UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Commission file number 000-49839

Idenix Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)

Registrant’s telephone number, including area code:

(617) 995-9800

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

(Title of class)

     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.     þ

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

      The aggregate market value of the voting common stock held by nonaffiliates of the registrant based, on the last reported sale price of the common stock on the NASDAQ Stock Market on March 4, 2005, was approximately $262,756,326.

      Number of shares outstanding of the registrant’s class of common stock as of March 4, 2005: 48,080,447 shares.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Proxy Statement to be filed in connection with the solicitation of proxies for the Annual Meeting of Stockholders to be held on June 7, 2005 are incorporated by reference into Part III of this Annual Report on Form 10-K.

Idenix Pharmaceuticals, Inc.

Form 10-K

TABLE OF CONTENTS

Cautionary Statement Regarding Forward-Looking Statements

      This annual report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning our business, operations and financial condition, including statements with respect to the expected timing and results of completion of phases of development of our product candidates, the safety, efficacy and potential benefits of our product candidates, expectations with respect to development and commercialization of our product candidates, the timing and results of the submission, acceptance and approval of regulatory filings, the scope of patent protection with respect to these product candidates and information with respect to the other plans and strategies for our business. All statements other than statements of historical facts included in this annual report on Form 10-K regarding our strategy, future operations, timetables for testing, regulatory approval and commercialization of product candidates, financial position, costs, prospects, plans and objectives of management are forward-looking statements. When used in this annual report on Form 10-K the words “expect”, “anticipate”, “intend”, “may”, “plan”, “believe”, “seek”, “estimate”, “projects”, “will”, “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Because these forward-looking statements involve risks and uncertainties, actual results could differ materially from those expressed or implied by these forward-looking statements for a number of important reasons, including those discussed under “Factors That May Affect Future Operating Results”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this annual report on Form 10-K.

      You should read these forward-looking statements carefully because they discuss our expectations regarding our future performance, future operating results or future financial condition, or state other “forward-looking” information. You should be aware that the occurrence of any of the events described under “Factors That May Affect Future Operating Results” and elsewhere in this annual report on Form 10-K could substantially harm our business, results of operations and financial condition and that upon the occurrence of any of these events, the price of our common stock could decline.

      We cannot guarantee any future results, levels of activity, performance or achievements. The forward-looking statements contained in this annual report on Form 10-K represent our expectations as of the date of this annual report on Form 10-K and should not be relied upon as representing our expectations as of any other date. Subsequent events and developments will cause our expectations to change. However, while we may elect to update these forward-looking statements, we specifically disclaim any obligation to do so, even if our expectations change.

PART I

The Company

      Idenix is a biopharmaceutical company engaged in the discovery, development and commercialization of drugs for the treatment of human viral and other infectious diseases. Since our inception in May 1998, our focus has been on the treatment of infections caused by hepatitis B virus, or HBV, hepatitis C virus, or HCV, and human immunodeficiency virus, or HIV. We believe that our product candidates will address substantial limitations that exist with currently approved therapies. Such limitations include inadequate antiviral potency, the emergence of viral strains resistant to drug therapies and patient non-compliance resulting from drug-related adverse side effects and inconvenient dosing regimens.

      We maintain a web site with the address www.idenix.com. We are not including the information contained on our web site as part of, or incorporating by reference into, this annual report. We make available free of charge on or through our web site our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. In addition, we intend to

disclose on our web site any amendments to, or waivers from, our code of business conduct and ethics that are required to be disclosed pursuant to rules of the Securities and Exchange Commission.

      We are an early stage company. All of our product candidates are being evaluated in clinical trials or are in early stages of development. To date, we have not obtained regulatory approval for or commercialized any products. We have incurred significant losses since our inception in May 1998. We expect to incur annual operating losses over the next several years as we expand our drug discovery, development and commercialization efforts. We do not expect any of our product candidates, if successfully developed, to become commercially available prior to 2006.

      We are a Delaware corporation. Our principal offices are located at 60 Hampshire Street, Cambridge, Massachusetts 02139. The telephone number of our principal executive offices is 617-995-9800.

Product Candidates in Clinical Trials

      Each of our current clinical product candidates is a nucleoside or nucleoside analog which is intended to have significant competitive advantages in one or more therapeutic areas, such as efficacy, safety, resistance profile or convenience of dosing, compared to currently approved treatments. Nucleosides and nucleoside analogs are classes of small molecule compounds that have a proven record of scientific development and commercial success as antiviral agents. Each of the product candidates that we are developing is selective and specific, may be administered orally once a day, and we believe may be used in combination with other therapeutic agents to improve clinical benefits.

      In May 2003, we licensed to Novartis Pharma AG, or Novartis, our hepatitis B product candidates, telbivudine and valtorcitabine, as part of a worldwide development and commercialization arrangement that we entered into with Novartis. At that time, in exchange for the license of our hepatitis B product candidates, we received a license fee in the amount of $75 million and the right to receive up to $35 million upon achievement of regulatory approval milestones as well as additional milestone payments based upon achievement of predetermined sales levels. Novartis reimburses us for expenses we incur with respect to the development of hepatitis B product candidates. While we licensed to Novartis the right to commercialize these product candidates in all areas of the world, we retained the right to co-promote or co-market in the United States, United Kingdom, France, Germany, Spain and Italy the licensed product candidates that we successfully develop.

      Telbivudine. Our lead product candidate, telbivudine, is being evaluated for the treatment of chronic hepatitis B, an inflammatory liver disease associated with chronic HBV infection. Currently, we are evaluating telbivudine in an international phase III clinical trial, which we refer to as the GLOBE study. The GLOBE study has been fully enrolled since April 2004 with more than 1,350 patients who had not been treated previously for chronic HBV infection. If the data from this phase III clinical trial are positive, we expect to submit a new drug application, or NDA, to the U.S. Food and Drug Administration, or FDA, in late 2005 for marketing approval of telbivudine as an oral, once-a-day treatment of chronic hepatitis B.

      In the GLOBE study, we are comparing 600 mg of telbivudine orally administered once a day to standard treatment with 100 mg of lamivudine orally administered once a day. The primary efficacy endpoint for this phase III clinical trial is a composite endpoint, which we refer to as the Therapeutic Response. Therapeutic Response is defined as viral suppression to less than 100,000 copies of HBV DNA in each milliliter of blood and either loss of serum e-antigen or liver enzyme normalization. We refer to the measurement of virus in the blood as copies/ml. The chosen level of HBV suppression, 100,000 copies/ml, corresponds to the level of HBV suppression recommended by the American Association for the Study of Liver Diseases, a leading U.S. professional society in the field of liver diseases.

      The GLOBE study is being conducted at approximately 135 clinical sites in 20 countries in North America, Europe and Asia. The design of this study, including the primary and secondary efficacy endpoints, was discussed and agreed with key regulatory agencies, including the FDA. We anticipate that the one-

year results from this clinical trial will be the basis of our worldwide marketing applications. Additionally, we are conducting a second phase III clinical trial in which we expect to enroll 240 patients who exhibit signs of liver failure due to advanced hepatitis B. We anticipate that the data derived from this clinical trial, while not required as a part of the NDA, will provide additional data in support of such application.

      In preparation for the anticipated launch of telbivudine, we have recently initiated two phase IIIb clinical trials. Phase IIIb clinical trials are principally designed to obtain additional data to further delineate a product candidate’s profile. Phase IIIb trials are not generally required for submission of an NDA. One trial, which is enrolling 120 patients, has been designed to assess the antiviral effects and clinical results of treatment for a 12 month period with telbivudine compared to treatment with adefovir dipivoxil, a product approved for the treatment of chronic hepatitis B. The second phase IIIb clinical trial is a clinical trial which we refer to as a “treatment switch” study. In this clinical trial, we are enrolling 230 patients with chronic hepatitis B who have no signs of liver disease and who have been previously treated with lamivudine for a period of three to 12 months. The patients in this 12 month clinical trial will, at random, either be switched to treatment with telbivudine or continued on treatment with lamivudine. This one year clinical trial is designed to assess and compare the antiviral effects and clinical benefits of these treatment regimens. In addition to the current phase IIIb clincial trials, during 2005, we anticipate initiating one or more additional phase IIIb clinical trials.

      In addition to the phase IIIb clinical trials, we have begun with Novartis commercialization activities in anticipation of the launch of telbivudine, which is expected to occur initially in the United States. We have established a joint commercialization committee that will oversee the co-promotion efforts in which we and Novartis engage in the United States. This committee is currently developing plans for the commercial launch, if approved, of telbivudine in 2006. Such plans include the anticipated establishment by us of a sales force to promote telbivudine.

      Valtorcitabine. While we anticipate that telbivudine will successfully treat a majority of patients with chronic hepatitis B, treatment with more than one therapeutic agent may be required to successfully treat a subset of the HBV patient population. For patients who do not experience optimal early antiviral effects with single-agent therapy, we are developing a second HBV product candidate, valtorcitabine, which, based on preclinical data, we believe may be effective in combination therapy with telbivudine. Currently, we are evaluating the combination of valtorcitabine with telbivudine in a phase IIb clinical trial. We anticipate that this phase IIb clinical trial will enroll 130 patients who have more than 100,000,000 copies/ml of HBV and who have not been previously treated for chronic HBV infection. This trial is designed to evaluate the safety of the combination treatment and determine whether the combination of valtorcitabine with telbivudine results in greater suppression of virus levels in the blood serum than that which is achieved with treatment with telbivudine alone.

      Similar to our HBV program, our HCV program is focused on the development of product candidates which, as single agents or in combination, are expected to offer significant improvements in efficacy, safety, resistance and convenience of dosing when compared to currently approved therapies. Our efforts are focused on the discovery of product candidates that we expect will be active against various strains of HCV including the genotype 1 strain of HCV, which is responsible for more than 70% of hepatitis C infections in the U.S. and Japan and almost 65% of hepatitis C infections in Europe.

      Our hepatitis C development program is initially seeking to address the large patient population, the majority of whom are infected with the genotype 1 strain of HCV, that has failed to respond to the current standard treatment, the combination of ribavirin and pegylated interferon. For this patient population, other treatment options are currently very limited, if available at all. We expect to subsequently target the treatment-naive patient population for whom treatment with the current standard of care is only successful in approximately 50% of patients with HCV genotype 1.

      Valopicitabine (NM283). Our lead hepatitis C product candidate, valopicitabine or NM283, is a nucleoside analog, that we are developing as a more effective alternative to ribavirin in a pegylated interferon-based treatment combination.

      Currently, we are evaluating NM283 in a phase IIb clinical trial comparing the safety and efficacy of the combination of NM283 plus pegylated interferon to the current standard of care, ribavirin in combination with pegylated interferon. In this phase IIb clinical trial, we are enrolling approximately 170 patients infected with the genotype 1 strain of HCV who have previously failed at least three months of treatment with the combination of pegylated interferon and ribavirin. We expect to analyze the interim data at weeks 12 and 24. If the 24-week data are positive, we anticipate extending the trial to one year.

      Additionally, we are currently conducting a six month phase IIa clinical trial of valopicitabine in treatment-naive patients. We have substantially completed enrollment of this 30 patient phase IIa clinical trial, which is designed to assess the safety, antiviral activity and pharmacokinetics of the combination of NM283 and pegylated interferon compared to NM283 alone. In January 2005, we announced interim results from the 19 patients who had completed 12 weeks of treatment. The patients receiving the combination of NM283 and pegylated interferon achieved a mean reduction in the level of HCV circulating in the patient’s blood, or serum viral level of 3.2 log₁₀, or 99.94 percent, at week 12. Nine of 12 patients receiving the combination treatment achieved a greater than 2 log10 decrease in levels of serum viral level, or an early viral response, at week 12. To date, tolerance of both treatment regimens has been satisfactory, with no serious adverse events reported.

      Novartis has the option to license NM283. If Novartis exercises such option, which it must do so prior to the commencement of a phase III clinical trial, Novartis would be required to pay us up to $525 million in license fees and milestone payments associated with regulatory filings and approvals as well as additional milestone payments based upon achievement of predetermined sales levels. Similar to the commercialization arrangements relating to the HBV product candidates licensed to Novartis, we have the right to co-promote or co-market with Novartis valopicitabine in the United States, United Kingdom, France, Germany, Spain and Italy. Novartis would have the right to commericalize valopicitabine in the rest of the world.

Drug Discovery

      In addition to valopicitabine, we are currently engaged in preclinical development of a second HCV product candidate that is also a nucleoside analog. We anticipate that this product candidate could be used in combination with valopicitabine and, if successfully developed, could become the backbone of a triple combination therapy for HCV, similar to the approach used today in HIV therapy. We envision that the third agent in this combination could be pegylated interferon or one of the many non-nucleoside or protease inhibitor product candidates that are in the very early stages of development in the industry. We believe that successful development of two or more nucleoside analogs that may be used in combination with other orally administered drugs will enable us to establish a franchise in this therapeutic area by offering treatments to the broadest possible hepatitis C patient population, including those patients that cannot be treated with interferon-based therapies or those for whom drug-related adverse side effects and inconvenient dosing regimens reduce compliance.

      In addition to our HBV and HCV product candidates, we are also developing a product candidate from the class of compounds known as non-nucleoside reverse transcriptase inhibitors, or NNRTIs, for treatment of HIV. We believe that large opportunities continue to exist for HIV drugs that address the limitations of currently approved therapies. We expect to file an investigational new drug application, or IND, in late 2005.

      Two of the viral enzymes that are required for HIV to replicate are the protease enzyme and the reverse transcriptase enzyme. There are several classes of drugs that inhibit these two enzymes, including NNRTIs, nucleoside reverse transcriptase inhibitors and protease inhibitors. We are focusing our efforts on the viral polymerase, in this case, reverse transcriptase. Based on screening our nucleoside, nucleoside analog and non-nucleoside libraries, we have identified two novel series of non-nucleoside inhibitors of reverse transcriptase. Nucleoside and nucleoside analog inhibitors of reverse transcriptase act at the active site of the enzyme. NNRTIs act at a conserved binding site outside the active site and apparently alter the conformation of the

enzyme in a detrimental way. The compounds we have identified are specific for their conserved binding site on reverse transcriptase, and therefore do not inhibit human or other viral polymerases. Marketed NNRTIs, efavirenz and nevirapine, have therapeutic limitations including cross resistance and other unwanted side effects. We believe that a drug that can be administered orally, which does not have significant drug interactions, has a safety profile superior to currently marketed NNRTIs, or is less likely to select for resistance during therapy, would fill a significant medical need in HIV therapy.

Antiviral Research

      We have successfully advanced three product candidates into clinical trials based on our understanding of virology and nucleoside chemistry. We have a highly developed set of skills in compound generation, target selection, screening and lead optimization and pharmacology and preclinical development. We are utilizing these skills and capabilities in our discovery and development of antiviral product candidates.

      Our Scientists. Our staff of scientists is engaged in drug discovery and preclinical drug development in laboratory facilities located in Cambridge, Massachusetts, Montpellier, France and Cagliari, Italy. These scientists have expertise in the areas of nucleoside/nucleotide chemistry, molecular virology and pharmacology, and our scientists have substantial experience in applying this expertise to the discovery and development of nucleoside and non-nucleoside compounds which target the viral polymerase enzyme and the viral replication cycle. Pursuant to arrangements we have entered into with each of the University of Cagliari in Italy and Le Centre National de la Recherche Scientifique, or CNRS, and University of Montpellier in France, our scientists in Italy and certain of our scientists in France occupy premises at these universities where they have access to well-equipped laboratories and other resources required to conduct most research activities. The work of our Idenix staff scientists is supplemented by research and development activities of independent third-party chemists located principally in Montpellier, France and independent third-party biologists specialized in antiviral drug research activities located principally in Cagliari, Italy. Pursuant to the arrangements we and Novartis have with CNRS and the University of Montpellier and the University of Cagliari, we and Novartis have rights to access certain results of the work of these groups of independent scientists. For a further description of these arrangements, see “— Collaborations.”

      Focused Compound Library. Our focused library contains a diverse set of structures which have been synthesized for the principal purpose of targeting and inhibiting viral replication. These structures consist of various nucleosides, nucleoside analogs, selected non-nucleosides and other small molecule compounds. Our nucleoside and nucleoside analog library contains both D- and L- compounds. D-nucleosides have a configuration similar to the chemical compounds that are the natural building blocks of DNA and RNA. L-nucleosides have structures that are the mirror image of D-nucleoside structures. L-nucleosides and L-nucleoside analogs are a class of therapeutic agents that have safety and potency profiles that may be better than the D-nucleoside analogs which are currently prescribed. For instance, lamivudine is an L-nucleoside that demonstrates antiviral activity coupled with an excellent safety profile.

      Target Selection. We focus on viral diseases representing large and growing market opportunities with significant unmet medical needs. Our selection of a particular therapeutic target within those viral diseases takes into consideration the experience and expertise of our scientific management team and the likelihood that our proprietary nucleoside, nucleoside analog and non-nucleoside libraries will yield a small molecule lead. The final selection is based on the probability of being able to generate a robust medicinal chemistry structure-activity relationships analysis to assist lead optimization and secure relevant intellectual property rights.

      Screening and Lead Optimization. We believe that our efficiency in selecting a lead chemical structure from our focused library distinguishes us from our competitors. Our ability to discover multiple compounds with antiviral activity, as exemplified by our HBV and HCV product candidates, enhances early progress toward lead optimization.

      Pharmacology and Preclinical Development. Once we have identified lead compounds, they are tested using in vitro and in vivo pharmacology studies and in vivo animal models of antiviral efficacy. Using in vitro studies, our scientists are able to ascertain the relevance of intracellular activation, metabolism and protein

binding. The in vivo pharmacokinetic studies identify the percentage of oral bioavailability and whole body metabolism of the compound. The animal models provide data on the efficacy of the compound and firmly establishes a proof of concept in a biologically relevant system.

Our Product Candidates/ Background on Science

      Each of our current clinical product candidates is a nucleoside or nucleoside analog which is intended to have significant competitive advantages in one or more therapeutic areas, such as safety, efficacy, resistance profile or convenience of dosing, compared to currently approved treatments.

      Nucleosides are small, natural chemical compounds that function as the building blocks of human and viral genetic material, commonly referred to as deoxyribonucleic acid, or DNA, or ribonucleic acid, or RNA. Nucleoside analogs are synthetic compounds that are structurally similar to natural nucleosides. Each of these are small molecules that effectively target viral polymerases, the enzymes that replicate viral genetic information.

      Naturally occurring nucleosides are modified in cells to generate derivatives, termed nucleotides, that are utilized by polymerases as the basic building blocks of DNA and RNA genetic material. Antiviral nucleoside drugs are typically nucleoside analogs, molecules that are chemically modified versions of one of the natural nucleosides. Mimicking the role of natural nucleosides, antiviral nucleoside drugs are generally incorporated by viral polymerases into replicating viral genomes. This event impairs either the synthesis or the functionality of the resultant viral genome and therefore suppresses viral replication.

      As drugs, nucleosides and nucleoside analogs generally offer high selectivity, excellent potency, long duration of action, potential once-a-day oral administration and relatively straightforward scale-up and manufacture. As a result, nucleosides and nucleoside analogs are particularly well-suited for the extended treatment of chronic viral diseases.

      The benefits of nucleosides and nucleoside analogs are borne out by a proven track record of scientific, development and commercial success as antiviral treatments for hepatitis B, hepatitis C and HIV. Based upon published clinical trial results, it is estimated that approximately 90% of the nucleosides and nucleoside analogs developed as antiviral therapeutics that reach development stages beyond phase I clinical trials result in marketing approval. In the U.S., the nucleoside analog lamivudine has become the most widely prescribed treatment for hepatitis B. The standard of care for the treatment of hepatitis C is a combination of ribavirin, a nucleoside analog, in combination with pegylated interferon. In addition, the standard treatment for HIV infection includes two nucleoside analogs combined with a third drug from another class to form triple combination therapy. A total of seven nucleoside analogs have been approved for the treatment of HIV.

      NNRTIs are small molecules that attack the reverse transcriptase stage of HIV viral replication. NNRTIs effect such attack by directly interacting with an allosteric site of the reverse transcriptase enzyme in a manner that inactivates the enzyme itself and inhibits the viral replication cycle.

      NNRTIs have a high therapeutic index and have historically demonstrated limited unwanted side effects while constituting the most potent class of HIV antivirals. This class of drug has the potential for once a day oral administration and relative ease in scale-up and manufacturing. HIV resistance develops rapidly if these drugs are used on their own as monotherapy. It has been demonstrated that maximum benefit is derived if NNRTIs are used in combination with other classes of anti-HIV drugs. Neviripine and efavirnez, each NNRTIs, are among the most presrcibed treatments for HIV. A total of three NNRTIs have been approved for HIV treatment.

Research and Development Expenses

      Research and development expenses for the years ended December 31, 2004, 2003 and 2002 were $80.0 million, $51.5 million, and $29.3 million respectively, and represented 77%, 72% and 70%, respectively, of our total operating expenses.

Collaborations

Relationship with Novartis

Overview

      On May 8, 2003, we entered into a collaboration with Novartis which included the following agreements and transactions:

      In July 2004, to maintain its percentage equity interest at the closing of our initial public offering, Novartis purchased from us 5,400,000 shares of our common stock for an aggregate purchase price of $75.6 million. Additionally, in connection with the consummation of our initial public offering, we sold to Novartis 1,100,000 shares of common stock for a purchase price of $.001 per share in exchange for the termination of certain stock subscription rights held by Novarits.

      Currently, Novartis and its affiliate, Novartis BioVentures, collectively own approximately 57% of our outstanding common stock.

Development, License and Commercialization Agreement

      Under the development agreement, Novartis obtained certain rights to commercialize our lead product candidates for the treatment of HBV infection, telbivudine and valtorcitabine. Novartis will make payments to us of up to $35 million upon the achievement of regulatory approval milestones for our HBV product candidates, as well as additional milestone payments based upon achievement of predetermined sales levels. In addition, Novartis has the exclusive option to obtain rights to:

      The terms of these options, including license fees, milestone payments and payments in reimbursement of development expenses, vary according to the disease which the product candidate treats, the stage of development of the product candidate and Novartis’ ownership interest in Idenix. If Novartis exercises its option to obtain exclusive rights to NM283, Novartis would be required to pay us up to $525 million in license fees and regulatory milestone payments relating to NM283, as well as additional milestone payments based upon achievement of predetermined sales levels. In June 2004, we received from Novartis a $25 million milestone payment based on the results from our phase I clinical trial of NM283.

      For most of our product candidates, Novartis will have the right to approve, in its reasonable discretion, the development budget. We will develop each product in accordance with a development plan approved by a joint operating committee. The joint operating committee is comprised of an equal number of representatives of Idenix and Novartis. Novartis will be solely responsible for the development expenses incurred in accordance with approved development budgets for our lead HBV products and, if selected by Novartis, NM283 or a replacement HCV product candidate. If NM283 fails to obtain regulatory approval in the U.S., Novartis will pay the development expenses for a replacement HCV product candidate if it has approved the corresponding development budget, up to a specified maximum. The development expense payments for any replacement HCV product candidates will be credited against the first sales milestone payment payable by Novartis to us for our initial HCV product. Novartis will also be primarily responsible for the development expenses for any other product candidate for which it exercises its option to obtain commercialization rights.

      We have primary responsibility for preparing and filing regulatory submissions with respect to any licensed product in the U.S., and Novartis has primary responsibility for preparing and filing regulatory submissions with respect to any licensed product in all other countries in the world. Under certain circumstances, primary responsibilities for all or certain regulatory tasks in a particular country may be switched from one party to the other.

      Under the development agreement, we granted Novartis an exclusive, worldwide license to market and sell our lead HBV products, and we will grant Novartis such a license with respect to any other product candidates for which Novartis exercises its option, except that in each case we retained the right to co-promote or co-market all licensed products in the U.S., the U.K., France, Germany, Italy and Spain. We will share equally the resulting net benefit with Novartis from the co-promotion in the U.S. from the date of product launch and in the U.K., France, Germany, Italy and Spain, we will share equally the net benefit within three years after the date of product launch.

      In other countries, we will sell products to Novartis for their further sale to third parties. Novartis will pay us to acquire such products at a price that is determined in part by the volume of product net sales under the terms of the supply agreement described below.

      We have an option to obtain a license from Novartis, co-exclusive with Novartis, to develop and sell a sustained-release interferon as part of a combination therapy with our HCV products in the U.S., the U.K., France, Germany, Italy and Spain, but only if Novartis is able to provide such interferon to us before May 8, 2005. Currently, we are addressing with Novartis the possible extension of this option. Each party may also independently develop, market and sell in such countries one and only one other interferon product whose labeled usage for co-administration with our HCV products is covered by our intellectual property.

      Novartis has agreed that it will not market, sell or promote, or grant a license to any third party to market, sell or promote, certain competing products. However, if Novartis seeks to engage in such activities, it must first inform us of the competitive product opportunity and, at our election, enter into good faith negotiations with us concerning such opportunity. If we either do not elect to enter into negotiations with respect to such opportunity or are unable to reach agreement within a specified period, Novartis would be free to proceed with its plans with respect to such competing product. The competitive restrictions on Novartis terminate on a country-by-country basis on the earlier of May 8, 2008 or the termination of the development agreement with respect to each particular country as described below.

      Under the development agreement, we have agreed to indemnify Novartis and its affiliates against losses suffered as a result of our breach of representations and warranties in the development agreement. We made numerous representations and warranties to Novartis regarding our hepatitis C and hepatitis B product candidates, including representations regarding our ownership of the inventions and discoveries. If one or more of our representations or warranties were not true at the time we made them to Novartis, we would be in breach of this agreement. In the event of a breach by us, Novartis has the right to seek indemnification from us for damages suffered by Novartis as a result of such breach. The amounts for which we could be liable to Novartis may be substantial. For additional information on such indemnification rights, see “Stock Purchase Agreement”, “Factors That May Affect Future Results — Factors Related to Our Relationship with Novartis” and “— Factors Related to Patents and Licenses.”

      Novartis may terminate the development agreement with respect to a particular product, product candidate or country, in its sole discretion, by providing us with six months’ written notice. If either we or Novartis materially breach the development agreement and do not cure such breach within 30 days, or under certain circumstances, 120 days, or if such breach is uncurable, the non-breaching party may terminate the development agreement:

      Each party may also terminate the development agreement in its entirety upon 30 days’ written notice if the other party files for bankruptcy, insolvency, reorganization or the like. If Novartis terminates the development agreement for material breach by us, or for bankruptcy, insolvency or reorganization on our part, then Novartis may elect to retain licenses to product candidates or products, in which case it will remain obligated to make payments to us in amounts to be negotiated in good faith at the time of termination. If we terminate part or all of the development agreement for material breach by Novartis, or for bankruptcy, insolvency or reorganization on the part of Novartis, or if Novartis terminates the development agreement unilaterally in the absence of a breach by us, we may be obligated to make payments to Novartis in amounts to be negotiated in good faith at the time of termination.

Master Manufacturing and Supply Agreement

      Under the master manufacturing and supply agreement, dated as of May 8, 2003, between our subsidiary, Idenix (Cayman) Limited, or Idenix Cayman, and Novartis, which w refer to as the supply agreement, oIdenix Cayman, appointed Novartis to manufacture or have manufactured the clinical supply of the active pharmaceutical ingredient, or API, for each product candidate licensed under the development agreement and certain other product candidates. The cost of the clinical supply will be treated as a development expense, to be allocated in accordance with the development agreement. Idenix Cayman will appoint Novartis or a third party to manufacture the commercial supply of the API based on a competitive bid process under which Novartis has the right to match the best third-party bid. Novartis will perform the finishing and packaging of the APIs into the final form for sale.

      Idenix Cayman will pay Novartis for manufacturing the commercial supply of API, if Novartis manufactures the API, and finishing and packaging the products. Novartis will pay to Idenix Cayman a transfer price based on net sales of the products sold outside the co-commercialization countries. The parties will negotiate the transfer prices for the products, including, in some circumstances, the interferon, to be sold in the co-commercialization countries.

Stockholders’ Agreement

      In connection with Novartis’ purchase of our stock from our then existing stockholders, we and substantially all of our stockholders entered into a stockholders’ agreement with Novartis which was amended and restated in connection with our initial public offering. Under the terms of the amended and restated stockholders’ agreement, we have:

      Novartis has certain rights to acquire shares of our capital stock. Such rights are further described below under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates.”

Stock Purchase Agreement

      Under the stock purchase agreement, dated as of March 21, 2003, which we refer to as the stock purchase agreement, among us, Novartis and substantially all holders of our capital stock as of May 8,2003, Novartis purchased approximately 54% of our outstanding capital stock from our stockholders for $255 million in cash, with an additional aggregate amount of up to $357 million contingently payable to these stockholders if we achieve predetermined development milestones with respect to an HCV drug candidate. The future contingent payments are payable in cash or, under certain circumstances, Novartis AG American Depository Shares.

      Under the stock purchase agreement, we agreed to indemnify Novartis and its affiliates against losses suffered as a result of our breach of representations and warranties in the stock purchase agreement. In the stock purchase agreement, we and our stockholders who sold shares to Novartis, which include many of our directors and officers, made numerous representations and warranties. The stock purchase agreement representations and warrranties we made to Novartis regarding our hepatitis C and hepatitis B product candidates and our ownership of related inventions and discoveries are substantially the same as the representations and warrranties we made to Novartis in the development agreement. If one or more of our representations or warranties were not true at the time we made them to Novartis, we would be in breach of this agreement. In the event of a breach by us, Novartis has the right to seek indemnification from us and, under certain circumstances, us and our stockholders who sold shares to Novartis for damages suffered by Novartis as a result of such breach. The amounts for which we could be liable to Novartis may be substantial. For additional information on such indemnification rights, see “Development, License and Commercialization Agreement,” “Factors That May Affect Future Results — Factors Related to Our Relationship with Novartis” and “— Factors Related to Patents and Licenses.”

      Currently, Novartis and its affiliate, Novartis BioVentures, which was an existing stockholder at the time of the Novartis stock purchase, collectively own approximately 57% of our outstanding common stock.

Co-operative Laboratory Agreements

      In May 2003, we and Novartis entered into an amended and restated agreement with CNRS and L’Universite Montpellier, which we refer to as the University of Montpellier, pursuant to which we work in collaboration with scientists from CNRS and the University of Montpellier to discover and develop technologies relating to antiviral substances. The agreement includes provisions relating to ownership and commercialization of the technology which is discovered or obtained as part of the collaboration as well as rights regarding ownership and use of such technology upon termination of the agreement. This agreement amended and restated an agreement that our subsidiary, Idenix SARL, the University of Montpellier and CNRS had originally entered into in January 1999. Under the terms of the agreement, we make payments to the University of Montpellier for use of the facilities, certain improvements to the facilities and for supplies consumed in connection with research activities. In the event of termination of the agreement, Idenix will continue to retain rights to exploit the patents derived from the collaboration.

      We have entered into two agreements with the Universita degli Studi di Cagliari, which we refer to as the University of Cagliari, the co-owner of the patent applications covering our hepatitis C and our HIV NNRTI product candidates. One agreement covers our cooperative research program and the other agreement is an exclusive license under these patent applications to develop and sell the jointly created HCV and HIV product candidates. In May 2003, Novartis became a party to each of these agreements. The cooperative research agreement includes provisions with respect to cost sharing, ownership and commercialization of the technology which is discovered or obtained as part of the collaboration. Under the terms of the cooperative agreement, we make payments to the University of Cagliari for use of the facilities and for supplies consumed in connection with the research activities.

      Under the terms of the license agreement with the University of Cagliari, we have the exclusive worldwide right to make, use and sell our HCV product candidates and our NNRTI candidate for the treatment of HIV and the right to sublicense any of those rights. Under the terms of the agreement, we assume the costs and responsibility for filing, prosecuting, maintaining and defending the jointly owned patents. We must provide a fixed royalty payment to the University of Cagliari on worldwide sales of these drug products in accordance with the terms of the agreement. The license agreement terminates at the expiration of all royalty payment obligations, unless terminated earlier by us, by the mutual agreement of the parties, or by a material breach of the terms of the agreement.

Manufacturing

      We have developed the capacity to synthesize compounds in quantities ranging from milligrams to metric tons. Our medicinal bench chemists focus on small-scale synthesis that leads to the discovery of new nucleoside analogs and the analysis of structure-activity relationships for each identified compound series. In addition, these scientists aim to design efficient synthetic routes suitable for process chemistry scale up to the level of one-kilogram batches of the lead molecule. This material supports key preclinical studies, including proof of principle studies in animal models, early pharmacokinetic assays, initial toxicology studies and formulation development. The process chemistry facility we maintain in Cambridge, Massachusetts allows us to accelerate these key studies. This facility also allows us to provide non-cGMP materials in quantities up to one kilogram to support early toxicological studies and the initial development of formulations. These formulations could then be manufactured using current good manufacturing practices, or cGMP, material. We also contract with third parties, including Novartis, for the synthesis of material used in our toxicology studies and for formulation development.

      We contract with third parties, including Novartis, for the synthesis of cGMP material used in our clinical trials. To reduce costs and preserve manufacturing proprietary rights, we provide these manufacturers with only the required portion of the synthetic method and a sufficient quantity of the starting or intermediate material to prepare the quantity and quality of material necessary for the conduct of our clinical trials and

related nonclinical toxicology studies. We currently rely upon a number of third-party manufacturers for the supply of our product candidates in bulk quantities.

      We have selected manufacturers that we believe comply with cGMP and other regulatory standards. We are establishing a quality control and quality assurance program, including a set of standard operating procedures, analytical methods and specifications, designed to ensure that our product candidates are manufactured in accordance with cGMP and other domestic and foreign regulations.

      All of the materials that we require for manufacture of telbivudine are currently available from more than one qualified source. The process used for the manufacture of telbivudine is robust and has been repeated by different manufacturers on a multiple kilogram scale. We are currently pursuing the same result with respect to the other product candidates we currently have in clinical development.

      We rely upon Novartis as well as other third-party manufacturers for the dosage form of our product candidates. We do not expect to internally manufacture material for our clinical trials or undertake the commercial-scale manufacture of our drug products. Accordingly, we are discussing with our suppliers and other third-party manufacturers the long-term supply and manufacture of these and other product candidates we may develop and commercially launch.

Sales and Marketing

      We intend to establish our own sales and marketing capabilities to coincide with the regulatory approval of telbivudine. In accordance with the arrangements set forth in our development agreement with Novartis, we will co-promote or co-market with Novartis in the U.S., the U.K., France, Germany, Italy and Spain our HBV products and other products Novartis subsequently licenses from us. In markets outside of the U.S., the U.K., France, Germany, Italy and Spain, Novartis is responsible for the marketing, distribution and sale of telbivudine and valtorcitabine, as well as other products which it may license from us.

      In the U.S. and Western Europe, approximately 80% of patients receiving antiviral therapy for hepatitis B and hepatitis C are treated by medical specialists in the areas of gastroenterology, hepatology or infectious diseases. By using a specialized sales force, and offering treatments with substantial clinical benefits over other marketed products, we believe that we will achieve significant rates of market penetration at reasonable cost. We expect to utilize this specialized sales force in the U.S., the U.K., France, Germany, Italy and Spain for the co-promotion and co-marketing and sale of all hepatitis products that we may successfully develop.

Patents and Licenses

      Our policy is to pursue patents and to otherwise endeavor to protect our technology, inventions and improvements that are commercially important to the development of our business. We also rely upon trade secrets that may be important to the development of our business.

      Our hepatitis B patent portfolio was initiated with two provisional applications filed on the use of telbivudine, LdC, and generically valtorcitabine, for the treatment of hepatitis B in the U.S. in August 1998 and April 1999. Subsequent U.S. patent applications were filed in 1999 and 2001 with four patents issuing in 2002 and 2003 for the treatment of hepatitis B. Such patents, which expire in 2019, are set forth below:

      An international patent application was filed in 1999 under the Patent Cooperation Treaty, and subsequently corresponding patent applications were filed regionally in Europe as well as nationally in 11

foreign countries. The patents are co-owned by us, CNRS and University of Montpellier, and under an agreement with these entities described under the caption “— Collaborations,” we have the exclusive right to exploit the technology. Our lead hepatitis B product candidate, telbivudine, and the biologically active form of valtorcitabine, LdC, were known compounds at the time scientists at the CNRS and University of Montpellier discovered that they are effective for the treatment of HBV-infected patients. Accordingly, we will not obtain claims directed to the composition of matter of telbivudine or LdC. We have, however, obtained patent claims directed to the method of treatment of HBV-infected patients with telbivudine and the biologically active LdC in the U.S. We will attempt to obtain similar patent claims directed to the use of telbivudine and the biologically active LdC outside of the U.S.

      In June 2000, a provisional application was filed on valtorcitabine and its use to treat hepatitis B in the U.S. and a subsequent U.S. patent application was filed in 2001. This application was recently allowed by the U.S. Patent Office and we expect a patent to issue shortly. This patent will expire in 2021. An international patent application was filed in 2001 under the Patent Cooperation Treaty, and subsequently, corresponding patent applications were filed regionally in Europe, Eurasia, the African Regional Industrial Property Office, or ARIPO, and the Organisation Africaine de la Propriete, Intellectuelle, or OAPI, as well as nationally in 20 foreign countries. Eurasia is a patent convention made up of a number of Asian countries, including China. Corresponding applications also were filed directly in 13 additional foreign countries. Since valtorcitabine, a prodrug of LdC, is a new compound, we will attempt to obtain patent claims covering the compound itself as well as patent claims directed to the use of the compound to treat HBV-infected patients.

      In June 1998, we entered into an exclusive license agreement, which we refer to as the UAB license agreement, with UABRF, pursuant to which we were granted an exclusive license to the rights that the University of Alabama at Birmingham, or UAB, an entity affiliated with UABRF, Emory University and CNRS, which we refer to collectively as the 1998 licensors, have to a 1995 U.S. patent application, which is a continuation in part of a 1993 patent application, and corresponding patent applications in Europe, Canada, Japan and Australia that cover the use of certain synthetic nucleosides for the treatment of hepatitis B. In January 2004 and February 2005, UABRF notified us that it believes that the claims of these patent applications can be amended in a manner that would enable the 1998 licensors to prosecute and obtain broad patent claims that would generally cover the method of using telbivudine to treat hepatitis B and, consequently, cover the use of telbivudine to treat hepatitis B.

      We disagree that the 1995 patent application or corresponding foreign applications provide an adequate basis for the issuance of a valid and enforceable patent claim covering the use of telbivudine to treat hepatitis B. It is possible, however, that we could be wrong and the 1998 licensors will obtain such patent claims. If the 1998 licensors pursue such patent claims, we believe that they will assert that the UAB license agreement covers our telbivudine technology and that we are obligated to make payments to the 1998 licensors in the amounts and manner specified in the license agreement. Such amounts include payments in the aggregate amount of $1.3 million due upon achievement of regulatory milestones, a 6% royalty on annual sales up to $50 million and a 3% royalty on annual sales greater than $50 million made by us or an affiliate of ours. Additionally, if we sublicense our rights to any entity other than one which holds or controls at least 50% of our capital stock, or if Novartis’s ownership interest in us declines below 50% of our outstanding shares of capital stock, we could be obligated to pay to UABRF 30% of all royalties received by us from sales by the sublicensee of telbivudine and 20% of all fees, milestone payments and other cash consideration we receive from the sublicensee with respect to telbivudine. All disputes under the UAB license agreement are required to be settled by binding arbitration, and the 1998 licensors are precluded from bringing any lawsuits that raise these issues.

      If the 1998 licensors amend the patent claims of the pending 1995 patent application and corresponding foreign patent applications, we believe that they will assert a claim to 20% of the $75 million license fee we received in May 2003 in connection with the license of our hepatitis B product candidates to Novartis. If UABRF asserts such a claim, we intend to dispute it. Under the terms of the license agreement, the dispute would be resolved by a panel of arbitrators if we are unable to reach agreement with UABRF after a period of negotiation and mediation.

      UABRF, acting for the 1998 licensors, may attempt to terminate the UAB license agreement or render the license to us non-exclusive if we fail to perform our material obligations under the UAB license agreement. We do not believe that we are in default of any of the material obligations to which we are subject under the UAB license agreement. Any attempt to terminate the agreement would be subject to binding arbitration. In the event UABRF is successful in terminating the license agreement as a result of a breach by us after a period of arbitration, and the 1998 licensors obtain a valid enforceable claim that generally covers the use of telbivudine to treat HBV, it would be necessary for us to obtain another license from the 1998 licensors. Such license may not be available to us on reasonable terms, on an exclusive basis or at all. This could materially adversely affect or preclude our ability to commercialize telbivudine.

      If the 1998 licensors were instead to render the UAB license agreement to us non-exclusive, we would not be prohibited from using telbivudine to treat hepatitis B, but a non-exclusive license could be granted to one or more of our competitors by one or more of the 1998 licensors. In the event that the 1998 licensors exclusively or nonexclusively license any claims covering the use of telbivudine to treat hepatitis B to a competitor, we believe that such a competitor would have to overcome substantial legal and commercial hurdles to successfully commercialize the product. For example, we have already obtained four U.S. patents covering the use of telbivudine to treat hepatitis B, which we believe a competitor would infringe if it sought to commercialize telbivudine. Our patent applications are also pending in Europe, Australia, Canada, and Japan, as well as numerous other countries. Additionally, since we are the first company that is taking telbivudine through clinical trials, we expect to benefit from a five year period of commercialization exclusivity in the U.S. that is granted by the FDA during which it will refuse to grant marketing approval to any competitor to sell telbivudine for the treatment of hepatitis B. We may also receive regulatory exclusivity periods in Europe and in other countries.

      If it is determined that the UAB license agreement between us and UABRF does cover our use of telbivudine to treat hepatitis B, or we must otherwise rely upon a license agreement granted by the 1998 licensors to commercialize telbivudine, we may be in breach of certain of the representations and warranties we made to Novartis under the development agreement and the stock purchase agreement. For a further description see “Collaborations — Relationship with Novartis — Development, License and Commercialization Agreement,” and “— Stock Purchase Agreement,” and “Factors That May Affect Future Results — Factors Related to Our Relationship with Novartis” and “— Factors Related to Patents and Licenses.”

      Our hepatitis C patent portfolio was initiated in May 2000 with one provisional U.S. patent application directed to the treatment of hepatitis C with nucleoside analogs. Additional U.S. provisional applications were filed in May 2000 and April 2001 directed generally to the treatment of flaviviruses and pestiviruses with the same compounds. Two U.S. patent applications corresponding to these two sets of provisional applications were filed in May 2001 in the U.S. One of these applications has recently been issued as U.S. Patent No. 6,812,219, covering the use of NM 107, its prodrugs and certain other nucleoside analogues to treat pestiviruses and flaviviruses, and the second application directed to the use of these compounds to treat hepatitis C has been allowed by the U.S. Patent Office and should issue shortly. The patents will expire in 2021. Two international patent applications were filed in 2001 under the Patent Cooperation Treaty, and subsequently corresponding patent applications were filed regionally in Europe, Eurasia, ARIPO and OAPI, as well as nationally in 20 foreign countries. Corresponding applications for these two sets of applications were also each filed directly in 13 additional foreign countries. We co-own these filings with the University of Cagliari, which has exclusively licensed its interest to us. The patent applications cover the use of NM107 and NM283 generically, to treat hepatitis C and other flaviviridae infections. NM283 is a prodrug of the biologically active molecule NM107.

      In June 2002 and April 2003, three U.S. provisional patent applications were filed to be directed to the use of prodrugs of branched nucleosides to treat hepatitis C and other flaviviridae infections. These applications generically and specifically describe NM283 and their use to treat these infections. In June 2003, three U.S. patent applications were filed, claiming priority to the provisional applications. If issued, these patents will expire in 2023. Also in June 2003, three international patent applications were filed under the

Patent Cooperation Treaty, and corresponding applications were filed directly in 12 additional countries and subsequently corresponding patent applications were filed regionally in Europe, Eurasia, ARIPO and OAPI, as well as nationally in 20 foreign countries. NM107 was a known compound at the time of the discovery of its activity against HCV. As a result, we will not obtain composition of matter claims for these compounds, but instead will attempt to obtain patent claims directed to the method of treatment of HCV-infected patients with these product candidates. Since we believe that NM283 is a new compound, we will attempt to obtain patent claims covering the compound itself as well as patent claims directed to the use of NM283 to treat HCV-infected patients.

      Our HIV patent portfolio covering our non-nucleoside reverse transcriptase inhibitor candidate, NV-05A, is based on a U.S. provisional application filed in 2001, which was filed as a U.S. patent application in 2002. This U.S. application has now been issued as U.S. Patent No. 6,710,068 which will expire in 2022, with claims directed to NV-05A and pharmaceutical compositions that include NV-05A. An international patent application was filed in 2002 under the Patent Cooperation Treaty and subsequently corresponding patent applications were filed regionally in Europe and nationally in three foreign countries. Corresponding applications also were filed directly in four additional foreign countries. A further provisional application was filed in 2002, directed to prodrugs of our NNRTI candidate. A U.S. patent application was filed in 2003, and the patent, if issued, will expire in 2023. An international patent application was filed in 2003 under the Patent Cooperation Treaty and directly in one other country. These applications are co-owned by us with the University of Cagliari, which has exclusively licensed its rights to us.

      We hold exclusive licenses from TherapX and Dr. Raymond Schinazi to one U.S. issued patent, U.S. Patent No. 5,750,493 entitled “Method to Improve the Biological and Antiviral Activity of Protease Inhibitors”, and five associated non-U.S. patent filings expiring on or before 2016 that cover a method of using roxythromycin, a generic compound, to enhance the antiviral activity of protease inhibitors.

Competition

      Our industry is highly competitive and subject to rapid technological change. Significant competitive factors in our industry include:

      Many of the companies competing against us have substantially greater financial and other resources. In addition, many of our competitors have significantly greater experience in testing pharmaceutical and other therapeutic products, obtaining FDA and other regulatory approvals of products for use in health care and marketing and selling those products. Accordingly, our competitors may be more successful than we will in obtaining FDA approval for products and achieving widespread market acceptance. If we obtain necessary regulatory approvals and commence significant commercial sales of our products, we will also be competing with respect to manufacturing efficiency and marketing capabilities, areas in which we may have substantially less experience than our competitors.

      Any product candidates that we successfully develop will compete with existing and future therapies. The key competitive factors affecting the commercial success of such products are likely to be its efficacy, safety profile, convenience of dosing and price. Many organizations, including large pharmaceutical and

biopharmaceutical companies as well as academic and research organizations and government agencies, are pursuing novel drug therapies that target the same viral diseases as those for which we are developing therapies. The principal pharmaceutical companies with which we expect to compete directly include Abbott Laboratories, Boehringer Ingelheim International GmbH, Bristol-Myers Squibb Company, F. Hoffman-LaRoche & Co., GlaxoSmithKline plc, Johnson & Johnson, Merck & Co., Inc., Pfizer Inc. and Schering-Plough Corporation. The principal biopharmaceutical companies with which we expect to compete directly include Chiron Corporation, Gilead Sciences, Inc., Human Genome Sciences, Inc., InterMune, Inc., Isis Pharmaceuticals, Inc., Ribapharm, Inc., a wholly-owned subsidiary of Valeant Pharmaceuticals International, SciClone Pharmaceuticals, Inc., Trimeris, Inc. and Vertex Pharmaceuticals Incorporated. Many of these companies and organizations, either alone or with their collaborative partners, have substantially greater financial, technical and human resources than we do. In addition, our competitors also include smaller private companies such as Pharmasset, Ltd.

      We believe that a significant number of drugs are currently under development and will become available in the future for the treatment of hepatitis B, hepatitis C and HIV. We are aware that the FDA is currently in the process of reviewing the NDA filed by Bristol-Myers Squibb Company with respect to entecavir, a nucleoside analog for the treatment of hepatitis B. We anticipate that we will face intense and increasing competition as new products enter the market and advanced technologies become available. Our competitors’ products may be more effective, or more effectively marketed and sold, than any product we may commercialize. Competitive products may render our product obsolete or non-competitive before we can recover the expenses of developing and commercializing any of our product candidates. We are also aware that the development of a cure or new treatment methods for the diseases we are targeting could render our products non-competitive or obsolete.

Pharmaceutical Pricing and Reimbursement

      In both domestic and foreign markets, sales of our products will depend in part upon the availability of reimbursement from third-party payors. Third-party payors include government health agencies, managed care providers, private health insurers and other organizations. These third-party payors are increasingly challenging drug prices and are examining the cost-effectiveness of medical products and services. In addition, significant uncertainty exists as to the reimbursement status of newly approved healthcare products. We may need to conduct pharmacoeconomic studies to demonstrate the cost-effectiveness of our products. Any product candidates we successfully develop may not be considered cost-effective. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our in