UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2004

OR

For the transition period from       to

Commission File No. 0-50772

INHIBITEX, INC.

1165 Sanctuary Parkway
Suite 400
Alpharetta, Georgia 30004
(Address of principal executive offices)

(678) 746-1100
(Registrant’s telephone number, including area code)

Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)

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 [  ] No [X]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [  ] No [X]

As of July 31, 2004, 18,309,536 shares of the Registrant’s Common Stock were outstanding.

Inhibitex^®, MSCRAMM^®, Veronate^®, and Aurexis^® are registered trademarks of Inhibitex, Inc. MSCRAMM is an acronym for Microbial Surface Components Recognizing Adhesive Matrix Molecules.

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TABLE OF CONTENTS

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PART I
FINANCIAL INFORMATION

INHIBITEX, INC.
(A DEVELOPMENT STAGE COMPANY)

The accompanying notes are an integral part of these condensed financial statements.

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INHIBITEX, INC.
(A DEVELOPMENT STAGE COMPANY)

The accompanying notes are an integral part of these condensed financial statements.

5

INHIBITEX, INC.
(A DEVELOPMENT STAGE COMPANY)

The accompanying notes are an integral part of these condensed financial statements.

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INHIBITEX, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTE 1 — BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Inhibitex, Inc. (“Inhibitex” or the “Company”) was incorporated in the state of Delaware in May 1994. Inhibitex is a biopharmaceutical company committed to the discovery, development and commercialization of novel antibody-based products for the prevention and treatment of serious bacterial and fungal infections in the hospital setting. The Company’s primary activities since incorporation have been establishing its offices, recruiting personnel, conducting research, conducting preclinical and clinical trials, performing business and financial planning, and raising capital. Accordingly, the Company is considered to be in the development stage for financial reporting purposes.

The Company has incurred operating losses since inception and expects such losses to continue for the foreseeable future. These losses have largely been the result of research and development expenses, including those related to the Company’s lead product candidates, and to a lesser extent, general and administrative expenses. Veronate, the Company’s lead product candidate, is the subject of an ongoing 2,000-patient, pivotal Phase III clinical trial that the Company initiated in May 2004. Veronate is being developed for the prevention of hospital-associated infections in premature, very low birth weight infants. Aurexis, the Company’s second product candidate, is currently being evaluated in a Phase II clinical trial as a first-line therapy to be used in combination with antibiotics to treat serious, life-threatening Staphylococcus aureus, or S. aureus, bloodstream infections in hospitalized patients

The Company intends to continue to finance its operations with equity or other financings or proceeds from potential future partnerships. The Company’s ability to continue its operations is dependent, in the near term, upon the successful execution of such financings and ultimately upon achieving profitable operations. There can be no assurance that additional funds will be available on terms acceptable to the Company, if at all, or that the Company will become profitable.

Basis of Presentation - The accompanying unaudited condensed financial statements reflect, in the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of Inhibitex’s financial position, results of operations and cash flows for each period presented in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted from the accompanying statements. These interim financial statements should be read in conjunction with the audited financial statements and related notes thereto, which are included in the Company’s prospectus that forms part of its registration statement on Form S-1, which, as amended, was declared effective by the Securities and Exchange Commission (SEC) on June 3, 2004. Operating results for the three month and six month periods ended June 30, 2004 are not necessarily indicative of future results that may be expected for the year ending December 31, 2004.

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimated.

Revenue Recognition - To date, the Company has not generated any revenues from the sale of products. Revenues represent the amortization of an up-front license fee, collaborative research and development

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INHIBITEX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS — (Continued)

support payments and a grant received from the U.S. Food and Drug Administration (FDA) Office of Orphan Products Development. The Company follows the revenue recognition criteria outlined in Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements (“SAB No. 101”) as amended by SAB 104 Revenue Recognition, and Emerging Issues Task Force (“EITF”) Issue 00-21, Revenue Arrangements with Multiple Deliverables (“EITF Issue 00-21”). Accordingly, up-front, non-refundable license fees under agreements where the Company has an ongoing research and development commitment are amortized, on a straight-line basis, over the term of such commitment. Revenues received for ongoing research and development activities under collaborative arrangements are recognized as these activities are performed pursuant to the terms of the related agreements. Any amounts received in advance of performance are recorded as deferred revenue until earned. Revenue related to grant awards is recognized as related research and development expenses are incurred.

Research and Development Expense - Research and development expense primarily consists of expenses incurred in the discovery, development, and manufacturing of the Company’s product candidates. These expenses consist primarily of (i) fees paid to physicians and third-party service providers to treat patients and monitor and accumulate data related to the Company’s clinical trials, (ii) costs related to obtaining patents and license and research agreements, (iii) the costs to develop, procure and manufacture materials used in clinical trials, and (iv) salaries and related expenses for personnel. These costs are charged to expense as incurred.

Reclassifications - Certain reclassifications have been made to prior period amounts to conform to the current year presentation.

Stock-based Compensation - The Company accounts for employee stock options using the intrinsic-value method in accordance with Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”), and Financial Accounting Standards Board Interpretation (“FIN”) No. 44 (“FIN 44”), Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB No. 25, and Related Interpretations and has adopted the disclosure only provisions of SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”), as amended. The Company accounts for equity instruments issued to non-employees in accordance with the provisions of the SFAS No. 123, EITF Issue No. 96-18, Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services. In December 2002, the Financial Accounting Standards Board issued SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure (“SFAS No. 148”). SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 and APB No. 28, Interim Financial Reporting, to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to employee stock compensation on reported net loss. The Company has adopted the disclosure requirements of SFAS No. 148.

Under APB No. 25, if the exercise price of the Company’s employee and director stock options equals or exceeds the estimated fair value of the underlying stock on the date of grant, no compensation expense is recognized. In the event that stock options are granted with an exercise price below the estimated fair value of the Company’s common stock on the date of such grant, APB No. 25 requires that the difference between the estimated fair value and the exercise price be recorded as deferred compensation and amortized over the related vesting period. The Company has elected to continue to follow the intrinsic value method of accounting as prescribed by APB No. 25. The information regarding net loss as required by SFAS No. 123 has been determined as if the Company had accounted for its stock-based compensation under the fair value method of that Statement.

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INHIBITEX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS — (Continued)

The following table illustrates the effect on net loss attributable to common stockholders and basic and diluted net loss per share attributable to common stockholders had the Company applied the fair value provisions of SFAS No. 123 to employee stock-based compensation:

The fair value of each stock option was estimated at the date of grant using the minimum value option-pricing model for stock options granted prior to the Company’s initial public offering (IPO) in June 2004 and the Black-Scholes option-pricing model for stock options granted after the Company’s IPO with the following weighted average assumptions:

For purposes of pro forma disclosure, the estimated fair value of the options is amortized to expense over the related vesting period.

Recent Accounting Developments — In March 2004, the Financial Accounting Standards Board (“FASB”) issued proposed exposure draft SFAS No. 123, Share-Based Payment, and amendment of FASB Statements Nos. 123 and 95 (“Exposure Draft”). The Exposure Draft would eliminate the ability to account for share-based compensation transactions using APB Opinion No. 25, and generally would require such transactions be

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INHIBITEX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS — (Continued)

accounted for using a fair-value based method and the resulting cost recognized in the financial statements. The Company is closely monitoring developments related to the Exposure Draft and will adopt the final standards upon issuance.

Comprehensive Loss - The Company has adopted the provisions of SFAS No. 130, Comprehensive Income, (“SFAS 130”). SFAS 130 establishes standards for the reporting and display of comprehensive loss and its components for general purpose financial statements. For all periods presented, there were no significant differences between net loss and comprehensive loss.

NOTE 2 — INITIAL PUBLIC OFFERING

On June 3, 2004, Inhibitex completed an IPO of five million shares of its common stock at an initial offering price to the public of $7.00 per share, resulting in net proceeds of $31.0 million after deducting underwriters’ commissions and related expenses. Upon the closing of the IPO, all outstanding shares of preferred stock, and accrued dividends thereon, were converted into 11,936,438 shares of common stock. On July 8, 2004, the Company received an additional $3.4 million in net proceeds in connection with the underwriters’ exercise of their over-allotment option for the purchase of 527,000 shares at $7.00 per share.

NOTE 3 — BASIC AND DILUTED NET LOSS PER SHARE

The Company calculates net loss per share in accordance with SFAS No. 128, Earnings Per Share (“SFAS No. 128”) and SEC Staff Accounting Bulletin No. 98 (“SAB No. 98”). Under the provisions of SFAS No. 128 and SAB No. 98, basic net loss per share is computed by dividing the net loss attributable to common stockholders for the period by the weighted average number of common shares outstanding for the period. Diluted net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares and dilutive common stock equivalents then outstanding. Common stock equivalents consist of common shares issuable upon the exercise of stock options and warrants. Diluted earnings per share are the same as basic earnings per share since common stock equivalents are excluded from the calculation, due to their effect being anti-dilutive.

The weighted average shares used in computing basic net income per share attributable to common stockholders for the three months ended June 30, 2004 include 1,153,846 shares that represent the weighted average effect during the quarter of the issuance of five million shares of common stock in connection with the Company’s IPO and 2,754,563 shares, which represent the weighted average effect during the quarter of the issuance of 11,936,438 shares for the conversion of all preferred stock and accrued dividends thereon, into common stock at the closing of the IPO. The weighted average shares used in computing basic net loss per share attributable to common stockholders for the six months ended June 30, 2004 include 576,923 shares that represent the weighted average effect in those six months of the issuance of five million shares of common stock in connection with the Company’s IPO and 1,377,281 shares that represent the weighted average effect in those six months of the issuance of 11,936,438 shares for the conversion of all preferred stock and accrued dividends thereon, into common stock at the closing of the IPO. At June 30, 2004, the Company had 17,782,536 shares of common stock outstanding.

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INHIBITEX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS — (Continued)

The following table sets forth the computation of historical and pro forma basic and diluted net loss per share attributable to common stockholders:

The following table outlines potentially dilutive common stock equivalents outstanding that are not included in the above historical calculations as the effect of their inclusion was anti-dilutive.

NOTE 4 — STOCK SPLIT

On May 21, 2004, the Company effected a 2.38-for-1 reverse stock split of its common stock. All common stock share and per share amounts in these condensed financial statements have been adjusted retroactively to reflect this stock split.

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INHIBITEX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS — (Continued)

NOTE 5 — 2004 STOCK INCENTIVE PLAN

In February 2002, the Board of Directors approved the 2002 Stock Incentive Plan, which provides for the grant of incentive stock options, non-qualified stock options and other equity related awards to employees, contractors and consultants of the Company. At that time, the Company also adopted the 2002 Non-Employee Directors Stock Option Plan (the “Director Plan”) which provided for the grant of non-qualified stock options to non-employee members of the Board of Directors. On February 20, 2004, the Board of Directors amended the 2002 Stock Incentive Plan whereby it was renamed the 2004 Stock Incentive Plan, (the “2004 Plan”). Such amendment also provided for option grants to non-employee directors and the addition of 1,428,572 shares of common stock to the number of reserved shares. Upon the adoption of the 2004 Plan, no further options were authorized to be granted from the Director Plan. As of June 30, 2004, there were outstanding options to purchase 1,007,060 shares of the Company’s common stock and 1,419,935 shares were available for grant under the 2004 Plan. In addition, there were outstanding options to purchase 194,237 and 66,804 shares of the Company’s common stock under the Company’s 1998 Equity Ownership Plan, as amended and restated, and the Directors Plan.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “forecast,” “potential,” “likely” or “possible”, as well as the negative of such expressions, and similar expressions intended to identify forward-looking statements. These forward-looking statements include, without limitation, statements relating to:

w		increases in our research and development expenses, general and administrative expenses and operating losses in the future;
w		which product candidates we will advance and how much funding we will direct to them;
w		future revenue from collaborative research agreements;
w		the volatility of our quarterly and annual operating results;
w		the anticipated length of time to fully enroll our Phase III Veronate trial;
w		our plans to commercialize our product candidates, particularly Veronate;
w		the anticipated time frame to generate data from our Phase II Aurexis trial;
w		our future financing requirements and how we expect to fund them;
w		the number of months we anticipate that our current cash, cash equivalents and short-term investments will allow us to operate; and
w		our ability to generate product-related revenue in the future.

These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties including, without limitation, Wyeth terminating our license and collaborative research agreement; our ability to contract with a sufficient number of clinical trial sites to perform our clinical trials; the rate at which investigators at such sites can recruit patients into our clinical trials; our clinical trials not demonstrating safety and efficacy; our use of third-party contract clinical research organizations, raw material suppliers and manufacturers who may not perform satisfactorily in the future; failing to obtain regulatory approval to continue our clinical trial or to market our product candidates; our ability to protect and maintain our proprietary intellectual property rights from unauthorized use by others; our successful development of a marketing, sales and corporate infrastructure capable of supporting the commercialization of Veronate; the condition of the financial equity markets and our ability to raise sufficient funding in such markets; changes in related governmental laws and regulations; changes in general economic business or competitive conditions; and other statements contained elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. In addition, our prospectus, which forms part of our registration statement on Form S-1, which, as amended, was declared effective by the Securities and Exchange Commission or SEC on June 3, 2004, discusses many of these and other risks in greater detail under the heading “Risk Factors.”.

There may be events in the future that we are unable to predict accurately, or over which we have no control. Our business, financial condition, results of operations, and prospects may change. We may not

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update these forward-looking statements, even though our situation may change in the future, unless we have obligations under the Federal securities laws to update and disclose material developments related to previously disclosed information. We qualify all of the information presented in this Form 10-Q, and particularly our forward-looking statements, by these cautionary statements.

The following discussion should be read in conjunction with the condensed financial statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q.

Overview

We are a biopharmaceutical company committed to the discovery, development and commercialization of novel antibody-based products for the prevention and treatment of serious bacterial and fungal infections. We currently have two product candidates in late-stage clinical development. Veronate, our lead product candidate, is the subject of an ongoing 2,000-patient, pivotal Phase III clinical trial that we initiated in May 2004. We are developing Veronate for the prevention of hospital-associated infections in premature, very low birth weight, or VLBW, infants. Veronate has been granted Fast Track and Orphan Drug status by the U.S. Food and Drug Administration, or FDA. Our second product candidate, Aurexis, is currently being evaluated in a Phase II clinical trial as a first-line therapy to be used in combination with antibiotics to treat serious, life-threatening Staphylococcus aureus, or S. aureus, bloodstream infections in hospitalized patients. In addition, we have three preclinical product candidates that are being developed to prevent and treat serious infections, one of which is the subject of a partnership with Wyeth.

We are a development stage company that has generated significant losses since our inception in May 1994. We expect to incur substantial and increasing losses for at least the next several years as we plan to continue the clinical development of Veronate and Aurexis, continue our other research and development activities and establish a commercial infrastructure. We currently do not have any commercialization capabilities, and it is possible that we may never successfully commercialize any of our product candidates.

To date, we have devoted substantially all of our efforts towards research and development activities related to our product candidates, which are all based on our expertise in MSCRAMM proteins. As of June 30, 2004, we had an accumulated deficit of $88.7 million. We anticipate that, for the foreseeable future, our quarterly and annual results of operations will fluctuate due to several factors, including the pace of our research and development efforts, the timing and outcome of regulatory approvals, if any, and payments made or received pursuant to existing or future licensing or collaboration agreements. Therefore, meaningful predictions of our future operations are difficult to make.

In 2001, we entered into a license and collaboration agreement with Wyeth to develop human vaccines against staphylococcal organisms using our MSCRAMM protein platform. Under the terms of the agreement, we granted Wyeth a worldwide license to develop, manufacture and commercialize any products resulting from the collaboration.

Recent Developments

On June 3, 2004, we completed an initial public offering, or IPO, of five million shares of common stock at an initial offering price to the public of $7.00 per share, resulting in net proceeds of $31.0 million after underwriters’ commissions and offering expenses. Upon the closing of our IPO, all outstanding shares of our preferred stock,