SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

|X|             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended March 31, 2001

                                       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 March 31, 2001, there were 46,363,918 shares of Common Stock and
200,000 shares of Series B Preferred Stock outstanding.

<PAGE>

                         Triangle Pharmaceuticals, Inc.

                                Table of Contents

Part I. Financial Information

                                                                        Page No.
                                                                        --------

      Item 1. Financial Statements

            Condensed Consolidated Balance Sheets -
                  March 31, 2001 (unaudited) and December 31, 2000............ 3

            Condensed Consolidated Statements of Operations (unaudited) -
                  Three Months Ended March 31, 2001 and March 31, 2000
                  and Period From Inception (July 12, 1995) Through
                  March 31, 2001.............................................. 4

            Condensed Consolidated Statements of Cash Flows (unaudited) -
                  Three Months Ended March 31, 2001 and March 31, 2000 and
                  Period From Inception (July 12, 1995) Through March
                  31, 2001.................................................... 5

            Condensed Consolidated Statements of Stockholders' Equity -
                  Period From Inception (July 12, 1995) Through
                  March 31, 2001 (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..................... 10-26

      Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 27

Part II. Other Information

      Item 2. Changes in Securities and Use of Proceeds...................... 28

      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
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                             March 31,   December 31,
Assets                                                                          2001         2000
------                                                                       ---------   ------------
                                                                            (unaudited)
<S>                                                                          <C>          <C>
Current assets:
      Cash and cash equivalents ..........................................   $  63,586    $  14,055
      Investments ........................................................      15,988       39,472
      Interest receivable ................................................         728        1,081
      Receivable from collaborative partner ..............................         317          413
      Prepaid expenses ...................................................       1,285          543
                                                                             ---------    ---------
         Total current assets ............................................      81,904       55,564
Property, plant and equipment, net .......................................       5,916        6,093
Investments ..............................................................       8,882        9,404
                                                                             ---------    ---------

         Total assets ....................................................   $  96,702    $  71,061
                                                                             =========    =========

Liabilities and Stockholders' Equity
------------------------------------

Current liabilities:
      Accounts payable ...................................................   $   7,354    $   9,580
      Payable to collaborative partner ...................................          --        6,005
      Capital lease obligation-current ...................................           3            7
      Accrued expenses ...................................................      20,831       17,268
      Deferred revenue ...................................................       6,977        6,977
                                                                             ---------    ---------
         Total current liabilities .......................................      35,165       39,837
Deferred revenue .........................................................      15,699       17,443
                                                                             ---------    ---------
         Total liabilities ...............................................      50,864       57,280
                                                                             ---------    ---------
Commitments and contingencies (See note 4 and note 6) ....................          --           --
Stockholders' equity:
      Convertible Preferred Stock, $0.001 par value; 5,000 shares
         authorized; 200 and 0 shares issued and outstanding, respectively          --           --
      Common Stock, $0.001 par value; 75,000 shares authorized;
         46,364 and 38,529 shares issued and outstanding, respectively ...          46           39
      Additional paid-in capital .........................................     399,358      344,550
      Accumulated deficit during development stage .......................    (353,827)    (330,969)
      Accumulated other comprehensive income .............................         261          161
                                                                             ---------    ---------
         Total stockholders' equity ......................................      45,838       13,781
                                                                             ---------    ---------

         Total liabilities and stockholders' equity ......................   $  96,702    $  71,061
                                                                             =========    =========
</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
                                             Three        Three      Inception
                                             Months       Months   (July 12, 1995)
                                             Ended        Ended        Through
                                            March 31,    March 31,    March 31,
                                              2001         2000         2001
                                            ---------    ---------    ---------
<S>                                         <C>          <C>          <C>
Revenue:
   Collaborative revenue ................   $   1,744    $   1,982    $   9,039

Operating expenses:
   License fees .........................       1,095          378       25,967
   Development ..........................      21,839       27,190      290,863
   Purchased research and development ...          --        5,350       17,858
   Selling, general and administrative ..       2,708        2,726       51,654
                                            ---------    ---------    ---------
     Total operating expenses ...........      25,642       35,644      386,342
                                            ---------    ---------    ---------

Loss from operations ....................     (23,898)     (33,662)    (377,303)
Interest income, net ....................       1,040        2,276       23,476
                                            ---------    ---------    ---------

Net loss ................................   $ (22,858)   $ (31,386)   $(353,827)
                                            =========    =========    =========

Basic and diluted net loss per common
   share ................................   $   (0.55)   $   (0.83)
                                            =========    =========
Shares used in computing basic and
   diluted net loss per common share ....      41,288       37,625
                                            =========    =========
</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
                                                            Three        Three      Inception
                                                            Months       Months   (July 12, 1995)
                                                            Ended        Ended        Through
                                                           March 31,    March 31,    March 31,
                                                             2001         2000         2001
                                                           ---------    ---------    ---------
<S>                                                        <C>          <C>          <C>
Cash flows from operating activities:
Net loss ...............................................   $ (22,858)   $ (31,386)   $(353,827)
Adjustments to reconcile net loss to net
   cash used by operating activities:
   Depreciation and amortization .......................         500          417        4,741
   Purchased research and development ..................          --        5,350       17,858
   Stock-based compensation ............................          --          322        1,886
   Change in assets and liabilities:
     Receivables .......................................         449          474       (1,045)
     Prepaid expenses ..................................        (742)        (227)      (1,285)
     Accounts payable ..................................      (8,231)        (705)       7,354
     Accrued expenses ..................................       3,563        1,038       20,831
     Deferred revenue ..................................      (1,744)       4,733       22,676
                                                           ---------    ---------    ---------
Net cash used by operating activities ..................     (29,063)     (19,984)    (280,811)
                                                           ---------    ---------    ---------
Cash flows from investing activities:
   Sale of restricted deposits .........................          --           13           --
   Purchase of investments .............................      (1,385)     (57,731)    (311,894)
   Proceeds from sale and maturity of investments ......      25,491       72,216      287,285
   Purchase of property, plant and equipment ...........        (323)        (782)     (10,482)
   Acquisition of Avid Corporation, net of cash acquired          --           --       (3,053)
                                                           ---------    ---------    ---------
Net cash provided (used) by investing activities .......      23,783       13,716      (38,144)
                                                           ---------    ---------    ---------
Cash flows from financing activities:
   Sale of stock, net of related issuance costs ........      54,493          249      381,547
   Sale of options under salary investment option
     grant program .....................................          36           15          351
   Proceeds from stock options/warrants exercised ......         286          233          906
   Proceeds from notes payable .........................          --           --          374
   Equipment financing .................................          --           --          354
   Principal payments on capital lease obligations
     and notes payable .................................          (4)         (37)        (991)
                                                           ---------    ---------    ---------
Net cash provided by financing activities ..............      54,811          460      382,541
                                                           ---------    ---------    ---------
Net increase (decrease) in cash and cash equivalents ...      49,531       (5,808)      63,586
Cash and cash equivalents at beginning of period .......      14,055       58,486           --
                                                           ---------    ---------    ---------
Cash and cash equivalents at end of period .............   $  63,586    $  52,678    $  63,586
                                                           =========    =========    =========
</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
                                    ---------    ---------    ---------    ---------   ---------   ---------    ---------
(Continued)
<S>                                 <C>          <C>          <C>          <C>         <C>         <C>          <C>
Sale of stock ...................          --    $      --    $      --          326   $       1   $   1,608    $      --
Sale of stock options ...........          --           --           --           --          --          52           --
Stock-based compensation ........          --           --           --           --          --         348           --
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 ......................          --           --           --           --          --          --     (109,525)
                                    ---------    ---------    ---------    ---------   ---------   ---------    ---------
Balance, December 31, 2000 ......          --           --           --       38,529          39     344,550     (330,969)
(Unaudited)
Sale of stock ...................         200           --           --        7,724           7      54,486           --
Sale of stock options ...........          --           --           --           --          --          36           --
Stock options/warrants exercised           --           --           --          111          --         286           --
Comprehensive loss:
  Reclassification adjustment for
    gains/(losses) in net loss ..          --           --           --           --          --          --           --
  Change in unrealized
    gains/(losses) on investments          --           --           --           --          --          --           --
  Net loss ......................          --           --           --           --          --          --      (22,858)
                                    ---------    ---------    ---------    ---------   ---------   ---------    ---------
Balance, March 31, 2001 .........         200    $      --    $      --       46,364   $      46   $ 399,358    $(353,827)
                                    =========    =========    =========    =========   =========   =========    =========

<CAPTION>
                                                   Accumulated
                                    Comprehensive     Other
                                        Income     Comprehensive    Deferred
                                        (Loss)     Income/(Loss)  Compensation    Total
                                      ---------      ---------     ---------    ---------
<S>                                   <C>            <C>           <C>          <C>
(Continued)
Sale of stock ...................                    $      --     $      --    $   1,609
Sale of stock options ...........                           --            --           52
Stock-based compensation ........                           --            --          348
Stock options/warrants exercised                            --            --          378
Purchased in-process research and
  development costs .............                           --            --        5,350
Comprehensive loss:
  Reclassification adjustment for
    gains/(losses) in net loss ..     $     133            133            --          133
  Change in unrealized
    gains/(losses) on investments           163            163            --          163
  Net loss ......................      (109,525)            --            --     (109,525)
                                      ---------      ---------     ---------    ---------
Balance, December 31, 2000 ......      (109,229)           161            --       13,781
(Unaudited)
Sale of stock ...................                           --            --       54,493
Sale of stock options ...........                           --            --           36
Stock options/warrants exercised                            --            --          286
Comprehensive loss:
  Reclassification adjustment for
    gains/(losses) in net loss ..            (4)            (4)           --           (4)
  Change in unrealized
    gains/(losses) on investments           104            104            --          104
  Net loss ......................       (22,858)            --            --      (22,858)
                                      ---------      ---------     ---------    ---------
Balance, March 31, 2001 .........     $ (22,758)     $     261     $      --    $  45,838
                                      =========      =========     =========    =========
</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 ("SEC") 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 month periods ended March 31, 2001 and 2000, 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

      As of March 31, 2001, the Company has multiple license agreements for its
drug candidates as well as collaborative agreements with specific third parties
to assist in the identification and development of other novel drug candidates.
In the aggregate, these agreements may require future payments of up to $90,500
contingent upon the achievement of certain development milestones, up to $30,000
upon the achievement of certain sales milestones, and $4,879 of future research
and development payments. 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 an additional 1,650 shares of Common Stock upon
the achievement of certain development milestones relating to mozenavir
dimesylate acquired in the acquisition of Avid Corporation. 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 annual 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. In addition,
the Company has option agreements that allow it to obtain licenses on additional
drug candidates in the future.


                                       8
<PAGE>

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

5. Equity Financings

      In January 2001, the Company entered into definitive purchase agreements
with a limited number of qualified institutional buyers and large institutional
accredited investors for the sale of 7,700 shares of Common Stock at $6.00 per
share for net proceeds totaling $43,475. The closing of the Common Stock sale
occurred on March 1, 2001. Abbott Laboratories and another related party, which
Triangle utilizes in the completion of its clinical and preclinical studies,
participated in this financing purchasing 1,300 and 1,500 shares of Common
Stock, respectively. As part of this transaction, the Company filed a
registration statement covering the resale of these shares which the SEC
declared effective on February 27, 2001.

      Additionally, the Company completed the sale of 200 shares of convertible
Series B Preferred Stock for $60.00 per share in a private offering to a small
number of qualified institutional buyers and large institutional accredited
investors on March 9, 2001. The total net proceeds of this offering were
approximately $10,900. Dividend rights are $5.00 per share on all preferred
shares that remain outstanding after August 15, 2001 and will be payable, at the
Company's option, in cash or Common Stock. The conditional dividend, if
applicable, is payable at the time of conversion to Common Stock. Each share of
Preferred Stock will convert into ten shares of Common Stock at the earlier of
stockholder approval of the terms of the sale of the Series B Preferred Stock or
March 9, 2002, the first anniversary of the date the Preferred Stock was issued.
Each share of Preferred Stock is entitled to cast ten votes on any matter
presented to the stockholders. Except for the conditional dividend, the holders
of the Series B Preferred Stock have no preferential rights to dividends or
distributions.

6. Contingencies

      The Company is indirectly involved in several opposition and interference
proceedings and two lawsuits filed in Australia regarding the patent rights
related to two of its licensed drug candidates. Although the Company is not a
named party in any of these proceedings, it is obligated to reimburse its
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 several patent claims of Emory University directed to
amdoxovir, (formerly known as DAPD) are not patentable over an earlier opposing
patent. Emory University has appealed this decision of the Australian Patent
Office to the Australian Federal Court. If Emory University and the Company are
unsuccessful in the appeal, then the Company will not be able to sell amdoxovir
in Australia without a license, which may not be available on reasonable terms
or at all. The Company cannot predict the outcome of these proceedings. The
Company believes that an adverse judgment would not result in a material
financial obligation to the Company, nor would the Company 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 these drug candidates. However, any
development in these proceedings adverse to the Company's interests could have a
material adverse effect on the Company's future consolidated financial position,
results of operations and cash flow.


                                       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 our 2000 Annual Report on Form 10-K as well as with our
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 believe it likely that any of our drug candidates will be
commercially available until at least the year 2002. As of March 31, 2001, our
accumulated deficit was approximately $353.8 million.

      We require substantial working capital to fund the development and
potential commercialization of our drug candidates. We will require significant
expenditures to fund pre-clinical testing, clinical research studies, drug
synthesis and manufacturing, license obligations, development of a sales and
marketing infrastructure and ongoing administrative support before receiving
regulatory approvals for our drug candidates. These approvals may be delayed or
not granted at all. We have been unprofitable since our inception and expect to
incur substantial losses for at least the next several years. Because of the
nature of our business, we expect that losses will fluctuate from period to
period and that fluctuations may be substantial. See "--Risk and Uncertainties--
We have incurred losses since inception and may never achieve profitability."

      You should consider the operating and financial risks associated with drug
development activities 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 a
rapidly changing competitive market, 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 are difficult to predict and will depend on several
factors. Development expenses, including expenses for drug synthesis and
manufacturing, pre-clinical testing and clinical research activities, will
depend on the ongoing requirements of our drug development programs and
direction from regulatory agencies, which are difficult to predict. Management
may in some cases be able to control the timing of development expenses in part
by accelerating or decelerating pre-clinical testing and clinical trial
activities, but many of these expenditures will occur 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 you should not rely on them as an indication of future
performance. Due to all of the 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."


                                       10
<PAGE>

Results of Operations

Collaborative Revenue

      Revenue totaled $1.7 million for the three months ended March 31, 2001 as
compared to $2.0 million for the same period in 2000. Revenue is solely related
to collaborative revenue associated with our strategic 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. The decrease in
collaborative revenue in 2001 reflects an extension of the development period
for which collaborative revenue is amortized from 2000.

License Fees

      License fees totaled $1.1 million for the three months ended March 31,
2001 as compared to $378,000 for the same period in 2000. License fees in the
first quarter of 2001 and 2000 relate to the recognition of milestone
obligations and/or preservation fees under our license and option agreements for
our portfolio of drug candidates. The increase in 2001, as compared to 2000, is
related to the timing and magnitude of milestone obligations and preservation
payments under our license and option agreements for our portfolio of drug
candidates. Future license fees may consist of milestone payments or
preservation payments under existing licensing or option agreements, the amount
of which could be substantial and the timing of which will depend on a number of
factors that we cannot predict. These factors include, among others, the success
of our drug development programs and the extent to which we may in-license
additional drug candidates.

Development Expenses

      Development expenses totaled $21.8 million for the three months ended
March 31, 2001 as compared to $27.2 million for the same period in 2000.
Development expenses in 2001 consisted primarily of expenses for clinical
trials, drug synthesis, employee compensation, consultation and preclinical
testing. Development expenses in 2000 consisted primarily of expenses for drug
synthesis, clinical trials, employee compensation, and preclinical testing. The
decrease in development expenses for the three month period ended March 31,
2001, as compared to the three month period ended March 31, 2000, is primarily
the result of reduced spending for manufacturing and related costs for
Coactinon(R) and Coviracil(R). Approximately 83% of our first quarter
development expenses were focused on Coviracil, amdoxovir, formerly known as
DAPD, and Coactinon. Our future development expenses will depend on results of
clinical and preclinical activities, availability of capital to fund multiple
drug candidate development programs and direction by regulatory agencies.
Accordingly, development expenses may fluctuate from period to period and such
fluctuations may be significant. In addition, if we in-license or otherwise
acquire rights to additional drug candidates, development expenses may increase.

Purchased Research and Development Expense

      There was no purchased research and development expense in the three
months ended March 31, 2001, as compared to $5.4 million for the three months
ended March 31, 2000. In 2000, we issued 400,000 shares of common stock
associated with the 1997 acquisition of Avid Corporation, Avid, 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
in-process research and development charge was based on the fair market value of
our common stock at the date on which the extension was granted and relates to
the drug candidate mozenavir dimesylate.

Selling, General and Administrative Expenses

      Selling, general and administrative expenses totaled $2.7 million for the
three months ended March 31, 2001 and 2000. Selling, general and administrative
expenses in both 2001 and 2000 consisted primarily of employee compensation,
amounts paid for outside professional services and rent expense. Our selling,
general and administrative expenses may fluctuate from period to period and such
fluctuations may be significant. Future selling, general and administrative
expenses will depend on the level of our future development activities and
whether we continue to develop our sales and marketing organization.


                                       11
<PAGE>

Interest Income, Net

      Net interest income totaled $1.0 million for the three months ended March
31, 2001 as compared to $2.3 million for the same period in 2000. The decrease
in interest income is due primarily to a much smaller average investment balance
offset by higher low-risk, short-term interest rates in the first quarter of
2001. Future interest income will depend on our future cash and investment
balances and the return on these investments. See "--Liquidity and Capital
Resources."

Liquidity and Capital Resources

      We have financed our operations since inception (July 12, 1995) through
March 31, 2001 primarily with the net proceeds received from private placements
of equity securities, which provided aggregate net proceeds of approximately
$166.3 million, and from initial and secondary public offerings, which provided
aggregate net proceeds of approximately $96.8 million, as well as net proceeds
from the completion of our strategic alliance with Abbott, 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 November
2000, we entered into a $100.0 million Firm Underwritten Equity Facility, the
Facility, that provides us the ability to sell our common stock in the public
market through November 2003. To date, we have raised approximately $807,000 in
net proceeds from this Facility.

      At March 31, 2001, we had net working capital of $46.7 million, an
increase of approximately $31.0 million over December 31, 2000. The increase in
working capital is principally the result of our two separate March 2001 private
placements offset by use of funds for our normal operating expenses. Our
principal source of liquidity at March 31, 2001, was $63.6 million in cash and
cash equivalents, $22.9 million in investments which are considered
"available-for-sale," and $2.0 million of strategic corporate investments,
reflecting a $25.5 million increase of cash, cash equivalent and investment
balances over those at December 31, 2000.

      Our working capital requirements may fluctuate 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 selling, general and administrative expenditures necessary to support our
operations. The amount of our future working capital requirements will depend on
many factors, including the efficiency of manufacturing processes developed on
our behalf by third parties, the cost of drugs supplied by third party
contractors, including Abbott, the success of our drug development programs, the
magnitude and scope of these programs, the cost, timing and outcome of
regulatory reviews, changes in regulatory requirements, 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 relevant to our operations, determinations as to the
commercial potential of our drug candidates, the level of required
administrative and legal support, the potential expansion of required facility
space and the potential use of third party sales contractors.

      Amounts payable by us in the future under our existing license and
research agreements are uncertain due to a number of factors, including the
progress of our drug development programs, our ability to obtain approval to
commercialize drug candidates and the commercial success of approved drugs. Our
existing license and research agreements, as of March 31, 2001, may require
future cash payments of up to $90.5 million contingent on the achievement of
development milestones, up to $30.0 million on the achievement of sales
milestones, and $4.9 million of future research and development payments. One of
our licensors has the option to receive $2.0 million of future milestone
payments in shares of common stock, based on the then current market price, in
lieu of a cash payment. As of March 31, 2001, we are also obligated to issue up
to an additional 1,650,000 shares of common stock on the achievement of
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 under our existing license agreements could range from
$50,000 if only a single drug candidate is approved for one indication, to $54.5
million if all drug


                                       12
<PAGE>

candidates are approved for all indications. In addition, we have option
agreements that allow us to obtain licenses on additional drug candidates in the
future. Exercise of these option agreements would increase our license
obligations.

      We believe that our existing cash, cash equivalents and investments, and
expected net proceeds raised under the Facility 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 capital to fund
our future operations from remaining availability under the Facility, or through
equity or debt financings from other sources. 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."

Equity Financings

      In January 2001, we entered into definitive purchase agreements with a
limited number of qualified institutional buyers and large institutional
accredited investors for the sale of 7.7 million shares of common stock at $6.00
per share for net proceeds totaling approximately $43.5 million. The closing of
the common stock sale occurred on March 1, 2001 with Abbott and another related
party, which Triangle utilizes in the completion of its clinical and preclinical
studies, participating in this financing. Additionally, we closed the sale of
200,000 shares of convertible Series B preferred stock for $60.00 per share in a
private offering to a small number of qualified institutional buyers and large
institutional accredited investors on March 9, 2001. This sale yielded net
proceeds of approximately $10.9 million. These preferred shares are convertible
into ten shares of common stock at the earlier of our stockholders' approval of
the issuance of the preferred shares or March 9, 2002. Holders of these
preferred shares after August 15, 2001 are entitled to a $5.00 per share
dividend, payable at Triangle's discretion in either cash or common stock at the
time of conversion to common stock. Except for the conditional dividend, the
holders of these preferred shares have no preferential rights to dividends or
distributions.

Litigation and Other Contingencies

      As discussed below in "Risk and Uncertainties," we are indirectly involved
in several patent opposition and adversarial proceedings and two lawsuits filed
in Australia regarding the patent rights related to two of our licensed drug
candidates, Coviracil and amdoxovir. Although we are not a named party in any of
these proceedings, we are obligated to reimburse our licensors for legal
expenses associated with these proceedings. In one of these patent opposition
proceedings, on November 8, 2000, the Australian Patent Office held that several
patent claims of Emory University, Emory, directed to amdoxovir are not
patentable over an earlier BioChem Pharma, Inc., BioChem Pharma, patent. Emory
has appealed this decision of the Australian Patent Office to the Australian
Federal Court. If Emory, the University of Georgia Research Foundation, Inc.,
University of Georgia, or Triangle is unsuccessful in the appeal, then we will
not be able to sell amdoxovir 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 any adverse development related
to the patent rights licensed to us for these two drug candidates or our related
rights or obligations, 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.

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.


                                       13
<PAGE>

      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 March 31, 2001, our accumulated deficit was $353.8
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 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


                                       14
<PAGE>

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 pursuant to which we may be able to issue
and sell up to $100.0 million of our common stock over the next three years.
There are conditions and limitations on Ramius Securities, LLC's, Ramius',
obligation to sell shares under the underwriting agreement and Ramius Capital
Group, LLC's, Ramius Capital's, obligation to purchase shares under the purchase
agreement. In particular, Ramius' and Ramius Capital's obligations are subject
to share price and trading volume limitations which could reduce 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. In addition, we may elect not to sell shares of
common stock if we believe that market conditions are unfavorable.

      For a period of 90 days from the effective date, February 27, 2001, of our
registration statement filed in connection with our March 1, 2001 private
placement, we will not, without the prior written consent of Banc of America
Securities LLC be allowed to sell, contract to sell or otherwise dispose of or
issue any of our securities, except pursuant to previously issued options, any
agreements providing for anti-dilution or other share issuance rights, existing
contractual obligations, any employee benefits or similar plans, any issuances
to license holders, or any strategic alliances or joint ventures we may enter
into. In addition, we will cause each of our officers and directors not to
dispose of any of their equity securities of Triangle Pharmaceuticals, Inc.
(other than securities acquired in the private placement) until May 29, 2001
without the prior written consent of Banc of America Securities LLC. We will not
be able to issue any securities pursuant to our Facility until May 29, 2001.

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 South African Medicines Control Council, MCC,
terminated the enrollment in one of our phase III clinical studies, FTC-302, and
the Food and Drug Administration, FDA, issued a clinical hold on the study for
our drug candidate, Coviracil. Study FTC-302 was being conducted under a U.S.
Investigational New Drug Application 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. In February 2001, we were notified by the FDA that
the study would remain on clinical hold even though the study had been
completed. Discussions with the MCC and FDA are continuing; however, the planned
submission of an 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,


                                       15
<PAGE>

      o     the proximity of patients to clinical sites, and
      o     the eligibility criteria for the clinical trial.

      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(R) and which may occur with
Coviracil. In December 1999, the FDA advised that additional Phase III studies
would be required to support an NDA submission for Coactinon. In July 2000, we
presented data to the FDA from a completed phase II study, MKC-202, showing that
a lower dose of 500 mg twice-a-day compared to the previous dose of 750 mg
twice-a-day, provided similar antiviral activity and an enhanced tolerability
profile in patients taking Coactinon. Based on the new data, in July 2000, the
FDA advised that enrolling an additional 280 patients into an ongoing phase III
study, MKC-401, at the lower dose of 500 mg twice-a-day would generate
sufficient data for filing of an NDA should the results be positive. In August
2000, we announced our decision to continue the development of Coactinon. The
enrollment of the additional 280 patients into study MKC-401 was completed in
April 2001.

      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 three of our drug
candidates for the treatment of HIV, Coviracil, Coactinon and amdoxovir, 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


                                       16
<PAGE>

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
amdoxovir due to patent rights held by third parties other than our licensors.
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 in combination to treat HIV and
hepatitis B. As a result, our patent position regarding the use of Coviracil and
amdoxovir 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 amdoxovir 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. In the United States, the FDA has approved lamivudine
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 lamivudine 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. GlaxoSmithKline plc, formerly Glaxo Wellcome plc, Glaxo, currently
sells lamivudine 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 emtricitabine 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 Securities


                                       17
<PAGE>

and Exchange Commission, 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.

      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 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 emtricitabine.
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 emtricitabine 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 emtricitabine 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
emtricitabine.

      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 emtricitabine. 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 emtricitabine, 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
emtricitabine 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


                                       18
<PAGE>

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 lamivudine to treat hepatitis B and has
corresponding patent applications pending or issued in foreign countries. If it
is determined that the use of emtricitabine to treat hepatitis B is not
substantially different from the use of lamivudine to treat hepatitis B, a court
could hold that the use of emtricitabine to treat hepatitis B infringes these
BioChem Pharma lamivudine 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 emtricitabine, from which 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 emtricitabine without a license
from BioChem Pharma. We may not be able to obtain a license on acceptable terms
or at all.

      Amdoxovir (formerly known as DAPD)

      We obtained our rights to amdoxovir under a license from Emory and the
University of Georgia. Our rights to amdoxovir include a number of issued United
States patents that cover composition of matter, a method for the synthesis of
amdoxovir, methods for the use of amdoxovir alone or in combination with certain
other agents for the treatment of hepatitis B, and a method to treat HIV with
amdoxovir. We also have rights to several foreign patents and patent
applications that cover methods for the use of amdoxovir 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 amdoxovir 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 amdoxovir 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 amdoxovir 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 amdoxovir. 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 amdoxovir 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 amdoxovir 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 amdoxovir (the administered drug) and DXG (the parent drug into
which amdoxovir 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
amdoxovir are not patentable over an earlier BioChem Pharma patent. Emory has
appealed this decision of the Australian Patent Office to the Australian Federal
Court. If Emory, the University of Georgia or Triangle is unsuccessful in the
appeal, then we will not be able to sell amdoxovir 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 amdoxovir 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, ISS, 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. ISS can be stabilized for use through internal linkages that do not
occur in nature, including phosphorothioate linkages.


                                       19
<PAGE>

      There are a number of companies which have patent applications and issued
patents, both in the United States and in other countries, that cover ISS 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 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-Tokyo Pharmaceuticals, Inc. (formerly 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 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
patent proceedings unless our licensors elect not to institute or to abandon the
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 some 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 received a Canadian trademark registration for the mark
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 Coviracil(TM) 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.


                                       20
<PAGE>

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
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 combination 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.


                                       21
<PAGE>

      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.

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 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. On the 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


                                       22
<PAGE>

parties to perform those activities on favorable terms. In addition, 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 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 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 combination treatment regimens for the
treatment of HIV are expensive 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.


                                       23
<PAGE>

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.

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 March 31, 2001, our directors, executive officers and their
affiliates, excluding Abbott, owned approximately 13.4% of our outstanding
common stock and approximately 66.7% of our outstanding Series B Preferred
Stock. Abbott owned approximately 17.1% 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 rights to purchase shares directly
from us in order to maintain its existing level of ownership, also known as
antidilution protection. Abbott elected to exercise its right in connection with
our March 1, 2001 private placement by purchasing 1,300,000 shares of our common
stock. 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,


                                       24
<PAGE>

      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 March 31, 2001, there were 46,363,918 shares of common
stock outstanding, of which approximately 25,000,000 were immediately eligible
for resale in the public market without restriction. Holders of approximately
14,800,000 shares have rights to cause us to register their shares for sale to
the public. We have filed registration statements to register the sale of
approximately 11,500,000 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.

      Under our Facility, we may sell, subject to various restrictions
(including the 90-day blackout period associated with our March 1, 2001 private
financing), up to $100.0 million of common stock over 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 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. We have also 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 of
Directors, the Board. The rights plan will not prevent an acquisition of
Triangle which is approved by the Board. Our charter authorizes the Board to
determine the terms of and issue shares of undesignated preferred stock without
stockholder approval. Moreover,


                                       25
<PAGE>

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.

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.


                                       26
<PAGE>

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

      Triangle is exposed to various market risks, including changes in foreign
currency exchange rates, investment market value 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 March 31, 2001, we had
approximately $1.2 million of forward foreign currency contracts and
approximately $350,000 of investments in foreign currencies to hedge foreign
currency commitments. We have, however, established policies and procedures for
market risk assessment and the approval, reporting and monitoring of derivative
financial instrument activities. The following discusses our exposure to market
risk related to changes in interest rates, foreign currency exchange rates and
investment market value.

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. Our portfolio has a current average maturity of less than
12 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 percent from levels at March 31, 2001, we expect that the fair
value of our investment portfolio would decline by an immaterial aggregate
amount primarily due to the relatively short maturity of the portfolio. At March
31, 2001, our portfolio consisted of approximately $16.0 million of investments
maturing within one year and approximately $6.9 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
that our consolidated operating results, financial position or cash flows will
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 establish fixed
exchange rates on firm foreign currency cash outflows and to minimize the impact
to Triangle 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 March 31, 2001,
Triangle had purchased approximately $1.2 million of forward foreign currency
contracts in currencies participating in the European Monetary Union to hedge
firm commitments. Additionally, Triangle has investments in various foreign
currencies totaling approximately $350,000 to hedge foreign currency
commitments. The purchase and the holding of foreign currencies are governed by
established corporate policies and procedures and are entered into when
management determines this methodology to be in our best interests. These
investments are subject to both foreign currency risk and interest rate risk.
The hypothetical loss associated with a 10 percent devaluation of the Euro and
other foreign currencies would not materially affect our consolidated operating
results, financial position or cash flow.

Strategic Investment Risk

      In addition to our normal investment portfolio, we also have a strategic
investment in Dynavax for $2.0 million. This investment represents unregistered
preferred stock and is subject to higher investment risk than our normal
investment portfolio due to the lack of an active resale market for the
investment.


                                       27
<PAGE>

                           PART II - OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds
        -----------------------------------------

c. Issuance of Unregistered Securities

      On March 1, 2001, we completed a private placement of 7,700,000 newly
issued shares of common stock at a price of $6.00 per share. The net proceeds
from the sale were approximately $43,475,000. We registered the resale of these
shares on a registration statement which the SEC declared effective on February
27, 2001.

      On March 9, 2001, we completed a private placement of 200,000 newly issued
shares of convertible Series B preferred stock, par value $0.001 per share, at a
price of $60.00 per share. The net proceeds from the sale were approximately
$10,900,000. Dividend rights are $5.00 per share on all preferred shares that
remain outstanding after August 15, 2001 and will be payable, at our option, in
cash or common stock. The conditional dividend, if applicable, is payable at the
time of conversion to common stock. Each share of preferred stock will convert
into ten shares of common stock at the earlier of approval of the issuance of
preferred shares by our stockholders or March 9, 2002, the first anniversary of
the date the preferred stock was issued. Each share of preferred stock is
entitled to cast ten votes on any matter presented to the stockholders.


                                       28
<PAGE>

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

a.    Exhibits

      None

b.    Reports on Form 8-K

      On March 21, 2001, we filed a current report on Form 8-K dated March 9,
2001 announcing our completion of a private placement of 200,000 newly issued
shares of convertible Series B preferred stock.


                                       29
<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: May 10, 2001                              By: /s/ David W. Barry
                                                    ----------------------------
                                                David W. Barry
                                                Chairman and Chief Executive
                                                Officer


                                        TRIANGLE PHARMACEUTICALS, INC.

Date: May 10, 2001                              By: /s/ Robert F. Amundsen, Jr.
                                                    ----------------------------
                                                Robert F. Amundsen, Jr.
                                                Executive Vice President and
                                                Chief Financial Officer


                                       30