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SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission File Number: 0-19171

ICOS Corporation

22021-20th Avenue S.E.

Securities registered pursuant to Section 12(b) of the Act:

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act).     Yes þ          No o

      State the aggregate market value of voting and non-voting stock held by non-affiliates of the registrant as of June 28, 2002.     $954,337,640

      Indicate the number of shares outstanding of each of the registrant’s classes of Common Stock as of January 31, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive Proxy Statement for the annual meeting of stockholders to be held on May 2, 2003, relating to “Security Ownership of Principal Stockholders and Management,” “Election of Directors,” “Continuing Class 2 Directors (until 2004),” “Continuing Class 3 Directors (until 2005),” “Executive Officers,” “Compensation of Directors,” “Executive Compensation,” “2002 Option Grants,” “2002 Aggregate Option Exercises and Year-end Option Values,” “Compensation Committee Interlocks and Insider Participation,” “Report of the Compensation Committee on Executive Compensation,” “Stock Price Performance Graph,” “Related Party Transactions,” “Employment Contracts, Termination of Employment and Change of Control Arrangements” and “Section 16(a) Beneficial Ownership Reporting Compliance” are incorporated by reference in Part III of this Form 10-K.

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ICOS CORPORATION

TABLE OF CONTENTS

*	Not Applicable

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PART I

Item 1.      Business

Overview

      ICOS is a product-driven company that has expertise in both protein-based and small molecule therapeutics. We combine our capabilities in molecular, cellular and structural biology, high throughput drug screening, medicinal chemistry and gene expression profiling to develop highly innovative products expected to have significant commercial potential. We apply our integrated approach to erectile dysfunction and other urologic disorders, sepsis, psoriasis and other inflammatory diseases. We believe our strategy of targeting multiple therapeutic areas with drugs that act through distinct molecular mechanisms increases our chances of successfully developing commercial products.

      We have established collaborations with pharmaceutical and biotechnology companies to enhance our internal development capabilities and to offset a substantial portion of the financial risk of developing our product candidates. At the same time, we maintain substantial rights to the product candidates covered by these collaborations, which provide us the opportunity to participate in a significant portion of the potential economic benefit from successful development and commercialization. Our most significant collaboration partners, for continuing programs, are Eli Lilly and Company (“Lilly”) and Biogen, Inc. (“Biogen”).

      In November 2002, Lilly ICOS LLC (“Lilly ICOS”), a joint venture we established with Lilly in 1998, received approval from the European Commission to market Cialis^TM (tadalafil), for the treatment of erectile dysfunction. Lilly ICOS began shipping Cialis to European wholesalers in January 2003, and Cialis is now available, by prescription, in pharmacies across Europe.

      In June 2001, Lilly ICOS submitted a New Drug Application (“NDA”) to the U.S. Food and Drug Administration (“FDA”) seeking marketing approval of Cialis for the treatment of erectile dysfunction. In April 2002, Lilly ICOS received an “approvable” letter from the FDA. An “approvable” letter indicates that the FDA is prepared to approve an application upon the satisfaction of conditions specified in the letter. The conditions specified by the FDA are the successful completion of clinical pharmacology studies, labeling discussions, and successful resolution of matters related to Lilly’s manufacturing facilities. A U.S. regulatory decision for Cialis is projected to occur in the second half of 2003, with product launch anticipated to occur shortly after approval.

      Lilly is pursuing approval of Cialis for the treatment of erectile dysfunction in markets outside of the European Union and North America under an exclusive license from Lilly ICOS. In those markets, Lilly will sell Cialis and pay a royalty, equal to 20% of net sales, to Lilly ICOS. In addition, Lilly ICOS has initiated a Phase 2 clinical program evaluating tadalafil for the treatment of diabetic gastroparesis.

      We and our collaboration partners have the following additional product candidates in development:

	•	IC747 initiated Phase 2 clinical trials in the third quarter of 2002 for the treatment of psoriasis. IC747 is being developed in a worldwide LFA-1 antagonist collaboration with Biogen.
	•	RTXTM (resiniferatoxin) began a Phase 2 clinical trial in the first quarter of 2003 for the treatment of interstitial cystitis.
	•	IC14 began a Phase 2 clinical trial in the third quarter of 2002 for the treatment of sepsis resulting from community acquired pneumonia (CAP).
	•	IC485 completed Phase 1 clinical trials in the third quarter of 2002. We expect to initiate a Phase 2 clinical trial in 2003 for the treatment of chronic obstructive pulmonary disease.

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Business Strategy

      Our objective is to become a leading biopharmaceutical company focused on the discovery, development and commercialization of innovative drugs. We intend to accomplish this objective by:

      Successfully commercializing Cialis in Europe, the U.S. and in other countries. With the European Commission’s 2002 approval of Cialis for erectile dysfunction, and subsequent Cialis product launch in the European Union, we have succeeded in bringing our first product to the commercial market. We expect to build on this success by obtaining regulatory approval for Cialis in the U.S. and other markets around the world. An NDA seeking approval for Cialis was submitted to the FDA in June 2001, and Lilly ICOS received an “approvable” letter from the FDA in April 2002. A U.S. regulatory decision for Cialis is projected to occur in the second half of 2003. Product launch is anticipated shortly after approval. Through sales and marketing efforts with Lilly, we intend to increase awareness of the unique benefits of Cialis, as we expand our position in the large and growing erectile dysfunction market.

      Diversifying and commercializing our portfolio of product candidates. We have developed, and plan to continue to develop, a broad portfolio of product candidates encompassing a variety of therapeutic approaches to address both chronic and acute diseases and medical conditions. For example, we are currently researching and developing product candidates targeting erectile dysfunction and other urologic disorders, sepsis, psoriasis and other inflammatory diseases. To mitigate some of the risks inherent in clinical development, we plan to continue developing a number of product candidates in parallel. We believe this diversified approach yields the greatest opportunity for long-term commercial success.

      Using our internal capabilities to discover and develop novel product candidates. Using our capabilities in molecular, cellular and structural biology, high throughput drug screening, medicinal chemistry and gene expression profiling, we have successfully identified novel product candidates and obtained patents, or filed patent applications, for protein-based and small molecule product candidates. We plan to continue our discovery and development efforts in these areas, emphasizing diseases and medical conditions for which current therapies are substandard or unavailable, or for which the market opportunities are large.

      Identifying attractive acquisition and in-licensing candidates. We have acquired and in-licensed product candidates and plan to acquire or in-license additional product candidates in the future. For example, our IC14 and RTX product candidates are the result of such acquisition and in-licensing efforts. We believe that we are well positioned to attract additional product candidates as a result of our demonstrated experience and success in completing such acquisitions and in-licensing arrangements.

      Forming strategic collaborations. We have established, and intend to continue to establish, corporate collaborations with large pharmaceutical and other biotechnology companies to enhance the development of product candidates. These collaborations enable us to retain a significant portion of the potential economic benefit, while offsetting a substantial portion of the financial risk, of developing product candidates. For example, we have entered into collaborations with Lilly, Suntory Ltd., Texas Biotechnology Corporation (“Texas Biotechnology”) and Biogen. Collaborations such as these generally enable us to develop a greater number of product candidates than otherwise would be possible and provide us with domestic and international marketing and sales expertise for our partnered product candidates if approved.

      Expanding our intellectual property portfolio. We intend to continue to aggressively pursue protection of our proprietary technology and other intellectual property. We believe that establishing a strong proprietary position could provide an important competitive advantage in our target markets. We have applied, and are applying, for patents for our product candidates and unique aspects of our technologies both in the United States and, when appropriate, in other countries.

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Approved Product

      In November 2002, Lilly ICOS received approval from the European Commission to market Cialis, an oral phosphodiesterase type 5 enzyme (PDE5) inhibitor for the treatment of erectile dysfunction, in all fifteen member states of the European Union. Lilly ICOS began shipping Cialis to wholesalers in January 2003, and Cialis is now available, by prescription, in pharmacies across Europe.

      The European Commission based its decision on the review and evaluation of a comprehensive data package that comprised results of more than 60 studies, in more than 4,000 human subjects. In clinical trials evaluating Cialis for the treatment of erectile dysfunction, efficacy studies demonstrated that Cialis both improved patient’s ability to attain and maintain an erection sufficient for sexual intercourse and significantly increased the percentage of successful sexual attempts. Clinical studies have further demonstrated that Cialis is effective up to twenty-four hours after taking the drug. We believe that the drug’s duration, coupled with a lack of a food effect, should allow men and their partners more freedom to pick the right moment for sexual activity.

      Background. Erectile dysfunction is a condition in which a man is unable to attain or maintain an erection sufficient for sexual intercourse. Erectile dysfunction affects an estimated 30 million men in Europe and 40 million men in North America and is increasingly recognized as a serious and treatable medical condition. Erectile dysfunction is often associated with underlying diseases such as diabetes, cardiovascular disease and depression, or may be a neurological consequence of conditions such as prostate surgery, spinal cord injury or treatment with certain medications.

      Typically, sexual arousal leads to increased blood flow into penile tissue, resulting in an erection. As part of this process, a chemical called cyclic guanosine monophosphate (cGMP) causes penile blood vessels to dilate, allowing blood flow to increase. PDE5, an enzyme present in penile blood vessels, cleaves cGMP, thereby allowing the penile blood vessels to return to their undilated state. Inhibition of PDE5 can enhance blood flow to the penis, contributing to an erection.

      Current Treatment. Until 1998, treatments for erectile dysfunction were primarily limited to the use of injectables, vacuum pumps and prostheses, which are inconvenient and unpleasant options that have limited the size of the treated population. With the introduction in 1998 of Viagra®(sildenafil citrate), which also inhibits PDE5, millions of men were motivated for the first time to acknowledge their affliction and seek treatment. We believe, however, that many men have ceased therapies for erectile dysfunction due to ineffectiveness, unpleasant side effects or inconvenient administration. We believe that as few as 10% of the world’s male population who could benefit from orally administered treatment for erectile dysfunction are currently undergoing treatment. We believe the entry of Cialis into the marketplace may encourage use among the untreated population of erectile dysfunction patients, in addition to encouraging those currently using other therapies to switch to Cialis.

Clinical Development Pipeline

      We are developing several product candidates targeting a variety of serious diseases and medical conditions. We have retained significant marketing rights to each of the product candidates covered by our collaboration arrangements. We have retained co-promotion rights to Cialis in North America, and most of Europe. We expect to co-promote IC747 and other LFA-1 antagonists in our worldwide collaboration with Biogen. The table on the following page summarizes our ongoing product development programs.

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Clinical Development Pipeline

      In the status column of the table: “Phase 1” indicates clinical trials for safety and pharmacology; “Phase 2” indicates clinical trials to determine dosing and efficacy; and FDA “approvable” letter indicates that the FDA is prepared to approve an NDA upon the satisfaction of conditions specified in the letter.

      We are continuing to perform development studies in our evaluation of Cialis (tadalafil), a small molecule compound that inhibits PDE5, for the treatment of erectile dysfunction. We are also evaluating tadalafil for the treatment of diabetic gastroparesis.

      U.S. Development Status. Lilly ICOS submitted an NDA for Cialis to the FDA in June 2001. In April 2002, Lilly ICOS received an “approvable” letter from the FDA. A U.S. regulatory decision for Cialis is projected to occur in the second half of 2003, with product launch anticipated to occur shortly after approval.

      Gastroparesis is a condition that results in delayed emptying of stomach contents. Motility studies have documented the presence of gastroparesis in 30 to 50% of diabetic patients. Many patients suffer from abdominal symptoms such as nausea, vomiting, bloating and abdominal pain. Diabetic gastroparesis can also make glucose control more difficult because the absorption of food is not well coordinated with the administration of medication. Only a subset of patients with diabetic gastroparesis will have symptoms severe enough to seek prescription medication, but with over 11 million Americans suffering from diabetes, it is expected that there would be a substantial market for a drug which proves safe and effective for gastroparesis.

      Inhibition of PDE5 may improve gastric emptying and symptoms in patients with diabetic gastroparesis. Adequate levels of cGMP in the smooth muscle cells of the gastrointestinal tract are necessary for muscle relaxation. The PDE5 found in these smooth muscle cells degrades cGMP, thereby opposing this relaxation. In experimental diabetic mouse models, cGMP levels are low in smooth muscle cells of the pylorus (the muscular valve that allows the stomach to empty) and the pylorus does not relax normally. These diabetic mice develop a condition that mimics diabetic gastroparesis of humans, and treatment with an inhibitor of the PDE5 enzyme restored gastric emptying rates.

      In the United States, agents that improve gastric emptying (e.g., erythromycin and metoclopromide) can only be used intermittently and are of limited efficacy. Tadalafil may improve gastric emptying and provide relief to patients with diabetic gastroparesis by helping normal relaxation of the pylorus.

      In 2003, we began patient enrollment in a Phase 2 study evaluating tadalafil for patients with diabetic gastroparesis.

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      In July 2001, we entered into a collaboration with Biogen to jointly develop and co-promote IC747 and other LFA-1 antagonists as oral therapeutics for autoimmune and inflammatory diseases.

      Background. Psoriasis is a chronic T lymphocyte-driven skin disorder affecting approximately four to five million people in the United States, with over 400,000 of those severely afflicted. The disorder is characterized by frequent episodes of scaly skin plaques which are associated with redness and itching.

      Current Treatment. Approved therapies for psoriasis are focused on treating the symptoms of this disorder and include immunosuppressive medications such as corticosteroids or methotrexate, antifungal medications, antibiotics, cyclosporine, UV light treatment, and vitamin D analogs. Tumor necrosis factor alpha (TNF-alpha) sequestrants and efalizumab are in late-stage development or recently approved for the treatment of psoriasis. In January 2003, Biogen received approval from the FDA for Amevive® (alefacept) for the treatment of adult patients with moderate to severe chronic plaque psoriasis. Amevive will be administered by physicians as an intravenous or intramuscular injection over a 12-week period.

      Potential Treatment by IC747. IC747 is an orally administered, small molecule antagonist of the cell adhesion molecule LFA-1, which is expressed by white blood cells. Many chronic inflammatory diseases are thought to be driven by abnormal activation of T lymphocytes, a type of white blood cell. In our preclinical studies, we have demonstrated that IC747 binds to LFA-1 and inhibits T lymphocyte activation. An effective, well tolerated oral agent could appeal to patients and dermatologists, who currently must contend with toxic and/or injectable drugs, messy topical applications and in-center UV light exposures.

      Development Status. During 2002, in our collaboration with Biogen, we began a Phase 2 clinical trial evaluating IC747 for patients with psoriasis.

      Other chronic diseases for which LFA-1 antagonists may prove useful are asthma and rheumatoid arthritis. In the United States, an estimated 17 million people suffer from asthma and an estimated 2 million are afflicted with rheumatoid arthritis.

      In November 2001, we acquired exclusive worldwide rights to RTX (resiniferatoxin) for the treatment of bladder disease or function.

      Background. Interstitial cystitis is a chronic condition associated with bladder pain, urinary urgency and high frequency of urination, including at night. These symptoms adversely affect quality of life and may cause significant disability. According to the National Institutes of Health, more than 700,000 Americans have interstitial cystitis, of whom 90% are women.

      Current Treatment. Medicines that are prescribed in attempts to control interstitial cystitis symptoms include antihistamines, tricyclic antidepressants and analgesics. The only oral medication that is currently approved for interstitial cystitis is Elmiron® (pentosan polysulfate sodium), which has taken up to six months to provide symptom improvement. Bladder instillation of various agents (including dimethylsulfoxide, heparin-like compounds and others) is also routinely used. Although numerous treatments have been tried for interstitial cystitis, many patients continue to suffer.

      Potential Treatment by RTX. RTX is a small molecule that can be delivered directly into the bladder through a catheter to desensitize afferent nerve fibers termed C-fibers. C-fibers are believed to play a role in many pathological conditions of the bladder, including interstitial cystitis. The clinical objectives of RTX

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      Development Status. In 2003, we began and plan to complete a Phase 2 clinical trial evaluating RTX for patients with interstitial cystitis.

      RTX may also be evaluated for the treatment of detrusor hyperreflexia (overactive bladder) resulting from multiple sclerosis, spinal cord injury, stroke, Parkinson’s disease or benign prostatic hyperplasia.

     IC14

      IC14 is a monoclonal antibody that blocks the function of CD14, a receptor found on the surface of certain white blood cells, which plays an early role in the development of sepsis. IC14 is currently in development as a treatment for sepsis resulting from CAP.

      Background. Sepsis is a serious, potentially life-threatening condition that occurs in some patients with serious infections. The inflammation caused by these infections can, in some cases, systemically spread throughout the body. This process begins when bacteria release toxins into the bloodstream. CD14, present on the surface of myeloid cells and in plasma, recognizes these toxins and triggers a release of inflammatory mediators that drives the systemic inflammatory response.

      In the U.S., approximately 1.1 million patients are hospitalized each year with CAP. Patients with CAP represent the largest subset of patients that develop sepsis. If unattended, sepsis resulting from CAP may progress to severe sepsis and organ failure, which is typically treated using costly and/or invasive medical interventions including intensive care unit admission, dialysis, mechanical ventilation, vasopressor and Xigris® (drotrecogin alfa).

      Current Treatment. We are currently not aware of other therapies in development for the prevention of progression of sepsis as a result of CAP.

      Potential Treatment by IC14. IC14 is unique among sepsis therapies because its early mechanism of action suggests that it may have potential as a broad-based, first line therapy. IC14 inhibits the inflammatory response of sepsis at an early stage by blocking the function of CD14. CD14 is unique in its ability to recognize components from most types of microorganisms. Once activated by the recognition of these microbial components, CD14 triggers a localized inflammatory response that removes microorganisms at the site of infection. However, in some cases CD14 triggers an over-exuberant systemic inflammatory response that may lead to severe sepsis and multiple organ failure. In contrast to other potential targets, CD14 does not appear to be a redundant component of the immune response that leads to sepsis. Not only does CD14 recognize a diverse array of microbial components, but it also is directly involved in activating multiple cell types that promote this immune response, making it an attractive target for the treatment of sepsis. IC14 has been shown to block CD14 in both in vitro and in vivo models in preclinical studies.

      Development Status. We conducted a bacterial toxin challenge study in 16 healthy volunteers, which demonstrated that IC14 inhibited the inflammatory response to specific bacterial toxins by blocking the release of greater than 95% of the cytokine TNF-alpha which is grossly elevated during sepsis, and substantially reduced the development of flu-like symptoms. In 2002, we began enrollment in a Phase 2 clinical trial evaluating IC14 for patients with sepsis resulting from CAP.

      IC485 is an orally administered, small molecule inhibitor of the type 4 cyclic adenosine monophosphate (cAMP) phosphodiesterase enzyme, or PDE4. Inhibition of PDE4 leads to an increase in the second

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      Background. Chronic obstructive pulmonary disease (COPD) is under consideration as the primary clinical application for IC485. According to the U.S. Centers for Disease Control and Prevention, approximately 24 million U.S. adults have evidence of impaired lung function, indicating that COPD is under diagnosed.

      Current Treatment. COPD is currently treated with bronchodilators and anti-inflammatory drugs. However, these drugs have been of limited benefit in treating the disease. Rheumatoid arthritis is currently treated with strong anti-inflammatory medications or biologics that specifically target TNF-alpha.

      Potential Treatment by IC485. Clinical efficacy has been observed with other PDE4 inhibitors in patients with asthma and COPD. Clinical benefits in rheumatoid arthritis and Crohn’s disease have also been observed with approved therapies that target TNF-alpha production. We have demonstrated efficacy in preclinical models of rheumatoid arthritis and a lung injury model related to the pathology of COPD. Historically, drugs that have targeted PDE4 have induced side effects such as nausea, vomiting and sedation, thereby limiting their clinical utility. In preclinical studies of IC485, vomiting and sedation were not observed over a range of doses that inhibited TNF-alpha production, demonstrating the potential utility of this product candidate.

      Development Status. We completed a Phase 1 clinical trial in 2002 and plan to begin a Phase 2 study evaluating IC485 for patients with COPD in 2003.

      IC485 may also be evaluated for the treatment of rheumatoid arthritis.

Preclinical and Research Pipeline

      We continuously evaluate new product candidates as part of our discovery research program. We use an integrated approach in this program that incorporates our capabilities in molecular, cellular and structural biology, high throughput drug screening, medicinal chemistry and gene expression profiling. The table below summarizes our product development programs in which we are engaged in preclinical development or research.

Preclinical and Research Pipeline

      In the status column of this table: “Preclinical” indicates evaluation of lead or preferred compounds for safety, pharmacology and proof of efficacy in non-human animal models; and “Research” indicates the research phase of the product identification process for compounds for which activity in target human biological assay systems has been demonstrated in laboratory tests, but which have not yet been tested in non-human animal models of specific human diseases.

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      Resistance of tumor cells to radiation or chemotherapy is due in part to cellular enzymes collectively termed cell cycle checkpoint/ DNA repair enzymes. These enzymes are proteins that recognize and repair potentially lethal defects in cellular DNA introduced by radiation or chemotherapeutic agents. In preclinical tests, we are currently evaluating and optimizing lead compounds that inhibit key enzymes involved in this process. We are assessing these compounds for their ability to selectively increase the sensitivity of tumors versus normal tissue to radiation or chemotherapeutic agents, thereby enhancing the success and minimizing the toxic effects of conventional treatments for many different types of tumors.

      According to the American Cancer Society, cancer is a major cause of death in the U.S., second only to cardiovascular disease. Because our cell cycle checkpoint/ DNA repair inhibitors potentially sensitize human cancer cells to chemotherapy and radiation therapy, they could potentially treat various forms of cancer, including the most common and lethal forms, such as prostate, breast, lung and colon cancer, as well as less common forms that are very poorly treated, such as pancreatic cancer.

      Certain lipid and protein kinases are enzymes that regulate activation of white blood cell types that participate in inflammatory and degenerative diseases such as autoimmune disorders, chronic obstructive pulmonary disease and osteoporosis. We are currently evaluating, in preclinical studies, small molecule inhibitors of a kinase involved in white blood cell activation. Autoimmune disorders, a large group of clinically important diseases, occur when the immune system confuses normal tissue with invading foreign material and attacks itself, causing tissue destruction. The triggers that cause this process are many, but the net result is that white blood cells are activated and a robust immune response ensues against normal tissue. In preclinical studies, we are testing our kinase inhibitors for their ability to quell an autoimmune response.

      In addition to PDE4 and PDE5, the targets for IC485 and Cialis (tadalafil), respectively, we continue our discovery efforts and are conducting preclinical evaluations of inhibitors that selectively target other distinct members of the phosphodiesterase family of enzymes. These enzymes collectively regulate many bodily functions. Drugs targeted to individual enzymes impact specific bodily functions associated with the cardiovascular, urinary and nervous systems. We are currently evaluating inhibitor compounds in preclinical models of Parkinson’s disease and urinary incontinence.

      Since our inception, we have placed a strong emphasis on generating novel drug candidates from our own internal research activities. Over the past twelve years, we have assembled a highly integrated multidisciplinary research staff which includes:

	•	molecular biologists and biochemists who identify new genes or proteins that are either product candidates or targets for product candidates; and
	•	medicinal and process chemists, robotics experts, and pharmacologists and toxicologists who create, evaluate and optimize new product candidates.

      To use our expertise most effectively, we have concentrated our product discovery efforts on specific gene families, including phosphodiesterases, cell adhesion molecules and cell cycle checkpoint enzymes. In each case, we seek first to identify all the members of the family, understand the distribution of each member within the body and, through multiple functional tests, determine which members are most likely to affect human disease in a manner that can lead to therapeutic treatment. Once a given target is linked to an important biological function, such as activation of white blood cells, it is screened by our robotics group against a complex library of small organic molecules, from which lead compounds are identified. These lead

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      Our current discovery research programs are directed toward the discovery of new product candidates for the treatment of various diseases, including allergic and other inflammatory diseases, cardiovascular diseases, oncologic diseases and infectious diseases.

      Compounds in the research phase of the product identification process are those for which activity in the target human biological assay systems has been demonstrated in laboratory tests. These compounds have not yet been tested in non-human animal models of specific human diseases. These compounds include:

	•	antagonists of a chemokine receptor that promotes the exit of certain white blood cells from the bloodstream to sites of inflammation, which are potentially important in allergic inflammatory diseases such as asthma and skin inflammation;
	•	compounds that block the function of other cell adhesion molecules that are potentially important in diseases such as rheumatoid arthritis, asthma and other degenerative diseases of the kidney, liver and lung;
	•	lead inhibitors of other members of the PDE family of enzymes, including those that may be involved in regulating neurodegenerative diseases such as Parkinson’s disease and urological disorders, such as incontinence; and
	•	molecules that represent lead compounds for new classes of antibiotics.

Collaborations and Licensing Agreements

      We have entered into arrangements with other parties to access technology, and to facilitate and fund the development and marketing of several of our product candidates. Our collaborations and licensing agreements include:

      In October 1998, ICOS and Lilly formed Lilly ICOS, which is 50/50-owned, to develop and commercialize PDE5 inhibitors. In November 2002, Lilly ICOS received approval from the European Commission to market Cialis, for the treatment of erectile dysfunction, in all 15 member states of the European Union. Lilly ICOS began shipping Cialis to European wholesalers in January 2003. Both Lilly and ICOS will market any products resulting from the collaboration.

      Lilly ICOS continues to develop Cialis as an oral therapeutic agent for the treatment of erectile dysfunction in North America and other countries, and is also evaluating tadalafil in diabetic gastroparesis. Lilly ICOS intends to commercialize products approved in North America and Europe through the services of both ICOS and Lilly. For countries outside the European Union and North America, in exchange for royalty payments, Lilly ICOS has granted Lilly an exclusive license to develop, manufacture and commercialize the PDE5 inhibitors developed in the collaboration.

      Under the terms of this arrangement, we received a $75.0 million payment upon formation of the joint venture, a $15.0 million payment in 1999 upon initiation of a Phase 3 clinical trial program for Cialis and an additional $15.0 million payment in 2001 following the filing of the NDA with the FDA. We could receive

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      ICOS acquired the rights to the intellectual property license under an agreement with a third party in association with a previous collaboration. Pursuant to the terms of the third party agreement, ICOS committed to pay the party a royalty equal to 5% of the net sales of products developed utilizing the acquired technology. Lilly ICOS and Lilly have accepted primary responsibility for any royalty obligations resulting from ICOS’ previous arrangement.

      In July 2001, we entered into an agreement with Biogen to jointly develop and globally commercialize orally active, small molecule LFA-1 antagonists for the treatment of inflammatory diseases and conditions, including psoriasis, and other autoimmune diseases. Under the terms of this agreement, we and Biogen will cross-license LFA-1 antagonist technology and patents, including IC747 and other LFA-1 antagonists. We will share costs of ongoing development activities with Biogen, co-promote any products developed under the agreement, and equally share in the profits of the collaboration. We received an $8.0 million upfront fee upon executing the agreement, and received an additional $3.0 million in milestones in 2002, upon the successful completion of Phase 1 clinical trials and the subsequent initiation of a Phase 2 clinical program. We could receive future success-based milestones from Biogen based on the progression of IC747 and other LFA-1 antagonists through development. As of December 31, 2002, we have also received $10.0 million in loans from Biogen to fund part of our share of the related development costs, of which $9.0 million has been forgiven upon the achievement of certain objectives. Some or all future loans, of up to an additional $10.0 million as of December 31, 2002, may also be forgiven upon the achievement of further development milestones.

      In June 2000, ICOS and Texas Biotechnology formed ICOS-Texas Biotechnology L.P. (“ICOS-TBC”), a 50/50-owned limited partnership, to develop and commercialize endothelin receptor antagonists, such as sitaxsentan. Under the terms of this arrangement, ICOS and Texas Biotechnology equally funded the development of endothelin receptor antagonists and are entitled to equally share in the profits of the partnership. We made an initial $2.0 million payment to Texas Biotechnology upon formation of the partnership and made an additional $2.0 million payment in October 2001. Texas Biotechnology made an initial contribution to ICOS-TBC of an exclusive worldwide license to the intellectual property associated with endothelin receptor antagonists, including patent rights and technical information. ICOS-TBC is managed jointly by Texas Biotechnology and ICOS. Both parties provided the partnership with research and development services. In January 2003, we announced our conclusion that joint development of the endothelin receptor antagonist program, through ICOS-TBC, should not continue. We and Texas Biotechnology are currently negotiating the terms pursuant to which Texas Biotechnology might independently continue the endothelin receptor antagonist program.

      In February 1997, ICOS and Suntory Ltd. (the predecessor to Daiichi Suntory Pharma Co., Ltd.) formed Suncos, a 50/50-owned corporation, to develop and commercialize Pafase® (recombinant human platelet-activating factor acetylhydrolase). The joint venture was established with a $30.0 million cash investment, in Suncos, by Suntory Ltd., and ICOS’ contribution of an exclusive license for Pafase technology. Subsequent capital contributions were made by Suntory Ltd. and ICOS in equal amounts. Both Suntory Ltd. and ICOS provided Suncos with research and development services in support of the Pafase program. In December 2002, the Pafase development program was terminated, after an interim analysis did not demonstrate clinical benefit in a Phase 3 study for severe sepsis. There are no current plans for further development activities by Suncos.

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      In April 1995, we formed a collaboration with Abbott Laboratories to discover small molecule drugs that modulate the intracellular signaling connections of certain intercellular adhesion molecules and integrins. In September 1997, we expanded and extended this relationship to include small molecule antagonists of the extracellular domains of certain integrins and intercellular adhesion molecules. The research program under the collaboration, which provided us with research funding from Abbott Laboratories, was completed at the end of its term on April 1, 1999. Under the terms of the arrangement, each company received exclusive development and commercialization rights to drugs relating to specific molecular targets with royalties and milestone obligations to the other party. Each party was responsible for the development, registration and commercialization of its own product candidates. In addition, the collaboration provided us with a library of chemical compounds for use in our own discovery programs. In June 2000, we amended the arrangement by acquiring Abbott Laboratories’ worldwide rights to all compounds developed in connection with the collaboration, including LFA-1 antagonists such as IC747. Abbott Laboratories will receive royalties and milestone payments on any products that we market that incorporate these compounds.

      We have also entered into collaborative arrangements regarding the following product candidates:

	•	IC14. We have entered into a sublicensing arrangement with Johnson & Johnson and The Rockefeller University under which technology relating to IC14, developed by Dr. Richard Ulevitch at The Scripps Clinic and Research Foundation and Dr. Samuel Wright at The Rockefeller University, was sublicensed to us. Under this arrangement, we received a sublicense to the intellectual property relating to IC14 in exchange for royalty and future milestone payments based on development of this product candidate. We have exclusive rights to a portfolio of patents for the production and commercialization of IC14.
	•	RTX. We have entered into a licensing agreement with Afferon Corporation related to RTX. Under the terms of this agreement, we have exclusive worldwide license rights for commercial use of RTX for the treatment of bladder disease or function. We are responsible for the costs of developing and commercializing RTX and related analogues. Afferon receives certain periodic payments and is entitled to future success-based milestone payments and royalties upon sales of marketed products, if any, resulting from this arrangement.
	•	IC485. We have entered into a research and development arrangement with Array BioPharma Inc. relating to IC485. Under this arrangement, we funded the medicinal chemistry performed by Array relating to IC485. We received either an assignment of, or a license to, any and all intellectual property developed by Array relating to IC485 in exchange for future milestone payments based on development of this product candidate. We have exclusive rights to the worldwide production and commercialization of IC485.
	•	Cell cycle checkpoint/ DNA repair inhibitors. We have entered into a research and development arrangement with Array relating to multiple research targets, including cell cycle checkpoint/ DNA repair inhibitors. Under this arrangement, we fund the medicinal chemistry performed by Array relating to the targets. We receive either an assignment of, or a license to, any and all intellectual property developed by Array, in exchange for future milestone payments based on the development of any product candidates that may arise from this arrangement. In addition, we have exclusive rights to the worldwide production and commercialization of any product candidates developed under this arrangement.
	•	IDAS targeted product candidates. We have entered into an additional research and development agreement with Array relating to two research targets which contain an IDAS structural feature related to, but distinct from, that found in the cell adhesion molecule LFA-1, the target of IC747. Under the terms of this agreement, we will provide Array with research funding and both parties will collaborate in all aspects of lead generation and lead optimization. We will be responsible for clinical development

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		and commercialization. We have exclusive rights to market, sell and distribute products that may arise from this arrangement. Array is entitled to receive success-based payments upon reaching certain development milestones and royalties based upon sales of products resulting from the collaboration.
	•	Chemokine receptor 5 (“CCR5”). We have entered into a licensing agreement with Euroscreen S.A. related to CCR5. Under the terms of this agreement, we granted Euroscreen an exclusive license for key patents relating to the human CCR5 receptor and its role in HIV infection. We received an upfront payment in January 2003 and are entitled to future milestone and potential royalty payments upon commercialization of the licensed technology.

      In addition, we have entered, and may continue to enter, into licensing agreements and research collaborations with institutions and scientists to expand our access to new scientific developments, technologies and discoveries in certain areas. We have contracted with several academic and institutional collaborators to conduct research and development activities relating to our product candidates. We have also entered into licensing agreements with respect to specific technologies. These arrangements generally provide that we will fund either the research or development of the technology, or both, and will obtain an exclusive license or option to the technology developed, subject to certain royalty and other obligations.

Patents and Proprietary Rights

      Because of the length of time and expense associated with bringing new products through development and the governmental approval process to the marketplace, pharmaceutical and biotechnology companies have traditionally placed considerable importance on obtaining and maintaining patent protection for significant new technologies, products and processes. We have applied, and are applying, for patents for our product candidates and aspects of our technologies both in the U.S. and, when appropriate, in other countries. Our ability, however, to obtain patents in a timely manner, if at all, in foreign countries may be limited by the laws of some of those countries. For example, many countries, including several European countries, allow for an opposition period, often lasting many months, after a patent is granted, providing third parties with the opportunity to submit arguments that may call for the withdrawal of or limitations on the affected patents.

      Even if we are granted patents by government authorities, the validity and enforceability of patents issued to pharmaceutical and biotechnology companies has proven highly uncertain. For example, legal considerations surrounding the validity of patents in the fields of pharmaceuticals and biotechnology are in transition, and we cannot assure you that the historical legal standards surrounding questions of validity will continue to be applied or that current defenses relating to issued patents in these fields will, in fact, be considered sufficient in the future. In addition, we cannot assure you as to the degree and range of protections any of our patents may afford us, whether patents will be issued or the extent to which we will be successful in avoiding infringement of patents granted to others. For example, patents which have already been issued to us may be subjected to further governmental review that may ultimately result in the reduction of their scope of protection, and pending patent applications may have their requested breadth of protection significantly limited before being issued, if issued at all. Furthermore, since publication of discoveries in scientific or patent literature often lags behind actual discoveries, we cannot assure you that we were the first creator of inventions covered by our patents or pending patent applications, or that we were the first to file patent applications for these inventions. In addition, after seeking advice of counsel, we may undertake research and development with respect to potential products, even when we are aware of third party patents that may be relevant to these potential products, on the basis that such patents may be challenged or licensed by us. If our subsequent challenges to or attempts to license such patents were to prove unsuccessful, we may not be able to commercialize our potential products after having incurred significant expenditures, and may be subject to patent infringement claims. Under U.S. federal law, companies are protected against claims of infringement for using technology patented by others in clinical trials. Accordingly, we cannot assure you that the absence of litigation with respect to our product candidates in clinical development is an indication that our commercially marketed products will not be found to infringe the patent rights of others.

      Many pharmaceutical and biotechnology companies and university and research institutions have filed patent applications or already have received patents in our areas of product development. Many of these

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      In connection with the treatment of erectile dysfunction, our principal competitor, Pfizer Inc., has been granted a number of U.S. and foreign patents. On October 22, 2002, the U.S. Patent and Trademark Office issued to Pfizer a “method of use” patent (US6469012). Later that day, Pfizer filed a lawsuit in the United States District Court for the District of Delaware against ICOS, Lilly, and Lilly ICOS alleging that the proposed marketing of product candidate Cialis would infringe this patent. We believe that Pfizer’s suit lacks merit and intend to vigorously pursue our defenses. If Pfizer were to prevail, however, we might be subject to substantial damages, prohibited from marketing Cialis for the treatment of erectile dysfunction in the United States, or required to enter into a licensing agreement to market Cialis in the United States. We cannot assure you that any required agreement would be available on commercially reasonable terms, if at all.

      On March 11, 1998, the European Patent Office granted Pfizer a similar patent (EP702555). We, Lilly, and eleven other companies successfully opposed this patent before the Opposition Division of the European Patent Office which, on July 18, 2001, revoked all the claims. Pfizer has appealed this decision. Pfizer’s European Patent had been nationalized by Pfizer in most European countries. Lilly ICOS brought suits challenging the patent in a number of these countries. On November 8, 2000, in the United Kingdom, the High Court of Justice, Chancery Division, Patents Court issued a judgment that the Pfizer patent claims are invalid for obviousness. Pfizer appealed and on January 23, 2002, the Supreme Court of Judicature, Court of Appeals affirmed. No further appeal is available to Pfizer in the United Kingdom. In other European Countries, Lilly ICOS’ suits have been stayed pending the appellate decision in the opposition proceeding before the European Patent Office. The resolution of the European Patent Office appeal and pending or subsequent litigation in the various European countries could take years. If Pfizer’s patent were ultimately reinstated by the European Patent Office or the courts in European countries, we might be subject to litigation by Pfizer in Europe, prohibited from marketing Cialis for the treatment of erectile dysfunction in some European countries, or required to enter into licensing agreements to market Cialis in Europe. We cannot assure you that such agreements would be available on commercially reasonable terms, if at all.

      While we pursue patent protection and enforcement of our product candidates and aspects of our technologies when appropriate, we also rely on trade secrets, know-how and continuing technological advancement to develop and maintain our competitive position. To protect this competitive position, we regularly enter into confidentiality and proprietary information agreements with third parties, including employees, suppliers and collaborators. Our Company employment policy requires each new employee to enter into an agreement that contains provisions generally prohibiting the disclosure of confidential information to anyone outside of the Company and providing that any invention conceived by an employee within the scope of his employment duties is the exclusive property of ICOS. Furthermore, our know-how that is accessed by third parties through collaborations and research and development contracts and through our relationships with scientific consultants is generally protected through confidentiality agreements with the appropriate parties. We cannot, however, assure you that these protective arrangements will be honored by third parties, including employees, suppliers and collaborators, or that these arrangements will effectively protect our rights relating to unpatented proprietary information, trade secrets and know-how. In addition, we cannot assure you that other parties will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our proprietary information and technologies.

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      To protect our rights to our patents and proprietary information, we may need to litigate against infringing third parties, or avail ourselves of the courts or participate in hearings to determine the scope and validity of our patent rights, such as participation in interference proceedings to determine priority of invention. These types of proceedings are often costly and could be very time-consuming to us, and we cannot assure you that the deciding authorities will rule in our favor. An unfavorable decision could allow third parties to use our technology without being required to pay us licensing fees or may compel us to license needed technologies to avoid infringing third party patent and proprietary rights. In addition, we may be required to defend ourselves in patent suits brought by third parties who seek to enjoin our product development efforts or seek damages for infringement. If we receive an unfavorable judgment on any of these claims, we could be forced to, among other things, alter our operations, pay licensing fees or discontinue developing or marketing one or more of our potential products, as well as incur significant legal expenses.

Government Regulation

      Regulation by government authorities in the United States, Europe, and other countries is a significant consideration in the manufacture and marketing of our products and potential product candidates and in our ongoing research and product development activities. Our product candidates will require regulatory approval by government agencies prior to commercialization. Human therapeutic products are subject to rigorous preclinical and clinical testing and other approval requirements by the FDA and comparable agencies in foreign countries. The time required for completing testing and obtaining approvals of our product candidates is uncertain, but often takes several years. Any delay in the approval of testing or in the evaluation of preclinical or clinical results by governmental authorities may hinder product development. In addition, we may encounter delays in product development or rejections of product applications due to changes in FDA or foreign regulatory policies during the period of product development and testing. Various federal, state and foreign statutes and regulations, including the Federal Food, Drug and Cosmetic Act, as amended, and the regulations promulgated thereunder, also regulate the manufacturing, safety, labeling, storage, record keeping, advertising, promotion and marketing of our product candidates, and failure to comply with these legal requirements may subject us to, among other things, civil penalties, criminal prosecution and restrictions on product development and production. The lengthy process of obtaining regulatory approvals and ensuring compliance with appropriate statutes and regulations requires the expenditure of substantial resources. Any delay or failure by us, our joint ventures or our collaborators to obtain regulatory approvals could adversely affect our ability to commercialize our product candidates, receive product, collaborative research or royalty payments and generate sales revenue.

      In general, the steps ordinarily required before a new therapeutic product candidate may be marketed in the United States include:

	•	preclinical laboratory tests, animal tests and formulation studies;
	•	the submission to the FDA of an Investigational New Drug Application, which must become effective before clinical testing may begin in humans;
	•	adequate and well-controlled clinical trials to establish the safety and efficacy of the product candidate for each indication;
	•	the submission of a New Drug Application or Biologics License Application, as the case may be, to the FDA; and
	•	FDA review and approval of a New Drug Application or Biologics License Application, as the case may be, prior to any commercial sale or shipment of the product candidate.

      Preclinical studies generally are conducted in the laboratory to evaluate the potential safety and efficacy of a therapeutic product candidate and are undertaken in compliance with Good Laboratory Practices regulations. The results of these studies are submitted to the FDA as part of an Investigational New Drug Application, which must be reviewed by the FDA before clinical testing may begin in the United States. Once the FDA is satisfied with or does not comment on the submission of the Investigational New Drug Application, clinical trials on humans may begin, although the FDA may put a hold on these trials at any time.

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      Clinical trials are conducted in accordance with Good Clinical Practices regulations at sponsoring institutions under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety and the efficacy criteria to be evaluated. Typically, clinical evaluation involves three sequential phases, which may overlap. During Phase 1, clinical trials are conducted with a relatively small number of subjects to determine the early safety profile of a drug, as well as the pattern of drug distribution and drug metabolism by the subject. In Phase 2, clinical trials are conducted with groups of patients afflicted by a specific target disease to determine preliminary efficacy, optimal dosages and dosage tolerance, and to gather additional safety data. In Phase 3, large-scale, multicenter comparative clinical trials are conducted with patients afflicted with a specific target disease to provide data for the statistical proof of efficacy and safety as required by the FDA and others. The FDA and a clinical trial sponsor may suspend clinical trials at any time if it is believed that clinical subjects are being exposed to an unacceptable health risk.

      The results of preclinical and clinical testing of a product candidate, as well as data relating to a product candidate’s chemistry, pharmacology and manufacture, are required to be submitted to the FDA, in the form of a New Drug Application for small molecule products or a Biologics License Application for biological products, in order to seek FDA approval. FDA approval of the New Drug Application or Biologics License Application is required before marketing of a product may begin in the United States, and the cost of this process may be substantial. In response to a New Drug Application or Biologics License Application, the FDA may grant marketing approval, request additional information or deny the application if the FDA determines that the application does not satisfy its regulatory approval criteria, including the pre-approval of relevant product manufacturing facilities. No action can be taken to market any new drug or biologic product in the United States until an appropriate marketing application has been approved by the FDA. The failure to obtain timely permission for clinical testing or timely regulatory approval for product marketing could materially affect us. Furthermore, following approval, the FDA may require additional testing and surveillance programs to monitor the side effects or adverse events associated with use of a new product. The FDA may prevent or limit future marketing of a product based on the results of these post-marketing programs. Additional testing is also required to gain approval for the use of a product as a treatment for indications other than those already approved.

      In addition, some of our product candidates may qualify as orphan drugs under the Orphan Drug Act of 1983. This act generally provides incentives to manufacturers to undertake development and marketing of products to treat relatively rare diseases or those diseases that would likely affect fewer than 200,000 persons annually in the United States. A drug that receives orphan drug designation by the FDA, and is the first product to receive FDA marketing approval for its product claim, is entitled to various advantages, including a seven-year exclusive marketing period in the United States for that product claim. However, any drug that is considered by the FDA to be different from a particular orphan drug, including any orphan drug of ours that has been so designated by the FDA, is not precluded from sale in the United States during the seven-year exclusive marketing period. We cannot assure you that any of our product candidates will be designated as an orphan drug by the FDA or, if so designated, will have a positive effect on our revenues.

      In order to manufacture our potential products, a domestic drug manufacturing facility must be registered with the FDA as a domestic drug manufacturing establishment, must submit to periodic inspection by the FDA and must comply with current Good Manufacturing Practices regulations. In addition, to supply products for use in the United States, foreign manufacturing establishments must comply with these regulations and are subject to periodic inspection by the FDA or corresponding regulatory agencies in countries under reciprocal agreements with the FDA.

      Whether or not FDA approval has been obtained, approval of a product by comparable regulatory authorities may be necessary in foreign countries prior to the commencement of marketing of a product in those countries. The approval procedures vary among countries and can involve additional testing. The time required to obtain approval may differ from that required for FDA approval. Although there are some procedures for unified filings in some countries, including some in Europe, in general each country has its own procedures and requirements, many of which may be expensive and time-consuming. Accordingly, there may be substantial delays in obtaining required approvals from foreign regulatory authorities after the relevant applications are filed, if we ultimately receive any approvals at all.

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      In the event that one of our product candidates is approved for sale in the United States, we will also be subject to various federal and state laws pertaining to health care “fraud and abuse,” including anti-kickback laws and false claims laws. Anti-kickback laws make it illegal for a prescription drug manufacturer to solicit, offer, receive, or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular drug. The federal government has published regulations that identify exemptions or “safe harbors” for certain payment arrangements that do not violate the anti-kickback statutes. Due to the breadth of the statutory provisions and the absence of guidance in the form of regulations or court decisions addressing certain practices, it is possible that our future practices might be challenged under anti-kickback or similar laws. False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment to third party payors (including Medicare and Medicaid) claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. In the event that one of our product candidates is approved for sale in the United States and is subject to reimbursement by third party payors, our future activities relating to the sale and marketing of our products may be subject to scrutiny under these laws. Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including fines and civil monetary penalties, as well as the possibility of exclusion from federal health care programs (including Medicare and Medicaid). If the government were to allege against or convict ICOS of violating these laws, there could be a material adverse effect on us, including our stock price. Our future activities could be subject to challenge for the reasons discussed above and due to the broad scope of these laws and the increasing attention being given to them by law enforcement authorities.

      Our policy is to conduct our research activities in compliance with the National Institute of Health Guidelines for Research Involving Recombinant DNA Molecules. We are also subject to various federal, state and local laws, regulations and recommendations relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals, and the use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with our work. The extent and character of government regulation that might result from future legislation or administrative action, including additions or changes to environmental laws, cannot be accurately predicted and may materially affect our business operations and revenues. Additionally, our present and future business is and will continue to be subject to various other forms of governmental regulation.

Competition

      Competition in the pharmaceutical and biotechnology industries is intense and characterized by rapid technological development. We expect that our product candidates will encounter significant competition. A number of pharmaceutical and biotechnology companies are currently developing products targeting the same diseases and medical conditions that we target, and some of our competitors’ products have entered clinical trials or are already commercially available. For example, Pfizer has already successfully commercialized Viagra, a competitor of our product candidate Cialis. Bayer AG has filed a New Drug Application with the FDA seeking approval for a PDE5 inhibitor, to be marketed in partnership with GlaxoSmithKline, for the treatment of erectile dysfunction. Additionally, Bayer AG recently received marketing approval from the European Commission for that PDE5 inhibitor for the treatment of erectile dysfunction. Genentech, Inc. and XOMA Ltd. have demonstrated the efficacy of an injectable LFA-1 antibody, efalizumab, in Phase 3 clinical trials for psoriasis, with which IC747 would compete. Similarly, Amgen Inc. recently announced positive results in a Phase 3 clinical study for psoriasis with Enbrel® (etanercept), a TNF-alpha inhibitor, for the treatment of moderate to severe plaque psoriasis. RTX, if approved, would compete with both Elmiron, an oral therapy approved for the treatment of interstitial cystitis, and BCG, an intravesical therapy currently in development. Major competitors for IC485 could include cilomilast, roflumilast and other compounds currently under development. In addition, our potential products, if approved and commercialized, will compete against well-established existing therapeutic products that are currently reimbursed by government health administration authorities, private health insurers and health maintenance organizations.

      Our competitors include pharmaceutical companies, biotechnology companies and chemical companies. Furthermore, significant levels of biotechnology research now occur in universities, government agencies and

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      Many of our competitors have substantially more experience, capital, research and development, regulatory, manufacturing, sales, marketing, human and other resources than we do. As a result, they may:

	•	develop products that are safer, more effective or less costly than our products or product candidates, or that render our products or product candidates obsolete;
	•	obtain FDA and other regulatory approvals or reach the market with their products more rapidly than we can, or with labeling claims more favorable than ours, reducing the potential sales of our product candidates;
	•	obtain intellectual property rights that could increase our costs or prevent development or commercialization of our product candidates;
	•	devote greater resources to market or sell their products;
	•	adapt more quickly to new technologies and scientific advances;