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UNITED STATES

FORM 10-K

For Annual and Transition Reports Pursuant to Sections 13

	þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2003

OR

	o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-31918

HYBRIDON, INC.

(617) 679-5500

Securities registered pursuant to Section 12(b) of the Act: None

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

Common Stock, $.001 par value

     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 the 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 the 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 in Exchange Act Rule 12b-2).    Yes o    No þ

     The approximate aggregate market value of the voting stock held by non-affiliates of the registrant was $33,159,937 as of June 30, 2003. As of March 15, 2004, the registrant had 85,018,496 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

HYBRIDON, INC.

FORM 10-K

INDEX

      Hybridon® and GEM® are our registered trademarks. Amplivax^TM, CpR^TM, Cyclicon^TM, IMO^TM, IMOxine^TM, YpG^TM, and YpR^TM are also our trademarks. Other trademarks appearing in this annual report are the property of their respective owners.

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PART I.

Item 1. Business

Overview

      We are engaged in the discovery and development of novel therapeutics using synthetic DNA. Our activities are primarily based on two technology platforms:

	•	Our immunomodulatory oligonucleotide, or IMO, technology modulates responses of the immune system using synthetic DNA containing specific sequences that mimic bacterial DNA.
	•	Our antisense technology uses synthetic DNA to block the production of disease causing proteins at the cellular level.

          Drug Development Strategy

      In the near term, we are focusing our internal drug development efforts on developing the two lead drug candidates in our pipeline, HYB2055 and GEM231.

	•	HYB2055 is the lead clinical drug candidate in our IMO program. We are developing HYB2055 for oncology applications under the name IMOxine. In May 2003, we commenced a phase 1 clinical trial of IMOxine in the United States in patients with refractory solid tumor cancers. If this trial is completed when anticipated and the results are favorable, we plan to commence a phase 2 clinical trial of IMOxine in the second or third quarter of 2004. The phase 2 clinical trial of IMOxine and any future trials of IMOxine may involve the evaluation of IMOxine as a monotherapy for the treatment of solid tumor cancer and/or in combination with other anticancer agents, including chemotherapeutics, antibodies, and vaccines/antigens.

        In March 2003, we commenced a phase 1 clinical trial of HYB2055 in the United Kingdom in 28 healthy volunteers, which we completed during the third quarter of 2003. The goal of this trial was to study the safety and immunological activity of HYB2055 over a broad range of dosing levels. In the trial, HYB2055 was well tolerated by the volunteers, who did not experience any significant treatment-related adverse effects. In addition, in the trial HYB2055 demonstrated biological activity in the volunteers, including transient activation of lymph nodes and effects on immune cells in the blood.

        We are also developing HYB2055 for use as an adjuvant for vaccines and monoclonal antibodies. We are developing HYB2055 under the name Amplivax for these applications. In October 2003, we licensed Amplivax to another company for use in its development of a potential therapeutic and prophylactic vaccine for HIV infection. We anticipate that this company will initiate a phase 1 clinical trial of the vaccine during the first half of 2004. We plan to seek additional licensees for Amplivax in the future.

	•	GEM231 is a 2nd generation antisense compound for treating solid tumor cancers. GEM231 is designed to inhibit Protein Kinase A, or PKA, a protein which has been shown to be present at increased levels in the cells of many human cancers. We are currently conducting a phase 1/2 clinical trial of GEM231 as a combination therapy with irinotecan, an anticancer drug marketed in the United States under the name Camptosar®. If the pharmacokinetic data and other findings from this phase 1/2 clinical trial are favorable, we plan to commence a phase 2 clinical trial of this drug combination in the second half of 2004.

      Collaboration Strategy. In addition to developing drug candidates on our own, we are seeking to establish alliances with other parties for the development and commercialization of products based on our IMO and antisense technologies. We believe that pharmaceutical and biotechnology companies may seek to use our IMO compounds as a monotherapy for the treatment of specific diseases or in combination with, or as an adjuvant to, their own chemotherapeutics, vaccines and monoclonal antibodies. We also believe that our antisense technology may prove useful to pharmaceutical and biotechnology companies that are seeking to

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Our Product Pipeline

      The table below summarizes the principal products that we or our collaborators are developing and the therapeutic use and development status of these products.

1.	Being developed by The Immune Response Corporation in collaboration with us.
2.	Being developed by Micrologix Biotech, Inc. in collaboration with us.
3.	Being developed by Aegera Therapeutics, Inc. in collaboration with us.

Immunomodulatory Oligonucleotide (IMO) Technology

Overview

      Our IMO technology has evolved from our research and clinical experience with antisense oligonucleotides. We learned from this research and clinical experience that some types of oligonucleotides can act as potent stimulators of the immune system. Our early insights and those of others showed that oligonucleotides containing specific nucleotide segments or motifs mimic in the human body the immune stimulating effects of bacterial DNA. Nucleotides are the molecules that are linked together to form DNA. Using our DNA chemistry, we have designed and are developing a new, proprietary class of IMO compounds. We believe these compounds, which we refer to as 2nd generation IMO compounds, may offer a number of potential advantages over earlier immunostimulatory oligonucleotides.

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      We are designing our IMO compounds to be used as monotherapies in the treatment of conditions such as cancer, infectious diseases and allergic asthma and other allergies, as well as in combination therapies with chemotherapeutics, vaccines and antibodies.

Background

      The human immune system protects the body against viruses, bacteria and other infectious agents, referred to as pathogens. It also acts to identify and eliminate abnormal cells, such as cancer cells. The immune system works through various mechanisms which recognize pathogens and abnormal cells. These mechanisms initiate a series of interactions resulting in stimulation of specific genes in response to the pathogens or abnormal cells. The activities of the immune system are undertaken by its two components: the innate immune system and the adaptive immune system.

      The role of the innate immune system is to provide a rapid, non-specific response to a pathogenic invasion or to the presence of a foreign substance in the body. The innate immune system consists of cells such as macrophages, dendritic cells and monocytes. When the body is presented with a foreign pathogen, cells of the innate immune system are activated, resulting in a cascade of signaling events that cause the production of proteins to fight the infection. Unlike the antibodies and proteins produced by the adaptive immune system described below, the proteins produced by the innate immune system are not pathogen-specific, but rather are active against a broad spectrum of pathogens. Moreover, once the infection is resolved, the innate immune system will not remember the pathogen.

      In contrast to the innate immune system, the adaptive immune system provides a pathogen-specific response to a pathogenic invasion. The adaptive immune system does this by recognition of specific cell surface proteins, called antigens, which signal the presence of a pathogen. This process is initiated through signals produced by the innate immune system. Upon recognition of a foreign antigen, the adaptive immune system produces antibodies and antigen-specific toxic immune cells that specifically detect and destroy infected cells. This response is referred to as an antigen-specific immune response. An antigen-specific immune response normally takes several weeks to develop the first time. However, once activated by a specific pathogen, the adaptive immune system “remembers” the antigens of the pathogen. In this manner, if the pathogen again invades the body, the presence of the “remembered” antigens will allow the adaptive immune system to respond once more, this time in a matter of days. Scientists believe that the adaptive immune system also may be able to eliminate abnormal cells, such as cancer cells.

      The human immune reaction is initially commenced by activation of the innate immune system. One way this occurs is through recognition by the immune system of a pathogen-associated molecular pattern, referred to as a PAMP. These patterns include components of DNA that are present with great frequency in pathogens and with low frequency, or not at all, in humans. The presence of a PAMP acts as a signal to the immune system of the presence of a foreign pathogen and starts an immune response.

      In the case of bacteria, one common PAMP is a combination of DNA known as a CpG dinucleotide or CpG DNA. A CpG dinucleotide, or motif, consists of a cytosine (C) molecule and guanine (G) molecule linked by a phosphate bond (p). Most bacteria contain this CpG motif at the expected frequency of one in sixteen base pairs in their genome. Vertebrates, including humans, display many fewer CpG dinucleotides, and usually the cytosine (C) molecule of the CpG motif is methylated, unlike bacterial CpG dinucleotides where the cytosine (C) molecule is unmethylated. Methylation is the substitution of a methyl group, a molecule containing one carbon atom and three hydrogen atoms, for a hydrogen atom. In this way, self DNA, which is methylated, is not mistaken for pathogen DNA.

      CpG DNA has been shown to be recognized by a specific protein receptor called toll-like receptor 9, or TLR9. TLR9 is located on the surface or inside of some types of immune cells. Scientists generally believe that once TLR9 recognizes bacterial DNA, such as CpG DNA, it triggers an immune response through a cascade of cell signals that ultimately lead to the release of immune system molecules both from the innate and eventually the adaptive immune systems. These molecules attack the infection. Additional receptors other than TLR9 may also contribute to or modify the recognition of certain CpG DNA, emphasizing the structural importance of CpG DNA in TLR-specific signaling.

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      Our IMO compounds are intended to mimic bacterial DNA. We believe the sequences of these compounds are recognized as bacterial DNA by TLR9 and possibly other receptors. As a result, we believe that our IMO compounds can trigger an innate immune response similar to the innate immune response triggered by bacterial DNA. Results from our preclinical studies and our initial clinical trials of our IMO compounds suggest this response leads to signaling events that include production of cytokines. Cytokines are a specific type of immune system molecule that are known to have broad spectrum therapeutic properties against infectious disease as well as against cancer. These signals from the innate immune system also may trigger responses of the adaptive immune system.

      Because recognition of IMO compounds by TLR9 or other receptors may lead to both innate and adaptive immune responses, we believe IMO compounds may have the potential to be useful in treatment of a wide variety of diseases either as a monotherapy or in combination with other agents such as vaccines, antigens and monoclonal antibodies. We and independent third parties who are investigating CpG DNA drug candidates that work in a manner similar to our IMO compounds are currently exploring the use of these drug candidates in clinical trials for cancer, asthma, allergies and infectious diseases.

Therapeutic Potential of IMO Compounds

      Because IMO compounds can generate a broad range of immune responses, we believe they may provide therapeutic benefits in a number of areas:

	•	Cancer. Cancer cells are recognized by the body as abnormal cells and trigger an immune response. However, this response is notoriously weak. The benefits of immunostimulation by bacterial DNA in cancer patients have been long recognized. We believe IMO compounds may strengthen the immune response to cancer cells. In preclinical studies in animals, IMO compounds have been shown to delay and suppress tumor growth.
	•	Allergic Asthma and Other Allergies. Based on preclinical studies of our IMO compounds in mouse models, we believe that IMO compounds have potential for use in the treatment of allergic asthma, other allergies and other diseases that result from an overreaction of the immune system. In these studies the type of cytokines produced as a result of the activation of immune cells by IMO compounds suppressed asthmatic and allergic immune conditions while simultaneously promoting an immune response that further alleviated asthmatic and allergic conditions.
	•	Infectious Diseases. According to published reports, various CpG DNA sequences have been shown in studies in mice and other animals to activate an immune defense against pathogens that is of a general nature and not directed at any specific microorganism. As a result, we believe IMO compounds have the potential to be used prophylactically to ward off the danger of infection or to boost the immune response to an early-stage or ongoing infection.
	•	Combinations with Vaccines and Antibody Therapies. In preclinical studies in mice, the immune response triggered by IMO compounds increased the production of specific antibodies. As a result, we believe that IMO compounds have the potential to be used in combination with, or as an adjuvant to, vaccines or antibody therapies.

IMO Chemistry

      Based on our over ten years of expertise in synthetic oligonucleotide chemistry, we have developed a portfolio of IMO compounds containing different proprietary synthetic motifs and different site-specific sequences. In our preclinical studies and initial clinical trials of our IMO compounds, our IMO compounds have triggered an immune response that has resulted in the expression of many cytokines. This immune response and the resulting expression of cytokines have varied depending on the sequence and structure of the IMO compound. We believe that by varying the synthetic motifs, site-specific sequences and secondary structures in the IMO compounds, we can design IMO compounds that optimize immunostimulatory activity and induce different profiles of immune response. As a result, we believe we can create IMO compounds which are optimized for the treatment of different diseases.

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HYB2055 Drug Discovery and Development

      HYB2055 is the lead clinical candidate in our IMO program. We selected HYB2055 for clinical development because of the potency it demonstrated as an immune modulator in preclinical models, both in vitro and in vivo.

      We are developing HYB2055 for oncology applications under the name IMOxine. We filed an Investigational New Drug Application, or IND, for HYB2055 with the FDA which became effective March 6, 2003. In May 2003, we commenced a phase 1 clinical trial of IMOxine in the United States designed to evaluate HYB2055 initially in up to 24 patients with refractory solid tumor cancers. This trial is being conducted at the Lombardi Comprehensive Cancer Center at Georgetown University Medical Center. We expect to complete enrollment of our 24th patient in this trial in April 2004 and may enroll additional patients to expand further our understanding of this drug candidate.

      In November 2003, we presented at a scientific conference preliminary results from the phase 1 IMOxine trial based on data available as of October 2003. As of October 2003, we had administered HYB2055 to 14 patients in the trial. IMOxine was well tolerated in all of these patients with injection site reactions, fatigue and fever being the most frequently reported adverse events. In addition, in five of the first eight patients evaluated for disease status eight weeks after the first treatment and one of the first three patients evaluated for disease status 16 weeks after the first treatment, the disease had not progressed. If the results of this trial continue to be favorable and this trial is completed when anticipated, we plan to commence a phase 2 clinical trial of IMOxine in the second or third quarter of 2004. The phase 2 clinical trial of IMOxine and any future trials of IMOxine may involve the evaluation of IMOxine as a monotherapy for the treatment of solid tumor cancer and/or in combination with other anticancer agents, including chemotherapeutics, antibodies, and vaccines/antigens.

      In March 2003, we commenced a phase 1 clinical trial of HYB2055 in the United Kingdom in 28 healthy volunteers, which we completed during the third quarter of 2003. The goal of this trial was to study the safety and immunological activity of HYB2055 over a broad range of dosing levels. In the trial, HYB2055 was well tolerated by the volunteers, who did not experience any significant treatment-related adverse effects. In addition, in the trial HYB2055 demonstrated biological activity in the volunteers, including transient activation of lymph nodes and effects on immune cells in the blood.

      In addition to cancer applications, we are also developing HYB2055 for use as an adjuvant for vaccines and monoclonal antibodies. We are developing HYB2055 under the name Amplivax for these applications. In October 2003, we licensed Amplivax to The Immune Response Corporation for use in its development of a potential therapeutic and prophylactic vaccine for HIV infection. We anticipate that Immune Response will initiate a phase 1 clinical trial of this vaccine during the first half of 2004. We plan to seek additional licensees for Amplivax in the future.

      We believe that HYB2055 may also have use as a monotherapy for treatment of infectious diseases, allergic asthma and other allergies. We intend to explore the potential of these uses either on our own, or with collaborators through submission of additional INDs.

Antisense Technology

Introduction

      The heart, brain, liver and other organs in the human body function together to support life. Each cell within these organs produces proteins that affect how that cell functions within the organ, and ultimately how efficiently each organ functions within the body.

      A normal cell produces a particular set of normal proteins in the right amount for the body to function properly. A diseased cell produces inappropriate or mutant proteins or produces the wrong amount of normal proteins. A cell produces inappropriate types or amounts of proteins when its DNA expression changes, either through mutation, as in many types of cancer cells, or by infection with a virus. In some instances, inappropriate proteins act directly to cause or support a disease. In other instances, inappropriate proteins

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      The full complement of human genes, known as the human genome, contains the information required to produce all human proteins. A copy of the complete human genome is present in each cell, and each cell makes proteins based on its copy of the genome. The information that controls a cell’s production of a specific protein is contained in the gene relating to that protein. Each gene is made up of two intertwined strands of DNA that form a structure called a “double helix.” Each strand of DNA consists of a string of individual DNA building blocks called nucleotides, arranged in a specific sequence. It is the sequence of nucleotides that contains genetic information. One of the paired strands of the double helix contains the information that directs the composition of a specific protein, and is called the “coding” strand. The other strand, the “non- coding” strand, contains a different but complementary sequence of nucleotides.

      Cells make proteins in a two-stage process. First, the cell creates a molecule of messenger RNA consisting of a string of nucleotides in a sequence that is the exact mirror image of, or complementary to, the sequence of the coding strand of DNA in the double helix. This messenger RNA strand is called the “sense” sequence. In the next step, the cell produces proteins based on the information contained in the “sense” sequence.

Conventional Drugs

      Most drugs are chemicals that stimulate or suppress the function of a particular molecule, usually a protein, which causes a disease. The drug acts by binding to the target molecule, often with as few as two or three points of contact with the target molecule. Once the binding takes place, the disease-causing activity of the target molecule is interrupted.

      Frequently, however, sites on other non-target molecules present in the body resemble the target-binding site of a disease-causing molecule and, as a result, the conventional drug binds to some degree to those non-target molecules. Most drug side effects arise due to this drug interaction with molecules other than the target molecule. This lack of selectivity can result in unwanted side effects, potentially requiring lower doses of the drug, and thus, decreasing effectiveness.

      Another characteristic of conventional drugs is that developing them is a time-consuming and expensive process. For every compound that is found to be effective and have tolerable side effects, thousands may be investigated and rejected. In the traditional drug discovery process, this may take many years and millions of dollars.

Antisense Drugs

      A synthetic DNA molecule with a sequence exactly complementary to a portion of the sense sequence of the messenger RNA of a specific gene can bind to and inhibit the function of that messenger RNA. This exact complement of the sense messenger RNA sequence is referred to as an antisense sequence or antisense oligonucleotide. By inhibiting the function of the relevant messenger RNA, it is possible to decrease or eliminate the production of disease-causing or disease-supporting proteins. Moreover, the nucleotide sequence of an antisense synthetic DNA complementary to its target sequence on the messenger RNA can be designed in a manner such that the antisense synthetic DNA forms a large number of bonds at the target site, typically 30 or more, as compared to as few as two to three bonds for conventional drugs. This allows the oligonucleotide to form a strong bond with the messenger RNA.

      Antisense drug development technology involves the design and synthesis of synthetic DNA to bind and inhibit the activity of messenger RNA which codes for the production of disease-associated proteins. We believe that drugs based on antisense technology may be more effective and cause fewer side effects than conventional drugs because antisense drugs are designed to intervene in a highly specific fashion in the production of proteins, rather than after the proteins are made. Moreover, in contrast with small molecule drug

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      In recent years there has been a dramatic increase in the understanding of the role of genes in producing proteins associated with disease. This knowledge has come from many sources, including the human genome project and the work being done by academic institutions and pharmaceutical companies all over the world. As a consequence, we believe that the pharmaceutical industry is increasingly becoming an environment that is rich in potential gene-based drug targets and that the challenge for the future will be to create drugs effective against these newly discovered gene targets. We further believe that the increase in the number of potential targets provides us with increasing opportunities to employ our antisense technology. Once a gene coding for a disease-associated protein is identified, it should be possible to design a synthetic DNA with an antisense mechanism designed to stop production of that protein and to improve the potential pharmaceutical effects of that synthetic DNA by chemical modification.

Hybridon Antisense Technology

      We were founded in 1989 to exploit the pioneering work of Paul Zamecnik, M.D., a member of our board of directors, who is regarded by many as the father of antisense. Our initial efforts in the antisense field and the efforts of other companies in the area focused on the development of synthetic oligonucleotides with a DNA backbone that would withstand degradation by enzymes. A DNA backbone is the linkage between the sugars and the bases known as nucleosides that form a strand of DNA. Oligonucleotides which contain a natural backbone are not suitable for use as drugs because they are rapidly degraded by enzymes before they reach their intended target.

      In order to increase the stability of oligonucleotides against these enzymes, we and other companies developed oligonucleotides which are chemically modified by replacing certain oxygen atoms on the backbone with sulfur atoms. We refer to oligonucleotides with this modification as 1st generation antisense compounds. To date, the FDA has approved only one 1st generation antisense compound, which one of our competitors in the antisense field developed and which is currently marketed by Novartis to treat a viral infection through local delivery. Another competitor has submitted an NDA for a 1st generation antisense drug for the treatment of cancer.

      More recently, we have focused our research and development efforts on developing more advanced chemistries that enable us to alter the chemical makeup of the backbone of a synthetic DNA compound in a manner designed to improve upon the characteristics of the backbone of synthetic DNA developed using 1st generation antisense chemistry without adversely affecting the compound’s ability to inhibit the production of disease-associated proteins. We refer to compounds with these advanced chemistries as 2nd generation antisense compounds.

      Specifically, we have designed and created families of advanced synthetic DNA chemistries, including DNA/ RNA combinations, called hybrid or mixed backbone compounds. The results of our preclinical studies and our GEM231 clinical trials in over 80 patients suggest that by modifying the synthetic backbone of our antisense compounds with different combinations of our advanced chemistries, we can develop 2nd generation antisense compounds with improved properties. In particular, based on these preclinical studies and clinical trials, we believe that 2nd generation antisense compounds based on these advanced chemistries will show favorable pharmaceutical characteristics and significantly improved therapeutic utility as compared to 1st generation antisense compounds. We believe that these 2nd generation antisense compounds may exhibit the following desirable characteristics in comparison with 1st generation compounds:

	•	fewer side effects;
	•	greater stability in the body, enabling patients to take doses less frequently;
	•	greater potency, permitting patients to take lower doses; and
	•	greater potential for multiple routes of administration, including by injection, orally or topically.

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Antisense Drug Development and Discovery

      Because antisense technology works at a genetic level, we believe that we can use this technology for functional genomics, drug discovery and validation of therapeutic drug targets. We believe that our antisense technology is potentially applicable to a wide variety of therapeutic indications, including cancer, viral and infectious disease, autoimmune and inflammatory disease, respiratory diseases, cardiovascular disease and diabetes because these diseases are often caused by the over-production of proteins which may be down regulated by antisense oligonucleotides. We are focusing our drug development and discovery efforts on developing 2nd generation antisense drugs for cancer and infectious diseases. We currently have two antisense compounds in the clinical phase of development and a number of other compounds in preclinical development.

      GEM231 for the Treatment of Cancer. GEM231 is our lead 2nd generation antisense compound for treating solid tumor cancers. GEM231 is designed to inhibit protein kinase A, or PKA. PKA is a protein that plays a key role in the control of the growth and differentiation of mammalian cells. Levels of PKA have been shown to be increased in the cells of many human cancers, and high levels of PKA have been shown to correlate with unfavorable clinical outcomes in patients with breast, colon and ovarian cancers.

      We are currently conducting a phase 1/2 clinical trial of GEM231 as a combination therapy with irinotecan, a marketed anticancer therapy. We chose to evaluate the combination of GEM231 and irinotecan based on promising preclinical data relating to this combination as a treatment of solid tumor cancers. Specifically, in xenograft models of several types of human cancer, GEM231 caused a pronounced potentiation of irinotecan anti-tumor activity. We are conducting the current phase 1/2 trial combining GEM231 and irinotecan at Vanderbilt University Medical Center and the University of Chicago Medical Center. In the clinical trial, we are evaluating the safety of GEM231 and irinotecan in combination and measuring the concentration of extracellular PKA, or ECPKA, in plasma as a potential biomarker for GEM231 antisense activity. A biomarker is a biological parameter monitored as a possible indicator of drug activity. In July 2003, we presented data from early patients in the trial indicating that ECPKA levels had been reduced during treatment in a statistically significant manner. We expect to complete enrollment of this combination treatment trial in the second quarter of 2004.

      Prior to conducting the current phase 1/2 trial combining GEM231 and irinotecan, we conducted other phase 1 clinical trials of GEM231, both as a monotherapy and in combination with paclitaxel and docetaxel, two other marketed chemotherapeutics. We believe that our first phase 1 clinical trial of GEM231, which evaluated GEM231 as a monotherapy, involved the first systemic administration of a 2nd generation antisense compound to oncology patients. In these trials, we evaluated the safety of GEM231 as a monotherapy and of the combination of GEM231 and these chemotherapeutics in multiple doses in oncology patients, including the maximum tolerated dose of GEM231 for both single doses and multiple doses. In the trials of GEM231 as a monotherapy, GEM231 was generally well tolerated, with mild to moderate fatigue being the most frequently observed side effect. Even in high doses, GEM231 did not show some of the side effects normally associated with most current cancer treatments or with 1st generation antisense compounds. In the combination trials, patients experienced more serious side effects such as diarrhea, vomiting and bone marrow suppression. However, these more serious side effects are characteristic of the side effects of the chemotherapeutics administered in the combination trials. As a result and given that we did not observe these results in the monotherapy trials, we believe that these more serious side effects can be attributed to the chemotherapeutics and not GEM231.

      If the pharmacokinetic data and other findings from the GEM231/ irinotecan clinical trial are favorable, we plan to commence a phase 2 clinical trial of this drug combination in the second half of 2004.

      GEM92 for the Treatment of HIV-1. GEM92 is a 2nd generation antisense compound that is targeted to a specific region of the genome of the human immunodeficiency virus HIV-1 known as the gag region. Based on the clinical experience we gained with GEM91, our 1st generation antisense compound that also targeted same gag region of HIV-1, we created chemical modifications designed to improve the side effects profile and to enhance the stability of the compound, including the potential for oral administration. In 1997,

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      We have a number of antisense compounds in the preclinical testing phase of development. The two principal antisense compounds that we have in preclinical development are:

	•	GEM220, a 2nd generation antisense compound directed against Vascular Endothelial Growth Factor or VEGF. VEGF is a growth factor that contributes to the growth of new blood vessels, which is a process called angiogenesis. In diseases such as cancer, the growth of new blood vessels is critical to the growth of tumors. Because GEM220 is designed to inhibit VEGF, we believe GEM220 may inhibit angiogenesis in tumors and in other disease states such as macular degeneration and psoriasis.
	•	GEM240, a 2nd generation antisense compound designed to inhibit mdm2. Mdm2 is a protein found in increased levels in many human cancers. Mdm2 binds to the tumor suppressor proteins p53 and p21, which results in reduced suppression of tumor cells and thereby contributes to the growth of cancer cells. In animal studies, GEM240 has been shown to decrease levels of mdm2 in many types of cancer cells, including colon cancer cells, breast cancer cells and brain cancer cells, and in turn to stabilize p53 and p21 levels in these cells. Recently, mdm2 has been shown in animal models to bind directly to p21 independent of p53. Since approximately 50% of all human cancers have mutated forms of p53, direct regulation of p21 by mdm2 may represent an important tumor suppression mechanism in the absence of functional p53.

Cancer Therapy Potentiation

      As part of our efforts to develop antisense drugs that could be used as a component of cancer combination therapies, we discovered that the combination of oligonucleotide compounds with some prodrug anticancer therapies could enhance or potentiate the antitumor activity of the prodrug included in the combination. Prodrugs are compounds metabolized by the body after administration to produce their most active forms.

      We have focused most of our efforts in this area on the combination of an antisense oligonucleotide with irinotecan. Irinotecan is a prodrug that is altered primarily in the liver to generate an active product designated as SN38. SN38 is considered to be the molecule responsible for most of the antitumor activity of irinotecan. SN38 is also implicated in production of the major clinical side effects of irinotecan. When we tested irinotecan in animals in combination with several different oligonucleotides, we noted both incremental non-antisense and antisense specific tumor activity. In addition, in over ten animal tumor models, the co-administration of GEM231 with irinotecan resulted in enhanced and prolonged suppression of tumor growth in comparison with irinotecan alone.

      As part of our ongoing phase 1/2 clinical trial of GEM231 described above, we are studying the pharmacokinetics of irinotecan when administered in combination with GEM231 because changes in pharmacokinetics may be an indicator of potentiation of irinotecan by GEM231 in patients with solid tumors.

Research and Development

      For the years ended December 31, 2003, 2002 and 2001, we spent approximately $10.8 million, $7.9 million and $4.9 million, respectively, on research and development activities. Our collaborators sponsored only a nominal portion of these research and development activities in 2003, 2002 and 2001.

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Patents, Proprietary Rights and Licenses

      Our success depends in part on our ability to obtain and maintain proprietary protection for our product candidates, technology and know-how, to operate without infringing the proprietary rights of others and to prevent others from infringing our proprietary rights. Our policy is to seek to protect our proprietary position by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development of our business. We also rely on trade secrets, know-how, continuing technological innovation and in-licensing opportunities to develop and maintain our proprietary position.

      As of February 2004, we owned or exclusively licensed 102 issued U.S. patents and 84 U.S. patent applications and 163 corresponding foreign patents and over 220 corresponding foreign patent applications. The issued patents held or exclusively licensed by us include composition of matter patents on our own advanced DNA chemistries covering the use of these chemistries with various genes or sequences, patents covering therapeutic targets, patents covering immune modulation and patents covering oral and other routes of administering our synthetic DNA. These issued patents expire at various dates ranging from 2006 to 2021.

      The composition of matter patents covering GEM231 expire at various dates ranging from 2010 to 2019. We have applied for composition of matter patents covering HYB2055 but no patents have been issued to date covering HYB2055.

      The patent positions of companies like ours are generally uncertain and involve complex legal and factual questions. Our ability to maintain and solidify our proprietary position for our technology will depend on our success in obtaining effective claims and enforcing those claims once granted. We do not know whether any of our patent applications or those patent applications which we license will result in the issuance of any patents. Our issued patents and those that may issue in the future, or those licensed to us, may be challenged, invalidated or circumvented, and the rights granted thereunder may not provide us proprietary protection or competitive advantages against competitors with similar technology. Furthermore, our competitors may independently develop similar technologies or duplicate any technology developed by us. Because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that, before any of our products can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thus reducing any advantage of the patent, which could adversely affect our ability to protect future drug development and, consequently, our operating results and financial position.

      Because patent applications in the United States and many foreign jurisdictions are typically not published until eighteen months after filing, or in some cases not at all, and because publications of discoveries in the scientific literature often lag behind actual discoveries, we cannot be certain that we were the first to make the inventions claimed in each of our issued patents or pending patent applications, or that we were the first to file for protection of the inventions set forth in these patent applications.

      Litigation may be necessary to defend against or assert claims of infringement, to enforce patents issued to us, to protect trade secrets or know-how owned by us, or to determine the scope and validity of the proprietary rights of others. In addition, the U.S. Patent and Trademark Office may declare interference proceedings to determine the priority of inventions with respect to our patent applications or reexamination or reissue proceedings to determine if the scope of a patent should be narrowed. Litigation or any of these other proceedings could result in substantial costs to and diversion of effort by us, and could have a material adverse effect on our business, financial condition and results of operations. These efforts by us may not be successful.

Trade Secrets

      We may rely, in some circumstances, on trade secrets to protect our technology. However, trade secrets are difficult to protect. We seek to protect our proprietary technology and processes, in part, by confidentiality agreements with our employees, consultants, scientific advisors and other contractors. There can be no assurance that these agreements will not be breached, that we will have adequate remedies for any breach, or

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Licenses

      We are a party to a number of royalty-bearing license agreements under which we have acquired rights to patents, patent applications and technology of third parties. Our principal license agreement is with University of Massachusetts Medical Center. Under the terms of our license agreement with UMass Medical Center, we are the worldwide, exclusive licensee under a number of U.S. issued patents and various patent applications owned by UMass Medical Center relating to antisense oligonucleotides and their production and use. Many of these patents and patent applications have corresponding applications on file or corresponding patents in other major industrial countries.

      Several of the issued U.S. patents and several issued foreign patents licensed by us from the University of Massachusetts Medical Center broadly claim the use of our hybrid antisense oligonucleotides and ribozymes. The other issued U.S. patents covered by the license agreement include claims covering composition and uses of oligonucleotides based on advanced chemistries, and compositions of certain modified oligonucleotides that are useful for diagnostic tests or assays. The patents licensed to us by the University of Massachusetts Medical Center expire at dates ranging from 2006 to 2019. This license expires upon the expiration of the last to expire of the patents covered by the license.

      Other license agreements under which we are the licensee include:

	•	an exclusive license agreement with Louisiana State University covering patents and patent applications jointly owned by us and Louisiana State University relating to Mdm2,
	•	a non-exclusive license agreement with Genzyme Corporation covering patents and patent applications relating to Mdm2,
	•	a non-exclusive license agreement with Integrated DNA Technologies, Inc., covering patents and patent applications that broadly claim chemical modifications to synthetic DNA, and
	•	an exclusive license agreement with Dr. Yoon S. Cho-Chung covering patents and patent applications relating to Protein Kinase A.

      Under these licenses we are obligated to pay royalties on net sales by us of products or processes covered by a valid claim of a patent or patent application licensed to us. We also are required in some cases to pay a specified percentage of any sublicense income that we may receive. These licenses impose various commercialization, sublicensing, insurance and other obligations on us. Our failure to comply with these requirements could result in termination of the licenses. Each of these licenses terminates upon the expiration of the last to expire of the patents covered by the license.

Corporate Alliances

      An important part of our business strategy is to enter into research and development collaborations, licensing agreements and other strategic alliances, primarily with biotechnology and pharmaceutical corporations, to develop and commercialize drugs based on our technologies.

      We are a party to a collaboration and license agreement with Isis. Under the agreement, we granted Isis a license, with the right to sublicense, to our antisense chemistry and delivery patents and patent applications. We retained the right to use these patents and patent applications in our own drug discovery and development efforts and in collaborations with third parties. In consideration of the license, in 2001 Isis paid us $15.0 million in cash and issued to us 857,143 shares of its common stock having an aggregate fair market value on the date of issuance of $17.3 million. Under the agreement, Isis is also required to pay us a portion of specified sublicense income it receives from some types of sublicenses of our patents and patent applications.

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      In addition under the agreement, we licensed from Isis specified antisense patents and patent applications, principally Isis’ suite of RNase H patents and patent applications. We have the right under the agreement to use these patents and patent applications in our drug discovery and development efforts and in some types of collaborations with third parties. In consideration of this license, in 2002 we paid Isis approximately $716,000 in cash and issued to Isis 1,005,499 shares of our common stock having an aggregate fair market value on the date of issuance of approximately $1.2 million. We also agreed to pay Isis a nominal annual maintenance fee and a modest royalty on sales of products covered by specified patents and patent applications sublicensed to us by Isis.

      The licenses granted under the Isis agreement terminate upon the last to expire of the patents and patent applications licensed under the agreement. We may terminate at any time the sublicense by Isis to us of the patents and patent applications for which we have maintenance fee and royalty obligations to Isis.

      We are a party to four collaboration and license arrangements involving the use of our IMO or antisense technologies and specified indications.

	•	Aegera Therapeutics Inc. We are a party to an agreement with Aegera that relates to the development of an antisense drug targeted to the XIAP gene, a gene which has been implicated in the resistance of cancer cells to chemotherapy. In July 2003, Aegera and we announced that we had selected AEG35156/ GEM640, an antisense oligonucleotide, targeted to the XIAP gene, as the development candidate. Aegera has advised us that it has completed preclinical toxicology studies of AEG35156/ GEM640 and that it expects to initiate phase 1 clinical trials in the first quarter of 2004. Under the terms of the license we may receive up to $7,725,000 in up-front and milestone payments upon the achievement of specified development milestones. We are also entitled to receive a royalty on net sales of the drug if it is approved for sale.
	•	Epigenesis Pharmaceuticals, Inc. We are a party to an agreement with Epigenesis that relates to the development of up to five antisense drugs for the treatment of respiratory disease. Under the agreement, we received an upfront payment and are entitled to receive a royalty on net sales of the drug if it is approved for sale.
	•	The Immune Response Corporation. We are party to an agreement with Immune Response that relates to the development of Amplivax as an adjuvant for use in combination with Immune Response’s Remune® vaccine candidate for the prevention and treatment of HIV-1. Under the terms of the agreement, we granted Immune Response, during an exclusivity period, a worldwide license to Amplivax as an HIV vaccine adjuvant for the prevention and treatment of HIV. In order to maintain the exclusivity of the license to Amplivax that we granted to Immune Response in the agreement, Immune Response must make payments to us at specified times under the agreement. We are also entitled to receive a royalty on net sales of the Remune® vaccine combined with Amplivax if it is approved for sale.
	•	Micrologix Biotech Inc. We are a party to an agreement with Micrologix that relates to the development of an antisense drug for the treatment of human papillomavirus. Origenix, a former subsidiary of ours, and the entity from which Micrologix acquired the rights to the development, previously conducted a phase 1 clinical trial of this drug candidate. Under the terms of the agreement we may receive, in cash or equity, up to $5,750,000 in up-front and milestone payments upon the achievement of specified development milestones. We are also entitled to receive a royalty on net sales of the drug if it is approved for sale.

      Under these arrangements, we typically license to our collaborators our antisense chemistry and delivery patents and patent applications on a non-exclusive basis, and any antisense patents and patent applications that we have that are directed at the genes that are the subject of the arrangement on an exclusive basis. In

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      In 1996, we and three Canadian institutional investors formed MethylGene Inc. In connection with the formation of MethylGene, we made a cash investment in MethylGene and granted to MethylGene an exclusive, royalty-free worldwide license to antisense patents, patent applications and technology owned or exclusively licensed by us from University of Massachusetts Medical Center and McGill University to develop and market the following:

	•	antisense compounds which inhibit the production of DNA methyltransferase for any indication;
	•	other methods of inhibiting DNA methyltransferase for any indication; and
	•	antisense compounds to inhibit up to two additional molecular targets for any indication.

      In consideration for our initial cash investment and the license, we received shares of capital of MethylGene. In 2001, we sold all of our shares in MethylGene to an institutional investor and a group of Canadian institutional investors for an aggregate sale price of $7.2 million resulting in a gain of $6.9 million. We are not entitled to any additional consideration under our agreement with MethylGene.

Academic and Research Collaborations

      We have entered into a number of collaborative research relationships with independent researchers, leading academic and research institutions and U.S. government agencies. These research relationships allow us to augment our internal research capabilities and obtain access to specialized knowledge and expertise.

      In general, our collaborative research agreements require us to pay various amounts to support the research. We usually provide the synthetic DNA for the collaboration, which the collaborator then tests. If in the course of conducting research under its agreement with us a collaborator, solely or jointly with us, creates any invention, we generally have an option to negotiate an exclusive, worldwide, royalty-bearing license to the invention. Inventions developed solely by our scientists in connection with a collaborative relationship generally are owned exclusively by us. Most of these collaborative agreements are nonexclusive and can be cancelled with limited notice.

Government Regulation

      The testing, manufacturing, labeling, advertising, promotion, distribution, import, export, and marketing, among other things, of drugs are extensively regulated by governmental authorities in the U.S. and other countries. In the U.S., the FDA regulates pharmaceutical products under the Federal Food, Drug, and Cosmetic Act, or FDCA, and other laws. Both before and after approval for marketing is obtained, violations of regulatory requirements may result in various adverse consequences, including the FDA’s delay in approving or refusal to approve a drug, withdrawal of approval, suspension or withdrawal of an approved product from the market, operating restrictions, warning letters, product recalls, product seizures, injunctions, fines, and the imposition of civil or criminal penalties.

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      The steps required before a product may be approved for marketing in the U.S. generally include:

	•	preclinical laboratory tests and animal tests under the FDA’s good laboratory practices regulations,
	•	the submission to the FDA of an investigational new drug application, or IND, for human clinical testing, which must become effective before human clinical trials may begin,
	•	adequate and well-controlled human clinical trials to establish the safety and efficacy of the product for each indication,
	•	satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is made to assess compliance with the FDA’s current good manufacturing practices regulations, or cGMP, and
	•	the submission to the FDA of a new drug application, or NDA.

      Preclinical tests include laboratory evaluation of the product, as well as animal studies to assess the potential safety and efficacy of a drug. The results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND, which must become effective before human clinical trials may be commenced. The IND will automatically become effective 30 days after its receipt by the FDA, unless the FDA before that time raises concerns or questions about the conduct of the trials as outlined in the IND. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can proceed. If these issues are unresolved, the FDA may not allow the clinical trials to commence. We cannot be sure that submission of an IND will result in the FDA allowing clinical trials to begin.

      Clinical trials typically are conducted in three sequential phases, but the phases may overlap or be combined. Clinical trials are conducted under protocols detailing the objectives of the trials, the parameters to be used in monitory safety and the effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND prior to beginning the trial. Each trial must be reviewed and approved by an independent Institutional Research Board before it can begin. Subjects must provide informed consent for all trials.

	•	In phase 1, the initial introduction of the drug into human subjects, the drug is usually tested for safety or adverse effects, dosage tolerance, and pharmacologic action;
	•	Phase 2 usually involves controlled trials in a limited patient population to:

	•	evaluate preliminarily the efficacy of the drug for specific, targeted conditions,
	•	determine dosage tolerance and appropriate dosage, and
	•	identify possible adverse effects and safety risks; and

	•	Phase 3 trials generally further evaluate clinical efficacy and test further for safety within an expanded patient population.

Phase 1, 2, and 3 testing may not be completed successfully within any specified period, or at all. We, an Institutional Review Board, or the FDA, may suspend or terminate clinical trials at any time on various grounds, including a finding that the patients are being exposed to an unacceptable health risk.

      The results of the preclinical and clinical studies, together with other detailed information, including information on the manufacture and composition of the product, are submitted to the FDA as part of an NDA for approval prior to the marketing and commercial shipment of the product. In most cases, the NDA must be accompanied by a substantial user fee. The FDA also will inspect the manufacturing facility used to produce the product for compliance with cGMPs. The FDA may deny a new drug application if all applicable regulatory criteria are not satisfied or may require additional clinical, toxicology or manufacturing data. Even after an NDA results in approval to market a product, the FDA may limit the indications or place other limitations that restrict the commercial application of the product. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims,

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      We will also be subject to a variety of foreign regulations governing clinical trials and sales of our products. Whether or not FDA approval has been obtained, approval of a product by the comparable regulatory authorities of foreign countries must be obtained prior to the commencement of marketing of the product in those countries. The approval process varies from country to country and the time may be longer or shorter than that required for FDA approval. For marketing outside the U.S., we are also subject to foreign regulatory requirements governing human clinical trials. The requirements governing the conduct of clinical trials, product licensing, approval, pricing, and reimbursement vary greatly from country to country.

      In addition to regulations enforced by the FDA, we are also subject to regulation under the Occupational Safety and Health Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, and other present and potential future federal, state, or local regulations. Our research and development activities involve the controlled use of hazardous materials, chemicals and various radioactive compounds. Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, we could be held liable for any damages that result and any such liability could exceed our resources.

Manufacturing

      We are party to a supply agreement with Avecia Biotechnology, which was formally known as Boston Biosystems Inc., under which we may purchase our requirements for oligonucleotide compounds from Avecia at a preferential price. We are purchasing all of the oligonucleotides we are using in our ongoing clinical trials and pre-clinical testing from Avecia under this agreement. We are currently negotiating with Avecia a new agreement to replace the existing agreement which is due to expire at the end of March 2004. We expect that we will enter into a longer term arrangement with Avecia or new arrangements with third-party manufacturers to supply us with the oligonucleotide compounds that we need for our research, preclinical, clinical and if we receive approval of a product, commercial supply purposes.

Competition

      We expect that our product candidates will address several different markets defined by the potential indications for which these product candidates are developed and ultimately approved by regulatory authorities. For several of these indications, these product candidates will be competing with products and therapies either currently existing or expected to be developed, including IMO-like compounds and antisense oligonucleotides developed by third parties. Many of these existing products and therapies are marketed by large pharmaceutical companies, have recognized brand names and are widely accepted by physicians and patients.

      Competition among these products and therapies will be based, among other things, on

	•	product efficacy,
	•	safety,
	•	reliability,
	•	availability,

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	•	price, and
	•	patent position.

      The timing of market introduction of our products and competitive products will also affect competition among products. We also expect the relative speed with which we can develop products, complete the clinical trials and approval processes and supply commercial quantities of the products to the market to be an important competitive factor. Our competitive position will also depend upon our ability to attract and retain qualified personnel, to obtain patent protection or otherwise develop proprietary products or processes and to secure sufficient capital resources for the often substantial period between technological conception and commercial sales.

      There are a number of companies, both privately and publicly held, that are conducting research and development, preclinical and clinical and commercial activities relating to technologies and products that are similar to our technologies and products, including large pharmaceutical companies with programs in CpG DNA compounds that have a similar mechanism of action to our IMO compounds or in antisense technology and biotechnology companies with similar programs. Our principal competitors include Isis, Genta, Coley Pharmaceutical Group and Dynavax Technologies Corp.

      The primary indications for which we are developing our antisense and IMO products are cancer and infectious diseases. None of our competitors is currently marketing any antisense or IMO-like product for cancer or infectious diseases, except for Isis which is currently marketing an antisense product for the treatment of cytomegalovirus retinitis in patients with AIDS. However, our competitors are developing a number of product candidates for cancer and infectious diseases that are currently in clinical trials. In particular,

	•	Isis has six compounds presently in clinical trials, one of which is in late-stage clinical trials. Of these compounds, four are being studied for the treatment of cancer or infectious diseases.
	•	Genta, together with its partner Aventis, have submitted a New Drug Application to the FDA for an oligonucleotide compound proposed for the treatment of melanoma and are in late-stage clinical trials of the same compound for the treatment of other cancers.
	•	Dynavax has a CpG DNA compound in clinical trials for four indications. These indications include the treatment of cancer and infectious disease.
	•	Coley has a CpG DNA compound in clinical trials for three indications. These indications include treatment of cancer and infectious disease.

      Many of our competitors, particularly the pharmaceutical and large biotechnology companies with which we compete, have substantially greater financial, technical and human resources than we have. In addition, many of our competitors have significantly greater experience than we have in undertaking preclinical studies and human clinical trials of new pharmaceutical products, obtaining FDA and other regulatory approvals of products for use in health care and manufacturing, marketing and selling approved products.

Employees

      As of March 16, 2004, we employed 25 individuals full-time, including 19 employees in research and development. Eleven of our employees have an M.D. and/or a Ph.D. None of our employees are covered by a collective bargaining agreement and we consider relations with our employees to be good.

Information Available on the Internet

      Our internet address is www.hybridon.com. We make available free of charge through our web site our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 12(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file or furnish such materials to the Securities and Exchange Commission.

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      We lease approximately 26,000 square feet of laboratory and office space, including 6,000 square feet of specialized preclinical lab space, in Cambridge, Massachusetts under a lease that expires April 30, 2007. We believe these facilities are adequate to accommodate our needs for the near term.

      None.

      On December 4, 2003, at a special meeting of stockholders, our stockholders voted to approve amendments to our Certificate of Incorporation that:

	•	reduced the liquidation preference of our series A convertible preferred stock from $100 per share to $1 per share;
	•	reduced the annual dividend on our series A convertible preferred stock from 6.5% per annum to 1.0% per annum; and
	•	increased the number of shares of our common stock issuable upon conversion of our series A convertible preferred stock by 25% over the number of shares of our common stock that would otherwise be issuable upon conversion under our Certificate of Incorporation for a 60-day period following the filing of a Certificate of Amendment to Restated Certificate of Incorporation effecting the amendments.

      The approval of the amendments to our Certificate of Incorporation required the affirmative vote of the holders of:

	•	a majority of the outstanding shares of common stock entitled to vote at the special meeting; and
	•	a majority of the outstanding shares of series A convertible preferred stock entitled to vote at the special meeting.

      The amendments to our Certificate of Incorporation were approved as follows:

Executive Officers and Key Emplo