GENVEC INC, S-1/A, 1998-06-05

GENVEC INC
S-1/A, 1998-06-05
PHARMACEUTICAL PREPARATIONS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1998.

REGISTRATION NO. 333-51475

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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AMENDMENT NO. 3 TO
FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GENVEC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 2834 23-2705690
(STATE OF INCORPORATION) (PRIMARY STANDARD (I.R.S. EMPLOYER
INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
CODE NUMBER)

GENVEC, INC.
12111 PARKLAWN DRIVE
ROCKVILLE, MARYLAND 20852
(301) 816-0396
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
DR. PAUL H. FISCHER
CHIEF EXECUTIVE OFFICER
GENVEC, INC.
12111 PARKLAWN DRIVE
ROCKVILLE, MARYLAND 20852
(301) 816-0396
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
PAGE MAILLIARD, ESQ. LESLIE E. DAVIS, ESQ.
NAN H. KIM, ESQ. KATHY A. FIELDS, ESQ.
WILSON SONSINI GOODRICH & ROSATI TESTA, HURWITZ & THIBEAULT, LLP
PROFESSIONAL CORPORATION HIGH STREET TOWER
650 PAGE MILL ROAD 125 HIGH STREET
PALO ALTO, CALIFORNIA 94304-1050 BOSTON, MASSACHUSETTS 02110
(650) 493-9300 (617) 248-7000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

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

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

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value per share........ 2,875,000 $13.00 $37,375,000 $11,025.63(3)
</TABLE>
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(1) Includes 375,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any. Also reflects the proposed 5.9 for 1
reverse stock split of the Company's Common Stock, subject to stockholder
approval, which is anticipated to be consummated prior to the closing of
the offering contemplated hereby.
(2) Estimated solely for the purposes of computing the amount of the
registration fee in accordance with Rule 457(a).
(3) Fee previously paid in connection with original filing on April 30, 1998.

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

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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 22, 1998

[LOGO OF GENVEC APPEARS HERE]

2,500,000 SHARES

COMMON STOCK

All of the 2,500,000 shares of Common Stock offered hereby are being sold by
GenVec, Inc. ("GenVec" or the "Company"). Prior to this offering, there has
been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price will be between $11.00 and
$13.00 per share. See "Underwriting" for information relating to the method of
determining the initial public offering price. The Common Stock has been
approved for quotation on the Nasdaq National Market, upon completion of this
offering, under the symbol "GNVC."

Warner-Lambert Company ("Warner-Lambert") is a party to a strategic alliance
with the Company. Pursuant to an existing agreement with the Company, Warner-
Lambert has agreed to purchase $5,000,000 of the Company's Common Stock in a
private transaction concurrent with this offering at a price per share equal to
125% of the initial public offering price. See "Business--Strategic Alliances--
Corporate Collaborations--Warner-Lambert Company."

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

-----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE 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>
<CAPTION>
================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share.................................. $ $ $
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Total(3)................................... $ $ $
================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company estimated
at $900,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 375,000 shares of Common Stock solely to cover over-
allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ , respectively.

-----------

The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of BancAmerica Robertson Stephens, San Francisco,
California, on or about , 1998.

BANCAMERICA ROBERTSON STEPHENS

J.P. MORGAN & CO.

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

The date of this Prospectus is , 1998
<PAGE>

Treatment of Coronary Artery Disease with Gene Therapy

GenVec's lead product candidate, BIOBYPASS angiogen, is designed to induce
new blood vessel formation in tissues with inadequate blood flow. In December
1997, the Company initiated a Phase I/II clinical trial with BIOBYPASS
angiogen for direct injection into the hearts of patients with coronary artery
disease who are undergoing coronary artery bypass graft surgery. The Company
also intends to commence a Phase I/II clinical trial in patients with
peripheral vascular disease in May 1998.

[Two figures of coronary angiograms from pig models of coronary artery disease
illustrate the text immediately below the figures. Figure 1 is taken from the
control subject. Figure 2 is taken from the subject treated with BIOBYPASS
angiogen and shows the induction of new blood vessels relative to Figure 1 and
the refilling of the left circumflex artery beyond the area of blockage.]

BIOBYPASS angiogen was evaluated in a pig model of coronary artery disease.
Blood flow through the left circumflex artery of the pig heart was blocked
with an ameroid constrictor, shown in the upper left corners of both images.
In a single procedure three weeks later, the hearts received multiple
injections around the blockage site with either BIOBYPASS angiogen or a
control. The coronary angiograms above were taken four weeks after the
injections. In the treated heart, BIOBYPASS angiogen induced the formation of
new blood vessels, and refilling of the left circumflex artery beyond the area
of blockage was observed (figure 2). In contrast, no filling of the circumflex
artery was visible in the control case (figure 1). These and other preclinical
data have shown that administration of BIOBYPASS angiogen to the heart
increased the number of blood vessels, improved blood flow and restored
cardiac contractility to normal. Long-term studies on the effects of BIOBYPASS
angiogen have not been conducted. BIOBYPASS angiogen is not currently marketed
by GenVec, and there can be no assurance that the Company will be able to
obtain the necessary regulatory approvals to do so in the future. See "Risk
Factors--Uncertainties Related to Clinical Development."

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>

NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN
OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT 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 TIME SUBSEQUENT TO THE DATE HEREOF.

UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT 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.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Financial Data.................................................. 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 27
Management............................................................... 48
Certain Transactions..................................................... 56
Principal Stockholders................................................... 57
Description of Capital Stock............................................. 59
Shares Eligible For Future Sale.......................................... 62
Underwriting............................................................. 64
Legal Matters............................................................ 66
Experts.................................................................. 66
Additional Information................................................... 66
Index to Financial Statements............................................ F-1
</TABLE>

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BIOBYPASS is a trademark of the Company, and the term angiogen is used to
refer to an angiogenic agent. Tradenames and trademarks of other companies
appearing in this Prospectus are the property of their respective holders.

The Company intends to furnish to its stockholders annual reports containing
financial statements audited by an independent certified public accounting
firm and quarterly reports containing unaudited interim financial information
for each of the first three quarters of each year.

The Company was incorporated in Delaware in 1992. The Company's executive
offices are located at 12111 Parklawn Drive, Rockville, Maryland 20852, and
its telephone number is (301) 816-0396.

3
<PAGE>

SUMMARY

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

THE COMPANY

GenVec focuses on the development and commercialization of novel gene therapy
products for major disease markets. GenVec's lead product candidate, BIOBYPASS
angiogen, is designed to induce angiogenesis, or new blood vessel formation, in
tissues with inadequate blood flow. BIOBYPASS angiogen uses an adenovirus
vector to deliver and express the gene for vascular endothedial growth factor-
121 ("VEGF/121/"). BIOBYPASS angiogen is being developed for the treatment
of coronary artery disease ("CAD") and peripheral vascular disease ("PVD"), and
is intended to be used either alone or as an adjunct to existing surgical
procedures. In December 1997, the Company initiated a Phase I/II clinical trial
with its BIOBYPASS angiogen for direct injection into the hearts of patients
with CAD who are undergoing coronary artery bypass graft ("CABG") surgery. The
Company also intends to commence a Phase I/II clinical trial in patients with
PVD in May 1998. The Company has entered into a collaboration with the Warner-
Lambert Company ("Warner-Lambert") to develop and commercialize BIOBYPASS
angiogen and other gene therapy products for therapeutic angiogenesis. Under
the terms of the collaboration, Warner-Lambert may pay to the Company a total
of more than $100 million in milestone payments, research funding, equity
purchases and technology access fees, if specified milestones are achieved. As
of April 20, 1998, Warner-Lambert had paid to the Company $13.5 million under
this collaboration, and had purchased $2.0 million of the Company's stock.

Additionally, GenVec is developing product candidates and vector technology
in the areas of cardiovascular disease, oncology and neurology. For the
treatment of restenosis associated with angioplasty and vascular damage
associated with arteriovenous ("A-V") grafts, GenVec is developing Ad.iNOS, an
adenovirus vector containing the inducible nitric oxide synthase ("iNOS") gene.
In oncology, GenVec is developing Ad.TNFa under a collaboration agreement with
Varian Associates, Inc. ("Varian"). Ad.TNFa, an adenovirus vector containing
the tumor necrosis factor alpha ("TNFa") gene, is designed to enhance the
effectiveness of radiation therapy without increasing toxicity to normal
tissue. In collaboration with Fuso Pharmaceutical Industries, Ltd. ("Fuso"),
GenVec is developing Ad.CD and is conducting research on immunotherapy of
cancer based on the delivery of tumor antigen genes. Ad.CD, an adenovirus
vector containing the cytosine deaminase ("CD") gene, is designed to convert a
nontoxic precursor drug into fluorouracil to effect tumor destruction, either
alone or in combination with radiation therapy. In neurology, GenVec intends to
develop product candidates through the application of its herpes simplex virus
("HSV") vector technology.

To customize gene therapy products for specific medical needs, GenVec is
developing vectors for cell-specific gene delivery and promoters which regulate
the level and duration of gene expression. GenVec's technology portfolio
includes: (i) therapeutic genes such as VEGF/121/, iNOS, TNFa and CD; (ii)
vector systems such as adenovirus and HSV; (iii) receptor mediated targeting
technology and (iv) tissue-specific and inducible promoters.

GenVec intends to successfully develop and commercialize product candidates
by applying the following business strategies: (i) enhance leadership in
therapeutic angiogenesis; (ii) expand its portfolio of products under
development; (iii) broaden its technology platform; (iv) strengthen product
development through corporate collaborations and (v) maintain and expand
intellectual property strength.

4
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THE OFFERING

<TABLE>
<C> <S>
Common Stock Offered by the Company.......... 2,500,000 shares
Common Stock Outstanding after the Offering.. 9,857,784 shares (1)
Use of Proceeds.............................. For research and development,
clinical trials, capital
expenditures, working capital
and general corporate purposes,
including possible acquisitions
of complementary technology,
products or businesses. See "Use
of Proceeds."
Nasdaq National Market Symbol................ GNVC
</TABLE>

SUMMARY FINANCIAL DATA
(in thousands, except per share data)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- --------------------
1995 1996 1997 1997 1998
------- ------- -------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................... $ 1,005 $ 698 $10,188 $ -- $ 3,688
Operating expenses:
Research and development.. 6,500 6,355 8,986 1,614 3,093
General and
administrative........... 2,025 2,947 2,720 550 739
Total operating expenses.... 8,967 9,302 11,706 2,164 3,832
Interest income, net........ 413 496 263 74 115
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Net loss.................... $(7,549) $(8,108) $ (1,255) $(2,090) $ (29)
======= ======= ======== ========= =========
Pro forma basic net loss per
share (2).................. $ (0.18) $ (0.01)
======== =========
Shares used in computing pro
forma basic
net loss per share (2)..... 6,999 7,019
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------
ACTUAL AS ADJUSTED (3)
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(unaudited)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and short-term
investments........................................ $ 7,262 $ 39,262
Working capital..................................... 7,883 39,883
Total assets........................................ 10,692 42,692
Accumulated deficit................................. (28,889) (28,889)
Total stockholders' equity ......................... 8,639 40,639
</TABLE>
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(1) Based on number of shares of Common Stock outstanding as of March 31, 1998.
Includes 333,333 shares of Common Stock to be sold to Warner-Lambert at an
assumed price of $15.00 per share. Excludes (i) 1,105,955 shares of Common
Stock issuable upon exercise of outstanding options as of March 31, 1998,
at a weighted average exercise price of $1.95 per share and (ii) 320,416
shares of Common Stock issuable upon exercise of outstanding warrants as of
March 31, 1998, at a weighted average exercise price of $12.65 per share.
(2) See Note 2 of Notes to Financial Statements for a description of the
computation of pro forma basic net loss per share.
(3) As adjusted to give effect to (i) the conversion of all issued and
outstanding shares of Preferred Stock into 6,042,263 shares of Common Stock
upon the completion of this offering; (ii) the sale of 2,500,000 shares of
Common Stock offered hereby at the assumed initial public offering price of
$12.00 per share and (iii) the sale of 333,333 shares of Common Stock to
Warner-Lambert at an assumed price of $15.00 per share. See "Use of
Proceeds" and "Capitalization."

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Unless otherwise indicated, all information in this Prospectus (i) has been
adjusted to give effect to the conversion of all outstanding shares of
Preferred Stock into Common Stock and the conversion of all outstanding
warrants to purchase shares of Preferred Stock into warrants to purchase Common
Stock upon the completion of this offering; (ii) has been adjusted to give
effect to a 5.9 for 1 reverse split of the shares of Common Stock and Preferred
Stock, effected in June 1998 (the "Reverse Split") and (iii) assumes no
exercise of the Underwriters' over-allotment option. See "Capitalization" and
"Underwriting."

5
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RISK FACTORS

In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby. This
Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and elsewhere
in this Prospectus.

UNCERTAINTIES RELATED TO CLINICAL DEVELOPMENT

Before obtaining regulatory approvals for the commercial sale of its product
candidates, including its BIOBYPASS angiogen, the Company or its corporate
collaborators will be required to demonstrate through preclinical studies and
clinical trials that the product candidates are safe and effective for use in
each target indication. To date, the Company's product candidates have only
undergone limited preclinical evaluation and in some cases, initial clinical
testing. Long term studies have not been conducted for any of the Company's
product candidates. There can be no assurance that the Company will obtain
authorization for human clinical testing of any of its products currently in
research or preclinical development or for further testing of products in
clinical trials. In addition, the results from preclinical studies and early
clinical trials may not be predictive of results that will be obtained in
large-scale testing, and there can be no assurance that the clinical trials
conducted by the Company or its collaborators will demonstrate sufficient
safety and efficacy to obtain the required regulatory approvals. Further, the
Company or regulatory authorities may suspend clinical trials at any time if
it is thought that the participants are being exposed to unacceptable health
risks. Even after regulatory approval, a product may later be shown to be
unsafe or not to have its purported effect, preventing its widespread use or
requiring its withdrawal from the market and exposing the Company to potential
product liability. The Company has limited experience conducting clinical
trials and intends to rely primarily on its corporate collaborators for
clinical testing of its product candidates.

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 proposed product being tested, but which can nevertheless affect clinical
trial results. Various companies in the pharmaceutical industry have suffered
significant setbacks in advanced clinical trials, even after attaining
promising results in earlier trials. Clinical trials for the product
candidates being developed by the Company may be delayed by many factors. Any
delays in, or termination of, the clinical trials of any of the Company's
product candidates, 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.

UNCERTAINTIES RELATED TO GENE THERAPY

The Company's products are subject to risks particular to the development of
gene therapy products. Gene therapy is a new and rapidly evolving medical
approach, whose safety and efficacy have not been demonstrated on a widespread
basis. Data relating to the Company's specific approaches to gene therapy are
also limited. Product development involving new therapies is highly uncertain,
and gene therapy generally, or the Company's specific gene therapy products,
may prove to have undesirable and unintended side effects, show unacceptable
toxicity, trigger immune responses, demonstrate inadequate therapeutic
efficacy, or have other characteristics that may prevent or limit their
commercial use.

The Company's product candidates, including its BIOBYPASS angiogen and its
gene delivery technologies, are in the early developmental stage and require
significant additional research and development, testing and regulatory
approval. To date no gene therapy products have been successfully manufactured
on a large scale or commercialized by the Company or others. The Company's
development of products will be subject to other risks of failure including,
among others, the possibilities that any such products will be found to be
ineffective or toxic, or otherwise fail to receive necessary regulatory
approvals; that any of the products, if safe and effective, will prove
difficult or impossible to manufacture on a large scale

6
<PAGE>

or will be uneconomical to market; that the proprietary rights of third
parties will preclude the Company or its collaborators from marketing any
products developed; that the products will fail to achieve market acceptance;
and that third parties will market equivalent or superior products. As a
result, there can be no assurance that the Company or its collaborators will
be able to develop, manufacture and successfully commercialize the Company's
product candidates within a reasonable time frame or ever. Failure to develop
successfully the Company's current product candidates would materially and
adversely affect the Company's business, financial condition and results of
operations.

RELIANCE ON WARNER-LAMBERT AND OTHER CORPORATE COLLABORATORS

The Company's strategy for development and commercialization of therapeutic
products depends, in large part, upon the formation of multiple corporate
collaborations and licensing arrangements with third parties. The Company has
established a corporate collaboration with Warner-Lambert in the area of
therapeutic angiogenesis, and has granted Warner-Lambert the right to conduct
research, development, marketing, commercialization and certain manufacturing
activities relating to gene therapy products incorporating the vascular
endothelial growth factor ("VEGF") gene for therapeutic angiogenesis.
Accordingly, the Company is substantially dependent on Warner-Lambert for the
development, funding and commercial success of any of its therapeutic
angiogenesis product candidates, including BIOBYPASS angiogen. In addition,
payments from Warner-Lambert are expected to constitute a substantial portion
of the Company's revenues for the next several years. The Warner-Lambert
agreement may be terminated by either party for breach. The research program
under the Warner-Lambert agreement may be terminated by Warner-Lambert on six
months prior written notice after July 21, 2000, in which event Warner-Lambert
would have no further research funding obligation to the Company. If Warner-
Lambert were to terminate its agreement with the Company or otherwise fail to
conduct its collaborative activities successfully and in a timely manner, the
preclinical and clinical development or commercialization of BIOBYPASS
angiogen, or any other potential therapeutic angiogenesis product candidates,
would be delayed or terminated. Any such delay or termination could have a
material adverse effect on the Company's business, financial condition and
results of operations. The success of the corporate collaboration with Warner-
Lambert will depend in part upon Warner-Lambert's own competitive, marketing
and strategic considerations, including the relative advantages of alternative
products being developed and marketed by Warner-Lambert and its competitors.
If Warner-Lambert is unsuccessful in commercializing any product candidate for
any reason, the Company's business, financial condition and results of
operations could be materially adversely affected.

The Company has also entered into strategic alliances with Fuso in certain
areas of oncology, and Varian in the area of radiation therapy. Each of these
and any other strategic alliances requires time, resources and management
attention. The Company's strategy includes entering into multiple, concurrent
corporate collaborations. There can be no assurance that the Company will
successfully manage simultaneous collaborative programs. Failure by the
Company to manage existing and future strategic alliances, maintain
confidentiality among corporate collaborators or prevent the occurrence of
conflicts among corporate collaborators could lead to disputes that result in,
among other things, a significant strain on management resources, legal claims
involving significant time, expense and loss of reputation, loss of capital or
loss of revenues, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. Moreover,
the Company has received substantially all of its revenues since inception
from its corporate collaborators and expects to continue to do so in the near
term. There can be no assurance that the Company will successfully establish
additional corporate collaborations or licensing arrangements in the future
under terms acceptable to the Company or that any future corporate
collaborations or licensing arrangements will ultimately be successful.
Failure of the Company to enter into additional corporate collaborations could
have a material adverse effect on the Company's business, financial condition
and results of operations.

The Company intends to rely primarily on corporate collaborators for
preclinical studies, clinical development, regulatory approval, manufacturing
and marketing of its gene therapy products, if any. Agreements with corporate
collaborators typically allow such collaborators significant discretion in
electing

7
<PAGE>

whether to pursue any of these activities. The Company cannot control the
amount and timing of resources its corporate collaborators may devote to the
Company's programs or potential products, and there can be no assurance that
such collaborators will perform their obligations as expected. A corporate
collaborator's performance under its agreement with the Company could be
materially adversely affected if such collaborator were involved in certain
third-party transactions such as a business combination or in the event that
the corporate collaborator experienced a significant strategic shift in its
business focus. If any corporate collaborator were to breach its agreement
with the Company, otherwise fail to conduct its collaborative activities in a
timely manner or terminate the collaboration agreement early, such action
could have a material adverse effect on the Company's business, financial
condition and results of operations. The failure of a collaborator to develop
or commercialize a product to which it has rights could have a material
adverse effect on the Company's business, financial condition and results of
operations.

Under its current corporate collaborations, the Company has agreed not to
conduct certain research, independently or with other third parties, that is
in the same field as the research conducted under the collaboration agreement.
Consequently, such arrangements have the effect of limiting the areas of
research the Company may elect to pursue, either alone or with others. There
can be no assurance that a corporate collaborator will not develop, either
alone or with others, alternative technologies or products which are
competitive with any that might result from the Company's research program
with the corporate collaborator. Possible disagreements between the Company
and its corporate collaborators, including disputes relating to the ownership
of rights to any technology developed with third parties, could lead to delays
in collaborative research, development or commercialization of certain
products or could require or result in litigation or arbitration, which would
be time consuming and expensive, and could have a material adverse effect on
the Company's business, financial condition and results of operations.

EARLY STAGE OF COMPANY DEVELOPMENT; LIMITED EXPERIENCE

The Company is at an early stage of development and has limited resources
and operating experience. To date, the Company has no experience with respect
to conducting late stage clinical trials, obtaining regulatory approvals for
product commercialization, marketing, product sales and large-scale
manufacturing. The Company will depend, to a significant extent, on the
resources and experience of corporate collaborators in these and related
areas. There can be no assurance that the Company will be able to enter into
arrangements with corporate collaborators on acceptable terms, if at all.
Failure to enter into acceptable collaborative arrangements, or the failure of
collaborators to provide the Company with adequate resources and experience,
may have a material adverse effect on the Company's ability to develop and
deliver products on a timely and competitive basis, if at all. To the extent
the Company directly engages in the late stage clinical trials, marketing,
sales and large-scale manufacturing of its product candidates, it will require
substantial additional funds, personnel and production facilities.

INTELLECTUAL PROPERTY

The patent positions of pharmaceutical, biopharmaceutical and biotechnology
companies, including the Company, are generally uncertain and involve complex
legal and factual questions. In addition, patent law, and particularly patent
law relating to the gene therapy field, is still evolving. Development and
commercialization of the Company's product candidates and any potential
products will require, among other things, the integration of genes, vectors
and promoters with a delivery mechanism and the development of commercially
viable manufacturing processes. The Company's commercial success will be
dependent in part upon achieving such integration and development without
infringing the proprietary rights of others and upon obtaining intellectual
property protection that will give the Company's products an exclusive market
position.

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components. There can be no assurance that third parties will not develop
products using such components that compete with the Company's potential
products.

There can be no assurance that any of the pending patent applications owned
or licensed by the Company contain patentable and enforceable claims or will
result in valid issued patents, that the claims of any issued patents or any
patents issued in the future are valid and enforceable and will provide
meaningful protection, that the Company or its collaborators will develop
additional proprietary technologies that are patentable, or that any patents
now or in the future licensed or issued to the Company or its collaborators
will provide a basis for commercially viable products or will provide the
Company with any competitive advantages. Furthermore, there can be no
assurance that others will not independently develop similar or alternative
technologies, duplicate any of the Company's technologies, or, if patents are
licensed or issued to the Company, design around or otherwise circumvent the
patented technologies or other intellectual property licensed to or developed
by the Company. For example, while the Company has an exclusive license under
two United States patents relating to the VEGF/121/ gene and the use
thereof for gene therapy applications, third parties have patents for other
forms of the VEGF gene and such third parties or their licensees may develop
products using such other forms of the VEGF gene. There can be no assurance
that products based on such other forms of the VEGF gene or based upon other
growth factors will not be functionally equivalent to or better than the
Company's proposed products, or that such other products will not be more
commercially successful than any products commercialized by the Company or its
collaborators for other reasons, such as superior marketing or lower costs.
Similarly, other parties hold patents for other nitric oxide synthase, tumor
necrosis factor and CD genes. Patents and patent applications of the Company,
its collaborators and its licensors may become involved in interferences,
oppositions or similar proceedings, and there can be no assurance that such
patents and patent applications will survive, in whole or in part, such
proceedings. No assurance can be given that patents issued to the Company, its
collaborators or its licensors, if any, will not be contested, narrowed,
revoked or invalidated. Academic collaborators and the U.S. government may
retain certain rights in intellectual property, including patents and patent
applications, developed by such academic collaborators.

While the Company has not conducted freedom to use patent searches on
aspects of its product candidates and potential products and may therefore be
unaware of relevant patents and patent applications of third parties, the
Company is aware of several United States patents and patent applications and
foreign patents and patent applications owned by third parties relating to
gene therapy, promoters, cell lines, vectors and delivery mechanisms which do
or may cover aspects of the Company's product candidates and potential
products or their use, or manufacture including BIOBYPASS angiogen, as well as
other aspects of the Company's technology. Because patent applications are
maintained in secrecy in the United States, the Company cannot be certain that
third parties have not filed applications relating to technology being
developed by the Company or its collaborators or technology covered by patents
or patent applications of the Company, its collaborators or its licensors.
Certain third-party patent applications contain broad claims, and it is not
possible to determine whether or not such claims will be narrowed during
prosecution or will issue as patents, even if the claims appear to encompass
prior art or have other defects. The Company, its collaborators or its
licensors may choose to oppose or challenge third-party patents and patent
applications and such an opposition or challenge can be expensive and time
consuming. There can be no assurance that any opposition or challenge will be
successful. There can also be no assurance that the development, manufacture,
use, offer for sale, sale or importation of the Company's product candidates
and potential products by the Company or its collaborators will not infringe
claims of these or other issued patents, or claims that may issue from these
or other applications or that a third party will not threaten or file an
infringement action.

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interference proceeding relating to a pending patent application licensed from
the Company from the National Institutes of Health ("NIH") and a pending
patent application of the University of Michigan. An adverse resolution of
such interference proceeding would restrict or eliminate the scope of the
license granted by NIH to GenVec, which the Company believes would not have a
material adverse effect on the Company's current product candidates. The
Company believes it will, and could become involved in additional interference
proceedings declared by the United States Patent and Trademark Office or
opposition proceedings in a foreign patent office. The Company intends to
provoke interference proceedings where it believes such actions to be
necessary to protect its intellectual property rights. There can be no
assurance that the Company will be successful in provoking such proceedings or
that the Company will achieve a favorable outcome. Patent infringement actions
and other intellectual property litigation, as well as participation in
interference or opposition proceedings, can be expensive and time-consuming,
even in those instances in which the outcome is favorable to the Company.
There can be no assurance that the Company or its collaborators will prevail
in any such litigation or proceedings. The Company and its licensors obtain
intellectual property, including biological material and know-how, from third
parties pursuant to various agreements and arrangements. Third parties may
challenge the intellectual property rights of the Company or its licensors or
claim ownership of intellectual property developed by the Company or its
collaborators. The Company could incur substantial expenses in contesting such
claims, whether successful or not.

The Company has certain licenses and believes that it or its collaborators
will be required to obtain additional licenses under third-party patents and
patent applications to continue research and development and to commercialize
the Company's product candidates and potential products, and there can be no
assurance that any such license will be made available on commercially viable
terms, if at all. In addition, licensors may terminate existing or future
license agreements, or terminate the exclusive nature of such agreements, if
the Company fails to meet specified milestones or other events. Any
termination of a license, or any failure of the Company or its collaborators
to obtain any required license on reasonable terms or at all, or the failure
to maintain the exclusivity of the Company's exclusive licenses, could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, if the Company is unable to obtain a
license it may be required to use an alternate technology or product and this
may result in a delay in FDA approval. The Company's product candidates and
potential products will require several components that may each be the
subject of a license agreement. The cumulative license fees and royalties for
these components may make the commercialization of such product candidates and
potential products uneconomical.

The Company may rely on trade secret protection and confidentiality
agreements to protect its interests. There can be no assurance that
proprietary information will not be disclosed, that others will not
independently develop substantially equivalent proprietary information or
otherwise gain access to the Company's trade secrets, or that the Company can
meaningfully protect its trade secrets. Any material leak of confidential
information into the public domain or to third parties may have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Intellectual Property."

INTENSE COMPETITION

Competition among entities attempting to identify and develop new therapies
is intense. The Company faces, and will continue to face, competition from
pharmaceutical and biotechnology companies, academic and research institutions
and government agencies, both in the United States and abroad. Many of the
Company's competitors have substantially greater capital resources, research
and development staffs, facilities, manufacturing and marketing experience,
distribution channels and human resources than the Company. Future competition
will likely come from existing competitors (including competitors with rights
to proprietary forms of the VEGF gene and other genes the Company currently
uses in its product candidates), as well as other companies seeking to develop
new treatments. Competitors or their academic collaborators may identify
important genes or delivery mechanisms before the Company, or develop gene
therapies that are more effective than those developed by the Company or its
corporate collaborators, or obtain regulatory approvals of their drugs more
rapidly than the Company or its corporate collaborators. Moreover, there can

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be no assurance that the Company's competitors will not obtain patent
protection or other intellectual property rights that would limit the
Company's or its collaborators' ability to use the Company's gene therapy
technologies. Any of these events could materially and adversely affect the
Company's business, financial condition and results of operations.

The Company will rely on its corporate collaborators for support of certain
of its enabling technologies and intends to rely on its corporate
collaborators for preclinical and clinical development of related potential
products and the manufacturing and marketing of such products. Generally, the
Company's strategic alliance agreements do not preclude the corporate
collaborator from pursuing development efforts utilizing approaches distinct
from that which is the subject of the alliance. Product candidates of the
Company, therefore, may be subject to competition with a potential product
under development by a corporate collaborator. See "--Reliance on Warner-
Lambert and Other Corporate Collaborators."

Rapid technological development by the Company or others may result in
products or technologies becoming obsolete before the Company recovers
development expenses. Products developed by the Company could be made obsolete
by less expensive or more effective technologies, even technologies unrelated
to gene therapy. For example, competitors may also develop small molecule,
protein, antisense or other therapeutic or surgical approaches that may
compete with or obviate the need for the Company's products. There can be no
assurance that the Company will be able to make the enhancements to its
technology necessary to compete successfully with existing or newly emerging
technologies.

MANUFACTURING LIMITATIONS

The Company has limited experience in manufacturing and currently lacks the
resources or capability to manufacture any of its product candidates on a
commercial scale. It currently has a research facility for the production of
its product candidates for preclinical purposes and relies on third-party
manufacturers of its product candidates for clinical purposes. For the
Company's lead product, BIOBYPASS angiogen, Warner-Lambert has the right to
fill and finish the final product. However, production of BIOBYPASS angiogen
for future clinical trials and possible commercialization is currently
intended to be performed primarily through a third-party manufacturer. The
Company currently intends to rely primarily on corporate collaborators and
third-party manufacturers for clinical and commercial purposes. If a third-
party manufacturer cancels or terminates an existing relationship or if the
Company is unable to contract for or obtain a sufficient supply of its product
candidates on acceptable terms, there could be significant reductions in sales
and delays in bringing the Company's product candidates to market, as well as
delays in the Company's clinical testing schedule, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, it is anticipated that production of the
Company's product candidates will be based in part on proprietary technology
of the Company. Successful technology transfer will be necessary. There can be
no assurance that manufacturers will abide by any limitations or
confidentiality restrictions on licenses with the Company. In addition, any
such manufacturer may develop process technology related to the manufacture of
the Company's compounds that such manufacturer owns either independently or
jointly with the Company. This would increase the Company's reliance on such
manufacturer or require the Company to obtain a license from such manufacturer
in order to have its products manufactured. There can be no assurance that any
such license would be available on terms acceptable to the Company, if at all.
Further, there can be no assurance that the arrangements with third-party
manufacturers will be successful.

Successful large-scale manufacturing of gene therapy products has yet to be
demonstrated by any third party, and it is anticipated that significant
process development changes will be necessary for the commercial process. For
example, changes in the current production process will be required for any
commercial manufacture of BIOBYPASS angiogen. There can be no assurance that
the Company or any third party will be able to manufacture commercial-scale
quantities of gene therapy products, or receive appropriate governmental
approvals on a timely basis or at all. Failure to manufacture successfully or
to obtain appropriate

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government approvals on a timely basis would have a material adverse effect on
the Company's business, financial condition and results of operations.

In addition, the Company intends to continue to develop its own
manufacturing capability, which will require significant resources and will be
subject to ongoing government approval and oversight. There can be no
assurance that the Company's efforts in this regard will be successful. See
"Business--Manufacturing" and "Business--Government Regulation."

HISTORY OF OPERATING LOSSES; FUTURE CAPITAL REQUIREMENTS

The Company has incurred operating losses in each year since its inception.
Net losses were approximately $7.5 million, $8.1 million and $1.3 million for
the years ended December 31, 1995, 1996 and 1997, respectively, and
approximately $29,000 for the three month period ended March 31, 1998. The
Company had an accumulated deficit of approximately $28.9 million as of March
31, 1998. The Company expects that it will incur additional losses for at
least the next several years and that such losses will increase as the Company
expands its research and development activities. The Company's losses to date
have resulted principally from costs incurred in research and development and
from general and administrative costs associated with the Company's
operations. Substantially all of the Company's revenues to date have been
derived from payments from corporate collaborations, and the Company expects
that substantially all of its revenues for the next several years will result
from payments from corporate collaborations. There can be no assurance that
the Company will be successful in entering into any new corporate
collaboration that results in revenues. The Company expects that it will be
several years, if ever, before the Company will recognize revenue from product
sales or royalties. Failure to achieve significant revenues or profitability
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

The Company believes that the net proceeds from this offering and the sale
of shares to Warner-Lambert, existing cash and short-term securities and
anticipated cash flow from corporate collaborations will be sufficient to
support the Company's operations at least through 1999. However, this
expectation is based on the Company's current operating plan, which could
change as a result of many factors, and the Company could require additional
funding sooner than expected. In addition, the Company may choose to raise
additional capital due to market conditions or strategic considerations even
if it has sufficient funds for its operating plan. The Company's actual future
capital requirements and the adequacy of its available funds will depend on
many factors, including progress of its research and development programs, the
number and breadth of these programs, the results and timing of the Company's
clinical trials, the ability of the Company to establish and maintain
strategic alliance and licensing arrangements and the progress of the
development and commercialization efforts of the Company's corporate
collaborators. These factors also include the level of the Company's
activities relating to the development and commercialization rights it retains
in its corporate collaboration arrangements, competing technological and
market developments and the costs involved in preparing, filing, prosecuting,
maintaining and enforcing patent claims and other intellectual property
rights.

The Company expects that it will require significant additional funding in
the future, which it may seek through public or private equity offerings, debt
financings or additional strategic alliance and licensing arrangements. Upon
the closing of this offering, the Company will have no credit facility or
other committed sources of capital. No assurance can be given that additional
financing or strategic alliances and licensing arrangements will be available
when needed, or that, if available, such financing will be obtained on terms
favorable to the Company or its stockholders. To the extent the Company raises
additional capital by issuing equity or convertible securities, ownership
dilution to stockholders will result. If adequate funds are not available when
needed, the Company may be required to curtail operations significantly or to
obtain funds by entering into strategic alliances and licensing arrangements,
in which case the Company may be required to relinquish rights to certain of
its technologies, discoveries or potential products, or to grant licenses on
terms that are not favorable to the Company, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Unavailability of adequate funds would have a material

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adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

NEED TO ATTRACT AND RETAIN KEY EMPLOYEES AND CONSULTANTS

The Company is highly dependent on its scientific and management employees.
The Company also relies heavily on consultants to assist the Company in its
research and development programs. Attracting and retaining qualified
personnel and consultants is critical to the Company's success. The loss of
the services of any of these persons could significantly impede the
accomplishment of the Company's scientific and business objectives. The
Company's success is also dependent upon its ability to attract and retain
additional qualified scientific and managerial personnel. The Company is
actively recruiting additional personnel, including, without limitation, a
Chief Financial Officer. The Company faces substantial competition for
qualified individuals from numerous biotechnology, pharmaceutical and health
care companies, universities and other research organizations. The inability
of the Company to retain its current scientific and managerial personnel and
to attract and retain additional key employees and consultants could have a
material adverse effect on the Company's business, financial condition and
results of operations.

In addition, a significant portion of the Company's research and development
is conducted under sponsored research programs with several universities and
research institutions. The Company depends on the availability of a principal
investigator for such programs, and the Company cannot assure that any of
these individuals or their research staffs will be available to conduct
research and development for the Company. In addition, the Company's academic
collaborators are not employees of the Company. As a result, the Company has
limited control over their activities and can expect that only limited amounts
of their time will be dedicated to the Company's activities. The Company's
academic collaborators may have relationships with other commercial entities,
some of which could compete with the Company.

GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL

Prior to marketing, any products developed by the Company or its corporate
collaborators must undergo an extensive regulatory approval process in the
United States and other countries. This regulatory process, which includes
preclinical studies and clinical trials, and may include post-marketing
surveillance of each compound to establish its safety and efficacy, can take
many years and require the expenditure of substantial resources. Data obtained
from preclinical studies and clinical trials are subject to varying
interpretations that could delay, limit or prevent regulatory approval. Delays
or rejections may also be encountered based upon changes in FDA policies for
drug approval during the period of product development and FDA regulatory
review. Similar delays may also be encountered in obtaining regulatory
approval in foreign countries. Delays in obtaining regulatory approvals could
adversely affect the marketing of any drugs developed by the Company or its
corporate collaborators, impose costly procedures upon the Company's or its
corporate collaborators' activities, diminish any competitive advantages that
the Company or its corporate collaborators may attain and adversely affect the
Company's receipt of royalties. There can be no assurance that regulatory
approval will be obtained for products developed by the Company or its
corporate collaborators. Furthermore, regulatory approval may entail
limitations on the indicated uses of a proposed product. Because certain of
the Company's product candidates involve the application of new technologies
and may be based upon a new therapeutic approach, such products may be subject
to substantial additional review by various government regulatory authorities,
and, as a result, regulatory approvals may be obtained more slowly than for
products based upon more conventional technologies. The Company's product
candidates may require a delivery device and such product and device may be
subject to separate regulatory review, which could also delay regulatory
approval.

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<PAGE>

that have received marketing approval from the FDA or any comparable
regulatory body of any other country. The regulation of the Company's products
and its ongoing research is subject to change, and future legislative or
administrative acts in the United States or other countries could have a
material adverse effect on the Company's business, financial condition and
results of operations. Regulatory requirements ultimately imposed could
adversely affect the ability of the Company's corporate collaborators to
clinically test, manufacture or market products, and could significantly delay
or reduce the milestone or royalty payments payable to the Company.

In order to obtain FDA approval of a new biological product, the Company
must submit substantial evidence of safety, purity, potency and efficacy.

The FDA approval process for a new biological drug involves completion of
pre-clinical studies which include laboratory tests and animal studies to
assess safety and effectiveness of the drug. Among other things, the results
of these studies as well as how the product will be manufactured are submitted
to the FDA as part of an Investigational New Drug ("IND") application and,
unless the FDA objects, the IND becomes effective 30 days following receipt by
the FDA. Human clinical trials may then be conducted. There can be no
assurance that submission of an IND will result in FDA authorization to
commence clinical trials or that approval of an IND will result in subsequent
approval of the drug. The results of the clinical trials are submitted to the
FDA as part of a Biologic License Application ("BLA"). Product sales may only
commence if the BLA is approved. Regulatory requirements for obtaining FDA
approval are rigorous and there can be no assurance that such approvals will
be obtained on a timely basis or at all.

Human clinical trials are typically conducted in three sequential phases,
but the phases may overlap. Phase I trials consist of testing the product in a
small number of patients primarily for safety at one or more dosage levels. In
Phase II, in addition to safety, the efficacy of the product is typically
evaluated in a patient population slightly larger than is used in Phase I
trials, and appropriate dosage is established. Phase III trials typically
involve additional testing for safety and clinical efficacy in an expanded
patient population at geographically dispersed test sites, and with the dosage
that will be submitted for approval. A clinical plan, or "protocol,"
accompanied by the approval of the institutional review board at the
institution participating in the trials, and patient-informed consent forms
must be submitted to and approval by the FDA prior to commencement of each
clinical trial. The FDA may order the temporary or permanent discontinuation
of a clinical trial at any time if it believes patient safety is at risk. The
Company's regulatory strategy is to seek input from the FDA at all stages of
clinical testing and manufacturing process development.

The results of the pre-clinical and clinical studies on biological drugs are
submitted to the FDA in the form of a BLA for approval to commence commercial
sales. After completion of the FDA's preliminary review of the BLA submission,
the submission is sent to an FDA selected scientific advisory panel composed
of physicians and scientists with expertise in the particular field. The FDA
scientific advisory panel issues a recommendation to the FDA that may include
conditions for approval of the BLA. Although the recommendation is not
binding, the FDA generally follows an advisory panel's advice. Toward the end
of the BLA review process, the FDA will conduct an inspection of the
manufacturer's facilities to ensure that they are in compliance with the
applicable current Good Manufacturing Practices ("cGMPs") requirements. If the
FDA evaluation of the manufacturing facilities contained in the BLA
application are favorable, the FDA will issue an approval letter, which
usually contains a number of conditions which must be met in order to secure
final approval. In responding to the BLA, the FDA may grant marketing
approval, require additional testing or information, or deny the application.
Governmental approval of products developed by the Company may entail
limitations on the indicated uses for which such products may be marketed.
Continued compliance with all FDA requirements and the conditions in an
approved application, including product specification, manufacturing process,
labeling and promotional material and record keeping and reporting
requirements, is necessary for all products. Failure to comply, or the
occurrence of unanticipated adverse effects during commercial marketing, could
lead to the need for product recall or other FDA-initiated action, which could
delay further marketing until the products are brought into compliance.

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Even if regulatory approval is obtained, a marketed product and its
manufacturer are subject to continuing review. Discovery of previously unknown
problems with a product may result in withdrawal of the product from the
market, and could have a material adverse effect on the Company's business,
financial condition and results of operations. Violations of regulatory
requirements at any stage during the regulatory process, including preclinical
studies and clinical trials, the approval process, post-approval or in cGMP,
may result in various adverse consequences to the Company, including the FDA's
delay in approval or refusal to approve a product, withdrawal of an approved
product from the market or the imposition of criminal penalties against the
manufacturer and license holder. There can be no assurance that the Company or
its corporate collaborators will be able to conduct clinical testing or obtain
necessary approvals from the FDA or other regulatory authorities for any
products. Further, the terms of approval of any marketing application,
including the labeling content, may be more restrictive than the Company
desires and could affect the marketability of the Company's proposed products.
Failure to obtain required governmental approvals will delay or preclude the
Company or its corporate collaborators from marketing products or limit the
commercial use of such products and could have a material adverse effect on
the Company's business, financial condition and results of operations. The
President recently signed into law the Food and Drug Administration
Modernization Act of 1997. This legislation makes changes to the biologic
provisions of the Federal Drug and Cosmetic Act (the "FDC Act"). The Company
cannot predict how or what effect the changes will have on the regulation of
the Company's products. There can be no assurance that the new legislation
will not impose additional costs or lengthen review times for the Company's
products. See "Business--Government Regulation."

UNCERTAINTY RELATED TO PRICING AND REIMBURSEMENT

In both domestic and foreign markets, sales of the Company's product
candidates will depend in part upon the availability of reimbursement from
third-party payers, such as government health administration authorities,
managed care providers, private health insurers and other organizations. In
addition, other third-party payers are increasingly challenging the price and
cost effectiveness of medical products and services. Significant uncertainty
exists as to the reimbursement status of newly approved health care products.
In many major markets outside the United States, pricing approval is required
before sales can commence. There can be no assurance as to what price can be
obtained or whether government-approved prices, once established, may not be
reduced in subsequent years. There can be no assurance that the Company's
product candidates will be considered cost effective or that adequate third-
party reimbursement will be available to enable the Company to maintain price
levels sufficient to realize an appropriate return on its investment in
product development. Legislation and regulations affecting pricing of medical
products may change before the Company's product candidates are approved for
marketing. Adoption of such legislation could further limit reimbursement for
medical products. If adequate coverage and reimbursement levels are not
provided by the government and third-party payers for the Company's potential
products, the market acceptance of these products would be adversely affected,
which would have a material adverse effect on the Company's business,
financial condition and results of operations.

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

The Company's quarterly operating results may fluctuate significantly as a
result of a variety of factors, including variations in payments received or
made by the Company under strategic alliances, which include milestone
payments, royalties, license fees and other revenues, changes in the research
and development budgets of the Company's corporate collaborators and any
potential collaborators, adoption of new technologies, manufacturing
results, regulatory actions, changes in the demand for the Company's product,
the timing of new product introductions, if any, and the introduction of new
products by the Company's competitors and other competitive factors. If
revenue in a particular period does not meet expectations, the Company may not
be able to adjust significantly its level of expenditures in such period,
which would have an adverse effect on the Company's operating results. The
Company believes that quarterly comparisons of its financial results will not
necessarily be a meaningful indication of future performance. Given these
factors, in some future quarter or quarters the Company's operating results
may be below the expectations of public market analysts and investors. In such
event, the price of the Company's Common Stock could be materially and
adversely affected.

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RISKS ASSOCIATED WITH HAZARDOUS MATERIALS

The Company's research and development activities involve the controlled use
of certain biological and other 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 federal, state and local 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 and could have a material adverse effect on the
Company's business, financial condition and results of operations.

PRODUCT LIABILITY EXPOSURE

Clinical trials, manufacturing, marketing and sale of any of the potential
products of the Company or its corporate collaborators may expose the Company
to liability claims from the use of such products. Such risks exist even with
respect to products that are manufactured in licensed and regulated facilities
or that otherwise possess regulatory approval for commercial sale. Product
liability insurance coverage is expensive, difficult to obtain and may not be
available in the future on acceptable terms, if at all. There can be no
assurance that the Company or its corporate collaborators will be able to
obtain such insurance for commercial or other applications or, if obtained,
that sufficient coverage can be acquired at a reasonable cost. The inability
to obtain sufficient insurance coverage at an acceptable cost or to otherwise
protect against potential product liability claims could prevent or inhibit
the commercialization of pharmaceutical products developed by the Company or
its corporate collaborators. A product liability claim or recall would have a
material adverse effect on the Company's business, financial condition and
results of operations.

CONTROL BY MANAGEMENT AND EXISTING STOCKHOLDERS

Upon completion of this offering, the Company's executive officers,
directors and affiliated individuals and entities together will beneficially
own approximately 50.5% of the outstanding shares of Common Stock (48.7% if
the Underwriters' over-allotment option is exercised in full). As a result,
these stockholders, acting together, will be able to exert significant
influence over most matters requiring approval by the stockholders of the
Company, including approvals of amendments to the Company's Certificate of
Incorporation, mergers, a sale of all or substantially all of the assets of
the Company, going private transactions and other fundamental transactions. In
addition, the Company's Certificate of Incorporation, as it is proposed to be
amended and restated concurrently with the closing of this offering (the
"Restated Certificate"), does not provide for cumulative voting with respect
to the election of directors. Consequently, the present executive officers,
directors and affiliated individuals and entities will be able to influence
significantly the election of the members of the Board of Directors of the
Company. Such a concentration of ownership could affect the liquidity of the
Company's Common Stock and have an adverse effect on the price of the Common
Stock, and may have the effect of delaying or preventing a change in control
of the Company, including transactions in which stockholders might otherwise
receive a premium for their shares over then current market prices. See
"Principal Stockholders" and "Description of Capital Stock."

NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the
Common Stock will develop or be sustained after this offering or that the
market price of the Common Stock will not decline below the initial public
offering price. The initial public offering price will be determined by
negotiations between the Company and the Underwriters and is not necessarily
indicative of the market price at which the Common Stock of the Company will
trade after this offering. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price.

16
<PAGE>

The market prices for securities of biotechnology and pharmaceutical
companies have been highly volatile, and the market has experienced
significant price and volume fluctuations that are often unrelated to the
operating performance of particular companies. Announcements of technological
innovations or new commercial products by the Company or its competitors,
disputes or other developments concerning proprietary rights, including
patents and litigation matters, developments concerning strategic alliance
agreements, publicity regarding actual or potential results with respect to
products or technology under development by the Company, its corporate
collaborators or its competitors, regulatory developments in both the United
States and foreign countries, public concern as to the efficacy of new
technologies, quarterly fluctuations in the Company's operating results,
future sales of substantial amounts of Common Stock by existing stockholders
and comments by securities analysts, as well as general market conditions and
other factors, may have a significant impact on the market price of the Common
Stock. In particular, the realization of any of the risks described in these
"Risk Factors" could have a material adverse impact on such market price.

ANTI-TAKEOVER PROVISIONS

The Restated Certificate authorizes the Board of Directors of the Company,
without stockholder approval, to issue additional shares of Common Stock and
to fix the rights, preferences and privileges of and issue additional shares
of Preferred Stock with voting, conversion, dividend and other rights and
preferences that could adversely affect the voting power or other rights of
the holders of Common Stock. The issuance of Preferred Stock, rights to
purchase Preferred Stock or additional shares of Common Stock may have the
effect of delaying or preventing a change in control of the Company. In
addition, the possible issuance of Preferred Stock or additional shares of
Common Stock could discourage a proxy contest, make more difficult the
acquisition of a substantial block of the Company's Common Stock or limit the
price that investors might be willing to pay for shares of the Company's
Common Stock. Further, the Restated Certificate provides that any action
required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of stockholders and may
not be effected by written consent. Special meetings of the stockholders of
the Company may be called only by the Board of Directors, by the President of
the Company or by stockholders holding a majority of the shares outstanding
and entitled to vote. These and other provisions contained in the Restated
Certificate and the Company's Amended and Restated Bylaws, as well as certain
provisions of Delaware law, could delay or make more difficult certain types
of transactions involving an actual or potential change in control of the
Company or its management (including transactions in which stockholders might
otherwise receive a premium for their shares over then current market prices)
and may limit the ability of stockholders to remove current management of the
Company or approve transactions that stockholders may deem to be in their best
interests and, therefore, could adversely affect the price of the Company's
Common Stock. See "Description of Capital Stock."

BROAD MANAGEMENT DISCRETION OVER USE OF PROCEEDS

A significant portion of the anticipated net proceeds to the Company from
the offering has not been designated for specific uses. Accordingly,
management of the Company will have broad discretion with respect to the use
of these funds. See "Use of Proceeds."

SHARES ELIGIBLE FOR FUTURE SALE AND POTENTIAL ADVERSE EFFECT ON MARKET PRICE

Future sales of Common Stock in the public market following this offering
could adversely affect the market price of the Common Stock. Upon completion
of this offering, the Company will have 9,857,784 shares of Common Stock
outstanding, assuming no exercise of currently outstanding options or
warrants. Of these shares, the 2,500,000 shares sold in this offering (plus
any additional shares sold upon exercise of the Underwriters' over-allotment
option) will be freely transferable without restriction under the Securities
Act of 1933, as amended (the "Securities Act"), unless they are held by
"affiliates" of the Company as that term is used under the Securities Act and
the regulations promulgated thereunder. The remaining 7,357,784 shares of
Common Stock held by existing stockholders are "restricted securities" as that
term is defined in Rule 144

17
<PAGE>

of the Securities Act (the "Restricted Shares"). Restricted Shares may be sold
in the public market only if registered or if they qualify for an exemption
from registration under Rule 144 or Rule 701 under the Securities Act. As a
result of contractual restrictions and the provisions of Rules 144 and 701,
additional shares will be available for sale in the public market as follows:
(i) 49,748 Restricted Shares will be eligible for immediate sale on the date
of this Prospectus; (ii) 76,658 Restricted Shares will be eligible for sale 90
days after the date of this Prospectus and (iii) 7,231,378 Restricted Shares
will be eligible for sale 180 days from the date of this Prospectus upon
expiration of their respective holding periods under Rule 144. In addition,
10,751 shares will be eligible for immediate sale on the date of this
Prospectus upon exercise of vested stock options, and 765,639 shares will be
issuable upon exercise of vested stock options 180 days after the effective
date of this offering upon the expiration of lock-up agreements.

The holders of 6,375,891 shares of Common Stock and the holders of warrants
to purchase 211,864 shares of Common Stock have the right in certain
circumstances to require the Company to register their shares under the
Securities Act for resale to the public beginning 180 days from the date of
this Prospectus. If such holders, by exercising their demand registration
rights, cause a large number of shares to be registered and sold in the public
market, such sales could have an adverse effect on the market price for the
Company's Common Stock. If the Company were required to include in a Company-
initiated registration shares held by such holders and holders of an
additional 505,809 shares of Common Stock pursuant to the exercise of their
piggyback registration rights, such sales may have an adverse effect on the
Company's ability to raise needed capital. In addition, the Company expects to
file a registration statement on Form S-8 registering a total of 2,326,218
shares of Common Stock subject to outstanding stock options or reserved for
issuance under the Company's equity incentive plans. Such registration
statement is expected to be filed and to become effective 180 days after the
effective date of this offering. Shares registered under such registration
statement will, subject to Rule 144 volume limitations applicable to
affiliates, be available for sale in the open market, unless such shares are
subject to vesting restrictions with the Company or the lock-up agreements
described above.

DILUTION; ABSENCE OF CASH DIVIDENDS

Purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution of $7.88 in the net tangible book value of
their investment from the initial public offering price. Additional dilution
will occur upon exercise of outstanding options and warrants. The Company has
never paid any dividends and does not anticipate paying dividends in the
foreseeable future. See "Dilution," "Dividend Policy" and "Shares Eligible for
Future Sale."

YEAR 2000 COMPLIANCE

18
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of 2,500,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering
price of $12.00 per share, after deducting the estimated underwriting
discounts and commissions and offering expenses payable by the Company are
estimated to be approximately $27.0 million ($31.2 million if the
Underwriters' over-allotment option is exercised in full).

The Company intends to use the net proceeds from this offering and the sale
of shares to Warner-Lambert to expand facilities (approximately $5 million),
to purchase equipment (approximately $5 million), to fund its research and
development activities (approximately $20 million) and to use the remainder
for general corporate purposes. The Company's management will retain broad
discretion over the allocation of the net proceeds. The Company may also use a
portion of the net proceeds to fund acquisitions of complementary
technologies, products or businesses, although the Company has no current
agreements or commitments for any such acquisitions. Pending such uses, the
Company intends to invest the net proceeds of this offering in short-term,
interest-bearing, investment-grade securities.

The amounts actually expended for each purpose may vary significantly
depending upon numerous factors, including progress of the Company's product
programs, the number and breadth of these programs, future revenue growth, if
any, achievement of milestones under corporate collaborations and licensing
arrangements, the ability of the Company to establish and maintain corporate
collaborations and other arrangements, the progress of the development efforts
of the Company's corporate collaborators and the amount of cash, if any,
generated by the Company's operations. Such factors also include the pace and
amount of any acquisitions or investments, and competing technological and
market developments that make the Company's technologies relatively less
attractive to corporate collaborators.

The Company believes that its existing capital resources, together with the
net proceeds from this offering, interest income and future payments due under
its existing corporate collaborations, will be sufficient to satisfy its
current and projected funding requirements at least through 1999. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations--Liquidity and Resources" and "Risk Factors--History of Operating
Losses; Future Capital Requirements."

DIVIDEND POLICY

The Company has not declared or paid any cash dividends on its capital stock
since its inception and does not anticipate paying any cash dividends in the
foreseeable future. The Company currently intends to retain any future
earnings to fund the development of its business.

19
<PAGE>

CAPITALIZATION

The following table sets forth as of March 31, 1998, (i) the actual
capitalization of the Company after giving effect to the Reverse Split; (ii)
the pro forma capitalization of the Company after giving effect to the
conversion of all outstanding shares of Preferred Stock into 6,042,263 shares
of Common Stock upon the closing of this offering and the sale of 333,333
shares of Common Stock to Warner-Lambert at an assumed price of $15.00 per
share; and (iii) pro forma as adjusted capitalization giving effect to the
sale of 2,500,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $12.00 per share and the application of the estimated
net proceeds therefrom:

<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------------------
PRO PRO FORMA
ACTUAL (1)(2) FORMA(3) AS ADJUSTED (3)(4)
------------- -------- ------------------
(in thousands)
<S> <C> <C> <C>
Current portion of capital leases... $ 131 $ 131 $ 131
======== ======== ========
Long-term capital leases less
current portion.................... $ 26 $ 26 $ 26
Stockholders' equity: (2)(3)
Convertible Preferred Stock,
$0.001 par value; 6,365,785
shares authorized, 6,042,263
shares issued and outstanding,
actual; 6,365,785 shares
authorized, none issued and
outstanding, as adjusted......... 6 -- --
Preferred Stock, $0.001 par value;
no shares authorized, issued and
outstanding at December 31, 1996
and 1997 and March 31, 1998,
(5,000,000 shares authorized, no
shares issued and outstanding)...
Common Stock, $0.001 par value;
9,553,191 shares authorized,
1,029,488 shares issued and
outstanding, actual; 50,000,000
shares authorized, 9,857,784
shares issued and outstanding, as
adjusted......................... 1 7 10
Additional paid-in capital........ 37,521 42,521 69,518
Accumulated deficit............... (28,889) (28,889) (28,889)
Treasury stock, at cost, 47,300
common shares.................... -- -- --
-------- -------- --------
Total stockholders' equity...... 8,639 13,639 40,639
-------- -------- --------
Total capitalization.......... $ 8,796 $ 13,796 $ 40,796
======== ======== ========
</TABLE>
- --------
(1) Excludes: (i) 1,105,955 shares of Common Stock issuable upon exercise of
outstanding stock options as of March 31, 1998, at a weighted average
exercise price of $1.95 per share and (ii) 320,416 shares of Common Stock
issuable upon exercise of outstanding warrants, at a weighted average
exercise price of $12.65 per share. See "Management--Equity Incentive
Plans," "Description of Capital Stock--Warrants" and Note 7 of Notes to
Financial Statements.
(2) See the Financial Statements and Note 7 of Notes to Financial Statements
for descriptions of the authorized, issued and outstanding shares,
liquidation preferences and conversion features of the individual classes
of Preferred Stock.

(3) Pro forma to give effect to (i) the conversion of all issued and
outstanding shares of Preferred Stock into 6,042,263 shares of Common
Stock upon the completion of this offering and (ii) the sale of 333,333
shares of Common Stock to Warner-Lambert at an assumed price of $15.00 per
share.

(4) As adjusted to give effect to the sale of 2,500,000 shares of Common Stock
offered hereby at the assumed initial public offering price of $12.00 per
share. See "Use of Proceeds."

20
<PAGE>

DILUTION

The pro forma unaudited net tangible book value of the Company as of March
31, 1998, was $8,639,099 or $1.23 per share of Common Stock. The pro forma
unaudited net tangible book value per share represents the amount of the
Company's total tangible assets less total liabilities, divided by the number
of shares of Common Stock outstanding after giving effect to the Reverse Split
and the conversion of all outstanding shares of Preferred Stock into Common
Stock.

Pro forma net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in this offering and the net tangible book value per share of the Common
Stock immediately after completion of this offering. After giving effect to
the sale of 333,333 shares of Common Stock to Warner-Lambert at an assumed
offering price of $15.00 per share, the sale by the Company of 2,500,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $12.00 per share and after deducting estimated underwriting discounts
and commissions and offering expenses payable by the Company, and assuming no
other changes in the net tangible book value after March 31, 1998, the
Company's pro forma net tangible book value as of March 31, 1998, would have
been $40,639,099 or $4.12 per share. This represents an immediate increase in
pro forma net tangible book value of $2.89 per share to existing stockholders
and an immediate dilution in pro forma net tangible book value of $7.88 per
share to new purchasers of Common Stock in this offering, as illustrated by
the following table:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $12.00
Pro forma net tangible book value per share as of March 31,
1998....................................................... $1.23
Increase attributable to Warner-Lambert transaction......... .62
Increase attributable to new investors...................... 2.27
-----
Pro forma net tangible book value per share after the offering
as of March 31, 1998......................................... 4.12
------
Dilution per share to new investors........................... $ 7.88
======
</TABLE>

The following table sets forth on a pro forma basis, as of March 31, 1998,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
the existing holders of Common Stock, by Warner-Lambert and by the new
investors, before deducting the estimated underwriting discounts and
commissions and offering expenses payable by the Company:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders
(1).................... 7,024,451 71.3% $34,881,824 49.9% $ 4.97
New investors........... 2,500,000 25.4% $30,000,000 42.9% $12.00
Warner-Lambert.......... 333,333 3.3% $ 5,000,000 7.2% $15.00
--------- ------ ----------- ------
Total................. 9,857,784 100.0% $69,881,824 100.0%
========= ====== =========== ======
</TABLE>
- --------
(1) Gives effect to the conversion of all outstanding shares of Preferred
Stock into 6,042,263 shares of Common Stock upon the closing of this
offering.

The calculation of net tangible book value and other computations above
assume no exercise of outstanding options and warrants. As of March 31, 1998,
1,426,371 shares of Common Stock were subject to outstanding options and
warrants at a weighted average price of $4.36 per share. To the extent
additional shares are purchased pursuant to the exercise of outstanding
options and warrants, there will be further dilution to new investors. See
"Management--Equity Incentive Plans," "Description of Capital Stock--
Warrants" and Note 7 of Notes to Financial Statements.

21
<PAGE>

SELECTED FINANCIAL DATA

The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Financial Statements and Notes thereto included
elsewhere in the Prospectus. The statement of operations data for the years
ended December 31, 1995, 1996 and 1997, and the balance sheet data at December
31, 1996 and 1997, are derived from the financial statements of the Company
included elsewhere in this Prospectus which have been audited by KPMG Peat
Marwick LLP, independent auditors, whose report thereon is included elsewhere
in this Prospectus. The statement of operations data for the years ended
December 31, 1993 and 1994, and the balance sheet data as of December 31,
1993, 1994 and 1995, are derived from financial statements audited by KPMG
Peat Marwick LLP, which are not included herein. Financial data as of March
31, 1998, and for the three month periods ended March 31, 1997 and 1998, are
derived from unaudited financial statements included elsewhere herein, and, in
the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, that the Company considers necessary for a fair
presentation of its financial position and results of operations for such
periods. The results for the interim periods are not necessarily indicative of
results to be expected for any future period. 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 ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
------- -------- -------- -------- -------- ----------- -------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $ 750 $ 1,000 $ 1,005 $ 698 $ 10,188 $ -- $ 3,688
Expenses:
Research and
development........... 2,888 5,646 6,500 6,355 8,986 1,614 3,093
General and
administrative........ 1,040 1,605 2,025 2,947 2,720 550 739
Purchase of in-process
technology............ -- 2,581 442 -- -- -- --
------- -------- -------- -------- -------- -------- -------
Total Expenses........ 3,928 9,832 8,967 9,302 11,706 2,164 3,832
------- -------- -------- -------- -------- -------- -------
Loss from operations... (3,178) (8,832) (7,962) (8,604) (1,518) (2,164) (144)
Other income, net...... 136 139 413 496 263 74 115
------- -------- -------- -------- -------- -------- -------
Net loss............... $(3,042) $ (8,693) $ (7,549) $ (8,108) $ (1,255) $ (2,090) $ (29)
======= ======== ======== ======== ======== ======== =======
Pro forma basic net
loss per share (1).... $ (0.18) $ (0.01)
======== =======
Shares used in
computing basic
net loss per share
(1)................... 6,999 7,019
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------------------------- -----------
1993 1994 1995 1996 1997 1998
------- -------- -------- -------- -------- -----------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents and short-
term investments...... $ 6,040 $ 9,037 $ 13,880 $ 7,725 $ 9,364 $ 7,262
Total assets........... 6,738 9,965 15,226 8,638 10,547 10,692
Capital lease
obligations (2)....... -- 799 889 572 221 158
Accumulated deficit.... (3,254) (11,947) (19,496) (27,605) (28,860) (28,889)
Total stockholders'
equity................ 6,107 8,483 13,691 6,864 8,644 8,639
</TABLE>
- --------
(1) See Note 2 of Notes to Financial Statements for a description of the
computation of the pro forma basic net loss per share.
(2) Includes current portion.

22
<PAGE>

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

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

OVERVIEW

GenVec was incorporated under the laws of the state of Delaware on December
7, 1992. GenVec focuses on the development and commercialization of novel gene
therapy products for major disease markets. GenVec's lead product candidate,
BIOBYPASS angiogen, is currently in Phase I/II clinical trials for the
treatment of CAD. GenVec also intends to initiate a Phase I/II clinical trial
in patients with PVD in May 1998. The Company is developing BIOBYPASS angiogen
as part of its collaboration with Warner-Lambert, under which the Company
could receive payments totaling over $100 million in milestone payments,
research funding, equity purchases and technology access fees, upon the
achievement of specified milestones. As of April 20, 1998, Warner-Lambert had
paid to the Company $13.5 million under this collaboration. The Company is
also pursuing research and development programs in the areas of vascular
damage, oncology and neurology. GenVec has also entered into corporate
collaborations with Varian and Fuso in certain areas of oncology. See
"Business--Strategic Alliances--Corporate Collaborations."

The Company has incurred operating losses each year since inception and, as
of March 31, 1998, had an accumulated deficit of approximately $28.9 million.
The Company's losses have resulted principally from costs incurred in research
and development and from general and administrative costs associated with the
Company's operations. The Company expects to incur substantial additional
operating losses for at least the next few years as a result of increases in
its expenses for research and development capabilities.

The Company's future profitability will depend in part on the successful
development and marketing of its BIOBYPASS angiogen and other products, and
the continued establishment of corporate collaborations. Payments from
corporate collaborators and interest income are expected to be the Company's
only sources of revenue for several years. These payments will include
licensing payments, milestone payments and research and development funding.
Milestone payments under strategic alliances will be subject to significant
fluctuation in both timing and amount, and therefore the Company's results of
operations for any period may not be comparable to the results of operations
for any other period. Royalties or other revenues from commercial sales of
products are not expected for at least several years, if at all. If revenues
in a particular period do not meet expectations, the Company may not be able
to adjust significantly its level of expenditures in such period, which would
have an adverse effect on the Company's operating results. The Company
believes that quarterly comparisons of its financial results will not
necessarily be a meaningful indication of future performance.

RESULTS OF OPERATIONS

Three Months Ended March 31, 1998 and March 31, 1997

Revenues

Revenues were approximately $3.7 million for the three months ended March
31, 1998. For the same period in 1997, the Company received no revenues.
Revenues recognized for the three month period in 1998 were attributable to
$187,500 received under the Company's research and development agreement with
Fuso and the remainder to payments received under the Company's collaboration
agreement with Warner-Lambert. Revenues from Warner-Lambert included a $2.0
million milestone payment as a result of the Company's investigational new
drug application ("IND") filing with the FDA for PVD.

23
<PAGE>

Operating Expenses

Research and development expenses were approximately $3.1 million and $1.6
million for the three months ended March 31, 1998 and 1997, respectively.
Research and development expenses increased approximately 92% primarily as a
result of the Company's therapeutic angiogenesis product development
activities. License payments constituted approximately one-half of such
increase, and the remainder of the increase was due to increased intellectual
property expenses and expenses related to the Phase I/II trial for CAD.

General and administrative expenses were approximately $739,000 and $550,000
for the three months ended March 31, 1998 and 1997, respectively. The 34%
increase was primarily attributable to increased payroll of approximately
$76,000 and personnel of approximately $118,000 in support of the Company's
collaborations.

Other Income

Other income, consisting primarily of interest income, net of interest
expense, was approximately $115,000 and $74,000 for the three months ended
March 31, 1998 and 1997, respectively. The 54% growth in other income was due
to an increase in the Company's cash balances during this period.

As of March 31, 1998, the Company had an accumulated deficit of $28.9
million, and had carried an accumulated deficit since inception, and therefore
had not paid any federal income taxes. Realization of deferred tax assets is
dependent on future earnings, if any, the timing and amount of which is
uncertain. See Note 8 of Notes to Financial Statements.

Years Ended December 31, 1997 and 1996

Revenues

Revenues were approximately $10.2 million and $698,000 in 1997 and 1996,
respectively. Revenues in 1997 were attributable to $187,500 received under
the Company's research and development agreement with Fuso, and the remainder
to milestone payments, research funding and technology access fees received
under the Company's collaboration agreement with Warner-Lambert. Revenues in
1996 were attributable to research and development funding from a prior
collaboration agreement with Genentech.

Operating Expenses

Research and development expenses were approximately $9.0 million and $6.4
million in 1997 and 1996, respectively. Research and development expenses
increased 41.4% from 1996 to 1997 primarily as a result of the Company's
therapeutic angiogenesis product development activities. Approximately 75% of
such increase was due to license payments, as well as increased intellectual
property expenses and acquisitions of technology, and the remainder of such
increase was due to increased payments for sponsored research and outside
consultants, and increased facility costs due to the expansion of research and
development facilities. The Company expects research and development expenses
to increase as the Company continues to expand its product development
programs.

General and administrative expenses were approximately $2.7 million and $2.9
million in 1997 and 1996, respectively. The 7.7% decrease from 1996 to 1997
was primarily attributable to the one-time expense of $270,000 associated with
a termination agreement in 1996 with a former officer of the Company. The
Company expects that general and administrative expenses will increase
slightly in 1998 due to increased personnel in late 1997 and anticipated
administrative hiring in 1998, potentially including a Chief Financial
Officer.

24
<PAGE>

Other Income

Other income, consisting primarily of interest income, net of interest
expense, was approximately $263,000 and $496,000 in 1997 and 1996,
respectively. The 47.0% decrease from 1996 to 1997 was due to variations in
the Company's cash balances during this period.

Years ended December 31, 1996 and 1995

Revenues

Revenues were approximately $698,000 and $1.0 million in 1996 and 1995,
respectively. Revenues in 1996 and 1995 were attributable to research and
development funding from a prior collaboration agreement with Genentech.

Operating Expenses

Research and development expenses were approximately $6.4 million and $6.5
million in 1996 and 1995, respectively. Research and development expenses for
1995 and 1996 remained essentially flat as the Company shifted its research
and development efforts to therapeutic angiogenesis product opportunities.

General and administrative expenses were approximately $2.9 million and $2.0
million in 1996 and 1995, respectively. The 45.5% increase from 1995 to 1996
was primarily attributable to increased payroll of approximately $145,000,
personnel and professional fees of approximately $371,000 in connection with
the expansion of the Company's business development efforts and operations, as
well as a one-time expense of $270,000 in connection with the termination
agreement in September 1996 with a former officer of the Company.

The in-process technology expense of approximately $442,000 in 1995 was a
partial charge resulting from the issuance of capital stock in connection with
the acquisition of Theragen, Inc. in 1994. See Note 4 of Notes to Financial
Statements.

Other Income

Other income, consisting primarily of interest income, net of interest
expense, was approximately $496,000 and $413,000 in 1996 and 1995,
respectively. The 20.1% increase from 1995 to 1996 was due to variations in
the Company's cash balances during the period as a result of the private
placement of equity securities in late 1994 and 1995.

LIQUIDITY AND CAPITAL RESOURCES

From inception through March 31, 1998, the Company financed its operations
through the private placement of equity securities, payments from corporate
collaborators and capital leases. As of March 31, 1998, the Company had
received aggregate gross proceeds of approximately $34.5 million through the
private placement of equity securities, approximately $17.3 million in
research and development funding and milestone payments from corporate
collaborators and approximately $1.4 million of equipment capital lease
financing. As of March 31, 1998, the Company had approximately $7.3 million in
cash and cash equivalents and short-term investments.

Net cash used in operating activities was approximately $484,000, $6.9
million and $6.9 million in 1997, 1996 and 1995, respectively. The decrease in
1997 resulted from research and milestone revenue received from the Warner-
Lambert collaboration. Expenditures for acquisition of property and equipment
were approximately $476,000, $86,000 and $235,000 in 1997, 1996 and 1995,
respectively. The decrease in 1996 took place during the Company's shift in
research focus to therapeutic angiogenesis, while the increase in late 1997
was in connection with the Warner-Lambert collaboration. Cash flow from
financing activities was approximately $2.6 million, $860,000 and $12.0
million in 1997, 1996 and 1995, respectively. Financing cash

25
<PAGE>

flows related to private equity financing in 1995 and equity purchases in
connection with license and corporate collaboration agreements in 1996 and
1997, offset by payments under capital equipment lease obligations.

The Company anticipates that annual expenditures for research and
development, clinical trials, product development, preclinical studies and
general and administrative activities will increase significantly in future
years. However, the Company's actual capital requirements may change depending
on numerous factors, including, without limitation, the progress of the
Company's research and development programs, the scope and results of
preclinical and clinical studies, the number and nature of the indications the
Company pursues in clinical studies, the timing of regulatory approvals,
technological advances, shifts in the Company's product development efforts
and the status of competitive products. In addition, expenditures may be
dependent on the establishment and maintenance of collaboration relationships
with other companies, the availability of financing and other factors.

The Company believes that the net proceeds from this offering and the sale
of shares to Warner-Lambert, existing cash and short-term investments and
anticipated cash flow from its current corporate collaborators will be
sufficient to support the Company's operations at least through 1999. The
Company expects that it will require significant additional financing in the
future, which it may seek to raise through public or private equity offerings,
debt financing, additional strategic alliance and licensing arrangements or
some combination of these financing alternatives. No assurance can be given
that any such additional financing will be available when needed, if at all,
or that it will be obtained on terms favorable to the Company or its
stockholders. To the extent that the Company raises additional capital by
issuing equity or convertible securities, ownership dilution to stockholders
will result. If adequate financing is not available when needed, the Company
may be required to curtail significantly one or more of its research and
development programs or to obtain funds through agreements with corporate
collaborators or others that may require the Company to relinquish rights to
certain of its technologies or potential products, or to grant licenses on
terms that are not favorable to the Company, any of which could have a
material adverse effect on the Company's financial condition and results of
operations.

The Company uses a number of computer software programs and operating
systems in its internal operations, including applications used in financial
business systems and various administration functions. To the extent that
these software applications, and the software applications of the Company's
vendors, suppliers, financial institutions and service providers, contain
source code that is unable to appropriately interpret the upcoming calendar
year "2000," some level of modification or even possibly replacement of such
source code or applications will be necessary. The Company is in the process
of identifying the software applications that are not "Year 2000" compliant
and it will be communicating with its vendors, suppliers, financial
institutions and service providers regarding their "Year 2000" compliance.
Given the information known at this time about the Company's systems, coupled
with the Company's ongoing efforts to upgrade or replace business critical
systems as necessary, it is currently not anticipated that these "Year 2000"
costs will have a material adverse impact on the Company's business, financial
condition and results of operations. However, the Company is still analyzing
its software applications and, to the extent they are not fully "Year 2000"
compliant, there can be no assurance that the costs necessary to update
software or potential systems interruptions would not have a material adverse
effect on the Company's business, financial condition and results of
operations.

26
<PAGE>

BUSINESS

The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.

OVERVIEW

GenVec focuses on the development and commercialization of novel gene
therapy products for major disease markets. GenVec's lead product candidate,
BIOBYPASS angiogen, is designed to induce angiogenesis, or new blood vessel
formation, in tissues with inadequate blood flow. BIOBYPASS angiogen uses an
adenovirus vector to deliver and express the gene for VEGF/121/. BIOBYPASS
angiogen is being developed for the treatment of CAD and PVD, and is intended
to be used either alone or as an adjunct to existing surgical procedures. In
December 1997, the Company initiated a Phase I/II clinical trial with its
BIOBYPASS angiogen for direct injection into the hearts of patients with CAD
who are undergoing CABG surgery. The Company also intends to commence a Phase
I/II clinical trial in patients with PVD in May 1998. The Company has entered
into a collaboration with Warner-Lambert to develop and commercialize
BIOBYPASS angiogen and other gene therapy products for therapeutic
angiogenesis. Under the terms of the collaboration, Warner-Lambert may pay to
the Company a total of more than $100 million in milestone payments, research
funding, equity purchases and technology access fees, if specified milestones
are achieved. As of April 20, 1998, Warner-Lambert had paid to the Company
$13.5 million under this collaboration, and had purchased $2.0 million of the
Company's stock.

Additionally, GenVec is developing product candidates and vector technology
in the areas of cardiovascular disease, oncology and neurology. For the
treatment of restenosis associated with angioplasty and vascular damage
associated with A-V grafts, GenVec is developing Ad.iNOS, an adenovirus vector
containing the iNOS gene. In oncology, GenVec is developing Ad.TNFa under a
collaboration agreement with Varian. Ad.TNFa, an adenovirus vector containing
the TNFa gene, is designed to enhance the effectiveness of radiation therapy
without increasing toxicity to normal tissue. In collaboration with Fuso,
GenVec is developing Ad.CD and is conducting research on immunotherapy of
cancer based on the delivery of tumor antigen genes. Ad.CD, an adenovirus
vector containing the CD gene, is designed to convert a nontoxic precursor
drug into fluorouracil to effect tumor destruction, either alone or in
combination with radiation therapy. In neurology, GenVec intends to develop
product candidates through the application of its HSV vector technology.

To customize gene therapy products for specific medical needs, GenVec is
developing vectors for cell-specific gene delivery and promoters which
regulate the level and duration of gene expression. GenVec's technology
portfolio includes: (i) therapeutic genes such as VEGF/121/, iNOS, TNFa
and CD; (ii) vector systems such as adenovirus and HSV; (iii) receptor
mediated targeting technology and (iv) tissue-specific and inducible
promoters.

GenVec was incorporated in Delaware in 1992. In August 1994, the Company
acquired Theragen, Inc. through a merger of Theragen, Inc. with and into the
Company. In 1996, the Company began to focus its efforts on the development of
product candidates in the field of therapeutic angiogenesis.

GENVEC STRATEGY

The Company's objective is to be a leader in the development and
commercialization of gene therapy products. To achieve this objective, GenVec
intends to:

. Enhance Leadership in Therapeutic Angiogenesis. GenVec's primary focus is
on the development of its lead product candidate, BIOBYPASS angiogen, for
the treatment of CAD and PVD. The Company also seeks to develop new
therapeutic angiogenesis products in these and other disease indications.

27
<PAGE>

. Expand Its Portfolio of Products under Development. The Company intends
to expand its existing portfolio of product candidates for the treatment
of cardiovascular disease and cancer. The Company will also pursue
product candidates in new therapeutic areas, including neurological
disorders using its HSV vector technology. GenVec focuses its new product
development efforts in areas where gene therapy has potential benefits
over currently available therapies. GenVec takes into account market
attractiveness, technical feasibility, the potential to develop a
proprietary position and the predictiveness of animal models in choosing
among new product development opportunities.

. Broaden Its Technology Platform. The Company plans to broaden its
portfolio of genes, vectors, promoters and other technologies to develop
new products and attract corporate and academic collaborators. GenVec
intends to accomplish this through internal and sponsored research, in-
licensing and technology acquisitions.

. Strengthen Product Development through Corporate Collaborations. GenVec
establishes corporate collaborations to enhance the development,
manufacture and commercialization of its product candidates. The Company
intends to participate in the manufacture and commercialization of select
product opportunities by retaining certain rights in these areas.

. Maintain and Expand Intellectual Property Strength. The Company seeks to
enable and protect its product opportunities by pursuing patents either
alone or with corporate or academic collaborators or by seeking licenses
from third parties. As of March 31, 1998, the Company held or had
licenses to 154 issued, allowed or pending patents worldwide, of which 28
are issued or allowed in the U.S.

GENE THERAPY RATIONALE AND PRODUCT COMPONENTS

Rationale. Gene therapy seeks to treat a broad range of diseases by
intervening at the genetic level to modify the activity of the body's cells.
Gene therapies provide the body's cells with information in the form of
segments of deoxyribonucleic acid ("DNA"). These DNA segments contain sets of
instructions that direct the body's cells to synthesize specific proteins to
perform basic biochemical and physiological functions. Gene therapy, by adding
or modifying DNA in the body's cells, can cause these cells to augment the
production of proteins already being produced by the body or to produce
proteins not currently present in the target tissue. These proteins can either
be secreted or remain within the target cell. The development of gene therapy
is generally focused on diseases where the specific molecular pathways are
well characterized. The goal of many gene therapies is the local production of
a therapeutic protein, potentially resulting in a more efficacious treatment
alternative with fewer side effects than conventional approaches.

Product Components. A gene therapy product requires several key components
in order to produce a therapeutic effect. A specific gene which encodes a
therapeutic protein must be identified. In addition, regulatory sequences of
DNA, including a promoter, are combined with the gene to regulate production
of the therapeutic protein. A gene therapy product also requires delivery of
the specific gene and its regulatory sequences to the target cell. Typically,
the regulatory and therapeutic gene sequences are inserted into a vector that
can bind to the target cell. After binding to the cell surface, the vector is
internalized and transported to the cellular nucleus where the therapeutic
gene is used for protein expression. This overall process is known as
transfection. The residual vector protein is degraded.

GENVEC PRODUCT DEVELOPMENT PROGRAMS

GenVec's product development activities are focused on diseases that it
believes are well suited for therapeutic intervention using currently
available gene therapy technologies. The Company's current programs focus on
cardiovascular disease, oncology and neurology. The Company's lead product
candidate, BIOBYPASS angiogen, is designed to treat CAD and PVD. BIOBYPASS
angiogen uses an adenovirus vector to deliver the VEGF/121/ gene directly
to tissues with inadequate blood flow to stimulate new blood vessel formation.
GenVec has spent a total of approximately $6.5 million, $6.4 million and $9.0
million for the years ended December 31, 1995, 1996 and 1997, respectively,
and approximately $1.6 million and $3.1 million for the three months ended
March 31, 1997 and March 31, 1998 for research and development related to
these and other products.

<PAGE>

GenVec's product development programs are summarized below:

<TABLE>
<CAPTION>
DEVELOPMENT CORPORATE
PRODUCT DEVELOPMENT PROGRAM THERAPEUTIC GENE VECTOR STATUS (1) COLLABORATOR
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CARDIOVASCULAR
Ischemic Tissue Disease
Warner-
CAD (BIOBYPASS angiogen) VEGF/121/ Adenovirus Phase I/II Lambert
Warner-
PVD (BIOBYPASS angiogen) VEGF/121/ Adenovirus Phase I/II Lambert
Vascular Damage
Restenosis iNOS Adenovirus Preclinical --
Arteriovenous Graft iNOS Adenovirus Preclinical --
ONCOLOGY
Radiation Therapy TNFa Adenovirus Preclinical Varian
Phase
CD Adenovirus I/II (2) Fuso
Immunotherapy -- Adenovirus Research Fuso
Herpes simplex
NEUROLOGY -- virus Research --
</TABLE>

(1) Product candidates in research are in the early stages of development.
During the preclinical stage, laboratory and animal studies are conducted
to evaluate the therapeutic efficacy of a product candidate. Phase I/II
clinical trials are designed to assess the safety and efficacy of a
product candidate in volunteer patients with the targeted disease.

(2) The Company has initiated a Phase I/II trial with Ad.CD in patients with
colorectal cancer metastatic to the liver to assess the safety of Ad.CD.
These trials do not involve radiation. The Company is currently conducting
preclinical trials of Ad.CD used in combination with radiation therapy and
intends to conduct further studies in this area.

Cardiovascular

Ischemic Tissue Disease

Recent estimates indicate that over 55 million Americans have one or more
types of cardiovascular disease. Cardiovascular disease is the leading cause
of death in the United States and many other developed countries. A major
contributing factor to cardiovascular disease is atherosclerosis, or the
hardening of the arteries due to plaque formation. As atherosclerosis
progresses, the blood vessels narrow, and may close entirely. As a result,
ischemia, or inadequate blood flow to tissues, can result and damage the
affected tissue. In patients with CAD, ischemia in the heart can lead to
severe rest pain, impaired cardiac function or, if very severe, heart attacks.
PVD involves ischemia in the extremities and can lead to intermittent pain
("claudication"), and in severe cases, chronic pain while at rest. In some PVD
cases, amputation of a limb may be required.

Coronary Artery Disease. Approximately 50% of deaths attributable to
cardiovascular disease are due to CAD. Treatment alternatives for CAD range
from risk factor modification and exercise programs in patients with limited
disease to major surgical procedures in severe disease. Drug therapy is a
mainstay of treatment for CAD and many different pharmacologic agents are
available. In patients with severe disease, surgical intervention such as
angioplasty is often used to open occluded vessels. Angioplasty procedures
typically use an inflatable balloon catheter to physically open a narrowed
blood vessel. In 1995, more than 400,000 patients in the U.S. underwent this
procedure. Studies have shown that within seven months following angioplasty,
the artery narrows again, or undergoes restenosis, 30% to 40% of the time. The
procedure is difficult or impossible to perform on certain patients with
multiple vessel disease, diffuse disease, calcified vessels or vessels that
are too small to access. The average cost of angioplasty in the U.S. was
approximately $20,000 in 1995.

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<PAGE>

Another surgical option for CAD is CABG, the replacement of the diseased
artery with a new vessel. In 1995, approximately 360,000 patients in the U.S.
underwent CABG. During the CABG procedure, a blocked coronary artery is
replaced with a vessel harvested from another location in the body. The
conventional CABG procedure requires cutting through the sternum of the chest
and placing the patient on cardiopulmonary bypass, both of which involve
significant risk of morbidity and mortality. In addition, it is difficult or
impossible to perform CABG on certain patients with diffuse atherosclerotic
disease or severe small vessel disease or patients who have previously
undergone a CABG. The average cost of CABG was approximately $45,000 in 1995.

The Company believes there is a need for products that can provide longer
lasting, improved therapeutic outcomes and reduced morbidity in patients
undergoing surgical procedures. For patients whose blocked arteries cannot be
opened by angioplasty or replaced by CABG, new treatments are necessary.

Peripheral Vascular Disease. Current data suggests approximately one million
Americans suffer from intermittent claudication in their lower extremities, a
key symptom of PVD. Current therapies for PVD are similar to those for CAD.
Treatment options range from risk factor modification and exercise programs
for patients with mild disease, to angioplasty or artery bypass grafting in
patients with severe disease. However, progression of disease and recurrence
of symptoms after these treatments is typical and ongoing medical management
of the underlying disease process is often necessary. In addition, PVD
patients who have diffuse disease, calcified vessels or vessels that are too
small to access tend to be poor candidates for angioplasty or vascular grafts.
A lack of adequate pharmacological therapy further emphasizes the need for new
treatment strategies for PVD.

Rationale for Therapeutic Angiogenesis. GenVec believes that restoring blood
flow to areas of ischemia through angiogenesis, the formation of new blood
vessels, offers one of the most promising therapeutic options for CAD and PVD.
Angiogenesis is the body's natural response to ischemia. It also occurs as a
normal physiological process during periods of tissue growth, such as an
increase in muscle or fat and during the menstrual cycle and pregnancy.
Angiogenesis may also occur in certain pathological conditions either as a
natural response to the underlying disease (as in inflammation, wound healing
and rheumatoid arthritis) or as a contributing factor to disease progression
(as in tumor growth).

The angiogenesis process is well understood, and a number of genes involved
in the process have been identified. It is believed that under ischemic
conditions, expression of these genes leads to the production of growth
factors and other proteins involved in angiogenesis. The endothelial cells
which line blood vessels contain receptors which bind to growth factors.
Binding of the growth factors to these cell surface receptors triggers a
complex series of events, including the replication and migration of
endothelial cells to ischemic sites, as well as their formation into new blood
vessels. However, in ischemic conditions, the growth factor genes often may
not produce sufficient amounts of the corresponding proteins to generate an
adequate number of new blood vessels. A logical therapeutic approach to this
problem is to enhance the body's own response by temporarily providing higher
concentrations of growth factors at the site of disease.

BIOBYPASS Angiogen. GenVec's lead product candidate, BIOBYPASS angiogen, is
intended to induce angiogenesis in tissue with inadequate blood flow.
BIOBYPASS angiogen uses an adenovirus vector to deliver and express the
VEGF/1//2//1/ gene, GenVec's proprietary form of the VEGF gene. The Company is
developing BIOBYPASS angiogen to be used alone and as an adjunct to existing
surgical procedures for the treatment of CAD and PVD.

VEGF is a protein which induces angiogenesis and is an important mediator of
the normal angiogenic response to ischemia. VEGF has a high degree of
specificity for endothelial cells, unlike many other angiogenic factors that
can cause proliferation of additional cell types, such as smooth muscle cells
or fibroblasts. However, VEGF is rapidly cleared from the circulation, making
it difficult to sustain high concentrations of VEGF in the blood. Furthermore,
systemic administration of VEGF can lead to hypotension. In contrast to direct
administration of proteins, gene therapy has the advantage of achieving

30
<PAGE>

localized, sustained production of the therapeutic protein in tissue with
inadequate blood flow. GenVec has accomplished this by administering BIOBYPASS
angiogen directly to the target tissue.

GenVec believes the adenovirus vector is well suited for therapeutic
angiogenesis because it induces expression of VEGF in tissues for about a
week. This period of expression has been shown to cause the formation of new
blood vessels, but does not appear to cause toxicity. In addition, adenovirus
vectors efficiently transfer genes to the heart so only small amounts of the
vector are needed. Adenovirus vectors have been used in many gene therapy
clinical trials and appear to be well tolerated. In the Company's current CAD
clinical trial, BIOBYPASS angiogen is being administered by direct injection
into the heart using a standard syringe. The Company believes that other
delivery modalities, including endocardial catheters and intraarterial
catheters, may be used in the future and is evaluating various delivery
devices that are currently available or in development by third parties.

GenVec and its collaborators have demonstrated the therapeutic potential of
BIOBYPASS angiogen in animal models of CAD and PVD. A pig model of cardiac
ischemia was used to evaluate the effects of BIOBYPASS angiogen in CAD.
Administration of BIOBYPASS angiogen to the heart increased the number of
blood vessels, improved blood flow and restored cardiac contractility to
normal. The parameters used in this preclinical study are the endpoints
typically used to assess improvement in patients with CAD. In a PVD
preclinical model of hind limb ischemia, BIOBYPASS angiogen increased the
number of blood vessels and the amount of blood flow in the ischemic limb.

The Company initiated a Phase I/II clinical trial with BIOBYPASS angiogen in
December 1997, for patients who are undergoing CABG and also have areas of
diffuse CAD that are not amenable to surgical treatment. BIOBYPASS angiogen is
directly injected into the ischemic regions of the heart that are not amenable
to bypass grafts. In April 1998, the FDA approved the Company's IND for a
Phase I/II clinical trial in PVD. The Company intends to initiate this trial
in PVD patients with intermittent claudication and for patients with rest pain
in May 1998.

In July 1997, the Company entered into a collaborative agreement with
Warner-Lambert to develop and commercialize gene therapy products
incorporating the VEGF gene for therapeutic angiogenesis. As part of this
corporate collaboration, Warner-Lambert has primary responsibility for
clinical development and commercialization of BIOBYPASS angiogen and related
VEGF gene therapies. Under the terms of the collaboration, the Company may
receive a total of more than $100 million in milestone payments, research
funding, equity purchases and technology access fees, if specified milestones
are achieved. As of April 20, 1998, Warner-Lambert had paid to the Company an
aggregate of $13.5 million, and had purchased $2.0 million of the Company's
capital stock. See "--Strategic Alliances--Corporate Collaborations--Warner-
Lambert Company."

Vascular Damage

Vascular damage can result from a variety of procedures which mechanically
disturb blood vessel walls. It occurs in several medical conditions, including
restenosis following angioplasty procedures in patients with CAD and PVD, and
the closing ("stenosis") of A-V grafts which are used for vascular access in
patients with renal disease who require dialysis. In these conditions,
vascular damage causes local biological responses such as the proliferation of
smooth muscle cells and the inhibition of endothelial cell layer regrowth,
both of which contribute to vessel narrowing. The local concentration of
nitric oxide, an important regulator of blood vessel function, declines when
there is damage to the endothelial cell layer. Studies suggest that increasing
levels of nitric oxide can inhibit smooth muscle cell proliferation and help
prevent the biological processes that lead to narrowing of blood vessels at
the site of damage.

Restenosis Following Angioplasty. Severe cases of CAD and PVD are often
treated by angioplasty. The damage caused by the angioplasty procedure leads
to restenosis in 30% to 40% of patients within seven months of the procedure.
Current techniques to prevent restenosis involve insertion of a stent, a small
metallic

31
<PAGE>

scaffold, to prop open the blood vessel at the site of angioplasty. However,
even following stent replacement, 20% to 30% of angioplasty patients still
suffer restenosis within seven months after stent placement. Restenosis rates
of over 50% have been observed for certain high risk patients who have
received a stent. Sales of coronary stents have been estimated to exceed $1.0
billion worldwide in 1997.

Stenosis of Arteriovenous Grafts. In 1995, approximately 700,000 patients
suffered end-stage renal disease worldwide. In the U.S. alone, in 1995 more
than 200,000 patients with end-stage renal disease received dialysis to
cleanse the blood. Dialysis requires long-term, repetitive access to the
patient's vasculature so as to facilitate the insertion of dialysis needles.
The most common form of access site is an A-V graft, which is constructed by
directly connecting an artery of the arm to a large vein or by using a
synthetic graft. This graft then serves as a high blood flow site into which
dialysis needles can be repetitively placed. However, placing the A-V graft
can cause vascular damage that frequently leads to stenosis, limiting its
useful life to about one to three years. Currently, there are no effective
therapies for the treatment of stenosis in A-V grafts.

iNOS Gene Therapy Rationale. The Company believes local production of nitric
oxide by gene therapy has the potential to reduce stenosis and restenosis.
Nitric oxide, a molecule that inhibits smooth muscle cell proliferation and
promotes endothelial cell layer regrowth following vessel damage, is difficult
to administer systemically due to its toxicity and short half-life. To achieve
the local production of nitric oxide, the Company utilizes gene therapy to
deliver the iNOS gene to the site of vascular damage. iNOS catalyzes the
conversion of L-arginine, a common amino acid, to nitric oxide. GenVec and its
collaborators have shown in large animal efficacy models that Ad.iNOS, the
Company's gene therapy product candidate, inhibits the narrowing of damaged
blood vessels.

Ad.iNOS. Ad.iNOS, an adenovirus vector containing the iNOS gene, is intended
for use in combination with stent placement and A-V grafts to prevent
stenosis. This product candidate is designed to enhance the physical
attributes of a stent with locally produced nitric oxide to inhibit
restenosis. Ad.iNOS is in preclinical development for use with stent placement
in CAD and PVD patients following angioplasty. Ad.iNOS is also in preclinical
development to block stenosis which commonly occurs in A-V grafts of renal
dialysis patients. The therapeutic objectives are to mitigate the medical
complications due to vascular damage arising from A-V grafts and to extend the
useful life of the grafts.

GenVec is conducting additional research to evaluate iNOS gene therapies for
other uses, including organ transplants and wound healing. GenVec intends to
establish corporate collaborations to assist in the development and
commercialization of iNOS gene therapy products.

Oncology

Cancer is the second leading cause of death in the U.S. More than a million
newly diagnosed cases of cancer and 500,000 deaths due to cancer are
anticipated this year. Surgery and radiation therapy are typically used to
control localized disease, whereas chemotherapy is often used in patients with
metastatic cancer. Although new treatments of certain cancers have improved
clinical outcomes, many tumors remain refractory to aggressive surgical,
radiological and chemotherapeutic approaches.

Radiation Therapy

Approximately 60% of all cancer patients in the U.S. receive radiation
therapy each year. Even though radiation therapy can be delivered to a
localized area, its therapeutic benefit is often limited by the radiation
damage to surrounding normal tissue. GenVec believes that a potential solution
to this major problem is the use of gene therapy to deliver therapeutic
proteins to the tumor to enhance the antitumor activity of radiation therapy
without increasing toxicity to normal tissue.

Ad.TNFa. TNFa is a potent, immune regulatory protein with demonstrated
clinical antitumor activity. TNFa exerts its effects by binding to receptors
on the surface of cells, including tumor cells and cells of the

32
<PAGE>

immune system. The clinical utility of TNFa has been limited because systemic
exposure to TNFa causes considerable toxicity. The Company's TNFa-based gene
therapy product candidate, Ad.TNFa is intended to address this problem by
producing high concentrations of TNFa in the target tumor while minimizing
systemic exposure to TNFa. Ad.TNFa is an adenovirus vector that contains the
TNFa gene and a radiation responsive promoter. Ad.TNFa will be injected
directly into the tumor in order to localize production of TNFa at the site of
disease. Since TNFa is a secreted protein, transfection of only a portion of
the tumor cells may be sufficient to produce therapeutic concentrations of
TNFa in the tumor.

The Company expects to develop Ad.TNFa for use in combination with radiation
therapy for the treatment of cancer. GenVec and its collaborators have shown
that Ad.TNFa enhances the antitumor activity of radiation in several animal
models of human cancer. For example, in a human head and neck cancer model,
animals receiving both Ad.TNFa and radiation were observed to have 90% greater
tumor shrinkage than animals receiving either radiation or Ad.TNFa alone.
Although the precise mechanism accounting for the marked increase in
therapeutic effect of radiation is not known, it appears that disruption of
the tumor vasculature is involved. Damage to the blood vessels and rapid
necrosis was evident in the tumors but not in the surrounding normal tissues.
To further enhance the usefulness of Ad.TNFa, a proprietary promoter was
inserted to increase the expression of the TNFa gene during radiation therapy.
The Company licensed rights to the TNFa gene for use in gene therapy in the
United States from Asahi Chemical Industry Co., Ltd. ("Asahi"). GenVec entered
into a corporate collaboration with Varian, a provider of radiation therapy
equipment in the U.S., to enhance the clinical development of Ad.TNFa. The
Company anticipates filing an IND for Ad.TNFa in 1999.

Ad.CD. The toxicity produced following the systemic administration of many
antitumor agents, such as fluorouracil, often limits the amount of drug that
can be administered and, consequently, limits the clinical benefit. Selective
delivery of such drugs to tumors should enhance their effectiveness and reduce
side effects. A strategy to accomplish this is to treat the patient with an
inactive drug that can be activated preferentially in the tumor.
Fluorocytosine is a relatively nontoxic precursor of fluorouracil that can be
converted to fluorouracil by the enzyme CD. Since CD is not normally present
in the body, local delivery of CD to tumors by gene therapy may provide a
method to selectively produce fluorouracil at the tumor sites. GenVec and its
collaborators have shown that injection of Ad.CD, an adenovirus vector
containing the CD gene, into tumors can inhibit their growth if the animal is
also administered fluorocytosine. GenVec has initiated a Phase I/II clinical
study in patients with colorectal cancer metastatic to the liver in which
Ad.CD is injected into the tumor and fluorocytosine is given orally. Since
fluorouracil can sensitize tumors to the therapeutic effects of radiation,
GenVec also intends to evaluate Ad.CD in combination with radiation therapy.
GenVec entered into a license agreement with the National Institutes of Health
for certain gene therapy applications of the CD gene, including the treatment
of cancer using replication deficient viral and synthetic vectors. The Company
is conducting research and development of Ad.CD as part of its corporate
collaboration with Fuso.

Immunotherapy

The Company has entered into a corporate collaboration with Fuso to develop
new gene therapy products for the treatment of human cancer. One of the goals
of this research program is the development of gene therapies that can be used
to treat metastatic cancer by stimulating the body's immune system to seek
out, recognize and kill tumor cells. Gene therapy has the potential to
stimulate specific cells of the immune system, such as dendritic cells, to
recognize tumor antigens. These cells appear to play an important role in
generating a robust antitumor response. Delivery of specific tumor antigens to
the dendritic cells by gene transfer has been shown by the Company's
collaborators to enhance an antitumor immune response. Fuso, GenVec and their
collaborators are conducting a research program aimed at identifying new
product possibilities for the immunotherapy of cancer.

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<PAGE>

Neurology

Neurological disorders represent an area of major medical need. Current
treatments often have limited effectiveness, and the complex etiology of these
diseases has slowed the development of new treatments. Additionally, changing
demographics are expected to result in significant increases in the elderly
population in whom certain neurological disorders are most prevalent.

Recent scientific advances have led to the discovery of a number of proteins
and corresponding genes implicated in neurological disorders. As the list of
such therapeutic proteins continues to expand, effective delivery of these
proteins to the specific sites of action may be required to optimize
therapeutic utility. As for other indications, gene therapy offers the
potential advantage of providing protein production at the target site for the
treatment of neurological disorders, while minimizing complications due to
systemic exposure.

GenVec intends to develop products for the treatment of neurological disease
based on the use of HSV vectors. Replication-deficient HSV vectors are
attractive for use in gene therapy because of their ability to enter and
persist in tissues of the nervous system. HSV vectors have an additional
advantage of accommodating larger DNA sequences than most other vectors. The
Company believes medical applications may include the treatment of chronic
pain, spinal cord injury and Parkinson's disease.

GenVec, through sponsored research at the University of Pittsburgh and the
University of Glasgow/Medical Research Council's Institute of Virology, has
engineered HSV vectors for the potential treatment of neurological disorders
and created specialized cell lines for the production of such vectors. GenVec
intends to further develop HSV vectors for the treatment of neurological
disorders.

GENVEC CORE TECHNOLOGIES

Gene therapy products are complex entities comprised of vectors, promoters
and therapeutic genes. Targeting therapeutic genes to specific cell types and
regulating the level and duration of gene expression may be possible with the
appropriate combination of technology. Toward this end, GenVec has established
a portfolio of proprietary technology, including therapeutic genes, advanced
adenovirus and HSV vectors, receptor mediated vector targeting capability and
promoters. The Company seeks to expand product development opportunities by
broadening its technology portfolio through internal research and technology
acquisitions.

Technology Portfolio

GenVec's portfolio of technologies includes genes, vectors, receptor
mediated targeting and promoters.

Genes

VEGF. VEGF is a protein which potently induces angiogenesis and is an
important mediator of the normal angiogenic response to ischemia. VEGF has a
high degree of specificity for endothelial cells. In ischemic conditions, VEGF
binds to receptors found on the endothelial cells which line blood vessels.
This binding triggers a complex series of events, including the replication
and migration of endothelial cells to ischemic sites, as well as their
formation into new blood vessels. The Company has an exclusive license for all
gene therapy applications of the VEGF/121/ gene.

iNOS. iNOS catalyzes the conversion of L-arginine to nitric oxide, a short-
lived molecule with a range of cardiovascular actions, including inhibition of
smooth muscle cell proliferation and promotion of endothelial cell layer
regrowth following vessel damage. The Company believes that the local
production of nitric oxide resulting from iNOS gene therapy has the potential
to be used for multiple vascular damage applications, including the reduction
of restenosis after an angioplasty procedure and stenosis of A-V grafts which
are often used for dialysis in patients with renal disease. The Company has an
exclusive license for all gene therapy applications of the iNOS gene.

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TNFa. TNFa is a potent immune regulatory protein with demonstrated clinical
antitumor activity. It exerts its effects by binding to receptors on the
surface of cells, including tumor cells and cells of the immune system. Since
TNFa is a secreted protein, transfection of only a portion of the tumor cells
may be sufficient to produce therapeutic concentrations of TNFa in the tumor.
GenVec and its collaborators have shown that Ad.TNFa enhances the antitumor
activity of radiation. The Company has a license to all gene therapy
applications of the TNFa gene in the U.S.

CD. CD is an enzyme that converts the relatively nontoxic fluorocytosine to
fluorouracil, an active antitumor agent. In addition, fluorouracil can
sensitize tumors to the therapeutic effects of radiation. The Company has an
exclusive license for certain gene therapy applications of the CD gene,
including the treatment of cancer using replication-deficient viral and
synthetic vectors.

Vectors

Vectors typically serve as the delivery system for carrying the DNA
sequences of therapeutic genes and their corresponding regulatory elements to
cells. These DNA sequences are inserted into a vector that can bind to the
target cell. After binding to the cell surface, the vector is internalized and
transported to the cellular nucleus where the therapeutic gene is used for
protein expression. A variety of vector types with different characteristics
have been developed over the years in an attempt to optimize the outcome of
this gene transfer process. Vectors can be viral or non-viral based, and the
choice of vector type depends on many parameters including the specific
disease, the organ and tissue type involved and the therapeutic gene used.
Each vector has its own set of advantages and disadvantages.

For viral vectors, a number of DNA and RNA viruses (including adenovirus and
HSV) have been developed as potential candidates for safe gene transfer. The
Company believes that in most cases, it is undesirable for these viruses to
freely infect and replicate within the target cell. For this reason, viruses
have been modified through the deletion of certain essential genes to render
them replication-deficient. For non-viral approaches, various synthetic
vectors have been designed using components such as lipids, proteins and DNA
in order to enhance the uptake of genes into cells.

GenVec is currently developing gene therapy products using adenovirus and
HSV as vectors. In addition to the development of technologies which could
improve these viral vectors with regard to safety, efficiency, duration of
gene expression and ease of manufacture, the Company routinely evaluates other
viral and non-viral approaches.

Adenovirus Vectors. Adenoviruses are common DNA viruses that can cause upper
respiratory infections, such as the common cold, in humans. The adenovirus DNA
can be manipulated by standard technology to remove DNA necessary for viral
replication. Therapeutic genes can then be inserted into the modified vector
and efficient gene expression can occur in the absence of viral replication.

Adenovirus vectors have several important features which make them
potentially useful in gene therapy. These vectors can be produced in the high
concentrations necessary for commercial production. In addition, they can
transfer genes to both dividing and non-dividing cells. Adenovirus vectors
have been used for gene transfer in many clinical trials and have an excellent
safety profile. Adenovirus vectors do not integrate into the human DNA,
reducing the risk of toxicity.

After transfection, adenovirus vectors typically express the therapeutic
gene for a few days or weeks, but long-term expression is not usually
observed. This feature is well suited for many applications where acute
expression is desired, such as therapeutic angiogenesis. The Company is
further modifying its adenovirus vectors, as well as evaluating other gene
delivery systems, for use when long-term expression is desired.

GenVec's adenovirus vector development has centered on removing essential
DNA from the adenovirus to alter performance and improve vector manufacture.
In order to produce replication-deficient adenovirus

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vectors, special cell lines must be constructed that contain information
necessary for vector production. These new vectors and cell lines provide the
manufacturing platform from which vectors can be produced for gene therapy
products. Vectors that are deficient in multiple viral genes have an increased
capacity to carry larger therapeutic genes, multiple therapeutic genes or
promoters. By eliminating regions of the adenovirus DNA necessary for viral
replication, as exemplified by GenVec's GV10 and GV11 vectors, potential
safety, production and efficacy advantages may be realized. The expression
profile of a therapeutic gene can be altered using different vectors or
promoters. A goal of GenVec's research program is to develop vectors in which
the expression of a therapeutic gene can be tailored to a specific medical
need.

Herpes Simplex Virus Vectors. HSV readily infects cells of the nervous
system and then persists in a quiescent state in these cells. Because of these
characteristics, the Company is conducting research on the use of these
vectors for the treatment of neurological disease. GenVec has developed novel,
proprietary vectors derived from genetically engineered herpes simplex virus
type I. The strategy for HSV vector development is similar to that for
adenovirus vectors, including the deletion of genes required for viral
replication. The modified HSV vectors are produced in special cell lines that
have been engineered to contain the information needed for vector production.

GenVec has developed a family of proprietary, non-replicating HSV vectors
with different gene expression characteristics and will evaluate these vectors
for a variety of applications, with an initial focus on the treatment of
neurological disorders. Persistent gene expression has also been demonstrated
using certain of the HSV vectors, suggesting that they may have utility when
chronic expression of the therapeutic gene is desired. This technology has
been developed through arrangements with the Universities of Pittsburgh,
Michigan and Glasgow.

Receptor Mediated Targeting

The goal of the Company's receptor mediated targeting program is to develop
vectors that are more efficient and can target specific cell types more
selectively than currently available vectors. The Company believes such
vectors will have significant safety, efficacy and cost advantages.

A number of clinically relevant cells and tissues have been found to express
few or no adenovirus receptors, including skeletal muscle, vascular smooth
muscle, certain endothelial cells and multiple types of tumor cells.
Consequently, these cell types are not as efficiently transfected by
adenovirus vectors as cells which express high levels of adenovirus receptors.
The Company is developing adenovirus vectors with enhanced efficiency and
targeting features by improving their ability to bind to alternative cellular
receptors. For example, binding structures have been incorporated into
adenovirus coat proteins for attachment to specific cellular receptors. Using
this approach, GenVec has developed a vector to bind to specific integrin
receptors present on endothelial cells that has potential for improved
specificity and efficiency when delivered through a vascular route. The
Company has also created certain vectors which have been shown by the Company
and its collaborators to increase transfection to vascular smooth muscle cells
in a porcine restenosis model by over 40-fold. The Company believes that these
and other vectors may have application in the Company's therapeutic
angiogenesis, vascular damage and oncology programs.

Promoters

The goal of GenVec's promoter program is to tailor gene expression to the
specific needs of its potential products. Promoters strongly influence the
level and duration of therapeutic gene expression induced by gene therapy
vectors. GenVec believes its promoter technology will be important in matching
therapeutic gene expression to the desired actions of the corresponding
therapeutic protein. For example, promoters that restrict expression of the
therapeutic gene to a target tissue, such as the heart, may be useful in the
treatment of cardiovascular disease.

GenVec is using its proprietary radiation-induced promoter technology to
increase the expression of the TNFa gene in tumors receiving radiation
therapy. In normal tissues that do not receive exposure to radiation,

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expression of TNFa would not be induced. This approach is intended to enhance
the efficacy of the Ad.TNFa product candidate while reducing the likelihood of
side effects. GenVec is also developing promoters for use in HSV vectors that
produce long-term gene expression in cells of the nervous system for potential
use in products for the treatment of neurological disorders. By combining the
appropriate vector, promoter and therapeutic gene, GenVec believes products
with improved therapeutic effects can be developed.

STRATEGIC ALLIANCES

Corporate Collaborations

To enhance the evaluation, development and commercialization of product
opportunities, GenVec intends to continue to establish corporate
collaborations. These corporate collaborations may reduce financial risk to
the Company and provide for a continued stream of cash flow. The Company
strives to retain various rights in its corporate collaborations to
participate in the manufacturing and commercialization of products, as
appropriate. Over time, and as the Company establishes or acquires increased
internal capabilities, the Company may elect to work more independently with
respect to the development and commercialization of specific product
opportunities. There can be no assurance that any of the Company's corporate
collaborations will result in the successful development or commercialization
of any technologies or products or that the Company will receive any milestone
payments or royalties from any of these corporate collaborations.

Warner-Lambert Company

In July 1997, the Company entered into a collaboration agreement and stock
purchase agreement with Warner-Lambert to develop and commercialize gene
therapy products incorporating the VEGF gene for therapeutic angiogenesis
("Collaboration Products"). Under the terms of these agreements, the Company
may receive a total of more than $100 million in milestone payments, research
funding, equity purchases and technology access fees, if specified milestones
are achieved. Under the terms of the collaboration agreement, Warner-Lambert
had paid to the Company an aggregate of $13.5 million through April 20, 1998,
in technology access fees, research funding and milestone payments. Pursuant
to the stock purchase agreement, Warner-Lambert purchased $2.0 million of the
Company's capital stock in December 1997, has agreed to purchase $5.0 million
of the Company's Common Stock in a private transaction concurrent with this
offering, and is required to purchase, at the election of the Company, up to
an additional $18.0 million of the Company's capital stock upon the
achievement of certain milestones. The purchase price for all of these equity
investments is 125% of the fair market value of the securities. Upon the
closing of this offering and the concurrent private transaction, Warner-
Lambert will own approximately 6.9% of the Company's Common Stock.

The focus of the initial research and development effort is on any potential
application of the Collaboration Products, including CAD and PVD. Prior to
July 1999, Warner-Lambert may elect to retain indications in addition to CAD
and PVD. In that event, GenVec would receive additional research and
development funding, and the structure of any royalty and milestone payments
would be essentially the same as that covering the initial indications.

Under the collaboration agreement, GenVec granted to Warner-Lambert an
exclusive, royalty-bearing license to sell Collaboration Products worldwide,
excluding Asia, subject to the Company's right to co-promote. Warner-Lambert
is responsible for the costs of developing and commercializing any
Collaboration Products worldwide, excluding Asia, provided the Company will be
responsible for certain expenses if it elects to exercise its co-promotion
right. GenVec retains the right to co-promote Collaboration Products for any
indications other than PVD in the United States and Canada. In addition, the
Company has retained all rights to develop and commercialize Collaboration
Products discovered outside of the designated fields of research, as well as
the option to manufacture bulk quantities of Collaboration Products. Neither
party may sell or commercialize any product with the same mechanism of action
as BIOBYPASS angiogen that would compete with a Collaboration Product. Between
July 1999 and July 2000, Warner-Lambert has certain negotiation

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rights with regard to the development and commercialization of VEGF gene
therapy products not retained by Warner-Lambert.

Warner-Lambert's research and development funding obligations extend through
2002, although Warner-Lambert may terminate the research program under the
collaboration agreement with six months written notice after July 21, 2000.
Both parties have the right to terminate the collaboration agreement for
breach. The collaboration agreement expires on a Collaboration Product-by-
Collaboration Product and country-by-country basis until neither party has any
remaining royalty obligations. The stock purchase agreement terminates upon
the termination of the collaboration agreement. An Executive Committee
comprising of three representatives from each of the Company and Warner-
Lambert oversees and manages the collaboration.

Fuso Pharmaceuticals Industries, Ltd.

In September 1997, GenVec and Fuso established a collaboration to conduct
research and to identify, evaluate and develop gene therapy products for the
treatment of cancer. If the research program continues for its full term, Fuso
is required to provide $1.0 million in research funding annually for five
years, of which $750,000 will be paid to the Company each year. Fuso has the
right to terminate the collaboration after the second anniversary of the
collaboration upon 90 days prior written notice. In connection with
establishment of the collaboration, Fuso purchased 75,329 shares of the
Company's Class E Convertible Preferred Stock for an aggregate purchase price
of approximately $1.0 million.

As part of the collaboration, GenVec granted Fuso an exclusive, royalty-
bearing license to develop and commercialize products developed under the
collaboration for the treatment of cancer in Japan and at Fuso's option, Korea
and Taiwan. Fuso will be responsible for the development and commercialization
of any products in its territory. GenVec will receive additional payments for
the achievement by Fuso of specified product development and regulatory
milestones, with the earliest of such payments not expected in the near term.
The Company will also receive royalties on the sale of any such products
commercialized by Fuso. GenVec has retained all rights to develop and
commercialize such products for the treatment of cancer in the rest of the
world, and for all other uses worldwide, subject to certain restrictions,
independently and with third parties.

Varian Associates, Inc.

In March 1998, the Company and Varian entered into a three-year
collaborative agreement in the field of radiation and gene therapy. Under the
agreement, the parties will collaborate on the preclinical and clinical
research and development of specific products and technology, with the goal of
developing novel, improved therapies based on the combined use of radiation
therapy and gene therapy products. Varian will have primary responsibility for
the development of equipment and software for delivery of targeted radiation
therapy, and the Company will have primary responsibility for developing gene
therapy products. The Company and Varian are responsible for their respective
costs in conducting collaborative activities. In addition, the Company and
Varian each retain the right to develop and commercialize their respective
products and technologies independently or with third parties.

Selected Academic Collaborations and Technology Licenses

GenVec's objective is to create multiple innovative products that meet major
medical needs. To accomplish this objective, the Company combines its core
technology development activities with acquisitions and licensing of its
business technologies, including therapeutic genes, from various sources. In
addition to the contractual arrangements described below, the Company funds
research in laboratories of leading authorities at several academic
institutions for the development of new technologies and the conduct of
preclinical and clinical activities. The Company generally establishes
exclusive license agreements with these and other institutions to obtain the
benefits of any intellectual property invented in connection with such

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funded activities. There can be no assurance that the Company's academic
collaborations will result in the successful development or commercialization
of any technologies or products.

Cornell University

In May 1993, the Company entered into a five-year sponsored research
agreement with Cornell University for activities to be conducted in the
laboratory of Dr. Ronald G. Crystal at the Cornell Medical Center.

Upon expiration in March 1998 of the May 1993 agreement, the Company and
Cornell University entered into a new, four-year sponsored research agreement
for the conduct of preclinical and clinical research in the laboratory of Dr.
Crystal. Under the terms of the new agreement and subject to certain
termination rights, GenVec has committed to pay approximately $3.6 million in
sponsored research during a specified minimum term. The Company retains the
option to exclusively license inventions arising from the sponsored research
activities.

The University of Pittsburgh

In June 1996, GenVec signed an agreement with the University of Pittsburgh
providing the Company with an exclusive, worldwide license to all gene therapy
applications of the human iNOS gene. The Company will make future payments
based on the achievement of specified regulatory milestones and will share
with the University of Pittsburgh certain profits the Company realizes from
the research, development and commercialization of products incorporating the
iNOS gene. GenVec has agreed to provide a minimum royalty on the sale of these
products, all royalties are creditable against the profits to be shared. In
addition, the Company granted the University of Pittsburgh a warrant to
purchase shares of the Company's Common Stock, which shall vest upon the
earlier of the achievement of specified product development and regulatory
milestone events or certain dates. In June 1996, GenVec also entered into a
two-year sponsored research agreement to fund the research of iNOS in Dr.
Timothy Billiar's laboratory at the University of Pittsburgh School of
Medicine.

In addition, the Company has separate sponsored research arrangements and a
license agreement with the University of Pittsburgh relating to HSV vector
technology.

Scios, Inc.

In May 1996, the Company entered into an exclusive, worldwide license
agreement with Scios for rights to all gene therapy applications of its
proprietary form of the VEGF gene. The parties will share in certain profits
the Company realizes from the research, development and commercialization of
products incorporating the VEGF gene. GenVec has agreed to provide a minimum
royalty on revenues generated from the development of these products, which
are creditable against the profits to be shared. In connection with the
license agreement, Scios purchased 96,852 shares of the Company's Class D
Convertible Preferred Stock for an aggregate purchase price of $1.0 million.
In addition, the Company granted Scios a warrant to purchase shares of the
Company's Common Stock, which vests upon the earlier of the achievement of
specified product development milestone events or certain dates. The warrants
remain outstanding as of March 31, 1998.

Asahi Chemical Corporation

In February 1998, the Company entered into a license agreement with Asahi
for the rights in the United States to all gene therapy applications of the
TNFa gene. The Company paid Asahi a fee upon the execution of the agreement,
and will make future payments based upon the achievement of specified product
development and regulatory milestones. Under the agreement, the Company will
also pay to Asahi royalties on sales of products in the United States
incorporating the TNFa gene.

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INTELLECTUAL PROPERTY

The Company and its licensors have obtained patents and continue to seek
patent protection for technologies which may relate to the Company's product
candidates and potential products, as well as technologies which may prove
useful for future products, including technologies related to the
VEGF/121/ gene, the iNOS gene, the TNFa gene, the CD gene, adenovirus and
HSV vector components, cell lines, viral targeting technology and promoters.
As of March 31, 1998, the Company held or had licenses to 154 issued, allowed
or pending patents worldwide, of which 28 are issued or allowed in the U.S. Of
those patents, the Company has been granted an exclusive license for all gene
therapy applications under two United States patents relating to the
VEGF/121/ gene and the use thereof, an exclusive license in the field of
gene therapy under two United States patents relating to the human iNOS gene
and the use thereof, and an exclusive license in the field of gene therapy for
the treatment of cancer and restenosis, but excluding applications which
utilize viral-based delivery systems which are replication competent, under
two United States patents relating to the CD gene and the use thereof. The
Company has also been granted a nonexclusive license under the U.S. patent
relating to the TNFa gene and the use thereof. In addition, the Company and
its licensors have patent applications pending in Europe, Japan and other
countries. In furtherance of its current and prospective business, the Company
anticipates that it and its current and future licensors will continue to seek
to improve existing technologies and to develop new technologies and, when
possible, secure patent protection for such improvements and new technologies.

Certain intellectual property components used in developing gene therapy
products, such as certain vectors and promoters used by the Company and
others, are in the public domain. As a result, the Company is unable to obtain
patent protection with respect to such components and third parties can freely
use such components. There can be no assurance that third parties will not
develop products using such components that compete with the Company's
potential products.

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licensors may become involved in interferences, oppositions or similar
proceedings and there can be no assurance that such patents and patent
applications will survive, in whole or in part, such proceedings. No assurance
can be given that patents issued to the Company, its collaborators or its
licensors, if any, will not be contested, narrowed, revoked or invalidated.
Academic collaborators and the U.S. government may retain certain rights in
intellectual property, including patents and patent applications, developed by
such academic collaborators.

While the Company has not conducted freedom to use patent searches on
aspects of its product candidates and potential products and may therefore be
unaware of relevant patents and patent applications of third parties, the
Company is aware of several United States patents and patent applications and
foreign patents and patent applications owned by third parties relating to
gene therapy, promoters, cell lines, vectors and delivery mechanisms which do
or may cover aspects of the Company's product candidates and potential
products or their use or manufacture, including BIOBYPASS angiogen, as well as
other aspects of the Company's technology. Because patent applications are
maintained in secrecy in the United States, the Company cannot be certain that
third parties have not filed applications relating to technology being
developed by the Company or its collaborators or technology covered by patents
or patent applications of the Company, its collaborators or its licensors.
Certain third-party patent applications contain broad claims, and it is not
possible to determine whether or not such claims will be narrowed during
prosecution or will issue as patents, even if the claims appear to encompass
prior art or have other defects. The Company, its collaborators or its
licensors may choose to oppose or challenge third-party patents and patent
applications and such an opposition or challenge can be expensive and time
consuming. There can be no assurance that any opposition or challenge will be
successful. There can also be no assurance that the development, manufacture,
use, offer for sale, sale or importation of the Company's product candidates
and potential products by the Company or its collaborators will not infringe
claims of these or other issued patents, or claims that may issue from these
or other applications or that a third party will not threaten or file an
infringement action.

If the Company or one of its collaborators brings a patent infringement
action or otherwise brings an action to protect proprietary rights against
third parties or is required to defend against a charge of patent infringement
or a charge of infringement of other intellectual property rights, substantial
costs could be incurred and such actions could result in a significant
diversion of management's time and attention. In addition to being a potential
party to patent infringement litigation, the Company is involved in an
interference proceeding relating to a pending patent application licensed by
the Company from the NIH and a pending patent application of the University of
Michigan. An adverse resolution of such interference proceeding would restrict
or eliminate the scope of the license granted by NIH to GenVec, which the
Company believes would not have a material adverse effect on the Company's
current product candidates. The Company believes it will become involved in
additional interference proceedings declared by the United States Patent and
Trademark Office or opposition proceedings in a foreign patent office. The
Company intends to provoke interference proceedings where it believes such
actions to be necessary to protect its intellectual property rights. There can
be no assurance that the Company will be successful in provoking such
proceedings or that the Company will achieve a favorable outcome. Patent
infringement actions and other intellectual property litigation, as well as
participation in interference or opposition proceedings, can be expensive and
time-consuming, even in those instances in which the outcome is favorable to
the Company. There can be no assurance that the Company or its collaborators
will prevail in any such litigation or proceedings. The Company and its
licensors obtain intellectual property, including biological material and
know-how, from third parties pursuant to various agreements and arrangements.
Third parties may challenge the intellectual property rights of the Company or
its licensors or claim ownership of intellectual property developed by the
Company or its collaborators. The Company could incur substantial expenses in
contesting such claims, whether successful or not.

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licensors may terminate existing or future license agreements, or terminate
the exclusive nature of such agreements, if the Company fails to meet
specified milestones or other events. Any termination of a license, or any
failure of the Company or its collaborators to obtain any required license on
reasonable terms or at all, or the failure to maintain the exclusivity of the
Company's exclusive licenses, could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition
if the Company is unable to obtain a license it may be required to use an
alternate technology or product and this may result in a delay in FDA
approval. The Company's product candidates and potential products will require
several components that may each be the subject of a license agreement. The
cumulative license fees and royalties for these components may make the
commercialization of such product candidates and potential products
uneconomical.

The Company may rely on trade secret protection and confidentiality
agreements to protect its interests. It is the Company's policy to require its
employees, consultants, contractors, manufacturers, collaborators and other
advisors to execute confidentiality agreements upon the commencement of
employment, consulting or collaborative relationship with the Company. The
Company also requires signed confidentiality agreements from any entity that
is to receive confidential data. In the case of employees, consultants and
contractors, the agreements generally provide that all inventions made by the
individual while rendering individual services to the Company shall be
assigned to the Company as the property of the Company. Nevertheless, there
can be no assurance that proprietary information will not be disclosed, that
others will not independently develop substantially equivalent proprietary
information or otherwise gain access to the Company's trade secrets, or that
the Company can meaningfully protect its trade secrets. In the case of a
collaborative arrangement which requires the sharing of information, the
Company's policy is to make available to its collaborator only such
information as is relevant to the arrangement, under controlled circumstances,
and only during the contractual term of the collaborative arrangement, and
subject to a duty of confidentiality on the part of its collaborator. There
can be no assurance, however, that such measures will adequately protect the
Company's information. Any material leak of confidential information into the
public domain or to third parties may have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors--Intellectual Property."

SCIENTIFIC ADVISERS

The Company has established a select group of scientists and clinicians as
its Scientific Advisory Board ("SAB") to advise the Company on scientific and
technical matters. The Company also consults with teams of scientists and
clinicians on scientific and technical matters for each of the Company's
anticipated product areas. The scientific advisers are generally compensated
by retainer or on a time and expense basis, and certain of them have received
shares of or options to purchase the Company's Common Stock. The Company has
entered into consulting agreements with a number of the scientific advisers.

Scientific Advisory Board

The SAB includes:

Jan L. Breslow, M.D., Frederick Henry Leonhardt Professor, The Rockefeller
University, New York. Dr. Breslow is a member of the National Academy of
Sciences and a former President of the American Heart Association. Dr. Breslow
received his M.D. from Harvard Medical School.

Ronald G. Crystal, M.D., Bruce Webster Professor of Internal Medicine at
Cornell University Medical College, Chief of the Division of Pulmonary and
Critical Care Medicine at The New York Hospital-Cornell Medical Center and
Director of the Gene Therapy Core Facility at Cornell University Medical
College. Dr. Crystal is the Chairman of the SAB and a founder of the Company.
Dr. Crystal received his M.D. from the University of Pennsylvania.

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of Gene Therapy and the U.S. Editor for Gene Therapy. Dr. Glorioso received
his Ph.D. in Microbiology from Louisiana State University.

Samuel Hellman, M.D., A.N. Pritzker Distinguished Service Professor,
Department of Radiation and Cellular Oncology, University of Chicago. Dr.
Hellman was formerly Dean for the Medical Center and Physician-in-Chief of the
Memorial Sloan-Kettering Cancer Center. Dr. Hellman received his M.D. from the
State University of New York, College of Medicine at Syracuse.

Cardiovascular Medicine

Timothy R. Billiar, M.D., Watson Professor of Surgery, University of
Pittsburgh School of Medicine. Dr. Billiar received his M.D. from the
University of Chicago.

Maurizio C. Capogrossi, M.D., Chief, Laboratory of Vascular Pathology,
Instituto Dermopatico dell'Immacolata, Rome, Italy. Dr. Capogrossi received
his M.D. from the Universita Statale "La Sapienza" in Rome, Italy.

Delos M. Cosgrove, M.D., Chairman of the Department of Thoracic and
Cardiovascular Surgery, The Cleveland Clinic Foundation, Cleveland, Ohio. Dr.
Cosgrove received his M.D. from the University of Virginia School of Medicine.

Todd K. Rosengart, M.D., Associate Professor of Cardiothoracic Surgery,
Cornell University Medical College, New York. Dr. Rosengart received his M.D.
from Northwestern University.

Eric J. Topol, M.D., Chairman of the Department of Cardiology and Director,
Joseph J. Jacobs Center for Thrombosis and Vascular Biology, The Cleveland
Clinic Foundation, Cleveland, Ohio. Dr. Topol received his M.D. from the
University of Rochester School of Medicine and Dentistry, Rochester, New York.

Jeffrey D. Trachtenberg, M.D., Attending Assistant Professor of Surgery,
University of Pittsburgh School of Medicine. Dr. Trachtenberg received his
M.D. from the State University of New York. His general surgery and vascular
surgery training were conducted at Washington University, St. Louis, Missouri.

Oncology

Albert B. Deisseroth, M.D., Ph.D., Ensign Professor of Medicine, Chief of
Medical Oncology, Yale University School of Medicine, New Haven, Connecticut.
Dr. Deisseroth received his M.D. and Ph.D. from the University of Rochester
School of Medicine and Dentistry, Rochester, New York.

Donald W. Kufe, M.D., Professor of Medicine, Harvard Medical School, Chief,
Cancer Pharmacology, Department of Adult Oncology, Dana-Farber Cancer
Institute and Deputy Director of the Dana-Farber Cancer Center, Boston,
Massachusetts.

Tsuneya Ohno, M.D., Ph.D., Jikei University School of Medicine, Tokyo, Japan
and Chairman, the Study Group for Gene Therapy in Japan. Dr. Ohno received his
M.D. from the Jikei University School of Medicine in Tokyo, Japan and his
Ph.D. in Molecular Biology from Keio University in Tokyo, Japan.

Ralph R. Weichselbaum, M.D., Harold H. Hines, Jr. Professor and Chairman,
Department of Radiation and Cellular Oncology, University of Chicago. Dr.
Weichselbaum is a member of the Institute of Medicine of the National Academy
of Sciences. Dr. Weichselbaum received his M.D. from the University of
Illinois.

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Herpes Virus Vectors

Neal A. DeLuca, Ph.D., Professor, Department of Molecular Genetics and
Biochemistry, University of Pittsburgh. Dr. DeLuca received his Ph.D. in
Biophysics from the Pennsylvania State University.

David J. Fink, M.D., Professor of Neurology and Professor of Molecular
Genetics and Biochemistry, the University of Pittsburgh Medical School. Dr.
Fink received his M.D. from Harvard Medical School.

Joseph C. Glorioso III, Ph.D., William S. McEllroy Professor of Biochemistry
and Chairman, Department of Molecular Genetics and Biochemistry, University of
Pittsburgh School of Medicine, Director of the Pittsburgh Human Gene Therapy
Center, Founding Board Member and Treasurer of the American Society of Gene
Therapy and the U.S. Editor for Gene Therapy. Dr. Glorioso received his Ph.D.
in Microbiology from Louisiana State University.

Christopher Preston, Ph.D., Band 2 Scientist, Non-Clinical Scientific Staff
at the Institute of Virology, Glasgow. Dr. Preston received his Ph.D. in
Biochemistry at the University of Cambridge.

Adenovirus Vectors

Min Li, Ph.D., Assistant Professor of Neuroscience, John Hopkins University
School of Medicine. Dr. Li received his Ph.D. in Molecular Biology and
Genetics from the John Hopkins University School of Medicine.

Charles S. H. Young, D.Phil., Professor of Microbiology, Columbia
University. Dr. Young received his D.Phil. in Yeast Genetics from Oxford
University.

COMPETITION

The Company will rely on its corporate collaborators for support of certain
of its enabling technologies and intends to rely on its corporate
collaborators for preclinical and clinical development of related potential
products and the manufacturing and marketing of such products. Generally, the
Company's strategic alliance agreements do not preclude the corporate
collaborator from pursuing development efforts utilizing approaches distinct
from that which is the subject of the alliance. Product candidates of the
Company, therefore, may be subject to competition with a potential product
under development by a corporate collaborator. See "Risk Factors--Reliance on
Warner-Lambert and Other Corporate Collaborators."

44
<PAGE>

therapy. For example, competitors may also develop small molecule, protein,
antisense or other therapeutic or surgical approaches that may compete with or
obviate the need for the Company's products. There can be no assurance that
the Company will be able to make the enhancements to its technology necessary
to compete successfully with existing or newly emerging technologies. See
"Risk Factors--Intense Competition."

MANUFACTURING

In addition, the Company intends to continue to develop its own
manufacturing capability, which will require significant resources and will be
subject to ongoing government approval and oversight. There can be no
assurance that the Company's efforts in this regard will be successful. See
"Risk Factors--Manufacturing Limitations" and "Risk Factors--Government
Regulation; No Assurance of Regulatory Approval."

GOVERNMENT REGULATION

45
<PAGE>

review. Similar delays may also be encountered in obtaining regulatory
approval in foreign countries. Delays in obtaining regulatory approvals could
adversely affect the marketing of any drugs developed by the Company or its
corporate collaborators, impose costly procedures upon the Company's or its
corporate collaborators' activities, diminish any competitive advantages that
the Company or its corporate collaborators may attain and adversely affect the
Company's receipt of royalties. There can be no assurance that regulatory
approval will be obtained for products developed by the Company or its
corporate collaborators. Furthermore, regulatory approval may entail
limitations on the indicated uses of a proposed product. Because certain of
the Company's product candidates involve the application of new technologies
and may be based upon a new therapeutic approach, such products may be subject
to substantial additional review by various government regulatory authorities,
and, as a result, regulatory approvals may be obtained more slowly than for
products based upon more conventional technologies. The Company's product
candidates may require a delivery device and such product and device may be
subject to separate regulatory review, which could also delay regulatory
approval.

The Company believes that the commercial uses of its products will be
regulated as biologics by the FDA and comparable regulatory bodies of other
countries. Gene therapy is, however, a relatively new technology, and the
regulatory requirements governing gene therapy products are uncertain. This
uncertainty may result in excessive costs or extensive delays in the
regulatory approval process, adding to the already lengthy review process for
human therapeutic products in general. The Company is not aware of any gene
therapy products that have received marketing approval from the FDA or any
comparable regulatory body of any other country. The regulation of the
Company's products and its ongoing research is subject to change, and future
legislative or administrative acts in the United States or other countries
could have a material adverse effect on the Company's business, financial
condition and results of operations. Regulatory requirements ultimately
imposed could adversely affect the ability of the Company's corporate
collaborators to clinically test, manufacture or market products, and could
significantly delay or reduce the milestone or royalty payments payable to the
Company.

In order to obtain FDA approval of a new biological product, the Company
must submit substantial evidence of safety, purity, potency and efficacy.

The FDA approval process for a new biological drug involves completion of
pre-clinical studies which include laboratory tests and animal studies to
assess safety and effectiveness of the drug. Among other things, the results
of these studies as well as how the product will be manufactured are submitted
to the FDA as part of an IND application and, unless the FDA objects, the IND
becomes effective 30 days following receipt by the FDA. Human clinical trials
may then be conducted. There can be no assurance that submission of an IND
will result in FDA authorization to commence clinical trials or that approval
of an IND will result in subsequent approval of the drug. The results of the
clinical trials are submitted to the FDA as part of a BLA. Product sales may
only commence if the BLA is approved. Regulatory requirements for obtaining
FDA approval are rigorous and there can be no assurance that such approvals
will be obtained on a timely basis or at all.

46
<PAGE>

of the BLA submission, the submission is sent to an FDA selected scientific
advisory panel composed of physicians and scientists with expertise in the
particular field. The FDA scientific advisory panel issues a recommendation to
the FDA that may include conditions for approval of the BLA. Although the
recommendation is not binding, the FDA generally follows an advisory panel's
advice. Toward the end of the BLA review process, the FDA will conduct an
inspection of the manufacturer's facilities to ensure that they are in
compliance with the applicable cGMPs requirements. If the FDA evaluation of
the manufacturing facilities contained in the BLA application are favorable,
the FDA will issue an approval letter, which usually contains a number of
conditions which must be met in order to secure final approval. In responding
to the BLA, the FDA may grant marketing approval, require additional testing
or information, or deny the application. Governmental approval of products
developed by the Company may entail limitations on the indicated uses for
which such products may be marketed. Continued compliance with all FDA
requirements and the conditions in an approved application, including product
specification, manufacturing process, labeling and promotional material and
record keeping and reporting requirements, is necessary for all products.
Failure to comply, or the occurrence of unanticipated adverse effects during
commercial marketing, could lead to the need for product recall or other FDA-
initiated action, which could delay further marketing until the products are
brought into compliance.

Even if regulatory approval is obtained, a marketed product and its
manufacturer are subject to continuing review. Discovery of previously unknown
problems with a product may result in withdrawal of the product from the
market, and could have a material adverse effect on the Company's business,
financial condition and results of operations. Violations of regulatory
requirements at any stage during the regulatory process, including preclinical
studies and clinical trials, the approval process, post-approval or in GMP,
may result in various adverse consequences to the Company, including the FDA's
delay in approval or refusal to approve a product, withdrawal of an approved
product from the market or the imposition of criminal penalties against the
manufacturer and license holder. There can be no assurance that the Company or
its corporate collaborators will be able to conduct clinical testing or obtain
necessary approvals from the FDA or other regulatory authorities for any
products. Further, the terms of approval of any marketing application,
including the labeling content, may be more restrictive than the Company
desires and could affect the marketability of the Company's proposed products.
Failure to obtain required governmental approvals will delay or preclude the
Company or its corporate collaborators from marketing products or limit the
commercial use of such products and could have a material adverse effect on
the Company's business, financial condition and results of operations. The
President recently signed into law the Food and Drug Administration
Modernization Act of 1997. This legislation makes changes to the biologic
provisions of the FDC Act. The Company cannot predict how or what effect the
changes will have on the regulation of the Company's products. There can be no
assurance that the new legislation will not impose additional costs or
lengthen review times for the Company's products. See "Risk Factors--
Government Regulation; No Assurance of Regulatory Approval."

EMPLOYEES

As of March 31, 1998, the Company had a total of 54 employees, 16 of whom
hold M.D. or Ph.D. degrees and 15 of whom hold other advanced degrees. Of
these, 38 were engaged in research and development and 16 were engaged in
business development, finance and general administration. The Company's future
success depends in significant part upon the continued service of its key
scientific, technical and senior management personnel and its continuing
ability to attract and retain highly qualified technical and management
personnel. None of the Company's employees is represented by a labor union or
covered by a collective bargaining agreement. The Company has not experienced
any work stoppages and considers its relations with its employees to be good.

FACILITIES

The Company's facilities are located in Rockville, Maryland. The Company
leases approximately 14,000 square feet of laboratory and office space on a
month-to-month basis. The Company may terminate this lease by giving notice
for each of five defined areas, one at a time, over a period that, in the
aggregate, would total at least 210 days. In addition, the Company leases
approximately 9,000 square feet of office space under a lease which expires in
April 2000. The Company believes that these facilities will be adequate for
its current and near-term needs but is in the process of identifying new
facilities for expansion.

47
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information regarding the Company's
directors and executive officers as of April 28, 1998:

<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ------------------------------------------------
<S> <C> <C>
Herbert J. Conrad (1)(2).. 65 Chairman of the Board of Directors
Paul H. Fischer, Ph.D.
(1)...................... 48 President, Chief Executive Officer and Director
Thomas E. Smart........... 34 Vice President, Corporate Development, Corporate
Secretary and Treasurer
Imre Kovesdi, Ph.D........ 51 Vice President, Discovery Research
Grant Yonehiro............ 34 Vice President, Product Management
Hal S. Broderson, M.D.
(2)(3)................... 40 Director
Harry T. Rein (1)......... 53 Director
Wendell Wierenga Ph.D..... 50 Director
Gregory F. Zaic (3)....... 50 Director
</TABLE>
- --------
(1) Member of Executive Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee

Herbert J. Conrad has served as Chairman of the Board of Directors of the
Company since September 1996, and as a director of the Company since August
1994. From September 1996 to November 1996, he was the President and Chief
Executive Officer of the Company. From September 1993 to August 1994, he was a
director of Theragen, Inc., which merged into the Company in August 1994. He
served as President of the Pharmaceuticals Division and Senior Vice President
of Hoffmann-LaRoche, Inc. ("Roche") from 1982 until his retirement in 1993.
Mr. Conrad joined Roche in 1960 and held various positions, including Senior
Vice President of the Pharmaceuticals Division, Chairman of the Board of Medi-
Physics, Inc., and Vice President, Public Affairs and Planning Division. Mr.
Conrad is a director of Gensia Sicor Inc., Bio-Technology General Corp.,
UroCor, Inc. and Dura Pharmaceuticals, Inc.

Paul H. Fischer, Ph.D. has served as President, Chief Executive Officer, and
as a director of the Company since November 1996, and in various positions
with the Company since March 1995. From May 1992 to April 1995, he was
Executive Vice President of Research and Development with Oncologix, Inc., a
biotechnology company. From September 1987 to May 1992, he served as Manager,
Cancer Research at Pfizer, Inc., a pharmaceutical company. Dr. Fischer
received his B.S. in Biology from the University of Denver, his Ph.D. in
Pharmacology from the University of California at San Francisco and performed
post-doctoral research in Pharmacology at Yale University School of Medicine.

Thomas E. Smart has served as Vice President of Corporate Development of the
Company since July 1996. From March 1995 to June 1996, he was Executive
Director of Corporate Development of the Company. From August 1991 to March
1995, he was with Cell Genesys, Inc., a biotechnology company, most recently
as Director of Business Development. From July 1990 to July 1991, Mr. Smart
was with G.D. Searle & Co., a pharmaceutical company, most recently as a
Policy Planning Associate, Corporate Strategic Planning. Mr. Smart received
his B.S. in biological sciences from Cornell University and his M.B.A. from
the University of Chicago Graduate School of Business.

Imre Kovesdi, Ph.D. has served as Vice President of Discovery Research of
the Company since September 1995, and as Director of Vector Biology of the
Company from July 1993 to September 1995. From

48
<PAGE>

1992 to 1993, he led projects in eukaryotic gene expression and neurotrophic
factors at Lederle Laboratories. From 1990 to 1993, he was Adjunct Assistant
Professor of Microbiology and Immunology at the New York Medical College. Dr.
Kovesdi received his B.A.Sc. in Electrical Engineering from the University of
British Columbia and his Ph.D. in Molecular Biology from Simon Fraser
University.

Grant Yonehiro has served as Vice President of Product Management of the
Company since September, 1997, as Director of Corporate Development from May
1997 to September 1997, and as Associate Director of Corporate Development
from March 1996 to May 1997. From January 1994 to March 1996, he was at Cell
Genesys, Inc., a biotechnology company, most recently as Manager of Business
Development. From June 1992 to December 1993, he was a Research Analyst for
Focus Advisors, Inc., an equity research organization focusing on health care.
Mr. Yonehiro received his Bachelor of Individualized Studies from the
University of Minnesota and his M.B.A. from the University of California at
Berkeley.

Hal S. Broderson, M.D. has served as a director of the Company since
inception. From December 1992 to September 1993, he was the Company's
President. From 1988 to the present, he has been a general partner of Cashon
Biomedical Associates, L.P., which is the managing general partner of the
Hillman Medical Ventures Partnerships. These venture capital funds focus on
early stage medical technology. Dr. Broderson is currently President of Rock
Hill Ventures, Inc., a venture capital and management firm. Dr. Broderson
received his B.A. in Biology from Indiana University, his M.D. from the
University of Kentucky College of Medicine and his M.B.A. from the Wharton
School at the University of Pennsylvania.

Harry T. Rein has served as a director of the Company since September 1995.
From 1987 to the present, he has been Managing General Partner of Canaan
Partners, a venture capital firm. Mr. Rein received his A.B. from Ogelthorpe
College and his M.B.A. from the University of Virginia. Mr. Rein is also a
director of Anadigics, Inc. and Perception, Inc.

Wendell Wierenga, Ph.D. has served as a director of the Company since April
1998. From 1990 to the present, he has been with the Parke-Davis
Pharmaceutical Research division of the Warner-Lambert Company, most recently
as Senior Vice President of Worldwide Preclinical Research, Development and
Technologies. From 1997 to the present he has been Adjunct Professor in the
Department of Chemistry at the University of Michigan. Dr. Wierenga received
his B.A. in Chemistry from Hope College and his Ph.D. in Chemistry from
Stanford University. Dr. Wierenga is also a director of Onyx Pharmaceuticals,
Inc.

Gregory F. Zaic has served as a director of the Company since inception.
From May 1993 to September 1993, Mr. Zaic was Chief Executive Officer of the
Company and from May 1993 to September 1996, he was Chairman of the Board of
Directors of the Company. From 1987 to the present, he has been a general
partner of Prince Ventures, L.P., a venture capital firm. Mr. Zaic received
his B.S. in Aerospace and Mechanical Engineering from Princeton University and
his M.S. in Mechanical Engineering and his M.S. in Management from the
Massachusetts Institute of Technology. Mr. Zaic is also a director of Aronex
Pharmaceuticals, Inc.

COMMITTEES OF THE BOARD OF DIRECTORS

The Executive Committee comprises Dr. Fischer, Mr. Conrad and Mr. Rein. The
Executive Committee exercises all powers and authority of the Board with
certain exceptions as provided under Delaware law.

The Compensation Committee comprises Mr. Conrad and Dr. Broderson. The
Compensation Committee makes recommendations regarding the Company's Amended
and Restated 1993 Stock Incentive Plan, the 1998 Director Option Plan and the
1998 Employee Stock Purchase Plan, determines salaries for the executive
officers and incentive compensation for employees and consultants of the
Company, and reviews certain other compensation matters.

The Audit Committee comprises Mr. Zaic and Dr. Broderson. The Audit
Committee makes recommendations to the Board of Directors regarding the
selection of independent auditors, reviews the

49
<PAGE>

results and scope of the audit and other services provided by the Company's
independent auditors and reviews and evaluates the Company's audit and control
functions.

DIRECTOR COMPENSATION

The Company's Outside Directors (as defined below) currently receive $1,000
per Board meeting attended, $500 per Committee meeting attended and $1,250 per
quarter as a retainer. All Directors receive reimbursement for travel expenses
from the Company for their service as members of the Board of Directors. Under
the 1998 Director Option Plan, each New Outside Director (as defined below)
automatically receives an option to purchase 10,000 shares of Common Stock
upon the later of (i) the effective date of this offering and (ii) the date
such Outside Director joins the Board of Directors. Each Outside Director who
has served on the Board of Directors for at least six months shall receive an
option to acquire 5,000 shares of Common Stock on (i) the effective date of
this offering and (ii) the date of each of the Company's annual meetings of
stockholders, provided such Outside Director is re-elected. Each option
granted under the 1998 Director Option Plan will become exercisable ratably
over a four-year period. The term "Outside Directors" refers to directors who
are not employees of the Company, and the term "New Outside Directors" refers
to Outside Directors who join the Board after March 31, 1998. See "Certain
Transactions" for a description of the Company's Consulting Agreement with Mr.
Conrad.

EXECUTIVE COMPENSATION

Summary Compensation Table. The following table sets forth summary
information concerning compensation paid by the Company during the fiscal year
ended December 31, 1997, to the Company's Chief Executive Officer and the
three other most highly compensated executive officers who earned in excess of
$100,000 in salary and bonus during the fiscal year ended December 31, 1997
(the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------ ----------------------
SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY ($) (1) BONUS ($) UNDERLYING OPTIONS (2)
- --------------------------- ---- -------------- --------- ----------------------
<S> <C> <C> <C> <C>
Paul H. Fischer, Ph.D...... 1997 $205,000 $25,000 38,135
President, Chief Executive
Officer and Director
Thomas E. Smart............ 1997 132,900 15,000 27,118
Vice President, Corporate
Development, Corporate
Secretary and Treasurer
Grant Yonehiro............. 1997 105,784 7,500 50,846
Vice President, Product
Management
Imre Kovesdi, Ph.D......... 1997 159,120 -- --
Vice President, Discovery
Research
</TABLE>
- --------
(1) In accordance with the rules of the Securities and Exchange Commission
(the "Commission"), the compensation described in this table does not
include medical, group life insurance or other benefits received by the
Named Executive Officers that are available generally to all salaried
employees of the Company, and certain perquisites and other personal
benefits received by the Named Executive Officers that do not exceed the
lesser of $50,000 or 10% of any such officer's salary and bonus disclosed
in this table.
(2) Issued pursuant to the Amended and Restated 1993 Stock Incentive Plan.

50
<PAGE>

STOCK OPTION GRANTS

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth certain information regarding stock options
granted during the fiscal year ended December 31, 1997, to each of the Named
Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM (3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED (#) FISCAL 1997 (%)(1) ($/SH) (2) DATE 5% ($) 10% ($)
---- ----------- ------------------ ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Paul H. Fischer, Ph.D... 38,135(4) 24% $4.13 09/17/2007 $ 99,049 $ 251,010
Thomas E. Smart......... 27,118(5) 17 4.13 09/17/2007 70,434 178,494
Grant Yonehiro.......... 23,728(6) 15 3.54 06/30/2007 52,825 133,869
27,118(7) 17 4.13 10/20/2007 70,434 178,494
Imre Kovesdi, Ph.D...... -- -- -- -- -- --
</TABLE>

- --------
(1) Based on options to purchase 158,476 shares granted to employees in fiscal
1997, including the Named Executive Officers. The options were granted
under the Company's Amended and Restated 1993 Stock Incentive Plan.
(2) Represents the fair market value of the underlying Common Stock as
determined by the Board of Directors on the date of grant.
(3) The potential realizable value is calculated based on the term of the
option at its time of grant (ten years) and the per-share market price at
the time of the grant. It is calculated assuming that the stock price on
the date of grant appreciates at the indicated annual rate, compounded
annually for the entire term of the option and that the option is
exercised and sold on the last day of its term for the appreciated stock
price. These amounts represent certain assumed rates of appreciation only,
in accordance with the rules of the Commission, and do not reflect the
Company's estimate or projection of future stock price performance. Actual
gains, if any, are dependent on the actual future performance of the
Company's Common Stock.

(4) Of the 38,135 shares granted, 6/48ths of the shares are exercisable on
March 17, 1998 and 1/48th of the shares are exercisable each month
thereafter.

(5) Of the 27,118 shares granted, 6/48ths of the shares are exercisable on
March 17, 1998 and 1/48th of the shares are exercisable each month
thereafter.

(6) Of the 23,728 shares granted, 6/48ths of the shares are exercisable on
November 17, 1997 and 1/48th of the shares are exercisable each month
thereafter.

(7) Of the 27,118 shares granted, 6/48ths of the shares are exercisable on
April 1, 1998 and 1/48th of the shares are exercisable each month
thereafter.

51
<PAGE>

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES

The following table sets forth, with respect to each of the Named Executive
Officers, information regarding the number and value of securities underlying
unexercised options held by the named Executive Officers as of December 31,
1997:

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END(#) FISCAL YEAR-END ($)(1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul H. Fischer, Ph.D... -- -- 98,248 143,269 $1,077,262 $1,393,456
Thomas E. Smart......... -- -- 15,025 61,238 160,500 583,666
Grant Yonehiro.......... -- -- 3,460 50,775 29,272 423,555
Imre Kovesdi, Ph.D...... -- -- 30,964 26,039 353,300 297,104
</TABLE>
- --------
(1) Based on the assumed initial public offering price of $12.00 per share,
less the exercise price.

EMPLOYMENT AGREEMENTS

On March 9, 1995, Paul H. Fischer, the President, Chief Executive Officer
and a director and stockholder of the Company, entered into an employment
agreement with the Company. Dr. Fischer is entitled to a salary of at least
$170,000 per year pursuant to the employment agreement. Dr. Fischer's salary
for the fiscal year ended December 31, 1997 was $205,000. Should Dr. Fischer's
employment be terminated for any reason other than for cause, his salary will
continue to be paid for nine months from the effective date of such
termination. These salary payments will cease if Dr. Fischer becomes
permanently employed at the same or a greater salary during the nine-month
period.

On March 9, 1995, Thomas E. Smart, the Vice President of Corporate
Development, entered into an employment agreement with the Company. Mr. Smart
is entitled to a salary of at least $110,000 per year pursuant to the
employment agreement. Mr. Smart's salary for the fiscal year ended December
31, 1997 was $132,900. The employment agreement provided for the payment of
bonuses in cash and in options to purchase shares of the Company's Common
Stock upon the consummation of certain corporate collaborations. Should Mr.
Smart's employment be terminated for any reason other than for cause, his
salary will continue to be paid for six months from the effective date of such
termination. These salary payments will cease if Mr. Smart becomes permanently
employed at the same or greater salary during the six-month period. Mr.
Smart's unvested options to purchase the Company's Common Stock will fully
vest on the date of approval of a liquidation or change of control of the
Company. Mr. Smart has received all options and bonuses granted under his
employment agreement, and no further options or bonuses are due under his
employment agreement.

On June 6, 1993, Imre Kovesdi, the Vice President of Discovery Research,
entered into an employment agreement with the Company. Dr. Kovesdi is entitled
to a salary of at least $100,000 per year pursuant to the employment
agreement. Dr. Kovesdi's salary for the fiscal year ended December 31, 1997
was $159,120. Should Dr. Kovesdi's employment be terminated for any reason
other than for cause, his salary will continue to be paid for one year from
the effective date of such termination. These salary payments will cease if
Dr. Kovesdi becomes permanently employed at the same or greater salary during
the one-year period.

EQUITY INCENTIVE PLANS

Amended and Restated 1993 Stock Incentive Plan

The Company adopted its 1993 Stock Incentive Plan (the "Stock Plan") in
October 1993, and amended and restated the Stock Plan in October 1997 and
April 1998. An aggregate of 1,846,218 shares of the Common Stock has been
reserved for issuance, which number will be increased each year on the date of
the annual stockholder meeting, by a number of shares equal to (i) the number
of shares needed to restore the maximum

52
<PAGE>

aggregate number of shares reserved for issuance under the Stock Plan to
1,846,218 or (ii) a lesser amount determined by the Board of Directors. The
purposes of the Stock Plan are to attract and retain the best available
personnel to serve the Company and to provide additional incentive to the
Company's key personnel. The Stock Plan will continue in effect for a term of
ten years, unless it is sooner terminated by the Board.

The Stock Plan permits the grant of options intended to qualify as incentive
stock options ("ISOs") under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), to employees (including officers and employee
directors), options that do not so qualify ("NSOs," and together with ISOs,
the "Options") to employees (including officers and employee directors) and
consultants (including non-employee directors) and awards of restricted stock.

The Stock Plan is administered by the Board or a committee appointed by the
Board. Subject to limitations set forth in the Stock Plan, the Board has
authority to select the persons to whom Options will be granted, the number of
shares to be converted by each Option, when Options will be granted, and other
terms of Options granted. Options currently granted under the Stock Plan
generally become exercisable at the rate of 12.5% of the shares six months
from the vesting commencement date and approximately 1/48th of the shares
monthly thereafter, such that the Option is fully exercisable four years from
the vesting commencement date.

The maximum term for ISOs granted under the Stock Plan is ten years, except
that if, at the time of the grant, the optionee possesses more than ten
percent of the combined voting power of the Company or of an affiliate (as
defined in the Code) of the Company the maximum term of the ISO is five years.
The exercise price of ISOs must be at least 100% of the fair market value of
the shares subject to the Option on the date of the grant; provided, however,
that if an ISO is granted to a ten percent stockholder, then the exercise
price must be at least 110% of the fair market value of the stock subject to
the Option on the date of the grant. Options granted under the Stock Plan
generally are non-transferrable and expire three months after the termination
of an optionee's service to the Company.

In addition, in the event of a Change of Control (as defined below), Options
held by employees, advisors or consultants of the Company or members of the
Board of Directors at the time of a Change of Control become immediately
exercisable in full and the restrictions applicable to restricted stock of
employees, advisors or consultants of the Company or members of the Board of
Directors at the time of a change of control lapse immediately. Upon a Change
of Control, the Board of Directors may take whatever action it deems desirable
with respect to outstanding Options, including accelerating the expiration or
termination date no earlier than 30 days after notice of such acceleration is
given to the optionees. A "Change of Control" is deemed to have occurred upon
the earliest to occur of the following events: (i) the date the stockholders
of the Company (or the Board of Directors, if stockholder action is not
required) approve a plan or other arrangement pursuant to which the Company
will be dissolved or liquidated; (ii) the date the stockholders of the Company
(or the Board of Directors, if stockholder action is not required) approve a
definitive agreement to sell or otherwise dispose of substantially all of the
assets of the Company; (iii) the date the stockholders of the Company (or the
Board of Directors, if stockholder action is not required) and the
stockholders of the other constituent corporation (or its board of directors
if stockholder action is not required) have approved a definitive agreement to
merge or consolidate the Company with or into such other corporation, other
than, in either case, a merger or consolidation of the Company in which
holders of shares of the Company's Common Stock immediately prior to the
merger or consolidation will have at least a majority of the ownership of
common stock of the surviving corporation (and, if one class of common stock
is not the only class of voting securities entitled to vote on the election of
directors of the surviving corporation, a majority of the voting power of the
surviving corporation's voting securities) immediately after the merger or
consolidation, which common stock (and, if applicable, voting securities) is
to be held in the same proportion as such holders' ownership of Common Stock
of the Company immediately before the merger or consolidation; (iv) the date
any entity, person or group, within the meaning of Section 13(d)(3) or Section
14(d)(2) of the Securities Exchange Act of 1934, as amended, other than the
Company or any of its subsidiaries or any employee benefit plan (or related
trust) sponsored or maintained by the Company or any of its subsidiaries, or
any person who

53
<PAGE>

does not conduct any active trade or business shall have become the beneficial
owner of, or shall have obtained voting control over, more than fifty percent
(50%) of the outstanding shares of the Company's Common Stock; or (v) the date
that fewer than a majority of the Board of Directors are Incumbent Directors
(as defined below). "Incumbent Directors" means directors who either (x) are
directors of the Company as of the effective date of the Stock Plan or (y) are
elected, or nominated for election to the Board of Directors with the
affirmative votes of at least a majority of those directors whose election or
nomination was not in connection with any transaction described in subsection
(i) to (iv) or in connection with an actual or threatened proxy contest
relating to the election of directors of the Company.

1998 Employee Stock Purchase Plan

In April 1998, the Company adopted the 1998 Employee Stock Purchase Plan
(the "Purchase Plan") covering an aggregate of 350,000 shares of Common Stock.
The number of shares reserved will be increased automatically each year on the
date of the Company's annual stockholder meeting by an amount equal to (i) the
number of shares needed to restore the maximum number of shares reserved for
issuance under the Purchase Plan to 350,000 shares or (ii) a lesser amount
determined by the Board of Directors. 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
commencement of the Purchase Plan. The initial offering under the Purchase
Plan will commence on the date of this Prospectus and terminate on April 30,
2000.

Unless otherwise determined by the Board, employees are eligible to
participate in the Purchase Plan only if they are employed by the Company or a
subsidiary of the Company designated by the Board for at least 20 hours per
week and are customarily employed by the Company or a subsidiary of the
Company designated by the Board for at least five months per calendar year.
Employees who participate in a offering may have up to ten percent of their
earnings withheld pursuant to the Purchase Plan. The amount withheld is then
used to purchase shares of the Common Stock on specified dates determined by
Board. 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 at the
commencement date of each offering or the relevant purchase date. Employees
may end their participation in this offering at any time during this offering,
and participation ends automatically on termination of employment with the
Company.

In the event of a merger, reorganization, consolidation or liquidation
involving the Company, the Board has the 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 this offering, and provide
for all sums collected by payroll deductions to be applied to purchase stock
immediately prior to such merger or other transaction. The Board has the
authority to amend or terminate the Purchase Plan, provided, however, that no
such action may adversely affect any outstanding rights to purchase Common
Stock.

1998 Director Option Plan

In April 1998, the Company adopted the 1998 Director Option Plan (the
"Director Plan") to provide for the automatic grant of options to purchase
shares of Common Stock to non-employee directors of the Company.

The maximum number of shares of Common Stock that may be issued pursuant to
options granted under the Director Plan is 130,000. Each New Outside Director
is automatically granted on the later of (i) the effective date of this
offering and (ii) the date such Outside Director joins the Board of Directors
an option to purchase 10,000 shares of Common Stock. In addition, each Outside
Director who has served on the Board of Directors for at least six months
shall receive an option to purchase 5,000 shares of Common Stock on (i) the
effective date of this offering and (ii) the date of each of the Company's
annual meetings of stockholders, provided such Outside Director is re-elected
as a director at such meeting. Each option granted under the Director Plan has
a term of ten years. The options vest over a four-year period, with an
exercise

54
<PAGE>

price per share equal to 100% of the fair market value per share on the date
of the grant. Options granted under the Director Plan are generally non-
transferrable. Unless otherwise terminated by the Board of Directors, the
Director Plan terminates automatically in April 2008. On the effective date of
this offering, options to purchase an aggregate of 30,000 shares of Common
Stock will be granted under the Director Plan, with an exercise price equal to
the initial public offering price per share. Upon a Change of Control (as
defined in the Stock Plan), options held by directors shall become immediately
exercisable in full.

401(K) PLAN

The Company has established a tax-qualified employee savings and retirement
plan. Employees must be 21 years old to participate and are eligible on the
first day of the quarter following six months as an employee of the Company.
All amounts contributed by employee participants and earnings on these
contributions are fully vested at all times. Employee participants may elect
to invest their contributions in various established funds.

LIMITATIONS OF DIRECTORS' AND EXECUTIVE OFFICERS' LIABILITY AND
INDEMNIFICATION

The Company's Restated Certificate provides that directors of the Company
will not be personally liable to the Company or its stockholders for monetary
damages for any breach of fiduciary duty as a Director, except to the extent
that such exemption from liability or limitation thereof is not permitted by
the Delaware General Corporation Law as currently in effect or as the same as
subsequently amended. Such limitation of liability does not apply to
liabilities arising under the federal securities laws and does not affect the
availability of equitable remedies such as injunctive relief or rescission.

The Company's Amended and Restated Bylaws empower the Company to indemnify
its directors, officers, employees and agents to the fullest extent permitted
by law. Pursuant to this provision, the Company has entered into
indemnification agreements with each of its Directors and Executive Officers.

55
<PAGE>

CERTAIN TRANSACTIONS

In September 1995, the Company entered a Second Class C Preferred Stock
Purchase Agreement with Canaan S.B.I.C., L.P., Canaan Capital Limited
Partnership, Canaan Capital Offshore L.P., C.V. (collectively, the "Canaan
Entities") and The CIT Group/Venture Capital, Inc. ("The CIT Group"), among
others, pursuant to which the Canaan Entities purchased 305,084 shares of
Class C Preferred Stock for $1.8 million, and The CIT Group purchased 338,983
shares of Class C Preferred Stock for $2.0 million. Harry T. Rein, a director
of the Company, is a general partner of each of the Canaan Entities. Bruce
Schackman, a former director of the Company, is a Managing Director of the CIT
Group.

Each series of the Company's Preferred Stock has certain conversion rights
and protection against certain dilutive issuances of securities by the
Company. Each holder of Preferred Stock is entitled to one vote for each share
held. Holders of Preferred Stock are also entitled to certain preferences over
holders of Common Stock with respect to dividends and in certain liquidation
events. Certain holders of Common Stock and Preferred Stock are entitled to
certain registration rights with respect to such Common Stock and shares of
Common Stock issued upon the conversion thereof. See "Description of Capital
Stock--Registration Rights."

In July 1997, the Company and Warner-Lambert entered a Stock Purchase
Agreement pursuant to which Warner-Lambert is obligated to purchase up to an
aggregate of $25.0 million of the Company's securities. Concurrently, the
Company and Warner-Lambert entered a Research, Development and Collaboration
Agreement. Wendell Wierenga, a director of the Company, is the Senior Vice
President of Worldwide Preclinical Research, Development and Technologies for
the Parke-Davis Pharmaceuticals Research division of Warner-Lambert. See
"Business--Strategic Alliances--Corporate Collaborations--Warner-Lambert
Company."

The Company has entered employment agreements with certain of its executive
officers. See "Management--Employment Agreements" for a description of the
employment agreements with Dr. Fischer, Mr. Smart and Dr. Kovesdi.

The Company entered a consulting agreement with Mr. Conrad, Chairman of the
Company's Board of Directors, on April 28, 1998. Pursuant to the agreement,
Mr. Conrad will be available to the Company for a minimum of five and up to
ten business days per month, and in exchange will receive $1,500 per day. The
agreement has a one-year term, and is renewable.

The Company has granted options to certain of its directors and executive
officers. The Company has also entered into an indemnification agreement with
each of its directors and executive officers.

The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions between the Company and
its officers, directors, principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
disinterested directors and will continue to be on terms no less favorable to
the Company than could be obtained from unaffiliated third parties.

56
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth information known to the Company with respect
to the beneficial ownership of its Common Stock as of March 31, 1998, and as
adjusted to reflect the sale of Common Stock offered by the Company hereby for
(i) each person who is known by the Company to own beneficially more than five
percent of the Common Stock; (ii) each of the Company's directors; (iii) each
Named Executive Officer and (iv) all directors and executive officers as a
group.

<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(2)
SHARES ------------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS (1) OWNED(2) OFFERING OFFERING
-------------------- ------------ ---------- ----------
<S> <C> <C> <C>
Hillman Medical Ventures
Partnerships (3)................. 1,101,693 15.68% 11.18%
c/o Rock Hill Ventures, Inc.
One Tower Bridge, Suite 1350
100 Front Street
West Conshohocken, PA 19428
Attention: Hal S. Broderson, M.D.
Biotech Growth SA................. 847,457 12.06 8.60
Bellevue Asset Management, AG
Grasenweg 4
Zug/Postach, Zug-6301
Switzerland
Attention: Andreas Bremer, Ph.D.
Genentech, Inc.................... 734,576 10.46 7.45
One DNA Way
South San Francisco, CA 94080
Prince Venture Partners, III,
L.P.............................. 550,846 7.84 5.59
25 Ford Road
Westport, CT 06880
Attention: Gregory Zaic
Sierra Ventures, III, L.P. (4).... 550,846 7.84 5.59
3000 Sand Hill Road
Building 4, Suite 210
Menlo Park, CA 94025
Attention: Petri Vainio, M.D.,
Ph.D.
Warner-Lambert Company............ 349,853 4.98 6.93 (5)
201 Tabor Road
Morris Plains, NJ 07950
Herbert J. Conrad (6)............. 33,929 * *
Ronald J. Brenner, Ph.D. (7)...... 1,101,693 15.68 11.18
Hal S. Broderson, M.D. (7)........ 1,101,693 15.68 11.18
Thomas S. Porter (8).............. 286,397 4.08 2.91
Harry T. Rein (9)................. 305,084 4.34 3.09
Gregory F. Zaic (10).............. 550,846 7.84 5.59
Paul H. Fischer, Ph.D. (11)....... 137,176 1.92 1.37
Thomas E. Smart (12).............. 65,448 * *
Imre Kovesdi, Ph.D. (13).......... 60,872 * *
Grant Yonehiro (14)............... 16,665 * *
All directors and executive
officers as a group (11 persons)
(15)............................. 2,558,110 35.30% 25.38%
</TABLE>

57
<PAGE>

- --------
* Represents beneficial ownership of less than one percent.
(1) Unless otherwise indicated, the address of each of the named individuals
is: c/o GenVec, Inc., 12111 Parklawn Drive, Rockville, Maryland 20852.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table above have
sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them. Percentage of beneficial
ownership is based on 7,024,451 shares of Common Stock outstanding as of
March 31, 1998, and 9,857,784 shares of Common Stock after completion of
this offering including 333,333 shares to issued to Warner-Lambert upon
closing of this offering. Amounts shown in the above table and the
following notes include shares issuable within the 60-day period
following March 31, 1998, pursuant to the exercise of options.
(3) Includes 84,745 shares owned by Hillman Medical Ventures 1992 L.P.,
508,474 shares owned by Hillman Medical Ventures 1993 L.P., and 508,474
shares owned by Hillman Medical Ventures 1994 L.P. The general partners
of the Hillman Medical Ventures partnerships are Cashon Biomedical
Associates L.P. ("Cashon") and Hillman/Dover Limited Partnership
('"Hillman/Dover"). The general partners of Cashon are Hal S. Broderson,
Ronald J. Brenner and Charles G. Hadley (the "Cashon General Partners").
The general partner of Hillman/Dover is a wholly-owned subsidiary of The
Hillman Company, a firm engaged in diversified investments and
operations. The Hillman Company is controlled by Henry L. Hillman, Elsie
Hilliard Hillman and C.G. Grefenstette, Trustees (the "Trustees") of the
Henry L. Hillman Trust. The Cashon General Partners and the Trustees may
be deemed to be the beneficial owners of the 1,101,693 shares owned by
the Hillman Medical Ventures partnerships.
(4) Includes 21,207 shares held by Sierra Ventures International IV, L.P. and
529,639 shares held by Sierra Ventures IV, L.P.
(5) Adjusted to reflect the sale of 333,333 additional shares to Warner-
Lambert concurrently with the closing of this offering.
(6) Includes 28,528 shares subject to options exercisable within the 60-day
period following March 31, 1998.
(7) Includes 84,745 shares owned by Hillman Medical Ventures 1992 L.P.,
508,474 shares owned by Hillman Medical Ventures 1993 L.P. and 508,474
shares owned by Hillman Medical Ventures 1994 L.P. The general partners
of the Hillman Medical Ventures partnerships are Cashon Biomedical
Associates L.P. ("Cashon") and Hillman/Dover Limited Partnership
("Hillman/Dover"). The general partners of Cashon are Hal S. Broderson,
Ronald J. Brenner and Charles G. Hadley (the "Cashon General Partners").
The general partner of Hillman/Dover is a wholly-owned subsidiary of The
Hillman Company, a firm engaged in diversified investments and
operations. The Hillman Company is controlled by Henry L. Hillman, Elsie
Hillard Hillman and C.G. Grefenstette, Trustees (the "Trustees") of the
Henry L. Hillman Trust. The Cashon General Partners and the Trustees may
be deemed to be the beneficial owners of the 1,101,693 shares owned by
the Hillman Medical Ventures partnerships.
(8) Includes 286,397 shares held by Enterprise Development Fund, L.P., as to
which Mr. Porter disclaims beneficial ownership.
(9) Includes 16,322 shares held by Canaan Capital, L.P., 136,220 shares held
by Canaan Capital Offshore L.P., C.V. and 152,542 shares held by Canaan
S.B.I.C., L.P., as to which Mr. Rein disclaims beneficial ownership.
(10) Includes 550,846 shares held by Prince Venture Partners III, L.P., as to
which Mr. Zaic disclaims beneficial ownership.
(11) Includes 124,465 shares subject to options exercisable within the 60-day
period following March 31, 1998.
(12) Includes 23,076 shares subject to options exercisable within the 60-day
period following March 31, 1998, and 4,837 shares subject to repurchase
by the Company within such period.
(13) Includes 37,373 shares subject to options exercisable within the 60-day
period following March 31, 1998.
(14) Includes 9,886 shares subject to options exercisable within the 60-day
period following March 31, 1998, and 1,271 shares subject to repurchase
by the Company within such period.
(15) Includes 223,328 shares subject to options exercisable within the 60-day
period following March 31, 1998, and 6,108 shares subject to repurchase
by the Company within such period.

58
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company will consist of 50,000,000
shares of Common Stock and 5,000,000 shares of Preferred Stock after giving
effect to the Reverse Split, the conversion of all outstanding shares of
Preferred Stock into Common Stock and the restatement of the Company's
Certificate of Incorporation upon the closing of this offering.

The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Restated
Certificate which is included as an exhibit to the Registration Statement of
which this Prospectus is a part, and by the provisions of applicable law.

COMMON STOCK

As of March 31, 1998, there were 7,024,451 shares of Common Stock
outstanding which were held of record by 82 stockholders, on a pro forma basis
to reflect the Reverse Split and the conversion of all outstanding shares of
Preferred Stock which will occur upon the closing of this offering.

The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding Preferred Stock, the holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available for
that purpose. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of Preferred Stock, if any,
then outstanding. The Common Stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are
fully paid and non-assessable, and the shares of Common Stock to be issued
upon the closing of this offering will be fully paid and non-assessable.

PREFERRED STOCK

Effective upon the closing of this offering, the Company will be authorized
to issue 5,000,000 shares of undesignated Preferred Stock, none of which will
be outstanding upon the closing of this offering. The Board of Directors will
have the authority, without further action by the stockholders, to issue the
undesignated Preferred Stock in one or more series, to fix the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued shares of undesignated Preferred Stock and to fix the number of
shares constituting any series and the designation of such series.

The issuance of Preferred Stock may have the effect of delaying, deferring
or preventing a change in control of the Company without further action by the
stockholders, may discourage bids for the Company's Common Stock at a premium
over the market price of the Common Stock and may adversely affect the market
price of and the voting and other rights of the holders of Common Stock. At
present, the Company has no plans to issue any of the Preferred Stock.

WARRANTS

As of March 31, 1998, the Company had outstanding (i) a warrant to purchase
211,864 shares of Common Stock at $13.28 per share expiring in May 2001, or,
if the Company has not effected an initial public offering by May 31, 1998,
upon the fifth anniversary of the initial public offering, but not later than
May 31, 2006; (ii) a warrant to purchase 67,796 shares of Common Stock at
$14.75 per share expiring in May 2001, or, if the Company has not effected an
initial public offering by June 30, 1998, on the third anniversary of the
initial public offering but not later than June 30, 2006; (iii) a warrant to
purchase 16,949 shares of Common Stock at $5.90 per share expiring in
September 2006 and (iv) warrants to purchase 23,807 shares of Common Stock at
$5.90 per share expiring upon the later of October 17, 2005 and five years
from the effective date of the

59
<PAGE>

Company's initial public offering. The shares underlying certain of these
warrants are entitled to registration rights.

REGISTRATION RIGHTS

The holders of 6,375,891 shares of Common Stock and warrants to purchase
211,864 shares of Common Stock (the "Registrable Securities") or certain of
their transferees are entitled to certain rights with respect to the
registration of the Registrable Securities under the Securities Act. These
rights are provided under the terms of an agreement between the Company and
the holders of Registrable Securities. Subject to certain limitations in the
agreement, the holders of the Registrable Securities may require, on three
occasions beginning 180 days following the date of this Prospectus, that the
Company use its best efforts to register the Registrable Securities for public
resale. If the Company registers any of its Common Stock either for its own
account or for the account of other security holders, the holders of
Registrable Securities and holders of an additional 505,809 shares of the
Common Stock are entitled to include their shares of Common Stock in the
registration, subject to the ability of the underwriters to limit the number
of shares included in the offering. Certain holders of Registrable Securities
may also require the Company to register all or a portion of their Registrable
Securities on Form S-3 when use of such form becomes available to the Company.

DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS

The Company is governed by the provisions of Section 203 of the Delaware
Law. In general, Section 203 prohibits a public Delaware corporation from
engaging in "business combinations" 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 mergers, asset sales
or other transactions resulting in a financial benefit to a stockholder, and
an "interested stockholder" is a person who, together with affiliates and
associates owns (or within three years, did own) 15% or more of the
corporation's voting stock. The existence of this provision would be expected
to have anti-takeover effects with respect to transactions not approved in
advance by the Board of Directors, such as discouraging takeover attempts that
might result in a premium over the market price of the Common Stock.

Certain provisions of the Company's Restated Certificate and Amended and
Restated Bylaws may have the effect of preventing, discouraging or delaying a
change in the control of the Company and may maintain the incumbency of the
Board of Directors and management. The authorization of undesignated Preferred
Stock makes it possible for the Board of Directors to issue Preferred Stock
with voting or other rights or preferences that could impede the success of
any attempt to change control of the Company. In addition, the Company's
Amended and Restated Bylaws limit the ability of stockholders of the Company
to raise matters at a meeting of stockholders without giving advance notice.

The Restated Certificate provides that stockholder action can be taken only
at an annual or special meeting of stockholders and cannot be taken by written
consent in lieu of a meeting. The Amended and Restated Bylaws provide that,
except as otherwise required by law, special meetings of the stockholders can
only be called by the Board of Directors, by the President of the Company, or
by stockholders holding a majority of the shares outstanding and entitled to
vote.

The Amended and Restated Bylaws establish an advance notice procedure for
stockholder proposal to be brought before an annual meeting of stockholders of
the Company, including proposed nominations of persons for election to the
Board of Directors. Stockholders at an annual meeting may only consider
proposals or nominations specified in the notice of meeting or brought before
the meeting by or at the direction of the Board of Directors or by a
stockholder who was a stockholder of record on the record date for the
meeting, who is entitled to vote at the meeting and who has given to the
Company's Secretary timely written notice, in proper form, of the
stockholder's intention to bring that business before the meeting. Although
the Amended and Restated Bylaws do not give the Board of Directors the power
to approve or disapprove stockholder

60
<PAGE>

nominations of candidates or proposals regarding other business to be
conducted at a special or annual meeting, the Amended and Restated Bylaws may
have the effect of precluding the conduct of certain business at a meeting if
the proper procedures are not followed or may discourage or defer a potential
acquiror from conducting a solicitation of proxies to elect its own slate of
directors or otherwise attempting to obtain control of the Company.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is Chase Mellon
Shareholder Services, L.L.C.

61
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect prevailing market prices. Furthermore,
since only a limited number of shares will be available for sale shortly after
the offering because of certain contractual and legal restrictions on resale
described below, sales of substantial amounts of Common Stock of the Company
in the public market after restrictions lapse could adversely affect the
prevailing market price and the ability of the Company to raise equity capital
in the future.

Upon completion of the offering, the Company will have 9,857,784 shares of
Common Stock outstanding, assuming no exercise of currently outstanding
options. Of these shares, the 2,500,000 shares sold in this offering (plus any
additional shares sold upon exercise of the Underwriters' over-allotment
option) will be freely transferable without restriction under the Securities
Act, unless they are held by "affiliates" of the Company as that term is used
under the Securities Act and the regulations promulgated thereunder
("Affiliates"). The remaining 7,357,784 shares of Common Stock held by
existing stockholders are "restricted securities" as that term is defined in
Rule 144 of the Securities Act (the "Restricted Shares"). Restricted Shares
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144 or Rule 701 under the Securities
Act. As a result of contractual restrictions and the provisions of Rules 144
and 701, additional shares will be available for sale in the public market as
follows: (i) 49,748 Restricted Shares will be eligible for immediate sale on
the date of this Prospectus; (ii) 76,658 Restricted Shares will be eligible
for sale 90 days after the date of this Prospectus and (iii) 7,231,378
Restricted Shares will be eligible for sale 180 days from the date of this
Prospectus upon expiration of their respective holding periods under Rule 144.
In addition, 10,751 shares will be eligible for immediate sale on the date of
this Prospectus upon exercise of vested stock options, and 765,639 shares will
be issuable upon exercise of vested stock options 180 days after the effective
date of this offering upon the expiration of lock-up agreements.

In addition, the Company expects to file a registration statement on Form S-
8 registering a total of 2,326,218 shares of Common Stock subject to
outstanding stock options or reserved for issuance under the Company's equity
incentive plans. The Form S-8 registration statement is expected to be filed
and to become effective 180 days following the effective date of this
offering. Shares registered under such registration statement will be
available for sale in the open market, subject to Rule 144 value limitations
applicable to Affiliates, unless such shares are subject to vesting
restrictions with the Company.

In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the offering, an Affiliate of the Company or person (or
persons whose shares are aggregated) who has beneficially owned restricted
shares (as defined under Rule 144) for at least one year is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of (i) one percent of the then outstanding shares of the Company's
Common Stock or (ii) the average weekly trading volume of the Company's Common
Stock in the Nasdaq National Market during the four calendar weeks immediately
preceding the date on which the notice of the sale is filed with the
Commission. Sales pursuant to Rule 144 are subject to certain requirements
relating to the manner of sale, notice, and availability of current public
information about the Company. A person (or persons whose shares are
aggregated) who is not an Affiliate of the Company at any time during the 90
days immediately preceding the sale, and who has beneficially owned restricted
shares for

62
<PAGE>

at least two years is entitled to sell such shares under Rule 144(k) without
regard to the limitations described above.

An employee, officer or director of the Company or a consultant to the
Company who purchased or was awarded shares or options to purchase shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701 of the Securities Act, which permit Affiliates
and non-Affiliates to sell their Rule 701 shares without having to comply with
holding period restrictions of Rule 144, in each case commencing 90 days after
the date of this Prospectus. In addition, non-Affiliates may sell Rule 701
shares without complying with the public information, volume and notice
provisions of Rule 144.

63
<PAGE>

UNDERWRITING

The Underwriters named below, acting through their representatives,
BancAmerica Robertson Stephens, J.P. Morgan Securities Inc. and Donaldson,
Lufkin & Jenrette Securities Corporation (the "Representatives"), have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement, to purchase from the Company the number of shares of Common Stock
set forth opposite their respective names below. The Underwriters are
committed to purchase and pay for all such shares, if any are purchased.

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
BancAmerica Robertson Stephens................................
J.P. Morgan Securities Inc....................................
Donaldson, Lufkin & Jenrette Securities Corporation...........
---------
Total....................................................... 2,500,000
=========
</TABLE>

The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the initial
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price, less a concession of not more than $ per
share, of which $ per share may be reallowed to other dealers. After the
initial public offering, the public offering price, concession and
reallowances to dealers may be reduced by the Representatives.

The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
additional 375,000 shares of Common Stock at the same price per share as the
Company will receive for the 2,500,000 shares that the Underwriters have
agreed to purchase. To the extent that the Underwriters exercise such option,
each of the Underwriters will have a firm commitment to purchase approximately
the same percentage of such additional shares that the number of shares of
Common Stock to be purchased by it shown in the above table represents as a
percentage of 2,500,000 shares offered hereby. If purchased, such additional
shares will be sold by the Underwriters on the same terms as those on which
the 2,500,000 shares are being sold. The Company will be obligated, pursuant
to such option, to sell shares to the Underwriters to the extent such option
is exercised. The Underwriters may exercise such option only to cover over-
allotments made in connection with the sale of shares of Common Stock offered
hereby.

The Underwriting Agreement contains covenants of indemnity between the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liability arising from breaches of
representations and warranties contained in the Underwriting Agreement.

Each officer and director of the Company and certain stockholders, together
holding approximately 98.3% of the shares of Common Stock outstanding
immediately prior to the closing of the offering, have agreed with the
Representatives that, until 180 days from the date of this Prospectus, subject
to certain limited exceptions, they will not, directly or indirectly, sell,
offer, contract to sell, pledge, grant any option to purchase or otherwise
dispose of any shares of Common Stock (or any securities convertible into, or
exchangeable for, or any rights to purchase or acquire, shares of Common
Stock), held by such holders, acquired by such holder after the date hereof or
which may be deemed to be beneficially owned by such holder, without the prior
written consent of BancAmerica Robertson Stephens. Approximately 7,231,378 of
such shares will be eligible for immediate public sale following expiration of
the lock-up period and their respective holding periods under Rule 144.
BancAmerica Robertson Stephens may, in its sole discretion without notice,
release all or any portion of the securities subject to the lock-up
agreements. In addition, the Company has agreed that, until 180 days from the
date of this Prospectus, the Company will not, without the prior written
consent of

64
<PAGE>

BancAmerica Robertson Stephens, subject to certain limited exceptions, sell or
otherwise dispose of, any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock (or any securities convertible into,
exercisable for or exchangeable for shares of Common Stock) other than the
Company's sale of shares in this offering, the issuance of Common Stock upon
the exercise of outstanding options, or the Company's grant of options and
issuance of stock under existing stock option or stock purchase plans, or the
shares to be sold to Warner-Lambert concurrent with this offering or otherwise
pursuant to the Company's existing agreement with Warner-Lambert. See "Shares
Eligible for Future Sale."

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

The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in this offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level
above that which might otherwise prevail in the open market. A "stabilizing
bid" is a bid for or the purchase of the Common Stock on behalf of the
Underwriters for the purpose of fixing or maintaining the price of the Common
Stock. A "syndicate covering transaction" is the bid for or the purchase of
the Common Stock on behalf of the Underwriters to reduce a short position
incurred by the Underwriters in connection with this offering. A "penalty bid"
is an arrangement permitting the Representatives to reclaim the selling
concession otherwise accruing to an Underwriter or syndicate member in
connection with this offering if the Common Stock originally sold by such
Underwriter or syndicate member is purchased by the Representatives in a
syndicate covering transaction and has therefore not been effectively placed
by such Underwriter or syndicate member. The Representatives have advised the
Company that such transactions may be effected on the Nasdaq National Market
or otherwise and, if commenced, may be discontinued at any time.

Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined through negotiations between the Company and the
Representatives. The material factors to be considered in such negotiations
are prevailing market conditions, certain financial information of the Company
in recent periods, market valuations of other companies that the Company and
the Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development, the Company's management and other factors deemed relevant. The
estimated initial public offering price range set forth on the cover of this
preliminary prospectus is subject to change as a result of market conditions
and other factors. There can be no assurance that an active or orderly trading
market will develop for the Common Stock or that the Common Stock will trade
in the public market subsequent to this offering at or above the initial
trading price. See "Risk Factors--No Prior Public Market for the Common Stock;
Potential Volatility of Stock Price" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

65
<PAGE>

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. Certain legal matters will be passed upon
for the Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts.

EXPERTS

The financial statements of the Company as of December 31, 1996 and 1997,
and for each of the years in the three-year period ended December 31, 1997,
have been included herein and in the registration statement in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein and upon the authority of said firm as experts in
accounting and auditing.

Certain statements included in this Prospectus under the captions "Risk
Factors--Intellectual Property", "Business--GenVec Strategy", and "Business--
Intellectual Property" have been reviewed and approved by Leydig, Voit &
Mayer, Ltd., patent counsel for the Company, as experts on such matters.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the shares of Common Stock
offered hereby. As permitted by the rules and regulations of the Commission,
this Prospectus, which is a part of the Registration Statement, omits certain
information, exhibits, schedules and undertakings set forth in the
Registration Statement. For further information pertaining to the Company and
the Common Stock offered hereby, reference is made to such Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents or provisions of any contract or other document
referred to herein 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. A copy of the Registration Statement may be
inspected without charge at the office of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices located
at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York,
New York 10048. Copies of all or any part of the Registration Statement may be
obtained from such offices upon the payment of the fees prescribed by the
Commission. In addition, registration statements and certain other filings
made with the Commission through its Electronic Data Gathering, Analysis and
Retrieval ("EDGAR") system are publicly available through the Commission's web
site on the Internet's World Wide Web, located at http://www.sec.gov. The
Registration Statement, including all exhibits thereto and amendments thereof,
has been filed with the Commission through EDGAR.

66
<PAGE>

GENVEC, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of KPMG Peat Marwick LLP, Independent Auditors..................... F-2
Balance Sheets at December 31, 1996 and 1997 and March 31, 1998
(unaudited).............................................................. F-3
Statements of Operations for the years ended December 31, 1995, 1996 and
1997 and the three months ended March 31, 1997 (unaudited) and 1998
(unaudited).............................................................. F-4
Statements of Stockholders' Equity for the three years in the period ended
December 31, 1997 and the three months ended March 31, 1998 (unaudited).. F-5
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997 and the three months ended March 31, 1997 (unaudited) and 1998
(unaudited).............................................................. F-6
Notes to Financial Statements............................................. F-7
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
GenVec, Inc.:

We have audited the accompanying balance sheets of GenVec, Inc. as of
December 31, 1996 and 1997, and the related statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended 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 GenVec, Inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1997,
in conformity with generally accepted accounting principles.

/s/ KPMG Peat Marwick LLP

McLean, Virginia
March 6, 1998, except for Note 10

which is as of June 2, 1998

F-2
<PAGE>

GENVEC, INC.
BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- PRO FORMA
1996 1997 MARCH 31, 1998 MARCH 31, 1998
------------ ----------- -------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............. $ 5,146,226 $ 6,786,390 $ 4,694,205 $ 4,694,205
Short-term investments
(note 3)................ 2,579,124 2,577,990 2,567,866 2,567,866
Accounts receivable...... -- -- 2,000,000 2,000,000
Prepaid expenses......... 164,928 410,826 341,388 341,388
Other current assets..... 103,712 135,715 293,379 293,379
------------ ----------- ----------- -----------
Total current assets.... 7,993,990 9,910,921 9,896,838 9,896,838
------------ ----------- ----------- -----------
Property and equipment
(note 6):
Equipment................ 1,566,091 1,995,004 2,240,553 2,240,553
Leasehold improvements... 176,311 198,933 226,744 226,744
Furniture and fixtures... 58,256 82,481 90,814 90,814
------------ ----------- ----------- -----------
1,800,658 2,276,418 2,558,111 2,558,111
Less: accumulated
depreciation and
amortization............ (1,194,228) (1,678,562) (1,800,612) (1,800,612)
------------ ----------- ----------- -----------
Net property and
equipment.............. 606,430 597,856 757,499 757,499
------------ ----------- ----------- -----------
Other assets.............. 37,950 37,950 37,950 37,950
------------ ----------- ----------- -----------
Total assets............ $ 8,638,370 $10,546,727 $10,692,287 $10,692,287
============ =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......... $ 264,011 $ 387,150 $ 193,622 $ 193,622
Accrued expenses......... 252,509 252,891 419,396 419,396
Accrued technological
license and
intellectual property
expenses................ 439,466 920,484 1,177,478 1,177,478
Accrued payroll and
related expenses........ 245,843 94,341 91,783 91,783
Current portion of
capital lease
obligation (note 6)..... 414,529 174,611 131,386 131,386
------------ ----------- ----------- -----------
Total current
liabilities............ 1,616,358 1,829,477 2,013,665 2,013,665
------------ ----------- ----------- -----------
Capital lease obligation,
less current portion
(note 6).................... 157,729 46,563 26,273 26,273
Other non-current
liabilities.............. -- 26,500 13,250 13,250
------------ ----------- ----------- -----------
Total non-current
liabilities............ 157,729 73,063 39,523 39,523
------------ ----------- ----------- -----------
Commitments (note 6)
Stockholders' equity
(notes 5 and 7):
Convertible preferred
stock, $.001 par value:
Class A, 226,099 shares
authorized, issued and
outstanding
(liquidation preference
of $667,000) at
December 31, 1996 and
1997, and March 31,
1998 (no shares
authorized, issued and
outstanding pro
forma)................. 226 226 226 --
Class B, 2,000,079
shares authorized, and
1,918,688 shares issued
and outstanding
(liquidation preference
of $11,320,314) at
December 31, 1996 and
1997, and March 31,
1998 (no shares
authorized, issued and
outstanding pro
forma)................. 1,919 1,919 1,919 --
Class C, 3,570,332
shares authorized,
issued and outstanding
(liquidation preference
of $21,065,000) at
December 31, 1996 and
1997, and March 31,
1998 (no shares
authorized, issued and
outstanding pro
forma)................. 3,570 3,570 3,570 --
Class D, 338,983 shares
authorized, and 96,852
shares issued and
outstanding
(liquidation preference
of $1,000,000) at
December 31, 1996 and
1997, and March 31,
1998 (no shares
authorized, issued and
outstanding pro
forma)................. 97 97 97 --
Class E, 75,329 shares
authorized, issued and
outstanding
(liquidation preference
$1,000,000) at December
31, 1997 and March 31,
1998 (no shares
authorized, issued and
outstanding pro forma) -- 75 75 --
Class E1, 154,963 shares
authorized, issued and
outstanding
(liquidation preference
$2,000,000) at December
31, 1997 and March 31,
1998 (no shares
authorized, issued and
outstanding pro
forma)................. -- 155 155 --
------------ ----------- ----------- -----------
Total convertible
preferred stock....... 5,812 6,042 6,042 --
------------ ----------- ----------- -----------
Preferred stock, $0.001
par value, no shares
authorized, issued and
outstanding at December
31, 1996 and 1997, and
March 31, 1998,
(5,000,000 shares
authorized, no shares
issued and outstanding
pro forma).............. -- -- -- --
Common stock, $0.001 par
value, 8,814,423,
9,553,191 and 9,553,191
shares authorized at
December 31, 1996 and
1997, and March 31,
1998; 987,419,
1,021,013 and 1,029,488
shares issued and
outstanding at December
31, 1996 and 1997, and
March 31, 1998,
respectively,
(50,000,000 shares
authorized, 7,071,751
shares issued and
outstanding pro
forma).................. 987 1,021 1,030 7,072
Additional paid-in
capital................. 34,462,121 37,497,019 37,521,010 37,521,010
Accumulated deficit...... (27,604,590) (28,859,848) (28,888,936) (28,888,936)
Treasury stock, at cost,
47,300 common shares.... (47) (47) (47) (47)
------------ ----------- ----------- -----------
Total stockholders'
equity................. 6,864,283 8,644,187 8,639,099 8,639,099
------------ ----------- ----------- -----------
Total liabilities and
stockholders' equity... $ 8,638,370 $10,546,727 $10,692,287 $10,692,287
============ =========== =========== ===========
</TABLE>

See accompanying notes to financial statements.

F-3
<PAGE>

GENVEC, INC.

STATEMENTS OF OPERATIONS

See accompanying notes to financial statements.

F-4
<PAGE>

GENVEC, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D CLASS E
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
---------------- ------------------ ------------------ ----------------- -----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ------ ---------- ------ ---------- ------ -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1994............ 226,099 $ 226 1,850,109 $1,850 1,474,569 $1,475 -- $ -- -- $ --
Issuance of
Class C
convertible
preferred
shares, net of
issuance costs
of $53,698 (note
7).............. -- -- -- -- 2,095,763 2,095 -- -- -- --
Issuance of
common stock.... -- -- -- -- -- -- -- -- -- --
Exercise of
options......... -- -- -- -- -- -- -- -- -- --
Issuance of
stock for
Theragen
contingent
shares, net of
issuance costs
of $13,335 (note
4).............. -- -- 68,579 69 -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
-------- ----- ---------- ------ ---------- ------ -------- ------ -------- ------
Balance,
December 31,
1995............ 226,099 226 1,918,688 1,919 3,570,332 3,570 -- -- -- --
Issuance of
Class D
convertible
preferred
shares, net of
issuance costs
of $8,683
(note 7)........ -- -- -- -- -- -- 96,852 97 -- --
Purchase of
47,300 common
shares (note
7).............. -- -- -- -- -- -- -- -- -- --
Exercise of
options......... -- -- -- -- -- -- -- -- -- --
Stock option and
warrant
compensation
expense
(note 7)........ -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
-------- ----- ---------- ------ ---------- ------ -------- ------ -------- ------
Balance,
December 31,
1996............ 226,099 226 1,918,688 1,919 3,570,332 3,570 96,852 97 -- --
Issuance of
Class E
convertible
preferred
shares, net of
issuance costs
of $3,215
(note 7)........ -- -- -- -- -- -- -- -- 75,329 75
Issuance of
Class E1
convertible
preferred
shares, net of
issuance costs
of $68,842 (note
7).............. -- -- -- -- -- -- -- -- -- --
Exercise of
options......... -- -- -- -- -- -- -- -- -- --
Stock option and
warrant
compensation
expense
(note 7)........ -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
-------- ----- ---------- ------ ---------- ------ -------- ------ -------- ------
Balance,
December 31,
1997............ 226,099 226 1,918,688 1,919 3,570,332 3,570 96,852 97 75,329 75
Exercise of
options
(unaudited)..... -- -- -- -- -- -- -- -- -- --
Stock option
compensation
expense
(unaudited)..... -- -- -- -- -- -- -- -- -- --
Net loss
(unaudited)..... -- -- -- -- -- -- -- -- -- --
-------- ----- ---------- ------ ---------- ------ -------- ------ -------- ------
Balance, March
31, 1998
(unaudited)..... 226,099 226 1,918,688 1,919 3,570,332 3,570 96,852 97 75,329 75
Pro forma
conversion of
preferred stock
to common stock
(unaudited)..... (226,099) (226) (1,918,688) (1,919) (3,570,332) (3,570) (96,852) (97) (75,329) (75)
-------- ----- ---------- ------ ---------- ------ -------- ------ -------- ------
Pro forma
balance at March
31, 1998
(unaudited)..... -- $ -- -- $ -- -- $ -- -- $ -- -- $ --
======== ===== ========== ====== ========== ====== ======== ====== ======== ======
<CAPTION>
CLASS E1 TREASURY
PREFERRED STOCK COMMON STOCK ADDITIONAL STOCK
----------------- ---------------- PAID-IN ACCUMULATED --------
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT AMOUNT TOTAL
--------- ------- --------- ------ ------------ ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1994............ -- $ -- 532,480 $ 533 $20,425,958 $(11,947,257) $ -- $8,482,785
Issuance of
Class C
convertible
preferred
shares, net of
issuance costs
of $53,698 (note
7).............. -- -- -- -- 12,309,207 -- -- 12,311,302
Issuance of
common stock.... -- -- 20,424 20 12,030 -- -- 12,050
Exercise of
options......... -- -- 7,812 8 5,030 -- -- 5,038
Issuance of
stock for
Theragen
contingent
shares, net of
issuance costs
of $13,335 (note
4).............. -- -- 63,492 63 428,611 -- -- 428,743
Net loss........ -- -- -- -- -- (7,549,172) -- (7,549,172)
--------- ------- --------- ------ ------------ ------------- -------- -----------
Balance,
December 31,
1995............ -- -- 624,208 624 33,180,836 (19,496,429) -- 13,690,746
Issuance of
Class D
convertible
preferred
shares, net of
issuance costs
of $8,683
(note 7)........ -- -- -- -- 991,220 -- -- 991,317
Purchase of
47,300 common
shares (note
7).............. -- -- -- -- (27,860) -- (47) (27,907)
Exercise of
options......... -- -- 363,211 363 212,865 -- -- 213,228
Stock option and
warrant
compensation
expense
(note 7)........ -- -- -- -- 105,060 -- -- 105,060
Net loss........ -- -- -- -- -- (8,108,161) -- (8,108,161)
--------- ------- --------- ------ ------------ ------------- -------- -----------
Balance,
December 31,
1996............ -- -- 987,419 987 34,462,121 (27,604,590) (47) 6,864,283
Issuance of
Class E
convertible
preferred
shares, net of
issuance costs
of $3,215
(note 7)........ -- -- -- -- 996,712 -- -- 996,787
Issuance of
Class E1
convertible
preferred
shares, net of
issuance costs
of $68,842 (note
7).............. 154,963 155 -- -- 1,931,002 -- -- 1,931,157
Exercise of
options......... -- -- 33,594 34 22,286 -- -- 22,320
Stock option and
warrant
compensation
expense
(note 7)........ -- -- -- -- 84,898 -- -- 84,898
Net loss........ -- -- -- -- -- (1,255,258) -- (1,255,258)
--------- ------- --------- ------ ------------ ------------- -------- -----------
Balance,
December 31,
1997............ 154,963 155 1,021,013 1,021 37,497,019 (28,859,848) (47) 8,644,187
Exercise of
options
(unaudited)..... -- -- 8,475 9 4,991 -- -- 5,000
Stock option
compensation
expense
(unaudited)..... -- -- -- -- 19,000 -- -- 19,000
Net loss
(unaudited)..... -- -- -- -- -- (29,088) -- (29,088)
--------- ------- --------- ------ ------------ ------------- -------- -----------
Balance, March
31, 1998
(unaudited)..... 154,963 155 1,029,488 1,030 37,521,010 (28,888,936) (47) 8,639,099
Pro forma
conversion of
preferred stock
to common stock
(unaudited)..... (154,963) (155) 6,042,263 6,042 -- -- -- --
--------- ------- --------- ------ ------------ ------------- -------- -----------
Pro forma
balance at March
31, 1998
(unaudited)..... -- $ -- 7,071,751 $7,072 $37,521,010 $(28,888,936) $(47) $8,639,099
========= ======= ========= ====== ============ ============= ======== ===========
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE>

GENVEC, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- -----------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(7,549,172) $(8,108,161) $(1,255,258) $(2,089,670) $ (29,088)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization
expense............. 387,045 503,285 484,334 119,916 132,174
Stock option and
warrant compensation
expense (note 7).... -- 105,060 84,898 -- 19,000
Non-cash purchase of
in-process
technology (note
4).................. 442,078 -- -- -- --
(Increase) decrease
in other current
assets.............. (3,276) (66,669) (32,003) 39,736 (157,664)
(Increase) decrease
in other assets..... (4,696) 514 -- -- --
(Increase) in
accounts
receivable.......... -- -- -- -- (2,000,000)
(Increase) decrease
in prepaid
expenses............ (170,684) 82,718 (245,897) 4,347 69,438
Increase (decrease)
in accounts
payable............. (84,148) (334,736) 123,139 (29,501) (193,528)
Increase (decrease)
in accrued
expenses............ 37,344 459,634 (151,121) 20,321 297,597
Increase (decrease)
in accrued
technological
license and
intellectual
property expenses... 9,211 430,344 481,018 (292,987) 123,344
Increase (decrease)
in other non-current
liabilities......... -- -- 26,500 -- (13,250)
----------- ----------- ----------- ----------- ----------
Net cash used in
operating
activities......... (6,936,298) (6,928,011) (484,390) (2,227,838) (1,751,977)
----------- ----------- ----------- ----------- ----------
Cash flows from
investing activities:
Purchase of property
and equipment........ (235,053) (86,387) (475,760) (64,040) (281,693)
Purchases of
investments.......... -- (8,769,124) (4,361,879) (1,783,889) --
Proceeds from
maturities of
investments.......... -- 6,190,000 4,363,013 2,094,412 --
----------- ----------- ----------- ----------- ----------
Net cash provided by
(used in) investing
activities......... (235,053) (2,665,511) (474,626) 246,483 (281,693)
----------- ----------- ----------- ----------- ----------
Cash flows from
financing activities:
Proceeds from issuance
of common stock...... 5,038 213,228 22,320 3,618 5,000
Proceeds from issuance
of preferred stock,
net of issuance
costs................ 12,311,302 991,317 2,927,944 -- --
Purchase of treasury
stock................ -- (27,907) -- -- --
Payments under capital
lease obligation..... (302,020) (433,191) (351,084) (104,707) (63,515)
Sale of property and
equipment............ -- 116,555 -- -- --
----------- ----------- ----------- ----------- ----------
Net cash provided by
(used in) financing
activities......... 12,014,320 860,002 2,599,180 (101,089) (58,515)
----------- ----------- ----------- ----------- ----------
Increase (decrease) in
cash and cash
equivalents........... 4,842,969 (8,733,520) 1,640,164 (2,082,444) (2,092,185)
Cash and cash
equivalents, beginning
of period............. 9,036,777 13,879,746 5,146,226 5,146,226 6,786,390
----------- ----------- ----------- ----------- ----------
Cash and cash
equivalents, end of
period................ $13,879,746 $ 5,146,226 $ 6,786,390 $ 3,063,782 $4,694,205
=========== =========== =========== =========== ==========
Supplemental
disclosures of cash
flow information:
Cash paid during the
period for interest.. $ 73,568 $ 75,272 $ 36,158 $ 12,901 $ 2,332
=========== =========== =========== =========== ==========
Supplemental schedule
of non-cash investing
and financing
activities:
Capital stock issued
for the purchase of
Theragen, Inc.
(note 4)............. $ 428,743 $ -- $ -- $ -- $ --
=========== =========== =========== =========== ==========
Assets acquired under
capital lease (note
6)................... $ 391,678 $ -- $ -- $ -- $ --
=========== =========== =========== =========== ==========
Issuance of stock in
payment of accrued
expenses............. $ 12,050 $ -- $ -- $ -- $ --
=========== =========== =========== =========== ==========
</TABLE>

See accompanying notes to financial statements.

F-6
<PAGE>

GENVEC, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1997 AND 1996

(1) ORGANIZATION AND BUSINESS DESCRIPTION

GenVec, Inc. ("GenVec" or the "Company") was incorporated under the laws of
the state of Delaware on December 7, 1992. GenVec focuses on the development
and commercialization of novel gene therapy products for major disease
markets. GenVec's lead product candidate, BIOBYPASS angiogen, is currently in
Phase I/II clinical trials for the treatment of coronary artery disease.
GenVec also intends to initiate a Phase I/II clinical trial in patients with
peripheral vascular disease in May 1998. The Company is developing BIOBYPASS
angiogen as part of its collaboration with the Warner-Lambert Company
("Warner-Lambert"), under which the Company could receive payments totaling
over $100 million in milestone payments, research funding, equity purchases
and technology access fees, upon the achievement of specified milestones. As
of April 20, 1998, Warner-Lambert had paid to the Company $13.5 million under
this collaboration. The Company is also pursuing research and development
programs in the areas of vascular damage, oncology and neurology. GenVec has
entered into corporate collaborations with Varian Associates, Inc. ("Varian")
and Fuso Pharmaceutical Industries, Ltd. ("Fuso") in certain areas of
oncology.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Interim Financial Information

The interim financial statements of the Company for the three months ended
March 31, 1997 and 1998, included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations relating to interim financial statements. In the opinion
of management, the accompanying unaudited interim financial statements reflect
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company at March 31, 1997 and
1998, and the results of its operations and its cash flows for the three
months ended March 31, 1997 and 1998.

Revenue Recognition

Revenue from research and development contracts is recognized when
performance obligations are met as defined under the terms of the respective
contracts. Revenue from milestone events is recognized when the milestone is
achieved. Research and milestone revenue recognized in the accompanying
statements of operations is not subject to repayment.

Research and Development

Research and development costs are charged to operations as incurred. Such
costs include proprietary research and development activities and expenses
associated with collaborative research agreements.

Technological License and Intellectual Property

Technological license and intellectual property costs consist of payments
associated with license agreements and legal costs associated with the
acquisition and development of intellectual property. Costs associated with
the acquisition and development of intellectual property are expensed when
incurred.

F-7
<PAGE>

GENVEC, INC.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

DECEMBER 31, 1997 AND 1996

Property and Equipment

Property and equipment are stated at cost. Capitalized lease assets are
stated at the lower of the present value of the future minimum lease payments
or fair value at the inception of the lease.

Property and equipment is depreciated over the estimated useful lives of
assets, generally three to seven years, using the straight-line method.

Income Taxes

Income taxes are accounted for in accordance with Statement 109, Accounting
for Income Taxes.

Under the asset and liability method of Statement 109, deferred tax assets
and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that are expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.

Cash and Cash Equivalents

Cash equivalents consist of highly liquid investments with original
maturities of three months or less, and are recorded at amortized cost which
approximates fair value. Cash equivalents consist primarily of money market
funds, bonds and commercial paper.

Short-term Investments

The Company's short-term investments, consisting primarily of bonds and
commercial paper, are classified as held to maturity portfolio as the Company
has both the ability and intent to hold securities until maturity. The
portfolio is carried at amortized cost which approximates fair value.

Basic Net Loss Per Share and Pro Forma Basic Net Loss Per Share

The Company adopted Statement 128, Earnings Per Share, in 1997. Statement
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 Statement 128, basic net loss per share has been computed
using the weighted average number of shares of common stock outstanding during
the period. The Company has no nominal issued shares as defined in Securities
Exchange Commission Staff Accounting Bulletin No. 98.

Pro forma basic 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 occur upon completion
of the Company's initial public offering (using the as-if converted method
from the original date of issuance.)

F-8
<PAGE>

GENVEC, INC.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

DECEMBER 31, 1997 AND 1996

A reconciliation of shares used in the calculation of basic and pro forma
basic net loss per share follows (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS
------------------------------ ENDED
1995 1996 1997 MARCH 31, 1998
-------- -------- ---------- ---------------
(unaudited)
<S> <C> <C> <C> <C>
Net loss....................... $ (7,549) $ (8,108) $ (1,255) $ (29)
======== ======== ========== ==========
Weighted average shares of
common stock outstanding
(shares used in computing
basic net loss per share)..... 561,319 801,769 956,856 976,365
Basic net loss per share....... $ (13.45) $ (10.11) $ (1.31) $ (0.03)
======== ======== ========== ==========
Shares used in computing basic
net loss per share............ 956,856 976,365
Adjustment to reflect the
effect of the assumed
conversion of preferred
stock......................... 6,042,263 6,042,263
---------- ----------
Shares used in computing pro
forma basic net loss per
share......................... 6,999,119 7,018,628
========== ==========
Pro forma basic net loss per
share......................... $ (0.18) $ (0.01)
========== ==========
</TABLE>

Had the Company been in a net income position, diluted earnings per share
would have been presented and would have included the shares used in the
computation of pro forma basic net loss per share as well as additional
potential common shares related to outstanding options and warrants. The
diluted EPS computation is not included, as all potential common shares are
antidilutive.

Pro Forma Balance Sheet (unaudited)

The unaudited pro forma balance sheet as of March 31, 1998, reflects the
conversion of the existing shares of convertible preferred stock into an
equivalent number of shares of common stock (adjusted for the common stock
reverse split), which conversion is contingent upon the closing of the
offering (see note 10).

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles may require 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.

Fair Value of Financial Instruments

The carrying amounts of the Company's financial instruments, as reflected in
the accompanying balance sheets, approximate fair value. Financial instruments
consist of cash and cash equivalents, short-term investments, accounts
receivable, accounts payable, accrued technological license and intellectual
property expenses, accrued expenses, accrued payroll and related expenses and
capital lease obligations.

Stock Option Plan

The Company accounts for its stock option plan in accordance with Statement
123, Accounting for Stock-Based Compensation, which permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, Statement 123 also allows entities
to continue to apply the provisions of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and provide pro forma

F-9
<PAGE>

GENVEC, INC.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

DECEMBER 31, 1997 AND 1996

net income and pro forma earnings per share disclosures for employee stock
option grants as if the fair-value-based method defined in Statement 123 had
been applied. Under APB Opinion No. 25, compensation expense would be recorded
on the date of grant only if the current market price of the underlying stock
exceeded the exercise price. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosures of
Statement 123 for employee stock option grants. Non-employee stock option
grants (including options granted to members of the Scientific Advisory Board)
are recorded in accordance with the provisions of Statement 123.

(3) SHORT-TERM INVESTMENTS

The Company holds all securities to maturity. The amortized cost, gross
unrealized holding gains and losses and fair value for held-to-maturity
securities by major security type at December 31, 1996 and 1997 and March 31,
1998, are as follows:

<TABLE>
<CAPTION>
1996
------------------------------------
GROSS
UNREALIZED
AMORTIZED HOLDING FAIR
COST GAINS (LOSSES) VALUE
---------- -------------- ----------
<S> <C> <C> <C>
Classified as investments:
Corporate bonds...................... $1,686,350 $15,759 $1,702,109
Commercial paper..................... 892,774 (6,537) 886,237
---------- ------- ----------
$2,579,124 $ 9,222 $2,588,346
========== ======= ==========
Classified as cash equivalents:
Corporate bonds...................... $ 601,932 $ 37 $ 601,969
Commercial paper..................... 989,656 -- 989,656
---------- ------- ----------
$1,591,588 $ 37 $1,591,625
========== ======= ==========
</TABLE>

<TABLE>
<CAPTION>
1997
------------------------------------
GROSS
UNREALIZED
AMORTIZED HOLDING FAIR
COST GAINS (LOSSES) VALUE
---------- -------------- ----------
<S> <C> <C> <C>
Classified as investments:
Tax exempt bonds..................... $ 499,191 $ 534 $ 499,725
Corporate bonds...................... 2,078,799 2,327 2,081,126
---------- ------ ----------
$2,577,990 $2,861 $2,580,851
========== ====== ==========
Classified as cash equivalents:
Corporate bonds...................... $1,998,589 $1,411 $2,000,000
Commercial paper..................... 1,286,427 -- 1,286,427
---------- ------ ----------
$3,285,016 $1,411 $3,286,427
========== ====== ==========
</TABLE>

F-10
<PAGE>

GENVEC, INC.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
MARCH 31, 1998 (UNAUDITED)
------------------------------------
GROSS
UNREALIZED
AMORTIZED HOLDING FAIR
COST GAINS (LOSSES) VALUE
---------- -------------- ----------
<S> <C> <C> <C>
Classified as investments:
Tax exempt bonds..................... $ 499,591 $ 239 $ 499,830
Corporate bonds...................... 2,068,275 5,209 2,073,484
---------- ------ ----------
$2,567,866 $5,448 $2,573,314
========== ====== ==========
Classified as cash equivalents:
Commercial paper..................... $3,387,799 $ -- $3,387,799
---------- ------ ----------
$3,387,799 $ -- $3,387,799
========== ====== ==========
</TABLE>

(4) PURCHASE OF THERAGEN, INC.

Pursuant to an agreement effective August 8, 1994, the Company acquired
Theragen, Inc., ("Theragen") a gene therapy company incorporated under the
laws of the state of Michigan. This acquisition transferred all of Theragen's
technology, know-how and licenses to the Company. The purchase was effected
through an exchange of all shares of Theragen stock outstanding immediately
prior to the acquisition for up to 964,940 shares of the Company's capital
stock which was comprised of 304,486 shares of common stock, valued at $0.59
per share, 367,067 shares of Class B convertible preferred stock valued at
$5.90 per share, and options to purchase 39,455 shares of common stock at
$0.59 per share. This included contingent shares of 253,932 that were to be
issued or vested upon the achievement of certain milestones. The cost of the
acquisition was $2,580,798 in 1994, which consisted of the fair value as
determined by the Company's Board of Directors, of the Company's capital stock
contributed on the purchase date as well as other direct transaction-related
costs. These costs were recorded as purchase of in-process technology expense
since no capitalizable technology was purchased. The acquisition was accounted
for using the purchase method. Accordingly, the results of operations of the
acquired company were included with those of the Company for periods
subsequent to the date of acquisition.

In November 1995, the terms for the issuance or vesting of the contingent
shares were modified. Instead of issuing these shares upon the achievement of
certain milestones, shares and options were issued or vested in 1995 in an
amount equal to approximately 55.1% of the original issuable contingent shares
in lieu of all contingent rights of former Theragen stockholders. As a result,
68,579 shares of Class B convertible preferred stock were issued as $5.90 per
share and 63,492 shares of common stock were issued at $0.59 per share, while
options totaling 7,759 were vested, and 14,091 were canceled. Shares were
issued at fair value as determined by the Company's Board of Directors,. The
cost of the stock transaction is deemed to be part of the acquisition cost,
and is reflected in the accompanying statements of operations as purchase of
in-process technology expense.

(5) RESEARCH AND DEVELOPMENT AGREEMENTS

Fuso Pharmaceuticals Industries, Ltd.

In September 1997, the Company and Fuso established a collaboration to
conduct research and to identify, evaluate and develop gene therapy products
for the treatment of cancer. If the research program continues for its full
term, Fuso is required to provide $1.0 million in research funding annually
for five years, of which $750,000 will be paid to the Company each year. Fuso
has the right to terminate the collaboration after the second anniversary of
the collaboration upon 90 days prior written notice. In connection with

F-11
<PAGE>

GENVEC, INC.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

DECEMBER 31, 1997 AND 1996

establishment of the collaboration, Fuso purchased $1.0 million of the
Company's capital stock consisting of 75,329 shares of the Company's Class E
convertible preferred stock for $13.28 per share. The Company recognized
contract revenues from Fuso of $187,500 for the year ended December 31, 1997
and $187,500 for the three months ended March 31, 1998.

As part of the collaboration, the Company granted Fuso an exclusive,
royalty-bearing license to develop and commercialize products developed under
the collaboration for the treatment of cancer in Japan and at Fuso's option,
Korea and Taiwan. Fuso will be responsible for the development and
commercialization of any products in its territory. The Company will receive
additional payments for the achievement by Fuso of specified product
development and regulatory milestones, and royalties on the sale of any such
products commercialized by Fuso. The Company has retained all rights to
develop and commercialize such products for the treatment of cancer in the
rest of the world, and for all other uses worldwide, subject to certain
restrictions, independently and with third parties.

Warner-Lambert Company

In July 1997, Warner-Lambert, a stockholder then owning 7,487 shares of the
Company's common stock and 187,405 shares of the Company's Class B preferred
stock, entered into a collaboration agreement and a stock purchase agreement
with the Company to develop and commercialize gene therapy products
incorporating the VEGF gene for therapeutic angiogenesis ("Collaboration
Products"). Under the agreements, the Company may receive more than $100
million in milestone payments, research funding, equity purchases and
technology access fees, if specified milestones are achieved. Pursuant to the
collaboration agreement, Warner-Lambert had paid to the Company an aggregate
of $13.5 million through April 20, 1998, of which the Company recognized
revenues of $10.0 million for the year ended December 31, 1997, and $3.5
million for the three months ended March 31, 1998.

Pursuant to the stock purchase agreement, Warner-Lambert purchased $2.0
million of the Company's capital stock in December 1997, consisting of 154,963
shares of the Company's Class E1 preferred stock at a price of approximately
$12.91 per share. In addition, Warner-Lambert has agreed to purchase $5.0
million of the Company's common stock in a private transaction concurrent with
an IPO at 125% of the price at which a share of common stock is sold to the
public.

Genentech, Inc.

In May 1993, Genentech, Inc. ("Genentech"), a stockholder owning 56,610
shares of the Company's Class A preferred stock, and 338,983 shares each of
the Company's Class B and Class C convertible preferred stock as of December
31, 1997 and March 31, 1998, executed a research and development agreement
with the Company. Under this agreement, the Company performed research and
development activities with respect to gene therapy products for cystic
fibrosis. Genentech was required to make certain research and development
payments and certain milestone payments to the Company aggregating up to
$12.75 million, in exchange for the right to develop, manufacture, and sell
potential products in the cystic fibrosis field. Effective

F-12
<PAGE>

GENVEC, INC.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

DECEMBER 31, 1997 AND 1996

September 12, 1996, the research and development agreement between the Company
and Genentech terminated due to a change in research focus. Contract revenues
of $1,000,000, $698,370 and $0 were recognized from Genentech in 1995, 1996
and 1997, respectively.

Varian Associates, Inc.

In March 1998, the Company and Varian entered into a three-year
collaborative agreement in the field of radiation and gene therapy. Under the
agreement, the parties will collaborate on the preclinical and clinical
research and development of specific products and technology, with the goal of
developing novel, improved therapies based on the combined use of radiation
therapy and gene therapy products. Varian will have primary responsibility for
the development of equipment and software for delivery of targeted radiation
therapy, and the Company will have primary responsibility for developing gene
therapy products. The Company and Varian each retain the right to develop and
commercialize their respective products and technologies independently or with
third parties.

Scios, Inc.

In May 1996, the Company entered into an exclusive, worldwide license
agreement with Scios for rights to all gene therapy applications of its
proprietary form of the VEGF gene. The parties will share in certain profits
the Company realizes from the research, development and commercialization of
products incorporating the VEGF gene. The Company has agreed to provide a
minimum royalty on revenues generated from the development of these products,
which is creditable against the profits to be shared. In connection with the
license agreement, Scios purchased 96,852 shares of the Company's Class D
convertible preferred stock at a price of $10.33 per share. In addition, the
Company granted Scios a warrant to purchase shares of the Company's Common
Stock, which vests upon the earlier of the achievement of specified product
development milestone events or certain dates. The warrants remain outstanding
as of March 31, 1998.

(6) COMMITMENTS

Lease Agreements

In January 1994, the Company entered into a capital lease agreement allowing
it to fund the acquisition of up to $1.5 million of furniture and equipment
purchases. Lease terms of new purchases were 42 months with an interest rate
of 9.6%. In connection with this agreement, the Company granted the lessor
warrants to purchase approximately 23,800 shares of Class B convertible
preferred stock at a purchase price of approximately $5.90 per share. Pursuant
to this lease agreement, in May 1994, the Company entered into a sale lease-
back transaction whereby it sold and subsequently leased-back furniture and
equipment to which it held title. Additional equipment purchases have been
funded under extensions made to this agreement through 1996.

F-13
<PAGE>

GENVEC, INC.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

DECEMBER 31, 1997 AND 1996

Included in property and equipment at December 31, 1996 and 1997 and March
31, 1998, are assets recorded under this agreement of $1,404,620, $813,552 and
$732,155, respectively. Accumulated depreciation and amortization at December
31, 1996 and 1997 and March 31, 1998, includes amounts for the capital lease
of $906,311, $716,565 and $693,277, respectively.

Future minimum lease payments due under this capital lease at December 31,
1997, are as follows:

<TABLE>
<S> <C>
1998............................................................... $186,007
1999............................................................... 47,988
--------
Total minimum lease payments....................................... 233,995
Less amounts representing interest at 9.6%......................... 12,821
--------
Present value of minimum capital lease payments.................... 221,174
Less current installments.......................................... 174,611
--------
Obligations under capital lease, net of current installments....... $ 46,563
========
</TABLE>

During 1997, portions of the Company's capital lease expired. The Company
has continued leasing assets under the expired leases on a month-to-month
basis.

In addition to the aforementioned capital lease, the Company leases office
and laboratory space under month-to-month operating leases. The Company may
terminate the office and laboratory space leases, one at a time, over a
minimum period of 210 days. Rent expense under operating leases was
approximately $156,000, $167,000 and $240,000 for the years ended December 31,
1995, 1996 and 1997, and approximately $50,000 and $117,000 for the three
months ended March 31, 1997 and 1998, respectively.

Research and Development Agreements

The Company has agreed to provide grants for certain research projects under
agreements with several universities and research organizations. Under the
terms of these agreements, the Company has received exclusive licenses to the
resulting technology. Total grants paid by the Company were $2,598,000,
$2,277,000 and $2,734,000 for the years ended December 31, 1995, 1996 and
1997, and $711,000 and $608,000 for the three months ended March 31, 1997 and
1998, respectively. The Company has commitments to pay up to approximately
$2,064,000, $1,698,000, $1,425,000, $1,425,000 and $356,000 related to these
grants for the years ended 1998, 1999, 2000, 2001, and 2002, respectively .

(7) STOCKHOLDERS' EQUITY

Capital Changes

Effective in December 1995, the Company amended its Certificate of
Incorporation which effected the authorization of a total of 7,848,321 shares
of common stock and 3,570,332 shares of Class C convertible preferred stock,
each having a par value of $0.001 per share.

Effective in June 1996, the Company restated its Certificate of
Incorporation which effected the authorization of a total of 8,814,423 shares
of common stock and 338,983 shares of Class D convertible preferred stock,
each having a par value of $0.001 per share.

F-14
<PAGE>

GENVEC, INC.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

DECEMBER 31, 1997 AND 1996

Effective in December 1997, the Company amended its Certificate of
Incorporation which effected the authorization of a total of 9,553,191 shares
of common stock, 75,329 shares of Class E convertible preferred stock and
154,963 shares of Class E1 convertible preferred stock, each having a par
value of $0.001 per share.

Convertible Preferred Stock

In September 1995, the Company issued an additional 2,095,763 shares of
Class C convertible preferred stock in a private placement. In May 1996, the
Company issued 96,852 shares of Class D convertible preferred stock. In
December 1997, the Company issued 75,329 shares of Class E convertible
preferred stock and 154,963 shares of Class E1 convertible preferred stock.

Since its inception, the Company has issued 6,042,263 shares of convertible
preferred stock (Class A, B, C, D, E and E1) for aggregate cash consideration
of $34,482,000. Preferred stockholders participate in the dividends declared
to common stockholders, if any, in an amount proportionate to the number of
shares of common stock into which the preferred stock is convertible.
Preferred holders are entitled to one vote for each share of common stock into
which the preferred shares can be converted.

In the event of any voluntary or involuntary liquidation of the Company,
before any distribution can be made to the holders of common stock, the
preferred stockholders are entitled to receive payment of $2.95 for each share
of Class A convertible preferred stock, $5.90 for each share of Class B and C
convertible preferred stock, $10.33 for each share of Class D convertible
preferred stock, $13.28 for each share of Class E convertible preferred stock
and $12.91 for each share of Class E1 convertible preferred stock plus any
declared but unpaid dividends. No dividends were declared for the years ended
December 31, 1995, 1996 and 1997, or for the three months ended March 31,
1998.

Holders of Class A, B, C, D, E and E1 convertible preferred stock have the
right at any time, at their option, to convert without the payment of
additional consideration, each preferred stock share into an equivalent number
of common stock shares. Holders of Class A, B, C, D, E and E1 convertible
preferred stock convert at a one-for-one basis. The conversion rates of the
Class A, B and C convertible preferred stock are subject to certain
antidilution adjustments in the event of certain issuances of stock by the
Company at prices below the original purchase price of the stock. The Company
has reserved 6,042,263 shares of common stock for issuance upon conversion of
the Class A, B, C, D, E and E1 convertible preferred stock. Upon the
occurrence of an initial public offering of GenVec stock which yields the
Company at least $15 million, all preferred stock shares will convert to
common stock shares. The preferred stockholders have voting rights equal to
the common shares they would own upon conversion.

Treasury Stock

Outstanding shares of common stock totaling 47,300 were repurchased by the
Company in 1996 at $0.59 per share. The shares were purchased from two
employees who left the Company in 1996.

Restricted Common Stock

In 1993, the Company issued to a former officer a total of 185,939 shares of
restricted common stock at a purchase price equal to the fair market value on
the date of grant in 1993, and recorded notes receivable as a reducing
component of equity (reduction in additional paid-in capital). As of March 31,
1998, 135,092 shares are still restricted and the Company has a note
receivable with a former officer for $79,704 plus accrued interest of $27,760
related to this restricted common stock.

F-15
<PAGE>

GENVEC, INC.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

DECEMBER 31, 1997 AND 1996

Stock Incentive Plan

The Company adopted its 1993 Stock Incentive Plan (the "Stock Plan") in
October 1993. The Stock Plan was amended and restated in October 1997 and
April 1998. An aggregate of 1,846,218 shares of common stock has been reserved
for issuance, which number will be increased on each anniversary date of the
adoption of the Stock Plan, beginning in 1999, by a number of shares equal to
the number of shares needed to restore the maximum aggregate number of shares
reserved for issuance under the Stock Plan to 1,846,218 or a lesser amount
determined by the Board of Directors. The Stock Plan will continue in effect
for a term of ten years, unless terminated by the Board at an earlier date.

Options to purchase common stock under the Stock Plan are exercisable at the
rate of 12.5% of the shares six months from the vesting commencement date and
approximately 1/48th of the shares monthly thereafter, such that the option is
fully exercisable four years from the vesting commencement date.

The maximum term for options granted under the Stock Plan is ten years,
except that if, at the time of the grant, the optionee possesses more than ten
percent of the combined voting power of the Company, the maximum term of the
option is five years. Exercise prices of the options approximates fair value
on the date of grant, however, for options granted to a ten percent
stockholder, then the exercise price must be equal to at least 110% of the
fair value of the stock on the date of grant. Options granted under the Stock
Plan expire three months after the termination of an optionee's service to the
Company.

The Company applies Statement 123 for options granted to consultants. In
adopting Statement 123 for options granted to consultants, $105,060 and
$84,898 for the years ended December 31, 1996 and 1997, and $19,000 for the
three months ended March 31, 1998, was recognized for compensation expense to
consultants.

The Company applies APB Opinion No. 25 in accounting for its stock option
plan for options granted to employees and accordingly, no compensation expense
has been recognized in the financial statements. Had the Company determined
compensation expense based on the fair value at the grant date for its stock
options issued to employees under Statement 123, the Company's net loss would
have been adjusted to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
1995 1996 1997 MARCH 31, 1998
----------- ----------- ----------- ---------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net loss................ As reported $(7,549,172) $(8,108,161) $(1,255,258) $(29,088)
=========== =========== =========== ========
Pro forma (7,571,594) (8,179,600) (1,381,997) (29,088)
=========== =========== =========== ========
Basic net loss per
common share........... As reported $ (13.45) $ (10.11) $ (1.31) $ (0.03)
=========== =========== =========== ========
Pro forma (13.49) (10.20) (1.44) (0.03)
=========== =========== =========== ========
</TABLE>

Pro forma net loss reflects compensation expense under Statement 123 only
for options granted for the years ended December 31, 1995, 1996 and 1997, and
for the three months ended March 31, 1998. Therefore, the full impact of
calculating compensation expense for stock options under Statement 123 is not
reflected in the pro forma net loss amounts presented above because
compensation expense is reflected over the options' vesting period and
compensation expense for options granted prior to January 1, 1995, is not
considered.

F-16
<PAGE>

GENVEC, INC.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

DECEMBER 31, 1997 AND 1996

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
1995 1996 1997 MARCH 31, 1998
---------- ---------- ---------- --------------
(unaudited)
<S> <C> <C> <C> <C>
Dividend yield.............. -- -- -- --
Expected volatility......... 63% 63% 60% 60%
Risk free interest rate..... 5.8% 5.8% 5.78% 5.78%
Expected life............... 4.25 years 4.25 years 4.25 years 4.25 years
</TABLE>

A summary of the status of the Company's stock options as of December 31,
1995, 1996 and 1997 and March 31, 1998 and changes during the period ending on
those dates is presented below:

<TABLE>
<CAPTION>
1995 1996 1997 MARCH 31, 1998
---------------- ---------------- ---------------- ----------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000)'S PRICE (000)'S PRICE (000)'S PRICE (000)'S PRICE
------- -------- ------- -------- ------- -------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 382 $0.59 863 $0.71 860 $1.06 1,114 $1.95
Granted................. 507 0.77 617 1.12 335 4.01 -- --
Cancelled............... (18) 0.18 (304) (0.59) (47) 0.53 -- --
Exercised............... (8) 0.65 (316) 0.59 (34) 0.65 (8) 0.59
--- ----- ---- ----- ----- ----- ----- -----
Outstanding at end of
period................. 863 $0.71 860 $1.06 1,114 $1.95 1,106 $1.95
Options exercisable at
end of period.......... 318 $0.59 326 $0.89 562 $1.18 614 $1.30
Weighted average fair
value of options
granted during the
period................. $0.30 $0.65 $2.18 $ --
</TABLE>

The following table summarizes information about stock options outstanding
at March 31, 1998 (unaudited):

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ----------------------
RANGE WEIGHTED AVERAGE WEIGHTED WEIGHTED
OF REMAINING AVERAGE AVERAGE
EXERCISE PRICES NUMBER CONTRACTUAL LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
- --------------- --------- ---------------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C>
$0.06 1,700 7.63 years $0.06 1,700 $0.06
0.59 570,377 6.89 0.59 418,353 0.59
0.65-1.00 8,648 6.25 1.00 8,648 0.94
1.48 90,672 8.25 1.48 50,957 1.48
3.54 193,209 8.59 3.54 101,945 3.54
4.13 238,129 9.50 4.13 28,979 4.13
5.90 3,220 7.08 5.90 3,220 5.90
---------- --------- ---- ----- ------- -----
$0.06-5.90 1,105,955 7.84 $1.95 613,802 $1.30
========= =======
</TABLE>

F-17
<PAGE>

GENVEC, INC.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

DECEMBER 31, 1997 AND 1996

Warrants

Warrants to purchase common and preferred stock are granted to organizations
and institutions in conjunction with certain research activities. The warrants
vest according to a combination of time and events as prescribed in the
agreements. The Company applies the provisions of APB Opinion No. 25 to
warrants issued prior to 1996. No warrants were granted during the year ended
December 31, 1997, or for the three months ended March 31, 1998. During the
year ended December 31, 1997, 33,898 warrants expired. At December 31, 1996
and 1997 and March 31, 1998, the Company had the following warrants
outstanding.

<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997 MARCH 31, 1998
EXERCISE ------------------ ------------------- -------------------
PRICE OUTSTANDING VESTED OUTSTANDING VESTED OUTSTANDING VESTED
-------- ----------- ------ ----------- ------- ----------- -------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Class B preferred stock
warrants............... $ 5.90 40,756 23,807 40,756 23,807 40,756 23,807
====== ======= ====== ======= ======= ======= =======
Common stock warrants... $14.75 101,694 16,949 67,796 33,898 67,796 33,898
$13.28 211,864 -- 211,864 158,898 211,864 158,898
------ ------- ------ ------- ------- ------- -------
Total common stock
warrants............... 313,558 16,949 279,660 192,796 279,660 192,796
======= ====== ======= ======= ======= =======
</TABLE>

(8) INCOME TAXES

A reconciliation of tax credits computed at the statutory federal tax rate
on loss from operations before income taxes to the actual income tax expense
is as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------- -------------------
1995 1996 1997 1997 1998
----------- ----------- --------- --------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Tax provision computed
at the statutory rate.. $(2,642,000) $(2,838,000) $(439,300) $(731,400) $(10,200)
State income taxes, net
of federal income tax
provision.............. (284,000) (324,000) (50,200) (83,600) (1,200)
Purchase of in-process
technology............. 155,000 -- -- -- --
Book expenses not
deductible for tax
purposes............... 5,000 6,000 8,100 2,000 5,200
Research and
experimentation tax
credit................. (263,000) 41,000 (144,900) (36,200) (36,200)
Change in the beginning
of the period valuation
allowance for deferred
tax assets allocated to
tax expense............ 3,032,000 3,086,000 624,900 847,700 43,900
Other, net.............. (3,000) 29,000 1,400 1,500 (1,500)
----------- ----------- --------- --------- --------
Income tax expense...... $ -- $ -- $ -- $ -- $ --
=========== =========== ========= ========= ========
</TABLE>

F-18
<PAGE>

GENVEC, INC.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

DECEMBER 31, 1997 AND 1996

Deferred income taxes reflect the net effects of net operating loss
carryforwards and the temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Company's deferred tax
assets as of December 31, 1996 and 1997 and March 31, 1998, are as follows:

<TABLE>
<CAPTION>
1996 1997 MARCH 31, 1998
----------- ----------- --------------
(unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.... $ 9,703,000 $10,031,000 $10,684,000
Research and experimentation tax
credit............................. 541,000 686,000 722,000
Cumulative effect of using cash
basis method of accounting for
income tax purposes................ 364,000 433,000 (229,000)
Property and equipment, principally
due to differences in
depreciation....................... 66,000 115,000 131,000
Other............................... 41,000 75,000 76,000
----------- ----------- -----------
Total deferred tax assets............. 10,715,000 11,340,000 11,384,000
Valuation allowance................... (10,715,000) (11,340,000) (11,384,000)
----------- ----------- -----------
Net deferred tax asset................ $ -- $ -- $ --
=========== =========== ===========
</TABLE>

The valuation allowance for deferred tax assets increased approximately
$3,032,000, $3,086,000 and $625,000 for the years ended December 31, 1995,
1996 and 1997, respectively and increased approximately $44,000 for the three
months ended March 31, 1998.

At March 31, 1998, the Company has net operating loss carryforwards of
approximately $27.4 million for federal income tax purposes of which $25.7
million expire at various dates through 2012, and $1.7 million expire in 2018,
including $1,493,000 which were acquired from the purchase of Theragen (note
4). The Company also has research and experimentation tax credit carryforwards
of $722,000 at March 31, 1998, of which $686,000 expire through 2012 and
$36,000 expire in 2018. These carryforwards may be significantly limited under
the Internal Revenue Code as a result of ownership changes experienced by the
Company.

(9) DEFINED CONTRIBUTION PLAN--401(K)

The Company has a defined contribution plan (the "Plan") under Internal
Revenue Code Section 401(k) which became effective on January 1, 1995. All
full-time employees who have completed six months of service and are over age
21 are eligible for participation in the Plan. Participants may elect to have
up to 15% of compensation contributed to the Plan. Under the Plan, the
Company's contributions are discretionary. During the years ended December 31,
1995, 1996 and 1997, and for the three months ended March 31, 1998, no
discretionary contributions were made.

(10) SUBSEQUENT EVENTS

Reverse Stock Split

On June 2, 1998, the Company effected a 5.9 for 1 reverse stock split. All
common and preferred share, per share and pro forma amounts in the
accompanying financial statements have been retroactively adjusted for all
periods presented to reflect this reverse stock split for all periods
presented.

F-19
<PAGE>

GENVEC, INC.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

DECEMBER 31, 1997 AND 1996

Capital Changes (unaudited)

Effective in May 1998, the Company amended and restated its Certificate of
Incorporation which effected the authorization of a total of 50,000,000 shares
of common stock, 5,000,000 shares of undesignated preferred stock, 226,099
shares of Class A convertible preferred stock, 1,959,444 shares of Class B
convertible preferred stock, 3,570,332 shares of Class C convertible preferred
stock, 96,852 shares of Class D convertible preferred stock, 75,329 shares of
Class E convertible preferred stock and 154,963 of Class E-1 convertible
preferred stock, each having a par value of $0.001 per share.

Initial Public Offering (unaudited)

On April 27, 1998, the Board of Directors authorized the filing of a
registration statement for the offering with the Securities and Exchange
Commission for the sale of 2,500,000 shares of common stock. If the offering
is consummated under the terms presently anticipated, all 6,042,263 shares of
the convertible preferred stock outstanding as of the closing date of the
offering will be automatically converted into 6,042,263 shares of common stock
on a 1 for 1 basis. No dividends will be payable with respect to such
preferred stock. The deferred offering costs associated with the offering will
be recorded as a reduction of stockholders' equity if the offering is
consummated. If the offering is not consummated, the deferred offering costs
will be charged to operations.

1998 Employee Stock Purchase Plan

In April 1998, the Company adopted the 1998 Employee Stock Purchase Plan
(the "Purchase Plan") covering an aggregate of 350,000 shares of common stock.
Under the Purchase Plan, the Board may authorize participation by eligible
employees, including officers, in periodic offerings following the
commencement of the Purchase Plan. The initial offering under the Purchase
Plan will commence on the effective date of the prospectus and terminate on
April 30, 2000.

Unless otherwise determined by the Board, employees are eligible to
participate in the Purchase Plan only if they are employed by the Company for
at least 20 hours per week and for at least five months per calendar year.
Employees who participate in an offering may have up to ten percent of their
earnings withheld pursuant to the Purchase Plan. The amount withheld is then
used to purchase shares of the common stock on specified dates determined by
the Board. 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 at the
commencement date of each offering or the relevant purchase date. Employees
may end their participation in an offering at any time during the offering,
and participation ends automatically on termination of employment with the
Company.

In the event of a merger, reorganization, consolidation or liquidation
involving the Company, the Board has the 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 this offering, and provide
for all sums collected by payroll deductions to be applied to purchase stock
immediately prior to such merger or other transaction. The Board has the
authority to amend or terminate the Purchase Plan, provided, however, that no
such action may adversely affect any outstanding rights to purchase common
stock.

1998 Director Option Plan

In April 1998, the Company adopted the 1998 Director Option Plan (the
"Director Plan") to provide for the automatic grant of options to purchase
shares of common stock to non-employee directors of the Company.

F-20
<PAGE>

GENVEC, INC.

NOTES TO FINANCIAL STATEMENTS--CONCLUDED

DECEMBER 31, 1997 AND 1996

The maximum number of shares of common stock that may be issued pursuant to
options granted under the Director Plan is 130,000 shares. Each person who
becomes an outside director is automatically granted, on the date of such
person's election or appointment, an option to purchase 10,000 shares of
common stock. In addition, each outside director shall be granted an option to
purchase 5,000 shares of common stock on (i) the effective date of this
offering and (ii) the date of each of the Company's annual meetings of
stockholders provided such person is still an outside director and that such a
person shall have served on the date of the grant on the board for at least
the preceding six months. Each option granted under the Director Plan has a
term of ten years. The options vest over a four-year period. The exercise
price per share of options shall be 100% of the fair market value per share on
the date of the grant. Options granted under the Director Plan are generally
non-transferable. Unless otherwise terminated by the Board of Directors, the
Director Plan terminates automatically in April 2008. As of March 31, 1998, no
options to purchase shares of common stock had been granted under the Director
Plan.

Employee Stock Options

In April 1998, the Board of Directors granted options to employees to
purchase 101,689 shares of common stock at an exercise price of $5.90 per
share. The Company will record deferred compensation expense during the three
months ended June 30, 1998 in the amount of $518,614 (unaudited) which will be
recognized as compensation expense over the four year vesting period of the
options.

(11) NEW FINANCIAL ACCOUNTING STANDARDS

Statement 130

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income.
Statement 130 establishes standards for the required reporting and display of
comprehensive income and its components in equal prominence with other
financial statements. Statement 130 was issued to address concerns over the
practice of reporting elements of comprehensive income directly in equity.

Statement 130 is effective for both interim and annual periods beginning
after December 15, 1997. Comparative financial statements provided for earlier
periods are required to be reclassified to reflect the provisions of this
Statement. On January 1, 1998, the Company adopted Statement 130. Statement
130 did not affect the current or prior period financial statement displays
presented by the Company.

Statement 131

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures About Segments of an
Enterprise and Related Information. Statement 131 establishes standards for
the way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.

Statement 131 is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated, unless it is impracticable to
do so. Statement 131 need not be applied to interim financial statements in
the initial year of its application, but comparative information for interim
periods in the initial year of application shall be reported in financial
statements for interim periods in the second year of application. It is not
anticipated that Statement 131 will have any material effect on current or
prior period disclosures presented by the Company.

F-21
<PAGE>

Restenosis, or re-narrowing of blood vessels, associated with angioplasty and
stent placement is a major problem in cardiovascular medicine. Vascular damage
caused by these procedures often produces proliferation of smooth muscle cells
and the inhibition of endothelial cell layer regrowth, leading to vessel
narrowing and impaired blood flow. The Company is currently developing Ad.iNOS,
an adenovirus vector containing the inducible nitric oxide synthase gene, for
the treatment of vascular damage associated with angioplasty and other
applications, such as arteriovenous grafts.

[Two figures of cross-sectional images of blood vessels from animal models of
restenosis illustrate the text immediately below the figures. Figure 1 is taken
from the control subject. Figure 2 is taken from the subject treated with
Ad.iNOS and shows the inhibition of vessel re-narrowing relative to Figure 1.]

The Company's Ad.iNOS product candidate was evaluated using an animal model
of restenosis. Vascular injury was induced in a major blood vessel of the
animal through the introduction of a catheter, followed immediately by an
infusion of either Ad.iNOS or a control directly to the site of damage.
Examination several weeks later revealed evidence of smooth muscle cell
proliferation and significant vessel re-narrowing in the control group (figure
1). In contrast, vessel re-narrowing in Ad.iNOS-treated animals was inhibited
(figure 2). Long-term studies on the effects of Ad.iNOS have not been
conducted. AD.iNOS is not currently marketed by GenVec, and there can be no
assurance that the Company will be able to obtain the necessary regulatory
approvals to do so in the future. See "Risk Factors--Uncertainties Related to
Clinical Development."
<PAGE>

[LOGO OF GENVEC APPEARS HERE]

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in
connection with the sale of Common Stock being registered. All amounts are
estimates except the SEC registration fee and the NASD filing fee.

<TABLE>
<S> <C>
SEC registration fee............................................ $ 11,025
NASD filing fee................................................. 4,237
Printing and engraving costs.................................... 130,000
Legal fees and expenses......................................... 400,000
Accounting fees and expenses.................................... 150,000
Blue Sky fees and expenses...................................... 10,000
Transfer Agent and Registrar fees............................... 10,000
Miscellaneous expenses.......................................... 184,736
--------
Total......................................................... $900,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors and any corporate agents in the terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). The Registrant's Restated
Certificate of Incorporation to be filed upon the closing of the offering to
which this Registration Statement relates (Exhibit 3.3 hereto) and the
Registrant's Bylaws (Exhibit 3.5 hereto) provides for indemnification of the
Registrant's directors, officers, employees and other agents to the extent and
under the circumstances permitted by the Delaware General Corporation Law. The
Registrant has also entered into agreements with its directors and executive
officers that require the Registrant among other things to indemnify them
against certain liabilities that may arise by reason of their status or
service as directors to the fullest extent not prohibited by Delaware law.

The Underwriting Agreement provides for indemnification by the Underwriters
of the Registrant, its directors and officers, and by the Registrant of the
Underwriters, for certain liabilities, including liabilities arising under the
Act, and affords certain rights of contribution with respect thereto.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since April 1995, the Registrant has issued and sold the following
unregistered securities (as adjusted to reflect the 5.9 to 1 reverse stock
split consummated in June 1998):

(1) From April 1, 1995 to March 31, 1998, Registrant granted options to
purchase 1,261,281 shares of Common Stock pursuant to its Amended and
Restated 1993 Stock Incentive Plan at exercise prices ranging from $.59 per
share to $4.13 per share.

(2) From April 1, 1995 to March 31, 1998, Registrant issued and sold an
aggregate of 363,159 shares of Common Stock to its employees, directors and
consultants upon exercise of stock options granted pursuant to Registrant's
Amended and Restated 1993 Stock Incentive Plan at exercise prices ranging
from $0.059 to $0.59 for an aggregate consideration of $1,266,994 .

(3) In September 1995, Registrant issued and sold an aggregate of
2,095,763 shares of Class C Convertible Preferred Stock to private
investors for aggregate cash consideration of $12,365,000. The following
investors purchased shares of Class C Convertible Preferred Stock: Canaan
Capital Limited

II-1
<PAGE>

Partnership, Canaan Capital Offshore Limited Partnership, C.V., Canaan
S.B.I.C., L.P. (collectively, the "Canaan Entities"), Biotech Target SA,
CIP Capital L.P., The CIT Group/Venture Capital, Inc., Fourth Generation
Partners, Mindful Partners, Prism Partners I, Quai Limited, State of
Michigan Pension Fund, Betty S. Bardige. Harry T. Rein, a director of the
Registrant, is a general partner of each of the Canaan Entities. Bruce
Schackman, a former director of the Registrant, is a managing director of
The CIT Group Venture Capital, Inc.

(4) In May 1996, Registrant issued and sold an aggregate of 96,852 shares
of Class D Convertible Preferred Stock to Scios, Inc.. for an aggregate
cash consideration of approximately $1.0 million.

(5) In October 1997, Registrant issued and sold an aggregate of 75,329
shares of Class E Convertible Preferred Stock to Fuso Pharmaceuticals
Industries, Ltd. for an aggregate cash consideration of approximately $1.0
million.

(6) In December 1997, Registrant issued and sold an aggregate of 154,963
shares of Class E-1 Convertible Preferred Stock to Warner-Lambert Company
for an aggregate cash consideration of approximately $2.0 million. Wendell
Wierenga, a director of the Registrant, is the Senior Vice President of
Worldwide Preclinical Research, Development and Technologies for the Parke-
Davis Pharmaceuticals Research division of Warner-Lambert Company.

There were no underwriters employed in connection with any of the above
transactions. See "Certain Transactions" in the form of the Prospectus
included herein.

The sales of the securities described in Items 15(1) and 15(2) were deemed
to be exempt from registration under the Securities Act in reliance on Rule
701 promulgated under Section 3(b)of the Securities Act as transactions
pursuant to compensatory benefit plans and contracts relating to compensation
as provided under such Rule 701. The sale of securities described in Items 15
(3) through 15 (6) were deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, as transactions by an issuer not
involving a public offering. The recipients of securities in each such
transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about the Registrant or had access,
through employment or other relationships, to such information.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1++ Restated Certificate of Incorporation of the Registrant, as currently
in effect.
3.2++++ Restated Certificate of Incorporation of the Registrant, to be filed
prior to the closing of the offering.
3.3+++ Restated Certificate of Incorporation, to be filed immediately
following the offering.
3.4++ Restated Bylaws of the Registrant as currently in effect.
3.5+++ Restated Bylaws, to be effective upon the closing of the offering.
4.1++++ Specimen Common Stock Certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1++ Form of Indemnification Agreement for Directors and Officers.
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- -----------
<C> <S>
10.2+++ Amended and Restated 1993 Stock Incentive Plan and forms of
agreements thereunder.
10.3+++ 1998 Employee Stock Purchase Plan.
10.4+++ 1998 Director Option Plan.
10.5++++ +Research, Development and Collaboration Agreement dated July 21,
1997 between the Warner-Lambert Company and the Registrant.
10.6++++ +Stock Purchase Agreement dated July 21, 1997 between the Warner-
Lambert Company and the Registrant.
10.7++++ +License Agreement dated May 31, 1996 between Scios, Inc. and the
Registrant.
10.8++++ +Stock Purchase Agreement dated September 26, 1997 between Fuso
Pharmaceutical Industries, Ltd. and the Registrant.
10.9++++ +Collaboration Agreement dated September 26, 1997 between Fuso
Pharmaceutical Industries, Ltd. and the Registrant.
10.10++++ +Commercialization Agreement dated September 26, 1997 between Fuso
Pharmaceutical Industries Ltd. and the Registrant.
10.11++++ +License Agreement dated February 1, 1998 between Asahi Chemical
Industry Co., Ltd. and the Registrant.
10.12++++ +Sponsored Research Agreement dated April 1, 1998 between Cornell
University and the Registrant.
10.13++++ +Amended and Restated Exclusive License Agreement dated April 1,
1993 between Cornell University and the Registrant.
10.14* Lease Agreement between Trizechahn Twinbrook Metro Limited
Partnership, a Maryland limited partnership.
10.15* Lease Agreement dated September 1, 1997 between Biomedical Institute
and Registrant.
10.16++ Letter Agreement dated March 9, 1995 between the Registrant and Paul
H. Fischer.
10.17++ Letter Agreement dated June 6, 1993 between the Registrant and Imre
Kovesdi.
10.18++ Letter Agreement dated March 9, 1995 between the Registrant and
Thomas E. Smart.
10.19++ Consulting Agreement dated April 28, 1998 between the Registrant and
Herbert J. Conrad.
10.20+++ Registration Rights Agreement dated April 22, 1998 among the
Registrant and certain stockholders.
23.1 Consent of KPMG Peat Marwick LLP.
23.2* Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit
5.1).
23.3++ Consent of Leydig, Voit & Mayer, Ltd.

24.1++ Power of Attorney (see page II-5 of Registration Statement filed on
April 30, 1998).
27.1++ Financial Data Schedule (available in EDGAR format only).
</TABLE>
- --------

++++ Previously filed with Amendment No. 2 to the Registration Agreement on
June 3, 1998.

+++ Previously filed with Amendment No. 1 to the Registration Agreement on May
22, 1998.
++Previously filed with original Registration Statement on April 30, 1998.

* To be filed by amendment.
+ Confidential treatment requested.

II-3
<PAGE>

(B) FINANCIAL STATEMENT SCHEDULES

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes that:

(a) It will provide to the Underwriters at the closing as specified in
the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.

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

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

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

The undersigned Registrant hereby undertakes:

(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:

(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;

(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar volume of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;

(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;

II-4
<PAGE>

(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide Offering thereof;

(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

II-5
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
ROCKVILLE, MARYLAND, ON THE 5TH DAY OF JUNE, 1998.

GenVec, Inc.

/s/ Paul H. Fischer
By___________________________________
Paul H. Fischer, President and
Chief Executive Officer

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:

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

/s/ Paul H. Fischer Director, President June 5, 1998
- ------------------------------------- and Chief Executive
(PAUL H. FISCHER) Officer (Principal
Executive Officer;
Principal Financial
and Accounting
Officer)

Hal S. Broderson * Director June 5, 1998
- -------------------------------------
(HAL S. BRODERSON)

Herbert J. Conrad * Director June 5, 1998
- -------------------------------------
(HERBERT J. CONRAD)

Harry T. Rein * Director June 5, 1998
- -------------------------------------
(HARRY T. REIN)

Wendell Wierenga * Director June 5, 1998
- -------------------------------------
(WENDELL WIERENGA)

Gregory Zaic * Director June 5, 1998
- -------------------------------------
(GREGORY ZAIC)

/s/ Paul H. Fischer
*By:_________________________________
Paul H. Fischer, Attorney-in-Fact
</TABLE>

II-6
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1++ Restated Certificate of Incorporation of the Registrant, as
currently in effect.
3.2++++ Restated Certificate of Incorporation of the Registrant, to be filed
prior to the closing of the offering.
3.3+++ Restated Certificate of Incorporation, to be filed immediately
following the offering.
3.4++ Restated Bylaws of the Registrant as currently in effect.
3.5+++ Restated Bylaws, to be effective upon the closing of the offering.
4.1++++ Specimen Common Stock Certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1++ Form of Indemnification Agreement for Directors and Officers.
10.2+++ Amended and Restated 1993 Stock Incentive Plan and forms of
agreements thereunder.
10.3+++ 1998 Employee Stock Purchase Plan.
10.4+++ 1998 Director Option Plan.
10.5++++ +Research, Development and Collaboration Agreement dated July 21,
1997 between the Warner-Lambert Company and the Registrant.
10.6++++ +Stock Purchase Agreement dated July 21, 1997 between the Warner-
Lambert Company and the Registrant.
10.7++++ +License Agreement dated May 31, 1996 between Scios, Inc. and the
Registrant.
10.8++++ +Stock Purchase Agreement dated September 26, 1997 between Fuso
Pharmaceutical Industries, Ltd. and the Registrant.
10.9++++ +Collaboration Agreement dated September 26, 1997 between Fuso
Pharmaceutical Industries, Ltd. and the Registrant.
10.10++++ +Commercialization Agreement dated September 26, 1997 between Fuso
Pharmaceutical Industries Ltd. and the Registrant.
10.11++++ +License Agreement dated February 1, 1998 between Asahi Chemical
Industry Co., Ltd. and the Registrant.
10.12++++ +Sponsored Research Agreement dated April 1, 1998 between Cornell
University and the Registrant.
10.13++++ +Amended and Restated Exclusive License Agreement dated April 1,
1993 between Cornell University and the Registrant.
10.14* Lease Agreement between Trizechahn Twinbrook Metro Limited
Partnership, a Maryland limited partnership.
10.15* Lease Agreement dated September 1, 1997 between Biomedical Institute
and Registrant.
10.16++ Letter Agreement dated March 9, 1995 between the Registrant and Paul
H. Fischer.
10.17++ Letter Agreement dated June 6, 1993 between the Registrant and Imre
Kovesdi.
10.18++ Letter Agreement dated March 9, 1995 between the Registrant and
Thomas E. Smart.
10.19++ Consulting Agreement dated April 28, 1998 between the Registrant and
Herbert J. Conrad.
10.20+++ Registration Rights Agreement dated April 22, 1998 among the
Registrant and certain stockholders.
23.1 Consent of KPMG Peat Marwick LLP.
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
23.2* Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1).
23.3++ Consent of Leydig, Voit & Mayer, Ltd.

24.1++ Power of Attorney (see page II-5 of Registration Statement filed on
April 30, 1998).
27.1++ Financial Data Schedule (available in EDGAR format only).
</TABLE>
- --------

++++ Previously filed with Amendment No. 2 to the Registration Agreement on
June 3, 1998.

+++ Previously filed with Amendment No. 1 to the Registration Agreement on May
22, 1998.
++Previously filed with original Registration Statement on April 30, 1998.

* To be filed by amendment.
+ Confidential treatment requested.

<PAGE>

[LETTERHEAD OF KPMG PEAT MARWICK LLP APPEARS HERE]

EXHIBIT 23.1

The Board of Directors
GenVec, Inc.:

We consent to the use of our report included herein and to the reference to
our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.

/s/ KPMG Peat Marwick LLP

McLean, Virginia

June 5, 1998