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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 March 31, 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
    
    (I.R.S. Employer Identification Number)incorporation or organization)
 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 5,364,383 shares of the Registrants common stock, par value $0.001,
outstanding as of March 31, 2004.




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TABLE OF CONTENTS INTRABIOTICS PHARMACEUTICALS, INC. FORM 10-Q QUARTER ENDED March 31, 2004 TABLE OF CONTENTS PagePART I.
    
    FINANCIAL INFORMATIONItem 1
    
    Financial Statements (unaudited)Condensed Balance Sheets as of March 31, 2004 and
December 31, 2003
    
    
    3Condensed Statements of Operations for the Three-Month
Periods Ended March 31, 2004 and 2003
    
    
    4Condensed Statements of Cash Flows for the Three-Month
Periods Ended March 31, 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
    
    
    29Item 4.
    
    Controls and Procedures
    
    
    29PART II.
    
    OTHER INFORMATIONItem 1
    
    Legal Proceedings
    
    
    30Item 2
    
    Changes in Securities and Use of Proceeds
    
    
    30Item 3
    
    Defaults Upon Senior Securities
    
    
    30Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    30Item 5
    
    Other Information
    
    
    30Item 6
    
    Exhibits and Reports on Form 8-K
    
    
    30SIGNATURES
    
    
    31EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  2




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PART I. FINANCIAL INFORMATION 
 Item 1. Financial Statements INTRABIOTICS
PHARMACEUTICALS, INC. 
 
 MARCH 31,
    
    DECEMBER 31,2004
    
    2003(Unaudited)
    
    (Note 1)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    3,910
    
    
    $
    14,286Restricted cash
    
    
    250
    
    
    
    250Short-term investments
    
    
    18,410
    
    
    
    12,108Prepaid expenses
    
    
    351
    
    
    
    478Total current assets
    
    
    22,921
    
    
    
    27,122Property and equipment, net
    
    
    16
    
    
    
    20Other assets
    
    
    191
    
    
    
    184Total assets
    
    $
    23,128
    
    
    $
    27,326LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    16
    
    
    $
    141Accrued clinical liabilities
    
    
    2,435
    
    
    
    1,046Accrued employee liabilities
    
    
    150
    
    
    
    101Other accrued liabilities
    
    
    313
    
    
    
    410Total current liabilities
    
    
    2,914
    
    
    
    1,698Stockholders equity:Convertible preferred
stock
    
    
    1,771
    
    
    
    1,771Common
stock
    
    
    5
    
    
    
    5Additional paid-in capital
    
    
    240,111
    
    
    
    239,237Deferred stock compensation
    
    
    (172
    )
    
    
    (188
    )Accumulated other comprehensive income
    
    
    
    
    
    
    2Accumulated deficit
    
    
    (221,501
    )
    
    
    (215,199
    )Total stockholders equity
    
    
    20,214
    
    
    
    25,628Total liabilities and stockholders equity
    
    $
    23,128
    
    
    $
    27,326
 See accompanying notes 3




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INTRABIOTICS
PHARMACEUTICALS, INC. 
 
 THREE MONTHS ENDEDMARCH 31,2004
    
    2003Operating expenses:Research and development
    
    $
    4,459
    
    
    $
    268General and administrative
    
    
    1,851
    
    
    
    1,665Total operating expenses
    
    
    6,310
    
    
    
    1,933Operating loss
    
    
    (6,310
    )
    
    
    (1,933
    )Interest Income
    
    
    73
    
    
    
    26Net Loss
    
    
    (6,237
    )
    
    
    (1,907
    )Non-cash dividends on Series A preferred stock
    
    
    (65
    )
    
    
    Net loss applicable to common stockholders
    
    $
    (6,302
    )
    
    $
    (1,907
    )Basic and diluted net loss per share applicable to common
stockholders
    
    $
    (1.19
    )
    
    $
    (0.58
    )Shares used to compute basic and diluted net loss per share
applicable to common stockholders
    
    
    5,316
    
    
    
    3,269
 See accompanying notes 4




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INTRABIOTICS
PHARMACEUTICALS, INC. 
 
 THREE MONTHS ENDEDMARCH 31,2004
    
    2003Operating activitiesNet loss
    
    $
    (6,237
    )
    
    $
    (1,907
    )Adjustments to reconcile net loss to net cash used in operating activities:Amortization of deferred stock compensation
    
    
    16
    
    
    
    62Stock compensation expense
    
    
    588
    
    
    
    3Depreciation and amortization
    
    
    7
    
    
    
    26Change in assets and liabilities:Prepaid expenses
    
    
    127
    
    
    
    (399
    )Other assets
    
    
    (7
    )
    
    
    (9
    )Accounts payable
    
    
    (125
    )
    
    
    260Accrued clinical liabilities
    
    
    1,389
    
    
    
    Accrued employee liabilities
    
    
    49
    
    
    
    206Accrued restructuring charges
    
    
    
    
    
    
    (64
    )Other accrued liabilities
    
    
    (32
    )
    
    
    (89
    )Net cash used in operating activities
    
    
    (4,225
    )
    
    
    (1,911
    )Investing activitiesCapital expenditures
    
    
    (3
    )
    
    
    Purchases of short term investments
    
    
    (10,229
    )
    
    
    Proceeds from sale or maturity of short-term investments
    
    
    3,925
    
    
    
    Net cash used in investing activities
    
    
    (6,307
    )
    
    
    Financing activitiesProceeds from issuance of common stock upon exercise of options
    
    
    156
    
    
    
    1Net cash provided by financing activities
    
    
    156
    
    
    
    1Net decrease in cash and cash equivalents
    
    
    (10,376
    )
    
    
    (1,910
    )Cash and cash equivalents at beginning of period
    
    
    14,286
    
    
    
    10,170Cash and cash equivalents at end of period
    
    $
    3,910
    
    
    $
    8,260Supplemental disclosure of non-cash information:Net deferred stock compensation (cancellations due to employee
terminations)
    
    $
    
    
    
    $
    (272
    )Issuance of common stock dividend on Series A preferred stock
    
    $
    65
    
    
    $
    
 See accompanying notes 5




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INTRABIOTICS PHARMACEUTICALS, INC. 
 
 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 March 31, 2004, and the results of its operations and cash flows
for the three-month periods ended March 31, 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. 6




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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. 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 ENDEDMARCH 31,2004
    
    2003Net loss applicable to common stockholders, as reported
    
    $
    (6,302
    )
    
    $
    (1,907
    )Add: Stock-based employee compensation expense
included in reported net loss applicable to common
stockholders
    
    
    291
    
    
    
    62Deduct: Total stock-based employee compensation
expense determined under fair value based method for
all awards
    
    
    (614
    )
    
    
    (423
    )Net loss applicable to common stockholders, pro forma
    
    $
    (6,625
    )
    
    $
    (2,268
    )Net loss per share applicable to stockholders:Basic and dilutedas reported
    
    $
    (1.19
    )
    
    $
    (0.58
    )Basic and dilutedpro forma
    
    $
    (1.25
    )
    
    $
    (0.69
    )
 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-month periods
ended March 31, 2004 and 2003 with the following weighted-average assumptions: THREE MONTHS ENDEDMARCH 31,2004
    
    2003Risk-free interest rate
    
    
    3.09
    %
    
    
    2.91
    %Volatility
    
    
    1.00
    
    
    
    1.00Dividend yield
    
    
    
    
    
    
    Expected life of option
    
    5 years
    
    
    5 years
 7




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Note 3. Comprehensive Loss The components of comprehensive loss in each year presented are as
follows: THREE MONTHS ENDEDMARCH 31,2004
    
    2003Net loss
    
    $
    (6,237
    )
    
    $
    (1,907
    )Unrealized loss on available-for-sale securities
    
    
    (2
    )
    
    
    Comprehensive loss
    
    $
    (6,239
    )
    
    $
    (1,907
    )
 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 stockholders. The total number of shares
underlying the stock options, warrants and convertible preferred stock excluded
from the calculations of net loss per share applicable to common stockholders
was 3,342,316 and 984,598 for the three-month periods ended March 31, 2004 and
2003, respectively. Note 5. Commitments At March 31, 2004, the Company has a total of $437,500 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 $187,500 in
fees for storage of iseganan until December 2007. In March 2004 we agreed to extend the existing lease for our facility in
Palo Alto, California through June 30, 2005, and also leased an additional
facility in the same building for the period April 1, 2004 to June 30, 2005.
The new lease for both 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 $146,000 in 2004 and
$96,000 in 2005. Note 6. Subsequent Events 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. The underwriters have a
30-day over-allotment option to purchase an additional 450,000 shares of
common stock. The offering resulted in net proceeds of approximately $36.1
million, based on a public offering price of $13.00 per share, and after
deducting the underwriting discount and commissions and other
estimated offering expenses. The primary purpose of the offering is to provide additional
funding for conducting clinical trials, research and development, as well as
for other general corporate purposes. 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 We are developing novel antimicrobial drugs derived from protegrins, a
class of mammalian peptides that is part of the bodys natural defense against
invading microbes, including bacteria, fungi and viruses. Our product
candidate, iseganan, is a synthetic protegrin analog that has been selected for
its broad spectrum microbe-killing activity and its low propensity to engender
resistance. Iseganan is currently in clinical development for two indications:
the prevention of ventilator-associated pneumonia, or VAP, and the treatment of
lung infections associated with cystic fibrosis, or CF. Additionally, we are
evaluating the use of iseganan in other types of infection where we believe
that its properties may render it more effective than current therapies. Our research and development expenses are expected to at least double in
2004 as compared to 2003, primarily as a result of the costs associated with
our first pivotal trial for the prevention of VAP. If this trial is successful,
a second pivotal trial will be required to support registration of iseganan. A trials completion date and completion costs are difficult to predict,
and delays may be caused by many factors, including: slower than expected rate
of patient enrollment; inability to adequately obtain data about patients after
their treatment in our clinical trials; additional regulatory requests;
inability to manufacture sufficient quantities of materials for clinical trials
or validation; the failure by contract research organizations to appropriately
manage clinical trials; or unforeseen safety issues. As a result, our research
and development expenses may fluctuate significantly, and past trends are not
indicative of future spending. Our cash, cash equivalents, restricted cash and short-term investments
totaled $22.6 million as of March 31, 2004, including the proceeds of two
private placements during 2003. In May 2003, we completed a preferred stock
placement resulting in net cash proceeds of $3.2 million, and in October 2003
we completed a common stock placement resulting in net cash proceeds of $18.5
million. The primary purpose of the financings was to provide additional
funding for the two pivotal trials of iseganan for the prevention of VAP, as
well as for other general corporate purposes and working capital. On May 10, 2004, we
issued and sold 3,000,000 shares of common stock,
$0.001 par value, in an underwritten public offering. The underwriters have a
30-day over-allotment option to purchase an additional 450,000 shares of
common stock. The offering resulted in net proceeds of approximately $36.1
million, based on a public offering price of $13.00 per share, and after
deducting the underwriting discount and commissions and other
estimated offering expenses. The primary purpose of the offering is to provide us with
additional funding for conducting clinical trials, research and development, as
well as for other general corporate purposes. 9




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We will need to raise additional funds in the future to continue our
operations, complete the FDA approval process of iseganan for the prevention of
VAP if our trials are successful, commence commercialization if FDA approval is
received, and pursue other indications. We cannot be certain that the results
of either of the two pivotal trials for the prevention of VAP or trials for
other indications will be successful, and product revenues may only be
generated if we receive the required regulatory approvals and can successfully
commercialize a product. As of March 31, 2004, we had received and accepted over eight kilograms of
finished iseganan drug substance, which was booked to research and development
expense in 2002 in accordance with our standard accounting practices. The
quantity is sufficient to complete our planned clinical trials, but further
quantities will be required to validate the manufacturing process, and for
commercial use if we successfully obtain FDA approval for any indication. In 2003, we wrote off $2.4 million of prepaid iseganan drug substance to
research and development expense, relating to an order of seven kilograms of
drug substance that was expected to be delivered in 2003, but that we have not
yet been satisfied was manufactured in accordance with a validation plan or
with adequate documentation. We are currently discussing this matter with our
contract manufacturer, and the write-off was recorded due to significant
uncertainty over the timing and outcome of these discussions. In 2003 and the three-month period ended March 31, 2004, we recorded
non-cash stock compensation expense of approximately $1.0 million and $275,000,
respectively, for 308,835 unexercised stock options that were cancelled and
re-granted 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 in
February 2003. The re-granted options have an exercise price equal to the
closing price of our common stock on the Nasdaq National Market on February 5,
2003, or $2.76 per share. 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 our common stock at each quarter end, and
therefore may have a significant impact on our future results of operations. 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 10




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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, 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 11




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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-Month Periods Ended March 31, 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 charges. Research
and development expenses increased to $4.5 million in the three-month period
ended March 31, 2004 from $268,000 in the three-month period ended March 31,
2003. The increase is primarily due to $4.1 million of clinical trial expenses relating to the
first pivotal trial of iseganan for the prevention of VAP, which commenced in
September 2003 and was the only clinical trial in progress
during the three-month period ended March 31, 2004. There were no clinical trials in progress in the three-month
period ended March 31, 2003. We expect research
and development expenses to at least double in 2004
compared to 2003, primarily as a result of the costs associated with
our first pivotal trial
of iseganan for the prevention of VAP. General and Administrative General and administrative costs primarily include administrative payroll
expense, outside contractors, legal and accounting fees, insurance, non-cash
stock compensation charges, facilities and other general administrative
expenses. General and administrative expenses increased to $1.9 million in the
three-month period ended March 31, 2004 from $1.7 million in the three-month
period ended March 31, 2003. The increase is primarily due to increased
non-cash stock compensation charges of $546,000 in the three-month period ended
March 31, 2004 as compared to $65,000 in the comparable period of 2003,
partially offset by $380,000 of severance costs recorded in the three-month
period ended March 31, 2003 related to the reduction of sales, marketing and
business development staff. 12




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Interest Income Interest income was $73,000 and $26,000 in the three-month periods ended
March 31, 2004 and 2003, respectively. The increase in interest income resulted
from an increase in average interest earning investment balances in the 2004
period as compared to the 2003 period. Net Loss and Net Loss Applicable to Common Stockholders Net loss applicable to common stockholders was $6.3 million and $1.9
million for the three-month periods ended March 31, 2004 and 2003,
respectively, and included the impact of non-cash Series A preferred stock
dividends of $65,000 and $0 in the three-month periods ended March 31, 2004 and
2003, respectively. 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 March 31, 2004, we had cash and cash equivalents of $3.9 million,
representing a decrease of $10.4 million from the balance of $14.3 million as
of December 31, 2003. Short-term investments were $18.4 million at March 31,
2004 as compared to $12.1 million at March 31, 2003, and restricted cash
remained at $250,000. We had no debt outstanding as of March 31, 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 three-month periods ended
March 31, 2004 and 2003 was $4.2 million and $1.9 million, respectively. The
cash used consisted primarily of the net loss for each period, adjustments for
non-cash stock compensation expense and changes in prepaid expenses and accrued
clinical liabilities. Net cash used in investing activities for the three-month periods ended
March 31, 2004 and 2003 was $6.3 million and $0, respectively. The cash used in
the 2004 period related to the purchase of $10.2 million of short-term
investments, partially offset by proceeds from the sale or maturity of
short-term investments of $3.9 million. Net cash provided by financing activities for the three-month periods
ended March 31, 2004 and 2003 was $156,000 and $1,000, respectively. The cash
provided in both periods related to the exercise of stock options. 13




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Contractual Obligations The impact that our contractual obligations as of March 31, 2004 are
expected to have on our liquidity and cash flow in future periods is 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)
    
    $
    438
    
    
    $
    300
    
    
    $
    100
    
    
    $
    38
    
    
    $
    0Operating leases(2)
    
    
    242
    
    
    
    194
    
    
    
    48
    
    
    
    
    
    
    
    Total contractual commitments
    
    $
    680
    
    
    $
    494
    
    
    $
    148
    
    
    $
    38
    
    
    $
    0
   (1)
    
    Drug substance commitments are to the contract manufacturer of iseganan
bulk drug substance. In 2004, the commitment represents the potential
payment of $250,000 upon acceptance of an order, when and if acceptance
occurs, and $50,000 in fees for storage of iseganan. The remaining
$137,500 represents storage fees for iseganan through 2007.(2)
    
    Operating leases relate to the lease for our facilities in Palo Alto,
California. In March 2004, we agreed to extend the existing lease through
June 30, 2005, and also leased an additional facility in the same building
for the period April 1, 2004 to June 30, 2005. The new lease for both
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 $146,000 in 2004 and $96,000 in
2005. There were no purchase obligations as of March 31, 2004 that included material
penalties for cancellation and were enforceable and legally binding. 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 which 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. Future Capital Requirements We expect to continue to incur substantial operating losses and will not
receive any product revenues until a product candidate has been approved by the
FDA and successfully commercialized. We currently anticipate our cash, cash
equivalents and investments to be sufficient to fund operations for at least
the next 12 months. We expect, however, that we will need to raise significant
additional funds to continue our operations, complete the FDA approval process
of iseganan for VAP if our trials are successful, commence commercialization if
FDA approval is received, and pursue other indications. 14




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This forecast is a forward-looking statement that involves risks and
uncertainties, and actual results could vary. Our future capital requirements
will depend on many factors, including:  
    
    uncertainty of the timing, delay, cost, extent and results of clinical trials;
    
    future opportunities for raising capital when needed or on favorable terms;
    
    payments to third parties for manufacturing scale up and validation;
    
    the costs and timing of regulatory approvals;
    
    the costs of establishing sales, marketing and distribution capabilities;
    
    the progress of our development activities;
    
    risk of delays in conducting clinical trials due to factors
such as slower than expected rate of patient enrollment;
    
    inability to acquire sufficient quantities of materials used for clinical trials;
    
    our ability to establish partnership collaborations and
agreements;
    
    difficulties with clinical supplies or unforeseen safety issues; and
    
    regulatory risks, risks related to proprietary rights,
market acceptance and competition. Until we can generate sufficient cash from our operations, which we do not
expect for the foreseeable future, we expect to finance future cash needs
through private and public financings, including equity financings. We may also
generate cash through collaboration or licensing arrangements, although no such
transactions are currently under negotiation. We cannot be certain, however,
that additional funding will be available when needed or on favorable terms. If
additional funding is not available, we may need to delay or curtail our
development and clinical trial activities to a significant extent, or we may be
forced to cease operations. 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. If either of our two pivotal clinical trials of iseganan for the prevention
of ventilator-associated pneumonia, or VAP, or any future clinical trials of
iseganan for other indications are unsuccessful, we could have to cease
operations. We currently have only one product candidate in late stage clinical
trials. We previously completed three Phase III clinical trials of iseganan for
the prevention of ulcerative oral mucositis, a complication that develops in
certain cancer patients receiving chemotherapy or radiation therapy that
results in painful ulcer-like sores in the mouth and throat. All three of these
clinical trials failed to meet their primary end points, and we are no 15




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longer pursuing iseganan for the prevention of ulcerative oral mucositis.
We are currently pursuing iseganan for the prevention of VAP. Enrollment in the
first of two pivotal trials commenced in September 2003, and we expect to
announce results of this first trial by the end of 2004. The failure of either
of these two pivotal trials in meeting their primary end points, or of any
other future clinical trials of iseganan for alternative indications, will
negatively impact our future operating results and may force us to cease
operations. In addition, even if the trials meet their primary end points,
iseganan may not be approved, if, for instance, there are significantly more
deaths in the treatment group than in the placebo group. If we fail to complete any clinical trial, or fail to obtain U.S. Food and
Drug Administration, or FDA, approval for any product candidate that we
develop, acquire or license, we may never achieve profitability and may have
to cease operations. We do not have a drug approved for sale in the United States or any
foreign market. We do not know whether we will be successful in developing
iseganan for the prevention of VAP or other indications, or in developing,
acquiring or licensing any other products and successfully obtaining FDA or
foreign approvals for them. We must successfully complete clinical trials and
demonstrate manufacturing capability before we can file with the FDA for
approval to sell any product in the United States or with foreign regulatory
authorities in order to sell in other countries. The FDA could require us to
repeat or perform additional clinical trials as a result of its regulatory
review. There is no guarantee that foreign regulatory authorities will approve
our products on the same data required by the FDA, and, as a result, we may be
required to perform additional clinical trials before being approved to sell in
foreign markets. Delays in obtaining or failure to obtain regulatory approvals
may:  
    
    delay or prevent the successful commercialization of our drug candidate;
    
    diminish any competitive advantage we may have; and
    
    defer or decrease our receipt of revenues or royalties. The regulatory review and approval process is lengthy, expensive and
uncertain. Extensive preclinical and clinical data and supporting information
must be submitted to the FDA for each indication to establish safety and
effectiveness in order to secure FDA approval. A number of new drugs for
certain indications, iseganan for the prevention of oral mucositis included,
have shown promising results in early clinical trials, but subsequently failed
to establish sufficient safety and efficacy data to obtain necessary regulatory
approvals. A number of companies have also suffered significant setbacks in
advanced clinical trials, including issues related to the design or conduct of
those trials. We have had to re-perform a Phase III clinical trial in the past,
following a drug dispensing error by a contract vendor. We have limited
experience in obtaining drug approvals. We cannot be certain when, if ever, we
will receive these regulatory approvals. If we are unable to demonstrate the
safety and efficacy of any drug candidate, we will be unable to obtain the
required regulatory approvals, and we will be unable to commercialize a drug
candidate and generate product revenue. In addition to initial regulatory approval, any drug will be subject to
extensive and rigorous ongoing domestic and foreign government regulation. Any
approvals, once obtained, may be withdrawn if compliance with regulatory
requirements is not maintained or safety problems are identified. Failure to
comply with these requirements may subject us to stringent penalties. 16




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Difficulties and risks associated with conducting our clinical trials
could cause delays in, or prevent us from, receiving approval or
successfully commercializing our product, which would materially harm our
business. Planned clinical trials may not begin on time or may need to be
restructured after they have begun. Clinical trials can be delayed for a
variety of reasons, including:  
    
    competition in recruiting clinical investigators;
    
    negotiating acceptable clinical trial agreement terms with prospective trial sites;
    
    obtaining institutional review board approval to conduct a clinical trial at a prospective site;
    
    recruiting patients to participate in a clinical trial;
    
    management of data related to our clinical programs;
    
    the need to repeat clinical trials as a result of inconclusive results or poorly executed testing;
    
    the placement of a clinical hold on a study;
    
    the failure of third parties conducting and overseeing the
operations of clinical trials to perform their contractual or
regulatory obligations in a timely fashion;
    
    exposure of clinical trial patients to unexpected and
unacceptable health risks or noncompliance with regulatory
requirements, which may result in suspension of the trial; and
    
    inability to obtain prompt regulatory review and agreement on
key design features of clinical studies. In addition, there are a number of difficulties and risks associated with
clinical trials. These difficulties and risks may result in the failure to
receive regulatory approval to sell our product candidates or the inability to
commercialize any of our product candidates. The possibility exists that:  
    
    we may discover that a product candidate does not exhibit the
expected therapeutic results in humans, causes harmful side effects
or has other unexpected characteristics that delay or preclude
regulatory approval or limit commercial use if approved;
    
    the results from early clinical trials may not be predictive of
results that will be obtained in expanded, advanced clinical trials;
    
    patients may drop out of our clinical trials;
    
    our clinical trials may not yield a sufficient number of
infected patients in the placebo group to provide statistically
significant results;
    
    the clinical procedures outlined in our clinical trial
protocols may not be properly followed, which could produce
inconclusive results or prematurely end such clinical trial; 17




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
    
    our clinical trials may produce negative, inconsistent or
inconclusive results, and we may decide, or regulators may require
us, to conduct additional clinical trials; and
    
    the cost of our clinical trials may be greater than we
currently anticipate. We expect to continue to incur operating losses for the foreseeable future
and may never achieve profitability. We have never generated revenues from product sales and have incurred
significant net losses in each year since inception. We incurred net losses of
$13.3 million in 2003 and $6.2 million in the three-month period ended March
31, 2004. As of March 31, 2004, our accumulated deficit was approximately
$221.5 million. We expect to continue to incur substantial additional losses
for the foreseeable future, and we may never become profitable. To date, we
have financed our operations primarily through the private sale of equity
securities, funds received from a terminated collaboration agreement, the
proceeds of equipment financing arrangements, and our initial public offering
of common stock in March 2000. We are currently conducting a pivotal trial of
iseganan for the prevention of VAP. We are also developing iseganan for cystic
fibrosis, or CF, and may develop iseganan for other indications in the future
or acquire or license other products. We will receive revenues from product sales or royalties only if we
complete clinical trials with respect to one or more products, receive
regulatory approvals and successfully commercialize such products. We do not
know whether we will be successful in developing iseganan for our currently
planned prevention of VAP indication or other indications, or in acquiring or
licensing other products. We must raise capital to continue our operations, and, if we fail to obtain
the capital necessary to fund our operations, we will be unable to develop
our drug candidates and may have to cease operations. We will need to raise additional funds to continue our operations,
complete the FDA approval process of iseganan for the prevention of VAP if our
trials are successful, commence commercialization if FDA approval is received,
and pursue other indications. We do not know whether additional financing will

be available when needed or on acceptable terms, if at all. If we are unable to
raise additional financing when necessary, we may have to delay our product
development efforts or any product acquisitions or be forced to cease
operations. Our future liquidity and capital requirements will also depend on
many other factors, including:  
    
    the timing, cost and progress of our prevention of VAP trials
and any other clinical trials we may conduct;
    
    the timing of, and the costs involved in, obtaining regulatory
approvals for any product in the United States and other countries;
    
    decisions with respect to strategic alternatives;
    
    the success of our development and commercialization of our product candidates;
    
    the scope and results of our clinical trials;
    
    advancement of other product candidates into clinical development;
    
    potential acquisition or in-licensing of other products or technologies; 18




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
    
    the costs of manufacturing activities;
    
    the costs of commercialization activities, including product marketing, sales and distribution;
    
    the costs involved in preparing, filing, prosecuting,
maintaining and enforcing patent claims and other intellectual
property-related costs, including any possible litigation costs;
    
    the effect of competing technological and market developments; and
    
    our ability to establish and maintain collaborative and other strategic arrangements. Adequate financing may not be available on terms acceptable to us, if at
all. We may continue to seek additional capital through public or private
equity offerings, debt financings or collaborative arrangements and licensing
agreements. If the contract research organizations assisting in our clinical trials fail
to appropriately manage our clinical trials, the trials could be delayed or
could fail, and our results of operations and financial condition would
suffer. We rely on contract research organizations to assist us in managing and
monitoring our clinical trials. We have entered into agreements with Amarex,
LLC, Orion Clinical Services, Ltd, Advanced Clinical Trials, Inc. and Icon
Laboratories, Inc., among others, to provide clinical research services. The
investigators and contract research organizations are not our employees, and we
cannot control, other than by contract, the amount of resources, including
time, that they devote to our product candidates. However, we are responsible
for ensuring that each of our clinical trials is conducted in accordance with
the general investigational plan and protocols that have been approved by
regulatory agencies for such trials. We have previously experienced a drug
dispensing error by one of our contract research organizations, which adversely
affected the results of one of our clinical trials for iseganan in oral
mucositis. The FDA requires us to comply with standards, commonly referred to as good
clinical practices, for conducting, recording and reporting clinical trials to
assure that data and reported results are credible and accurate and that the
rights and confidentiality of trial participants are protected. The FDA may
inspect some of our clinical investigational sites, our contract research
organizations records and our facility and files to determine if clinical
trials are conducted according to good clinical practices. If the FDA
determines that a trial is not in compliance with good clinical practices, we
may be required to repeat the clinical trial. If our contract research
organizations fail to perform in accordance with our agreements with them, we
may not complete our clinical programs on time or at all. In connection with our reliance on our independent clinical investigators
and contract research organizations, our clinical trials may be extended,
delayed, suspended or terminated for a variety of reasons, including:  
    
    the failure of investigators and research organizations to
comply with good clinical practice or to meet their contractual
duties;
    
    the failure of our independent investigators to devote
sufficient resources to the development of our product candidates or
to perform their responsibilities with sufficient expertise and care; 19




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
    
    our need to replace these third parties for any reason,
including for performance reasons or if these third parties go out of
business; or
    
    problems in the quality or accuracy of the data they obtain due
to the failure to collect, compile or analyze data appropriately,
adhere to clinical protocols or regulatory requirements or for other
reasons. Extensions, delays, suspensions or terminations of our clinical trials as
a result of the performance of our independent clinical investigators and
contract research organizations will delay, and make more costly, regulatory
approval for any product candidates that we may develop. Any change in a
contract research organization during an ongoing clinical trial could seriously
delay that trial and potentially compromise the results of the trial. We will be dependent on third-party contract manufacturers for the future
production of iseganan and for producing information required to register
iseganan with the FDA, if our trials are successful. We have relied on a single contract manufacturer to manufacture the
iseganan bulk drug substance for our pivotal clinical trials. We currently
maintain a sufficient inventory of iseganan to complete planned clinical
trials. In addition, if no alternate sources of supply are developed, we will
depend on this manufacturer to produce iseganan for FDA registration and to
produce iseganan for future commercial use if our pivotal trials are
successful. In 2003, we received a manufactured lot from this contract
manufacturer that we have not yet been satisfied was manufactured in accordance
with a validation plan or that related documentation is adequate. Although this
lot is not expected to be required for our pivotal clinical trials, it is
expected to be used to validate the manufacturing process. If the manufacturer
is unable to validate the manufacturing process, produce iseganan and the
required information for FDA registration, or produce iseganan for future
commercial use on a timely basis and in accordance with set specifications, or
we experience similar issues to those experienced on this order, we may not
have sufficient quantities of iseganan and sufficient information to meet
registration requirements or sufficient quantities of iseganan for future
commercial use. We do not currently have any supply agreement with this or any
other contract manufacturer to provide iseganan bulk drug substance. We also rely on a single third-party supplier to produce iseganan
formulated drug product for use in our clinical trials. We do not currently
have any supply agreement with this third-party supplier. If this supplier is
unable or fails to produce the required quantities of iseganan formulated drug
product for clinical use or commercial sale on a timely basis, at commercially
reasonable prices, and with sufficient purity, we will not have sufficient
quantities to complete all of our planned clinical trials, or to meet
commercial demand. The Fast Track designation for development of iseganan may not actually lead
to a faster development or regulatory review or approval process and our
Special Protocol Assessment approved by the FDA is subject to change. If a drug is intended for the treatment of a serious or life-threatening
condition and the drug demonstrates the potential to address unmet medical
needs for this condition, the drug sponsor may apply for FDA Fast Track
designation. Marketing applications filed by sponsors of products in Fast Track
development may qualify for expedited review under policies or procedures
offered by the FDA, but the Fast Track designation does not assure such
qualification. We have been granted Fast Track designation from the FDA for
iseganan for the prevention of VAP. Iseganans Fast Track designation may be
withdrawn by the FDA if the FDA believes that it is no longer supported by data
from our clinical development program. In addition, 20




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iseganans Fast Track designation does not guarantee that we will be able
to take advantage of the expedited review procedures and does not increase the
likelihood that the FDA will ultimately approve iseganan. In September 2003, we formalized an agreed-upon pivotal clinical trial
design for iseganan for the prevention of VAP with the FDA through a Special
Protocol Assessment, or SPA. The SPA requires us to conduct a second identical
pivotal trial. The SPA is subject to change based upon data produced from our
pivotal trials, data produced from clinical trials conducted by third parties
and other events outside of our control. The SPA does not guarantee that the
requirements for approval of our product will not change and does not
necessarily increase the likelihood that the FDA will ultimately approve our
product for the prevention of VAP. Development and commercialization of competitive products or new technologies
could reduce or prevent sales of any future products that we develop, acquire
or license, which could materially harm our business. We may be unable to compete successfully if other companies develop and
commercialize competitive products that are less expensive, more effective,
have fewer side effects or are easier to administer than drug candidates that
we develop, acquire or license. If we are unable to compete successfully with
any future drug candidate, physicians may not prescribe and patients may not
buy our drug. We are aware of a clinical trial in Europe testing the utility of
chlorhexidine, an antiseptic approved for gingivitis, also known as Peridex,
for use in the prevention of VAP. We are also aware of one medical device
product on the market and other medical device products in development for the
prevention of VAP. In addition, it is possible that antimicrobial or antiseptic
products already approved by the FDA for other indications may be used
off-label by physicians for the prevention of VAP. Pharmaceutical companies,
biotechnology companies and medical device companies may also develop products
in the future that compete with iseganan for the prevention of VAP. There are two approved pharmaceutical products used for the treatment of
CF. TOBI is sold by Chiron Corporation and generated approximately $170 million
in sales in 2003. Colistin is sold by several manufacturers, in greater volume
in Europe than in the United States. We are aware of two products that are in
clinical development for the treatment of CF. Aztreonam is a product already
approved for intravenous use in other bacterial infections and is in Phase II
testing for the treatment of CF by Corus Pharma, Inc. Doripenem is an
experimental agent in Phase I studies sponsored by Peninsula Pharmaceuticals,
Inc. Both of these products are active against pseudomonas aeruginosa, the
major pathogen in CF. Many of these companies have substantially greater experience, financial
resources and larger research and development staffs than we do. In addition,
many of these companies, either alone or together with their collaborative
partners, have significantly greater experience than we do in developing
products, obtaining regulatory approvals, manufacturing and marketing. We also
compete with these organizations and other companies for in-licensing
opportunities for future drug candidates, and for attracting scientific and
management personnel. We currently have no sales and marketing organization and, therefore,
must develop a sales and marketing organization or enter into distribution
arrangements and marketing alliances, which could require us to give up
rights to our product candidates. 21




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Developing the sales force to market and sell products is a difficult,
expensive and time-consuming process. We have no experience developing a sales
organization and may be unsuccessful if we attempt to do so. If we are unable
to develop an internal sales and marketing operation, we may not be able to
increase market awareness and sell our product. We may also rely on third-party
distributors to distribute our products or enter into marketing alliances to
sell our products. We may not be successful in entering into distribution
arrangements and marketing alliances with third parties. Our failure to
successfully develop a sales organization or to enter into these arrangements
on favorable terms could delay or impair our ability to commercialize our
product candidates and could increase our costs of commercialization.
Dependence on distribution arrangements and marketing alliances to
commercialize our product candidates will subject us to a number of risks,
including:  
    
    we may be required to relinquish important rights to our
products or product candidates;
    
    we may not be able to control the amount and timing of
resources that our distributors or collaborators may devote to the
commercialization of our product candidates;
    
    our distributors or collaborators may experience financial
difficulties; and
    
    business combinations or significant changes in a
collaborators business strategy may also adversely affect a
collaborators willingness or ability to complete its obligations
under any arrangement. If physicians, patients, health care payors and the medical community do not
accept our products, we may be unable to generate significant revenues, if
any, and we may have to cease operations. Any drug candidate that we develop, acquire or license may not gain market
acceptance among physicians, patients, health care payers and the medical
community. If any drug candidate fails to achieve market acceptance, we may be
unable to successfully market and sell the product, which would limit our
ability to generate revenue. The degree of market acceptance of any drug
candidate depends on a number of factors, including:  
    
    the belief of the medical community that VAP is a health issue that needs to be addressed;
    
    demonstration of clinical efficacy and safety;
    
    cost-effectiveness, in particular with iseganans anticipated
application for the prevention of VAP;
    
    convenience and ease of administration;
    
    potential advantage over alternative treatment methods;
    
    sales, marketing and distribution support; and
    
    the inability to administer our product in hospitals due to
such third parties internal policies and procedures that may deter
the use and application of our product to their patients due to
concerns of resistance or otherwise. 22




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Physicians will not prescribe our products until such time as clinical
data or other factors demonstrate the safety and efficacy of our drugs as
compared to other treatments. In practice, competitors may be more effective in
marketing their drugs. Even if the clinical safety and efficacy of our product
is established, physicians may elect not to prescribe its use. For example,
physicians may be reluctant to use our product widely because of concern about
developing microbial strains that are resistant to our drugs, or because of the
cost of our drug. The failure to recruit and retain our chief executive officer and other
employees may delay our ability to execute our business plan and our results
of operations could suffer. We are highly dependent on our management and technical staff. Competition
for personnel is intense. If we lose the services of any of our senior
management or technical staff, we may be unable to successfully complete our
planned clinical trials. In particular, the loss of the services of Henry J.
Fuchs, our President and Chief Executive Officer, could significantly impede
our research and development efforts, our relations with potential
collaborators and completion of our planned clinical trials. We do not maintain
key person life insurance and do not have an employment agreement with Dr.
Fuchs or our other members of our management and technical staff. In October
2002, we completed a restructuring that included a reduction in force of
approximately 70% of our workforce. As of April 12, 2004, we had 12 full-time
employees. In order to pursue any future product development, marketing and
commercialization, we will need to hire additional qualified scientific
personnel to perform research and development and personnel with expertise in
clinical testing, government regulation, manufacturing, marketing and finance.
We may not be able to attract and retain personnel on acceptable terms given
the competition for such personnel among biotechnology, pharmaceutical and
other companies. We rely on consultants to assist us in formulating our research and
clinical development strategy. These consultants may have commitments to, or
relationships with, other entities that may limit their availability to us. The
loss of the services of these personnel may delay our research and development
efforts. The departure of Henry J. Fuchs, our President and Chief Executive Officer,
could require us to refund money to holders of our Series A preferred stock. If we fail to use our reasonable best efforts to retain the services of
Henry J. Fuchs, our President and Chief Executive Officer, until the earlier to
occur of the unblinding and public announcement of the results of our first
pivotal clinical trial for VAP or May 1, 2005, then we must pay to each holder
of our Series A preferred stock a one-time payment equal to 15.0% of the
applicable holders aggregate Series A preferred stock purchase price. Based on
the number of shares of Series A preferred stock outstanding as of March 31,
2004, our potential exposure for this provision is $487,500. This penalty will
not apply if Dr. Fuchs departure is the result of his death, disability or
family emergency or if we retain services of an executive officer to replace
Dr. Fuchs within 60 days of Dr. Fuchs departure, for reasons other than his
death, disability or family emergency, and such replacement is approved by the
Board, including the member(s) of our Board designated by Tang Capital
Partners. We will need to increase the size of our organization, and we may experience
difficulties in managing growth. We are a small company with 12 employees as of April 12, 2004. To continue
our clinical trials and commercialize our product candidates, we will need to
expand our employee base for managerial, operational, 23




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financial and other resources. Future growth will impose significant added
responsibilities on members of management, including the need to identify,
recruit, maintain and integrate additional employees. Our future financial
performance and our ability to commercialize our product candidates and to
compete effectively will depend, in part, on our ability to manage any future
growth effectively. To that end, we must be able to:  
    
    manage our development efforts effectively;
    
    manage our clinical trials effectively;
    
    integrate additional management, administrative, manufacturing
and sales and marketing personnel;
    
    maintain sufficient administrative, accounting and management
information systems and controls; and
    
    hire and train additional qualified personnel. We may not be able to accomplish these tasks, and our failure to
accomplish any of them could harm our financial results. If we are unable to adequately protect our intellectual property, we may
be unable to sell our products or to compete effectively. We rely on a combination of patents, trade secrets and contractual
provisions to protect our intellectual property. If we fail to adequately
protect our intellectual property, other companies or individuals may prevent
us from selling our products or may develop competing products based on our
technology. Our success depends in part on our ability to:  
    
    obtain patents;
    
    protect trade secrets;
    
    operate without infringing upon the proprietary rights of others; and
    
    prevent others from infringing on our proprietary rights. We will be able to protect our proprietary rights from unauthorized use by
third parties only to the extent that our proprietary rights are covered by
valid and enforceable patents or are effectively maintained as trade secrets. We expect to protect our proprietary position by filing U.S. and foreign
patent applications related to our proprietary technology, inventions and
improvements that are important to the development of our business. For
example, we own two issued U.S. patents and one pending patent application in
the United States and several foreign jurisdictions that contain claims
covering iseganan. However, the patent position of biopharmaceutical companies
involves complex legal and factual questions. We cannot predict the
enforceability or scope of any issued patents or those that may issue in the
future. Patents, if issued, may be challenged, invalidated or circumvented. In
addition, some of our patents have only been filed in a limited number of
jurisdictions which may limit our ability to protect our rights in other
jurisdictions. We currently do not have any issued patents in 24




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Europe or Japan covering iseganan, and we do not know whether any of our
pending patent applications will result in the issuance of patents in these
jurisdictions. Consequently, if any patents that we own or license from third
parties do not provide sufficient protection, our competitive position would be
weakened. Furthermore, others may independently develop similar technologies or
duplicate any technology that we have developed. In addition to patents, we rely on trade secrets and proprietary know-how.
Our contract manufacturers perform the manufacturing processes covered by these
trade secrets. Accordingly, our contract manufacturers and we must maintain
confidentiality. We have confidentiality and proprietary information agreements
with our contract manufacturers and with our employees. These agreements may
not provide meaningful protection or adequate remedies for our technology in
the event of unauthorized use or disclosure of confidential and proprietary
information. We may be subject to intellectual property litigation that could be costly
and time-consuming and would affect our results of operations and financial
condition. The biotechnology and pharmaceutical industries have been characterized by
extensive litigation regarding patents and other intellectual property rights.
Although we are not currently a party to any lawsuits, third parties may assert
infringement or other intellectual property claims against us. We may have to
pay substantial damages, including treble damages for past infringement, if it
is ultimately determined that our products infringe a third partys proprietary
rights. The defense and prosecution of intellectual property suits, U.S. Patent
and Trademark Office interference proceedings and related legal and
administrative proceedings in the United States and internationally are costly
and time-consuming to pursue and their outcome is uncertain. If we become
involved in any of these proceedings, we will incur substantial expense, and
the efforts of our technical and management personnel will be significantly
diverted. An adverse determination may result in the invalidation of our
patents, subject us to significant liabilities or require us to seek licenses
that may not be available from third parties on satisfactory terms, or at all.
Our stock price could decline because of litigation or interference proceedings
initiated or threatened against us. Because there is a risk of product liability associated with our
products, we face potential difficulties in obtaining insurance. Our business exposes us to potential product liability risks inherent in
the testing, manufacturing and marketing of human pharmaceutical products, and
we may not be able to avoid significant product liability exposure. While we
have insurance covering product use in our clinical trials, it is possible that
we will not be able to maintain such insurance on acceptable terms or that any
insurance obtained will provide adequate coverage against potential
liabilities. Our inability to obtain sufficient insurance coverage at an
acceptable cost or otherwise to protect against potential product liability
claims could prevent or limit the commercialization of any products we develop.
A successful product liability claim in excess of our insurance coverage could
exceed our net worth. Currently, we are not aware of any anticipated product liability claims
with respect to our product candidates. In the future, an individual may bring
a liability claim against us if one of our product candidates causes, or merely
appears to have caused, an injury. If we cannot successfully defend ourselves
against the product liability claim, we may incur substantial liabilities.
Regardless of merit or eventual outcome, liability claims may result in:  
    
    inability to conduct our clinical trials; 25




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
    
    withdrawal of clinical trial participants;
    
    costs of related litigation;
    
    substantial monetary awards to patients;
    
    loss of revenues;
    
    product recalls;
    
    injury to our reputation;
    
    decreased demand for our product candidates; and
    
    the inability to commercialize our product candidates. Directors, executive officers, principal stockholders and affiliated entities
beneficially own approximately 52% 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 March 31, 2004, our directors, executive officers, principal
stockholders and affiliated entities beneficially own, in the aggregate,
approximately 52% of our outstanding common stock and Series A preferred stock
on an as-converted basis. These stockholders, if acting together, will 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. 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 the 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 26




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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 and could make
it more difficult for us to raise funds through a public offering or private
placement of our equity securities. 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
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. The change in our stock price over time may significantly impact our results
of operations through certain stock compensation charges that depend upon our
closing stock price at the end of each quarter. Market prices for securities of biotechnology companies are general highly
volatile and our stock may be subject to such volatility. Our non-cash variable
stock compensation expense in relation to 308,835 stock options that were
cancelled and re-granted 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 in February 2003 is dependent upon the 27




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price of our common stock at each quarter end. In 2003 and the three-month
period ended March 31, 2004, we recorded non-cash stock compensation expense of
approximately $1.0 million and $275,000, respectively, in relation to these
options. Non-cash stock compensation expense will be incurred through the
five-year term of the options, unless previously forfeited or exercised. Future
changes in our stock price may therefore have a significant impact on our
future results of operations as a result of this dependency. Our stock price has been, and will be volatile, and the value of your
investment may decline. During the three-month period ended March 31, 2004, our closing stock
prices ranged from a low of $13.46 to a high of $18.00, and in 2003 ranged from
a low of $1.71 to a high of $16.95. The following factors, in addition to the
other risk factors described in this section, may have a significant impact on
the market price of our common stock:  
    
    announcements regarding strategic alternatives, including a
merger or sale of the company or acquisition or license of products
or product candidates;
    
    publicity regarding actual or perceived adverse events in our
clinical trial or relating to products under development by us or our
competitors;
    
    the regulatory status of our product candidates;
    
    failure of any of our product candidates, if approved, to achieve commercial success;
    
    our ability to manufacture any products to commercial standards;
    
    announcements of technological innovations or new commercial
products by our competitors or us;
    
    developments concerning proprietary rights;
    
    regulatory developments in the United States or foreign countries;
    
    litigation;
    
    significant short-selling in our common stock;
    
    economic and other external factors; and
    
    period-to-period fluctuations in our financial results and
changes in analysts recommendations. 28




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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 March 31, 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 three-month period ended
March 31, 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 March 31, 2004. We
have no investments denominated in foreign country currencies and therefore our
investments are not subject to foreign currency exchange risk. 
 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
first fiscal quarter ended March 31, 2004 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting. 29




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PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings  (a)
    
    We are not a party to any material legal proceedings.(b)
    
    No legal proceedings were terminated in the first quarter. 
 Item 2. Changes in Securities and Use of Proceeds and Issuer Purchases of Equity Securities None 
 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 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 a report on Form 8-K on March 5, 2004 concerning the issuance of a
press release relating to our financial results for our fiscal fourth quarter
and year ended December 31, 2003. 30




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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. FuchsMay 12, 2004
    
    Henry J. Fuchs, M.D.President and Chief Executive Officer/s/ David J. TuckerMay 12, 2004
    
    David J. TuckerPrincipal Financial Officer
 31




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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)
 32




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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)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)
 33




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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) 2004 Stock Incentive Plan. (16)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. 34




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(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. (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. 35