McCreath and Dr. Sanders.

<PAGE>
EXECUTIVE COMPENSATION

The following table sets forth certain information with respect to the
annual and long-term compensation paid by the Company during the fiscal year
ended December 31, 1996 to the Company's President and Chief Executive Officer
and to the Company's two other most highly compensated executive officers who
were serving as executive officers and whose 1996 compensation exceeded $100,000
(collectively, the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-----------------
ANNUAL COMPENSATION SECURITIES
------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION
- ------------------------------------------------ ---- ---------- --------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
M. Ross Johnson (1) 1996 $ 238,800 $50,000 117,648(2) $ --
President, Chief Executive Officer and Chief
Scientific Officer
Richard A. Franco (3) 1996 60,000 -- 94,118(2) 244,897(4)
Former President and Chief Executive Officer
Matthew A. Megaro 1996 160,300 34,000 51,765(2) --
Chief Operating Officer, Chief Financial
Officer, Executive Vice President and
Secretary
Max N. Wallace (5) 1996 144,900 26,000 52,765(2) --
Former Executive Vice President, General
Counsel and Secretary
</TABLE>

- ---------------
(1) Dr. Johnson was named President and Chief Executive Officer of the Company
in March 1996.

(2) For information regarding the vesting and subsequent exercise of these
options, see the table entitled Option Grants in the Year Ended December 31,
1996 and the notes thereto and "Certain Transactions."

(3) Mr. Franco resigned as President and Chief Executive Officer of the Company
in March 1996.

(4) Consists of amounts paid to Mr. Franco following the termination of his
employment with the Company pursuant to a severance arrangement with the
Company.

(5) Mr. Wallace resigned as Executive Vice President, General Counsel and
Secretary in July 1997.

<PAGE>
STOCK OPTION INFORMATION

The following table sets forth certain information concerning stock options
granted to the Named Executive Officers of the Company during the year ended
December 31, 1996. No stock appreciation rights were granted to any of the Named
Executive Officers during 1996 and no stock appreciation rights were outstanding
as of December 31, 1996.

OPTIONS GRANTED IN THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL RATES
----------------------------------------------------------- OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM(3)
OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION ---------------------
NAME GRANTED(#)(1) 1996 SHARE(2) DATE 5% 10%
- ----- ------------- --------------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
M. Ross Johnson 117,648(4) 24% $ .34 05/01/06 $25,156 $63,750
Richard A. Franco 94,118 19 .34 03/25/06 20,125 51,000
Matthew A. Megaro 51,765(5) 11 .34 05/01/06 11,069 28,050
Max N. Wallace 52,765(6) 11 .34 05/01/06 11,282 28,592
</TABLE>

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

(1) These options were granted under the Company's Stock Incentive Plan.

(2) The exercise price per share of the options was equal to the fair market
value of the Common Stock on the date of grant as determined by the Board of
Directors.

(3) The potential realizable value of the options reported above was calculated
by assuming that the market price of the Common Stock of the Company
appreciates 5% and 10% compounded annually over the term of the options (10
years). These assumed annual rates of appreciation were used in compliance
with the rules of the Securities and Exchange Commission and are not
intended to forecast future prices appreciation of the Common Stock of the
Company. These amounts do not represent the Company's estimate of future
stock price performance. The actual value realized from the options could be
substantially higher or lower than the values reported above, depending upon
the future appreciation or depreciation of the Common Stock during the
option period and the timing of exercise of the options.

(4) In October 1996, the Board of Directors granted options to purchase 35,295
shares, 35,295 shares and 47,058 shares which were scheduled to vest ratably
over a 48-month period which commenced in January 1995, July 1995 and March
1996, respectively. In May 1997, the Board of Directors accelerated the
vesting of these options subject to certain restrictions on the underlying
shares of Common Stock which lapse over the same period of time over which
the options were to vest. See "Certain Transactions."

(5) In October 1996, the Board of Directors granted options to purchase 23,530
shares, 23,530 shares and 4,705 shares which were scheduled to vest ratably
over a 48-month period which commenced in March 1995, July 1995 and March
1996, respectively. In May 1997, the Board of Directors accelerated the
vesting of these options subject to certain restrictions on the underlying
shares of Common Stock which lapse over the same period of time over which
the options were to vest. See "Certain Transactions."

(6) In October 1996, the Board of Directors granted options to purchase 17,648
shares, 27,648 shares and 7,469 shares which were scheduled to vest ratably
over a 48-month period which commenced in March 1993, July 1995 and March
1996, respectively. In May 1997, the Board of Directors accelerated the
vesting of these options subject to certain restrictions on the underlying
shares of Common Stock which lapse over the same period of time over which
the options were to vest. On July 10, 1997, Mr. Wallace resigned as an
officer and Director of the Company and entered into an agreement with the
Company pursuant to which the vesting of 3,971 of such underlying shares was
accelerated and the other restrictions applicable to such 3,971 shares
terminated. See "Certain Transactions."

<PAGE>
YEAR-END OPTION TABLE

The following table sets forth certain information concerning stock options
exercised by the Named Executive Officers during 1996, the number of options
held by the Named Executive Officers as of December 31, 1996, and the value of
any in-the-money options as of December 31, 1996.

AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 1996 AND YEAR-END
OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AS OF IN-THE-MONEY OPTIONS AS
DECEMBER 31, 1996 (1)(#) OF DECEMBER 31, 1996 (2)
SHARES ACQUIRED ----------------------------- -----------------------------
NAME ON EXERCISE (#) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
M. Ross Johnson -- 39,718 77,930 $ 463,112 $ 908,653
Richard A. Franco 27,452 -- -- -- --
Matthew A. Megaro -- 20,322 31,443 236,958 366,618
Max N. Wallace -- 28,232 24,533 329,179 286,058
</TABLE>

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

(1) In May 1997, the Board of Directors accelerated all options set forth below
subject to certain restrictions on the underlying shares of Common Stock
which lapse over time. See the table entitled Options Granted in the Year
Ended December 31, 1996 and the notes thereto and "Certain Transactions."

(2) There was no public trading market for the Common Stock as of December 31,
1996. Accordingly, these values have been calculated on the basis of the
initial public offering price of $12.00 per share, less the applicable
exercise price per share, multiplied by the number of shares underlying such
options.

STOCK OPTION PLANS

The Trimeris, Inc. Amended and Restated Stock Incentive Plan (the "Stock
Incentive Plan") (formerly the Trimeris, Inc. New Stock Option Plan) was adopted
by the Board of Directors and approved by the stockholders in September 1997.
The Stock Incentive Plan amends and restates, and replaces, the Trimeris, Inc.
New Stock Option Plan, which was adopted by the Board of Directors in May 1996
and approved by the stockholders in May 1996, and was subsequently amended in
April 1997 to increase the number of shares available for issuance thereunder.
This subsequent amendment was approved by the stockholders in September 1997.

Under the Stock Incentive Plan, options, restricted stock or other
stock-based awards (each, an "Award") may be granted to employees, officers,
directors, consultants and advisors of the Company. Incentive stock options may
be granted only to employees and to directors who are also employees of the
Company.

The Stock Incentive Plan is administered by the Board of Directors (the
"Board"), which may, to the extent permitted by applicable law, delegate to one
or more committees of the Board any or all of its powers under the Stock
Incentive Plan. Certain powers may also, to the extent permitted by applicable
law, be delegated to executive officers of the Company. For so long as the
Company's Common Stock is registered under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), the Board shall appoint one committee of not
less than two members, each of whom shall be a "non-employee director" as
defined in Rule 16b-3 promulgated under the Exchange Act, to grant Awards and
take other action under the Stock Incentive Plan with respect to individuals
deemed to be insiders for purposes of Section 16 of the Exchange Act.

The Board determines the terms and conditions applicable to all Awards
granted under the Stock Incentive Plan. Subject to adjustment for stock splits,
stock dividends, recapitalizations, consolidations or other similar events, a
maximum of 852,941 shares are authorized for Awards under the Stock Incentive
Plan, of which 264,975 shares are the subject of existing options granted under
the Trimeris, Inc. New Stock Option Plan prior to the adoption of the Stock
Incentive Plan.

Both incentive stock options and nonstatutory stock options may be granted
under the Stock Incentive Plan. The Stock Incentive Plan provides that any
option granted to a participant who is subject to the provisions of Section 16
of the Exchange Act shall not become exercisable for a period of at least six
(6) months following the date of grant. Certain restrictions on the terms of
incentive stock options are imposed under the Stock Incentive Plan to ensure
compliance with the requirements for incentive stock options under Section 422
of the Internal Revenue Code.

<PAGE>
In the event an optionee ceases to be employed by the Company for any
reason other than death or disability, each outstanding option held by such
optionee will terminate and cease to be exercisable no later than three months
after the date of such cessation of employment. Should the optionee's employment
terminate by reason of death or disability (including death within three months
following cessation of employment), each outstanding option held by such
optionee will terminate and cease to be exercisable no later than twelve months
after the date of such cessation of employment.

The Stock Incentive Plan permits Common Stock purchased upon the exercise
of options to be paid (i) in cash or by check, (ii) through a broker-facilitated
cashless exercise procedure, or, to the extent permitted by applicable law,
(iii) by delivery of shares owned by the optionee, provided such shares have
been held for at least six (6) months, (iv) by delivery of a promissory note
secured by valuable collateral, or (v) by payment of such other lawful
consideration as the Board may determine.

The Board may grant restricted stock Awards under the Stock Incentive Plan
entitling recipients to acquire shares of Common Stock, subject to the right of
the Company to repurchase all or a part of such shares and upon such other terms
and conditions as the Board may determine. Stock certificates issued in respect
of a restricted stock Award are registered in the name of the participant and
held in escrow by the Company until expiration of the applicable restriction
periods. Any restricted stock Award granted to a participant who is subject to
the provisions of Section 16 of the Exchange Act shall restrict the release of
the shares subject to the Award for a period of at least six (6) months
following the date of grant.

The Board has the authority under the Stock Incentive Plan to grant other
Awards based on the Common Stock having such terms and conditions as the Board
may determine. Except as the Board may otherwise provide in a particular Award,
no Awards granted under the Stock Incentive Plan may be transferred or assigned
by the holder other than by will or the laws of descent or distribution.

The Stock Incentive Plan provides for the automatic acceleration of vesting
of Awards in the event of the acquisition by someone of 50% or more of the
voting power of the Company's then outstanding securities (other than through a
merger, consolidation or acquisition of securities directly from the Company) (a
"Change of Control Event"), a merger, consolidation, sale of all or
substantially all of the assets of the Company, or complete liquidation of the
Company. Each of the foregoing events is referred to as an "Acquisition Event."
Except as may be otherwise provided in the agreement governing a particular
Award, upon an Acquisition Event, all outstanding restricted stock and
stock-based Awards, options and stock appreciation rights shall become fully
vested and immediately exercisable or realizable; provided, however, that the
Board may additionally provide, upon the execution by the Company of an
agreement to effect an Acquisition Event other than a Change of Control Event,
for the assumption or substitution of options and stock appreciation rights by
the acquiring or succeeding corporation, or the termination of any unexercised
options or stock appreciation rights to the extent not exercised prior to the
consummation of the Acquisition Event.

The Board may terminate or amend the Stock Incentive Plan at any time;
provided however, that without the approval of the Company's stockholders, there
shall be no increase in the total number of shares available for Awards or for
grants of incentive stock options under the Stock Incentive Plan. No Awards may
be made under the Stock Option Plan after the earlier of ten (10) years from the
date of adoption by the Board or approval by the stockholders of the Stock
Incentive Plan.

As of September 30, 1997, the Company had outstanding 3,531 nonqualifed
stock options under its previous stock option plan, the Trimeris, Inc. Stock
Option Plan, at a weighted average exercise price of $.425 per share. The Board
of Directors has determined not to grant additional options under such plan.

EMPLOYEE STOCK PURCHASE PLAN

In August 1997, the Board of Directors adopted, and the stockholders of the
Company approved, the Company's 1997 Employee Stock Purchase Plan (the "ESPP"),
contingent upon and subject to the consummation of the Offering. The ESPP is
intended to encourage ownership of the Company's Common Stock by employees of
the Company. A maximum of 250,000 shares of Common Stock have been reserved for
purchase under the ESPP (subject to certain adjustments under the ESPP). No
options to purchase shares of Common Stock have been granted and no shares of
Common Stock have been purchased under the ESPP. The ESPP is administered by the

<PAGE>
Compensation Committee of the Board of Directors, or such other committee as the
Board designates (the "Committee").

For eligible employees who have become participants in the ESPP, the ESPP
provides for the automatic grant of options to purchase shares of Common Stock
("Options"). The Options are granted on the first day of an offering period
("Offering Period"). Offering Periods are successive and overlapping 24 month
periods beginning on the first trading day on or after December 1 and June 1 of
each year, and each Offering Period contains four exercise periods ("Purchase
Period"), each of which is approximately six months. The first Offering Period,
however, will run from completion of the Offering through May 31, 1999, and the
first Purchase Period will run from completion of the Offering through May 31,
1998. Employees of the Company who have been employed by the Company before the
beginning of an Offering Period may participate in the ESPP for that Offering
Period.

Payroll deductions are accumulated in an account for each participant,
based on the amounts the participant requests be withheld. The accumulated
amounts are used at the end of each Purchase Period to purchase shares of Common
Stock pursuant to the Option. The purchase price of a share of Common Stock
under an Option will equal 85% of the lower of the fair market value of a share
(a) on the first day of the Offering Period or (b) on the last day of the
relevant Exercise Period. Options may not be assigned or transferred. No
participant may purchase shares having a fair market value (determined as of the
beginning of the Offering Period) exceeding $25,000 in any calendar year, nor
may a participant purchase shares if the participant would own shares or hold
outstanding options to purchase shares, or both, possessing 5% or more of the
total combined voting power or value of all classes of shares of the Company. A
participant may withdraw from an Offering Period at any time without affecting
his or her eligibility to participate in future Offering Periods.

There are no tax consequences to either the participant or the Company when
the Option is issued. When shares are issued upon the exercise of the Option,
there are no tax consequences to the participant (except to the extent that any
excess in the fair market value of the Common Stock over the exercise price
constitutes a tax preference item which requires payment of the alternative
minimum tax) or to the Company. A participant's Option will terminate and his or
her accumulated account balance will be returned if such participant ceases to
be employed by the Company.

If a participant disposes of shares purchased under the ESPP at least two
years after the first day of the applicable Offering Period and at least one
year after the date of purchase, the participant will recognize ordinary income
in the year of disposition equal to the amount of the discount. The amount of
ordinary income recognized by a participant will be added to the participant's
basis in the shares. Any additional gain recognized upon the disposition will be
long-term capital gain. The Company will not generally be entitled to a
deduction if the participant complies with these holding periods.

If a participant disposes of shares purchased under the ESPP within two
years from the first day of the applicable Offering Period or within one year
from the date of purchase (a "disqualifying disposition"), the participant will
recognize ordinary income in the year of such disposition equal to the lesser of
(i) the amount by which the fair market value of the shares on the date the
shares were purchased exceeded the purchase price and (ii) the amount by which
the fair market value of the shares on the date of disposition exceeded the
purchase price. The amount of ordinary income will be added to the participant's
basis in the shares, and any additional gain or resulting loss recognized on the
disposition of the shares will be a capital gain or loss. The Company will
generally be entitled to a deduction in the year of the disqualifying
disposition equal to the amount of ordinary income recognized by the participant
as a result of the disposition.

The ESPP provides that in the event of a "Substantial Corporate Change" the
offering will terminate unless provision is made in writing for (i) the
assumption or continuation of outstanding elections or (ii) the substitution for
Options or grants of Options covering securities of a successor corporation. For
purposes of the ESPP, events constituting a "Substantial Corporate Change" are
(i) dissolution or liquidation of the Company, (ii) a merger, consolidation or
reorganization of the Company in which the Company is not the surviving
corporation, (iii) the sale of substantially all of the Company's assets or (iv)
any transaction approved by the Board of Directors that results in any person or
entity owning 100% of the combined voting power of all classes of stock of the
Company. The Board of Directors may terminate or amend the ESPP at any time. Any
amendment to the ESPP that (i) materially increases the benefits to
participants, (ii) materially increases the number of securities that may be

<PAGE>
issued under the ESPP, or (iii) materially modifies the eligibility requirements
for participation in the ESPP must be approved by the stockholders of the
Company.

If any change is made to the stock issuable under the ESPP by reason of any
recapitalization, reclassification, stock split, reverse stock split,
combination of shares, exchange of shares, stock dividend or other distribution
payable in capital stock, or some other increase or decrease in such Common
Stock occurs without the Company's receiving consideration, appropriate
adjustment will be made to the shares subject to the ESPP and the number of
shares that a participant may purchase with respect to an Option.

EMPLOYMENT AGREEMENTS

In December 1994, the Company entered into an employment arrangement with
Dr. Johnson, its President, Chief Executive Officer and Chief Scientific
Officer. Pursuant to this arrangement, Dr. Johnson is entitled to receive
minimum annual compensation of $225,000, an annual bonus based upon the
achievement of certain milestones and all health insurance and other benefits
generally made available to the Company's employees. In the event that Dr.
Johnson's employment is terminated for any reason other than for cause, Dr.
Johnson's employment arrangement provides that Dr. Johnson is entitled to his
base salary and benefits for one year from the date of such termination.

In February 1995, the Company entered into an employment arrangement with
Mr. Megaro, its Chief Operating Officer, Chief Financial Officer, Executive Vice
President and Secretary. Pursuant to this arrangement, Mr. Megaro is entitled to
receive minimum annual compensation of $130,000, an annual bonus based upon the
achievement of certain milestones and all health insurance and other benefits
generally made available to the Company's employees. In the event that Mr.
Megaro's employment is terminated for any reason other than for cause, Mr.
Megaro's employment arrangement provides that Mr. Megaro is entitled to his base
salary and benefits for up to six months from the date of such termination,
subject to certain limitations.

On July 10, 1997, Mr. Wallace resigned as an officer and Director of the
Company and entered into an agreement with the Company pursuant to which he will
serve as a consultant to the Company until December 31, 1997. Thereafter, Mr.
Wallace will receive severance payments until June 30, 1998 based on his annual
salary at the time of his resignation. In addition, the Company has agreed to
terminate its right of repurchase and other restrictions with respect to
approximately 24,015 shares of Common Stock held by Mr. Wallace for which such
restrictions would not otherwise have lapsed at the time of his resignation.

COMPENSATION OF DIRECTORS

The Company does not currently compensate its Directors for attending Board
or committee meetings, but reimburses Directors for their reasonable travel
expenses incurred in connection with attending meetings of the Board or
committees of the Board. Also, non-employee Directors are entitled to be granted
options under the Company's Stock Incentive Plan. The Company intends to
reevaluate its policy with respect to compensation of non-employee Directors
after completion of this Offering. On October 21, 1996, the Company granted Dr.
Sanders options to purchase 5,883 shares of Common Stock at an exercise price of
$.34 per share.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Effective April 10, 1997, the Board of Directors established a Compensation
Committee which is responsible for determining the salaries and incentive
compensation of the executive officers of the Company and to provide
recommendations for the salaries and incentive compensation of the other
employees and consultants of the Company. The Compensation Committe also
administers the Company's benefit plans, including the Stock Incentive Plan. Mr.
Dovey serves as the Chairman of the Compensation Committee and the other members
of the committee are Drs. Bolognesi and Sanders. None of Mr. Dovey, Dr.
Bolognesi, nor Dr. Sanders was an officer or employee of the Company during 1996
or any prior year. During 1996 and prior to the formation of the Compensation
Committee, the Board of Directors as a whole made decisions relating to
compensation of the Company's executive officers. Dr. Johnson, the Company's
President, Chief Executive Officer and Chief Scientific Officer, Mr. Wallace,
the Company's former Executive Vice President, General Counsel and Secretary and
Mr. Franco, the Company's former President and Chief Executive Officer,
participated in all such discussions and decisions concerning the compensation
of executive officers of the Company, except that Dr. Johnson and Messrs.
Wallace and Franco were excluded from discussions regarding their own
compensation.

<PAGE>
CERTAIN TRANSACTIONS

Since February 1995, the Company has issued an aggregate of 274,512 shares
of Common Stock to Dr. Johnson, the Company's President, Chief Executive Officer
and Chief Scientific Officer at an aggregate purchase price of $123,300, or a
weighted average purchase price of $.45 per share. In June 1997, the Company
issued to Dr. Johnson an aggregate of 127,060 shares of Common Stock at an
aggregate purchase price of $54,000, or $.425 per share, in consideration for a
full recourse secured promissory note payable to the Company, which bears
interest at eight percent per annum and is due in June 1999. In May 1997, the
Company issued to Dr. Johnson an aggregate of 117,648 shares of Common Stock
upon the exercise of certain options granted to Dr. Johnson at an aggregate
exercise price of $40,000, or $.34 per share, in consideration for a full
recourse secured promissory note payable to the Company, which bears interest at
eight percent per annum and is due in May 1999. In April 1997, the Company
issued to Dr. Johnson an aggregate of 33,333 shares of Series C Preferred Stock
(convertible into 3,922 shares of Common Stock upon the completion of the
Offering) at an aggregate purchase price of $20,000, or $.60 per share. Certain
shares of Common Stock purchased from the Company by Dr. Johnson are subject to
the Company's right of repurchase and certain other restrictions which lapse
over a period of time.

Since March 1995, the Company has issued an aggregate of 146,080 shares of
Common Stock to Mr. Megaro, the Company's Chief Operating Officer, Chief
Financial Officer, Executive Vice President and Secretary at an aggregate
purchase price of $80,000, or a weighted average purchase price of $.55 per
share. In June 1997, the Company issued Mr. Megaro an aggregate of 76,470 shares
of Common Stock at an aggregate purchase price of $32,500, or $.425 per share,
in consideration for a full recourse secured promissory note payable to the
Company which bears interest at eight percent per annum and is due in June 1999.
In May 1997, the Company issued Mr. Megaro an aggregate of 51,766 shares of
Common Stock upon the exercise of certain options granted to Mr. Megaro at an
aggregate exercise price of $17,600, or $.34 per share, in consideration for a
full recourse secured promissory note payable to the Company which bears
interest at eight percent per annum and is due in May 1999. In April 1997, the
Company issued Mr. Megaro an aggregate of 41,667 shares of Series C Preferred
Stock (convertible into 4,902 shares of Common Stock upon the completion of the
Offering) at an aggregate purchase price of $25,000, or $.60 per share. Certain
shares of Common Stock purchased from the Company by Mr. Megaro are subject to
the Company's right of repurchase and certain other restrictions which lapse
over a period of time.

Since March 1995, the Company has issued an aggregate of 100,294 shares of
Common Stock to Mr. Wallace, the Company's former Executive Vice President,
General Counsel and Secretary at an aggregate purchase price of $37,540, or a
weighted average purchase price of $.29 per share. In June 1997, the Company
issued Mr. Wallace an aggregate of 34,588 shares of Common Stock at an aggregate
purchase price of $14,700, or $.425 per share, in consideration for a full
recourse secured promissory note payable to the Company which bears interest at
eight percent per annum and is due in June 1999. In May 1997, the Company issued
Mr. Wallace an aggregate of 52,765 shares of Common Stock upon the exercise of
certain options granted to Mr. Wallace at an aggregate exercise price of
$17,940, or $.34 per share, in consideration for a full recourse secured
promissory note payable to the Company which bears interest at eight percent per
annum and is due in May 1999.

<PAGE>
The following table summarizes the shares of Preferred Stock purchased by
affiliates of the Directors and the holders of more than five percent (5%) of
the Common Stock. See the table entitled "Principal Stockholders" and the notes
thereto for further information relating to the beneficial ownership of such
shares.

<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
--------------- --------------- ---------------
<S> <C> <C> <C>
Domain Partners II, L.P. (1).............. 2,000,000 11,095,920
Domain Partners III, L.P. (2)............. 5,932,528 2,061,997
DP III Associates, L.P. (2)............... 206,466 71,336
Biotechnology Investments Limited (3)..... 1,000,000 6,900,650 2,866,668
Lawrence & Company Inc. (4)............... 2,283,334
Sentron Medical, Inc...................... 2,000,000 1,333,334
</TABLE>

- ---------------
(1) Dr. Treu and Mr. Dovey are general partners of One Palmer Square Associates,
II, L.P., the general partner of Domain Partners II, L.P.

(2) Dr. Treu and Mr. Dovey are general partners of One Palmer Square Associates,
III, L.P., the general partner of Domain Partners III, L.P. and DP III
Associates, L.P.

(3) Pursuant to a contractual agreement, Domain Associates is the U.S. venture
capital advisor to Biotechnology Investments Limited. Dr. Treu and Mr. Dovey
are general partners of Domain Associates.

(4) Mr. McCreath is a founding partner of Lawrence & Company Inc.

For information regarding employment agreements with Named Executive
Officers, see "Management -- Employment Agreements." For information regarding
compensation of Directors, see "Management -- Compensation of Directors."

<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 30, 1997 (after giving
effect to the Preferred Stock Conversion) and as adjusted to give effect to the
sale of the shares of Common Stock offered hereby, by (i) each person (or group
of affiliated persons) who is known by the Company to own beneficially 5% or
more of the outstanding shares of Common Stock, (ii) each Named Executive
Officer, (iii) each of the Company's Directors, and (iv) all Directors and
executive officers of the Company as a group.

<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OWNERSHIP(1)
SHARES --------------------
BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- ------------------------------------------------------------------------------ -------------- -------- --------
<S> <C> <C> <C>
Domain Partners II, L.P. (2).................................................. 2,570,559 34.8% 25.4%
Domain Partners III, L.P. (2)................................................. 2,570,559 34.8 25.4
DP III Associates, L.P. (2)................................................... 2,570,559 34.8 25.4
Biotechnology Investments Limited (3)......................................... 1,295,068 17.5 12.8
Sentron Medical, Inc. (4)..................................................... 392,158 5.3 3.9
M. Ross Johnson (5)........................................................... 188,994 2.6 1.9
Matthew A. Megaro (6)......................................................... 146,080 2.0 1.4
Max N. Wallace (7)............................................................ 132,149 1.8 1.3
Richard A. Franco (8)......................................................... 40,334 * *
Jesse I. Treu (2)............................................................. 2,570,559 34.8 25.4
Dani P. Bolognesi (9)......................................................... 99,900 1.3 1.0
Brian H. Dovey (2)............................................................ 2,570,559 34.8 25.4
Charles A. Sanders (10)....................................................... 11,765 * *
Andrew A. McCreath (11)....................................................... 268,628 3.6 2.7
All executive officers and directors as a
group (seven persons) (12).................................................... 3,285,926 44.5 32.4
</TABLE>

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

* Less than one percent.

(1) Applicable percentage ownership is based on 7,380,329 shares of Common
Stock outstanding as of September 15, 1997 after giving effect to the
Preferred Stock Conversion. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission based
on factors including voting or investment power with respect to securities.
Shares of Common Stock subject to options, warrants and convertible notes
currently exercisable or convertible, or exercisable or convertible within
60 days after September 30, 1997, are deemed outstanding for computing the
percentage ownership of the person or entity holding such securities, but
are not deemed outstanding for computing the percentage ownership of any
other person or entity. Except as indicated, and subject to community
property laws where applicable, the persons named in the table above have
sole voting and investment power with respect to all shares of Common Stock
as beneficially owned by them, and there are no other affiliations among
the stockholders listed in the table.
(2) Consists of shares held by affiliated entities as follows: (i) 1,597,342
shares beneficially owned by Domain Partners II, L.P., whose general
partner is One Palmer Square Associates II, L.P.; (ii) 940,533 shares
beneficially owned by Domain Partners III, L.P., whose general partner is
One Palmer Square Associates III, L.P.; and (iii) 32,684 shares
beneficially owned by DP III Associates, L.P., whose general partner is One
Palmer Square Associates III, L.P. Dr. Treu and Mr. Dovey are general
partners of One Palmer Square Associates II, L.P. and One Palmer Square
Associates III, L.P. In such capacities, Dr. Treu and Mr. Dovey each may be
deemed to be the beneficial owner of such shares, although each disclaims
such beneficial ownership except to the extent of his pecuniary interest,
if any. The address for Domain Partners II, L.P., Domain Partners III,
L.P., DP III Associates, L.P., Dr. Treu and Mr. Dovey is One Palmer Square,
Princeton, New Jersey 08542.
(3) Biotechnology Investments Limited ("BIL") has entered into a contractual
arrangement with Domain Associates whereby Domain Associates serves as the
United States venture capital advisor to BIL. Domain Associates has neither
voting nor investment power over BIL's shares. Dr. Treu and Mr. Dovey are
general partners of Domain Associates. The address for BIL is St. Peter
Port House, Sausmarez Street, St. Peter Port, Guernsey, GY13PH, Channel
Islands.
(4) The address for Sentron Medical, Inc. is 4445 Lake Forest Drive, Suite 600,
Cincinnati, Ohio 45242.
(5) Includes 175,625 shares subject to certain contractual restrictions, which
restrictions lapse with respect to 8,037 shares within 60 days after
September 30, 1997. Does not include an aggregate of 85,518 shares
beneficially owned by Michael Johnson and Greg Johnson, Dr. Johnson's sons,
who have sole voting and investment power of such shares and as to which
shares Dr. Johnson disclaims beneficial ownership.

<PAGE>
(6) Includes (i) 89,779 shares subject to certain contractual restrictions,
which restrictions lapse with respect to 3,955 shares within 60 days after
September 30, 1997, and (ii) an aggregate of 47,076 shares beneficially
owned by Matthew A. Megaro as custodian for Anthony Megaro and Arianna
Megaro, Mr. Megaro's son and daughter.
(7) Includes (i) 28,824 shares subject to certain contractual restrictions,
which restrictions lapse with respect to 1,441 shares within 60 days after
September 30, 1997 and (ii) 2,443 shares beneficially owned by Diana
Parrish, Mr. Wallace's wife. For information concerning the subsequent
lapsing of these restrictions, see "Certain Transactions."
(8) Includes 20,100 shares beneficially owned by Dianne M. Franco, Mr. Franco's
wife. Does not include the following aggregate of 13,000 shares as to which
Mr. Franco disclaims beneficial ownership: (i) 6,500 shares beneficially
owned by Danielle Franco, Mr. Franco's daughter; (ii) 2,000 shares
beneficially owned by Richard A. Franco, Jr., Mr. Franco's son; (iii) 2,000
shares owned by Kathleen S. Franco, Richard A. Franco, Jr.'s wife; (iv)
1,250 shares beneficially owned by Richard A. Franco, Jr., Custodian for
Alyssa M. Franco under the North Carolina Uniform Transfers to Minors Act
for which Alyssa M. Franco, Mr. Franco's grandchild, is the sole
beneficiary and Richard A. Franco, Jr. is the sole custodian; and (v) 1,250
shares beneficially owned by Richard A. Franco, Jr., Custodian for Richard
A. Franco, III under the North Carolina Uniform Transfers to Minors Act for
which Richard A. Franco, III, Mr. Franco's grandchild, is the sole
beneficiary and Richard A. Franco, Jr. is the sole custodian.
(9) Includes 14,418 shares that Dr. Bolognesi may acquire pursuant to stock
options exercisable within 60 days after September 30, 1997 and the
following shares as to which Dr. Bolognesi disclaims beneficial ownership:
(i) 11,765 shares beneficially owned by James C. Bolognesi Irrevocable
Trust, for which James C. Bolognesi, Dr. Bolognesi's son, is the sole
beneficiary and Sarah Bolognesi, Dr. Bolognesi's wife, is the sole trustee;
(ii) 11,765 shares beneficially owned by Michael P. Bolognesi Irrevocable
Trust, for which Michael P. Bolognesi, Dr. Bolognesi's son, is the sole
beneficiary and Sarah Bolognesi is the sole trustee; and (iii) 6,069 shares
that Sarah Bolognesi may acquire pursuant to certain stock options
exercisable within 60 days after September 30, 1997.
(10) Includes 1,961 shares that Dr. Sanders may acquire pursuant to stock
options exercisable within 60 days after September 30, 1997.
(11) Includes 268,628 shares beneficially owned by Lawrence & Company Inc., of
which Mr. McCreath is a partner. In such capacity, Mr. McCreath may be
deemed to be the beneficial owner of such shares, although he disclaims
such beneficial ownership except to the extent of his pecuniary interest,
if any.
(12) See notes (2)-(11).

<PAGE>
DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 30,000,000 shares
of Common Stock, par value $.001 per share and 10,000,000 shares of Preferred
Stock, par value $.001 per share (after giving effect to the Preferred Stock
Conversion and the filing of the Third Amended and Restated Certificate of
Incorporation upon the completion of this Offering). The following description
of the capital stock of the Company is a summary, does not purport to be
complete, is subject to, and qualified in its entirety by, the provisions of the
Third Amended and Restated Certificate of Incorporation, which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part, and by
applicable law.

COMMON STOCK

As of September 30, 1997, there were 7,380,329 shares of Common Stock
outstanding, as adjusted to reflect the Preferred Stock Conversion upon the
completion of this Offering, held of record by 88 stockholders.

The holders of Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor, subject to any preferential
dividend rights applicable to any outstanding Preferred Stock that may be issued
in the future. The Company has not declared or paid cash dividends on its
capital stock. The Company currently intends to retain any future earnings to
fund its operations and, therefore, does not anticipate paying any cash
dividends in the foreseeable future. See "Dividend Policy."

In the event of liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets of the
Company remaining after the payment of all debts and other liabilities, subject
to the prior distribution rights of shares of Preferred Stock if any, then
outstanding. There are no preemptive, subscription or conversion rights
applicable to the Common Stock. The outstanding shares of Common Stock are, and
the shares offered by the Company in this Offering will be, when issued and paid
for, validly issued, fully paid and nonassessable. The rights, preferences and
privileges of holders of Common Stock are subject to the rights of the holders
of shares of any class or series of Preferred Stock that the Company may
designate and issue in the future.

PREFERRED STOCK

The Board of Directors has the authority, without action by the
stockholders, to designate and issue 10,000,000 shares of Preferred Stock in one
or more series and to designate the rights, preferences and limitations of all
series, any or all of which may be superior to the rights of the Common Stock.
It is not possible to state the actual effect of the issuance of any shares of
Preferred Stock upon the rights of the holders of Common Stock until the Board
of Directors determines the specific rights of the holders of Preferred Stock.
However, the effects might include, among others, restricting dividends on
Common Stock, diluting the voting power of the Common Stock, impairing the
liquidation rights of the Common Stock, and making it more difficult for a third
party to acquire the Company, which could have the effect of discouraging a
third party from acquiring, or deterring a third party from paying a premium to
acquire, a majority of the outstanding voting stock of the Company. The Company
has no present plans to issue any shares of Preferred Stock. See "Risk
Factors -- Anti-Takeover Effect of Certain Charter and Bylaw Provisions."

WARRANTS

As of September 30, 1997, the Company had outstanding warrants entitling
the purchasers thereof to purchase a total of 56,684 shares of Common Stock at a
weighted-average exercise price of $4.25 per share (the "Warrants"). The
Warrants have expiration dates ranging from 2003 to 2005.

<PAGE>
REGISTRATION RIGHTS

The holders, or their permitted transferees, of approximately 6,261,615
shares of Common Stock and 56,684 shares of Common Stock issuable upon exercise
of the Warrants (the "Registrable Securities") are entitled to certain rights
with respect to the registration of such shares under the Securities Act. These
rights are provided under the terms of certain agreements between the Company
and holders of Registrable Securities. Subject to certain limitations set forth
in the agreements, holders of Registrable Securities may require the Company, at
its expense, on not more than two occasions, to file a registration statement
under the Securities Act with respect to the public resale of Registrable
Securities. If the Company proposes to register any of its securities under the
Securities Act, either for its own account or for the account of other security
holders, the holders of Registrable Securities are entitled to notice of the
registration and are entitled to include, at the Company's expense, such shares
therein, subject to certain conditions and limitations. Further, the holders of
Registrable Securities may require the Company, at its expense, to register
their shares on Form S-3 when the use of such form becomes available to the
Company, subject to certain conditions and limitations. All registration
expenses must be borne by the Company and all selling expenses relating to
Registrable Securities must be borne by the holder of the securities being
registered.

DELAWARE LAW AND CERTAIN CHARTER PROVISIONS

The Company is subject to the provisions of DGCL Section 203 which, subject
to certain exceptions, prohibits the Company from engaging in certain business
combinations with interested stockholders for a period of three years after the
date of the transaction in which the stockholder became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the stockholder. For purposes of Section
203, an "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock. The application of Section 203 could have the effect
of delaying or preventing a change of control of the Company.

The Company's Third Amended and Restated Certificate of Incorporation
provides that effective upon this Offering, each director will serve for a
three-year term and that approximately one-third of the directors are to be
elected annually. Candidates for directors shall be nominated only by the Board
of Directors or by a stockholder who gives written notice to the Company in the
manner prescribed by the Bylaws. The number of directors may be fixed by
resolution of the Board of Directors. The Board currently consists of six
members and the Board may appoint new directors to fill vacancies or newly
created directorships between stockholder meetings. The Third Amended and
Restated Certificate of Incorporation does not provide for cumulative voting at
stockholder meetings for election of directors. A director may be removed from
office with cause by the affirmative vote of at least seventy-five percent (75%)
of all eligible votes present in person or by proxy at a meeting of stockholders
at which a quorum is present or without cause by the affirmative vote of
seventy-five percent (75%) of all eligible votes present in person or by proxy
at a meeting of stockholders at which a quorum is present, provided that removal
without cause is recommended to the stockholders by the Board of Directors
pursuant to a vote of not less than seventy-five percent (75%) of the directors
then in office. Any action required or permitted to be taken by stockholders of
the Company must be effected at a duly called annual or special meeting of
stockholders and may not be effected by written consent. The staggered Board of
Directors, the Company's Third Amended and Restated Certificate of Incorporation
and certain other provisions of the DGCL may have the effect of delaying,
deterring or preventing a change in control of the Company, may discourage bids
for the Common Stock at a premium over the market price and may adversely affect
the market price, and the voting and other rights of the holders, of the Common
Stock.

TRANSFER AGENT

The transfer agent for the Company's Common Stock is Wachovia Bank of North
Carolina, N.A.

<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Prior to this Offering, there has been no market for the Common Stock of
the Company. Future sales of substantial amounts of Common Stock (including
shares issued upon the exercise of outstanding options and warrants) in the
public market after this Offering or the prospect of such sales could materially
and adversely affect the market price of the Common Stock prevailing from time
to time. Sales of substantial amounts of Common Stock of the Company in the
public market after the restrictions described below lapse could also materially
and adversely affect the prevailing market price of the Common Stock and the
ability of the Company to raise equity capital in the future.

Upon the completion of this Offering, the Company will have 10,130,329
shares of Common Stock outstanding (assuming no exercise of options and warrants
outstanding as of September 30, 1997). Of these shares, the 2,750,000 shares
sold in this Offering will be freely tradeable without restrictions unless held
by "affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act. The remaining 7,380,329 shares were issued and sold in reliance
upon certain exemptions from the registration requirements of the Securities
Act. These shares may be sold in the public market only if registered, or
pursuant to an exemption from such registration, such as Rule 144 or Rule 144(k)
under the Securities Act.

Approximately 231,117 shares of Common Stock will be eligible for resale in
the public market without restriction in reliance on Rule 144(k) immediately
following the completion of this Offering, 225,944 shares of which are subject
to the Lock-up Agreements described below. An additional 769,238 shares (763,331
shares of which are subject to the Lock-up Agreements) will be eligible for
resale in the public market pursuant to Rule 701 under the Securities Act
beginning approximately 90 days after the effective date of this Prospectus,
except to the extent that such shares are subject to vesting restrictions or
certain contractual restrictions on sale or transfer pursuant to agreements with
the Company. After the expiration of the 180-day lock-up period described below,
an additional 3,739,158 shares of Common Stock will be eligible for resale in
the public market pursuant to Rule 144. From time to time thereafter, the
remaining shares of Common Stock outstanding will become eligible for resale in
the public market pursuant to Rule 144.

In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated), who has beneficially owned restricted securities
(as that term is defined in Rule 144) for at least one year is entitled to sell,
within any three month period, a number of such securities that does not exceed
the greater of one percent of the then outstanding class of securities (in the
case of the Common Stock, approximately 101,303 shares, based on the number of
shares to be outstanding after this Offering) or the average weekly trading
volume in such securities in the public market during the four calendar weeks
preceding the filing of the seller's Form 144, provided certain requirements
concerning availability of public information concerning the issuer of the
restricted securities, manner of sale and notice of sale are satisfied. A person
who is not an affiliate of the issuer, has not been an affiliate within three
months prior to the sale and has beneficially owned the restricted securities
for at least two years is entitled to sell such shares under Rule 144(k) without
regard to any of the limitations described above. Rule 144 also provides that
any person who sells securities that are not restricted securities must
nonetheless comply with the same restrictions applicable to restricted
securities for the account of an affiliate with the exception of the holding
period requirement. The one-year and two-year holding periods described above do
not begin to run until the full purchase price or other consideration is paid by
the person acquiring the restricted securities from the issuer or an affiliate
of the issuer and may include the holding period of a prior owner.

Securities issued in reliance on Rule 701 (such as shares of Common Stock
issued before the completion of this Offering upon the exercise of options) are
also restricted securities and, beginning approximately 90 days after the
effective date of this Prospectus, may be resold by persons other than
affiliates of the Company subject only to the manner of sale provisions of Rule
144 and may be resold by affiliates under Rule 144 without compliance with the
one-year holding period.

The executive officers, directors, employees and certain other stockholders
of the Company, who together beneficially own or have dispositive power over
7,366,307 shares of Common Stock outstanding prior to this Offering, have agreed
that they will not sell, offer, make any short sale or otherwise dispose of or
enter into any contract, arrangement or commitment to sell or otherwise dispose
of any shares of Common Stock or securities

<PAGE>
exerciseable into or convertible into shares of Common Stock owned by them for a
period of 180 days after the date of this Prospectus without the prior written
consent of UBS Securities LLC.

Approximately 90 days after the completion of this Offering, the Company
intends to file a registration statement on Form S-8 under the Securities Act to
register the future issuance of shares of Common Stock reserved for issuance
under the Company's stock option plan. As of September 30, 1997, 268,506 shares
of Common Stock were reserved for issuance pursuant to outstanding options and
230,394 shares of Common Stock were reserved for future issuance under the
Company's stock option plan. Such registration statement will automatically
become effective upon filing. Accordingly, shares registered thereunder will,
subject to Rule 144 limitations applicable to affiliates, be available for sale
in the public market, except to the extent that such shares are subject to
vesting restrictions with the Company or certain contractual restrictions on
sale or transfer (including options covering 267,329 shares which are subject to
Lock-up Agreements). After this Offering, the holders of approximately 6,261,615
shares of Common Stock and the holders of warrants to purchase an aggregate of
56,684 shares of Common Stock will be entitled to certain demand and piggyback
rights with respect to the registration of such shares under the Securities Act.
If such holders, by exercising their demand registration rights, cause a large
number of securities to be registered and sold in the public market, such sales
could have an adverse effect on the market price of the Company's Common Stock.
If the Company, either on its own behalf or on behalf of certain stockholders,
were to initiate a registration and include shares held by such holders pursuant
to the exercise of their piggyback registration rights, such sales could have a
material adverse effect on the Company's ability to raise needed capital. See
"Certain Transactions," "Shares Eligible for Future Sale," "Description of
Capital Stock -- Registration Rights" and "Underwriting."

<PAGE>
UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom UBS Securities LLC and
NationsBanc Montgomery Securities, Inc. are acting as representatives (the
"Representatives"), have agreed to purchase from the Company the following
respective number of shares of Common Stock:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------------------------------------------------------------- ---------
<S> <C>
UBS Securities LLC................................................. 950,000
NationsBanc Montgomery Securities, Inc............................. 950,000
BancAmerica Robertson Stephens..................................... 125,000
Cowen & Company.................................................... 125,000
Hambrecht & Quist LLC.............................................. 125,000
Invemed Associates, Inc............................................ 125,000
SBC Warburg Dillon Read Inc........................................ 125,000
Gerard Klauer Mattison & Co., Inc.................................. 75,000
Sands Brothers & Co., Ltd.......................................... 75,000
Volpe Brown Whelan & Company, LLC.................................. 75,000
---------
Total....................................................... 2,750,000
---------
---------
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel. The
nature of the Underwriters' obligation is such that they are committed to
purchase all shares of Common Stock offered hereby if any such shares are
purchased. The Underwriting Agreement contains certain provisions whereby if any
Underwriter defaults in its obligations to purchase shares, and the aggregate
obligations of the Underwriters so defaulting do not exceed ten percent of the
shares offered hereby, the remaining Underwriters, or some of them, must assume
such obligations.

The Underwriters have advised the Company that the Underwriters propose to
offer the shares of the Common Stock directly to the public at the initial
public offering price set forth on the cover of this Prospectus, and to certain
dealers at such price less a concession not in excess of $.49 per share. The
Underwriters may allow and such dealers may reallow a concession not in excess
of $.10 per share to certain other dealers. After the initial public offering of
the shares of Common Stock, the Offering price and other selling terms may be
changed by the Underwriters.

The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 412,500
additional shares of Common Stock to cover over-allotments, if any, at the
initial public offering price set forth on the cover page of this Prospectus,
less the underwriting discounts and commissions. To the extent that the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment to purchase approximately the same percentage thereof which the
number of shares of Common Stock to be purchased by it shown in the above table
bears to the total number of shares of Common Stock offered hereby. The Company
will be obligated, pursuant to the option, to sell such shares to the
Underwriters.

In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the Offering,
creating a syndicate short position. In addition, the Underwriters may bid for
and purchase shares of Common Stock in the open market to cover syndicate short
positions or to stabilize the price of the Common Stock. Finally, the
Underwriters may reclaim selling concessions from syndicate members in the
Offering if the syndicate repurchases previously distributed Common Stock in
syndicate covering transactions, in stabilizing transactions or otherwise. Any
of these activities may stabilize or maintain the market price of the Common
Stock above independent market levels. The Underwriters are not required to
engage in these activities, and may end any of these activities at any time.

<PAGE>
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.

The executive officers, directors, employees and certain other stockholders
of the Company who beneficially own or have dispositive power over substantially
all of the shares of Common Stock outstanding prior to this Offering, including
Common Stock to be issued upon the completion of this Offering pursuant to the
Preferred Stock Conversion, have agreed that they will not, without the prior
written consent of UBS Securities LLC, offer, sell or otherwise dispose of any
shares of Common Stock or securities exchangeable for or convertible into shares
of Common Stock owned by them for a period of 180 days after the date of this
Prospectus. The Company has agreed that it will not, without the prior written
consent of UBS Securities LLC, offer, sell or otherwise dispose of any shares of
Common Stock for a period of 180 days after the date of this Prospectus, except
that the Company may grant options under the Stock Incentive Plan and may issue
shares pursuant to other currently outstanding options.

The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority in excess of five percent of the number of shares of Common Stock
offered hereby.

In June 1997, an entity affiliated with UBS Securities LLC purchased in
connection with the Company's Series D Preferred Stock financing an aggregate of
2,000,000 shares of Series D Preferred Stock at a price of $.75 per share. Such
Series D Preferred Stock will convert into 235,295 shares of Common Stock upon
the completion of this Offering.

Prior to this Offering, there has been no public market for the Common
Stock of the Company. The initial public offering price has been determined by
negotiations between the Company and the Representatives and may not be
indicative of the market price at which the Common Stock of the Company will
trade after this Offering. Among the factors considered in such negotiations, in
addition to prevailing market conditions, were certain financial information of
the Company, market valuations of other companies that the Company and the
Representatives believed to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development and other factors deemed relevant. The initial public offering price
set forth on the cover page of this Prospectus should not, however, be
considered an indication of the actual value of the Common Stock. Such price is
subject to change as a result of market conditions and other factors. There can
be no assurance that an active trading market will develop for the Common Stock
or that the Common Stock will trade in the public market subsequent to this
Offering at or above the initial offering price.

<PAGE>
LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Hutchison & Mason PLLC, Raleigh, North Carolina, counsel
to the Company. Certain legal matters will be passed upon for the Company by
Wilmer, Cutler & Pickering, Washington D.C., special counsel to the Company. As
of the date of this Prospectus, two members of Hutchison & Mason PLLC
beneficially own an aggregate of 3,530 shares of the Company's Common Stock and
a partner of Wilmer, Cutler & Pickering beneficially owns 9,804 shares of the
Company's Common Stock. A principal of AspenTree Capital, consultant to the
Company and beneficial owner of 26,865 shares of the Company's Common Stock and
options to purchase Common Stock, exercisable as to 4,020 shares within 60 days
after September 30, 1997, serves as a consultant to Wilmer, Cutler & Pickering
on certain matters other than those relating to the Company. Certain legal
matters will be passed upon for the Underwriters by Brobeck, Phleger & Harrison
LLP, New York, New York.

EXPERTS

The financial statements of the Company, as of December 31, 1995 and 1996
and for each of the years in the three-year period ended December 31, 1996, and
the period from inception (January 7, 1993) to December 31, 1996 have been
included herein and in the Registration Statement in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.

The statements in this Prospectus under the captions "Risk
Factors -- Uncertainty Regarding Patents and Proprietary Rights" and
"Business -- Patents, Proprietary Technology and Trade Secrets", relating to
U.S. patent matters, have been reviewed and approved by Pennie & Edmonds LLP,
New York, New York, patent counsel to the Company, and are included herein in
reliance upon such review and approval by the firm as experts in U.S. patent
law.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-l under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus, which is a part of
the Registration Statement, does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules hereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is hereby made to such Registration Statement and to the exhibits and
schedules filed as a part thereof. Statements made in this Prospectus concerning
the contents of any contracts or documents are not necessarily complete, and, in
each such instance, if such contract or document is filed as an exhibit to the
Registration Statement, reference is made to such exhibit for a more complete
description, and each such statement is qualified in its entirety by reference
to such exhibit. Any interested party may inspect the Registration Statement,
without charge, at the public reference facilities of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and copies
of all or any portion of the Registration Statement, including exhibits and
schedules thereto, may be obtained at prescribed rates from the Public Reference
Section of the Commission at its principal office at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's public reference
facilities in Chicago, Illinois and New York, New York. The Commission maintains
a World Wide Web site that will contain reports, proxy and information
statements and other information regarding the Company. The address of such site
is http://www.sec.gov.

As a result of the filing of this Registration Statement and the completion
of the Offering contemplated hereby, the Company will become subject to the
periodic reporting requirements of the Securities Exchange Act of 1934, as
amended, and in accordance therewith will be required to file reports and other
information with the Commission. Such reports and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at its principal offices.

The Company intends to furnish its stockholders annual reports containing
financial statements audited by its independent auditors and quarterly reports
containing unaudited financial information for the first three quarters of each
fiscal year.

<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................................................................ F-2
Balance Sheets at December 31, 1995 and 1996 and June 30, 1997 (unaudited).................................. F-3
Statements of Operations for the Years Ended December 31, 1994, 1995,
and 1996 and for the Six Months Ended June 30, 1996 (unaudited) and 1997
(unaudited) and for the period from Inception to December 31, 1996........................................ F-4
Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1993, 1994,
1995, and 1996 and for the Six Months Ended June 30, 1997 (unaudited)..................................... F-5
Statements of Cash Flows for the Years Ended December 31, 1994, 1995,
and 1996 and for the Six Months Ended June 30, 1996 (unaudited) and 1997
(unaudited) and for the period from Inception to December 31, 1996........................................ F-6
Notes to Financial Statements............................................................................... F-7
</TABLE>

F-1

<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Trimeris, Inc.:

We have audited the accompanying balance sheets of Trimeris, Inc. (A
Development Stage Company) (the "Company") as of December 31, 1995 and 1996, and
the related statements of operations, stockholders' equity (deficit), and cash
flows for each of the years in the three-year period ended December 31, 1996 and
for the cumulative period from the date of inception to December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1995 and 1996, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 1996, and for the
cumulative period from the date of inception to December 31, 1996, in conformity
with generally accepted accounting principles.

March 17, 1997 except for
Note 11(a) as to which the
date is June 30, 1997

Raleigh, North Carolina KPMG PEAT MARWICK
LLP

F-2

<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS

<TABLE>
<CAPTION>
PRO FORMA
AS OF DECEMBER 31, AS OF JUNE STOCKHOLDERS'
----------------------------- 30, EQUITY AS OF
1995 1996 1997 JUNE 30, 1997
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.................................... $ 1,343,346 $ 131,540 $ 8,912,343
Accounts receivable.......................................... 793 32,752 44,758
Loans to employees........................................... -- 2,985 --
Prepaid expenses............................................. 9,564 45,470 311,753
------------- ------------ -------------
Total current assets..................................... 1,353,703 212,747 9,268,854
------------- ------------ -------------
Property, furniture and equipment, net of accumulated
depreciation of $921,135, $1,611,544 and $1,911,663 at
December 31, 1995, 1996 and June 30, 1997 (unaudited),
respectively................................................. 1,230,394 896,672 698,372
------------- ------------ -------------
Other assets:
Equipment held for resale, less allowance of $60,972, $54,029
and $54,029 at December 31, 1995, 1996 and June 30, 1997
(unaudited), respectively.................................. 60,972 54,029 54,029
Exclusive license agreement, net of accumulated amortizaton
of $6,632, $9,044 and $10,250 at December 31, 1995, 1996
and June 30, 1997 (unaudited), respectively................ 34,368 31,956 30,750
Patent costs................................................. 298,154 412,619 444,949
Equipment deposits........................................... 58,830 58,830 58,830
Other assets, net of accumulated amortization of $10,233,
$14,531 and $16,518 at December 31, 1995, 1996 and June 30,
1997 (unaudited), respectively............................. 21,427 16,876 28,967
------------- ------------ -------------
Total other assets....................................... 473,751 574,310 617,525
------------- ------------ -------------
Total assets............................................. $ 3,057,848 $ 1,683,729 $ 10,584,751
------------- ------------ -------------
------------- ------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................................. $ 118,016 $ 254,845 $ 337,173
Current installments of obligations under capital leases..... 527,406 500,248 332,332
Accrued expenses............................................. 385,797 762,548 580,012
------------- ------------ -------------
Total current liabilities................................ 1,031,219 1,517,641 1,249,517
Notes payable.................................................. 166,718 259,000 260,000
Obligations under capital leases, excluding current
installments................................................. 536,184 316,537 228,111
------------- ------------ -------------
Total liabilities........................................ 1,734,121 2,093,178 1,737,628
------------- ------------ -------------
Stockholders' equity (deficit):
Series A Preferred Stock at $.001 par value per share.
3,000,000 shares authorized, issued and outstanding........ 3,000 3,000 3,000 $ --
Series B Preferred Stock at $.001 par value per share.
29,000,000 shares authorized; issued and outstanding
20,635,564 and 27,135,564 shares at December 31, 1995, 1996
and June 30, 1997 (unaudited), respectively................ 20,636 27,136 27,136 --
Series C Preferred Stock at $.001 per share. 20,000,000
shares authorized; issued and outstanding 3,333,335 and
13,317,740 shares at December 31, 1996 and June 30, 1997
(unaudited), respectively.................................. -- 3,333 13,317 --
Series D Preferred Stock at $.001 par value per share
10,666,667 shares authorized; issued and outstanding
9,047,962 at
June 30, 1997 (unaudited).................................. -- -- 9,048 --
Common Stock at $.001 par value per share. Authorized
80,000,000 shares; issued and outstanding 352,412, 436,688
and 1,092,472 shares at December 31, 1995, 1996 and June
30, 1997 (unaudited), respectively......................... 353 437 1,092 7,354
Additional paid-in capital................................... 12,293,582 17,535,897 32,434,995 32,481,234
Deficit accumulated during the development stage............. (10,993,844) (17,965,252) (21,442,925) (21,442,925 )
Deferred compensation........................................ -- -- (1,935,000) (1,935,000 )
Notes receivable from stockholders........................... -- (14,000) (263,540) (263,540 )
------------- ------------ ------------- -------------
Total stockholders' equity (deficit)..................... 1,323,727 (409,449) 8,847,123 $ 8,847,123
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
Commitments and contingencies (notes 2, 10, and 11)
Total liabilities and stockholders' equity (deficit)..... $ 3,057,848 $ 1,683,729 $ 10,584,751
------------- ------------ -------------
------------- ------------ -------------
</TABLE>

See accompanying notes to financial statements.

F-3

<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
CUMULATIVE
FROM INCEPTION FOR THE
(JANUARY 7, SIX MONTHS ENDED CUMULATIVE
FOR THE YEARS ENDED DECEMBER 31, 1993) JUNE 30, FROM INCEPTION
--------------------------------------- TO DECEMBER 31, ------------------------- (JANUARY 7, 1993)
1994 1995 1996 1996 1996 1997 TO JUNE 30, 1997
----------- ----------- ----------- --------------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenue............... $ -- $ 104,453 $ 54,465 $ 158,918 $ -- $ 211,875 $ 370,793
----------- ----------- ----------- --------------- ----------- ----------- -----------------
Operating expenses:
Research and
development....... 2,746,867 4,011,875 5,146,072 12,596,163 2,278,084 2,858,785 15,454,948
General and
administrative.... 947,518 1,520,974 1,759,965 4,859,704 801,547 786,445 5,646,149
----------- ----------- ----------- --------------- ----------- ----------- -----------------
Total operating
expenses..... 3,694,385 5,532,849 6,906,037 17,455,867 3,079,631 3,645,230 21,101,097
----------- ----------- ----------- --------------- ----------- ----------- -----------------
Operating loss...... (3,694,385) (5,428,396) (6,851,572) (17,296,949) (3,079,631) (3,433,355) (20,730,304)
----------- ----------- ----------- --------------- ----------- ----------- -----------------
Other income
(expense):
Interest income..... 8,611 49,176 46,992 121,449 31,672 33,319 154,768
Interest expense.... (258,191) (360,158) (166,828) (789,752) (85,623) (77,637) (867,389)
----------- ----------- ----------- --------------- ----------- ----------- -----------------
(249,580) (310,982) (119,836) (668,303) (53,951) (44,318) (712,621)
----------- ----------- ----------- --------------- ----------- ----------- -----------------
Net loss............ $(3,943,965) $(5,739,378) $(6,971,408) $ (17,965,252) $(3,133,582) $(3,477,673) $ (21,442,925)
----------- ----------- ----------- --------------- ----------- ----------- -----------------
----------- ----------- ----------- --------------- ----------- ----------- -----------------
Pro forma net loss
per share............ $ (1.48) $ (0.59)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Pro forma weighted
average shares used
in per share
computations......... 4,705,000 5,880,000
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>

See accompanying notes to financial statements.

F-4

<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

YEARS ENDED DECEMBER 31, 1993, 1994, 1995 AND 1996, AND THE SIX MONTHS ENDED
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
DEFICIT
PREFERRED STOCK COMMON STOCK ACCUMULATED NOTES
------------------- ------------------ ADDITIONAL DURING THE RECEIVABLE
NUMBER PAR NUMBER PAR PAID-IN DEVELOPMENT DEFERRED FROM
OF SHARES VALUE OF SHARES VALUE CAPITAL STAGE COMPENSATION STOCKHOLDERS
---------- ------- ---------- ------ ----------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 7,
1993..................... -- $ -- -- $ -- $ -- $ -- -- -- $ --
Issuances of Common
Stock.................... -- -- 217,647 218 1,632 -- -- --
Issuances of Series A
Preferred Stock.......... 3,000,000 3,000 -- -- 1,997,000 -- -- --
Stock issuance costs...... -- -- -- -- (33,813) -- -- --
Common Stock issued in
exchange for exclusive
license.................. -- -- 96,471 96 40,904 -- -- --
Common Stock issued in
exchange for consulting
services................. -- -- 5,882 6 2,494 -- -- --
Loss for the period....... -- -- -- -- -- (1,310,501) -- --
---------- ------- ---------- ------ ----------- ------------- ------------- ------------
Balance as of December 31,
1993..................... 3,000,000 3,000 320,000 320 2,008,217 (1,310,501) -- --
Issuances of Common
Stock.................... -- -- 11,911 12 5,051 -- -- --
Common Stock issued in
exchange for consulting
services................. -- -- 4,706 5 1,995 -- -- --
Loss for the period....... -- -- -- -- -- (3,943,965) -- --
---------- ------- ---------- ------ ----------- ------------- ------------- ------------
Balance as of December 31,
1994..................... 3,000,000 3,000 336,617 337 2,015,263 (5,254,466) -- --
Issuances of Common
Stock.................... -- -- 15,795 16 7,894 -- -- --
Issuance of Series B
Preferred Stock.......... 20,635,564 20,636 -- -- 10,297,146 -- -- --
Stock issuance costs...... -- -- -- -- (26,721) -- -- --
Loss for the period....... -- -- -- -- -- (5,739,378) -- --
---------- ------- ---------- ------ ----------- ------------- ------------- ------------
Balance as of December 31,
1995..................... 23,635,564 23,636 352,412 353 12,293,582 (10,993,844) -- --
Issuances of Common
Stock.................... -- -- 83,688 84 28,370 -- -- --
Common Stock issued in
exchange for consulting
services................. -- -- 588 -- 200 -- -- --
Issuances of Series B
Preferred Stock.......... 6,500,000 6,500 -- -- 3,243,500 -- -- --
Issuances of Series C
Preferred Stock.......... 3,333,335 3,333 -- -- 1,996,668 -- -- --
Stock issuance costs...... -- -- -- -- (26,423) -- -- --
Loss for the period....... -- -- -- -- -- (6,971,408) -- --
Notes receivable from
stockholders for the
purchase of shares....... -- -- -- -- -- -- -- (14,000)
---------- ------- ---------- ------ ----------- ------------- ------------- ------------
Balance as of December 31,
1996..................... 33,468,899 33,469 436,688 437 17,535,897 (17,965,252) -- (14,000)
Issuances of Series C
Preferred Stock.......... 9,984,405 9,984 -- -- 5,980,658 -- -- --
Issuances of Series D
Preferred Stock.......... 9,047,962 9,048 -- -- 6,776,923 -- -- --
Issuances of Common
Stock.................... -- -- 656,494 656 251,198 -- -- (249,540)
Repurchase of Common
Stock.................... -- -- (710) (1) (301) -- -- --
Stock issuance costs...... -- -- -- -- (109,380) -- -- --
Issuance of Common Stock
and options at below
market value............. -- -- -- -- 2,000,000 -- (2,000,000) --
Amortization of deferred
compensation............. -- -- -- -- -- -- 65,000 --
Loss for the period....... -- -- -- -- -- (3,477,673) -- --
---------- ------- ---------- ------ ----------- ------------- ------------- ------------
Balance as of June 30,
1997 (unaudited)......... 52,501,266 $52,501 1,092,472 $1,092 $32,434,995 $ (21,442,925) $ (1,935,000) $ (263,540)
---------- ------- ---------- ------ ----------- ------------- ------------- ------------
---------- ------- ---------- ------ ----------- ------------- ------------- ------------

NET
STOCKHOLDERS'
EQUITY
(DEFICIT)
-------------
<S> <C>
Balance at January 7,
1993..................... $ --
Issuances of Common
Stock.................... 1,850
Issuances of Series A
Preferred Stock.......... 2,000,000
Stock issuance costs...... (33,813)
Common Stock issued in
exchange for exclusive
license.................. 41,000
Common Stock issued in
exchange for consulting
services................. 2,500
Loss for the period....... (1,310,501)
-------------
Balance as of December 31,
1993..................... 701,036
Issuances of Common
Stock.................... 5,063
Common Stock issued in
exchange for consulting
services................. 2,000
Loss for the period....... (3,943,965)
-------------
Balance as of December 31,
1994..................... (3,235,866)
Issuances of Common
Stock.................... 7,910
Issuance of Series B
Preferred Stock.......... 10,317,782
Stock issuance costs...... (26,721)
Loss for the period....... (5,739,378)
-------------
Balance as of December 31,
1995..................... 1,323,727
Issuances of Common
Stock.................... 28,454
Common Stock issued in
exchange for consulting
services................. 200
Issuances of Series B
Preferred Stock.......... 3,250,000
Issuances of Series C
Preferred Stock.......... 2,000,001
Stock issuance costs...... (26,423)
Loss for the period....... (6,971,408)
Notes receivable from
stockholders for the
purchase of shares....... (14,000)
-------------
Balance as of December 31,
1996..................... (409,449)
Issuances of Series C
Preferred Stock.......... 5,990,642
Issuances of Series D
Preferred Stock.......... 6,785,971
Issuances of Common
Stock.................... 2,314
Repurchase of Common
Stock.................... (302)
Stock issuance costs...... (109,380)
Issuance of Common Stock
and options at below
market value............. --
Amortization of deferred
compensation............. 65,000
Loss for the period....... (3,477,673)
-------------
Balance as of June 30,
1997 (unaudited)......... $ 8,847,123
-------------
-------------
</TABLE>

See accompanying notes to financial statements.

F-5

<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
CUMULATIVE
FROM INCEPTION FOR THE SIX MONTHS ENDED
(JANUARY 7,
FOR THE YEARS ENDED DECEMBER 31, 1993) JUNE 30,
--------------------------------------- TO DECEMBER 31, -------------------------
1994 1995 1996 1996 1996 1997
----------- ----------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net Loss............................... $(3,943,965) $(5,739,378) $(6,971,408) $ (17,965,252) $(3,133,582) $(3,477,673)
Adjustments to reconcile net loss to
net cash used by operating
activities:
Depreciation and amortization of
property, furniture and
equipment.......................... 356,009 543,796 690,419 1,631,486 324,270 300,109
Other amortization................... 7,055 6,707 8,699 25,565 1,206 66,206
Provision for equipment held for
resale............................. 16,821 -- -- 60,972 -- --
Stock issued for consulting
services........................... 2,000 -- 200 4,700 -- --
Stock issued to repay interest on
notes to stockholders.............. -- 194,521 -- 194,521 -- --
Debt issued for research and
development........................ -- -- 193,350 193,350 -- --
Loss on disposal of property and
equipment.......................... 16,686 -- -- 16,686 -- --
Decrease (increase) in assets:
Accounts receivable and loans to
employees.......................... (8,223) 7,430 (34,944) (35,737) (7,449) (9,021)
Prepaid expenses..................... 2,680 (3,574) (35,906) (45,470) (112) (266,283)
Other assets......................... (719) (16,260) 253 (68,651) 2,401 (12,091)
Increase (decrease) in liabilities:
Accounts payable..................... (351,554) (20,409) 136,829 254,845 45,605 82,328
Accrued expenses..................... 137,275 270,778 183,401 673,292 (111,906) (182,536)
----------- ----------- ----------- --------------- ----------- -----------
Net cash used by operating
activities......................... (3,765,935) (4,756,389) (5,829,107) (15,059,693) (2,879,567) (3,498,961)
----------- ----------- ----------- --------------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment..... (57,608) (97,467) (26,529) (430,469) (234,032) (101,809)
Equipment held for resale.............. 21,475 -- 6,943 (115,001) 6,943 --
Organizational costs................... -- -- -- (8,217) -- --
Patent costs........................... (20,474) (213,454) (116,454) (414,608) (76,418) (32,330)
----------- ----------- ----------- --------------- ----------- -----------
Net cash used in investing
activities......................... (56,607) (310,921) (136,040) (968,295) (303,507) (134,139)
----------- ----------- ----------- --------------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes
payable.............................. 3,600,000 2,716,718 92,282 6,409,000 71,782 1,000
Lease costs............................ -- -- -- (13,371) -- --
Proceeds from financing................ 265,650 -- -- -- -- --
Principal payments under capital lease
obligations.......................... (281,067) (432,958) (576,973) (1,297,589) (62,659) (256,342)
Proceeds from issuance of Common
Stock................................ 5,063 7,910 14,454 29,277 -- 2,314
Proceeds from issuance of Preferred
Stock................................ -- 3,869,167 5,250,001 11,119,168 3,244,664 12,776,613
Repurchase of Common Stock............. -- -- -- -- -- (302)
Stock issuance costs................... -- (26,721) (26,423) (86,957) -- (109,380)
----------- ----------- ----------- --------------- ----------- -----------
Net cash provided by financing
activities......................... 3,589,646 6,134,116 4,753,341 16,159,528 3,253,787 12,413,903
----------- ----------- ----------- --------------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents................... (232,896) 1,066,806 (1,211,806) 131,540 70,713 8,780,803
Cash and cash equivalents at beginning of
period................................. 509,436 276,540 1,343,346 -- 1,343,346 131,540
----------- ----------- ----------- --------------- ----------- -----------
Cash and cash equivalents at end of
period................................. $ 276,540 $ 1,343,346 $ 131,540 $ 131,540 $ 1,414,059 $ 8,912,343
----------- ----------- ----------- --------------- ----------- -----------
----------- ----------- ----------- --------------- ----------- -----------
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest............................. $ 154,097 $ 178,913 $ 154,228 $ 691,728 $ 85,623 $ 56,233
----------- ----------- ----------- --------------- ----------- -----------
----------- ----------- ----------- --------------- ----------- -----------
</TABLE>

Supplemental disclosures of noncash investing and financing activities are
described in Note 8.

See accompanying notes to financial statements.

F-6

<PAGE>
TRIMERIS, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Trimeris, Inc. was incorporated on January 7, 1993 to discover and develop
novel therapeutic agents that block viral infection by inhibiting viral fusion
with host cells. The financial statements have been prepared in accordance with
Statement of Financial Accounting Standards No. 7, "Accounting and Reporting by
Development Stage Enterprises," to recognize the fact that the Company is
devoting substantially all of its efforts to establishing a new business and
planned principal operations have not commenced.

CASH EQUIVALENTS

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

PROPERTY, FURNITURE AND EQUIPMENT

Property, furniture and equipment are recorded at cost. Property, furniture
and equipment under capital leases are initially recorded at the present value
of minimum lease payments at the inception of the lease.

Depreciation is calculated using the straight-line method over the
estimated useful lives of the assets. Property, furniture and equipment held
under capital leases and leasehold improvements are amortized using the straight
line method over the lesser of the lease term or estimated useful life of the
asset.

ORGANIZATION COSTS

Organization costs are amortized using the straight-line method over five
years.

EXCLUSIVE LICENSE

The exclusive license is amortized using the straight-line method over
seventeen years.

PATENTS

The costs of patents are capitalized and will be amortized using the
straight-line method over the remaining lives of the patents from the date the
patents are granted.

RESEARCH AND DEVELOPMENT

Research and development costs are charged to operations as incurred.

DEFERRED FINANCING COSTS

Financing costs were incurred as part of the Company's capital lease
agreements and are amortized straight-line over the lease term.

INCOME TAXES

The Company uses the asset and liability method of accounting for income
taxes.

USE OF ESTIMATES

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

F-7

<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)

Upon the completion of the Company's initial public offering (the
"Offering") of Common Stock (the "Common Stock"), all of the outstanding shares
of Series A, B, C, and D Preferred Stock (the "Preferred Stock") will convert
into 6,261,615 shares of Common Stock. The unaudited pro forma presentation of
stockholders' equity has been prepared giving effect to the conversion of all
the Preferred Stock into Common Stock on June 30, 1997.

PRO FORMA NET LOSS PER SHARE (UNAUDITED)

The pro forma net loss per share is computed based upon the weighted
average number of common shares and common equivalent shares (using the treasury
stock method) outstanding after certain adjustments described below. Common
equivalent shares are not included in the per share calculations where the
effect of their inclusion would be anti-dilutive, except that, in accordance
with Securities and Exchange Commission Staff Accounting Bulletin No. 83, all
common and common equivalent shares issued during the twelve-month period prior
to the initial filing of the registration statement relating to the Offering,
even when anti-dilutive, have been included in the calculation as if they were
outstanding for all periods, using the treasury stock method. The pro forma net
loss per common share gives effect to the mandatory conversion of all
outstanding shares of Preferred Stock into 6,261,615 shares of Common Stock upon
the completion of this Offering.

HISTORICAL NET LOSS PER COMMON SHARE

Net loss per common share on a historical basis is computed in the same
manner as pro forma net loss per common share, except that Series A, B, C and D
Preferred Stock are not assumed to be converted. Net loss per common share on a
historical basis is as follows:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------- --------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Net loss to common stockholders.......... $(3,943,965) $(5,739,378) $(6,971,408) $(3,133,582) $(3,477,673)
Net loss per common share................ $ (3.57) $ (5.06) $ (6.04) $ (2.77) $ (2.96)
Weighted average number of common and
common equivalent shares outstanding... 1,105,000 1,134,000 1,154,000 1,133,000 1,173,000
</TABLE>

Fully diluted net loss per common share is the same as primary net loss per
common share.

STOCK SPLIT

Effective July 11, 1997, the Company declared a one for eight and one-half
reverse stock split for common shareholders. This stock split has been
retroactively applied and all periods presented have been restated. The
conversion prices for the Preferred Stock discussed in Note 4 will be adjusted
for this reverse stock split.

F-8

<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

2. LEASES

The Company is obligated under various capital leases for furniture and
equipment that expire at various dates during the next four years. The gross
amount of furniture and equipment and related accumulated amortization recorded
under capital leases and included in property, furniture and equipment were as
follows at December 31, 1995, 1996 and June 30, 1997 (unaudited):

<TABLE>
<CAPTION>
JUNE 30,
1995 1996 1997
---------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Furniture and equipment......................... $1,790,110 $ 1,930,423 $ 1,980,665
Less accumulated amortization................... (780,082) (1,084,160) (1,347,996)
---------- ----------- -----------
$1,010,028 $ 846,263 $ 632,669
---------- ----------- -----------
---------- ----------- -----------
</TABLE>

The Company also has several non-cancelable operating leases, primarily for
office space and office equipment, that extend through September 1999. Rental
expense, including maintenance charges, for operating leases during 1994, 1995,
1996 and the six months ended June 30, 1996 (unaudited) and 1997 (unaudited) was
$454,307, $532,146, $552,001, $254,717 and $300,018 respectively.

Future minimum lease payments under non-cancelable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of December 31, 1996 are:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ----------
<S> <C> <C>
Year ending December 31:
1997........................................................... $552,675 $ 514,774
1998........................................................... 274,991 520,721
1999........................................................... 114,871 419,255
2000........................................................... 7,117 --
-------- ----------
Total minimum lease payments................................... 949,654 $1,454,750
----------
----------
Less amount representing interest.............................. 132,869
--------
Present value of net minimum capital lease payments............ 816,785
Less current installments of obligations under capital leases.... 500,248
--------
Obligations under capital leases, excluding current
installments................................................ $316,537
--------
--------
</TABLE>

Additionally, under a warrant agreement dated August 24, 1993 with a
lessor, the Company issued warrants to acquire Series B Preferred Stock at the
initial Series B Preferred Stock per share offering price, such that the
aggregate purchase price for the shares equals $118,756. The warrants shall be
exercisable prior to the earlier of the tenth annual anniversary date of the
grant date or fifth anniversary date of Trimeris' Initial Public Offering. The
shares have not been issued as of December 31, 1996.

During the year ended December 31, 1995, the lease with the aforementioned
lessor was amended to increase the credit limit by $750,000 to $2.0 million. As
part of this amendment, Trimeris granted the lessor additional warrants to
purchase shares valued at $71,250 of Series B Preferred Stock at the initial per
share offering price.

3. NOTES PAYABLE

In March 1995, the Company entered into a Financial Assistance Agreement
with the North Carolina Biotechnology Center (the "Center"). Under this
agreement, the Center agreed to extend to the Company a line of credit up

F-9

<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

3. NOTES PAYABLE -- Continued
to $250,000 for the funding of certain research performed by the Company. This
note payable is unsecured and bears interest at 8.5% on the balance of all
outstanding principal. The note matures in March 2000, at which time principal
and accrued interest is to be repaid. At December 31, 1995, 1996 and June 30,
1997 (unaudited), the total principal and interest due were $162,218, $262,600
and $284,000, respectively.

In November 1995, the Company entered into a Collaborative Funding
Assistance Agreement with the Center. Under this agreement, the Center agreed to
lend the Company up to $10,000 for the funding of certain research performed by
the Company. This note payable is unsecured and bears interest at 8.75% on the
balance of all outstanding principal. The note matures in December 2000, at
which time principal and accrued interest is to be repaid. At December 31, 1995,
1996 and June 30, 1997 (unaudited), the total principal due was $4,500, $9,000
and $10,000, respectively.

4. STOCKHOLDERS' EQUITY (DEFICIT)

The Company has the authority to issue 121,750,000 shares of stock
consisting of 69,750,000 shares of Common Stock, par value $0.001 per share, and
52,000,000 shares of Preferred Stock, par value $0.001 per share, of which
3,000,000 shares shall be designated Series A Preferred Stock, 29,000,000 shares
shall be designated Series B Preferred Stock, and 20,000,000 shares shall be
designated Series C Preferred Stock.

During 1996 and the six months ended June 30, 1997 (unaudited), loans with
an interest rate of 8% totaling $14,000 and $249,540, respectively, were issued
to employees of the Company for purchase of shares of the Company's Common
Stock. This amount has been presented as contra-equity in the statement of
stockholders' equity (deficit).

PREFERRED STOCK

DIVIDENDS

Holders of the Preferred Stock are not entitled to receive dividends,
provided however, that in the event the Company shall at any time declare or pay
a dividend on the Common Stock, other than a stock dividend, each holder of
Preferred Stock shall receive a dividend equal to the dividend that would have
been payable to such holder if the Preferred Stock had been converted into
Common Stock on the date of record for holders of the Common Stock.

In the event of a merger or consolidation, holders of Preferred Stock will
have the right to redeem the shares within 15 days of receipt of such notice.
Any redeemed shares will be considered permanently retired.

LIQUIDATION

Upon any liquidation, dissolution, or winding up of the Company, holders of
the Preferred Stock shall be entitled, before any distribution is made upon the
Common Stock, to be paid for each share in cash an amount equal to (i) $0.67 per
share in the case of the Series A Preferred Stock, (ii) $0.50 per share in the
case of the Series B Preferred Stock or (iii) $0.60 per share in the case of
Series C Preferred Stock in addition to other considerations. If the assets to
be distributed are insufficient to permit full payment to the preferred
stockholders, then the assets of the Company shall be distributed on a pro rata
basis to each class of preferred stockholders. The value of any noncash
distribution shall be determined by an independent appraiser or securities
exchange if the item is an actively traded security.

F-10

<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

4. STOCKHOLDERS' EQUITY (DEFICIT) -- Continued
CONVERSION

Holders of Preferred Stock have the right, at any time, to convert into
such number of shares of common stock as is obtained by multiplying the number
of shares to be converted by the preferred stock's "Basic Liquidation
Preference" ($0.67 for Series A Preferred Stock, $0.50 for Series B Preferred
Stock $0.60 for Series C Preferred Stock and $0.75 for Series D Preferred Stock)
and dividing such amount by the Preferred Stock's conversion price in effect at
the time of conversion.

The respective preferred stock conversion prices are as follows as of
December 31:

<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Series A.............................. $0.670 $0.534 $0.524
Series B.............................. -- 0.500 0.500
Series C.............................. -- -- 0.600
</TABLE>

The Preferred Stock conversion price will be reduced in the event of the
Company's issuing any shares of its Common Stock without consideration or for a
consideration per share of less than the conversion price of any series of
Preferred Stock in effect immediately prior to the time of such issue or sale,
subject to certain limitations.

The Company shall at times reserve and keep available out of its authorized
Common Stock or treasury shares, such number of common shares sufficient to
cover the conversion of all outstanding Preferred Stock.

The Company may at its option, require the conversion of all (but not less
than all) the shares at the time outstanding if the Company shall complete a
firm commitment underwritten public offering involving the sale of the Company's
Common Stock (i) at a price to the public of at least $10 per share
appropriately adjusted for stock splits and dividends and stock combinations,
and (ii) yielding gross proceeds to the Company of at least $20 million.

VOTING

Each holder of Preferred Stock shall be entitled to one vote for each share
of Common Stock which would be issuable to holder upon conversion. Each holder
of Common Stock is entitled to one vote per share. Preferred and common
stockholders shall vote together as a class.

RESTRICTIONS

The Company cannot, without the consent of the preferred stockholders: (i)
authorize any new classes of stock unless that class ranks junior to the
Preferred Stock, (ii) increase the authorized amount of Preferred Stock, or
(iii) authorize any obligation or security which is convertible into Preferred
Stock.

COMMON STOCK

DIVIDENDS

The holders of Common Stock shall be entitled to receive dividends as from
time to time may be declared by the Board of Directors taking into account the
rights of the preferred stockholders.

LIQUIDATION

After payment to the preferred stockholders as discussed above, holders of
Common Stock shall be entitled, together with the holders of Preferred Stock, to
share ratably, according to the number of shares held by them in all remaining
assets of the Company available for distribution.

F-11

<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

5. STOCK OPTION PLAN

In 1993, the Company adopted a stock option plan which allows for the
issuance of non-qualified and incentive stock options. During 1996, the
Trimeris, Inc. New Stock Option Plan (the "Stock Option Plan") was implemented
that replaced the 1993 plan. Under this new Stock Option Plan, the Company may
grant non-qualified or incentive stock options for up to 852,941 shares of
Common Stock. The exercise price of each option shall not be less than the fair
market value of the Company's Common Stock on the date of grant and an option's
maximum term is ten years. All outstanding incentive stock options have been
issued at $.34. The vesting period occurs ratably over four years. All incentive
stock options which had been granted under the 1993 plan were cancelled at
inception of the new Stock Option Plan while the non-qualified stock options
remain outstanding at an exercise price of $.43. No more grants will be made
under the 1993 plan.

Stock option transactions for the years ended December 31, 1994, 1995 and
1996 and the six months ended June 30, 1997 (unaudited) are as follows:

<TABLE>
<CAPTION>
JUNE 30,
1994 1995 1996 1997
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
(UNAUDITED)
Options outstanding at January 1.............................. 27,276 141,411 166,191 482,804
Granted....................................................... 114,341 37,753 572,206 100,782
Exercised (at $.43/share)..................................... (147) (4,755) (28,394) (319,540)
Cancelled..................................................... (59) (8,218) (227,199) (3,685)
--------- --------- ---------- ----------
Options outstanding at end of period.......................... 141,411 166,191 482,804 260,361
--------- --------- ---------- ----------
--------- --------- ---------- ----------
</TABLE>

The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plans. Accordingly, compensation cost related to stock
options issued to employees would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. For
the period ended June 30, the Company has recorded a deferred charge of $2.0
million, representing the difference between the exercise price and the deemed
fair value of the Company's Common Stock for 347,529 shares of Common Stock and
79,959 shares subject to Common Stock Options granted in the second quarter of
1997. The deferred compensation will be amortized to expense over the period the
shares and options vest, generally four years.

SFAS 123, Accounting for Stock-Based Compensation, permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to
continue to apply the provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma earnings per share disclosures for employee stock option
grants as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25. The pro forma disclosures have not been included as the fair
value of the options granted in 1996 and 1995 are immaterial. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions:

<TABLE>
<S> <C>
Estimated dividend yield......................................... 0.00%
Expected stock price volatility.................................. 0.00%
Risk-free interest rate.......................................... 5.07-6.00%
Expected life of options......................................... 5-7 years
</TABLE>

6. INCOME TAXES

At December 31, 1996, the Company has net operating loss carryforwards
(NOL's) for federal income tax purposes of approximately $17.4 million which
expire in varying amounts between 2009 and 2012. The Company

F-12

<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

6. INCOME TAXES -- Continued
has NOL's for state tax purposes of approximately $17.4 million which expire in
varying amounts between 1999 and 2002. Additionally, the Company has research
and development credits of $261,000 which expire in varying amounts between 2008
and 2011.

The Tax Reform Act of 1986 contains provisions which limit the ability to
utilize net operating loss carryforwards in the case of certain events including
significant changes in ownership interests. If the Company's NOL's are limited,
and the Company has taxable income which exceeds the permissible yearly NOL, the
Company would incur a federal income tax liability even though NOL's would be
available in future years.

The components of deferred tax assets and deferred tax liabilities as of
December 31, 1995 and 1996 and June 30, 1997 (unaudited) are as follows:

<TABLE>
<CAPTION>
JUNE 30,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Deferred tax assets:
Tax loss carryforwards............................................... $ 4,100,000 $ 6,823,000 $ 8,165,000
Tax credits.......................................................... 158,000 261,000 297,000
Reserves and accruals................................................ 76,000 211,000 56,000
Start-up costs....................................................... 114,000 109,000 57,000
----------- ----------- -----------
4,448,000 7,404,000 8,575,000
Valuation allowance.................................................... (4,448,000) (7,404,000) (8,575,000)
----------- ----------- -----------
Net deferred asset................................................... -- -- --

Deferred tax liabilities:
Deferred tax liability............................................... -- -- --
----------- ----------- -----------
Net deferred tax assets and (liability)........................... $ -- $ -- $ --
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

The Company has established a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets.

7. PROFIT SHARING PLAN

The Company has adopted a 401(k) Profit Sharing Plan (the "Plan") covering
all qualified employees. The effective date of the Plan is January 1, 1994.

Participants may elect a salary reduction from 1% to 10% as a contribution
to the Plan. Modifications of the salary reductions may be made annually. The
Plan permits the Company to match up to 8% of a participant's salary, but to
date, the Company has elected not to match participants' contributions.

The normal retirement age shall be the later of a participant's 65th
birthday or the fifth anniversary of the first day of the Plan year in which
participation commenced. The Plan does not have an early retirement provision.

8. SUPPLEMENTARY CASH FLOW INFORMATION

Capital lease obligations of $345,104, $330,168 and $195,179 were incurred
in 1995 and 1996 and for the six months ended June 30, 1997 (unaudited),
respectively, for leases of new furniture and equipment.

During 1995, the Company exchanged notes payable to stockholders, including
accrued interest of $6.4 million for Series B Preferred Stock.

F-13

<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

8. SUPPLEMENTARY CASH FLOW INFORMATION -- Continued
Shares issued under the license and consulting agreements have been valued
by the Board of Directors taking into consideration the fair value of the most
recently issued preferred stock or the value of the services, whichever is more
readily determinable.

9. EQUITY FINANCING

An initial investment of $2 million was provided by Domain Partners II,
L.P. ("Domain") and Biotechnology Investments Limited ("BIL") to fund the start
up phase of the Company.

During the year ended December 31, 1995, Domain, BIL and others invested an
additional $3.9 million to fund continued operations of the Company through the
purchase of shares of Series B Preferred Stock. In addition, the Company
exchanged notes payable, including accrued interest, of $6.4 million for shares
of Series B Preferred Stock. These notes were payable to Domain and BIL and were
entered into during the years ended December 31, 1994 and 1995. A total of
20,635,564 shares were issued for a total consideration of $10.3 million.

In March and October 1996, Domain, BIL, and others invested an additional
$5.3 million to fund continued operations of the Company through the purchase of
6,500,000 shares of Series B Preferred Stock and 3,333,335 shares of Series C
Preferred Stock, respectively.

Common stock was issued during 1994, 1995, and 1996 through purchase by
Company personnel and also through the exercise of stock options.

10. CONTINGENCIES

The Company is involved in certain claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
financial position or results of operations of the Company.

11. SUBSEQUENT EVENTS

(a) During the six months ended June 30, 1997 equity financing of
approximately $12.8 million has been received from current and new
investors.

(b) The Company's Certificate of Incorporation was amended on July 11,
1997, giving the Company the authority to issue 142,666,667 shares of
stock consisting of 80,000,000 shares of Common Stock, par value $.001
per share, and 62,666,667 shares of Preferred Stock, par value $0.001
per share, of which 3,000,000 shares shall be designated Series A
Preferred Stock, 29,000,000 shares shall be designated Series B
Preferred Stock, 20,000,000 shares shall be designated Series C
Preferred Stock, and 10,666,667 shares shall be designated Series D
Preferred Stock.

(c) During 1997, the Company entered into agreements for the production of
drug material which require maximum payments of approximately $2.3
million, subject to acceptance of the material under the terms of the
contracts.

(d) On August 26, 1997, the Board of Directors adopted, and the
stockholders of the Company approved, the Trimeris, Inc. 1997 Employee
Stock Purchase Plan, subject to and contingent upon the consummation of
the Offering.

(e) On September 30, 1997, the Board of Directors adopted, and the
stockholders of the Company approved, the Trimeris, Inc. Amended and
Restated Stock Incentive Plan, subject to and contingent upon the
consummation of the Offering.

F-14

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

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS
PROSPECTUS OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
SUCH DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary............................... 3
Risk Factors..................................... 6
Use of Proceeds.................................. 19
Dividend Policy.................................. 19
Capitalization................................... 20
Dilution......................................... 21
Selected Financial Data.......................... 22
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 23
Business......................................... 26
Management....................................... 45
Certain Transactions............................. 54
Principal Stockholders........................... 56
Description of Capital Stock..................... 58
Shares Eligible for Future Sale.................. 60
Underwriting..................................... 62
Legal Matters.................................... 64
Experts.......................................... 64
Additional Information........................... 64
Index to Financial Statements.................... F-1
</TABLE>

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

UNTIL NOVEMBER 1, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

2,750,000 Shares

(logo)

Trimeris, Inc.

Common Stock

----------------------------
PROSPECTUS
OCTOBER 7, 1997
----------------------------

UBS Securities

NationsBanc
Montgomery
Securities, Inc.
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------