RIBOGENE INC / CA/, 424B4, 1998-05-28

RIBOGENE INC / CA/
424B4, 1998-05-28
COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH

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<PAGE> 1
Filed Pursuant to Rule 424(b)(4)
Registration Number 333-38781

PROSPECTUS

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. See "Underwriting" for a discussion
of the factors considered in determining the initial public offering price. The
Common Stock has been approved for listing on the American Stock Exchange under
the symbol "RBO."
---------------------------------

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
---------------------------------

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 TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------------------
Per Share...................... $7.00 $0.56 $6.44
- -------------------------------------------------------------------------------------------------------------
Total(3)....................... $16,100,000 $1,288,000 $14,812,000
=============================================================================================================
</TABLE>

(1) Does not include additional consideration payable to Gruntal & Co., L.L.C.
(the "Underwriter"), consisting of (i) a non-accountable expense allowance
of 3% of the gross proceeds of the Offering and (ii) 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 165% of the initial public offering price
of the Common Stock and expiring five years from the date of this
Prospectus. The 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 Underwriter against
certain liabilities, including liabilities under the Securities Act. See
"Underwriting."

(2) Before deducting expenses of the Offering payable by the Company, estimated
at $1,916,000, including the non-accountable expense allowance.

(3) The Company has granted to the Underwriter 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 $18,515,000,
$1,481,200 and $17,033,800, respectively. See "Underwriting."

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

The shares of Common Stock are being offered by the Underwriter, subject to
prior sale, when, as and if delivered to, and accepted by it, and subject to the
right of the Underwriter to reject any order in whole or in part, and to certain
other matters. It is expected that delivery of the certificates representing
shares of Common Stock will be made against payment therefor at the offices of
Gruntal & Co., L.L.C. on or about June 2, 1998.

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

GRUNTAL & CO., L.L.C.
---------------------------------

THE DATE OF THIS PROSPECTUS IS MAY 28, 1998
<PAGE> 2

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> 3

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.

Except as otherwise noted, all information in this Prospectus, including
financial information, share and per share data: (i) assumes no exercise of the
Underwriter's over-allotment option; (ii) reflects a 1-for-14 reverse split of
the Company's Common Stock effected in May 1998; (iii) reflects reincorporation
of the Company in Delaware in May 1998; and (iv) reflects the automatic
conversion of all outstanding shares of the Company's Series A through Series G
Preferred Stock into an aggregate of 2,385,039 shares of Common Stock which will
occur concurrently with the closing of the Offering. See "Certain Transactions"
and "Description of Capital Stock."

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.

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 have each generated in excess of
$1.0 billion in worldwide sales annually and one antifungal drug that generated
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.

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<PAGE> 4

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 small-molecule 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 principal targets
in the lead discovery phase, deformylase and ppGpp degradase, for which it
conducts research in collaboration with Dainippon Pharmaceutical Co., Ltd.
("Dainippon"), a major Japanese pharmaceutical company located in Osaka, Japan.
The Company has several additional antibacterial targets, to which it has
retained its rights, that are in the assay development phase. In its antifungal
program, compounds directed toward two targets, EF3 and GCN4, are in the lead
optimization phase and several others are in various phases of early research
and 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 April 1996, the Company entered into a collaboration with Abbott
Laboratories ("Abbott") for the Company's antifungal program (the "Abbott
Collaboration"). On February 6, 1998, Abbott notified the Company of its
termination of the Abbott Collaboration effective April 8, 1998. As of March 31,
1998, the Company had realized $3.2 million in research support revenues from
Abbott and expects to realize $139,000 of revenue deferred at March 31, 1998. In
connection with the Abbott Collaboration, Abbott made a $3.5 million equity
investment in the Company and agreed to purchase an additional $4.0 million of
Common Stock at the initial public offering price, concurrently with the closing
of the Offering.

In January 1998, the Company entered into a collaboration with Dainippon
(the "Dainippon Collaboration") for the two principal targets in the Company's
antibacterial program. As part of the Dainippon Collaboration, Dainippon agreed
to provide the Company with up to $6.0 million in research support payments
($2.0 million of which has been received), and to provide additional research
and development support at Dainippon, over the three-year term of the research
program. The Company may also be entitled to receive milestone payments upon the
achievement of mostly late-stage clinical and regulatory milestones in the
amount of up to $10.0 million for each product developed through the
collaboration, consisting of up to $5.0 million through approval in Japan and up
to $5.0 million through approval in one additional major market territory.
RiboGene also has retained certain co-promotion rights for any products
resulting from the collaboration. In connection with the Dainippon
Collaboration, Dainippon made a $2.0 million equity investment in the Company by
purchasing 756,144 shares of the Company's Series G Preferred Stock (the
"Dainippon Shares"), which will automatically convert into 53,988 shares of
Common Stock upon the closing of the Offering. 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.

4
<PAGE> 5

RiboGene is a development stage company that has experienced operating
losses every year since its inception. At March 31, 1998, the Company had an
accumulated deficit of approximately $36.4 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 20 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."

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. In May 1998, the Company
reincorporated in Delaware. The principal executive offices of the Company are
located at 26118 Research Road, Hayward, California 94545 and its telephone
number is (510) 732-5551.

5
<PAGE> 6

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered...................... 2,300,000 shares
Common Stock to be outstanding after the
Offering................................ 5,364,055 shares(1)(2)
Use of proceeds........................... Expansion of internal chemistry capabilities, expansion and
advancement of antibacterial, antifungal and HCV programs,
establishment of new drug discovery programs, repayment of
certain indebtedness and for working capital and general
corporate purposes. See "Use of Proceeds."
American Stock Exchange symbol............ RBO
</TABLE>

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

(1) Based upon shares outstanding at March 31, 1998. Includes: (i) an aggregate
of 2,385,039 shares of Common Stock issuable upon the automatic conversion
of all outstanding shares of the Company's Series A through Series G
Preferred Stock concurrently with the closing of the Offering and (ii)
571,429 shares of Common Stock to be sold by the Company to Abbott for $4.0
million pursuant to a stock purchase agreement, dated as of April 26, 1996,
as amended (the "Abbott Purchase Agreement"), concurrently with the closing
of the Offering. See "Business -- Collaborative and Research Agreements,"
"Certain Transactions" and "Description of Capital Stock."

(2) Excludes as of March 31, 1998: (i) an aggregate of 182,433 shares of Common
Stock reserved for issuance under the Company's stock plans upon exercise of
options outstanding at a weighted average exercise price of $3.57 per share;
(ii) an aggregate of 1,506,486 shares of Common Stock reserved for future
grants or purchases under the Company's equity incentive plans; (iii)
162,967 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 initial public offering
price; (iv) 165,257 shares of Common Stock reserved for issuance upon the
exercise of warrants (other than Class A Warrants) outstanding at a weighted
average exercise price of $17.37 per share; (v) 733,755 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) 40,739 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 Underwriter at an exercise price of $11.55 per share
(the "Underwriter's Warrants"). See "Management -- Stock and Related
Employee Benefit Plans," "Certain Transactions," "Description of Capital
Stock" and "Underwriting."

6
<PAGE> 7

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

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
THREE MONTHS (MAY 5,
ENDED 1989)
YEAR ENDED DECEMBER 31, MARCH 31, TO
---------------------------- --------------- MARCH 31,
1995 1996 1997 1997 1998 1998
-------- ------- ------- ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.......................... $ 407 $ 2,087 $ 2,971 $ 730 $1,006 $ 6,709
Operating expenses:
Research and development.............. 4,663 4,077 4,130 999 1,177 23,875
General and administrative............ 2,758 1,372 1,551 360 459 12,098
Financial advisory costs.............. -- -- 1,396 -- -- 1,396
Restructuring costs................... -- 219 -- -- -- 219
Acquired in-process research and
development........................ -- -- -- -- -- 5,000
-------- ------- ------- ------ ------ --------
Total operating expenses........... 7,421 5,668 7,077 1,359 1,636 42,588
-------- ------- ------- ------ ------ --------
Loss from operations.................... (7,014) (3,581) (4,106) (629) (630) (35,879)
Interest expense, net................... (240) (282) (7) (9) (70) (518)
-------- ------- ------- ------ ------ --------
Net loss................................ $ (7,254) $(3,863) $(4,113) $ (638) $ (700) $(36,397)
======== ======= ======= ====== ====== ========
Basic net loss per share(1)............. $(164.86) $(52.92) $(41.13) $(6.44) $(6.73)
======== ======= ======= ====== ======
Shares used in computing basic net loss
per share(1).......................... 44 73 100 99 104
======== ======= ======= ====== ======
Pro forma net loss per share(1)......... $ (1.95) $(0.28)
======= ======
Shares used in computing pro forma net
loss per share(1)..................... 2,109 2,469
======= ======
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------
DECEMBER 31, AS
1997 ACTUAL ADJUSTED(2)
------------ ------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 2,045 $ 3,272 $ 20,084
Working capital (deficit)................................... (1,745) (622) 17,468
Total assets................................................ 4,312 5,765 21,208
Deficit accumulated during development stage................ (35,697) (36,397) (36,430)
Total stockholders' equity (deficit)........................ (162) 1,226 18,089
</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: (i) the issuance and sale of the 2,300,000 shares of
Common Stock offered hereby, and the receipt and application of the
estimated net proceeds therefrom; and (ii) the issuance and sale of 571,429
shares of Common Stock to Abbott for $4.0 million, concurrently with the
closing of the Offering. See "Use of Proceeds," "Capitalization" and
"Business -- Collaborative and Research Agreements."

7
<PAGE> 8

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
March 31, 1998, the Company had an accumulated deficit of approximately $36.4
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, 1997 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 agreements
(the "Abbott Agreements") with Abbott Laboratories ("Abbott"), which were
terminated by Abbott effective April 8, 1998, 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. 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 focusing 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 may prove to have undesirable and unintended side
effects or other characteristics that may limit or prevent their commercial use.

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<PAGE> 9

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."

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 proceeds from the sale of the Abbott Shares
and the interest income earned on such proceeds, will be sufficient for the
purposes specified herein and to allow the Company to maintain its current and
planned operations through the first quarter of 2000. 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.

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, among other things, 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.

9
<PAGE> 10

realized $3.2 million in research support revenues from Abbott and expects to
realize $139,000 of revenue deferred at March 31, 1998. As a result of Abbott's
termination of the Abbott Collaboration, Abbott is obligated to reimburse the
Company for all irrevocably committed research costs for the project prior to
termination that were not covered by previous research support payments. In
addition, each party to the Abbott Agreements is obligated to return to the
other proprietary and confidential information and know-how of such other party
in its possession, and each party is entitled to retain copies of any technical
or other information which was solely or jointly generated as a direct result of
the Abbott Collaboration. The Company is seeking to establish a corporate
collaboration for its antifungal program to replace the Abbott Collaboration,
however, there can be no assurance that the Company will be successful in such
efforts. If the Company is not able to establish a corporate collaboration for
its antifungal program, it currently intends to fund the antifungal program from
its own resources.

On January 27, 1998, RiboGene entered into a collaboration (the "Dainippon
Collaboration") with Dainippon Pharmaceutical Co., Ltd. ("Dainippon") to
discover and develop antibacterial drugs based on the two principal targets in
the Company's anti-bacterial program. Pursuant to a license agreement and
research agreement by and between the Company and Dainippon, dated January 27,
1998 (the "Dainippon Agreements"), Dainippon was granted exclusive, worldwide
rights to develop and market any and all antibacterial products which have
activity against either of these two specific bacterial targets, discovered
during the Dainippon-sponsored collaborative research program. Pursuant to the
Dainippon Agreements, Dainippon has agreed to provide the Company with up to
$6.0 million in research support payments over the three-year term of the
research program ($2.0 million of which has been received), and to provide
related antibacterial research support at Dainippon. Dainippon has the right to
terminate the research agreement at any time after January 27, 1999 upon 180
days written notice to the Company. There can be no assurance that Dainippon
will not terminate the research agreement prior to the expiration of its full
three-year term.

The Company's revenues will be dependent on the success of the lead
compounds and potential drug candidates developed through the Dainippon
Collaboration and on the Company's ability to establish additional
collaborations for its other programs. The failure of the Company to maintain
the Dainippon 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 Dainippon 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, 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."

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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."

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

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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
application, a pending patent application and certain corresponding foreign
applications 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 an issued United States patent, a pending United States patent
application and certain corresponding foreign applications relating to its
antiviral drug discovery program. One of the coinventors of the Company-owned
patent applications relating to the antivirual drug discovery program is Michael
Katze, Ph.D. Dr. Katze presently is a member of the Company's SAB and, at the
time these applications were filed, was a consultant to the Company and a
faculty member at the University of Washington. The Company has received
inquiries from, and has been in discussions with, the University of Washington
regarding a potential, partial ownership interest in these patent applications
that Dr. Katze and the coinventors assigned to the Company. Such discussions are
ongoing and may result in a determination that the University of Washington is a
joint owner of the patent applications, though the Company believes, after a
review of the information available to date, that Dr. Katze, in his capacity as
a consultant to the Company, properly assigned his rights in these applications
to the Company. Nevertheless, in connection with these ongoing discussions, the
Company has obtained an option for an exclusive, worldwide license under the
University of Washington's potential ownership interest. The option is
exercisable upon payment of a $25,000 fee, at which time the Company will have
an exclusive license under terms that will include payments of $250,000 for each
new drug application approval, royalty payments on future sales of products
developed under the licensed patent rights and a percentage payment of
sublicensing fees received by the Company, and certain other terms to be
negotiated in good faith. The Company is an assignee, along with McGill
University, of an allowed United States patent application generally relating to
the PSTM program. The Company is an exclusive licensee under a University of
Washington pending United States application and certain corresponding foreign
applications 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 be issued 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.

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<PAGE> 13

The Company's success will further 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 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.

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<PAGE> 14

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. The Company's petition
to revive this patent recently was granted by the Patent and Trademark Office,
effectively resulting in the reinstatement of the patent, as if it had not
expired. However, should the Company choose to enforce this patent by
instituting an infringement action, the patent statute would provide certain
protection to those infringers who first began practicing, or first made
substantial preparation to practice, the patented invention during the
approximately three-year and four month period that the patent had lapsed. The
Company presently is not aware of any potential infringers who may be entitled
to such so-called "intervening rights."

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 three employees with degrees, experience and training in chemistry who
conduct the Company's chemistry activities on a limited basis. The Company has
joint responsibility with Dainippon to provide chemistry support for the
discovery and optimization of potential antibacterials resulting from the
Dainippon Collaboration. 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,
acquiring and implementing 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 attempting to discover 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 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.

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<PAGE> 15

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 management and scientific staff,
including the services of Charles J. Casamento, President, Chief Executive
Officer and Chairman of the Board, and 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 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.

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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. The results from preclinical studies and early clinical trials may not
be indicative of results that will be obtained in large-scale testing. 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."

DILUTION. Purchasers of the Common Stock offered hereby will incur
immediate and substantial dilution equal to $3.63 per share. The dilution 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. See "Dilution," "Management," "Certain
Transactions" and "Description of Capital 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 Dainippon and under certain circumstances has retained
copromotion rights with respect to antibacterial drugs developed through the
Dainippon 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

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Company will be able to establish or maintain 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 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 the
net proceeds from the Offering for expansion of internal chemistry capabilities,
expansion and advancement of drug discovery programs 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
from the Offering and the proceeds from the sale of the Abbott Shares. As a
result of such discretion, the Company's management could allocate such proceeds
to uses which the stockholders may not deem desirable. There can

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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. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

CONTROL BY EXISTING STOCKHOLDERS. Immediately following the Offering,
officers, directors and existing stockholders of the Company will beneficially
own approximately 65% of the outstanding shares of Common Stock of the Company
(based on shares, warrants and options outstanding as of March 31, 1998). 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 has been determined by negotiations between the Company and the
Underwriter. 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. See "Underwriting."

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 could 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. 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
5,364,055 shares of Common Stock (5,709,055 shares if the Underwriter's
over-allotment option is exercised in full). Of these shares, the 2,300,000
shares offered hereby will be freely tradeable

18
<PAGE> 19

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 remaining 3,064,055 shares
of Common Stock held by existing stockholders of the Company (including the
Abbott Shares) are "restricted securities" as that term is defined in Rule 144
(the "Restricted Shares"). The Restricted Shares were issued and sold by the
Company in private transactions in reliance upon exemptions from registration
under the Securities Act. Restricted Shares may be sold in the public market
only if registered or if they qualify for an exemption from registration under
the Securities Act, including an exemption under Rule 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." Pursuant to "lock-up" agreements,
all of the Company's executive officers and directors and certain stockholders,
holding in the aggregate 2,304,997 Restricted Shares, have agreed not to offer,
sell, contract to sell, grant any option to purchase or otherwise dispose of any
such shares for a period of 180 days from the date of this Prospectus without
the prior written consent of the Underwriter.

As of March 31, 1998, options to purchase an aggregate of 182,433 shares of
Common Stock were outstanding under the Company's stock plans and an aggregate
of 1,506,486 shares of Common Stock were reserved for future grants or purchases
under the Company's equity incentive plans. The holders of all such outstanding
options have agreed not to offer, sell, contract to sell, grant any options to
purchase or otherwise dispose of any shares of Common Stock issuable upon
exercise of such options for a period 180 days from the date of this Prospectus
without the prior written consent of the Company, and the Company has agreed in
the Underwriting Agreement that it will not grant any such consent without the
prior written consent of the Underwriter. The Company intends to file after the
closing of the Offering a registration statement on Form S-8 to register an
aggregate of 1,506,486 shares of Common Stock reserved for issuance under the
Company's equity incentive plans.

Holders of the Placement Agent Unit Options and warrants to purchase an
aggregate of 1,102,017 shares of Common Stock have agreed not to offer, sell,
contract to sell, grant any option to purchase or otherwise dispose of any of
their shares of Common Stock issuable upon exercise of such options or warrants,
for a period of 180 days from the date of this Prospectus without the prior
written consent of the Underwriter.

The Company also has agreed that it will not offer, sell, contract to sell,
grant any option to purchase or otherwise dispose of Common Stock for a period
of 180 days from the date of this Prospectus, other than pursuant to existing
stock option plans or upon exercise of outstanding options and warrants, without
the prior written consent of the Underwriter.

Following completion of the Offering, holders of 2,385,039 Restricted
Shares and 368,963 shares issuable upon exercise of outstanding warrants will be
entitled to certain rights with respect to the registration of such 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."

19
<PAGE> 20

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."

20
<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 $12.9 million ($15.0 million if
the Underwriter's over-allotment option is exercised in full), after deducting
underwriting discounts and commissions and estimated Offering expenses. The
Company also will receive $4.0 million from the sale of the Abbott Shares
directly from the Company.

The Company anticipates that it will use the net proceeds of the Offering,
together with the proceeds from the sale of the Abbott Shares, over the next two
years as follows:

<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENTAGE
APPLICATION OF NET PROCEEDS AMOUNT OF NET PROCEEDS
--------------------------- ------------------ ----------------------
(IN MILLIONS)
<S> <C> <C>
Expand internal chemistry capabilities(1)............. $ 4.2 24.9%
Expand and advance antibacterial, antifungal and HCV
programs............................................ 1.7 10.1%
Establish new drug discovery programs................. 1.4 8.3%
Repay certain outstanding indebtedness(2)............. 0.4 2.4%
Working capital and general corporate purposes(3)..... 9.2 54.3%
----- -----
Total....................................... $16.9 100.0%
===== =====
</TABLE>

- ---------------
(1) Includes acquiring necessary equipment and recruiting qualified personnel.

(2) The Company will use approximately $350,000 of such net proceeds to repay
certain guaranteed consulting payments of $50,000 per quarter through
December 1999. See "Certain Transactions."

(3) The Company's management, subject to approval by the Board of Directors,
will have broad discretion with respect to the proceeds designated for
working capital and general corporate purposes. The Company feels that such
discretion is necessary to allow management to determine the best
allocation, as particular needs arise, of such proceeds. The Company may
also use a portion of such 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 application of such proceeds, the net proceeds to the Company of
the Offering will be invested in short-term, interest bearing, investment
grade securities. See "Risk Factors -- Management's Discretion as to Use of
Proceeds."

21
<PAGE> 22

The Company anticipates that the net proceeds of the Offering, together
with the proceeds from the sale of the Abbott Shares, and the interest income
earned on such proceeds, 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 the
first quarter of 2000. 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.

22
<PAGE> 23

CAPITALIZATION

The following table sets forth as of March 31, 1998: (i) the actual
capitalization of the Company; (ii) the pro forma capitalization of the Company,
giving effect to (a) the automatic conversion of all outstanding shares of
Series A through Series G Preferred Stock of the Company into an aggregate of
2,385,039 shares of Common Stock, concurrently with the closing of the Offering,
and (b) the reincorporation of the Company in Delaware and the amendment of its
charter in May 1998; and (iii) the pro forma as adjusted capitalization of the
Company adjusted to reflect the issuance and sale of the 2,300,000 shares of
Common Stock offered hereby, the receipt and application of the estimated net
proceeds therefrom, and the sale of 571,429 shares of Common Stock to Abbott for
$4.0 million, concurrently with the closing of the Offering. See "Use of
Proceeds," "Business -- Collaborative and Research Agreements," "Certain
Transactions" and "Description of Capital Stock."

<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------------------
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..................... $ 464 $ 464 $ 322
-------- -------- --------
STOCKHOLDERS' EQUITY:
Preferred Stock, no par value: 19,688,488 shares
authorized (actual); 5,000,000 shares authorized,
$0.001 par value (pro forma and pro forma as
adjusted); 15,133,739 shares issued and
outstanding (actual); none issued and outstanding
(pro forma and pro forma as adjusted)............ 35,514 -- --
Common Stock, no par value: 50,000,000 shares
authorized (actual); 30,000,000 shares
authorized, $0.001 par value (pro forma and pro
forma as adjusted); 107,587 shares issued and
outstanding (actual); 2,492,626 shares issued and
outstanding (pro forma); 5,364,055 shares issued
and outstanding (pro forma as adjusted)(1)....... 1,853 2 5
Additional paid in capital............................ 1,672 39,037 55,930
Notes receivable from stockholders.................... (147) (147) (147)
Deferred compensation................................. (1,269) (1,269) (1,269)
Deficit accumulated during development stage.......... (36,397) (36,397) (36,430)
-------- -------- --------
Total stockholders' equity (deficit)................ 1,226 1,226 18,089
-------- -------- --------
Total capitalization........................ $ 1,690 $ 1,690 $ 18,411
======== ======== ========
</TABLE>

- ---------------
(1) Excludes: (i) an aggregate of 182,433 shares of Common Stock reserved for
issuance under the Company's stock plans upon exercise of options
outstanding at a weighted average exercise price of $3.57 per share; (ii) an
aggregate of 1,506,486 shares of Common Stock reserved for future grants or
purchases under the Company's equity incentive plans; (iii) 162,967 shares
of Common Stock reserved for issuance upon exercise of the Class A Warrants;
(iv) 165,257 shares of Common Stock reserved for issuance upon the exercise
of warrants (other than Class A Warrants) outstanding at a weighted average
exercise price of $17.37 per share; (v) 733,755 shares of Common Stock
reserved for issuance upon exercise of the Placement Agent Unit Options;
(vi) 40,739 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
Underwriter's Warrants. See "Management -- Stock and Related Employee
Benefit Plans," "Certain Transactions," "Description of Capital Stock" and
"Underwriting."

23
<PAGE> 24

DILUTION

The pro forma net tangible book value (deficit) of the Company as of March
31, 1998, was approximately $(143,000) or $(0.06) per share of Common Stock. Pro
forma net tangible book value (deficit) per share is equal to the Company's pro
forma net tangible assets (pro forma tangible assets less pro forma total
liabilities and deferred offering costs) divided by the pro forma number of
shares of Common Stock outstanding at that date, giving effect to the automatic
conversion of all outstanding shares of Series A through Series G Preferred
Stock of the Company into an aggregate of 2,385,039 shares of Common Stock
concurrently with the closing of the Offering. 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 estimated net proceeds from the sale of the
2,300,000 shares of Common Stock offered hereby at an initial public offering
price of $7.00 per share, and the sale of 571,429 shares of Common Stock to
Abbott for $4.0 million, the pro forma net tangible book value of the Company as
of March 31, 1998 would have been $18,089,000 or $3.37 per share. This
represents an immediate increase in such pro forma net tangible book value of
$3.43 per share to existing stockholders and an immediate dilution in pro forma
net tangible book value of $3.63 per share to new investors. See "Certain
Transactions" and "Description of Capital Stock." The following table
illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $7.00
Pro forma net tangible book value per share as of March
31, 1998............................................... $(0.06)
Increase in net tangible book value per share attributable
to new investors....................................... 3.43
------
Pro forma net tangible book value per share after the
Offering and the sale of the Abbott Shares................ 3.37
-----
Dilution per share to new investors......................... $3.63
=====
</TABLE>

The following table summarizes, on a pro forma basis as of March 31, 1998,
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 (excluding Abbott), by Abbott and by new investors (before
deducting 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..................... 2,381,560 44% $33,770,000 59% $14.18
Abbott.................................... 682,495 13 7,500,000 13 10.99
New investors............................. 2,300,000 43 16,100,000 28 7.00
--------- --- ----------- ---
Total........................... 5,364,055 100% $57,370,000 100%
========= === =========== ===
</TABLE>

The foregoing discussion and table assumes no exercise of outstanding
options or warrants subsequent to March 31, 1998, and excludes: (i) an aggregate
of 182,433 shares of Common Stock reserved for issuance under the Company's
stock plans upon exercise of options outstanding at a weighted average exercise
price of $3.57 per share; (ii) an aggregate of 1,506,486 shares of Common Stock
reserved for future grants or purchases under the Company's equity incentive
plans; (iii) 162,967 shares of Common Stock reserved for issuance upon exercise
of the Class A Warrants; (iv) 165,257 shares of Common Stock reserved for
issuance upon the exercise of warrants (other than Class A Warrants) outstanding
at a weighted average exercise price of $17.37 per share; (v) 733,755 shares of
Common Stock reserved for issuance upon the exercise of the Placement Agent Unit
Options; (vi) 40,739 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 the Underwriter's Warrants. See
"Business -- Collaborative and Research Agreements," "Management -- Stock Plans
and Related Employee Benefits Plans," "Certain Transactions," "Description of
Capital Stock" and "Underwriting."

24
<PAGE> 25

SELECTED FINANCIAL DATA

The selected financial data set forth below at December 31, 1993, 1994,
1995, 1996, 1997 and for each of the years then ended have been derived from the
audited financial statements of the Company. The audited financial statements of
the Company as of December 31, 1996 and 1997 and for each of the three years in
the period ended December 31, 1997, 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 March 31, 1998 and the statement of
operations data for the three month periods ended March 31, 1997 and 1998 and
for the period from inception (May 5, 1989) to March 31, 1998 have been derived
from unaudited financial statements of the Company and, in the opinion of the
Company's management, include all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the information set forth therein. The
results for the three months ended March 31, 1998 are not necessarily indicative
of the results to be expected for the full year. 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>
THREE MONTHS PERIOD FROM
ENDED INCEPTION
YEAR ENDED DECEMBER 31, MARCH 31, (MAY 5, 1989)
--------------------------------------------------- --------------- TO MARCH 31,
1993 1994 1995 1996 1997 1997 1998 1998
-------- -------- -------- -------- ------- ------ ------ --------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Contract research........... $ -- $ -- $ -- $ 1,112 $ 1,668 $ 417 $ 749 $ 3,529
Grants...................... -- 238 407 975 1,303 313 257 3,180
-------- -------- -------- -------- ------- ------ ------ --------
-- 238 407 2,087 2,971 730 1,006 6,709
Operating expenses:
Research and development.... 1,970 4,209 4,663 4,077 4,130 999 1,177 23,875
General and
administrative............ 1,924 2,424 2,758 1,372 1,551 360 459 12,098
Financial advisory costs.... -- -- -- -- 1,396 -- -- 1,396
Restructuring costs......... -- -- -- 219 -- -- -- 219
Acquired in-process research
and development........... -- 5,000 -- -- -- -- -- 5,000
-------- -------- -------- -------- ------- ------ ------ --------
Total operating expenses...... 3,894 11,633 7,421 5,668 7,077 1,359 1,636 42,588
-------- -------- -------- -------- ------- ------ ------ --------
Loss from operations.......... (3,894) (11,395) (7,014) (3,581) (4,106) (629) (630) (35,879)
Interest income (expense),
net......................... 55 (42) (240) (282) (7) (9) (70) (518)
-------- -------- -------- -------- ------- ------ ------ --------
Net loss...................... $ (3,839) $(11,437) $ (7,254) $ (3,863) $(4,113) $ (638) $ (700) $(36,397)
======== ======== ======== ======== ======= ====== ====== ========
Basic net loss per share(1)... $(239.94) $(300.97) $(164.86) $ (52.92) $(41.13) $(6.44) $(6.73)
======== ======== ======== ======== ======= ====== ======
Shares used in computing basic
net loss per share(1)....... 16 38 44 73 100 99 104
======== ======== ======== ======== ======= ====== ======
Pro forma net loss per
share(1).................... $ (1.95) $(0.28)
======= ======
Shares used in computing pro
forma net loss per
share(1).................... 2,109 2,469
======= ======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------- ------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments....... $ 2,105 $ 4,416 $ 1,897 $ 1,981 $ 2,045 $ 3,272
Working capital (deficit)............................... 1,708 2,133 (1,762) (954) (1,745) (622)
Total assets............................................ 2,892 5,105 2,404 2,657 4,312 5,765
Long-term obligations................................... 249 3,192 2,656 1,494 477 464
Deficit accumulated during the development stage........ (9,030) (20,467) (27,721) (31,584) (35,697) (36,397)
Total stockholders' equity (deficit).................... 1,980 (504) (4,029) (1,956) (162) 1,226
</TABLE>

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

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

25
<PAGE> 26

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
remained outstanding as of December 31, 1997), and warrants to purchase 92,820
shares of Common Stock, with an exercise price of $16.67. The promissory note
outstanding was amended and a principal payment of $500,000 was made on January
5, 1998, and the remaining principal balance of $409,000, plus accrued interest
was paid in May 1998. As consideration for the amendment, the Company issued a
warrant to purchase 13,923 shares of Common Stock at $16.67 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."

On January 27, 1998, the Company entered into a collaboration with
Dainippon encompassing the two principal targets in the Company's antibacterial
program. As part of the Dainippon Collaboration, Dainippon agreed to provide the
Company with up to $6.0 million in research support payments ($2.0 million of
which has been received), and to provide additional research and development at
Dainippon, over the three-year term of the research program. The Company may
also be entitled to receive milestone payments upon the achievement of mostly
late-stage clinical and regulatory milestones in an amount of up to $10.0
million for each product developed through the collaboration, consisting of up
to $5.0 million through approval in Japan and up to $5.0 million through
approval in one additional major market territory. In connection with the
Dainippon Collaboration, Dainippon purchased $2.0 million of the Company's
Series G Preferred Stock, which will automatically convert into 53,988 shares of
Common Stock concurrently with the closing of the Offering. In April 1996, the
Company entered into a collaboration with Abbott for the Company's antifungal
program. On February 6, 1998, Abbott notified the Company of its termination of
the Abbott Collaboration effective April 8, 1998. As of March 31, 1998, the
Company had realized $3.2 million in research support revenues from Abbott and
expects to realize $139,000 of revenue deferred at March 31, 1998. In connection
with the Abbott Collaboration, Abbott made a $3.5 million equity investment in
the Company and agreed to purchase an additional $4.0 million of Common Stock
directly from the Company in a private placement at a

26
<PAGE> 27

price per share equal to the initial public offering price concurrently with the
closing of the Offering. See "Business -- Collaborative and Research
Agreements."

The Company is a development stage company, has generated no revenue from
the sales of products and, through March 31, 1998, has incurred cumulative net
losses of approximately $36.4 million and, at March 31, 1998, had a net
stockholders' equity of $1.2 million. 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 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. See "Risk Factors -- Need for Additional Capital; Uncertainty
of Additional Funding."

RESULTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997

For the three month period ended March 31, 1998, the Company's revenues
consisted of revenues from the collaboration agreements and SBIR grants from the
National Institutes of Health. Revenue earned under the Abbott agreement was
$417,000 for the three month periods ended March 31, 1998 and 1997. Revenue
earned under the Dainippon agreement, which began in February 1998, amounted to
$332,000 for the three month period ended March 31, 1998. Revenues from SBIR
grants for the three month period ended March 31, 1998 were $257,000 as compared
to $313,000 in the three month period ended March 31, 1997. The decrease in
grant revenues results from the completion of two grants during the third
quarter of 1997. 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 increased $178,000, or 18%, to
approximately $1.2 million for the three month period ended March 31, 1998, from
$1.0 million in the three month period ended March 31, 1997. This increase
resulted from equipment costs associated with the Company's new laboratories, a
$73,000 non-cash charge for deferred compensation relating to certain options
granted during 1997, and initial costs associated with the Dainippon
Collaboration. Research and development expenses represented approximately 72%
of total operating expenses of $1.6 million in the three month period ended
March 31, 1998, as compared to 74% of total operating expenses of $1.4 million
in the three month period ended March 31, 1997.

General and administration expenses increased $99,000, or 28%, to $459,000
for the three month period ended March 31, 1998, from $360,000 in the three
month period ended March 31, 1997. This increase is due to a charge for the
amortization of additional operating costs associated with the Company's new
facility and a $20,000 non-cash charge for deferred compensation relating to
certain options granted during 1997.

Net interest expense increased $61,000 to $70,000 for the three month
period ended March 31, 1998, from $9,000 in the three month period ended March
31, 1997. This increase results from a non-cash charge for the amortization of
the value of a warrant issued in connection with the extension of a note
payable.

The net loss for the three month period ended March 31, 1998 was $700,000,
an increase of $62,000, or 10%, from the net loss of $638,000 for the three
month period ended March 31, 1997. The increase resulted from the changes in
revenue and operating expenses discussed above.

YEARS ENDED DECEMBER 31, 1997 AND 1996

For the year ended December 31, 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

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Agreements were $1.7 million for the year ended December 31, 1997, as compared
to $1.1 million for the year ended December 31, 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 eight months of support revenue
as compared to 12 months of support revenue during 1997. Revenues from the SBIR
grants for the year ended December 31, 1997 were $1.3 million as compared to
$975,000 for the year ended December 31, 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 were $4.1 million in 1997. Although the
Company discontinued the external activities involving Emitasol and RG-201 in
1996, research and development expenses in 1997 remained the same as compared to
1996 due to an increase in the Company's scientific staff to support its PSTM
drug discovery programs. Research and development expenses represented
approximately 58% of total operating expenses of $7.1 million in 1997 as
compared to 72% of total operating expenses of $5.7 million in 1996.

General and administrative expenses increased $179,000, or 13%, to $1.6
million in 1997, from $1.4 million in 1996. This increase was the result of
additional administrative costs associated with a 1997 increase in the Company's
scientific staff.

Financial advisory costs consist of a one-time, non-cash charge of $1.3
million, and $96,000 of accrued expenses, which were recognized as an expense
upon the signing of a financial advisory agreement in June 1997 with a placement
agent who assisted the Company with the issuance of the Series F Preferred Stock
("the Placement Agent"). The $1.3 million one-time, non-cash charge for
financial advisory costs represents the fair value of options issued to the
Placement Agent pursuant to the financial advisory agreement.

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 1996.

Net interest expense decreased $275,000, or 98%, to $7,000 in 1997, from
$282,000 in 1996. This decrease resulted from the repayment of debt and
conversion of promissory notes issued to certain of the Company's investors in
1996.

The net loss for the year ended December 31, 1997 was $4.1 million, an
increase of $250,000, or 6%, from the net loss of $3.9 million for 1996, due to
the changes in revenue and operating expenses discussed above. The net loss of
$4.1 million included the $1.4 million one-time charge ($1.3 million of which is
non-cash) described above for expense associated with the signing of the
financial advisory agreement. Exclusive of the $1.4 million charge, the net loss
would have decreased by $1.1 million or 30% from $3.9 million to $2.7 million.

As of December 31, 1997, the Company had a federal net operating loss
carryforward of approximately $28.4 million available to offset future taxable
income, if any. The Company also had federal and state research and development
tax credit carryforwards of approximately $575,000 and $375,000, respectively.
The net operating loss carryforward will begin to expire incrementally at
various dates beginning from 2004 through 2012, 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, 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

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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
development expenses represented approximately 72% of total operating expenses
of $5.7 million in 1996 and 63% 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.

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 March 31, 1998, the Company has
raised approximately $37.3 million from the sale of Common Stock and preferred
stock, warrants and short-term convertible notes, $3.2 million from SBIR grants
and $3.5 million from the Abbott and Dainippon Collaborations (excluding the
initial Abbott and Dainippon equity investments). The Company's capital
expenditures and payments under capital lease obligations aggregate
approximately $1.4 million through March 31, 1998, and cash used to fund
operating activities since incorporation $25.8 million.

At March 31, 1998, the Company had cash and cash equivalents of
approximately $3.3 million and a working capital deficit of $622,000.

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.
Pursuant to the lease, the Company issued to the landlord a six-year warrant to
purchase 17,850 shares of Common Stock at $31.51 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 has sublet the additional space through February 28, 2001. 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 proceeds from the sale of the Abbott Shares
and the interest income earned on such proceeds, will be sufficient for the
purposes specified herein and to allow the Company to maintain its current and
planned operations through the first quarter of 2000. 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

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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."

IMPACT OF YEAR 2000

It is possible that the Company's currently installed computer systems,
software products or other business systems, or those of the Company's suppliers
or service providers, working either alone or in conjunction with other software
or systems, will not accept input of, store, manipulate and output dates for the
years 1999, 2000 or thereafter without error or interruption (commonly known as
the "Year 2000" problem). The Company does not have a comprehensive or formal
Year 2000 plan for its operations. However, the Company has assessed its
computer systems and at this time, believes that such systems will function
properly with respect to dates in the years 1999, 2000 and thereafter. Some
risks associated with the Year 2000 problem are beyond the ability of the
Company to control, including the extent to which the Company's suppliers and
service providers, including providers of telephone services, can address the
Year 2000 problem. The failure by a third party to adequately address the Year
2000 issue could have a material adverse impact on such third party, and could
have an adverse impact on the Company. The Company is assessing the possible
effects on the Company's operations of the possible failure of the Company's key
suppliers and providers, contractors and collaborators to identify and remedy
potential Year 2000 problems.

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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.

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, because the Company selects only PSTM targets which are essential for
the life of the pathogen and appear to bear little or no resemblance to their
human counterpart, 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 principal targets in the lead
discovery phase, deformylase and ppGpp degradase, for which it conducts research
in collaboration with Dainippon. The Company has several additional
antibacterial targets, to which it has retained its rights, that are in the
assay development phase. In its antifungal program, two targets, EF3 and GCN4,
are in the lead optimization phase and several others that are in various phases
of early research and development. In its antiviral program, which is currently
focused exclusively on the hepatitis C virus

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("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. On January 27, 1998,
the Company entered into a collaboration with Dainippon encompassing the two
principal targets in the Company's antibacterial program. As part of the
Dainippon Collaboration, Dainippon agreed to provide the Company with up to $6.0
million in research support payments ($2.0 million of which has been received),
and to provide additional research and development support at Dainippon, over
the three-year term of the research program. The Company may be entitled to
receive milestone payments upon the achievement of mostly late-stage clinical
and regulatory milestones in the amount of up to $10.0 million consisting of up
to $5.0 million in milestones through approval in Japan and an additional $5.0
million in milestones through approval in one other major market territory for
each product developed through the collaboration. RiboGene also has the right to
co-promote, on a country-by-country basis, any products resulting from the
collaboration. In connection with the Dainippon Collaboration, Dainippon made a
$2.0 million equity investment in the Company on February 23, 1998, by
purchasing the Dainippon Shares, which will automatically convert into 53,988
shares of Common Stock upon the closing of the Offering. In April 1996, the
Company entered into a collaboration with Abbott for its anti-fungal program. 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 at a purchase price equal to the
initial public offering price. As of March 31, 1998, the Company had realized
$3.2 million in research support revenues from Abbott and expects to realize
$139,000 of revenue deferred at March 31, 1998. On February 6, 1998, Abbott
notified the Company of the termination of the Research Agreement entered into
as part of the Abbott Collaboration effective April 8, 1998. 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 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
identify small-molecule lead compounds which inhibit pathogen function and
thereby kill or attenuate pathogen growth with minimal effects on humans. The
Company believes that 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 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

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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 trial, 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 Dainippon Collaboration in order to enhance its antibacterial
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 patents and pending patent applications. The Company has
an issued patent and a pending United States application relating to its
antifungal program, an issued United States patent and pending application
relating to its antiviral program and a provisional application, a pending
application and certain corresponding foreign applications relating to its
antibacterial program.

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 have been 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

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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 partner 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 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

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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 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 antibacterial collaboration with Dainippon.

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 to
develop their fungal counterparts.

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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 that serve as the starting point for lead optimization.

Currently, the Company has the capacity to screen approximately 1.25
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
Company's 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 the Dainippon Collaboration, the Company will gain access to
the Dainippon compound library for use in connection with development activities
under the collaboration. 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."

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. RiboGene 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."

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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. 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

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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
target infections 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. The
Company entered into a collaboration with Dainippon in January 1998 to continue
the research and development of antibacterials that have activity against
deformylase or ppGpp. As part of the Dainippon Collaboration, RiboGene is
screening both the RiboGene and Dainippon compound libraries. RiboGene has
responsibility for assay development and lead discovery. Both parties have joint
responsibility for in vitro testing and lead optimization. Dainippon generally
has responsibility for any preclinical and clinical development, regulatory
submission, manufacturing or marketing. See " -- Collaborative and Research
Agreements."

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 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.

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The Company, in collaboration with Dainippon, will continue 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 used 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
with antibacterial activity in vitro against pathogenic bacteria. The Company,
in collaboration with Dainippon, will continue to screen compounds in the ppGpp
assays to identify novel lead compounds suitable for lead optimization. In the
fall of 1997, the Company 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
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.

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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. The hits identified in the primary high-throughput assays are then
analyzed using secondary in vitro translational assays 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.

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.

From April 1996 to April 8, 1998, RiboGene worked with Abbott to discover
novel lead compounds that inhibit this factor. The Company, in conjunction with
Abbott, developed multiple approaches to identify substances that interfere
selectively with EF3 function. Certain potential lead compounds have been
identified. 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.

From April 1996 to April 8, 1998, through the Abbott Collaboration, the
Company worked towards the development of novel antifungal drugs identified with
this assay. Potential lead compounds identified using the primary screen at
RiboGene have progressed to the lead optimization stage. 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.

On February 6, 1998, Abbott notified the Company of its termination of the
Abbott Collaboration effective April 8, 1998. The Company is seeking to
establish a corporate collaboration for its antifungal program to replace the
Abbott Collaboration. If the Company is not successful in such efforts, it
currently intends to fund the antifungal program from its own resources. See
"-- Collaborative and Research Agreements -- The Abbott Agreements."

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. 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.

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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 may be 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. See "Risk
Factors -- Dependence on Patents and Proprietary Rights."

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

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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.

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 Dainippon Agreements

On January 27, 1998, the Company entered into a research agreement with
Dainippon in connection with the Company's two principal antibacterial targets,
deformylase and ppGpp degradase. Pursuant to the research agreement, Dainippon
and the Company agreed to collaborate in a research program directed at
accelerating the discovery of antibacterial drugs that have activity against
either of these two bacterial specific targets. Dainippon has agreed to provide
certain antibacterial research and development support internally at Dainippon
and up to $6.0 million ($2.0 million of which has been received) to support
related research at RiboGene over a three-year period, subject to extension upon
mutual agreement by both parties. Pursuant to the terms of the research
agreement, the duties and responsibilities of Dainippon and RiboGene are
determined by a research committee comprised of representatives from both
companies. RiboGene's initial responsibilities include assay development and
lead discovery. Both parties are responsible for in vitro testing against
pathogens and lead optimization. Dainippon is responsible for in vivo evaluation
and preclinical development. Dainippon may terminate the research agreement at
any time after January 27, 1999 upon 180 days' written notice to the Company.

Also in January 1998, the Company entered into a license agreement with
Dainippon. Pursuant to the license agreement, the Company granted Dainippon
exclusive, worldwide rights to develop and market any and all antibacterial
products discovered by the parties during the joint research collaboration to
have activity against deformylase or ppGpp degradase. Under the terms of the
license agreement, Dainippon has responsibility for all development activities
necessary to commercialize potential lead compounds resulting from the Dainippon
Collaboration, including preclinical testing, clinical development, submission
for regulatory approval, manufacturing and marketing. The Company is entitled to
receive milestone payments of up to $10.0 million for each product developed
upon the achievement of mostly late-stage clinical and regulatory milestones,
consisting of up to $5.0 million through approval in Japan and up to $5.0
million through approval in a major market other than Japan, and royalties on
worldwide sales of any products that may result from such collaboration. The
Company also has an option on a country-by-country basis to co-promote any
products resulting from the Dainippon Collaboration. If the Company elects to
co-promote, it will receive a co-promotion fee, in addition to royalties on
product sales, equal to at least the fully-burdened cost of each of the
Company's sales representatives that promote the products, plus an additional
co-promotion fee.

In connection with the Dainippon Collaboration, the Company and Dainippon
entered into the Series G Preferred Stock Purchase Agreement, pursuant to which
Dainippon made an initial equity investment in the Company of $2.0 million by
purchasing 756,144 shares of the Company's Series G Preferred Stock, which will
automatically convert into 53,988 shares of Common Stock upon the closing of the
Offering. Dainippon also will receive certain registration rights with respect
to the Dainippon Shares. See "Description of Capital Stock -- Registration
Rights."

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

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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 and again in March 1998, 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. Pursuant to this agreement, once a compound is selected for further
development the parties will jointly agree on a development plan which will
further specify each party's obligations. Each party has the right but not the
obligation to participate in the development of the compound. In no case is the
Company obligated to expend additional funds for development. The agreement
provides for proportionate ownership of compounds resulting from the
collaboration, based on each party's contribution to development of the
compound. Each party's contribution will be calculated based on actual internal
and external expenditures.

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. At this point, the Company is not obligated to
expend additional funds for development of compounds under this agreement. The
agreement can be terminated by the Company upon 60 days notice, without any
further obligation.

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. At this point, the Company
is not obligated to expend additional funds for development of compounds under
this agreement. The agreement can be terminated by the Company upon 30 days
notice, without any further obligation.

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. See "Risk Factors -- Dependence on
Patents and Proprietary Rights."

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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 screen specified compounds
in assays incorporating this technology, which has been completed, and to
conduct preclinical studies on future lead compounds selected. The Company is
currently in negotiations with the parties with respect to obtaining a worldwide
license to such patent rights and technology. There can be no assurance,
however, that the Company will be able to obtain such rights, or that any
license agreement negotiated by the Company would be as favorable to the Company
as are the terms contained in the option. No lead compounds have been selected
for development to date. The funding for this research is being provided by an
SBIR grant that awarded the Company up to $640,000 over a two-year period ending
in August 1998.

The Abbott Agreements

In April 1996, RiboGene established a collaboration with Abbott (the
"Abbott Collaboration") to discover and develop antifungal drugs. On February 6,
1998, Abbott notified the Company of its termination of the Abbott Collaboration
effective April 8, 1998. Pursuant to the Abbott Agreements, Abbott was granted
exclusive worldwide rights to develop and market any and all antifungal products
discovered through the Abbott-sponsored collaborative research program. 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 was
committed, subject to rights of early termination, to pay up to $5.0 million in
research support payments over the three-year term of the research program. As
of March 31, 1998, the Company had realized $3.2 million in research support
revenues from Abbott and expects to realize $139,000 of revenue deferred at
March 31, 1998. As a result of Abbott's termination of the Abbott Collaboration,
the Company will be reimbursed for all irrevocably committed research costs for
the project prior to termination that were not covered by previous research
support payments. In addition, each party to the Abbott Agreements will return
to the other proprietary and any confidential information and know-how of such
other party in its possession, and retain copies of any technical or other
information which was solely or jointly generated as a direct result of the
Abbott Collaboration. The Company is seeking to establish a corporate
collaboration for its antifungal program to replace the Abbott Collaboration.
However, there can be no assurance that the Company will be successful in such
efforts. If the Company is not able to establish a corporate collaboration for
its antifungal program it currently intends to fund the antifungal program from
its own resources. See "Risk Factors -- Dependence on Collaborative
Relationships; Funding of Programs."

In connection with the Abbott Agreements, the Company and Abbott entered
into a stock purchase agreement, dated April 26, 1996, as amended (the "Abbott
Purchase Agreement"), pursuant to which Abbott made an initial equity investment
in the Company of $3.5 million in 1996 and agreed to purchase the Abbott Shares
directly from the Company concurrently with the closing of the Company's initial
public offering. Pursuant to the Abbott Purchase Agreement, Abbott also will
receive certain registration rights with respect to the Abbott Shares. See
"Description of Capital Stock -- Registration Rights."

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

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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.

The Company owns a provisional application, a pending patent application
and certain corresponding foreign applications 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 an issued United States patent, a pending United States
patent application and certain corresponding foreign applications relating to
its antiviral drug discovery program. One of the coinventors of the
Company-owned patent applications relating to the antiviral drug discovery
program is Michael Katze, Ph.D. Dr. Katze presently is a member of the SAB and,
at the time these applications were filed, was a consultant to the Company and a
faculty member at the University of Washington. The Company has received
inquiries from, and has been in discussions with, University of Washington
regarding a potential, partial ownership interest in these patent applications
that Dr. Katze and the coinventors assigned to the Company. Such discussions are
ongoing and may result in a determination that University of Washington is a
joint owner of the patent applications, though the Company believes, after a
review of the information available to date, that Dr. Katze, in his capacity as
a consultant to the Company, properly assigned his rights in these applications
to the Company. Nevertheless, in connection with these ongoing discussions, the
Company decided to obtain an option for an exclusive, worldwide license under
the University's potential ownership interest. The option is exercisable upon
payment of a $25,000 fee, at which time the Company will have an exclusive
license under terms that will include payments of $250,000 for each new drug
application approval, royalty payments on future sales of products developed
under the licensed patent rights and a percentage payment of sublicensing fees
received by the Company, and certain other terms to be negotiated in good faith.

The Company is an assignee, along with McGill University, of an allowed
U.S. patent application generally relating to the PSTM program. The Company is
an exclusive licensee under a University of Washington pending United States
application and certain corresponding foreign applications 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.

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<PAGE> 46

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 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.

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<PAGE> 47

should the Company choose to enforce this patent by instituting an infringement
action, the patent statute would provide certain protection to those infringers
who first began practicing, or first made substantial preparation to practice,
the patented invention during the approximately three-year and four month period
that the patent had lapsed. The Company presently is not aware of any potential
infringers who may be entitled to such so-called "intervening rights."

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 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.

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<PAGE> 48

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 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.

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<PAGE> 49

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
and its collaborative partners 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 and its collaborative partners 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 -- Uncertainties Related to Clinical Trials" and "-- Government
Regulation and Need for Product Approvals."

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

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<PAGE> 50

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.

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.

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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 March 31, 1998, the Company had 26 full-time employees. Twenty 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, ten 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 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 has sublet 5,000 square feet of this facility through February 28, 2001.
In connection with the lease, the Company issued to the landlord a six-year
warrant to purchase 17,850 shares of Common Stock at $31.51 per share. See
"Description of Capital Stock."

LEGAL PROCEEDINGS

The Company is not subject to any material legal proceedings.

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MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

The following table sets forth certain information as of May 28, 1998 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(1)................... 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......................... 36 Vice President, Finance &
Administration, Chief Financial
Officer and Assistant Secretary
Charles Gluchowski, Ph.D.................. 42 Director of Drug Discovery
Charles M. Moehle, Ph.D................... 39 Associate Director of
Translational Control Research
Digby W. Barrios(2)....................... 60 Director
Frank J. Sasinowski(3).................... 45 Director
Jon S. Saxe(1)(2)(3)...................... 61 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
co-founder, President and Chief Executive Officer of Interneuron
Pharmaceuticals, Inc., a biopharmaceutical company, from March 1989 until May
1993. Mr. Casamento has also held management positions at Genzyme Corporation,
American Hospital Supply, Johnson & Johnson, Hoffman-LaRoche, Inc. and Sandoz
Inc. 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, and worked as a
Senior Scientist at Schering-Plough Research from 1983 to 1989. 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, and with Ernst & Young from July 1984 to
May 1992. 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 and worked as a medicinal chemist with Allergan, Inc.
from 1984 to 1990. 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

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<PAGE> 53

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.

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. SASINOWSKI joined the Company's Board of Directors in March 1998. Since
1987, he has been a partner with Hyman, Phelps & McNamara, P.C., a food and drug
law firm. From December 1983 to June 1987, Mr. Sasinowski served in various
positions with the United States Food and Drug Administration.

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.

The Company's by-laws authorize a board of directors consisting of five
members, and the Company currently has a board of directors consisting of four
members. 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 1997, Dr. Barkas and Dr. Treu (each, a former director) were
each granted options to purchase 2,834 shares of the Company's Common Stock
under the 1993 Stock Option Plan. Upon completion of the Offering, all
non-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

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<PAGE> 54

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 1997 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, 1997 (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..................................... 325,000 50,000 66,407(1)
President, Chief Executive Officer and Chairman of the
Board of Directors
Laura S. Lehman, Ph.D.................................... 160,000 -- --
Vice President of Research
Timothy E. Morris........................................ 162,100 40,525 --
Vice President, Finance & Administration, Chief
Financial Officer and Assistant Secretary
</TABLE>

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

(1) Represents $47,613 of principal and interest on a note forgiven by the
Company and $18,794 in life and disability insurance premiums paid by the
Company. See "Certain Transactions."

OPTION GRANTS IN LAST FISCAL YEAR

The following table contains information concerning the grant of stock
options to the Named Executive Officers during the fiscal year ended December
31, 1997.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------- POTENTIAL REALIZABLE
% VALUE AT ASSUMED
OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO EXERCISE APPRECIATION FOR
UNDERLYING EMPLOYEES IN PRICE OPTION TERM(3)
OPTIONS FISCAL PER EXPIRATION ---------------------
NAME GRANTED YEAR(1) SHARE(2) DATE 5% 10%
---- ----------- ------------ --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Charles J. Casamento................. 17,136 26% $3.15 07/24/07 $33,947 $86,028
Laura S. Lehman, Ph.D................ 14,280 22% $3.15 07/24/07 28,289 71,690
Timothy E. Morris.................... 6,069 9% $3.15 07/24/07 12,023 30,468
</TABLE>

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

(1) Based on options to purchase 64,941 shares of Common Stock granted to
employees in fiscal 1997.

(2) The exercise price is equal to 100% of the fair value of the Common Stock at
the date of grant, as determined by the Board of Directors.

(3) The potential realizable value is calculated based on the term of the option
at the time of grant (ten years). Stock price appreciation of five percent
and ten percent is assumed pursuant to rules promulgated by the Securities
and Exchange Commission and does not represent the Company's prediction of
the stock price performance. The potential realizable value is calculated by
assuming that the fair value of the Common Stock at the date of the grant,
as determined by the Board of Directors, appreciates at the indicated rate
for the entire term of the option and that the option is exercised at the
exercise price and sold on the last day of its term at the appreciated
price.

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<PAGE> 55

In 1997, 10,710, 2,142 and 2,142 shares were purchased by Mr. Casamento,
Dr. Lehman and Mr. Morris, 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 ($3.15) as determined by the Company's Board
of Directors.

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, 1997:

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1997(#) DECEMBER 31, 1997($)(1)
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles J. Casamento................................. 24,331 33,409 $76,866 $118,365
Laura S. Lehman...................................... 8,666 17,723 27,095 67,002
Timothy E. Morris.................................... 4,730 9,192 19,456 36,131
</TABLE>

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

(1) Based on the initial public offering price of $7.00 per share, less the
option exercise price.

EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL AGREEMENTS

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.

55
<PAGE> 56

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 295,239 shares. As of
March 31, 1998, 86,320 shares had been issued under the 1993 Plan pursuant to
the exercise of stock options or purchase rights, options to purchase a total of
182,433 were outstanding and 26,486 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

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<PAGE> 57

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.

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 800,000 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

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<PAGE> 58

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 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 80,000. 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 600,000 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

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<PAGE> 59

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.

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.

59
<PAGE> 60

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 92,820 shares of Common Stock with an exercise price of $16.67 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 accrued 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 at a rate of
7% per annum, due in May 1998. As consideration for this amendment, the Company
issued a warrant to purchase 13,923 shares of Common Stock at $16.67 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 of which is due on May
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.
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 ($31.51 per share of Common Stock on a post-split,
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 former 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

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<PAGE> 61

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 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, pursuant to the Abbott Purchase Agreement, to
purchase the Abbott Shares concurrently with the closing of the Offering. 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 0.0714 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
cashless exercise provisions, 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
closing of the Offering into 0.6429 of a share of Common Stock.

The Class A Warrants have a six-year term and entitle the holder to
purchase 0.0714 of a share of Common Stock at an exercise price per share equal
to $7.00. 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> 62

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, which include cashless exercise provisions,
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 0.6429 of a share of Common
Stock. See "Description of Capital Stock -- Preferred Stock."

In March 1997, the Company issued to Paramount warrants to purchase 1,785
shares of Common Stock at $31.51 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 July 24, 1997 and retroactive to
January 1, 1997, Mr. Casamento's annual base salary was increased to $325,000.
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 1997, of which $50,000 was paid in connection with the execution of the
Series F Private Placement. 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 10,710
shares of Common Stock. In March 1994, August 1996 and March 1997, Mr. Casamento
purchased an aggregate of 30,794 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 December 31, 1997, $95,992 of the aggregate
principal amount of such notes remained outstanding plus an aggregate of $12,625
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 stockholders 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

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<PAGE> 63

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.

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 an
additional vesting of 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> 64

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of March 31, 1998, as
adjusted to reflect the sale of 2,300,000 shares of Common Stock in the Offering
and the sale by the Company to Abbott of the Abbott Shares 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).................................. 1,235,948 18.9% 20.50%
787 Seventh Avenue
New York, NY 10019
Abbott Laboratories....................................... 682,495 8.22% 12.72%
100 Abbott Park Road
Abbott Park, IL 60064
The Aries Trust(3)........................................ 487,343 9.62% 8.89%
787 Seventh Avenue
New York, NY 10019
Aries Domestic Fund, L.P.(4).............................. 268,227 5.39% 4.94%
787 Seventh Avenue
New York, NY 10019
Kleiner Perkins Caufield & Byers V,....................... 208,369 12.07% 3.88%
a California Limited Partnership(5)
2750 Sand Hill Road
Menlo Park, CA 94025
CW Ventures II, L.P.(6)................................... 163,697 10.45% 3.05%
1041 Third Avenue
New York, NY 10021
Oxford Bioscience Partners L.P.(7)........................ 134,212 6.61% 2.50%
650 Town Center Drive, Suite 810
Costa Mesa, CA 92626
Domain Partners II, L.P................................... 115,627 8.56% 2.16%
One Palmer Square
Princeton, NJ 08542
Sierra Ventures III....................................... 111,979 8.29% 2.09%
a California Limited Partnership(8)
3000 Sand Hill Road
Building A, Suite 210
Menlo Park, CA 94025
Hyline Laboratories, Inc.(9).............................. 106,743 7.32% 1.95%
100 Banks Avenue
Rockville Center, NY 11570
Biotechnology Investment Limited.......................... 88,311 6.54% 1.65%
St. Julian's Court
St. Peter Port
Guernsey, Channel Islands
Digby Barrios(10)......................................... 3,034 * *
Charles J. Casamento(11).................................. 72,766 5.27% 1.35%
Laura S. Lehman(12)....................................... 16,827 1.24% *
Timothy E. Morris(13)..................................... 14,309 1.05% *
Frank J. Sasinowski....................................... 0 * *
Jon S. Saxe............................................... 3,034 * *
All executive officers and directors
as a group (6 persons)(14).............................. 109,970 7.85% 2.03%
</TABLE>

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<PAGE> 65

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

* Less than one percent

(1) Calculated in accordance with Rule 13d-3 promulgated under the Exchange Act
based on 5,764,055 shares of capital stock outstanding on a post-split,
as-converted basis as of March 31, 1998.

(2) Includes 480,378 shares issuable upon exercise of outstanding Placement
Agent Unit Options, 368,596 shares held by The Aries Trust and 202,870
shares by the Aries Fund. Also includes 118,747 shares issuable upon
exercise of outstanding Class A Warrants and Placement Agent Unit Options
held by The Aries Trust and 65,357 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 118,747 shares issuable upon the exercise of Class A Warrants and
Placement Agent Unit Options held by The Aries Trust.

(4) Includes 65,357 shares issuable upon exercise of Class A Warrants and
Placement Agent Unit Options.

(5) Includes 6,346 shares issuable upon exercise of outstanding Class A
Warrants, and 589 shares held by KPCB Zaibatsu Fund I ("KPCB Zaibatsu"), an
entity affiliated with KPCB V.

(6) Includes 3,173 shares issuable upon exercise of outstanding Class A
Warrants.

(7) Includes 25,573 shares held by Oxford Bioscience Partners (Adjunct) L.P.
("OBP Adjunct") and 22,213 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, 1,269
held by OBP Adjunct, 1,102 held by OBP Bermuda and 3,974 held by OBP L.P.

(8) Includes 2,237 shares held by Sierra Ventures III International, an entity
affiliated with Sierra.

(9) Consists of 106,743 shares of Common Stock issuable upon exercise of
outstanding warrants.

(10) Consists of options to purchase 3,034 shares exercisable within 60 days of
March 31, 1998.

(11) Includes 7,274 shares held by various family members of Mr. Casamento that
Mr. Casamento may be deemed to beneficially own; 13,110 shares subject to
repurchase as of March 31, 1998; and options or stock purchase rights for
the purchase of 29,835 shares exercisable within 60 days of March 31, 1998.

(12) Includes 2,573 shares subject to repurchase as of March 31, 1998 and
options to purchase 9,511 shares exercisable within 60 days of March 31,
1998.

(13) Includes 4,507 shares subject to repurchase as of March 31, 1998 and
options to purchase 6,812 shares exercisable within 60 days of March 31,
1998.

(14) See footnote (5) and footnotes (10) - (13).

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<PAGE> 66

DESCRIPTION OF CAPITAL STOCK

The Company's Amended and Restated Certificate of Incorporation authorizes
69,688,488 shares of capital stock, consisting of 50,000,000 shares of Common
Stock and 19,688,488 shares of Preferred Stock. In connection with the Offering,
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 March 31, 1998, there were 2,492,626 shares of Common Stock issued
and outstanding held of record by 116 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
March 31, 1998, the Company had outstanding an aggregate of 12,851,076 shares of
Series A, Series B, Series C, Series D, Series E and Series G Preferred Stock.
Each share of such outstanding Preferred Stock will convert automatically into
0.0714 of a share of Common Stock concurrently with the closing of the Offering,
for a total of 917,529 shares of Common Stock. Holders of Series A through
Series E and Series G Preferred Stock have been granted certain registration
rights. See "-- Registration Rights."

At March 31, 1998, the Company had outstanding 2,282,663 shares of Series F
Preferred Stock. Each share of Series F Preferred Stock will convert
automatically into 0.6429 of a share of Common Stock concurrently with the
closing of the offering for a total of 1,467,510 shares of Common Stock.

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.

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<PAGE> 67

WARRANTS

At March 31, 1998, there were warrants outstanding to purchase (i) an
aggregate of 20,111 shares of Common Stock at an exercise price of $31.51, (ii)
an aggregate of 106,743 shares of Common Stock at an exercise price of $16.67
per share, (iii) an aggregate of 928 shares of Common Stock at exercise of
$16.23 per share, (iv) an aggregate of 3,606 shares of Common Stock at an
exercise price of $16.64 per share, (v) an aggregate of 1,931 shares of Common
Stock at an exercise price of $11.65, (vi) an aggregate of 16,838 shares of
Common Stock at an exercise price of $15.14 per share, and (vii) an aggregate of
15,100 shares of Common Stock at an exercise price of $7.00 per share. In
addition, the Company has 2,282,663 outstanding Class A Warrants exercisable
into an aggregate of 162,967 shares of Common Stock at an exercise price per
share of $7.00. 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 and consolidations. Each warrant may
be exercised, without the payment of cash, for an adjusted number of shares of
Common Stock. The warrants have terms expiring from September 1998 to June 2002.
Warrant holders have been granted certain registration rights. See
"-- Registration Rights."

PLACEMENT AGENT UNIT OPTIONS

At March 31, 1998, 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.
The Class A Warrants expire on June 22, 2003. The Placement Agent Unit Options
expire on December 23, 2007. The aggregate number of shares of Common Stock
issuable upon exercise of the Placement Agent Unit Options is 733,755. An
aggregate of 40,739 Class A Warrants are issuable upon exercise of the Placement
Agent Unit Options.

UNDERWRITER'S WARRANTS

The Company has agreed to issue to the Underwriter 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 of $11.55 per share and expiring five years from the date of this
Prospectus (the "Underwriter's Warrants"). The Company has granted the holders
of the Underwriter's 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 917,529 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 22,375 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> 68

In addition, the holders of an aggregate of 1,467,510 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 162,967 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. See
"-- Preferred Stock" and "-- Placement Agent Unit Options."

Pursuant to the Abbott Purchase Agreement, the Company has granted certain
demand registration rights to Abbott which become operative one year after the
Offering. The registration expenses of any such registration are to be borne by
the Company subject to certain limitations.

The Company will grant to the holders of the Underwriter's 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

Under the Company's Restated 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 could 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 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 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. This provision may 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. 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. This provision 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.

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

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<PAGE> 69

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.

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.

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<PAGE> 70

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering the Company will have outstanding an
aggregate of 5,364,055 shares of Common Stock (5,709,055 shares if the
Underwriter's over-allotment option is exercised in full). Of these shares, the
2,300,000 shares offered hereby 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
3,064,055 shares of Common Stock held by existing stockholders of the Company
(including the Abbott Shares) are Restricted Shares. The Restricted Shares were
issued and sold by the Company in private transactions in reliance upon
exemptions from registration under the Securities Act. Restricted Shares may be
sold in the public market only if registered or if they qualify for an exemption
from registration under the Securities Act, including an exemption under Rule
144 or 701 under the Securities Act. Pursuant to "lock-up" agreements, all
directors and executive officers and certain other stockholders of the Company,
holding in the aggregate approximately 90% of the Restricted Shares have agreed
not to offer, sell, contract to sell, grant any options to purchase or otherwise
dispose of any of such shares for a period 180 days from the date of this
Prospectus without the prior written consent of the Underwriter.

As of March 31, 1998, options to purchase an aggregate of 182,433 shares of
Common Stock were outstanding under the Company's stock plans and an aggregate
of 1,506,486 shares of Common Stock were reserved for future grants or purchases
under the Company's equity incentive plans. The holders of all such outstanding
options have agreed not to offer, sell, contract to sell, grant any options to
purchase or otherwise dispose of any shares of Common Stock issuable upon
exercise of such options for a period 180 days from the date of this Prospectus
without the prior written consent of the Company, and the Company has agreed in
the Underwriting Agreement that it will not grant any such consent without the
prior written consent of the Underwriter. After the effective date of the
Offering, the Company intends to file registration statements on Form S-8 to
register an aggregate of 1,506,486 shares of Common Stock reserved for issuance
under its equity incentive plans. Such registration statements will become
effective automatically upon filing. Shares issued under the Company's equity
incentive 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.

In addition, as of March 31, 1998, 165,257 shares of Common Stock were
reserved for issuance upon the exercise of warrants (other than Class A
Warrants); 162,967 shares of Common Stock were reserved for issuance upon
exercise of the Class A Warrants; 733,755 shares of Common Stock were reserved
for issuance upon exercise of the Placement Agent Unit Options in respect of
shares of Series F Preferred Stock issuable thereunder; 40,739 shares of Common
Stock were reserved for issuance upon the exercise of the Placement Agent Class
A Warrants; and 230,000 shares of Common Stock were reserved for issuance upon
exercise of the Underwriter's Warrants. Holders of Placement Agent Unit Options
and warrants to purchase an aggregate of 1,102,017 shares of Common Stock have
agreed not to offer, sell, contract to sell, grant any option to purchase 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 the
Underwriter. See "Underwriting."

Upon expiration of the lockup period, approximately 191,206 Restricted
Shares held by non-affiliates will be eligible for sale in the public market
without restriction pursuant to Rule 144(k) and approximately 1,478,242
Restricted Shares held by affiliates and approximately 756,271 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 or the Company's ability to raise
capital.

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 Exchange Act, 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 above-referenced lockup agreements an aggregate of
161,523 shares of Common Stock issuable upon exercise of currently outstanding
options will be eligible for sale pursuant to such rule.

70
<PAGE> 71

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 (53,640) 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."

Following completion of the Offering, holders of 2,385,039 Restricted
Shares and 368,963 shares issuable upon exercise of outstanding warrants will be
entitled to certain registration rights under the Securities Act. See
"Description of Capital Stock -- Registration Rights."

71
<PAGE> 72

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, Gruntal
& Co., L.L.C. (the "Underwriter") has agreed to purchase, and the Company has
agreed to sell to the Underwriter, 2,300,000 shares of Common Stock.

The Underwriting Agreement provides that the obligations of the Underwriter
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 Underwriter's obligation is such that it
is committed to purchase all shares of Common Stock offered hereby if any of
such shares are purchased.

The Underwriter proposes 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 $0.30 per
share. The Underwriter may allow to selected dealers and such dealers may
reallow a concession not in excess of $0.10 per share to certain other dealers.
After the initial public offering of the shares of Common Stock, the offering
price and other selling terms may be changed by the Underwriter.

The Company has granted to the Underwriter 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 Underwriter may exercise such option solely for
the purpose of covering over-allotments, if any, in connection with the
Offering.

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

In connection with the Offering, the Underwriter may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Specifically, the Underwriter may over-allot the Offering, creating a short
position. In addition, the Underwriter may bid for and purchase shares of Common
Stock in the open market to cover short positions or to stabilize the price of
the Common Stock. Finally, the Underwriter may reclaim selling concessions from
dealers in the Offering, if the Underwriter repurchases previously distributed
Common Stock in 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 Underwriter is not
required to engage in these activities, and may end any of these activities at
any time.

Prior to the date six months after the consummation of the Offering, the
Underwriter may not offer or sell any shares of Common Stock offered hereby to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their business or otherwise in
circumstances which will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations of
1995. The Underwriter must comply with all applicable provisions of the
Financial Services Act of 1986 with respect to anything done by it in relation
to the Common Stock in, from or otherwise involving the United Kingdom. The
Underwriter may only issue or pass on to any person in the United Kingdom any
document received by it in connection with the issue of the Common Stock to a
person who is of a kind described in Article 11(3) of the Financial Services Act
of 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to
whom such document may otherwise lawfully be issued or passed on.

72
<PAGE> 73

The Underwriter has informed the Company that it does not intend to confirm
sales to accounts over which it exercises discretionary authority.

The Company has agreed to issue to the Underwriter 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 165% 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 Underwriter's Warrants contain
provisions providing for adjustment of the exercise price 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 $7.00, or in the event of any stock dividend, stock split,
stock combination or similar transaction. Holders of the Underwriter's 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
Underwriter's Warrants. For a period of twelve months from the date of this
Prospectus, the Underwriter is generally prohibited from selling, transferring,
assigning, pledging or hypothecating the Underwriter's Warrants or the Common
Stock underlying the Underwriter's Warrants. Thereafter, the Underwriter's
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 Underwriter against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriter may be required to make in respect thereof. The
Underwriting Agreement provides that upon the closing of the Offering the
Underwriter will be paid a non-accountable expense allowance equal to 3% of the
gross proceeds of the Offering. The Company also has agreed to pay all expenses
in connection with qualifying the shares of Common Stock offered hereby for sale
under the laws of such states as the Underwriter may designate, including
expenses of counsel retained for such purpose by the Underwriter.

The executive officers, directors and certain employees of the Company and
other stockholders, including Abbott and Dainippon, have agreed that they will
not, without the prior written consent of the Underwriter, 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 the Underwriter, 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 existing employee
benefit plans 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 has been determined by negotiations between the
Company and the Underwriter. Among the factors considered in determining such
price were 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.

The Common Stock has been approved for listing on the American Stock
Exchange under the symbol "RBO."

73
<PAGE> 74

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, 1996 and 1997
and for each of the three years in the period ended December 31, 1997 and for
the period from inception (May 5, 1989) to December 31, 1997 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.

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.

74
<PAGE> 75

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> 76

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, 1996 and 1997, and the related
statements of operations, cash flows and stockholders' equity (deficit) for each
of the three years in the period ended December 31, 1997 and for the period from
inception (May 5, 1989) to December 31, 1997. 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, 1996 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997 and for the period from inception (May 5, 1989) to December
31, 1997, 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,
1997 of approximately $35.7 million and expects such losses to continue. At
December 31, 1997, the Company had a working capital deficit and a net
stockholders' deficit of approximately $1.7 million and $162,000, 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.

ERNST & YOUNG LLP
Palo Alto, California
January 22, 1998, except as to Note 9,
for which the date is May 19, 1998

F-2
<PAGE> 77

RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
------------------- MARCH 31, MARCH 31,
1996 1997 1998 1998
-------- -------- ----------- -------------
(UNAUDITED) (NOTE 9)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................................ $ 1,981 $ 2,045 $ 3,272
Prepaid expenses and other current assets................ 184 207 181
-------- -------- --------
Total current assets............................. 2,165 2,252 3,453
Property and equipment, net................................ 285 471 492
Deferred offering costs.................................... -- 1,142 1,369
Deferred lease expense..................................... -- 290 278
Other assets............................................... 207 157 173
-------- -------- --------
$ 2,657 $ 4,312 $ 5,765
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable......................................... $ 499 $ 1,402 $ 801
Accrued compensation..................................... 263 254 172
Accrued interest payable................................. 294 224 234
Deferred revenue -- related parties...................... 556 556 1,806
Other current liabilities................................ 401 469 438
Current portion of capital lease obligations............. 106 174 157
Current portion of notes payable......................... 1,000 918 467
-------- -------- --------
Total current liabilities........................ 3,119 3,997 4,075
Long-term portion of capital lease obligations............. 137 289 322
Long-term portion of notes payable......................... 1,000 -- --
Other noncurrent liabilities............................... 357 188 142
Commitments
Stockholders' equity (deficit):
Preferred Stock, no par value; 12,658,491, 18,932,344 and
19,688,488 shares authorized at December 31, 1996 and
1997 and March 31, 1998, respectively (5,000,000
shares authorized, $0.001 par value, pro forma);
issuable in series; 12,094,932, 14,377,595 and
15,133,739 convertible preferred shares issued and
outstanding at December 31, 1996 and 1997 and March
31, 1998, respectively (none pro forma) (aggregate
liquidation preference of $40,478,381 and $42,478,381
at December 31, 1997 and March 31, 1998,
respectively)......................................... 29,449 33,533 35,514 $ --
Common Stock, no par value; 25,000,000 shares authorized
at December 31, 1996 and 50,000,000 shares authorized
at December 31, 1997 and March 31, 1998 (30,000,000
shares authorized, $0.001 par value, pro forma);
83,373, 103,845 and 107,587 shares issued and
outstanding at December 31, 1996 and 1997 and March
31, 1998, respectively (2,492,626 shares pro forma)... 290 1,839 1,853 2
Additional paid-in capital................................. -- 1,672 1,672 39,037
Notes receivable from stockholders......................... (111) (147) (147) (147)
Deferred compensation...................................... -- (1,362) (1,269) (1,269)
Deficit accumulated during the development stage........... (31,584) (35,697) (36,397) (36,397)
-------- -------- -------- --------
Total stockholders' equity (deficit)....................... (1,956) (162) 1,226 $ 1,226
-------- -------- -------- ========
$ 2,657 $ 4,312 $ 5,765
======== ======== ========
</TABLE>

See accompanying notes.

F-3
<PAGE> 78

RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

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

<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS PERIOD FROM
INCEPTION ENDED INCEPTION
YEARS ENDED DECEMBER 31, (MAY 5, 1989) MARCH 31, (MAY 5, 1989)
----------------------------- TO DECEMBER 31, --------------- TO MARCH 31,
1995 1996 1997 1997 1997 1998 1998
--------- ------- ------- --------------- ------ ------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Contract research
revenue from
related parties.... $ -- $ 1,112 $ 1,668 $ 2,780 $ 417 $ 749 $ 3,529
Grant revenue......... 407 975 1,303 2,923 313 257 3,180
--------- ------- ------- -------- ------ ------ -------------
Total
revenue..... 407 2,087 2,971 5,703 730 1,006 6,709
--------- ------- ------- -------- ------ ------ -------------
Operating expenses:
Research and
development........ 4,663 4,077 4,130 22,698 999 1,177 23,875
General and
administrative..... 2,758 1,372 1,551 11,639 360 459 12,098
Financial advisory
costs (Note 7)..... -- -- 1,396 1,396 -- -- 1,396
Restructuring costs... -- 219 -- 219 -- -- 219
Acquired in-process
research and
development........ -- -- -- 5,000 -- -- 5,000
--------- ------- ------- -------- ------ ------ -------------
Total
operating
expenses.... 7,421 5,668 7,077 40,952 1,359 1,636 42,588
--------- ------- ------- -------- ------ ------ -------------

Loss from operations.... (7,014) (3,581) (4,106) (35,249) (629) (630) (35,879)
Interest expense, net... (240) (282) (7) (448) (9) (70) (518)
--------- ------- ------- -------- ------ ------ -------------
Net loss................ $ (7,254) $(3,863) $(4,113) $(35,697) $ (638) $ (700) $ (36,397)
========= ======= ======= ======== ====== ====== =============
Basic net loss per
share................. $ (164.86) $(52.92) $(41.13) $(6.44) $(6.73)
========= ======= ======= ====== ======
Weighted average shares
of common stock
outstanding........... 44 73 100 99 104
========= ======= ======= ====== ======
Pro forma net loss per
share................. $ (1.95) $(0.28)
======= ======
Shares used in computing
pro forma net loss per
share................. 2,109 2,469
======= ======
</TABLE>

See accompanying notes.

F-4
<PAGE> 79

RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

TOTAL
STOCKHOLDERS'
EQUITY (DEFICIT)
----------------
<S> <C>
Issuance of shares of Common
Stock to founders for
services in May 1989 at
$0.35 per share.......... $ 3
Issuance of Series A
Preferred Stock for
in-process technology in
May 1990................. --
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.... 437
Exercise of Series B
Preferred Stock warrants
at $10.00 per share in
October 1990............. 750
Exercise of Common Stock
purchase rights at $14.00
per share................ --
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)......... 300
Dividend of Series A
Preferred Stock in June
1991..................... --
Conversion of Series C
Preferred Stock to Series
B Preferred Stock in June
1991..................... --
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............. 1,834
Issuance of Series B
Preferred Stock at $10.00
per share to consultants
for services performed in
November 1991............ 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.... 1,685
Exercise of Common Stock
options and Common Stock
purchase rights at $14.00
to $16.80 per share...... 3
Repurchase of Common Stock
issued to founders at
$0.35 per share.......... (1)
</TABLE>

F-5
<PAGE> 80
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

PERIOD FROM INCEPTION (MAY 5, 1989) TO MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DEFICIT
NOTES ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE DURING THE
------------------- ---------------- PAID IN FROM DEFERRED DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION STAGE
---------- ------- ------- ------ ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exercise of Common Stock
options and Common Stock
purchase rights at $16.80 per
share........................ -- $ -- 917 $ 16 $ -- $ (3) $ -- $ --
Repurchase of unvested shares
of Common Stock at prices
ranging from $0.35 to $16.80
per share and cancellation of
notes receivable on
termination of employment of
stockholders................. -- -- (2,629) (41) -- 41 -- --
Payments on notes receivable... -- -- -- -- -- 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 -- -- -- -- -- --
Net loss -- inception (May 5,
1989) to December 31, 1992... -- -- -- -- -- -- -- (5,191)
---------- ------- ------- ---- ------ ----- ------- --------
Balances at December 31, 1992.... 718,329 6,154 8,703 59 -- (17) -- (5,191)
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 -- -- -- -- -- --
Exercise of Series D Preferred
Stock warrants at $2.25 in
August 1993.................. 270,222 608 -- -- -- -- -- --
Issuance of Common Stock at
$2.10 per share to an
officer...................... -- -- 10,710 23 -- (23) -- --
Exercise of Common Stock
options and Common Stock
purchase rights at $0.16 to
$21.00 per share............. -- -- 3,787 47 -- (25) -- --
Repurchase of unvested shares
of Common Stock at $16.80 per
share for cancellation of
notes receivable............. -- -- (1,041) (17) -- 17 -- --
Forgiveness of notes
receivable................... -- -- -- -- -- 25 -- --
Net loss -- year ended December
31, 1993..................... -- -- -- -- -- -- -- (3,839)
---------- ------- ------- ---- ------ ----- ------- --------
Balances at December 31, 1993.... 3,794,070 10,921 22,159 112 -- (23) -- (9,030)
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 -- -- -- -- -- --
Exercise of Common Stock
options and Common Stock
purchase rights at $2.10 to
$4.20 per share.............. -- -- 22,632 62 -- (51) -- --
Net loss -- year ended December
31, 1994..................... -- -- -- -- -- -- -- (11,437)
---------- ------- ------- ---- ------ ----- ------- --------
Balances at December 31, 1994.... 7,794,070 $19,863 44,791 $174 $ -- $ (74) $ -- $(20,467)

TOTAL
STOCKHOLDERS'
EQUITY (DEFICIT)
----------------
<S> <C>
Exercise of Common Stock
options and Common Stock
purchase rights at $16.80 per
share........................ $ 13
Repurchase of unvested shares
of Common Stock at prices
ranging from $0.35 to $16.80
per share and cancellation of
notes receivable on
termination of employment of
stockholders................. --
Payments on notes receivable... 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....................... 1,135
Net loss -- inception (May 5,
1989) to December 31, 1992... (5,191)
--------
Balances at December 31, 1992.... 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....................... 4,159
Exercise of Series D Preferred
Stock warrants at $2.25 in
August 1993.................. 608
Issuance of Common Stock at
$2.10 per share to an
officer...................... --
Exercise of Common Stock
options and Common Stock
purchase rights at $0.16 to
$21.00 per share............. 22
Repurchase of unvested shares
of Common Stock at $16.80 per
share for cancellation of
notes receivable............. --
Forgiveness of notes
receivable................... 25
Net loss -- year ended December
31, 1993..................... (3,839)
--------
Balances at December 31, 1993.... 1,980
Issuance of Series E Preferred
Stock at $2.25 per share in
April 1994, net of issuance
costs of $58................. 8,942
Exercise of Common Stock
options and Common Stock
purchase rights at $2.10 to
$4.20 per share.............. 11
Net loss -- year ended December
31, 1994..................... (11,437)
--------
Balances at December 31, 1994.... $ (504)
</TABLE>

F-6
<PAGE> 81
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

PERIOD FROM INCEPTION (MAY 5, 1989) TO MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DEFICIT
NOTES ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE DURING THE
------------------- ---------------- PAID IN FROM DEFERRED DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION STAGE
---------- ------- ------- ------ ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994
(brought forward)............ 7,794,070 $19,863 44,791 $ 174 $ -- $ (74) $ -- $(20,467)
Exercise of Common Stock
options and purchase rights
at $3.15 to $4.20 per
share........................ -- -- 3,289 11 -- -- -- --
Repurchase of unvested shares
of Common Stock.............. -- -- (3,808) (13) -- 13 -- --
Repayment and forgiveness of
stockholder notes
receivable................... -- -- -- -- -- 7 -- --
Issuance of Common Stock
warrants at $0.70 per
share........................ -- -- -- 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 -- -- -- -- -- --
Net loss -- year ended December
31, 1995..................... -- -- -- -- -- -- -- (7,254)
---------- ------- ------- ------ ------ ----- ------- --------
Balances at December 31, 1995.... 9,441,884 23,571 44,272 175 -- (54) -- (27,721)
Exercise of Common Stock
options and purchase rights
of $2.10 to $4.20 per
share........................ -- -- 39,123 115 -- (57) -- --
Issuance of Series E Preferred
Stock at $2.25 per share for
cash and the conversion of
notes payable and accrued
interest in February and May
1996, net of issuance cost of
$92.......................... 2,653,048 5,878 -- -- -- -- -- --
Net loss -- year ended December
31, 1996..................... -- (3,863)
---------- ------- ------- ------ ------ ----- ------- --------
Balances at December 31, 1996.... 12,094,932 29,449 83,373 290 -- (111) -- (31,584)
Exercise of Common Stock
options and purchase rights
at $3.75 per share, net of
repurchases.................. -- -- 20,472 69 -- (36) -- --
Sale of Series F Preferred
Stock and Common Stock
warrants at $2.25 per unit in
February and June 1997, net
of issuance costs of
$1,052....................... 2,282,663 4,084 -- -- -- -- -- --
Unit options and warrants
issued....................... -- -- -- -- 1,672 -- -- --
Deferred compensation.......... -- -- -- 1,480 -- -- (1,480) --
Amortization of deferred
compensation................. -- -- -- -- -- -- 118 --
Net loss -- year ended December
31, 1997..................... -- -- -- -- -- -- -- (4,113)
---------- ------- ------- ------ ------ ----- ------- --------
Balances at December 31, 1997.... 14,377,595 33,533 103,845 1,839 1,672 (147) (1,362) (35,697)
Exercise of Common Stock
options at $3.15 to $4.20 per
share (unaudited)............ -- -- 3,742 14 -- -- -- --
Sale of Series G Preferred
Stock in February at $2.645
per share net of issuance
cost of $19 (unaudited)...... 756,144 1,981 -- -- -- -- -- --
Amortization of deferred
compensation (unaudited)..... -- -- -- -- -- -- 93 --
Net loss -- three months ended
March 31, 1998 (unaudited)... -- -- -- -- -- -- -- (700)
---------- ------- ------- ------ ------ ----- ------- --------
Balance at March 31, 1998
(unaudited).................... 15,133,739 $35,514 107,587 $1,853 $1,672 $(147) $(1,269) $(36,397)
========== ======= ======= ====== ====== ===== ======= ========

TOTAL
STOCKHOLDERS'
EQUITY (DEFICIT)
----------------
<S> <C>
Balances at December 31, 1994
(brought forward)............ $ (504)
Exercise of Common Stock
options and purchase rights
at $3.15 to $4.20 per
share........................ 11
Repurchase of unvested shares
of Common Stock.............. --
Repayment and forgiveness of
stockholder notes
receivable................... 7
Issuance of Common Stock
warrants at $0.70 per
share........................ 3
Issuance of Series E Preferred
Stock at $2.25 per share for
conversion of notes payable
and accrued interest in
November 1995................ 3,708
Net loss -- year ended December
31, 1995..................... (7,254)
--------
Balances at December 31, 1995.... (4,029)
Exercise of Common Stock
options and purchase rights
of $2.10 to $4.20 per
share........................ 58
Issuance of Series E Preferred
Stock at $2.25 per share for
cash and the conversion of
notes payable and accrued
interest in February and May
1996, net of issuance cost of
$92.......................... 5,878
Net loss -- year ended December
31, 1996..................... (3,863)
--------
Balances at December 31, 1996.... (1,956)
Exercise of Common Stock
options and purchase rights
at $3.75 per share, net of
repurchases.................. 33
Sale of Series F Preferred
Stock and Common Stock
warrants at $2.25 per unit in
February and June 1997, net
of issuance costs of
$1,052....................... 4,084
Unit options and warrants
issued....................... 1,672
Deferred compensation.......... --
Amortization of deferred
compensation................. 118
Net loss -- year ended December
31, 1997..................... (4,113)
--------
Balances at December 31, 1997.... (162)
Exercise of Common Stock
options at $3.15 to $4.20 per
share (unaudited)............ 14
Sale of Series G Preferred
Stock in February at $2.645
per share net of issuance
cost of $19 (unaudited)...... 1,981
Amortization of deferred
compensation (unaudited)..... 93
Net loss -- three months ended
March 31, 1998 (unaudited)... (700)
--------
Balance at March 31, 1998
(unaudited).................... $ 1,226
========
</TABLE>

See accompanying notes

F-7
<PAGE> 82

RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MAY 5, 1989) THREE MONTHS ENDED PERIOD FROM
YEARS ENDED DECEMBER 31, TO MARCH 31, INCEPTION
--------------------------- DECEMBER 31, ------------------- (MAY 5, 1989) TO
1995 1996 1997 1997 1997 1998 MARCH 31, 1998
------- ------- ------- ------------- -------- -------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................... $(7,254) $(3,863) $(4,113) $(35,697) $ (638) $ (700) $(36,397)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............ 204 168 140 966 33 50 1,016
Amortization of warrants deferred
compensation........................... -- -- 118 118 -- 154 272
Accrued interest on bridge notes
converted to Preferred Stock........... 78 44 -- 122 -- -- 122
Losses on advances to related parties.... 120 -- -- 465 -- -- 465
Non-cash financial advisory costs........ -- -- 1,300 1,300 -- -- 1,300
Acquisition of in-process research and
development for notes payable.......... -- -- -- 4,200 -- -- 4,200
Other.................................... 7 -- -- 38 -- 10 48
Changes in assets and liabilities:
Prepaid expenses and other current
assets............................... 16 (66) (23) (207) (22) 26 (181)
Other assets........................... (7) (162) 50 (157) 86 (16) (173)
Accounts payable....................... 200 205 903 1,402 (118) (601) 801
Deferred revenue -- related party...... -- 556 -- 556 (417) 1,250 1,806
Accrued expenses and other
liabilities.......................... 388 (25) (180) 1,135 (73) (149) 986
------- ------- ------- -------- ------- ------- --------
Net cash used in operating activities...... (6,248) (3,143) (1,805) (25,759) (1,149) 24 (25,735)
------- ------- ------- -------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment........ (4) (14) -- (397) (10) -- (397)
Organization costs......................... -- -- -- (68) -- -- (68)
Advances to related parties................ (40) -- -- (715) -- -- (715)
Repayment of notes receivable -- officer... -- -- -- 250 -- -- 250
Purchase of short-term investments......... (500) -- (4,577) (6,481) -- -- (6,481)
Maturities of short-term investments....... 500 -- 4,577 4,500 -- -- 4,500
Sales of short-term investments............ 2,000 -- -- 2,000 -- -- 2,000
------- ------- ------- -------- ------- ------- --------
Net cash provided by (used in) investing
activities............................... 1,956 (14) -- (911) (10) -- (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 -- -- 4,908
Repayment of short-term debt............... (1,515) (1,500) -- (3,015) -- -- (3,015)
Repayment of notes payable................. (1,200) (1,000) (1,000) (3,200) (1,000) (500) (3,700)
Principal payments on capital lease
obligations.............................. (171) (151) (106) (728) (30) (65) (793)
Proceeds from sale-leaseback of
equipment................................ -- -- -- 207 -- -- 207
Deferred offering costs.................... -- -- (1,142) (1,142) -- (227) (1,369)
Proceeds from issuances of Common Stock and
warrants, net of repurchases and
repayment of stockholder notes........... 14 58 33 180 7 14 194
Net proceeds from issuance of convertible
Preferred Stock and warrants............. -- 3,941 4,084 27,875 3,233 1,981 29,856
------- ------- ------- -------- ------- ------- --------
Net cash provided by financing
activities............................... 3,773 3,241 1,869 28,715 2,210 1,203 29,918
------- ------- ------- -------- ------- ------- --------
Net increase (decrease) in cash and cash
equivalents.............................. (519) 84 64 2,045 1,051 1,227 3,272
Cash and cash equivalents at beginning of
period................................... 2,416 1,897 1,981 -- 1,981 2,045 --
------- ------- ------- -------- ------- ------- --------
Cash and cash equivalents at end of
period................................... $ 1,897 $ 1,981 $ 2,045 $ 2,045 $ 3,032 $ 3,272 $ 3,272
======= ======= ======= ======== ======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest..................... $ 160 $ 335 $ 210 $ 844 $ 118 $ 80 $ 924
======= ======= ======= ======== ======= ======= ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Equipment purchased under capital leases... $ 107 $ 95 $ 326 $ 933 $ -- $ 81 $ 1,014
======= ======= ======= ======== ======= ======= ========
Conversion of debt obligations and accrued
interest to Preferred Stock.............. $ 3,708 $ 1,937 -- $ 5,645 $ -- $ -- $ 5,645
======= ======= ======= ======== ======= ======= ========
Deferred compensation related to stock
option grants............................ $ -- $ -- 1,480 $ 1,480 $ -- $ -- $ 1,480
======= ======= ======= ======== ======= ======= ========
Warrants issued in connection with lease
and borrowing transactions............... $ -- $ -- $ 372 $ 372 $ -- $ -- $ 372
======= ======= ======= ======== ======= ======= ========
</TABLE>

See accompanying notes.

F-8
<PAGE> 83

RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(INFORMATION AT AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 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, 1997, the
Company incurred cumulative net losses of approximately $35,697,000, and had a
working capital deficit of $1,745,000 and a net stockholders' deficit of
$162,000 at December 31, 1997. 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 August, 1998. The Company may seek to fund
its operations thereafter through collaborative arrangements and through public
or private financings, including this offering or other 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 March 31, 1998 and for the three-month periods
ended March 31, 1997 and 1998 is unaudited but includes all adjustments
(consisting only of normal recurring adjustments) which the Company considers
necessary for a form presentation of the financial position of such date and of
the operating results and cash flows for those periods. Results for the 1998
periods 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 AND CASH EQUIVALENTS

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

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'

F-9
<PAGE> 84
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION AT AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 1996 and 1997 and March 31,
1997 and 1998, is comprised of demand deposits with banks and investments in
money market accounts.

DEFERRED OFFERING COSTS

Costs related to offering of the Company's stock are deferred until the
completion of the offering and offset against proceeds from the offering. If the
offering is terminated prior to completion, the costs will be immediately
recognized as an expense.

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

Revenue earned under collaborative research agreements are recognized as
the related services are performed and research expenses are incurred. Amounts
received in advance of services to be performed are recorded as deferred revenue
until the related expenses are incurred. Non-refundable milestone payments,
which do not require the Company to perform additional services, are recognized
as revenue in the period earned. The Company has not received nor recognized as
revenue any milestone payments to date.

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

Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128") and the
provisions of Securities and Exchange Commission Staff Accounting Bulletin No.
98. SFAS 128 requires the presentation of basic earnings (loss) per share and
diluted earnings (loss) per share, if more dilutive, for all periods presented.

In accordance with SFAS 128, basic net loss per share has been computed
using the weighted-average number of shares of Common Stock outstanding during
the period. Pro forma net loss per share as presented in the Statement of
Operations has been computed as described above and also gives effect to the
conversion of the convertible Preferred Stock that will automatically convert
upon completion of the Company's initial public offering (using the as-if
converted method) from the original date of issuance.

F-10
<PAGE> 85
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION AT AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A reconciliation of shares used in the calculation of pro forma basic net
loss per share and pro forma net loss per share follows (in thousands):

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------ ------------------
1995 1996 1997 1997 1998
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net loss................ $ (7,254) $(3,863) $(4,113) $ (638) $ (700)
======== ======= ======= ======= =======
Weighted average shares
of Common Stock
outstanding........... 44 73 100 99 104
======== ======= ======= ======= =======
Basic net loss per
share................. $(164.86) $(52.92) $(41.13) $ (6.44) $ (6.73)
======== ======= ======= ======= =======
Calculation of shares
outstanding for
computing basic pro
forma net loss per
share:
Shares used in computing
basic net loss per
share................. 100 104
Adjusted to reflect the
effect of the assumed
conversion of
Preferred Stock from
the date of issuance
or as of the beginning
of the period (see
Note 9)............... 2,009 2,365
------- -------
Shares used in computing
pro forma net loss per
share................. 2,109 2,469
======= =======
Pro forma net loss per
share................. $ (1.95) $ (0.28)
======= =======
</TABLE>

Diluted net loss per share has not been presented separately as, due to the
Company's net loss position, it is anti-dilutive. Had the Company been in a net
income position at December 31, 1997 and March 31, 1998, shares used in
calculating diluted earnings per share would have included an additional
1,290,000 and 1,286,000, respectively, shares related to the Company's
outstanding stock options and warrants (prior to the application of the treasury
stock method).

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 over the period of services
received or the term of the related financing.

F-11
<PAGE> 86
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION AT AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), and Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 130
establishes standards for reporting comprehensive income and was adopted by the
Company during the three months ended March 31, 1998. The Company did not have
comprehensive income for the three months ended March 31, 1998. SFAS 131
establishes standards for annual and interim disclosures of operating segments,
products and services, geographic areas and major customers, and will be adopted
in the Company's annual financial statements for the year ended December 31,
1998. The Company is in the process of evaluating the disclosure requirements of
SFAS 131, the adoption of which is not expected to have impact on the Company's
results of operations or financial condition.

2. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Laboratory equipment................................... $ 579,000 $ 734,000 $ 785,000
Office and computer equipment.......................... 223,000 352,000 370,000
Furniture and fixtures................................. 204,000 231,000 243,000
Leasehold improvements................................. 37,000 52,000 15,000
---------- ---------- ----------
1,043,000 1,369,000 1,413,000
Less accumulated depreciation and amortization......... (758,000) (898,000) (921,000)
---------- ---------- ----------
Property and equipment, net............................ $ 285,000 $ 471,000 $ 492,000
========== ========== ==========
</TABLE>

Property and equipment includes approximately $890,000 and $781,000 of
equipment under capital leases for the years ended December 31, 1996 and 1997,
respectively, that are pledged as security for the related lease obligations.
Accumulated amortization related to leased assets totaled $648,000 and $338,000
for the years ended December 31, 1996 and 1997, respectively.

3. COLLABORATION AGREEMENTS

On January 27, 1998, the Company entered into a collaboration with
Dainippon Pharmaceutical Co., Ltd. ("Dainippon") for two of its targets in the
antibacterial program (the "Dainippon Collaboration"). As part of the Dainippon
Collaboration, Dainippon has agreed to provide the Company with up to $6.0
million in research support payments, $2.0 million of which was received in
February 1998, and fund additional research and development at Dainippon. The
Company may also be entitled to receive milestone payments upon the achievement
of mostly late-stage clinical and regulatory milestones in the amount of up to
$10.0 million, consisting of up to $5.0 million in milestones through approval
in Japan and an additional $5.0 million through approval in one other major
market territory, for each product developed through the collaboration. RiboGene
also has the right to co-promote, on a country-by-country basis, any products
resulting from the collaboration. In connection with this agreement, Dainippon
also purchased 756,144 shares of Series D preferred stock (see Note 7).

F-12
<PAGE> 87
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION AT AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)

3. COLLABORATION AGREEMENTS (CONTINUED)
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
(see Note 10). This agreement grants Abbott the exclusive worldwide right to
develop and market antifungal products discovered with the Company. Abbott
agreed to make contract research payments of up to $5,000,000 for the Company's
antifungal research activity over a three-year period. Specifically, the
Company's activities will include screening compound samples, the identification
of new targets and the design and implementation of assays incorporating these
targets. The Company has no obligation to incur expenses in excess of the funds
provided by Abbott. During 1996 and 1997, Abbott made payments of $1,668,000 in
each year pursuant to this agreement, of which $1,112,000 and $1,668,000,
respectively, 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. On February 6, 1998
Abbott notified the Company of its intent to end its research collaboration with
the Company effective April 8, 1998. In connection with this agreement, Abbott
purchased 1,555,556 shares of Series E Preferred Stock (convertible into 111,066
shares of Common Stock) which resulted in net proceeds to the Company of
$3,500,000. Abbott also agreed to purchase an additional $4.0 million of Common
Stock in a private placement at a purchase price equal to the initial public
offering price (571,429 shares assuming an initial public offering price of
$7.00 per share) assuming the initial public offering results in gross proceeds
to the Company of $16.0 million.

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 activities within a specific period of time, all of which
are less than one year but not to pay any funds to the other party. In the case
of Pharmacopeia and ArQule, once a compound with specified activity is
identified as a result of the screening activities, then the Company has the
right to negotiate for the rights to develop the compound. Under the Trega
Biosciences agreement, if a compound is selected for further development, the
parties will jointly agree on a development plan which will further specify each
party's obligations. Each party has the right, but not the obligation, to
participate in the development of the compound and each will proportionally
share in the ownership of the compound developed based on each party's
contribution (defined as internal and external development expenditures).
Following initial screening activities, in no case is the Company obligated to
expend additional funds for development. To date, no compounds have been
selected for development under any of these agreements. The agreement with Trega
Biosciences Inc. expires in October 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 minimal quarterly license maintenance fee and a milestone payment of
$250,000 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

F-13
<PAGE> 88
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION AT AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)

3. COLLABORATION AGREEMENTS (CONTINUED)
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 screen
specified compounds in assays incorporating this technology, which has been
completed, and to conduct preclinical studies on future lead compounds, if
selected. No lead compounds have been selected for development to date. The
funding for these obligations is provided by a 1996 SBIR grant that awarded the
Company up to $640,000 over a two-year period.

4. NOTES PAYABLE

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 61,464 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 1,981 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 $0.70 per warrant to acquire 15,100 shares of
Common Stock at $7.00 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 117,653
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 2,972 shares of Common Stock) at a price
of $2.25 per share. The note was repaid in April 1996.

The fair value of each of the warrants described in the above paragraphs
was determined to be immaterial at the date of issuance. Such determination was
made using the Black-Scholes method with valuation assumptions as follows:
expected life equal to the term of the warrant; a risk free interest rate of 6%;
an expected volatility factor of .5; and a dividend yield of 0%.

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, 1997, notes payable totaling
$1,000,000 remain outstanding including accrued interest, $500,000 of which was
paid in January 1998. Pursuant to a letter of agreement dated December 31, 1997,
the maturity date of the remaining $500,000 note has been extended to May 5,
1998. The interest rate for the extension period is 7%. In consideration for the
extension, the Company issued a warrant to purchase 13,923 shares of Common
Stock with an exercise price of $16.67 per share which expires January 1999. The
fair value of $82,000 assigned to the warrant was determined using the
Black-Scholes method. The Black-Scholes valuation was determined using the
following assumptions: expected life of one year; a risk-free interest rate of
6%; an expected volatility factor of .5; a dividend yield of 0%; and an
estimated fair value of the underlying common stock of $31.75. The value of the
warrants has been reflected as a debt discount and will be amortized to interest
expense over the remaining term of the note payable. The note payable is secured
by the technology and intellectual capital acquired in this transaction. The
fair value of the note, calculated based on a discounted cash flow analysis

F-14
<PAGE> 89
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION AT AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)

4. NOTES PAYABLE (CONTINUED)
using the Company's incremental borrowing rate, does not differ materially from
its 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 (see Note 4). The Company also issued a
warrant to purchase 92,820 shares of Common Stock with an exercise price of
$16.67 per share which expires in January 1999. The value assigned to the
warrant using the Black-Scholes method for financial statement purposes was
immaterial. The Black-Scholes valuation was calculated using the following
assumptions: expected life of five years; a risk free interest rate of 6%; an
expected volatility factor of .5; and a dividend yield of 0%, and a fair value
of the underlying common stock of $3.15. 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 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,
1997 are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
Year ended December 31,
1998............................................. $ 212,000 $ 618,000
1999............................................. 174,000 603,000
2000............................................. 183,000 590,000
2001............................................. 12,000 603,000
2002............................................. -- 626,000
Thereafter....................................... -- 7,578,000
--------- -----------
Total minimum payments required.................... 581,000 $10,618,000
===========
Less amount representing interest.................. (118,000)
---------
Present value of future lease payments............. 463,000
Less current portion............................... (174,000)
---------
Long-term portion.................................. $ 289,000
=========
</TABLE>

Rent expense for operating leases was approximately $117,000, $213,000 and
$347,000 in the years ended December 31, 1995, 1996 and 1997, respectively. In
1997, the Company entered into a facility lease which

F-15
<PAGE> 90
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION AT AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)

6. LEASES (CONTINUED)
provides for scheduled rent increases annually over the 15-year term. The rent
is being recognized as expense on a straight-line basis and the actual cash flow
is included in the future minimum lease payment schedule above. In connection
with the new facility lease, in November 1997 the Company became obligated to
issue the landlord a six year warrant to purchase 17,850 shares of Common Stock
at $31.51 per share. The warrant was assigned a value of $290,000 which is being
amortized over the vesting period of the warrant. Such valuation was determined
using the Black-Scholes method with the following assumptions: an expected life
of six years; a risk-free interest rate of 6%; a dividend yield of 0%; and an
estimated fair value of the underlying common stock of $30.00.

7. STOCKHOLDERS' EQUITY

PREFERRED STOCK

The authorized and outstanding shares of Preferred Stock and related
liquidation preferences were as follows at December 31, 1997:

<TABLE>
<CAPTION>
LIQUIDATION
SHARES AS PREFERENCE
CONVERTED PER LIQUIDATION
AUTHORIZED SHARES INTO PREFERRED PREFERENCE
DESIGNATION SHARES OUTSTANDING COMMON STOCK SHARE TOTAL
----------- ---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Series A............. 138,269 138,268 9,870 $ 6.60 $ 912,569
Series B............. 800,000 580,061 41,407 $10.00 5,800,610
Series C............. 2,950,000 2,805,519 200,307 $ 1.50 4,208,279
Series D............. 270,222 270,222 19,293 $ 2.25 608,000
Series E............. 8,500,000 8,300,862 592,664 $ 2.25 18,676,939
Series F............. 5,555,554 2,282,663 1,467,510 $ 4.50 10,271,984
---------- ---------- --------- -----------
18,214,045 14,377,595 2,331,051 $40,478,381
========== ========== ========= ===========
</TABLE>

On January 28, 1998 in connection with the Dainippon Collaboration,
Dainippon made a $2.0 million equity investment in the Company by purchasing
756,144 shares of the Company's Series G Preferred Stock, each share of which
will convert into .0714 of a share of Common Stock upon closing of the Offering,
for a total of 53,988 shares of Common Stock. The holders of Series G Preferred
Stock are entitled to receive liquidation preferences of $2.645 per share (total
liquidation preference of $2,000,000).

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 consisted 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 initially entitled the
holder to purchase .0714 of a share of Common Stock at an exercise price per
share equal to the lesser of (i) $31.51 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. If the Company's proposed initial public
offering is consummated on the terms presently contemplated (the issuance of
2,300,000 shares at a price per share of $7.00), the outstanding Class A
Warrants will be exercisable into 162,967 shares of Common Stock at an exercise
price of $7.00 per share.

Holders of Series A, B, C, D, E, and G 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

F-16
<PAGE> 91
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION AT AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)

7. STOCKHOLDERS' EQUITY (CONTINUED)
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 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 (see discussion below). 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.

All Series of Preferred Stock have voting rights on an as-converted basis.
In addition, the holders of not less than 66 2/3% of the Series F Preferred
Stock are 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. Each share of Series A through E and Series G Preferred Stock
is convertible into .0714 of a share of Common Stock, subject to adjustment for
antidilution. As a result of the provisions related to the undeclared dividend
discussed above, each share of Series F Preferred Stock is initially convertible
into .1429 of a share of Common Stock. 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 ratio is subject to adjustment upon
the closing of an initial public offering at an offering price of less than
$31.51 per share. Such adjustment is intended to provide for the conversion of
the Series F Preferred Stock at a value not less than $4.50 per Series F
Preferred share (the original stated value of $2.25 per share, plus the $2.25
per share undeclared dividend discussed above). If the initial public offering
price is below $31.51, the ratio by which the Series F Preferred Stock is
convertible into Common Stock equals $4.50 divided by the initial public
offering price. To the extent that the adjusted conversion price results in the
holders of Series F Preferred Stock receiving in excess of 326,193 shares of
Common Stock, then the fair value of the incremental shares is deemed to be the
equivalent of a preferred stock dividend. Any such deemed dividend will be
recorded at the time of conversion by offsetting charges and credits to
additional paid in capital, without any effect on total stockholders' equity.
There will be no effect on net loss from the conversion. However, the amount
will increase the loss allowable to Common Stock in the calculation of net loss
per share in the period of conversion. If the Company's proposed initial public
offering is consummated on the terms presently contemplated, each share of
Series F Preferred Stock will convert into .6429 of a share of Common Stock,
resulting in the issuance of an incremental 1,141,317 shares of Common Stock and
a non-cash deemed dividend of approximately $8 million.

Series A, B, C, D, E and G 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

F-17
<PAGE> 92
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION AT AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)

7. STOCKHOLDERS' EQUITY (CONTINUED)
preferred and Common Stock, $4.50 per share (the original stated value of $2.25
per share, plus the $2.25 per share undeclared dividend discussed above) plus
declared but unpaid dividends. The holders of Series C, D, E and G 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, E, F and G Preferred Stock and Common Stock as prescribed in
the Articles of Incorporation.

PLACEMENT AGENT UNIT OPTIONS

In connection with the sale of Premium Preferred Units described above, the
Company issued the placement agent an option to purchase 228,266 units (the
"Placement Agent Units"). Each Placement Agent Unit initially consisted of one
share of Series F Preferred Stock and one Class A Common Stock Warrant. 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
options to purchase 342,399 Placement Agent Units. The options to purchase
Placement Agent Units had an initial exercise price of $2.475 per option and
expire in 10 years. Upon the closing of the Company's initial public offering
and the conversion of the outstanding shares of Series F Preferred Stock, the
options to acquire Placement Agent Units will automatically be adjusted such
that the exercise price per option will decrease to $1.24 and the number of
shares of Series F Preferred Stock included in the Placement Agent Unit will
increase to two. As a result, if the Company's initial public offering is
consummated on the terms presently contemplated, a total of 733,755 shares of
Common Stock and 40,739 Class A Warrants will be issuable for an aggregate
option exercise price of approximately $708,000. The options to acquire
Placement Agent Units issued pursuant to the Financial Advisory Agreement have
been assigned a value of $1,300,000 which has been expensed and included in the
loss from operations for the year ended December 31, 1997, as the Company does
not believe it will receive future services commensurate with this amount. The
value of the Placement Agent Units was determined at the date of issuance using
the Black-Scholes method with valuation assumptions as follows: expected life of
10 years; risk free interest rate of 6%; an expected volatility factor of .5; a
dividend yield of 0%, and a fair value of the underlying units of $4.34. The
fair value of the underlying units was determined by reference to the price paid
by investors for the Premium Preferred Units, giving consideration to the fact
that each Placement Agent Unit consists of two shares of Series F Preferred
Stock and one Class A warrant. The Company has also accrued an additional
$96,000 of fees due to the placement agent.

F-18
<PAGE> 93
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION AT AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)

7. STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS

The Company had issued and outstanding warrants at December 31, 1997 as
follows:

<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES AS EXERCISE REMAINING
CONVERTED PRICE CONTRACTUAL
INTO PER SHARE OF LIFE
CLASS OF STOCK SHARES COMMON STOCK COMMON STOCK (IN YEARS)
-------------- --------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Series B Preferred Stock warrants........... 23,334 3,606 $16.64 1.7
Series C Preferred Stock warrants........... 15,000 1,931 $11.65 3.4
Series E Preferred Stock warrants........... 113,332 16,838 $15.14 3.7
Class A Common Stock warrants............... 2,282,663 162,967 $ 7.00 5.5
Other Common Stock warrants................. 142,882 142,882 $17.73 1.6
-------
Total............................. 328,224 $12.22
=======
</TABLE>

At December 31, 1994, 1995 and 1996 there were outstanding warrants to
acquire 93,748, 108,348, and 108,348 shares of Common Stock (on an as-converted
to Common Stock basis), respectively, at weighted average exercise prices per
common share of $15.87, $14.64 and $14.64, respectively. No warrants were
exercised, canceled or forfeited in 1995, 1996 or 1997. All warrants were fully
exercisable upon issuance.

STOCK PLANS

In March 1993, adopted the 1993 Stock Plan (the "1993 Plan"). 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, 1997 and March 31, 1998, a total of
295,239 shares have been reserved for issuance under the 1993 Plan.

F-19
<PAGE> 94
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION AT AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)

7. 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, 1994.............................. 90,269 $ 3.22
Granted with exercise prices equal to fair value........ 69,820 $ 3.36
Exercised............................................... (1,147) $ 2.10
Canceled................................................ (1,454) $ 2.80
-------
Balance at December 31, 1995.............................. 157,488 $ 3.22
Granted with exercise prices equal to fair value........ 11,127 $ 3.22
Granted with exercise prices greater than fair value.... 2,142 $31.51
Exercised............................................... (20,823) $ 2.66
Canceled................................................ (20,868) $ 3.36
-------
Balance at December 31, 1996.............................. 129,066 $ 3.78
Granted with exercise prices equal to fair value........ 73,824 $ 3.15
Exercised............................................... (6,850) $ 3.75
Canceled................................................ (9,540) $ 3.16
-------
Balance at December 31, 1997.............................. 186,500 $ 3.57
Granted with exercise prices equal to fair value........ 1,428 $ 3.15
Exercised............................................... (3,742) $ 3.89
Canceled................................................ (1,753) $ 3.15
-------
Balance at March 31, 1998................................. 182,433 $ 3.57
=======
</TABLE>

Through December 31, 1997 and March 31, 1998, the board of directors
granted 56,007 Common Stock purchase rights under the 1993 Plan, all of which
have been exercised for cash and promissory notes. Of this amount, 5,146 shares
have been repurchased through December 31, 1997 and March 31, 1998 and 22,476
shares are subject to the Company's repurchase right at December 31, 1997
(20,317 shares at March 31, 1998) which generally lapses over four years. The
promissory notes bear interest at 5.29% to 6.73%. At December 31, 1997, 26,162
shares were available for future grant or sale (26,486 shares at March 31,
1998).

F-20
<PAGE> 95
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION AT AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)

7. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about options outstanding at
December 31, 1997:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- ------------------------
WEIGHTED-
WEIGHTED- AVERAGE WEIGHTED-
AVERAGE REMAINING AVERAGE
EXERCISE EXERCISE CONTRACTUAL EXERCISE
PRICE NUMBER PRICE LIFE NUMBER PRICE
- ------------- -------------- --------- ----------- ------------ ---------
(IN YEARS)
<S> <C> <C> <C> <C> <C>
$2.10 - $2.80 24,870 $ 2.26 6.00 22,716 $ 2.21
$3.15 - $4.20 159,488 $ 3.41 8.30 70,058 $ 3.55
$31.51 2,142 $31.51 8.72 2,142 $31.51
------- -------
186,500 $ 3.57 8.00 94,916 $ 3.86
======= =======
</TABLE>

At December 31, 1996, 69,331 options were exercisable.

For certain options granted in 1997 with an exercise price of $3.15 per
share, the Company has recognized deferred compensation expense of approximately
$1,480,000 which will be amortized to expense over the vesting period of the
options. A total of $118,000 was amortized to compensation expense in 1997.

During 1996, the Company adopted SFAS 123. Using the minimum value method
to value options and stock purchase rights granted to employees in 1995, 1996
and 1997 resulted in a pro forma net loss of $4,175,000 and a pro forma net loss
per share of $1.98 for the year ended December 31, 1997. The effect on reported
historical net loss and net loss per share amounts in 1995 and 1996 was
immaterial and 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, 1996, and 1997, respectively; risk free
interest rates of 6.34%, 6.35% and 6.0%, 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, 1996 and 1997 was $0.85, $0.85
and $0.80, respectively.

In March 1998, 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 800,000 shares of Common Stock
will be reserved for issuance thereunder.

In March 1998, the board of directors adopted, subject to stockholder
approval, the 1997 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan") and reserved 80,000 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 March 1998, the board of directors adopted, subject to stockholder
approval, the Employee Stock Purchase Plan (the "Purchase Plan") covering an
aggregate of 600,000 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> 96
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION AT AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)

7. STOCKHOLDERS' EQUITY (CONTINUED)
RESERVED SHARES

The Company has reserved shares of Common Stock for future issuance as
follows:

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ----------
<S> <C> <C>
Stock option and purchase plans:
Outstanding options....................................... 186,500 182,433
Reserved for future grant or sale......................... 26,162 26,486
Convertible Preferred Stock:
Issued and outstanding.................................... 2,331,051 2,385,039
Upon exercise of Placement Agent Unit Option.............. 733,755 733,755
Upon exercise of other warrants........................... 22,375 22,375
Class A Warrants (including Class A Warrants underlying
Placement Agent Unit Options)............................. 203,706 203,706
Common Stock warrants....................................... 142,882 142,882
---------- ----------
3,646,431 3,696,676
========== ==========
</TABLE>

8. INCOME TAXES

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

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Net operating loss carryforward............................. $ 9,330,000 $ 10,430,000
Research and development credit carryforward................ 900,000 950,000
Capitalized research and development........................ 850,000 1,050,000
Acquired research and development........................... 1,500,000 1,400,000
Other....................................................... 236,000 486,000
------------ ------------
Gross deferred tax assets................................... 12,816,000 14,316,000
Valuation allowance......................................... (12,816,000) (14,316,000)
------------ ------------
Net deferred tax assets..................................... $ -- $ --
============ ============
</TABLE>

The valuation allowance increased by $3,300,000 and $1,436,000 for the
years ended December 31, 1995 and 1996, respectively.

As of December 31, 1997, the Company had federal net operating loss
carryforwards of approximately $28,400,000. The Company also had federal and
state research and development tax credit carryforwards of approximately
$575,000 and $375,000, respectively. The net operating loss and credit
carryforwards will expire at various dates beginning on 2004 through 2012, 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-22
<PAGE> 97
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION AT AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)

9. 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 (the
issuance of 2,300,000 shares at a price per share of $7.00), all of the
outstanding Preferred Stock at March 31, 1998 will automatically convert into
2,385,039 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 March 31, 1998, is set forth on the accompanying balance
sheet.

In May 1998, the Company filed a Certificate of Amendment in the State of
Delaware to effect a one-for-14 reverse stock split of all outstanding shares of
Common Stock, and Common Stock options and warrants. As a result of the reverse
stock split, each share of Series A through E Preferred Stock will convert into
0.0714 of a share of Common Stock. Each share of Series F Preferred Stock will
convert into 0.6429 of a share of Common Stock (See Note 7). 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. Following the Offering, the Company will file a Restated
Certificate of Incorporation to 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.

F-23
<PAGE> 98
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 31:
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 31:
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 33:
Figure 3 - Status of RiboGene Drug Discovery Programs

The graphic depicts the status of RiboGene's antibacterial, antifungal and
antiviral programs.
<PAGE> 99

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

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 UNDERWRITER. 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......................... 21
Dividend Policy......................... 22
Capitalization.......................... 23
Dilution................................ 24
Selected Financial Data................. 25
Management's Discussion And Analysis of
Financial Condition And Results of
Operations............................ 26
Business................................ 31
Management.............................. 52
Certain Transactions.................... 60
Principal Stockholders.................. 64
Description Of Capital Stock............ 66
Shares Eligible For Future Sale......... 70
Underwriting............................ 72
Legal Matters........................... 74
Experts................................. 74
Additional Information.................. 74
Index To Financial Statements........... F-1

UNTIL JUNE 22, 1998 (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>

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

2,300,000 SHARES

RIBOGENE LOGO

COMMON STOCK

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

PROSPECTUS
--------------------------

GRUNTAL & CO., L.L.C.
MAY 28, 1998

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