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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2002
or

For the transition period from                              to                             

Commission file number 000-30289

PRAECIS PHARMACEUTICALS INCORPORATED
(Exact name of registrant as specified in its charter)

(781) 795-4100
(Registrant's telephone number, including area code)

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

None

(Title of Class)

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

Common Stock, par value $.01 per share

(Title of Class)

Preferred Stock Purchase Rights

(Title of Class)

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

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 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. ý

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

        The aggregate market value of voting and non-voting stock held by non-affiliates of the registrant, based upon the last sale price of the common stock, par value $.01 per share, reported on The Nasdaq National Market on June 28, 2002, was $162,117,195.

        The number of shares of common stock, par value $.01 per share, outstanding as of February 28, 2003 was 51,822,475.

Documents Incorporated By Reference

        Specified portions of the definitive Proxy Statement with respect to the registrant's 2003 Annual Meeting of Stockholders to be filed by the registrant with the Securities and Exchange Commission are incorporated by reference into Part III of this Annual Report on Form 10-K.

Factors That May Affect Future Results

        The Company's prospects are subject to certain uncertainties and risks. This Annual Report on Form 10-K also contains certain forward-looking statements within the meaning of the federal securities laws. The Company's future results may differ materially from its current results and actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors. READERS SHOULD PAY PARTICULAR ATTENTION TO THE CONSIDERATIONS DESCRIBED IN THE SECTION OF THIS REPORT ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—RISK FACTORS THAT MAY AFFECT FUTURE RESULTS." Readers should also carefully review the risk factors described in the other documents the Company files from time to time with the Securities and Exchange Commission.

PRAECIS PHARMACEUTICALS INCORPORATED

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART I

ITEM 1.    BUSINESS.

Overview

        We are a drug discovery and development company with a lead product candidate, Plenaxis (abarelix for injectable suspension), for the treatment of hormonally responsive advanced prostate cancer. We resubmitted our new drug application, or NDA, for Plenaxis to the FDA on February 27, 2003 and expect to receive a response from the FDA regarding our resubmission within six months of that date. In December 2000, we initially submitted the NDA to the FDA seeking marketing approval for Plenaxis for the treatment of hormonally responsive prostate cancer. In June 2001, we received a not-approvable letter from the FDA. Based upon a series of subsequent discussions with the FDA, in our NDA resubmission we are now seeking approval to market Plenaxis in the United States for use in a defined sub-population of advanced prostate cancer patients for whom the use of existing hormonal therapies may not be appropriate. If approved, we intend to market and sell Plenaxis in the United States through our own sales and marketing team. We also intend to submit a registration dossier in Europe during the second quarter of 2003 seeking approval to market Plenaxis for a broad population of hormonally responsive advanced prostate cancer patients.

        We are also developing Apan, our drug candidate for the treatment of Alzheimer's disease. Apan is designed to treat what we and others believe to be the underlying cause of Alzheimer's disease, rather than the symptoms. A hallmark of Alzheimer's disease is the accumulation of plaque-like deposits in brain tissue. A major component of this plaque is a small peptide called beta-amyloid. Results of our preclinical studies suggest that Apan may be facilitating the clearance of beta-amyloid from the brains of guinea pigs and transgenic mice. We are currently conducting a healthy volunteer, phase Ia dose escalation study of Apan to identify the maximum tolerated dose, or MTD, in healthy volunteers. Assuming favorable FDA review of the study's final results, we intend to move into a phase Ib trial in Alzheimer's disease patients during the first half of 2003. This Ib study will test a single administration of Apan to establish the MTD in patients. Upon completion of the phase Ib study, and assuming favorable FDA review of the study's results, we expect to initiate a phase Ic trial examining multiple administrations of a selected Apan dose in Alzheimer's disease patients.

        In addition to our Plenaxis prostate cancer program, we are also developing Plenaxis for the treatment of endometriosis, a disease that responds to a reduction of the female hormone estrogen. We believe that patients suffering from endometriosis are not well served by current methods of treatment or remain untreated, and that Plenaxis could fulfill a significant unmet need. We completed a phase II study of Plenaxis for the treatment of pain associated with endometriosis in March 2002. Results from this study indicated that we may be able to utilize a lower dose and/or a more prolonged dosing interval in future studies to reduce drug exposure and attendant bone mineral density loss, a known consequence of hormonal therapies that lower estrogen levels. Accordingly, during 2002, we conducted a pharmacokinetic study of Plenaxis for the treatment of endometriosis to examine the appropriate dose and dosing schedule. Upon completion of our review of the results of this study, we will determine the next steps for development.

        In addition to our clinical programs, we have numerous programs in the research or preclinical development stage. We intend to file, by mid-year 2003, an investigational new drug application, or IND, for our most advanced preclinical compound, PPI-2458. Assuming favorable FDA review of our IND, we plan initially to conduct clinical trials to study the effectiveness of this compound in the treatment of B-Cell Non-Hodgkin's lymphoma. We also plan to continue preclinical studies of PPI-2458 in other potential indications, including rheumatoid arthritis.

        Our proprietary drug discovery technology called Ligand Evolution to Active Pharmaceuticals, or LEAP, has been valuable in the development of our pipeline of product candidates. Because LEAP technology uses biological molecules as ligands, we believe it can be used to efficiently develop new drugs against a variety of other disease targets. LEAP was instrumental in the development of Plenaxis

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and Apan, and we are using it against targets in other disease areas, as well. We have pending patent applications that cover the essential steps of the LEAP process.

        Our technology platform also includes a proprietary drug delivery system known as Rel-Ease. Plenaxis is formulated in Rel-Ease, which allows it to be administered to prostate cancer patients once every four weeks. We have demonstrated that Rel-Ease is useful for formulating Plenaxis and various other molecules in sustained release formulations. We hold patents that cover the general application of this technology for a broad range of peptide-based drugs.

        We were incorporated in Delaware in July 1993 under the name Pharmaceutical Peptides, Inc. In June 1997, we changed our name to PRAECIS PHARMACEUTICALS INCORPORATED.

        PRAECIS™, Plenaxis™, Apan™, LEAP™, Rel-Ease™ and MASTRscreen™ are trademarks or trade names of our company. This Annual Report on Form 10-K also contains trademarks, trade names and service marks of other companies, including but not limited to Casodex®, Lupron Depot® and Zoladex®, all of which are the property of their respective owners.

Product Pipeline

        We focus our drug development efforts on conditions or diseases where there are unmet needs creating a potential for significant product revenues. We have three programs that have moved beyond the research phase into clinical testing, as well as various research and preclinical programs. We continually evaluate in early research potential candidates for development and are currently focusing our discovery efforts on opportunities in the areas of oncology, inflammation and infectious diseases.

        We have outlined our clinical programs and four of our more advanced programs in the research or preclinical development stage, along with the clinical indications they address, in the following table:

Plenaxis Program

        Plenaxis (abarelix for injectable suspension) has potential use in treating diseases that respond to the reduction of testosterone, a male hormone, and estrogen, a female hormone. Examples of these diseases include prostate cancer, endometriosis, benign prostatic hypertrophy, uterine fibroids, breast cancer, polycystic ovarian disease, infertility and precocious puberty. Treatments that reduce testosterone or estrogen through the use of drugs, known as hormonal therapy, can result in a therapeutic benefit to patients suffering from these diseases.

        Currently available hormonal therapies, known as LHRH agonists, act by overstimulating the GnRH receptor, located on the pituitary gland, a small gland in the center of the brain. Overstimulation of the pituitary GnRH receptor causes the GnRH receptor to become non-responsive after approximately three weeks. However, this overstimulation first leads to increased production of two hormones, luteinizing hormone, or LH, and follicle stimulating hormone, or FSH. The increased level of LH causes an initial surge of testosterone from the testes in males and a surge of estrogen from the ovaries in females. The temporary surge in hormone levels may result in a worsening, or flare,

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of the disease for which the patient takes the therapy. Only after several weeks following administration of these hormonal therapies does the GnRH receptor become non-responsive and the desired reduction of hormone levels occurs. Due to this surge, current LHRH agonists, such as Lupron Depot, marketed by TAP Pharmaceutical Products Inc., and Zoladex, marketed by AstraZeneca Pharmaceuticals L.P., have precautionary labeling about the hormone-induced flare. The FDA mandates precautionary labeling when appropriate, and the drug labels and packaging for these currently available drugs prominently include precautionary labeling, to protect patients and avoid the use of the drugs in patients who are at risk for developing life-threatening conditions as a result of the disease flare.

        In contrast, Plenaxis has a blocking, or antagonist, effect on the GnRH receptor. Plenaxis rapidly shuts off the production of LH and FSH and, consequently, rapidly reduces the patient's levels of testosterone or estrogen. With Plenaxis, unlike commercially available LHRH agonists, there is no increase in hormone levels before achieving the desired hormone level reduction.

        Our most advanced clinical program is the development of Plenaxis for the treatment of hormonally responsive advanced prostate cancer. We are also studying Plenaxis for the treatment of endometriosis. In addition, a small, investigator-sponsored clinical study was conducted in which the effects of using Plenaxis to treat hormone refractory prostate cancer were evaluated. We have not begun clinical studies of Plenaxis for any of the other potential indications identified above.

Plenaxis—Prostate Cancer

        Background.    Prostate cancer is one of the most commonly diagnosed cancers in men. The American Cancer Society estimates that approximately 220,900 new diagnoses of, and 28,900 deaths from, prostate cancer will occur in the United States in 2003. The prostate is a small, walnut-shaped gland located at the base of the male bladder. Prostate cancer cells require hormones, specifically testosterone and its derivatives, for growth. These hormones stimulate the growth of the cancerous cells. The primary goal of treatment is to reduce testosterone to low, or castrate, levels, leading to inhibition of prostate cancer cell growth. Available treatments for prostate cancer patients include hormonal therapies, radiation therapy and surgery. For more advanced, symptomatic patients, for whom the use of existing hormonal therapies may not be appropriate, removal of the testes, known as surgical castration, is often the only treatment alternative.

        As discussed above, currently available LHRH agonists induce an initial surge in testosterone. This surge of testosterone may last as long as three weeks before the intended medical effect of reduced testosterone levels takes place. In an attempt to mitigate the potential disease worsening, or flare, that can result from this testosterone surge, many practicing physicians prescribe additional drugs, known as anti-androgens. Anti-androgens, such as Casodex, marketed by AstraZeneca Pharmaceuticals, are oral drugs given one-to-three times a day. Anti-androgens function by interfering with the effect of testosterone at the cellular level, but do not reduce circulating testosterone levels or the initial surge in hormone levels associated with currently available LHRH agonists. This additional therapy may be only partially effective in reducing some of the undesirable effects of the flare. In addition, anti-androgen therapy may cause various side effects, including liver damage, breast enlargement, lung dysfunction and diarrhea.

        Moreover, some patients with advanced, symptomatic prostate cancer are at higher risk of serious harm resulting from the testosterone surge associated with LHRH agonists. In these patients, the testosterone surge may lead to urinary blockage, worsening pain, kidney failure, paralysis and nerve damage due to spinal cord compression, and even death. Due to the perceived risks associated with the use of LHRH agonists in these cases, whether alone or in combination with anti-androgens, many advanced, symptomatic prostate cancer patients may be confronted with the option of surgical castration as a potential therapy, both to rapidly reduce testosterone levels and avoid the testosterone surge.

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        To date, we have focused on the development of Plenaxis as a treatment for hormonally responsive advanced prostate cancer, and are currently seeking approval from the FDA to market Plenaxis in the United States specifically for the treatment of a defined sub-population of advanced prostate cancer patients for whom the use of existing hormonal therapies may not be appropriate. Plenaxis is a proprietary, sustained release depot formulation that enables the drug to be administered once every four weeks. During the first four weeks of administration, an additional injection is given on day 15, resulting in two injections during that time period. Our pivotal phase III safety and efficacy studies demonstrate that Plenaxis reduces the time required to achieve therapeutically low testosterone levels compared to currently available LHRH agonists and completely avoids the testosterone surge associated with these therapies. In addition, based upon the results of our clinical study in advanced, symptomatic patients, we believe that Plenaxis has the potential to provide a non-surgical alternative to castration for these patients.

        Prostate Cancer—Regulatory Status.    We submitted to the FDA an NDA comprised of comprehensive safety and efficacy data in December 2000 to support marketing approval of Plenaxis for the treatment of hormonally responsive prostate cancer. Our submission included data from two pivotal phase III safety and efficacy studies, one pivotal phase III safety study, an open-label study in advanced, symptomatic prostate cancer patients, as well as phase I and phase I/II pharmacokinetics studies.

        In January 2001, the FDA informed us that it had accepted and filed the NDA and had granted the filing priority review. In June 2001, we received a letter from the FDA in which the FDA indicated that the information presented in the NDA was inadequate for approval. In discussions with the FDA following receipt of the not-approvable letter, the FDA recommended that we analyze the immediate-onset, systemic allergic reactions that occurred in a small subset of clinical trial patients. In addition, the FDA expressed concern that, in a subset of patients treated beyond the three-month pivotal study time frame, fluctuations in testosterone levels were observed more frequently in patients treated with Plenaxis than in patients treated with either Lupron Depot or Lupron Depot plus Casodex.

        Since learning of these issues, we have proposed various alternatives to the FDA to address them and improve the risk/benefit profile of Plenaxis. Based upon additional discussions with the FDA, we now are seeking approval for Plenaxis for use in a defined sub-population of advanced prostate cancer patients for whom the use of existing hormonal therapies may not be appropriate. The specific sub-population of patients will be determined through additional discussions with the FDA. We resubmitted our NDA on February 27, 2003 seeking approval for this indication and expect to receive a response from the FDA regarding our resubmission within six months of that date. We cannot assure investors that the information included in our NDA resubmission will satisfy FDA concerns that have been or may be raised or that we will be successful in obtaining approval for the commercialization of Plenaxis in the United States for the treatment of a defined sub-population of advanced prostate cancer patients or for any other indication.

        We also intend to seek marketing approval for Plenaxis outside of the United States. During 2002, we met with various European experts and, following these meetings, we announced our intention to pursue regulatory approval to market Plenaxis in Europe for a broad population of hormonally responsive advanced prostate cancer patients. We intend to pursue a mutual recognition filing in Europe and have been meeting with potential sponsor countries' regulatory authorities. We expect to make a decision on the country of filing and to submit our registration dossier during the second quarter of 2003. We cannot assure investors that we will be successful in obtaining regulatory approval to market Plenaxis in Europe.

        Prostate Cancer Clinical Studies.    In support of our initial NDA filing in December 2000, we submitted data from two pivotal phase III clinical trials of Plenaxis for the treatment of hormonally responsive prostate cancer. The first phase III clinical trial was a 269 patient study comparing Plenaxis to Lupron Depot. This study compared the safety of both drugs and the ability of both drugs to avoid the testosterone surge, reduce testosterone levels and achieve and maintain therapeutically low levels of

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testosterone. The second phase III clinical trial was a 251 patient study comparing the safety and efficacy of Plenaxis to the combination therapy of Lupron Depot plus Casodex.

        In these clinical trials, none of the patients treated with Plenaxis experienced a testosterone surge compared to more than 80% of patients treated with Lupron Depot, or a combination of Lupron Depot plus Casodex. Further, Plenaxis suppressed testosterone levels more rapidly, achieving castration by day eight in 70% of patients compared to none of patients treated with either Lupron Depot or Lupron Depot plus Casodex. Each treatment therapy studied achieved and maintained therapeutically low testosterone levels from day 29 through day 85 in more than 90% of patients.

        All of the patients enrolled in these studies were to continue treatment beyond the three-month pivotal study timeframe for a total of six months. In addition, physicians could continue to administer treatment to patients for up to one year. We observed that in a subset of patients treated with Plenaxis for over six months, fluctuations in testosterone above castrate levels occurred more frequently than they did in patients treated with either Lupron Depot or Lupron Depot plus Casodex. As stated above, the FDA raised concerns with these results in their response to our initial NDA filing. We have proposed to the FDA that testosterone levels could be monitored by physicians after six months of treatment with Plenaxis as a means of addressing these fluctuations.

        In further support of the safety of Plenaxis, we included results in our NDA from a separate pivotal phase III safety study comparing Plenaxis to Lupron Depot in 582 patients. The primary objective of this study was to gain more patient exposure to confirm the safety of Plenaxis over a six-month course of therapy. The results of this safety study were consistent with previous studies and supplement existing patient drug exposure data.

        In addition, we conducted an open-label clinical trial to evaluate the use of Plenaxis in patients with advanced, symptomatic prostate cancer. This study was completed in September 2000. We submitted preliminary results from this study to the FDA as part of our initial NDA filing. In February 2003, we included as part of our NDA resubmission additional, more detailed analyses of the data from this study to support approval of Plenaxis for the treatment of a defined sub-population of advanced prostate cancer patients for whom the use of existing hormonal therapies may not be appropriate. In this trial, Plenaxis was administered to 72 patients with advanced, symptomatic prostate cancer, defined as the presence of one or more of the following: bone pain from prostate cancer skeletal metastases, ureteral obstruction, impending spinal cord compression, or bladder neck outlet obstruction. Following enrollment and initial evaluation, it was determined that over half of the patients suffered from more than one sign or symptom of advanced prostate cancer. Patients received a 100 mg dose of Plenaxis every four weeks for 24 weeks, with one additional dose administered on day 15. The primary endpoint was the avoidance of surgical castration at four and 12 weeks. This endpoint was selected because these patients, if treated with currently available hormonal therapies, could be required to undergo immediate surgical castration due to disease worsening caused by the testosterone surge associated with those therapies. The primary endpoint was met by 100% of the patients. In addition, no patient required surgical castration during follow-up in another study. These studies had a cumulative duration of 40 weeks and lasted as long as 159 weeks.

        The trial also had several secondary endpoints, which included the clinical assessment of improvement in bone pain from prostate cancer skeletal metastases. A subset analysis was performed on those patients with bone pain requiring narcotic analgesic use. Within the first day of treatment with Plenaxis, the median pain score in these patients was reduced from 6.8 to 5.3 on a scale of 0 (no pain) to 10 (worst pain imaginable), and by week one, the median pain score was reduced to 4.4. At week 24, the median pain score was less than 1. In addition, at week 24, 64% of the patients suffering from bone pain had a reduction in the frequency, dose and/or potency of narcotic analgesic use, while the remainder reported no change or an increased need.

        A clinical assessment was also made of improvement of urinary symptoms in patients at risk for developing urinary retention. This assessment was based upon several measures, including the patient's American Urological Association, or AUA, Symptom Score and Post Void Residual, or PVR, urine

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volume. During the first month of treatment, the majority of at-risk patients showed improvements in their symptoms of urinary obstruction demonstrated by decreased AUA scores and PVR urine volume.

        Patients with metastatic prostate cancer were also evaluated for anti-cancer disease response. Disease response in these patients was determined by radiographic and serological parameters, and was measured in accordance with modified National Prostate Cancer Project standards. The results of this evaluation showed that a significant portion, at least 75% of these patients at 12 and 24 weeks, achieved an "overall objective response," classified as either "complete response," "partial response" or "stable disease."

        Overall, 90% of the patients studied experienced improvement of one or more of the symptoms associated with their advanced prostate cancer. Due to the advanced stage of disease in the patients enrolled, ten patients developed progressive disease and six patients died during this study.

        Our former European collaborator also conducted a one-to-one randomized, open label, multicenter phase III clinical study of 177 patients in Europe comparing the safety and efficacy of Plenaxis to the combination of Zoladex plus Casodex. Available safety data from this study was submitted to the FDA as part of our original NDA submission. We have now received from our former European corporate collaborator the efficacy data from this study, together with additional safety data. The study included a 48-week primary treatment period, followed by an extension of up to 96 weeks. Our study report from the primary study was included as part of our NDA resubmission. We intend to submit to the FDA a report on the extension as soon as it is available.

        The primary endpoint of the European study was time to induction of medical castration during the first 12 weeks of treatment. The results demonstrated that the median time to medical castration was significantly shorter for patients treated with Plenaxis (seven days), compared to patients treated with Zoladex plus Casodex (21 days).

        The European study also had several secondary endpoints, including the measurement, in a subset of patients, of castration rates at day three. Castration rates at day three were 36% for Plenaxis patients, compared to zero percent for Zoladex plus Casodex patients. In addition, in a subset of patients, avoidance of testosterone surge was evaluated. Testosterone surge was defined as a 10% increase above baseline levels on days one and/or three. In the group evaluated, no patient treated with Plenaxis experienced a testosterone surge. In contrast, 96% of the patients treated with Zoladex plus Casodex experienced a surge.

        Another secondary endpoint of the study was maintenance of medical castration. In patients who were castrate by day 84, testosterone fluctuations above castrate levels, defined as greater than 50 ng/dL, were observed more frequently in patients treated with Plenaxis (22%) than in patients in the comparator arm (8%). Most of the fluctuations in both treatment groups occurred on or after day 168. An evaluation was also made of disease progression. The findings indicate that overall disease progression rates were approximately 9% in both treatment groups through one year of treatment.

        Finally, prostate specific antigen, or PSA, levels were also monitored throughout this study. The data indicate that treatment with Plenaxis results in a more rapid reduction in PSA values compared to treatment with Zoladex plus Casodex. PSA values were significantly lower on day seven in Plenaxis treated patients. PSA levels were similar in both groups on days 14 and 21, and both treatment therapies achieved a greater than 90% reduction in PSA values from day 56 through the end of the study.

        In general, the overall safety profile of Plenaxis in this study was consistent with other clinical studies of Plenaxis. In contrast to our clinical studies conducted in the United States, this study had, in accordance with European regulatory guidance, prospectively defined patient inclusion, exclusion and withdrawal criteria based upon electrocardiographic, or ECG, parameters. This criteria included an evaluation of the QTc interval, which measures a portion of the electrical impulse conduction in the heart. Results of this evaluation indicate that both Plenaxis alone and the combination of Zoladex plus Casodex were associated with findings of QTc prolongation, although Plenaxis was associated with a

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smaller QTc increase from baseline than the comparator arm. QTc prolongations can be associated with irregularities of the heart rhythm, which, in rare cases, can lead to sudden death. There were no serious adverse events reported in connection with the QTc prolongations observed in this study. However, one Plenaxis patient and three Zoladex plus Casodex patients were withdrawn for QTc prolongations. No irregularities in heart rhythm were observed in any of the patients who were withdrawn from the study due to QTc prolongations. We cannot assure investors that the FDA will not request additional information regarding these findings that could further delay the review and potential approval of our resubmitted NDA.

        There was also one immediate-onset, systemic allergic reaction observed in the Plenaxis arm of the extension of the European study which was not previously reported and which has been included in our discussion of safety below. The inclusion of this reaction will not materially change the per-injection incidence rate of immediate-onset, systemic allergic reactions previously reported by the Company due to the overall increase in the number of Plenaxis injections administered to date.

        As previously disclosed, to address questions raised by the FDA, during 2002 we also conducted an open-label clinical study in which patients were treated with Plenaxis for three months and then switched to a commercially available hormonal therapy for an additional two months of treatment. We included Plenaxis data from this study in our NDA resubmission. As agreed upon with the FDA, we will submit to the FDA a final report containing all of the results from this study as soon as it is available.

        From a safety perspective, Plenaxis has generally been well tolerated to date. However, a small number of patients in our Plenaxis studies had adverse reactions, including relatively mild allergic reactions and temporary and reversible elevations of some liver enzymes. We expected these types of relatively non-severe reactions and observed them with similar incidence in patients taking Lupron Depot, Lupron Depot plus Casodex or Zoladex plus Casodex in our clinical studies.

        During the clinical studies described above, in which approximately 1,400 patients were treated with Plenaxis, 17 Plenaxis patients experienced allergic reactions that resulted in the discontinuation of trial participation. We observed a similar incidence of allergic reactions resulting in the discontinuation of trial participation in patients treated with Lupron Depot, Lupron Depot plus Casodex or Zoladex plus Casodex. However, of these 17 Plenaxis patients, six patients experienced immediate-onset, systemic allergic reactions, consisting of either a drop in blood pressure or temporary syncope (fainting), within ten minutes following the administration of Plenaxis. None of the patients in these studies treated with Lupron Depot, Lupron Depot plus Casodex or Zoladex plus Casodex, experienced an allergic reaction of similar onset. At the recommendation of the FDA, we conducted additional analyses of the existing samples from these patients to further understand what the potential cause of these reactions may be. Based upon the results of these analyses and upon additional skin tests and other testing, we have concluded that these reactions are likely anaphylactoid in nature, meaning that they are not caused by an antibody driven response. We have included in our proposed Plenaxis product label submitted to the FDA a black-box warning regarding the risk of immediate-onset, systemic allergic reactions. However, we cannot assure investors that this additional information or the proposed label warning will satisfy the FDA or that the FDA will not continue to raise concerns regarding, or delay or deny approval of our NDA resubmission based on, the incidence of immediate-onset, systemic allergic reactions observed in our clinical trials.

Plenaxis—Endometriosis

        Background.    We are also developing Plenaxis for the treatment of endometriosis. Endometriosis is a condition where endometrial tissue grows beyond the uterine lining, most often on the surfaces of organs in the pelvic cavity. Endometrial tissue, regardless of location in the body, responds to the normal menstrual cycling of women. When the location of the endometrial tissue prevents the appropriate sloughing of tissue that normally occurs during menstruation, inflammation, gastrointestinal symptoms and internal scarring occur. This causes, among other things, pain, fatigue, heavy menstrual

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bleeding, painful sexual intercourse and infertility. Each year in the United States, approximately 300,000 females are diagnosed with endometriosis. In addition, an estimated 5.5 million females in the United States and Canada suffer from endometriosis. As a result of increased awareness of female health, we believe that the number of patients diagnosed with and treated for endometriosis will increase.

        Existing treatments for endometriosis include the use of pain management medications, birth control pills and hormonal therapies, of which Lupron Depot and Zoladex are the most commonly used. The use of available hormonal therapies to suppress estrogen production causes an initial estrogen surge in women. Lupron Depot, Zoladex and other drugs that act in a similar way include drug product labels warning against the adverse effects associated with an estrogen surge. These labels can include warnings for the worsening in the signs and symptoms of endometriosis, which include pain, cramping and excessive bleeding, the risk of tumor flare in breast cancer and the development of ovarian cysts. Our initial studies show that Plenaxis causes a more rapid reduction of estrogen levels and associated relief of menstrual-related pain compared to Lupron Depot. In addition, in these initial studies, there has been no initial estrogen increase associated with the use of Plenaxis.

        Endometriosis Clinical Studies.    To date, we have completed a 40 patient, phase I/II study of Plenaxis and a 363 patient, phase II study. In the phase I/II study, we compared various doses of Plenaxis to the standard dose of Lupron Depot. Patients receiving Lupron Depot therapy experienced initial estrogen increases, and therapeutically low estrogen levels were not achieved for several weeks. Patients treated with Plenaxis experienced a rapid reduction of estrogen levels without the initial increase seen with LHRH agonist therapy.

        Our phase II study compared the safety and efficacy of various doses of Plenaxis to the standard dose of Lupron Depot for treating endometriosis-associated pain. This randomized, double-blind, active-control study included 363 women with surgically confirmed, moderate to severe endometriosis. Three different doses of Plenaxis (30 mg, 60 mg and 120 mg), administered subcutaneously, were compared to the standard dose of Lupron Depot (3.75 mg), administered intramuscularly. Patients were treated once every four weeks over a 24-week period, receiving a total of six doses of drug. Patients were then followed for 48 weeks post-treatment. The primary endpoint was defined as the achievement of all of the following at four and 24 weeks: improvement of pelvic pain, improvement in pelvic tenderness and elimination of dysmenorrhea, which is painful menstruation.

        The percentage of patients treated with Plenaxis at any dose who experienced improvement in endometriosis-associated pain was no different than Lupron Depot at four weeks. At 24 weeks, only patients treated with a 60 mg dose of Plenaxis experienced statistically equivalent relief of endometriosis-associated pain compared to patients treated with Lupron Depot. More patients experienced an elimination of dysmenorrhea at four weeks at all doses of Plenaxis (30 mg: 96%; 60 mg: 96%; 120 mg: 97%) compared to patients treated with Lupron Depot (72%).

        In addition to the pre-specified endpoints, estrogen levels were also measured at various time points during the study. The data demonstrated that patients treated with Plenaxis experienced a more rapid reduction in estrogen levels compared to patients treated with Lupron Depot.

        Patients appear to have generally tolerated treatment well with Plenaxis in these studies. No treatment-related serious adverse events or immediate-onset, systemic allergic reactions were reported in either study. However, as expected, we observed some adverse reactions in both Plenaxis and Lupron Depot patients, including headache, temporary and reversible irritation at the injection site and temporary and reversible elevation of some liver enzymes. In addition, it is well documented that the use of hormonal therapies that lower estrogen levels results in bone mineral density loss. Analysis of the results of our phase II study indicates that patients treated with Plenaxis experienced more bone mineral density loss than those treated with Lupron Depot, and that this loss was dose-related. We are conducting additional analyses of this data to clarify the extent and magnitude of the bone loss.

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        In order to better understand the bone mineral density loss, during 2002 we also conducted a pharmacokinetic study of Plenaxis for the treatment of endometriosis to determine the appropriate dose and dosing schedule necessary to maximize the benefit of the therapy for patients while minimizing attendant bone mineral density loss. We have completed the treatment and observation phases of this study and expect to complete our review of the results during the first half of 2003 before deciding upon the next steps for development.

Apan

        We are developing Apan for the treatment of Alzheimer's disease. Alzheimer's disease affects an estimated four million people in the United States, according to a 1998 report issued by the National Institute of Aging. According to the Alzheimer's Association, Alzheimer's disease is expected to become increasingly prevalent as the population ages. Current therapies provide temporary relief for the symptoms of Alzheimer's disease in some patients, but do not affect the progression of the disease itself.

        A hallmark of Alzheimer's disease is the accumulation of plaque-like deposits in brain tissue. A major component of this plaque is a small peptide called beta-amyloid. Over the past several years, a large body of clinical, biochemical and genetic evidence has emerged suggesting that the aggregation of beta-amyloid peptide may be the underlying cause of Alzheimer's disease. This body of evidence has led to the widely held theory that when single beta-amyloid molecules aggregate they become toxic to nerve cells, and that this toxicity leads to the development and progression of Alzheimer's disease. We used our LEAP technology to select Apan to interfere with this aggregation process.

        We have shown in in vitro experiments that Apan specifically inhibits the aggregation of beta-amyloid and prevents the associated nerve cell toxicity. In addition, we have shown in rats and mice that Apan reaches the brain in quantities that we believe may be sufficient to block the aggregation of beta-amyloid molecules and alter the course of the disease. Studies in transgenic mice that develop human Alzheimer's disease plaques in their brains and in guinea pigs suggest that Apan can facilitate the clearance of beta-amyloid from the brain. Alzheimer's disease, with the associated accumulation of beta-amyloid in the brain, is often thought of as a defect in the ability to clear excess beta-amyloid from the brain to the cerebrospinal fluid, or CSF. Both humans and transgenic mice with Alzheimer's disease-like plaques show increased levels of beta-amyloid in the brain and decreased levels in the CSF as the disease progresses. In contrast, transgenic mice treated with Apan show significant increases in beta-amyloid levels in the CSF, suggesting that Apan may be facilitating the clearance of beta-amyloid from the brain.

        In March 2001, we began a phase Ia dose escalation study of Apan in healthy volunteers. In this study, we are evaluating the safety and pharmacokinetics of the compound and identifying a MTD in healthy volunteers. As of mid-February 2003, we had enrolled 76 volunteers in 14 dosing groups. Preliminary observations from CSF taken from ten of these healthy volunteers indicate that Apan can be quantified in the CSF. These preliminary CSF results also indicate that Apan may be promoting clearance from the brain of beta-amyloid. This trend in the early data is consistent with the CSF beta-amyloid results we have seen with Apan in animal models.

        Assuming favorable FDA review of the study's final results, we intend to move into a phase Ib trial in Alzheimer's patients during the first half of 2003. This phase Ib study will test a single administration of Apan to establish the MTD in patients. Upon completion of the phase Ib study, and assuming favorable FDA review of the study's results, we expect to initiate a phase Ic trial examining multiple administrations of a selected dose of Apan in Alzheimer's disease patients.

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PPI-2458

        PPI-2458 is a novel, proprietary molecule that is based on the fumagillin class of compounds that have been shown to have potent anti-proliferative and anti-angiogenic activity. These processes are considered to be of critical importance in the growth of aberrant tissues in diseases such as cancer and rheumatoid arthritis. The dose limiting toxicity associated with fumagillin derivatives have largely prevented the clinical development of these compounds. PPI-2458 was designed to maintain potent activity while at the same time improving the toxicity profile relative to other members of the fumagillin class of compounds.

        In recent preclinical studies conducted separately by us and the National Cancer Institute, PPI-2458 demonstrated significant anti-tumor activity against certain types of cancerous cells. Based upon encouraging pre-clinical data, we plan to investigate initially the effectiveness of this compound for the treatment of B-Cell Non-Hodgkin's lymphoma. We intend to file by mid-year 2003 an IND for PPI-2458 for a study in this indication. Information from this initial study, combined with on-going preclinical work, will form the basis for next steps in the development of this compound for the treatment of additional indications.

        We are also evaluating through preclinical studies the potential utility of PPI-2458 for treating rheumatoid arthritis. These studies have demonstrated the efficacy of PPI-2458 in rodent models of rheumatoid arthritis, when administered either by injection or orally. Despite the availability of several new effective disease-modifying anti-rheumatic drugs, also known as DMARDs, for the treatment of rheumatoid arthritis, there remains a significant unmet medical need. We believe that new drugs which could be used alone or in combination with established DMARDs could be successful in treating rheumatoid arthritis.

Androgen Receptor Antagonist

        Because testosterone and other hormones are growth factors for prostate cancer cells, hormone-lowering therapy can be a safe and effective treatment for patients with hormone-dependent prostate cancer. However, most patients eventually progress to a condition known as hormone-independent prostate cancer, where the prostate cancer cells no longer need testosterone and other hormones to grow and, as a consequence, hormone-lowering therapies are ineffective. Genetic studies in these patients reveal that many of them have accumulated mutations in the gene encoding the Androgen Receptor, or AR, allowing it to function in the absence of testosterone. These studies indicate that the AR is central to the growth of prostate cancer cells. Using our LEAP technology, we have discovered and are testing ligands that bind to the AR, which could provide the basis for a new class of drugs to treat hormone-independent prostate cancer. If successful, the use of these drugs could be expanded to treat prostate cancer at all stages.

Endometriosis Diagnostic

        Considering that an estimated 5.5 million females in the United States and Canada suffer from endometriosis, and that only approximately 300,000 females in the United States and an unknown number in Canada are actually diagnosed with the disease, we believe a diagnostic test is critical to better identify, assess and treat those who suffer from the disease. Currently, endometriosis is diagnosed by a relatively painful and expensive invasive procedure called laparoscopy. We are developing a simple, non-invasive endometriosis diagnostic test based on the presence of unique proteins in the serum of disease sufferers. Using the proteomics component of our LEAP technology, we are seeking to identify proteins whose abundance in serum can discriminate between diseased and non-diseased individuals. These proteins could prove useful to diagnose individuals with the disease, as well as enhance understanding of the disease process.

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Antiviral Antagonist

        Various studies by others have identified groups of individuals who are resistant to HIV infection despite multiple exposures to the virus. Genetic characterization of these individuals revealed that they have mutations in the CCR5 gene which prevents the expression of the functional CCR5 protein, yet they remain healthy. The HIV virus uses the CCR5 protein as a point of entry into macrophages and T cells, which are cells in the human immune system that are commonly infected by HIV. Through our collaboration with Human Genome Sciences, we have licensed certain rights to CCR5 as a disease target. We have been using our LEAP technology to search for ligands against CCR5 that may act as inhibitors of HIV entry, but have not yet identified a lead candidate. We are currently preparing a report for review by Human Genome Sciences summarizing the results of our research to date. Following delivery of the report, we intend to meet with Human Genome Sciences to discuss whether further development efforts should be pursued under the collaboration agreement.

        We have also independently initiated a separate research program to discover peptide ligands to disrupt the interaction between CCR5 and the HIV protein, gp120. Disruption in the interaction of these proteins by antibodies results in the blockade of HIV entry into cells. We are investigating novel peptide structures that target gp120 and possess antiviral activity. In addition, we have independently expanded our research to include other potential antiviral targets and compounds.

Technology

LEAP

        Our proprietary method for discovering drugs is based on a unique system that combines the power and diversity of biological selection to identify compounds with potentially favorable drug-like properties with an ability to enhance and optimize these compounds using medicinal chemistry. We call this process Ligand Evolution to Active Pharmaceuticals, or LEAP. We believe LEAP is superior to traditional methods of drug discovery that are limited by the number of compounds that the traditional methods can synthesize and test manually. In a typical LEAP selection process, we can examine millions of molecules in a few months. By contrast, conventional screening and medicinal chemistry permit the examination of fewer than one million molecules with equivalent resources and requires more time.

        In the case of Plenaxis, LEAP allowed us to take a peptide ligand encoded in the human genome and convert that peptide into a drug. GnRH is a natural peptide ligand that binds to the GnRH receptor on the pituitary gland triggering the production of LH, which, in turn, triggers the production of testosterone. We used LEAP to evolve GnRH into Plenaxis, a drug that binds to the same receptor target, but blocks the production of LH.

        If a ligand from the human genome is not available, we can select one encoded in a synthetic gene library using a process we call biological evolution. This process involves the natural selection of the best ligand from a pool containing billions of natural peptides in a biological system. We can carry out this process in repeated cycles, selecting ligands based on their functions. We then modify the selected ligand using a unique process that we call chemical evolution. Chemical evolution is powerful because we can make pools of thousands of diverse molecules based on the structure of the selected ligand and composed of synthetic building blocks. We then select the best molecules from these pools and identify them through our unique application of proteomics technology and the technology called mass spectrometry. These molecules can behave like drugs, because they bind to their target like natural peptides and have the characteristics of an effective drug. We have pending patent applications in the United States and abroad that cover the essential steps of the LEAP process.

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Rel-Ease

        We can further enhance the potential clinical utility of our drug candidates by formulating the drugs with our proprietary sustained release technology, Rel-Ease. For example, using Rel-Ease technology, we are able to formulate Plenaxis in such a way that a physician only needs to administer it to prostate cancer patients once every four weeks because Rel-Ease continuously releases the drug in the body over that period of time. In many cases, infrequent injections of a drug in a sustained release formulation are more desirable than oral administration due to patient compliance, convenience or reimbursement issues. We have formulated a variety of molecules with Rel-Ease technology and believe that Rel-Ease may be useful for formulating drug candidates we discover and develop using our LEAP technology. We may explore in the future the potential use of our Rel-Ease technology to create improved formulations and sustained release formulations of approved drugs. We hold patents that cover the general application of this technology for a broad range of peptide-based drugs.

MASTRscreen

        MASTRscreen is our proprietary screening procedure that rapidly identifies and evaluates ligands for the most successful class of drug targets, known as G-protein coupled receptors. The GnRH receptor is a member of this class of receptors. We developed MASTRscreen in connection with our Plenaxis program, and it was instrumental in the selection of Plenaxis from pools of modified peptides. MASTRscreen is useful because of its sensitivity to low concentrations of screened material, easily measurable endpoints and adaptability to various screening systems. We have pending patent applications in the United States and abroad that cover the essential steps of the MASTRscreen process.

Research and Development

        As of December 31, 2002, we had a total of 110 employees dedicated to research and development for Plenaxis and our other product candidates. We have spent substantial funds over the past three years to develop Plenaxis and our other potential drug candidates and expect to continue to do so in the future. We spent approximately $85.9 million in 2000, $59.4 in 2001 and $56.4 in 2002 on research and development activities.

Corporate Collaborations

Human Genome Sciences, Inc.

        In January 2000, we entered into an agreement with Human Genome Sciences for the discovery, development and commercialization of compounds targeted to two proprietary genomic targets that Human Genome Sciences has identified. One of these targets has been identified as CCR5, a human protein the HIV virus uses to enter human cells. Under the agreement, we have been using LEAP to attempt to identify drug candidates targeted to these molecules. If we discover a lead clinical drug candidate, we will jointly develop it with Human Genome Sciences on an equal cost and profit sharing basis, unless a pre-existing option that Human Genome Sciences granted to GlaxoSmithKline applies to the drug candidate and GlaxoSmithKline exercises the option, in which case other terms contained in the agreement will apply. We cannot assure you as to whether or when any drug candidate will be identified and successfully developed and commercialized under the agreement and, accordingly, we cannot predict the potential value, if any, of the agreement to us. With respect to the CCR5 target, we are currently preparing a report for review by Human Genome Sciences summarizing the results of our research to date. Following delivery of the report, we intend to meet with Human Genome Sciences to discuss whether further development efforts should be pursued under the collaboration agreement.

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Amgen Inc.

        Effective March 1999, we entered into an agreement with Amgen for the research, development and commercialization of Plenaxis products in the United States, Canada, Japan and certain other countries. In September 2001, Amgen notified us that it was terminating its agreement with us pursuant to the terms of the agreement. The termination was effective in December 2001. As a result of the termination, all licenses for Plenaxis granted to Amgen under the agreement, and all of Amgen's rights in the Plenaxis program, have terminated. In August 2002, we and Amgen entered into a termination agreement with respect to the termination by Amgen of the license agreement. Under the terms of the termination agreement, we paid to Amgen $13.0 million in full and complete satisfaction of all amounts payable under the license agreement and in consideration of the transfer from Amgen to us of title to, and possession of, any existing materials inventory.

Sanofi-Synthélabo S.A.

        In May 1997, we entered into a license agreement with Sanofi-Synthélabo for the development and commercialization of Plenaxis products in specific territories including Europe, Latin America, the Middle East and various countries in Africa. In October 2001, Sanofi-Synthélabo notified us that it was terminating its license agreement with us pursuant to the terms of the agreement. The termination was effective in December 2001. As a result of the termination, all licenses for Plenaxis granted to Sanofi- Synthélabo under the agreement, and all of Sanofi-Synthélabo's rights in the Plenaxis program, have terminated. In December 2002, we and Sanofi-Synthélabo entered into a termination agreement with respect to the termination by Sanofi-Synthélabo of the license agreement.

Technology License

        In October 1996, we entered into a license agreement with Indiana University Foundation. The license agreement was amended in June 1998, and Indiana University Foundation assigned it to Indiana University's Advanced Research and Technology Institute, Inc. Under the agreement, we have an exclusive worldwide license under patent applications, future patents and technology of Indiana University Foundation relating to GnRH antagonist compounds, including Plenaxis and methods of use for Plenaxis. Through December 31, 2002, we have paid non-refundable fees of $305,000 and performance-based payments of $750,000 under this agreement. We have agreed to make performance-based payments of up to an additional $3.5 million, and to pay royalties on our net sales of products covered by the license. The license agreement remains in effect until the last licensed patent expires, currently 2015. Expiration of the license will not preclude us from continuing to develop and market the licensed products and use the licensed technology, provided we obtain the consent of Advanced Research and Technology Institute to extend the license term past the expiration date. Advanced Research and Technology Institute may not unreasonably withhold its consent to our request for such an extension. We can terminate the agreement at any time upon 90 days notice. Advanced Research and Technology Institute may terminate upon 90 days notice if we materially breach the agreement or fail to make required payments.

Manufacturing

        We generally manufacture in-house the drug supply required to support our early preclinical studies. External contractors provide all of our later-stage preclinical and clinical supplies and manufacture them in accordance with FDA and European regulations. We have long-term contracts for each stage of the manufacturing process for our lead drug candidate, Plenaxis.

        We have a development and supply agreement with UCB S.A. under which UCB will supply us with commercial volumes of the Plenaxis drug compound. As of December 31, 2002, we were committed to purchase from UCB approximately $4.4 million of pharmaceutical grade peptide during 2003. This amount represents the outstanding balance of our purchase commitment under the UCB agreement.

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        We also have a supply agreement with Cambrex Charles City, Inc., formerly Salsbury Chemicals, Inc. Under this supply agreement, Cambrex has agreed to manufacture for us the commercial depot formulations of Plenaxis. We contributed approximately $6.0 million toward Cambrex's construction and outfitting of a dedicated manufacturing facility, to which we will retain manufacturing process rights. During 2002, we paid Cambrex approximately $634,000 toward minimum purchase commitments and facility maintenance. We expect to provide Cambrex with a comparable level of support during 2003.

        In December 2002, we entered into a commercial supply agreement with Baxter Pharmaceutical Solutions LLC to provide for the supply of Plenaxis products in finished vials. Under the terms of the Baxter agreement, we are required to purchase a minimum of $375,000 of product from Baxter each calendar year until the first anniversary of the first commercial shipment of Plenaxis, at which time the minimum annual purchase commitment will be adjusted to $650,000. Under our former collaboration agreement with Amgen, Amgen had been performing this stage of the manufacturing process. As a new manufacturer, Baxter may need to undergo a regulatory pre-approval inspection in connection with the FDA's review of our NDA resubmission for Plenaxis, which, if major issues are identified, could be costly and could delay the FDA's review of our resubmission.

        In order to meet potential increases in demand in connection with the possible commercial launch of Plenaxis for the treatment of a defined sub-population of advanced prostate cancer patients, we intend to evaluate the need for a second source for each stage of Plenaxis production. However, the number of qualified alternative suppliers is limited, and we cannot assure investors that we will be able to locate alternative suppliers or negotiate second supply agreements on reasonable terms. Furthermore, the process of engineering a new supplier's facility for the production of Plenaxis and obtaining the necessary FDA approval of the facility would require substantial lead-time and could be extremely costly. We cannot assure investors that we will not lose one or more of our suppliers, or that in such event we would be readily able to continue the development, commercialization and sale of Plenaxis products without substantial and costly delays.

Patents and Proprietary Rights

        Proprietary protection for our products, technology and processes is essential to our business. We seek proprietary protection predominantly in the form of patents on our products and the processes we use to discover them. With respect to a particular product, we generally seek patent protection on the compound itself, its commercial formulation, its range of applications and its production. Where possible, we also seek patent coverage that could prevent the marketing of, or restrict the commercial threat of, competitive products.

        We currently hold 18 United States patents and exclusive licenses to three United States patents. These patents have expiration dates from 2012 through 2016. In addition, we have filed or hold exclusive licenses to 32 United States utility and provisional patent applications, as well as 171 related foreign patent applications, including both Patent Cooperation Treaty filings and national filings. We also have non-exclusive licenses to four United States patents directed to technologies embodied in LEAP.

        In particular, we have United States patents that cover both the Plenaxis compound and the sustained release formulation enabling its once-per-month administration. We also have patents covering the use of Plenaxis and any other GnRH antagonist in a variety of therapeutic settings, including in combination with surgery or radiation therapy. We intend to file additional United States and foreign patent applications, where appropriate, relating to new product discoveries or improvements.

        We also rely on trade secrets, know-how and continuing technological advances to protect various aspects of our core technology. We require our employees, consultants and scientific collaborators to execute confidentiality and invention assignment agreements with us to maintain the confidentiality of our trade secrets and proprietary information. These agreements generally provide that the employee,

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consultant or scientific collaborator will not disclose our confidential information to third parties, compete with us or solicit our employees during the course of their employment, consultancy or collaboration with us. When appropriate, these agreements also provide that inventions conceived by the employee, consultant or scientific collaborator in the course of working for us will be our exclusive property. Additionally, our employees agree not to solicit our employees for one year following termination of their employment with us.

Competition

        A biotechnology company such as ours faces intense competition. Many companies, both public and private, including large pharmaceutical companies, chemical companies and biotechnology companies, develop products or technologies competitive with our products or technologies. Many of these companies have greater financial resources and more experience than we do in developing drugs, obtaining regulatory approvals, manufacturing and marketing. In addition, academic, government and industry-based research is intense, resulting in considerable competition in obtaining qualified research personnel, submitting patent filings for protection of intellectual property rights and establishing strategic corporate alliances.

        Each of our potential products in research or development will face competition from other products. For example, if approved for marketing and sale, our Plenaxis products will compete with numerous established or newly introduced products on the market, including:

•

Lupron Depot, Zoladex and other pharmaceuticals approved and marketed for the treatment of hormonally responsive prostate cancer or endometriosis in the United States and Europe; and



•

Cetrotide®, manufactured by Serono, Inc., and Antagon®, manufactured by Organon, Inc., which are approved GnRH antagonists for use in infertility that are only available as daily injectable formulations.

        We are also aware of another GnRH antagonist, Degarelix, being developed by Ferring Pharmaceuticals, which is in late-stage clinical trials for the treatment of prostate cancer. In addition, for each of our product candidates, we will face increasing competition from generic formulations of existing drugs whose active components are no longer covered by patents. Specifically, we are aware of various formulations of leuprorelin, the active ingredient of Lupron Depot, including Viadur™, marketed by Bayer Corporation as a 12-month hormone therapy implant, and Eligard™, which is being developed in one, three and four month subcutaneous injections by Atrix Laboratories, Inc. In 2002, Atrix received FDA approval for its one- and three-month depot formulations of Eligard™ for the treatment of advanced prostate cancer.

        We believe that our product candidates will compete favorably in the market with these and other products, although no assurance can be given in this regard.

Government Regulation

        The manufacture and marketing of pharmaceutical products and our ongoing research and development activities in the United States require the approval of numerous governmental authorities, including the FDA. We also must obtain similar approvals from comparable agencies in most foreign countries. The FDA has established mandatory procedures and safety standards which apply to preclinical testing and clinical trials, as well as to the manufacture and marketing, of pharmaceutical products. State, local and other authorities also regulate pharmaceutical manufacturing facilities.

        As an initial step in the FDA regulatory approval process, an applicant typically conducts preclinical studies in animals to assess a drug's efficacy and to identify potential safety problems. An applicant must conduct specified preclinical laboratory and animal studies in compliance with the FDA's good laboratory practice regulations. An applicant must submit the results of these studies to the FDA as part of an IND. Proposed clinical testing can only begin if the FDA raises no objections to the IND.

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We can give no assurance that any submission of an IND to the FDA relating to our product candidates will result in the commencement of a clinical trial.

        Clinical testing must meet requirements for Institutional Review Board oversight and informed consent, as well as FDA prior review, oversight and good clinical practice requirements. Typically, clinical testing involves a three-phase process. Phase I clinical trials involve a small number of subjects and are designed to provide information about both product safety and the expected dose of the drug. Phase II clinical trials generally provide additional information on dosing and safety in a limited patient population. Generally, phase II trials may provide preliminary evidence of product efficacy. Phase III clinical trials are large-scale, well-controlled studies. The goal of phase III clinical trials generally is to provide statistically valid proof of efficacy, as well as safety, in the target patient population. The company performing the preclinical testing and clinical trials of a pharmaceutical product then submits the results to the FDA in the form of an NDA, for approval to commence commercial sales. Preparing NDA applications involves considerable data collection, verification, analysis and expense. In responding to an NDA, the FDA may grant marketing approval for a specific indication, request additional information or deny the application if it determines that the application does not satisfy its regulatory approval criteria. In addition, after approval for an initial indication, further clinical trials would be necessary to gain approval to promote the use of the product for any additional indication.

        Among the conditions for NDA approval is the requirement that the prospective manufacturer's quality control and manufacturing procedures conform on an ongoing basis with good manufacturing practices. In complying with good manufacturing practices, manufacturers must continue to spend time, money and effort in the areas of production and quality control to ensure full technical compliance. Manufacturing facilities are subject to periodic inspections by the FDA.

        The FDA must grant approval of our products, which includes a review of the manufacturing processes and facilities used to produce these products, before we can market these products in the United States. The process of obtaining approvals from the FDA can be costly, time consuming and subject to unanticipated delays. The FDA may refuse to approve an application if it believes the product does not meet applicable regulatory criteria. The FDA also may require additional testing for safety and efficacy of the drug. If the FDA grants approval of a drug product, the approval will be limited to specific indications.

        The FDA has considerable discretion in determining whether to grant marketing approval for a drug, and may delay or deny approval even in circumstances where the applicant's clinical trials have proceeded in compliance with FDA procedures and regulations and have met the established end-points of the trials. Challenges to FDA determinations are generally time-consuming and costly. We can give no assurance that we will obtain marketing approval for Plenaxis or any of our other product candidates.

        If we receive marketing approval, we must comply with FDA requirements for manufacturing, labeling, advertising, record keeping and reporting of adverse experiences and other information. In addition, we must comply with federal and state anti-kickback and other health care fraud and abuse laws that pertain to the marketing of drugs. For all drugs, failure to comply with applicable regulatory requirements after obtaining regulatory approval could, among other things, result in suspension of regulatory approval, as well as possible recalls, product seizures, injunctions and civil and criminal sanctions.

        In addition to regulations enforced by the FDA, we also are subject to various laws and regulations relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including chemicals, micro-organisms and various radioactive compounds used in connection with our research and development activities. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, we cannot assure you that accidental contamination or injury from these materials will not occur. Compliance with laws and regulations relating to the protection of the environment has not had a material effect on our

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capital expenditures or our competitive position. However, we cannot accurately predict the extent of government regulation, and the cost and effect thereof on our competitive position, which might result from any legislative or administrative action.

        Additionally, we may have to obtain approval of a product from comparable regulatory authorities in foreign countries prior to the commencement of marketing of the product in those countries. The approval procedure varies among countries, may involve additional testing and the time required may differ from that required for FDA approval. Although there is now a centralized European Union approval mechanism in place, each European country may nonetheless impose its own procedures and requirements, many of which could be time-consuming and expensive. Thus, substantial delays could occur in obtaining required approvals from both the FDA and foreign regulatory authorities after the relevant applications are filed. Due to the termination of our collaboration agreement with Sanofi-Synthélabo, we are relying primarily on third party contractors to assist us with the preparation and submission of our European regulatory filings for Plenaxis for the treatment of hormonally responsive advanced prostate cancer. However, although we have sought qualified experience and assistance in dealing with the foreign regulatory processes and interacting with foreign regulatory authorities, we can not assure investors that we will be successful in filing and obtaining the necessary governmental approvals for Plenaxis or any of our other product candidates in Europe or any other foreign country.

Product Liability Insurance

        We maintain product liability insurance for clinical trials in the amount of $15.0 million per occurrence and $15.0 million in the aggregate. We intend to expand our product liability insurance coverage to include the manufacture, marketing and sale of commercial products if marketing approval for Plenaxis or any of our other product candidates is obtained. However, insurance coverage is becoming increasingly expensive, and we may be unable to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. In addition, we may be unable to obtain commercially reasonable product liability insurance for Plenaxis or any other product candidates approved for marketing. A successful product liability claim or series of claims brought against us could result in substantial setbacks for our business.

Employees

        As of February 28, 2003, we had 147 full-time employees. We also utilize consultants and independent contractors on a regular basis to assist in the development and potential commercialization of our products. None of our employees are party to a collective bargaining agreement. We consider our employee relations to be good. We believe that our future success is dependent in part on our ability to attract and retain skilled scientific, sales and marketing, and senior management personnel. Competition in our industry is intense and we cannot assure you that we will be able to attract and retain these personnel.

Available Information

        We maintain a website with the address www.praecis.com. We are not including the information contained on our website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission.

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ITEM 2.    PROPERTIES.

        Our corporate headquarters and principal research facility is located in Waltham, Massachusetts, where we own, through our wholly owned real estate subsidiary, land and a building of approximately 175,000 square feet. We have entered into a 15-year lease for this facility with our subsidiary. We currently occupy approximately 100,000 square feet of this facility and are attempting to sublease a portion of the remaining space for up to the next five years, although we have not yet found a tenant. In connection with the acquisition of our corporate headquarters and principal research facility, our subsidiary granted a security interest in the facility, together with all fixtures, equipment, improvements and related items, as more fully discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" appearing elsewhere in this report.

        We believe that our facility will be adequate for at least the next seven years and that we will be able to obtain additional space as needed on commercially reasonable terms.

ITEM 3.    LEGAL PROCEEDINGS.

        We are not currently a party to any material legal proceedings.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

        No matters were submitted to a vote of security holders of the Company during the last quarter of the fiscal year ended December 31, 2002.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

        Our common stock is traded on The Nasdaq National Market under the symbol "PRCS." The following table shows the range of high and low per share sale prices of our common stock as reported on The Nasdaq National Market for the periods indicated.

        As of February 28, 2003, there were approximately 145 holders of record of our common stock registered with our transfer agent, American Stock Transfer & Trust Company.

        We have never declared or paid any cash dividends on our capital stock, and we do not currently intend to pay any cash dividends on our common stock in the foreseeable future. We expect to retain future earnings, if any, to fund the development and growth of our business. Our board of directors will determine future dividends, if any, based upon our financial condition, results of operations, capital requirements and other factors that the board deems relevant. Therefore, you will not receive any funds without selling your shares.

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ITEM 6.    SELECTED FINANCIAL DATA.

        You should read the following selected financial data in conjunction with our consolidated financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this report. We have derived our statement of operations data for each of the three years in the period ended December 31, 2002, and our balance sheet data at December 31, 2001 and 2002, from our financial statements that have been audited by Ernst & Young LLP, independent auditors, and which we include elsewhere in this report. We have derived the statement of operations data for the years ended December 31, 1998 and 1999 and the balance sheet data at December 31, 1998, 1999 and 2000 from our audited financial statements, which we do not include in this report.