RIBOGENE INC / CA/, S-1/A, 1997-12-12

RIBOGENE INC / CA/
S-1/A, 1997-12-12
COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 12, 1997

REGISTRATION NO. 333-38781
================================================================================

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

AMENDMENT NO. 2

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

RIBOGENE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
CALIFORNIA 8731 94-309514
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION
INCORPORATION OR NUMBER)
ORGANIZATION)
</TABLE>

26118 RESEARCH ROAD
HAYWARD, CA 94545
(510) 732-5551
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

CHARLES J. CASAMENTO
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
26118 RESEARCH ROAD
HAYWARD, CA 94545
(510) 732-5551
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:

ALAN C. MENDELSON, ESQ.
ROBERT J. BRIGHAM, ESQ.
COOLEY GODWARD LLP
FIVE PALO ALTO SQUARE
3000 EL CAMINO REAL
PALO ALTO, CA 94306-2155
(415) 843-5000
RODD M. SCHREIBER, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 WEST WACKER DRIVE
SUITE 2100
CHICAGO, IL 60606
(312) 407-0700

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

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

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

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

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
NUMBER OF OFFERING PRICE AGGREGATE AMOUNT OF
TITLE OF SECURITIES SHARES TO BE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) FEE(3)
- ------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value.... 2,645,000 shares $12.00 $31,740,000 $9,619
</TABLE>

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

(1) Includes 345,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.

(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(a) under the Securities Act of
1933.

(3) Previously paid.

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

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

PROSPECTUS SUBJECT TO COMPLETION, DATED DECEMBER 12, 1997

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

2,300,000 SHARES

RIBOGENE LOGO

Common Stock

All of the 2,300,000 shares of Common Stock offered hereby are being issued
and sold by RiboGene, Inc., a Delaware corporation ("RiboGene" or the
"Company"). Prior to this offering (the "Offering"), there has been no public
market for the Common Stock of the Company. It is currently estimated that the
initial public offering price will be between $10.00 and $12.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Company has applied for listing of its
Common Stock on the Nasdaq National Market under the symbol "RIBO."

Abbott Laboratories ("Abbott"), the Company's corporate partner for its
antifungal program, has expressed its intention to purchase $4.0 million of
Common Stock in the Offering at the initial public offering price. See
"Business -- Collaborative and Licensing Agreements" and "Underwriting."
---------------------------------

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

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

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

<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
UNDERWRITING
PRICE DISCOUNTS PROCEEDS TO
TO PUBLIC AND COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------
Per Share $ $ $
- -------------------------------------------------------------------------------------------------
Total(3) $ $ $
</TABLE>

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

(1) Excludes the issuance of warrants to the Representatives of the Underwriters
(the "Representatives") to purchase an aggregate of 230,000 shares of Common
Stock, exercisable at any time following the first anniversary of the date
of this Prospectus, each warrant having an exercise price equal to 125% of
the initial public offering price of the Common Stock and expiring five
years from the date of this Prospectus. Holders of such warrants have been
granted certain registration rights under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the securities issuable upon
exercise of such warrants. The Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act. See "Underwriting."

(2) Before deducting expenses of the Offering payable by the Company, estimated
at $750,000.

(3) The Company has granted to the Underwriters a 45-day option to purchase up
to an additional 345,000 shares of Common Stock, on the same terms and
conditions set forth above, solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will total $ ,
$ and $ , respectively. 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 certain other
conditions. It is expected that delivery of such shares of Common Stock will be
made by EVEREN Clearing Corp. through the facilities of the Depository Trust
Company, New York, New York on or about , 1998.

EVEREN SECURITIES, INC.
GRUNTAL & CO., L.L.C.
CRUTTENDEN ROTH
INCORPORATED

, 1998

<PAGE> 3

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE
COVERING TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."

2
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and Financial Statements and Notes thereto appearing elsewhere in
this Prospectus, including information under "Risk Factors." This Prospectus
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results could differ materially from those described in these
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors" and elsewhere in this Prospectus.

THE COMPANY

RiboGene is a drug discovery company focused on the identification of novel
leads and the development of potential drug candidates for the treatment of
infectious diseases. The Company's drug discovery efforts target bacterial,
fungal and viral infections, for which the efficacy of existing therapies is
being threatened by the emergence of drug resistance or for which existing
therapies have had limited effectiveness. The Company's drug discovery
technology is based on the translational control of gene expression. Translation
is the process used by cells to make proteins and is an essential cellular
process for all living organisms, including infectious pathogens. The Company is
using its platform technology to discover compounds that inhibit or interfere
with pathogen specific translation mechanisms ("PSTMs"). RiboGene's extensive
knowledge of translation allows the Company to identify components of the
translation process unique to a particular pathogen and essential to its
existence. The Company believes that targeting PSTMs may lead to the discovery
of drugs that are effective against either drug-resistant pathogens or pathogens
for which current therapies are not effective. In addition, the Company believes
that any such drugs discovered using its PSTM approach may have little or no
harmful effect on humans.

Infectious diseases have increased significantly during the past 20 years
and are now the third most common cause of death in the United States. Worldwide
sales of antiinfective drugs were approximately $33.0 billion in 1996 and
constituted the second largest pharmaceutical sales category. The antibacterial,
antifungal and antiviral markets are estimated to be approximately $26.0
billion, $4.0 billion and $3.0 billion, respectively, based on 1996 sales. There
are currently three antibacterial drugs that each generate in excess of $1.0
billion in worldwide sales annually and one antifungal drug that generates
nearly $1.0 billion. Of the 100 best selling brand name drugs worldwide, 20 are
antiinfectives addressing bacterial, fungal and viral infections. The clinical
efficacy of many bacterial and fungal antiinfectives is being threatened by
emerging strains of drug-resistant pathogens. In the antiviral area, there are
only a limited number of effective therapeutics currently marketed.

The Company believes that its target-based approach is different from, and
provides advantages over, traditional drug discovery techniques. Antiinfective
drug discovery has historically used a limited number of biological targets
which has restricted the ability to discover new drugs effective against drug
resistant pathogens. RiboGene's PSTMs represent a new class of targets for drug
discovery. By focusing discovery efforts on drugs which are effective inhibitors
of PSTMs, the Company believes that it may be possible to discover drug
candidates for which pathogens have not already developed resistance. In
addition, such compounds may in certain applications have better safety and
efficacy profiles than existing therapies, or may provide a therapy where no
other therapy currently exists. The Company's scientists and Scientific Advisory
Board use their knowledge and expertise in the field of translation to identify
unique targets specific to pathogens and to design and implement assays in order
to identify selective compounds which demonstrate activity at the pathogen
specific translation targets. By developing assays to discover compounds with
identified mechanisms of action against desired targets, the Company believes
that the compounds which demonstrate activity at these targets will be better
characterized and more likely to result in lead candidates for optimization and
further development.

3
<PAGE> 5

additional targets that are in the assay development phase. In its antifungal
program, which the Company conducts in collaboration with Abbott Laboratories
("Abbott"), there are two targets, EF3 and GCN4, that are at the lead
optimization phase and several others that are in various phases of development.
In its antiviral program, which is currently focused exclusively on the
hepatitis C virus ("HCV"), the Company has one target, HCV IRES, in the lead
discovery phase and one target, HCV NS5A/PKR, in the assay development phase.

In order to accelerate the discovery, development and commercialization of
antiinfective drugs, the Company seeks to enter into collaborations with major
pharmaceutical companies and, additionally, into research and licensing
agreements with biotechnology companies, combinatorial chemistry companies and
universities. These relationships are intended to provide the Company with
funding, research and development support, access to additional compound
libraries and targets, as well as to provide the Company with preclinical and
clinical trial, manufacturing and marketing capabilities. The Company has
entered into a collaboration with Abbott for its antifungal program (the "Abbott
Collaboration"). As part of the Abbott Collaboration, Abbott has agreed to
provide the Company with $5.0 million in research support payments and fund
additional research and development at Abbott, including lead optimization. The
Company will also be entitled to receive milestone payments upon the achievement
of mostly late-stage regulatory milestones in the amount of up to $9.0 million
for each product developed through the collaboration. In connection with the
Abbott Collaboration, Abbott made a $3.5 million equity investment in the
Company. Abbott also agreed to purchase an additional $4.0 million of Common
Stock in a private placement. Abbott has expressed its intention to fulfill this
obligation by purchasing $4.0 million of Common Stock in the Offering at the
initial public offering price. The Company has also entered into agreements with
ArQule, Inc., Pharmacopeia, Inc. and Trega Biosciences, Inc. to provide the
Company with access to additional compound libraries for its drug discovery
programs and with the University of Washington to acquire the rights to the HCV
NS5A/PKR target for its antiviral program.

STATUS OF RIBOGENE DRUG DISCOVERY PROGRAMS

LOGO

The Company was incorporated in California in May 1989 as TransGene, Inc.
and changed its name to RiboGene, Inc. in May 1990. The Company intends to
reincorporate in Delaware prior to or concurrently with the closing of the
Offering. The principal executive offices of the Company are located at 26118
Research Road, Hayward, California 94545 and its telephone number is (510)
732-5551.

4
<PAGE> 6

RISK FACTORS

RiboGene is a development stage company that has experienced operating
losses every year since its inception. At September 30, 1997, the Company had an
accumulated deficit of approximately $33.5 million. To date the Company has not
selected any compounds for further development, has not initiated any
preclinical or clinical studies with any compounds and has not developed or
commercialized any products that have generated revenues. Relatively few
products based on genetic discoveries, and no drugs discovered using a
translation-based discovery approach, have been developed and commercialized by
others to date. The Company's PSTM technology is still in early stages and will
require significant further research, development and preclinical and clinical
testing in order to validate translation generally, and PSTM targets
specifically, as an effective method to discover new antiinfectives. An
investment in the shares of Common Stock offered hereby involves a high degree
of risk. In addition to the other information contained in this Prospectus, the
discussion of risk factors on pages 8 to 19 of this Prospectus should be
considered carefully in evaluating an investment in the Common Stock. See "Risk
Factors -- History of Losses; Uncertainty of Future Profitability; Going Concern
Explanatory Paragraph in Auditors Report," "Early Stage of Development;
Uncertainty of Product Development" and "Dependence on a Single Technological
Approach."

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered...................... 2,300,000 shares
Common Stock to be outstanding after the
Offering................................ 6,851,080 shares(1)(2)
Use of proceeds........................... Expansion of chemistry capabilities, expansion
and advancement of drug discovery programs,
facility relocation, repayment of a portion of a
secured note and related obligations and working
capital and general corporate purposes. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol.... RIBO
</TABLE>

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

(1) Based upon shares outstanding at September 30, 1997. Includes an aggregate
of 4,196,682 shares of Common Stock (assuming an initial public offering
price of $11.00 per share) issuable upon the automatic conversion of all
outstanding shares of the Company's Series A through Series F Preferred
Stock concurrently with the closing of the Offering. The number of shares of
Common Stock to be issued upon conversion of the Company's Series F
Preferred Stock will depend upon the initial public offering price. See
"Certain Transactions" and "Description of Capital Stock."

(2) Excludes: (i) an aggregate of 650,491 shares of Common Stock reserved for
issuance under the Company's stock plans upon exercise of options
outstanding as of September 30, 1997, at a weighted average exercise price
of $1.02 per share; (ii) an aggregate of 2,011,937 shares of Common Stock
reserved for future grants or purchases under the Company's equity incentive
plans; (iii) 574,983 shares of Common Stock reserved for issuance upon
exercise of the warrants (the "Class A Warrants") issued in connection with
the private placement of the Series F Preferred Stock (the "Series F Private
Placement"), with an exercise price equal to the lesser of (a) the initial
public offering price and (b) $8.93 per share; (iv) 451,530 shares of Common
Stock reserved for issuance upon the exercise of warrants (other than Class
A Warrants) outstanding as of September 30, 1997, at a weighted average
exercise price of $9.57 per share; (v) 574,996 shares of Common Stock
reserved for issuance upon exercise of options (the "Placement Agent Unit
Options") to purchase 570,665 units (the "Placement Agent Units") at an
exercise price of $1.24 per unit, issued to the placement agent in
connection with the Series F Private Placement and a financial advisory
agreement, each Placement Agent Unit consisting of two shares of Series F
Preferred Stock and one Class A Warrant (the "Placement Agent Class A
Warrants"); (vi) 143,746 shares of Common Stock reserved for issuance upon
the exercise of the Placement Agent Class A Warrants; and (vii) an aggregate
of 230,000 shares of Common Stock reserved for issuance upon the exercise of
warrants issued to the Representatives, at an exercise price equal to 125%
of the initial public offering price of the Common Stock (the
"Representatives' Warrants"). The

5
<PAGE> 7

number of shares of Common Stock to be issued upon conversion of the Series
F Preferred Stock and exercise of the Placement Agent Unit Options and the
exercise price of the Placement Agent Unit Options will depend upon the
initial public offering price. See "Management -- Stock and Related Employee
Benefit Plans," "Certain Transactions," "Description of Capital Stock" and
"Underwriting."

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

Except as otherwise noted, all information in this Prospectus, including
financial information, share and per share data: (i) assumes no exercise of the
Underwriters' over-allotment option; (ii) reflects a 1-for-3.97 reverse split of
the Company's Common Stock to be effected prior to or concurrently with the
closing of the Offering; (iii) reflects reincorporation of the Company in
Delaware prior to or concurrently with the closing of the Offering; and (iv)
assumes the conversion of all outstanding shares of the Company's Series A
through Series F Preferred Stock into an aggregate of 4,196,682 shares of Common
Stock, assuming an initial public offering price of $11.00 per share, which will
occur concurrently with the closing of the Offering. The number of shares of
Common Stock to be issued upon conversion of the Series F Preferred Stock and
upon the exercise of the Placement Agent Unit Options will depend upon the
initial public offering price. See "Certain Transactions" and "Description of
Capital Stock."

6
<PAGE> 8

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

<TABLE>
<CAPTION>
NINE MONTHS PERIOD FROM
ENDED INCEPTION
YEAR ENDED DECEMBER 31, SEPTEMBER 30, (MAY 5, 1989)
---------------------------- ----------------- TO SEPTEMBER 30,
1994 1995 1996 1996 1997 1997
-------- ------- ------- ------- ------- --------------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................. $ 238 $ 407 $ 2,087 $ 1,439 $ 2,275 $ 5,007
-------- ------- ------- ------- ------- --------
Operating expenses:
Research and development..... 4,209 4,663 4,077 3,089 3,024 21,592
General and administrative... 2,424 2,758 1,372 992 1,136 11,224
Restructuring costs.......... -- -- 219 219 -- 219
Acquired in-process research
and development........... 5,000 -- -- -- -- 5,000
-------- ------- ------- ------- ------- --------
Total operating
expenses................ 11,633 7,421 5,668 4,300 4,160 38,035
-------- ------- ------- ------- ------- --------
Loss from operations........... (11,395) (7,014) (3,581) (2,861) (1,885) (33,028)
Interest expense, net.......... (42) (240) (282) (251) (27) (468)
-------- ------- ------- ------- ------- --------
Net loss....................... $(11,437) $(7,254) $(3,863) $(3,112) $(1,912) $(33,496)
======== ======= ======= ======= ======= ========
Historical net loss per
share(1)..................... $ (1.65) $ (0.79)
======= =======
Shares used in computing
historical net loss per
share(1)..................... 2,341 2,434
======= =======
Pro forma net loss per
share(1)..................... $ (0.75) $ (0.35)
======= =======
Shares used in computing pro
forma net loss per
share(1)..................... 5,166 5,480
======= =======
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------
DECEMBER 31, 1996 ACTUAL AS ADJUSTED(2)
----------------- -------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments..................................... $ 1,981 $ 2,461 $ 23,640
Working capital (deficit)......................... (954) 216 21,625
Total assets...................................... 2,657 3,273 24,452
Deficit accumulated during development stage...... (31,584) (33,496) (33,496)
Total stockholders' equity (deficit).............. (1,956) 253 23,032
</TABLE>

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

(1) See Note 1 of Notes to Financial Statements for information concerning the
computation of pro forma net loss per share.

(2) As adjusted to reflect the sale of the 2,300,000 shares of Common Stock
offered hereby (after deducting estimated underwriting discounts and
commissions and estimated expenses of the Offering) at an assumed initial
public offering price of $11.00 per share and the receipt and application of
the estimated net proceeds therefrom, including $1.1 million to repay
certain secured indebtedness and to satisfy the Company's obligations under
related agreements and a $500,000 principal payment pursuant to the
promissory note evidencing such secured indebtedness, which is due in
January 1998. See "Use of Proceeds" and "Capitalization."

7
<PAGE> 9

RISK FACTORS

IN ADDITION TO OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING FACTORS
SHOULD BE CONSIDERED CAREFULLY BY POTENTIAL INVESTORS IN EVALUATING AN
INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY. 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 SUCH DIFFERENCES
INCLUDE THOSE DISCUSSED BELOW.

HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY; GOING CONCERN
EXPLANATORY PARAGRAPH IN AUDITORS REPORT. The Company is a development stage
company that has experienced operating losses every year since its inception. At
September 30, 1997, the Company had an accumulated deficit of approximately
$33.5 million. The Company expects to continue to incur substantial and
increasing operating losses for at least the next several years as it expands
its research and development activities. The report of the Company's independent
auditors for the year-ended December 31, 1996 includes an explanatory paragraph
that describes the conditions that raise substantial doubt as to the Company's
ability to continue as a going concern.

Neither the Company nor its collaborative partner has developed products
that have generated any revenues to the Company or entered clinical trials with
any potential products developed with the Company that may lead to revenues to
the Company, if successful. To date, substantially all of the Company's revenues
have resulted from payments under the research agreement and license agreement
(the "Abbott Agreements") with Abbott Laboratories ("Abbott") and grants from a
governmental agency. Payments from collaborators, payments under governmental
grants and investment income are expected to be the only sources of revenue for
the foreseeable future. The Company has not generated any revenues from the
achievement of milestones under the Abbott Agreements. Royalties or other
revenues from commercial sales of products, if any, are not expected for a
significant number of years, if ever. To achieve profitable operations, the
Company, alone or with others, must successfully discover and identify drug
candidates suitable for testing in humans and use these discoveries to develop
products, conduct preclinical studies and clinical trials, obtain required
regulatory approvals and successfully manufacture, introduce and market such
products. There can be no assurance that any of these requirements to achieve
profitability will be met.

The aggregate amount of future net losses and the time required by the
Company to reach or sustain profitability are highly uncertain. There can be no
assurance that the Company will ever be able to generate product revenue or
achieve profitability on a sustained basis or at all. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

EARLY STAGE OF DEVELOPMENT; UNCERTAINTY OF PRODUCT DEVELOPMENT. RiboGene is
at an early stage of development and does not expect that any drugs resulting
from its research and development efforts will be commercially available for a
significant number of years, if at all. Although the Company was organized in
1989, the Company only began in January 1993 to focus its research and
development efforts on the identification of novel leads for antiinfective
drugs, initially focused on the identification of antifungal and antiviral
drugs. The Company's research efforts were expanded in 1996 to include the
identification of novel leads for antibacterial drugs. To date, the Company has
conducted only limited research and development activities and has not completed
the selection of any lead compounds for drug development. None of the Company's
potential lead compounds has advanced to the stage of preclinical or clinical
trials. The Company's leads for potential drug candidates will be subject to the
risks and failures inherent in the development of pharmaceutical products based
on new technologies. These risks include, but are not limited to, unanticipated
problems relating to product development, testing, regulatory compliance,
manufacturing, marketing and competition, and additional costs and expenses that
may exceed current estimates. Products, if any, resulting from the Company's
research and development programs will require significant additional research
and development efforts, and extensive preclinical studies and clinical trials
will be required prior to submission of any regulatory application for
commercial use. There can be no assurance that the Company, or its current or
any future collaborative partners, will be permitted to undertake clinical
trials of any potential products, if developed, that sufficient numbers of
patients can be enrolled for such trials or that such clinical trials will
demonstrate that the products tested are safe and efficacious. Any or all of the
Company's proposed products

8
<PAGE> 10

may prove to have undesirable and unintended side effects or other
characteristics that may limit or prevent their commercial use.

Even if clinical trials are successful, there can be no assurance that the
Company or any collaborative partner will obtain regulatory approval for any
product, that any approved product can be produced and distributed in commercial
quantities at reasonable costs or gain acceptance for use by physicians and
other health care providers, or that any potential products will be marketed
successfully at prices that would permit the Company to operate profitably. The
failure of any of these events to occur would have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- The RiboGene Approach," "-- The RiboGene Programs" and
"-- Government Regulation."

DEPENDENCE ON A SINGLE TECHNOLOGICAL APPROACH. The Company's research and
development efforts are based solely on its pathogen specific translation
mechanism ("PSTM") targeted approach. The Company began to focus its research
and development efforts on its PSTM approach to drug discovery in 1993. In March
1996, the Company restructured its operations to focus all efforts on the PSTM
approach. To date, the Company has not developed or commercialized any product
or product candidates. While the Company has demonstrated that certain compounds
have the ability to inhibit the activity of certain of the Company's PSTM
targets, the Company has not proven that this activity can be utilized
clinically as a therapeutic. There can be no assurance that the inhibitory
activity demonstrated in existing screening will continue to be shown in further
screening or drug discovery studies. There can be no assurance that the
Company's technology platform will enable it to discover compounds that will
lead to the development of drugs relevant to the treatment of infectious
diseases. There is limited scientific understanding relating to the role of
genes or translation in diseases. Relatively few products based on genetic
discoveries and no drugs discovered using a translation-based discovery approach
have been developed and commercialized to date. The Company's PSTM technology is
still in early stages and will require significant further research, development
and testing in order to validate translation generally, or PSTM targets
specifically, as an effective method to discover new antiinfectives. In the
event that the Company's PSTM approach is unsuccessful, the Company will be
required to identify and license or acquire alternative technologies or
compounds in order to develop leads or product candidates. To date, the Company
has not identified, licensed or acquired alternative technologies or compounds
that would allow it to develop leads or product candidates, and there can be no
assurance that the Company would be able to do so in the future. Even if the
Company is successful in identifying and developing lead compounds associated
with specific diseases, there can be no assurance that the Company will be
successful in marketing its discoveries to biopharmaceutical companies for use
in the development of therapeutic products or that any such resulting products
will receive regulatory approval or be manufactured or marketed successfully or
that the Company will not be precluded from commercialization of drug
discoveries by proprietary rights of third parties. See "-- Dependence on
Patents and Proprietary Rights," "-- Need for Chemistry Capabilities" and
"Business -- Collaborative and Research Agreements."

NEED FOR ADDITIONAL CAPITAL; UNCERTAINTY OF ADDITIONAL FUNDING. The Company
expects negative cash flow from operations to continue for the foreseeable
future. The Company will require substantial additional funds to continue and
expand its research and development activities, conduct preclinical studies and
expand administrative capabilities. The Company estimates that at its planned
rate of spending, existing cash and cash equivalents, together with the net
proceeds from the Offering, and the interest income earned on such proceeds,
will be sufficient to fund operations through 1999. There can be no assurance,
however, that the Company's assumptions regarding its future level of
expenditures and operating losses will prove to be accurate. The Company's
future funding requirements will depend on many factors, including: any
expansion or acceleration and the breadth of the Company's research and
development programs; the results of research and development, preclinical
studies and clinical trials conducted by the Company or its collaborative
partners or licensees, if any; the acquisition or licensing of technologies or
compounds, if any; the Company's ability to maintain existing and establish new
corporate relationships and research collaborations; the Company's ability to
manage growth; competing technological and market developments; the time and
costs involved in filing, prosecuting, defending and enforcing patent and
intellectual property claims; the receipt of licensing or milestone fees from
its current or future collaborative and license arrangements, if established;
the continued funding of governmental research grants; the timing of regulatory
approvals; and other factors.

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<PAGE> 11

The Company will need to raise substantial additional capital to fund its
operations. Initially the Company intends to seek such additional funding
through collaborative arrangements and through public or private financings,
including equity or debt financings. Any additional equity financing will be
dilutive to existing stockholders, and any debt financing, if available, may
involve restrictions on the Company's ability to pay dividends on its capital
stock or the manner in which the Company conducts its business. In addition, in
the event that additional funds are obtained through arrangements with
collaborative partners, such arrangements may require the Company to relinquish
rights to technologies, product candidates or potential products that the
Company would not otherwise relinquish. The Company has no commitments for any
additional collaborations or financings, and there can be no assurance that any
such collaborations or financings will be available to the Company when needed
or, if available, on terms acceptable to the Company. The inability to obtain
sufficient funds when needed may require the Company to delay, scale back or
eliminate some or all of its research and development programs or cease
operations. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

DEPENDENCE ON COLLABORATIVE RELATIONSHIPS; FUNDING OF PROGRAMS. The
Company's strategy for the development, preclinical and clinical testing,
manufacturing and commercialization of new drugs based on its research and
development activities depends upon corporate partners, licensors, licensees and
others. The Company expects to rely upon the performance of these outside
parties to provide funding for its research programs, further develop lead
compounds or potential product candidates, provide access to additional compound
libraries, conduct preclinical studies and clinical trials, obtain regulatory
approvals and manufacture and market any resulting products. In April 1996,
RiboGene established a collaboration with Abbott (the "Abbott Collaboration"),
to discover and develop antifungal drugs. Pursuant to the Abbott Agreements,
Abbott was granted exclusive worldwide rights to develop and market any and all
antifungal products discovered during the Abbott-sponsored collaborative
research program using RiboGene's PSTM-based drug discovery approach. Since May
1996, Abbott has funded a significant portion of the costs associated with the
Company's antifungal program. Pursuant to the Abbott Agreements, Abbott has
committed to pay up to $5.0 million in research support payments over the
three-year term of the research program as well as to provide related antifungal
research support, including lead optimization capabilities, from Abbott
employees. As of September 30, 1997, the Company has recognized $2.4 million in
research support revenues from Abbott. Abbott has the right to terminate the
research agreement at any time and there can be no assurance that Abbott will
not do so prior to the expiration of the term of the research agreement.

The Company's revenues will be dependent on the success of the lead
compounds and potential drug candidates developed through the Abbott
Collaboration and on the Company's ability to establish additional
collaborations for its other programs. The failure of the Company to maintain
the Abbott Collaboration or to enter into agreements with additional
collaborators to provide research support, both financial and technical, and to
develop, obtain regulatory approval for, and market products incorporating, the
Company's discoveries would have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that any such collaborators will commit sufficient development
resources, technology, regulatory expertise, manufacturing, marketing and other
resources towards developing, promoting and commercializing products
incorporating the Company's discoveries. Further, competitive conflicts may
arise among these third parties that could prevent them from working
cooperatively with the Company. The amount and timing of resources devoted to
these activities by such parties could depend on the achievement of milestones
by the Company and otherwise generally will be controlled by such parties. In
addition, the Company expects that its agreements with future collaborators will
provide such collaborators with the right to terminate their agreements with the
Company upon written notice to the Company. Any such termination would
substantially reduce the likelihood that the applicable research program or any
lead candidate or candidates would be developed into a drug candidate, would
obtain regulatory approvals and would be manufactured and successfully
commercialized. Therefore, any such termination could have a material adverse
effect on the Company's business, financial condition and results of operations.
There can be no assurance that the Abbott Collaboration, or any future
collaborations will be successful in developing and commercializing products or
that the Company will receive milestone payments or generate revenues from
royalties sufficient to offset the Company's significant investment in research
and development and other costs. There also can be no assurance that disputes
will not arise in the future with the Company's collaborators,

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<PAGE> 12

including with respect to the ownership of rights to any technology developed
pursuant to the collaboration. These and other possible disagreements between
collaborators and the Company could lead to delays or interruptions in, or
termination of, collaborative research, development and commercialization of
certain potential products or could require or result in litigation or
arbitration, which could be time-consuming and expensive and could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "-- Need for Additional Capital; Uncertainty of
Additional Funding" and "Business -- Collaborative and Research Agreements."

DEPENDENCE ON SCIENTIFIC ADVISORS. The Company is highly dependent on the
members of its Scientific Advisory Board ("SAB") who conduct research in
cooperation with the Company and provide the Company with access to technology
developed by them. The potential success of the Company's drug discovery
programs depends in part on continued collaborations with these advisors. The
Company and various members of its management and research staff rely heavily on
members of the SAB for new translation-based targets for its drug discovery
programs and for continued consulting and expertise in translation research. The
Company's scientific advisors are employed by employers other than the Company
and may have commitments to, or consulting or advisory contracts with, other
entities that may limit their availability to the Company. As a result, the
Company has limited control over their activities and, except as otherwise
required by its consulting agreements, can expect only limited amounts of their
time to be dedicated to the Company's activities. Most members of the SAB have
entered into scientific advisor agreements with the Company. These agreements
provide for indefinite terms of service on the SAB and are terminable at any
time by written notice of either the Company or the advisor. Certain members of
the SAB also have entered into separate consulting agreements with the Company.
These agreements have an initial one-year term, typically have been renewed by
the parties for successive one-year periods and provide for earlier termination
by either party upon 30 days' written notice. There can be no assurance that the
Company will be able to maintain such consulting agreements or that such
scientific advisors will not enter into consulting arrangements, exclusive or
otherwise, with competing pharmaceutical or biotechnology companies, any of
which would have a detrimental impact on the Company's research objectives and
could have a material adverse effect on the Company's business, financial
condition and results of operations.

The scientific advisor agreements and the consulting agreements provide for
confidentiality of the Company's proprietary information. These agreements also
provide that any confidential information that results from work performed for
the Company by such advisors is the sole and exclusive property of the Company.
In certain instances, such provisions are subject to the patent and other
policies now in effect or adopted in the future by the advisor's employer or
primary affiliation. To the extent any confidential information is also the
product of work performed for the advisor's affiliates, such affiliates'
policies may provide such affiliate with proprietary rights to such information.
Accordingly, the Company may not have rights to developments, publications or
the results of any research conducted by these advisors, which may adversely
affect the Company. There can be no assurance that the Company will be able to
maintain the confidentiality of its technology and other confidential
information, and any unauthorized dissemination of the Company's confidential
information could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Scientific
Advisors."

DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS. The Company's commercial
success will depend, in part, on its ability, and the ability of any
licensor(s), to obtain patent protection for its products and technologies, both
in the United States and in other countries. The patent positions of
pharmaceutical and biotechnology firms can be highly uncertain and often involve
complex legal and technical questions for which important legal principles are
largely unresolved, thus making it difficult to predict the breadth of claims
which would be allowable in any particular case. This uncertain situation is
also affected by revisions to the United States patent law adopted in recent
years to give effect to international accords to which the United States has
become a party. The extent to which such changes in law will affect the
obligations of the Company cannot be ascertained. The Company owns a provisional
patent application relating to its antibacterial drug discovery program; an
issued United States patent, a pending United States patent application and
certain corresponding foreign applications relating to its antifungal drug
discovery program; and two pending United States patent applications, one of
which has been allowed by the United States Patent and Trademark Office, and
certain

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<PAGE> 13

corresponding foreign applications relating to its antiviral drug discovery
program. The Company is an assignee, along with McGill University, of a pending
United States patent application generally relating to the PSTM program. The
Company is an exclusive licensee under a University of Washington provisional
application directed to HCV NS5A/PKR. In addition, the Company has an option,
from the University of Washington and McGill University, to license a
recently-issued United States patent and a pending United States patent
application relating to translational technology. There can be no assurance that
any of these patent applications, or any patent applications which the Company
may acquire in the future, will issue as patents, that any such issued patents
will afford adequate protection to the Company and will not be challenged,
invalidated, circumvented or infringed, or that any rights granted under such
patents will afford competitive advantages to the Company. To protect its rights
to its patent applications and/or patents, the Company may be required to
participate in interference proceedings before the United States Patent and
Trademark Office to determine priority of invention and the rights to a patent.
In addition, if patents that cover the Company's activities are issued to other
companies, there can be no assurance that the Company would be able to obtain a
license to such patents on terms acceptable to the Company, if at all. The
Company also could incur substantial costs in any litigation against third
parties, in which the Company asserts patents to which the Company has rights.
There can be no assurance that the Company's patents or those of its licensors,
if issued would not be held invalid by a court or that a competitor's technology
or product would be found to infringe such patents.

The Company's success further will depend, in part, on its ability to
operate without infringing the proprietary rights of others. There can be no
assurance that the Company's activities will not infringe patents owned by
others. The Company could incur substantial costs in defending itself in suits
brought against it or any licensor. Should the Company's products or
technologies be found to infringe patents issued to third parties, the
manufacture, use and sale of the Company's products could be enjoined, and the
Company could be required to pay substantial damages. In addition, the Company,
in connection with the development and use of its products and technologies, may
be required to obtain licenses to patents or other proprietary rights of third
parties. 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. Failure to obtain such licenses could have a material
adverse effect on the Company.

In addition to patent protection, the Company also relies to a significant
extent upon trade secret protection for its confidential and proprietary
information, including many of the Company's key discovery technologies. There
can be no assurance that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets or disclose such technology. To protect its trade
secrets, RiboGene has required its employees, consultants, SAB members and
parties to collaboration and licensing agreements to execute confidentiality
agreements upon the commencement of employment, the consulting relationship or
the collaboration or licensing arrangement, as the case may be, with RiboGene.
In the case of employees, the agreements also provide that all inventions
resulting from work performed by them while employed by RiboGene will be the
exclusive property of RiboGene. In the case of SAB members, the agreements also
provide that any confidential information that results from work performed for
RiboGene will be the exclusive property of RiboGene. The Company will continue
to require its employees, consultants, SAB members and collaborators and
licensees to execute confidentiality agreements and inventions assignment
agreements (in the case of its employees) upon the commencement of employment,
the consulting relationship or the collaboration or license with the Company.
There can be no assurance, however, that these agreements will provide
meaningful protection of the Company's trade secrets or adequate remedies in the
event of unauthorized use or disclosure of such information, or that the
Company's trade secrets will not otherwise become known or be independently
discovered by its competitors, that the Company can meaningfully protect its
rights in such unpatented proprietary technology through other means, that any
obligation to maintain the confidentiality of such proprietary technology will
not be breached by employees, consultants, advisors, collaborators, licensees or
others or that others will not independently develop the same or substantially
equivalent technology. The loss of trade secret protection of any of the
Company's key discovery technologies would materially and adversely affect the
Company's competitive position and could have a material adverse effect on the
Company's business, financial condition and results of operations. Finally,
disputes may arise as to the ownership of

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<PAGE> 14

proprietary rights to the extent that outside consultants, collaborators or
licensees apply technological information developed independently by them or
others to Company projects or apply Company technology to other projects and, if
adversely determined, such disputes could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"-- Dependence on Scientific Advisors," "-- Dependence on and Need for
Additional Key Personnel" and "Business -- Patents and Proprietary Rights."

In 1994, the Company acquired intellectual property that falls outside the
field of infectious diseases and translational control. The Company does not
intend to develop any products associated with such intellectual property
itself. Such potential products include Emitasol, for emesis associated with
chemotherapy, Migrastat, for migraine, and intranasal benzodiazepines for
various conditions such as anxiety, seizures, panic attacks and sleep disorders.
The Company has received notice that Peptech (Europe A/S) is opposing the grant
of a European patent with claims directed to the nasal administration of
benzodiazepines. As one of the grounds for the opposition, Peptech has submitted
a published abstract describing the nasal administration, to children, of the
benzodiazepine midazolam. This abstract has an apparent publication date of
February 1988, several months prior to the earliest filing date in the United
States from which the Company's European patent application could have claimed
priority. While the Company intends to respond vigorously to the opposition, no
assurance can be given as to the scope of the claims, if any, which the European
Patent Office ultimately will find patentable. Failure of the Company to prevail
in the opposition before the European Patent Office could impede the Company's
ability to outlicense the technology portfolio.

The issued United States patent relating to the nasal administration of
benzodiazepines is the subject of a reissue proceeding before the United States
Patent and Trademark Office. In the course of negotiations with a potential
licensee of the technology portfolio containing this patent, the Company became
aware that the issued United States patent for which reissue is being sought had
expired for failure to pay the required maintenance fees. While the Company is
seeking to revive the expired patent, there can be no assurance that such action
will be successful, which could impede the Company's ability to outlicense the
technology portfolio containing this patent.

NEED FOR CHEMISTRY CAPABILITIES. One of the Company's strategies is to
acquire substantial additional capabilities in chemistry in order to enhance the
Company's lead discovery and optimization capabilities. The Company currently
has two employees with degrees, experience and training in chemistry who conduct
the Company's chemistry activities on a limited basis. The Company's chemistry
requirements for its antifungal program are currently being provided by Abbott.
The Company plans to add medicinal, combinatorial, analytical and computational
chemistry capabilities internally and through external collaborations to support
its other programs. The Company intends to use a significant portion of the net
proceeds of the Offering to build its chemistry capabilities by recruiting
additional chemistry expertise in-house, constructing and building chemistry
facilities (including the design, acquisition and implementation of the capital
equipment necessary to support these activities), acquiring additional compounds
and supplies and entering into additional collaborative agreements. There can be
no assurance that the Company will be successful in developing these
capabilities. Qualified medicinal, combinatorial, analytical and computational
chemists and the corresponding support personnel are in high demand. The Company
may experience difficulty in attracting, recruiting or hiring the personnel
necessary to implement its strategy. Failure by the Company to successfully
complete or implement any part of the strategy described above could prevent the
Company from implementing its overall business strategy, require the Company to
rely to a greater extent on collaborative agreements for the optimization of
leads for drug candidates and enter into such arrangements at an earlier stage
of development, and could have a material adverse impact on the Company's
business, financial condition and results of operations.

COMPETITION. The biotechnology and pharmaceutical industries are intensely
competitive and subject to rapid and significant technological change. Many of
the drugs which the Company is developing will be competing with existing
therapies. In addition, a number of companies are pursuing the development of
pharmaceuticals which target the same diseases and conditions the Company is
targeting, using technology similar to the RiboGene technology, as well as
alternative discovery technologies, including antisense, gene therapy and
genomics. The Company faces competition from pharmaceutical and biotechnology
companies

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<PAGE> 15

both in the United States and abroad. Many of the Company's competitors,
particularly large pharmaceutical companies, have substantially greater
financial, technical and human resources than the Company. In addition, unlike
the Company, many of these competitors have experience in undertaking
preclinical studies and clinical trials of new pharmaceutical products and
obtaining the necessary regulatory approvals and manufacturing and marketing
products. In addition, academic institutions, government agencies, and other
public and private organizations conducting research may seek patent protection
with respect to potentially competing products or technologies and may establish
exclusive collaborative or licensing relationships with competitors of the
Company.

The Company believes that its ability to compete is dependent, in part,
upon its abilities to create and maintain scientifically advanced technology and
to develop and commercialize pharmaceutical products based on this technology,
as well as its ability to attract and retain qualified personnel, obtain patent
protection or otherwise develop proprietary technology or processes and secure
sufficient capital resources for the expected substantial time period between
technological conception and commercial sales of products based upon the
Company's technology.

There can be no assurance that the Company's competitors will not succeed
in developing technologies and drugs that are more effective or less costly than
any which are being developed by the Company or which would render the Company's
technology and future drugs obsolete and noncompetitive. In addition, the
Company's competitors may succeed in obtaining the approval of the United States
Food and Drug Administration (the "FDA") or other regulatory approvals for drug
candidates more rapidly than the Company. Companies that complete clinical
trials, obtain required regulatory agency approvals and commence commercial sale
of their drugs before their competitors may achieve a significant competitive
advantage, including certain patent and FDA marketing exclusivity rights that
would delay the Company's ability to market certain products. There can be no
assurance that drugs resulting from the Company's research and development
efforts, or from the joint efforts of the Company and its existing or future
collaborative partners, will be able to compete successfully with competitors'
existing products or products under development or that they will obtain
regulatory approval in the United States or elsewhere.

DEPENDENCE ON AND NEED FOR ADDITIONAL KEY PERSONNEL. The Company is highly
dependent on the principal members of its scientific and management staff,
including the services of Drs. Lehman, Gluchowski, and Moehle, the Company's
Vice President of Research, Director of Drug Discovery and Associate Director of
Translational Control Research, respectively, as well as the project leaders for
each of its core projects and the leader of its screening group. There can be no
assurance that these persons will continue to be employed by the Company in the
future. The loss of any of these persons could have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company's potential growth and expansion into areas and activities requiring
additional expertise, such as chemistry, are expected to place increased demands
on the Company's management skills and resources. These demands are expected to
require a substantial increase in management and scientific personnel and the
development of additional expertise by existing management personnel.
Accordingly, recruiting and retaining management and operational personnel and
qualified scientific personnel to perform research and development work in the
future will also be critical to the Company's success. There can be no assurance
that the Company will be able to attract and retain skilled and experienced
management, operational and scientific personnel on acceptable terms given the
competition among numerous pharmaceutical and biotechnology companies,
universities and other research institutions for such personnel. The failure to
attract and retain such personnel or to develop such expertise could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Employees" and "Management."

UNCERTAINTIES RELATED TO CLINICAL TRIALS. The Company believes it will be
several years, if ever, before any potential product candidates discovered using
its technology would be ready to begin the regulatory approval process. Before
seeking such approval, the Company or its collaborative partners must
demonstrate in extensive preclinical studies and clinical trials that any such
product candidate is safe and effective for use in each target indication. The
results of preclinical studies and early clinical trials may not be predictive
of results that will be obtained in large-scale testing or use, and there can be
no assurance that any such preclinical studies and clinical trials will
demonstrate the safety and efficacy of any product candidate, if successfully
developed, or that, regardless of preclinical and clinical trial results, FDA
approval will be obtained or that

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<PAGE> 16

marketable products will result. A number of companies in the pharmaceutical
industry have suffered significant setbacks in advanced clinical trials or have
not received FDA approval, even after promising results in earlier trials.
Clinical trials for any product candidates developed by the Company and its
collaborators may be delayed by many factors. Furthermore, the FDA may suspend
clinical trials at any time if it decides that patients are being exposed to an
unreasonable and significant health risk. In addition, clinical trials are often
conducted with patients having the most advanced stages of disease. During the
course of treatment, these patients can die or suffer other adverse medical
effects for reasons that may not be related to the pharmaceutical agent being
tested, but which can nevertheless affect clinical trial results. Any delays in,
or termination of, the clinical trials of any of the Company's product
candidates, if successfully developed, or the failure of any clinical trials to
meet applicable regulatory standards, could have a material adverse effect on
the Company's business, financial condition and results of operations.

GOVERNMENT REGULATION AND NEED FOR PRODUCT APPROVALS. The manufacture and
marketing of any products developed by the Company and its ongoing research and
development activities are subject to regulation by numerous governmental
authorities in the United States and other countries. Prior to marketing, any
drug developed by the Company must undergo rigorous preclinical and clinical
testing and an extensive regulatory approval process mandated by the FDA and
equivalent authorities in other countries. These processes can take a number of
years and require the expenditure of substantial resources. The time required
for completing such testing and obtaining such approvals is uncertain, and there
can be no assurance that such approvals will be obtained or that marketable
products will result. The safety and efficacy of a therapeutic product under
development by the Company must be supported by extensive data from clinical
trials. In addition, delays or rejections may be encountered in the regulatory
review process or in the event there are changes in FDA policy or the Company
decides to replace the compounds in testing with modified or optimized
compounds. There can be no assurance that even after such time and expenditures,
regulatory approval will be obtained for any products developed by the Company.
Failure by the Company to obtain regulatory approval of any products resulting
from its discovery programs could have a material adverse effect on the
Company's business, financial condition and results of operations. There can be
no assurance that if clinical trials are completed, the Company will submit a
new drug application (an "NDA") with respect to any potential products or that
such applications will be reviewed and approved by the FDA in a timely manner,
if at all.

If regulatory approval of a product is granted, such approval will entail
limitations on the indicated uses for which the product may be marketed.
Further, even if such regulatory approval is obtained, a marketed product, its
manufacturer, and its manufacturing facilities are subject to continual review
and periodic inspections, and later discovery of previously unknown problems
with a product, manufacturer or facility may result in restrictions on such
product, manufacturer or facility, including withdrawal of the product from the
market. Failure to comply with ongoing relevant regulatory requirements may
result in, among other things, warning letters, fines, product recalls or
seizures, suspension or termination of production, injunctions, delays in
obtaining marketing authorization or refusal of the government to grant such
approvals, withdrawals of previously granted approvals, civil penalties and
criminal prosecution, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations.

The Company and its collaborative partners may also be subject to
regulation under state and federal laws, including requirements regarding
occupational safety and laboratory practices, and may be subject to other
present and possible future local, state, federal and foreign regulation. The
impact of such regulation upon the Company cannot be predicted and could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Government Regulation."

CONVERSION OF SERIES F PREFERRED STOCK INTO COMMON STOCK. The terms of the
Series F Preferred Stock provide for the automatic conversion of such stock into
Common Stock upon the closing of the first underwritten public offering of
Common Stock resulting in aggregate gross proceeds to the Company in excess of
$7.5 million. The number of shares of Common Stock issuable upon the automatic
conversion of the Series F Preferred Stock will depend upon the initial public
offering price. Assuming an initial public offering price of at least $8.93 per
share, each share of the outstanding 2,282,663 shares of Series F Preferred
Stock will convert into 0.5038 of a share of Common Stock, for a total of
1,149,988 shares of Common Stock. If the initial public offering price is less
than $8.93 per share, the conversion ratio of the Series F Preferred Stock will

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<PAGE> 17

be adjusted, resulting in additional shares of Common Stock being issued to the
holders of Series F Preferred Stock. If the initial public offering price is
less than $8.93 per share, investors purchasing in the Offering will own a
lesser percentage of the total shares of Common Stock outstanding as a result of
the issuance of additional shares of Common Stock to holders of the Series F
Preferred Stock upon conversion into Common Stock of such preferred stock upon
the closing of the Offering. For example, assuming an initial public offering
price of $8.00 per share, an additional 134,010 shares of Common Stock would be
issued upon the conversion of the outstanding shares of Series F Preferred
Stock. If the conversion ratio of the Series F Preferred Stock is adjusted,
additional shares of Common Stock will also be issued upon the exercise of the
Placement Agent Unit Options. Assuming an initial public offering price of
$8.00, an additional 67,002 shares of Common Stock would be issued upon the
exercise of the Placement Agent Unit Options. See "Dilution," "Certain
Transactions" and "Description of Capital Stock -- Preferred Stock."

LACK OF MANUFACTURING, MARKETING AND SALES CAPABILITY AND
EXPERIENCE. RiboGene does not expect to invest in the development of
manufacturing, marketing or sales capabilities in the foreseeable future. If the
Company is unable to contract for manufacturing capabilities on acceptable
terms, the Company's ability to conduct preclinical and clinical trials with any
potential drug candidates would be adversely affected, resulting in delays in
the submission of any drug candidate for regulatory approval and in the
initiation of new development programs, which in turn could materially impair
RiboGene's competitive position and the possibility of achieving profitability.

The Company has no experience in marketing drugs. The Company has granted
marketing rights to Abbott with respect to any antifungal drugs developed
through the Abbott Collaboration. The Company intends to collaborate with
additional third parties to market any drugs that may result from its other
areas of focus. There can be no assurance that any such collaborative agreement
can be reached on acceptable terms, if at all. There can be no assurance that
the Company will be able to establish third party relationships to provide any
or all of these capabilities.

PRODUCT LIABILITY AND AVAILABILITY OF INSURANCE. The Company's business
will expose it to potential liability risks that are inherent in the testing,
manufacturing and marketing of pharmaceutical products. The use of any drug
candidates ultimately developed by the Company or its collaborators in clinical
trials may expose the Company to product liability claims and possible adverse
publicity. These risks will expand with respect to the Company's drug
candidates, if any, that receive regulatory approval for commercial sale.
Product liability insurance for the biotechnology industry is generally
expensive, if available at all. The Company does not have product liability
insurance but intends to obtain such coverage if and when any drug candidates
are tested in clinical trials. However, such coverage is becoming increasingly
expensive and there can be no assurance that the Company will be able to obtain
insurance coverage at acceptable costs or in a sufficient amount, if at all, or
that a product liability claim would not adversely affect the Company's
business, operating results or financial condition.

UNCERTAINTY RELATED TO HEALTH CARE INDUSTRY. The successful
commercialization of any drug candidates developed by the Company and its
current and future collaborators will depend substantially on reimbursement of
the costs of the resulting drugs from government authorities, private health
insurers and other organizations at levels acceptable to the Company. There can
be no assurance that adequate reimbursement will be available or, if available,
will not be decreased in the future, or that reimbursement amounts will not
reduce the demand for, or the price of, any such drugs. Any of the foregoing
could have a material adverse effect on the Company's business, financial
condition and results of operations. If such reimbursement is not available or
is available on a limited basis, the Company may not be able to retain any
collaborative partners to manufacture and commercialize any drugs and may not be
able to obtain a financial return on the manufacture and commercialization of
any future drugs.

Third-party payors are increasingly focusing on the cost-effectiveness
profile of prescription drugs and challenging the prices charged for such
products and services. Also, the trend towards managed health care in the United
States and the concurrent growth of organizations such as health maintenance
organizations, which could control or significantly influence the purchase of
health care services and products, as well as legislative proposals to reform
health care or government medical assistance programs, may all result in lower
prices or reduced markets for any products developed by the Company or its
current and future collaborators. The cost

16
<PAGE> 18

containment measures that health care providers and payors are instituting could
adversely affect the Company's or its current and future collaborators' ability
to sell future products and may have a material adverse effect on the Company.
To date, the Company has not conducted any marketing studies on any of its
potential product candidates and has not undertaken any pharmacoeconomic
analysis with respect to any potential products. The cost containment measures
and reforms that government institutions and third-party payors are considering
could result in significant and unpredictable changes to the marketing and
pricing and reimbursement practices of biopharmaceutical and pharmaceutical
companies such as the Company and its current and future collaborators. The
adoption of any such measures or reforms could have a material adverse effect on
the business, financial condition and results of operations of the Company.

HAZARDOUS MATERIALS. The Company is subject to federal, state and local
laws and regulations governing the use, generation, manufacture, storage,
discharge, handling and disposal of certain materials and wastes used in its
operations. There can be no assurance that the Company will not be required to
incur significant costs to comply with environmental laws and regulations as its
research activities are increased, or that the operations, business and future
profitability of the Company will not be adversely affected by current or future
environmental laws and regulations. See "Business -- Government Regulation."

MANAGEMENT DISCRETION AS TO USE OF PROCEEDS. The Company intends to use
approximately $1.1 million of the net proceeds of the Offering to repay certain
secured indebtedness and related liabilities incurred in connection with an
acquisition of certain intellectual property in 1994. The Company will use the
remaining net proceeds of the Offering to expand internal chemistry
capabilities, expansion and advancement of drug discovery programs, facility
relocation costs, and for working capital and other general corporate purposes.
Accordingly, the Company's management will retain broad discretion as to the
allocation of the balance of the net proceeds of the Offering. As a result of
such discretion, the Company's management could allocate the proceeds of the
Offering to uses which the stockholders may not deem desirable. There can be no
assurance as to the timing or application of such proceeds, or that the
application thereof will not have a material adverse effect on the Company's
future business, financial condition or results of operations.

CONTROL BY EXISTING STOCKHOLDERS. Immediately following the Offering,
officers, directors and existing stockholders of the Company will beneficially
own approximately 73% of the outstanding shares of Common Stock of the Company
(based on shares, warrants and options outstanding as of September 30, 1997).
These stockholders, if acting in concert, will continue to be able to control
the election of all members of the Company's Board of Directors and to determine
all corporate actions after the sale of the shares offered hereby. See
"Principal Stockholders."

ABSENCE OF DIVIDENDS. The Company has never declared or paid cash dividends
on its capital stock and does not anticipate paying cash dividends in the
foreseeable future, but intends instead to retain future earnings, if any, for
reinvestment in its business. Any future determination to pay cash dividends
will be at the discretion of the Board of Directors and will be dependent upon
the Company's financial condition, results of operations, capital requirements
and such other factors as the Board of Directors deems relevant. See "Dividend
Policy."

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to the
Offering, there has been no public market for the Common Stock. Accordingly,
there can be no assurance that an active trading market for the Common Stock
will develop or be sustained upon completion of the Offering or that the market
price of the Common Stock will not decline below the initial public offering
price. The initial public offering price of the shares of Common Stock offered
hereby will be determined by negotiations between the Company and the
Representatives. The market prices for securities of biopharmaceutical companies
have been highly volatile. Announcements regarding the results of regulatory
approval filings, preclinical or clinical studies or other testing,
technological innovations or new commercial products by the Company or its
competitors, government regulations, developments concerning proprietary rights
or public concern as to safety of technology have historically had, and are
expected to continue to have, a significant impact on the market prices of the
stocks of biopharmaceutical companies. The trading price of the Common Stock
could also be subject to significant fluctuations in response to variations in
operating results.

DILUTION Purchasers of the Common Stock offered hereby will incur immediate
and substantial dilution equal to $7.64 per share, based upon an assumed initial
public offering price of $11.00 per share. The dilution

17
<PAGE> 19

will be increased to the extent that the holders of outstanding options or
warrants to purchase Common Stock with exercise prices below the initial public
offering price exercise such options or warrants. If the initial public offering
price is less than $8.93 per share, the per share amount of dilution will be
lower; however, investors purchasing in the Offering will own a lesser
percentage of the total shares of Common Stock outstanding as a result of the
issuance of additional shares of Common Stock to holders of the Series F
Preferred Stock upon conversion into Common Stock of such preferred stock upon
the closing of the Offering and to the holders of the Placement Agent Unit
Options upon the exercise thereof. See "Dilution," "Certain Transactions" and
"Description of Capital Stock -- Preferred Stock."

ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND CERTAIN CHARTER PROVISIONS. Under
the Company's Certificate of Incorporation, the Company's Board of Directors has
the authority to issue up to 5,000,000 shares of Preferred Stock and to
determine the powers, rights, preferences and privileges 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 would dilute the voting power of holders of Common Stock
and, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, 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 anti-takeover
provisions of Section 203 of the Delaware General Corporation Law, which
prohibits the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person 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 Certificate of Incorporation provides for
staggered terms for the members of the Board of Directors. This and certain
other provisions of the Company's Certificate of Incorporation and By-laws may
have the effect of delaying or preventing changes in control or management of
the Company, which could adversely affect the market price of the Company's
Common Stock. See "Description of Capital Stock -- Delaware Anti-Takeover Law
and Certain Charter and By-law Provisions."

SHARES ELIGIBLE FOR FUTURE SALE. Sales of a substantial number of shares of
Common Stock (including shares issued upon the exercise of outstanding options
and warrants) in the public market after the Offering could materially adversely
affect the market price of the Common Stock. Such sales also might make it more
difficult for the Company to sell equity securities or equity-related securities
in the future at a time and price that the Company deems appropriate. Upon
completion of the Offering, the Company will have outstanding an aggregate of
6,851,080 shares of Common Stock, assuming no exercise of the Underwriters'
over-allotment option; an aggregate of 650,491 shares of Common Stock reserved
for issuance under the Company's stock plans upon exercise of options
outstanding as of September 30, 1997; 451,530 shares of Common Stock reserved
for issuance upon the exercise of warrants outstanding as of September 30, 1997;
574,983 shares of Common Stock reserved for issuance upon exercise of the
warrants (the "Class A Warrants") issued in connection with the private
placement of the Series F Preferred Stock (the "Series F Private Placement"),
with an exercise price equal to the lesser of (a) the initial public offering
price and (b) $8.93 per share; 574,996 shares of Common Stock reserved for
issuance upon exercise of options to purchase 570,665 units (the "Placement
Agent Units") at an exercise price of $1.24 per unit, issued to the placement
agent in connection with the Series F Private Placement and a financial advisory
agreement (the "Placement Agent Unit Options"), each Placement Agent Unit
consisting of two shares of Series F Preferred Stock and one Class A Warrant
(the "Placement Agent Class A Warrants"); 143,746 shares of Common Stock
reserved for issuance upon the exercise of the Placement Agent Class A Warrants;
and 230,000 shares of Common Stock reserved for issuance upon exercise of
warrants issued to the Representatives, at an exercise price equal to 125% of
the initial public offering price of the Common Stock (the "Representatives'
Warrants"). The 2,300,000 shares sold in the Offering will be freely tradeable
without restriction or further registration under the Securities Act, except for
any shares held by an "affiliate" of the Company as that term is defined in Rule
144 under the Securities Act ("Rule 144"). The 4,551,080 shares of Common Stock
held by existing stockholders of the Company are "restricted securities" as that
term is defined in Rule 144 (the "Restricted Shares"). Restricted Shares may be
sold in the public market only if registered or if they qualify for an

18
<PAGE> 20

exemption from registration under Rules 144 or 701 under the Securities Act. For
a summary description of the requirements of Rules 144 and 701, see "Shares
Eligible for Future Sale." The Company intends to file registration statements
on Forms S-8 with respect to the shares reserved for issuance under its stock
plans.

The Company, certain of the Company's existing stockholders and holders of
options and warrants will enter into lock-up agreements with the Representatives
agreeing not to sell or otherwise dispose of any of their shares of Common Stock
or any securities convertible into or exercisable for shares of Common Stock,
for a period of 180 days from the date of this Prospectus without the prior
written consent of EVEREN Securities, Inc. Certain stockholders of the Company
are entitled to register their shares under the Securities Act for resale, at
the expense of the Company. See "Description of Capital Stock -- Registration
Rights," "Shares Eligible for Future Sale" and "Underwriting."

FORWARD-LOOKING STATEMENTS. Certain statements under the captions
"Prospectus Summary," "Use of Proceeds," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business" and elsewhere
in this Prospectus constitute "forward-looking statements." Such forward-looking
statements may be identified by the use of terminology such as "may," "will,"
"expect," "anticipate," "intend," "designed," "estimate," "should" or "continue"
or the negatives thereof or other variations thereon or comparable terminology.
Such forward-looking statements involve known or unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include those described above and
in the sections entitled "Prospectus Summary," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."

19
<PAGE> 21

USE OF PROCEEDS

The net proceeds to the Company from the sale of shares of Common Stock
offered hereby are estimated to be approximately $22.8 million ($26.3 million if
the Underwriters' over-allotment option is exercised in full), after deducting
the estimated underwriting discounts and commissions and estimated Offering
expenses.

The Company anticipates that it will use the net proceeds of the Offering
over the next two years to expand internal chemistry capabilities, including
acquiring necessary equipment and recruiting qualified personnel, to expand and
advance the Company's antibacterial and HCV programs, to establish new drug
discovery programs, for relocation costs and for working capital and general
corporate purposes. The Company will also use approximately $1.1 million of the
net proceeds from the Offering to repay certain secured indebtedness (the
"Secured Indebtedness") and to satisfy the Company's obligations under related
agreements. The Company may use a portion of the proceeds to acquire or license
technology rights or compounds. No such transactions involving a material amount
of consideration are being negotiated as of the date of this Prospectus. Pending
such uses, the Company intends to invest such funds in short-term,
interest-bearing obligations of investment grade. The Secured Indebtedness is
evidenced by a promissory note in the principal amount of $909,000, which
originally bore interest at a rate of 5.32% per annum and became due in January
1998. The promissory note was amended to require a payment of $500,000 to be
applied to the principal due under the promissory note on January 5, 1998. The
remaining principal amount of $409,000, plus accrued interest, is due in May
1998. The principal balance of $409,000 will begin to accrue interest at 7% per
annum on January 5, 1998. This note was issued and the related agreements were
entered into in connection with the acquisition of in-process research and
development relating to products no longer under development by the Company. See
"Certain Transactions." The Company's management will have broad discretion as
to the use of a substantial portion of the net proceeds of the Offering. See
"Risk Factors -- Management Discretion as to Use of Proceeds."

The Company anticipates that the net proceeds of the Offering, together
with existing cash, cash equivalents and short-term investments, will be
sufficient for the purposes specified herein and to allow the Company to
maintain its current and planned operations through 1999. However, there can be
no assurance that the Company's assumptions regarding future operating losses
and operating expenses will be accurate. The Company's future funding
requirements and use of proceeds will depend on many factors, including: any
expansion or acceleration and the breadth of the Company's research and
development programs; the results of research and development, preclinical
studies and clinical trials conducted by the Company or its collaborative
partners or licensees, if any; the acquisition or licensing of technologies or
compounds, if any; the Company's ability to maintain existing and establish new
corporate relationships and research collaborations; the Company's ability to
manage growth; competing technological and market developments; the time and
costs involved in filing, prosecuting, defending and enforcing patent and
intellectual property claims; the receipt of licensing or milestone fees from
its current or future collaborative and license arrangements, if established;
the continued funding of governmental research grants; the timing of regulatory
approvals; and other factors. The Company will need to raise substantial
additional capital to fund its operations. Initially the Company intends to seek
such additional funding through collaborative arrangements and through public or
private financings, including equity or debt financings. See "Risk
Factors -- Need for Additional Capital; Uncertainty of Additional Funding" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

DIVIDEND POLICY

The Company has never declared or paid cash dividends on its capital stock
and does not anticipate paying cash dividends in the foreseeable future. The
Company intends to retain future earnings, if any, for reinvestment in its
business. Any future determination to pay cash dividends would be at the
discretion of the Board of Directors and would be dependent upon the Company's
financial condition, results of operations, capital requirements and such other
factors as the Board of Directors deems relevant.

20
<PAGE> 22

CAPITALIZATION

The following table sets forth as of September 30, 1997 (i) the actual
capitalization of the Company as if the 1-for-3.97 reverse split of the Common
Stock had occurred prior to September 30, 1997; (ii) the pro forma
capitalization of the Company, giving effect to the automatic conversion of each
outstanding share of Series A through Series E Preferred Stock into 0.2519
shares of Common Stock and each outstanding share of Series F Preferred Stock
into 0.5038 shares of Common Stock concurrently with the closing of the Offering
(assuming an initial public offering price of $11.00 per share) and the
reincorporation of the Company prior to or upon the closing of the Offering; and
(iii) the pro forma capitalization of the Company as adjusted to reflect the
sale of the 2,300,000 shares of Common Stock offered hereby (after deducting
estimated underwriting discounts and commissions and estimated expenses of the
Offering) and the receipt and application of the estimated net proceeds
therefrom. The number of shares of Common Stock to be issued upon conversion of
RiboGene's Series F Preferred Stock will depend upon the initial public offering
price. See "Use of Proceeds," "Certain Transactions" and "Description of Capital
Stock."

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ------------ --------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
LONG-TERM OBLIGATIONS:
Capital lease obligations less current portion and
other noncurrent liabilities..................... $ 364 $ 364 $ 134
-------- -------- --------
STOCKHOLDERS' EQUITY:
Preferred Stock, no par value: 18,932,344 shares
authorized; 14,377,595 shares issued and
outstanding (actual); 5,000,000 shares, $0.001
par value authorized, none issued and outstanding
(pro forma and pro forma as adjusted)............ 33,533 -- --
Common Stock, no par value: 50,000,000 shares
authorized, (30,000,000 shares authorized, $0.001
par value pro forma and pro forma as adjusted);
354,398 shares issued and outstanding (actual);
4,551,080 shares issued and outstanding (pro
forma); 6,851,080 shares issued and outstanding
(pro forma as adjusted(1))....................... 754 5 7
Additional paid in capital............................ 34,282 57,059
Notes receivable from stockholders.................... (154) (154) (154)
Deferred compensation................................. (384) (384) (384)
Deficit accumulated during development stage.......... (33,496) (33,496) (33,496)
-------- -------- --------
Total stockholders' equity.......................... 253 253 23,032
-------- -------- --------
Total capitalization........................ $ 617 $ 617 $ 23,166
======== ======== ========
</TABLE>

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

(1) Excludes: (i) an aggregate of 650,491 shares of Common Stock reserved for
issuance under the Company's stock plans upon exercise of options
outstanding as of September 30, 1997, at a weighted average exercise price
of $1.02 per share; (ii) an aggregate of 2,011,937 shares of Common Stock
reserved for future grants or purchases under the Company's equity incentive
plans; (iii) 574,983 shares of Common Stock reserved for issuance upon
exercise of the Class A Warrants; (iv) 451,530 shares of Common Stock
reserved for issuance upon the exercise of warrants (other than Class A
Warrants) outstanding as of September 30, 1997, at a weighted average
exercise price of $9.57 per share; (v) 574,996 shares of Common Stock
reserved for issuance upon exercise of options to purchase 570,665 Placement
Agent Units; (vi) 143,746 shares of Common Stock reserved for issuance upon
the exercise of the Placement Agent Class A Warrants; and (vii) an aggregate
of 230,000 shares of Common Stock reserved for issuance upon the exercise of
the Representatives' Warrants. The number of shares of Common Stock to be
issued upon conversion of the Series F Preferred Stock and exercise of the
Placement Agent Unit Options and the exercise price of the Placement Agent
Unit Options will depend upon the initial public offering price. See
"Management -- Stock and Related Employee Benefit Plans," "Certain
Transactions," "Description of Capital Stock" and "Underwriting."

21
<PAGE> 23

DILUTION

The pro forma net tangible book value of the Company as of September 30,
1997, was approximately $253,000 or $0.06 per share of Common Stock. Pro forma
net tangible book value per share is equal to the Company's pro forma net
tangible assets (pro forma tangible assets less pro forma total liabilities)
divided by the pro forma number of shares of Common Stock outstanding at that
date (as if the 1-for-3.97 reverse split of the Common Stock had occurred prior
to September 30, 1997), assuming the conversion of all outstanding shares of
Preferred Stock of the Company into an aggregate of 4,196,682 shares of Common
Stock (assuming an initial public offering price of $11.00 per share)
concurrently with the closing of the Offering. The number of shares of Common
Stock to be issued upon conversion of RiboGene's Series F Preferred Stock will
depend upon the initial public offering price. See "Certain Transactions" and
'Description of Capital Stock." Without taking into account any other changes in
pro forma net tangible book value other than to give effect to the receipt and
application of the net proceeds from the sale of the 2,300,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $11.00 per
share, the pro forma net tangible book value of the Company as of September 30,
1997 would have been $23.0 million or $3.36 per share. This represents an
immediate increase in such pro forma net tangible book value of $3.30 per share
to existing stockholders and an immediate dilution in pro forma net tangible
book value of $7.64 per share to new public investors and Abbott. The following
table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share......................... $11.00
Pro forma net tangible book value per share as of September 30,
1997............................................................... $0.06
Increase in net tangible book value per share attributable to new
investors.......................................................... 3.30
-----
Pro forma net tangible book value per share after the Offering.......... 3.36
------
Dilution per share to new investors..................................... $ 7.64
======
</TABLE>

The following table summarizes, on a pro forma basis as of September 30,
1997, the differences between the number of shares of Common Stock purchased
from the Company, the total consideration paid and the average price per share
paid by existing stockholders and by the new investors, including Abbott,
purchasing shares in the Offering (at an assumed initial public offering price
of $11.00 per share and before deducting estimated underwriting discounts and
commissions and estimated Offering expenses):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... 4,551,080 66% $35,241,000 58% $ 7.74
New investors............................. 2,300,000 34 25,300,000 42 11.00
--------- --- ----------- ---
Total........................... 6,851,080 100% $60,541,000 100%
========= === =========== ===
</TABLE>

The foregoing discussion and table assumes no exercise of outstanding
options or warrants subsequent to September 30, 1997, and excludes: (i) an
aggregate of 650,491 shares of Common Stock reserved for issuance under the
Company's stock plans upon exercise of options outstanding as of September 30,
1997, at a weighted average exercise price of $1.02 per share; (ii) an aggregate
of 2,011,937 shares of Common Stock reserved for future grants or purchases
under the Company's equity incentive plans; (iii) 574,983 shares of Common Stock
reserved for issuance upon exercise of the Class A Warrants; (iv) 451,530 shares
of Common Stock reserved for issuance upon the exercise of warrants (other than
Class A Warrants) outstanding as of September 30, 1997, at a weighted average
exercise price of $9.57 per share; (v) 574,996 shares of Common Stock reserved
for issuance upon the exercise of the Placement Agent Unit Options; (vi) 143,746
shares of Common Stock reserved for issuance upon exercise of the Placement
Agent Class A Warrants; and (vii) 230,000 shares of Common Stock reserved for
issuance upon the exercise of Representatives' Warrants. The number of shares of
Common Stock to be issued upon conversion of the Series F Preferred Stock and
exercise of the Placement Agent Unit Options and the exercise price of the
Placement Agent Unit Options will depend upon the initial public offering price.
See "Management -- Stock Plans and Related Employee Benefits Plans," "Certain
Transactions," "Description of Capital Stock" and "Underwriting."

22
<PAGE> 24

SELECTED FINANCIAL DATA

The selected financial data set forth below at December 31, 1993, 1994,
1995, 1996 and for each of the years then ended and at and for the nine months
ended December 31, 1992 have been derived from the audited financial statements
of the Company. The audited financial statements of the Company as of December
31, 1995 and 1996 and for each of the three years in the period ended December
31, 1996, together with the notes thereto and the related report of Ernst &
Young LLP, independent auditors, are included elsewhere herein. The report of
Ernst & Young LLP contains an explanatory paragraph that describes the
uncertainty as to the ability of the Company to continue as a going concern as
described in Note 1 of Notes to Financial Statements. The balance sheet data as
of September 30, 1997 and the statement of operations data for the nine-month
periods ended September 30, 1996 and 1997 and for the period from inception (May
5, 1989) to September 30, 1997 have been derived from unaudited financial
statements of the Company and, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the information set forth therein. The results for the nine
months ended September 30, 1997 are not necessarily indicative of the results to
be expected for the year ended December 31, 1997. The selected financial data
set forth below should be read in conjunction with the Financial Statements of
the Company and related Notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations." The Company has not declared
or paid cash dividends on its Common Stock since inception and does not intend
to pay any cash dividends in the foreseeable future.

<TABLE>
<CAPTION>
NINE MONTHS PERIOD FROM
NINE MONTHS ENDED INCEPTION
ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, (MAY 5, 1989)
DECEMBER 31, -------------------------------------- ----------------- TO SEPTEMBER 30,
1992(1) 1993 1994 1995 1996 1996 1997 1997
------------ ------- -------- ------- ------- ------- ------- --------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Contract research....... $ -- $ -- $ -- $ -- $ 1,112 $ 695 $ 1,301 $ 2,413
Grants.................. -- -- 238 407 975 744 974 2,594
------- ------- -------- ------- ------- ------- ------- --------
-- -- 238 407 2,087 1,439 2,275 5,007
Operating expenses:
Research and
development........... 1,112 1,970 4,209 4,663 4,077 3,089 3,024 21,592
General and
administrative........ 907 1,924 2,424 2,758 1,372 992 1,136 11,224
Restructuring costs..... -- -- -- -- 219 219 -- 219
Acquired in-process
research and
development........... -- -- 5,000 -- -- -- -- 5,000
------- ------- -------- ------- ------- ------- ------- --------
Total operating
expenses................ 2,019 3,894 11,633 7,421 5,668 4,300 4,160 38,035
------- ------- -------- ------- ------- ------- ------- --------
Loss from operations...... (2,019) (3,894) (11,395) (7,014) (3,581) (2,861) (1,885) (33,028)
Interest income (expense),
net..................... 25 55 (42) (240) (282) (251) (27) (468)
------- ------- -------- ------- ------- ------- ------- --------
Net loss.................. $ (1,994) $(3,839) $(11,437) $(7,254) $(3,863) $(3,112) $(1,912) $(33,496)
======= ======= ======== ======= ======= ======= ======= ========
Historical net loss per
share(2)................ $ (1.65) $ (0.79)
======= =======
Shares used in computing
historical net loss per
share(2)................ 2,341 2,434
======= =======
Pro forma net loss per
share(2)................ $ (0.75) $ (0.35)
======= =======
Shares used in computing
pro forma net loss per
share(2)................ 5,166 5,480
======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
------- ------- -------- -------- -------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments................................... $ 1,197 $ 2,105 $ 4,416 $ 1,897 $ 1,981 $ 2,461
Working capital (deficit)....................... 801 1,708 2,133 (1,762) (954) 216
Total assets.................................... 1,687 2,892 5,105 2,404 2,657 3,273
Long-term obligations........................... 269 249 3,192 2,656 1,494 364
Deficit accumulated during the development
stage......................................... (5,191) (9,030) (20,467) (27,721) (31,584) (33,496)
Total stockholders' equity (deficit)............ 1,005 1,980 (504) (4,029) (1,956) 253
</TABLE>

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

(1) In 1992, the Company changed its fiscal year end from March 31 to December
31.

(2) See Note 1 of Notes to Financial Statements for information concerning the
computation of pro forma net loss per share.

23
<PAGE> 25

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

This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include the factors discussed below as well as the factors discussed
in "Risk Factors" and elsewhere in this Prospectus.

OVERVIEW

RiboGene is a drug discovery company focused on the identification of novel
leads and the development of potential drug candidates for the treatment of
infectious diseases. The Company was founded in May 1989 to develop laboratory
equipment for cell-free protein synthesis. In January 1993, the Company
discontinued development of the lab equipment and began to focus its research
and development efforts on the identification of novel leads and the development
of potential drug candidates for the treatment of infectious diseases. The
Company's research efforts initially focused on infections caused by fungi and
viruses. In 1996, the Company expanded its research efforts to include
infections caused by bacteria. Simultaneously with the shift in focus to
infectious disease drug discovery, in 1993 and later in 1994, the Company
in-licensed certain technology not directly related to its drug discovery
efforts. In September 1993, the Company acquired the rights to a compound known
as RG-201. In January 1994, the Company acquired from Hyline Laboratories, Inc.
("Hyline") certain in-process research and development (the "Intranasal Product
Acquisition"), including certain patents and other intellectual property, for an
aggregate purchase price of $5.0 million, of which $800,000 was paid in cash and
$4.2 million was paid in the form of promissory notes ($909,000 of which remains
outstanding as of September 30, 1997), and warrants to purchase 330,744 shares
of Common Stock. The promissory note outstanding was amended to provide for a
principal payment of $500,000 on January 5, 1998, with the remaining principal
balance of $409,000, plus accrued interest, in May 1998. The $409,000 principal
balance will begin to accrue interest at the rate of 7.0% per annum on January
5, 1998. As consideration for this amendment, the Company issued a warrant to
purchase 49,120 shares of Common Stock at $9.85 per share. The warrant expires
in January 1999. The patents and other intellectual property acquired in
connection with the Intranasal Product Acquisition relate to intranasal
formulations and the corresponding administration of metoclopramide, propranolol
and certain benzodiazepines. Potential products incorporating this technology
were under development by Hyline at the time of acquisition. In connection with
the Intranasal Product Acquisition, the Company also entered into an agreement
with the sole stockholder of Hyline pursuant to which the Company is obligated
to pay such stockholder $50,000 per quarter through December 1999. Such
obligation was fully recognized in the Company's Statement of Operations in 1994
and 1995. One of the potential products acquired by the Company was Emitasol, an
intranasal formulation of metoclopramide for the treatment of emesis following
chemotherapy. In 1996, the Company discontinued development of RG-201 and all
the potential intranasal products including Emitasol. See "Business -- Patents
and Proprietary Rights" and "Certain Transactions."

In April 1996, the Company entered into a collaboration with Abbott for its
antifungal program. As part of the Abbott Collaboration, Abbott has agreed to
provide the Company with $5.0 million in research support payments and fund
additional research and development at Abbott, including lead optimization. The
Company will also be entitled to receive milestone payments upon the achievement
of mostly late-stage regulatory milestones in the amount of up to $9.0 million
for each product developed through the collaboration. In connection with the
Abbott Collaboration, Abbott made a $3.5 million equity investment in the
Company. Abbott also agreed to purchase an additional $4.0 million of Common
Stock in a private placement. Abbott has expressed its intention to fulfill this
obligation by purchasing $4.0 million of Common Stock in the Offering at the
initial public offering price. See "Business -- Collaborative and Research
Agreements."

The Company is a development stage company, has generated no revenue from
the sales of products and, through September 30, 1997, has incurred cumulative
net losses of approximately $33.5 million and, at September 30, 1997, had a net
worth of $253,000. The Company expects to incur significant operating losses
over the next several years due primarily to expanded research and development
efforts, preclinical and clinical testing of its product candidates and
commercialization activities. The Company does not anticipate revenues from
product sales for a significant number of years, if ever. The Company's sources
of revenues for the next several years will be payments from strategic
collaborations if any, and interest income. Certain payments

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<PAGE> 26

under collaborations are or will be contingent upon the Company or its
collaborators achieving certain milestones as to which there can be no
assurance. Results of operations may vary significantly from quarter to quarter
depending on, among other factors, the progress of the Company's research and
development efforts, results of clinical testing, the timing of certain
expenses, the establishment of collaborative research agreements and the receipt
of grants or milestone payments, if any.

RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996

For the nine-month period ended September 30, 1997, the Company's revenues
consisted of revenues from the Abbott Agreements and SBIR grants from the
National Institutes of Health. Revenues earned under the Abbott Agreements were
$1,301,000 for the nine months ended September 30, 1997, as compared to $695,000
in the nine months ended September 30, 1996. The increase is attributable to the
Company's research support payments beginning in May 1996 and, as a result, the
1996 period includes only five months of support revenue as compared to nine
months of support during 1997. Revenues from the SBIR grants for the nine months
ended September 30, 1997 were $974,000 as compared to $744,000 in the nine
months ended September 30, 1996. The increase in grant revenue results from the
funding of two grants that were awarded in the fourth quarter of 1996. Revenues
earned under research grants are determined by the timing of the award from the
issuing agency. As a result, research grant revenue earned in one period is not
predictive of research grant revenue to be earned in future periods.

Research and development expenses decreased $65,000, or 2%, to $3.0 million
for the first nine months of 1997, from $3.1 million in the nine-month period
ended September 30, 1996. This decrease resulted from the discontinuance in 1996
of external activities involving Emitasol and RG-201. Research and development
expenses represented approximately 73% of total operating expenses of $4.1
million in the 1997 nine-month period as compared to 72% of total operating
expenses of $4.3 million in the 1996 nine-month period.

General and administrative expenses increased $144,000, or 15%, to $1.1
million for the nine months ended September 30, 1997, from $992,000 in the
nine-month period ended September 30, 1996. This increase was the result of
additional administrative costs associated with a 1997 increase in the Company's
scientific staff.

Net interest expense decreased $224,000, or 89%, to $27,000 in the nine
months ended September 30, 1997, from $251,000 in the nine months ended
September 30, 1996. This decrease resulted from the repayment of debt and
conversion of promissory notes issued to certain of the Company's investors in
the nine months ended September 30, 1996.

The net loss for the nine months ended September 30, 1997 was $1.9 million,
a decrease of $1.2 million or 39%, from the net loss of $3.1 million for the
same period in 1996, due to the changes in revenue and operating expenses
discussed above.

In March 1996, the Company restructured its operations to focus on its PSTM
technology and the search for novel leads for antiinfective drugs. As a result,
certain employees associated with discontinued programs (Emitasol, RG-201) were
terminated. Severance compensation and other associated costs were recognized as
a charge to operations of $219,000 in the nine months ended September 30, 1996.

YEARS ENDED DECEMBER 31, 1996 AND 1995

Revenues for the year ended December 31, 1996 were $2.1 million compared to
$407,000 in the prior year. The Company's 1995 revenues consisted solely of SBIR
grants. Revenues in 1996 included $1.1 million in research payments from Abbott.
The increase in grant revenue in 1996 was attributed to the funding of SBIR
grants in the second quarter of 1995 and the fourth quarter of 1996. Revenues
earned under research grants are determined by the timing of the award from the
issuing agency. As a result, research grant revenue earned in one period is not
predictive of research grant revenue to be earned in future periods.

Research and development expenses decreased $586,000, or 13%, to $4.1
million in 1996, from $4.7 million in 1995 due primarily to the discontinuance
of outside consulting and contract research services related to preclinical
studies of RG-201 and various activities associated with Emitasol. Research and

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<PAGE> 27

development expenses represented approximately 72% of total operating expenses
of $5.7 million in 1996 and 64% of total operating expenses of $7.4 million in
1995.

General and administrative expenses decreased $1.4 million, or 50%, to $1.4
million in 1996, from $2.8 million in 1995. The decrease was due to a one-time
charge in 1995, of $646,000 related to a consulting services agreement with an
executive of the selling party in the Intranasal Product Acquisition in 1994.
The remainder of the decrease was attributable to personnel and administrative
costs savings associated with the reorganization of the business development
function in the first quarter of 1996 and a reduction in the use of external
consulting during 1996.

Net interest expense increased from $240,000 in 1995 to $282,000 in 1996.
The increase of $42,000, or 18%, was due primarily to interest on notes payable
to a bank and convertible promissory notes issued to certain of the Company's
investors.

The net loss decreased from $7.3 million in 1995 to $3.9 million in 1996.
The decrease of $3.4 million, or 47%, was due primarily to revenue and operating
expense differences discussed above.

As of December 31, 1996, the Company had a federal net operating loss
carryforward of approximately $26.0 million available to offset future taxable
income, if any. The Company also had federal and state research and development
tax credit carryforwards of approximately $550,000 and $350,000, respectively.
The net operating loss carryforward will expire at various dates beginning from
2004 through 2011, if not utilized. Utilization of the net operating losses and
credits may be subject to substantial annual limitation due to the "change in
ownership" provisions of the Internal Revenue Code of 1986, as amended, and
similar state provisions. The annual limitation may result in the expiration of
net operating losses and credits before utilization. See Note 8 of Notes to
Financial Statements.

YEARS ENDED DECEMBER 31, 1995 AND 1994

Revenues for the year ended December 31, 1995 were $407,000 compared to
$238,000 of revenues in the prior year. The Company's 1995 and 1994 revenues
consisted solely of SBIR grants. Prior to fiscal 1994, the Company had no
revenues.

Research and development expenses increased $454,000, or 11%, to $4.7
million in 1995, from $4.2 million in 1994 due primarily to an increase in
external activities related to RG-201 and Emitasol. Research and development
expenses represented approximately 64% of total operating expenses of $7.4
million in 1995 and 36% of the total operating expenses of $11.6 million in
1994. Total operating expenses of $11.6 million in 1994 included a $5.0 million
one-time charge associated with the acquisition of in-process research and
development pursuant to the Intranasal Product Acquisition. Exclusive of this
one-time charge, research and development expenses would have represented 64% of
total operating expenses in 1994.

General and administrative expenses increased $334,000, or 14%, to $2.8
million in 1995, from $2.4 million in 1994. The increase was due primarily to a
one time charge made in 1995 of $646,000 related to a consulting services
agreement with the sole stockholder of Hyline in connection with the Intranasal
Product Acquisition. Exclusive of the one time charge, general and
administrative expenses decreased in 1995 as compared to 1994 primarily due to
relocation expenses incurred in 1994 for certain key general and administrative
personnel.

Net interest expense was $240,000 in 1995 and $42,000 in 1994. The increase
in interest expense of $200,000 was due primarily to interest on notes payable
to a bank.

The net loss in 1995 was $7.3 million, a decrease of $4.1 million, or 36%,
from the net loss of $11.4 million in 1994. The net loss of $11.4 million in
1994 included the $5.0 million one-time charge described above. Exclusive of the
one-time $5.0 million expense, the net loss from 1994 to 1995 would have
increased by $817,000, or 11%.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations since incorporation primarily
through private sales of Common Stock and preferred stock, warrants, SBIR
grants, the Abbott Collaboration, the issuance of short-term convertible notes
and equipment financing arrangements. Through September 30, 1997, the Company
has raised approximately $33.7 million from the sale of Common Stock and
Preferred Stock, warrants and short-

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<PAGE> 28

term convertible notes, $2.6 million from SBIR grants and $2.4 million from the
Abbott Collaboration. The Company's capital expenditures and payments under
capital lease obligations aggregate approximately $1.1 million through September
30, 1997, and cash used to fund operating activities since incorporation $26.5
million.

At September 30, 1997, the Company had cash and cash equivalents of
approximately $2.5 million and working capital of $216,000.

On March 7, 1997, the Company entered into a 15-year lease with the right
of sublease for a new facility located in Hayward, California. The lease
provides for an initial annual rent of $531,000, with scheduled increases. The
lease also provides that the Company will issue to the landlord a six-year
warrant to purchase 62,975 shares of Common Stock at $8.93 per share. The
Company relocated to the new facility in November 1997. In September 1997, the
Company amended the lease to include additional square footage in the new
facility. The Company intends to sublet the additional space for a period of
time until it is needed by the Company. See "Business -- Facilities."

The Company will require substantial additional funds to continue and
expand its research and development activities, conduct preclinical studies and
expand administrative capabilities. The Company estimates that at its planned
rate of spending, existing cash and cash equivalents, together with the net
proceeds from the Offering, and the interest income earned on such proceeds,
will be sufficient to fund operations through 1999. There can be no assurance,
however, that the Company's assumptions regarding its future level of
expenditures and operating losses will prove to be accurate. The Company's
future funding requirements will depend on many factors, including: any
expansion or acceleration and the breadth of the Company's research and
development programs; the results of research and development, preclinical
studies and clinical trials conducted by the Company or its collaborative
partners or licensees, if any; the acquisition and licensing of technologies or
compounds, if any; the Company's ability to maintain existing and establish new
corporate relationships and research collaborations; the Company's ability to
manage growth; competing technological and market developments; the time and
costs involved in filing, prosecuting, defending and enforcing patent and
intellectual property claims; the receipt of licensing or milestone fees from
its current or future collaborative and license arrangements, if established;
the continued funding of governmental research grants; the timing of regulatory
approvals; and other factors. See "Risk Factors -- Need for Additional Capital;
Uncertainty of Additional Funding."

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BUSINESS

OVERVIEW

RiboGene is a drug discovery company focused on the identification of novel
leads and the development of potential drug candidates for the treatment of
infectious diseases. The Company's drug discovery efforts target bacterial,
fungal and viral infections for which the efficacy of existing therapies is
being threatened by the emergence of drug resistance or for which existing
therapies have had limited effectiveness. The Company's drug discovery
technology is based on the translational control of gene expression. Translation
is the process used by cells to make proteins and is an essential cellular
process for all living organisms, including infectious pathogens. The Company is
using its platform technology to discover compounds that inhibit or interfere
with PSTMs. RiboGene's extensive knowledge of translation allows the Company to
identify components of the translation process unique to a particular pathogen
and essential to its existence. The Company believes that targeting PSTMs may
lead to the discovery of drugs that are effective against either drug-resistant
pathogens or pathogens for which current therapies are not effective. In
addition, the Company believes that any such drugs discovered using its PSTM
approach may have little or no harmful effect on humans.

The Company believes that its target-based approach is different from, and
provides advantages over, traditional drug discovery techniques. Antiinfective
drug discovery has historically used a limited number of biological targets
which has restricted the ability to discover new drugs effective against drug
resistant pathogens. RiboGene's PSTMs represent a new class of targets for drug
discovery. By focusing discovery efforts on drugs which are effective inhibitors
of PSTMs, the Company believes that it may be possible to discover drug
candidates for which pathogens have not already developed resistance. In
addition, such compounds may in certain applications have better safety and
efficacy profiles than existing therapies, or may provide a therapy where no
other therapy currently exists. The Company's scientists and SAB use their
knowledge and expertise in the field of translation to identify unique targets
specific to pathogens and to design and implement assays in order to identify
selective compounds which demonstrate activity at the pathogen specific
translation targets. By developing assays to discover compounds with identified
mechanisms of action against desired targets, the Company believes that the
compounds which demonstrate activity at these targets will be better
characterized and more likely to result in lead candidates for optimization and
further development.

RiboGene has established antibacterial, antifungal and antiviral drug
discovery programs. Within each program, the Company's drug discovery process
consists of four phases: (i) target identification -- the selection and
characterization of PSTM targets; (ii) assay development -- the design and
implementation of screening systems to identify compounds active against the
PSTM targets; (iii) lead discovery -- the screening of compound libraries to
identify small-molecule lead compounds; and (iv) lead optimization -- the
refinement of lead compounds in order to develop drug candidates. In its
antibacterial program, the Company has two targets, deformylase and ppGpp
degradase, that are in the lead discovery phase and several additional targets
that are in the assay development phase. In its antifungal program, which the
Company conducts in collaboration with Abbott, there are two targets, EF3 and
GCN4, that are in the lead optimization phase and several others that are in
various phases of development. In its antiviral program, which is currently
focused exclusively on the hepatitis C virus ("HCV"), the Company has one
target, HCV IRES, in the lead discovery phase and one target, HCV NS5A/PKR, in
the assay development phase.

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<PAGE> 30

In order to accelerate the discovery, development and commercialization of
antiinfective drugs, the Company seeks to enter into collaborations with major
pharmaceutical companies and, additionally, into research and licensing
agreements with biotechnology companies, combinatorial chemistry companies and
universities. These relationships are intended to provide the Company with
funding, research and development support, access to additional compound
libraries and targets, as well as to provide the Company with preclinical and
clinical trial, manufacturing and marketing capabilities. As part of the Abbott
Collaboration, Abbott has agreed to provide the Company with $5.0 million in
research support payments and fund additional research and development at
Abbott, including lead optimization. The Company will also be entitled to
receive milestone payments upon the achievement of mostly late-stage regulatory
milestones in the amount of up to $9.0 million for each product developed
through the collaboration. In connection with the Abbott Collaboration, Abbott
made a $3.5 million equity investment in the Company. Abbott also agreed to
purchase an additional $4.0 million of Common Stock in a private placement.
Abbott has expressed its intention to fulfill this obligation by purchasing $4.0
million of Common Stock in the Offering at the initial public offering price.
The Company has also entered into agreements with ArQule, Inc. ("ArQule"),
Pharmacopeia, Inc. ("Pharmacopeia") and Trega Biosciences, Inc. ("Trega") to
provide the Company with access to additional compound libraries for its drug
discovery programs and with the University of Washington to acquire the rights
to the HCV NS5A/PKR target for its antiviral program.

STRATEGY

The Company's objective is to discover and develop novel antiinfective
drugs. To achieve this objective, the key elements of the Company's strategy are
to:

Exploit expertise in pathogen specific translation mechanisms. The Company
intends to use its accumulated expertise and know-how in pathogen specific
translation mechanisms to identify novel targets critical for the survival of
bacteria, fungi or viruses. With these targets, the Company develops unique
assays which are used to identify compounds with desired mechanisms of action.
By using targets which are specific to pathogens, the Company believes it may be
able to develop small-molecule lead compounds which inhibit pathogen function
and thereby kill or attenuate pathogen growth with minimal effects on humans. In
certain applications these small-molecule lead compounds may have better safety
and efficacy profiles than those of existing drugs.

Develop novel antiinfectives which target drug resistant pathogens. The
Company directs its drug discovery programs toward the development of drugs that
target pathogens which have developed resistance to currently marketed
antiinfectives. Because new drugs which inhibit PSTMs will have different
molecular targets than those of existing classes of antiinfectives, the Company
believes that any potential drug candidates resulting from its drug discovery
programs may be effective against existing drug resistant pathogens.

Leverage platform technology over multiple indications and multiple
targets. The Company will continue to leverage its platform technology over
multiple targets and across multiple disease states, including its current focus
on antibacterials, antifungals and antivirals, which the Company believes may
increase the likelihood of successful development of leads for potential drug
candidates.

Establish collaborative relationships. The Company employs a two-pronged
collaborative strategy to accelerate the discovery, development and
commercialization of novel antiinfective drugs. The Company seeks to enter into
collaborations with (i) major pharmaceutical companies, on entire programs or on
specific targets, to provide the Company with funds, research and development
resources, including chemistry capabilities, access to compound libraries and
preclinical and clinical, regulatory, manufacturing and commercialization
capabilities and (ii) biotechnology and combinatorial chemistry companies and
universities to provide the Company with access to drug discovery and
development technologies, compound libraries and targets. The Company has
entered into the Abbott Collaboration in order to enhance its antifungal
program. The Company has also entered into agreements with ArQule, Pharmacopeia
and Trega to provide RiboGene with access to additional compound libraries for
certain of RiboGene's drug discovery programs.

Maintain and enhance proprietary position. RiboGene will continue to seek
protection for its discoveries and proprietary technology through the
maintenance of trade secrets, the filing of patent applications and the
in-licensing of issued and pending patents. The Company has received one issued
patent relating to its antifungal program, a notice of allowance relating to its
antiviral program and has several patents pending relating to its core drug
discovery programs.

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BACKGROUND

Infectious Disease Resistance

The increase in prevalence of infectious diseases caused by bacteria, fungi
and viruses that have developed resistance to existing antiinfective drugs is
well documented in the medical literature. This current situation results in
part from the overuse or incorrect use of antiinfective drugs. Administering
antiinfectives in the presence of resistant pathogens creates a growth advantage
for such pathogens and allows them to multiply preferentially over those that
have not developed resistance. These resistant pathogens can then spread quickly
from infected patients to healthy individuals.

Resistant pathogens have developed multiple mechanisms against certain
approved antiinfective drugs. Mechanisms of resistance include altering the
pathogen target, altering the drug itself or preventing the drug from
interacting with the target. Because traditional antiinfective drug discovery
approaches have used a limited number of biological targets, they have not
adequately addressed this resistance problem. As a result, new generations of
antiinfectives resulting from traditional approaches are susceptible to the same
resistance mechanisms.

Traditional Approaches to Antiinfective Drug Discovery

There are two traditional approaches to antiinfective drug discovery.
Biological approaches rely on the use of whole organism based assays to screen
for compounds which kill pathogens. Although antiinfectives have been discovered
using this approach, information on the molecular target or the mechanism of
action of the drug resulting from this approach is minimal. The lack of
information on the target or mechanism of action makes it difficult to
understand the cause of subsequent drug resistance. Chemistry driven approaches
focus on chemical modifications of known antiinfective compounds. This approach
has led to the identification of new drugs which have chemical structures that
are closely related to existing drugs. As a result, these newer drugs are active
at the same molecular targets and eventually encounter the same resistance
problems that were observed for earlier drugs.

RiboGene's target-based approach involves the identification and
characterization of translation mechanisms that are specific to pathogens and
essential to their survival. This approach stands in contrast to traditional
methods for antiinfective drug discovery (particularly for antibacterial agents)
which have produced the drugs that are in clinical use today. Although a number
of existing antibacterials kill pathogens by inhibiting bacteria translation,
these drugs were discovered through traditional approaches. The Company's
approach is one of several modern drug discovery methods, including antisense,
gene therapy and genomics, that have emerged as alternatives to traditional
methods. The Company believes that its targeted approach, which is based on
PSTMs, and assays incorporating those PSTM-based targets combined with
contemporary medicinal and combinatorial chemistry techniques, could increase
the possibility of identifying unique drug candidates.

THE RIBOGENE APPROACH

The Company's scientists, in combination with its collaborative partners
and SAB, use their extensive knowledge and expertise in the field of translation
to identify targets specific to pathogens and to design and implement assays to
identify selective compounds which demonstrate activity at the specific
translation targets. By developing assays which identify compounds with
mechanisms of action against the desired target, the Company believes that the
compounds which demonstrate activity at the target will be better characterized
and more likely to result in lead candidates for optimization and further
development. Because RiboGene's PSTMs represent new drug targets, the Company
believes that antiinfective drugs which result from its drug discovery programs
may also be effective against current drug resistant pathogens.

Translation and protein synthesis are synonymous terms for the process used
by cells to make proteins from a template known as messenger RNA ("mRNA").
Proteins participate in virtually all cellular functions. All proteins are
assembled from a defined set of building blocks known as amino acids, and it is
the sequence in which the amino acids are assembled which distinguishes one
protein from another. The instructions that determine this sequence are encoded
within the genes of the organism. Typically, each gene contains coded
information for the synthesis of one particular protein. For this protein to be
synthesized, the information in the gene must be decoded. The decoding process
has two primary stages known as transcription and

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translation. (See Figure 1). During the first stage, which is known as
transcription, the genetic information is "transcribed," or copied, and the
copies produced are known as mRNA molecules. During the second stage of gene
expression, which is known as translation, the information is "translated," or
utilized, to assemble amino acids into proteins. During this stage, these mRNA
molecules direct the synthesis of the protein by intracellular structures known
as ribosomes. Each ribosome moves along the mRNA and reads it like a tape, which
tells the ribosome which amino acid to add next as it synthesizes the protein.

FIGURE 1 -- THE NATURAL GENE EXPRESSION PROCESS

LOGO

Genetic information is stored archivally as DNA, transcribed into a working copy
as mRNA, and translated into functional units as proteins.

RIBOGENE'S DRUG DISCOVERY PROCESS

RiboGene's drug discovery process consists of four phases: (i) target
identification; (ii) assay development; (iii) lead discovery; and (iv) lead
optimization. The Company currently has the capability internally for the first
three phases and intends to use a portion of the proceeds of the Offering to
enhance its internal lead optimization capabilities.

The following diagram illustrates RiboGene's four-phase integrated drug
discovery process.

FIGURE 2 -- RIBOGENE'S DRUG DISCOVERY PROCESS

LOGO

Target Identification

In the first phase of the process, the Company uses its accumulated
translation specific expertise and know-how in combination with functional
genetics and microbial genomics to identify and select the PSTM targets for use
in its drug discovery programs. Only PSTM targets which are essential for the
life of the pathogen and appear to bear little or no resemblance to their human
counterpart are selected for RiboGene's programs. The Company validates PSTM
targets by demonstrating their essential nature through the examination of the
effects on pathogens upon disruption or deletion of the gene which encodes the
PSTM

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target. The Company believes that the expertise of its staff and SAB provides it
with an important advantage in identifying PSTM targets. To date, the Company
has identified several PSTM targets utilizing its assembled knowledge of
pathogen and human translation.

Assay Development

When PSTM targets have been identified and validated, RiboGene scientists
use a variety of techniques to design and implement translation-based assays.
RiboGene has considerable expertise in the design and implementation of
translation-based assays incorporating conventional, automated and
high-throughput screening technology. The Company believes that its internal
translation-based assay development and implementation capabilities represent a
core competence of RiboGene and an advantage over more traditional drug
discovery screens. To date, the Company has applied its assay development
capabilities to create 40 unique PSTM assays, including those currently utilized
in its antifungal collaboration with Abbott.

Several types of assays have been developed internally for use in the
Company's drug discovery programs, including primary and secondary in vitro
biochemical assays and secondary whole cell assays. Primary assays incorporate
PSTM targets in a high-throughput format and are used to indicate the biological
activity of a compound against the specific PSTM target. This biological
activity is then reconfirmed in separate assays to eliminate compounds that are
not selectively acting against the specific PSTM target. Secondary assays are
used to characterize further the activity of screened compounds.

The basic constructs in many of the Company's assays are similar throughout
all of its drug discovery programs. It is this similarity and the Company's
internal expertise in assay development that allow for advances made in the
design and development of screens for one particular program to be applied to
all of its other programs as well. This advantage can be demonstrated by a
review of the total assay development time for certain of its antifungal and
antibacterial assays. Advances made in the Company's antifungal program allowed
certain antibacterial screens to be developed in half the time required for
their fungal counterparts.

Lead Discovery

Once a PSTM target has been incorporated into a high-throughput assay,
RiboGene scientists use these assays to screen compound libraries to identify
potential lead compounds suitable for lead optimization. Compounds with
demonstrated activity in the primary screen are considered "hits." Secondary
assays designed to characterize further the activity of hits consist of separate
analyses of the compound against (i) the specific PSTM target in an environment
that more closely resembles its natural state, (ii) the specific pathogens in
cell culture and (iii) an appropriate human cell line. The data generated from
screening compounds in these assays is used to identify compounds that have
activity against a given PSTM target. This information is then used to select
compounds to serve as the starting points for lead optimization.

Currently, the Company has the capacity to screen approximately 1.5 million
samples per year. The Company believes that with currently planned improvements,
this capacity can be increased to over 2.4 million samples per year. The Company
intends to use a portion of the proceeds from the Offering to increase its
screening capacity.

In order to increase the probability of identifying compounds that are
active against selected PSTMs, the Company has acquired and will continue to
acquire access to diverse and biased compound libraries. Diverse libraries
contain compounds with a wide variety of chemical structures and structural
features or motifs. Biased libraries contain a narrower selection of chemical
structures and structural motifs that are selected based on their propensity to
bind selected targets. Currently, RiboGene's compound library consists of over
100,000 diverse small-molecule compounds and natural product extracts. The
RiboGene library has been assembled through acquisitions from commercial and
academic sources as well as through custom syntheses. The RiboGene library also
contains a small number of compounds that are biased toward certain PSTM
targets. Through its collaboration with Abbott, the Company gained access to the
Abbott compound library for use in its antifungal PSTM assays. In addition, the
Company has obtained access to certain compound libraries of Trega, ArQule and
Pharmacopeia through research agreements for use in its antiinfective PSTM
assays. See "-- Collaborative and Research Agreements."

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Lead Optimization

Lead optimization involves the use of contemporary medicinal and
combinatorial chemistry techniques to enhance the potency, selectivity,
pharmacokinetic and other properties of potential leads identified using the
Company's assays. Lead optimization begins with the generation of compounds
which are structurally related to the potential lead compounds ("analogs"). The
analogs are generated by methodically altering specific components of a
potential lead compound. The effects of these alterations on the activity of the
analogs are studied in order to determine the function of the altered
components. Once the key components of a given core structure are known,
undesirable or unimportant components may be eliminated, leading to improved
potential lead compounds. Lead optimization is an iterative process involving
the systematic refinement and retesting of potential lead compounds. The Company
currently has limited internal lead optimization capabilities. For its
antifungal program, such capabilities are provided by Abbott. The Company
intends to use a significant portion of the net proceeds from the Offering to
further develop the chemistry capabilities necessary to support its drug
discovery programs. The Company believes that developing these capabilities
internally may allow it to retain control over its discovery programs until a
later stage and, therefore, increase the value of its discovery programs. See
"Risk Factors -- Need for Chemistry Capabilities."

THE RIBOGENE PROGRAMS

The status of RiboGene's primary drug discovery programs is shown below.

FIGURE 3 -- STATUS OF RIBOGENE DRUG DISCOVERY PROGRAMS

LOGO

ANTIBACTERIAL PROGRAM

Bacterial Infections

Bacterial infections are a significant and growing medical problem. These
infections may either be confined to a single organ or tissue, or disseminated
throughout the body by bloodstream infections, and can cause many serious
diseases, including pneumonia, meningitis and complicated urinary-tract
infections. Antibiotics are administered both to prevent bacterial infections
and to treat established bacterial disease.

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When administered to prevent an infection, antibiotics are given before any
clinical signs or symptoms of an infection are present. When administered to
treat an established infection, antibiotics are often chosen and administered
empirically before diagnostic testing has established the causative bacterium
and its susceptibility to specific antibiotics.

Antibacterial Resistance and Market Opportunity

Annual worldwide sales of all antibacterial drugs in 1996 were
approximately $26.0 billion. At least three drugs have individually reached
worldwide sales of over $1.0 billion annually: Augmentin
(amoxicillin/clavulanate potassium), Biaxin (clarithromycin) and Cipro
(ciprofloxacin). Each of these drugs replaced previously prescribed drugs (such
as penicillin, tetracycline and erythromycin) whose effectiveness has diminished
as a consequence of bacterial drug resistance which developed after years of
administration. The clinical efficacy of these new drugs, however, is similarly
being threatened by emerging strains of drug-resistant pathogens.

The increasing prevalence of drug-resistant pathogens has contributed to
higher mortality rates from infectious diseases, particularly those caused by
Staphylococcus aureus, Streptococcus pneumoniae and Enterococcus
faecium/faecalis. S. aureus is the most common pathogen to cause
life-threatening infections. This organism is an aggressive pathogen that has
developed resistance to most antibiotics, except vancomycin (frequently called
"the drug of last resort"). Recent reports of vancomycin-resistant S. aureus
infections in the United States and Japan suggest that S. aureus has begun to
show, and the Company believes will continue to show, resistance to "the drug of
last resort." S. pneumoniae is a frequent cause of death among the elderly and
is the most frequently isolated pathogen in children with otitis media (middle
ear infections) and adults with sinusitis (sinus infection). Studies have shown
that patients with pneumonia caused by drug-resistant strains of S. pneumoniae
have a higher mortality rate than those with drug-sensitive strains. Enterococci
are commonly found living within the human intestinal tract, but can cause
serious bloodstream infections in weakened individuals. Vancomycin-resistant
enterococci, or "VRE" in the medical literature, are extremely difficult to
treat and are increasingly common in clinical settings. It is also feared that
these organisms will be able to pass their vancomycin resistance trait onto the
more serious pathogen S. aureus.

The Company believes that these examples demonstrate the importance of
identifying new molecular targets which will lead to antibacterial agents with
new mechanisms of action. RiboGene's PSTM technology is designed to identify
novel classes of antibiotics that act against new molecular targets.

RiboGene's Antibacterial Projects

RiboGene is focusing its antibacterial drug discovery programs on those
pathogens that have a high annual incidence rate worldwide and that have become
resistant to all but a few available antibacterial drugs. The Center for Disease
Control ("CDC") has reported that 47% of the two million hospital-acquired
infections in the United States are caused by four bacteria: staphylococci,
enterococci, pneumococci and pseudomoni. The Company's antibacterial projects
are targeting infection caused by these and other bacteria.

Translation in bacterial cells differs from translation in human cells. In
particular, the translation initiation factors used by bacterial cells are fewer
in number and have little homology with functional counterparts in human cell
types. In addition, bacteria use translational control processes not found in
human cells. RiboGene is exploiting its knowledge of these bacterial PSTMs and
is designing and implementing antibacterial drug discovery systems incorporating
these PSTM targets. The Company's bacterial PSTM targets are in various stages
of research and development. The Company has developed assays incorporating
certain of these targets and intends to continue assay development incorporating
previously identified and future bacterial PSTM targets. Several of the assays
utilize proprietary strains of bacteria that may allow identification of
inhibitors of the target. Other assays utilize in vitro enzymatic reactions
designed to identify enzyme inhibitors of the target.

The Company has identified several bacterial PSTM targets that are in
various stages of research and development. Two of these targets, deformylase
and ppGpp degradase, are the focus of the Company's most advanced antibacterial
projects. The Company believes that bacterial PSTMs such as deformylase and
ppGpp degradase may be excellent selective targets for drug intervention and has
therefore established drug discovery projects based on these targets.

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Deformylase Inhibitor Project. Bacteria initiate translation using an amino
acid building block called formyl-methionine. The enzyme deformylase, common to
all bacteria, removes the formyl group from methionine releasing the protein for
use by the bacteria. This formylation-deformylation process is essential for
growth of all pathogenic bacteria. Because there is no mammalian counterpart,
the Company believes that the deformylase enzyme inhibition is a useful target
to identify selective inhibitors of bacterial translation. In addition, the
Company believes that all pathogenic bacteria utilize this translation process,
and therefore deformylase inhibitors have the potential to be broad spectrum
antibacterial agents. RiboGene scientists have designed and implemented assays
that target the identification of inhibitors of the deformylase enzyme.

The deformylase inhibitor project is currently in the lead discovery phase.
Through its assay system, the Company has discovered small-molecule deformylase
inhibitors that have activity against bacterial pathogens. The Company is
continuing to screen compounds in the deformylase assays to identify additional
novel lead compounds suitable for lead optimization.

ppGpp Degradase Inhibitor Project. ppGpp (guanosine tetraphosphate) is an
unusual nucleotide, synthesized during the translation process and regulated by
the essential enzyme, ppGpp degradase. Bacteria carefully regulate ppGpp levels
because accumulation of this nucleotide is toxic to the organism. Therefore, the
Company believes that inhibitors of the ppGpp degradase enzyme should kill
bacteria. Since this process is not part of the human translation process, yet
all bacteria appear to utilize this process, RiboGene scientists believe that
ppGpp degradase inhibitors have the potential to be antibacterial agents with
selective broad spectrum activity against pathogens and potentially low toxicity
to humans. The Company has developed a high-throughput primary assay around the
ppGpp degradase enzyme. Secondary assays developed by the Company include an
assay which comprises the isolated ppGpp enzyme and an assay which
quantitatively measures the accumulation of ppGpp. These assays are being
utilized to confirm the mechanism of action of the inhibitors identified in the
primary assay.

The ppGpp degradase inhibitor project is in the lead discovery phase. The
ppGpp assays have identified several potential small-molecule lead compounds
which have been found to have antibacterial activity in vitro against pathogenic
bacteria. The Company continues to screen compounds in the ppGpp assays to
identify novel lead compounds suitable for lead optimization. The Company has
recently received a Phase I SBIR grant in the amount of $100,000 to support this
project.

ANTIFUNGAL PROGRAM

Fungal Infections

Systemic fungal infections are a serious and growing problem. Infections by
fungi or yeasts are frequently caused by Candida albicans, a yeast which is
commonly found in the intestinal tract and on mucosal linings of healthy
individuals. This yeast also causes thrush (sore throat), vaginitis, and
life-threatening infections, particularly in individuals with weakened immune
systems. Another frequent source of serious fungal infections is the Aspergillus
genus, which the average person is exposed to on a regular basis. Healthy
individuals resist Aspergillus infections, but after a severe illness or injury,
this fungus can cause lung infections which can then spread throughout the body
resulting in death. Many diseases and disease states (e.g., organ transplants,
diabetes, cancer) of an aging and increasingly affluent population correlate
with an increased susceptibility to systemic fungal infections, as do
increasingly common medical practices such as use of broad-spectrum antibiotics,
cancer chemotherapy and intensive-care unit support. C. albicans, the most
common fungal pathogen, now accounts for 8-15% of all hospital-acquired
infections, which represents a 480% increase over the last decade. Infections
caused by C. albicans are a significant cause of morbidity and mortality, with
median increased hospital stays of 30 days and estimates of death rates ranging
from 30 to 80%. Aspergillus, a less common cause of fungal infection, results in
a mortality rate estimated at greater than 50%.

Fungal Resistance and Market Opportunity

Worldwide sales of all antifungal drugs in 1996 were approximately $4.0
billion. The largest selling antifungal, Diflucan (fluconazole) had sales in
1996 of approximately $910 million. Diflucan is fungistatic in that it only
stops the growth of the fungus but does not kill it. The Company believes that a
fungicidal drug (i.e., a drug that kills fungi) would be a more effective
antifungal. Relatively few therapeutics have been approved for fungal infections
and almost all inhibit a common biochemical pathway. Because the differences

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between fungal and mammalian cells are less than those between bacterial and
mammalian cells, agents that damage or kill fungal cells are more likely to have
toxic effects on mammalian cells. As a result, progress in antifungal therapy
has been slow. By attacking only one pathway, current antifungals are vulnerable
to increased resistance. Although resistance to antifungal therapeutics is not
yet as serious as for antibacterials, it is increasing and is expected to become
worse if present trends continue.

RiboGene's Antifungal Projects

Certain fungal translational mechanisms differ from those found in human
cells and therefore provide opportunities for RiboGene scientists to identify
translation targets specific to fungal pathogens. RiboGene believes that it may
be possible to identify substances that interfere in fungal translation without
significantly affecting human translation. The Company has identified several
fungal PSTM targets and developed fungal-specific in vitro and whole cell
assays. RiboGene is conducting its antifungal program in collaboration with
Abbott. As part of the Abbott Collaboration, RiboGene is screening both Abbott's
and RiboGene's libraries of compounds. The hits identified in the primary
high-throughput assays are then analyzed using secondary in vitro translational
assays at RiboGene to confirm that the compounds interfere specifically with
fungal translation without significantly affecting mammalian translation.
Compounds with the desired potency and selectivity are then assayed for their
effects against pathogenic fungi in cell culture. Abbott has primary
responsibility for lead optimization and preclinical and clinical development of
any compounds discovered during the course of the collaboration. The Company
intends to develop additional fungal translation assays and screen the RiboGene
and Abbott compound libraries using these targets.

The Company has identified several fungal PSTM targets that are in various
stages of development. Two examples of antifungal PSTMs are the third soluble
elongation factor ("EF3") and another system focused more broadly on fungal
translation ("GCN4"). The Company believes that antifungal PSTMs, such as EF3
and GCN4, are excellent selective targets for drug intervention and has
therefore established drug discovery projects based on these targets.

Elongation Factor 3 (EF3) Project. EF3 is a translation factor unique to
fungi and essential for fungal translation and growth. Although EF3 is common to
all known fungi, the Company believes that no known human counterpart exists,
which increases the probability of identifying selective drugs. At the
elongation stage of translation, fungi utilize three soluble elongation factors
whereas human cells utilize only two. Based upon such differing factors,
RiboGene believes that it may be possible to identify substances that interfere
in fungal translation without significantly affecting human translation.

Since 1996, RiboGene has been working with Abbott to discover novel lead
compounds that inhibit this factor. The Company, in conjunction with Abbott, has
developed multiple approaches to identify substances that interfere selectively
with EF3 function. Certain potential lead compounds have been identified that
have undergone and are undergoing lead optimization at Abbott. Several compounds
identified using the primary assay appear to be fungicidal. In addition, the
Company has recently received a Phase I SBIR grant in the amount of $100,000 to
fund the development of one EF3 assay system.

GCN4 Project. GCN4 is used as a biological signal which can provide
information on fungal translation by responding to inhibition of several steps
within the translation pathway. The Company uses whole living fungal cells with
genetic mutations to screen for inhibitors of these translational components.
RiboGene has developed and patented this drug screening system.

Since 1996, through the Abbott Collaboration, the Company has been working
towards the development of novel antifungal drugs identified with this assay.
The RiboGene and Abbott compound libraries have been examined in this assay
system. Potential lead compounds identified using the primary screen at RiboGene
have progressed to potential lead optimization at Abbott. The Company received
one Phase I and one Phase II SBIR grant in the aggregate amount of $830,000 to
fund early work on the GCN4 project.

ANTIVIRAL PROGRAM

Viral Infections and Hepatitis C

Viruses are intracellular parasites that can only reproduce and proliferate
within a living host cell. Viruses are composed of RNA or DNA genetic material
enclosed in a protective viral coat. A virus reproduces by entering a host cell
and releasing the genetic material which utilizes the host cell machinery to
recreate itself.

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Unlike bacteria and fungi, viruses do not have their own cellular machinery to
reproduce. The Company currently is focusing all of its antiviral efforts on
HCV.

HCV is recognized as a major cause of chronic hepatitis worldwide.
According to the CDC, there are approximately four million HCV infected
individuals in the United States, with up to 180,000 new cases occurring each
year. The World Health Organization estimates that an additional 10 million
individuals are infected with HCV in Europe and a total of 100 million people
are infected worldwide. Hepatitis C accounts for 20% of all cases of acute
hepatitis. Approximately 85% of HCV infected persons will develop chronic
hepatitis, of which 20% will progress to liver cirrhosis. Chronic HCV infection
can also lead to the development of hepatocellular carcinoma and liver failure.
Currently, hepatitis C is responsible for an estimated 8,000 deaths annually,
and without effective intervention that number is estimated to triple in the
next 10 to 20 years. Hepatitis C is also a leading cause for liver
transplantation in the United States.

HCV and Market Opportunity

Interferon alpha and its derivatives are the only approved therapeutics for
HCV infections. Interferon alpha is estimated to be only 20% effective while
resistance to interferon occurs in the other 80% of HCV patients. Based on
published studies conducted by a team of researchers led by a member of the
Company's SAB, the Company believes that hepatitis C virus is intrinsically
resistant to interferon and that the clinical efficacy observed is due to the
occurrence of virus strains which are partially defective. As interferon alpha
is also administered for other indications, including cancer, it is difficult to
determine the precise amount used specifically for HCV treatment. However, total
worldwide sales of all brands of interferon in 1996 were approximately $1.2
billion.

RiboGene's HCV Projects

RiboGene's antiviral drug discovery program focuses on interfering with
viral translation mechanisms important for viral replication. The Company is
currently focusing its HCV efforts on two HCV PSTM targets, the HCV Internal
Ribosome Entry Site ("HCV IRES"), and the interaction between a viral protein
NS5A and a human protein kinase, RNA-activated enzyme ("PKR") together, known as
HCV NS5A/PKR. The Company has considerable expertise in the area of HCV
translation. Two members of the Company's SAB, Dr. Nahum Sonenberg and Dr.
Michael Katze, are responsible for certain important discoveries that have
significantly aided the Company's HCV efforts. Dr. Sonenberg was a co-discoverer
of the IRES mechanisms, and Dr. Katze recently published his findings on the
interaction of interferon-induced PKR and NS5A. Based in part on discoveries
made by Dr. Sonenberg, Company scientists have developed translation-based
assays incorporating certain viral IRES elements including the HCV IRES. The
Company has screened and will continue to screen compounds in these assays. In
April 1997, the Company licensed the rights to the HCV discovery made by Dr.
Katze from the University of Washington. The Company is currently incorporating
the findings of Dr. Katze and is developing an assay designed to identify
inhibitors of the interaction between NS5A and interferon-induced PKR.

HCV Internal Ribosome Entry Site (HCV IRES) Project. An IRES is a special
structure within HCV that enables the virus to manipulate a human cell's
translation process. Viruses with defective IRES elements replicate poorly
which, the Company believes, demonstrates that a loss of IRES function is
damaging to virus replication. RiboGene believes that drugs which affect IRES
function may have similarly damaging effects on viruses with minimal side
effects on human protein synthesis because humans do not utilize IRESs to
initiate translation.

The HCV-IRES project is in the lead discovery phase. The Company has
identified potential small-molecule lead compounds that have demonstrated
activity against HCV surrogates in cell culture. The Company has been awarded
Phase I and Phase II SBIR grants in an aggregate amount of $850,000 to fund the
HCV-IRES project.

HCV NS5A/PKR Project. PKR plays an important role in defending cells
against many kinds of viral infections. PKR regulates protein synthesis in
infected cells, thereby preventing the production of new viruses. Many viruses,
including HCV, have evolved certain defense mechanisms against PKR. RiboGene
believes that if a drug protects PKR against the HCV defense mechanisms it may
be an effective HCV therapeutic because it will enable the human enzyme to exert
its natural anti-HCV effect. The recent work published by Dr. Katze suggests
that the HCV protein NS5A confers interferon resistance by blocking the action
of PKR.

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The Company is working to discover novel therapeutics that protect PKR from
this viral protein in the belief that such therapeutics could increase the
efficacy of interferon treatment. The Company also believes that it may be
possible that a compound with this activity might even allow the efficacious use
of lower doses of interferon, thereby reducing the side effects of high-dose
interferon therapy or increase patient compliance to interferon therapy. The
target has undergone validation and is in the assay development stage. RiboGene
scientists are determining the optimal translational assay system to identify
inhibitors of the HCV NS5A/PKR interaction.

COLLABORATIVE AND RESEARCH AGREEMENTS

The Abbott Agreements

In April 1996, the Company entered into a research agreement with Abbott in
connection with its antifungal program. Pursuant to the research agreement,
Abbott and the Company agreed to collaborate in a research program directed at
accelerating the discovery of new products possessing antifungal activity and
new diagnostic products related to conditions caused by fungal infections or
diseases. Abbott has agreed to provide antifungal research and development
internally at Abbott and up to $5.0 million to support related research at
RiboGene over a three-year period, subject to extension upon mutual agreement by
both parties. Through September 1997, the Company has recognized $2.4 million in
contract research revenue from Abbott. Under the terms of the research
agreement, the duties and responsibilities of Abbott and RiboGene are determined
by a joint management team comprised of representatives from both companies.
RiboGene's initial responsibilities include target identification, assay
development and lead discovery. Abbott is responsible for providing chemistry
capabilities including lead optimization. Abbott may terminate the research
agreement upon 60 days' written notice to the Company.

Also in April 1996, the Company entered into a license agreement with
Abbott. Pursuant to the license agreement, the Company granted Abbott exclusive
worldwide rights to develop and market any and all antifungal products
discovered by the parties during the joint research collaboration using the
Company's drug discovery approach. Under the terms of the license agreement,
Abbott has responsibility for all development activities necessary to
commercialize potential lead compounds resulting from the Abbott Collaboration,
including preclinical testing, clinical development, submission for regulatory
approval, manufacturing and marketing. The Company is entitled to receive
milestone payments of $9.0 million for each product developed upon the
achievement of mostly late-stage regulatory milestones, which payments are fully
creditable against royalties, and royalties on worldwide sales of any products
that may result from such collaboration. Abbott may terminate the license
agreement upon 30 days' written notice to the Company.

Abbott made an initial equity investment in the Company of $3.5 million in
1996. In addition, Abbott agreed to purchase $4.0 million of Common Stock in a
private placement simultaneous with the Company's initial public offering, if
such initial public offering resulted in gross proceeds of $20.0 million
(including the $4.0 million investment by Abbott). Abbott has expressed its
intention to fulfill this obligation by purchasing $4.0 million of Common Stock
in the Offering at the initial public offering price. See "Description of
Capital Stock -- Registration Rights."

There can be no assurance that the Company and Abbott will be successful in
developing or commercializing any drugs or products under the Abbott Agreements.
As such, there can be no assurance that any milestones will be achieved or that
any royalties contemplated by the Abbott Agreements will ever be made. There can
be no assurance that the Abbott Agreements will not be terminated by Abbott
prior to their expiration. See "Risk Factors -- Dependence on Collaborative
Relationships; Funding of Programs."

Research Agreements

Trega Biosciences Inc. In April 1995, RiboGene entered into an agreement
with Trega (formerly Houghten Pharmaceuticals, Inc.), which was amended in April
1997, pursuant to which the two companies agreed to collaborate to screen
combinatorial chemistry libraries developed by Trega using assays developed by
RiboGene. Core antifungals and certain antiviral assays were the initial
therapeutic targets. The Company has completed screening the Trega compounds in
the antifungal assays, but continues to screen compounds in its HCV assays. The
agreement provides for proportionate ownership of compounds resulting from the
collaboration, based on each party's contribution to development of the
compound.

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Pharmacopeia, Inc. In September 1997, the Company entered into a Library
Sample Evaluation Agreement with Pharmacopeia, a combinatorial chemistry company
(the "Pharmacopeia Agreement"). The Pharmacopeia Agreement grants the Company
sequential access to up to three of Pharmacopeia's proprietary compound
libraries (the "Pharmacopeia Compounds"). The Company intends to screen the
Pharmacopeia Compounds in certain of its assays. Upon receipt of the
Pharmacopeia Compounds, the Company will have four months (subject to extension)
during which it will have the exclusive right to screen the compounds against
specified targets. If the Company determines that a Pharmacopeia Compound has
demonstrated biological activity, the Company has the right, within 180 days, to
negotiate a subsequent development agreement with respect to the use and
development of such compound.

ArQule, Inc. In September 1997, the Company entered into a Material
Transfer and Screening Agreement with ArQule, a combinatorial chemistry company
(the "ArQule Agreement"), which grants the Company access to ArQule's
proprietary combinatorial chemistry libraries (the "ArQule Compounds"). The
Company intends to screen the ArQule Compounds in certain of its assays. If the
Company detects activity in one or more of the ArQule Compounds and such
compounds have not already been licensed to a third-party, the Company will have
the opportunity to negotiate a collaboration agreement for such compounds. The
ArQule Agreement has an initial six-month term with automatic six-month renewal
periods, unless earlier terminated by either party.

Georgia State University. In March 1995, the Company entered into an
assignment agreement with Georgia State University Research Foundation ("GSU")
for the transfer of rights to certain compounds synthesized at GSU that have
shown activity in certain of the Company's antiviral assays. The agreement
transfers to RiboGene all right, title and ownership to such compounds. In
consideration for these rights, the Company paid to GSU a one-time fee of
$10,000 and agreed to the payment of royalties to GSU from any sales of products
which incorporate the assigned compounds.

License Agreements

University of Washington. In April 1997, the Company entered into an
agreement with the University of Washington, which was amended in October 1997,
pursuant to which RiboGene received an exclusive worldwide license to certain
patent rights and technology relating to the interaction of the hepatitis C
virus NS5A protein and PKR. Under the agreement, the Company paid an upfront
license fee and has agreed to pay a quarterly license maintenance fee and a
milestone payment of $250,000 due upon the approval of an NDA for a compound
developed using the licensed patent rights.

University of Washington and McGill University. In April 1993, RiboGene
entered into an agreement with the University of Washington and McGill
University, under which RiboGene received an option to acquire an exclusive,
worldwide license to certain patent rights and technology relating to the tumor-
suppressing properties of the enzyme PKR. This agreement was amended in April
1996 to extend the term of the option through April 1998, in exchange for a
minimal payment and a commitment by the Company to continue screening compounds
in assays incorporating this technology and to conduct preclinical studies on
future lead compounds. The funding for these obligations will be provided by an
SBIR grant that awarded the Company up to $640,000 over a two-year period.

PATENTS AND PROPRIETARY RIGHTS

The Company believes that patents and other proprietary rights are
important to its business. The Company's policy is to file patent applications
to protect technology, inventions and improvements to its inventions that are
considered important to the development of its business. The Company's
commercial success will depend, in part, on its ability, and the ability of any
licensors, to obtain patent protection for its products and technologies, both
in the United States and in other countries. The patent positions of
pharmaceutical and biotechnology firms can be highly uncertain and involve
complex legal and technical questions for which important legal principles are
largely unresolved issues; thus making it difficult to predict the breadth of
claims which would be found allowable in any particular case. This uncertain
situation is also affected by revisions to the United States patent law adopted
in recent years to give effect to international accords to which the United
States has become a party. The extent to which such changes in laws will affect
the obligations of the Company cannot be ascertained.

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The Company owns a provisional patent application relating to its
antibacterial drug discovery program; an issued U.S. patent, a pending U.S.
patent application and certain corresponding foreign applications, relating to
its antifungal drug discovery program; and two pending United States patent
applications, one of which has been allowed by the United States Patent and
Trademark Office, and certain corresponding foreign applications relating to its
antiviral drug discovery program. The Company is an assignee, along with McGill
University, of a pending U.S. patent application generally relating to the PSTM
program. The Company is an exclusive licensee under a University of Washington
provisional application directed to HCV NS5A/PKR. In addition, the Company has
an option, from the University of Washington and McGill University, to license a
recently-issued U.S. patent and a pending U.S. patent application relating to
translational technology. There can be no assurance that any of these patent
applications, or any patent applications which the Company may acquire in the
future, will issue as patents, that any such issued patents will afford adequate
protection to the Company or not be challenged, invalidated, circumvented or
infringed, or that any rights granted under such patents will afford competitive
advantages to the Company. To protect its rights to its patent applications
and/or patents, the Company may be required to participate in interference
proceedings before the United States Patent and Trademark Office to determine
priority of invention. In addition, if patents that cover the Company's
activities are issued to other companies, there can be no assurance that the
Company would be able to obtain licenses to such patents at a reasonable cost if
at all or be able to develop alternative technology. The Company also could
incur substantial costs should suits be brought against third parties, in which
the Company asserts patents to which the Company has rights. There can be no
assurance that the Company's patents or those of its licensors if issued, would
not be held invalid by a court or that a competitor's technology or product
would be found to infringe such patents.

The Company's success further will depend, in part, on its ability to
operate without infringing the proprietary rights of others without breaching
agreements that cover technology used in the Company's products. There can be no
assurance that the Company's activities will not infringe patents owned by
others. The Company could incur substantial costs in defending itself in suits
brought against it or any licensor. Should the Company's products or
technologies be found to infringe patents issued to third parties, the
manufacture, use, and sale of any of the Company's products could be enjoined
and the Company could be required to pay substantial damages. In addition, the
Company, in connection with the development and use of its products and
technologies, may be required to obtain licenses to patents or other proprietary
rights of third parties. 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. Failure to obtain such licenses may have a
material adverse effect on the Company.

In addition to patent protection, the Company also relies to a significant
extent upon trade secret protection for its confidential and proprietary
information, including many of the Company's key discovery technologies. There
can be no assurance that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets or disclose such technology. To protect its trade
secrets, it is RiboGene's policy to require its employees, consultants, SAB
members and parties to collaboration and licensing agreements to execute
confidentiality agreements upon the commencement of employment, the consulting
relationship or the collaboration or licensing arrangement, as the case may be,
with RiboGene. In the case of employees, the agreements also provide that all
inventions resulting from work performed by them while employed by RiboGene will
be the exclusive property of RiboGene. In the case of SAB members, the
agreements also provide that any confidential information that results from work
performed for RiboGene will be the exclusive property of RiboGene. The Company
will continue to require its employees, consultants, SAB members, collaborators
and licensees to execute confidentiality agreements and inventions assignment
agreements (in the case of its employees) upon the commencement of employment,
the consulting relationship or the collaboration or license with the Company.
There can be no assurance, however, that these agreements will not be breached
or that they will provide meaningful protection of the Company's trade secrets
or adequate remedies in the event of unauthorized use or disclosure of such
information, that the Company can meaningfully protect its rights in such
unpatented proprietary technology through other means, that any obligation to
maintain the confidentiality of such proprietary technology will not be breached
by employees, consultants, advisors, collaborators, licensees or others, or that
others will not independently develop the same or substantially equivalent
technology. The loss of trade secret protection of any of the Company's key
discovery technologies would materially and adversely affect the Company's
competitive position and could have a material adverse effect on the Company's
business, financial condition and results of operations. Finally, disputes may
arise as to the

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ownership of proprietary rights to the extent that outside collaborators,
licensees or consultants apply technology information developed independently by
them or others to Company projects or apply Company technology to other projects
and, if adversely determined, such disputes would have a material adverse effect
on the Company's business, financial condition and results of operations.

The Company had acquired intellectual property that falls outside the field
of infectious diseases and translational control. The Company does not intend to
develop these products itself. These acquired products include Emitasol, for
emesis associated with chemotherapy, Migrastat, for migraine, and intranasal
benzodiazepines for various conditions such as anxiety, seizures, panic attacks
and sleep disorders. The Company has ongoing debt obligations relating to the
purchase of these products. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

The Company discontinued the development of Emitasol, Migrastat and the
intranasal benzodiazepines in 1996. The Company has decided to discontinue the
patent prosecution for Migrastat. The Company has licensed rights to Emitasol in
Italy, Spain, Austria and certain former Soviet block countries. The Italian
licensee for Emitasol applied to the Italian regulatory authorities in 1993 for
registration of the product. There can be no assurance that the foreign
licensees will obtain the necessary regulatory approvals to market Emitasol, or
that, in the event such approvals are obtained, that Emitasol will achieve
market acceptance in such countries, or that the Company will ever realize
royalties on sales of Emitasol in such countries.

The Company has received notice that Peptech (Europe A/S) is opposing the
grant of a European patent with claims directed to the nasal administration of
benzodiazepines. As one of the grounds for the opposition, Peptech has submitted
a published abstract describing the nasal administration, to children, of the
benzodiazepine midazolam. This abstract has an apparent publication date of
February 1988, several months prior to the earliest filing date in the United
States from which the Company's European patent application could have claimed
priority. While the Company intends to respond vigorously to the opposition, no
assurance can be given as to the scope of the claims, if any, which the European
Patent Office ultimately will find patentable. Failure of the Company to prevail
in the opposition before the European Patent Office could impede the Company's
ability to outlicense the technology portfolio containing this patent.

The issued United States patent relating to the nasal administration of
benzodiazepines is the subject of a reissue proceeding before the United States
Patent and Trademark Office. In the course of negotiations with a potential
licensee of the technology portfolio containing this patent, the Company became
aware that the issued United States patent for which reissue is being sought,
had expired for failure to pay the required maintenance fees. While the Company
fully is seeking to revive the expired patent, there can be no assurance that
such action will be successful, which could impede the Company's ability to
outlicense the technology portfolio containing this patent.

In April 1997, the Company entered into an agreement with CSC
Pharmaceuticals Ltd. ("CSC") of Vienna, Austria for the sale and distribution of
Emitasol in Austria, Eastern Europe and the Russian Federation. Under the terms
of the agreement, CSC is obligated to file for regulatory approval in Austria on
its behalf and three other European Union countries (as directed by and for the
benefit of the Company) for the purpose of obtaining European Union approval to
market the product via the Mutual Recognition process. CSC is obligated to file
for approval in Austria by April 1998. In the event the Company licenses a third
party in a European Union country other than Austria, and the third party
obtains marketing approval through substantial reliance on the marketing
approval obtained by CSC, on behalf of the Company, in any of the three
designated countries, the Company will pay CSC 10% of all up-front consideration
received from the third party, other than payment for equity, up to a maximum of
200% of CSC's expenses for obtaining such marketing approval. In a separate
agreement, the Company's Italian Licensee, Crinos, has agreed to manufacture
Emitasol for CSC and any other licensees. There can be no assurance that CSC
will obtain approval in Austria or that if approval is obtained, CSC will file
for and obtain approval in the other EU countries.

COMPETITION

The biotechnology and pharmaceutical industries are intensely competitive
and subject to rapid and significant technological change. Many of the drugs
which the Company is developing will be competing with existing therapies. In
addition, a number of companies are pursuing the development of pharmaceuticals
which target the same diseases and conditions the Company is targeting, using
technology similar to the

41
<PAGE> 43

RiboGene technology, as well as alternative discovery technologies, including
antisense, gene therapy and genomics. The Company faces competition from
pharmaceutical and biotechnology companies both in the United States and abroad.
Many of the Company's competitors, particularly large pharmaceutical companies,
have substantially greater financial, technical and human resources than the
Company. In addition, unlike the Company, many of these competitors have
experience in undertaking preclinical studies and clinical trials of new
pharmaceutical products, obtaining the necessary regulatory approvals and
manufacturing and marketing products. In addition, academic institutions,
government agencies, and other public and private organizations conducting
research may seek patent protection with respect to potentially competing
products or technologies and may establish exclusive collaborative or licensing
relationships with competitors of the Company.

There can be no assurance that the Company's competitors will not succeed
in developing technologies and drugs that are more effective or less costly than
any which are being developed by the Company or which would render the Company's
technology and future drugs obsolete and noncompetitive. In addition, the
Company's competitors may succeed in obtaining FDA or other regulatory approvals
for drug candidates more rapidly than the Company. Companies that complete
clinical trials, obtain required regulatory agency approvals and commence
commercial sale of their drugs before their competitors may achieve a
significant competitive advantage, including certain patent and FDA marketing
exclusivity rights that would delay the Company's ability to market certain
products. There can be no assurance that drugs resulting from the Company's
research and development efforts, or from the joint efforts of the Company and
its existing or future collaborative partners, will be able to compete
successfully with competitors' existing products or products under development
or that they will obtain regulatory approval in the United States or elsewhere.

GOVERNMENT REGULATION

Regulation by governmental authorities in the United States and other
countries will be a significant factor in the production and marketing of any
pharmaceutical products that ultimately may be developed by the Company. All of
the Company's products will require regulatory approval by governmental agencies
prior to commercialization. Therapeutic drug products intended for human use are
subject to rigorous preclinical and clinical testing requirements and extensive
review and approval procedures by the FDA in the United States and similar
health authorities in other countries. Various statutes and regulations also
govern or affect, among other things, the clinical testing, safety, efficacy,
manufacturing, labeling, storage, record keeping, advertising and marketing and
distribution of such products. Failure to comply with such regulations could
result in, among other things, delays in obtaining required marketing
authorizations, warning letters, recalls, suspension or termination of
production, product seizures, injunctions, civil penalties and criminal
prosecution.

The Company currently is engaged in the preliminary stages of drug
development and does not expect to submit an application for FDA marketing
approval of any therapeutic product drug for a number of years, if ever. Once
the Company identifies a pharmaceutical candidate for potential commercial
development, it will be subject to a lengthy and uncertain regulatory review
process. The steps ordinarily required before a new biopharmaceutical product
may be marketed in the United States include: (i) drug discovery and screening
activities; (ii) preclinical testing; (iii) the submission to the FDA of an
investigational new drug application (an "IND") which must become effective
before clinical trials may commence; (iv) adequate and well-controlled clinical
trials to establish the safety and effectiveness of the drug for its intended
use; (v) the submission of an NDA to the FDA; and (vi) FDA review and approval
of the NDA prior to any commercial sale or distribution.

Preclinical testing includes laboratory evaluation of product chemistry and
formulation, as well as animal studies to assess the safety and efficacy of the
product. Preclinical tests must be conducted in compliance with good laboratory
practice regulations. The results of preclinical tests are submitted to the FDA
as part of an IND. Unless the FDA objects to an IND, the IND will become
effective 30 days following its receipt by the FDA. In addition, the FDA may, at
any time, impose a clinical hold on an ongoing trial, requiring the

42
<PAGE> 44

suspension of the trial until the agency authorizes its re-commencement. There
can be no assurance that submission of an IND will result in FDA authorization
to commence clinical trials or that such authorization will lead to ultimate FDA
approval of a marketing application for the product.

Clinical trials involve the administration of the investigational product
to human subjects under the supervision of qualified principal investigators.
Clinical trials must be conducted in accordance with good clinical practices
under protocols submitted to the FDA as part of the IND. In addition, each
clinical trial must be approved and conducted under the auspices of an
Institutional Review Board ("IRB"), which will consider, among other things,
ethical factors, the safety of the human subjects and the potential liability of
the institution conducting the investigation.

Clinical trials ordinarily are conducted in three sequential phases and
generally take an average of five years, but may take longer. In certain cases
the phases may overlap. Phase I represents the initial introduction of the drug
to a small group of healthy subjects to test for safety, dosage tolerance, and
the essential characteristics of the drug. Phase II involves studies in a
limited number of patients to test the safety and efficacy of the drug at
different dosages. Phase III trials involve large-scale evaluation of safety and
effectiveness, usually (though not necessarily) in comparison with a placebo or
an existing treatment. The results of the preclinical and clinical testing are
submitted to the FDA in the NDA. In some cases, the FDA may require additional
trials to be conducted following marketing approval to confirm safety and/or
effectiveness. There can be no assurance that Phase I, Phase II or Phase III
testing will be completed successfully within any specified time period, if at
all, with respect to any potential products that may be developed by the
Company. Furthermore, the FDA may suspend clinical trials at any time if it
decides that patients are being exposed to a significant health risk.

All data obtained from a comprehensive development program are submitted as
an NDA to the FDA. Although the FDA is required by law to review applications
within 180 days of their filing, in practice longer times are typically
required. Review generally takes an average of at least 15 months but may take
longer. The FDA frequently requests that additional information be submitted
requiring significant additional review time. Any potential products of the
Company will be subject to demanding and time-consuming NDA or similar approval
procedures in countries where the Company intends to market its products. Such
regulations vary country by country.

The process of obtaining required FDA marketing approvals, including a
review of manufacturing process and facilities used to produce such products,
can be costly, time consuming and subject to unanticipated delays. The FDA may
refuse to approve an application if it believes that applicable regulatory
criteria are not satisfied. The FDA may also require additional testing of a
drug product as a condition of marketing approval. There can be no assurance
that approvals of any potential products that may be developed by the Company
will be granted on a timely basis, if at all. Even if granted, marketing
approval will be limited to specific therapeutic indications, and the Company
will be subject to periodic inspection for compliance with good manufacturing
practices and other applicable regulatory requirements relating to labeling,
advertising, record keeping, and reporting to FDA of adverse experiences and
other information.

For marketing outside of the United States before FDA approval to market,
the Company must submit an export permit application to the FDA. Whether or not
FDA approval is obtained, approval of a potential product by comparable
regulatory authorities may be necessary in other countries prior to marketing
such product in such countries. The review and approval procedures vary from
country to country, can involve additional testing and the time required may
differ from that required for FDA approval. In addition, product licensing,
pricing and reimbursement requirements vary widely from country to country.
There can be no assurance that the Company will meet and sustain any such
requirements.

The Company's research and development activities involve the controlled
use of hazardous materials, chemicals and various radioactive materials. The
Company is subject to federal, state and local laws and regulations governing
the use, storage, handling and disposal of such materials and certain waste
products. Although the Company believes that its safety procedures for handling
and disposing of such materials comply with the standards prescribed by state
and federal laws and regulations, the risk of accidental contamination or injury
from these materials cannot be completely eliminated. In the event of such an
accident, the Company could be held liable for any damages that result and any
liability could exceed the resources of the Company. See "Risk
Factors -- Government Regulation and Need for Product Approvals."

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<PAGE> 45

SCIENTIFIC ADVISORS

The Company has established an SAB consisting of individuals with expertise
in translational biochemistry, particularly as it relates to bacteria, fungi,
and viruses. The Company is highly dependent on its SAB members, who conduct
research in cooperation with the Company and provide the Company with access to
technology developed by them. The potential success of the Company's drug
discovery programs depends in part on continued collaborations with these
advisors. The Company and various members of its management and research staff
rely heavily on the SAB for new translation-based targets and for expertise in
translation research. The Company has entered into agreements with its SAB
members which provide for confidentiality of the Company's proprietary
information. The agreements also provide that any confidential information that
results from work performed for the Company is the exclusive property of the
Company. However, the Company may not have rights to developments, publications
or the results of any research conducted by these advisors, which may adversely
affect the Company. See "Risk Factors -- Dependence on Scientific Advisors."

The SAB holds meetings at least twice a year, and SAB members consult with
and meet informally with the Company and with each other on a more frequent
basis. The Company also has entered into independent consulting agreements with
certain of its SAB members pursuant to which such SAB members provide additional
services in the discovery and development of PSTM-targeted therapeutics on a per
project basis. In consideration for services provided to the Company, each
independent consultant is paid a retainer and may receive stock options pursuant
to the consulting agreements. The members of the SAB are as follows:

JOE B. HARFORD, PH.D., Chairman of the SAB, has served on the SAB since
July 1997. Dr. Harford serves as Associate Director of the National Cancer
Institute ("NCI"). In his current position Dr. Harford plays a role in shaping
the course of the NIH in several areas. He is an editor of several books related
to Molecular Biology and has over 100 scientific publications. Prior to joining
the NCI, Dr. Harford was the Director of New Drug Discovery at RiboGene from
1993 to 1996. Prior to that, Dr. Harford held various research and managerial
positions at the NIH from 1979 to 1993. Dr. Harford holds a B.S. degree in
Chemistry from Ohio University, and a Ph.D. degree in Biochemistry from the
University of Maryland School of Medicine. Dr. Harford has been active in the
translation field for over 10 years.

JOHN HERSHEY, PH.D., has served on the SAB since November 1992. Dr.
Hershey, Professor and Chairman, Department of Biological Chemistry, University
of California, Davis. Dr. Hershey has conducted extensive research relating to
translation factors and mechanisms in many species, including humans, bacteria,
fungi, plants and sea urchins. He has 168 scientific publications (30 in the
last five years) and has served on the editorial board of several journals, with
current positions at BioChemie and Gene Expression. Dr. Hershey also is a
co-editor of the book Translational Control (1996), which is a definitive text
in the field. He received his B.S. degree from Haverford College and his Ph.D.
degree from Harvard University. Dr. Hershey has been active in the translation
field for over 35 years.

ALAN HINNEBUSCH, PH.D., has served on the SAB since January 1993. Dr.
Hinnebusch is Chief, Laboratory of Eukaryotic Gene Regulation, National
Institute of Child Health and Human Development. Dr. Hinnebusch's research
interests include translational control mechanisms in fungi and mammals. He has
devised methods for cloning many translation factor genes from fungi and mammals
and this work has led to a much greater understanding of how the translation
initiation process works. Dr. Hinnebusch has 76 scientific publications (28 in
the last five years) and has served on the editorial board of several journals,
with current positions at Molecular & Cellular Biology, Microbiological Reviews
and Genetics. He received his B.S. degree from the University of Dayton and his
Ph.D. degree from Harvard University. Dr. Hinnebusch has been active in the
translation field for over 10 years.

ADAM GEBALLE, M.D., has served on the SAB since December 1992. Dr. Geballe
is an Associate Member in Molecular Medicine and Clinical Research, Fred
Hutchinson Cancer Research Center and Associate Professor of Medicine. Dr.
Geballe's research interests include translational control of viral gene
expression and translation termination in eukaryotes. He has 26 scientific
publications (nine in the last five years) and serves as Associate Editor on the
Journal of Infectious Diseases. Dr. Geballe is certified by the American Board
of Internal Medicine with a Subspecialty of Infectious Disease. He received his
B.A. degree from Stanford University and his M.D. degree from Duke University.
Dr. Geballe has been active in the translation field for over 10 years.

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<PAGE> 46

MICHAEL KATZE, PH.D., has served on the SAB since October 1992. Dr. Katze,
Professor, Department of Microbiology, University of Washington and Associate
Director for Scientific Affairs at the Regional Primate Research Center, has
conducted extensive research relating to translational control by several
viruses, including HCV, influenza, and HIV, and regulation of cellular
translation and growth by PKR. Dr. Katze devised the Company's current model of
interferon resistance in HCV. He also was involved in the development of an
alternative animal model for HIV infection. He has 83 scientific publications
(38 in the last five years) and serves on the editorial boards of Interferon and
Cytokine Research. He received his B.A. in Biology from Boston University and
his M.S. degree and Ph.D. degree from Hahnemann Medical College and Hospital.
Dr. Katze has been active in the translation field for over 15 years.

DAVID MORRIS, PH.D., has served on the SAB since October 1992. Dr. Morris,
Professor, Department of Biochemistry, University of Washington, has conducted
extensive research relating to polyamine biochemistry, translational control
mechanisms and growth control regulation of translation in mammalian cells. He
has 113 scientific publications (14 in the last five years). He received his
B.A. degree from the University of California at Los Angeles and his Ph.D.
degree from the University of Illinois. Dr. Morris has been active in the
translation field for over 25 years.

MICHAEL MATHEWS, PH.D., has served on the SAB since April 1993. Dr.
Mathews, Professor and Chairman of the Department of Biochemistry and Molecular
Biology at the New Jersey Medical School, has conducted extensive research
relating to translational control mechanisms by viruses, including HIV,
adenovirus and hepatitis D virus, and regulation of cellular translation and
growth by PKR. He has 152 scientific publications (47 in the last five years),
and has served on the editorial board of several journals, with current
positions at Genes & Development and Journal of Virology. He also is a co-editor
of the book Translational Control (1996), which is a definitive text in the
field. He received his B.A. degree and Ph.D. degree from Cambridge University.
Dr. Mathews has been active in the translation field for 30 years.

NAHUM SONENBERG, PH.D., has served on the SAB since October 1992. Dr.
Sonenberg, Professor, Department of Biochemistry and McGill Cancer Center,
McGill University, has conducted extensive research relating to translation
factors and mechanisms in many species, including humans, fungi and viruses.
Most of his work has been focused on translational control of mammalian cell
growth, translational control by viruses, including HCV, HIV and rhinovirus and
the initiation phase of translation. Dr. Sonenberg was one of the co-discoverers
of viral IRES elements. He has 193 scientific publications (68 in the last five
years) and has served on the editorial board of several journals, with current
positions at Molecular & Cellular Biology, Gene Expression, Journal of Virology
and RNA. He is also a co-editor of the book Translational Control (1996), which
is a definitive text in the field. He received his B.Sc. degree and M.Sc. degree
from Tel-Aviv University and his Ph.D. degree from the Weitzman Institute of
Science. Dr. Sonenberg has been active in the translation field for almost 25
years.

There can be no assurance that the Company will be able to maintain its
consulting arrangements with its SAB members or that such advisors will not
enter into consulting arrangements with competing pharmaceutical or
biotechnology companies, any of which would have a detrimental impact on the
Company's research objectives and could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors -- Dependence on Scientific Advisors."

EMPLOYEES

At November 14, 1997, the Company had 28 full-time employees. Twenty-two of
the Company's employees are engaged in, or directly support, the Company's
research and development activities. Of the employees engaged in research and
development activities, nine hold Ph.D. degrees. The Company considers relations
with its employees to be good. None of the Company's employees is covered by a
collective bargaining agreement.

The Company's success will depend in large part on its ability to attract
and retain key employees and scientific advisors. The Company's potential growth
and expansion into areas and activities requiring additional expertise, such as
chemistry, are expected to place increased demands on the Company's management
skills and resources. These demands are expected to require a substantial
increase in management and scientific personnel and the development of
additional expertise by existing management personnel. Accordingly, recruiting
and retaining management and operational personnel and qualified scientific
personnel to perform research and development work in the future will also be
critical to the Company's success. There

45
<PAGE> 47

can be no assurance that the Company will be able to attract and retain skilled
and experienced management, operational and scientific personnel on acceptable
terms given the competition among numerous pharmaceutical and biotechnology
companies, universities and other research institutions for such personnel. The
failure to attract and retain such personnel or to develop such expertise could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Risk Factors -- Dependence on and Need for
Additional Key Personnel" and "Management."

FACILITIES

RiboGene currently leases approximately 30,000 square feet of laboratory
and office space in Hayward, California under a lease expiring in November 2012,
that provides for annual rent of approximately $531,000, which includes
amortization of $2.0 million of tenant improvements paid by the landlord. The
Company intends to sublease 5,000 square feet of this facility until such space
is needed by the Company. In connection with the lease, the Company has agreed
to issue the landlord a six-year warrant to purchase 62,975 shares of Common
Stock at $8.93 per share. See "Description of Capital Stock."

LEGAL PROCEEDINGS

The Company is not subject to any material legal proceedings.

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<PAGE> 48

MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

The following table sets forth certain information as of September 30, 1997
with respect to the current executive officers, directors and key employees of
the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- --------------------------------
<S> <C> <C>
Charles J. Casamento............... 52 President, Chief Executive
Officer and Chairman of the
Board of Directors
Laura S. Lehman, Ph.D.............. 40 Vice President of Research
Timothy E. Morris.................. 35 Vice President, Finance &
Administration, Chief Financial
Officer and Assistant Secretary
Charles Gluchowski, Ph.D........... 42 Director of Drug Discovery
Charles M. Moehle, Ph.D............ 38 Associate Director of
Translational Control Research
Alexander E. Barkas, Ph.D.(1)...... 50 Director
Digby W. Barrios(2)................ 59 Director
Jon S. Saxe(1)(2)(3)............... 61 Director
Jesse I. Treu, Ph.D.(2)(3)......... 50 Director
</TABLE>

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

(1) Member of the Nominating Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.

MR. CASAMENTO joined the Company as President, Chief Executive Officer and
Chairman of the Board in June 1993. Prior to joining the Company, he was
President and Chief Executive Officer of Interneuron Pharmaceuticals, Inc., a
biopharmaceutical company, from March 1989 until May 1993. Mr. Casamento is also
a director of CORTEX Pharmaceuticals, a biopharmaceutical company. Mr. Casamento
holds a bachelor's degree in Pharmacy from Fordham University and an M.B.A.
degree from Iona College.

DR. LEHMAN has served as the Company's Vice President of Research since
January 1996, and before that she was Vice President of Drug Discovery and Drug
Development, since June 1994. Prior to joining the Company, she served as Senior
Director, Medicinal Chemistry, at Amylin Pharmaceuticals, Inc., a pharmaceutical
discovery and development company, from June 1989 to June 1994. Dr. Lehman holds
a B.S. degree in Chemistry from Bucknell University, an M.S. degree in Organic
Chemistry from Bucknell University and a Ph.D. degree in Organic Chemistry from
Duke University.

MR. MORRIS joined the Company as Vice President, Finance & Administration
and Chief Financial Officer in June 1995 and was appointed Assistant Secretary
in October 1997. Prior to joining the Company, he served as Chief Accounting
Officer and Senior Director, Finance at Glycomed Incorporated, a biotechnology
company, from May 1992 until May 1995. Mr. Morris is a certified public
accountant and holds a B.S. degree in Accounting from California State
University, Chico.

DR. GLUCHOWSKI joined the Company as Director of Drug Discovery in January
1997. Prior to joining the Company, he was the Director, Department of Chemistry
at Synaptic Pharmaceutical Corporation, a biotechnology company, from September
1990 until January 1997. Dr. Gluchowski received a B.S. degree in Chemistry from
the Stevens Institute of Technology and a Ph.D. degree in Organic Chemistry from
Texas A&M University.

DR. MOEHLE joined the Company in May 1993 and currently serves as the
Associate Director of Translational Control Research. Prior to joining the
Company, he was at the National Institute of Child Health and Human Development
from 1988 to 1993, most recently as a Senior Staff Fellow in the Laboratory of
Molecular Genetics. Dr. Moehle holds a B.A. degree in Biochemistry and Molecular
Biology from Northwestern University and a Ph.D. degree in Biology from Carnegie
Mellon University.

DR. BARKAS joined the Company's Board of Directors in 1991. Dr. Barkas has
been a managing partner of Prospect Venture Partners, a venture capital firm,
since June 1997. From 1991 to 1997, he was a partner with

47
<PAGE> 49

Kleiner Perkins Caufield & Byers ("KPCB"), a venture capital firm. Dr. Barkas
also serves as chairman of Geron Corporation, a biopharmaceutical company, and
as a director of Connetics Corporation, a biopharmaceutical company, as well as
several private medical technology companies.

MR. BARRIOS joined the Company's Board of Directors in August 1996. He is
currently a consultant to the pharmaceutical and biotechnology industries. From
1982 to 1992, Mr. Barrios served in various positions with Boehringer Ingelheim
Corporation, a pharmaceutical manufacturer, most recently as the President and
Chief Executive Officer. Mr. Barrios also serves as a director of Allelix
Biopharmaceuticals, a biopharmaceutical company, Cypros, Inc., a
biopharmaceutical company, Drug Royalty Corporation, a technology investment
company, Roberts Pharmaceutical Corporation, a pharmaceutical company, Sepracor,
Inc., a pharmaceutical company, and several private organizations.

MR. SAXE joined the Company's Board of Directors in April 1994. He has been
a director since 1989 and President since January 1995 of Protein Design Labs,
Inc., a biotechnology company. From August 1960 to September 1989, Mr. Saxe held
a number of executive positions at Hoffmann-La Roche Inc., including Vice
President, Licensing and Corporate Development. From October 1989 to May 1993,
he served as President and Chief Executive Officer of Synergen, Inc., a
biopharmaceutical company, and from May 1993 to May 1995, as President of Saxe
Associates, a biotechnology consulting firm. Mr. Saxe also serves as a director
of ID Biomedical Corporation, a diagnostics and vaccine development company, and
Incyte Pharmaceuticals, Inc., a genomics company.

DR. TREU joined the Company's Board of Directors in 1992. Since 1986, he
has been a general partner of Domain Associates, a venture capital management
firm. He serves on the board of Focal, Inc., a medical device company, GelTex
Pharmaceuticals, Inc., a pharmaceutical company, Trimeris, Inc., a biotechnology
company, and several private companies.

The Company's by-laws authorize and the Company currently has a board of
directors consisting of five members. Following the Offering, the Company's
certificate of incorporation and by-laws will provide that the Board of
Directors is divided into three classes. Each class will consist of one or two
directors. The terms of office of Class I, Class II and Class III directors will
expire at the Company's 1998, 1999 and 2000 annual meetings of stockholders,
respectively. At each annual meeting of stockholders at which the term of office
of a particular class of directors first expires, the person(s) elected to the
board positions represented by such class of directors will be elected to serve
from the time of election until the third annual meeting following election. Any
additional directorships resulting from an increase in the number of directors
will be distributed among the three classes of directors so that, as nearly as
possible, each class will consist of one-third of the directors. This
classification of the Board of Directors may have the effect of delaying or
preventing changes in control or management of the Company. Officers serve at
the discretion of the Board of Directors. There are no family relationships
among any of the directors or executive officers of the Company.

BOARD COMMITTEES

The Nominating Committee of the Board of Directors was formed in October
1997 to interview, evaluate, nominate and recommend individuals for membership
on the Company's Board of Directors and committees thereof. The Compensation
Committee of the Board of Directors was formed in March 1997 to establish
salaries, incentives and other forms of compensation paid to officers and
employees of the Company. The Compensation Committee also administers the
issuance of stock options and other awards under the Company's stock plans. The
Audit Committee of the Board of Directors was formed in October 1997 to review
the internal accounting procedures of the Company and consult with and review
the services provided by the Company's independent auditors.

DIRECTOR COMPENSATION

Directors who are employees of the Company currently do not receive any
cash compensation from the Company for their services as members of the Board of
Directors, although they are reimbursed for certain expenses in connection with
attendance at Board and committee meetings. Non-employee directors who are not
affiliated with a significant stockholder (the "Independent Directors") receive
$2,000 per meeting plus reimbursement of certain expenses. The Independent
Directors were paid an aggregate of $20,000 in director fees during the last
fiscal year. In 1996, Mr. Barrios was granted options to purchase 10,705 shares
of the Company's Common Stock under the 1993 Stock Option Plan. Upon completion
of the Offering, all non-

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<PAGE> 50

employee directors will be eligible to receive stock options pursuant to the
Company's 1997 Non-Employee Directors' Stock Option Plan. See "-- Stock Plans
and Related Employee Benefit Plans."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to the formation of the Compensation Committee in March 1997, the
Board of Directors made all determinations with respect to executive officer
compensation. Of the directors who participated in deliberations concerning
executive officer compensation, either prior to the formation of the
Compensation Committee or in their capacity as a member of the Compensation
Committee, none have served as officers of the Company other than Mr. Casamento,
who has served as President and Chief Executive Officer of the Company since
June 1993. Certain of the Company's directors have purchased securities of the
Company individually or through an affiliated entity. See "Certain Transactions"
and "Principal Stockholders."

EXECUTIVE COMPENSATION

The following table sets forth the compensation earned in 1996 by the
Company's Chief Executive Officer and the other executive officers who earned in
excess of $100,000 during the fiscal year ended December 31, 1996 (collectively,
the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION ALL OTHER
---------------------- COMPENSATION
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) ($)
- --------------------------------------------------------- --------- -------- ------------
<S> <C> <C> <C>
Charles J. Casamento..................................... 275,000 80,000 65,750(1)
President, Chief Executive Officer and Chairman of the
Board of Directors
Laura S. Lehman, Ph.D.................................... 140,000 35,000 37,216(2)
Vice President of Research
Timothy E. Morris........................................ 142,100 -- --
Vice President, Finance & Administration, Chief
Financial Officer and Assistant Secretary
Walter Singleton, M.A., M.D.(3).......................... 175,000 -- --
Vice President, Development
</TABLE>

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

(1) Represents $47,193 of principal and interest on a note forgiven by the
Company and $18,557 in life and disability insurance premiums paid by the
Company.

(2) Represents reimbursement for relocation costs.

(3) Dr. Singleton resigned from the Company in May 1997.

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<PAGE> 51

No options were granted to Named Executive Officers during the fiscal year
ended December 31, 1996. In 1996, 33,074, 18,892, 6,297 and 6,297 shares were
issued to Messrs. Casamento and Morris and Drs. Lehman and Singleton,
respectively, pursuant to purchase rights granted under the 1993 Stock Plan.
Such shares are subject to the Company's right of repurchase upon termination of
employment, which lapses over four years. Such shares were purchased at fair
value as determined by the Company's Board of Directors. No Common Stock
purchase rights were granted to the Named Executive Officers during fiscal 1995
or 1994.

FISCAL YEAR-END OPTION VALUES

The following table sets forth for each of the Named Executive Officers the
number and value of securities underlying unexercised options held by the Named
Executive Officers at December 31, 1996:

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1996(#) DECEMBER 31, 1996($)(1)
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles J. Casamento........................................ 53,807 89,447 -- --
Laura S. Lehman............................................. 19,893 22,828 -- --
Timothy E. Morris........................................... 9,761 17,947 750 1,250
Walter Singleton............................................ 12,857 18,367 -- --
</TABLE>

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

(1) Based on the fair market value of the Common Stock on December 31, 1996
($0.89) as determined by the Board of Directors, less the option exercise
price.

EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL AGREEMENTS

In May 1993, the Company entered into an employment agreement with Charles
J. Casamento, President, Chief Executive Officer and Chairman of the Board of
Directors of the Company. The agreement provides for an annual base salary of
$200,000, subject to annual review. Effective May 1, 1996 and retroactive to
January 1, 1996, Mr. Casamento's annual base salary was increased to $275,000.
In addition, the Board of Directors approved a bonus of up to $150,000 to be
paid to Mr. Casamento in the event of a Merger (as defined in the employment
agreement) or an initial public offering of the Company's Common Stock, and up
to an additional $150,000 for the achievement of specific goals ($50,000 per
goal) in 1996, of which $50,000 was paid in connection with the execution of the
Abbott Agreements. On the first day of employment and on the first and second
anniversary of employment, the Company loaned Mr. Casamento $40,000 (for a total
of $120,000) in the form of three-year notes with interest rates of 3.62%, 5.63%
and 5.97% per annum, respectively. The loans due in June of 1996 and 1997 have
been forgiven. These loans were made in connection with cost-of-living
adjustments and may be forgiven, at the election of the Board of Directors, for
so long as Mr. Casamento remains employed by the Company. In addition, in
October 1993, the Company provided Mr. Casamento with a bridge loan in the
aggregate amount of $250,000, which loan subsequently was repaid by Mr.
Casamento in October 1994.

In July 1995, the Company entered into a Change of Control agreement with
Mr. Casamento that provides for certain severance benefits in the event his
employment is involuntarily terminated other than for "cause" at any time within
12 months after, or in contemplation of, a Change of Control (defined as a
reorganization in which the current shareholders hold less than a 50% ownership
interest in the surviving entity consummated without the approval of the Board
of Directors, a sale of all or substantially all of the Company's assets, a
liquidation of the Company or a transaction in which more than half of the
Company's Board of Directors is replaced). Severance benefits include a lump-sum
payment equal to 12 months' salary and the continued payment of medical benefits
during the 12 months following termination. In addition, all loans issued by the
Company to Mr. Casamento will be forgiven automatically upon a Change of
Control. The Change of Control agreement also provides that all options held by
Mr. Casamento will immediately vest, and the exercise period of such options
will be extended to a date one year from the earlier of the termination date or
the date upon which any relevant lock-up agreements expire.

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<PAGE> 52

continuation of certain medical benefits for the six-month period following
termination. Dr. Lehman and Mr. Morris will receive an additional six months of
vesting on their stock options, and the exercise term of such options will
extend to 12 months from the earlier of the termination date or the expiration
of any relevant lock-up agreements.

Pursuant to an agreement between the Company and Mr. Morris, dated June 30,
1995, in the event that Mr. Morris's employment with the Company is
involuntarily terminated, he is entitled to continue to receive his then current
salary for a period of six months after the termination date.

The Company also has entered into letter agreements with Dr. Lehman and Mr.
Morris, providing each with a bonus payment of 25% of their annual salary upon
the achievement of certain objectives.

STOCK PLANS AND RELATED EMPLOYEE BENEFIT PLANS

1993 Stock Plan

The Company's 1993 Stock Plan, as amended (the "1993 Plan"), was adopted by
the Board of Directors and approved by the Company's stockholders in March 1993.
The 1993 Plan has been amended to increase the number of shares of Common Stock
reserved for issuance under the 1993 Plan to a total of 1,041,603 shares. As of
September 30, 1997, 280,182 shares had been issued under the 1993 Plan pursuant
to the exercise of stock options or purchase rights, options to purchase a total
of 649,484 were outstanding and 111,937 shares remained available for future
option or purchase grants.

The 1993 Plan provides for the grant to employees of the Company (including
officers and employee directors) of "incentive stock options" within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
for the grant of nonstatutory stock options, to employees and consultants of the
Company, and for the direct issuance of shares of Common Stock pursuant to
Restricted Stock Purchase Agreements. To the extent an optionee would have the
right in any calendar year to exercise for the first time one or more incentive
stock options for shares having an aggregate fair market value (under all plans
of the Company and determined for each share as of the date the option to
purchase the share was granted) in excess of $100,000, any such excess options
shall be treated as nonstatutory stock options.

The 1993 Plan is administered by the Compensation Committee of the Board of
Directors (the "Administrator"). The Administrator determines the terms of
options granted under the 1993 Plan, including the number of shares subject to
the option, exercise price, term and exercisability. The exercise price of all
incentive stock options granted under the 1993 Plan must be at least equal to
the fair market value of the Common Stock on the date of grant. The exercise
price of all nonstatutory stock options must equal at least 85% of the fair
market value of the Common Stock on the date of grant. The exercise price of any
incentive stock option granted to an optionee who owns stock representing more
than 10% of the voting power of the Company's outstanding capital stock (a "10%
Stockholder") must equal at least 110% of the fair market value of the Common
Stock on the date of grant. Payment of the exercise price may be made in cash,
promissory notes or other consideration determined by the Administrator. The
term of a stock option may not exceed 10 years (five years if issued to a 10%
Stockholder). No option may be transferred by the optionee other than by will or
the laws of descent or distribution. Each option may be exercised during the
lifetime of the optionee only by such optionee. Options granted to each employee
under the 1993 Plan generally become exercisable for 12.5% of the total number
of shares subject to the options after the six-month period from the date of
grant, and approximately 2% each month thereafter. Similarly, stock purchase
rights granted to employees typically are subject to the Company's right to
repurchase the shares at the purchase price in the event that the employee's
relationship with the Company terminates, which repurchase right typically
lapses in accordance with the vesting schedule set forth in the preceding
sentence.

In the event of certain changes in control of the Company, the 1993 Plan
requires that each outstanding option be assumed or an equivalent option
substituted by the successor corporation. The Administrator has the authority to
amend or terminate the 1993 Plan as long as such action does not adversely
affect any outstanding option and provided that shareholder approval shall be
required for an amendment to increase the number of shares subject to the 1993
Plan, or any change in the designation of the class of persons eligible to be
granted options, or a material increase in benefits accruing to participants
under the 1993 Plan if the Company is registered under Section 12 of the
Exchange Act. If not terminated earlier, the 1993 Plan will terminate in March
2003.

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<PAGE> 53

The Company has reserved 1,007 shares of its Common Stock for issuance upon
the exercise of a stock option outstanding under a prior stock option plan,
which plan has since been terminated other than with respect to this outstanding
option.

1997 Equity Incentive Plan

The Company's 1997 Equity Incentive Plan (the "Incentive Plan") was adopted
by the Board in October 1997. Currently, there is an aggregate of 1,000,000
shares of Common Stock authorized for issuance under the Incentive Plan.

The Incentive Plan provides for the grant of incentive stock options,
nonstatutory stock options, restricted stock purchase awards and stock bonuses
under the Code, to employees (including officers and employee-directors) and
nonstatutory stock options, restricted stock purchase awards and stock bonuses
to employees (including officers and employee-directors), directors and
consultants of the Company. The Incentive Plan is administered by the
Compensation Committee of the Board of Directors which determines recipients and
types of awards to be granted, including the exercise price, number of shares
subject to the award and the exercisability thereof.

The exercise price of options granted under the Incentive Plan is
determined by the Compensation Committee of the Board of Directors, provided
that the exercise price for a nonstatutory stock option cannot be less than 85%
of the fair market value of the Common Stock on the date of the option grant,
and the exercise price for an incentive stock option cannot be less than 100% of
the fair market value of the Common Stock on the date of the option grant.
Options granted under the Incentive Plan vest at the rate specified in the
option agreement. Generally, no stock option may be transferred by the optionee
other than by will or the laws of descent or distribution, except a nonstatutory
stock may also be transferred pursuant to a domestic relations order. In all
events, an optionee may designate a beneficiary who may exercise the option
following the optionee's death. An optionee whose relationship with the Company
or any affiliate ceases for any reason (other than by death or permanent and
total disability) may generally exercise vested options in the three-month
period following such cessation. In the case of death or total and permanent
disability, vested options may be exercised for 18 or 12 months, respectively,
after an optionee's relationship with the Company and related entities ceases.
Notwithstanding the foregoing, an optionee's option agreement may provide for
longer or shorter post-termination exercise periods as determined by the
Compensation Committee of the Board of Directors. In no event, however, may an
option be exercised after 10 years following the date of its grant.

No incentive stock option may be granted to any person who at the time of
the grant is a 10% Stockholder unless the option exercise price is at least 110%
of the fair market value of the stock subject to the option on the date of grant
and the term of the option does not exceed five years from the date of grant. In
addition, the aggregate fair market value, determined at the time of grant, of
the shares of Common Stock with respect to which incentive stock options are
exercisable for the first time by an optionee during any calendar year (under
the Incentive Plan and all other stock plans of the Company and its affiliates)
may not exceed $100,000.

When the Company becomes subject to Section 162(m) of the Code (which
denies a deduction to publicly held corporations for certain compensation paid
to specified employees in a taxable year to the extent that the compensation
exceeds $1,000,000), no person may be granted options under the Incentive Plan
covering more than 300,000 shares of Common Stock in any calendar year.

Shares subject to stock awards that have expired or otherwise terminated
without having been exercised in full again become available for the grant of
awards under the Incentive Plan. The Compensation Committee of the Board of
Directors has the authority to reprice outstanding options and to offer
optionees the opportunity to replace outstanding options with new options for
the same or a different number of shares. Both the original and new options will
count toward the limitation set forth above.

Restricted stock purchase awards granted under the Incentive Plan may be
granted pursuant to a repurchase option in favor of the Company in accordance
with a vesting schedule and at a price determined by the Compensation Committee
of the Board of Directors. Restricted stock purchases must be at a price equal
to at least 85% of the stock's fair market value on the award date, but stock
bonuses may be awarded in consideration of past services without a purchase
payment. Rights under a stock bonus or restricted stock purchase agreement may
not be transferred other than by will, the laws of descent and distribution or a

52
<PAGE> 54

domestic relations order during such period as the stock awarded pursuant to
such an agreement remains subject to the agreement.

Upon certain changes in control of the Company, all outstanding awards
under the Incentive Plan may either be assumed or substituted by the surviving
entity. If the surviving entity determines not to assume or substitute such
awards, then, with respect to persons then performing services for the Company,
the exercise period for such awards will be accelerated and the awards
terminated if not exercised prior to the change in control. Awards held by other
persons will be terminated if not exercised prior to such event, subject to a
limited number of exceptions. If the surviving entity assumes or substitutes
such awards, and if a person's service as an employee, director or consultant is
terminated within 13 months following the date of the change in control, the
full vesting of any award held by such person shall accelerate and such award
will become exercisable for up to 12 months after the date of full vesting. An
award under the Incentive Plan that has been assumed or substituted by the
surviving entity and is held by a person still providing services to the Company
13 months after the change in control will become fully vested on such date, and
such award will become exercisable for up to 12 months following the date of
full vesting.

1997 Non-Employee Directors' Stock Option Plan

In October 1997, the Board adopted the 1997 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan") to provide for the automatic grant of
options to purchase shares of Common Stock to non-employee directors of the
Company. The Directors' Plan is administered by the Board, unless the Board
delegates administration to a committee.

The aggregate number of shares of Common Stock that may be issued pursuant
to options granted under the Directors' Plan is 150,000. Pursuant to the terms
of the Directors' Plan, each person serving as a director of the Company who is
not an employee of the Company (a "Non-Employee Director") shall upon the date
such person first becomes a Non-Employee Director after the date that the
Directors' Plan is adopted automatically be granted an option to purchase 10,000
shares of Common Stock. In addition, on the date immediately following the date
of each stockholders meeting, each Non-Employee Director who has been in office
for 6 months will automatically be granted an option to purchase 2,500 shares of
Common Stock.

Each initial grant of options under the Directors' Plan will vest in four
equal, annual installments commencing one year from the date of the grant of the
option. Each subsequent annual grant shall become exercisable one year from the
date of grant. The exercise price of the options granted under the Directors'
Plan will be equal to the fair market value of the Common Stock granted on the
date of grant. No option granted under the Directors' Plan may be exercised
after the expiration of 10 years from the date it was granted. Options granted
under the Directors' Plan are generally non-transferable. The Directors' Plan
will terminate in 2007 unless sooner terminated by the Board.

In the event of certain changes of control, options outstanding under the
Directors' Plan will automatically become fully vested and will terminate if not
exercised prior to such change of control.

Employee Stock Purchase Plan

In October 1997, the Board of Directors approved the Employee Stock
Purchase Plan (the "Purchase Plan") with an aggregate of 750,000 shares of
Common Stock reserved for issuance under such plan. The Purchase Plan is
intended to qualify as an "employee stock purchase plan" within the meaning of
Section 423 of the Code. Under the Purchase Plan, the Board may authorize
participation by eligible employees, including officers, in periodic offerings
following the adoption of the Purchase Plan. The offering period for any
offering will be no longer than 27 months.

Generally, employees are eligible to participate if they are employed by
the Company or an affiliate of the Company designated by the Board of Directors.
Employees who participate in an offering can have up to 15% of their earnings
withheld pursuant to the Purchase Plan and applied, on specified dates
determined by the Board, to the purchase of shares of Common Stock. The price of
Common Stock purchased under the Purchase Plan will be equal to 85% of the lower
of the fair market value of the Common Stock on the commencement date of each
offering period or the relevant purchase date. Subject to the terms of an
offering, employees may end their participation in the offering at any time
during the offering period, and participation ends automatically on termination
of employment with the Company.

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<PAGE> 55

In the event of certain changes of control, the Board of Directors has
discretion to provide that each right to purchase Common Stock will be assumed
or an equivalent right substituted by the successor corporation, or the Board
may shorten the offering period and provide for all sums collected by payroll
deductions to be applied to purchase stock immediately prior to the change in
control. The Purchase Plan will terminate at the Board's direction.

401(k) Plan

In 1992, the Company adopted a tax-qualified employee savings and
retirement plan (the "401(k) Plan") under which eligible employees may elect to
defer their current compensation up to certain statutorily prescribed annual
limits ($9,500 in 1997) and to contribute such amounts to the 401(k) Plan. The
401(k) Plan permits, but does not require, additional matching contributions to
the 401(k) Plan by the Company on behalf of all participants in the 401(k) Plan.
Effective January 1, 1997 the Company has agreed to match 10% of each
participant's contribution. Each employee's matching contribution vests at a
rate of 25% per year. The 401(k) Plan is intended to qualify under Section 401
of the Code, so that contributions by employees or by the Company to the 401(k)
Plan, and income earned on the 401(k) Plan contributions, are not taxable to
employees until withdrawn from the 401(k) Plan, and so that contributions by the
Company, if any, will be deductible by the Company when made. The trustee under
the 401(k) Plan, at the direction of each participant, invests the 401(k) Plan
employee salary deferrals in selected investment options.

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<PAGE> 56

CERTAIN TRANSACTIONS

In January 1994, the Company purchased the assets of Hyline in exchange for
$800,000 in cash, promissory notes due and payable on January 5, 1995, January
5, 1996, January 5, 1997, and January 5, 1998 in the principal amounts of
$1,121,000, $916,000, $910,000 and $909,000, respectively, and a warrant to
purchase 330,744 shares of Common Stock at an original exercise price of $11.91
per share (the "Hyline Warrant"). Hyline is a beneficial owner of more than 5%
of the outstanding Common Stock. Each such promissory note accrued interest at
3.98% per annum, except that the promissory note due and payable on January 5,
1998 accrues interest at 5.32% per annum. The promissory note due January 1998
was amended to provide for a principal payment of $500,000 in January 1998, with
the remaining principal balance of $409,000, plus accrued interest, in May 1998.
The $409,000 principal balance will begin to accrue interest at 7% on January 5,
1998. As consideration for this amendment, the Company issued a warrant to
purchase 49,120 shares of Common Stock at $9.85 per share. The warrant expires
January 1999. The Company paid in full the principal amounts of the notes due
and payable in 1995, 1996 and 1997 and paid interest on the notes due and
payable in 1995, 1996 and 1997 in the amounts of $44,616, $72,914 and $108,654,
respectively. In connection with the asset purchase, the Company entered into a
non-competition agreement with Michael Ashkin, the President and sole
stockholder of Hyline, in exchange for $386,000, of which $82,000 was due and
paid on January 5, 1995, $91,000 was due and paid on January 5, 1996, $101,000
was due and paid on January 5, 1997 and $112,000 is due and payable on January
5, 1998. In addition, the Company entered into a consulting agreement with Mr.
Ashkin. The agreement provides for guaranteed payments of $50,000 per quarter
from January 1995 through December 1999, whether or not he provides services to
the Company. To date, Mr. Ashkin has not performed any services for the Company
under this agreement, and the Company does not expect to use his services in the
future. The Hyline Warrant contains certain antidilution adjustment provisions,
and as a result of various transactions since January 1994, the current exercise
price is $9.85. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

In April 1994, the Company sold an aggregate of 4,000,000 shares (after
giving effect to a three-for-four stock split of the Company's outstanding
Series E Preferred Stock effected in November 1995) of Series E Preferred Stock
at a price of $2.25 per share ($8.93 per share of Common Stock on an
as-converted basis) in a private placement to certain institutional investors,
including 444,445 shares to entities affiliated with Kleiner Perkins Caufield &
Byers V ("KPCB V"), 666,666 shares to CW Ventures II L.P. ("CW"), 444,445 shares
to Domain Partners II, L.P. ("Domain"), 444,445 shares to Sierra Ventures III
("Sierra"), 888,889 shares to Biotechnology Investments Limited ("BIL") and
666,666 shares to entities affiliated with Oxford Bioscience Partners
("Oxford"). Dr. Alexander E. Barkas, a director of the Company, was a partner
with KPCB until June 1997. KPCB is an affiliate of KPCB V, a beneficial owner of
more than 5% of the outstanding Common Stock. Charles Hartman, a former director
of the Company, is a partner with CW Group, the general partner of CW, which is
a beneficial owner of more than 5% of the outstanding Common Stock. Dr. Jesse
Treu, a director of the Company, is a general partner of Domain, a beneficial
owner of more than 5% of the outstanding Common Stock. Dr. Petri Vainio, a
former director of the Company, is a partner of Sierra, a beneficial owner of
more than 5% of the outstanding Common Stock. BIL and Oxford each are beneficial
owners of more than 5% of the outstanding Common Stock.

In July and September 1995, the Company issued to certain investors and a
financial institution convertible promissory notes in an aggregate principal
amount of $4,394,680 bearing interest at a rate of 7% per annum, to provide
temporary working capital for the Company. Included in the total principal
amount of notes issued were $733,555 principal amount of notes issued to KPCB V,
$632,375 principal amount of notes issued to CW, $581,875 principal amount of
notes issued to each of Domain and Sierra, and $500,000 principal amount of
notes issued to each of BIL and Oxford. In September 1995, the Company repaid
$765,000 principal amount of these notes to the financial institution. In
November 1995, the remaining outstanding notes were converted into an aggregate
of 1,647,814 shares of Series E Preferred Stock at a rate of one share per $2.25
of principal and interest due and payable (including 332,250 shares to KPCB V,
286,843 shares to CW, 264,180 to each of Domain and Sierra and 227,437 to each
of BIL and Oxford.)

In February 1996, the Company issued to certain investors convertible
promissory notes in an aggregate principal amount of $1,892,500 bearing interest
at a rate of 7% per annum to provide temporary working capital for the Company.
Included in the total amount of notes issued were $434,000 principal amount of
notes issued to KPCB V, $395,000 principal amount of notes issued to CW,
$346,500 principal amount of notes issued to Domain, $240,000 principal amount
of notes issued to Sierra, $265,000 principal amount of notes

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<PAGE> 57

issued to BIL and $212,000 principal amount of notes issued to Oxford. In May
1996, such notes were converted into an aggregate of 860,844 shares of Series E
Preferred Stock at a rate of one share per $2.25 of principal and interest due
and payable (including 197,415 shares to KPCB V, 179,675 shares to CW, 157,613
shares to Domain, 109,169 shares to Sierra, 120,541 shares to BIL and 96,431
shares to Oxford).

In May 1996, in connection with the Abbott Agreements, Abbott purchased an
aggregate of 1,555,556 shares of Series E Preferred Stock at a per share price
of $2.25. Abbott also agreed to purchase an additional $4.0 million of Common
Stock in a private placement. Abbott has expressed its intention to fulfill this
obligation by purchasing $4.0 million of Common Stock in the Offering at the
initial public offering price. See "Business -- Collaborative and Research
Agreements." Abbott is a beneficial owner of more than 5% of the outstanding
Common Stock.

Concurrently with the closing of the Offering, each outstanding share of
Series E Preferred Stock will be converted into .2519 of a share of Common
Stock. See "Description of Capital Stock -- Preferred Stock."

In connection with the Series F Private Placement in August 1996, the
Company entered into a Placement Agency Agreement (the "Placement Agency
Agreement") with Paramount Capital, Inc. ("Paramount"). Pursuant to the
Placement Agency Agreement, the Company paid Paramount commissions and
non-accountable expense allowances of $681,586. The Company also granted to
Paramount Placement Agent Unit Options to purchase 228,266 Placement Agent
Units, each consisting of two shares of Series F Preferred Stock and one
Placement Agent Class A Warrant. The Placement Agent Unit Options which include
a cashless exercise provision, may be exercised for an aggregate of
approximately $283,000 and expire on December 23, 2007. The Placement Agent
Class A Warrants expire on June 22, 2003. The Series F Private Placement was
conducted by Paramount on a best-efforts basis. Accordingly, the compensation
paid to Paramount was based on a percentage of the total amount of Premium
Preferred Units (as defined below) placed by Paramount. The percentage rates
used to determine the commission and the amount of Placement Agent Unit Options
issued was determined by negotiations between the Company and Paramount.
Pursuant to the Placement Agency Agreement, Paramount is entitled to propose one
person for nomination as a voting director of the Company until 2001. The
Company is required to vote all voting securities for which the Company holds
proxies granting it voting discretion, or which the Company is otherwise
entitled to vote, in favor of, and to use its best efforts to cause the election
of such individual. At the Placement Agent's option, in lieu of proposing a
voting director for nomination, it may designate a nonvoting observer who shall
be entitled to attend all meetings of the Board of Directors and any of its
committees. Paramount has currently elected to designate an observer in lieu of
a voting director.

In February 1997 and June 1997, the Company sold an aggregate of 2,282,663
premium preferred units in the Series F Private Placement at a purchase price of
$2.25 per premium preferred unit (each, a "Premium Preferred Unit"). Each
Premium Preferred Unit consists of one share of Series F Preferred Stock and one
Class A Common Stock Warrant. Each share of Series F will be converted upon the
completion of the Offering into .5038 of a share of Common Stock (assuming an
offering price of $8.93 per share). The conversion ratio of the Series F
Preferred Stock will depend on the initial public offering price of the Common
Stock sold in the Offering.

The Class A Warrants have a six-year term and entitle the holder to
purchase .2519 of a share of Common Stock at an exercise price per share equal
to the lesser of (i) $8.93 or (ii) the effective per share price of common stock
in an initial public offering which results in gross proceeds of at least $7.5
million to the Company. In the Series F Private Placement, The Aries Trust
purchased 573,334 Premium Preferred Units, Aries Domestic Fund, L.P. (the "Aries
Fund") purchased 315,555 Premium Preferred Units, CW purchased 44,445 Premium
Preferred Units, KPCB V purchased 88,889 Premium Preferred Units and Oxford
purchased 88,889 Premium Preferred Units. The Aries Trust and related entities
constitute a beneficial owner of more than 5% of the outstanding Common Stock.

In connection with and as a condition of the Series F Private Placement,
the Company also entered into a Financial Advisory Agreement with Paramount in
June 1997 (the "Financial Advisory Agreement"), pursuant to which Paramount
receives $4,000 per month for a minimum of 24 months to provide financial
advisory services to the Company. Although Paramount is under no obligation to
provide any services under the Financial Advisory Agreement, pursuant to such
agreement, Paramount may receive additional compensation for certain referral
services including the introduction of parties by Paramount to the Company in
which the Company completes the sale of securities, sale, merger or acquisition
of the Company, strategic alliance or

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<PAGE> 58

product acquisition with such parties as provided for in the Financial Advisory
Agreement. In addition, Paramount received 342,399 Placement Agent Unit Options.
The Placement Agent Unit Options may be exercised for an aggregate of $424,500
and expire on December 23, 2007. The Class A Warrants included in the Placement
Agent Unit Options expire on June 22, 2003.

The Placement Agent Unit Options granted to Paramount were distributed by
Paramount in September 1997. As a result of this distribution, Dr. Lindsay
Rosenwald, a former director of the Company, holds 353,947 Placement Agent Unit
Options, the Aries Fund holds 31,556 Placement Agent Unit Options and The Aries
Trust holds 57,333 Placement Agent Unit Options. The balance of 127,879
Placement Agent Unit Options were distributed to designees or employees of
Paramount.

Dr. Rosenwald is the President, Chairman of the Board of Directors and the
sole stockholder of both Paramount Capital Asset Management Inc., the general
partner of the Aries Fund and the investment manager to The Aries Trust, and
Paramount. Dr. Rosenwald was appointed by Paramount to the Board of Directors
pursuant to the rights, described above, but subsequently resigned in September
1997. An employee of Paramount currently serves as an observer on the Board of
Directors of the Company.

Concurrently with the closing of the Offering, each outstanding share of
Series F Preferred Stock will be converted into 0.5038 of a share of Common
Stock (assuming an initial public offering price of $11.00 per share). See
"Description of Capital Stock -- Preferred Stock."

In March 1997, the Company issued to Paramount warrants to purchase 6,297
shares of Common Stock at $8.93 per share. Paramount subsequently distributed
such warrants to an employee of Paramount in September 1997.

In May 1993, the Company entered into an employment agreement with Charles
J. Casamento, President, Chief Executive Officer and Chairman of the Board of
Directors of the Company. The agreement provides for an annual base salary of
$200,000, subject to annual review. Effective May 1, 1996 and retroactive to
January 1, 1996, Mr. Casamento's annual base salary was increased to $275,000.
In addition, the Board of Directors approved a bonus of up to $150,000 to be
paid to Mr. Casamento in the event of a Merger (as defined in the employment
agreement) or an initial public offering of the Company's Common Stock, and up
to an additional $150,000 for the achievement of specific goals ($50,000 per
goal) in 1996, of which $50,000 was paid in connection with the execution of the
Abbott Agreements. On the first day of employment and on the first and second
anniversary of employment, the Company loaned Mr. Casamento $40,000 (for a total
of $120,000) in the form of three-year notes with interest rates of 3.62%, 5.63%
and 5.97% per annum, respectively. These loans were made in connection with
cost-of-living adjustments and may be forgiven, at the election of the Board of
Directors, for so long as Mr. Casamento remains employed by the Company. The
loans due in June of 1996 and 1997 have been forgiven. In addition, in October
1993, the Company provided Mr. Casamento with a bridge loan in the aggregate of
$250,000, which loan subsequently was repaid by Mr. Casamento in October 1994.
In July 1993, Mr. Casamento purchased an aggregate of 37,785 shares of Common
Stock. In March 1994, August 1996 and March 1997 Mr. Casamento purchased an
aggregate of 108,644 shares of Common Stock pursuant to purchase rights issued
under the 1993 Stock Plan. In payment for such Common Stock, Mr. Casamento
issued promissory notes to the Company in the aggregate principal amount of
$108,293. Such Notes accrue interest at 5.47%, 5.29%, 6.73% and 6.32% per annum,
respectively. As of September 30, 1997, $95,893 of the aggregate principal
amount of such notes remained outstanding plus an aggregate of $11,729 of
accrued interest.

In July 1995, the Company entered into a Change of Control agreement with
Mr. Casamento that provides for certain severance benefits in the event his
employment is involuntarily terminated other than for cause at any time within
12 months after, or in contemplation of, a Change of Control (defined as a
reorganization in which the current shareholders hold less than a 50% ownership
interest in the surviving entity consummated without the approval of the Board
of Directors, a sale of all or substantially all of the Company's assets, a
liquidation of the Company or a transaction in which more than half of the
Company's Board of Directors is replaced). Severance benefits include a lump sum
payment equal to 12 months' salary and the continued payment of medical benefits
during the 12 months following termination. In addition, all loans issued by the
Company to Mr. Casamento shall automatically be forgiven upon a Change of
Control. The Change of Control agreement also provides that all options held by
Mr. Casamento will immediately vest, and the exercise period of such options
will be extended to a date one year from the earlier of the termination date or
the date upon which any lock-up agreements expire.

57
<PAGE> 59

In July 1995, the Company also entered into Change of Control agreements
with Dr. Lehman and Mr. Morris that provide for certain severance benefits in
the event their employment is terminated, other than for cause, at any time
within 12 months after, or in contemplation of, a Change of Control. Severance
benefits payable to Dr. Lehman and Mr. Morris include a lump sum payment equal
to six months' salary and continuation of certain medical benefits for the six
month period following termination. Dr. Lehman and Mr. Morris will receive
additional vesting six months on their stock options, and the exercise term of
such options will extend to 12 months from the earlier of the termination date
or the expiration of any lock-up agreements.

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<PAGE> 60

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of November 14, 1997, as
adjusted to reflect the sale of 2,300,000 shares of Common Stock in the
Offering, by (i) each person who is known by the Company to own beneficially
more than five percent of the outstanding shares of Common Stock, (ii) each
director of the Company, (iii) each of the Named Executive Officers and (iv) all
directors and executive officers as a group.

<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF BENEFICIALLY OWNED
SHARES -----------------------
BENEFICIALLY PRIOR TO AFTER
BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- ---------------------------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
Dr. Lindsay Rosenwald(2).................................. 1,229,481 17.26% 16.11%
787 Seventh Avenue
New York, NY 10019
The Aries Trust(3)........................................ 505,477 7.9% 7.15%
787 Seventh Avenue
New York, NY 10019
Kleiner Perkins Caufield & Byers V,....................... 578,308 13.90% 8.41%
a California Limited Partnership(4)
2750 Sand Hill Road
Menlo Park, CA 94025
CW Ventures II, L.P....................................... 499,114 12.24% 7.27%
1041 Third Avenue
New York, NY 10021
Domain Partners II, L.P................................... 407,938 10.26% 5.95%
One Palmer Square
Princeton, NJ 08542
Sierra Ventures III....................................... 395,073 9.94% 5.77%
a California Limited Partnership(5)
3000 Sand Hill Road
Building A, Suite 210
Menlo Park, CA 94025
Abbott Laboratories....................................... 391,844 9.85% 11.03%(6)
100 Abbott Park Road
Abbott Park, IL 60064
Hyline Laboratories, Inc.(7).............................. 330,744 7.68% 4.61%
100 Banks Avenue
Rockville Center, NY 11570
Oxford Bioscience Partners L.P.(8)........................ 316,685 7.36% 4.61%
650 Town Center Drive, Suite 810
Costa Mesa, CA 92626
Biotechnology Investment Limited.......................... 223,911 5.63% 3.27%
St. Julian's Court
St. Peter Port
Guernsey, Channel Islands
Dr. Alexander E. Barkas(9)................................ 18,564 * *
Digby Barrios(10)......................................... 10,705 * *
Charles J. Casamento(11).................................. 237,305 5.84% 3.42%
Laura S. Lehman(12)....................................... 44,848 1.12% *
Timothy E. Morris(13)..................................... 43,557 1.09% *
Jon S. Saxe............................................... 10,705 * *
Dr. Jesse I. Treu(14)..................................... 420,457 10.54% 6.12%
All executive officers and directors
as a group (7 persons)(15).............................. 775,058 18.69% 11.05%
</TABLE>

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

* Less than one percent

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<PAGE> 61

(1) Calculated in accordance with Rule 13d-3 promulgated under the Exchange Act
based on 6,852,087 shares of capital stock outstanding on an as-converted
basis as of November 14, 1997.

(2) Includes 445,797 shares issuable upon exercise of outstanding Placement
Agent Unit Options, 288,845 shares held by The Aries Trust and 158,976
shares by the Aries Fund. Also includes 216,632 shares issuable upon
exercise of outstanding Class A Warrants and Placement Agent Unit Options
held by The Aries Trust and 119,231 shares issuable upon exercise of Class
A Warrants and Placement Agent Unit Options held by the Aries Fund. Dr.
Rosenwald is the general partner of the Aries Fund and the investment
manager to The Aries Trust. Dr. Rosenwald disclaims beneficial ownership of
the securities held by the Aries Fund and The Aries Trust, except to the
extent of his pecuniary interest therein, if any.

(3) Includes 216,632 shares issuable upon the exercise of Class A Warrants and
Placement Agent Unit Options held by The Aries Trust.

(4) Includes 2,080 shares held by KPCB Zaibatsu Fund I ("KPCB Zaibatsu"), an
entity affiliated with KPCB V.

(5) Includes 7,900 shares held by Sierra Ventures III International, an entity
affiliated with Sierra.

(6) Shares beneficially owned after the Offering include 363,636 shares to be
purchased by Abbott in the Offering at the initial public offering price
(assuming an initial public offering price of $11.00 per share).

(7) Consists of shares of Common Stock issuable upon exercise of an outstanding
warrants.

(8) Includes 58,858 shares held by Oxford Bioscience Partners (Adjunct) L.P.
("OBP Adjunct") and 51,123 shares held by Oxford Bioscience Partners
(Bermuda) ("OBP Bermuda"), entities affiliated with Oxford Bioscience
Partners L.P. ("OBP L.P."). Also includes Common Stock issuable upon
exercise of outstanding Class A Warrants, in the following amounts, 4,478
held by OBP Adjunct, 3,890 held by OBP Bermuda and 14,022 held by OBP L.P.

(9) Includes options to purchase 17,557 shares exercisable within 60 days of
November 14, 1997.

(10) Consists of options to purchase 10,705 shares exercisable within 60 days of
November 14, 1997.

(11) Includes 25,690 shares held by various family members of Mr. Casamento that
Mr. Casamento may be deemed to beneficially own; 52,848 shares subject to
repurchase as of November 14, 1997; and options or stock purchase rights
for the purchase of 85,843 shares exercisable within 60 days of November
14, 1997.

(12) Includes options to purchase 30,994 shares exercisable within 60 days of
November 14, 1997 and 10,364 shares subject to repurchase as of November
14, 1997.

(13) Includes 18,498 shares subject to repurchase as of November 14, 1997 and
options to purchase 17,108 shares exercisable within 60 days of November
14, 1997.

(14) Consists of 407,938 shares held by Domain. Dr. Treu is a general partner of
One Palmer Square Associates II, L.P. which is the general partner of
Domain. Dr. Treu shares voting and investment power with respect to such
shares and may be deemed the beneficial owner of such shares but disclaims
such beneficial ownership except to the extent of his proportionate
interest therein. Also includes options to purchase 12,519 shares
exercisable within 60 days of November 14, 1997. Excludes 311,566 shares
held by BIL. Domain Associates, of which Dr. Treu is a general partner, is
the United States venture capital advisor to BIL pursuant to a contractual
agreement. Domain Associates has no voting or investment power over BIL and
Dr. Treu disclaims beneficial ownership of the BIL shares.

(15) See footnote (4) and footnotes (9) - (14).

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<PAGE> 62

DESCRIPTION OF CAPITAL STOCK

The Company's Amended and Restated Articles of Incorporation authorize
68,932,344 shares of capital stock, consisting of 50,000,000 shares of Common
Stock and 18,932,344 shares of Preferred Stock. In connection with the Offering
and the reincorporation of the Company in Delaware, the Company will adopt a
Certificate of Incorporation (the "Restated Certificate of Incorporation"),
which will authorize the issuance of 35,000,000 shares of capital stock,
consisting of 30,000,000 shares of Common Stock, par value $0.001 per share, and
5,000,000 shares of Preferred Stock, par value $0.001 per share. Set forth below
is a description of the capital stock of the Company.

COMMON STOCK

As of September 30, 1997, there were 4,551,080 shares of Common Stock
issued and outstanding held of record by 62 stockholders, assuming conversion of
all outstanding shares of Preferred Stock. The holders of Common Stock are
entitled to one vote per share on all matters submitted to a vote of
stockholders and are not entitled to cumulative voting rights with respect to
the election of directors. Accordingly, holders of a majority of the shares of
Common Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board of Directors out
of funds legally available therefore, subject to preferences that may be
applicable to any outstanding Preferred Stock. In the event of liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share ratably in all net assets remaining after payment of liabilities and
the liquidation preference of any outstanding Preferred Stock. Holders of Common
Stock have no preemptive, subscription, redemption, conversion or other
subscription rights, and there are no sinking fund provisions applicable to the
Common Stock. All currently outstanding shares of Common Stock are, and the
shares of Common Stock being issued and sold in the Offering will be, duly
authorized, validly, issued, fully paid and nonassessable.

PREFERRED STOCK

No shares of Preferred Stock will be outstanding after the Offering. At
September 30, 1997, the Company had outstanding an aggregate of 12,094,932
shares of Series A, Series B, Series C, Series D and Series E Preferred Stock.
Each share of such outstanding Preferred Stock will convert automatically into
0.2519 of a share of Common Stock concurrently with the closing of the Offering,
for a total of 3,046,694 shares of Common Stock. Holders of Series A through
Series E Preferred Stock have been granted certain registration rights. See
"-- Registration Rights."

At September 30, 1997, the Company had outstanding 2,282,663 shares of
Series F Preferred Stock. Assuming an initial public offering price per share of
$8.93 or greater, each share of Series F Preferred Stock will convert
automatically into 0.5038 of a share of Common Stock concurrently with the
closing of the Offering, for a total of 1,149,988 shares of Common Stock. If the
Offering price is less than $8.93 per share, the conversion ratio of the Series
F Preferred Stock will be adjusted, resulting in additional shares of Common
Stock being issued to the holders of the Series F Preferred Stock.

If the initial public offering price per share is below $8.93, the ratio by
which the Series F Preferred Stock is convertible into Common Stock (the
"Conversion Ratio") equals:

4.5
---------
P

where:

<TABLE>
<S> <C> <C>
P = the initial public offering price per share of Common Stock
</TABLE>

For example, assuming an initial public offering price of $8.00 per share,
an additional 134,010 shares of Common Stock would be issuable upon conversion
of the Series F Preferred Stock.

The number of shares of Common Stock issuable upon conversion of the
outstanding shares of Series F Preferred Stock is calculated by multiplying the
Conversion Ratio by the number of shares of Series F Preferred Stock
outstanding.

61
<PAGE> 63

Thus, where:

<TABLE>
<S> <C> <C> <C>
P = $8.00

Conversion ratio = 4.5
-------
$8.00

= .5625

Outstanding shares of
Series F Preferred
Stock = 2,282,663
= 2,282,663 X .5625
= 1,283,998
Additional shares of
Common Stock issued = 1,283,998 - 1,149,988
= 134,010
</TABLE>

Any adjustment made to the conversion ratio of the Series F Preferred Stock
would increase the number of shares used in calculations of, among other things,
dilution to new investors, shares held by certain principal stockholders, shares
subject to registration rights and shares eligible for future sale. See
"Dilution," "Principal Stockholders," "-- Registration Rights," and "Shares
Eligible for Future Sale."

Following completion of the Offering and the conversion of all the
outstanding shares of Preferred Stock, the Board of Directors will have the
authority to issue from time to time up to 5,000,000 shares of Preferred Stock
in one or more series and to fix the powers, designations, preferences and
relative, participating, optional or other rights thereof, including dividend
rights, conversion rights, voting rights, redemption terms, liquidation
preferences and the number of shares constituting each such series, without any
further vote or action by the Company's stockholders. The issuance of Preferred
Stock could adversely affect the rights of holders of Common Stock and could
have the effect of delaying, deferring or preventing a change in control of the
Company. The Company has no present plans to issue any shares of Preferred
Stock.

WARRANTS

At September 30, 1997, there were warrants outstanding to purchase (i) an
aggregate of 3,778 shares of Common Stock at an exercise price of $5.95 per
share, (ii) an aggregate of 13,312 shares of Common Stock at exercise of $7.94
per share, (iii) an aggregate of 609,827 shares of Common Stock at an exercise
price of $8.93 per share, (iv) an aggregate of 330,744 shares of Common Stock at
an exercise price of $9.85 and (v) an aggregate of 5,877 shares of Common Stock
at an exercise price of $10.21 per share. Each warrant contains provisions for
the adjustment of the exercise price and the aggregate number of shares issuable
upon the exercise of the warrant under certain circumstances, including stock
dividends, stock splits, reorganizations, reclassification, consolidations and
certain dilutive sales of the securities for which the warrant is exercisable
below the then existing exercise price. Each warrant may be exercised, without
the payment of cash, for an adjusted number of shares of Common Stock. The
warrants to purchase an aggregate of 330,744 shares of Common Stock will expire
upon the closing of the Offering. The remaining warrants have terms expiring
from September 1998 to June 2002. The Company is also obligated to issue a
warrant to purchase 62,975 shares of Common Stock at an exercise price of $8.93
per share expiring six years from its date of issuance. The Company will issue
this warrant to its landlord in connection with the relocation to its new
facility which is expected in November 1997. Warrant holders have been granted
certain registration rights. See "-- Registration Rights."

PLACEMENT AGENT UNIT OPTIONS

At September 30, 1997, 570,665 Placement Agent Unit Options were
outstanding, at an exercise price of $1.24 per Placement Agent Unit Option. Each
Placement Agent Unit Option entitles the holder thereof to purchase a Placement
Agent Unit consisting of two shares of Series F Preferred Stock and one Class A
Warrant. Each Class A Warrant entitles the holder to purchase 0.2519 of a share
of Common Stock at an exercise price equal to the lesser of the initial public
offering price and $8.93 per share, and expires on June 22, 2003. The Placement
Agent Unit Options expire on December 23, 2007. Following the Offering, assuming
an initial public offering price of at least $8.93 per share, the Placement
Agent Unit Options will be exercisable for an aggregate of 574,996 shares of
Common Stock and an aggregate of 570,665 Class A Warrants. The

62
<PAGE> 64

number of shares of Common Stock to be issued upon exercise of the Placement
Agent \Unit Options, and the exercise price thereof, will depend upon the
initial public offering price. See "-- Preferred Stock" and "Certain
Transactions."

If the initial public offering price is below $8.93 per share, the number
of shares of Common Stock issuable upon exercise of the Placement Agent Unit
Options will increase as a result of the increase in the Conversion Ratio.

For example, if the initial public offering price per share is $8.00, the
number of shares issuable upon the exercise of the Placement Agent Unit Options
would be determined by multiplying the Conversion Ratio by the number of shares
of Series F Preferred Stock into which the Placement Agent Unit Options are
convertible.

The Conversion Ratio equals:

4.5
-------
P

Where: P = The initial public offering price per share of Common Stock

When P = $8.00 The Conversion Ratio equals

4.5
------- = .5625
8

Consequently, the aggregate number of shares of Common Stock issuable upon
exercise of the Placement Agent Unit Options would be calculated as follows:

570,665 X 2 X .5625 = 641,998

Additional shares of Common Stock issued = 641,998 - 574,996
= 67,002

REPRESENTATIVES' WARRANTS

The Company has agreed to issue to the Representatives warrants to purchase
an aggregate of 230,000 shares of Common Stock, exercisable at any time
following the first anniversary of the date of this Prospectus, each warrant
having an exercise price equal to 125% of the initial public offering price of
the Common Stock and expiring five years from the date of this Prospectus (the
"Representatives' Warrants"). The Company has granted the holders of the
Representatives' Warrants certain demand and piggy-back registration rights with
respect to the shares of Common Stock issuable upon the exercise of such
warrants. See "-- Registration Rights" and "Underwriting."

REGISTRATION RIGHTS

The holders of 3,046,694 shares of Common Stock issuable upon conversion of
outstanding preferred stock (except Series F Preferred Stock) and the holders of
warrants exercisable for up to 57,811 shares of Common Stock (collectively, the
"Registrable Securities") will be entitled to certain rights with respect to the
registration of such shares of Common Stock under the Securities Act. Under the
terms of an agreement between the Company and such holders, if the Company
proposes to register any of its Common Stock either for its own account or for
the account of other stockholders, subject to certain exceptions, under the
Securities Act, the holders of Registrable Securities are entitled to notice of
the registration and are entitled to include, at the Company's expense, shares
of such Common Stock therein. The holders of Registrable Securities have waived
their registration rights with respect to the Offering. In addition, holders of
at least 25% of the then-outstanding Registrable Securities may, on two
occasions, require the Company to file a registration statement under the
Securities Act at the Company's expense, registering the Registrable Securities
for public resale. Such rights may not be exercised until 90 days after the
effective date of the Offering. Further, holders of sufficient shares with
registration rights may require the Company to register their shares on Form S-3
at such holders' expense when such form becomes available to the Company,
subject to certain conditions and limitations. Such registration rights expire
in December 2004.

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<PAGE> 65

In addition, the holders of an aggregate of 1,149,988 shares of Common
Stock issuable upon conversion of the outstanding Series F Preferred Stock
concurrently with the closing of the Offering, the holders of Class A Warrants
issued in connection with the Series F Private Placement to purchase an
aggregate of 905,727 shares of Common Stock and holders of the Placement Agent
Unit Options (collectively, the "Series F Holders") are entitled to require the
Company to file a shelf registration statement at the Company's expense pursuant
to the Securities Act within 270 days after the closing of the Offering covering
shares of Common Stock then held by the holders of Series F Preferred Stock. The
number of shares of Common Stock to be issued upon conversion of the Series F
Preferred Stock and the exercise of the Placement Agent Unit Options will depend
upon the initial public offering price. See "-- Preferred Stock" and
"-- Placement Agent Unit Options."

The Company will grant to the holders of the Representatives' Warrants
certain demand and piggy-back registration rights with respect to the shares of
Common Stock issuable upon the exercise of such warrants.

DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS

Upon the completion of the Company's reincorporation in Delaware, the
Company will be subject to the provisions of Section 203 of the Delaware General
Corporation Law, Section 203 prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
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 interested
stockholder. Subject to certain exceptions, 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 Restated Certificate of Incorporation provides for the division of the
Board of Directors into three classes as nearly equal in size as possible with
staggered three-year terms. See "Management." In addition, the Restated
Certificate of Incorporation provides that directors may be removed only for
cause by the affirmative vote of the holders of two-thirds of the shares of
capital stock of the corporation entitled to vote. Under the Restated
Certificate of Incorporation, any vacancy on the Board of Directors, however
occurring, including a vacancy resulting from an enlargement of the Board, may
only be filled by vote of a majority of the directors then in office. The
classification of the Board of Directors and the limitations on the removal of
directors and filling of vacancies could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, control of the Company.

The Restated Certification of Incorporation also provides that after the
closing of the Offering, any action required or permitted to be taken by the
stockholders of the Company at an annual meeting or special meeting of
stockholders may only be taken if properly brought before such meeting and may
not be taken by written action in lieu of a meeting. The Restated Certificate of
Incorporation further provides that special meetings of the stockholders may
only be called by the Chairman of the Board of Directors, the Chief Executive
Officer, the Board of Directors or by any person or persons holding at least 10%
of the outstanding capital stock. Under the Company's Amended and Restated
By-Laws (the "By-Laws"), in order for any matter to be considered "properly
brought" before a meeting, a stockholder must comply with certain requirements
regarding advance notice to the Company. The foregoing provisions could have the
effect of delaying until the next stockholders meeting stockholder actions which
are favored by holders of a majority of the outstanding voting securities of the
Company. These provisions may also discourage another person or entity from
making a tender offer for the Company's Common Stock, because such person or
entity, even if it acquired a majority of the outstanding voting securities of
the Company, would be able to take action as a stockholder (such as electing new
directors or approving a merger) only at a duly called stockholders meeting, and
not by written consent.

The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. The Restated Certificate of Incorporation and
the By-Laws require the affirmative vote of the holders of at least 66 2/3
percent of the shares of capital stock of the Company issued and outstanding and
entitled to vote to amend or repeal any of the provisions described in the prior
two paragraphs.

64
<PAGE> 66

The Restated Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of directors. The provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain circumstances
involving wrongful acts, such as the breach of a director's duty of loyalty or
acts or omissions which involve intentional misconduct or a knowing violation of
law. Further, the Restated Certificate of Incorporation contains provisions to
indemnify the Company's directors and officers to the fullest extent permitted
by the General Corporation Law of Delaware. The Company believes that these
provisions will assist the Company in attracting and retaining qualified
individuals to serve as directors.

TRANSFER AGENT AND REGISTRAR

The transfer agent for the Common Stock of the Company is American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005.

65
<PAGE> 67

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have outstanding an
aggregate of 6,851,080 shares of Common Stock, assuming no exercise of the
Underwriters' over-allotment option; an aggregate of 650,491 shares of Common
Stock reserved for issuance under the Company's stock plans upon exercise of
options outstanding as of September 30, 1997; 451,530 shares of Common Stock
reserved for issuance upon the exercise of warrants outstanding as of September
30, 1997; 574,983 shares of Common Stock reserved for issuance upon exercise of
the Class A Warrants; 574,996 shares of Common Stock reserved for issuance upon
exercise of the Placement Agent Unit Options; 143,746 shares of Common Stock
reserved for issuance upon the exercise of the Placement Agent Class A Warrants;
and 230,000 shares of Common Stock reserved for issuance upon exercise of the
Representatives' Warrants. The 2,300,000 shares sold in the Offering will be
freely tradeable without restriction or further registration under the
Securities Act except for any shares held by an "affiliate" of the Company as
that term is defined in Rule 144. The remaining 4,551,080 shares of Common Stock
held by existing stockholders will be Restricted Shares under the Securities Act
and may be sold in the public market only if registered or if they qualify for
an exemption from Registration under Rules 144 or 701 promulgated under the
Securities Act.

All directors and executive officers and certain other stockholders of the
Company, holding in the aggregate substantially all of the shares of Common
Stock outstanding prior to the Offering, have agreed with the Underwriters not
to sell or otherwise dispose of any shares of Common Stock for a period of 180
days after the date of this Prospectus (the "Lockup Period") without the prior
written consent of the Representatives. See "Underwriting." Upon expiration of
the Lockup Period, approximately 453,691 Restricted Shares held by
non-affiliates will be eligible for sale in the public market without
restriction pursuant to Rule 144(k) and approximately 3,267,031 Restricted
Shares held by affiliates and approximately 611,646 Restricted Shares held by
non-affiliates will be so eligible subject to compliance with the volume
limitations of Rule 144 described below. Sales of Restricted Shares in the
public market, or the availability of such shares for sale, could adversely
affect the market price of the Common Stock.

Rule 701 permits resales of shares issued pursuant to certain compensatory
benefit plans and contracts commencing 90 days after the issuer becomes subject
to the reporting requirements of the Securities Exchange Act of 1934, as
amended, in reliance upon Rule 144 but without compliance with certain
restrictions, including the holding period requirements, contained in Rule 144.
If all the requirements of Rule 701 are met, upon expiration of the Lockup
Period an aggregate of 298,340 shares of Common Stock issuable upon exercise of
currently outstanding options will be eligible for sale pursuant to such rule.

In general, under Rule 144 as currently in effect, an affiliate of the
Company or a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least one year will be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of (i) one percent of the number of shares of Common Stock then
outstanding (68,510) or (ii) the average weekly trading volume of the Common
Stock during the four calendar weeks immediately preceding the date on which
notice of the sale is filed with the Commission. Sales pursuant to Rule 144 are
subject to certain requirements relating to manner of sale, notice and
availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale, and who has
beneficially owned for at least two years the shares proposed to be sold, is
entitled to sell such shares under Rule 144(k) without regard to the limitations
described above.

The Company is unable to estimate accurately the number of Restricted
Shares that will be sold under Rule 144 since this will depend in part on the
market price for the Common Stock, the personal circumstances of the seller and
other factors. See "Description of Capital Stock -- Preferred Stock."

After the effective date of the Offering, the Company intends to file
registration statements on Forms S-8 to register an aggregate of 2,661,421
shares of Common Stock reserved for issuance upon exercise of its plans. Such
registration statements will become effective automatically upon filing. Shares
issued under the plans after the filing of the registration statements on Form
S-8 may be sold in the open market subject, in the case of certain holders, to
the Rule 144 limitations applicable to affiliates, the above-referenced lockup
agreements and vesting restrictions imposed by the Company.

The holders of substantially all of the Restricted Shares as well as shares
subject to outstanding warrants have been granted certain registration rights
under the Securities Act. See "Description of Capital Stock -- Registration
Rights."

66
<PAGE> 68

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
underwriters (the "Underwriters") named below, for whom EVEREN Securities, Inc.,
Gruntal & Co., L.L.C., and Cruttenden Roth Incorporated are acting as the
Representatives, have severally agreed to purchase, and the Company has agreed
to sell to the Underwriters, the following respective number of shares of Common
Stock.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------------------------------------------------------------ ---------
<S> <C>
EVEREN Securities, Inc............................................
Gruntal & Co., L.L.C..............................................
Cruttenden Roth Incorporated......................................
-------
Total................................................... 2,300,000
=======
</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 and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.

The Underwriters propose to offer the shares of Common Stock to the public
at the offering price set forth on the cover page of this Prospectus, and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow to selected dealers and such dealers may
reallow a concession not in excess of $ 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 Representatives.

The Company has granted to the Underwriters an option, exercisable at any
time during the 45-day period after the date of this Prospectus, to purchase up
to an additional 345,000 shares of Common Stock at the initial public offering
price set forth on the cover page of this Prospectus, less underwriting
discounts and commissions. The Underwriters may exercise such option solely for
the purpose of covering over-allotments, if any, in connection with the
Offering. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth next to
such Underwriter's name in the preceding table bears to the total number of
shares listed in the table.

The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the Offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

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 over-allot 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
underwriting syndicate may reclaim selling concessions from syndicate members in
the Offering, if the syndicate repurchases previously distributed Common Stock
in syndicate covering transactions, in stabilization 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.

The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to accounts over which they exercise discretionary
authority.

The Company has agreed to issue to the Representatives warrants to purchase
up to an aggregate of 230,000 shares of Common Stock, exercisable at any time
following the first anniversary of the date of this Prospectus, each warrant
having an exercise price equal to 125% of the initial public offering price of
the Common Stock set forth on the cover page of this Prospectus, and expiring
five years from the date of this Prospectus. The Representatives' Warrants
contain provisions providing for adjustment of the exercise price

67
<PAGE> 69

and the number and type of securities issuable upon the exercise thereof upon
the occurrence of certain events, including the issuance of any shares of Common
Stock or other securities convertible into or exercisable for shares of Common
Stock at a price per share less than the exercise price, or the market price of
the Common Stock, or in the event of any stock dividend, stock split, stock
combination or similar transaction. Holders of the Representatives' Warrants
have been granted certain demand and piggy-back registrations rights under the
Securities Act with respect to the securities issuable upon exercise of the
Representatives' Warrants. For a period of twelve months from the date of this
Prospectus, the Representatives are generally prohibited from selling,
transferring, assigning, pledging or hypothecating the Representatives' Warrants
or the Common Stock underlying the Representatives' Warrants. Thereafter, the
Representatives' Warrants will be transferable subject to compliance with the
Securities Act. See "Description of Capital Stock -- Registration Rights" and
"Shares Eligible For Future Sale."

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

The executive officers, directors and certain employees of the Company and
other stockholders, including Abbott, have agreed that they will not, without
the prior written consent of EVEREN Securities, offer, sell or otherwise dispose
of any shares of Common Stock, options or warrants to acquire shares of Common
Stock, or securities exchangeable for or convertible into shares of Common Stock
for a period of 180 days from the date of this Prospectus. The Company has also
agreed that it will not, without the prior written consent of EVEREN Securities,
offer, sell, contract to sell, grant any option to purchase or otherwise dispose
of any shares of Common Stock, options or warrants to acquire shares of Common
Stock or securities exchangeable for or convertible into shares of Common Stock
for a period of 180 days after the date of this Prospectus, except for
securities issued under its option plan or upon exercise of currently
outstanding warrants. See "Shares Eligible for Future Sale."

Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the shares of Common
Stock included in the Offering will be determined by negotiations between the
Company and the Representatives. Among the factors to be considered in
determining such price will be the history of and prospects for the Company's
business and the industry in which it competes, an assessment of the Company's
management and the present state of the Company's development, its past and
present operations and financial performance, the prospects for future earnings
of the Company, the present state of the Company's research programs, the
current state of the economy in the United States and the current level of
economic activity in the industry in which the Company competes and in
comparable industries, and the current prevailing condition in the securities
markets, including current market valuations of publicly traded companies that
are comparable to the Company.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Cooley Godward LLP. Certain legal matters will be passed
upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom (Illinois),
Chicago, Illinois.

EXPERTS

The financial statements of the Company as of December 31, 1995 and 1996
and for each of the three years in the period ended December 31, 1996 and for
the period from inception (May 5, 1989) to December 31, 1996 included in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon (which contains an
explanatory paragraph describing conditions that raise substantial doubt about
the Company's ability to continue as a going concern as described in Note 1 to
the financial statements) appearing elsewhere herein and are included in
reliance upon such report, given on the authority of such firm as experts in
accounting and auditing.

68
<PAGE> 70

The statements in this Prospectus under the captions "Risk
Factors -- Dependence on Patents and Proprietary Rights" and
"Business -- Patents and Proprietary Rights" relating to United States patent
matters have been reviewed and approved by Pennie & Edmonds LLP, New York, New
York, patent counsel to the Company, and have been included herein in reliance
upon the review and approval by such firm as experts in patent law.

ADDITIONAL INFORMATION

As a result of the Offering, the Company will become subject to the
information and reporting requirements of the Exchange Act, and in accordance
therewith will file periodic reports, proxy statements and other information
with the Commission. The Company intends to furnish to its stockholders annual
reports containing financial statements audited by an independent public
accounting firm and will make available copies of quarterly reports containing
unaudited financial statements for the first three quarters of each fiscal year.

A Registration Statement on Form S-1, including amendments thereto,
relating to the Common Stock offered by the Company hereby has been filed with
the Commission, Washington, D.C. 20549. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or any other document referred to are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
the Registration Statements and the exhibits and schedules thereto. A copy of
the Registration Statement and exhibits thereto may be inspected without charge
at the public reference facilities maintained by the Commission in Room 1024,
450 Fifth Street, N.W., Washington D.C. 20549, and at the Commission's regional
offices located at the Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and at Seven World Trade Center, 13th Floor, New York,
New York 10048, and copies of all or any part thereof may be obtained from such
offices, upon payment of certain fees prescribed by the Commission. The
Commission maintains a World Wide Web site that contains reports, proxy and
information statements and other information filed electronically with the
Commission. The address of the Commission World Wide Website is
http://www.sec.gov.

69
<PAGE> 71

RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

FINANCIAL STATEMENTS

CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors................................... F-2
Financial Statements
Balance Sheets...................................................................... F-3
Statements of Operations............................................................ F-4
Statements of Stockholders' Equity (Deficit)........................................ F-5
Statements of Cash Flows............................................................ F-8
Notes to Financial Statements....................................................... F-9
</TABLE>

F-1
<PAGE> 72

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors
RiboGene, Inc.

We have audited the accompanying balance sheets of RiboGene, Inc. (a
development stage company) as of December 31, 1995 and 1996, and the related
statements of operations, cash flows and stockholders' equity (deficit) for each
of the three years in the period ended December 31, 1996 and for the period from
inception (May 5, 1989) 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 RiboGene, Inc. (a
development stage company) at December 31, 1995 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 and for the period from inception (May 5, 1989) to December
31, 1996, in conformity with generally accepted accounting principles.

As more fully described in Note 1 to the financial statements, the Company
is in the development stage, has incurred losses from inception to December 31,
1996 of approximately $31.6 million and expects such losses to continue. At
December 31, 1996, the Company had a working capital deficit and a net
stockholders' deficit of approximately $954,000 and $2.0 million, respectively.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans as to these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

Palo Alto, California
February 25, 1997, except as to Note 9,

for which the date is , 1998

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

The foregoing report is in the form that will be signed upon the completion
of the changes of the capital accounts as described in Note 9 to the financial
statements.

/s/ ERNST & YOUNG LLP
Palo Alto, California

December 12, 1997

F-2
<PAGE> 73

RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA
DECEMBER 31, SEPTEMBER STOCKHOLDERS'
------------------- 30, EQUITY AT
1995 1996 1997 SEPTEMBER 30, 1997
-------- -------- ----------- ------------------
(UNAUDITED) (NOTE 9)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................... $ 1,897 $ 1,981 $ 2,461
Prepaid expenses and other current assets... 118 184 411
-------- -------- --------
Total current assets................ 2,015 2,165 2,872
Property and equipment, net................... 344 285 260
Other assets.................................. 45 207 141
-------- -------- --------
$ 2,404 $ 2,657 $ 3,273
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term note payable to bank............. $ 1,500 $ -- $ --
Accounts payable............................ 294 499 216
Accrued compensation........................ 190 263 241
Accrued interest payable.................... 280 294 211
Deferred revenue -- related party........... -- 556 556
Other current liabilities................... 361 401 338
Current portion of capital lease
obligations.............................. 152 106 94
Current portion of notes payable............ 1,000 1,000 1,000
-------- -------- --------
Total current liabilities........... 3,777 3,119 2,656
Long-term portion of capital lease
obligations................................. 147 137 134
Long-term portion of notes payable............ 2,000 1,000 --
Other noncurrent liabilities.................. 509 357 230
Commitments
Stockholders' equity (deficit):
Preferred Stock, no par value; 12,658,491
shares authorized at December 31, 1995
and 1996, 18,932,344 shares authorized at
September 30, 1997 (5,000,000 shares
authorized, $0.001 par value, pro forma);
issuable in series; 9,441,884, 12,094,932
and 14,377,595 convertible preferred
shares issued and outstanding at December
31, 1995 and 1996 and at September 30,
1997, respectively (none pro forma)
(aggregate liquidation preference of
$30,206,397 in 1996 and $40,478,381 in
1997).................................... 23,571 29,449 33,533 $ --
Common Stock, no par value; 25,000,000
shares authorized at December 31, 1995
and 1996, 50,000,000 at September 30,
1997 (30,000,000 shares authorized,
$0.001 par value, pro forma); 156,197,
294,224 and 354,398 shares issued and
outstanding at December 31, 1995 and
1996, and at September 30, 1997,
respectively (4,551,080 shares pro
forma)................................... 175 290 754 5
Additional paid-in capital.................... -- -- -- 34,282
Notes receivable from stockholders............ (54) (111) (154) (154)
Deferred Compensation......................... -- -- (384) (384)
Deficit accumulated during the development
stage....................................... (27,721) (31,584) (33,496) (33,496)
-------- -------- -------- --------
Total stockholders' equity (deficit).......... (4,029) (1,956) 253 $ 253
========
-------- -------- --------
$ 2,404 $ 3,273 $ 3,273
======== ======== ========
</TABLE>

See accompanying notes.

F-3
<PAGE> 74

RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION NINE MONTHS ENDED INCEPTION
YEARS ENDED DECEMBER 31, (MAY 5, 1989) SEPTEMBER 30, (MAY 5, 1989)
-------------------------------- TO DECEMBER 31, -------------------- TO SEPTEMBER 30,
1994 1995 1996 1996 1996 1997 1997
-------- ------- --------- --------------- ------- --------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Contract research revenue
from related party....... $ -- $ -- $ 1,112 $ 1,112 $ 695 $ 1,301 $ 2,413
Grant revenue.............. 238 407 975 1,620 744 974 2,594
-------- ------- --------- -------- ------- --------- --------
Total revenue........ 238 407 2,087 2,732 1,439 2,275 5,007
-------- ------- --------- -------- ------- --------- --------
Operating expenses:
Research and development... 4,209 4,663 4,077 18,568 3,089 3,024 21,592
General and
administrative........... 2,424 2,758 1,372 10,088 992 1,136 11,224
Restructuring costs........ -- -- 219 219 219 -- 219
Acquired in-process
research and
development.............. 5,000 -- -- 5,000 -- -- 5,000
-------- ------- --------- -------- ------- --------- --------
Total operating
expenses........... 11,633 7,421 5,668 33,875 4,300 4,160 38,035
-------- ------- --------- -------- ------- --------- --------

Loss from operations......... (11,395) (7,014) (3,581) (31,143) (2,861) (1,885) (33,028)
Interest expense, net........ (42) (240) (282) (441) (251) (27) (468)
-------- ------- --------- -------- ------- --------- --------
Net loss..................... $(11,437) $(7,254) $ (3,863) $ (31,584) $(3,112) $ (1,912) $(33,496)
======== ======= ========= ======== ======= ========= ========

Pro forma net loss per
share...................... $ (0.75) $ (0.35)
========= =========
Shares used in computing pro
forma net loss per share... 5,166 5,480
========= =========
</TABLE>

See accompanying notes.

F-4
<PAGE> 75

RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

PERIOD FROM INCEPTION (MAY 5, 1989) TO SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
DEFICIT
NOTES ACCUMULATED
PREFERRED STOCK COMMON STOCK RECEIVABLE DURING THE TOTAL
-------------------- ---------------- FROM DEFERRED DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT STOCKHOLDERS COMPENSATION STAGE EQUITY (DEFICIT)
----------- ------- ------- ------ ------------ ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of shares of
Common Stock to founders
for services in May 1989
at $0.10 per share...... -- $ -- 32,080 $ 3 $ -- -- $ -- $ 3
Issuance of Series A
Preferred Stock for
in-process technology
in May 1990........... 65,329 -- -- -- -- -- -- --
Sale of Series A
Preferred Stock at
$6.60 per share and
Series B and Series C
Preferred Stock
warrants at $0.10 per
warrant to investors
for cash in June 1990,
net of issuance costs
of $25................ 68,182 437 -- -- -- -- -- 437
Exercise of Series B
Preferred Stock
warrants at $10.00 per
share in October
1990.................. 75,000 750 -- -- -- -- -- 750
Exercise of Common Stock
purchase rights at
$3.97 per share....... -- -- 36 -- -- -- -- --
Exercise of Series C
Preferred Stock
warrants at $12.00 per
share by investors for
cash in April 1991
(subsequently
converted to Series B
Preferred Stock)...... 25,000 300 -- -- -- -- -- 300
Dividend of Series A
Preferred Stock in
June 1991............. 4,757 -- -- -- -- -- -- --
Conversion of Series C
Preferred Stock to
Series B Preferred
Stock in June 1991.... 5,000 -- -- -- -- -- -- --
Sale of Series B
Preferred Stock at
$10.00 per share to
investors for cash in
December 1990 and June
1991, net of issuance
costs of $43.......... 187,695 1,834 -- -- -- -- -- 1,834
Issuance of Series B
Preferred Stock at
$10.00 per share to
consultants for
services performed in
November 1991......... 1,303 13 -- -- -- -- -- 13
Sale of Series B
Preferred Stock at
$10.00 per share and
Common Stock warrants
at $0.04 per warrant
to investors for cash
in February 1992, net
of issuance costs of
$23................... 170,673 1,685 -- -- -- -- -- 1,685
Exercise of Common Stock
options and Common
Stock purchase rights
at $3.97 to $4.76 per
share................. -- -- 17,895 82 (79) -- -- 3
Repurchase of Common
Stock issued to
founders at $0.10 per
share................. -- -- (13,266) (1) -- -- -- (1)
Exercise of Common Stock
options and Common
Stock purchase rights
at $4.76 per share.... -- -- 3,237 16 (3) -- -- 13
Repurchase of unvested
shares of Common Stock
at prices ranging from
$0.10 to $4.76 per
share and cancellation
of notes receivable on
termination of
employment of
stockholders.......... -- -- (9,276) (41) 41 -- -- --
Payments on notes
receivable............ -- -- -- -- 24 -- -- 24
Sale of Series B
Preferred Stock at
$10.00 per share and
Common Stock warrants
at $0.04 per warrant
to investors for cash
in June 1992, net of
issuance costs of
$19................... 115,390 1,135 -- -- -- -- -- 1,135
Net loss -- inception
(May 5, 1989) to
December 31, 1992..... -- -- -- -- -- -- (5,191) (5,191)
---------- ------- ------- ---- ----- -------- --------
Balances at December 31,
1992 (carried
forward)................ 718,329 $ 6,154 30,706 $ 59 $ (17) -- $ (5,191) $ 1,005
</TABLE>

F-5
<PAGE> 76

RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

PERIOD FROM INCEPTION (MAY 5, 1989) TO SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
DEFICIT
NOTES ACCUMULATED
PREFERRED STOCK COMMON STOCK RECEIVABLE DURING THE TOTAL
-------------------- ---------------- FROM DEFERRED DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT STOCKHOLDERS COMPENSATION STAGE EQUITY (DEFICIT)
----------- ------- ------- ------ ------------ ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1992
(brought forward) 718,329 $ 6,154 30,706 $ 59 $ (17) -- $ (5,191) $ 1,005
Issuance of Series C
Preferred Stock at
$1.50 per share and
Series D Preferred
Stock warrants at
$0.01 per share for
cash in April and June
1993, net of issuance
costs of $52.......... 2,805,519 4,159 -- -- -- -- -- 4,159
Exercise of Series D
Preferred Stock
warrants at $2.25 in
August 1993........... 270,222 608 -- -- -- -- -- 608
Issuance of Common Stock
at $0.60 per share to
an officer............ -- -- 37,785 23 (23) -- -- --
Exercise of Common Stock
options and Common
Stock purchase rights
at $0.05 to $5.95 per
share................. -- -- 13,363 47 (25) -- -- 22
Repurchase of unvested
shares of Common Stock
at $4.76 per share for
cancellation of notes
receivable............ -- -- (3,675) (17) 17 -- -- --
Forgiveness of notes
receivable............ -- -- -- -- 25 -- -- 25
Net loss -- year ended
December 31, 1993..... -- -- -- -- -- -- (3,839) (3,839)
---------- ------- ------- ---- ----- -------- --------
Balances at December 31,
1993.................... 3,794,070 10,921 78,179 112 (23) -- (9,030) 1,980
Issuance of Series E
Preferred Stock at
$2.25 per share in
April 1994, net of
issuance costs of
$58................... 4,000,000 8,942 -- -- -- -- -- 8,942
Exercise of Common Stock
options and Common
Stock purchase rights
at $0.60 to $1.19 per
share................. -- -- 79,848 62 (51) -- -- 11
Net loss -- year ended
December 31, 1994..... -- -- -- -- -- -- (11,437) (11,437)
---------- ------- ------- ---- ----- -------- --------
Balances at December 31,
1994.................... 7,794,070 19,863 158,027 174 (74) -- (20,467) (504)
Exercise of Common Stock
options and purchase
rights at $0.89 to
$1.19 per share....... -- -- 11,604 11 -- -- -- 11
Repurchase of unvested
shares of Common
Stock................. -- -- (13,434) (13) 13 -- -- --
Repayment and
forgiveness of
stockholder notes
receivable............ -- -- -- -- 7 -- -- 7
Issuance of Common Stock
warrants at $0.20 per
share................. -- -- -- 3 -- -- -- 3
Issuance of Series E
Preferred Stock at
$2.25 per share for
conversion of notes
payable and accrued
interest in November
1995.................. 1,647,814 3,708 -- -- -- -- -- 3,708
Net loss -- year ended
December 31, 1995..... -- -- -- -- -- -- (7,254) (7,254)
---------- ------- ------- ---- ----- -------- --------
Balances at December 31,
1995.................... 9,441,884 23,571 156,197 175 (54) -- (27,721) (4,029)
</TABLE>

F-6
<PAGE> 77

RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

PERIOD FROM INCEPTION (MAY 5, 1989) TO SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

See accompanying notes

F-7
<PAGE> 78

RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS ENDED PERIOD FROM
YEARS ENDED INCEPTION INCEPTION
DECEMBER 31, (MAY 5, 1989) SEPTEMBER 30, (MAY 5, 1989)
---------------------------- TO DECEMBER 31, ----------------- TO SEPTEMBER 30,
1994 1995 1996 1996 1996 1997 1997
-------- ------- ------- --------------- ------- ------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................. $(11,437) $(7,254) $(3,863) $ (31,584) $(3,112) $(1,912) $(33,496)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization........... 165 204 168 826 134 100 926
Amortization of deferred compensation... -- -- -- -- -- 26 26
Accrued interest on bridge notes
converted to Preferred Stock.......... -- 78 44 122 44 -- 122
Losses on advances to related parties... -- 120 -- 465 -- -- 465
Acquisition of in-process research and
development for notes payable......... 4,200 -- -- 4,200 -- -- 4,200
Other................................... (19) 7 -- 38 -- -- 38
Changes in assets and liabilities:
Prepaid expenses and other current
assets.............................. (118) 16 (66) (184) (113) (227) (411)
Other assets.......................... 19 (7) (162) (207) (92) 66 (141)
Accounts payable...................... 11 200 205 499 (68) (283) 216
Deferred revenue -- related party..... -- -- 556 556 139 -- 556
Accrued expenses and other
liabilities......................... 484 388 (25) 1,315 (131) (295) 1,020
-------- ------- ------- -------- ------- ------- --------
Net cash used in operating activities..... (6,695) (6,248) (3,143) (23,954) (3,199) (2,525) (26,479)
-------- ------- ------- -------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment....... (28) (4) (14) (397) (29) -- (397)
Organization costs........................ -- -- -- (68) -- -- (68)
Advances to related parties............... (40) (40) -- (715) -- -- (715)
Repayment of notes
receivable -- officer................... 250 -- -- 250 -- -- 250
Purchase of short-term investments........ (5,981) (500) -- (6,481) -- -- (6,481)
Maturities of short-term investments...... 4,000 500 -- 4,500 -- -- 4,500
Sales of short-term investments........... -- 2,000 -- 2,000 -- -- 2,000
-------- ------- ------- -------- ------- ------- --------
Net cash provided by (used in) investing
activities.............................. (1,799) 1,956 (14) (911) (29) -- (911)
-------- ------- ------- -------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bridge financing............ -- 3,630 -- 3,630 -- -- 3,630
Proceeds from short-term debt............. -- 3,015 1,893 4,908 1,893 -- 4,908
Repayment of short-term debt.............. -- (1,515) (1,500) (3,015) -- -- (3,015)
Repayment of notes payable................ -- (1,200) (1,000) (2,200) (2,500) (1,000) (3,200)
Principal payments on capital lease
obligations............................. (148) (171) (151) (622) (120) (90) (712)
Proceeds from sale-leaseback of
equipment............................... -- -- -- 207 -- -- 207
Proceeds from issuances of Common Stock
and warrants, net of repurchases and
repayment of stockholder notes.......... 11 14 58 147 57 11 158
Net proceeds from issuance of convertible
Preferred Stocks and warrants........... 8,942 -- 3,941 23,791 3,941 4,084 27,875
-------- ------- ------- -------- ------- ------- --------
Net cash provided by financing
activities.............................. 8,805 3,773 3,241 26,846 3,271 3,005 29,851
-------- ------- ------- -------- ------- ------- --------
Net increase (decrease) in cash and cash
equivalents............................. 311 (519) 84 1,981 43 480 2,461
Cash and cash equivalents at beginning of
period.................................. 2,105 2,416 1,897 -- 1,897 1,981 --
-------- ------- ------- -------- ------- ------- --------
Cash and cash equivalents at end of
period.................................. $ 2,416 $ 1,897 $ 1,981 $ 1,981 $ 1,940 $ 2,461 $ 2,461
======== ======= ======= ======== ======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest.................... $ 59 $ 160 $ 335 $ 634 $ 317 $ 193 $ 827
======== ======= ======= ======== ======= ======= ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Equipment purchased under capital
leases.................................. $ 150 $ 107 $ 95 $ 658 $ 10 $ 75 $ 733
======== ======= ======= ======== ======= ======= ========
Conversion of debt obligations and accrued
interest to Preferred Stock............. $ -- $ 3,708 $ 1,937 $ 5,645 $ 1,937 $ -- $ 5,645
======== ======= ======= ======== ======= ======= ========
Deferred compensation related to stock
option grants........................... $ -- $ -- $ -- $ -- $ -- $ 410 $ 410
======== ======= ======= ======== ======= ======= ========
</TABLE>

See accompanying notes.

F-8
<PAGE> 79

RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(INFORMATION AT AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997
IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BASIS OF PRESENTATION

RiboGene, Inc. (the "Company") was incorporated in the State of California
on May 5, 1989. The Company was originally founded to develop laboratory
equipment for cell-free protein synthesis. In January 1993, the Company
discontinued development of the lab equipment and began to focus its research
and development efforts on the identification of novel leads and the development
of potential drug candidates for the treatment of infectious diseases. The
Company's research effort initially focused on infections caused by fungi and
viruses. In 1996, the Company expanded its research efforts to include
infections caused by bacteria. The Company is in the development stage and its
principal activities to date have involved performing research and development
on the above technologies.

The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company has sustained operating
losses since inception and expects such losses to continue as it furthers its
research and development programs. From inception to December 31, 1996, the
Company incurred cumulative net losses of approximately $31,584,000, and had a
working capital deficit of $954,000 and a net stockholders' deficit of
$1,956,000 at December 31, 1996. The Company will need to obtain additional
funds from outside sources to continue its research and development activities,
fund operating expenses and pursue regulatory approvals for its products under
development. Management believes that sufficient funds are available to support
planned operations through at least December 31, 1997. The Company may seek to
fund its operations thereafter through collaborative arrangements and through
public or private financings, including debt or equity financings. If the
Company is unable to obtain the necessary capital, substantial restructuring
options may be necessary which would have a material adverse effect on the
Company's business, results of operations and prospects. The financial
statements do not include any adjustments to reflect the possible future effects
in the recoverability and classification of assets or the amounts and
classification of liabilities that might result from the possible inability of
the Company to continue as a going concern.

INTERIM FINANCIAL INFORMATION

The financial information at September 30, 1997 and for the nine-month
periods ended September 30, 1996 and 1997 is unaudited but includes all
adjustments (consisting only of normal recurring adjustments) which the Company
considers necessary for a fair presentation of the financial position at such
date and of the operating results and cash flows for those periods. Results for
the 1997 period are not necessarily indicative of results expected for the
entire year.

USE OF ESTIMATES

The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

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

F-9
<PAGE> 80

RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(INFORMATION AT AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997
IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company classifies its investments as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, if any, reported in a separate component of stockholders'
equity. Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in income.
The Company has not experienced any realized gains or losses on its cash
equivalents. The cost of securities sold is based on the specific identification
method. Cash and cash equivalents at December 31, 1995 and 1996, is comprised of
demand deposits with banks and investments in money market accounts. Cash and
cash equivalents at December 31, 1995 also included a U.S. Treasury bill which
matured in January 1996 and had a carrying value ($987,000) which approximated
market value (based on quoted market prices). At September 30, 1997, the
Company's cash equivalents and short-term investments consisted of the
following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Cash.................................................... $ 504,000
Money market funds...................................... 1,077,000
Commercial paper........................................ 880,000
----------
Total......................................... $ 2,461,000
==========
</TABLE>

At September 30, 1997, the difference between cost and fair value of
available-for-sale securities was not significant.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided on the straight-line method over the estimated useful
lives of the assets which range from four to five years. Assets recorded under
capital leases are amortized using the straight-line method over the shorter of
the useful life or the lease term.

REVENUE RECOGNITION

Revenues earned under collaborative research agreements are recognized as
the related research expenses are incurred. Amounts received in advance of
services to be performed are recorded as deferred revenue until the related
expenses are incurred. Milestone payments are recognized as revenue in the
period earned.

The Company has received government grants which support the Company's
research effort in specific research projects. These grants generally provide
for reimbursement of approved costs incurred as defined in the various awards.

NET LOSS PER SHARE

Except as noted below, historical net loss per share is computed using the
weighted-average number of common shares outstanding. Common equivalent shares
from outstanding stock options, convertible Preferred Stock and warrants are
excluded from the computation as their effect is antidilutive, except that,
pursuant to the Securities and Exchange Commission Staff Accounting Bulletins,
common and common equivalent shares issued during the period beginning 12 months
prior to the proposed initial filing of the Company's Registration Statement at
prices below the assumed public offering price have been included in the
calculation as if they were outstanding for all periods presented (using the
treasury stock method and the assumed public offering price for stock options
and warrants and the if-converted method for convertible Preferred Stock).

F-10
<PAGE> 81

RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(INFORMATION AT AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997
IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Historical net loss per share information calculated on this basis is as
follows:

<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------------- -----------------
1994 1995 1996 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net loss per share............................ $(5.16) $(3.24) $(1.65) $(1.34) $(0.79)
====== ====== ====== ====== ======
Shares used in computing historical net loss
per share (in thousands).................... 2,217 2,241 2,341 2,326 2,434
====== ====== ====== ====== ======
</TABLE>

Pro forma net loss per share has been computed as described above and also
gives effect to the conversion of convertible preferred shares not included
above that will automatically convert upon completion of the Company's initial
public offering (using the if-converted method). Such shares are included from
the original date of issuance.

In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share," which is required to be adopted by December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. It is expected that there will be no impact
on the Company from the adoption of Statement No. 128.

ACCOUNTING FOR STOCK OPTIONS AND WARRANTS

As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has elected
to account for stock options and purchase rights granted to employees using the
intrinsic value method and, accordingly, does not recognize compensation expense
for options and purchase rights granted to employees with exercise prices which
are not less than fair value of the underlying Common Stock.

For equity awards to non-employees, including lenders and lessors, the
Company applies the Black-Scholes method to determine the fair value of such
instruments. The value is recognized as expense ratably over the period of
services received or the term of the related financing.

2. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1995 1996 1997
--------- ---------- -------------
<S> <C> <C> <C>
Laboratory equipment.................................. $ 574,000 $ 579,000 $ 612,000
Office and computer equipment......................... 155,000 223,000 237,000
Furniture and fixtures................................ 177,000 204,000 212,000
Leasehold improvements................................ 28,000 37,000 57,000
--------- ---------- ----------
934,000 1,043,000 1,118,000
Less accumulated depreciation and amortization........ (590,000) (758,000) (858,000)
--------- ---------- ----------
Property and equipment, net........................... $ 344,000 $ 285,000 $ 260,000
========= ========== ==========
</TABLE>

Property and equipment includes approximately $770,000 and $550,000 of
equipment under capital leases for the years ended December 31, 1995 and 1996,
respectively, that are pledged as security for the related lease obligations.
Accumulated amortization related to leased assets totaled $483,000 and $308,000
for the years ended December 31, 1995 and 1996, respectively.

F-11
<PAGE> 82

RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(INFORMATION AT AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997
IS UNAUDITED)

3. COLLABORATION AGREEMENTS

In April 1996, the Company entered into collaborative research and license
agreements with Abbott Laboratories ("Abbott") to discover and develop
antifungal products identified using the Company's drug discovery technology.
This agreement grants Abbott the exclusive worldwide right to develop and market
antifungal products discovered with the Company. Abbott will also make contract
research payments of up to $5,000,000 for the Company's antifungal research
activity over a three-year period. During 1996, Abbott made payments of
$1,668,000 pursuant to this agreement, of which $1,112,000 was recognized as
revenue based on costs incurred during the period. Collaborative research
payments from Abbott are non-refundable. The agreement also provides milestone
payments to the Company for up to $9,000,000 per product as well as royalties on
any product sales. The agreements may be terminated by Abbott with notice of up
to 60 days.

In connection with this agreement, Abbott purchased 1,555,556 shares of
Series E Preferred Stock (convertible into 391,844 shares of Common Stock) which
resulted in net proceeds to the Company of $3,500,000.

The Company has entered into research agreements with Trega Biosciences
Inc., Pharmacopeia, Inc. and ArQule, Inc. to screen compounds provided by these
companies. The terms of each of these research agreements require the Company to
complete the screening within a specific period of time, all of which are less
than one year. Once a compound has been identified and selected for further
development the Company may be required to perform additional activities. To
date, no compounds have been selected for development under any of these
agreements. The agreement with Trega Biosciences Inc. expires in April 1998. The
agreements with Pharmacopeia, Inc. and ArQule, Inc. can be terminated by the
Company without any further obligation upon 60 and 30 days notice, respectively.

In April 1997, the Company entered into an agreement with the University of
Washington, which was amended in October 1997, pursuant to which RiboGene
received an exclusive worldwide license to certain patent rights and technology.
Under the agreement, the Company paid an upfront license fee and has agreed to
pay a quarterly license maintenance fee and a milestone payment of $250,000 due
upon the approval of an NDA for a compound developed using the licensed patent
rights. Once a compound is selected for development the Company will be
obligated to complete certain development milestones at its own expense. To
date, no compound has been selected for development.

In April 1993, RiboGene entered into an agreement with the University of
Washington and McGill University, under which RiboGene received an option to
acquire an exclusive, worldwide license to certain patent rights and technology
relating to the tumor-suppressing properties of the enzyme PKR. This agreement
was amended in April 1996 to extend the term of the option through April 1998,
in exchange for a minimal payment and a commitment by the Company to continue
screening compounds in assays incorporating this technology and to conduct
preclinical studies on future lead compounds. The funding for these obligations
will be provided by an SBIR grant that awarded the Company up to $640,000 over a
two-year period.

4. NOTES PAYABLE

In December 1996, the Company obtained a $2,000,000 line of credit from a
bank. As of December 31, 1996, the Company had not drawn on this line of credit
and the line expired in May 1997. In connection with the line of credit, the
Company issued the bank a warrant with a five-year term to acquire 44,444 shares
of Series E Preferred Stock (which will be convertible into 11,195 shares of
Common Stock) at $2.25 per share.

F-12
<PAGE> 83

RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(INFORMATION AT AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997
IS UNAUDITED)

4. NOTES PAYABLE (CONTINUED)

In January and February 1996, the Company issued $1,893,000 principal
amount of bridge notes payable. In May 1996, the $1,893,000 of principal and
$44,000 of accrued interest were converted into 860,844 shares of Series E
Preferred Stock (convertible into 216,846 shares of Common Stock) at a price of
$2.25 per share.

In May 1995, the Company borrowed $750,000 from a bank subject to a note
payable. The note was repaid in July 1995. In connection with this borrowing,
the Company issued the bank a warrant with a five-year term to acquire 13,333
shares of Series E Preferred Stock (which will be convertible into 3,358 shares
of Common Stock) at $2.25 per share.

In July through September 1995, the Company received $4,394,680 in bridge
financing from stockholders. In connection with this transaction, the lenders
purchased warrants at a price of $0.20 per warrant, to acquire 13,312 shares of
Common Stock at $7.94 per share. The warrants have a three-year term. In
September 1995, $765,000 of these notes were repaid. In November 1995, the
remaining $3,629,680 of principal and $77,906 of accrued interest were converted
into 1,647,814 shares of Series E Preferred Stock (convertible into 415,084
shares of Common Stock) at a price of $2.25 per share.

In September 1995, the Company borrowed $1,500,000 from a bank under a note
payable. In connection with this borrowing, the Company issued the bank a
warrant with a five-year term to acquire 20,000 shares of Series E Preferred
Stock (which will be convertible into 5,038 shares of Common Stock) at $2.25 per
share. The note was repaid in April 1996.

In January 1994, in consideration for the acquisition of certain technology
(See Note 5), the Company issued notes payable totaling $4,200,000, which are
due with interest of 4%-5%. At December 31, 1996, notes payable totaling
$2,000,000 remain outstanding; $1,000,000 of which was paid in January 1997 with
accrued interest, and the remainder of which is due in January 1998. Pursuant to
a letter agreement dated December 12, 1997, the maturity date of the remaining
note has been extended to May 5, 1998. The interest rate for the extension
period is 7%. In consideration for the extension, the Company has agreed to pay
$500,000 of principal on January 5, 1998 and issue a warrant to purchase 49,120
shares of Common Stock with an exercise price of $9.85 per share which expires
January 1999. The notes payable are secured by the technology and intellectual
capital acquired in this transaction. The fair value of the notes, calculated
based on a discounted cash flow analysis using the Company's incremental
borrowing rate, does not differ materially from their carrying value in the
financial statements.

5. ACQUISITION OF IN-PROCESS RESEARCH AND DEVELOPMENT

In January 1994, the Company entered into an asset purchase agreement for
certain intangible assets and intellectual property related to several drug
candidates in development. In 1996, the Company discontinued development of
these drug candidates. In exchange for the intangible assets and intellectual
property received, the Company paid $800,000 in cash and issued notes payable
totaling approximately $4,200,000 which bear interest at approximately 4-5% and
which are due in annual installments through 1998 (see Note 4). The Company also
issued a warrant to purchase 330,744 shares of Common Stock with an exercise
price of $9.85 per share which expires in January 1999. The value assigned to
the warrant using the Black-Scholes method for financial statement purposes was
immaterial. In connection with this transaction, the Company charged $5,000,000
to acquired in-process research and development as the assets acquired had no
alternative future uses.

In connection with the above agreement, the Company entered into a
five-year consulting agreement with the sole shareholder of the seller. The
agreement provides for payments of $50,000 per quarter from January

F-13
<PAGE> 84

RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(INFORMATION AT AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997
IS UNAUDITED)

5. ACQUISITION OF IN-PROCESS RESEARCH AND DEVELOPMENT (CONTINUED)

1995 through December 1999. In 1995, the Company determined it would no longer
require the services of the consultant at a level commensurate with the amounts
payable in 1996 through 1999, and therefore the remaining present value of the
unpaid balance (discounted at 10.5%) amounting to $646,000 was recognized as
expense in the accompanying statement of operations.

6. LEASES

The Company leases certain facilities and laboratory and office equipment.
Future minimum lease payments under such noncancelable leases at December 31,
1996 are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
Year ended December 31,
1997................................................. $134,000 $ 217,000
1998................................................. 89,000 85,000
1999................................................. 52,000 66,000
2000................................................. 31,000 8,000
-------- --------
Total minimum payments required........................ 306,000 $ 376,000
========
Less amount representing interest...................... 63,000
--------
Present value of future lease payments................. 243,000
Less current portion................................... 106,000
--------
Long-term portion...................................... $137,000
========
</TABLE>

Rent expense for operating leases was approximately $213,000 and $117,000
in the years ended December 31, 1996 and 1995, respectively.

On March 7, 1997 and as amended on September 24, 1997, the Company entered
into a 15-year lease (the "Lease"), with the right to sublease, for a new 30,000
square foot facility located in Hayward, California, which provides for an
initial annual rent of $531,000 with scheduled increases. The Company intends to
sublease 5,000 square feet of this facility. The Company relocated to the new
facility in November 1997. In connection with the Lease, the Company has agreed
to issue the landlord a six-year warrant to purchase 62,975 shares of Common
Stock at $8.93 per share.

7. OTHER RELATED PARTY TRANSACTIONS

Through December 31, 1996, the Company has advanced $370,000 to one of its
officers in exchange for notes receivable. Of this amount, $250,000 was repaid
in 1995 and $40,000 was forgiven in each of 1996 and 1997. The balance, which
consists of a $40,000 note receivable, bears interest at 5.97% and is due in
1998. Such note receivable has been fully reserved.

8. STOCKHOLDERS' EQUITY

In February 1997, the board of directors and stockholders of the Company
approved an amendment to the Company's Articles of Incorporation to (i) increase
the authorized capitalization of the Company to 50,000,000 shares of Common
Stock and 18,932,344 shares of Preferred Stock and (ii) authorize the issuance
of a new series of Preferred Stock, designated Series F, of which 5,555,554
shares were reserved for issuance.

F-14
<PAGE> 85

RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(INFORMATION AT AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997
IS UNAUDITED)

8. STOCKHOLDERS' EQUITY (CONTINUED)

PREFERRED STOCK

In November 1995, the Company effected a three-for-four stock split of its
Series E Preferred Stock. The number of shares of Series E Preferred Stock and
Preferred Stock warrants, and the related per share amounts, have been adjusted
to reflect the stock split.

The authorized and outstanding preferred shares and related liquidation
preferences were as follows at December 31, 1996:

<TABLE>
<CAPTION>
SHARES AS
CONVERTED LIQUIDATION LIQUIDATION
AUTHORIZED SHARES INTO PREFERENCE PREFERENCE
DESIGNATION SHARES OUTSTANDING COMMON STOCK PER SHARE TOTAL
------------------- ---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Series A........... 138,269 138,268 34,828 $ 6.60 $ 912,569
Series B........... 800,000 580,061 146,113 $ 10.00 5,800,610
Series C........... 2,950,000 2,805,519 706,704 $ 1.50 4,208,279
Series D........... 270,222 270,222 68,068 $ 2.25 608,000
Series E........... 8,500,000 8,300,862 2,090,981 $ 2.25 18,676,939
---------- ---------- --------- -----------
12,658,491 12,094,932 3,046,694 $30,206,397
========== ========== ========= ===========
</TABLE>

In February 1997 and June 1997, the Company issued an aggregate of
2,282,663 units (the "Premium Preferred Units") resulting in net proceeds of
approximately $4,100,000. Each Premium Preferred Unit consists of one share of
Series F Preferred Stock and one Class A Common Stock warrant (the "Class A
Warrants"). The Class A Warrants have a six-year term and entitle the holder to
purchase .2519 of a share of Common Stock at an exercise price per share equal
to the lesser of (i) $8.93 or (ii) the effective per share price of Common Stock
in an initial public offering which results in gross proceeds of at least
$7,500,000 to the Company.

In connection with these transactions, the Company issued the placement
agent an option to purchase 228,266 placement agent units (the "Placement Agent
Units") consisting of 456,532 shares of Series F Preferred Stock (convertible
into 229,998 shares of Common Stock) and Class A Warrants to purchase 57,498
shares of Common Stock at an exercise price of $8.93 per share. In addition, the
Company entered into a two-year financial advisory agreement with the Placement
Agent pursuant to which the Company issued the Placement Agent 342,399 Placement
Agent Units consisting of 684,798 shares of Series F Preferred Stock
(convertible into 344,998 shares of Common Stock) and Class A Warrants to
purchase 86,248 shares of Common Stock at an exercise price of $8.93 per share.
The Placement Agent Units have an exercise price of $1.24 per Placement Agent
Unit and expire in 10 years. In addition, a designee of the Placement Agent
received a warrant to purchase 6,297 shares of Common Stock at an exercise price
of $8.93. No separate accounting value was ascribed to the Placement Agent Unit
Options as their issuance was considered to be a cost of the Premium Preferred
Unit offering.

Holders of Series A, B, C, D and E Preferred Stock are entitled to
noncumulative dividends when and if declared by the board of directors. The
holders of Series F Preferred Stock are entitled to receive, prior and in
preference to any declaration or payment of dividend on any other class of
stock, dividends of $2.25 per share on the first day following the close of the
Series F offering and shall be entitled to receive an additional $1.125 per
share on the second anniversary of the Series F closing and each year
thereafter. The dividends shall be payable only when and if declared by the
board of directors; however, dividends not declared and paid when

F-15
<PAGE> 86

RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(INFORMATION AT AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997
IS UNAUDITED)

8. STOCKHOLDERS' EQUITY (CONTINUED)

due shall accumulate and be included in the Series F Preferred Stock liquidation
preference and in the determination of the Series F Preferred Stock conversion
ratio. The initial Series F Preferred Stock dividend has not been declared or
paid. No dividends or other distributions shall be made to Common Stockholders
other than dividends payable solely in Common Stock, unless, at the same time,
an equivalent dividend to the Preferred Stockholders has been paid or provided
for. No dividends shall be declared or paid on any class of Preferred Stock
while there are any accrued but unpaid dividends on the Series F Preferred Stock
and unless a like dividend is declared on the Series F Preferred Stock.

Preferred shares have voting rights on an as-converted basis. Each share of
Series A through E Preferred Stock is convertible into .2519 of a share of
Common Stock and each share of Series F preferred stock is convertible into
.5038 of a share of Common Stock, subject to adjustment for antidilution. In
addition, the holders of a majority of the Series F Preferred Stock will be
entitled to approve certain transactions including liquidation or the sale of
the Company, the issuance of any securities with terms on par or senior to the
Series F Preferred Stock and the incurrence of any indebtedness above specified
limits. The preferred shares will automatically convert into Common Stock upon
the closing of a firm commitment underwritten public offering under the
Securities Act of 1933 in which the aggregate offering price to the public is
not less than $7,500,000 or, as to Series A, B, C, D or E, at such time as the
Company receives the consent of not less than 66 2/3% of the holders of such
series of Preferred Stock. The Series F Preferred Stock conversion is subject to
adjustment upon the closing of an initial public offering to insure that each
share of Series F Preferred Stock shall be valued at not less than $2.25 per
share, plus any declared or accrued unpaid dividends.

Series A, B, C, D and E Preferred Stock may be redeemed at the option of
the board of directors after April 15, 1999, or earlier, if approved by holders
of 66 2/3% of the outstanding shares of such series. Holders of Series F
Preferred Stock can, at their option, participate in the redemption. At
redemption, the preferred stockholders will receive a redemption price in cash
equal to the original issue price of the respective shares, together with any
declared but unpaid dividends.

In the event of sale, merger, liquidation, dissolution or winding up of the
Company, the holders of Series F Preferred Stock then outstanding will first be
entitled to receive, in preference to all other series of preferred and Common
Stock, $2.25 per share plus declared or accrued but unpaid dividends. The
holders of Series C, D and E Preferred Stock shall be entitled to receive, prior
and in preference to the holders of Series A and B Preferred Stock and Common
Stock, the liquidation preferences noted in the table above, plus declared but
unpaid dividends. If assets remain after such distribution, the holders of
Series B Preferred Stock are entitled to receive the amount shown above in
preference to the Series A Preferred Stockholders and Common Stockholders. Upon
completion of the above distributions, holders of Common Stock shall receive an
amount equal to $0.50 per share and any remaining assets shall be distributed
among the holders of Series A, B, C, D and E Preferred Stock and Common Stock as
prescribed in the Articles of Incorporation.

F-16
<PAGE> 87

RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(INFORMATION AT AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997
IS UNAUDITED)

8. STOCKHOLDERS' EQUITY (CONTINUED)

WARRANTS

As part of financing and lease arrangements (see Notes 4 and 6), the
Company has issued warrants at September 30, 1997 as follows:

<TABLE>
<CAPTION>
SHARES AS
CONVERTED
INTO EXERCISE EXPIRATION
CLASS OF STOCK SHARES COMMON STOCK PRICE DATE(S)
- ----------------------------------------------- ------- ------------ -------- -----------------
<S> <C> <C> <C> <C>
Series B Preferred Stock....................... 23,334 5,877 $ 2.57 August 1999
Series C Preferred Stock....................... 15,000 3,778 $ 1.50 June 2001
Series E Preferred Stock....................... 113,332 28,547 $ 2.25 Various through
December 2002
Common Stock................................... 13,312 N/A $ 7.94 Various through
September 1998
</TABLE>

STOCK PLANS

In March 1993, the Company terminated its 1990 Stock Option Plan (the "1990
Plan") and adopted the 1993 Stock Plan (the "1993 Plan"). The majority of
options outstanding under the 1990 Plan were canceled and new options were
granted pursuant to the 1993 Plan. The remaining options outstanding under the
1990 Plan were unaffected by the termination and are governed by the terms of
the respective option agreements. Shares previously reserved for issuance under
the 1990 Plan for which options were not granted are no longer reserved.

Under the terms of the 1993 Plan, the board of directors may grant stock
purchase rights and stock options. Stock purchase rights may not be issued at
less than 85% of the fair value of the Common Stock at the date of grant and
generally provide the Company with a repurchase right in the event of
termination of employment which lapses over periods specified by the board of
directors. Options granted pursuant to the 1993 Plan may be either incentive
stock options or nonstatutory stock options, at the discretion of the board of
directors. Incentive stock options may be granted to employees with exercise
prices of no less than the fair market value and nonstatutory options may be
granted to employees or consultants at exercise prices of no less than 85% of
the fair value of the Common Stock on the grant date, as determined by the board
of directors. If, at the time the Company grants an option, the optionee
directly or by attribution owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company, the option price
shall be at least 110% of the fair market value and the option shall not be
exercised more than five years after the date of grant. Except as noted above,
options expire no more than 10 years after the date of grant or earlier if
employment is terminated. Options become exercisable as determined by the board
of directors, generally over a period of four years. Through December 31, 1996,
a total of 714,136 shares have been reserved for issuance under the 1993 Plan
(1,041,603 shares at September 30, 1997).

F-17
<PAGE> 88

RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(INFORMATION AT AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997
IS UNAUDITED)

8. STOCKHOLDERS' EQUITY (CONTINUED)

The following table summarizes option activity under the 1990 Plan and the
1993 Plan:

<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE PRICE
OPTIONS PER SHARE
---------------- --------------
<S> <C> <C>
Balance at December 31, 1993.............................. 157,423 $ 0.67
Granted with exercise prices equal to fair value........ 193,940 $ 1.11
Exercised............................................... (11,206) $ 0.78
Canceled................................................ (21,686) $ 0.84
-------
Balance at December 31, 1994.............................. 318,471 $ 0.91
Granted with exercise prices equal to fair value........ 246,328 $ 0.95
Exercised............................................... (4,047) $ 0.60
Canceled................................................ (5,132) $ 0.79
-------
Balance at December 31, 1995.............................. 555,620 $ 0.91
Granted with exercise prices equal to fair value........ 39,256 $ 0.91
Granted with exercise prices greater than fair value.... 7,557 $ 8.93
Exercised............................................... (73,465) $ 0.75
Canceled................................................ (73,623) $ 0.95
-------
Balance at December 31, 1996.............................. 455,345 $ 1.07
Granted with exercise prices equal to fair value........ 239,191 $ 0.89
Exercised............................................... (12,023) $ 0.89
Canceled................................................ (32,022) $ 0.90
-------
Balance at September 30, 1997............................. 650,491 $ 1.02
=======
</TABLE>

Through December 31, 1996, the board of directors granted 144,697 Common
Stock purchase rights (197,596 through September 30, 1997) under the 1993 Plan,
all of which have been exercised for cash and promissory notes. Of this amount,
13,434 shares have been repurchased through December 31, 1996 and 63,661 shares
are subject to the Company's repurchase right at December 31, 1996 which
generally lapses over four years (18,157 and 86,913 shares at September 30,
1997, respectively). The promissory notes bear interest at 5.29% to 6.73%. At
December 31, 1996, 39,816 shares were available for future grant or sale
(111,937 shares at September 30, 1997).

In 1993, the Company issued 37,785 shares of Common Stock outside of the
1993 Plan to an officer, in exchange for a promissory note secured by the
shares, with a principal amount of $22,500 which bears interest at 5.47%. At
December 31, 1996, a total of 3,935 of these shares were subject to the
Company's right of repurchase which lapses over four years. At December 31,
1996, the remaining balance due on the note was approximately $19,000.

F-18
<PAGE> 89

RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(INFORMATION AT AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997
IS UNAUDITED)

8. STOCKHOLDERS' EQUITY (CONTINUED)

The following table summarizes information about options outstanding at
December 31, 1996:

<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF WEIGHTED- OPTIONS
OPTIONS WEIGHTED- AVERAGE EXERCISABLE WEIGHTED-
OUTSTANDING AT AVERAGE REMAINING AT AVERAGE
EXERCISE DECEMBER 31, EXERCISE CONTRACTUAL DECEMBER 31, EXERCISE
PRICE 1996 PRICE LIFE 1996 PRICE
- -------------- -------------- --------- ----------- ------------ ---------
(IN YEARS)
<S> <C> <C> <C> <C> <C>
$0.60 - $0.79 87,742 $0.64 7.00 73,653 $0.64
$0.89 - $1.19 359,038 $0.99 8.29 162,385 $1.03
$4.76 1,007 $4.76 4.00 1,007 $4.76
$8.93 7,558 $8.93 9.73 7,558 $8.93
------- ----- ------- -----
455,345 $1.07 244,603 $1.15
======= ===== ======= =====
</TABLE>

At December 31, 1995, 182,294 options were exercisable.

In July 1997, the Company granted 202,715 options with an exercise price of
$0.89 per share, and recognized deferred compensation expense of approximately
$410,000. Of these grants, 140,652 were subject to stockholder approval. Such
approval was received in October 1997 and at that time the Company recognized
$1.1 million of deferred compensation expense.

During 1996, the Company adopted SFAS 123. The effect of applying the
minimum value method to value options and stock purchase rights granted to
employees in 1995 and 1996 did not result in a pro forma net loss materially
different from the historical amounts reported. Therefore, such pro forma
information has not been presented. SFAS 123 is applicable only to options
granted subsequent to December 31, 1994 and therefore its pro forma effect will
not be fully realized until 1998. In future years, the applications of SFAS 123
may result in a pro forma net loss which is materially different from actual
reported results. The minimum value method was applied using the following
weighted average assumptions for 1995 and 1996, respectively; risk free interest
rates of 6.34% and 6.35%, an expected option life of 5 years and no annual
dividends. The weighted-average fair value of options and stock purchase rights
granted with exercise prices equal to the fair value of the Company's stock on
the date of grant during 1995 and 1996 was $0.24.

F-19
<PAGE> 90

RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(INFORMATION AT AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997
IS UNAUDITED)

8. STOCKHOLDERS' EQUITY (CONTINUED)

RESERVED SHARES

The Company has reserved shares of common stock for future issuance as
follows:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Stock option plan:
Outstanding options.............................. 455,345 650,491
Reserved for future grants....................... 39,816 111,937
Convertible Preferred Stock:
Issued and outstanding........................... 3,046,694 4,196,682
Upon exercise of Placement Agent Unit Option..... -- 574,996
Upon exercise of other warrants.................. 37,955 38,202
Class A Warrants (including Class A Warrants
underlying Placement Agent Unit Options)......... -- 718,729
Common Stock warrants.............................. 344,056 413,328
--------- ---------
3,923,866 6,704,365
========= =========
</TABLE>

9. INCOME TAXES

Significant components of the Company's deferred tax assets are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
------------------------- --------------------------
FEDERAL STATE FEDERAL STATE
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net operating loss carryforward............ $ 7,500,000 $ 500,000 $ 8,800,000 $ 530,000
Research and development credit
carryforward............................. 500,000 330,000 550,000 350,000
Capitalized research and development....... -- 600,000 -- 850,000
Acquired research and development.......... 1,400,000 250,000 1,275,000 225,000
Other...................................... 250,000 50,000 200,000 36,000
----------- ----------- ------------ -----------
Gross deferred tax assets.................. 9,650,000 1,730,000 10,825,000 1,991,000
Valuation allowance........................ (9,650,000) (1,730,000) (10,825,000) (1,991,000)
----------- ----------- ------------ -----------
Net deferred tax assets.................... $ -- $ -- $ -- $ --
========== ========== =========== ==========
</TABLE>

The valuation allowance increased by $4,600,000 and $3,300,000 for the
years ended December 31, 1994 and 1995, respectively.

As of December 31, 1996, the Company had federal net operating loss
carryforwards of approximately $26,000,000. The Company also had federal and
state research and development tax credit carryforwards of approximately
$550,000 and $350,000, respectively. The net operating loss and credit
carryforwards will expire at various dates beginning on 2004 through 2011, if
not utilized.

The Tax Reform Act of 1986 contains provisions that limit the utilization
of net operating loss and tax credit carryforwards if there has been a "change
of ownership." Such a "change of ownership" as described in Section 382 of the
Internal Revenue Code may limit the Company's utilization of its net operating
loss and tax credit carryforwards.

F-20
<PAGE> 91

RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(INFORMATION AT AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997
IS UNAUDITED)

10. INITIAL PUBLIC OFFERING AND RELATED MATTERS

In October 1997, the board of directors authorized the Company to proceed
with an initial public offering (the "Offering") of the Company's Common Stock.
If the offering is consummated under the terms presently anticipated, all of the
outstanding Preferred Stock at September 30, 1997 will automatically convert
into 4,196,682 shares of Common Stock. Unaudited pro forma stockholders' equity,
as adjusted for the assumed conversion of all outstanding shares of convertible
Preferred Stock as of September 30, 1997, is set forth on the accompanying
balance sheet.

Concurrent with the closing of the Offering, the Company expects to file an
Amended and Restated Certificate of Incorporation in the State of Delaware to
effect a one-for-3.97 reverse stock split of all outstanding shares of Common
Stock, and Common Stock options and warrants. Following the reverse stock split,
each share of Series A through E Preferred Stock will convert into 0.2519 of a
share of Common Stock and each share of Series F Preferred Stock will convert
into 0.5038 of a share of Common Stock. All common shares and per share data and
Preferred Stock conversion ratios in the accompanying financial statements have
been adjusted retroactively to give effect to the reverse stock split. The
Amended and Restated Certificate of Incorporation will also reduce the
authorized stock of the Company such that the Company will be authorized to
issue 5,000,000 shares of $0.001 par value Preferred Stock, and 30,000,000
shares of $0.001 par value Common Stock.

In October 1997, the board of directors adopted, subject to stockholder
approval, the 1997 Equity Incentive Plan (the "Incentive Plan"). The Incentive
Plan provides for grants of incentive stock options to employees and
nonstatutory stock options, restricted stock purchase awards, stock bonuses and
stock appreciation rights to employees and consultants of the Company. The
Incentive Plan will supersede the 1993 Plan and 1,000,000 shares of Common Stock
will be reserved for issuance.

In October 1997, the board of directors adopted, subject to stockholder
approval, the 1997 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan") and reserved 150,000 shares of Common Stock for issuance under the
Directors' Plan. The Directors' Plan provides for automatic grants of options to
purchase shares of Common Stock to nonemployee directors of the Company.

In October 1997, the board of directors adopted, subject to stockholder
approval, the Employee Stock Purchase Plan (the "Purchase Plan") covering an
aggregate of 750,000 shares of Common Stock. The Purchase Plan permits eligible
employees to purchase Common Stock through payroll deductions at a price equal
to the lower of 85% of the fair market value at the beginning or end of the
applicable offering period.

F-21
<PAGE> 92
DESCRIPTION OF GRAPHICS

Inside Front Cover:
Gene Expression Graphic

The graphic is a depiction of gene expression, which requires two main phases,
transcription and translation. Transcription is the process of converting
genetic information stored as DNA into a working copy known as messenger RNA
(mRNA). Information contained in the mRNA is translated into a functional
protein by a ribosome and a myriad of soluble translation factors by assembling
amino acids in a specific sequence.

Page 4:
Status of RiboGene Drug Discovery Programs

The graphic depicts the status of RiboGene's antibacterial, antifungal and
antiviral programs.

Page 29:
Figure 1 - The Natural Gene Expression Process

The graphic depicts the two primary stages of the natural gene expression
process known as transcription and translation.

Page 30:
Figure 2 - RiboGene's Drug Discovery Process

The graphic depicts the four stages of RiboGene's drug discovery process. The
four stages are target identification, assay development, lead discovery and
lead optimization.

Page 32:
Figure 3 - Status of RiboGene Drug Discovery Programs

The graphic depicts the status of RiboGene's antibacterial, antifungal and
antiviral programs.
<PAGE> 93

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

NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON IS AUTHORIZED IN
CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED HEREIN 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 SECURITIES OTHER THAN THE COMMON STOCK
OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 8
Use of Proceeds......................... 20
Dividend Policy......................... 20
Capitalization.......................... 21
Dilution................................ 22
Selected Financial Data................. 23
Management's Discussion And Analysis of
Financial Condition And Results of
Operations............................ 24
Business................................ 28
Management.............................. 47
Certain Transactions.................... 55
Principal Stockholders.................. 59
Description Of Capital Stock............ 61
Shares Eligible For Future Sale......... 66
Underwriting............................ 67
Legal Matters........................... 68
Experts................................. 68
Additional Information.................. 69
Index To Financial Statements........... F-1

UNTIL , 1997 (25 DAYS AFTER THE
DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING
TRANSACTIONS IN THE COMMON STOCK, 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.
</TABLE>

PROSPECTUS , 1997
- ------------------------------------------------------

2,300,000 SHARES

RIBOGENE LOGO

Common Stock

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

EVEREN SECURITIES, INC.

GRUNTAL & CO., L.L.C.

CRUTTENDEN ROTH
INCORPORATED
<PAGE> 94

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the distribution of the Common Stock being registered. All amounts are
estimated, except the registration fee, the NASD filing fee and the Nasdaq
National Market application fee:

<TABLE>
<S> <C>
SEC registration fee.............................................. $ 10,000
NASD filing fee................................................... 5,000
Nasdaq National Market application fee............................ 16,500
Blue Sky fees and expenses........................................ 10,000
Accounting fees................................................... 150,000
Legal fees and expenses........................................... 250,000
Transfer agent and registrar fees................................. 50,000
Printing and engraving............................................ 150,000
Miscellaneous..................................................... 108,500
--------
Total................................................... $750,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Registrant's Certificate of Incorporation provides that directors of
the Registrant shall not be personally liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director, to
the fullest extent permitted by the General Corporation Law of the State of
Delaware. The Registrant's Bylaws provide for indemnification of officers and
directors to the full extent and in the manner permitted by Delaware law.
Section 145 of the Delaware General corporation Law makes provision for such
indemnification in terms sufficiently broad to cover officers and directors
under certain circumstances for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act").

The Registrant has entered into indemnification agreements with each
director which provide indemnification under certain circumstances for acts and
omissions which may not be covered by any directors' and officers' liability
insurance.

The form of Underwriting Agreement, filed as Exhibit 1.1 to the
Registration Statement, provides for indemnification of the Registrant and its
controlling persons against certain liabilities under the Securities Act.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since September 1994, the Registrant has sold and issued the following
unregistered securities:

1. In July through September 1995, the Registrant received $4,394,680 in
bridge financing from stockholders. In September 1995, $765,000 of these notes
were repaid. In November 1995, the remaining $3,629,680 of principal and $77,906
of accrued interest were converted into 1,647,814 shares of Series E Preferred
Stock (including 332,250 shares to KPCB V, 286,843 shares to CW, 264,180 shares
to each Domain and Sierra, 227,437 shares each to BIL and Oxford and 45,487
shares to Apertures Associates). In connection with this transaction, the
Registrant issued Warrants to acquire 13,312 shares of Common Stock.

2. In May and September 1995, the Registrant issued a warrant to purchase
an aggregate of 33,333 shares of Series E Preferred Stock to Silicon Valley Bank
in connection with bridge financings in the aggregate of $2,250,000.

3. In January and February 1996, the Registrant issued to certain of its
investors $1,893,000 principal amount of bridge notes. In May 1996, the
$1,893,000 of principal and $44,000 of accrued interest were converted into
860,844 shares of Series E Preferred Stock (including 197,415 shares to KPCB V,
179,675

II-1
<PAGE> 95

shares to CW, 157,613 shares to Domain, 120,541 shares to BIL, 109,169 shares to
Sierra and 96,431 shares to Oxford).

4. In April 1996, the Registrant sold and issued an aggregate of 1,555,556
shares of Series E Preferred Stock to Abbott Laboratories in connection with a
collaborative arrangement for an aggregate of $3,500,000.

5. In April 1996, the Registrant sold and issued an aggregate of 236,648
shares of Series E Preferred Stock (including 185,000 shares to Bio Equity Fund
L.P. and 51,648 shares to Dominion Fund II) for cash in the aggregate amount of
$532,458.

6. In May 1996, the Registrant issued a warrant to purchase an aggregate of
17,778 shares of Series E Preferred Stock to Dominion Ventures, Inc. in
connection with a leasing transaction.

7. In December 1996, the Registrant issued a warrant to purchase an
aggregate of 44,444 shares of Series E Preferred Stock to Venture Lending in
connection with a credit facility in the aggregate of $2,000,000.

8. In February and June 1997, the Registrant sold and issued Premium
Preferred Units consisting of an aggregate of 2,282,663 shares of Series F
Preferred Stock, warrants to purchase an aggregate of 2,282,663 shares of Common
Stock issued to a group of accredited investors (including 573,334 shares to the
Aries Trust, 315,555 shares to Aries Domestic Fund, L.P., 266,667 shares to J.F.
Shea Company, as nominee, 100,000 shares to Palmetto Partners Ltd., 88,889
shares to Oxford, 88,889 shares to KPCB V, 55,000 shares to Bios Equity Fund,
44,445 shares to CW, 44,444 shares to Aperture, 39,556 shares to Dominion and
665,884 shares to other accredited investors) for cash in connection with a
private placement for an aggregate amount of $5,136,000. In connection with this
offering, Paramount Capital Inc., as placement agent, received options
exercisable for an aggregate of 1,141,330 shares of Series F Preferred Stock and
options exercisable for warrants to purchase an aggregate of 143,746 shares of
Common Stock.

9. In December 1997, the Registrant issued to Hyline Laboratories, Inc. a
warrant to purchase up to an aggregate of 49,120 shares of Common Stock in
connection with the extension of a promissory note due from the Company in
connection with the acquisition of intranasal products from Hyline Laboratories,
Inc.

10. From January 1, 1993 until September 30, 1997, the Registrant has
granted incentive stock options nonstatutory stock options and purchase rights
to employees, directors and consultants of the Registrant under its 1993 Stock
Option Plan covering an aggregate of 1,103,342 shares of the Registrant's Common
Stock, at exercise prices ranging from $0.60 to $8.93 per share. Options to
purchase 155,517 shares of Common Stock have been canceled or have lapsed
without being exercised. The Registrant has issued 280,182 shares of its Common
Stock to employees, directors and consultants pursuant to the exercise of stock
options and purchase rights, net of repurchases. At September 30, 1997, 111,937
shares remain available for grant.

The sale and issuance of securities in the transactions described in
paragraphs 1-9 above were deemed to be exempt from registration under the
Securities Act by virtue of Section 4(2) adopted thereunder. The purchasers in
each case represented their intention to acquire the securities for investment
only and not with a view to distribution thereof. Appropriate legends are
affixed to the stock certificates issued in such transactions. All recipients
either received adequate information about the Registrant or had access, through
employment or other relationships, to such information.

The sale and issuance of securities in the transactions described in
paragraph 10 above were deemed to be exempt from registration under the
Securities Act by virtue of Rule 701 promulgated thereunder, in that they were
issued either pursuant to written compensatory benefit plans or pursuant to a
written contract relating to compensation, as provided by Rule 701.

II-2
<PAGE> 96

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following is a list of exhibits filed as a part of this
Registration Statement.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
-------- ------------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
**3.1 Amended and Restated Articles of Incorporation of the Registrant.
**3.2 Bylaws of the Registrant.
**3.3 Form of Certificate of Incorporation of the Registrant to be effective
upon reincorporation in Delaware.
**3.4 Form of Bylaws of the Registrant to be effective upon reincorporation in
Delaware.
**3.5 Form of Restated Certificate of Incorporation of the Registrant, to be
filed after completion of this offering.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, and 3.5.
**4.2 Specimen Stock Certificate.
**4.3 Ninth Amended and Restated Rights Agreement among the Registrant and the
investors named therein, dated May 1, 1996.
**4.4 Form of Class A Warrant Certificates for Purchase of Common Stock, dated
June 23, 1997.
**4.5 Unit Purchase Option Warrant for the Purchase of 342,399 Option Units,
issued by the Registrant to Paramount Capital, Inc., dated June 23,
1997.
**4.6 Unit Purchase Option Warrant for the Purchase of 228,266 Option Units,
consisting of Shares of Preferred Stock and Warrants, issued by the
Registrant to Paramount Capital, Inc., dated June 23, 1997.
**4.7 Warrant Agreement between the Registrant and Paramount Capital Inc.,
dated June 23, 1997.
**4.8 Warrant for Common Stock, issued by the Registrant to Paramount Capital
Inc., dated March 12, 1997.
**4.9 Warrant for Series B Preferred Stock, issued by the Registrant to
Dominion Ventures, dated August 9, 1991.
**4.10 Warrant for Series C Preferred Stock, issued by the Registrant to
Dominion Ventures, dated June 18, 1993.
**4.11 Warrant for Series E Preferred Stock, issued by the Registrant to
Dominion Fund II, dated August 2, 1996.
**4.12 Warrant for Series E Preferred Stock, issued by the Registrant to
Silicon Valley Bank, dated September 25, 1995.
**4.13 Warrant for Series E Preferred Stock, issued by the Registrant to
Silicon Valley Bank, dated May 19, 1995.
**4.14 Warrant for Series E Preferred Stock, issued by the Registrant to
Venture Lending, dated December 23, 1996.
**4.15 Warrant for Common Stock, issued by the Registrant to SBC Warburg, dated
September 20, 1995.
**4.16 Warrant for Common Stock, issued by the Registrant to Judith Donaldson,
dated September 20, 1995.
**4.17 Warrant for Series E Preferred Stock, issued by the Registrant to
Dominion Ventures, dated June 13, 1994.
**4.18 Warrant for Common Stock, issued by the Registrant to Hyline
Laboratories, dated January 5, 1994.
**4.19 Warrant for Common Stock, issued by the Registrant to Rip Grossman and
Associates, Inc., dated January 5, 1994.
*4.20 Form of Warrant to be issued by the Registrant to each of the
Representatives.
*4.21 Form of Warrant to be issued to Hyline Laboratories, Inc.
**4.22 Investor Rights Agreement among the Registrant and the investors named
therein, dated June 23, 1997.
</TABLE>

II-3
<PAGE> 97

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
-------- ------------------------------------------------------------------------
<C> <S>
5.1 Form of Opinion of Cooley Godward LLP.
**+10.1 License Agreement between the Registrant and Abbott Laboratories, dated
April 26, 1996.
**+10.2 Research Agreement between the Registrant and Abbott Laboratories, dated
April 26, 1996.
**10.3 Series E Preferred Stock Purchase Agreement between the Registrant and
Abbott, dated April 26, 1996.
**+10.4 License Agreement between the Registrant and University of Washington,
dated April 4, 1997.
**+10.5 Collaboration Agreement between the Registrant and Houghten
Pharmaceuticals, dated April 12, 1995, as amended on April 10, 1997.
**10.6 1993 Stock Plan.
**10.7 Stock Option Agreement pursuant to 1993 Stock Plan.
**10.8 Form of Restricted Stock Purchase Agreement pursuant to 1993 Stock Plan.
**10.9 Employment Agreement between the Registrant and Charles J. Casamento,
dated May 11, 1993.
**10.10 Change of Control Agreement between the Registrant and Charles
Casamento, dated July 20, 1995.
**10.11 Employment Letter Agreement between the Registrant and Laura S. L.
Gaeta, dated May 6, 1994.
**10.12 Change of Control Agreement between the Registrant and Laura S. L.
Gaeta, dated July 20, 1995.
**10.13 Employment Letter Agreement between the Registrant and Timothy E.
Morris, dated May 31, 1995.
**10.14 Change of Control Agreement between the Registrant and Timothy E.
Morris, dated June 30, 1995.
**10.15 Real Property Lease between the Registrant and Hayward Point Eden I
Limited Partnership, dated March 7, 1997.
**10.16 First Amendment to Real Property Lease between the Registrant and
Hayward Point Eden I Limited Partnership, dated September 24, 1997.
**10.17 Real Property Lease between the Registrant and Hall Properties, Inc.,
dated February 6, 1992.
**10.18 Placement Agency Agreement between the Registrant and Paramount Capital,
Inc., dated August 1, 1996.
**10.19 Subscription Agreement for the Purchase and Sale of Premium Preferred
Units, dated June 23, 1997.
**10.20 Asset Purchase Agreement by and among the Registrant, Hyline
Laboratories, and Michael Ashkin, dated January 5, 1994.
**10.21 Non-Competition Agreement between the Registrant and Michael Ashkin,
dated January 5, 1994.
**10.22 Consulting Agreement between the Registrant and Michael Ashkin, dated
January 5, 1994.
**10.23 Secured Promissory Notes issued to Hyline Laboratories, dated January 5,
1994.
**10.24 Master Lease Agreement between the Registrant and Dominion Ventures,
dated August 9, 1991.
**10.25 Form of Scientific Advisor Agreement.
**10.26 Consulting Agreement between the Registrant and Michael Mathews, dated
April 13, 1993.
**10.27 Consulting Agreement between the Registrant and Joe B. Harford, dated
July 11, 1997.
**10.28 Consulting Agreement between the Registrant and Michael Katze, dated
February 6, 1997.
</TABLE>

II-4
<PAGE> 98

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
-------- ------------------------------------------------------------------------
<C> <S>
10.29 Consulting Agreement between the Registrant and Nahum Sonenberg, dated
January 29, 1993.
**10.30 Approval of Outside Activity by Alan Hinnebusch, dated October 15, 1992.
**10.31 Form of Indemnification Agreement between the Registrant and the parties
identified on Attachment A thereto.
10.32 Financial Advisory Agreement between the Registrant and Paramount
Capital, Inc., dated June 23, 1997.
*10.33 Letter Agreement between the Registrant, Hyline Laboratories, Inc. and
Michael Ashkin.
**11.1 Statement Regarding Computation of Net Loss Per Share.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
23.3 Consent of Pennie & Edmonds LLP.
24.1 Power of Attorney. Reference is made to page II-6.
**27.1 Financial Data Schedule.
</TABLE>

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

* To be filed by amendment.

** Previously filed.

+ Confidential treatment has been requested for portions of this exhibit.

ITEM 17. UNDERTAKINGS.

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

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

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

II-5
<PAGE> 99

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, RiboGene, Inc.
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf, by the undersigned, thereunto duly authorized, in the City of
Hayward, County of Alameda, State of California, on December 12, 1997.

RIBOGENE, INC.

By: /s/ CHARLES J. CASAMENTO

------------------------------------
Charles J. Casamento
President, Chief Executive Officer
and Chairman

Pursuant to the requirements of the Securities Act of 1933, the Amendment
No. 2 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

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

/s/ CHARLES J. CASAMENTO President, Chief Executive December 12, 1997
- --------------------------------------------- Officer and Chairman
Charles J. Casamento (Principal Executive
Officer)
/s/ TIMOTHY E. MORRIS Vice President, Finance & December 12, 1997
- --------------------------------------------- Administration and Chief
Timothy E. Morris Financial Officer
(Principal Financial and
Accounting Officer)

/s/ ALEXANDER E. BARKAS, PH.D.* Director December 12, 1997
- ---------------------------------------------
Alexander E. Barkas, Ph.D.

/s/ DIGBY W. BARRIOS* Director December 12, 1997
- ---------------------------------------------
Digby W. Barrios

/s/ JON S. SAXE* Director December 12, 1997
- ---------------------------------------------
Jon S. Saxe

/s/ JESSE I. TREU, PH.D.* Director December 12, 1997
- ---------------------------------------------
Jesse I. Treu, Ph.D.

*By: /s/ CHARLES J. CASAMENTO
- ---------------------------------------------
Charles J. Casamento, Attorney-in-Fact
</TABLE>

II-6
<PAGE> 100

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- --------------------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
**3.1 Amended and Restated Articles of Incorporation of the Registrant.
**3.2 Bylaws of the Registrant.
**3.3 Form of Certificate of Incorporation of the Registrant to be effective upon
reincorporation in Delaware.
**3.4 Form of Bylaws of the Registrant to be effective upon reincorporation in
Delaware.
**3.5 Form of Restated Certificate of Incorporation of the Registrant, to be filed
after completion of this offering.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, and 3.5.
**4.2 Specimen Stock Certificate.
**4.3 Ninth Amended and Restated Rights Agreement among the Registrant and the
investors named therein, dated May 1, 1996.
**4.4 Form of Class A Warrant Certificates for Purchase of Common Stock, dated June
23, 1997.
**4.5 Unit Purchase Option Warrant for the Purchase of 342,399 Option Units, issued by
the Registrant to Paramount Capital, Inc., dated June 23, 1997.
**4.6 Unit Purchase Option Warrant for the Purchase of 228,266 Option Units,
consisting of Shares of Preferred Stock and Warrants, issued by the Registrant
to Paramount Capital, Inc., dated June 23, 1997.
**4.7 Warrant Agreement between the Registrant and Paramount Capital Inc., dated June
23, 1997.
**4.8 Warrant for Common Stock, issued by the Registrant to Paramount Capital Inc.,
dated March 12, 1997.
**4.9 Warrant for Series B Preferred Stock, issued by the Registrant to Dominion
Ventures, dated August 9, 1991.
**4.10 Warrant for Series C Preferred Stock, issued by the Registrant to Dominion
Ventures, dated June 18, 1993.
**4.11 Warrant for Series E Preferred Stock, issued by the Registrant to Dominion Fund
II, dated August 2, 1996.
**4.12 Warrant for Series E Preferred Stock, issued by the Registrant to Silicon Valley
Bank, dated September 25, 1995.
**4.13 Warrant for Series E Preferred Stock, issued by the Registrant to Silicon Valley
Bank, dated May 19, 1995.
**4.14 Warrant for Series E Preferred Stock, issued by the Registrant to Venture
Lending, dated December 23, 1996.
**4.15 Warrant for Common Stock, issued by the Registrant to SBC Warburg, dated
September 20, 1995.
**4.16 Warrant for Common Stock, issued by the Registrant to Judith Donaldson, dated
September 20, 1995.
**4.17 Warrant for Series E Preferred Stock, issued by the Registrant to Dominion
Ventures, dated June 13, 1994.
**4.18 Warrant for Common Stock, issued by the Registrant to Hyline Laboratories, dated
January 5, 1994.
</TABLE>
<PAGE> 101

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- --------------------------------------------------------------------------------
<C> <S>
**4.19 Warrant for Common Stock, issued by the Registrant to Rip Grossman and
Associates, Inc., dated January 5, 1994.
*4.20 Form of Warrant to be issued by the Registrant to each of the Representatives.
*4.21 Form of Warrant to be issued to Hyline Laboratories, Inc.
**4.22 Investor Rights Agreement among the Registrant and the investors named therein,
dated June 23, 1997.
5.1 Form of Opinion of Cooley Godward LLP.
**+10.1 License Agreement between the Registrant and Abbott Laboratories, dated April
26, 1996.
**+10.2 Research Agreement between the Registrant and Abbott Laboratories, dated April
26, 1996.
**10.3 Series E Preferred Stock Purchase Agreement between the Registrant and Abbott,
dated April 26, 1996.
**+10.4 License Agreement between the Registrant and University of Washington, dated
April 4, 1997.
**+10.5 Collaboration Agreement between the Registrant and Houghten Pharmaceuticals,
dated April 12, 1995, as amended on April 10, 1997.
**10.6 1993 Stock Plan.
**10.7 Stock Option Agreement pursuant to 1993 Stock Plan.
**10.8 Form of Restricted Stock Purchase Agreement pursuant to 1993 Stock Plan.
**10.9 Employment Agreement between the Registrant and Charles J. Casamento, dated May
11, 1993.
**10.10 Change of Control Agreement between the Registrant and Charles J. Casamento,
dated July 20, 1995.
**10.11 Employment Letter Agreement between the Registrant and Laura S. L. Gaeta, dated
May 6, 1994.
**10.12 Change of Control Agreement between the Registrant and Laura S. L. Gaeta, dated
July 20, 1995.
**10.13 Employment Letter Agreement between the Registrant and Timothy E. Morris, dated
May 31, 1995.
**10.14 Change of Control Agreement between the Registrant and Timothy E. Morris, dated
June 30, 1995.
**10.15 Real Property Lease between the Registrant and Hayward Point Eden I Limited
Partnership, dated March 7, 1997.
**10.16 First Amendment to Real Property Lease between the Registrant and Hayward Point
Eden I Limited Partnership, dated September 24, 1997.
**10.17 Real Property Lease between the Registrant and Hall Properties, Inc., dated
February 6, 1992.
**10.18 Placement Agency Agreement between the Registrant and Paramount Capital, Inc.,
dated August 1, 1996.
**10.19 Subscription Agreement for the Purchase and Sale of Premium Preferred Units,
dated June 23, 1997.
**10.20 Asset Purchase Agreement by and among the Registrant, Hyline Laboratories, and
Michael Ashkin, dated January 5, 1994.
**10.21 Non-Competition Agreement between the Registrant and Michael Ashkin, dated
January 5, 1994.
</TABLE>

<PAGE> 102

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- --------------------------------------------------------------------------------
<C> <S>
**10.22 Consulting Agreement between the Registrant and Michael Ashkin, dated January 5,
1994.
**10.23 Secured Promissory Notes issued to Hyline Laboratories, dated January 5, 1994.
**10.24 Master Lease Agreement between the Registrant and Dominion Ventures, dated
August 9, 1991.
**10.25 Form of Scientific Advisor Agreement.
**10.26 Consulting Agreement between the Registrant and Michael Mathews, dated April 13,
1993.
**10.27 Consulting Agreement between the Registrant and Joe B. Harford, dated July 11,
1997.
**10.28 Consulting Agreement between the Registrant and Michael Katze, dated February 6,
1997.
10.29 Consulting Agreement between the Registrant and Nahum Sonenberg, dated January
29, 1993.
**10.30 Approval of Outside Activity by Alan Hinnebusch, dated October 15, 1992.
**10.31 Form of Indemnification Agreement between the Registrant and the parties
identified on Attachment A thereto.
10.32 Financial Advisory Agreement between the Registrant and Paramount Capital, Inc.,
dated June 23, 1997.
*10.33 Letter Agreement between the Registrant, Hyline Laboratories, Inc. and Michael
Ashkin.
**11.1 Statement Regarding Computation of Net Loss Per Share.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
23.3 Consent of Pennie & Edmonds LLP.
24.1 Power of Attorney. Reference is made to page II-6.
**27.1 Financial Data Schedule.
</TABLE>

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

* To be filed by amendment

** Previously filed.

+ Confidential treatment has been requested for portions of this exhibit.

<PAGE> 1
Exhibit 5.1

Cooley Godward LLP Letterhead

January ,1998

RiboGene, Inc.

ROBERT J. BRIGHAM
650/843-5053
[email protected]

Ladies and Gentlemen:

You have requested our opinion with respect to certain matters in connection
with the filing by RiboGene, Inc. (the "Company") of a Registration Statement
on Form S-1 on October 27, 1997, as amended (the "Registration Statement") with
the Securities and Exchange Commission covering the underwritten public
offering of up to 2,645,000 shares of the Company's Common Stock (the "Shares").

In connection with this opinion, we have (i) reviewed the Registration
Statement and related Prospectus, the Company's Certificate of Incorporation
and Bylaws, and the originals or copies certified to our satisfaction, of such
records, documents, certificates, memoranda and other instruments as in our
judgment are necessary or appropriate to enable us to render the opinion
expressed below, and (ii) assumed that the shares of Common Stock will be sold
to the Underwriters at a price established by the Pricing Committee of the
Board of Directors of the Company.

On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Shares, when sold and issued in accordance with the Registration
Statement and related Prospectus, will be validly issued, fully paid and
nonassessable.

We consent to the reference to our firm under the caption "Legal Matters" in
the Prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.

Very truly yours,

COOLEY GODWARD LLP

By: ___________________________
Robert J. Brigham

<PAGE> 1
EXHIBIT 10.29

RIBOGENE, INC.
CONSULTING AGREEMENT

This Agreement is entered into by and between RiboGene, Inc., a California
corporation ("RiboGene"), and Nahum Sonenberg (hereinafter "Consultant"), this
29th day of January, 1993 at Hayward, California.

In consideration of the mutual promises contained herein, the parties
hereto agree as follows:

SECTION 1: CONSULTING

1.1 Services. Consultant shall render consulting services in the area of
the discovery and development of translation-targeted therapeutics (hereinafter
his "Duties"). He shall consult with the Board of Directors, officers, and
department heads of RiboGene, and such other personnel as designated by the
President of RiboGene, in regard to his Duties.

1.2 Project Designation. Consultant shall work on a per project basis.
Upon identification of a project to be performed by Consultant during the term
of this Agreement, RiboGene shall prepare a Project Designation in the form
attached hereto and marked Exhibit A (the "Designation") which shall detail the
scope, duration and payment terms for the project, the Designation shall be
signed by the parties and attached hereto. Consultant's employment with respect
to such project shall thereafter be governed by this Agreement as supplemented
and/or amended by the terms and conditions set forth in the Designation.

1.3 Services for Others. Consultant shall be free to represent or perform
services for other persons during the term of this Agreement, provided that
performance of such services does not interfere with Consultant's Duties under
this Agreement. However, Consultant agrees that he does not presently perform
and does not intend to perform, during the term of this Agreement, consulting
or other services for companies whose businesses or proposed businesses in any
way involve the design or use of products which are or would be competitive
with the products or proposed products of RiboGene (except for companies
previously disclosed by Consultant to RiboGene in writing). Should Consultant
propose to perform consulting or other services for any such company, he agrees
to notify RiboGene in writing in advance (specifying the name of the
organization for whom he proposes to perform such services) and to provide
information to RiboGene sufficient to allow it to determine if the performance
of such services would conflict with areas of interest to RiboGene, or any
further services that RiboGene might request of Consultant under this Agreement.

1.4 Payment. RiboGene agrees to pay Consultant for his services to be
rendered under this agreement in accordance with the payment terms set forth on
each Project Designation. RiboGene shall not be responsible for payment of
Consultant's expenses in the performance of his Duties including, but not
limited to, expenses for travel and

<PAGE> 2
similar items unless such expense, which shall be reasonable in amount, is
expressly authorized in writing by RiboGene's Chief Financial Officer or
Controller, prior to the incurring of such expenses, or is permitted under the
terms of a project Designation, RiboGene will reimburse Consultant upon the
presentation by Consultant, from time to time, of a detailed and itemized
account of such expenses substantiated by receipts.

1.5 Term. This Agreement shall be for a period of 12 months, commencing on
Feb. 1st, 1993 and terminating on Jan. 31st 1984; however, this Agreement may
be terminated at any time by either party by 30 days' written notice to the
other party.

1.6 Independent Contractor. The Consultant's services are to be performed
as an independent contractor with the customary and usual independence
associated therewith and he shall not be deemed to be an employee of RiboGene
or to otherwise bind RiboGene to any agreement unless expressly authorized in
writing to do so. Consultant shall be responsible for payment of all income,
social security and other taxes incurred by him as a self-employed person.

1.7 No Assignment. Because of the personal nature of the services to be
rendered by Consultant, this agreement may not be assigned by Consultant
without the prior written consent of RiboGene.

SECTION 2: CONFIDENTIALITY

In consideration of his access to the premises of RiboGene and/or his
access to certain Confidential Information of RiboGene, in connection with his
business relationship with RiboGene, Consultant hereby represents and agrees as
follows:

2.1 Confidential Information. For purposes of this Agreement, the term
"Confidential Information" means:

(i) Any information which RiboGene possesses that has been created,
discovered or developed by or for RiboGene, and which has or could have
commercial value or utility in the business in which RiboGene is engaged; or

(ii) Any information which is related to the business of RiboGene and
is generally not known by non-RiboGene personnel.

By way of illustration, but not limitation, Confidential Information includes
trade secrets and any information concerning products, processes, formulas,
designs, inventions (whether or not patentable or registrable under copyright
or similar laws, and whether or not reduced to practice), discoveries,
concepts, ideas, improvements, techniques, methods, research, development and
test results, specifications, data, know-how, software, formats marketing
plans, and analyses, business plans and analyses, strategies, forecasts,
customer and supplier identities, characteristics and agreements.
<PAGE> 3
2.2 Exclusions. Notwithstanding the foregoing, the term Confidential
Information shall not include:

(i) Any information which becomes generally available to the public
other than as a result of breach of the confidentiality portions of this
Consulting Agreement, or any other agreement requiring confidentiality between
RiboGene and the Consultant;

(ii) Information received from a third party in rightful possession
of such information who is not restricted from disclosing such information; and

(iii) Information known by the Consultant prior to his receipt of
such information from RiboGene, which prior knowledge can be documented.

2.3 Documents. Consultant agrees that, without the express written
consent of RiboGene, he will not remove from RiboGene's premises, any notes,
formulas, programs, data, records, machines or any other documents or items
which in any manner contain or constitute Confidential Information - nor will
he make reproductions or copies of same. In the event Consultant receives any
such documents or items by personal delivery from any duly designated or
authorized personnel of RiboGene, he shall be deemed to have received the
express written consent of RiboGene. In the event that Consultant receives any
such documents or items, other than through personal delivery as described in
the preceding sentence, he agrees to inform RiboGene promptly of his possession
of such documents or items. Consultant shall promptly return any such documents
or items, along with any reproductions or copies to RiboGene upon RiboGene's
demand or upon termination of this Agreement.

2.4 No Disclosure. Consultant agrees that he will hold in trust and
confidence all Confidential Information and will not disclose to others,
directly or indirectly, any Confidential Information or anything relating to
such information without the prior written consent of RiboGene, except as may
be necessary in the course of his business relationship with RiboGene. He
further agrees that he will not use any Confidential Information without the
prior written consent of RiboGene, except as may be necessary in the course of
his business relationship with RiboGene, and that the provisions of this
Section 2.4 shall survive termination of this Agreement.

2.5 Patents, Copyrights. Consultant acknowledges and agrees that all
Confidential Information existing or developed by or for RiboGene shall be the
sole property of RiboGene, and RiboGene shall be the sole owner of all patent,
copyright and other rights and protections in connection therewith. He hereby
assigns to RiboGene all right, title and interest that he may have to or
acquire in all such Confidential Information. Upon learning of any Confidential
Information not already disclosed to RiboGene during the term of this
Agreement, he agrees that he will promptly disclose such confidential
Information to RiboGene.

<PAGE> 4
2.6 Ownership. Consultant agrees that all Confidential Information
which is related to or which results from work performed by Consultant for
RiboGene ("Inventions") shall be the sole and exclusive property of RiboGene or
its nominees. RiboGene and its nominees shall have the right to use and/or to
apply for patents, copyrights or other statutory or common law protections for
such Inventions in any and all countries. Consultant further agrees (i) to
assist RiboGene in every proper way to obtain and from time to time to enforce
such patents, copyrights and other rights and protections relating to
Inventions, and (ii) to execute and deliver to RiboGene or its nominee upon
request all such documents as RiboGene or its nominee may determine are
necessary or may be necessary to: (a) vest in RiboGene or its nominee clear and
marketable title in and to Inventions, (b) apply for, prosecute and obtain
patents, copyrights and other rights and protections relating to Inventions, or
(c) enforce patents, copyrights and other rights and protections relating to
Inventions. Consultant's obligations pursuant to this Section shall continue
beyond the termination of his employment with RiboGene, but RiboGene agrees to
compensate him after the termination of employment at a reasonable rate for time
actually spent or expenses incurred by him at RiboGene's request.

2.7 Limits of Application. Consultant has been informed and
understands that the provisions of Section 2.5, above, do not apply to any
Invention that qualifies in all respects under Section 2870 of the California
Labor Code, which provides:

"(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employment shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
that either:

(1) Relate at the time of conception or reduction to
practice of the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer.

(2) Result from any work performed by the employee for the
employer.

(b) To the extent a provision in an employment agreement purports
to require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable."

2.8 No Conflicting Agreements. Consultant represents that he has
not brought, and will not bring with him to RiboGene, and will not use in the
performance of his responsibilities for RiboGene, any materials or documents of
a former employer that are not generally available to the public, unless he has
obtained the express written consent of his former employer for their
possession and use. Moreover, he represents that his performance of this
Agreement and as a consultant of RiboGene does not and will

<PAGE> 5

not breach any agreement or relationship of trust and confidence he may have
with any third party, whether oral, written or implied. He agrees that he has
not entered into and will not enter into any agreement in conflict with this
Agreement.

2.9 Remedies. Consultant understands that, in the event he fails to
comply with Section 2.2 through 2.6 of this Agreement, RiboGene may suffer
irreparable harm which may not be adequately compensated by monetary damages.
Accordingly, he agrees that, in the event of his breach or threatened breach of
the terms of those Sections, RiboGene shall be entitled to injunctive or other
preliminary or equitable relief in addition to such other remedies as may be
available to RiboGene for such breach or threatened breach, including damages.

SECTION 3: MISCELLANEOUS

3.1 Actions; Expenses. In the event of any action at law or in equity to
enforce the provisions of this Agreement, the unsuccessful party shall pay to
the other all costs and expenses so incurred, including attorneys' fees.

3.2 Governing Law. This agreement shall be construed in accordance with
and governed by the laws of the State of California.

3.3 Entire Agreement; Amendment Waiver. This Agreement expresses the
entire understanding with respect to the subject matter hereof and supersedes
and terminates any prior oral or written agreements with respect to the subject
matter hereof. Any term of this Agreement may be amended and observance of any
term of this Agreement may be waived only with the written consent of the
parties hereto. Waiver of any term or condition of this Agreement by any party
shall not be construed as a waiver of any subsequent breach or failure of the
same term or condition or waiver of any other term or condition of this
Agreement. The failure of any party at any time to require performance by any
other party of any provision of this Agreement shall not affect the right of
any such party to require future performance of such provision or any other
provision of Agreement.

Consultant and RiboGene hereby accept and agree to the above terms and
acknowledge receipt of a copy of this Agreement.

RIBOGENE, INC.

By: Vincent Miles
-----------------------------------

Title: Acting President

Nahum Sonenberg
---------------------------------------

<PAGE> 1
EXHIBIT 10.32

Dated as of June 23, 1997

RiboGene, Inc.
21375 Cabot Boulevard
Hayward, CA 94545

Dear Sirs:

1. This is to confirm our understanding that Paramount Capital,
Inc. ("Paramount") has been engaged as a non-exclusive financial advisor of
RiboGene, Inc. (the "Company") for a period of twenty-four (24) months
commencing on the date hereof (as extended pursuant to Paragraph 11 hereto, or
by mutual agreement of the parties hereto, (the "Term").

2. The Company will pay Paramount a non-refundable retainer fee for
Paramount's services hereunder in an amount equal to four thousand dollars
($4,000) per month, minimum engagement of twenty-four (24) months, with the
first $20,000 of the retainer fee payable upon the Final Closing Date.

The Company also agrees to pay in cash all out-of-pocket expenses
incurred by Paramount in providing its services hereunder, including reasonable
fees and disbursements of Paramount's counsel, such expense to be paid upon
submission of a bill or bills by Paramount from time to time.

3. Upon the Closing of each Investment (as defined below) during the
Term or during the twelve-month period following the expiration of earlier
termination of the Term, the Company shall pay to Paramount a fee in an amount
equal to nine percent (9%) of the aggregate value of such Investment and shall
issue to Paramount warrants to purchase an amount of securities equal to ten
percent (10%) of the securities sold as part of such Investment at an exercise
price equal to one-hundred-ten percent (110%) of the price of such securities,
exercisable until five (5) years from the date of issuance of such warrants. For
the purposes of this Agreement, an Investment shall mean any purchase of
securities of the Company which is made during the Term or during the
twelve-month period following the expiration of the Term by an investor first
introduced to the Company by or through Paramount during or prior to the Term;
provided that no compensation shall be due to Paramount pursuant to this
paragraph 3 for an Investment with respect to which Paramount is entitled to
compensation pursuant to that
<PAGE> 2
certain Placement Agency Agreement dated August 1, 1996 between Paramount and
the Company and provided further that if the terms of both the Placement Agency
Agreement and this Agreement would be applicable to any particular investment,
the terms of the Placement Agency Agreement shall govern and Paramount shall be
entitled to the compensation set forth therein.

4. (a) Should the Company enter into an agreement with a party first
introduced to the Company by or through Paramount during or prior to the Term
pursuant to which the Company consummates a sale, merger, consolidation, tender
offer, business combination or similar transaction involving a majority of the
business assets or stock of the Company (a "Sale") during the Term, or during
the twelve-month period following the expiration of such Term, then the Company
shall pay Paramount: (i) a fee equal to ten percent (10%) of the aggregate
consideration paid to the Company by the acquiror, such fee to be payable in
cash simultaneously with the closing of such Sale; and (ii) an equity payment in
an amount to be agreed upon between the parties, but in no event less than ten
percent (10%) of the equity received by the Company (or the aggregate amount of
equity received by its shareholders) as a result of the Sale.

(b) Should the Company enter into an agreement with a party first
introduced to the Company by or through Paramount during or prior to the Term
pursuant to which the Company consummates a transaction wherein the Company
acquires all or substantially all of the business assets or stock of another
entity in which the Company is the surviving entity (an "Acquisition") during
the Term, or during the twelve-month period following the expiration of such
Term, then the Company shall pay Paramount: (i) a fee equal to ten percent
(10%) of the aggregate consideration paid by the Company to the entity acquired,
such fee to be payable in cash simultaneously with the closing of such
Acquisition; and (ii) a payment in the form of equity securities of the Company
in an amount to be agreed upon between the parties, but in no event less than an
amount equal in value to ten percent (10%) of the aggregate consideration paid
by the Company to the entity acquired as a result of the Acquisition.

(c) For purposes of calculating Paramount's fee under this Paragraph
4, the aggregate consideration paid with respect to the business, assets or
stock of the Company shall be equal to the total of all cash, securities and/or
other assets paid for such business, assets or stock by the acquiror Aggregate
consideration shall also include: (i) any commercial bank or similar
indebtedness of the Company which is repaid or for which the responsibility to
pay is assumed by the acquiror in connection with such transaction; (ii) the
greater of the stated value or the liquidation value of preferred stock of the
Company which is assumed or acquired by the acquiror and which is not converted
into common stock upon the consummation of such transaction; (iii) future
payments for which the acquiror is obligated absolutely ("Acquiror Future
Payments"); and (iv) future payments for which the acquiror is obligated upon
the attainment of milestones or financial results ("Acquiror Contingent
Payments"). The fee to be paid to Paramount as a result of Acquiror Future
Payments shall be

2
<PAGE> 3
paid upon the date of closing of such Acquisition and shall be valued at the
present value of the Acquiror Future Payments. The fee to be paid to Paramount
as a result of Acquiror Contingent Payments shall be paid upon the receipt of
such payments by the Company. In the event a Sale of the Company or an
Acquisition by the Company is consummated through a multiple-step transaction
wherein the acquiror is not obligated either absolutely or upon the attainment
of milestones or financial results to make future payments to further increase
the acquiror's ownership in the Company (the "Multiple-Step Payments"), the
Company agrees to pay Paramount a fee on such Multiple-Step Payments which
shall be calculated pursuant to this Paragraph 4. Such fee shall be paid to
Paramount upon receipt by the Company of such Multiple-Step Payments and shall
be in addition to the fee paid to Paramount in the first step of such
transaction.

5. Should the Company enter into an agreement with an investor first
introduced to the Company by or through Paramount during or prior to the Term
pursuant to which the Company consummates a Strategic Alliance(s) (as defined
below), or during the twelve-month period following the expiration of such
Term, then the Company shall pay Paramount: (a) a fee equal to ten percent
(10%) of the present value of the Aggregate Consideration (as defined below) to
be received by the Company, its shareholders or employees in each such
transaction; and (b) an equity payment in an amount to be agreed upon between
the parties, but in no event less than ten percent (10%) of the Aggregate
Consideration. Such fee shall be paid to Paramount in cash simultaneously with
the closing of each such transaction. For the purpose of calculating
Paramount's fee under this Paragraph 5, Aggregate Consideration shall include,
but not be limited to: (i) all payments made at the closing of such transaction
for equity securities, equity security rights or similar rights; (ii)
technology access fees or similar up-front payments, (iii) other future
payments, including without limitation, licensing fees, lump sum payments,
royalties and deferred technology access fees, to be made to the Company or its
employees for which the Strategic Alliance partner(s) or other counter-parties
(each a "Partner") is obligated either absolutely ("Strategic Future Payments")
or upon the attainment of milestones or on a percentage or royalty basis
("Strategic Contingent Payments"); (iv) funding provided, arranged or
introduced by the Partner (through reimbursement or otherwise) relative to
research and development, testing, clinical trials and related expenditures,
whether such work is performed, subcontracted or managed by the Company or the
Partner; and (v) the repayment or assumption by the Partner of obligations of
the Company, including indebtedness for money borrowed or amounts owed by the
Company to inventors or owners of technology. It is further understood that
Aggregate Consideration shall not be reduced by the amount of the fee due to
Paramount hereunder. Any portion of the Aggregate Consideration constituting
Strategic Future Payments shall be paid at closing and shall be valued at the
present value of the Strategic Future Payments. The fee to be paid to Paramount
as a result of Strategic Contingent Payments shall be paid upon the receipt of
such payments and shall be in addition to any fees paid at closing. A
"Strategic Alliance" may include, but is not limited to: (i) any joint venture,
partnership, license or other contract for the research, development,
manufacturing, marketing, distribution, sale or other activity relating to the
Company's present and/or future products; (ii) the purchase of, or

3
<PAGE> 4

commitment to purchase from the Company, less than a majority of the business,
assets or stock of the Company by a Partner(s); (iii) the sale of any of the
Company's assets or any rights in respect to its products and/or technology; and
(iv) a commitment to provide funding for all or part of the Company's research
and development activities, whether such work is performed or managed by the
Company or Partner.

For purposes of calculating the present value of any Strategic Future
Payments, Strategic Contingent Payments, Acquiror Future Payments or Acquiror
Contingent Payments, the Company and Paramount agree to discount all such
payments by a discount factor equal to fifteen percent (15%) per annum, and,
where necessary, to use the projections which have been provided to prospective
Partners in the course of the transaction to quantify these Strategic Future
Payments, Strategic Contingent Payments, Acquiror Future Payments or Acquiror
Contingent Payments. For the purposes of calculating Paramount's fee,
securities constituting part of Aggregate Consideration which are traded on a
national or recognized foreign securities exchange or the Nasdaq National
Market System shall be valued at the last closing bid price thereof prior to
the date of the consummation or closing of any such transaction. Such
securities which are traded over-the-counter shall be valued at the mean
between the latest bid and asked prices prior to date of the consummation or
closing of any such transaction.

6. Should Paramount introduce the Company to a potential product,
process or technology which is subsequently licensed or otherwise acquired by
the Company, the Company and Paramount shall negotiate in good faith a fee for
such introduction provided that in no event shall such fee be less than: (a)
$200,000 in cash; and (b) an equity payment in an amount to be agreed upon
between the parties; but in no event less than ten percent (10%) of the total
outstanding shares of common stock of the Company on a fully diluted basis.

7. In the event that the Company, its directors or management
initiate any discussions with a third party in furtherance of any Sale,
Acquisition, Investment or Strategic Alliance or receive any meaningful inquiry
or are aware of the interest of any third party concerning a Sale, Acquisition,
Investment or Strategic Alliance which is the subject of this Agreement, they
shall promptly inform Paramount of the party and its interest.

8. Any financial advice rendered by Paramount pursuant to this
agreement (and the existence of this Agreement) shall not be disclosed publicly
in any manner without Paramount's prior written approval and shall be treated
by the Company as confidential information. The Company shall provide Paramount
with all financial and other information requested by Paramount for the
purposes of rendering its services pursuant to this Agreement.

9. All non-public information given to Paramount by the Company shall
be treated by Paramount as confidential information and shall not be used by
Paramount except in rendering its services pursuant to this Agreement.
Paramount may rely, without independent verification, on the accuracy and
completeness of any information furnished to Paramount by

4
<PAGE> 5
the Company, subject to its obligations under the securities laws.

10. In the event that Paramount becomes involved in any capacity in
any action, proceeding, investigation or inquiry in connection with any matter
referred to in this Agreement or arising out of the matters contemplated by
this Agreement, the Company shall reimburse Paramount for its legal and other
expenses (including the cost of any investigation and preparation) as they are
incurred by Paramount in connection therewith. The Company also agrees to
indemnify each of Paramount, the directors, officers, employees and agents
thereof (the "Indemnitees"), pay on demand and protect, defend, save and hold
each Indemnitee harmless from and against any and all liabilities, damages,
losses, settlements, claims, actions, suits, penalties, fines, costs or
expenses (including, without limitation, attorney's fees) (any of the
foregoing, a "Claim") incurred by or asserted against any Indemnitee of
whatever kind or nature, arising from, in connection with or occurring as a
result of this Agreement or the matters contemplated by this Agreement, unless
it shall be finally judicially determined that such losses, claims, damages or
liabilities arise solely out of the willful misfeasance of Paramount in
performing the services which are the subject of this Agreement. The foregoing
agreement shall be in addition to any rights that any Indemnitee may have at
common law or otherwise.

11. The Term of this Agreement shall be twenty-four (24) months
commencing on the date hereof. Thereafter, this Agreement may be extended by
mutual written agreement of the parties (the "Extended Term"); provided,
however, regardless of any termination, the rights to compensation contained in
Paragraphs 3, 4 and 5 and to indemnity and reimbursement contained in Paragraph
10 shall survive. In addition to any retainer fees, Paramount shall be entitled
to the reimbursement of expenses incurred by Paramount as a result of services
rendered prior to the date of the termination.

12. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York without regard to principles of
conflicts of law.

13. This Agreement shall be binding upon Paramount and the Company
and the successors and assigns of Paramount. The Company shall not assign or
sell all or substantially all of the Company's business and/or assets without
first requiring in writing that such assignee or successor is bound by the
provisions of this Agreement.

14. The Company recognizes and agrees that Paramount has and will
continue to enter into similar agreements with other companies, many of which
engage in business activities which are similar to the Company's line of
business. Furthermore, the Company recognizes that Paramount is not obligated
to present any opportunities for an Investment, Sale, Acquisition, Strategic
Alliance or any other opportunities to the Company and nothing in this
Agreement shall be construed to limit Paramount's ability to introduce
Investment, Sale, Strategic Alliance or any other opportunities to any other
Company.

5
<PAGE> 6

Please confirm that the foregoing is in accordance with your
understanding by signing and returning to us the enclosed duplicate of this
letter.

Sincerely yours,

PARAMOUNT CAPITAL, INC.

By: /s/ LINDSAY A. ROSENWALD
-----------------------------------
Name: Lindsay A. Rosenwald, M.D.
Title: Chairman

Confirmed as of the date hereof:

RIBOGENE, INC.

By: /s/ CHARLES J. CASAMENTO
-----------------------------------
Name: Charles J. Casamento
Title: Chairman, President and CEO

<PAGE> 1
Exhibit 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our reports dated February 25, 1997
(except Note 9, as to which the date is _________, 1997), in Amendment No. 2 to
the Registration Statement (Form S-1) and related Prospectus of RiboGene, Inc.
for the registration of 2,645,000 shares of its common stock.

Ernst & Young LLP

Palo Alto, California

______________________________________
The foregoing consent is in the form that will be signed upon the completion of
the changes to the capital accounts described in Note 9 to the financial
statements.

/s/ Ernst & Young LLP

Palo Alto, California
December 12, 1997

<PAGE> 1
EXHIBIT 23.3

CONSENT OF COUNSEL

The undersigned hereby consents to the use of our name and the statement
with respect to us appearing under the heading "Experts" in Amendment No. 2 to
the Registration Statement on Form S-1 of RiboGene, Inc.

[SIG]
PENNIE & EDMONDS LLP

New York, New York
December 12, 1997