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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission file number 000-50438

Myogen, Inc.

7575 West 103rd Avenue, Suite 102

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

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

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

          Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) 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 Act).     Yes o          No þ

          There was no established public trading market for the Registrant’s common stock as of the last business day of the Registrant’s most recently completed second fiscal quarter.

      As of February 23, 2004 there were 26,465,885 shares of the Registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

          Portions of the Registrant’s definitive Proxy Statement for the 2004 Annual Meeting of Stockholders are incorporated by reference into Part III of this report on Form 10-K to the extent stated therein.

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PART I

      Unless the context requires otherwise, references in this report to “Myogen,” the “Company,” “we,” “us,” and “our” refer to Myogen, Inc.

      This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, but are not limited to, statements concerning our plans to continue development of our current product candidates; conduct clinical trials with respect to our product candidates; seek regulatory approvals; address certain markets; engage third-party manufacturers to supply our clinical trial and commercial requirements; hire sales and marketing personnel; and evaluate additional product candidates for subsequent clinical and commercial development. In some cases, these statements may be identified by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. These statements involve known and unknown risks and uncertainties that may cause our or our industry’s results, levels of activity, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to such differences include, among other things, those discussed under the captions “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements not specifically described above also may be found in these and other sections of this report.

Overview

      We are a biopharmaceutical company focused on the discovery, development and commercialization of small molecule therapeutics for the treatment of cardiovascular disorders. We have three product candidates in late-stage clinical development: enoximone capsules for the treatment of chronic heart failure, ambrisentan for the treatment of pulmonary arterial hypertension and darusentan for the treatment of resistant hypertension. We are evaluating enoximone capsules in four Phase III clinical trials. If these trials progress as planned, we expect three of these trials, including the trials we believe will be required for regulatory approval, will be fully enrolled and patients will have completed treatment by the end of 2004. We completed a Phase II clinical trial of ambrisentan in September 2003, yielding positive results, and we initiated two pivotal Phase III clinical trials in January 2004. We intend to begin our Phase IIb clinical evaluation of darusentan in 2004. All of our product candidates are orally administered small molecules that we believe offer advantages over currently available therapies. In addition, we currently market an intravenous formulation of enoximone, Perfan I.V., for the treatment of acute decompensated heart failure in eight countries in Europe.

      Through our internal research program and academic collaborations, we are developing an advanced understanding of the biological pathways of heart disease and have discovered several novel molecular targets that we believe play a key role in heart failure. We believe this understanding of the biology of cardiovascular disease combined with our clinical development expertise in cardiovascular therapeutics provide us with the capability to discover novel therapies, as well as identify, license or acquire products that address serious, debilitating cardiovascular disorders that are not adequately treated with existing therapies.

      In October 2003, we entered into a research collaboration with the Novartis Institutes for BioMedical Research, Inc. (“Novartis”) for the discovery and development of novel drugs for the treatment of cardiovascular disease. In exchange for a $4.0 million upfront payment, a deferred payment of an additional $1.0 million after the first year and obligations to provide research funding to us for a minimum of three years, Novartis has the exclusive right to license drug targets and compounds developed through the collaboration. Upon execution of a license, Novartis is obligated to fund all further development of the licensed product candidate, make payments to us upon the achievement of certain milestones which may total up to $17.1 million for each product candidate and pay us royalties for sales of any products that are successfully commercialized. Upon the completion of Phase II clinical trials of any product candidate Novartis has

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      We were incorporated in Colorado in June 1996 and we reincorporated in Delaware in May 1998. Our website address is www.myogen.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments to those reports, are available free of charge through our website as soon as reasonably practicable after we file them with, or furnish them to, the SEC.

The Cardiovascular Opportunity

      The term cardiovascular disease is used to describe a continuum of clinical conditions resulting primarily from three underlying chronic diseases: atherosclerosis, hypertension and diabetes. These underlying diseases cause permanent damage to the heart, blood vessels and kidneys, leading to progressively debilitating clinical conditions such as chronic heart failure, pulmonary arterial hypertension, systemic hypertension, chronic kidney disease, heart attack and stroke.

      Cardiovascular disease is the leading cause of death and disability in the United States, accounting for 20% of all hospitalizations in short-stay, non-Federal hospitals and over 60% of all deaths. The American Heart Association estimated that the total direct and indirect costs of cardiovascular disease in the United States would be $300 billion in 2003, including $36 billion in drug costs and $105 billion in hospitalization and nursing home costs. Despite improved treatments and increased awareness of preventative measures, 62 million people in the United States currently suffer from cardiovascular disease.

      Over the past 25 years, drugs such as beta-blockers, calcium channel blockers and angiotensin converting enzyme, or ACE, inhibitors have been used to treat various cardiovascular diseases. New classes of orally administered compounds such as endothelin receptor antagonists have been studied and recently approved for the treatment of pulmonary arterial hypertension. Intravenous hormones such as natriuretic peptide have also been introduced as a new treatment option for acute decompensated heart failure. Several of these drugs have helped to increase the survival times of patients who suffer from cardiovascular diseases. However, many current therapies do not adequately address the underlying molecular mechanisms of cardiovascular disease. Cardiovascular disease remains progressive in a large portion of patients, many of whom continue to deteriorate even when treated with multiple drugs simultaneously. We believe that recent advances in the understanding of the molecular biology of cardiovascular diseases provide an opportunity to improve on existing therapies and to discover and develop new therapeutics to ameliorate the symptoms and perhaps to slow or reverse the progression of the diseases.

Our Strategy

      Our goal is to create an integrated biopharmaceutical company focused on the discovery, development and commercialization of novel therapeutics that address the fundamental mechanisms involved in cardiovascular disease, with an initial focus on chronic heart failure, pulmonary arterial hypertension and resistant hypertension. The key elements of our strategy are to:

	•	Complete the clinical development of our late-stage cardiovascular therapeutic product portfolio. We are currently focused on developing and obtaining regulatory approval for three late-stage product candidates: enoximone capsules, ambrisentan and darusentan.
	•	Acquire additional product candidates. We intend to pursue attractive product acquisition opportunities. We believe our expertise in cardiovascular medicine and understanding of the biological pathways associated with cardiovascular disorders makes us an attractive partner for companies seeking to out-license product candidates.
	•	Discover and develop novel therapeutics for the treatment of cardiovascular diseases. We will continue to focus our target and drug discovery research programs and our collaborations on

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		discovering and developing disease-modifying therapeutics for cardiovascular disease. We entered into a research collaboration with Novartis to support these programs.
	•	Develop sales and marketing capabilities. We expect to retain significant commercial rights to all of our product candidates and plan to develop a direct sales force focused on targeted markets. We also intend to establish co-promotion arrangements with larger pharmaceutical or biotechnology firms, which would allow us to address larger markets.
	•	Establish strategic collaborations. We intend to complement our internal capabilities by selectively entering into collaborations with pharmaceutical and biotechnology companies that improve our ability to move new compounds into the clinic and new products into the marketplace.

Our Product Portfolio

      Led by two of our academic founders, Dr. Michael Bristow and Dr. Eric Olson, our staff and collaborators have made significant contributions to defining the molecular bases of cardiovascular disease and improving its treatment. We believe that our expertise enables us to discover and develop therapies that address the underlying mechanisms of cardiovascular disease, evaluate and in-license product candidates and guide our clinical development efforts. We currently market one product in Europe for the treatment of acute decompensated heart failure and are developing three product candidates for three distinct cardiovascular indications.

      Enoximone is a small organic molecule that exhibits highly selective inhibition of type-III phosphodiesterase, or PDE-III, an enzyme that is present in the heart and plays an important regulatory role in cardiac function. PDE-III inhibitors block the action of this enzyme, increasing the force of contraction of the heart, thereby increasing cardiac output. Compounds that increase the force of contraction of the heart, like enoximone, are referred to as positive inotropes. Enoximone also causes vasodilation, an increase in the diameter of blood vessels, through its effects on smooth muscle cells that surround blood vessels, which results in lower pressure against which the heart must pump. Positive inotropy and vasodilation can both be therapeutically useful in the treatment of heart failure. We are currently working to complete the clinical evaluation of enoximone capsules. If those clinical trials are successful and the required regulatory approvals are obtained, enoximone capsules would be the first PDE-III inhibitor to be commercialized in oral form for the treatment of chronic heart failure. In addition, we currently market the intravenous formulation of enoximone, Perfan I.V., which is indicated for the treatment of acute decompensated heart failure and was first approved in Europe in 1989.

      Chronic heart failure, also referred to as congestive heart failure, is a debilitating condition that occurs as the heart becomes progressively less able to pump an adequate supply of blood throughout the body. Chronic

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      Following diagnosis, patients with chronic heart failure are typically treated with multiple oral medications, including ACE inhibitors, beta-blockers, vasodilators, diuretics and digoxin. ACE inhibitors and beta-blockers suppress the stress placed on the heart by increased levels of the hormones angiotensin and norepinephrine and have demonstrated an ability to increase patient survival time. Vasodilators and diuretics minimize the work the heart must perform by increasing the diameter of blood vessels and ridding the body of excess fluid. Digoxin is a weak positive inotrope used to increase cardiac output early in the progression of chronic heart failure.

      Although medical therapy is improving, heart failure remains a major debilitating and progressive condition characterized by high mortality, frequent hospitalization and deteriorating patient quality of life. The severity of chronic heart failure is typically classified using a system established by the New York Heart Association that assesses the patient’s degree of functional limitation based primarily on shortness of breath. This system is divided into four classes, I through IV, with Class IV being the most severe. Physicians use this system to track patients’ disease progression and responses to therapies.

      As patients enter the advanced stages of chronic heart failure, Classes III and IV, their cardiac function deteriorates, leading to an accumulation of fluid in the lungs, referred to as pulmonary congestion. Eventually, pulmonary congestion and the resulting breathlessness and fatigue reach a critical point referred to as acute decompensated heart failure. At this point the patient must be hospitalized and treated with powerful intravenous diuretics, vasodilators and positive inotropes such as dobutamine, natriuretic peptide (Natrecor), milrinone or Perfan I.V., all of which serve to increase the efficiency of the circulatory system, providing symptomatic relief. After stabilization and discharge from the hospital, patients often decompensate again within months and must be readmitted to the hospital for another round of intravenous treatment. As their disease progresses, the frequency of decompensation and hospitalization increases until patients must be maintained on continuous or intermittent treatment with these intravenous agents, which is both confining and costly.

      We believe that patients with advanced chronic heart failure can benefit greatly from the chronic use of an oral inotropic agent that would provide the desired symptomatic relief to the patients and reduce the frequency of hospitalizations by delaying additional episodes of acute decompensated heart failure. An oral product with these characteristics could also wean patients with severe heart failure who are currently dependent on intravenous inotropic therapy from those agents and allow them the opportunity to leave the hospital and return to a more normal daily life. We believe that as a result of these significant clinical benefits, such an agent would decrease the overall costs associated with the treatment of heart failure. Attempts to date to develop and commercialize a product with these characteristics have been unsuccessful, primarily because of drug-related increases in adverse events, including mortality at high doses.

      Based upon our evaluation of extensive clinical research and an advanced understanding of the molecular basis of chronic heart failure, we believe that enoximone capsules have the potential to both alleviate symptoms and reduce hospitalizations for patients with advanced chronic heart failure, resulting in a decrease in associated costs.

      We are currently conducting four Phase III trials of low-dose enoximone capsules in patients with advanced chronic heart failure. If these trials progress as planned, we expect three of these trials, including the trials we believe will be required for regulatory approval, will be fully enrolled and patients will have completed treatment by the end of 2004. If our clinical program is successful, enoximone capsules will be the first oral inhibitor of PDE-III to be commercialized for the treatment of chronic heart failure.

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      In the 1980s, Merrell Dow, now part of Aventis, conducted clinical evaluation of enoximone capsules for the treatment of chronic heart failure. Enoximone capsules were evaluated in approximately 5,000 patients with chronic heart failure in multiple Phase I and Phase II clinical trials conducted in the United States, Europe and Japan. The drug was initially tested at doses that we now consider high, 100 to 300 milligrams administered three times a day. At these high doses, patients treated with enoximone capsules demonstrated clinically significant increases in quality of life scores and maximal exercise capacity. However, in one Phase II placebo-controlled trial involving 151 patients administered enoximone capsules at doses of 100 milligrams or placebo capsules three times a day, there was a statistically significant increase in the mortality rate in the group of patients receiving enoximone capsules compared to the group receiving placebo capsules: 36% of the patients treated with enoximone capsules died during the trial versus 23% of the patients treated with placebo.

      Dr. Michael Bristow, our medical founder and the principal investigator on several previous trials of enoximone capsules, made an unexpected observation during this period: enoximone capsules administered at lower doses appeared to retain efficacy without increasing mortality. Subsequently, Dr. Bristow demonstrated in a series of Phase II clinical trials that:

	•	enoximone capsules administered at doses of 25 and 50 milligrams three times a day increased maximal exercise capacity with no increase in mortality in patients with Class II and III chronic heart failure after 12 weeks of treatment (two trials involving 219 patients receiving placebo, 25 milligrams or 50 milligrams three times a day);
	•	enoximone capsules administered at doses of 25 to 75 milligrams three times a day extended the survival times of patients with Class IV chronic heart failure awaiting a heart transplant (186-patient parallel-control, open label trial, meaning that both the researcher and patient know the patient was receiving the drug); and
	•	enoximone capsules administered at doses of 25 and 50 milligrams three times a day enabled patients with Class IV chronic heart failure, and otherwise too weak to tolerate beta-blockers, to receive and benefit from beta-blocker therapy. These benefits included a significant reduction in the severity of their chronic heart failure symptoms and hospitalization events (30-patient, open-label trial).

      In addition, Dr. Bristow conducted a series of open-label trials of enoximone capsules involving over 200 patients to gather additional clinical data. Based on this extensive clinical experience, we sought and successfully obtained a worldwide license from Aventis (formerly Hoechst Marion Roussel) to enoximone for the treatment of cardiovascular diseases and designed a clinical development program to advance enoximone capsules through the final stages of clinical development.

      In June 2000, we initiated our Phase III program to evaluate the safety and efficacy of enoximone capsules for the long-term treatment of patients with advanced chronic heart failure. In these studies, enoximone capsules are being used in addition to standard therapies, including diuretics, ACE inhibitors and beta-blockers. Our Phase III program includes four trials designed to collectively demonstrate that enoximone capsules at doses of 25 or 50 milligrams administered three times a day are effective in reducing hospitalizations, improving symptoms of chronic heart failure, improving quality of life and reducing the need for intravenous inotropic therapy:

	•	EMOTE is a randomized, double-blind, placebo-controlled Phase III trial of approximately 200 patients with the most advanced stage of chronic heart failure, and who are dependent on intravenous inotrope therapy. The trial is designed to evaluate the use of enoximone capsules to wean patients off of intravenous inotrope therapy. Patients received 26 weeks of treatment. This trial is being conducted in the United States. Patient enrollment began in June 2000 and was completed in July 2003. The last patient completed treatment on February 9, 2004. We plan to analyze the data from this study in March 2004 and release results shortly thereafter. Upon completion of their participation in the trial,

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		patients were given the opportunity to enroll in an open-label extension, which is ongoing and may continue until enoximone capsules are commercially available or we terminate the study.
	•	ESSENTIAL I is a randomized, double-blind, placebo-controlled pivotal Phase III trial of approximately 900 patients with Class III and IV chronic heart failure that are being treated with beta- blockers and other therapies according to current guidelines. The trial will track the time from randomization to cardiovascular hospitalization or death for each patient as the primary endpoint. On average, patients will receive treatment for at least 12 months. This trial is being conducted in North and South America. Patient enrollment began in February 2002, and we expect to complete the treatment phase by the end of 2004.
	•	ESSENTIAL II is a pivotal Phase III trial identical in design and size to ESSENTIAL I. This trial is being conducted in Western and Eastern Europe. Patient enrollment began in April 2002, and we expect to complete the treatment phase by the end of 2004.
	•	EMPOWER is a randomized, double-blind, placebo-controlled Phase III trial of approximately 175 patients with Class III and IV chronic heart failure. Patients will be treated for 26 to 36 weeks with either (i) placebo, (ii) extended release metoprolol, a frequently prescribed beta-blocker or (iii) extended release metoprolol in combination with enoximone capsules. The primary objective of this study is to determine whether enoximone capsules can increase the tolerability to metoprolol in patients previously shown to be intolerant to beta-blocker treatment. Patient enrollment began in September 2003. EMPOWER is not required for regulatory approval, but might assist us in post-approval marketing efforts. The study is enrolling substantially slower than anticipated and we intend to re-assess the viability of the study at the end of the second quarter of 2004.

      The ESSENTIAL trials will be considered completed when the accumulated cardiovascular hospitalizations or deaths for patients reaches a pre-specified number. In September 2003, we determined that the rate of occurrence to date of cardiovascular hospitalizations or deaths was lower than originally predicted. As a result, we decided to enroll an additional 400 patients, approximately 200 in each trial. If the ESSENTIAL trials progress as planned, we believe the accumulated cardiovascular hospitalizations or deaths in the trials will reach the pre-specified number by the end of 2004.

      We believe that if the ESSENTIAL trials are successful, they will be adequate to support both United States regulatory approval of enoximone capsules, as well as approvals in various international markets. Although we do not believe that EMOTE and EMPOWER will be required for initial regulatory approval, we believe these studies, if completed and successful, will assist in regulatory and post-approval marketing efforts.

      Perfan I.V. is the intravenous formulation of enoximone that we market in eight European countries. Clinical studies supporting the use of Perfan I.V. were completed in the late 1980s, and the drug was first approved in Europe in 1989. Perfan I.V. is used in a hospital setting to treat patients with acute decompensated heart failure and to wean patients from cardiopulmonary bypass following open-heart surgery. We recorded sales of Perfan I.V. of $2.8 million in 2003. We believe our European sales experience helps prepare us for the potential commercial launch of future products, such as enoximone capsules, ambrisentan and darusentan.

      Ambrisentan and darusentan are members of a class of therapeutic agents known as endothelin receptor antagonists, or ETRAs, that can be orally administered. Endothelin is a small peptide hormone that is believed to play a critical role in the control of blood flow and cell growth. Elevated endothelin blood levels are associated with several cardiovascular disease conditions, including pulmonary arterial hypertension, chronic kidney disease, hypertension, chronic heart failure, stroke and restenosis of arteries after balloon angioplasty or stent implantation. Therefore, many scientists believe that agents that block the detrimental effects of endothelin will provide significant benefits in the treatment of these conditions. There are two classes of

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      We believe that a significant opportunity exists for a new class of selective ETRAs that bind to the ET_A receptor in preference to the ET_B receptor. Selective ET_A antagonists are likely to block the negative effects of endothelin by preventing the harmful effects of vasoconstriction and cell proliferation, while preserving the beneficial effects of the ET_B receptor. We believe that the potential clinical benefits of selective ET_A antagonists will position these compounds as the treatment of choice for certain cardiovascular diseases.

      Ambrisentan and darusentan are ETRAs that are highly selective for the ET_A receptor. The compounds demonstrate high potency, high bioavailability and half-lives that we believe may be suitable for once a day dosing. We believe the selectivity and potency of these ETRAs may offer significant advantages over non-selective ETRAs, including enhanced efficacy and a reduction in adverse side effects. We have initially chosen to evaluate ambrisentan in pulmonary arterial hypertension and darusentan in resistant hypertension.

      Ambrisentan is an ET_A selective endothelin receptor antagonist being developed as an oral therapy for patients with pulmonary arterial hypertension. We completed a Phase II clinical trial of ambrisentan in September 2003 and we initiated two pivotal Phase III clinical trials for this indication in January 2004.

      Pulmonary arterial hypertension is a highly debilitating disease of the lungs characterized by severe constriction of the blood vessels in the lungs leading to very high pulmonary arterial pressures. These high pressures make it difficult for the heart to pump blood through the lungs to be oxygenated. Pulmonary arterial hypertension can occur with no known underlying cause, or it can occur secondary to diseases like scleroderma (an autoimmune disease of the connective tissues), cirrhosis of the liver, congenital heart defects and HIV infection. Patients with pulmonary arterial hypertension suffer from extreme shortness of breath as the heart struggles to pump against these high pressures causing such patients to ultimately die of heart failure. Pulmonary arterial hypertension afflicts approximately 40,000 patients, predominantly women, in the United States.

      Mild to moderate pulmonary arterial hypertension is currently treated with calcium channel blockers, diuretics and anticoagulants. As patients advance into more severe stages of disease, moderate to severe pulmonary arterial hypertension, therapeutic options become more limited. Prior to 2001, only continuous intravenous infusion of prostacyclin (Flolan) was available as a treatment for patients with more advanced stages of pulmonary arterial hypertension. In mid-2002, Remodulin, a more stable form of prostacyclin that can be administered via continuous subcutaneous infusion, was approved by the FDA.

      The most significant therapeutic advance for patients with moderate to severe pulmonary arterial hypertension took place in December 2001 with the approval of Tracleer, a twice-a-day oral formulation of bosentan, a non-selective ETRA. Tracleer was demonstrated in clinical trials to improve exercise capacity and quality of life. We believe that ambrisentan could have several additional clinical benefits over existing therapies, including:

	•	lower incidence of liver toxicity;
	•	once daily dosing based on its half-life; and
	•	lower incidence of adverse interactions with other drugs, including anticoagulants.

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      In September 2003, we completed a randomized, double-blind, multi-center, dose-ranging Phase II study evaluating the effect of ambrisentan on exercise capacity of patients with moderate to severe pulmonary arterial hypertension. Exercise capacity was the primary efficacy endpoint and was measured as the change from baseline in the six-minute walk test distance after 12 weeks of treatment. The secondary endpoints were Borg Dyspnea Index, Patient Global Assessment, time to clinical worsening and World Health Organization, or WHO, Functional Class, which are tests used by physicians to assess the severity of pulmonary arterial hypertension. Right heart and pulmonary artery hemodynamics (blood pressures and blood flow in the heart and lungs) were evaluated in a subset of patients.

      A total of 64 patients were randomized to one of four ambrisentan dose groups (1.0, 2.5, 5.0 or 10.0 milligrams). Doses were administered orally once a day for 12 weeks. After 12 weeks of treatment, patients were allowed to enter an optional 12-week open-label extension period of the study followed by an optional long-term open-label safety study that is currently ongoing. The results of this trial demonstrated:

	•	a statistically significant and clinically meaningful increase in the primary efficacy endpoint (six-minute walk test) in all four ambrisentan dose groups;
	•	an improvement in all secondary endpoints and pulmonary vascular hemodynamics;
	•	ambrisentan was generally safe and well tolerated;
	•	among the patients taking anticoagulant therapy, there were no apparent harmful interactions with anticoagulants requiring dose adjustments; and
	•	a low incidence of potential liver toxicity as assessed by liver function tests.

      Abnormal elevations of liver function test (LFT) results, indicative of potential liver toxicity, have previously been reported as complications in trials of other endothelin receptor antagonists. LFT abnormalities were defined in our study as a confirmed serum aminotransferase level greater than three times the upper limit of the normal range. During the 12-week blinded treatment period of this trial, one patient was taken off ambrisentan due to an abnormally high LFT result (eight times the upper limit of the normal range). After halting treatment, the patient’s serum aminotransferase level returned to a normal level without apparent adverse effects on the patient’s health. During the second 12-week open-label extension period, another patient had their dose of ambrisentan reduced due to a confirmed abnormally high LFT result. Two additional patients had LFT results that fluctuated above the normal range during the open-label extension period, and on one occasion each had an initial LFT result that was marginally above the threshold of three times the upper limit of the normal range, but upon repeat testing, the results were below the threshold. Detailed results of this trial are scheduled to be presented by the principal investigator, Dr. Lewis Rubin, at the annual meeting of the American Thoracic Society on May 23, 2004.

      In January 2004 we initiated two pivotal Phase III clinical trials, ARIES 1 and ARIES 2, for ambrisentan in pulmonary arterial hypertension. The ARIES trials are randomized, double-blind, placebo-controlled trials of identical design except for the doses of ambrisentan and the geographic locations of the investigative sites. The study design anticipates enrolling 186 patients (62 patients per dose group) in each trial. ARIES 1 will evaluate ambrisentan doses of 5.0 milligrams and 10.0 milligrams administered orally once per day for 12 weeks to patients in the United States and Canada. ARIES 2 will evaluate ambrisentan doses of 2.5 milligrams and 5.0 milligrams administered orally once per day for 12 weeks to patients in Europe and South America. The primary efficacy endpoint is exercise capacity, measured as the change from baseline in the six-minute walk test distance compared to placebo. Secondary endpoints include Borg Dyspnea Index, WHO Functional Class, a quality of life assessment and time to clinical worsening. Upon completion of their participation in the ARIES trials, eligible patients will be given the opportunity to enroll in an extension study.

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      Darusentan is an ET_A selective endothelin receptor antagonist being developed as an oral therapy for patients with resistant hypertension.

      Hypertension affects approximately 50 million individuals in the United States and approximately one billion worldwide. Despite the availability and use of several classes of drugs (diuretics, ACE inhibitors, angiotensin receptor blockers, beta-blockers, calcium channel blockers) to treat hypertension, a very significant percentage of these patients do not achieve blood pressures within the recommended range, a condition described as “resistant hypertension.” The higher the blood pressure, the greater the chance of heart attack and stroke. The relationship between blood pressure and cardiovascular events is continuous, consistent and independent of other risk factors.

      The relationship between blood pressure and cardiovascular events is particularly true for patients with chronic kidney disease. Chronic kidney disease is a progressive condition that is often associated with diabetes and leads to end-stage kidney failure. Patients with end-stage kidney failure experience a high rate of mortality, primarily due to cardiovascular events such as heart attack and stroke. The National Kidney Foundation estimates that 20 million people have chronic kidney disease and an additional 20 million more are at risk of developing chronic kidney disease and that hypertension is the second leading cause of the condition in the United States, accounting for 23% of all cases. The majority of patients with chronic kidney disease suffer from hypertension and approximately 75% of all patients are being treated with anti-hypertensive agents. Unfortunately, the blood pressure of over 70% of the patients receiving anti-hypertensive therapy remains uncontrolled. We believe that there is a significant opportunity for an agent that is capable of improving control of blood pressure in this patient population, leading to the potential for enhanced patient outcomes, such as a reduction in the number of serious cardiac events.

      In 2000, the safety and efficacy of darusentan were evaluated by Abbott Laboratories in approximately 390 patients with hypertension in a randomized, double-blind, placebo-controlled, multi-center Phase II trial. The primary endpoint in the trial was change in resting diastolic blood pressure. Changes in systolic blood pressure and pulse rate were secondary endpoints.

      The results of this study demonstrated that darusentan produced statistically significant and clinically meaningful reductions in diastolic and systolic blood pressures in a dose-dependent manner. Pulse rate remained unchanged in all groups. Headache was the most commonly reported adverse event, with no relevant difference among placebo and active treatment groups. Flushing and peripheral edema were seen in a dose-dependent fashion in the active treatment groups only. There were no treatment-related abnormal elevations in liver enzymes in the study.

      We are finalizing the overall clinical development plan for evaluating darusentan in patients with resistant hypertension and we expect to begin a Phase IIb trial in 2004.

      Endothelin appears to be involved in the progression of several other cardiovascular conditions, including chronic heart failure, acute renal failure, stroke and restenosis of arteries after balloon angioplasty or stent implantation. We believe that ET_A selective ETRAs, such as ambrisentan or darusentan, could have therapeutic potential in some of these indications and we are currently evaluating whether to pursue any of these additional indications.

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Discovery Research

      The goal of our target and drug discovery research is to discover and develop disease-modifying drugs for chronic heart failure and related disorders. Our discovery research involves the integration of three research programs supported by a proprietary heart tissue bank, and involves collaborations with the academic laboratories of three prominent scientists working in heart muscle disease: Dr. Eric Olson at the University of Texas Southwestern Medical Center (UTSWMC), Dr. Michael Bristow at the University of Colorado Health Science Center (UCHSC) and Dr. Leslie Leinwand at the University of Colorado (UC). Our internal research program, augmented by the work of our academic collaborators, has led to the identification of several novel targets for drug discovery, and we are now screening chemical libraries with high-throughput assays based on these targets. Several lead chemical structures have been identified that block abnormal growth of heart muscle cells, or cardiomyocyte hypertrophy. Further characterization and evaluation of these compounds is underway. In October 2003, we established a collaboration agreement with Novartis to advance this work.

	•	Cardiac signaling pathways. Patients with chronic heart failure develop an enlargement of the heart called cardiac hypertrophy. The causes and effects of cardiac hypertrophy have been extensively documented, but the underlying molecular mechanisms that link the molecular signals to cell changes, or cardiac signaling pathways, remain poorly understood. Understanding these signaling pathways is a central theme of Dr. Olson’s laboratories at UTSWMC and the subject of a research program that we sponsor. This work has led to the discovery of several key signaling pathways that control cardiac hypertrophy.
	•	Fetal gene program. One of the characteristic changes that occur in a failing heart is a change in gene expression wherein fetal genes that were turned off shortly after birth are reactivated in the disease process. Although this response may initially be beneficial to a patient with chronic heart failure, it becomes harmful as the disease progresses. Our scientists and academic collaborators at UCHSC and UC are focused on identifying the set of fetal genes that are reactivated in chronic heart failure, understanding the consequences of their reactivation and discovering the means to control their expression. Our work has led to the discovery of what we believe to be an important gene reactivation that occurs in the failing human heart, which appears to be responsible for weakening the contraction of the heart.
	•	Cardiogenomics and cardioproteomics. We have initiated a survey of the genes (cardiogenomics) and proteins (cardioproteomics) that are expressed in normal and diseased human hearts. Knowledge of these differences might allow us to identify the complete set of genes that are involved in the disease process. Our cardiogenomics efforts have led to the identification of more than 200 genes that might be involved in the failing heart.
	•	Heart tissue bank. Through a materials transfer agreement with UCHSC, we have access to what we believe is one of the largest collections of diseased and non-diseased human heart tissue. Dr. Michael Bristow and his team have worked since 1987 in close collaboration with heart transplant centers to collect a growing quantity of high quality, well-characterized heart tissue. The heart tissue bank is a valuable resource in supporting all aspects of our target discovery program including: (i) identifying genes and proteins that are differentially expressed in human heart failure, (ii) confirming that signaling pathways discovered in animal models have relevance to human cardiovascular disease and (iii) elucidating the reactivation of fetal genes.

      We believe our advanced understanding of the biology of cardiovascular disease combined with our clinical development expertise in cardiovascular therapeutics allows us to identify, license or acquire products. The Novartis collaboration presently covers nearly all of our discovery research projects. However, as we progress projects that are not funded by this partner, we intend to enter into collaborations with other pharmaceutical and biotechnology companies that allow us to build upon our expertise in cardiovascular disease. We will seek arrangements that improve our ability to move new compounds into the clinic and new products into the marketplace.

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Sales and Marketing

      Assuming that we receive regulatory approval for our product candidates, we plan to commercialize them by building a focused sales and marketing organization complemented by co-promotion arrangements with pharmaceutical or biotechnology partners. Our sales and marketing strategy is to:

	•	Build a direct sales force. We believe that a relatively small sales force could effectively reach the specialists and medical institutions that treat the majority of patients in indications such as advanced chronic heart failure and pulmonary arterial hypertension. We intend to build this sales force ourselves or through a contract sales organization.
	•	Build a marketing organization. We plan to build a marketing and sales management organization to develop and implement product plans and support our sales force.
	•	Establish co-promotion alliances. We intend to enter into co-promotion arrangements with larger pharmaceutical or biotechnology firms when necessary to reach larger markets than would be possible with our own sales force. For example, our Novartis collaboration grants us the option to enter into a co-promotion agreement for certain markets upon completion of Phase II clinical trials of product candidates they have licensed from us. We intend to retain the rights to ambrisentan, but we plan to explore co-promotion arrangements for enoximone. We expect to seek a co-promotion or co-development partner for darusentan.

      We currently market Perfan I.V. through local distributors in Belgium, France, Germany, Ireland, Italy, Luxembourg, the Netherlands and the United Kingdom.

Licensing Agreements and Collaborations

      In October 1998, we entered into a license agreement with Aventis (formerly Hoechst Marion Roussel) under which we received an exclusive worldwide license to develop and commercialize enoximone. In consideration for the license, we paid Aventis initial license fees totaling $5.5 million, and we are obligated to pay royalties based on net sales of enoximone for a period of 10 years beginning with the first commercial sale on a country-by-country basis. If we fail to commercialize enoximone capsules in certain markets, Aventis may market the product on its own in the affected countries, paying us a royalty on its sales. The agreement is of indefinite term, although Aventis may terminate the agreement if we fail to use reasonable commercial diligence to develop and commercialize enoximone capsules. In addition, either party may terminate the agreement under certain circumstances, including a material breach of the agreement by the other.

      In October 2001, we entered into a license agreement with Abbott under which we received an exclusive worldwide license from Abbott to develop and commercialize ambrisentan. In consideration for the license, we have paid Abbott initial license fees totaling $5.8 million, have paid a milestone fee of $1.5 million upon the initiation of the ARIES trials and have accrued an additional $690,000 related to an additional feasibility and evaluation study performed on our behalf. If we successfully develop ambrisentan in pulmonary arterial hypertension, we will be required to make additional milestone payments totaling $4.5 million as well as royalties based on net sales of ambrisentan. If we fail to commercialize ambrisentan in certain markets, Abbott may market the product on its own in the affected countries, paying us a royalty on its sales. We must use reasonable diligence to develop and commercialize ambrisentan and to meet milestones in completing certain clinical work. The agreement is of indefinite term, although either party may terminate the agreement under certain circumstances, including a material breach of the agreement by the other. We would be obligated to make additional milestone payments if we develop ambrisentan in additional indications. However, in no event would we be obligated to pay more than $25.5 million in total license and milestone fees.

      In June 2003, we entered into a license agreement with Abbott under which we received an exclusive worldwide license from Abbott to develop and commercialize darusentan. In consideration for the license, we paid Abbott initial license fees of $5.0 million and are obligated to make future milestone payments totaling $25.0 million if we successfully commercialize the drug for a single indication. Additional milestone payments would be due if we commercialize darusentan for additional indications. However, in no event would we be obligated to pay more than $50.0 million in total milestone and license fees. In addition, we will owe royalties

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      We also hold four other license agreements relating to intellectual property and patents. In September 1998, we entered into an exclusive license agreement, with the right to sublicense, with University License Equity Holdings, Inc., (formerly University Technology Corporation), or ULEHI, an affiliate of UC, that allows us access to several different patents relating to the treatment of heart failure. This exclusive license may be subject to certain rights of the U.S. Government if any of the licensed subject matter is developed under a governmental funding agreement. We must use commercially reasonable efforts to bring one or more products to market and, in order to retain an exclusive license, must meet certain milestones, including providing forecast reports and selling a minimum amount of product. In consideration for the license, we paid ULEHI an initial fee of $5,900, and we are obligated to pay future license maintenance fees of $4,250 per annum, as well as royalties, which are based upon net sales of the licensed products. As of December 31, 2003, we accrued a $25,000 sublicense fee to ULEHI under this agreement, which was paid in February 2004. Under this license agreement, we also have the primary responsibility of applying for and maintaining any patent or intellectual property rights. ULEHI may only assume such responsibility in the event that we decide not to do so. We amended this agreement in November 2003 to modify the royalty structure and to include milestone payments for any drugs developed from the licensed technology, up to a maximum of $400,000 in the case of a drug for which an application for marketing approval is filed. This agreement may be terminated by either party upon breach of the agreement, or we may cancel the agreement upon six months notice to ULEHI.

      In December 1999, we entered into a Patent and Technology License Agreement with the University of Texas System, or the University, which gives us exclusive rights, with the right to sublicense, to certain patents and technology relating to cardiac hypertrophy and heart failure. Concurrently, we entered into a Sponsored Research Agreement with the University to fund research at UTSWMC. Rights to inventions arising from the sponsored research are included within the exclusive license granted by the license agreement. This exclusive license may be subject to certain rights of the U.S. Government if any of the licensed subject matter is developed under a governmental funding agreement. In consideration for the license, we paid an initial license fee of $50,000 and are obligated to pay future annual fees of $50,000 per year beginning the first year following termination of the Sponsored Research Agreement, a percentage of sublicense revenue and royalties based upon net sales. Additionally, we are obligated to make milestone payments for any drugs developed from the licensed technology, up to a maximum of $3.2 million in the case of a drug for which a marketing application is approved. Patent prosecution and maintenance is carried out by a mutually agreed upon patent attorney, but we are obligated to reimburse the University for the associated patent costs. This license agreement will continue on a country by country basis in many cases until the last patent expires which currently is on September 26, 2022, based on patents issued to date, but could be extended. There are also provisions that allow termination of the license agreement upon breach of the license, upon our insolvency, or upon written mutual agreement between Myogen and the University. We must diligently attempt to commercialize a licensed or identified product or the University has certain rights to cancel the exclusivity of the license agreement if we fail to provide written evidence within sixty days of our commercialization attempts. Similarly, the University can completely terminate the license agreement in the future if we fail to provide written evidence of our commercialization attempts within sixty days. This license agreement is also subject to the terms of the Sponsored Research Agreement entered into concurrently with the Patent and Technology License Agreement, under which we currently pay $250,000 per annum through March 31, 2007. In 2003, we accrued a $162,500 sublicense fee to the University under this agreement which was paid in January 2004.

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      In January 2000, we entered into a Patent License Agreement with the University and the University of North Texas Health Science Center at Fort Worth (UNTHSC) which grants us exclusive rights, with the right to sublicense, to certain patents and technology relating to cardiac hypertrophy. This exclusive license may be subject to certain rights of the U.S. Government to the extent any of the licensed subject matter is developed under a governmental funding agreement. In consideration for the license, we are obligated to pay an annual license fee of $50,000 per year, a percentage of sublicense revenue and royalties based upon net sales. Additionally, we are obligated to make milestone payments for any drugs developed from the licensed technology, up to a maximum of $3.2 million in the case of a drug for which a marketing application is approved. Patent prosecution and maintenance is carried out by a mutually agreed upon patent attorney, but we are obligated to pay the associated patent costs. This license agreement will continue on a country by country basis in many cases until the last patent expires which currently is on October 15, 2018, based on patents issued to date, but could be extended. There are also provisions that allow termination of the license agreement upon breach of the license, upon our insolvency, or upon written mutual agreement between Myogen, the University and UNTHSC. We must actively attempt to commercialize products or the licensors have certain rights to cancel the exclusivity of the license agreement if we fail to provide written evidence of our or our sublicensees’ commercialization attempts.

      In January 2000, we issued 803,606 shares of Series B preferred stock in connection with the license agreements entered into in December 1999 and January 2000 with the University and UNTHSC.

      In January 2002, we entered into a second Patent and Technology License Agreement, which was amended in February 2004, and related Sponsored Research Agreement with the University. The license grants us exclusive rights, with the right to sublicense, to certain patents and technology relating to cardiac hypertrophy, heart disease, and heart failure, including inventions that arise during the conduct of the sponsored research. The patent and technology license is also subject to certain rights of the U.S. Government if any of the licensed subject matter is developed under a governmental funding agreement. In consideration for this license, we paid an initial license fee totaling $35,000 and have an obligation to pay milestone payments potentially totaling $400,000, a percentage of sublicense revenue and royalties based upon a percentage of net sales. Since the expiration of the Sponsored Research Agreement, we are obligated to pay annual fees of $5,000 per year. In addition, we are obligated to reimburse the University for patent expenses. For most products, this agreement will terminate upon the expiration of the last patent to expire, which currently is on February 13, 2021 based on patents issued to date, but could be extended. There are also provisions that allow termination upon breach of the license, upon insolvency of the licensee, or upon written mutual agreement between Myogen and the University.

      We continue to maintain a close working relationship with three of our academic founders: Dr. Michael Bristow, our Chief Science and Medical Officer and head of cardiology at UC, Dr. Leslie Leinwand, chairperson of molecular, cellular and developmental biology at UC and Dr. Eric Olson, chairman of molecular biology at UTSWMC. Dr. Olson serves as an active consultant, frequently visiting our laboratories and collaborating closely both in research areas and in our discussions with larger pharmaceutical firms. In the case of both laboratories, we have an option allowing us to acquire the rights to future cardiovascular discoveries. Both universities own shares of our stock.

      In October 2003, we entered into a research collaboration with Novartis for the discovery and development of novel drugs for the treatment of cardiovascular disease. In exchange for signing fees to be paid to us totaling $5.0 million (a $4.0 million upfront payment and $1.0 million to be paid after the first year) and an obligation to provide research funding to us for a minimum of three years, Novartis has the exclusive right to license drug targets and compounds developed through the collaboration. Upon execution of a license for a product candidate, Novartis is obligated to fund all further development of that product candidate, make payments to us upon the achievement of certain milestones which may total up to $17.1 million for each product candidate and pay us royalties for sales if the product is successfully commercialized. The agreement provides Novartis the right to extend the collaboration for an additional period of up to two years. Thereafter, the collaboration can be extended by mutual agreement of the parties. Novartis has the right to terminate the agreement 18 months after the date of the original agreement, subject to a termination payment. The agreement can also be terminated upon breach of the license, insolvency of either party, mutual written

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      We also intend to selectively enter into collaborations with other pharmaceutical or biotechnology companies that allow us to build upon our expertise in heart disease.

Intellectual Property and Patents

      The primary patents covering enoximone expired in 2000 in the United States and 2001 in most of the major markets in Europe. In the United States, the Hatch-Waxman Act of 1984 provides up to five years of market exclusivity from the date of marketing approval by the FDA for any new chemical entity. We believe that enoximone capsules will meet the Act’s various criteria and therefore we expect to receive five years of marketing exclusivity in the United States, when and if enoximone capsules are approved. In Europe, similar legislative enactments provide exclusivity on the data package used by a drug sponsor to obtain registration for a product with an expired compound patent. This protection is awarded for six to 10 years, depending on the country and registration approach taken by the sponsor.

      We have licensed from UC a patent with broad claims for the use of positive inotropes, including enoximone, to stabilize patients who are otherwise hemodynamically too unstable to accept beta-blocker therapy without such stabilization. The European counterpart application is currently undergoing prosecution.

      We plan to commission the development of a proprietary extended-release oral form of enoximone to reduce dosing frequency to once per day. We expect that this new formulation could provide market exclusivity to the extended release formulation of enoximone capsules beyond the expiration of legislative protections for immediate release enoximone capsules.

      The primary patents covering ambrisentan and darusentan expire in 2015 in the United States and most markets in Europe.

      We have exclusive licenses to over 25 patent applications covering technology for the diagnosis and treatment of heart failure. Under our licenses, and associated sponsored research agreements, we have been granted a right of first refusal to certain future discoveries in the field of heart disease from UC and UTSWMC. We have either assumed responsibility for the prosecution of the patent applications or have significant input thereon.

Competition

      The pharmaceutical industry is highly competitive. We face significant competition from pharmaceutical companies and biotechnology companies that are researching and selling products designed to treat cardiovascular disease. Many of these companies have significantly greater financial, manufacturing, marketing and product development resources than we do. Large pharmaceutical companies in particular have extensive experience in clinical testing and in obtaining regulatory approvals for drugs. These companies also have significantly greater research capabilities than we do. Several pharmaceutical and biotechnology companies have established themselves in the field of cardiovascular disease. In addition, many universities and private and public research institutes are active in cardiovascular research, some in direct competition with us. We also must compete with these organizations to recruit scientists and clinical development personnel. Significant competitors working on treatments for chronic heart failure, pulmonary arterial hypertension and/or resistant hypertension are Actelion Ltd., Encysive Pharmaceuticals, Inc., GlaxoSmithKline plc, Orion Pharma, Speedel Group, United Therapeutics Corp., Vasogen Inc., and most other major pharmaceutical companies.

      A number of companies, including Encysive Pharmaceuticals, Inc., have ET_A receptor selective antagonist compounds in later stage clinical development in indications competitive with ambrisentan.

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Manufacturing

      The production of enoximone, ambrisentan, and darusentan employ small molecule organic chemistry procedures standard for the pharmaceutical industry. We plan to continue to outsource manufacturing responsibilities for these and any additional future products. This manufacturing strategy allows us to direct our financial and managerial resources to the development and commercialization of products rather than the establishment of a manufacturing infrastructure.

Governmental Regulation and Product Approval

      The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial requirements upon the clinical development, manufacture and marketing of pharmaceutical products. These agencies and other federal, state and local entities regulate research and development activities and the testing, manufacture, quality control, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion of our products.

      The process required by the FDA before product candidates may be marketed in the United States generally involves the following:

	•	pre-clinical laboratory and animal tests;
	•	submission of an investigational new drug application, or IND, which must become effective before clinical trials may begin;
	•	adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug for its intended use;
	•	pre-approval inspection of manufacturing facilities and selected clinical investigators; and
	•	FDA approval of a new drug application, or NDA, or NDA supplement.

      The testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any new approvals for our products will be granted on a timely basis, if at all.

      Before the first clinical trial can begin, we must submit an IND to the FDA. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions about the conduct of the clinical trial. In such a case, the study cannot be initiated until the IND sponsor and the FDA resolve any outstanding concerns. Our submission of an IND may not result in FDA authorization to commence a clinical trial. A separate submission to the existing IND must be made for each successive clinical trial conducted during product development but there is no waiting period after the IND is open. An independent institutional review board for each medical center proposing to conduct the clinical trial must review and approve the plan for any clinical trial before it commences at that center.

      For purposes of NDA approval, human clinical trials are typically conducted in three sequential phases that may overlap.

	•	Phase I: The drug is initially given to healthy human subjects or patients and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion.
	•	Phase II: Studies are conducted in a limited patient population to identify possible adverse effects and safety risks, to determine the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. Multiple Phase II clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more expensive Phase III clinical trials. In some

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		cases, a sponsor may decide to run what is referred to as a “Phase IIb” evaluation, which is a second, confirmatory Phase II trial that could, if positive, serve as a pivotal trial in the approval of a drug.
	•	Phase III: When Phase II evaluations demonstrate that a dosage range of the product is effective and has an acceptable safety profile, Phase III trials are undertaken to further evaluate dosage, to provide statistically significant evidence of clinical efficacy and to further test for safety in an expanded patient population at multiple clinical study sites.

      Clinical trials are designed and conducted in a variety of ways. A “placebo-controlled” trial is one in which the trial tests the results of a group of patients, referred to as an “arm” of the trial, receiving the drug being tested against those of an arm that receives a placebo, which is a substance that the researchers know is not therapeutic in a medical or chemical sense. In a “double-blind” study, neither the researcher nor the patient knows into which arm of the trial the patient has been placed, or whether the patient is receiving the drug or the placebo. “Randomized” means that upon enrollment patients are placed into one arm or the other at random by computer. “Parallel control” trials generally involve studying a patient population that is not exposed to the study medication (i.e., is either on placebo or standard treatment protocols). In such studies experimental subjects and control subjects are assigned to groups upon admission to the study and remain in those groups for the duration of the study. An “open label” study is one where the researcher and the patient know that the patient is receiving the drug. A trial is said to be “pivotal” if it is designed to meet statistical criteria with respect to pre-determined “endpoints,” or clinical objectives, that the sponsor believes, based usually on its interactions with the relevant regulatory authority, will be sufficient for regulatory approval. In most cases, two “pivotal” clinical trials are necessary for approval.

      Regulatory authorities or an institutional review board or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.

      The FDA may require, or companies may pursue, additional clinical trials after a product is approved. These so-called Phase IV studies may be made a condition to be satisfied after a drug receives approval. The results of Phase IV studies can confirm the effectiveness of a product candidate and can provide important safety information to augment the FDA’s voluntary adverse drug reaction reporting system.

      The results of product development, pre-clinical studies and clinical trials are submitted to the FDA as part of an NDA, or as part of an NDA supplement, for approval of a new indication if the product candidate is already approved for another indication. The FDA may deny approval of an NDA or NDA supplement if the applicable regulatory criteria are not satisfied, or it may require additional clinical data and/or an additional pivotal Phase III clinical trial. Even if such data are submitted, the FDA may ultimately decide that the NDA or NDA supplement does not satisfy the criteria for approval. Once issued, the FDA may withdraw product approval if ongoing regulatory standards are not met or if safety problems occur after the product reaches the market. In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products that have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs.

      Satisfaction of FDA requirements or similar requirements of state, local and foreign regulatory agencies typically takes several years and the actual time required may vary substantially based upon the type, complexity and novelty of the product or disease. Typically, if a drug product is intended to treat a chronic disease, as is the case with the product candidates we are developing, safety and efficacy data must be gathered over an extended period of time, which can range from six months to three years or more. Government regulation may delay or prevent marketing of product candidates or new drugs for a considerable period of time and impose costly procedures upon our activities. We cannot be certain that the FDA or any other regulatory agency will grant approvals for new indications for our product candidates on a timely basis, if at all. Success in early stage clinical trials does not ensure success in later stage clinical trials. Data obtained from clinical activities is not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. Even if a product candidate receives regulatory approval, the approval may be significantly limited to specific disease states, patient populations and dosages. Further, even after regulatory approval is obtained, later discovery of previously unknown problems with a product may result in

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      Any products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including record-keeping requirements and reporting of adverse experiences with the drug. Drug manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with current Good Manufacturing Practices, or cGMP, which impose certain procedural and documentation requirements upon us and our third-party manufacturers in order to ensure that the product meets applicable specifications. We cannot be certain that we or our present or future suppliers will be able to comply with the cGMP and other FDA regulatory requirements. If our present or future suppliers are not able to comply with these requirements, the FDA may halt our clinical trials, require us to recall a drug from distribution, or withdraw approval of the NDA for that drug.

      The FDA closely regulates the marketing and promotion of drugs. A company can make only those claims relating to safety and efficacy that are approved by the FDA. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available drugs for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use.

      The FDA’s policies may change and additional government regulations may be enacted which could prevent or delay regulatory approval of our product candidates or approval of new diseases for our existing products. We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the United States or abroad.

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RISK FACTORS

      Our business faces significant risks. These risks include those described below and may include additional risks of which we are not currently aware or which we currently do not believe are material. If any of the events or circumstances described in the following risks actually occurs, our business, financial condition or results of operations could be materially adversely affected. These risks should be read in conjunction with the other information set forth in this report.

Risks Related to Our Business

      We are at an early stage of development as a biopharmaceutical company, and we do not have any commercial products that generate significant revenues. Our existing product candidates will require extensive additional clinical evaluation, regulatory review, significant marketing efforts and substantial investment before they could provide us with any revenues. Our efforts may not lead to commercially successful drugs, for a number of reasons, including:

	•	our product candidates may not prove to be safe and effective in clinical trials;
	•	we may not be able to obtain regulatory approvals for our product candidates or approvals may be narrower than we seek;
	•	we may not have adequate financial or other resources to complete the development and commercialization of our product candidates; or
	•	any products that are approved may not be accepted in the marketplace.

      Other than sales of Perfan I.V. in Europe, which are only minor, we do not expect to be able to market any of our product candidates for a number of years. If we are unable to develop, receive approval for, or successfully commercialize any of our product candidates, we will be unable to generate significant revenues. If our development programs are delayed, we may have to raise additional capital or reduce or cease our operations.

      We have experienced significant operating losses since our inception in 1996. At December 31, 2003, we had an accumulated deficit of $118.5 million. For the year ended December 31, 2003 we had an operating loss of $43.0 million and for the years ended December 31, 2002 and 2001, we had operating losses of $28.8 million and $17.8 million, respectively. Revenues from the commercial sales of our only approved product, Perfan I.V., were $2.8 million and $2.3 million for the years ended December 31, 2003 and 2002, respectively, and we will not achieve profitability from the sales of this product alone. We also do not expect that research and development revenue, which was $1.0 million in 2003, will become sufficient for us to achieve profitability. We have funded our operations principally from the sale of our equity securities. We expect to continue to incur substantial additional operating losses for the next several years as we pursue our clinical trials and research and development efforts. To become profitable, we, either alone or with our collaborators, must successfully develop, manufacture and market our product candidates, or continue to identify, develop, acquire, manufacture and market other new product candidates. We may never have any significant revenues or become profitable.

      Our operations have consumed substantial amounts of cash since inception. To date, our sources of cash have been primarily limited to the sale of our equity securities. We expect to continue to spend substantial amounts on research and development, including amounts spent on conducting clinical trials for our product candidates, manufacturing clinical supplies and expanding our discovery research programs. In 2003, our

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	•	seek collaborators for our product candidates at an earlier stage than otherwise would be desirable and on terms t