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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2003

For the transition period from              to             

Commission File No. 000-32877

PRO-PHARMACEUTICALS, INC.

(617) 559-0033

(Registrant’s Telephone Number, Including Area Code)

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

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

None

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 x    NO ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). YES ¨    NO x

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of June 30, 2003 was $49,045,386.

The number of shares outstanding of the registrant’s common stock as of March 15, 2004 was 24,079,300.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the 2004 Annual Meeting of Stockholders are incorporated by reference into Part III of this Report.

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INDEX TO FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

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FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K contains, in addition to historical information, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s current expectations and are subject to a number of factors and uncertainties which could cause actual results to differ materially from those described in such statements. We caution investors that actual results or business conditions may differ materially from those projected or suggested in forward-looking statements as a result of various factors including, but not limited to, the following: uncertainties as to the utility and market for our potential products; uncertainties associated with preclinical and clinical trials of our drug delivery candidates; our limited experience in product development and expected dependence on potential licensees and collaborators for commercial manufacturing, sales, distribution and marketing of our potential products; possible development by competitors of competing products and technologies; lack of assurance regarding patent and other protection of our proprietary technology; compliance with and change of government regulation of our activities, facilities and personnel; uncertainties as to the extent of reimbursement for our potential products by government and private health insurers; our dependence on key personnel; our history of operating losses and accumulated deficit; and economic conditions related to the biotechnology and biopharmaceutical industry. We cannot assure you that we have identified all the factors that create uncertainties. Readers should not place undue reliance on forward-looking statements.

PART I

Item 1.    Business

Corporate Formation

We were incorporated under Nevada law in January 2001. On May 15, 2001, we acquired all of the outstanding common stock of a Massachusetts corporation engaged in a drug delivery development business. After the acquisition, we merged with the Massachusetts corporation and are the surviving corporation. For additional information, please see Note 1 to our Consolidated Financial Statements included in this Annual Report on Form 10-K. In December 2003 we organized Pro-Pharmaceuticals Securities Corp. as a wholly-owned Delaware subsidiary the sole purpose of which is to hold our cash and cash equivalents in a tax efficient manner.

Our address is 189 Wells Avenue, Newton, Massachusetts 02459. Our telephone number is (617) 559-0033, fax number is (617) 928-3450, e-mail address is squeglia@pro-pharmaceuticals.com, and our website address is www.pro-pharmaceuticals.com. Our Annual Report on Form 10-K and Quarterly Reports on Form 10-QSB are fully accessible on our website without charge.

Business of Pro-Pharmaceuticals

Introduction

We are a development-stage pharmaceutical company that intends to identify, develop and seek regulatory approval of technology that will reduce toxicity and improve the efficacy of currently existing chemotherapy drugs by combining the drugs with our proprietary carbohydrate compounds. Our fundamental objective is to increase the body’s tolerance to the drugs by enabling targeted delivery of the drugs in order to protect healthy tissue. Our targeting technology could also permit higher doses of the chemotherapy drugs because current dosage levels are generally limited so as to avoid overly toxic effects on healthy cells. Our carbohydrate-based drug targeting and delivery system may also have applications for drugs used to treat other diseases and chronic health conditions.

In technical terms, we seek to “reformulate” existing cancer chemotherapy drugs with non-toxic carbohydrate-based compounds that are recognized and adhere to specific binding sites, known as lectins, on the

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surface of cancer cells. Reformulation of chemotherapy drugs already approved by the U.S. Food and Drug Administration (“FDA”) has the following benefits for our business:

Our Business Strategy and Initial Objectives

The initial objectives of our business strategy are to:

Limitations of Chemotherapy for Cancer Treatment

Cancer is a disease characterized by uncontrolled growth and spread of abnormal cells. The disease may be caused by patient-specific factors such as genetic predisposition, immune deficiency, hormones, diet and smoking, or external factors such as exposure to a toxic environment. It is a leading cause of death in the United States and worldwide.

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The most widely used methods to treat cancer are surgery, radiation and chemotherapy. Cancer patients often receive a combination of these treatments, and about half of all patients receive chemotherapy. Both radiation and chemotherapy have significant limitations that often result in treatment failure. In the case of chemotherapy, these limitations include:

Toxicity.    Most chemotherapy agents kill cancer cells by disrupting the cell division or metabolic process. Cells are killed once they begin to undergo division and replication. Although these agents are effective on cancer cells, which generally grow rapidly through cell division, the drugs also kill healthy non-cancerous cells as they undergo ordinary division. This is particularly apparent in fast-growing normal cells, such as blood cells forming bone marrow, digestive tract tissue, hair follicles, and reproductive organ cells. As the chemotherapy harms healthy tissue, the effectiveness of the drug is limited because dosage levels and treatment frequency cannot exceed tolerance levels for non-cancerous cells. Moreover, the chemotherapy regimen often dramatically diminishes the quality of a patient’s life through its physical and emotional side effects.

Inability to Selectively Target Diseased Cells.    Chemotherapies as now administered reach both healthy and diseased tissue. Normal cells are generally as receptive as tumors to the toxic effects of chemotherapy. Without the ability to target the drug exclusively to cancerous tissue, chemotherapy dosages must be kept within a range that healthy tissue can tolerate, thus reducing the optimal effectiveness of chemotherapy on diseased tissue.

Drug Delivery Technologies

General

The ultimate objective of enhanced drug delivery is to control and optimize the localized release of a drug at the target site and rapidly eliminate from the body the portion of the drug that was not delivered to the diseased tissue. Conventional drug delivery systems such as controlled release, sustained release, transdermal systems, and others are based on a physical erosion process for delivering active product into the systemic circulation over time with the objective of improving compliance by patients with a therapy regimen. These systems do not address the biologically important issues such as site targeting, localized release and elimination of undelivered drug from the body.

The major factors that must be addressed in order to reach this objective are the physical characterisitcs of a drug, such as its interaction with pharmacological target sites and undesired toxicity, and the biological characteristics of diseased tissue, which affects the ability of a drug to selectively interact with the target site and have the desired pharmacological result. Both of these factors are important in increasing efficacy and reducing toxicity of cancer drugs. Biotechnology affords a new opportunity in drug delivery techniques by taking advantage of biological mechanisms such as drug-cell recognition and interactions and particular physical characteristics of cancerous tissue.

Our Focus: Carbohydrate-Based Drug Enhancement Technology

We are developing a carbohydrate-based drug delivery and targeting technology to direct cancer drugs more selectively to tumor tissue so as to reduce the toxic side effects and improve the tumor reduction capacity of chemotherapy drugs now in common use. Carbohydrates are found in the structural elements of cells and, among other functions, serve as recognition elements in biomolecules, enabling molecule-cell recognition, and hence, molecular targeting. The dense concentration of chemical functional groups within carbohydrates compared to other chemicals suits them for use in cell recognition applications in biological systems.

Our technology does not change the chemistry of the drugs themselves, but rather reformulates cancer drugs with our proprietary carbohydrate compounds, which interact with sugar-specific proteins, i.e., lectins, found on the surface of tumor cells. Because of these cell surface interactions, we believe that our compounds may increase cell permeability, resulting in increased targeted absorption of drugs by cancer cells. These cell surface interactions may also reduce the cells’ ability to adhere to each other as well as to normal tissue, resulting in diminished ability of cancer cells to metastasize, or spread to other tissue systems.

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Initial Chemotherapy Applications

We believe that our carbohydrate-based drug delivery and targeting enhancement technology applies to essentially any oncology drug whose delivery to the target can be improved by utilizing sugar-specific recognition at the cancer cell surface. Our initial program is designed to focus on proven drugs for which there are already very substantial data on their therapeutic efficacy and toxicity, along with an accumulated knowledge of their limitations. We intend to apply our drug delivery technology initially to seven widely used chemotherapy agents: 5-Fluorouracil, irinotecan, doxorubicin, paclitaxel, cyclophosphamide, oxaliplatin and cisplatin. Each of these drugs is widely used in cancer chemotherapy treatment, and for each of these drugs there is a strong market need for improving its therapeutic efficacy and decreasing its toxicity.

5-Fluorouracil (5-FU), a fluorinated pyrimidine (nucleic acid component), interferes with the synthesis of DNA and inhibits the formation of RNA. DNA is the chemical inside the nucleus of a cell that carries the genetic instructions for making living organisms. RNA delivers DNA’s genetic message to the cytoplasm of a cell where proteins are made. Since DNA and RNA are essential for cell division and growth, 5-FU provokes unbalanced growth and death of the cell. The effect of DNA and RNA deprivation is most marked on those cells, such as cancer cells, which grow more rapidly and which absorb 5-FU at a more rapid rate. 5-FU is effective against cancers of the colon, rectum, breast, stomach and pancreas. This drug is toxic, resulting in side effects such as nausea, vomiting, cardiovascular damage, mouth sores, gastrointestinal ulceration and bleeding, skin darkening and fatigue. 5-FU is manufactured by Roche Laboratories under the name of FluorouracilRoche^®, and by SICOR Pharmaceuticals, Inc. as Adrucil^® for intravenous administration. Originally patented in the late 1950s, its patent protection has expired.

Irinotecan, sold under its trade name Camptosar^®, is a semisynthetic, water-soluble derivative of camptothecin, which is a cytotoxic alkaloid extracted from plants. Irinotecan and its active metabolite, SN-38, inhibits the activity of topoisomerase I, an enzyme that produces reversible single-strand breaks in DNA during DNA replication. Although primarily used in the treatment of colorectal cancer, it is prescribed for cancer of the cervix, esophagus, stomach, lung and pancreas. Irinotecan is toxic, resulting in side effects such as severe diarrhea, anemia, leukopenia, anorexia, nausea, fever, fatigue and abdominal pain. Its patent expires in April 2005.

Doxorubicin is a cytotoxic agent that selectively kills malignant cells and causes tumor regression. It binds to the DNA, and presumably inhibits nucleic acid synthesis. It is used to treat, among others, leukemia, cancers of the breast, ovaries, bladder, stomach and thyroid, as well as Hodgkin’s and non-Hodgkin’s lymphoma. Doxorubicin is extremly toxic, resulting in side effects such as nausea, vomiting, loss of hair, mouth sores, colon ulceration and heart damage. It is manufactured by Pharmacia Upjohn for intravenous administration. Originally patented in 1971 and marketed as Adriamycin^®, its patent protection has expired.

Paclitaxel, a relatively new anti-leukemic and anti-tumor agent, suppresses cell division by binding to so-called microtubules that form in a cell’s nucleus to help move the chromosomes around during the division process. Paclitaxel is most effective against ovarian and advanced breast cancers, particularly after failure of standard chemotherapy. Studies indicate that it might be effective against leukemia, lung carcinoma, colon carcinoma, renal carcinoma, melanoma, and central nervous system carcinoma. Paclitaxel is toxic, resulting in problems ranging from irritation, drop in blood pressure and anemia to major breathing problems, hives and/or fluid buildup around the heart and bone marrow suppression. Almost all patients experience hair loss from paclitaxel, and some experience severe hypersensitivity reactions to Taxol^® (paclitaxel). It is manufactured by Bristol-Myers-Squibb Company for intravenous administration. We believe that there are no patents covering the composition of paclitaxel.

Cyclophosphamide has action leading to cross-linking of RNA of tumor cells, and thereby interferes with the growth of susceptible rapidly proliferating malignant cells. It is effective against a range of cancers, such as malignant lymphomas, Hodgkin’s disease, various leukemias, and cancer of the breast and ovaries. This drug is toxic, with side effects including nausea, vomiting, anorexia, diarrhea, skin rash and darkening and, in extreme

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cases, heart damage or failure, and secondary malignancies. It is manufactured by Bristol-Myers-Squibb Company under the brand name Cytoxan^® for intravenous and oral administration. We believe that there are no patents covering the composition of cyclophosphamide.

Oxaliplatin, sold under the trade name Eloxatin^®, is classified as an alkylating agent, and belongs to a new class of platinum agents comprised of a platinum atom complexed with oxalate and diaminocyclohexane (DACH) and appears to inhibit DNA synthesis. The bulky DACH may have greater cytotoxicity than cisplatin and carboplatin. Preclinical studies have shown Oxaliplatin to be synergistic with fluorouracil and SN-38, the active metabolite of irinotecan. Although Oxaliplatin is primarily used to treat colorectal cancer, it has been used for cancers of the breast, stomach, head and neck and lung. The drug is toxic, with side effects including anemia, diarrhea, nausea, severe neuropathy, liver abnormalities, fever and vomiting. Its patent is due to expire in April 2013.

Cisplatin appears to act by inhibiting DNA synthesis. It is effective against metastatic testicular and ovarian tumors (typically in combination with other chemotherapeutic agents), and advanced bladder cancer. This drug is toxic, with side effects including renal toxicity, nausea, vomiting, anorexia, diarrhea and anemia. It is manufactured as PLATINOL^® by Bristol-Myers-Squibb Company for intravenous injection. We believe that there are no patents covering the composition of Cisplatin.

Pre-clinical Studies

Toxicity Studies

Our initial toxicity studies in smaller animals, conducted in early 2001, were performed to test the potential reduction of toxicity of anticancer drugs in combination with certain of our polysaccharide compounds. The results of one study demonstrated that one of our polysaccharide compounds, DAVANAT^®, might significantly decrease the toxicity of 5-FU. A second, similar study was performed to test a potential reduction of toxicity of doxorubicin in combination with each of two selected polysaccharide compounds. The results indicated that DAVANAT^® might decrease the toxicity of doxorubicin. The fact that two different cancer drugs with chemically unrelated structures showed a marked reduction of their toxicity in combination with DAVANAT^® indicates that there might be some fundamental underlying biological reasons related to this polysaccharide, rather than to the drugs, for the reduction in toxicity.

In subsequent pre-clinical experiments conducted in 2001 and 2002, we studied on larger animals the toxicity reduction of DAVANAT^®-1, a DAVANAT^® combination with 5-FU, which had demonstrated toxicity reduction in the prior studies. These experiments were performed in accordance with FDA guidelines and recommendations on rats (acute and long-term toxicity study) and dogs (acute and long-term toxicity study) measuring the effect of DAVANAT^®-1 on blood structure and survival of these animals. Results indicate that DAVANAT^®-1 decreased toxicity, resulting in lower animal mortality and decreased loss of blood structure components in comparison to the results in animals which were administered 5-FU alone. These studies were presented to the FDA as part of our IND submission. We conducted additional toxicity studies on rats using escalating dosages of DAVANAT^® and submitted these results to the FDA in an amendment to our IND in support of our Phase I clinical trials. The results of these additional toxicity studies were such that the FDA allowed our commencement of Phase I clinical trials.

Efficacy Studies

We undertook independent studies at Southern Research Institute and Charles River Laboratories to test a potential change in the therapeutic efficacy of DAVANAT^®-1, which had decreased toxicity of 5-FU in healthy animals. Results of the studies demonstrated that DAVANAT^® might also increase efficacy of 5-FU when administered into cancer-carrying animals. The studies, conducted with two different human colon tumors implanted into the test animals, demonstrated a decrease in tumor size following administration of 5-FU alone, as well as a significant decrease with the administration of DAVANAT^®-1.

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Two of our efficacy studies were conducted to evaluate the compatibility of DAVANAT^® with leucovorin, which is commonly used in cancer treatment with 5-FU. The studies showed that DAVANAT^® and leucovorin do not interfere with each other when administered following standard procedures, and that DAVANAT^®-1 is superior, compared to 5-FU/leucovorin when both are administered in tumor-bearing animals. Leucovorin is a folinic acid derivative, which may enhance both the therapeutic and toxic effect of 5-FU in cancer therapy. In these studies, the growth of the tumor was decreased significantly by using DAVANAT^®-1 compared to a 5-FU/leucovorin combination.

We also conducted a study that involved injecting radiolabeled DAVANAT^® (with and without 5-FU) into tumor-free and tumor-bearing animals. The study provided experimental data with respect to DAVANAT^® distribution in organs and tissues (liver, kidney, lungs, plasma, and tumor) and the capacity of such organs and tissue to clear DAVANAT^® after various time periods. The study suggested that DAVANAT^® may protect the liver from the toxic effect of 5-FU yet increase the amount, and hence the therapeutic effect, of 5-FU in the tumor. In other words, we have indications that DAVANAT^® may decrease toxicity and increase efficacy of 5-FU.

In addition to DAVANAT^®-1, in 2003 and 2004 we have been conducting pre-clinical studies for irinotecan, doxorubicin, oxaliplatin, paclitaxel, cyclophosphamide and cisplatin both in combination with DAVANAT^® and other polysaccharide compounds. Human colon and breast xenography are being used to optimize formulations and results show that DAVANAT^® exhibits a broad spectrum of activity with the tested drugs.

Although the foregoing studies are encouraging, the results achieved in preclinical studies with animals are often not duplicated in human patients. Please see “Risk Factors That May Affect Results — Our Product Candidates Will Be Based On Novel Unproven Technologies”.

Phase I Clinical Trials

We submitted an investigational new drug application (IND) to the FDA on May 26, 2002 based on the pre-clinical data obtained from our 5-FU studies. The FDA accepted the IND on June 26, 2002 which authorized us to begin Phase I clinical trials with humans. We filed an amendment to the IND on November 27, 2002 to incorporate new toxicology data and to enable us to undertake dose escalation in our Phase I trials. In response to the amendment, the FDA allowed the dose escalation schema which would allow assessment in clinical trials of DAVANAT^® doses anticipated to be in the range of those for which the pre-clinical studies suggested efficacy.

In Phase I we are evaluating the ability of cancer patients to tolerate increasing doses of DAVANAT^® while receiving a stable dose of 5-FU for treatment of a variety of solid tumors which have not responded to accepted therapies. The Phase I study has two primary objectives: (1) to determine the maximum dose of DAVANAT^® that can be tolerated when administered with a stable dose of 5-FU, and (2) to define the dose-limiting toxicities of DAVANAT^® in combination with 5-FU. Approximately 20 male and female patients suffering from advanced solid malignancies, who failed the accepted chemotherapeutic, radiation, and/or surgical treatments, have participated in the study. We expect to enroll an additional 10 patients in the Phase I trial.

Four clinical sites and lead investigators are currently participating in our Phase I trials: the Norris Cotton Cancer Center at Dartmouth-Hitchcock Medical Center in Lebanon, New Hampshire; The Comprehensive Cancer Center at the University of Michigan in Ann Arbor, Michigan; the Ochsner Cancer Institute in New Orleans, Louisiana; and Florida Oncology Associates in Jacksonville, Florida.

We have engaged a professional consultant, affiliated with Harvard Medical School and Massachusetts General Hospital, to serve as Medical Director of our Phase I/II clinical trials.

The pharmaceutical company, Sigma Aldrich, with which we contracted to produce DAVANAT^®, is a certified Good Manufacturing Procedures (“cGMP”) facility that has manufactured sufficient quantities for the

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doses that are needed for the Phase I/II human clinical trials. We have engaged PPD Development, to provide analytical support for stability and compatibility studies for Phase I/II. Studies show that DAVANAT^® is very stable in the formulation and is compatible with intravenous infusion systems. We have provided reports to the FDA in support of our clinical trials.

We have engaged PRA International Inc. to serve as our independent contract research organization (CRO) to monitor and implement the clinical trials on our behalf, and Medidata Solutions Inc. to construct a Web-based electronic data capture (EDC) system to collect and aggregate the clinical trial data. This EDC system enables us to better manage the clinical data and increase the speed at which such data are reported and compiled.

Phase ll Clinical Trials

On January 8, 2004, we announced the initiation of Phase II clinical trials of DAVANAT^®-1 in refractory colorectal cancer patients. This trial is part of a multi-center, open-label, single dose level study in patients with metastatic colorectal cancer that have failed standard chemotherapeutic regimens. The study will evaluate the efficacy and safety of intravenous DAVANAT^®-1 when administered in monthly cycles as third-line therapy for metastatic colorectal cancer. The objectives for the Phase II study are (i) to document the complete and partial response and the rate of stable disease with DAVANAT^®-1 therapy when administered in monthly cycles to patients with metastatic carcinoma of the colon or rectum whose tumor has failed to respond to, or has progressed despite standard first- and second-line chemotherapy, and (ii) to evaluate the safety of DAVANAT^®-1 in this population. Concurrent with the Phase II clinical study, we continue to enroll patients in our Phase I trial.

Other Carbohydrate-Cancer Drug Formulations

We continue to chemically synthesize a library of products that are carbohydrate derivatives of doxorubicin, irinotecan, and paclitaxel and are currently studying both efficacy (in vitro and on cancer-carrying animals) and toxicity (on healthy animals). One compound, named Galactomycin, has demonstrated improved therapeutic index. We continue this research in contract research facilities in Russia, England and Italy. We have started the scale-up manufacturing for Galactomycin and are currently conducting pre-clinical efficacy studies in tumor-bearing animals. Although the foregoing studies are encouraging, the results achieved in preclinical studies with animals are often not duplicated in human patients. Please see “Risk Factors That May Affect Results — Our Product Candidates Will Be Based On Novel Unproven Technologies”.

Patents and Proprietary Rights

We have built an intellectual property portfolio to protect our development efforts, including two issued patents and several patent applications pending. Issued patents cover methods and composition for reducing toxicity of a chemotherapeutic drug by co-administering a polysaccharide with a chemotherapeutic agent, and enhancing the delivery of a chemotherapeutic drug by covalently binding a carbohydrate compound with a chemotherapeutic agent. In addition, international patent applications corresponding to several of our U.S. applications have been filed under the Patent Cooperation Treaty.

The U.S. Patent and Trademark Office (PTO) has registered the following trademarks: PRO-PHARMACEUTICALS, INC., DAVANAT and ADVANCING DRUGS THROUGH GLYCOSCIENCE. We filed applications with the PTO to register additional trademarks and servicemarks.

Research

We focus on the design and analysis of carbohydrate-based drug delivery and targeting enhancement systems. We do not anticipate building in-house research or development facilities or hiring staff in this connection other than for purposes of designing and managing our out-sourced research. Our pre-clinical testing has been conducted by outside laboratories and accredited facilities.

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Our early stage research was conducted by Toxikon Corporation, based in Bedford, Massachusetts, and Charles River Laboratories, Inc., based in Wilmington, Massachusetts. Toxikon is a comprehensive compliance FDA-registered service testing laboratory that is not affiliated with Pro-Pharmaceuticals. Toxikon’s laboratory is ISO-9001 certified and EN-45001 approved, meaning that it complies with quality management standards as established by the International Organization for Standardization and other international organizations. Charles River Laboratories, a contract laboratory not affiliated with Pro-Pharmaceuticals, conducted the research on our behalf in major part through its Redfield Laboratories division in Redfield, Arkansas. Redfield Laboratories is licensed by the U.S. Department of Agriculture to conduct research in laboratory animals, and its conditions are in compliance with the Federal Animal Welfare Act.

Our current research on toxicity and efficacy of several chemotherapy drugs both alone and in combination with our technology on cancer-carrying animals is being conducted by Charles River Laboratories and by Southern Research Institute in Birmingham, Alabama. Southern Research Institute is an independent, not-for-profit contract research organization that is not affiliated with our company. In addition to the above laboratories we are conducting additional research in the United States, England, Israel, Italy and Russia.

As we develop products eligible for clinical trials, we contract with an independent clinical research organization to design the trial protocols and arrange for and monitor the clinical trials. We also rely on academic institutions or clinical research organizations to conduct, supervise or monitor some or all aspects of clinical trials involving our products. In addition, certain clinical trials for our products may be conducted by government sponsored agencies and consequently will be dependent on governmental participation and funding. Our dependence on third-party researchers will involve risks including lessened control over the timing and other aspects of any clinical trials, since we will not be conducting them on our own.

Our research and development expenditures totaled $1,950,299, $1,483,027, $893,457 and $4,427,033 in 2003, 2002, 2001 and for the cumulative period from inception (July 10, 2000) through December 31, 2003, respectively.

Manufacturing and Marketing

We are a development company and do not have, or intend to obtain, internal facilities for the manufacture of any of our products for clinical or commercial production. In order to have our products manufactured, we need to develop relationships with third-party manufacturing resources, enter into collaborative arrangements with other parties that have established manufacturing capabilities or elect to have other third parties manufacture our products on a contract basis.

We have no marketing infrastructure, and have not undertaken to develop a sales and marketing staff to commercialize pharmaceutical products. If we develop products eligible for commercial sale, we will need to rely on third parties such as licensees, collaborators, joint venture partners or independent distributors to market and sell those products. Our dependence on third-party manufacturers and marketers will involve risks relating to our lessened control, and other risks including those discussed in “Risk Factors That May Affect Results — We Will Depend On Third Parties To Manufacture And Market Our Products”.

We currently envision having our manufacturing and marketing operations conducted pursuant to license agreements that we would negotiate with pharmaceutical companies with respect to manufacturing and marketing of their upgraded drugs. While we presently contemplate offering the rights to manufacture and market an upgraded drug to the original pharmaceutical company that developed the drug, we will evaluate other manufacturing and marketing arrangements as well.

Competition

A number of biotechnology and pharmaceutical companies are developing new drug delivery technologies for the treatment of cancer and other diseases. Drug delivery targeting technologies based on monoclonal

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antibodies being developed by companies such as Seattle Genetics, Inc., Immonogen, Inc. and Berna Biotech AG and Dendreon Corporation could be competitive with our carbohydrate-based system. A few companies are developing carbohydrate technologies to improve or develop new drugs. Neose Technologies, Inc. is seeking to improve the therapeutic profile of widely-used protein-based drugs and Optimer Pharmaceuticals, Inc. is developing carbohydrate technology for drug discovery and improvement. We believe we are the only company using carbohydrate-based technologies to reformulate widely-used chemotherapies thereby to enable targeted delivery of these toxic drugs.

Please see “Risk Factors That May Affect Results — We Face Intense Competition In The Biotechnology And Pharmaceutical Industries” for additional discussion related to our current and potential competition.

Government Regulation

The research, development, testing, manufacture, labeling, promotion, advertising, distribution, and marketing, among other things, of our products are extensively regulated by governmental authorities in the United States and other countries. In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act and its implementing regulations. Failure to comply with the applicable U.S. requirements may subject us to administrative or judicial sanctions, such as FDA refusal to approve pending new drug applications, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, and/or criminal prosecution. Please see “Risk Factors That May Affect Results — We Will Need Regulatory Approvals To Commercialize Our Products” for additional discussion of risks related to regulatory compliance.

Drug Approval Process

No drug may be marketed in the U.S. until the drug has received FDA approval. The steps required before a drug may be marketed in the U.S. include:

Pre-clinical tests include laboratory evaluation of product chemistry, toxicity, and formulation, as well as animal studies. The results of the pre-clinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND, which must become effective before human clinical trials may begin. An IND will automatically become effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions about issues such as the conduct of the trials as outlined in the IND. In such a case, the IND sponsor and the FDA must resolve any outstanding FDA concerns or questions before clinical trials can proceed. There is no certainty that submission of an IND will result in the FDA allowing clinical trials to begin.

Clinical trials involve the administration of the investigational drug to human subjects under the supervision of qualified investigators. Clinical trials are conducted under protocols detailing the objectives of the study, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND.

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Clinical trials typically are conducted in three sequential phases, but the phases may overlap or be combined. Each trial must be reviewed and approved by an independent Institutional Review Board (IRB) before it can begin. Study subjects must sign an informed consent form before participating in a clinical trial. Phase I usually involves the initial introduction of the investigational drug into people to evaluate its safety, dosage tolerance, pharmacodynamics, and, if possible, to gain an early indication of its effectiveness. Phase II usually involves trials in a limited patient population to (i) evaluate dosage tolerance and appropriate dosage; (ii) identify possible adverse effects and safety risks; and (iii) evaluate preliminarily the efficacy of the drug for specific indications. Phase III trials usually further evaluate clinical efficacy and test further for safety by using the drug in its final form in an expanded patient population. There is no assurance that these trials will be completed within a specified period of time, if at all.

Assuming successful completion of the required clinical testing, the results of the pre-clinical studies and of the clinical studies, together with other detailed information, including information on the manufacture and composition of the drug, are submitted to the FDA in the form of an NDA requesting approval to market the product for one or more indications. Before approving an NDA, the FDA usually will inspect the facility or the facilities at which the drug is manufactured, and will not approve the product unless cGMP compliance is satisfactory. If the FDA evaluates the NDA and the manufacturing facilities as acceptable, the FDA will issue an approval letter. If the FDA evaluates the NDA submission or manufacturing facilities as not acceptable, the FDA will outline the deficiencies in the submission and often will request additional testing or information. Even if an applicant submits the requested additional information, the FDA ultimately may decide that the NDA does not satisfy the regulatory criteria for approval. The testing and approval process requires substantial time, effort, and financial resources, and there is no assurance that any approval will be granted on a timely basis, if at all. After approval, certain changes to the approved product, such as adding new indications, manufacturing changes, or additional labeling claims are subject to further FDA review and approval.

FDA “Fast Track” Program; Priority Review

The FDA’s “fast track” program is intended to facilitate the development and expedite the review of drugs intended for the treatment of serious or life-threatening diseases and that demonstrate the potential to address unmet medical needs for such conditions. Under this program, the FDA can, for example, review portions of an NDA for a fast track product before the entire application is complete, thus potentially beginning the review process at an earlier time. We may seek to have some of our products designated as fast track products, with the goal of reducing review time. There can be no guarantee that the FDA will grant any of our requests for fast track designation, that any fast track designation would affect the time of review, or that the FDA will approve the NDA submitted for any of our product candidates, whether or not fast track designation is granted. Additionally, FDA approval of a fast track product can include restrictions on the product’s use or distribution (such as permitting use only for specified medical procedures or limiting distribution to physicians or facilities with special training or experience), and can be conditioned on the performance of additional clinical studies after approval.

FDA procedures also provide priority review of NDAs submitted for drugs that, compared to currently marketed products, offer a significant improvement in the treatment, diagnosis, or prevention of a disease. NDAs that are granted priority review are intended to be acted upon more quickly than NDAs given standard review. The FDA’s current goal is to act on 90% of priority NDAs within six months of receipt. We anticipate seeking priority review with regard to some of our product candidates. There can be no guarantee that the FDA will grant priority review status in any instance, that priority review status will affect the time of review, or that the FDA will approve the NDA submitted for any of our product candidates, whether or not priority review status is granted.

Post-Approval Requirements

If FDA approval of one or more of our products is obtained, we will be required to comply with a number of post-approval requirements. For example, holders of an approved NDA are required to report certain adverse

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reactions to the FDA and to comply with certain requirements concerning advertising and promotional labeling for their products. Also, quality control and manufacturing procedures must continue to conform to cGMP after approval, and the FDA periodically inspects manufacturing facilities to assess compliance with cGMP. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance. In addition, discovery of problems with a product after approval may result in restrictions on a product, manufacturer, or holder of an approved NDA, including withdrawal of the product from the market. Also, new government requirements may be established that could delay or prevent regulatory approval of our products under development.

FDA “Orphan Drug” Designation

The FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition, which generally is a disease or condition that affects fewer than 200,000 individuals in the United States. Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are publicly disclosed by the FDA. Orphan drug designation does not convey an advantage in, or shorten the duration of, the regulatory review and approval process. If a product which has an orphan drug designation subsequently receives the first FDA approval for the indication for which it has such designation, the product is entitled to orphan exclusivity, meaning that the FDA may not approve any other applications to market the same drug for the same indication, except in certain very limited circumstances, for a period of seven years. As well, orphan drugs usually receive ten years of marketing exclusivity in the European Union.

Non-United States Regulation

Before our products can be marketed outside of the United States, they are subject to regulatory approval similar to that required in the United States, although the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary widely from country to country. No action can be taken to market any product in a country until an appropriate application has been approved by the regulatory authorities in that country. The current approval process varies from country to country, and the time spent in gaining approval varies from that required for FDA approval. In certain countries, the sales price of a product must also be approved. The pricing review period often begins after market approval is granted. No assurance can be given that even if a product is approved by a regulatory authority, satisfactory prices will be approved for such product.

Environmental Regulation

Pharmaceutical research and development involves the controlled use of hazardous materials including but not limited to certain hazardous chemicals and radioactive materials. In connection with research, development and manufacturing activities, biotechnology and pharmaceutical companies are subject to federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and wastes. Since we do not anticipate building in-house research, development or manufacturing facilities, but plan to have these activities conducted by contractors and other third parties, we do not anticipate that we will be directly affected by environmental regulations. However, our contractors and others conducting research, development or manufacturing activities for us may be required to incur significant costs to comply with environmental and health and safety regulations in the future, and this could in turn affect our costs of doing business and might ultimately interfere with timely completion of research or manufacturing programs if those third parties are unable to comply with environmental regulatory requirements.

Employees

As of March 20, 2004, we have five full-time employees comprised of our President and Chief Executive Officer, Chief Operating Officer, Vice President, Manufacturing and Product Development, Vice President of Investor Relations, and an operations administrator. Our Chief Financial Officer, Chief Scientist, and Medical Director (clinical trials) each provides service part-time as an independent contractor or consultant.

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Scientific Advisory Board

Our Scientific Advisory Board includes recognized scientists with expertise in the fields of carbohydrate chemistry and biochemistry, immunology, cell and molecular biology, and synthetic and medical chemistry. The Scientific Advisory Board meets periodically with our management and in smaller groups or individually from time to time on an informal basis. The members assist us in identifying scientific and product development opportunities and reviewing with management the progress of our specific projects.

The members of our Scientific Advisory Board are the following:

David Platt, Ph.D., is our Chairman and Chief Executive Officer, a founding stockholder and co-inventor of our patented technology. From 1992 to 2000, he was Chairman and Chief Executive Officer of SafeScience, Inc. (now known as GlycoGenesys, Inc.; Nasdaq SmallCap: GLGS), a biotechnology company involved in research and development of products for treating cancer and immune system diseases. From 1991 to 1992, Dr. Platt was a research scientist with the Department of Internal Medicine at the University of Michigan, Ann Arbor, and from 1988 to 1990 was a research fellow at Wayne State University and the Michigan Cancer Foundation in Detroit (re-named Barbara Ann Karmanos Cancer Institute). Previously, he was a research fellow in the Weizmann Institute of Science, Rehovot, Israel. Dr. Platt received a Ph.D. in Chemical Engineering from Hebrew University in Jerusalem and earned an M.S. and a B.S. degree from Hebrew University. He also earned a Bachelor of Engineering degree from Technion in Haifa, Israel. Dr. Platt has published peer review articles and holds many patents, primarily in the field of carbohydrate chemistry.

Anatole A. Klyosov, Ph.D., D.Sc., is a founding stockholder and, by virtue of being a co-inventor of our patented technology and a consultant to us through his company, MIR International Inc., has the title Chief Scientist. He is Vice President, Research & Development for Kadant Composites, Inc., a subsidiary of Kadant, Inc. (NYSE: KAI), where he has directed since 1996 a laboratory performing work in biochemistry, microbiology, polymer engineering and other fields in the development of composite polymer-based products. From 1990 to 1998 Dr. Klyosov was Visiting Professor of Biochemistry, Center for Biochemical and Biophysical Sciences, Harvard Medical School and from 1981 to 1990 he was Professor and Head of the Carbohydrates Research Laboratory at the A.N. Bach Institute of Biochemistry, USSR Academy of Sciences. Dr. Klyosov was elected as a member of the World Academy of Art and Sciences and is the recipient of several distinguished awards including the USSR National Prize in Science and Technology. He has published more than 230 peer review articles in scientific journals, authored books on enzymes, carbohydrates, and biotechnology, and holds more than 20 patents. He also been a consultant to various organizations including the World Bank and the United Nations Industrial Development Organization and serves on the editorial boards of scientific journals in the field of biochemistry and biotechnology. Dr. Klyosov earned his Ph.D. and D.Sc. degrees in Physical Chemistry, and an M.S. degree in Enzyme Kinetics, from Moscow State University.

Dale H. Conaway, D.V.M., is the Deputy Regional Director (Southern Region) and Chief Veterinary Medical Officer for the Office of Research Oversight, an office within the Veterans Health Administration under the U.S. Department of Veterans Affairs. From 1998 to 2001, he served as Manager of the Equine Drug Testing and Animal Disease Surveillance Laboratories for the Michigan Department of Agriculture. From 1994 to 1998 he was Regulatory Affairs Manager for the Michigan Department of Public Health Vaccine Production Division. Dr. Conaway received a D.V.M. degree from Tuskegee Institute and an M.S. degree in pathology from the College of Veterinary Medicine at Michigan State University. He is also a member of our board of directors.

Eliezer Zomer, Ph.D., is our Vice President, Manufacturing and Product Development. Dr. Zomer was the founder of ALICOM Biological Control where he served from 2000 to 2002, was Vice President of Product Development at SafeScience Inc. (now known as GlycoGenesys, Inc.; Nasdaq SmallCap: GLGS) from 1998 to 2000, and was Vice-President of Research and Development at Charm Sciences, Inc. from 1987 to 1998. He served as Associate Researcher at Harvard Medical School from 1986 to 1994. Dr. Zomer received an M.Sc. degree in industrial microbiology from the University of Tel Aviv and a Ph.D. in biochemistry from the University of Massachusetts and undertook post-doctoral study at the National Institutes of Health.

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Edgar Ben-Josef, M.D., is Associate Professor, Department of Radiation Oncology, at the University of Michigan Medical School and previously had been Associate Professor (2000 to 2003) and Assistant Professor (1995 to 2000) in radiation oncology at the Wayne State University School of Medicine. Since 1995, he has served as an attending physician at the Gershenson Radiation Oncology Center, Karmanos Cancer Institute, in Detroit, Michigan. Dr. Ben-Josef received B.Med.Sc. and M.D. degrees from The Hebrew University-Hadassah School of Medicine in Jerusalem, Israel. He is also a member of our board of directors.

Mildred S. Christian, Ph.D., is President and Chief Executive Officer of Argus International, Inc., a provider of consulting services in regulatory affairs, and Chairman and Chief Executive Officer of Argus Health Products, LLC, which develops and internationally distributes preventive and maintenance health care products for health care professionals and the over-the-counter market. Until 2002, she was Executive Director of Research of Argus and Redfield Laboratories, both divisions of Charles River Laboratories. Before founding Argus Research Laboratories in 1979 and Argus International in 1980, Dr. Christian spent 14 years in drug development at McNeil Laboratories, a division of Johnson & Johnson Corporation. She has participated at all levels in the performance, evaluation and submission in over 1,800 pre-clinical studies, from protocol to final report. Dr. Christian is a member of 20 professional organizations, including current service as Councilor of the European Teratology Society and Secretary/Treasurer of the Academy of Toxicological Sciences, and was past president of the Teratology Society, the American College of Toxicology, and the Academy of Toxicological Sciences. She is an honorary member of the Society of Quality Assurance and founding editor of the Journal of Toxicological Sciences. She has edited or contributed to several major textbooks and is the author of over 120 papers and abstracts published in U.S. and international journals. Dr. Christian earned her Ph.D. from Thomas Jefferson University in developmental anatomy and pharmacology. She is also a member of our board of directors.

Henry J. Esber, Ph.D., has been Executive Director of Business Development for Primedica Corporation, a contract research organization, since 1998. From 1995 to 1997, he was Director of Marketing at Genzyme Transgenics Corporation, and previously was Vice President of Marketing at BioDevelopment Laboratories (1993-1995) and TSI Corporation (1992-1993), both of which were acquired by Genzyme Transgenics. He also serves on the Scientific Advisory Boards of several biotechnology companies and is the author of over 100 technical publications. Dr. Esber received a B.S. degree in biology from the College of William and Mary, a M.S. degree in Medical Parasitology–Public Health from the University of North Carolina, and a Ph.D. in Immunology–Microbiology from West Virginia University Medical Center.

Irwin Goldstein, Ph.D., is Emeritus Professor and Interim Chair of the Department of Biological Chemistry at the University of Michigan Medical School, and was Professor from 1972 to 1999. He is the recipient of many professional awards and is the author of over 200 publications. Dr. Goldstein received a B.A. degree in Chemistry from Syracuse University, and a Ph.D. in Biochemistry from the University of Minnesota.

Zbigniew J. Witczak, Ph.D., is Associate Professor at the Nesbitt School of Pharmacy, Wilkes University (Wilkes-Barre, Pennsylvania). From 1991 to 1999 he was Associate Professor in the Department of Pharmaceutical Studies, School of Pharmacy, at the University of Connecticut. Dr. Witczak has extensive industrial and academic experience in carbohydrates. In 2002, he chaired the Division of Carbohydrate Chemistry of the American Chemical Society (ACS) and is the current chair of its awards committee. He has published more than 80 research papers and holds patents in the field of carbohydrate, medicinal and biological chemistry, and serves on the editorial board of numerous journals in carbohydrate chemistry and related fields. In 1997, Dr. Witczak co-edited Carbohydrates in Drug Design, which has since become a leading reference in the field. In 2000, Dr. Witczak was awarded the Melville L. Wolform Award of the ACS for his outstanding research contribution to carbohydrate chemistry. Dr Witczak received a M.S. degree in organic chemistry from the University of Lodz and a Ph.D. in organic chemistry from the Faculty of Pharmacy, Medical University, Lodz, Poland. He worked as a postdoctoral fellow with Professor Roy L. Whistler, a renowned authority in carbohydrate chemistry at Purdue University.

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Item 2.    Properties

We entered into a 5-year sublease commencing June 1, 2001 for approximately 2,830 square feet for our executive offices located at 189 Wells Avenue, Suite 200, Newton, Massachusetts 02459. The base rent for the year ended December 31, 2003 was approximately $106,000 and is subject to increase in subsequent years. The sublease is a so-called “triple net” lease, meaning that we must pay our proportionate share of items such as property taxes, insurance and operating costs. Our 2004 budget includes capital expenditures to add offices and upgrade certain equipment. We believe that upon completion our facilities will be suitable and adequate for the foreseeable future.

Item 3.    Legal Proceedings

On May 14, 2003 a former employee, who was our Vice President of Investor Relations and Corporate Strategy, commenced a lawsuit in Massachusetts Superior Court against us and filed a related complainant letter with the Occupational Safety and Health Administration of the U.S. Department of Labor. The Plaintiff asserted claims for wrongful discharge in violation of public policy and of employee protection provided for under the Sarbanes-Oxley Act of 2002, and seeks monetary damages and reinstatement of her position. On August 25, 2003, the Department of Labor reported that its investigator found the Plaintiff’s allegations are without merit and dismissed the complaint. The Plaintiff objected to the findings and requested a hearing by an Administrative Law Judge at the Department. Other than continuation of pre-trial discovery, there have been no material developments. On October 31, 2003, we received an informal inquiry from the Securities and Exchange Commission requesting information related to the foregoing. We timely responded in November and December 2003 and have not received a further communication from the SEC on this matter.

On February 13, 2004, we received an order from the Commonwealth of Massachusetts to provide information concerning our offerings of securities. We timely responded and believe our offerings comply with Massachusetts law. We believe the Massachusetts investigation may be related to the matters disclosed in the preceding paragraph.

Each of the foregoing matters is subject to various uncertainties, and it is possible one or more may be resolved unfavorably. Management believes that any liability that may ultimately result from the resolution of these matters will not have a material adverse effect on our financial position, results of operations or cash flows.

On January 29, 2004, Dr. Platt, our Chairman and Chief Executive Officer, filed a lawsuit in Massachusetts Superior Court against GlycoGenesys, Inc. for various claims including breach of contract. In its answer GlycoGenesys names us as a counterclaim defendant alleging tortious interference and misappropriation of proprietary rights, and seeks monetary damages and injunctive relief related to our intellectual property. On March 19, 2004, we answered the counterclaim and denied any liability. We and Dr. Platt intend to contest these counterclaims vigorously and believe we will ultimately prevail. However, if we do not prevail, there could be a material adverse impact on our financial position, results of operations or cash flows.

Item 4.    Submission of Matters to a Vote of Security Holders

No matter was submitted to a vote of our stockholders during the fourth quarter of the fiscal year covered by this report.

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PART II

Price Range of Common Stock

Since September 10, 2003, our common stock trades under the symbol “PRW” on the American Stock Exchange. The high and low closing prices for our common stock as reported on the American Stock Exchange, for the periods indicated, were: