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 September 30, 2000

                                       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: 000-21589

                         TRIANGLE PHARMACEUTICALS, INC.
             (Exact name of Registrant as specified in its charter)

            DELAWARE                                              56-1930728
  (State or other jurisdiction                                 (I.R.S. Employer
of incorporation or organization)                            Identification No.)

           4 University Place
          4611 University Drive
          Durham, North Carolina                                    27707
(Address of principal executive offices)                         (zip code)

       Registrant's telephone number, including area code: (919) 493-5980

      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 |_|

      As of September 30, 2000, there were 38,313,803 shares of Triangle
Pharmaceuticals, Inc. Common Stock outstanding.
<PAGE>

                         Triangle Pharmaceuticals, Inc.

                                Table of Contents

Part I. Financial Information

                                                                        Page No.
                                                                        --------

  Item 1.  Financial Statements

           Condensed Consolidated Balance Sheets (unaudited) -
               September 30, 2000 and December 31, 1999 ...................  3

           Condensed Consolidated Statements of Operations (unaudited) -
               Three and Nine Months Ended September 30, 2000 and
               September 30, 1999 and Period From Inception
               (July 12, 1995) Through September 30, 2000 .................  4

           Condensed Consolidated Statements of Cash Flows (unaudited) -
               Nine Months Ended September 30, 2000 and
               September 30, 1999 and Period From Inception
               (July 12, 1995) Through September 30, 2000 .................  5

           Condensed Consolidated Statements of Stockholders' Equity -
               Period From Inception (July 12, 1995) Through
               September 30, 2000 (unaudited) ............................ 6-7

           Notes to Condensed Consolidated
            Financial Statements (unaudited) ............................. 8-9

  Item 2.  Management's Discussion and Analysis of Financial
                Condition and Results of Operations .................... 10-27

  Item 3.  Quantitative and Qualitative Disclosures About Market Risk ..... 28

Part II.   Other Information

  Item 6.  Exhibits and Reports on Form 8-K ............................... 29

  Signatures .............................................................. 30


                                       2
<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements
         --------------------
                         Triangle Pharmaceuticals, Inc.
                          (A Development Stage Company)
                      Condensed Consolidated Balance Sheets
                                   (Unaudited)
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                        September 30,  December 31,
Assets                                                                      2000           1999
------                                                                  -------------  ------------
<S>                                                                       <C>            <C>
Current assets:
      Cash and cash equivalents .......................................   $  20,470      $  58,486
      Restricted deposits .............................................          --             27
      Investments .....................................................      57,848         94,583
      Interest receivable .............................................         823          1,307
      Receivable from collaborative partner ...........................         181          1,156
      Prepaid expenses ................................................         733            555
                                                                          ---------      ---------
         Total current assets .........................................      80,055        156,114
                                                                          ---------      ---------
Property, plant and equipment, net ....................................       5,935          5,701
Investments ...........................................................      12,245          4,682
                                                                          ---------      ---------

         Total assets .................................................   $  98,235      $ 166,497
                                                                          =========      =========

Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
      Accounts payable ................................................   $  10,212      $  10,924
      Payable to collaborative partner ................................       4,916            571
      Capital lease obligation-current ................................          31            133
      Accrued expenses ................................................      18,727         14,587
      Deferred revenue ................................................       6,977          6,250
                                                                          ---------      ---------
         Total current liabilities ....................................      40,863         32,465
                                                                          ---------      ---------
Capital lease obligation-noncurrent ...................................          --              9
Deferred revenue ......................................................      19,187         18,750
                                                                          ---------      ---------
         Total liabilities ............................................      60,050         51,224
                                                                          ---------      ---------
Commitments and contingencies (See note 4) ............................          --             --
Stockholders' equity:
      Convertible Preferred Stock, $0.001 par value; 5,000 shares
         authorized; 0 shares issued and outstanding ..................          --             --
      Common Stock, $0.001 par value; 75,000 shares authorized;
         38,314 and 37,578 shares, issued and outstanding, respectively          38             38
      Additional paid-in capital ......................................     343,705        336,814
      Accumulated deficit during development stage ....................    (305,644)      (221,444)
      Accumulated other comprehensive income (loss) ...................          86           (135)
                                                                          ---------      ---------
         Total stockholders' equity ...................................      38,185        115,273
                                                                          ---------      ---------

         Total liabilities and stockholders' equity ...................   $  98,235      $ 166,497
                                                                          =========      =========
</TABLE>

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


                                       3
<PAGE>

                         Triangle Pharmaceuticals, Inc.
                          (A Development Stage Company)
                 Condensed Consolidated Statements of Operations
                                   (Unaudited)
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                                                       Period from
                                                                                                                        Inception
                                                            Three Months Ended               Nine Months Ended       (July 12, 1995)
                                                               September 30,                   September 30,             Through
                                                         -------------------------       -------------------------     September 30,
                                                           2000            1999            2000            1999            2000
                                                         ---------       ---------       ---------       ---------       ---------
<S>                                                      <C>             <C>             <C>             <C>             <C>
Revenue:
   Collaborative revenue ...........................     $   1,744       $      --       $   5,550       $      --       $   5,550

Operating expenses:
   License fees ....................................         2,978             210           3,818           9,655          24,160
   Development .....................................        22,925          19,660          76,736          56,129         244,396
   Purchased research and development ..............            --              --           5,350           1,247          17,858
   Selling, general and administrative .............         3,621           4,640           9,840          10,889          45,886
                                                         ---------       ---------       ---------       ---------       ---------
     Total operating expenses ......................        29,524          24,510          95,744          77,920         332,300
                                                         ---------       ---------       ---------       ---------       ---------

Loss from operations ...............................       (27,780)        (24,510)        (90,194)        (77,920)       (326,750)

Interest income, net ...............................         1,723           1,947           5,994           4,497          21,106
                                                         ---------       ---------       ---------       ---------       ---------

Net loss ...........................................     $ (26,057)      $ (22,563)      $ (84,200)      $ (73,423)      $(305,644)
                                                         =========       =========       =========       =========       =========

Basic and diluted net loss per common
   share ...........................................     $   (0.68)      $   (0.64)      $   (2.21)      $   (2.34)
                                                         =========       =========       =========       =========

Shares used in computing basic and
   diluted net loss per common share ...............        38,301          35,157          38,037          31,354
                                                         =========       =========       =========       =========
</TABLE>

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


                                       4
<PAGE>

                         Triangle Pharmaceuticals, Inc.
                          (A Development Stage Company)
                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                                               Period from Inception
                                                                             Nine Months Ended September 30,      (July 12, 1995)
                                                                             -------------------------------         Through
                                                                                 2000               1999        September 30, 2000
                                                                               ---------          ---------    ---------------------
<S>                                                                            <C>                <C>                <C>
Cash flows from operating activities:
Net loss ..................................................................    $ (84,200)         $ (73,423)         $(305,644)
Adjustments to reconcile net loss to net
   cash used by operating activities:
   Depreciation and amortization ..........................................        1,282                905              3,791
   Purchased research and development .....................................        5,350              1,247             17,858
   Stock-based compensation ...............................................          322                161              1,861
   Change in assets and liabilities:
     Receivables ..........................................................        1,459               (734)            (1,004)
     Prepaid expenses .....................................................         (178)            (3,029)              (733)
     Accounts payable .....................................................        3,633             (5,752)            15,128
     Accrued expenses .....................................................        4,140              9,174             18,727
     Deferred revenue .....................................................        1,164                 --             26,164
                                                                               ---------          ---------          ---------
Net cash used by operating activities .....................................      (67,028)           (71,451)          (223,852)
                                                                               ---------          ---------          ---------
Cash flows from investing activities:
   Sale of restricted deposits ............................................           27                 37                 --
   Purchase of investments ................................................      (90,223)           (76,158)          (310,508)
   Proceeds from sale and maturity of investments .........................      119,616             27,884            240,501
   Purchase of property, plant and equipment ..............................       (1,516)            (1,908)            (9,552)
   Acquisition of Avid Corporation, net of cash acquired ..................           --                 --             (3,053)
                                                                               ---------          ---------          ---------
Net cash provided (used) by investing activities ..........................       27,904            (50,145)           (82,612)
                                                                               ---------          ---------          ---------
Cash flows from financing activities:
   Sale of stock, net of related issuance costs ...........................          801            116,218            326,247
   Sale of options under salary investment option
     grant program ........................................................           40                 73                302
   Proceeds from stock options/warrants exercised .........................          378                215                620
   Proceeds from notes payable ............................................           --                 --                374
   Equipment financing ....................................................           --                 --                354
   Principal payments on capital lease obligations
     and notes payable ....................................................         (111)              (244)              (963)
                                                                               ---------          ---------          ---------
Net cash provided by financing activities .................................        1,108            116,262            326,934
                                                                               ---------          ---------          ---------
Net (decrease) increase in cash and cash equivalents ......................      (38,016)            (5,334)            20,470
Cash and cash equivalents at beginning of period ..........................       58,486             77,653                 --
                                                                               ---------          ---------          ---------
Cash and cash equivalents at end of period ................................    $  20,470          $  72,319          $  20,470
                                                                               =========          =========          =========
</TABLE>

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


                                       5
<PAGE>

                         Triangle Pharmaceuticals, Inc.
                          (A Development Stage Company)
            Condensed Consolidated Statements of Stockholders' Equity
                                 (In thousands)

<TABLE>
<CAPTION>
                                          Convertible
                                        Preferred Stock                         Common Stock       Additional
                                     ---------------------                  --------------------    Paid-In    Accumulated
                                      Shares      Amount      Warrants       Shares     Amount      Capital      Deficit
                                     --------    ---------    ---------     --------   ---------   ---------    ---------
<S>                                  <C>         <C>          <C>              <C>     <C>         <C>          <C>
Initial sale of stock ...........         933    $       1    $      --        1,175   $       1   $     710    $      --
Additional sale of stock ........       4,249            4           --        1,495           2       3,137           --
Stock-based compensation ........          --           --           --           --          --          12           --
Comprehensive loss:
  Net loss ......................          --           --           --           --          --          --         (967)
                                     --------    ---------    ---------     --------   ---------   ---------    ---------
Balance, December 31, 1995 ......       5,182            5           --        2,670           3       3,859         (967)
Sale of stock ...................       3,756            4           --        4,943           5      59,506           --
Stock-based compensation ........          --           --          152          700           1       1,127           --
Stock options exercised .........          --           --           --          317          --          57           --
Conversion of Preferred to
  Common Stock ..................      (8,938)          (9)          --        8,938           9          --           --
Comprehensive loss:
  Net loss ......................          --           --           --           --          --          --      (10,917)
                                     --------    ---------    ---------     --------   ---------   ---------    ---------
Balance, December 31, 1996 ......          --           --          152       17,568          18      64,549      (11,884)
Sale of stock ...................          --           --           --        2,014           2      29,521           --
Acquisition of Avid Corp. .......          --           --           --          400          --       8,117           --
Sale of stock options ...........          --           --           --           --          --          70           --
Stock-based compensation ........          --           --          (38)          --          --          --           --
Stock options exercised .........          --           --           --           13          --           3           --
Comprehensive loss:
  Net loss ......................          --           --           --           --          --          --      (37,668)
                                     --------    ---------    ---------     --------   ---------   ---------    ---------
Balance, December 31, 1997 ......          --           --          114       19,995          20     102,260      (49,552)
Sale of stock ...................         170           --           --        8,868           9     116,325           --
Sale of stock options ...........          --           --           --           --          --          97           --
Stock-based compensation ........          --           --           --           --          --          --           --
Stock options exercised .........          --           --           --            8          --           1           --
Comprehensive loss:
  Change in unrealized
    gains/(losses) on investments          --           --           --           --          --          --           --
  Net loss ......................          --           --           --           --          --          --      (67,271)
                                     --------    ---------    ---------     --------   ---------   ---------    ---------
Balance, December 31, 1998 ......         170           --          114       28,871          29     218,683     (116,823)
Sale of stock ...................          --           --           --        6,605           7     116,211           --
Sale of stock options ...........          --           --           --           --          --          95           --
Stock-based compensation ........          --           --           --            6          --         101           --
Stock options/warrants exercised           --           --         (114)         296          --         479           --
Conversion of Preferred to
  Common Stock ..................        (170)          --           --        1,700           2          (2)          --
Purchased in-process research and
  development costs .............          --           --           --          100          --       1,247           --
Comprehensive loss:
  Reclassification adjustment for
    gains/(losses) in net loss ..          --           --           --           --          --          --           --
  Change in unrealized
    gains/(losses) on investments          --           --           --           --          --          --           --
  Net loss ......................          --           --           --           --          --          --     (104,621)
                                     --------    ---------    ---------     --------   ---------   ---------    ---------
Balance, December 31, 1999 ......          --    $      --    $      --       37,578   $      38   $ 336,814    $(221,444)
(Continued)

<CAPTION>
                                                      Accumulated
                                     Comprehensive       Other
                                        Income       Comprehensive      Deferred
                                        (Loss)       Income/(Loss)    Compensation       Total
                                       ---------       ---------       ---------       ---------
<S>                                    <C>             <C>             <C>             <C>
Initial sale of stock ...........      $      --       $      --       $      --       $     712
Additional sale of stock ........             --              --              --           3,143
Stock-based compensation ........             --              --             (12)             --
Comprehensive loss:
  Net loss ......................           (967)             --              --            (967)
                                       ---------       ---------       ---------       ---------
Balance, December 31, 1995 ......           (967)             --             (12)          2,888
Sale of stock ...................             --              --              --          59,515
Stock-based compensation ........             --              --            (141)          1,139
Stock options exercised .........             --              --             (26)             31
Conversion of Preferred to
  Common Stock ..................             --              --              --              --
Comprehensive loss:
  Net loss ......................        (10,917)             --              --         (10,917)
                                       ---------       ---------       ---------       ---------
Balance, December 31, 1996 ......        (10,917)             --            (179)         52,656
Sale of stock ...................             --              --              --          29,523
Acquisition of Avid Corp. .......             --              --              --           8,117
Sale of stock options ...........             --              --              --              70
Stock-based compensation ........             --              --              48              10
Stock options exercised .........             --              --               6               9
Comprehensive loss:
  Net loss ......................        (37,668)             --              --         (37,668)
                                       ---------       ---------       ---------       ---------
Balance, December 31, 1997 ......        (37,668)             --            (125)         52,717
Sale of stock ...................             --              --              --         116,334
Sale of stock options ...........             --              --              --              97
Stock-based compensation ........             --              --              48              48
Stock options exercised .........             --              --               7               8
Comprehensive loss:
  Change in unrealized
    gains/(losses) on investments             18              18              --              18
  Net loss ......................        (67,271)             --              --         (67,271)
                                       ---------       ---------       ---------       ---------
Balance, December 31, 1998 ......        (67,253)             18             (70)        101,951
Sale of stock ...................             --              --              --         116,218
Sale of stock options ...........             --              --              --              95
Stock-based compensation ........             --              --              58             159
Stock options/warrants exercised              --              --              12             377
Conversion of Preferred to
  Common Stock ..................             --              --              --              --
Purchased in-process research and
  development costs .............             --              --              --           1,247
Comprehensive loss:
  Reclassification adjustment for
    gains/(losses) in net loss ..            (21)            (21)             --             (21)
  Change in unrealized
    gains/(losses) on investments           (132)           (132)             --            (132)
  Net loss ......................       (104,621)             --              --        (104,621)
                                       ---------       ---------       ---------       ---------
Balance, December 31, 1999 ......      $(104,774)      $    (135)      $      --       $ 115,273
(Continued)
</TABLE>

                                       6
<PAGE>

                         Triangle Pharmaceuticals, Inc.
                          (A Development Stage Company)
            Condensed Consolidated Statements of Stockholders' Equity
                                 (In thousands)

<TABLE>
<CAPTION>
                                          Convertible
                                        Preferred Stock                         Common Stock       Additional
                                     ---------------------                  --------------------    Paid-In    Accumulated
                                      Shares      Amount      Warrants       Shares     Amount      Capital      Deficit
                                     --------    ---------    ---------     --------   ---------   ---------    ---------
<S>                                  <C>         <C>          <C>              <C>     <C>         <C>          <C>
(Continued)
(Unaudited)
Sale of stock ...................          --    $      --    $      --          111   $      --   $     801    $      --
Sale of stock options ...........          --           --           --           --          --          40           --
Stock-based compensation ........          --           --           --           --          --         322           --
Stock options/warrants exercised           --           --           --          225          --         378           --
Purchased in-process research and
  development costs .............          --           --           --          400          --       5,350           --
Comprehensive loss:
  Reclassification adjustment for
    gains/(losses) in net loss ..          --           --           --           --          --          --           --
  Change in unrealized
    gains/(losses) on investments          --           --           --           --          --          --           --
  Net loss ......................          --           --           --           --          --          --      (84,200)
                                     --------    ---------    ---------     --------   ---------   ---------    ---------
Balance, September 30, 2000 .....          --    $      --    $      --       38,314   $      38   $ 343,705    $(305,644)
                                     ========    =========    =========     ========   =========   =========    =========


<CAPTION>
                                                      Accumulated
                                     Comprehensive       Other
                                        Income       Comprehensive      Deferred
                                        (Loss)       Income/(Loss)    Compensation       Total
                                       ---------       ---------       ---------       ---------
<S>                                    <C>             <C>             <C>             <C>
(Continued)
(Unaudited)
Sale of stock ...................      $      --       $      --       $      --       $     801
Sale of stock options ...........             --              --              --              40
Stock-based compensation ........             --              --              --             322
Stock options/warrants exercised              --              --              --             378
Purchased in-process research and
  development costs .............             --              --              --           5,350
Comprehensive loss:
  Reclassification adjustment for
    gains/(losses) in net loss ..            131             131              --             131
  Change in unrealized
    gains/(losses) on investments             90              90              --              90
  Net loss ......................        (84,200)             --              --         (84,200)
                                       ---------       ---------       ---------       ---------
Balance, September 30, 2000 .....      $ (83,979)      $      86       $      --       $  38,185
                                       =========       =========       =========       =========
</TABLE>

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


                                       7
<PAGE>

                         Triangle Pharmaceuticals, Inc.
                          (A Development Stage Company)
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)
                    (In thousands, except per share amounts)

1. Basis of Presentation

      The accompanying unaudited condensed consolidated financial statements of
Triangle Pharmaceuticals, Inc. and its wholly-owned subsidiary (the "Company" or
"Triangle") have been prepared in accordance with generally accepted accounting
principles and applicable Securities and Exchange Commission regulations for
interim financial information. These financial statements do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. It is presumed that users of this
interim financial information have read or have access to the audited financial
statements for the preceding fiscal year contained in the Company's Annual
Report on Form 10-K. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for fair presentation have
been included. Operating results for the interim periods presented are not
necessarily indicative of the results that may be expected for the full year.

      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

2. Principles of Consolidation

      The condensed consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary. All significant intercompany
accounts and transactions have been eliminated in consolidation.

3. Net Loss Per Common Share

      Basic net loss per common share is computed using the weighted average
number of shares of Common Stock outstanding during the period. Diluted net loss
per common share is computed using the weighted average number of shares of
common and dilutive potential common shares outstanding during the period.
Potential common shares consist of stock options, warrants and convertible
preferred stock using the treasury stock method and are excluded if their effect
is antidilutive. For the three and nine month periods ended September 30, 2000
and 1999, the weighted average shares outstanding used in the calculation of net
loss per common share do not include potential shares outstanding because they
have the effect of reducing net loss per common share.

4. Licensing Agreements

      The Company's existing license agreements require future payments of up to
$91,000 contingent upon the achievement of certain development milestones and up
to $30,000 upon the achievement of certain sales milestones. One of the
Company's licensors has the option to receive $2,000 of such future milestone
payments in shares of Common Stock (based on the then current market price) in
lieu of a cash payment. The Company is also obligated to issue up to 1,650
shares of Common Stock upon the achievement of certain development milestones
relating to DMP-450 acquired in the acquisition of Avid Corporation ("Avid").
Additionally, the Company will pay royalties based on a percentage of net sales
of each licensed product incorporating these drug candidates. Most of the
Company's license agreements require minimum royalty payments commencing three
years after regulatory approval. Depending on the Company's success and timing
in obtaining regulatory approval, aggregate annual minimum royalties and license
preservation fees could range from $50 (if only a single drug candidate is
approved for one indication) to $54,500 (if all drug candidates are approved for
all indications) under the Company's existing license agreements.


                                       8
<PAGE>

                         Triangle Pharmaceuticals, Inc.
                          (A Development Stage Company)
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)
                    (In thousands, except per share amounts)

5. Accounting Pronouncements

      In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting For Derivative Instruments
And Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. The Company
adopted SFAS 133, as amended and deferred by SFAS 137 and SFAS 138, in the
three-month period ended June 30, 2000.

      In December 1999, the Securities and Exchange Commission (the
"Commission") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" ("SAB 101"). SAB 101, as amended by SAB 101A and 101B,
provided broad conceptual discussions and industry-specific guidance concerning
revenue recognition. The Company adopted SAB 101 in the three-month period ended
December 31, 1999 and, accordingly, has reported the impact of the strategic
alliance with Abbott Laboratories in accordance with SAB 101's conceptual
guidance. Specifically, adoption of SAB 101 resulted in all non-contingent
research and development reimbursement under the Company's strategic alliance to
be amortized as collaborative revenue over the anticipated research and
development arrangement period.


                                       9
<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
        -----------------------------------------------------------------------
        of Operations
        -------------

      This Quarterly Report on Form 10-Q may contain certain projections,
estimates and other forward-looking statements that involve a number of risks
and uncertainties, including those discussed below at "--Risk and
Uncertainties." While this outlook represents management's current judgment on
the future direction of the business, such risks and uncertainties could cause
actual results to differ materially from any future performance suggested below.
We undertake no obligation to release publicly the results of any revisions to
these forward-looking statements to reflect events or circumstances arising
after the date hereof.

      The following discussion and analysis should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in the Company's 1999 Annual Report on Form 10-K as well as
with the Company's condensed consolidated financial statements and notes thereto
appearing elsewhere in this Quarterly Report on Form 10-Q.

Overview

      Triangle is engaged in the development of new drug candidates primarily
for serious viral diseases. Since our inception on July 12, 1995, our operating
activities have related primarily to recruiting personnel, negotiating license
and option arrangements for our drug candidates, raising working capital and
developing our drug candidates. We have not received any revenues from the sale
of products and do not expect any of our drug candidates to be commercially
available until at least the year 2002. As of September 30, 2000, our
accumulated deficit was approximately $305.6 million.

      We require substantial working capital relating to the development and
potential commercialization of our drug candidates, including expenditures for
preclinical testing, chemical synthetic scale-up, manufacture of drug substance
for clinical trials and toxicology studies, clinical trials of drug candidates,
sales and marketing expenses and payments to our licensors. We have been
unprofitable since our inception and expect to incur substantial losses for at
least the next several years, due principally to the expenses associated with
our drug development programs and the addition of infrastructure necessary to
commercialize our drug candidates. Our working capital requirements relate to
activities many of which may need to occur prior to, and in anticipation of, the
potential regulatory approval of our drug candidates, including expenditures
associated with the continued establishment of a sales and marketing
organization, the manufacture of drug substance, the development of a
distribution system with outside vendors and other administrative expenditures.
Many of these expenditures may be incurred irrespective of whether our drug
candidates are approved when anticipated or at all. We expect that losses will
fluctuate from period to period and that such fluctuations may be substantial.
See "--Risk and Uncertainties-- We have incurred losses since inception and may
never achieve profitability."

      We have only a limited operating history upon which an evaluation of
Triangle and our prospects can be based. The risks, expenses and difficulties
encountered by companies at an early stage of development must be considered
when evaluating our prospects. To address these risks, we must, among other
things, successfully develop and commercialize our drug candidates, secure and
maintain all necessary proprietary rights, respond to competitive developments,
obtain additional financing and continue to attract, retain and motivate
qualified personnel. We cannot assure you that we will be successful in
addressing these risks. See "--Risk and Uncertainties-- All of our product
candidates are in development and may never be successfully commercialized which
would have an adverse impact on your investment and our business" and "--Risk
and Uncertainties-- If we need additional funds and are unable to raise them, we
will have to curtail or cease operations."

      Our operating expenses will depend on several factors, including the level
of development expenses and the potential commercialization of our drug
candidates. Development expenses will depend on the progress and results of our
drug development efforts, which we cannot predict. Management may in some cases
be able to control the timing of development expenses in part by accelerating or
decelerating preclinical testing and clinical trial activities. The level of
expenses relating to the establishment of a sales and marketing organization,
the manufacture of drug substance and other administrative expenditures will
depend on the success of the development of our drug candidates; however, many
of these expenditures may be incurred irrespective of whether our drug
candidates are approved when anticipated or at all. As a result of these
factors, we believe that period to period comparisons are not necessarily
meaningful and should not be relied upon as an indication of future performance.
Due to all of the


                                       10
<PAGE>

foregoing factors, it is possible that our consolidated operating results will
be below the expectations of market analysts and investors. In such event, the
prevailing market price of our common stock could be materially adversely
affected. See "--Risk and Uncertainties-- The market price of our stock may be
adversely affected by market volatility."

Results of Operations

Three months ended September 30, 2000 and 1999
----------------------------------------------

Collaborative Revenue

      Collaborative revenue totaled $1.7 million for the three months ended
September 30, 2000 as compared to no revenue for the same period in 1999.
Revenue is solely related to collaborative revenue associated with our strategic
alliance, the Abbott Alliance, with Abbott Laboratories, Abbott, and arises from
$31.7 million of non-contingent research and development expense reimbursement,
which is being amortized over the anticipated research and development
arrangement period. See "--Liquidity and Capital Resources."

License Fees

      License fees totaled $3.0 million for the three months ended September 30,
2000 as compared to $210,000 for the same period in 1999. License fees for 2000
related to the recognition of milestone obligations under our license agreements
and license or option agreement initiation and/or preservation fees for certain
of our drug candidates. License fees for 1999 related primarily to the expense
of license or option agreement preservation fees. The increase of 2000 license
fees, as compared to 1999, is related to the timing of milestone obligations,
the magnitude of license or option preservation payments, as well as the timing
of license initiation fees associated with our portfolio of drug candidates.

Development Expenses

      Development expenses totaled $22.9 million for the three months ended
September 30, 2000 as compared to $19.7 million for the same period in 1999. The
increase of 2000 development expenses, as compared to 1999, is due primarily to
the continued and more expansive drug development activities on our drug
candidates. Development expenses for the third quarter of 2000 were heavily
focused on our drug candidate Coviracil(R). We are also continuing the
development of Coactinon(R) for which we have expanded our clinical trial
activities by beginning to enroll an additional 280 patients in our continuing
Phase III clinical study. Our decision to continue the development of Coactinon
will result in additional development costs for this drug candidate.

Selling, General and Administrative Expenses

      Selling, general and administrative, SG&A, expenses totaled $3.6 million
for the three months ended September 30, 2000 as compared to $4.6 million for
the same period in 1999. The decrease of 2000 SG&A expenses, as compared to
1999, is primarily related to decreased 2000 sales and marketing spending for
the period. Our SG&A expenses will increase in future periods when we expand our
sales and marketing organization in anticipation of product launch.

Interest Income, Net

      Net interest income totaled $1.7 million for the three months ended
September 30, 2000 as compared to $1.9 million for the same period in 1999. The
decrease of 2000 interest income, as compared to 1999, is due to lower average
investment balances between the two quarters offset somewhat by higher low-risk,
short-term interest rates in the third quarter of 2000. See "--Liquidity and
Capital Resources."


                                       11
<PAGE>

Nine months ended September 30, 2000 and 1999
---------------------------------------------

Collaborative Revenue

      Collaborative revenue totaled $5.6 million for the nine months ended
September 30, 2000 as compared to no revenue for the same period in 1999.
Revenue is solely related to collaborative revenue associated with the Abbott
Alliance and arises from $31.7 million of non-contingent research and
development expense reimbursement, which is being amortized over the anticipated
research and development arrangement period. See "--Liquidity and Capital
Resources."

License Fees

      License fees totaled $3.8 million for the nine months ended September 30,
2000 as compared to $9.7 million for the same period in 1999. License fees for
2000 related to the recognition of milestone obligations under our license
agreements and license or option agreement initiation and/or preservation fees
for certain of our drug candidates. License fees for 1999 related to the expense
of license preservation fees, the recognition of milestone obligations required
under our license agreements and license initiation payments. The decrease of
2000 license fees, as compared to 1999, is related to the timing of milestone
obligations, the magnitude of license or option preservation payments, as well
as the timing of license initiation fees associated with our portfolio of drug
candidates.

Development Expenses

      Development expenses totaled $76.7 million for the nine months ended
September 30, 2000 as compared to $56.1 million for the same period in 1999.
Development expenses for 2000 consisted primarily of expenses for drug
synthesis, clinical trials, employee compensation, and preclinical testing.
Development expenses for 1999 consisted primarily of expenses for clinical
trials, drug synthesis, employee compensation and preclinical testing. The
substantial increase of 2000 development expenses, as compared to 1999, is due
primarily to the continued and more expansive drug development activities on our
drug candidates, including the addition of development personnel necessary to
perform these activities. Development expenses for 2000 have been heavily
focused on our drug candidate Coviracil. Currently, we have five drug candidates
in active clinical development, two of these candidates with dual indications
for HIV and hepatitis B, as well as numerous other compounds in earlier stages
of development.

Purchased Research and Development Expense

      Purchased research and development expenses totaled $5.4 million for the
nine months ended September 30, 2000, as compared to $1.2 million for the nine
months ended September 30, 1999. In March 2000, we issued 400,000 shares of
common stock, a component of the 2,000,000 contingent shares associated with the
Avid Corporation, Avid, acquisition, and agreed to increase the remaining number
of contingent shares by 50,000 as consideration to the former Avid stockholders
for extending the payment date of certain contingent consideration from February
28, 2000 to August 28, 2001 (the second DMP-450 milestone date extension.) The
charge in 1999 related to issuance of 100,000 shares of common stock as
consideration to the former Avid stockholders for extending the payment date of
certain contingent consideration from February 28, 1999 to February 28, 2000
(the first DMP-450 milestone date extension.) These in-process research and
development charges are based upon the fair market value of our common stock at
the date on which the extensions were granted and relate to mozenavir
dimesylate, formerly DMP-450, which is at an early stage of clinical development
and has no alternative future use. Accordingly, if we initiate pivotal Phase II
clinical trials with mozenavir dimesylate on or before August 28, 2001 or elect
on or before August 28, 2001 to continue development of mozenavir dimesylate
even if such clinical trials have not been initiated, we would issue 1,150,000
shares of common stock. Issuance of the remaining 500,000 of the 1,650,000
contingent shares is dependent upon the attainment of other development
milestones with mozenavir dimesylate. Issuance of any additional contingent
shares will be recorded as additional purchase price and will be allocated upon
resolution of the underlying contingency.


                                       12
<PAGE>

Selling, General and Administrative Expenses

      SG&A expenses totaled $9.8 million for the nine months ended September 30,
2000 as compared to $10.9 million for the same period in 1999. SG&A expenses
consist primarily of employee compensation; amounts paid for outside
professional services, primarily marketing, legal and investor relations
services; and rent expense. The decrease of 2000 SG&A expenses, as compared to
1999, is primarily related to decreased 2000 sales and marketing spending offset
somewhat by increased administrative spending for the period. Our SG&A expenses
will increase in future periods when we expand our sales and marketing
organization in anticipation of product launch.

Interest Income, Net

      Net interest income totaled $6.0 million for the nine months ended
September 30, 2000 as compared to $4.5 million for the same period in 1999. The
significant increase of 2000 interest income, as compared to 1999, is due to
larger average investment balances and higher low-risk, short-term interest
rates in 2000. See "--Liquidity and Capital Resources."

Liquidity and Capital Resources

      We have financed our operations since inception (July 12, 1995) through
September 30, 2000 primarily with the net proceeds received from private
placements of equity securities, which provided aggregate net proceeds of
approximately $111.9 million (net of offering costs), and from initial and
secondary public offerings, which provided aggregate net proceeds of
approximately $96.8 million (net of offering costs), as well as net proceeds
from the completion of the Abbott Alliance (including net proceeds from the sale
of common stock and non-contingent research and development reimbursement) of
approximately $147.7 million. In addition, we have received approximately $2.3
million as reimbursement of certain development expenses under our license
agreements.

      At September 30, 2000, we had net working capital of $39.2 million, a
decrease of approximately $84.5 million from December 31, 1999. The decrease in
working capital is principally the result of funding our normal operating
expenses partially offset by reimbursement of costs stipulated under the Abbott
Alliance. Our principal source of liquidity at September 30, 2000 was $20.5
million in cash and cash equivalents and $68.1 million in investments which are
considered "available-for-sale," and approximately $2.0 million of strategic
corporate investments, reflecting a $67.2 million decrease of total cash, cash
equivalent and investment balances from those at December 31, 1999.

      On November 1, 2000, we entered into a Firm Underwritten Equity Facility,
the Facility, consisting of a Common Stock Underwriting Agreement, Underwriting
Agreement, with Ramius Securities, LLC, Ramius, and a Stand-By Purchase
Agreement, Purchase Agreement, with Ramius Capital Group, LLC, Ramius Capital.
Pursuant to the Facility, Ramius, as underwriter, agrees to sell on a best
efforts basis, up to $100.0 million of our common stock within a three-year
period. Pursuant to the Underwriting Agreement, we may initiate 15-trading day
selling periods during which Ramius will purchase shares from us, at a fixed
percentage of the volume weighted average price for each trading day during the
period, for sale in the public market. We will establish a dollar amount to be
raised during the selling period and Ramius will, on a best efforts basis, sell
the number of shares required to raise that amount. We will also establish for
each selling period a floor price below which Ramius may not sell any shares.
The total number of shares sold during a given selling period is limited to 15%
of the average daily trading volume during the selling period. Pursuant to the
Purchase Agreement, Ramius Capital agrees to purchase any shares not sold by
Ramius during a selling period.

      In anticipation of a possible financing, we filed a shelf registration
statement with the Securities and Exchange Commission, SEC, on October 20, 2000,
authorizing the issuance of up to $100.0 million of our common stock. We are
currently in the process of filing a post-effective amendment to the
registration statement to register the shares of our common stock issuable
pursuant to the Facility. Pursuant to Rule 415 under the Securities Act of 1933,
as amended, as it relates to "at the market offerings" of equity securities, we
may be limited to registering on a post-effective amendment to a shelf
registration statement a number of shares of common stock not exceeding 10% of
the aggregate market value of our outstanding shares of our common stock held by
non-affiliates. Accordingly, our initial post-effective amendment will be
limited to $30.0 million of our common stock. We intend, however, to file
additional amendments or registration statements, as needed, to allow us to sell
up to the $100.0 million available under the Facility.

      Our working capital requirements may continue to increase in future
periods as we fund our drug development programs, pay obligations under our
license and/or option agreements, continue the future development of our sales
and marketing organization, acquire drug substance from third party
manufacturers, and incur other SG&A expenditures necessary to support our
operations. Our future working capital requirements will depend on many factors,
including the progress of our drug development programs, the magnitude of these
programs, the scope and results of preclinical testing and clinical trials, the
cost, timing and outcome of regulatory reviews, the costs under the license
and/or option agreements relating to our drug candidates (including the costs of
obtaining patent protection for our drug candidates), the timing and the terms
of the acquisition of any additional drug candidates, the rate of technological
advances, determinations as to the commercial potential of our drug


                                       13
<PAGE>

candidates, administrative and legal expenses, the establishment of internal
capacity and third party arrangements for sales and marketing functions, the
establishment of third party arrangements for manufacturing, including Abbott,
and other factors.

      Amounts payable by us in the future under our existing license agreements
are uncertain due to a number of factors, including the progress of our drug
development programs, our ability to obtain approval to commercialize any drug
candidate and the commercial success of any approved drug. As of September 30,
2000, our existing license agreements may require future cash payments of up to
$91.0 million contingent upon the achievement of certain development milestones
and up to $30.0 million upon the achievement of certain sales milestones. One of
our licensors has the option to receive $2.0 million of such future milestone
payments in shares of common stock (based on the then current market price) in
lieu of a cash payment. We are also obligated to issue up to an additional
1,650,000 shares of common stock upon the achievement of certain development
milestones relating to mozenavir dimesylate, which was acquired in the
acquisition of Avid. Additionally, we will pay royalties based on a percentage
of net sales of each licensed product incorporating these drug candidates. Most
of our license agreements require minimum royalty payments commencing three
years after regulatory approval. Depending on our success and timing in
obtaining regulatory approval, aggregate annual minimum royalties and license
preservation fees could range from $50,000 (if only a single drug candidate is
approved for one indication) to $54.5 million (if all drug candidates are
approved for all indications) under our existing license agreements.

      We believe that our existing cash, cash equivalents and investments, and
expected net proceeds raised under our Facility with Ramius, will be adequate to
satisfy our anticipated working capital requirements through at least the first
quarter of 2002, but expect that we will be required to raise additional funds
through equity or debt financings, including any remaining availability under
our Facility, or from other sources to fund operations beyond that point. We
cannot assure you that additional funding will be available on favorable terms
from any of these sources or at all. See "--Risk and Uncertainties-- If we need
additional funds and are unable to raise them, we will have to curtail or cease
operations."

Arrow Therapeutics Limited

      In July 2000, we entered into a licensing and collaborative agreement with
Arrow Therapeutics Limited, Arrow, to identify and develop novel anti-viral
agents for the treatment of hepatitis C virus. Under the terms of the agreement,
Arrow will provide Triangle with access to Arrow's high throughput screening
technology and its compound library. Triangle will be responsible for funding
the screening program, as well as paying development milestones and royalty
payments on sales of any products which result from the collaboration.

Litigation and Other Contingencies

      As discussed below in "Risk and Uncertainties," we are indirectly involved
in several patent opposition and adversarial proceedings and one lawsuit filed
in Australia regarding the patent rights related to two of our licensed drug
candidates, Coviracil and DAPD. Although we are not a named party in any of
these proceedings, we are obligated to reimburse our licensors for certain legal
expenses associated with these proceedings. In one of these patent opposition
proceedings, on November 8, 2000, the Australian Patent Office held that certain
patent claims of Emory University, Emory, directed to DAPD are not patentable
over an earlier BioChem Pharma, Inc., BioChem Pharma, patent. If Emory, the
University of Georgia Research Foundation, Inc., University of Georgia, or
Triangle does not appeal this decision of the Australian Patent Office, or is
unsuccessful in the appeal, then we will not be able to sell DAPD in Australia
without a license from BioChem Pharma, which may not be available on reasonable
terms or at all. We cannot predict the outcome of this or any of the other
proceedings. We believe that an adverse judgment rendered against us would not
result in a material financial obligation, nor would we have to recognize an
impairment under Statement of Financial Accounting Standards No. 121,
"Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of" as no amounts have been capitalized related to our drug candidates.
However, any development in these proceedings adverse to our interests,
including but not limited to any adverse development related to the patent
rights licensed to us for these two drug candidates or our rights or obligations
related thereto, could have a material adverse effect on our business and future
consolidated financial position, results of operations and cash flow.

Risk and Uncertainties

      In addition to the other information contained herein, the following risks
and uncertainties should be carefully considered in evaluating Triangle and its
business.


                                       14
<PAGE>

All of our product candidates are in development and may never be successfully
commercialized which would have an adverse impact on your investment and our
business.

      Some of our drug candidates are at an early stage of development and all
of our drug candidates will require expensive and lengthy testing and regulatory
clearances. None of our drug candidates has been approved by regulatory
authorities. We do not expect any of our drug candidates to be commercially
available until at least the year 2002. There are many reasons that we may fail
in our efforts to develop our drug candidates, including that:

      o     our drug candidates will be ineffective, toxic or will not receive
            regulatory clearances,
      o     our drug candidates will be too expensive to manufacture or market
            or will not achieve broad market acceptance,
      o     third parties will hold proprietary rights that may preclude us from
            developing or marketing our drug candidates, or
      o     third parties will market equivalent or superior products.

      The success of our business depends upon our ability to successfully
develop and market our drug candidates.

We have incurred losses since inception and may never achieve profitability.

      We formed Triangle in July 1995 and we have only a limited operating
history for you to review in evaluating our business. We have incurred losses
since our inception. At September 30, 2000, our accumulated deficit was $305.6
million. Our historical costs relate primarily to the acquisition and
development of our drug candidates and selling, general and administrative
costs. We have not generated any revenue from the sale of our drug candidates to
date, and do not expect to do so until at least the year 2002. In addition, we
expect annual losses to increase over the next several years as a result of our
drug development and commercialization efforts. To become profitable, we must
successfully develop and obtain regulatory approval for our drug candidates and
effectively manufacture, market and sell any products we develop. We may never
generate significant revenue or achieve profitable operations.

If we need additional funds and are unable to raise them, we will have to
curtail or cease operations.

      Our drug development programs and potential commercialization of our drug
candidates require substantial working capital, including expenses for
preclinical testing, chemical synthetic scale-up, manufacture of drug substance
for clinical trials, toxicology studies, clinical trials of drug candidates,
sales and marketing expenses, payments to our licensors and potential commercial
launch of our drug candidates. Our future working capital needs will depend on
many factors, including:

      o     the progress and magnitude of our drug development programs,
      o     the scope and results of preclinical testing and clinical trials,
      o     the cost, timing and outcome of regulatory reviews,
      o     the costs under current and future license and option agreements for
            our drug candidates, including the costs of obtaining patent
            protection for our drug candidates,
      o     the costs of acquiring any additional drug candidates,
      o     the rate of technological advances,
      o     the commercial potential of our drug candidates,
      o     the magnitude of our administrative and legal expenses,
      o     the costs of establishing sales and marketing functions, and
      o     the costs of establishing third party arrangements for
            manufacturing.

      We have incurred negative cash flow from operations since we incorporated
Triangle and do not expect to generate positive cash flow from our operations
for at least the next several years. Although the Abbott Alliance provided us
with significant additional funding, we cannot assure you that such funding,
combined with other


                                       15
<PAGE>

available sources of funds, will be sufficient to meet our future needs. In
addition, we cannot assure you that we will receive the contingent future
research funding payments under the Abbott Alliance. Therefore, we may need
additional future financings to fund our operations. We may not be able to
obtain adequate financing to fund our operations, and any additional financing
we obtain may be on terms that are not favorable to us. In addition, any future
financings could substantially dilute our stockholders. If adequate funds are
not available, we will be required to delay, reduce or eliminate one or more of
our drug development programs, to enter into new collaborative arrangements or
to modify the Abbott Alliance on terms that are not favorable to us. These
collaborative arrangements or modifications could result in the transfer to
third parties of rights that we consider valuable. In addition, we often
consider the acquisition of technologies and drug candidates that would increase
our working capital requirements.

      To facilitate our ability to raise additional equity capital, on November
1, 2000, we entered into the Facility described above under "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources," pursuant to which we may be able to issue and
sell up to $100 million of our common stock over the next three years. There are
conditions and limitations on Ramius' obligation to sell shares under the
Underwriting Agreement and Ramius Capital's obligation to purchase shares under
the Purchase Agreement. In particular, Ramius' and Ramius Capital's obligations
are subject to certain share price and trading volume limitations which could
curtail the number of shares of common stock they are obligated to sell or
purchase, as the case may be, regardless of the number of shares of common stock
we request to be sold. In some circumstances, such as an average trading price
of less than $4.00 per share, they will have no obligation to sell or purchase
our common stock, even if we request them to do so. If we are permitted to sell
shares of our common stock under the Underwriting Agreement, we may not elect to
do so if we believe that market conditions are unfavorable. To date, we have not
sold any shares of our common stock under the Facility.

Because our product candidates may not successfully complete clinical trials
required for commercialization, our business may never achieve profitability.

      To obtain regulatory approvals needed for the sale of our drug candidates,
we must demonstrate through preclinical testing and clinical trials that each
drug candidate is safe and effective. The clinical trial process is complex and
uncertain and the regulatory environment varies widely from country to country.
Positive results from preclinical testing and early clinical trials do not
ensure positive results in pivotal clinical trials. Many companies in our
industry have suffered significant setbacks in pivotal clinical trials, even
after promising results in earlier trials. Any of our drug candidates may
produce undesirable side effects in humans. These side effects could cause us or
regulatory authorities to interrupt, delay or halt clinical trials of a drug
candidate, as occurred with mozenavir dimesylate, or could result in regulatory
authorities refusing to approve the drug candidate for any and all targeted
indications. In April 2000, the Food and Drug Administration, FDA, issued a
clinical hold on, and the South African Medicines Control Council, MCC,
terminated, clinical study FTC-302 for our drug candidate Coviracil, formerly
known as FTC. Study FTC-302 was being conducted under a U.S. Investigational New
Drug Application, IND, at sites in South Africa. The FDA indicated that study
FTC-302 may not be adequate to provide pivotal data in support of a New Drug
Application, NDA. Discussions with the FDA and MCC on this issue are continuing.
Due to these circumstances, the planned submission of a U.S. NDA for Coviracil
may be significantly delayed. We, the FDA, or foreign regulatory authorities may
suspend or terminate clinical trials at any time if we or they believe the trial
participants face unacceptable health risks. Clinical trials may not demonstrate
that our drug candidates are safe or effective.

      Clinical trials are lengthy and expensive. They require adequate supplies
of drug substance and sufficient patient enrollment. Patient enrollment is a
function of many factors, including:

      o     the size of the patient population,
      o     the nature of the protocol,
      o     the proximity of patients to clinical sites, and
      o     the eligibility criteria for the clinical trial.


                                       16
<PAGE>

      Delays in patient enrollment can result in increased costs and longer
development times. Even if we successfully complete clinical trials, we may not
be able to file any required regulatory submissions in a timely manner and we
may not receive regulatory approval for the drug candidate.

      In addition, if the FDA or foreign regulatory authorities require
additional clinical trials, we could face increased costs and significant
development delays, as occurred with Coactinon and which may occur with
Coviracil. In December 1999, we were advised by the FDA that additional Phase
III studies would be required to support an NDA submission for Coactinon. In
August 2000, we announced our decision to continue the development of Coactinon.
Based upon discussions with the FDA and an analysis of clinical data from two
clinical studies, we began enrolling an additional 280 patients in an ongoing
Phase III clinical study in an effort to generate clinical results that would
help support an NDA submission for Coactinon. Changes in regulatory policy or
additional regulations adopted during product development and regulatory review
of information we submit could also result in delays or rejections. The FDA has
notified us that two of our drug candidates, Coviracil and DAPD for the
treatment of HIV, qualify for designation as "fast track" products under
provisions of the Food and Drug Administration Modernization Act of 1997. The
fast track provisions are designed to expedite the review of new drugs intended
to treat serious or life-threatening conditions and essentially codified the
criteria previously established by the FDA for accelerated approval. These drug
candidates may not, however, continue to qualify for expedited review and our
other drug candidates may fail to qualify for fast track development or
expedited review. Even though some of our drug candidates have qualified for
expedited review, the FDA may not approve them at all or any sooner than other
drug candidates that do not qualify for expedited review.

If we or our licensors are not able to obtain and maintain adequate patent
protection for our product candidates, we may be unable to commercialize our
product candidates or to prevent other companies from using our technology in
competitive products.

      Our success will depend on our ability and the ability of our licensors to
obtain and maintain patents and proprietary rights for our drug candidates and
to avoid infringing the proprietary rights of others, both in the United States
and in foreign countries. We have no patents in our own name and we have a small
number of patent applications of our own pending. One of our patent applications
is a joint application with co-inventors from another institution. We have,
however, licensed or we have an option to license patents, patent applications
and other proprietary rights from third parties for each of our drug candidates.
If we breach our licenses, we may lose rights to important technology and drug
candidates.

      Our patent position, like that of many pharmaceutical companies, is
uncertain and involves complex legal and factual questions for which important
legal principles are unresolved. We may not develop or obtain rights to products
or processes that are patentable. Even if we do obtain patents, they may not
adequately protect the technology we own or have in-licensed. In addition,
others may challenge, seek to invalidate, infringe or circumvent any patents we
own or in-license, and rights we receive under those patents may not provide
competitive advantages to us. Further, the manufacture, use or sale of our
products or processes may infringe the patent rights of others.

      Several pharmaceutical and biotechnology companies, universities and
research institutions have filed patent applications or received patents that
cover our technologies or technologies similar to ours. Others have filed patent
applications and received patents that conflict with patents or patent
applications we own or have in-licensed, either by claiming the same methods or
compounds or by claiming methods or compounds that could dominate those owned by
or licensed to us. In addition, we may not be aware of all patents or patent
applications that may impact our ability to make, use or sell any of our drug
candidates. For example, United States patent applications are confidential
while pending in the Patent and Trademark Office, PTO, and patent applications
filed in foreign countries are often first published six months or more after
filing. Any conflicts resulting from third party patent applications and patents
could significantly reduce the coverage of our patents and limit our ability to
obtain meaningful patent protection. If other companies obtain patents with
conflicting claims, we may be required to obtain licenses to these patents or to
develop or obtain alternative technology. We may not be able to obtain any such
license on acceptable terms or at all. Any failure to obtain such licenses could
delay or prevent us from pursuing the development or commercialization of our
drug candidates, which would adversely affect our business.

      There are significant risks regarding the patent rights of two of our
in-licensed drug candidates. We may not be able to commercialize Coviracil or
DAPD due to patent rights held by third parties other than our licensors.


                                       17
<PAGE>

Third parties have filed numerous patent applications and have received numerous
issued patents in the United States and many foreign countries that relate to
these drug candidates and their use alone or coactively to treat HIV and
hepatitis B. As a result, our patent position regarding the use of Coviracil and
DAPD to treat HIV and/or hepatitis B is highly uncertain and involves numerous
complex legal and factual questions that are unknown or unresolved. If any of
these questions is resolved in a manner that is not favorable to us, we would
not have the right to commercialize Coviracil and/or DAPD in the absence of a
license from one or more third parties, which may not be available on acceptable
terms or at all. In addition, even if any of these questions is favorably
resolved, we may still attempt to obtain licenses from one or more third parties
to reduce or eliminate the risks relating to some or all of these matters. Such
licenses may not be available on acceptable terms or at all. Our inability to
commercialize either of these drug candidates could adversely affect our
business.

      Coviracil (emtricitabine)

      Coviracil, a purified form of FTC, belongs to the same general class of
nucleosides as lamivudine, also known as 3TC. In the United States, the FDA has
approved 3TC for the treatment of hepatitis B and for use in combination with
zidovudine, also known as AZT, for the treatment of HIV. Regulatory authorities
have approved 3TC for the treatment of hepatitis B and for use in combination
with other nucleoside analogues for the treatment of HIV in a number of other
countries. Glaxo Wellcome plc, Glaxo, currently sells 3TC for the treatment of
HIV and hepatitis B under a license agreement with BioChem Pharma. We obtained
rights to Coviracil under a license from Emory. In 1990 and 1991, Emory filed in
the United States and thereafter in numerous foreign countries patent
applications with claims to compositions of matter and methods to treat HIV and
hepatitis B with Coviracil. In 1991, Yale University, Yale, filed in the United
States patent applications on FTC, including Coviracil and its use to treat
hepatitis B, and subsequently licensed its rights under those patent
applications to Emory. Our license arrangement with Emory includes all rights to
Coviracil and its uses claimed in the Yale patent applications.

      HIV. Emory received a United States patent in 1993 covering a method to
treat HIV with Coviracil. Emory has also received United States and European
patents containing composition of matter claims that cover Coviracil. BioChem
Pharma filed a patent application in the United States in 1989 and received a
patent in 1991 covering a group of nucleosides in the same general class as
Coviracil, but which did not include Coviracil. BioChem Pharma filed foreign
patent applications in 1990, which expanded upon its 1989 United States patent
application to include FTC among a large class of nucleosides. The foreign
patent applications are pending in many countries and have issued in a number of
countries with claims directed to FTC that may cover Coviracil and its use to
treat HIV. In addition, BioChem Pharma filed a United States patent application
in 1991 specifically directed to Coviracil. BioChem Pharma has received two
patents in the United States based on this patent application, one directed to
Coviracil and the other directed to a method for treating viral diseases with
Coviracil. The PTO has determined that there are conflicts between both BioChem
Pharma patents and patent applications filed by Emory because they have
overlapping claims to the same technology. The PTO is conducting two adversarial
proceedings, interferences, to determine whether BioChem Pharma or Emory is
entitled to the patent claims in dispute regarding BioChem Pharma's two issued
patents. Emory may not prevail in the adversarial proceedings, and the
proceedings may also delay the decision of the PTO regarding Emory's patent
application. BioChem Pharma also filed patent applications in many foreign
countries based upon its 1991 United States patent application and has received
patents in certain countries. BioChem Pharma may have additional patent
applications pending in the United States.

      In the United States, the first to invent a technology is entitled to
patent protection on that technology. For patent applications filed prior to
January 1, 1996, United States patent law provides that a party who invented a
technology outside the United States is deemed to have invented the technology
on the earlier of the date it introduced the invention in the United States or
the date it filed its patent application. In a filing with the SEC, BioChem
Pharma stated that prior to January 1, 1996, it conducted substantially all of
its research activities outside the United States. BioChem Pharma also stated
that it considered this to be a disadvantage in obtaining United States patents
based on patent applications filed before January 1, 1996 as compared to
companies that mainly conducted research in the United States. We do not know
whether Emory or BioChem Pharma was the first to invent the technology claimed
in their respective United States patent applications or patents. We also do not
know whether BioChem Pharma invented the technology disclosed in its patent
applications in the United States or introduced that technology in the United
States before the date of its patent applications.


                                       18
<PAGE>

      In foreign countries, the first party to file a patent application on a
technology, not the first to invent the technology, is entitled to patent
protection on that technology. We believe that Emory filed patent applications
disclosing Coviracil as a useful anti-HIV agent in many foreign countries before
BioChem Pharma filed its foreign patent applications on that technology.
However, BioChem Pharma has received patents in several foreign countries. In
addition, BioChem Pharma has filed patent applications on Coviracil and its uses
in certain countries in which Emory did not file patent applications. Emory has
opposed or otherwise challenged patent claims on Coviracil granted to BioChem
Pharma in Australia and Europe. Emory may not initiate patent opposition
proceedings in any other countries or be successful in any foreign proceeding
attempting to prevent the issuance of, revoke or limit the scope of patents
issued to BioChem Pharma. BioChem Pharma has opposed patent claims on Coviracil
granted to Emory in Europe, Japan, Australia and South Korea. BioChem Pharma may
make additional challenges to Emory patents or patent applications, which Emory
may not succeed in defending. Our sales, if any, of Coviracil for the treatment
of HIV may be held to infringe United States and foreign patent rights of
BioChem Pharma. Under the patent laws of most countries, a product can be found
to infringe a third party patent either if the third party patent expressly
covers the product or method of treatment using the product, or if the third
party patent covers subject matter that is substantially equivalent in nature to
the product or method, even if the patent does not expressly cover the product
or method. If it is determined that the sale of Coviracil for the treatment of
HIV infringes a BioChem Pharma patent, we would not have the right to make, use
or sell Coviracil for the treatment of HIV in one or more countries in the
absence of a license from BioChem Pharma. We may be unable to obtain such a
license from BioChem Pharma on acceptable terms or at all.

      Hepatitis B. Burroughs Wellcome Co, Burroughs Wellcome, filed patent
applications in March 1991 and May 1991 in Great Britain on a method to treat
hepatitis B with FTC and purified forms of FTC, that include Coviracil.
Burroughs Wellcome filed similar patent applications in other countries,
including the United States. Glaxo subsequently acquired Burroughs Wellcome's
rights under those patent applications. Those patent applications were filed in
foreign countries prior to the date Emory filed its patent application on the
use of Coviracil to treat hepatitis B. Burroughs Wellcome's foreign patent
applications, therefore, have priority over those filed by Emory. In July 1996,
Emory instituted litigation against Glaxo in the United States District Court to
obtain ownership of the patent applications filed by Burroughs Wellcome,
alleging that Burroughs Wellcome converted and misappropriated Emory's invention
and property and that an Emory employee is the inventor or a co-inventor of the
subject matter covered by the Burroughs Wellcome patent applications. In May
1999, Emory and Glaxo settled the litigation, and we became the exclusive
licensee of the United States and all foreign patent applications and patents
filed by Burroughs Wellcome on the use of Coviracil to treat hepatitis B. Under
the license and settlement agreements, Emory and we were also given access to
development and clinical data and drug substance held by Glaxo relating to
Coviracil.

      BioChem Pharma filed a patent application in May 1991 in Great Britain
also directed to a method to treat hepatitis B with FTC. BioChem Pharma filed
similar patent applications in other countries. In January 1996, BioChem Pharma
received a patent in the United States, which included a claim to treat
hepatitis B with Coviracil. The PTO has determined that there is a conflict
between the BioChem Pharma patent and patent applications filed by Yale and
Emory. The PTO is conducting an adversarial proceeding, an interference, to
determine which party is entitled to the patent claims in dispute. Yale licensed
all of its rights relating to FTC, including Coviracil, and its uses claimed in
this patent application to Emory, which subsequently licensed these rights to
us. Neither Emory nor Yale may prevail in the adversarial proceeding, and the
proceeding may delay the decision of the PTO regarding Yale's and Emory's patent
applications. In addition, the PTO has recently added the U.S. patent
application filed by Burroughs Wellcome to this interference. Emory may not
pursue or succeed in any such proceedings. We will not be able to sell Coviracil
for the treatment of hepatitis B in the United States unless a United States
court or administrative body determines that the BioChem Pharma patent is
invalid or unless we obtain a license from BioChem Pharma. We may be unable to
obtain such a license on acceptable terms or at all. In July 1991, BioChem
Pharma received a United States patent on the use of 3TC to treat hepatitis B
and has corresponding patent applications pending or issued in foreign
countries. If it is determined that the use of Coviracil to treat hepatitis B is
not substantially different from the use of 3TC to treat hepatitis B, a court
could hold that the use of Coviracil to treat hepatitis B infringes these
BioChem Pharma 3TC patents.

      In addition, BioChem Pharma has filed in the United States and foreign
countries several patent applications on manufacturing methods relating to a
class of nucleosides that includes Coviracil, from which


                                       19
<PAGE>

BioChem Pharma has received several patents in the United States and many
foreign countries. If we use a manufacturing method that is covered by patents
issued on any of these applications, we will not be able to manufacture
Coviracil without a license from BioChem Pharma. We may not be able to obtain
such a license on acceptable terms or at all.

      DAPD

      We obtained our rights to DAPD under a license from Emory and the
University of Georgia. Our rights to DAPD include a number of issued United
States patents that cover composition of matter, a method for the synthesis of
DAPD, methods for the use of DAPD alone or in combination with certain other
agents for the treatment of hepatitis B, and a method to treat HIV with DAPD. We
also have rights to several foreign patents and patent applications that cover
methods for the use of DAPD alone or in combination with certain other
anti-hepatitis B agents for the treatment of hepatitis B. Additional foreign
patent applications are pending which contain claims for the use of DAPD to
treat HIV. Emory and the University of Georgia filed patent applications
claiming these inventions in the United States in 1990 and 1992. BioChem Pharma
filed a patent application in the United States in 1988 on a group of
nucleosides in the same general class as DAPD and their use to treat HIV, and
has filed corresponding patent applications in foreign countries. The PTO issued
a patent to BioChem Pharma in 1993 covering a class of nucleosides that includes
DAPD and its use to treat HIV. Corresponding patents have been issued to BioChem
Pharma in many foreign countries. Emory has filed an opposition to patent claims
granted to BioChem Pharma by the European Patent Office based, in part, upon
Emory's assertion that BioChem Pharma's patent does not disclose how to make
DAPD. In a patent opposition hearing held at the European Patent Office on March
4, 1999, the Opposition Division ruled that the BioChem Pharma European patent
covering DAPD is valid. Emory has appealed this decision to the European Patent
Office Technical Board of Appeal. If the Technical Board of Appeal affirms the
decision of the Opposition Division, or if Emory or Triangle does not pursue the
appeal, we would not be able to sell DAPD in Europe without a license from
BioChem Pharma, which may not be available on acceptable terms or at all. Patent
claims granted to Emory on both DAPD (the administered drug) and DXG (the parent
drug into which DAPD is converted in the body) have also been opposed by BioChem
Pharma in the Australian Patent Office. In a decision dated November 8, 2000,
the Australian Patent Office held that Emory's patent claims directed to DAPD
are not patentable over an earlier BioChem Pharma patent. If Emory, the
University of Georgia or Triangle does not appeal this decision of the
Australian Patent Office, or is unsuccessful in the appeal, then we will not be
able to sell DAPD in Australia without a license from BioChem Pharma, which may
not be available on reasonable terms or at all. BioChem Pharma's opposition to
Emory's patent claims on DXG in Australia is ongoing. If Emory, the University
of Georgia and we do not challenge, or are not successful in any challenge to,
BioChem Pharma's issued patents, pending patent applications, or patents that
may issue from such applications, we will not be able to manufacture, use or
sell DAPD in the United States and any foreign countries in which BioChem Pharma
receives a patent without a license from BioChem Pharma. We may not be able to
obtain such a license from BioChem Pharma on acceptable terms or at all.

      Immunostimulatory Sequence Product Candidates

      In March 2000, we entered into a licensing and collaborative agreement
with Dynavax Technologies Corporation, Dynavax, to develop immunostimulatory
polynucleotide sequence product candidates for the prevention and/or treatment
of serious viral diseases, which became effective in April 2000.
Immunostimulatory sequences are polynucleotides which stimulate the immune
system, and could potentially be used in combination with our small molecule
product candidates to increase the body's ability to defend against viral
infection. Immunostimulatory sequences can be stabilized for use through
internal linkages that do not occur in nature, including phosphorothioate
linkages.

      There are a number of companies which have patent applications and issued
patents, both in the United States and in other countries, that cover
immunostimulatory sequences and their uses. Coley Pharmaceuticals, Inc. has
filed several patent applications in this area and has in addition exclusively
licensed a number of patent applications on this subject from the University of
Iowa and Isis Pharmaceuticals, Inc. A number of these patent applications have
been issued. A number of companies have also filed patent applications and have
or are expected to receive patents on certain polynucleotides and methods for
their use and manufacture. We could be prevented from making, using or selling
any immunostimulatory sequence that is covered by a patent issued to a third
party company, unless we obtain a license from that company, which may not be
available on reasonable terms or at all.

      With respect to any of our drug candidates, litigation, patent opposition
and adversarial proceedings, including the currently pending proceedings, could
result in substantial costs to us. We expect the costs of the currently pending
proceedings to increase significantly during the next several years. We
anticipate that additional


                                       20
<PAGE>

litigation and/or proceedings will be necessary or may be initiated to enforce
any patents we own or in-license, or to determine the scope, validity and
enforceability of other parties' proprietary rights and the priority of an
invention. Any of these activities could result in substantial costs and/or
delays to us. The outcome of any of these proceedings may significantly affect
our drug candidates and technology. United States patents carry a presumption of
validity and generally can be invalidated only through clear and convincing
evidence. As indicated above, the PTO is conducting three adversarial
proceedings in connection with the emtricitabine technology. We cannot assure
you that a court or administrative body would hold our in-licensed patents valid
or would find an alleged infringer to be infringing. Further, the license and
option agreements with Emory, the University of Georgia, The Regents of the
University of California, The DuPont Pharmaceuticals Company, Mitsubishi
Chemical Corporation, and Dynavax provide that each of these licensors is
primarily responsible for any patent prosecution activities, such as litigation,
patent conflict proceeding, patent opposition or other actions, for the
technology licensed to us. These agreements also provide that in general we are
required to reimburse these licensors for the costs they incur in performing
these activities. Similarly, Yale and the University of Georgia, the licensors
of clevudine, formerly L-FMAU, to Bukwang Pharm. Ind. Co., Ltd., are primarily
responsible for patent prosecution activities with respect to clevudine at our
expense. As a result, we generally do not have the ability to institute or
determine the conduct of any such patent proceedings unless our licensors elect
not to institute or to abandon such proceedings. If our licensors elect to
institute and prosecute patent proceedings, our rights will depend in part upon
the manner in which these licensors conduct the proceedings. In any proceedings
they elect to initiate and maintain, these licensors may not vigorously pursue
or defend or may decide to settle such proceedings on terms that are unfavorable
to us. An adverse outcome of these proceedings could subject us to significant
liabilities to third parties, require disputed rights to be licensed from third
parties or require us to cease using such technology, any of which could
adversely affect our business. Moreover, the mere uncertainty resulting from the
initiation and continuation of any technology related litigation or adversarial
proceeding could adversely affect our business pending resolution of the
disputed matters.

      We also rely on unpatented trade secrets and know-how to maintain our
competitive position, which we seek to protect, in part, by confidentiality
agreements with employees, consultants and others. These parties may breach or
terminate these agreements, and we may not have adequate remedies for any
breach. Our trade secrets may also be independently discovered by competitors.
We rely on certain technologies to which we do not have exclusive rights or
which may not be patentable or proprietary and thus may be available to
competitors. We have filed applications for, but have not obtained, trademark
registrations for various marks in the United States and other jurisdictions. We
have received U.S. trademark registrations for our corporate name and logo,
Coactinon(R) and Coviracil(R). We have also received registrations in the
European Union for the mark Coactinon(R) and our corporate logo. Our pending
application in the European Union for the mark CoviracilTM has been opposed by
Orsem, based upon registrations for the mark Coversyl in various countries, and
Les Laboratories Serveir, based on a French registration for the mark Coversyl.
We do not believe that the marks Coviracil and Coversyl are confusingly similar,
but, in the event they are found to be confusingly similar, we may need to adopt
a different product name for emtricitabine in the applicable jurisdictions.
Several other companies use trade names that are similar to our name for their
businesses. If we are unable to obtain any licenses that may be necessary for
the use of our corporate name, we may be required to change our name. Our
management personnel were previously employed by other pharmaceutical companies.
The prior employers of these individuals may allege violations of trade secrets
and other similar claims relating to their drug development activities for us.

We are subject to extensive government regulation and may fail to receive
regulatory approval which could prevent or delay the commercialization of our
products.

      In addition to preclinical testing, clinical trials and other approval
procedures for human pharmaceutical products, we are subject to numerous other
regulations covering the development of pharmaceutical products. These
regulations include, for example, domestic and international regulations
relating to the manufacturing, safety, labeling, storage, record keeping,
reporting, marketing and promotion of pharmaceutical products. We are also
regulated with respect to non-clinical and clinical laboratory practices, safe
working conditions, and the use and disposal of hazardous substances, including
radioactive compounds and infectious disease agents used in connection with our
development work. The requirements vary widely from country to country and some
requirements may vary from state to state in the United States. We expect the
process of obtaining these approvals and complying with appropriate government
regulations to be time consuming and expensive. Even if our drug candidates
receive regulatory approval, we may still face difficulties in marketing and
manufacturing those drug candidates. Further, any approval may be contingent on
postmarketing studies or other conditions. The approval of any of our drug


                                       21
<PAGE>

candidates may limit the indicated uses of the drug candidate. A marketed
product, its manufacturer and the manufacturer's facilities are subject to
continual review and periodic inspections. The discovery of previously unknown
problems with a product, manufacturer or facility may result in restrictions on
the product or manufacturer, including withdrawal of the product from the
market. The failure to comply with applicable regulatory requirements can, among
other things, result in:

      o     fines,
      o     suspended regulatory approvals,
      o     refusal to approve pending applications,
      o     refusal to permit exports from the United States,
      o     product recalls,
      o     seizure of products,
      o     injunctions,
      o     operating restrictions, and
      o     criminal prosecutions.

      In addition, adverse clinical results by others could negatively impact
the development and approval of our drug candidates. Some of our drug candidates
are intended for use as coactive therapy with one or more other drugs, and
adverse safety, effectiveness or regulatory developments in connection with such
other drugs will also have an adverse effect on our business.

Intense competition may render our drug candidates noncompetitive or obsolete.

      We are engaged in segments of the drug industry that are highly
competitive and rapidly changing. Any of our current drug candidates that we
successfully develop will compete with numerous existing therapies. In addition,
many companies are pursuing novel drugs that target the same diseases we are
targeting. We believe that a significant number of drugs are currently under
development and will become available in the future for the treatment of HIV and
hepatitis B. We anticipate that we will face intense and increasing competition
as new products enter the market and advanced technologies become available. Our
competitors' products may be more effective, or more effectively marketed and
sold, than any of our products. Competitive products may render our products
obsolete or noncompetitive before we can recover the expenses of developing and
commercializing our drug candidates. Furthermore, the development of a cure or
new treatment methods for the diseases we are targeting could render our drug
candidates noncompetitive, obsolete or uneconomical. Many of our competitors:

      o     have significantly greater financial, technical and human resources
            than we have and may be better equipped to develop, manufacture and
            market products,
      o     have extensive experience in preclinical testing and clinical
            trials, obtaining regulatory approvals and manufacturing and
            marketing pharmaceutical products, and
      o     have products that have been approved or are in late stage
            development and operate large, well-funded research and development
            programs.

      Smaller companies may also prove to be significant competitors,
particularly through collaborative arrangements with large pharmaceutical and
biotechnology companies. Academic institutions, governmental agencies and other
public and private research organizations are also becoming increasingly aware
of the commercial value of their inventions and are more actively seeking to
commercialize the technology they have developed.

      If we successfully develop and obtain approval for our drug candidates, we
will face competition based on the safety and effectiveness of our products, the
timing and scope of regulatory approvals, the availability of supply, marketing
and sales capability, reimbursement coverage, price, patent position and other
factors. Our competitors may develop or commercialize more effective or more
affordable products, or obtain more effective patent protection, than we do.
Accordingly, our competitors may commercialize products more rapidly or
effectively than we do, which could hurt our competitive position.


                                       22
<PAGE>

Because we face risks related to our license and option agreements, we could
lose our rights to our drug candidates.

      We have in-licensed or obtained an option to in-license our drug
candidates under agreements with our licensors. These agreements permit our
licensors to terminate the agreements under certain circumstances, such as our
failure to achieve certain development milestones or the occurrence of an
uncured material breach by us. The termination of any of these agreements could
result in the loss of our rights to a drug candidate. Upon termination of most
of our license agreements, we are required to return the licensed technology to
our licensors. In addition, most of these agreements provide that our licensors
are primarily responsible for any patent prosecution activities, such as
litigation, patent conflict, patent opposition or other actions, for the
technology licensed to us. These agreements also provide that in general we are
required to reimburse our licensors for the costs they incur in performing these
activities. We believe that these costs as well as other costs under our license
and option agreements will be substantial and may increase significantly during
the next several years. Our inability or failure to pay any of these costs with
respect to any drug candidate could result in the termination of the license or
option agreement for the drug candidate.

Because we may be unable to successfully manufacture our drug candidates, our
business may never achieve profitability.

      We do not have any internal manufacturing capacity and we rely on third
party manufacturers for the manufacture of all of our clinical trial material.
We plan to expand our existing relationships or to establish relationships with
additional third party manufacturers for products that we successfully develop.
The terms of the Abbott Alliance provide that Abbott will manufacture all or a
portion of our product requirements for those products that are or become
covered by the Abbott Alliance. We may be unable to maintain our relationship
with Abbott or to establish or maintain relationships with other third party
manufacturers on acceptable terms, and third party manufacturers may be unable
to manufacture products in commercial quantities on a cost effective basis. Our
dependence upon third parties for the manufacture of our products may adversely
affect our profit margins and our ability to develop and commercialize products
on a timely and competitive basis. Further, third party manufacturers may
encounter manufacturing or quality control problems in connection with the
manufacture of our products and may be unable to maintain the necessary
governmental licenses and approvals to continue manufacturing our products.

We may be unable to successfully market, sell or distribute our drug candidates.

      In the United States, we currently intend to market the drug candidates
covered by the Abbott Alliance in collaboration with Abbott and to market other
drug candidates that we successfully develop, that do not become part of the
Abbott Alliance, through a direct sales force. Outside of the United States, we
expect Abbott to market drug candidates covered by the Abbott Alliance and, for
any other drug candidates that we successfully develop that do not become part
of the Abbott Alliance, we intend to market and sell through arrangements or
collaborations with third parties. In addition, we expect Abbott to handle the
distribution and sale of drug candidates covered by the Abbott Alliance both
inside and outside the United States. With respect to the United States, our
ability to market the drug candidates that we successfully develop will be
contingent upon recruitment, training and deployment of a sales and marketing
force as well as the performance of Abbott under the Abbott Alliance. We may be
unable to establish marketing or sales capabilities or to maintain arrangements
or enter into new arrangements with third parties to perform those activities on
favorable terms. In addition, any such third parties may have significant
control or influence over important aspects of the commercialization of our drug
candidates, including market identification, marketing methods, pricing,
composition of sales force and promotional activities. We also may have limited
control over the amount and timing of resources that a third party may devote to
our drug candidates. Our business may never achieve profitability if we fail to
establish or maintain a sales force and marketing, sales and distribution
capabilities.

Because we depend on third parties for the development and acquisition of drug
candidates, we may not be able to successfully acquire additional drug
candidates or commercialize or develop our current drug candidates.

      We have engaged and intend to continue to engage third party contract
research organizations and other third parties to help us develop our drug
candidates. Although we have designed the clinical trials for our drug
candidates, the contract research organizations have conducted many of the
clinical trials. As a result, many


                                       23
<PAGE>

important aspects of our drug development programs have been and will continue
to be outside of our direct control. In addition, the contract research
organizations may not perform all of their obligations under arrangements with
us. If the contract research organizations do not perform clinical trials in a
satisfactory manner or breach their obligations to us, the development and
commercialization of any drug candidate may be delayed or precluded. We do not
currently intend to engage in drug discovery. Our strategy for obtaining
additional drug candidates is to utilize the relationships of our management
team and scientific consultants to identify drug candidates for in-licensing
from companies, universities, research institutions and other organizations. We
may not succeed in acquiring additional drug candidates on acceptable terms or
at all.

Because we may not be able to attract and retain key personnel and advisors, we
may not successfully develop our products or achieve our other business
objectives.

      We are highly dependent on our senior management and scientific staff,
including Dr. David Barry, our Chairman and Chief Executive Officer. We have
entered into employment agreements with each officer of Triangle. Dr. Barry's
employment agreement contains certain non-competition provisions. In addition,
the employment agreements for each officer provide for certain severance
payments which are contingent upon each officer's refraining from competition
with Triangle. The loss of the services of any member of our senior management
or scientific staff may significantly delay or prevent the achievement of
product development and other business objectives. Our ability to attract and
retain qualified personnel, consultants and advisors is critical to our success.
In order to pursue our drug development programs and marketing plans, we will
need to hire additional qualified scientific and management personnel.
Competition for qualified individuals is intense and we face competition from
numerous pharmaceutical and biotechnology companies, universities and other
research institutions. We may be unable to attract and retain these individuals,
and our failure to do so would have an adverse effect on our business.

Health care reform measures and third party reimbursement practices are
uncertain and may adversely impact the commercialization of our products.

      The efforts of governments and third party payors to contain or reduce the
cost of health care will continue to affect the business and financial condition
of drug companies. A number of legislative and regulatory proposals to change
the health care system have been proposed in recent years. In addition, an
increasing emphasis on managed care in the United States has and will continue
to increase pressure on drug pricing. While we cannot predict whether
legislative or regulatory proposals will be adopted or what effect those
proposals or managed care efforts may have on our business, the announcement
and/or adoption of such proposals or efforts could have an adverse effect on our
profit margins and financial condition. Sales of prescription drugs depend
significantly on the availability of reimbursement to the consumer from third
party payors, such as government and private insurance plans. These third party
payors frequently require that drug companies give them predetermined discounts
from list prices, and they are increasingly challenging the prices charged for
medical products and services. Present coactive treatment regimens for the
treatment of HIV are expensive; published reports indicate the cost per patient
per year can exceed $13,000, and may increase as new combinations are developed.
These costs have resulted in limitations in the reimbursement available from
third party payors for the treatment of HIV infection, and we expect that
reimbursement pressures will continue in the future. If we succeed in bringing
one or more products to the market, these products may not be considered cost
effective and reimbursement to the consumer may not be available or sufficient
to allow us to sell our products on a competitive basis.

If our drug candidates do not achieve market acceptance, our business may never
achieve profitability.

      Our success will depend on the market acceptance of any products we
develop. The degree of market acceptance will depend upon a number of factors,
including the receipt and scope of regulatory approvals, the establishment and
demonstration in the medical community of the safety and effectiveness of our
products and their potential advantages over existing treatment methods, and
reimbursement policies of government and third party payors. Physicians,
patients, payors or the medical community in general may not accept or utilize
any product that we may develop.


                                       24
<PAGE>

We may not have adequate insurance protection against product liability.

      Our business exposes us to potential product liability risks that are
inherent in the testing of drug candidates and the manufacturing and marketing
of drug products and we may face product liability claims in the future. We
currently have only limited product liability insurance. We may be unable to
maintain our existing insurance and/or obtain additional insurance in the future
at a reasonable cost or in sufficient amounts to protect against potential
losses. A successful product liability claim or series of claims brought against
us could require us to pay substantial amounts that would decrease our
profitability, if any.

We may incur substantial costs related to our use of hazardous materials.

      We use hazardous materials, chemicals, viruses and various radioactive
compounds in our drug development programs. Although we believe that our
handling and disposing of these materials comply with state and federal
regulations, the risk of accidental contamination or injury still exists. In the
event of such an accident, we could be held liable for any damages or fines that
result and any such liability could exceed our resources.

Our controlling stockholders may make decisions which you do not consider to be
in your best interest.

      As of September 30, 2000, our directors, executive officers and their
affiliates, excluding Abbott, owned approximately 12.4% of our outstanding
common stock and Abbott owned approximately 17.3% of our outstanding common
stock. Pursuant to the terms of the Abbott Alliance, Abbott has the right to
purchase additional amounts of our common stock up to a maximum aggregate
percentage of 21% of our outstanding common stock and has certain rights to
purchase shares directly from us in order to maintain its existing level of
ownership, also known as antidilution protection. One Abbott designee serves as
a member of our Board of Directors. As a result, our controlling stockholders
are able to significantly influence all matters requiring stockholder approval,
including the election of directors and the approval of significant corporate
transactions. This concentration of ownership could also delay or prevent a
change in control of Triangle that may be favored by other stockholders.

The market price of our stock may be adversely affected by market volatility.

      The market price of our common stock is likely to be volatile and could
fluctuate widely in response to many factors, including:

      o     announcements of the results of clinical trials by us or our
            competitors,
      o     developments with respect to patents or proprietary rights,
      o     announcements of technological innovations by us or our competitors,
      o     announcements of new products or new contracts by us or our
            competitors,
      o     actual or anticipated variations in our operating results due to the
            level of development expenses and other factors,
      o     changes in financial estimates by securities analysts and whether
            our earnings meet or exceed such estimates,
      o     conditions and trends in the pharmaceutical and other industries,
      o     new accounting standards,
      o     general economic, political and market conditions and other factors,
            and
      o     the occurrence of any of the risks described in these "Risk
            Factors."

      In the past, following periods of volatility in the market price of the
securities of companies in our industry, securities class action litigation has
often been instituted against those companies. If we face such litigation in the
future, it would result in substantial costs and a diversion of management
attention and resources, which would negatively impact our business.

      In addition, if our stockholders sell a substantial number of shares of
our common stock in the public market, the market price of our common stock
could be reduced. As of September 30, 2000, there were 38,313,803 shares of
common stock outstanding, of which approximately 24,600,000 were immediately
eligible for resale in the public market without restriction. Holders of
approximately 7,150,000 shares have rights to cause us to register


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<PAGE>

them for sale to the public. We have filed registration statements to register
the sale of approximately 3,900,000 of these shares. In addition, Abbott will
have the right on or after June 30, 2002 to cause us to register for resale in
the public market the 6,571,428 shares of common stock purchased at the closing
of the Abbott Alliance. Any such sales may make it more difficult for us to
raise needed working capital through an offering of our equity or convertible
debt securities and may reduce the market price of our common stock.

      Declines in our stock price might harm our ability to issue equity under
various financing arrangements including our Facility or other transactions. The
price at which we issue shares in such transactions is generally based on the
market price of our common stock and a decline in our stock price would result
in our needing to issue a greater number of shares to raise a given amount of
funds or acquire a given amount of goods or services. For this reason, a decline
in our stock price might also result in increased ownership dilution to our
stockholders. A low stock price might impair our ability to raise capital under
the Facility described above under "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
because the underwriter is not obligated to sell our common stock under the
Facility on a given day if our average stock price during such day is less than
$4.00 per share (or less than any higher floor price specified by us).

Our stock price could decline and our stockholders could experience significant
ownership dilution due to our ability to issue shares under the Firm
Underwritten Equity Facility.

      Pursuant to the Facility described under "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources," we may sell, subject to various restrictions, up to $100
million of common stock under the Facility within a three-year period. The
aggregate number of shares that may be issued under the Facility depends on a
number of factors, including the market price and trading volume of our common
stock during each 15-trading day selling period.

      Because the price of any shares we choose to sell under the Facility is
based on the volume weighted average market price of the common stock on the
date of sale, both the number of shares we would have to sell in order to raise
any given amount of funding and the associated ownership dilution experienced by
our stockholders will be greater if the price of our common stock declines. The
lowest price at which common stock may be sold under the Facility is $4.00 per
share.

      The perceived risk associated with the possible sale of a large number of
shares under the terms of the Facility could cause some of our stockholders to
sell their stock, thus causing the price of our stock to decline. In addition,
actual or anticipated downward pressure on our stock price due to actual or
anticipated sales of our common stock under the Facility could cause some
institutions or individuals to engage in short sales of our common stock, which
may itself cause the price of our stock to decline.

Antitakeover provisions in our charter documents and Delaware law could delay,
defer or prevent a tender offer or takeover attempt that you consider to be in
your best interest.

      We have adopted a number of provisions that could have antitakeover
effects. On January 29, 1999, our Board of Directors, the Board, adopted a
preferred stock purchase rights plan, commonly referred to as a "poison pill."
The rights plan is intended to deter an attempt to acquire Triangle in a manner
or on terms not approved by the Board. Thus, the rights plan will not prevent an
acquisition of Triangle which is approved by the Board. Our charter authorizes
the Board to issue shares of undesignated preferred stock without stockholder
approval on terms as the Board may determine. Moreover, the issuance of
preferred stock may make it more difficult for a third party to acquire, or may
discourage a third party from acquiring, voting control of Triangle. Our bylaws
divide the Board into three classes of directors with each class serving a three
year term. These and other provisions of our charter and our bylaws, as well as
certain provisions of Delaware law, could delay or impede the removal of
incumbent directors and could make more difficult a merger, tender offer or
proxy contest involving Triangle, even if the events could be beneficial to our
stockholders. These provisions could also limit the price that investors might
be willing to pay for our common stock.


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<PAGE>

We have not declared or paid any dividends on our common stock.

      We have never declared or paid any cash dividends on our common stock, and
we currently do not intend to pay any cash dividends on our common stock in the
foreseeable future. We intend to retain our earnings, if any, for the operation
of our business.


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<PAGE>

Item 3. Quantitative and Qualitative Disclosures About Market Risk
        ----------------------------------------------------------

      Triangle is exposed to various market risks, including changes in foreign
currency exchange rates and interest rates. Market risk is the potential loss
arising from adverse changes in market rates and prices, such as foreign
currency exchange and interest rates. At September 30, 2000, Triangle had
several forward foreign currency contracts to hedge anticipated foreign currency
obligations and was also subject to interest rate risk associated with its
investment portfolio. All derivative financial instruments, when purchased, are
done so in accordance with established policies and procedures and require the
approval, reporting and monitoring of derivative financial instrument
activities. The following discusses our exposure to market risk related to
changes in interest rates and foreign currency exchange rates.

Interest Rate Sensitivity

      Triangle is subject to interest rate risk on its investment portfolio. We
maintain an investment portfolio consisting primarily of high quality government
and corporate bonds with an average maturity of less than 18 months. We attempt
to mitigate default risk by investing in high credit quality securities and by
monitoring the credit rating of investment issuers. Our investment portfolio
includes only marketable securities with active secondary or resale markets to
help ensure portfolio liquidity and we have implemented guidelines limiting the
duration of investments. These available-for-sale securities are subject to
interest rate risk and will decrease in value if market interest rates increase.
If market rates were to increase by 10% from levels at September 30, 2000, the
fair value of the portfolio is expected to decline by an immaterial aggregate
amount primarily due to the relatively short maturity of the portfolio. At
September 30, 2000, our portfolio consisted of approximately $57.8 million of
investments maturing within one year and approximately $10.2 million of
investments maturing after one year but within 30 months. Additionally, we
generally have the ability to hold our fixed income investments to maturity and
therefore do not expect our consolidated operating results, financial position
or cash flows to be affected by a significant amount due to a sudden change in
interest rates.

Foreign Currency Exchange Risk

      The majority of our transactions occur in U.S. dollars and we do not have
subsidiaries or investments in foreign countries. Therefore, we are not subject
to significant foreign currency exchange risk. We have, however, established
policies and procedures for market risk assessment, including a foreign currency
hedging program. The goal of our hedging program is to economically guarantee,
or lock into, exchange rates on firm foreign currency cash outflows and to
minimize the impact to the Company of foreign currency fluctuations. These
policies specifically provide for the hedging of firm commitments and prohibit
the holding of derivative instruments for speculative or trading purposes. At
September 30, 2000, Triangle had purchased approximately $1.8 million of forward
foreign currency contracts in currencies participating in the European Monetary
Union. The hypothetical loss associated with a 10% devaluation of the Euro would
not materially affect our consolidated operating results, financial position or
cash flows.


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<PAGE>

                           PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K
        --------------------------------
a.    Exhibits

      +10.1 First Amendment to License Agreement between Emory University, the
            University of Georgia Research Foundation, Inc. and the Company,
            dated July 10, 2000.

      +10.2 Second Amendment to License Agreement between Emory University and
            the Company, dated July 10, 2000.

      +10.3 Collaboration and License Agreement between Arrow Therapeutics
            Limited and the Company, dated July 15, 2000.

      +10.4 Amendment to License Agreement between Bukwang Pharm. Ind. Co., Ltd.
            and the Company, dated September 5, 2000.

      27.1  Financial Data Schedule

      (+)   Certain confidential portions of this Exhibit were omitted by means
            of marking such portions with an asterisk (the "Mark"). This Exhibit
            has been filed separately with the Secretary of the Commission
            without the Mark pursuant to the Company's Application Requesting
            Confidential Treatment under Rule 24b-2 under the Securities
            Exchange Act of 1934.

b.    Reports on Form 8-K

      None


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<PAGE>

                         TRIANGLE PHARMACEUTICALS, INC.
                                   SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                          TRIANGLE PHARMACEUTICALS, INC.

Date:  November 10, 2000                    By: /s/ David W. Barry
                                                --------------------------------
                                            David W. Barry
                                            Chairman and Chief Executive Officer


                                          TRIANGLE PHARMACEUTICALS, INC.

Date:  November 10, 2000                    By: /s/ Robert F. Amundsen, Jr.
                                                --------------------------------
                                            Robert F. Amundsen, Jr.
                                            Executive Vice President and
                                            Chief Financial Officer


                                       30