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UNITED STATES
SECURITIES AND EXCHANGE COMMISION  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, 2004
 [  ]
    
    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.  Delaware
    
    84-1348020(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    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 [X]
   No [  ] Check whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes [  ]
   No [X] As of November 8, 2004 there were 35,730,581 shares of the Registrants
Common Stock outstanding, par value $0.001 per share. This quarterly report on Form 10-Q consists of 37 pages. 1




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MYOGEN, INC.
FORM 10-Q INDEX Number
    
    PagePART I. Financial Information
    
    
    3ITEM 1. Consolidated Financial Statements (unaudited)
    
    
    3Consolidated Balance Sheets
As of September 30, 2004 and December 31, 2003
    
    
    3Consolidated Statements of Operations
For the Three Months and Nine Months Ended
September 30, 2004 and 2003 and the Cumulative
Period from June 10, 1996 (Inception) to
September 30, 2004
    
    
    4Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2004 and
2003 and the Cumulative Period from June 10, 1996
(Inception) to September 30, 2004
    
    
    5Notes to Consolidated Financial Statements
    
    
    7ITEM 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    12ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    33ITEM 4. Controls and Procedures
    
    
    34PART II. Other Information
    
    
    35ITEM 1. Legal Proceedings
    
    
    35ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    35ITEM 3. Defaults Upon Senior Securities
    
    
    35ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    35ITEM 5. Other Information
    
    
    35ITEM 6. Exhibits
    
    
    35SIGNATURES
    
    
    36EXHIBIT INDEX
    
    
    37Certification of Principal Executive OfficerCertification of Principal Financial OfficerSection 1350 Certification
  2




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PART I. FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS MYOGEN, INC.
(A Development Stage Enterprise) 
 CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 September 30,
    
    December 31,2004
    
    2003ASSETSCurrent assets:Cash and cash equivalents
    
    $
    84,758,241
    
    
    $
    44,337,721Short-term investments
    
    
    43,909,654
    
    
    
    69,914,627Accrued interest receivable
    
    
    302,855
    
    
    
    607,393Trade accounts receivable
    
    
    1,119,867
    
    
    
    1,274,861Research and development contract amounts due within one year
    
    
    1,000,000
    
    
    
    1,625,000Inventories
    
    
    360,910
    
    
    
    724,282Prepaid expenses and other current assets
    
    
    1,224,118
    
    
    
    1,434,174Total current assets
    
    
    132,675,645
    
    
    
    119,918,058Long-term investments
    
    
    3,493,384
    
    
    
    Property and equipment, net
    
    
    2,280,294
    
    
    
    1,304,028Other assets
    
    
    38,847
    
    
    
    51,238Total assets
    
    $
    138,488,170
    
    
    $
    121,273,324LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    9,153,377
    
    
    $
    7,594,935Accrued liabilities
    
    
    1,135,858
    
    
    
    1,350,114Current portion of deferred revenue
    
    
    1,666,667
    
    
    
    1,666,667Current portion of capital lease obligations
    
    
    49,936
    
    
    
    37,015Current portion of notes payable, net of discount
    
    
    1,774,479
    
    
    
    1,639,246Total current liabilities
    
    
    13,780,317
    
    
    
    12,287,977Deferred revenue, net of current portion
    
    
    1,698,029
    
    
    
    2,948,029Capital lease obligations, net of current portion
    
    
    109,487
    
    
    
    121,617Notes payable, net of current portion and discount
    
    
    645,661
    
    
    
    1,993,906Commitments and contingencies (See Note 9)Stockholders equity:Preferred Stock, $0.001 par value; 5,000,000 shares
authorized at September 30, 2004 and December 31, 2003, no
shares issued or outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value; 100,000,000 shares
authorized and 35,722,358 and 26,457,927 shares issued and
outstanding as of September 30, 2004 and December 31, 2003,
respectively
    
    
    35,722
    
    
    
    26,458Additional paid-in-capital
    
    
    286,106,160
    
    
    
    229,080,380Deferred stock-based compensation
    
    
    (3,207,096
    )
    
    
    (6,730,195
    )Accumulated other comprehensive (loss) income
    
    
    (3,723
    )
    
    
    22,185Deficit accumulated during the development stage
    
    
    (160,676,387
    )
    
    
    (118,477,033
    )Total stockholders equity
    
    
    122,254,676
    
    
    
    103,921,795Total liabilities and stockholders equity
    
    $
    138,488,170
    
    
    $
    121,273,324
 The accompanying notes are an integral part of these consolidated financial statements. 3




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MYOGEN, INC.
(A Development Stage Enterprise) 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 CumulativeFor the Three Months Ended
    
    For the Nine Months Ended
    
    Period fromSeptember 30,
    
    September 30,
    
    June 10, 1996(Inception) to2004
    
    2003
    
    2004
    
    2003
    
    September 30, 2004Revenues:Product sales
    
    $
    783,235
    
    
    $
    707,013
    
    
    $
    2,534,713
    
    
    $
    2,071,823
    
    
    $
    9,958,427Research and development contracts
    
    
    1,666,667
    
    
    
    
    
    
    
    4,669,962
    
    
    
    
    
    
    
    5,680,2672,449,902
    
    
    
    707,013
    
    
    
    7,204,675
    
    
    
    2,071,823
    
    
    
    15,638,694Costs and expenses:Cost of product sold
    
    
    239,917
    
    
    
    220,192
    
    
    
    788,621
    
    
    
    654,138
    
    
    
    3,475,307Research and
development
(excluding
stock-based
compensation expense
of $470,155,
$501,467,
$1,621,286,
$1,243,861 and
$4,476,995,
respectively)
    
    
    12,334,697
    
    
    
    7,052,067
    
    
    
    39,420,805
    
    
    
    24,621,961
    
    
    
    128,140,475Selling, general and
administrative
(excluding
stock-based
compensation expense
of $473,161,
$339,949,
$1,655,906, $862,441
and $3,725,679,
respectively)
    
    
    2,085,914
    
    
    
    662,738
    
    
    
    6,368,042
    
    
    
    2,564,309
    
    
    
    24,206,791Stock-based
compensation expense
    
    
    943,316
    
    
    
    841,416
    
    
    
    3,277,192
    
    
    
    2,106,302
    
    
    
    8,202,67415,603,844
    
    
    
    8,776,413
    
    
    
    49,854,660
    
    
    
    29,946,710
    
    
    
    164,025,247Loss from operations
    
    
    (13,153,942
    )
    
    
    (8,069,400
    )
    
    
    (42,649,985
    )
    
    
    (27,874,887
    )
    
    
    (148,386,553
    )Interest income (expense), net
    
    
    156,412
    
    
    
    (55,125
    )
    
    
    465,052
    
    
    
    (63,379
    )
    
    
    2,865,047Loss before income taxes
    
    
    (12,997,530
    )
    
    
    (8,124,525
    )
    
    
    (42,184,933
    )
    
    
    (27,938,266
    )
    
    
    (145,521,506
    )Income taxes
    
    
    5,034
    
    
    
    5,530
    
    
    
    14,421
    
    
    
    16,165
    
    
    
    75,218Net loss
    
    
    (13,002,564
    )
    
    
    (8,130,055
    )
    
    
    (42,199,354
    )
    
    
    (27,954,431
    )
    
    
    (145,596,724
    )Accretion of mandatorily redeemable
convertible preferred stock
    
    
    
    
    
    
    (4,243,618
    )
    
    
    
    
    
    
    (11,583,987
    )
    
    
    (32,499,556
    )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
    
    $
    (13,002,564
    )
    
    $
    (52,309,061
    )
    
    $
    (42,199,354
    )
    
    $
    (79,473,806
    )
    
    $
    (218,031,668
    )Basic and diluted net loss per common
share
    
    $
    (0.49
    )
    
    $
    (50.29
    )
    
    $
    (1.59
    )
    
    $
    (76.99
    )Weighted average common shares outstanding
    
    
    26,623,208
    
    
    
    1,040,108
    
    
    
    26,525,466
    
    
    
    1,032,200
 The accompanying notes are an integral part of these consolidated financial statements. 4




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MYOGEN, INC.
(A Development Stage Enterprise) 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 CumulativeFor the Nine Months Ended
    
    Period FromSeptember 30,
    
    June 10, 1996(Inception) to2004
    
    2003
    
    September 30, 2004Cash Flows From Operating Activities:Net loss
    
    $
    (42,199,354
    )
    
    $
    (27,954,431
    )
    
    $
    (145,596,724
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    405,420
    
    
    
    307,013
    
    
    
    1,417,655Amortization of deferred stock-based compensation
    
    
    3,277,192
    
    
    
    2,106,302
    
    
    
    8,202,674Amortization of debt discount
    
    
    103,211
    
    
    
    103,211
    
    
    
    251,641Amortization of investment premium
    
    
    562,741
    
    
    
    25,560
    
    
    
    801,591Stock exchanged for license
    
    
    
    
    
    
    
    
    
    
    1,163,229Loss on disposal of property and equipment
    
    
    363
    
    
    
    11,951
    
    
    
    34,672Changes in operating assets and liabilities:Trade accounts receivable
    
    
    137,895
    
    
    
    88,667
    
    
    
    (352,568
    )Research and development contract amounts
    
    
    625,000
    
    
    
    
    
    
    
    Inventories
    
    
    363,373
    
    
    
    26,648
    
    
    
    (360,909
    )Prepaid expenses, accrued interest and other assets
    
    
    517,974
    
    
    
    (191,823
    )
    
    
    (1,785,765
    )Accounts payable
    
    
    1,584,947
    
    
    
    2,523,938
    
    
    
    8,570,960Deferred revenue
    
    
    (1,250,001
    )
    
    
    
    
    
    
    2,364,695Accrued liabilities
    
    
    (213,060
    )
    
    
    79,277
    
    
    
    896,846Net cash used in operating activities
    
    
    (36,084,299
    )
    
    
    (22,873,687
    )
    
    
    (124,392,003
    )Cash Flows From Investing Activities:Acquisitions of property and equipment
    
    
    (1,350,076
    )
    
    
    (144,511
    )
    
    
    (3,786,632
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    317,921
    
    
    
    332,473Purchases of investments
    
    
    (91,717,251
    )
    
    
    (51,194,633
    )
    
    
    (415,060,662
    )Proceeds from maturities of short-term investments
    
    
    113,639,420
    
    
    
    34,945,379
    
    
    
    367,014,020Net cash provided by (used in)
investing activities
    
    
    20,572,093
    
    
    
    (16,075,844
    )
    
    
    (51,500,801
    )Cash Flows From Financing Activities:Proceeds from issuance of mandatorily redeemable convertible preferred stock, net of issuance costs
    
    
    
    
    
    
    39,935,387
    
    
    
    127,151,604Proceeds from issuance of common stock, net of issuance costs
    
    
    57,280,950
    
    
    
    27,446
    
    
    
    130,832,163Proceeds from notes payable
    
    
    
    
    
    
    
    
    
    
    5,250,000Payments on notes payable
    
    
    (1,316,223
    )
    
    
    (668,899
    )
    
    
    (2,657,842
    )Proceeds from related party note
    
    
    
    
    
    
    
    
    
    
    370,275Repayments of related party note
    
    
    
    
    
    
    
    
    
    
    (289,887
    )Payments on capital leases
    
    
    (32,429
    )
    
    
    (21,760
    )
    
    
    (89,321
    )Net cash provided by financing activities
    
    
    55,932,298
    
    
    
    39,272,174
    
    
    
    260,566,992Effect of exchange rates on cash
    
    
    428
    
    
    
    (76,744
    )
    
    
    84,053Net increase in cash and cash equivalents
    
    
    40,420,520
    
    
    
    245,899
    
    
    
    84,758,241Cash and cash equivalents, beginning of period
    
    
    44,337,721
    
    
    
    6,993,146
    
    
    
    Cash and cash equivalents, end of period
    
    $
    84,758,241
    
    
    $
    7,239,045
    
    
    $
    84,758,241
 5




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CumulativeFor the Nine Months Ended
    
    Period FromSeptember 30,
    
    June 10, 1996(Inception) to2004
    
    2003
    
    September 30, 2004Supplemental Disclosure of Non-Cash Financing Activities:Acquisition of property and equipment under capital leases
    
    $
    33,220
    
    
    
    72,609
    
    
    $
    245,188Common 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
    
    
    
    
    
    
    
    
    
    
    928,961Conversion of Series B convertible preferred stock for common stock upon initial public offering
    
    
    
    
    
    
    
    
    
    
    804Conversion of mandatorily redeemable preferred stock for common stock upon initial public offering
    
    
    
    
    
    
    
    
    
    
    159,688,153Deferred research and development contract revenue due within one year
    
    
    
    
    
    
    
    
    
    
    1,000,000
 The accompanying notes are an integral part of these consolidated financial statements. 6




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MYOGEN, INC. 
 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 and nine month periods ended September 30, 2004
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2004. For further information, refer to the consolidated
financial statements and footnotes thereto as of and for the year ended
December 31, 2003, included in the Annual Report on Form 10-K of Myogen Inc.
(the Company or Myogen) filed with the Securities and Exchange Commission
on March 1, 2004. 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, 2004 as defined in Statement of Financial
Accounting Standards (SFAS) No. 7, Accounting and Reporting by Development
Stage Enterprises. Note 2:Liquidity The Company has incurred significant losses and negative cash flows from
operations in every fiscal period since June 10, 1996 (Inception). For the
three and nine months ended September 30, 2004, the Company incurred losses
from operations of $13,153,942 and $42,649,985 and negative cash flows from
operations of $36,084,299 for the nine months ended September 30, 2004. For
the years ended December 31, 2003, 2002 and 2001, the Company incurred losses
from operations of $42,972,596, $28,815,118 and $17,770,643, respectively, and
negative cash flows from operations of $31,706,160, $26,459,454 and
$16,409,817, respectively. As of September 30, 2004, the Company had a deficit
accumulated during the development stage of $160,676,387. Management
anticipates that operating losses and negative cash flows from operations will
continue for at least the next several years. To date, the Company has satisfied its cash commitments primarily through
public and private placements of equity securities. On September 29, 2004, the
Company completed a Private Investment in a Public Entity (PIPE) financing, in
which 9,195,400 new shares of common stock and warrants exercisable for
1,839,080 shares of common stock were issued for proceeds of $57,206,523, net
of $2,793,462 in issuance costs. From Inception through September 30, 2004,
the Company raised $257,983,767 of net cash proceeds from the sale of equity
securities. Based on current spending projections, management believes that the
current cash, cash equivalents and investment balances, which include the
proceeds from our recently completed PIPE, together with the proceeds of the
Novartis collaboration, will be sufficient to fund our operations at least
through the end of 2005. However, failure to generate sufficient revenues or
raise additional capital could have a material adverse effect on the Companys
ability to achieve its intended business objectives, which include the
completion of development and commercialization of its product candidates and
the continuation of its research and development programs. Management plans on
raising additional financing to meet future working capital and capital
expenditure needs. There can be no assurance that such additional financing
will be available or, if available, that such financing can be obtained on
terms satisfactory to the Company. 7




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Note 3:Inventory Components September 30,
    
    December 31,2004
    
    2003Finished products
    
    $
    314,560
    
    
    $
    207,262Raw materials
    
    
    46,350
    
    
    
    517,020Total inventories
    
    $
    360,910
    
    
    $
    724,282
 Note 4:Comprehensive Loss A reconciliation of net loss to comprehensive loss is as follows: Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Net loss
    
    $
    (13,002,564
    )
    
    $
    (8,130,055
    )
    
    $
    (42,199,354
    )
    
    $
    (27,954,431
    )Change in unrealized gain (loss)
on investments available for
sale
    
    
    26,742
    
    
    
    18,811
    
    
    
    (24,293
    )
    
    
    (45,819
    )Foreign currency translation
adjustment
    
    
    4,118
    
    
    
    (218,313
    )
    
    
    (1,615
    )
    
    
    (156,244
    )Total comprehensive loss
    
    $
    (12,971,704
    )
    
    $
    (8,329,557
    )
    
    $
    (42,225,262
    )
    
    $
    (28,156,494
    )
 Note 5:Revenue Recognition Myogen recognizes revenue in accordance with SEC Staff Accounting Bulletin
No. 104 Revenue Recognition in Financial Statements (SAB 104). Arrangements
with multiple elements are accounted for in accordance with Emerging Issues
Task Force Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, or
EITF 00-21. The Company considers this methodology to be the most appropriate
for its business model and current revenue streams. Product Sales 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s consignment stock 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. Research and development contracts Myogen may enter into collaborative agreements with pharmaceutical
companies where the other party receives exclusive marketing and distribution
rights for certain products for set time periods and set geographic areas. The
rights associated with this research and development are assigned or can be
assigned to the collaborator through a license at the collaborators option.
The terms of the collaborative agreements can include non-refundable funding of
research and development efforts, licensing fees, payments based on achievement
of certain milestones, and royalties on product sales. Myogen analyzes its
multiple element arrangements to determine whether the elements can be
separated and accounted for individually as separate units of accounting in
accordance with EITF 00-21. The Company recognizes up-front license payments
as revenue if the license has standalone value and the fair value of the
undelivered items can be determined. If the license is considered to have
standalone value but the fair value on any of the undelivered items cannot be
determined, the license payments are recognized as revenue over the period of
performance for such undelivered items or services. Non-refundable license fees received are recorded as deferred revenue once
received or irrevocably committed and are recognized ratably over the longer of
the development period to which they relate or the expected duration of the
contractual relationship. Where there are two or more distinct phases embedded
into one contract (such as product development and subsequent commercialization
or manufacturing), the contracts may be considered multiple element
arrangements. When it can be demonstrated that each of these phases is at fair
value, they are treated as separate earnings processes with upfront fees being 8




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recognized over only the initial product development phase. The relevant
time period for the product development phase is based on management estimates
and could vary depending upon the outcome of clinical trials and the regulatory
approval process. As a result, management frequently reviews the appropriate
time period. Milestone payments based on designated achievement points that are
considered at risk and substantive at the inception of the collaborative
contract are recognized as earned when the earnings process is complete and the
corresponding payment is reasonably assured. The Company evaluates whether
milestone payments are at risk and substantive based on the contingent nature
of the milestone, specifically reviewing factors such as the technological and
commercial risk that needs to be overcome and the level of investment required.
Milestone payments related to arrangements under which the Company has
continuing performance obligations are recognized as revenue upon achievement
of the milestone only if all of the following conditions are met: the milestone
payments are non-refundable; achievement of the milestone was not reasonably
assured at the inception of the arrangement; substantive effort is involved in
achieving the milestone; and the amount of the milestone payment is reasonable
in relation to the effort expended or the risk associated with the achievement
of the milestone. If any of these conditions are not met, the milestone
payments are deferred and recognized as revenue over the term of the
arrangement as the Company completes its performance obligations. Revenue from research funding is recognized when the services are
performed in order to match revenues to expenses incurred and is typically
based on the fully burdened cost of a researcher working on a collaboration.
Revenue is recognized ratably over the period as services are performed, with
the balance reflected as deferred revenue until earned. Note 6:Net Loss Per Common Share Basic net loss per common share is computed by dividing the net loss
attributable to 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 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: Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Common stock related to options
    
    
    1,391,683
    
    
    
    2,335,450
    
    
    
    2,125,530
    
    
    
    2,101,530Warrants
    
    
    
    
    
    
    36,439
    
    
    
    9,131
    
    
    
    18,471Convertible preferred stock
    
    
    
    
    
    
    160,721
    
    
    
    
    
    
    
    160,721Mandatorily redeemable
convertible preferred stock
    
    
    
    
    
    
    15,775,519
    
    
    
    
    
    
    
    14,347,285Total
    
    
    1,391,683
    
    
    
    18,308,129
    
    
    
    2,134,661
    
    
    
    16,628,007
 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. The 2003 anti-dilutive common shares are not
indicative of the 2004 anti-dilutive common shares. Accordingly, historical
basic net loss per common share should not be used as an indicator of future
earnings per common share. 9




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Note 7: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, 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 Black-Scholes model 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 30,2004
    
    2003
    
    2004
    
    2003Net loss
attributable to
common
stockholders, as
reported
    
    $
    (13,002,564
    )
    
    $
    (52,309,061
    )
    
    $
    (42,199,354
    )
    
    $
    (79,473,806
    )Add: Total
stock-based
employee
compensation
expense included in
reported net loss
    
    
    890,528
    
    
    
    724,156
    
    
    
    3,172,417
    
    
    
    1,660,593Deduct: Total
stock-based
employee
compensation
expense determined
under fair value
based method
    
    
    (1,493,230
    )
    
    
    (731,868
    )
    
    
    (4,444,053
    )
    
    
    (1,604,619
    )Pro forma net loss
    
    $
    (13,605,266
    )
    
    $
    (52,316,773
    )
    
    $
    (43,470,990
    )
    
    $
    (79,417,832
    )Pro forma basic and
diluted net loss
per common share
    
    $
    (0.51
    )
    
    $
    (50.30
    )
    
    $
    (1.64
    )
    
    $
    (76.94
    )Basic and diluted
net loss per common
share, as reported
    
    $
    (0.49
    )
    
    $
    (50.29
    )
    
    $
    (1.59
    )
    
    $
    (76.99
    )
 Note 8:Accounts Payable Accounts payable are comprised of the following: September 30,
    
    December 31,2004
    
    2003Trade
    
    $
    173,034
    
    
    $
    679,827Research and development
    
    
    8,521,960
    
    
    
    6,510,549Related party
    
    
    458,383
    
    
    
    404,559$
    9,153,377
    
    
    $
    7,594,935
 Note 9: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 certain shareholders 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 does 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 10




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arise from indemnification provisions, when future payment is probable and
in accordance with SFAS No. 5, Accounting for Contingencies. No such losses
have been recorded to date. Note 10:Business Segments The Company operates in the United States and in certain countries
throughout Europe under one operating segment. All product sales from Inception
to September 30, 2004 have occurred in Europe through the Companys subsidiary. Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Product sales:Germany
    
    $
    218,698
    
    
    $
    205,314
    
    
    $
    610,049
    
    
    $
    540,765Netherlands
    
    
    221,424
    
    
    
    176,980
    
    
    
    709,040
    
    
    
    557,511United Kingdom
    
    
    163,416
    
    
    
    144,090
    
    
    
    543,172
    
    
    
    378,381Italy
    
    
    94,362
    
    
    
    90,495
    
    
    
    395,233
    
    
    
    319,073France
    
    
    73,159
    
    
    
    80,357
    
    
    
    240,631
    
    
    
    247,960Other
    
    
    12,176
    
    
    
    9,777
    
    
    
    36,588
    
    
    
    28,133$
    783,235
    
    
    $
    707,013
    
    
    $
    2,534,713
    
    
    $
    2,071,823
 September 30,
    
    December 31,2004
    
    2003Property and equipment,
net:United States
    
    $
    2,226,533
    
    
    $
    1,234,685Europe
    
    
    53,761
    
    
    
    69,343$
    2,280,294
    
    
    $
    1,304,028
 Note 11:Equity Transaction On September 29, 2004, the Company completed a Private Investment in a
Public Entity (PIPE) financing, in which 9,195,400 new shares of common stock
and warrants exercisable for 1,839,080 shares of common stock were issued.
The warrants have an exercise price per share of $7.80, with a five-year life
and are fully vested and exercisable six months from the closing date. In
accordance with EITF 00-19, Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Companys Own Stock, the warrants
have been included as permanent equity and valued at fair value on the date of
issuance. The fair value of the warrants at the grant date of $10,133,331 was
determined using the Black-Scholes model. Note 12:Subsequent Events On October 4, 2004, President Bush signed into law the Working Families
Tax Relief Act of 2004 (2004 Act). Included as part of the 2004 Act is a
provision that reinstates the research tax credit that expired on June 30,
2004. The reinstatement is retroactive to June 30, 2004 and the credit will be
available through December 31, 2005. The Company is currently evaluating the
impact of this reinstatement, which could have an impact on the Companys
research and development credit for the year ended December 31, 2004. Effective November 1, 2004, the lease for the Companys office and
laboratory space was amended to extend the lease term to October 31, 2008, add
an additional 2,025 square feet of office space and lower the rent per square
foot, resulting in a net increase in payments of approximately $500,000 over
the amended lease term. 11




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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 expect, anticipate, target, goal, project,
intend, plan, believe, seek, estimate, 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, in our Form 10-K for the year ended December 31, 2003
and in Myogens other periodic reports on Form 10-Q and Form 8-K. 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 believe that our advanced 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. 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 (PAH) and darusentan for the
treatment of resistant systolic hypertension. All three 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 (i.v.) formulation of enoximone, Perfan I.V., for the treatment
of acute decompensated heart failure in eight countries in Europe. We are
evaluating enoximone capsules in three Phase III trials, and we completed one
other Phase III trial in February 2004. In May, we announced the completion of
enrollment of 1,800 patients for two of the trials, with patient treatment to
continue until 956 patients have had a primary endpoint event (cardiovascular
hospitalization or all-cause mortality). We expect patient treatment in both
trials will be completed by the end of this year. At that time, the mean
patient treatment period will exceed 18 months. We expect to report preliminary
top-line results mid-year 2005. We completed a Phase II clinical trial of
ambrisentan in September 2003 and announced the initiation of the two pivotal
Phase III trials, ARIES-1 and -2, in January 2004. Our goal is to complete
patient enrollment in the ARIES trials by the end of the first half of 2005.
We announced in August 2004 that we added additional resources to aid
enrollment in the trials. Early indications suggest that these initiatives to
accelerate enrollment to meet this target are having a positive effect,
although several additional months will be required to draw definitive
conclusions on the degree of impact. In addition, we expect to report
preliminary results of the trials approximately six months following the
completion of patient enrollment. In July 2004, we announced the initiation of
patient enrollment in a Phase IIb clinical trial designed to evaluate the
safety and efficacy of darusentan in patients with resistant systolic
hypertension. Enrollment in the 105 patient trial is progressing in line with
our expectations. We currently expect the trial to be completed mid-year 2005. On March 25, 2004, we announced preliminary results of EMOTE, a
non-pivotal Phase III study of enoximone capsules in 201 patients with the most
advanced stages of chronic heart failure who are dependent on i.v. inotrope
therapy. The study was designed to evaluate enoximone capsules as effective
treatment to wean patients off of i.v. inotrope therapy. Analysis of the
primary endpoint, wean success at 30 days, demonstrated a wean success rate of
61% in the enoximone-treated group and 51% in the placebo-treated group. This
difference did not reach statistical significance. The key secondary endpoints,
which also evaluated wean from i.v. inotrope therapy, but over time, rather
than at a fixed 30-day time point, were 12




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achieved, demonstrating a therapeutic benefit over periods of 45, 60 and
90 days of treatment with enoximone. The safety results demonstrated no
statistical difference in serious adverse events or mortality between the
groups receiving placebo or enoximone capsules. Additional detailed results
were presented at the 8th Annual Scientific Meeting of the Heart Failure
Society of America on September 15, 2004 in Toronto, Canada. 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. In October 2003, to advance our discovery
research program, 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 license payments and a commitment to fund our research, Novartis
has an exclusive right to license drug targets and compounds developed through
the collaboration. 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 each year
since our inception and had an accumulated deficit of $160.7 million as of
September 30, 2004. We incurred operating losses of $13.2 million and $8.1
million for the three months ended September 30, 2004 and 2003, respectively,
$42.6 million and $27.9 million for the nine months ended September 30, 2004
and 2003, respectively, and $43.0 million, $28.8 million and $17.8 million for
the years 2003, 2002 and 2001, respectively. Our research and development
expenses have historically been much higher than our revenues. Based on
current spending projections, we anticipate that our current cash, cash
equivalents and investments, which includes the proceeds from our recently
completed PIPE, together with the proceeds of the Novartis collaboration, will
be sufficient to fund our operations through at least the end of 2005. However,
our forecast of the period of time through which our financial resources will
be adequate to fund 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. On September 29, 2004, the Company completed a Private Investment in a
Public Entity (PIPE) financing, in which 9,195,400 new shares of common stock
and warrants exercisable for 1,839,080 shares of common stock were issued for
total proceeds of $57.2 million, net of $2.8 million in issuance costs. The
warrants have an exercise price per share of $7.80, with a five-year life and
are fully vested and exercisable six months from the closing date. Our current revenue is derived from research and development contract
revenues from our agreement with Novartis signed in October 2003 and sales of
Perfan I.V. in eight European countries. Even if our research and development
contract revenues continue to increase and 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 primary business activities have been focused on the development of
enoximone capsules, ambrisentan and darusentan. From inception to September 30,
2004, we have incurred expenses of approximately $70.0 million, $30.5 million
and $8.5 million for the development of enoximone capsules, ambrisentan and
darusentan, respectively. 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. 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. 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. We expect that expenses in the research and development category
will increase for the foreseeable future as we add personnel and expand our
clinical trial activities. The amount of the increase is difficult to predict
due to the uncertainty inherent in the timing of clinical trial initiations,
the rate of patient enrollment and the detailed design of future trials. In
addition, the results from our trials, as well as the 13




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results of trials of similar drugs under development by others, will influence
the number, size and duration of planned and unplanned trials. Results of Operations Three Months Ended September 30, 2004 and 2003 Revenues Three Months EndedSeptember 30,2004
    
    2003(In thousands)Revenues:Product sales
    
    $
    783
    
    
    $
    707Research and development contracts
    
    
    1,667
    
    
    
    $
    2,450
    
    
    $
    707
 Product sales Product sales were derived from sales of Perfan I.V. in Europe. Unit
sales were consistent in both periods. Most of the increase in 2004 as
compared to 2003 was due to a favorable change in the euro exchange rate. We
do not anticipate significant future growth in Perfan I.V. sales. Research and development contracts revenue Research and development contracts revenues for the three months ended
September 30, 2004 were related to the research collaboration with Novartis
initiated in October 2003; therefore, there were no corresponding revenues in
the prior period. The research and development revenue for the three months
ended September 30, 2004 consists of license revenue totaling $417,000 and
research support funding of $1.25 million. The license revenue reflects the
non-refundable upfront payment from Novartis, which is being recognized ratably
over three years. The research support funding is related to the fully burdened
cost of the researchers working on the further development of specific
potential drug targets and is recognized in the period in which the services
are performed and expenses are incurred. Costs and Expenses Three Months EndedSeptember 30,2004
    
    2003(In thousands)Costs and expenses:Cost of product sold
    
    $
    240
    
    
    $
    220Research and development (excluding
stock-based compensation expense)
    
    
    12,335
    
    
    
    7,052Selling, general and administrative
(excluding stock-based compensation
expense)
    
    
    2,086
    
    
    
    663Stock-based compensation expense
    
    
    943
    
    
    
    841$
    15,604
    
    
    $
    8,776
 Cost of Product Sold The cost of product sold for Perfan I.V. increased slightly in the three
months ended September 30, 2004 compared to the same period in 2003, consistent
with the increase in product sales. The cost of 14




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Perfan I.V. sold as a percentage of product sales was 31% for both the
three months ended September 30, 2004 and 2003. Research and Development Research and development expenses, excluding stock-based compensation
expenses are summarized as follows: Three Months EndedSeptember 30,2004
    
    2003(In thousands)DevelopmentEnoximone capsules
    
    $
    6,213
    
    
    $
    4,720Ambrisentan
    
    
    3,997
    
    
    
    1,693Darusentan
    
    
    749
    
    
    
    Total development
    
    
    10,959
    
    
    
    6,413License feesEnoximone
    
    
    
    
    
    
    Ambrisentan
    
    
    
    
    
    
    Darusentan
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    Total license fees
    
    
    
    
    
    
    Discovery research
    
    
    1,376
    
    
    
    639Total research and development
    
    $
    12,335
    
    
    $
    7,052
 The increase in development costs for enoximone capsules in the three
months ended September 30, 2004 as compared to the same period in 2003 was
primarily due to the following:  
    
    $1.1 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 trials;
    
    $470,000 increase related to enoximone raw material costs
expensed for expected use in manufacturing development and
analytical testing; and
    
    $135,000 increase in the internal costs associated with the
management of the enoximone trials primarily due to an increase in
the number of employees. These increases were partially offset by a $310,000 decrease related to
manufacturing process optimization and development. The increase in development costs for ambrisentan in the three months
ended September 30, 2004 compared to the same period in 2003 was primarily
related to:  
    
    $2.1 million increase in expenses due to the cost of
initiating our two Phase III ARIES trials and the related extension
study;
    
    $610,000 increase in expenses related to work on developing
the commercial manufacturing process for ambrisentan;
    
    $135,000 increase in preclinical toxicology work related to
ambrisentan; and
    
    $100,000 increase in internal expenses associated with the
management of the ambrisentan trials primarily due to an increase in
the number of employees. These increases were partially offset by a $620,000 decrease related to
the conclusion of our Phase II PAH trial in September 2003. The increase in development costs for darusentan in the three months ended
September 30, 2004 as compared to the same period in 2003 was related to the
Phase IIb clinical trial, including $660,000 in 15




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external costs and a $75,000 increase in internal expenses, primarily due
to an increase in the number of employees. In the third quarter of 2003, discovery research expenses were reduced by
$140,000 of SBIR funding. There was no corresponding funding in the third
quarter 2004. In addition, we increased staffing costs related to our
collaborative research program with Novartis in the three months ended
September 30, 2004 as compared to the same period in 2003 which was prior to
the initiation of the Novartis collaboration. Selling, General and Administrative The $1.4 million increase in selling, general and administrative expense
for the three months ended September 30, 2004 as compared to the same period in
2003 primarily relates to a $500,000 increase in insurance and professional
service costs related to being a public company, an increase of $480,000
related to increased staffing and related recruiting costs, a $110,000 increase
related to facility and office maintenance costs related to increased space and
staffing, $95,000 related to increased marketing costs and a $60,000 increase
related to conferences and consulting work. Stock-Based Compensation Stock-based compensation expenses increased due to the options granted to
employees in the third quarter of 2003 with exercise prices below the fair
market value. The Company recorded a full period of amortization of deferred
compensation expense on these options in 2004, as compared to only a partial
period in 2003. The stock-based compensation expense for each period was
allocated between selling, general and administrative and research and
development as follows: Three Months EndedSeptember 30,2004
    
    2003(In thousands)Research and development
    
    $
    470
    
    
    $
    501Selling, general and administrative
    
    
    473
    
    
    
    340$
    943
    
    
    $
    841
 Interest Income, Net Interest income net of interest expense was $156,000 and ($55,000) for the
three months ended September 30, 2004 and 2003, respectively. Interest income
was $266,000 and $95,000 for the three months ended September 30, 2004 and
2003, respectively. The increase in interest income in 2004 relates to the
increased investment balance in 2004 as a result of the funds raised in our
October 2003 initial public offering. Interest expense declined to $110,000
from $150,000 for the three months ended September 30, 2004 and 2003,
respectively, as a result of the reduced balance remaining on our term loan. Accretion of Mandatorily Redeemable Convertible Preferred Stock Accretion of mandatorily redeemable convertible preferred stock was $4.2
million for the three months ended September 30, 2003, and represents the
accretion associated with the Series A, Series C and Series D mandatorily
redeemable convertible preferred stock issued by us. There is no corresponding
expense in 2004 because all shares of the Series A, C and D mandatorily
redeemable convertible preferred stock converted into common stock upon the
completion of our initial public offering on November 4, 2003. Deemed Dividend 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. As a result, we recorded a beneficial conversion charge of
approximately $39.9 million, 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 Adjustable Conversion Ratios. Accordingly,
the $39.9 million charge is deemed to be the equivalent of a dividend on the
Series D preferred stock. This deemed preferred stock 16




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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. There is no corresponding expense in 2004. Nine Months Ended September 30, 2004 and 2003 Revenues Nine Months EndedSeptember 30,2004
    
    2003(In thousands)Revenues:Product sales
    
    $
    2,535
    
    
    $
    2,072Research and development contracts
    
    
    4,670
    
    
    
    $
    7,205
    
    
    $
    2,072
 Product sales Product sales were derived from sales of Perfan I.V. in Europe.
Approximately $235,000 of the increase in 2004 as compared to 2003 was due to a
favorable change in the euro exchange rate. Approximately $230,000 of the
increase in 2004 as compared to 2003 was due to an increase of approximately
13% in unit sales. We do not anticipate significant future growth in Perfan
I.V. sales, and exchange rate fluctuations as well as changes in unit volume
and pricing could lead to declines in US dollar sales revenue in future
periods. Research and development contracts revenue Research and development contracts revenues for the nine months ended
September 30, 2004 were related to the research collaboration with Novartis
entered into in October 2003; therefore, there were no corresponding revenues
in the prior period. The research and development revenue for the nine months
ended September 30, 2004 consists of license revenue totaling $1.3 million and
research support funding of $3.4 million, respectively. The license revenue
reflects the non-refundable upfront payment from Novartis, which is being
recognized ratably over three years. The research support funding is related to
the fully burdened cost of the researchers working on the further development
of specific potential drug targets and is recognized in the period in which the
services are performed and expenses are incurred. Costs and Expenses Nine Months EndedSeptember 30,2004
    
    2003(In thousands)Costs and expenses:Cost of product sold
    
    $
    789
    
    
    $
    654Research and development (excluding
stock-based compensation expense)
    
    
    39,421
    
    
    
    24,622Selling, general and administrative
(excluding stock-based compensation
expense)
    
    
    6,368
    
    
    
    2,565Stock-based compensation expense
    
    
    3,277
    
    
    
    2,106$
    49,855
    
    
    $
    29,947
 Cost of Product Sold The cost of product sold for Perfan I.V. increased slightly in the nine
months ended September 30, 2004 compared to the same period in 2003 due to the
increased number of units sold. The cost of Perfan I.V. sold as a percentage
of product sales was 31% and 32% for the nine months ended September 30, 2004
and 2003, respectively. 17




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Research and Development Research and development expenses, excluding stock-based compensation
expenses, are summarized as follows: Nine Months EndedSeptember 30,2004
    
    2003(In thousands)DevelopmentEnoximone capsules
    
    $
    19,079
    
    
    $
    12,988Ambrisentan
    
    
    11,745
    
    
    
    4,360Darusentan
    
    
    3,453
    
    
    
    Total development
    
    
    34,277
    
    
    
    17,348License feesEnoximone
    
    
    
    
    
    
    Ambrisentan
    
    
    1,500
    
    
    
    Darusentan
    
    
    
    
    
    
    5,000Other
    
    
    108
    
    
    
    Total license fees
    
    
    1,608
    
    
    
    5,000Discovery research
    
    
    3,536
    
    
    
    2,274Total research and development
    
    $
    39,421
    
    
    $
    24,622
 The increase in development costs for enoximone capsules in the nine
months ended September 30, 2004 as compared to the same period in 2003 was
primarily due to the following:  
    
    $4.5 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 trials;
    
    $470,000 increase related to enoximone raw material costs
expensed for expected use in manufacturing development and
analytical testing;
    
    $430,000 increase in costs associated with stability and
release testing;
    
    $350,000 increase in costs associated with producing clinical
trial materials for the ESSENTIAL trials; and
    
    $680,000 increase in the internal costs associated with the
management of the enoximone trials primarily due to an increase in
the number of employees. These increases were partially offset by a $260,000 decrease related to
manufacturing process optimization and development. The increase in development costs for ambrisentan in the nine months ended
September 30, 2004 as compared to the same period in 2003 was primarily related
to:  
    
    $6.2 million increase in expenses due to the cost of
initiating our two Phase III ARIES trials and the related extension
study;
    
    $1.8 million increase in expenses related to work on
developing the commercial manufacturing process for ambrisentan;
    
    $235,000 increase in expenses due to the extension study
associated with our Phase II PAH trial; and
    
    $570,000 increase in internal expenses associated with the
management of the ambrisentan trials, primarily due to an increase
in the number of employees. These increases were partially offset by a $1.6 million decrease related
to the conclusion of our Phase II PAH trial in September 2003. 18




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There were no development costs for darusentan in the nine months ended
September 30, 2003. The development costs for darusentan in the nine months
ended September 30, 2004 were related to costs for the Phase IIb clinical
trial:  
    
    $2.6 million in expenses incurred from clinical research;
    
    $300,000 in consulting costs;
    
    $135,000 in expenses related to analytical and regulatory work; and
    
    $375,000 in internal expenses associated with the management
of the darusentan trials primarily due to an increase in the number
of employees. In the nine months ended September 30, 2004, the license fees were
primarily attributable to the initiation of the ambrisentan Phase III trials
totaling $1.5 million. In the nine months ended September 30, 2003, the $5
million license fee was attributable to the in-licensing of darusentan. Discovery research expenses increased primarily due to increased staffing
costs related to our collaborative research program with Novartis in the nine
months ended September 30, 2004 as compared to the same period in 2003 which
was prior to the initiation of the Novartis collaboration. In addition, we had
a decrease of $150,000 in SBIR funding. Selling, General and Administrative The $3.8 million increase in selling, general and administrative expense
for the nine months ending September 30, 2004 compared to the same period in
2003 primarily relates to:  
    
    $1.5 million increase in insurance and professional service
costs related to being a public company;
    
    $935,000 related to increased staffing and related recruiting
costs;
    
    $260,000 increase related to facility and office maintenance
costs related to increased space and staffing;
    
    $200,000 in increased costs related to our German subsidiary
primarily due to timing of annual expenditures and an unfavorable
change in the euro exchange rate;
    
    $180,000 increase in market research costs; and
    
    $150,000 increase in conferences and consulting costs. Stock-Based Compensation Stock-based compensation expenses increased due to the options granted to
employees in the third quarter of 2003 with exercise prices below the fair
market value. The Company recorded a full period of amortization of deferred
compensation expense on these options in 2004, as compared to only a partial
period in 2003. The stock-based compensation expense for each period was
allocated between selling, general and administrative and research and
development as follows: Nine Months EndedSeptember 30,2004
    
    2003(In thousands)Research and development
    
    $
    1,621
    
    
    $
    1,244Selling, general and administrative
    
    
    1,656
    
    
    
    862$
    3,277
    
    
    $
    2,106
 19




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Interest Income, Net Interest income net of interest expense was $465,000 and ($63,000) for the
nine months ended September 30, 2004 and 2003, respectively. Interest income
was $825,000 and $362,000 for the nine months ended September 30, 2004 and
2003, respectively. The increase in interest income in 2004 relates to the
increased investment balance for the nine months of 2004. Interest expense
declined to $360,000 from $425,000 for the nine months ended September 30, 2004
and 2003, respectively, as a result of the reduced balance remaining on our
term loan. Accretion of Mandatorily Redeemable Convertible Preferred Stock Accretion of mandatorily redeemable convertible preferred stock was $11.6
million for the nine months ended September 30, 2003, and represents the
accretion associated with the Series A, Series C and Series D mandatorily
redeemable convertible preferred stock issued by us. There is no corresponding
expense in 2004 due to the conversion of all shares of the Series A, C and D
mandatorily redeemable convertible preferred stock into common stock on
November 4, 2003. Deemed Dividend 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 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 Adjustable Conversion Ratios.
Accordingly, the $39.9 million charge is deemed to be the equivalent of a
dividend on the Series D preferred stock. This deemed 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. There is no corresponding expense in 2004. Liquidity and Capital Resources From our inception on June 10, 1996 to September 30, 2004, we primarily
funded our operations with $258.0 million (net of issuance costs) from private
equity financings and our initial public offering, $10.0 million from sales of
Perfan I.V., $8.0 million related to a research and development contract, $5.3
million from term loans and $2.9 million from net interest income earned on
cash equivalents and short- and long-term investments. Cash, cash equivalents
and investments were $132.2 million and $114.3 million at September 30, 2004
and December 31, 2003, 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. In addition, on November 7, 2003, we completed our initial
public offering, raising net proceeds of $73.3 million. On September 29, 2004,
the Company completed a Private Investment in a Public Entity (PIPE) financing,
in which 9,195,400 new shares of common stock and warrants exercisable for
1,839,080 shares of common stock were issued for proceeds of $57.2 million, net
of $2.8 million in issuance costs. The warrants have an exercise price per
share of $7.80. Our cash outflows through the end of 2005 are expected to
consist primarily of external expenses related to our research and development
programs and 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. Based on current spending projections, we believe that our
cash, cash equivalents and investment balances, which include the proceeds from
our recently completed PIPE, together with theproceeds of the Novartis
collaboration, are sufficient to fund our future operations, including capital
expenditures through at least the end of 2005. We intend to pursue potential
additional collaborations and future equity offerings. 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. Our cash, cash equivalents and 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. 20




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At September 30, 2004, we had approximately $2.3 million in net fixed
assets. We expect to purchase additional equipment and to invest in leasehold
improvements, and we expect our spending on capital assets to grow in future
years. Operating activities resulted in net cash outflows of $36.1 million and
$22.9 million for the nine months ended September 30, 2004 and 2003,
respectively. The cumulative net cash outflow from operating activities from
our inception to September 30, 2004 was $124.4 million. The use of cash in all
periods was primarily a result of our losses from operations. Investing activities resulted in net cash inflows of $20.6 million and net
cash outflows of $16.1 million for the nine months ended September 30, 2004 and
2003, respectively. The net cash inflow for the nine months ended September 30,
2004 resulted from $1.4 million in capital asset expenditures and $91.7 million
in purchases of investments offset by $113.6 million in proceeds related to the
maturity of short-term investments. The net cash outflow for the nine months
ended September 30, 2003 resulted from $145,000 in capital asset expenditures,
proceeds from the sale of capital assets of $318,000 and $51.2 million in
purchases of investments offset by $34.9 million in proceeds from the sale of
short-term investments. Cumulative investing activities from inception to
September 30, 2004 resulted in net cash outflows of $51.5 million, with $3.8
million in net capital asset expenditures offset by $332,000 in proceeds from
the sale of property and equipment and $415.1 million in purchases of
investments offset by $367.0 million in proceeds from the maturity of
short-term investments. Financing activities resulted in net cash inflows of $55.9 million and
$39.3 million for the nine months ended September 30, 2004 and 2003,
respectively. Financing activities for the nine months ended September 30, 2004
and 2003 consisted primarily of payments of $1.3 million and $669,000 on our
term loan, respectively. On September 29, 2004, the Company completed a PIPE
financing, in which 9,195,400 new shares of common stock and warrants
exercisable for 1,839,080 shares of common stock were issued for total proceeds
of $57.2 million, net of $2.8 million in issuance costs. In November 2003, we
completed an initial public offering of 5,750,000 shares of our common stock,
including the underwriters over-allotment. 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 $73.3 million from its initial public offering, net of
$7.2 million in expenses and underwriters discount relating to the issuance
and distribution of the securities. On August 27, 2003, we raised net proceeds
of $39.9 million through the sale of additional shares of our Series D
preferred stock. Cumulative financing activities from our inception to
September 30, 2004 resulted in net cash inflows of $260.6 million, primarily
related to the issuance of our Series A, C and D preferred stock, the sale of
shares of our common stock in our initial public offering, the PIPE and
borrowings under our term loans. Total operating lease expense for the nine months ended September 30, 2004
and 2003 was approximately $390,000 and $300,000, respectively. Effective
November 1, 2004, the lease for our office and laboratory space was amended to
extend the lease term to October 31, 2008, add an additional 2,025 square feet
of office space and lower the rent per square foot. We have future payment
commitments for operating leases of approximately $1.0 million, principally for
our office and laboratory space as of September 30, 2004. As a result of this
amendment, our future payment commitments for operating leases increased to
approximately $1.5 million, as a result of the increased lease term and square
footage, offset by a decrease in rent per square foot. 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. Based on current spending projections, we anticipate that our current
cash, cash equivalents and investments, which includes the proceeds from our
recently completed PIPE, together with the proceeds of the Novartis
collaboration, will be sufficient to fund our operations through at least the
end of 2005. 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. 21




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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 consolidated 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 that require the use of estimates and informed management judgments
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 in accordance with SEC Staff Accounting Bulletin No.
104 Revenue Recognition in Financial Statements (SAB 104). Arrangements with
multiple elements are accounted for in accordance with Emerging Issues Task
Force Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, or EITF
00-21. We consider this methodology to be the most appropriate for our business
model and current revenue streams. Product Sales.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s consignment stock 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. Research and development contracts.We may enter into collaborative
agreements with pharmaceutical companies where the other party generally
receives exclusive marketing and distribution rights for certain products for
set time periods and set geographic areas. The rights associated with this
research and development are assigned or can be assigned to the collaborator or
through a license at the collaborators option. The terms of the collaborative
agreements can include non-refundable licensing fees, funding of research and
development efforts, payments based on achievement of certain milestones, and
royalties on product sales. We analyze our multiple element arrangements to
determine whether the elements can be separated and accounted for individually
as separate units of accounting in accordance with EITF 00-21.We recognize
up-front license payments as revenue if the license has standalone value and
the fair value of the undelivered items can be determined. If the license is
considered to have standalone value but the fair value on any of the
undelivered items cannot be determined, the license payments are recognized as
revenue over the period of performance for such undelivered items or services. Non-refundable license fees received are recorded as deferred revenue once
received or irrevocably committed, and are recognized ratably over the longer
of the development period to which they relate or the expected duration of the
contractual relationship. Where there are two or more distinct phases embedded
into one contract (such as product development and subsequent commercialization
or manufacturing), the contracts may be considered multiple element
arrangements. When it can be demonstrated that each of these phases is at fair
value, they are treated as separate earnings processes with upfront fees being
recognized over only the initial product development phase. The relevant time
period for the product development phase is based on management estimates and
could vary depending upon the outcome of clinical trials and the regulatory
approval process. As a result, management frequently reviews the appropriate
time period. Milestone payments, based on designated achievement points that are
considered at risk and substantive at the inception of the collaborative
contract, are recognized as earned when the earnings process is complete and
the corresponding payment is reasonably assured. We evaluate whether milestone
payments 22




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are at risk and substantive based on the contingent nature of the
milestone, specifically reviewing factors such as the technological and
commercial risk that needs to be overcome and the level of investment required.
Milestone payments related to arrangements under which we have continuing
performance obligations are recognized as revenue upon achievement of the
milestone only if all of the following conditions are met: the milestone
payments are non-refundable; achievement of the milestone was not reasonably
assured at the inception of the arrangement; substantive effort is involved in
achieving the milestone; and the amount of the milestone payment is reasonable
in relation to the effort expended or the risk associated with the achievement
of the milestone. If any of these conditions are not met, the milestone
payments are deferred and recognized as revenue over the term of the
arrangement as the Company completes its performance obligations. Revenue from research funding is recognized when the services are
performed and is typically based on the fully burdened cost of a researcher
working on a collaboration. Revenue is recognized ratably over the period as
services are performed, with the balance reflected as deferred revenue until
earned. 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. 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 where
the reimbursing party does not obtain any rights to the research or drug
candidates 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. 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. These expenses are based on the fair value of the options
and common stock. Because there has been no public market for our common stock
until recently, we have estimated the fair value of these equity instruments
using various valuation methods. Subsequent to our initial public offering on
October 30, 2003, we estimate the fair value of these equity instruments using
the value for our common stock that the public market establishes. Deferred
stock-based 23




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##### Table of Contents



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). 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. We record full valuation allowances against our net deferred tax asset
balances, 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. On October 4, 2004, President Bush signed into law the Working Families
Tax Relief Act of 2004 (2004 Act). Included as part of the 2004 Act is a
provision that reinstates the research tax credit that expired on June 30,
2004. The reinstatement is retroactive to June 30, 2004 and the credit will be
available through December 31, 2005. We are currently evaluating the impact of
this reinstatement, which could have an impact on the Companys research and
development credit for the year ended December 31, 2004. 24




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##### Table of Contents



RISK FACTORS Set forth below and elsewhere in this report, as well as in our annual report
on Form 10-K for the year ended December 31, 2003, in Myogens other periodic
reports on Form 10-Q and Form 8-K and in Myogens Registration Statement on
Form S-3, 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;
    
    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 2004, this rate of cash consumption would have
been even higher had research and development funding not been received. In the
first nine months of 2004, our operations consumed approximately $4.0 million
of cash per month, compared to approximately $2.5 million of cash per month in
calendar 2003. We expect that our monthly cash used by operations will continue
to increase for the next several years. Based on current spending projections,
we believe that our current cash, cash equivalents and investments, which
includes the proceeds from our recently completed PIPE, together with the
proceeds of the Novartis collaboration, are sufficient to fund operations
through at least the end of 2005. 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. 25




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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 some cardiovascular disease trials is
particularly intense because of the limited number of leading specialist
physicians and the geographic concentration of major clinical centers. In
particular, a number of factors may decrease the pace of enrollment in our
Phase III ARIES trials of ambrisentan in pulmonary arterial hypertension (PAH)
from what we have projected. These factors include the inclusion of placebo
control groups, which may decrease the pace of enrollment compared to our Phase
II trial; competing trials being conducted by Encysive Pharmaceuticals Inc. of
sitaxsentan in substantially similar PAH patient populations; the expected
Phase IV trial of Tracleer in PAH patients with Class II symptoms to be
conducted by Actelion Ltd.; and the continued or increased off-label
prescription of sildenafil (Viagra) in patients with PAH based on the results
of a Phase III trial conducted by Pfizer and reported at the annual conference
of the American College of Chest Physcians in October 2004. We have committed
additional resources to the ARIES trials in an attempt to increase the
likelihood of completing enrollment in our expected time frame. These efforts
may not be successful in increasing or maintaining the current enrollment
rates. As a result of all of the numerous factors which can affect the pace of
progress of clinical trials, 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. These trials are subject to delays stemming from patient withdrawal
and from lower than expected event rates. Our product development costs will
also increase if we need to perform more or larger clinical trials than
planned. If other companies product candidates show favorable results, we may
conduct additional clinical trials. 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.  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.  Our applications for regulatory approval could be delayed or denied due
to problems with studies conducted before we in-licensed the product
candidates. We are developing product candidates, including enoximone capsules,
ambrisentan and darusentan, that we have in-licensed from other pharmaceutical
companies. Many of the pre-clinical studies and some of the clinical studies on
these product candidates were conducted by other companies before we
in-licensed the product candidates. In some cases, the studies were conducted
when regulatory requirements were different from today. We would incur
unanticipated costs and experience delays if we were required to repeat some or
all of those studies. Even if the previous studies are acceptable to regulatory
authorities, we may have to spend additional time analyzing and presenting the
results of the studies. Problems with the previous studies could cause our
regulatory applications to be delayed or rejected. For example, as a result of
changing regulatory standards, we may be required to repeat certain animal
toxicology studies for enoximone prior to the submission of our application for
marketing approval. If we must repeat these studies, we would experience an
increase in our expenditures and the final regulatory approval of enoximone
could be jeopardized or delayed. 26




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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. Preliminary results may not be confirmed upon full analysis
of the detailed results of a trial. 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 or prove to be safe. 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. The preliminary results of the
EMOTE trial announced in March 2004 demonstrated a six-month mortality rate of
38% for the group of patients receiving enoximone and 31% for the group of
patients receiving placebo. Although the difference in the mortality rates
between these two groups did not achieve statistical significance, we cannot
assure you that increased mortality will not occur at these lower doses in our
larger pivotal 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.  Market acceptance of our product candidates is uncertain. We cannot assure you that physicians will prescribe or patients will use
enoximone capsules, ambrisentan or darusentan, if they are approved. Physicians
will prescribe our products only if they determine, based on experience,
clinical data, side effect profiles and other factors, that they are preferable 27




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to other products then in use or beneficial in combination with other
products. Recommendations and endorsements by influential physicians will be
essential for market acceptance of our products, and we may not be able to
obtain these recommendations and endorsements. Because of prior reports of
increased mortality caused by high dose enoximone capsules in earlier clinical
trials, physicians may be unwilling to use enoximone capsules in treating their
patients. Physicians may not be willing to use ambrisentan and darusentan
because of demonstrated adverse side effects such as damage to testes in some
animal species. Additionally, market acceptance of endothelin receptor
antagonists will be limited because they are known to cause birth defects in
animals and are believed to do the same in humans. Enoximone capsules for the treatment of chronic heart failure and
ambrisentan for the treatment of PAH both address highly competitive markets
and the availability of other drugs and devices for the same indications may
slow or reduce market acceptance of our products. Drugs such as beta blockers,
angiotensin converting enzyme inhibitors and diuretics have been on the market
for many years, and physicians have experience with prescribing these products
for the treatment of chronic heart failure. Tracleer, a non-selective
endothelin receptor antagonist, is a drug that has been approved for PAH, the
same indication we intend for ambrisentan, and has been available since
December 2001. Adoption of ambrisentan may be slow if physicians continue to
prescribe Tracleer. In addition, sitaxsentan, an ETA selective endothelin
receptor antagonist like ambrisentan, is in clinical trials for the treatment
of PAH. Sitaxsentan is at a more advanced stage of development than ambrisentan
and could be on the market before ambrisentan. If sitaxsentan or sildenafil is
approved and achieves market acceptance prior to ambrisentan, the adoption of
ambrisentan may be slowed or reduced. Pfizer Inc is evaluating the use of
sildenafil (Viagra) for the treatment of PAH, and it reported results of a
278-patient Phase III trial at the annual meeting of the American College of
Chest Physicians in October 2004. The results of their study suggest that
sildenafil could become a major competitor to ambrisentan. Many other factors influence the adoption of new pharmaceuticals,
including marketing and distribution restrictions, adverse publicity, product
pricing and reimbursement by third-party payors. Even if our product candidates
achieve market acceptance, the market may not be large enough to result in
significant revenues. The failure of our product candidates to achieve market
acceptance would prevent us from ever generating meaningful product revenues.  If we are unable to develop adequate sales, marketing or distribution
capabilities or enter into agreements with third parties to perform some of
these functions, we will not be able to commercialize our products
effectively. We have limited experience in sales, marketing and distribution. To
directly market and distribute any products, we must build a sales and
marketing organization with appropriate technical expertise and distribution
capabilities. We may attempt to build such a sales and marketing organization
on our own or with the assistance of a contract sales organization. For some
market opportunities, we may need to enter into co-promotion or other licensing
arrangements with larger pharmaceutical or biotechnology firms in order to
increase the commercial success of our products. We may not be able to
establish sales, marketing and distribution capabilities of our own or enter
into such arrangements with third parties in a timely manner or on acceptable
terms. To the extent that we enter into co-promotion or other licensing
arrangements, our product revenues are likely to be lower than if we directly
marketed and sold our products, and some or all of the revenues we receive will
depend upon the efforts of third parties, and these efforts may not be
successful. Additionally, building marketing and distribution capabilities may
be more expensive than we anticipate, requiring us to divert capital from other
intended purposes or preventing us from building our marketing and distribution
capabilities to the desired levels.  Due to our reliance on contract research organizations and 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, ESSENTIAL and ARIES trials, as well as the clinical trials
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 28




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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.  If we do not find development and commercialization collaborators for our
product candidates, we may have to reduce or delay our rate of product
development and commercialization and increase our expenditures. Our existing collaborations have been with academic scientists and
institutions for basic scientific research and in 2003 we entered into a
research collaboration with Novartis relating to targets and compounds
identified in our discovery research program. To date, we have not entered into
any collaboration agreements for the development or commercialization of our
existing product candidates. We plan to enter into relationships with selected
pharmaceutical or biotechnology companies to help develop and commercialize our
product candidates. We may not be able to negotiate collaborations with these
other companies for the development or commercialization of our product
candidates on acceptable terms. If we are not able to establish such
collaborative arrangements, we may have to reduce or delay further development
of some of our programs, increase our planned expenditures and undertake
development and commercialization activities at our own expense. Any development or commercialization collaborations we have entered into
or may enter into with pharmaceutical or biotechnology companies, including our
research collaboration agreement with Novartis, are or will be subject to a
number of risks, including:  collaborators may not pursue further development and commercialization
of compounds resulting from collaborations or may elect not to renew research
and development programs;  collaborators may delay clinical trials, underfund a clinical trial
program, stop a clinical trial or abandon a product candidate, repeat or
conduct new clinical trials or require the development of a new formulation of
a product candidate for clinical testing;  a collaborator with marketing and distribution rights to one or more
of our products may not commit enough resources to the marketing and
distribution of our products, limiting our potential revenues from the
commercialization of these products; and  disputes may arise, delaying or terminating the research, development
or commercialization of our product candidates, or resulting in significant
legal proceedings.  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 PAH. United Therapeutics Corp. received FDA
approval in May 2002 for Remodulin for the treatment of PAH. GlaxoSmithKline
plc markets Flolan for PAH. 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 PAH
earlier than ambrisentan. Pfizer Inc is evaluating the use of sildenafil
(Viagra) for the treatment of PAH, and reported results of a 278-patient Phase
III trial at the annual meeting of the American College of Chest Physicians in
October 2004. The results of this study suggest that sildenafil could become a
major competitor to 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. In
addition, a number of companies, including Actelion and Speedel, are developing
renin inhibitors for the treatment of hypertension. We expect that competition
from pharmaceutical and biotechnology companies, universities and public and
private research institutions will increase. Many of these competitors have 29




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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.  Our corporate compliance program cannot guarantee that we are in compliance
with all potentially applicable regulations. The development, manufacturing, pricing, sales, and reimbursement of our
products, together with our general operations, are subject to extensive
regulation by federal, state and other authorities within the United States and
numerous entities outside of the United States. We are a relatively small
company with 90 employees, 38% of whom have joined us in the last 12 months. We
also have significantly fewer employees than many other companies that have the
same or fewer product candidates in late stage clinical development and we rely
heavily on third parties to conduct many important functions. Further, as a
publicly traded company we are subject to significant regulations, including
the Sarbanes-Oxley Act of 2002, some of which have either only recently been
adopted or are currently proposals subject to change. While we have developed
and instituted a corporate compliance program based on what we believe are the
current best practices and continue to update the program in response to newly
implemented or changing regulatory requirements, we cannot assure that we are
or will be in compliance with all potentially applicable regulations. For
example, we cannot assure that our management will not find a material weakness
in connection with its review of our internal control over financial reporting
pursuant to Section 404 of the Sarbanes-Oxley Act. We also cannot assure that
we could correct any such weakness to allow our management to assess the
effectiveness of our internal control over financial reporting as of December
31, 2004 in time to enable our independent registered public accounting firm to
attest that such assessment will have been fairly stated in our filings with
the Securities and Exchange Commission, or SEC, or attest that we have
maintained effective internal control over financial reporting as of December
31, 2004. If we fail to comply with any of these regulations we could be
subject to a range of regulatory actions, including suspension or termination
of clinical trials, the failure to approve a product candidate, restrictions on
our products or manufacturing processes, withdrawal of products from the
market, significant fines, or other sanctions or litigation.  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. Holders of our common stock may not be able to sell
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;
    
    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; 30




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
    
    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.  Since we will not obtain additional patent protection for enoximone capsules,
we expect to rely solely on the Hatch-Waxman Act and similar foreign statutes
to obtain market exclusivity. The primary composition of matter patents covering enoximone have expired.
We therefore have no direct means to prevent third parties from making,
selling, using or importing enoximone in the United States, Europe or Japan.
Instead, we expect to rely upon the United States Drug Price Competition and
Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act,
and applicable foreign legislation, to achieve market exclusivity for enoximone
capsules. For new drug applications, or NDAs, for new chemical entities not
previously approved, the Hatch-Waxman Act provides for marketing exclusivity to
the first applicant to gain approval for a particular drug by prohibiting
acceptance or approval of an abbreviated new drug application, or ANDA, from a
generic competitor for up to five years after approval of the original NDA.
This exclusivity only applies to submissions of an ANDA and would not prevent a
third party from conducting pivotal clinical trials and thereafter filing a
complete regulatory submission for enoximone. Our competitors will be free
during any period of statutory exclusivity to develop the data necessary either
to file an ANDA at the end of the exclusivity period or to conduct studies in
support of a complete NDA filing during the period of market exclusivity.
Japanese law may provide us with marketing exclusivity in that country for a
period up to six years following Japanese marketing approval. Although
statutory market exclusivity in Europe, the United States and Japan may apply
even when the composition of matter patent has already expired, it is possible
that enoximone will not qualify for such exclusivity, or alternatively, the
terms of the Hatch-Waxman Act, or similar foreign statutes, could be amended to
our disadvantage. If we do not qualify for marketing exclusivity for enoximone
capsules, the competition we face would increase, reducing our potential
revenues.  If we are unable to protect our proprietary technology, we may not be able to compete effectively. Our success depends in part on our ability to obtain and enforce patent
protection for our products, both in the United States and other countries, to
prevent our competitors from developing, manufacturing and marketing products
based on our technology. The scope and extent of patent protection for our
product candidates is uncertain and frequently involves complex legal and
factual questions. We cannot predict the breadth of claims that will be allowed
and issued in patents related to biotechnology or pharmaceutical applications.
Once such patents have issued, we cannot predict how the claims will be
construed or enforced. In addition, statutory differences between countries may
limit the protection we can obtain on some of our inventions outside of the
United States. For example, methods of treating humans are not patentable in
many countries outside of the United States. Furthermore, the patents that we have licensed with respect to enoximone,
ambrisentan and darusentan are owned by third parties. These third parties,
with our advice and input, are responsible for and control the prosecution and
enforcement of these patents. A failure by these third parties to adequately
prosecute and enforce these patents could result in a decline in the value of
the patents and have a material adverse 31




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effect on our business. Since we collaborate with third parties on some of our
technology, there is also the risk that disputes may arise as to the rights to
technology or drugs developed in collaboration with other parties. The coverage claimed in a patent application can be significantly narrowed
before a patent is issued, both in the United States and other countries. We do
not know whether any of our pending or future patent applications will result
in the issuance of patents. To the extent patents have been issued or will be
issued, we do not know whether these patents will be subject to further
proceedings that may limit their scope, provide significant proprietary
protection or competitive advantage, or cause them to be circumvented or
invalidated. Furthermore, patents already issued to us, or patents that may
issue on our pending applications, may become subject to dispute, including
interference, reissue or reexamination proceedings in the United States, or
opposition proceedings in foreign countries. Any of these proceedings could
result in the limitation or loss of rights. We also rely on trade secrets and proprietary know-how to develop and
maintain our competitive position. While we believe that we have protected our
trade secrets, some of our current or former employees, consultants, scientific
advisors or collaborators may unintentionally or willfully disclose our
confidential information to competitors or use our proprietary technology for
their own benefit. Furthermore, enforcing a claim alleging the infringement of
our trade secrets would be expensive and difficult to prove, making the outcome
uncertain. Our competitors may also independently develop equivalent knowledge,
methods and know-how or gain access to our proprietary information through some
other means.  We may be accused of infringing on the proprietary rights of third parties,
which could impair our ability to successfully commercialize our product
candidates. Our success depends in part on operating without infringing the
proprietary rights of third parties. It is possible that we may infringe on
intellectual property rights of others without being aware of the infringement.
If a patent holder believes that one of our product candidates infringes on its
patent, it may sue us even if we have received patent protection for our
technology. If another party claims we are infringing its technology, we could
face a number of issues, including the following:  
    
    defending a lawsuit, which is very expensive and time consuming;
    
    defending against an interference proceeding in the United States
Patent and Trademark Office, which also can be very expensive and time
consuming;
    
    receiving an adverse decision in a lawsuit or in an interference
proceeding resulting in the loss of some or all of our rights to our
intellectual property;
    
    paying a large sum for damages if we are found to be infringing;
    
    being prohibited from making, using, selling or offering for sale our
product candidates or our products, if any, until we obtain a license
from the patent holder. Such a license may not be granted to us on
satisfactory terms, if at all, and even if we are granted a license,
we may have to pay substantial royalties or grant cross-licenses to
our patents; and 32




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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,
long-term investments, 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 and the average duration of the issues in the portfolio is less
than nine months. As of September 30, 2004, we had an investment portfolio of short-term and
long-term investments 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 of $47.4 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 accumulated other
comprehensive income, 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. The euro is the functional currency for Myogen GmbH. We translate asset
and liability accounts to the U.S. dollar based on the exchange rate as of the
balance sheet date, while the income statement and cash flow statement amounts
are translated to the U.S. dollar at the average exchange rate for the period.
Exchange gains and losses resulting from such translation are included as a
separate component of stockholders equity. Transaction gains and losses are
recognized in income during the period in which they occur and are included in
selling, general and administrative expenses. 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. 33




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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, 2004 that have materially affected, or are reasonably
likely to materially affect, our internal controls over financial reporting. 34




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PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings
    
    None
 
 Item 2. Unregistered Sales of Securities and Use of Proceeds On October 29, 2003, the Registration Statement on Form S-1 (Reg. No.
333-108301) (the Registration Statement) we filed to register our Common
Stock in our initial public offering was declared effective by the Securities
and Exchange Commission. We intend to continue to use the net proceeds of the offering for research and
development, general corporate purposes and working capital. We continually
assess the specific uses and allocations for these funds. As of September 30,
2004, the $73.3 million of net proceeds remained available and were primarily
invested in short-term marketable securities. 
 Item 3. Defaults Upon Senior Securities
    
    None
 
 Item 4. Submission of Matters to a Vote of Security Holders
    
    None
 
 Item 5. Other Information
    
    None
 
 Item 6. 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.
 35




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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: November 10, 2004
    
    MYOGEN, INC./s/ Joseph L. TurnerJoseph L. TurnerSenior Vice President, Finance and
Administration and     Chief Financial
Officer
 36




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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.
 37