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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 Form 10-Q [x]
    
    Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
 For the quarterly period ended June 30, 2004 or [   ]
    
    Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
 For the transition period from            to Commission File Number 0-29993 INTRABIOTICS PHARMACEUTICALS, INC. (Exact name of Registrant as specified in its charter)
 DELAWARE
    
    94-3200380(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification Number)
 2483 East Bayshore Road, Suite 100
Palo Alto, CA 94303 (Address of principal executive offices) (650) 526-6800 (Registrants telephone number including area code) Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [   ] Indicate by checkmark whether registrant is an accelerated filer (as defined in
Rule 12b-2 of Securities Exchange Act of 1934). Yes
[   ] No [x] There were 8,842,927 shares of the Registrants common stock, par value $0.001,
outstanding as of June 30, 2004.




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TABLE OF CONTENTS INTRABIOTICS PHARMACEUTICALS, INC. FORM 10-Q QUARTER ENDED June 30, 2004 TABLE OF CONTENTS PagePART I.
    
    FINANCIAL INFORMATIONItem 1
    
    Financial Statements (unaudited)Condensed Balance Sheets as of June 30, 2004 and December 31, 2003
    
    
    3Condensed Statements of Operations for the Three-Month and Six-Month Periods Ended
June 30, 2004 and
2003
    
    
    4Condensed Statements of Cash Flows for the Six-Month Periods Ended June 30, 2004 and
2003
    
    
    5Notes to Condensed Financial Statements
    
    
    6Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3.
    
    Quantitative and Qualitative Disclosure About Market Risk
    
    
    15Item 4.
    
    Controls and Procedures
    
    
    15PART II.
    
    OTHER INFORMATIONItem 1
    
    Legal Proceedings
    
    
    16Item 2
    
    Changes in Securities and Use of Proceeds
    
    
    16Item 3
    
    Defaults Upon Senior Securities
    
    
    16Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    16Item 5
    
    Other Information
    
    
    16Item 6
    
    Exhibits and Reports on Form 8-K
    
    
    17SIGNATURES
    
    
    
    
    18EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  2




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PART I. FINANCIAL INFORMATION 
 Item 1. Financial Statements INTRABIOTICS PHARMACEUTICALS, INC. 
   JUNE 30,
    
    DECEMBER 31,2004
    
    2003(Unaudited)
    
    (Note 1)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    22,471
    
    
    $
    14,286Restricted cash
    
    
    250
    
    
    
    250Short-term investments
    
    
    35,746
    
    
    
    12,108Prepaid expenses
    
    
    655
    
    
    
    478Total current assets
    
    
    59,122
    
    
    
    27,122Property and equipment, net
    
    
    96
    
    
    
    20Other assets
    
    
    175
    
    
    
    184Total assets
    
    $
    59,393
    
    
    $
    27,326LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    803
    
    
    $
    141Accrued clinical liabilities
    
    
    2,483
    
    
    
    1,046Accrued employee liabilities
    
    
    136
    
    
    
    101Other accrued liabilities
    
    
    284
    
    
    
    410Total current liabilities
    
    
    3,706
    
    
    
    1,698Stockholders equity:Convertible preferred stock
    
    
    1,771
    
    
    
    1,771Common stock
    
    
    9
    
    
    
    5Additional paid-in capital
    
    
    280,824
    
    
    
    239,237Deferred stock compensation
    
    
    (157
    )
    
    
    (188
    )Accumulated other comprehensive income (loss)
    
    
    (56
    )
    
    
    2Accumulated deficit
    
    
    (226,704
    )
    
    
    (215,199
    )Total stockholders equity
    
    
    55,687
    
    
    
    25,628Total liabilities and stockholders equity
    
    $
    59,393
    
    
    $
    27,326
 See accompanying notes. 3




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INTRABIOTICS PHARMACEUTICALS, INC. 
   (UNAUDITED) THREE MONTHS ENDED
    
    SIX MONTHS ENDEDJUNE 30,
    
    JUNE 30,2004
    
    2003
    
    2004
    
    2003Operating expenses:Research and development
    
    $
    4,414
    
    
    $
    1,352
    
    
    $
    8,873
    
    
    $
    1,620General and administrative
    
    
    838
    
    
    
    1,043
    
    
    
    2,689
    
    
    
    2,708Total operating expenses
    
    
    5,252
    
    
    
    2,395
    
    
    
    11,562
    
    
    
    4,328Operating loss
    
    
    (5,252
    )
    
    
    (2,395
    )
    
    
    (11,562
    )
    
    
    (4,328
    )Interest income
    
    
    114
    
    
    
    45
    
    
    
    187
    
    
    
    71Net loss
    
    
    (5,138
    )
    
    
    (2,350
    )
    
    
    (11,375
    )
    
    
    (4,257
    )Non-cash deemed dividend related to beneficial conversion
feature of Series A preferred stock
    
    
    
    
    
    
    (1,418
    )
    
    
    
    
    
    
    (1,418
    )Non-cash dividends on Series A preferred stock
    
    
    (65
    )
    
    
    (47
    )
    
    
    (130
    )
    
    
    (47
    )Net loss applicable to common stockholders
    
    $
    (5,203
    )
    
    $
    (3,815
    )
    
    $
    (11,505
    )
    
    $
    (5,722
    )Basic and diluted net loss per share applicable to common
stockholders
    
    $
    (0.73
    )
    
    $
    (1.17
    )
    
    $
    (1.84
    )
    
    $
    (1.75
    )Shares used to compute basic and diluted net loss per share
applicable to common stockholders
    
    
    7,161
    
    
    
    3,270
    
    
    
    6,239
    
    
    
    3,269
 See accompanying notes. 4




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INTRABIOTICS PHARMACEUTICALS, INC. 
   (UNAUDITED) SIX MONTHS ENDED JUNE 30,2004
    
    2003Operating activitiesNet loss
    
    $
    (11,375
    )
    
    $
    (4,257
    )Adjustments to reconcile net loss to net cash used in operating activities:Amortization of deferred stock compensation
    
    
    31
    
    
    
    95Depreciation and amortization
    
    
    10
    
    
    
    52Stock compensation expense (recovery)
    
    
    (318
    )
    
    
    44Change in assets and liabilities:Prepaid expenses
    
    
    (177
    )
    
    
    (383
    )Other assets
    
    
    9
    
    
    
    (7
    )Accounts payable
    
    
    662
    
    
    
    (107
    )Accrued clinical liabilities
    
    
    1,437
    
    
    
    57Accrued employee liabilities
    
    
    35
    
    
    
    20Accrued restructuring charges
    
    
    
    
    
    
    (64
    )Other accrued liabilities
    
    
    (61
    )
    
    
    (37
    )Net cash used in operating activities
    
    
    (9,747
    )
    
    
    (4,587
    )Investing activitiesCapital expenditures
    
    
    (86
    )
    
    
    Purchase of short term investments
    
    
    (28,621
    )
    
    
    Sale or maturity of short-term investments
    
    
    4,925
    
    
    
    2,699Net cash (used in) provided by investing activities
    
    
    (23,782
    )
    
    
    2,699Financing activitiesProceeds from issuance of common stock, net of issuance costs
    
    
    41,714
    
    
    
    1Proceeds from issuance of Series A preferred stock and warrants, net
    
    
    
    
    
    
    3,212Net cash provided by financing activities
    
    
    41,714
    
    
    
    3,213Net increase in cash and cash equivalents
    
    
    8,185
    
    
    
    1,325Cash and cash equivalents at beginning of period
    
    
    14,286
    
    
    
    10,170Cash and cash equivalents at end of period
    
    $
    22,471
    
    
    $
    11,495Supplemental disclosure of non-cash information:Net deferred stock compensation (cancellations due to employee termination)
    
    $
    
    
    
    $
    (430
    )Beneficial conversion feature on Series A preferred stock
    
    $
    
    
    
    $
    (1,418
    )Issuance of common stock dividend on Series A preferred stock
    
    $
    130
    
    
    $
    Accrual for issuance of common stock dividend on Series A preferred stock
    
    $
    
    
    
    $
    (47
    )
 See accompanying notes. 5




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INTRABIOTICS PHARMACEUTICALS, INC. 
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 JUNE 30, 2004
 (Unaudited)
 Note 1. Basis of Presentation and Summary of Significant Accounting Policies The accompanying condensed financial statements are unaudited and have
been prepared by IntraBiotics Pharmaceuticals, Inc. (the Company) in
accordance with the rules and regulations of the Securities and Exchange
Commission for interim financial information, and in accordance with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in the
Companys annual audited financial statements (as required by accounting
principles generally accepted in the United States) have been condensed or
omitted. The interim condensed financial statements, in the opinion of
management, reflect all adjustments (consisting entirely of normal recurring
adjustments) necessary for a fair presentation of the Companys financial
position as of June 30, 2004, the results of its operations for the three and
six-month periods ended June 30, 2004 and 2003 and cash flows for the six-month
periods ended June 30, 2004 and 2003. The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the entire fiscal
year. These interim condensed financial statements should be read in
conjunction with the audited financial statements for the year ended December
31, 2003, which are contained in the Companys Annual Report on Form 10-K, and
filed with the Securities and Exchange Commission on March 19, 2004. The
condensed balance sheet as of December 31, 2003 is derived from such audited
financial statements. Use of Estimates The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes, including amounts accrued for clinical trial costs and
stock-based compensation. The Companys estimate of accrued costs is based on historical experience,
information received from third parties and on various other assumptions that
are believed 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
could therefore differ materially from those estimates under different
assumptions or conditions. Note 2. Stock-Based Compensation In February 2003, the Board approved a cancellation and re-grant of
308,835 unexercised stock options held by existing employees and directors of
the Company in a one-for-one exchange and 12,500 options that were re-granted
in connection with the cancellation of 54,166 unexercised stock options held by
a director of the Company. The newly granted options have an exercise price
equal to the closing price of the Companys common stock on the Nasdaq National
Market on February 5, 2003, or $2.76 per share. These options generally vest
over a four-year period and will expire in February 2008 if not previously
exercised. Variable accounting is being applied to the newly granted options
throughout their term. As permitted by Statement of Financial Accounting Standards No. 123 (SFAS
123), Accounting for Stock-Based Compensation, as amended by Statement of
Financial Standards No. 148, Accounting for Stock-Based Compensation 
Transition and Disclosure, the Company has elected to follow APB 25 and
related interpretations in accounting for stock-based employee compensation.
Under APB 25, if the exercise price of an employee or director stock option is
set equal or in excess of the fair market value of the underlying stock on the
date of grant, no compensation expense is recognized. In February 2003, certain
stock options for which the exercise prices had originally been set at less
than the fair market value of the underlying stock on the grant date, were
cancelled and re-granted in a one-for-one exchange. The Company had recorded
deferred compensation for the difference between the original exercise price
and the fair market value of the underlying stock on the grant date as a
component of stockholders equity, and the total was being amortized on a
straight-line basis over the vesting period of the original awards, ranging
from four to six years. The related re-granted options all vest over a
four-year period, and the remaining unamortized deferred compensation as of the
re-grant date is now being amortized over the new four-year vesting schedule,
commencing at the date of re-grant. 6




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Options or stock awards issued to non-employees are recorded at their fair
value as determined in accordance with SFAS 123 and the FASBs Emerging Issues
Task Force issue No. 96-18, Accounting for Equity Instruments That Are Issued
to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services, and are recognized over the related service period and are
periodically re-measured as the underlying options vest. The following table illustrates the effect on net loss applicable to
common stockholders and net loss per share applicable to common stockholders if
the Company had applied the fair value recognition provisions of SFAS 123 to
stock-based employee compensation (in thousands, except per share amounts): Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net loss applicable to common stockholders, as reported
    
    $
    (5,203
    )
    
    $
    (3,815
    )
    
    $
    (11,505
    )
    
    $
    (5,722
    )Add: Stock-based employee compensation expense
(recovery) included in reported net loss
    
    
    (953
    )
    
    
    57
    
    
    
    (662
    )
    
    
    119Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards
    
    
    (1,071
    )
    
    
    (387
    )
    
    
    (1,685
    )
    
    
    (810
    )Pro forma net loss applicable to common stockholders
    
    $
    (7,227
    )
    
    $
    (4,145
    )
    
    $
    (13,852
    )
    
    $
    (6,413
    )Net loss per share applicable to common stockholders:Basic and diluted  as reported
    
    $
    (0.73
    )
    
    $
    (1.17
    )
    
    $
    (1.84
    )
    
    $
    (1.75
    )Basic and diluted  pro forma
    
    $
    (1.01
    )
    
    $
    (1.27
    )
    
    $
    (2.22
    )
    
    $
    (1.96
    )
 The fair value for the Companys options was estimated at the date of
grant using the Black-Scholes option pricing model for the three- and six-month
periods ended June 30, 2004 and 2003 with the following weighted-average
assumptions: Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Risk-free interest rates
    
    
    3.70
    %
    
    
    2.32
    %
    
    
    3.40
    %
    
    
    2.62
    %Volatility
    
    
    1.00
    
    
    
    1.00
    
    
    
    1.00
    
    
    
    1.00Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected life of option
    
    5 years
    
    5 years
    
    5 years
    
    5 years
 Note 3. Comprehensive Loss The components of comprehensive loss in each period presented are as
follows: Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net loss applicable to common stockholders
    
    $
    (5,203
    )
    
    $
    (3,815
    )
    
    $
    (11,505
    )
    
    $
    (5,722
    )Unrealized loss on available-for-sale securities
    
    
    (56
    )
    
    
    
    
    
    
    (58
    )
    
    
    Comprehensive loss
    
    $
    (5,259
    )
    
    $
    (3,815
    )
    
    $
    (11,563
    )
    
    $
    (5,722
    )
 Note 4. Net Loss Per Share Basic and diluted net loss per share applicable to common stockholders is
presented in accordance with Financial Accounting Standards Board Statement No.
128, Earnings Per Share, and is calculated using the weighted-average number
of shares of common stock outstanding during the period. Diluted net loss per
share applicable to common stockholders includes the impact of potentially
dilutive securities (stock options, warrants and convertible preferred stock).
As the Companys potentially dilutive securities were anti-dilutive for all
periods presented, they are not included in the calculations of diluted net
loss per share applicable to common 7




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stockholders. The total number of shares underlying the stock options,
warrants and convertible preferred stock excluded from the calculations of
diluted net loss per share applicable to common stockholders was 3,670,296 and
2,724,878 for the three-month periods ended June 30, 2004 and 2003,
respectively, and 3,502,796 and 2,668,892 for the six-month periods ended June
30, 2004 and 2003, respectively. Note 5. Commitments At June 30, 2004, the Company has a total of $425,000 in commitments to
its contract manufacturer for drug substance, representing $250,000 due upon
acceptance of a drug order, when and if such acceptance occurs, and $175,000 in
fees for storage of iseganan until December 2007, although such storage
requirements are currently being discussed with the contract manufacturer. On June 11, 2004, the Company agreed to lease additional office space for
the period July 1, 2004 to June 30, 2005, being the same term as the existing
facility lease. The new lease for both the new and existing premises includes
an option to extend the lease term until December 31, 2005 at the then market
rate for the building. Under the terms of the lease, the Company is committed
to pay rent of approximately $161,000 in 2004 and $161,000 in 2005. The
Company is currently seeking to reduce lease obligations by searching for
potential tenants to take over a portion of the facilities. Note 6. Stockholders Equity On May 10, 2004, the Company issued and sold 3,000,000 shares of common
stock, $0.001 par value, in an underwritten public offering, and on June 8,
2004, the underwriters exercised their over-allotment option to purchase an
additional 450,000 shares of common stock. The combined sale of 3,450,000
shares resulted in total net proceeds of approximately $41.5 million, based on
a public offering price of $13.00 per share, and after deducting the
underwriting discount and commissions and other offering expenses. Note 7. Iseganan Development Program Discontinuation In June 2004, the Company discontinued its clinical trial of iseganan for
the prevention of ventilator-associated pneumonia (VAP), following a
recommendation of the independent data monitoring committee. The Company has
since terminated its iseganan development program, and is focusing efforts on
evaluating its strategic options,including mergers, acquisitions, in-licensing
opportunities, and liquidation of the Company. No adjustments have been
recorded to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty. Note 8. Legal Proceedings Beginning on July 2, 2004, two purported class action shareholder
complaints were filed in the United States District Court for the Northern of
California against IntraBiotics and several of our officers. The actions were
purportedly brought on behalf of purchasers of IntraBiotics common stock
between September 5, 2003 and June 22, 2004 and generally allege that the
defendants made false or misleading statements concerning the clinical trial of
iseganan. The plaintiffs seek unspecified monetary damages. The Company
believes the suits to be without merit and intends to defend itself vigorously. 8




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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations The following discussion and analysis of our financial condition and
results of operations should be read together with our financial statements and
related notes included in our quarterly report on thisForm 10-Qand in our
annual report onForm 10-Kfor the year ended December 31, 2003. This
discussion and analysis contains forward-looking statements that involve risks,
uncertainties and assumptions. The actual results may differ materially from
those anticipated in these forward-looking statements as a result of many
factors, including but not limited to those set forth under Factors That Could
Affect Future Results. All forward-looking statements included in this
document are based on information available to us on the date of this document
and we assume no obligation to update any forward-looking statements contained
in thisForm 10-Q. Overview Since inception, we have devoted substantially all of our efforts to
research and development of anti-microbial drugs, and have generated no product
revenues. Since the fourth quarter of 2002, we have focused our efforts on
developing iseganan for the prevention of ventilator-associated pneumonia
(VAP). In June 2004, we discontinued our clinical trial of iseganan for the
prevention of VAP following a recommendation of the independent data monitoring
committee. We have terminated our iseganan development program, and are now
evaluating our strategic options,including mergers, acquisitions, in-licensing
opportunities, and liquidation of the Company. Our future operations and
financial condition will depend on the direction that we elect to pursue. On June 30, 2004, we had a total of $58.5 million in cash, cash
equivalents, restricted cash and short-term investments. Current liabilities
totaled $3.7 million. We have no long-term debt or other long-term obligations.
Based upon currently projected expenses for the second half of 2004, we expect
to have available cash and investments of between approximately $46.0 million
and $50.0 million at December 31, 2004, after providing for estimated
liabilities. There can be no assurance that such a range will be achieved, as
actual expenditures may differ significantly from projected expenditures. Our
accumulated deficit as of June 30, 2004 was $226.7 million. We intend that the following discussion of our financial condition and
results of operations will provide information to assist in the understanding
of our financial statements, the changes in certain key items in those
financial statements from year to year, and the primary factors that accounted
for those changes, as well as how certain accounting principles, policies and
estimates affect our financial statements. Critical Accounting Policies General Our discussion and analysis of our financial condition and results of
operations is based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities
and expenses, and related disclosures. On an ongoing basis, we evaluate these
estimates, including those related to clinical trial accruals and stock-based
compensation. Estimates are based on historical experience, information
received from third parties and on various other assumptions that are believed
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 could therefore
differ materially from those estimates under different assumptions or
conditions. An accounting policy is deemed to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly
uncertain at the time the estimate is made, and if different estimates that
reasonably could have been used, or changes in the accounting estimates that
are reasonably likely to occur periodically, could materially impact the
financial statements. Management believes the following critical accounting
policies reflect its more significant estimates and assumptions used in the
preparation of the financial statements. Clinical Trial Accruals The Companys accrued costs for clinical trial activities are based upon
estimates of the services received and related expenses incurred that have yet
to be invoiced by the contract research organizations (CROs), investigators,
drug processors, laboratories, 9




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consultants, or other clinical trial service providers that perform the
activities. Related contracts vary significantly in length, and may be for a
fixed amount, a variable amount based on actual costs incurred, capped at a
certain limit, or for a combination of these elements. Activity levels are
monitored through close communication with the service provider, including
detailed invoice and task completion review, analysis of expenses against
budgeted amounts, and pre-approval of any changes in scope of the services to
be performed. Each CRO provides an estimate of costs incurred but not invoiced
at the end of each period for each individual trial. The estimates are reviewed
and discussed with the CRO as necessary, and included in research and
development expenses for the related period. For investigator study grants,
which are paid quarterly on a per-patient basis to the institutions performing
the clinical study, the Company accrues an estimated amount based on patient
enrollment in each quarter. All estimates may differ significantly from the
actual amount subsequently invoiced. No adjustments for material changes in
estimates have been recognized in any period presented. Stock-Based Compensation In February 2003, the Board of Directors approved a cancellation and
re-grant of 308,835 unexercised stock options held by existing employees and
directors of the Company in a one-for-one exchange and 12,500 options that were
re-granted in connection with the cancellation of 54,166 unexercised stock
options held by a director of the Company. The options generally vest over a
four-year period and will expire in February 2008 if not previously exercised.
Variable accounting is being applied to the re-granted options throughout their
term. The related compensation expense depends on both the cumulative vesting
of outstanding options and the price of the Companys common stock at each
quarter end, and therefore may have a significant impact on the Companys
future results of operations. No adjustments for material changes in estimates
have been recognized in any period presented. As permitted by Statement of Financial Accounting Standards No. 123 (SFAS
123), Accounting for Stock-Based Compensation, as amended by Statement of
Financial Standards No. 148, Accounting for Stock-Based Compensation 
Transition and Disclosure, the Company has elected to follow APB 25 and
related interpretations in accounting for stock-based employee compensation.
Under APB 25, if the exercise price of an employee or director stock option is
set equal or in excess of the fair market value of the underlying stock on the
date of grant, no compensation expense is recognized. In February 2003, certain
employee and director stock options for which the exercise prices had
originally been set at less than the fair market value of the underlying stock
on the grant date, were cancelled and re-granted in a one-for-one exchange. The
Company had recorded deferred compensation for the difference between the
original exercise price and the fair market value of the underlying stock on
the grant date as a component of stockholders equity, and the total was being
amortized on a straight-line basis over the vesting period of the original
awards, ranging from four to six years. The related re-granted options all vest
over a four-year period, and the remaining unamortized deferred compensation as
of the re-grant date is now being amortized over the new four-year vesting
schedule, commencing at the date of re-grant. The amount of deferred stock
compensation expense to be recorded in future periods could decrease if
options, for which accrued but unvested compensation has been recognized, are
forfeited prior to vesting. No adjustments for material changes in estimates
have been recognized in any period presented. Options or stock awards issued to non-employees are recorded at their fair
value as determined in accordance with SFAS 123 and the FASBs Emerging Issues
Task Force issue No. 96-18, Accounting for Equity Instruments That Are Issued
to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services, and are recognized over the related service period and are
periodically re-measured as the underlying options vest. The fair values are
estimated using the Black-Scholes option pricing model, and are periodically
re-measured as the underlying options vest. The option pricing model is
dependent on a number of inputs, which may change over time. Other option
pricing models may produce fair values that are substantially different from
the Black-Scholes model. No adjustments for material changes in estimates have
been recognized in any period presented. Results of Operations Three- and Six-Month Periods Ended June 30, 2004 and 2003 Research and Development Research and development expenses primarily include clinical trial
expenses, research and development payroll expense, drug substance expense,
allocated facilities costs and non-cash stock compensation. Research and
development expenses increased to $4.4 million and $8.9 million in the three-
and six-month periods ended June 30, 2004 as compared to $1.4 million and $1.6
million in the same periods of 2003. The increases in the three- and six-month
periods of 2004 are primarily due to expenses relating to a clinical trial of
iseganan for the prevention of VAP, which commenced in September 2003. The
trial was discontinued on June 23, 2004 following a recommendation of the
independent data monitoring committee. Clinical trial activities for the
three- and six-month periods of 2003 were related to preparation for this
trial. 10




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We have terminated our iseganan development program and we do not plan to
re-commence or start new clinical trial activities for iseganan. We expect our
research and development expenses in the near future to be primarily related to
VAP trial closure activities. Although we currently expect our clinical trial
expenses to decrease in the second half of 2004 as compared to the first six
months of 2004, there may still be significant expense incurred in relation to
the VAP trial closure. These expenses will be recorded as they are incurred.
Research and development expenses may also vary significantly depending on the
strategic alternative that we elect to pursue. General and Administrative General and administrative costs primarily include administrative payroll
expense, outside contractors, legal and accounting fees, insurance, non-cash
stock compensation, facilities and other general administrative expenses.
General and administrative expenses were $0.8 million and $2.7 million for the
three-and six-month periods ended June 30, 2004 as compared to $1.0 million and
$2.7 million in the comparable periods of 2003. The decrease between the
three-month periods is primarily due to a non-cash stock compensation recovery
of $0.9 million in the second quarter of 2004 as compared to non-cash stock
compensation expense of $0.1 million in the same period of 2003. The credit
results from variable accounting being applied to re-priced stock options from
February 2003, and the decrease in the Companys common stock
price from prior periods. The decrease was partially offset by an increase in
consulting, legal and recruiting fees. For the six-month period ended June 30,
2004, general and administrative expenses were the same as compared to the
comparable period of 2003. An increase in general and administrative
expenditures in the first six months of 2004 primarily related to higher
consulting and recruiting fees was offset by a non-cash stock compensation
recovery of approximately $0.3 million. General and administrative costs may
vary significantly in the second half of 2004 as compared to the first six
months of 2004, depending on the strategic alternatives we elect to pursue. Interest Income Interest income was $114,000 and $187,000 in the three- and six-month
periods ended June 30, 2004, as compared to $45,000 and $71,000 in the same
periods of 2003. The increase in interest income resulted from an increase in
average interest earning investment balances in the 2004 periods as compared to
the 2003 periods due to the follow-on public offering closed in the second
quarter of 2004. Net Loss and Net Loss Applicable to Common Stockholders Net loss applicable to common stockholders was $5.2 million and $11.5
million for the three- and six-month periods ended June 30, 2004, as compared
to $3.8 million and $5.7 million in the same periods of 2003. The losses in
2003 include the impact of a non-cash deemed dividend related to a beneficial
conversion feature on our Series A preferred stock of $1.4 million. The losses
also include the impact of non-cash Series A preferred stock dividends of
$65,000 and $130,000 in the three- and six-month periods ended June 30, 2004,
and $47,000 in both periods of 2003. Preferred stock dividends represent the 8%
annual dividends payable quarterly in common stock to the holders of our Series
A preferred stock. Liquidity and Capital Resources At June 30, 2004, we had cash and cash equivalents of $22.5 million,
representing an increase of $8.2 million from the balance of $14.3 million as
of December 31, 2003. Short-term investments were $35.7 million at June 30,
2004 as compared to $12.1 million at December 31, 2003, and restricted cash was
$250,000 at both dates. We had no debt outstanding as of June 30, 2004. We
invest excess funds in short-term money market funds and securities pursuant to
our investment policy guidelines. Net cash used in operating activities for the six-month periods ended June
30, 2004 and 2003 was $9.7 million and $4.6 million. The cash used consisted
primarily of the net loss for each period, adjustments for non-cash stock
compensation and changes in prepaid expenses, accounts payable, and accrued
clinical liabilities. Net cash used in investing activities for the six-month period ended June
30, 2004 was $23.8 million and net cash provided by investing activities for
the six-month period ended June 30, 2003 was $2.7 million. The cash used in the
2004 period related to the purchase of $28.6 million of short-term investments
and $0.1 million in capital expenditure, partially offset by proceeds from the
sale or maturity of short-term investments of $4.9 million. The cash provided
in 2003 related to the sale or maturity of short-term investments. 11




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Net cash provided by financing activities for the six-month periods ended
June 30, 2004 and 2003 was $41.7 million and $3.2 million. The cash provided in
2004 was primarily related to a public offering closed in the second quarter of
2004, in which we sold 3,450,000 shares of common stock at $13.00 per share.
The net proceeds to us were approximately $41.5 million, after deducting the
underwriter discount and commissions and other offering expenses. The cash
provided in 2003 was primarily related to a private placement transaction in
May 2003, in which we sold 350 shares of a newly created Series A convertible
preferred stock and issued warrants to purchase 920,699 shares of common stock,
resulting in net proceeds of $3.2 million. Based upon currently projected expenses for the second half of 2004, the
Company expects to have available cash and investments of between approximately
$46.0 million and $50.0 million at December 31, 2004, after providing for
estimated liabilities. There can be no assurance that such a range will be
achieved, as actual expenditures may differ significantly from projected
expenditures. Contractual Obligations The impact that our contractual obligations as of June 30, 2004 are
expected to have on our liquidity and cash flow in future periods are as
follows: Payments Due by PeriodLess than
    
    Between
    
    Between
    
    More thanTotal
    
    1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 Years(In thousands)Drug substance(1)
    
    $
    425
    
    
    $
    250
    
    
    $
    50
    
    
    $
    50
    
    
    $
    75Operating leases(2)
    
    
    322
    
    
    
    322
    
    
    
    
    
    
    
    
    
    
    
    Total contractual commitments
    
    $
    747
    
    
    $
    572
    
    
    $
    50
    
    
    $
    50
    
    
    $
    75
   (1)
    
    Drug substance commitments are to the contract manufacturer of iseganan
bulk drug substance. The commitment represents the potential payment of
$250,000 upon acceptance of an order, when and if acceptance occurs, and
$175,000 in fees for storage of iseganan through 2007, although such
storage requirements are currently being discussed with the contract
manufacturer.(2)
    
    Operating leases relate to the lease for our facilities in Palo Alto,
California. On June 11, 2004, we leased additional facilities in the same
building for the period July 1, 2004 to June 30, 2005. The new lease for
all our premises includes an option to extend until December 31, 2005 at
the then market rate for the building. Under the terms of the lease, the
Company is committed to pay rent of approximately $161,000 in 2004 and
$161,000 in 2005. The Company is currently seeking to reduce lease
obligations by searching for potential tenants to take over a portion of
the facilities. There were no purchase obligations as of June 30, 2004 that included
material penalties for cancellation. Indemnifications In the ordinary course of business, we enter into contractual arrangements
under which we may agree to indemnify the third party to such arrangement from
any losses incurred relating to the services they perform on behalf of
IntraBiotics or for losses arising from certain events as defined within the
particular contract, which may include, for example, litigation or claims
relating to past performance. Such indemnification obligations may not be
subject to maximum loss clauses. Historically, payments made related to these
indemnifications have been immaterial. In addition, we have entered into
indemnity agreements with each of our directors and executive officers. Such
indemnity agreements contain provisions, that are in some respects broader than
the specific indemnification provisions contained in Delaware law. We also
maintain an insurance policy for our directors and executive officers insuring
against certain liabilities arising in their capacities as such. We expect to
make payments under some of these agreements in connection with the class
action litigation referred to in Part II, Item I  Legal Proceedings (Class
Action Litigation). The amount of such payments cannot be determined at this
time, but they could be material. Future Capital Requirements We expect to continue to incur operating losses and will not receive any
product revenues. Our efforts are focused on pursuing strategic options,
including mergers, acquisitions, in-licensing opportunities, and liquidation of
the company. We currently anticipate our cash, cash equivalents and investments
to be sufficient to fund the foregoing efforts for at least the next 12 months.
This forecast is a forward-looking statement that involves risks and
uncertainties, and actual results could vary. 12




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Factors That Could Affect Future Results Our business faces significant risks and the risks described below may not
be the only risks we face. Additional risks that we do not know of or that we
currently believe are immaterial may also impair our business operations. If
any of the events or circumstances described in the following risks actually
occurs, our business, financial condition, or results of operations could be
materially adversely affected. Directors, executive officers, principal stockholders and affiliated entities
beneficially own at least 46% of our capital stock and may be able to exert
control over our activities, and the results of our operations and financial
condition may suffer. As of June 30, 2004, our directors, executive officers, principal
stockholders and affiliated entities beneficially own, in the aggregate, at
least 46% of our outstanding common stock. These stockholders, if they determine to vote the same, may be able to control the outcome of any matter requiring approval
by our stockholders, including the election of directors and the approval of
mergers or other business combination transactions or terms of any liquidation. The holders of our Series A preferred stock have voting and other rights that
they could exercise against your best interests. The holders of our Series A preferred stock have rights to designate two
members of our Board and to vote as a separate class on certain significant
corporate transactions. The holders of Series A preferred stock are entitled to
receive cumulative annual dividends of 8% of the original purchase price of
$10,000 per share, payable in common stock. In addition, upon our liquidation
or dissolution (including a merger or acquisition), the holders of our Series A
preferred stock are entitled to receive a liquidation preference in an amount
equal to the greater of (i) $10,000 per share of Series A preferred stock, or
approximately $3.25 million based on the 325 shares of Series A preferred stock
currently outstanding, plus any declared but unpaid dividends or (ii) the
amount that would have been paid had each such share of Series A preferred
stock been converted to common stock. The holders of Series A preferred stock
also have a right of first refusal to purchase their pro rata portion of any
equity securities we propose to offer to any person. Such right of first
refusal is subject to certain customary exclusions, including for shares issued
pursuant to any options or other stock awards granted to employees, directors
or consultants of IntraBiotics, equipment leasing arrangements, debt
financings, strategic financings and public offerings that have been approved
by the Board. The holders of Series A preferred stock may exercise these rights
to the detriment of our common stockholders. The holders of our Series A preferred stock also have the right at any
time to request that we register for resale the shares of our common stock that
they acquire upon conversion of their Series A preferred stock or upon exercise
of their warrants to purchase our common stock, subject to certain limitations.
A registration statement has been filed with the Securities and Exchange
Commission and is currently effective for the resale of the shares of common
stock issuable upon conversion of our Series A preferred stock and upon the
exercise of those warrants. In addition, the holders of our Series A preferred
stock may convert their Series A preferred stock into common stock and sell
those shares of the common stock acquired upon such conversion in the public
market in reliance upon Rule 144, subject in some cases to volume and other
limitations. Future sales in the public market of such common stock, or the
perception that such sales might occur, could adversely affect the prevailing
market price of our common stock. Anti-takeover provisions in our charter documents and under Delaware law may
make an acquisition of us more difficult. Provisions of our certificate of incorporation and bylaws could make it
more difficult for a third party to acquire us, even if doing so would be
beneficial to our stockholders. These provisions:  
    
    provide for a classified board of directors of which approximately one-third of the directors will be elected each year;
    
    allow the authorized number of directors to be changed only by resolution of the Board;
    
    require that stockholder actions must be effected at a duly called
stockholder meeting and prohibit stockholder action by written consent;
    
    establish advance notice requirements for nominations to the Board or
for proposals that can be acted on at stockholder meetings;
    
    require the approval from the holders of Series A preferred stock,
prior to May 1, 2005, for any merger into or consolidation 13




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##### Table of Contents



with any other corporation (other than a wholly-owned subsidiary
corporation or for the purposes of changing our domicile) or the completion
of any transaction or series of related transactions in which fifty percent
or more of our voting power is transferred or the sale, lease or other
disposition of all or substantially all of our assets;
    
    authorize our Board to issue blank check preferred stock to increase the amount of outstanding shares; and
    
    limit who may call stockholder meetings. In addition, because we are incorporated in Delaware, we are governed by
the provisions of Section 203 of the Delaware General Corporation Law, which
may prohibit large stockholders from consummating a merger with, or acquisition
of us. These provisions may prevent a merger or acquisition that would be
attractive to stockholders and could limit the price that investors would be
willing to pay in the future for our common stock. Our stock price has been, and will be volatile, and the value of your
investment may continue to decline. During the six-month period ended June 30, 2004, our closing stock prices
ranged from a low of $3.86 to a high of $18.00, and in 2003 ranged from a low
of $1.71 to a high of $16.95. Announcements regarding strategic alternatives,
including a merger or sale of the company, or acquisition or license of
products or product candidates, in addition to the other risk factors described
in this section, may have a significant impact on the market price of our
common stock. We expect to continue to incur operating losses. Our accumulated deficit as of June 30, 2004 was $226.7 million, and we
expect operating losses to continue at least through the end of 2004. During
this period we intend to incur costs for closure of the clinical trial of
iseganan,evaluate our strategic alternatives,including mergers,
acquisitions, in-licensing opportunities, and liquidation of the Company, possibly pursue one of the alternatives, and defend
the Class Action Litigation. We expect operating losses to continue into 2005,
but we cannot predict the magnitude and duration of such losses, since we are
currently unable to determine which strategic alternative we may elect to
pursue or whether we will be successful in achieving such alternative. We may not be able to complete the strategic alternative we initially elect to
pursue, resulting in increased expenses and a delay in finally completing a
selected alternative. We may select a strategic alternative that we may not be able to complete for
various reasons, including a decision of our principal stockholders not to
approve such alternative, our inability to obtain regulatory approval, actions
of other companies or litigation involving the selected alternative or other
matters. The cost of defense and ultimate disposition of the Class Action
Litigation could be material. We will incur expenses in defending the Class
Action Litigation and, although we believe this litigation is without merit, we
may incur monetary losses in connection with the final disposition of this
litigation that may be material. In addition, the pendency and or resolution
of the Class Action Litigation may adversely affect or limit our strategic
alternatives, including adversely affecting our financial results or our
ability to liquidate, or deterring other companies from entering into a merger
or acquisition with us. 14




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The primary objective of our investment activities is to preserve our capital
until it is required to fund operations while at the same time maximizing the
income we receive from our investments without significantly increasing risk.
As of June 30, 2004, we own financial instruments that are sensitive to market
risk as part of our investment portfolio. To minimize this risk, in accordance
with our investment policy guidelines, we place investments with high credit
quality issuers and limit the amount of credit exposure to any one issuer. The
average duration of our investment portfolio in the six-month period ended June
30, 2004 was less than one year. Due to the short-term nature of these
investments, a 50 basis point movement in market interest rates would not have
a material impact on the fair value of our portfolio as of June 30, 2004. We
have no investments denominated in foreign country currencies and therefore our
investments are not subject to foreign currency exchange risk. However, at
each quarter end we record accruals for costs incurred by clinical trial
investigators in Europe that in some cases are denominated in Euros. An
increase or decrease in the related exchange rate prior to payment will affect
our operating results accordingly. Due to the size of these accruals and the
relatively short time before they are paid, we currently do not use derivative
financial instruments to mitigate this exposure, although we will continue to
review this issue in the future. 
 ITEM 4. CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures Based on our managements evaluation (with the participation of our
principal executive officer and principal financial officer), as of the end of
the period covered by this report, our principal executive officer and
principal financial officer have concluded that our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended, (the Exchange Act)) are effective to ensure
that information required to be disclosed by us in reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms. (b) Changes in internal controls There was no change in our internal control over financial reporting during our
second fiscal quarter ended June 30, 2004 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting. 15




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##### Table of Contents



PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings (a) Beginning on July 2, 2004, two purported class action shareholder
complaints were filed in the United States District Court for the Northern of
California against IntraBiotics and several of our officers. The actions were
purportedly brought on behalf of purchasers of IntraBiotics common stock
between September 5, 2003 and June 22, 2004 and generally allege that the
defendants made false or misleading statements concerning the clinical trial of
iseganan for the prevention of ventilator-associated pneumonia. The plaintiffs
seek unspecified monetary damages. The Company believes the suits to be
without merit and intends to defend itself vigorously. (b) No legal proceedings were terminated in the second quarter. 
 Item 2. Changes in Securities and Use of Proceeds and Issuer Purchases of
Equity Securities On May 10, 2004, the Company issued and sold 3,000,000 shares of common
stock, $0.001 par value, in an underwritten public offering, and on June 8,
2004, the underwriters exercised their over-allotment option to purchase an
additional 450,000 shares of common stock. The combined sale of 3,450,000
shares resulted in total net proceeds of approximately $41.5 million, based on
a public offering price of $13.00 per share, and after deducting the
underwriting discount and commissions and other offering expenses. 
 Item 3. Defaults Upon Senior Securities None 
 Item 4. Submission of Matters to a Vote of Security Holders The Companys Annual Meeting of Stockholders was held on June 11, 2004. Of
the 7,079,155 shares outstanding and eligible to vote as of the record date,
6,604,028 were present or represented by proxy at the meeting. The results of
the voting on the matters submitted to the stockholders are as follows: (1) To
elect the following two directors to hold office until the 2007 Annual Meeting
of Stockholders: Name
    
    Votes for
    
    WithheldJack S. Remington, M.D.
    
    
    5,887,009
    
    
    
    717,019Kevin C. Tang
    
    
    6,490,239
    
    
    
    113,789
 (2) To approve the 2004 Stock Incentive Plan: Votes for
    
    Votes against
    
    Abstentions
    
    Broker Non-Votes4,271,461
    
    
    704,899
    
    
    
    3,433
    
    
    
    1,624,235
 (3) To ratify the selection by the Audit Committee of the Board of
Directors of Ernst & Young LLP as independent auditors of the Company for its
fiscal year ending December 31, 2004: Votes For
    
    Votes Against
    
    Abstentions6,598,638
    
    
    4,316
    
    
    
    1,074
 
 Item 5. Other Information None 16




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##### Table of Contents



Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The exhibits listed on the Exhibit Index (following the signature section of
this Quarterly Report) are included, or incorporated by reference, in this
Quarterly Report. (b) Reports on Form 8-K We filed reports on Form 8-K on April 16, 2004 concerning the issuance of a
press release relating to the filing of a registration statement for a public
offering of 3,000,000 shares of common stock, on May 7, 2004 concerning the
issuance of a press release relating to the pricing of a public offering of
3,000,000 shares of common stock, on May 13, 2004 concerning the issuance of a
press release relating to our financial results for our first quarter ended
March 31, 2004, on June 7, 2004 concerning the issuance of a press release
relating to the exercise by the underwriters of an over-allotment option to
purchase an additional 450,000 shares of common stock on our offering of
3,000,000 shares of common stock, and on June 24, 2004 concerning the issuance
of a press release relating to the cessation of the iseganan trial for the
prevention of ventilator-associated pneumonia for safety reasons. 17




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##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. IntraBiotics Pharmaceuticals, Inc./s/ Henry J. FuchsAugust 13, 2004
    Henry J. Fuchs, M.D.President and Chief Executive Officer /s/ David J. TuckerAugust 13, 2004
    David J. TuckerPrincipal Financial Officer 18




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##### Table of Contents



EXHIBIT INDEX 3.1
    
    Certificate of Amendment of Amended and Restated Certificate of Incorporation; and Amended and Restated
Certificate of Incorporation.(12)3.2
    
    Amended and Restated Bylaws (16)3.3
    
    Certificate of Amendment to Amended and Restated Certificate of Incorporation.(15)3.4
    
    Certificate of Designation filed with the Delaware Secretary of State on May 1, 2003.(15)4.1
    
    Amended and Restated Investor Rights Agreement dated October 15, 1999.(1)4.2
    
    Form of Stock Purchase Agreement by and between the Company and each selling stockholder, dated January
29, 2002.(4)4.3
    
    Form of Preferred Stock and Warrant Purchase Agreement, dated February 5, 2003, as amended on February
11, 2003.(11)4.4
    
    Form of Second Amendment to Preferred Stock and Warrant Purchase Agreement of February 5, 2003, dated
April 10, 2003.(13)4.5
    
    Form of Warrant issued by the Company pursuant to Preferred Stock and Warrant Purchase Agreement of
February 5, 2003, as amended of February 11, 2003 and April 10, 2003.(13)4.6
    
    Form of Common Stock and Warrant Purchase Agreement, dated October 6, 2003.(14)4.7
    
    Form of Warrant issued by the Company pursuant to the Common Stock and Warrant Purchase Agreement of
October 6, 2003.(14)10.1
    
    Form of Indemnity Agreement.(1)10.2
    
    Amended and Restated 1995 Stock Option Plan, as amended on November 16, 2002.(10)(12)10.2.2
    
    Amended and Restated Form of Stock Option Agreement and Notice of Grant of Stock Options and Option
Agreement.(1)(10)10.3
    
    2000 Equity Incentive Plan, as amended on February 11, 2003.(10)(12)10.4
    
    Purchase Supply Agreement by and between the Company and PolyPeptide Laboratories A/S dated January 3,
1997.(1)10.5
    
    Development Supply Agreement by and between the Company, PolyPeptide Laboratories A/S and Ferring Peptide
Production AB dated January 3, 1997 and Amendment dated July 1, 1997.(1)10.6
    
    Second Amendment to the License Agreement by and between the Company and The Regents of the University of
California dated June 12, 1996.(1)10.7
    
    Third Amendment to the License Agreement by and between the Company and The Regents of the University of
California dated September 16, 1997.(1)10.8
    
    License and Supply Agreement by and between the Company and Biosearch Italia S.p.A. dated May 8, 1998.(1)10.9
    
    2000 Employee Stock Purchase Plan and related documents.(1)(10)10.10
    
    Loan and Security Agreement by and between the Company and Silicon Valley Bank, dated August 25, 1999.(1)10.11
    
    Research and Technology Agreement by and between the Company and New Chemical Entities dated January 24,
2001.(2)10.12
    
    Letter Agreement by and between the Company and Biosearch Italia dated May 18, 2001.(3)10.13
    
    First Amendment to Research and Technology Agreement by and between the Company and Albany Molecular
Research Inc. (successor to New Chemical Entities Inc.) dated April 13, 2001.(3)10.14
    
    Letter Agreement by and between the Company and Albany Molecular Research Inc. (successor to New Chemical
Entities Inc.) dated June 21, 2001.(3)10.15
    
    Senior Executive Severance Benefit Plan, as amended and restated on August 1, 2002.(8)(10)10.16
    
    Executive Severance Benefit Plan, as amended and restated on August 1, 2002.(8)(10)10.17
    
    Summary of Officer Incentive Bonus Plan.(3)(10)10.18
    
    Release Agreement by and between the Company and Diversa Corporation dated July 27, 2001, including
Warrant to Purchase Common Stock of the Company and Registration Rights Agreement.(6)
 19




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##### Table of Contents



10.19
    
    Letter Agreement dated November 28, 2001 by and between the Company and Ken Kelley.(5)(10)10.20
    
    Loan Modification Agreement by and between the Company and Silicon Valley Bank, dated April 29, 2002.(7)10.21
    
    Loan Modification Agreement by and between the Company and Silicon Valley Bank, dated June 10, 2002.(7)10.22
    
    2002 Non-Officer Equity Incentive Plan and related documents, as amended on February 3, 2003.(12)10.23
    
    Master Services Agreement by and among the Company, PPD Development, LP and PPD Global Ltd., dated July
29, 2002.(8)10.24
    
    Lease Termination Agreement by and between the Company and EOP-Shoreline Technology Park, L.L.C., dated
November 22, 2002, including Common Stock Purchase Agreement.(9)10.25
    
    Lease Termination Agreement by and between the Company and Bruce H. Carter and Keith M. Carter, dated
October 31, 2002.(12)10.26
    
    Sublease Termination Agreement and Sublease by and between the Company and ReShape, Inc., dated October
31, 2002.(12)10.27
    
    Amendment and Assignment of Lease, Release and Assumption Agreement by and among the Company, PolyFuel,
Inc. and 1245 Terra Bella Partners, LLC, dated December 20, 2002, including Warrant to Purchase Common
Stock of the Company dated December 31, 2002.(12)10.28
    
    Termination of Development Supply Agreement and Purchase/Supply Agreement by and among the Company,
PolyPeptide Laboratories A/S and PolyPeptide Laboratories AB, dated December 6, 2002.(12)10.29
    
    Lease Agreement by and between the Company and Embarcadero Corporate Center, dated February 10, 2003.(12)10.30
    
    Common Stock and Warrant Purchase Agreement, dated October 6, 2003 (the Purchase Agreement) by and
among the Company and each Investor as defined therein.(14)10.31
    
    Form of warrant issued by the Company in favor of each Investor, as defined in the Purchase Agreement.(14)10.32
    
    2004 Stock Incentive Plan. (16)10.33
    
    First Amendment to Office Lease, dated March 11, 2004, between the Company and Embarcadero Corporate
Center. (16)31.1
    
    Certification of Chief Executive Officer pursuant to Rules 13a-14(a)and 15d-14(a) promulgated under the
Securities Exchange Act of 1934, as amended.*31.2
    
    Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under
the Securities Exchange Act of 1934, as amended.*32.1
    
    Certifications of Chief Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
   *
    
    Filed hereto  Confidential treatment request has been granted with respect to certain
portions of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission. (1) Incorporated by reference to exhibit to our Registration Statement on Form
S-1 (File No. 333-95461) initially filed with the Securities and Exchange
Commission on January 27, 2000 as subsequently amended. (2) Incorporated by reference to exhibit to our Form 10-Q (File No. 000-29993)
filed with the Securities and Exchange Commission on May 16, 2001. (3) Incorporated by reference to exhibit to our Form 10-Q (File No. 000-29993)
filed with the Securities and Exchange Commission on August 14, 2001. (4) Incorporated by reference to exhibit to our Registration Statement on Form
S-3 (File No. 333-82934) filed with the Securities and Exchange Commission on
February 15, 2002. 20




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(5) Incorporated by reference to exhibit to our Form 10-K (File No. 000-29993)
filed with the Securities and Exchange Commission on February 15, 2002. (6) Incorporated by reference to exhibit to our Registration Statement on Form
S-3 (File No. 333-89840) filed with the Securities and Exchange Commission on
June 5, 2002. (7) Incorporated by reference to exhibit to our Form 10-Q (File No. 000-29993)
filed with the Securities and Exchange Commission on August 14, 2002. (8) Incorporated by reference to exhibit to our Form 10-Q (File No. 000-29993)
filed with the Securities and Exchange Commission on November 14, 2002. (9) Incorporated by reference to exhibit to our Form 8-K (File No. 000-29993)
filed with the Securities and Exchange Commission on November 27, 2002. (10) Management contract or compensatory plan, contract or arrangement. (11) Incorporated by reference to Appendix B to the Definitive Proxy Statement
for the Special Meeting of Stockholders (File No. 000-29993) filed with the
Securities and Exchange Commission on March 3, 2003. (12) Incorporated by reference to exhibit to our Form 10-K (File No. 000-29993)
filed with the Securities and Exchange Commission on March 31, 2003. (13) Incorporated by reference to our Form 10-Q (File No. 000-29993) filed with
the Securities and Exchange Commission on May 14, 2003. (14) Incorporated by reference to exhibit to our Form 8-K (File No. 000-29993)
filed with the Securities and Exchange Commission on October 9, 2003. (15) Incorporated by reference to our Form 10-Q (File No. 000-29993) filed with
the Securities and Exchange Commission on November 12, 2003. (16) Incorporated by reference to exhibit to our Registration Statement on Form
S-1 (File No. 333-114451) initially filed with the Securities and Exchange
Commission on April 14, 2004 as subsequently amended. 21