##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISION

Washington, D.C. 20549


FORM 10-Q

x
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.For the quarterly period ended September 30, 2003o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.For the transition period from  to


Commission File Number000-50438

Myogen, Inc.

(Exact name of Registrant as specified in its charter)


Delaware
(State or other jurisdiction of
incorporation or organization)
    
    84-1348020
(I.R.S. Employer
Identification No.)


7575 West 103rd Avenue, Suite 102
Westminster, CO 80021
(303) 410-6666
(Address, including zip code, and telephone number,
including area code, of principal executive offices)

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 o       No x

Check whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).

Yes o       No x

As of
December 3, 2003 there were 26,457,927 shares of the Registrants
Common Stock outstanding, par value $0.001 per share.

This quarterly report on Form 10-Q consists of 33 pages.

1



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TABLE OF CONTENTS



|                                                  |                                                                                               |                                                      |  |  |  |  |  | 
|------------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                    
|                                                  | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                                                  |                                                                                               | CONSOLIDATED BALANCE SHEETS                         
|                                                  |                                                                                               | CONSOLIDATED STATEMENTS OF OPERATIONS               
|                                                  |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS               
|                                                  |                                                                                               | CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT    
|                                                  |                                                                                               | NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|                                                  | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                  | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                                                  | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION                       
|                                                  | Item 1. Legal Proceedings                                                                    
|                                                  | Item 2. Changes in Securities and Use of Proceeds                                            
|                                                  | Item 3. Defaults Upon Senior Securities                                                      
|                                                  | Item 4. Submission of Matters to a Vote of Security Holders.                                 
|                                                  | Item 5. Other Information                                                                    
|                                                  | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                       
|EXHIBIT INDEX                                    
|EX-31.1 Certification-Principal Executive Officer
|EX-31.2 Certification-Principal Financial Officer
|EX-32.1 Section 1350 Certification               



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##### Table of Contents



MYOGEN, INC.
FORM 10-Q

INDEX

PageNumberPART I. Financial Information
    
    
    3ITEM 1.
    
    Consolidated Financial Statements (unaudited)
    
    
    3Consolidated Balance Sheets
as of December 31, 2002 and September 30, 2003
    
    
    3Consolidated Statements of Operations
for the three and nine months ended September 30,
2002 and 2003 and the cumulative period from June
10, 1996 (date of inception) through September
30, 2003
    
    
    4Consolidated Statements of Cash Flows
for the nine months ended September 30, 2002 and
2003 and the cumulative period from June 10, 1996
(date of inception) through September 30, 2003
    
    
    5Consolidated Statements of Stockholders Deficit
for the nine months ended September 30, 2003
    
    
    6Notes to Consolidated Financial Statements
    
    
    7ITEM 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    13ITEM 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    26ITEM 4.
    
    Controls and Procedures
    
    
    27PART II. Other Information
    
    
    28ITEM 1.
    
    Legal Proceedings
    
    
    28ITEM 2.
    
    Changes in Securities and Use of Proceeds
    
    
    28ITEM 3.
    
    Defaults Upon Senior Securities
    
    
    29ITEM 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    29ITEM 5.
    
    Other Information
    
    
    30ITEM 6.
    
    Exhibits and Reports on Form 8-K
    
    
    30SIGNATURE
    
    
    31EXHIBIT INDEX
    
    
    32


2



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##### Table of Contents









PART I. FINANCIAL INFORMATION







ITEM 1. FINANCIAL STATEMENTS







MYOGEN, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
(Unaudited)

September 30,
    
    December 31,2003
    
    2002(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    7,239,045
    
    
    $
    6,993,146Short-term investments
    
    
    43,062,015
    
    
    
    26,804,619Accounts receivable
    
    
    1,240,418
    
    
    
    741,852Inventories, net
    
    
    833,552
    
    
    
    860,200Prepaid expenses and other current assets
    
    
    616,144
    
    
    
    1,018,353Total current assets
    
    
    52,991,174
    
    
    
    36,418,170Property and equipment, net
    
    
    1,255,298
    
    
    
    1,691,931Other assets
    
    
    34,290
    
    
    
    33,590Total assets
    
    $
    54,280,762
    
    
    $
    38,143,691LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable
    
    $
    5,419,441
    
    
    $
    2,748,647Accrued liabilities
    
    
    1,023,625
    
    
    
    938,102Current portion of capital lease obligations
    
    
    35,762
    
    
    
    25,968Current portion of notes payable, net of discount
    
    
    1,733,943
    
    
    
    954,004Total current liabilities
    
    
    8,212,771
    
    
    
    4,666,721Capital lease obligations, net of current portion
    
    
    130,877
    
    
    
    106,870Notes payable, net of current portion and discount
    
    
    2,287,525
    
    
    
    3,633,152Commitments
and contingenciesMandatorily redeemable convertible preferred stock
    
    
    158,084,965
    
    
    
    106,565,591Stockholders deficit:Series B convertible preferred stock, $0.001 par
value, 810,000 shares authorized and 803,606
shares issued and outstanding as of December 31,
2002 and September 30, 2003; aggregate
liquidation preference of $1,104,958 as of
December 31, 2002 and September 30, 2003
    
    
    804
    
    
    
    804Common stock, $0.001 par value; 17,375,000 and
24,221,913 shares authorized and 1,024,361 and
1,055,294 shares issued and outstanding as of
December 31, 2002 and September 30, 2003,
respectively
    
    
    1,057
    
    
    
    1,025Deferred stock-based compensation
    
    
    (8,676,149
    )
    
    
    (1,726,692
    )Other comprehensive income
    
    
    23,357
    
    
    
    225,420Deficit accumulated during the development stage
    
    
    (105,784,445
    )
    
    
    (75,329,200
    )Total stockholders deficit
    
    
    (114,435,376
    )
    
    
    (76,828,643
    )Total liabilities, mandatorily redeemable
convertible preferred stock and
stockholders deficit
    
    $
    54,280,762
    
    
    $
    38,143,691


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

3



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##### Table of Contents









MYOGEN, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

CumulativePeriod fromFor the Three Months Ended
    
    For the Nine Months Ended
    
    June 10, 1996September 30,
    
    September 30,
    
    (Inception) to2002
    
    2003
    
    2002
    
    2003
    
    September 30, 2003Sales
    
    $
    635,229
    
    
    $
    707,013
    
    
    $
    1,657,128
    
    
    $
    2,071,823
    
    
    $
    6,649,824Cost of product sold
    
    
    224,783
    
    
    
    220,192
    
    
    
    661,001
    
    
    
    654,138
    
    
    
    2,455,679Gross profit
    
    
    410,446
    
    
    
    486,821
    
    
    
    996,127
    
    
    
    1,417,685
    
    
    
    4,194,145Operating expenses:Research and development (excluding
stock-based compensation expense of
$184,176, $501,467, $207,201,
$1,243,861 and $1,726,682,
respectively)
    
    
    8,421,399
    
    
    
    7,052,067
    
    
    
    17,698,708
    
    
    
    24,621,961
    
    
    
    75,977,053Selling, general and administrative
(excluding stock-based compensation
expense of $106,970, $339,949,
$106,970, $862,441 and $1,112,846,
respectively)
    
    
    1,460,212
    
    
    
    662,738
    
    
    
    3,706,544
    
    
    
    2,564,309
    
    
    
    16,016,423Stock-based compensation expense
    
    
    291,146
    
    
    
    841,416
    
    
    
    314,171
    
    
    
    2,106,302
    
    
    
    2,839,528Total operating expenses
    
    
    10,172,757
    
    
    
    8,556,221
    
    
    
    21,719,423
    
    
    
    29,292,572
    
    
    
    94,833,004Loss from operations
    
    
    (9,762,311
    )
    
    
    (8,069,400
    )
    
    
    (20,723,296
    )
    
    
    (27,874,887
    )
    
    
    (90,638,859
    )Interest income (expense), net
    
    
    251,589
    
    
    
    (55,125
    )
    
    
    744,103
    
    
    
    (63,379
    )
    
    
    2,472,507Loss before income taxes
    
    
    (9,510,722
    )
    
    
    (8,124,525
    )
    
    
    (19,979,193
    )
    
    
    (27,938,266
    )
    
    
    (88,166,352
    )Income taxes
    
    
    7,199
    
    
    
    5,530
    
    
    
    10,779
    
    
    
    16,165
    
    
    
    37,616Net loss
    
    
    (9,517,921
    )
    
    
    (8,130,055
    )
    
    
    (19,989,972
    )
    
    
    (27,954,431
    )
    
    
    (88,203,966
    )Accretion of mandatorily redeemable convertible
preferred stock
    
    
    (3,670,935
    )
    
    
    (4,243,618
    )
    
    
    (11,012,805
    )
    
    
    (11,583,987
    )
    
    
    (30,896,369
    )Deemed dividend related to beneficial conversion
feature of preferred stock
    
    
    
    
    
    
    (39,935,388
    )
    
    
    
    
    
    
    (39,935,388
    )
    
    
    (39,935,388
    )Net loss attributable to common stockholders
    
    $
    (13,188,856
    )
    
    $
    (52,309,061
    )
    
    $
    (31,002,777
    )
    
    $
    (79,473,806
    )
    
    $
    (159,035,723
    )Basic and diluted net loss per common share
    
    $
    (12.95
    )
    
    $
    (50.29
    )
    
    $
    (30.27
    )
    
    $
    (76.99
    )Weighted average common shares outstanding
    
    
    1,018,718
    
    
    
    1,040,108
    
    
    
    1,024,361
    
    
    
    1,032,200


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

4



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MYOGEN, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

CumulativeFor the Nine Months Ended
    
    Period FromSeptember 30,
    
    June 10, 1996(Inception) to2002
    
    2003
    
    September 30, 2003Cash Flows From Operating Activities:Net loss
    
    $
    (19,989,972
    )
    
    $
    (27,954,431
    )
    
    $
    (88,203,966
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    208,573
    
    
    
    307,013
    
    
    
    905,726Amortization of deferred stock-based compensation
    
    
    314,171
    
    
    
    2,106,302
    
    
    
    2,839,528Amortization of debt discount
    
    
    2,939
    
    
    
    103,211
    
    
    
    114,026Amortization of investment premium
    
    
    165,901
    
    
    
    25,560
    
    
    
    188,709Stock exchanged for license
    
    
    
    
    
    
    
    
    
    
    1,163,229Loss on disposal of property and equipment
    
    
    22,638
    
    
    
    11,951
    
    
    
    34,589Changes in operating assets and liabilities:Accounts receivable
    
    
    (688,172
    )
    
    
    88,667
    
    
    
    (556,735
    )Inventories
    
    
    34,533
    
    
    
    26,648
    
    
    
    (833,552
    )Prepaid expenses and other assets
    
    
    395,591
    
    
    
    (191,822
    )
    
    
    (1,200,010
    )Accounts payable
    
    
    566,072
    
    
    
    2,523,938
    
    
    
    5,287,833Accrued liabilities
    
    
    825,759
    
    
    
    79,277
    
    
    
    785,392Net cash used in operating activities
    
    
    (18,141,969
    )
    
    
    (22,873,687
    )
    
    
    (79,475,231
    )Cash Flows From Investing Activities:Acquisitions of property and equipment
    
    
    (925,383
    )
    
    
    (144,511
    )
    
    
    (2,305,427
    )Proceeds from sale of property and equipment
    
    
    14,272
    
    
    
    317,921
    
    
    
    332,193Purchases of short-term investments
    
    
    (54,808,311
    )
    
    
    (51,194,633
    )
    
    
    (259,733,257
    )Proceeds from maturities of short-term investments
    
    
    56,419,984
    
    
    
    34,945,379
    
    
    
    216,666,424Net cash provided by (used in) investing activities
    
    
    700,562
    
    
    
    (16,075,844
    )
    
    
    (45,040,067
    )Cash Flows From Financing Activities:Proceeds from related party note
    
    
    
    
    
    
    
    
    
    
    370,275Repayments of related party note
    
    
    62,320
    
    
    
    
    
    
    
    (289,887
    )Proceeds from notes payable
    
    
    
    
    
    
    
    
    
    
    5,250,000Payments on notes payable
    
    
    (64,186
    )
    
    
    (668,899
    )
    
    
    (918,899
    )Proceeds from issuance of mandatorily redeemable convertible
preferred stock, net of issuance costs
    
    
    (35,110
    )
    
    
    39,935,387
    
    
    
    127,151,603Proceeds from issuance of common stock
    
    
    100,714
    
    
    
    27,446
    
    
    
    170,388Payments on capital leases
    
    
    (18,916
    )
    
    
    (21,760
    )
    
    
    (47,359
    )Net cash provided by financing activities
    
    
    44,822
    
    
    
    39,272,174
    
    
    
    131,686,121Effect of exchange rates on cash
    
    
    203,664
    
    
    
    (76,744
    )
    
    
    68,222Net (decrease) increase in cash and cash equivalents
    
    
    (17,192,920
    )
    
    
    245,899
    
    
    
    7,239,045Cash and cash equivalents, beginning of period
    
    
    21,343,285
    
    
    
    6,993,146
    
    
    
    Cash and cash equivalents, end of period
    
    $
    4,150,365
    
    
    $
    7,239,045
    
    
    $
    7,239,045Supplemental Disclosure of Non-Cash Financing Activities:Acquisition of property and equipment under capital leases
    
    
    158,438
    
    
    
    72,609
    
    
    
    231,046Common stock issued in exchange for notes receivable
    
    
    
    
    
    
    
    
    
    
    81,362Convertible preferred stock issued in exchange for license
    
    
    
    
    
    
    
    
    
    
    1,163,229Mandatorily redeemable convertible preferred stock issued in
lieu of cash commission on issuance of Series D mandatorily
redeemable convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    928,961


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

5



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##### Table of Contents









MYOGEN, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT
(Unaudited)

Series B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    DeficitConvertible
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    AccumulatedPreferred Stock
    
    Common Stock
    
    Additional
    
    Deferred
    
    Comprehensive
    
    During the
    
    TotalPaid-In
    
    Stock-Based
    
    Income
    
    Development
    
    Stockholders'Shares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Compensation
    
    (Loss)
    
    Stage
    
    DeficitBalance at December 31, 2002
    
    
    803,606
    
    
    $
    804
    
    
    
    1,024,361
    
    
    $
    1,025
    
    
    $
    
    
    
    $
    (1,726,692
    )
    
    $
    225,420
    
    
    $
    (75,329,200
    )
    
    $
    (76,828,643
    )Issuance of common stock in January 2003
at $1.25 per share upon exercise of
options
    
    
    
    
    
    
    
    
    
    
    4,375
    
    
    
    4
    
    
    
    5,464
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,468Issuance of common stock in July 2003 at
$0.50 per share upon exercise of options
    
    
    
    
    
    
    
    
    
    
    2,750
    
    
    
    3
    
    
    
    1,372
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,375Issuance of common stock in July 2003 at
$1.15 per share upon exercise of options
    
    
    
    
    
    
    
    
    
    
    1,583
    
    
    
    2
    
    
    
    1,819
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,821Issuance of common stock in July 2003 at
$1.25 per share upon exercise of options
    
    
    
    
    
    
    
    
    
    
    7,000
    
    
    
    7
    
    
    
    8,743
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,750Issuance of common stock in August 2003 at
$1.25 per share upon exercise of options
    
    
    
    
    
    
    
    
    
    
    600
    
    
    
    1
    
    
    
    749
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    750Issuance of common stock in September 2003
at $0.50 per share upon exercise of
options
    
    
    
    
    
    
    
    
    
    
    12,000
    
    
    
    12
    
    
    
    5,988
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,000Issuance of common stock in September 2003
at $1.25 per share upon exercise of
options
    
    
    
    
    
    
    
    
    
    
    2,625
    
    
    
    3
    
    
    
    3,279
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,282Discount associated with Series D
mandatorily redeemable convertible
preferred stock in August 2003 at $6.875
per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,935,388
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,935,388Beneficial conversion feature of Series D
mandatorily redeemable convertible
preferred stock in August 2003 at $6.875
per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39,935,388
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39,935,388
    )Deferred stock-based compensation related
to options granted to employees and
consultants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,055,759
    
    
    
    (9,055,759
    )
    
    
    
    
    
    
    
    
    
    
    Accretion of mandatorily redeemable
convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,083,173
    )
    
    
    
    
    
    
    
    
    
    
    (2,500,814
    )
    
    
    (11,583,987
    )Amortization of deferred stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,106,302
    
    
    
    
    
    
    
    
    
    
    
    2,106,302Comprehensive income:Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (156,244
    )
    
    
    
    
    
    
    (156,244
    )Change in unrealized gain on
investments available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (45,819
    )
    
    
    
    
    
    
    (45,819
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,954,431
    )
    
    
    (27,954,431
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (202,063
    )
    
    
    (27,954,431
    )
    
    
    (28,156,494
    )Balance at September 30, 2003
    
    
    803,606
    
    
    $
    804
    
    
    
    1,055,294
    
    
    $
    1,057
    
    
    $
    
    
    
    $
    (8,676,149
    )
    
    $
    23,357
    
    
    $
    (105,784,445
    )
    
    $
    (114,435,376
    )


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

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MYOGEN, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1:Basis of Presentation

The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States and with the instructions to Form 10-Q and Article 10 of
Regulation S-X for interim financial information. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the three-month and nine-month periods ended September
30, 2003, are not necessarily indicative of the results that may be expected
for the year ending December 31, 2003. For further information, refer to the
consolidated financial statements and footnotes thereto as of and for the year
ended December 31, 2002, included in the Prospectus of Myogen Inc. (the
Company or Myogen) filed with the Securities and Exchange Commission
pursuant to Rule 424(b) of the Securities Act of 1933, as amended, on October
30, 2003.

The Company has generated limited revenue to date and its activities have
consisted primarily of developing products, licensing products, raising capital
and recruiting personnel. Accordingly, the Company is considered to be in the
development stage as of September 30, 2003 as defined in Statement of Financial
Accounting Standards (SFAS) No. 7, Accounting and Reporting by Development
Stage Enterprises.

Note 2:Formation and Business of the Company

Myogen, Inc. and its subsidiary (the Company) are engaged in the
discovery, development and sale of therapeutic drugs for the treatment of
cardiovascular conditions. Myogen, Inc. was incorporated in the State of
Colorado on June 10, 1996 (Inception) and on May 15, 1998 reincorporated in
the State of Delaware. The Company currently markets one product in Europe for
the treatment of acute decompensated heart failure, and it has three product
candidates in late-stage clinical development for three cardiovascular
indications. In addition, the Companys research program is focused on creating
disease-modifying drugs for chronic heart failure and related cardiovascular
diseases. The research program has developed a portfolio of molecular
therapeutic targets that the Company believes play key roles in heart disease
and is screening chemical libraries with high-throughput assays based on these
targets. The Companys goal is to create an integrated biopharmaceutical
company. The Company intends to complement its internal capabilities by
entering into collaborations with third parties, including academic
laboratories, pharmaceutical companies and contract service providers. The key
elements of this strategy are to:



| |  |  | complete clinical development of its late-stage cardiovascular
therapeutic product portfolio;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | acquire additional product candidates;
| | - |  | --------------------------------------



| |  |  | discover and develop novel therapeutics for the treatment of
cardiovascular diseases;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | develop sales and marketing capabilities; and
| | - |  | ---------------------------------------------



| |  |  | establish strategic collaborations.
| | - |  | -----------------------------------

There can be no assurance that these elements can be achieved nor, if
achieved, that they will result in the Companys success. Should the Company be
unable to implement any or all of these elements, there could be a material
adverse effect on its financial position, results of operations and cash flows.

In 1998, the Company obtained a worldwide license to enoximone for the
treatment and prevention of certain forms of heart disease in humans. In 1999,
the Company established Myogen GmbH, a wholly owned subsidiary located in
Germany, through which the intravenous formulation of enoximone, Perfan I.V.,
is sold in eight countries in Europe. The Company has granted certain European
distributors exclusive rights to distribute Perfan I.V. in Belgium, France,
Germany, Ireland, Italy, Luxembourg, the Netherlands and the United Kingdom. In
June 2000, the Company began a Phase III clinical trial related to the oral

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formulation of enoximone, enoximone capsules, in 2002 it initiated two
additional enoximone capsule Phase III trials, and it initiated a fourth such
trial in the third quarter of 2003.

In September 2001, the Company in-licensed ambrisentan, a compound that it
may develop for the treatment of various indications. In 2002, the Company
initiated a Phase II clinical trial of ambrisentan for pulmonary arterial
hypertension. This trial was completed in 2003.

In June 2003, the Company in-licensed darusentan, a compound that it
intends to develop initially for uncontrolled hypertension.

Prior to commercial sales of a drug, the Company must complete the
clinical trials and receive the necessary regulatory approvals. Should the
Company be unable to obtain such approvals, there could be a material adverse
effect on its financial position, results of operations and cash flows.

Note 3:Inventory Components

September 30,
    
    December 31,2003
    
    2002Finished products
    
    $
    268,695
    
    
    $
    266,068Raw materials
    
    
    564,857
    
    
    
    594,132Total inventories
    
    $
    833,552
    
    
    $
    860,200


Note 4:Comprehensive Loss

A reconciliation of net loss to comprehensive loss is as follows:

Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2002
    
    2003
    
    2002
    
    2003Net loss
    
    $
    (9,517,921
    )
    
    $
    (8,130,055
    )
    
    $
    (19,989,972
    )
    
    $
    (27,954,431
    )Change in unrealized gain (loss)
on investments available for
sale
    
    
    10,556
    
    
    
    18,811
    
    
    
    54,267
    
    
    
    (45,819
    )Foreign currency translation
adjustment
    
    
    150,955
    
    
    
    (218,313
    )
    
    
    172,794
    
    
    
    (156,244
    )Total comprehensive loss
    
    $
    (9,356,410
    )
    
    $
    (8,329,557
    )
    
    $
    (19,762,911
    )
    
    $
    (28,156,494
    )


Note 5:Revenue Recognition

Sales are recognized when the following four revenue recognition criteria
are met: (i) persuasive evidence of an arrangement exists; (ii) product is
shipped from the distributor to the customer; (iii) the selling price is fixed
or determinable; and (iv) collection is reasonably assured. Once the product is
shipped to the customer, the Company does not allow product returns.

Note 6:Preferred and Common Stock

In 1998, the Company issued 147,907 shares of restricted common stock to
two officers of the Company in exchange for $73,512 in notes receivable (the
Notes). The shares of restricted stock were subject to vesting and, in 2002,
all shares became fully vested and the Notes were collected in full.

In August 2003, the Board of Directors authorized the filing of a
registration statement with the SEC that would permit the Company to sell
shares of its common stock in connection with its initial public offering that
was completed in November 2003. See Note 13 for further discussion.

On August 27, 2003, the Company issued 29,090,908 shares of Series D
Preferred Stock at $1.375 per share and received proceeds of approximately
$39,900,000, net of issuance costs of approximately $100,000. In the third
quarter of 2003, the Company recorded a beneficial conversion charge, which was
calculated as the difference between the offering price and the fair value of
the underlying common stock and limited to the amount of proceeds allocated to
the Series D Preferred Stock in accordance with EITF No. 98-5, Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently

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Adjustable Conversion Ratios. The Company also increased the authorized
number of shares of common stock from 17,375,000 shares to 24,221,913 shares
and extended the date for when the Company may be required to redeem the Senior
Preferred Stock from August 21, 2007 to August 26, 2009.

Note 7:Net Loss Per Common Share

Net loss per common share is calculated in accordance with SFAS No. 128,
Earnings Per Share(SFAS 128) and SEC Staff Accounting Bulletin No. 98 (SAB
98). Under the provisions of SFAS 128 and SAB 98, basic net loss per common
share is computed by dividing the net loss available for common stockholders
for the period by the weighted average number of common shares outstanding
during the period and diluted net loss per common share is computed by giving
effect to all dilutive potential common stock, including options, mandatorily
redeemable convertible preferred stock, convertible preferred stock, common
stock subject to repurchase and warrants.

Diluted net loss per common share for all periods presented is the same as
basic net loss per share because the potential common shares were
anti-dilutive. Anti-dilutive common shares not included in net loss
attributable to common stockholders are summarized as follows:

Nine Months EndedSeptember 30,2002
    
    2003Common stock subject to repurchase
    
    
    23,607
    
    
    
    Common stock related to options
    
    
    677,023
    
    
    
    2,335,450Warrants
    
    
    7,997
    
    
    
    36,439Convertible preferred stock
    
    
    160,721
    
    
    
    160,721Mandatorily redeemable convertible
preferred stock
    
    
    13,625,321
    
    
    
    19,443,503Total
    
    
    14,494,670
    
    
    
    21,976,114


The Companys historical capital structure is not indicative of its
prospective structure due to the automatic conversion of all shares of
preferred stock into common stock concurrent with the closing of the Companys
initial public offering. Accordingly, historical basic net loss per common
share should not be used as an indicator of future earnings per common share.

Note 8:Stock-Based Compensation

The Company measures compensation expense to employees using the intrinsic
value method as prescribed by Accounting Principles Board Opinion (APB) No.
25, Accounting For Stock Issued to Employees(APB 25), and provides pro forma
disclosures of net loss as if the fair value based method was applied as
prescribed by SFAS No. 123, Accounting for Stock-Based Compensation(SFAS
123). Accordingly, as allowable under SFAS 123, the Company does not recognize
compensation expense for options granted to employees when the exercise price
equals or exceeds the fair value of common stock as of the grant date.
Stock-based awards to consultants are accounted for under the provisions of
SFAS 123 and Emerging Issues Task Force (EITF) Issue 96-18, Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services.

Had employee compensation cost for the Companys stock-based compensation
plan been determined based on the fair value at the grant dates for awards
using the minimum value method prescribed by SFAS 123, the Companys pro forma
net loss and pro forma net loss per share would be as follows:

Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2002
    
    2003
    
    2002
    
    2003Net loss attributable to common
stockholders, as reported
    
    $
    (13,188,856
    )
    
    $
    (52,309,061
    )
    
    $
    (31,002,777
    )
    
    $
    (79,473,806
    )Add: Stock-based employee
compensation expense included in
reported net loss
    
    
    161,715
    
    
    
    724,156
    
    
    
    161,715
    
    
    
    1,660,593Less: Total stock-based employee
compensation expense determined
under fair value based methods
for all options granted
    
    
    (165,335
    )
    
    
    (731,868
    )
    
    
    (253,884
    )
    
    
    (1,604,619
    )Pro forma net loss
    
    $
    (13,192,476
    )
    
    $
    (52,316,773
    )
    
    $
    (31,094,946
    )
    
    $
    (79,417,832
    )Net loss per share:Basic and diluted  as reported
    
    $
    (12.95
    )
    
    $
    (50.29
    )
    
    $
    (30.27
    )
    
    $
    (76.99
    )Basic and diluted  pro forma
    
    $
    (12.95
    )
    
    $
    (50.30
    )
    
    $
    (30.36
    )
    
    $
    (76.94
    )


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The fair value was determined using the minimum value method with the
following weighted average assumptions: no dividend yield, risk-free interest
rates ranging from 2.8% to 6.8% and an expected life of five years. Risk-free
interest rates were determined using government securities with original
maturities similar to the respective expected option life at date of grant.

Because the determination of the fair value of all options granted after
the Company becomes a publicly-traded entity will include an expected
volatility factor in addition to the factors described in the preceding
paragraph and because additional option grants are expected to be made each
year, the above pro forma disclosures are not representative of the pro forma
effects of option grants on reported net income (loss) for future years.

Note 9:Accounts Payable

Accounts payable are comprised of the following:

September 30,
    
    December 31,2003
    
    2002Trade
    
    $
    161,023
    
    
    $
    265,614Research and development
    
    
    4,948,021
    
    
    
    2,419,673Related party
    
    
    310,397
    
    
    
    63,360Accounts payable
    
    $
    5,419,441
    
    
    $
    2,748,647


Note 10:Commitments and Contingencies

In the ordinary course of its business, the Company makes certain
indemnities, commitments and guarantees under which it may be required to make
payments in relation to certain transactions. These include indemnities of
clinical investigators, consultants and contract research organizations
involved in the development of the Companys clinical stage products,
indemnities of distributors of its marketed product, indemnities to its lenders
and indemnities to directors and officers of the Company to the maximum extent
permitted under the laws of the State of Delaware. The duration of these
indemnities, commitments and guarantees varies, and in certain cases, is
indefinite. The majority of these indemnities, commitments and guarantees do
not provide for any limitation of the maximum potential future payments the
Company could be obligated to make. The Company has not recorded any liability
for these indemnities, commitments and guarantees in the accompanying
consolidated balance sheets. However, the Company accrues for losses for any
known contingent liability, including those that may arise from indemnification
provisions, when future payment is probable. No such losses have been recorded
to date.

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Note 11:Business Segments

The Company operates in the United States and in certain countries
throughout Europe under one operating segment. All sales from Inception to
September 30, 2003 have occurred in Europe through the Companys subsidiary.

Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2002
    
    2003
    
    2002
    
    2003(Unaudited)
    
    (Unaudited)Sales:Germany
    
    $
    205,455
    
    
    $
    205,314
    
    
    $
    533,507
    
    
    $
    540,765Netherlands
    
    
    144,691
    
    
    
    176,980
    
    
    
    468,400
    
    
    
    557,511United Kingdom
    
    
    141,418
    
    
    
    144,090
    
    
    
    355,409
    
    
    
    378,381Other
    
    
    143,665
    
    
    
    180,629
    
    
    
    299,812
    
    
    
    595,166Total sales
    
    $
    635,229
    
    
    $
    707,013
    
    
    $
    1,657,128
    
    
    $
    2,071,823


December 31,
    
    September 30,2002
    
    2003(Unaudited)Long-lived assets:United States
    
    $
    1,627,684
    
    
    $
    1,194,033Europe
    
    
    64,247
    
    
    
    61,265Total long-lived assets
    
    $
    1,691,931
    
    
    $
    1,255,298


Note 12:Recent
Accounting Pronouncements

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections(SFAS 145). SFAS 145 rescinds SFAS No. 4, Reporting Gains and
Losses from Extinguishment of Debt,and SFAS No. 64, Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements;SFAS 145 also rescinds SFAS No. 44,
Accounting for Leases,to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. SFAS 145 also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings or
describe their applicability under changed conditions. The provisions of SFAS
145 related to the rescission of SFAS 4 are to be applied in fiscal years
beginning after May 15, 2002; the provisions related to SFAS No. 13 are to be
effective for transactions occurring after May 15, 2002; all other provisions
of SFAS 145 are to be effective for financial statements issued on or after May
15, 2002. Early adoption of SFAS 145 is encouraged. The adoption of SFAS 145
has not had, nor do we believe it will have, a material impact on our current
or prospective financial statements.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities(SFAS 146). SFAS 146 addresses
financial accounting and reporting for costs associated with exit or disposal
activities and replaces EITF No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs in a Restructuring).The provisions of SFAS 146 are effective for
exit or disposal activities that are initiated after December 31, 2002. We
believe that SFAS 146 may have a prospective effect on our financial statements
for costs associated with future exit or disposal activities we may undertake
after December 31, 2002.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity(SFAS
150). This statement establishes standards for how an issuer classifies and
measures in its statement of financial position certain financial instruments
with characteristics of both liabilities and equity. In accordance with the
standard, certain financial instruments that embody obligations for the issuer
are required to be classified as liabilities. This Statement is effective for
financial instruments entered into or modified after May 31, 2003, and
otherwise will be effective at the beginning of the first interim period
beginning after June 15, 2003. We do not expect the provisions of this
statement to have a significant impact on our statement of financial position.

In November 2002, the FASB issued FASB Interpretation (FIN) No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others(FIN 45). FIN 45 elaborates on
the disclosures to be made by a guarantor in its interim and annual financial

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statements about its obligations under certain guarantees that it has
issued. It also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The initial recognition and initial
measurement provisions of FIN 45 are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantors fiscal year-end. The disclosure requirements are effective for
financial statements of periods ending after December 15, 2002. The adoption of
FIN 45 has not had, nor do we believe it will have, a material impact on our
current or prospective financial statements.

In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities(FIN 46). FIN 46 addresses consolidation by business
enterprises of variable interest entities, which have certain characteristics.
FIN 46 applies immediately to variable interest entities created after January
31, 2003, and to variable interest entities in which an enterprise obtains an
interest after that date. It applies, in the first fiscal year beginning after
June 15, 2003, to variable interest entities in which an enterprise holds a
variable interest that it acquired before February 1, 2003. The adoption of FIN
46 has not had, nor do we believe it will have, a material impact on our
current or prospective financial statements.

Note 13:Subsequent Events

On October 8, 2003, the Company entered into a research collaboration with
the Novartis Institutes for BioMedical Research, Inc. (Novartis) for the
discovery and development of novel drugs for the treatment of cardiovascular
disease. In exchange for a $4.0 million upfront payment, a deferred payment of
an additional $1.0 million after the first year and an obligation to provide
research funding to the Company for a minimum of three years, Novartis has the
exclusive right to license drug targets and product candidates developed
through the collaboration. Upon execution of a license, Novartis is obligated
to fund all further development of the licensed product candidate, make
payments to the Company upon the achievement of certain milestones and pay the
Company royalties for sales of any products that are successfully
commercialized. Upon the completion of Phase II clinical trials of any product
candidate Novartis has licensed from the Company, the Company has the option to
enter into a co-promotion and profit sharing agreement with them for that
product candidate, subject to reimbursement by the Company of a portion of
Novartis development expenses up to that point, the Companys agreement to
share the future development and marketing expenses for the relevant product
candidate and elimination of the royalty payable to the Company.

On October 24, 2003, the Company effected a one-for-five reverse stock
split of its outstanding common stock. All references in the consolidated
financial statements to common shares, common share prices and per common share
amounts have been adjusted retroactively for all periods presented to reflect
this stock split. The Companys actual preferred shares, preferred share prices
and per preferred share amounts have not been adjusted for this stock split.
However, as a result of the stock split, the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
conversion ratios have been adjusted from one-to-one to five-to-one.

On November 4, 2003, the Company completed an initial public offering of
5,000,000 shares of its common stock. On November 7, 2003, the public offering
underwriters completed the exercise of their over-allotment option for an
additional 750,000 shares. Concurrent with the closing of the initial public
offering, all of the 98,021,120 shares of convertible preferred stock
outstanding automatically converted into common stock at a five-to-one ratio,
resulting in the issuance of 19,604,186 shares of common stock and the Company
increased the authorized number of shares of common stock to 100,000,000 shares
and decreased the authorized number of preferred shares to 5,000,000 shares.
The Company received net proceeds of approximately $73.2 million from its
initial public offering, net of approximately $7.3 million in expenses and
underwriters discount relating to the issuance and distribution of the
securities.

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

Forward-Looking Statements

This quarterly report on Form 10-Q, including this Managements Discussion
and Analysis of Financial Condition and Results of Operations, contains
forward-looking statements regarding future events and our future results, such
as statements of our plans, objectives, expectations, beliefs, assumptions and
intentions. Words such as expects, anticipates, targets, goals,
projects, intends, plans, believes, seeks, estimates, variations of
such words, and similar expressions are intended to identify such
forward-looking statements. In addition, any statements which refer to
projections of our future financial performance, our anticipated growth and
trends in our business, and other characterizations of future events or
circumstances, are forward-looking statements. These forward-looking
statements are only predictions and are subject to risks, uncertainties, and
assumptions. Our actual results could differ
materially from those discussed in the forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed in Risk Factors, other cautionary statements included
in this report and in our prospectus filed on October 30, 2003. We are providing the information in this quarterly report
filed on Form 10-Q as of the date of this report. Except as required by law,
we undertake no duty to update any forward-looking statements to reflect the
effect on those statements of subsequent events or changes in our expectations
or assumptions.

Overview

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

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

In October 2003, we entered into a research collaboration with the
Novartis Institutes for BioMedical Research, Inc. (Novartis) for the
discovery and development of novel drugs for the treatment of cardiovascular
disease. In exchange for a $4.0 million upfront payment, a deferred payment of
an additional $1.0 million after the first year and obligations to provide
research funding to us for a minimum of three years, Novartis has the exclusive
right to license drug targets and compounds developed through the
collaboration. Upon execution of a license, Novartis is obligated to fund all
further development of the licensed product candidate, make payments to us upon
the achievement of certain milestones which may total up to $17.1 million for
each product candidate and pay us royalties for sales of any products that are
successfully commercialized. Upon the completion of Phase II clinical trials of
any product candidate Novartis has licensed from us, we have the option to
enter into a co-promotion and profit sharing agreement with them for that
product candidate, subject to our reimbursement of a portion of the development
expenses up to that point, our agreement to share the future development and
marketing expenses and elimination of the royalty payable to us.

We are in the development stage and since inception have devoted
substantially all of our efforts to the discovery, in-licensing and development
of drugs to treat cardiovascular disease. We have incurred losses

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each year since our inception and had an accumulated deficit of $105.8
million as of September 30, 2003. We incurred operating losses of $27.9 million
for the nine months ended September 30, 2003 and $28.8 million, $17.8 million
and $10.3 million for the years 2002, 2001 and 2000, respectively. Our research
and development expenses have historically been much higher than our revenues.
Our business strategy is focused on the commercialization of enoximone
capsules, ambrisentan and darusentan. From inception to September 30, 2003, we
have incurred expenses of approximately $44.2 million, $14.2 million and $5.0
million for the in-licensing and development of enoximone capsules, ambrisentan
and darusentan, respectively. Our on-going clinical programs studying enoximone
capsules, ambrisentan and darusentan will be lengthy and expensive. Even if
these trials show our product candidates to be safe and effective in treating
their target indications, we do not expect to be able to record commercial
sales of any of our product candidates for several years. As a result, we
expect to incur significant and growing losses for the foreseeable future.
Although the size and timing of our future operating losses is subject to
significant uncertainty, we expect them to continue to increase over the next
several years as we continue to fund our development programs and prepare for
potential commercial launch of our product candidates. Our primary source of
working capital has been equity financings.

The pace and outcome of our clinical development programs and the success
of our discovery program in discovering new product candidates are difficult to
predict. If we enter into additional third party collaborations or acquire
new product candidates, it may be difficult or impossible for us to predict the
timing or amounts of any related licensing payments or expenses. As a result,
we anticipate that our quarterly results will fluctuate for the foreseeable
future. In view of this variability and of our limited operating history, we
believe that period-to-period comparisons of our operating results are not
meaningful and you should not rely on them as indicative of our future
performance.

Our current revenue is derived from sales of Perfan I.V. in eight European
countries. Prior to our licensing the worldwide rights to enoximone in 1998,
Perfan I.V. was marketed in Europe by Aventis. In 1999, we formed our
wholly-owned German subsidiary, Myogen GmbH, to manage our sales and marketing
activities in Europe. From 2000 through 2002, we entered into agreements with
distributors to distribute Perfan I.V. in Belgium, France, Germany, Ireland,
Italy, Luxembourg, the Netherlands and the United Kingdom. We recorded our
first sales of Perfan I.V. in 2000. Even if our sales and marketing efforts
lead to modest increases in Perfan I.V. sales in future periods, we do not
expect that such increases will result in a material reduction in our overall
net loss. Our cost of product sold reflects the cost of Perfan I.V., which we
purchase exclusively from contract manufacturers, and the cost of royalties
payable to Aventis.

Our research and development expense category is primarily composed of
costs associated with product development for enoximone capsules, ambrisentan
and darusentan. These expenses represent both clinical development costs and
the costs associated with non-clinical support activities such as toxicological
testing, manufacturing process development and regulatory consulting services.
We also report the costs of product licenses in this category, including our
milestone obligations associated with the licensing of enoximone, ambrisentan
and darusentan. Our product candidates do not currently have regulatory
approval; accordingly, we expense the license and milestone fees when we incur
the liability. We have a discovery research effort, which is conducted on our
premises by our scientists, through collaborative agreements with academic
laboratories and in conjunction with Novartis. While some of our research and
development expenses are the result of the internal costs related directly to
our employees, a majority of the expenses are charged to us by external service
providers, including clinical research organizations and contract
manufacturers, and by our academic collaborators. The cost of our clinical
trial programs is the most significant portion of our development expenses,
with the number of patients enrolled in a trial and the attendant level of
contract research organization and clinical site activity being the principal
cost determinants. From inception through September 30, 2003, we have incurred
expenses of $76.0 million for research and development activities, excluding
stock-based compensation expense of $1.7 million. We expect that expenses in
the research and development category will increase for the foreseeable future
as we add personnel, expand our clinical trial activities and increase our
discovery research capabilities. The amount of the increase is difficult to
predict due to the uncertainty inherent in the timing of clinical trial
initiations, the progress in our discovery research program, the rate of
patient enrollment and the detailed design of future trials. In addition, the
results from our trials, as well as the results of trials of similar drugs
under development by others, will influence the number, size and duration of
planned and unplanned trials.

Our selling, general and administrative expense category consists of our
sales, marketing, business development, finance, accounting and general
administration costs. These costs are primarily comprised of expenses related
directly to our staff, as well as external costs associated with service
providers such as

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lawyers, accountants and insurers. We anticipate that selling, general and
administrative expenses will increase for the foreseeable future as we expand
our operating activities and as a result of costs associated with becoming a
publicly-traded company.

We have granted options to employees and consultants at prices deemed
below fair value on the dates of grant. As a result, we have recorded deferred
stock-based compensation expense that represents, in the case of employees, the
difference between the option exercise price and the fair value of our common
stock. In the case of consultants, deferred stock-based compensation represents
the fair value of the options granted computed using the Black-Scholes
option-pricing model. As of September 30, 2003, the deferred stock-based
compensation balance was $8.1 million for employees and $575,000 for
consultants, and as of December 31, 2002, the deferred stock-based compensation
balance was $1.4 million for employees and $277,000 for consultants. Deferred
stock-based compensation for employees is recognized over the remaining vesting
period of the related option. Deferred stock-based compensation related to
consultants is recognized over the vesting period of the related option and the
amount recognized is subject to change based on changes in the fair value of
our common stock. We recognize stock-based compensation using an accelerated
method as described in Financial Accounting Standards Board Interpretation No.
28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or
Award Plans, an Interpretation of APB Opinions No. 15 and 25(FIN 28). The
unrecognized deferred stock-based compensation as of September 30, 2003 will be
recognized as non-cash compensation as follows: $1.2 million (2003); $4.1
million (2004); $2.1 million (2005); $990,000 (2006); and $312,000 (2007).

On August 27, 2003, we issued 29,090,908 shares of Series D preferred
stock at a price of $1.375 per share and received net proceeds of $39.9
million. In the third quarter of 2003, we recorded a beneficial conversion
charge of approximately $39.9 million, which is calculated as the difference
between the offering price and the fair value of the common stock and limited
to the amount of proceeds allocated to the Series D preferred stock in
accordance with EITF No. 98-5, Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios.
Accordingly, the $39.9 million charge, is deemed to be the equivalent of a
dividend on the Series D preferred stock. The preferred stock dividend
increases the loss applicable to common stockholders in the calculation of
basic net loss per share for the third quarter of 2003 and the year to date
2003.

Results of Operations

Three Months Ended September 30, 2003 and 2002

Sales

Total Perfan I.V. sales were $707,000 and $635,000 for the three months
ended September 30, 2003 and 2002, respectively. The unit sales were largely
unchanged for both periods and the $72,000 increase primarily relates to
fluctuations in the exchange rates of the Euro and the British pound against
the United States dollar.

Cost of Product Sold

The cost of product sold for Perfan I.V. was $220,000 and $225,000 for the
three months ended September 30, 2003 and 2002, respectively. The cost of
Perfan I.V. sold as a percentage of sales was 31.1% and 35.4% for these two
periods, respectively. The reduction in cost was primarily due to completion of
the transfer of formulation responsibilities for Perfan I.V. to a new contract
manufacturer, which reduced our unit cost of product sold starting in the
second half of 2002.

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Research and Development

Research and development expenses, excluding stock-based compensation
expenses, were $7.1 million and $8.4 million for the three months ended
September 30, 2003 and 2002, respectively. Research and development expenses
are summarized as follows:

Three Months EndedSeptember 30,2003
    
    2002(In thousands)Development
Enoximone capsules
    
    $
    4,720
    
    
    $
    4,865Ambrisentan
    
    
    1,693
    
    
    
    2,288Darusentan
    
    
    
    
    
    
    Total development
    
    
    6,413
    
    
    
    7,153License
feesEnoximone
    
    
    
    
    
    
    375Ambrisentan
    
    
    
    
    
    
    Darusentan
    
    
    
    
    
    
    Total license fees
    
    
    
    
    
    
    375Discovery research
    
    
    639
    
    
    
    893Total research and development
    
    $
    7,052
    
    
    $
    8,421


Development expenses were $6.4 million and $7.2 million for the three
months ended September 30, 2003 and 2002, respectively. Enoximone capsule
development expenses were $4.7 million and $4.9 million for the periods,
respectively. The decrease in costs is primarily due to the completion of
enrollment in the EMOTE trial in July 2003. Although the trial is continuing,
associated costs are decreasing as the study nears completion. These
decreasing costs were partially offset by the costs associated with process
development of enoximone.

Ambrisentan development expenses were $1.7 million and $2.3 million for
the three months ended September 30, 2003 and 2002, respectively. The decrease
primarily reflects costs which were incurred in 2002 related to the exploration
of a potential additional indication for ambrisentan that we did not pursue.

License fees were $0 and $375,000 for the three months ended September 30,
2003 and 2002, respectively. In the 2002 period, we incurred the final license
fee for enoximone.

Discovery research expenses were $639,000 and $893,000 million for the
three months ended September 30, 2003 and 2002, respectively. The decrease was
the result of $234,000 in Small Business Innovation Research (SBIR) funding
that we received in the third quarter of 2003 and that we used to offset
discovery research expenses.

Selling, General and Administrative

Selling, general and administrative expenses, excluding stock-based
compensation expense, were $663,000 and $1,460,000 for the three months ended
September 30, 2003 and 2002, respectively. The decrease is primarily due to a
$277,000 write-off in 2002 of expenses associated with a financing which was
not completed and a $286,000 gain in 2003 relating to foreign currency
transactions on inventory and other assets purchased in euros. There were also
decreases of approximately $80,000 in consulting costs and a decrease in net
value added taxes of approximately $90,000 that reflects a recovery of taxes
previously paid.

Stock-Based Compensation

Stock-based compensation expense was $841,000 for the three months ended
September 30, 2003, of which $501,000 was attributable to research and
development expenses and $340,000 was attributable to selling, general and
administrative expenses. For the three months ended September 30, 2002,
stock-based compensation expense was $291,000, of which $184,000 was
attributable to research and development expenses and $107,000 was attributable
to selling, general and administrative expenses. The increase was due to an
increase in the fair value of our common stock and an increase in the number of
options granted to employees and consultants.

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Interest Income, Net

Interest income net of interest expense was ($55,000) and $252,000 for the
three months ended September 30, 2003 and 2002, respectively. Interest income
was $95,000 and $255,000 for the three months ended September 30, 2003 and
2002, respectively. The decrease in interest income was primarily a result of a
decrease in invested cash balances and a reduction in interest rates earned on
our invested cash balances. Interest expense was $150,000 and $3,000 for the
three months ended September 30, 2003 and 2002, respectively. The increase in
interest expense was due to the $5.0 million term loan that was established in
December 2002.

Accretion of Mandatorily Redeemable Convertible Preferred Stock

Accretion of mandatorily redeemable convertible preferred stock was $4.2
million and $3.7 million for the three months ended September 30, 2003 and
2002, respectively and represents the accretion associated with the Series A,
Series C and Series D mandatorily redeemable convertible preferred stock issued
by us. The increase in the accretion is a result of the issuance of an
additional $39.9 million of Series D mandatorily redeemable convertible
preferred stock in August 2003.

Nine Months Ended September 30, 2003 and 2002

Sales

Total Perfan I.V. sales were $2.1 million and $1.7 million for the nine
months ended September 30, 2003 and 2002, respectively. Of the $415,000
increase, $215,000 was due to the initiation of sales in Italy in June 2002.
In addition, sales in the Netherlands and France increased approximately
$150,000.

Cost of Product Sold

The cost of product sold for Perfan I.V. was $654,000 and $661,000 for the
nine months ended September 30, 2003 and 2002, respectively. The cost of Perfan
I.V. sold as a percentage of sales was 31.6% and 39.9% for these two periods,
respectively. The reduction in cost was primarily due to completion of the
transfer of formulation responsibilities for Perfan I.V. to a new contract
manufacturer, which reduced our unit cost of product sold starting in the
second half of 2002.

Research and Development

Research and development expenses, excluding stock-based compensation
expenses, were $24.6 million and $17.7 million for the nine months ended
September 30, 2003 and 2002, respectively. Research and development expenses
are summarized as follows:

Nine Months EndedSeptember 30,2003
    
    2002(In thousands)DevelopmentEnoximone capsules
    
    $
    12,988
    
    
    $
    10,886Ambrisentan
    
    
    4,360
    
    
    
    3,047Darusentan
    
    
    
    
    
    
    Total development
    
    
    17,348
    
    
    
    13,933License feesEnoximone
    
    
    
    
    
    
    1,125Ambrisentan
    
    
    
    
    
    
    Darusentan
    
    
    5,000
    
    
    
    Total license fees
    
    
    5,000
    
    
    
    1,125Discovery research
    
    
    2,274
    
    
    
    2,641Total research and development
    
    $
    24,622
    
    
    $
    17,699


Development expenses were $17.3 million and $13.9 million for the nine
months ended September 30, 2003 and 2002, respectively. Enoximone capsule
development expenses were $13.0 million and $10.9 million for the periods,
respectively. The increase in costs is primarily due to the following:

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| |  |  | $2.6 million increase in clinical investigator site payments and
external contract costs associated with clinical monitoring and program
management efforts, as a result of higher patient enrollment and ongoing
patient progress in the ESSENTIAL Trial;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $479,000 increase in the costs associated with the acceleration of
work on developing the commercial manufacturing process for enoximone;
and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $275,000 increase in the internal costs associated with the
management of the enoximone trials, primarily due to an increase in our
staff.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------

These increases are partially offset by:



| |  |  | $672,000 decrease in costs associated with clinical trial materials
for the ESSENTIAL trial as a result of the timing of the manufacture of
these materials; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $634,000 decrease in costs associated with the continuing EMOTE
trials, as we near study completion.
| | - |  | ----------------------------------------------------------------------------------------------------

Ambrisentan development expenses were $4.4 million and $3.0 million for
the nine months ended September 30, 2003 and 2002, respectively. The increase
was primarily caused by:



| |  |  | $665,000 increase in expenses due to initiation of our Phase II
pulmonary arterial hypertension clinical trial (PAH trial) for
ambrisentan that began enrollment in October 2002;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $627,000 increase in expenses due to the initiation of the Phase II
extension study for our Phase II PAH trial;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | $479,000 increase in expenses related to non-clinical toxicology work
that will be required to support our planned regulatory filings; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $183,000 increase in internal expenses associated with the management
of the ambrisentan trials.
| | - |  | ------------------------------------------------------------------------------------------------

These increases are partially offset by a $720,000 decrease due to costs
which were incurred in 2002 related to the exploration of a potential
additional indication of ambrisentan that we did not pursue.

License fees were $5.0 million and $1.1 million for the nine months ended
September 30, 2003 and 2002, respectively. In the 2003 period, the license fee
was attributable to the in-licensing of darusentan. In the 2002 period, we
incurred a license fee for enoximone.

Discovery research expenses were $2.3 million and $2.6 million for the
nine months ended September 30, 2003 and 2002, respectively. The decrease was
the result of the completion of several sponsored research agreements with
various universities totaling $253,000 and a $234,000 decrease in reported
expense related to funding received from an SBIR grant that was treated as an
offset to expense. These reductions were partially offset by an increase in
internal spending to expand the high through-put screening efforts in our drug
discovery program.

Selling, General and Administrative

Selling, general and administrative expenses, excluding stock-based
compensation expense, were $2.6 million and $3.7 million for the nine months
ended September 30, 2003 and 2002, respectively. The decrease is primarily due
to a $277,000 write-off in 2002 of expenses associated with a financing which
was not completed and a $286,000 gain in 2003 relating to foreign currency
transactions on inventory and other assets purchased in euros. There was also
a decrease of approximately $223,000 in consulting costs, a decrease in net
value added taxes of approximately $129,000 and an $89,000 decrease in costs
related to our personnel, including recruiting and relocation expenses.

Stock-Based Compensation

Stock-based compensation expense was $2.1 million for the nine months
ended September 30, 2003, of which $1.2 million was attributable to research
and development expenses and $862,000 was attributable to selling, general and
administrative expenses. For the nine months ended September 30, 2002,
stock-based compensation expense was $314,000, of which $207,000 was
attributable to research and development

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expenses and $107,000 was attributable
to selling, general and administrative expenses. The increase was due to an
increase in the fair value of our common stock and an increase in the number of
options granted to employees and consultants.

Interest Income, Net

Interest income net of interest expense was ($63,000) and $744,000 for the
nine months ended September 30, 2003 and 2002, respectively. Interest income
was $362,000 and $778,000 for the nine months ended September 30, 2003 and
2002, respectively. The decrease in interest income was primarily a result of a
decrease in invested cash balances and a reduction in interest rates earned on
our invested cash balances. Interest expense was $425,000 and $34,000 for the
nine months ended September 30, 2003 and 2002, respectively. The increase in
interest expense was due to the $5.0 million term loan that was instituted in
December 2002.

Accretion of Mandatorily Redeemable Convertible Preferred Stock

Accretion of mandatorily redeemable convertible preferred stock was $11.6
million and $11.0 million for the nine months ended September 30, 2003 and
2002, respectively and represents the accretion associated with the Series A,
Series C and Series D mandatorily redeemable convertible preferred stock issued
by us. The increase in the accretion is a result of the issuance of an
additional $39.9 million of Series D mandatorily redeemable convertible
preferred stock in August 2003.

Liquidity and Capital Resources

From our inception on June 10, 1996 to September 30, 2003, we primarily
funded our operations with $127.3 million (net of issuance costs) from private
equity financings, $5.3 million from term loans, $6.6 million from sales of
Perfan I.V. and $2.6 million from net interest income earned on cash
equivalents and short-term investments. Cash, cash equivalents and short-term
investments amounted to $50.3 million at September 30, 2003. On August 27,
2003, we raised net proceeds of $39.9 million through the sale of additional
shares of our Series D preferred stock. In addition, on November 7, 2003 we
completed our initial public offering and raised net proceeds of approximately
$73.2 million. Our cash outflows in the next 12 months are expected to consist
primarily of external expenses related to our research and development programs, as
well as payroll costs. We believe our cash is sufficient to meet these needs.
Our cash outflows beyond one year are also expected to consist primarily of
external expenses related to our research and development programs, as well as
payroll costs. We believe that the proceeds of the initial public offering,
together with the proceeds of the Novartis collaboration and potential
additional collaborations and future equity offerings, will allow us to fund
our future working capital and capital expenditures for the next 18 months.

Our cash, cash equivalents and short-term investments are held in a
variety of interest-bearing instruments, consisting of U.S. government and
agency securities, high-grade U.S. corporate bonds, municipal bonds,
mortgage-backed securities, commercial paper and money market accounts. Our
Board of Directors has approved our written investment policy, which limits our
investment instruments to those mentioned above. We review compliance with this
policy on a monthly basis.

At September 30, 2003, we had approximately $1.3 million in net fixed
assets. We expect to purchase additional equipment and to invest in leasehold
improvements within the next 12 months, and we expect our spending on fixed
assets to grow in future years.

Operating activities resulted in net cash outflows of $22.9 million and
$18.1 million for the nine months ended September 30, 2003 and 2002,
respectively. The cumulative net cash outflow from operating activities from
our inception to September 30, 2003 was $79.5 million. The use of cash in all
periods was primarily a result of our losses from operations associated with
our research and development activities.

Investing activities resulted in net cash outflows of $16.1 million and a
net cash inflow of $701,000 for the nine month periods ended September 30, 2003
and 2002, respectively. The net cash outflow for the nine months ended
September 30, 2003 resulted from $145,000 in net capital asset expenditures
offset by $318,000 in proceeds from the sale of property and equipment and
$51.2 million in purchases of short-term investments offset by $34.9 million in
proceeds related to the maturity of short-term investments. The net cash inflow
for the nine months ended September 30, 2002 resulted from $925,000 in net
capital asset expenditures and $54.8 million in purchases of short-term
investments offset by $56.4 million in proceeds

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from the maturity of short-term
investments. Cumulative investing activities from inception to September 30,
2003 resulted in net cash outflows of $45.0 million, with $2.3 million in net
capital asset expenditures offset by $322,000 in proceeds from the sale of
property and equipment and $259.7 million in purchases of short-term
investments offset by $216.7 million in proceeds from the maturity of
short-term investments.

Financing activities resulted in a net cash inflow of $39.3 million and
$45,000 for the nine months ended September 30, 2003 and 2002, respectively. On
August 27, 2003, we raised net proceeds of $39.9 million through the sale of
additional shares of our Series D preferred stock. Financing activities for the
nine months ended September 30, 2002 consisted primarily of proceeds from the
issuance of common stock. Cumulative financing activities from our inception to
September 30, 2003 resulted in net cash inflows of $131.7 million, primarily
related to the issuance of our Series A, C and D preferred stock and borrowings
under our term loans.

On November 4, 2003, we completed an initial public offering of 5,000,000
shares of our common stock. On November 7, 2003, the public offering
underwriters exercised the over-allotment option for an additional 750,000
shares. Concurrent with the initial public offering, all of the 98,021,120 shares of convertible preferred stock
outstanding automatically converted into common stock at a five-to-one ratio,
resulting in the issuance of 19,604,186 shares of common stock. The Company
received net proceeds of $73.2 million from its initial public offering, net of
$7.3 million in expenses and underwriters discount relating to the issuance
and distribution of the securities.

Total operating lease expense for the nine months ended September 30, 2003
and 2002 was approximately $227,000 for each period. We have future payment
commitments for operating leases of approximately $1.1 million, principally for
our office and laboratory space. In addition, many of our contracts with
clinical research organizations, contract manufacturers, academic research
agreements and others contain termination provisions that would require us to
make final payments if we were to terminate prematurely. The size of these
payments depends upon the timing and circumstances of the termination and
therefore the extent of the future commitments cannot be meaningfully
quantified.

We anticipate that our current cash, cash equivalents and short-term
investments, including the proceeds from our initial public offering, will be
sufficient to fund our operations for at least the next 18 months. However, our
forecast of the period of time through which our financial resources will be
adequate to support our operations is a forward-looking statement that involves
risks and uncertainties, and actual results could vary materially. If we are
unable to raise additional capital when required or on acceptable terms, we may
have to significantly delay, scale back or discontinue one or more of our
clinical trials, those aspects of our drug discovery program not funded by
Novartis or other aspects of our operations.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions. Our critical accounting policies include:



| |  |  | revenue recognition;
| | - |  | --------------------



| |  |  | accounting for research and development expenses;
| | - |  | -------------------------------------------------



| |  |  | estimating the value of our equity instruments for use in deferred
stock-based compensation calculations; and
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | accounting for income taxes.
| | - |  | ----------------------------

Revenue recognition.We recognize revenue when the following four revenue
recognition criteria are met: (i) persuasive evidence of an arrangement exists;
(ii) product is shipped from the distributor to the customer; (iii) the selling
price is fixed or determinable; and (iv) collectibility is reasonably assured.
Once the product is shipped to the customer, we do not allow product returns.

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Accounting for research and development expenses.Our research and
development expense category is primarily composed of costs associated with
product development for enoximone capsules, ambrisentan and darusentan. These
expenses represent both clinical development costs and the costs associated
with non-clinical support activities such as toxicological testing,
manufacturing process development and regulatory consulting services. Clinical
development costs represent internal costs for personnel, external costs
incurred at clinical sites and contractual payments to third party clinical
research organizations to perform certain clinical trials. We also report the
costs of product licenses in this category, including our ongoing milestone
obligations associated with the licensing of ambrisentan and darusentan. Our
product candidates do not currently have regulatory approval; accordingly, we
expense the license and milestone fees when we incur the liability. We have a
discovery research effort, which is conducted in part on our premises by our
scientists and in part through collaborative agreements with academic
laboratories. While some of our research and development expenses are the
result of the internal costs related directly to our employees, a majority of
the expenses are charged to us by external service providers, including
clinical research organizations and contract manufacturers, and by our academic
collaborators. We accrue research and development expenses for activity
occurring during the fiscal period prior to receiving invoices from clinical
sites and third party clinical research organizations. We accrue external costs
for clinical studies based on the progress of the clinical trials, including
patient enrollment, progress by the enrolled patients through the trial, and
contractual costs with clinical research organizations and clinical sites. We
record internal costs primarily related to personnel in clinical development
and external costs related to non-clinical studies and basic research when
incurred. Amounts received from other parties to fund our research and
development efforts are recognized as a reduction to research and development
expense as the costs are incurred. Significant judgments and estimates must be
made and used in determining the accrued balance in any accounting period.
Actual costs incurred may or may not match the estimated costs for a given
accounting period. We expect that expenses in the research and development
category will increase for the foreseeable future as we add personnel, expand
our clinical trial activities and increase our discovery research capabilities.
The amount of the increase is difficult to predict due to the uncertainty
inherent in the timing of clinical trial initiations, progress in our discovery
research program, the rate of patient enrollment and the detailed design of
future trials. In addition, the results from each of our trials, as well as the
results of trials of similar drugs under development by others, will influence
the number, size and duration of both planned and unplanned trials.

Valuation of equity instruments.We record compensation expense related
to options issued to consultants and options issued to, or common stock sold
to, employees at less than the fair value. These expenses are based on the fair
value of the options and common stock. Because, until recently, there has been
no public market for our common stock, we have estimated the fair value of
these equity instruments using various valuation methods. Upon completion of
our initial public offering on October 29, 2003, we will estimate the fair
value of these equity instruments using the value for our common stock that the
public market establishes.

Accounting for income taxes.We must make significant management
judgments when determining our provision for income taxes, our deferred tax
assets and liabilities and any valuation allowance recorded against our net
deferred tax assets. At December 31, 2002, we recorded a full valuation
allowance of $23.0 million against our net deferred tax asset balance, due to
uncertainties related to our deferred tax assets as a result of our history of operating losses. The valuation allowance is based on our
estimates of taxable income by jurisdiction in which we operate and the period
over which our deferred tax assets will be recoverable. In the event that
actual results differ from these estimates or we adjust these estimates in
future periods we may need to change the valuation allowance, which could
materially impact our financial position and results of operations.

Recent Accounting Pronouncements

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections(SFAS 145). SFAS 145 rescinds SFAS No. 4, Reporting Gains and
Losses from Extinguishment of Debt,and SFAS No. 64, Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements;SFAS 145 also rescinds SFAS No. 44,
Accounting for Leases,to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. SFAS 145 also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings or
describe their applicability under changed conditions.

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The provisions of SFAS
145 related to the rescission of SFAS 4 are to be applied in fiscal years
beginning after May 15, 2002; the provisions related to SFAS No. 13 are to be
effective for transactions occurring after May 15, 2002; all other provisions
of SFAS 145 are to be effective for financial statements issued on or after May
15, 2002. Early adoption of SFAS 145 is encouraged. The adoption of SFAS 145
has not had, nor do we believe it will have, a material impact on our current
or prospective financial statements.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities(SFAS 146). SFAS 146 addresses
financial accounting and reporting for costs associated with exit or disposal
activities and replaces EITF No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs in a Restructuring).The provisions of SFAS 146 are effective for
exit or disposal activities that are initiated after December 31, 2002. We
believe that SFAS 146 may have a prospective effect on our financial statements
for costs associated with future exit or disposal activities we may undertake
after December 31, 2002.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity(SFAS
150). This statement establishes standards for how an issuer classifies and
measures in its statement of financial position certain financial instruments
with characteristics of both liabilities and equity. In accordance with the
standard, certain financial instruments that embody obligations for the issuer
are required to be classified as liabilities. This Statement is effective for
financial instruments entered into or modified after May 31, 2003, and
otherwise will be effective at the beginning of the first interim period
beginning after June 15, 2003. We do not expect the provisions of this
statement to have a significant impact on our statement of financial position.

In November 2002, the FASB issued FASB Interpretation (FIN) No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others(FIN 45). FIN 45 elaborates on
the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued.
It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The initial recognition and
initial measurement provisions of FIN 45 are applicable on a prospective basis
to guarantees issued or modified after December 31, 2002, irrespective of the
guarantors fiscal year-end. The disclosure requirements are effective for
financial statements of periods ending after December 15, 2002. The adoption of
FIN 45 has not had, nor do we believe it will have, a material impact on our
current or prospective financial statements.

In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities(FIN 46). FIN 46 addresses consolidation by business
enterprises of variable interest entities, which have certain characteristics.
FIN 46 applies immediately to variable interest entities created after January
31, 2003, and to variable interest entities in which an enterprise obtains an
interest after that date. It applies, in the first fiscal year beginning after
June 15, 2003, to variable interest entities in which an enterprise holds a
variable interest that it acquired before February 1, 2003. The adoption of FIN
46 has not had, nor do we believe it will have, a material impact on our
current or prospective financial statements.

RISK FACTORS

Set forth below and elsewhere in
this report, as well as in our prospectus filed on October 30,
2003, are risks and uncertainties that
could cause actual results to differ materially from the results contemplated
by the forward-looking statements contained in this report.

We are at an early stage of development as a company and we do not have, and
may never have, any products that generate significant revenues.

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



| |  |  | our product candidates may not prove to be safe and effective in
clinical trials;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | we may not be able to obtain regulatory approvals for our product
candidates or approvals may be narrower than we seek;
| | - |  | -----------------------------------------------------------------------------------------------------------------------

22



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| |  |  | we may not have adequate financial or other resources to complete
the development and commercialization of our product candidates; or
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any products that are approved may not be accepted in the
marketplace.
| | - |  | ----------------------------------------------------------------------

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

If we fail to obtain additional financing, we may be unable to complete the
development and commercialization of our product candidates or continue our
research and development programs.

Our operations have consumed substantial amounts of cash since inception.
To date, our sources of cash have been primarily limited to the sale of our
equity securities. We expect to continue to spend substantial amounts on
research and development, including amounts spent on conducting clinical trials
for our product candidates, manufacturing clinical supplies and expanding our
discovery research programs. In 2003, our operations have been consuming
approximately $3 million of cash per month, compared to just over $2 million of
cash per month in 2002. We expect that our monthly cash used by operations will
continue to increase for the next several years. We expect that the net
proceeds from this offering, together with our existing capital resources, will
be sufficient to fund our operations for at least the next 18 months. We will be required to raise additional capital to complete the
development and commercialization of our current product candidates. If we are
unable to raise additional capital when required or on acceptable terms, we may
have to significantly delay, scale back or discontinue one or more of our drug
development or discovery research programs. We also may be required to:



| |  |  | seek collaborators for our product candidates at an earlier stage
than otherwise would be desirable and on terms that are less favorable
than might otherwise be available; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | relinquish, license or otherwise dispose of rights to technologies,
product candidates or products that we would otherwise seek to develop
or commercialize ourselves on terms that are less favorable than might
otherwise be available.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We may experience delays in our clinical trials that could adversely affect
our financial position and our commercial prospects.

We do not know when our current clinical trials will be completed, if at
all. We also cannot accurately predict when other planned clinical trials will
begin or be completed. Many factors affect patient enrollment, including the
size of the patient population, the proximity of patients to clinical sites,
the eligibility criteria for the trial, competing clinical trials and new drugs
approved for the conditions we are investigating. Other companies are
conducting clinical trials and have announced plans for future trials that are
seeking or likely to seek patients with the same diseases as those we are
studying. Competition for patients in cardiovascular disease trials is
particularly intense because of the limited number of leading cardiologists and
the geographic concentration of major clinical centers. Our Phase III clinical
trial program for ambrisentan will include a placebo control group, which may
also decrease the pace of enrollment compared to our Phase II trial. As a
result of all of these factors, our trials may take longer to enroll patients
than we anticipate. Delays in patient enrollment in the trials may increase our
costs and slow down our product development and approval process. In addition,
two of our current clinical trials for enoximone capsules are designed to
continue until a pre-specified number of events have occurred to the patients
enrolled. Trials such as this are subject to delays stemming from patient
withdrawal and from lower than expected event rates, in addition to the risk of
slower than anticipated patient enrollment. These trials may also incur
increased costs if enrollment is increased in order to achieve the desired
number of events. Our product development costs will also increase if we need
to perform more or larger clinical trials than planned. Any delays in
completing our clinical trials will delay our ability to generate revenue from
product sales, and we may have insufficient capital resources to support our
operations. Even if we do have sufficient capital resources, our ability to
become profitable will be delayed.

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Adverse events in our clinical trials may force us to stop development of our
product candidates or prevent regulatory approval of our product candidates.

Our product candidates may produce serious adverse events. These adverse
events could interrupt, delay or halt clinical trials of our product candidates
and could result in the Food and Drug Administration, or FDA, or other
regulatory authorities denying approval of our product candidates for any or
all targeted indications. An independent data safety monitoring board, the FDA,
other regulatory authorities or we may suspend or terminate clinical trials at
any time. We cannot assure you that any of our product candidates will be safe
for human use.

If our product candidates do not meet safety or efficacy endpoints in clinical
evaluations, they will not receive regulatory approval and we will be unable
to market them.

Other than Perfan I.V., which is approved for use in several European
countries, our current product candidates, enoximone capsules, ambrisentan and
darusentan, are in clinical development and have not received regulatory
approval from the FDA or any foreign regulatory authority.

The regulatory approval process typically is extremely expensive, takes
many years and the timing of any approval cannot be accurately predicted. If we
fail to obtain regulatory approval for our current or future product
candidates, we will be unable to market and sell such products and therefore
may never be profitable.

As part of the regulatory approval process, we must conduct pre-clinical
studies and clinical trials for each product candidate to demonstrate safety
and efficacy. The number of pre-clinical studies and clinical trials that will
be required varies depending on the product candidate, the indication being
evaluated, the trial results and regulations applicable to any particular
product candidate.

The results of pre-clinical studies and initial clinical trials of our
product candidates do not necessarily predict the results of later-stage
clinical trials. Product candidates in later stages of clinical trials may fail
to show the desired safety and efficacy despite having progressed through
initial clinical trials. We cannot assure you that the data collected from the
pre-clinical studies and clinical trials of our product candidates will be
sufficient to support FDA or other regulatory approval. In addition, the
continuation of a particular study after review by an independent data safety
monitoring board does not necessarily indicate that our product candidate will
achieve the clinical endpoint.

The FDA and other regulatory agencies can delay, limit or deny approval
for many reasons, including:



| |  |  | a product candidate may not be safe or effective;
| | - |  | -------------------------------------------------



| |  |  | the manufacturing processes or facilities we have selected may not
meet the applicable requirements; and
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | changes in their approval policies or adoption of new regulations
may require additional work.
| | - |  | ----------------------------------------------------------------------------------------------

Any delay in, or failure to receive or maintain, approval for any of our
products could prevent us from ever generating meaningful revenues or achieving
profitability.

There can be no assurance that enoximone capsules do not increase mortality.

Clinical trials with type-III phosphodiesterase, or PDE-III, inhibitors,
including enoximone capsules, have shown that at certain doses these compounds
can increase the risk of mortality in specific patient populations. In studies
of enoximone capsules administered at doses of 100 to 300 milligrams three
times a day, some patients experienced abnormal rhythms in the beating of the
heart. In one Phase II placebo-controlled trial involving 151 patients
administered placebo capsules or enoximone capsules at 100 milligrams three
times a day, there was a statistically significant increase in the mortality
rate in the group of patients receiving enoximone capsules compared to the
group of patients receiving placebo capsules: 36% of the patients treated with
enoximone capsules died during the evaluation period versus 23% of the patients
treated with placebo. We are testing enoximone capsules administered at doses
of 25 and 50 milligrams three times a day. We cannot assure you that a similar
mortality effect will not occur at these lower doses in our clinical trials or
in commercial usage after approval. If we are unable to clearly demonstrate
that mortality is not increased by enoximone capsules at these lower doses, we
are not likely to receive regulatory approval to market enoximone capsules.

24



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Due to our reliance on contract research organizations or other third parties
to conduct clinical trials, we are unable to directly control the timing,
conduct and expense of our clinical trials.

We rely primarily on third parties to conduct our clinical trials,
including the EMOTE and ESSENTIAL trials and the planned Phase III clinical
trials for ambrisentan and Phase IIb clinical trial for darusentan. As a
result, we have had and will continue to have less control over the conduct of
the clinical trials, the timing and completion of the trials, the required
reporting of adverse events and the management of data developed through the
trial than would be the case if we were relying entirely upon our own staff.
Communicating with outside parties can also be challenging, potentially leading
to mistakes as well as difficulties in coordinating activities. Outside parties
may have staffing difficulties, may undergo changes in priorities or may become
financially distressed, adversely affecting their willingness or ability to
conduct our trials. We may experience unexpected cost increases that are beyond
our control. Problems with the timeliness or quality of the work of a contract
research organization may lead us to seek to terminate the relationship and use
an alternative service provider. However, making this change may be costly and
may delay our trials, and contractual restrictions may make such a change
difficult or impossible. Additionally, it may be impossible to find a
replacement organization that can conduct our trials in an acceptable manner
and at an acceptable cost.

Our competitors may develop and market drugs that are less expensive, more
effective or safer than our product candidates.

The pharmaceutical market is highly competitive. Many pharmaceutical and
biotechnology companies have developed or are developing products that will
compete with products we are developing. Several significant competitors are
working on, or already have approval for, drugs for the same indications as
enoximone capsules, ambrisentan and darusentan. It is possible that our
competitors will develop and market products that are less expensive, more
effective or safer than our future products or that will render our products obsolete. Some of these products are in late-stage clinical
trials. It is also possible that our competitors will commercialize competing
products before any of our product candidates are approved and marketed.
Actelion Ltd. received FDA approval in December 2001 for Tracleer, a
non-selective endothelin receptor antagonist for the treatment of pulmonary
arterial hypertension. United Therapeutics Corp. received FDA approval in May
2002 for Remodulin for the treatment of pulmonary arterial hypertension.
GlaxoSmithKline plc markets Flolan for pulmonary arterial hypertension.
Encysive Pharmaceuticals, Inc. is developing sitaxsentan, an ETA selective
endothelin receptor antagonist which has demonstrated efficacy in a Phase
IIb/III study and may be approved for pulmonary arterial hypertension earlier
than ambrisentan. A number of other companies, including Abbott Laboratories,
have ETA selective endothelin receptor antagonists in late-stage clinical
development and could compete with ambrisentan and darusentan. Pfizer Inc is
conducting trials to expand the label for sildenafil to include the treatment
of pulmonary arterial hypertension and other cardiovascular indications. We
expect that competition from pharmaceutical and biotechnology companies,
universities and public and private research institutions will increase. Many
of these competitors have substantially greater financial, technical, research
and other resources than we do. We may not have the financial resources,
technical and research expertise or marketing, distribution or support
capabilities to compete successfully.

The market price of our common stock may be highly volatile.

We cannot assure you that an active trading market for our common stock
will exist at any time. You may not be able to sell your shares quickly or at
the market price if trading in our common stock is not active. The trading
price of our common stock is likely to be highly volatile and could be subject
to wide fluctuations in price in response to various factors, many of which are
beyond our control, including:



| |  |  | actual or anticipated results of our clinical trials;
| | - |  | -----------------------------------------------------



| |  |  | actual or anticipated regulatory approvals of our products or of competing products;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | changes in laws or regulations applicable to our products;
| | - |  | ----------------------------------------------------------



| |  |  | changes in the expected or actual timing of our development programs;
| | - |  | ---------------------------------------------------------------------



| |  |  | actual or anticipated variations in quarterly operating results;
| | - |  | ----------------------------------------------------------------



| |  |  | announcements of technological innovations by us, our collaborators or our competitors;
| | - |  | ---------------------------------------------------------------------------------------

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| |  |  | new products or services introduced or announced by us or our competitors;
| | - |  | --------------------------------------------------------------------------



| |  |  | changes in financial estimates or recommendations by securities analysts;
| | - |  | -------------------------------------------------------------------------



| |  |  | conditions or trends in the biotechnology and pharmaceutical industries;
| | - |  | ------------------------------------------------------------------------



| |  |  | changes in the market valuations of similar companies;
| | - |  | ------------------------------------------------------



| |  |  | announcements by us of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | additions or departures of key personnel;
| | - |  | -----------------------------------------



| |  |  | disputes or other developments relating to proprietary rights,
including patents, litigation matters and our ability to obtain patent
protection for our technologies;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the loss of a collaborator, including Novartis;
| | - |  | -----------------------------------------------



| |  |  | developments concerning our collaborations;
| | - |  | -------------------------------------------



| |  |  | trading volume of our common stock; and
| | - |  | ---------------------------------------



| |  |  | sales of our common stock by us or our stockholders.
| | - |  | ----------------------------------------------------

In addition, the stock market in general, the Nasdaq National Market and
the market for technology companies in particular have experienced extreme
price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of those companies. Further,
there has been particular volatility in the market prices of securities of biotechnology
and life sciences companies. These broad market and industry factors may
seriously harm the market price of our common stock, regardless of our
operating performance. In the past, following periods of volatility in the
market, securities class-action litigation has often been instituted against
companies. Such litigation, if instituted against us, could result in
substantial costs and diversion of managements attention and resources.







ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not use derivative financial instruments in our investment portfolio
and have no foreign exchange contracts. Our financial instruments consist of
cash, cash equivalents, short-term investments, trade accounts receivable,
accounts payable and long-term obligations. We consider investments that, when
purchased, have a remaining maturity of 90 days or less to be cash equivalents.

We invest in marketable securities in accordance with our investment
policy. The primary objectives of our investment policy are to preserve
principal, maintain proper liquidity to meet operating needs and maximize
yields. Our investment policy specifies credit quality standards for our
investments and limits the amount of credit exposure to any single issue,
issuer or type of investment. The maximum allowable duration of a single issue
is 18 months with an average duration of the issues in the portfolio of nine
months.

As of September 30, 2003, we had an investment portfolio of commercial
paper and corporate debt securities of $43.1 million excluding those classified
as cash and cash equivalents. Our short-term investments consist primarily of
bank notes, various government obligations and asset-backed securities. These
securities are classified as available-for-sale and are recorded on the balance
sheet at fair market value with unrealized gains or losses reported as a
separate component of stockholders equity. Unrealized losses are charged
against income when a decline in fair market value is determined to be other
than temporary. The specific identification method is used to determine the
cost of securities sold.

The investment portfolio is subject to interest rate risk and will fall in
value in the event market interest rates increase. Due to the short duration of
our investment portfolio, we believe an immediate 10% change in interest rates
would not be material to our financial condition or results of operations.

26



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Transactions relating to Myogen GmbH are recorded in euros. Upon
consolidation of this subsidiary into our consolidated financial statements, we
translate the balance sheet monetary asset and liability accounts to the U.S.
dollar based on exchange rates as of the balance sheet date; balance sheet
non-monetary asset and liability accounts are translated into the U.S. dollar
at historical exchange rates; and all income statement and cash flow statement
amounts are translated into the U.S. dollar at the average exchange rates for
the period. Exchange gains or losses resulting from the translation are
included as a separate component of stockholders deficit. We hold euro-based
currency accounts to mitigate foreign currency transaction risk. Our sales are
denominated in foreign currencies while the majority of our expenses are
denominated in U.S. dollars. The fluctuations of exchange rates may adversely
affect our results of operations, financial position and cash flows. In
addition, we conduct clinical trials in many countries, exposing us to cost
increases if the U.S. dollar declines in value compared to other currencies.







ITEM 4. CONTROLS AND PROCEDURES

We carried out an evaluation under the supervision and with the
participation of our management, including our Chief Executive Officer (CEO)
and Chief Financial Officer (CFO), of the effectiveness of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934, as amended (Exchange Act), as of the end of
the period covered by this report. Based on that evaluation, the CEO and CFO
have concluded that our disclosure controls and procedures are effective to
provide reasonable assurance that information required to be disclosed by us in
our periodic reports under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission rules and forms, and that such information is accumulated and
communicated to our management, including our CEO and CFO, as appropriate, to
allow timely decisions regarding required disclosure. It should be noted that
the design of any system of controls is based in part upon certain assumptions
about the likelihood of future events, and can therefore only provide
reasonable, not absolute, assurance that the design will succeed in achieving
its stated goals.

In addition, we reviewed our internal controls, and there have been no
changes in our internal controls over financial reporting during the quarter
ended September 30, 2003 that have materially affected, or are reasonably
likely to materially affect, our internal controls over financial reporting.

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PART II. OTHER INFORMATION









Item 1. Legal Proceedings
    
    None








Item 2. Changes in Securities and Use of Proceeds

(c) Sales of Unregistered Securities. During the three month period ended
September 30, 2003, we issued and sold 26,558 shares of our common stock that
were not registered under the Securities Act of 1933, as amended (the
Securities Act), to our employees and one consultant upon the exercise of
options for cash consideration with an aggregate exercise price of $21,977.
During the same period, we granted options to purchase 679,297 shares of common
stock at exercise prices ranging from $2.50 per share to $7.50 per share. No
underwriters were involved in the foregoing stock or option issuances. The
issuance of these securities was exempt from registration under the Securities
Act in reliance on Rule 701 promulgated under the Securities Act as
transactions by an issuer under compensatory benefit plans and contracts
relating to compensation within the parameters required by Rule 701.

In August 2003, we issued an aggregate of 29,090,908 shares of our Series
D preferred stock (which converted into 5,818,175 shares of common stock upon
the closing of our initial public offering on November 4, 2003) to certain
accredited investors for cash net proceeds in the amount of approximately
$39,900,000. We relied on the exemption from the registration requirements of
the Securities Act by virtue of Section 4(2) thereof and Rule 506 of Regulation
D promulgate thereunder.

(d) Use of Proceeds from Registered Securities.

(1)
    
    On November 4, 2003, we closed
the sale of 5,000,000 shares of our
common stock, par value $0.001 per share
(the Common Stock), in our initial
public offering (the Offering), and on
November 7, 2003, we closed the sale of
an additional 750,000 shares of our
Common Stock pursuant to the exercise by
the underwriters of an over-allotment
option. The Registration Statement on
Form S-1 (Reg. No. 333-108301) (the
Registration Statement) we filed to
register our Common Stock in the Offering
was declared effective by the Securities
and Exchange Commission on October 29, 2003.(2)
    
    The Offering commenced as of October 29, 2003.(3)
    
    The Offering did not terminate
before any securities were sold.(4)
    
    (i)
    
    As of the date of the filing
of this report, the Offering has
terminated and all 5,750,000 shares of
Common Stock registered were sold.(ii)
    
    The managing
underwriters in the Offering were
Credit Suisse First Boston LLC, J.P.
Morgan Securities Inc., CIBC World
Markets Corp. and Lazard Freres &
Co. LLC.(iii)
    
    We registered shares
of our Common Stock in the Offering
under the Securities Act of 1933, as amended.(iv)
    
    All 5,750,000 shares
of Common Stock (which includes
750,000 shares solely to cover
over-allotments) registered in the
Offering were sold at the full
offering price per share of $14.00.
The aggregate purchase price of the
Offering amount registered was
$80,500,000.


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(v)
    
    We incurred expenses
in connection with the Offering of
$7.3 million, which consisted of
direct payments of: (i) $1.3 million
in legal, accounting and printing
fees; (ii) $5.6 million in
underwriters discounts, fees and
commissions; and (iii) $0.4 million
in miscellaneous expenses. No
payments for such expenses were made
directly or indirectly to (i) any of
our directors, officers or their
associates, (ii) any person(s)
owning 10% or more of any class of
our equity securities or (iii) any
of our affiliates.(vi)
    
    The net Offering
proceeds to us after deducting total
expenses were $73.2 million.(vii)
    
    As of September 30,
2003, we had not completed the
initial public offering. As of
November 4 and November 7, 2003 we
completed the Offering and the
over-allotment, respectively. The
net offering proceeds have been
invested into short-term
investment-grade securities. None
of the net proceeds were directly or
indirectly paid to (i) any of our
directors, officers or their
associates, (ii) any person(s)
owning 10% or more of any class of
our equity securities or (iii) any
of our affiliates.(viii)
    
    There has been no material change
in the planned use of proceeds as
described in our final prospectus.










Item 3. Defaults Upon Senior Securities
    
    None








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

On October 24, 2003, we effected a one-for-five reverse split of our
common stock. Except where otherwise noted, all share numbers in this Item 4
do not reflect the split.

In August 2003, we sent a written consent to our stockholders requesting
consent to the taking of the following actions: (1) the approval and adoption
of a Restated Certificate of Incorporation increasing the authorized number of
shares of our common stock and Series D preferred stock in connection with the
sale of additional shares of our Series D preferred stock, and (2) the approval
and adoption of an amendment to our 1998 Equity Incentive Plan increasing the
reservation of common shares available for issuance thereunder to 16,617,320
shares. Such action was effected pursuant to an action by written consent of
our stockholders in compliance with Section 228 of the Delaware General
Corporation Law. We received the requisite consents on August 26, 2003.

A total of 62,320,635 shares of our stock out of 74,149,557 shares issued
and outstanding, including 60,173,517 shares out of 68,126,606 shares of our
Series A, Series C and Series D preferred stock issued and outstanding, voted
in favor of these matters.

In September 2003, we sent a written consent to our stockholders
requesting consent to the taking of the following actions in connection with
the initial public offering of our common stock: (1) the approval and adoption
of a Certificate of Amendment to our Restated Certificate of Incorporation so
as to effect a reverse stock split prior to our initial public offering, (2)
the approval and adoption of our Restated Certificate of Incorporation to
become effective following the closing of our initial public offering, (3) the
approval and adoption of our Amended and Restated Bylaws to become effective
upon the closing of our initial public offering, (4) the approval and adoption
of our 2003 Equity Incentive Plan to become effective upon the closing of our
initial public offering and reservation of 3,923,464 shares of common stock
(post-split) available for issuance thereunder, and (5) the approval and
adoption of our 2003 Employee Stock Purchase Plan to become effective upon the
closing of our initial public offering and reservation of 100,000 shares of
common stock (post-split) available for issuance thereunder. All such actions
were effected

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##### Table of Contents



pursuant to an action by written consent of our stockholders in compliance
with Section 228 of the Delaware General Corporation Law. We received the
requisite consents on September 30, 2003.

A total of 80,880,354 shares of our stock out of 103,313,590 shares issued
and outstanding, including 78,733,236 shares out of 97,217,514 shares of our
Series A, Series C and Series D preferred stock issued and outstanding, voted
in favor of these matters.









Item 5. Other Information
    
    None








Item 6. Exhibits and Reports on Form 8-K
    
    None


(a) Exhibits

31.1
    
    Certification of principal executive officer required by Rule 13a-14(a)31.2
    
    Certification of principal financial officer required by Rule 13a-14(a)32.1
    
    Section 1350 Certification.


(b) Reports on Form 8-K.

None.

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SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

Date: December 4, 2003
    
    MYOGEN, INC/s/ Joseph L. TurnerJoseph L. Turner
Vice President, Finance and
Chief Financial Officer


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EXHIBIT INDEX

Exhibit No.
    
    Description31.1
    
    Certification of principal executive officer required by Rule 13a-14(a)31.2
    
    Certification of principal financial officer required by Rule 13a-14(a)32.1
    
    Section 1350 Certification.


32