<PAGE>


                     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, 1997

                                    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
       or 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 April 30, 1997, there were 17,585,108 shares of Triangle
Pharmaceuticals, Inc. Common Stock outstanding.

<PAGE>

                         Triangle Pharmaceuticals, Inc.

                               Table of Contents



Part I.  Financial Information                                         PAGE NO.
                                                                       --------
  Item 1.   Financial Statements (unaudited)

    Condensed Balance Sheet -
     December 31, 1996 and March 31, 1997.............................    3-4

    Condensed Statement of Operations -
     Three Months Ended March 31, 1996 and March 31, 1997 and
     Period From Inception (July 12, 1995) Through March 31, 1997.....      5

    Condensed Statement of Cash Flows -
     Three Months Ended March 31, 1996 and March 31, 1997 and
     Period From Inception (July 12, 1995) Through March 31, 1997.....      6

    Condensed Statement of Stockholders' Equity -
     Period From Inception (July 12, 1995) Through
     December 31, 1995 and Through December 31, 1996 and
     the Three Months Ended March 31, 1997............................      7

    Notes to Condensed Financial Statements...........................    8-9

  Item 2.   Management's Discussion and Analysis of Financial
             Condition and Results of Operations......................  10-23

Part II. Other Information

  Item 6.   Exhibits and Reports of Form 8-K..........................     24

  Signatures..........................................................     25

                                       2
<PAGE>

                        PART I - FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS

                       TRIANGLE PHARMACEUTICALS, INC.
                       (A DEVELOPMENT STAGE COMPANY)
                          CONDENSED BALANCE SHEET

                                                   DECEMBER 31,     MARCH 31, 
ASSETS                                                 1996            1997
------                                             ------------    ------------
                                                                    (unaudited)
Current assets:
  Cash and cash equivalents......................   $25,255,006    $20,167,512
  Restricted deposits............................        56,067         39,648
  Investments....................................    17,226,221     21,686,705
  Interest receivable............................       272,716        343,926
  Other receivables..............................       455,910        333,740
  Prepaid expenses...............................       558,423        353,679
                                                    -----------    ------------
       Total current assets......................    43,824,343     42,925,210
                                                    -----------    ------------
Property, plant and equipment, net...............       832,049        935,739
Investments......................................    10,719,917      7,944,433
Restricted deposits..............................       118,933        108,573
                                                    -----------    ------------
       Total assets..............................   $55,495,242    $51,913,955
                                                    -----------    ------------
                                                    -----------    ------------

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

                                       3
<PAGE>


                        TRIANGLE PHARMACEUTICALS, INC.
                         (A DEVELOPMENT STAGE COMPANY)
                            CONDENSED BALANCE SHEET


                                                    DECEMBER 31,     MARCH 31,
LIABILITIES AND STOCKHOLDERS' EQUITY                    1996           1997
------------------------------------                ------------   ------------
                                                                    (unaudited)
    
Current liabilities:
  Accounts payable................................  $  1,584,348   $    730,914
  Accrued license fees............................       150,000             --
  Capital lease obligation-current................       102,006        103,927
  Other accrued expenses..........................       639,255      1,507,420
                                                    ------------   ------------
    Total current liabilities.....................     2,475,609      2,342,261
Capital lease obligation-noncurrent...............       364,385        359,939
                                                    ------------   ------------
    Total liabilities.............................     2,839,994      2,702,200
                                                    ------------   ------------
Commitments and contingencies (See note 3)........            --             --
Stockholders' equity:
  Common Stock, $0.001 par value; authorized
   75,000,000 shares; issued and
   outstanding 17,567,890 and 17,585,108 shares...        17,568         17,585
  Warrants........................................       151,873        183,914
  Additional paid-in capital......................    64,548,647     64,604,323
  Accumulated deficit during development stage....   (11,884,166)   (15,428,218)
  Deferred compensation...........................      (178,674)      (165,849)
                                                    ------------   ------------
    Total stockholders' equity....................    52,655,248     49,211,755
                                                    ------------   ------------
    Total liabilities and stockholders' equity....  $ 55,495,242   $ 51,913,955
                                                    ------------   ------------
                                                    ------------   ------------

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

                                       4
<PAGE>

                         TRIANGLE PHARMACEUTICALS, INC.
                          (A DEVELOPMENT STAGE COMPANY) 
                       CONDENSED STATEMENT OF OPERATIONS 
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                              PERIOD FROM
                                                                               INCEPTION
                                           THREE MONTHS     THREE MONTHS    (JULY 12, 1995)
                                              ENDED            ENDED            THROUGH
                                          MARCH 31, 1996   MARCH 31, 1997   MARCH 31, 1997
                                          --------------   --------------   --------------
<S>                                       <C>              <C>              <C>
Operating expenses:
  License fees.........................            --                --      $  3,267,147
  Development..........................     $ 210,344       $ 2,749,416         7,716,148
  General and administrative...........       616,816         1,520,500         6,083,356
                                          --------------   --------------   --------------
                                              827,160         4,269,916        17,066,651
                                          --------------   --------------   --------------
Interest income........................        31,538           725,864         1,638,433
                                          --------------   --------------   --------------
Net loss...............................     $(795,622)      $(3,544,052)     $(15,428,218)
                                          --------------   --------------   --------------
                                          --------------   --------------   --------------
Net loss per share.....................            --       $     (0.20)
                                                           --------------
                                                           --------------
Pro forma net loss per share...........     $   (0.06)               --
                                          --------------
                                          --------------
Shares used in computing pro forma 
 net loss per share and net loss per
 share, respectively...................    14,277,498        17,580,032
                                          --------------   --------------
                                          --------------   --------------
</TABLE>

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

                                       5
<PAGE>

                        TRIANGLE PHARMACEUTICALS, INC.
                         (A DEVELOPMENT STAGE COMPANY)
                       CONDENSED STATEMENT OF CASH FLOWS
                                 (UNAUDITED) 

<TABLE>
<CAPTION>

                                                                                   PERIOD FROM  
                                                                                     INCEPTION   
                                                   THREE MONTHS    THREE MONTHS   (JULY 12, 1995)
                                                      ENDED           ENDED           THROUGH
                                                  MARCH 31, 1996  MARCH 31, 1997  MARCH 31, 1997 
                                                  --------------  --------------  ---------------
<S>                                               <C>             <C>             <C>
Cash flows from operating activities:
Net loss........................................   $  (795,622)    $(3,544,052)    $(15,428,218)
Adjustments to reconcile net loss to net
  cash used by operating activities:
  Depreciation and amortization.................         3,358          51,367          152,059
  Stock-based compensation: license fees........            --              --          636,000
  Stock-based compensation: development.........            --          11,301          357,870
  Stock-based compensation: general and
     administrative.............................         7,613          41,009          272,531
  Change in assets and liabilities:
     Receivables................................       (48,075)         50,960         (677,666)
     Prepaid expenses...........................            --         204,744         (353,679)
     Accounts payable...........................       (47,424)       (853,434)         730,914
     Accrued license fees and other expenses....       (59,719)        712,086        1,431,550
                                                  --------------  --------------  ---------------
Net cash used by operating activities...........      (939,869)     (3,326,019)     (12,878,639)
                                                  --------------  --------------  ---------------
Cash flows from investing activities:
  (Purchase) sale of restricted deposits........      (175,000)         26,779         (148,221)
  Purchase of investments.......................            --      (7,592,712)     (40,860,637)
  Proceeds from sale and maturity of investments            --       5,907,712       11,229,499
  Purchase of property, plant and equipment.....       (43,088)       (125,818)        (942,095)
                                                  --------------  --------------  ---------------
Net cash used by investing activities...........      (218,088)     (1,784,039)     (30,721,454)
                                                  --------------  --------------  ---------------
Cash flows from financing activities:
  Sale of stock, net of related issuance costs..         1,200          35,853       63,405,749
  Sale of options...............................            --          17,500           17,500
  Sale of warrants..............................            --              --              130
  Proceeds from stock options exercised.........            --             975           26,063
  Equipment financing...........................            --              --          354,416
  Principal payments on capital lease obligation            --         (31,764)         (36,253)
                                                  --------------  --------------  ---------------
Net cash provided by financing activities.......         1,200          22,564       63,767,605
                                                  --------------  --------------  ---------------
Net (decrease) increase in cash and cash
  equivalents...................................    (1,156,757)     (5,087,494)      20,167,512
Cash and cash equivalents at beginning of 
  period........................................     3,081,586      25,255,006               --
                                                  --------------  --------------  ---------------
Cash and cash equivalents at end of period......   $ 1,924,829     $20,167,512     $ 20,167,512
                                                  --------------  --------------  ---------------
                                                  --------------  --------------  ---------------
</TABLE>

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

                                       6
<PAGE>

                          TRIANGLE PHARMACEUTICALS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                    CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                         CONVERTIBLE
                       PREFERRED STOCK                    COMMON STOCK      ADDITIONAL
                     --------------------             --------------------    PAID-IN     ACCUMULATED   DEFERRED
                       SHARES      AMOUNT   WARRANTS     SHARES    AMOUNT     CAPITAL       DEFICIT    COMPENSATION      TOTAL
                     ----------   -------  ---------  ----------  --------  -----------  ------------  ------------  ------------
<S>                  <C>          <C>      <C>        <C>         <C>       <C>          <C>           <C>           <C>
Initial sale 
 of stock...........    933,334   $   933         --   1,175,000  $ 1,175   $   709,642            --          --    $    711,750
Additional sale 
 of stock...........  4,248,337     4,249         --   1,495,000    1,495     3,137,355            --          --       3,143,099
Stock-based 
 compensation.......         --        --         --          --       --        12,000            --   $ (11,750)            250
Net loss, 
 July 12 through
 December 31, 1995..         --        --         --          --       --            --  $   (967,583)         --        (967,583)
                     -------------------------------------------------------------------------------------------------------------
Balance, 
 December 31, 1995..  5,181,671     5,182         --   2,670,000    2,670     3,858,997      (967,583)    (11,750)      2,887,516

Sale of stock.......  3,756,234     3,756         --   4,942,652    4,943    59,506,348            --          --      59,515,047
Sale of warrants....         --        --   $    130          --       --            --            --          --             130
Stock-based 
 compensation.......         --        --    151,743     700,000      700     1,126,500            --    (141,181)      1,137,762
Stock options 
 exercised..........         --        --         --     317,333      317        56,802            --     (25,743)         31,376
Conversion of 
 Preferred to 
 Common Stock....... (8,937,905)   (8,938)        --   8,937,905    8,938            --            --          --              --
Net loss............         --        --         --          --       --            --   (10,916,583)         --     (10,916,583)
                     -------------------------------------------------------------------------------------------------------------
Balance, 
 December 31, 1996..         --        --    151,873  17,567,890   17,568    64,548,647   (11,884,166)   (178,674)     52,655,248
   (UNAUDITED)
Sale of stock.......                                       4,218        4        35,849                                    35,853
Sale of options.....                                                             17,500                                    17,500
Sale of warrants....                                                                                                           --
Stock-based 
 compensation.......                          32,041                                                       12,041          44,082
Stock options 
 exercised..........                                      13,000       13         2,327                       784           3,124
Net loss............          --       --                                            --    (3,544,052)         --      (3,544,052)
                     -------------------------------------------------------------------------------------------------------------
Balance, 
 March 31, 1997.....          --   $   --   $183,914  17,585,108  $17,585   $64,604,323  $(15,428,218)  $(165,849)   $ 49,211,755
                     -------------------------------------------------------------------------------------------------------------
                     -------------------------------------------------------------------------------------------------------------
</TABLE>

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

                                       7
<PAGE>

                       TRIANGLE PHARMACEUTICALS, INC.
                        (A DEVELOPMENT STAGE COMPANY)

                  NOTES TO CONDENSED FINANCIAL STATEMENTS
                                  (UNAUDITED)


1.  Basis of Presentation

    The accompanying unaudited financial statements have been prepared in 
accordance with generally accepted accounting principles and applicable 
Securities and Exchange Commission regulations for interim financial 
information.  These financial statements do not include all of the 
information and footnotes required by generally accepted accounting 
principles for complete financial statements.  It is presumed that users of 
this interim financial information have read or have access to the audited 
financial statements for the preceding fiscal year contained in Triangle 
Pharmaceuticals, Inc. (the "Company") 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.

2.  Pro Forma Net Loss Per Share

    For the three month period ended March 31, 1996, the weighted average 
shares outstanding used in the calculation of net loss per share includes the 
effect of the conversion of all of the Company's Preferred Stock as if such 
conversion occurred as of July 12, 1995.  Additionally, Common Stock or 
equivalent shares from stock options and awards sold or issued at prices 
below the Initial Public Offering ("IPO") price per share in the twelve 
months preceding the initial filing of the Company's Registration Statement 
on Form S-1 on September 11, 1996, have been included in the calculations as 
if outstanding from July 12, 1995 through June 30, 1996 pursuant to the 
requirements of the Securities and Exchange Commission.

    For the three month period ended March 31, 1997, the weighted average 
shares outstanding used in the calculation of net loss per share do not 
include Common Stock equivalents because they have the effect of reducing net 
loss per share. Fully diluted earnings per share were not materially 
different from primary earnings per share.

    In February 1997, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per 
Share."  SFAS 128 changes the computation of net income per share from the 
method currently prescribed by Accounting Principles Board Opinion No. 15.   
The Company will adopt SFAS 128 for periods ending after December 15, 1997 
and will restate previously reported historical information at that time.  
Adoption of SFAS 128 is not expected to materially affect the Company's 
financial statements.


3.  Licensing and Option Agreements

    The Company's existing license agreements require future payments of up 
to $17,750,000 contingent upon the achievement of certain development 
milestones. 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 after regulatory approval.  Depending on the Company's success and 
timing in obtaining regulatory approval, aggregate annual minimum royalties 
could range from $2,000,000 (if only a single drug candidate is approved for 
one indication) to $46,000,000 (if all drug candidates are approved for all 
indications) under the Company's existing license agreements.

                                       8
<PAGE>

    The Company recently exercised its option to obtain a license to the drug 
candidate MKC-442 from Mitsubishi Chemical Corporation ("Mitsubishi") for the 
treatment of HIV, and is currently negotiating the license agreement, which 
upon execution will require the Company to pay a license initiation fee and 
make certain milestone and royalty payments, including minimum annual 
payments, to Mitsubishi.  At Mitsubishi's option, certain of these payments 
may be made in the form of the Company's capital stock.  The Company will 
also be required to meet certain milestone obligations and conduct certain 
development work with respect to this anti-HIV drug candidate.  Upon the 
Company's request, Mitsubishi will supply the Company with drug substance for 
formulation into final dosage form under the terms of a separate supply and 
purchase agreement to be separately negotiated, and any purchases of drug 
substance by the Company will be credited to the Company's minimum annual 
payment obligation.  Mitsubishi would have the right to terminate the license 
agreement if the Company does not satisfy certain milestones obligations or 
does not cure any material breach of the license agreement.  The failure of 
the Company to enter into the license agreement or the termination of the 
license agreement could have a material adverse effect on the Company.

                                       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 "--Risks 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.  The Company undertakes 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 should be read in conjunction with the Company's condensed 
financial statements.

OVERVIEW

    Triangle is a pharmaceutical company engaged in the development of new 
drug candidates primarily in the antiviral area. Since its inception on July 
12, 1995, the Company's operating activities have related primarily to 
recruiting personnel, negotiating license and option arrangements for its 
drug candidates, raising capital and developing the Company's drug 
candidates. The Company has not received any revenues from the sale of 
products, and does not expect any of its drug candidates to be commercially 
available for at least the next several years. As of March 31, 1997, the 
Company's accumulated deficit was approximately $15.4 million.

    The Company's drug development programs will require substantial capital 
expenditures, including expenditures for preclinical testing, chemical 
synthetic scale up, clinical trials of drug candidates and payments to the 
Company's licensors. The Company has been unprofitable since its inception 
and expects to incur substantial and increasing losses for at least the next 
several years, due primarily to the expansion of its drug development 
programs. The Company expects that losses will fluctuate from period to 
period and that such fluctuations may be substantial. See "--Risks and 
Uncertainties--History of Operating Losses; Accumulated Deficit; Uncertainty 
of Future Profitability."

    The Company has only a limited operating history upon which an evaluation 
of the Company and its prospects can be based. The risks, expenses and 
difficulties encountered by companies at an early stage of development must 
be considered when evaluating the Company's prospects. To address these 
risks, the Company must, among other things, successfully develop and 
commercialize its drug candidates, secure all necessary proprietary rights, 
respond to competitive developments and continue to attract, retain and 
motivate qualified persons. There can be no assurance that the Company will 
be successful in addressing these risks. See "--Risks and 
Uncertainties--Development Stage Company; Uncertainty of Product Development."

    The operating expenses of the Company will depend on several factors, 
including the level of development expenses. Development expenses will depend 
on the progress and results of the Company's drug development efforts, which 
the Company cannot predict. Management may in some cases be able to control 
the timing of development expenses in part by accelerating or decelerating 
preclinical testing and clinical trial activities. As a result of these 
factors, the Company believes that period to period comparisons in the future 
are not necessarily meaningful and should not be relied upon as an indication 
of future performance. Due to all of the foregoing factors, it is possible 
that the Company's operating results will be below the expectations of market 
analysts and investors. In such event, the prevailing market price of the 
Common Stock would likely be materially adversely affected. See "--Risks and 
Uncertainties--Volatility of Stock Price."

RESULTS OF OPERATIONS

    The Company had total interest income of $725,864 for the three  months 
ended March 31, 1997, compared to $31,538 for the same period in 1996. The 
increase in interest income is primarily due to an increase in investments 
associated with financing activities. See "--Liquidity and Capital Resources."

    The Company reported no license fees for the first quarter of 1997, or 
for the first quarter of 1996.

                                       10
<PAGE>

    Development expenses totaled $2,749,416 for the three months ended March 
31, 1997, compared to $210,344 for the same period in 1996.  Development 
expenses consisted primarily of expenses for compensation, drug synthesis, 
toxicology studies and preclinical testing of the Company's drug candidates.  
The Company also recognized non-cash charges of $11,301 relating to the 
amortization of deferred consulting expenses. Development expenses were 
reduced by approximately $353,000 relating to the reimbursable development 
expenses under an option agreement for one of the Company's drug candidates.  
Development expenses for the three months ended March 31, 1996 consisted 
primarily of expenses for compensation.  The Company expects its development 
expenses to increase substantially in the future due to continued expansion of 
drug development activities, including preclinical testing and clinical 
trials. In addition, if the Company in-licenses or otherwise acquires rights 
to additional drug candidates, development expenses would increase as a result.

    General and administrative expenses totaled $1,520,500 for the three 
months ended March 31, 1997, compared to $616,816 for the same period in 
1996. General and administrative expenses for the three months ended March 
31, 1997, consisted primarily of compensation expenses, rent expense and 
amounts paid for outside professional services and included non-cash charges 
of $41,009 related to the amortization of deferred compensation expenses. The 
increase in general and administrative expenses compared to the three months 
ended March 31, 1996, is comprised primarily of increases in compensation 
expense, rent expenses associated with office and laboratory facilities and 
increases in professional fees. The increase is due primarily to the growth 
of the Company's operations. The Company expects that its general and 
administrative expenses will increase in future periods.

LIQUIDITY AND CAPITAL RESOURCES

    The Company has financed its operations since inception (July 12, 1995) 
through March 31, 1997 primarily with the net proceeds received from private 
placements of equity securities, which provided aggregate proceeds of 
approximately $22,300,000, and the Company's initial public offering, which 
provided aggregate net proceeds to the Company totaling $42,153,664 before 
deducting expenses of the offering of approximately $1,100,000.  Through March 
31, 1997, the Company received approximately $851,000 of $1,185,000 as 
reimbursement of certain development expenses under an option agreement for 
one of its drug candidates.

    At March 31, 1997, the Company's principal source of liquidity was 
$20,167,512 in cash and cash equivalents, $21,686,705 in short term 
investments and $7,944,433 in long-term investments which are "available for 
sale."  At March 31, 1997, the Company had utilized $500,119 of a secured 
equipment lease-line facility.

    The Company expects that its capital requirements will increase 
substantially in future periods as the Company funds its drug development 
programs. The Company's future capital requirements will depend on many 
factors, including the progress of the Company's drug development programs, 
the magnitude of these programs, the scope and results of preclinical testing 
and clinical trials, the cost, timing and outcome of regulatory reviews, the 
costs under the license and/or option agreements relating to the Company's 
drug candidates, administrative and legal expenses, the establishment of 
capacity for sales and marketing functions, the establishment of 
relationships with third parties for manufacturing and sales and marketing 
functions, and other factors. Amounts payable by the Company in the future 
under its existing license agreements are uncertain due to a number of 
factors, including the progress of the Company's drug development programs, 
the Company's ability to obtain approval to commercialize any drug candidate 
and the commercial success of any approved drug. The Company's existing 
license agreements require future payments of up to $17,750,000 contingent 
upon the achievement of certain development milestones.  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 after regulatory 
approval. Depending on the Company's success and timing in obtaining 
regulatory approval, aggregate annual minimum royalties could range from 
$2,000,000 (if only a single drug candidate is approved for one indication) 
to $46,000,000 (if all drug candidates are approved for all indications) 
under the Company's existing license agreements.

    The Company recently exercised its option to obtain a license to the drug 
candidate MKC-442 from Mitsubishi Chemical Corporation ("Mitsubishi") for the 
treatment of HIV, and is currently negotiating the license

                                       11
<PAGE>

agreement, which upon execution will require the Company to pay a license 
initiation fee and make certain milestone and royalty payments, including 
minimum annual payments, to Mitsubishi.  At Mitsubishi's option, certain of 
these payments may be made in the form of the Company's capital stock.  The 
Company will also be required to meet certain milestone obligations and 
conduct certain development work with respect to this anti-HIV drug 
candidate.  Upon the Company's request, Mitsubishi will supply the Company 
with drug substance for formulation into final dosage form under the terms of 
a separate supply and purchase agreement to be separately negotiated, and any 
purchases of drug substance by the Company will be credited to the Company's 
minimum annual payment obligation.  Mitsubishi would have the right to 
terminate the license agreement if the Company does not satisfy certain 
milestones obligations or does not cure any material breach of the license 
agreement.  The failure of the Company to enter into the license agreement or 
the termination of the license agreement could have a material adverse effect 
on the Company.

    The Company believes that its existing cash and investments will be 
adequate to satisfy its anticipated capital requirements through 1997.  The 
Company expects that it will be required to raise substantial additional 
funds through equity or debt financings, collaborative arrangements with 
corporate partners or from other sources.  There can be no assurance that 
additional funding will be available on favorable terms from any of these 
sources or at all.  See "--Risks and Uncertainties--Future Capital Needs; 
Uncertainty of Additional Funding."

RISKS AND UNCERTAINTIES

    DEVELOPMENT STAGE COMPANY; UNCERTAINTY OF PRODUCT DEVELOPMENT

    The Company was incorporated in July 1995 and accordingly has only a 
limited operating history upon which an evaluation of the Company's business 
and prospects can be based.  In addition, the Company's drug candidates are 
all in the early developmental stage and require significant, time consuming 
and costly development, testing and regulatory clearances.  The Company does 
not expect any of its drug candidates to be commercially available for at 
least the next several years.  The successful development of any new drug, 
including any of the Company's drug candidates, is highly uncertain and is 
subject to a number of significant risks.  These risks include, among others, 
the possibility that any or all of the Company's drug candidates will be 
found to be ineffective, toxic or otherwise fail to receive necessary 
regulatory clearances; that the drug candidates will be uneconomical to 
manufacture, market or will not achieve broad market acceptance; that third 
parties will hold proprietary rights that will preclude the Company from 
marketing the drug candidates; or that third parties will market equivalent 
or superior products.  The failure of the Company's drug development programs 
to result in commercially viable products would have a material adverse 
effect on the Company.

    HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
     PROFITABILITY

    The Company has incurred losses since its inception. As of March 31, 
1997, the Company's accumulated deficit was approximately $15.4 million. 
Losses have resulted principally from costs incurred in the acquisition and 
development of the Company's drug candidates and general and administrative 
costs.  These costs have exceeded the Company's revenues, which to date have 
been generated primarily from interest income. The Company has not generated 
any revenue to date from the sale of drugs and does not expect to do so for 
at least the next several years. The Company expects to incur significant 
additional operating losses over the next several years and expects losses to 
increase as the Company's drug development efforts expand. The Company's 
ability to achieve profitability will depend upon its ability to develop and 
obtain regulatory approval for its drug candidates and to develop the 
capacity (or establish relationships with third parties) to manufacture, 
market and sell any drug candidates it successfully develops. There can be no 
assurance that the Company will ever generate significant revenues or achieve 
profitable operations.

    FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING

    The Company's drug development programs currently require and will in the 
future require substantial capital expenditures, including expenditures for 
preclinical testing, chemical synthetic scale up, clinical trials of drug 
candidates and payments to the Company's licensors. The Company's future 
capital requirements will depend

                                       12
<PAGE>

on many factors, including the progress of the Company's drug development 
programs, the magnitude of these programs, the scope and results of 
preclinical testing and clinical trials, the cost, timing and outcome of 
regulatory reviews, the costs under the license and/or option agreements 
relating to the Company's drug candidates, administrative and legal expenses, 
the establishment of capacity for sales and marketing functions, the 
establishment of relationships with third parties for manufacturing and sales 
and marketing functions, and other factors. The Company expects that its 
capital requirements will increase significantly in the future.

    The Company has incurred negative cash flow from operations since 
inception and does not expect to generate positive cash flow to fund its 
operations for at least the next several years. As a result, the Company 
believes that substantial additional equity or debt financings will be 
required to fund its operations. There can be no assurance that the Company 
will be able to consummate any such financings at all or on favorable terms, 
or that such financings will be adequate to meet the Company's capital 
requirements. Any additional equity or convertible debt financings could 
result in substantial dilution to the Company's stockholders. If adequate 
funds are not available, the Company may be required to delay, reduce the 
scope of or eliminate one or more of its drug development programs or attempt 
to continue development by entering into arrangements with collaborative 
partners or others that may require the Company to relinquish some or all of 
its rights to certain technologies or drug candidates that the Company would 
not otherwise desire to relinquish. In addition, from time to time, the 
Company considers the acquisition of technologies and drug candidates that, 
if completed, could increase the Company's capital requirements. The 
Company's inability to fund its capital requirements would have a material 
adverse effect on the Company.

    UNCERTAINTIES RELATED TO CLINICAL TRIALS

    Before obtaining required regulatory approvals for the commercial sale of 
any of its drug candidates under development, the Company must demonstrate 
through preclinical testing and clinical trials that each product is safe and 
effective for use in each target indication. The results from preclinical 
testing and early clinical trials may not be predictive of results that will 
be obtained in pivotal clinical trials, and there can be no assurance that 
the Company's clinical trials will demonstrate sufficient safety and 
effectiveness to obtain required regulatory approvals or will result in 
marketable products.  A number of companies in the pharmaceutical industry 
have suffered significant setbacks in advanced clinical trials, even after 
promising results in earlier trials. The administration of any drug candidate 
developed by the Company may produce undesirable side effects in humans.  The 
occurrence of side effects could interrupt, delay or halt clinical trials of 
such drug candidate and could ultimately prevent its approval by the United 
States Food and Drug Administration ("FDA") or foreign regulatory authorities 
for any and all targeted indications.  The Company or the FDA may suspend or 
terminate clinical trials at any time if it is believed that the trial 
participants are being exposed to unacceptable health risks.  There can be no 
assurance that clinical trials will demonstrate that any drug candidate under 
development by the Company is safe or effective.

    The rate of completion of the Company's clinical trials will depend upon, 
among other factors, obtaining adequate clinical supplies and the rate of 
patient enrollment. Patient enrollment is a function of many factors, 
including the size of the patient population, the nature of the protocol, the 
proximity of patients to clinical sites and the eligibility criteria for the 
study. Delays in planned patient enrollment can result in increased costs or 
delays or both, which could have a material adverse effect on the Company. 
There can be no assurance that if clinical trials are successfully completed, 
the Company will be able to submit a New Drug Application ("NDA") in a timely 
manner or that any such application will be approved by the FDA. Any failure 
of the Company to complete successfully its clinical trials and obtain 
approvals of corresponding NDAs would have a material adverse effect on the 
Company.

    UNCERTAINTY OF PATENTS; DEPENDENCE ON PATENTS, LICENSES AND PROPRIETARY 
     RIGHTS

    The Company's success will depend in large part on the ability of the 
Company and its licensors to obtain patent protection with respect to its 
drug candidates, defend patents once obtained, maintain trade secrets and 
operate without infringing upon the patents and proprietary rights of others 
and to obtain appropriate licenses to patents or proprietary rights held by 
third parties, both in the United States and in foreign countries. The 
Company

                                       13
<PAGE>

has no patents in its own name or patent applications of its own pending, but 
has obtained licenses to patents and other proprietary rights from third 
parties with respect to each of the Company's seven drug candidates.

    The patent positions of pharmaceutical companies, including those of the 
Company, are uncertain and involve complex legal and factual questions for 
which important legal principles are unresolved. There can be no assurance 
that the Company or its licensors have or will develop or obtain the rights 
to products or processes that are patentable, that patents will issue from 
any of the pending applications or that claims allowed will be sufficient to 
protect the technology licensed to the Company. In addition, no assurance can 
be given that any patents issued to or licensed by the Company will not be 
challenged, invalidated, infringed or circumvented, or that the rights 
granted thereunder will provide competitive advantages to the Company. The 
Company's success will also depend in large part on the Company not breaching 
the licenses pursuant to which the Company obtained its technology and drug 
candidates.

    A number of pharmaceutical companies, biotechnology companies, 
universities and research institutions have filed patent applications or 
received patents to technologies that cover or are similar to the 
technologies licensed by the Company. The Company is aware of certain patent 
applications previously filed by and patents already issued to others that 
conflict with patents or patent applications licensed to the Company either 
by claiming the same methods or compounds or by claiming methods or compounds 
that could dominate those licensed to the Company. In addition, there can be 
no assurance that the Company is aware of all patents or patent applications 
that may materially affect the Company's ability to make, use or sell any 
products. United States patent applications are confidential while pending in 
the United States Patent and Trademark Office ("PTO"), and patent 
applications filed in foreign countries are often first published six months 
or more after filing. Any conflicts resulting from third party patent 
applications and patents could significantly reduce the coverage of the 
patents licensed to the Company and limit the ability of the Company or its 
licensors to obtain meaningful patent protection. If patents are issued to 
other companies that contain competitive or conflicting claims, the Company 
may be required to obtain licenses to these patents or to develop or obtain 
alternative technology. There can be no assurance that the Company will be 
able to obtain any such license on acceptable terms or at all. If such 
licenses are not obtained, the Company could be delayed in or prevented from 
pursuing the development or commercialization of its drug candidates, which 
would have a material adverse effect on the Company.

    The Company is aware of significant risks regarding the patent rights 
licensed by the Company relating to three of the seven compounds comprising 
the Company's existing drug candidate portfolio. The Company may not be able 
to commercialize FTC, DAPD or CS-92 for human immunodeficiency virus ("HIV") 
and/or hepatitis B virus ("HBV") due to patent rights held by third parties 
other than the Company's licensors. The Company is aware of numerous patent 
applications and issued patents in the United States and numerous foreign 
countries held by third parties other than the Company's licensors that 
relate to these compounds and their use alone or with other compounds to 
treat HIV and HBV. As a result, the positions of the Company and its 
licensors with respect to the use of FTC, DAPD and CS-92 to treat HIV and/or 
HBV are highly uncertain and involve 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 the Company's licensors or the 
Company, the Company would not have the right to commercialize FTC, DAPD 
and/or CS-92 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 
in the absence of an unfavorable resolution of any of these questions, the 
Company may attempt to obtain licenses from one or more third parties in 
order to reduce or eliminate the risks relating to some or all of these 
matters. There can be no assurance that the Company will elect to obtain any 
such licenses or that such licenses will be available on acceptable terms or 
at all. The Company's inability to commercialize any of these compounds would 
have a material adverse effect on the Company.

     FTC

    The Company obtained its rights to purified forms of FTC under a license 
from Emory University ("Emory").  In 1990 and 1991, Emory filed in the United 
States and thereafter in numerous foreign countries patent applications with 
claims to composition of matter and methods to treat HIV and HBV with FTC. 
Yale University ("Yale") filed patent applications on FTC and its use to 
treat HBV in 1991 in the United States, and subsequently licensed its rights 
under those patent applications to Emory. The Company's license arrangement 
with Emory

                                       14
<PAGE>

includes all rights under the Yale patent applications. FTC belongs to the 
same general class of nucleosides as 3TC, which has been approved in the 
United States by the FDA for use in combination with AZT for the treatment of 
HIV. 3TC is currently being sold by Glaxo Wellcome plc ("Glaxo") for the 
treatment of HIV under a license agreement with BioChem Pharma Inc. ("BioChem 
Pharma").

    HIV. Emory received a United States patent in 1993 covering a method to 
treat HIV infection with FTC. BioChem Pharma filed a patent application in 
the United States in 1989 and was issued a patent in 1991 covering a group of 
nucleosides in the same general class as FTC, but which did not include FTC. 
BioChem Pharma filed foreign patent applications in 1990 based upon its 1989 
United States patent application, and in those foreign applications included 
FTC among a large class of nucleosides. The foreign patent applications are 
pending in a large number of countries, and have issued in a number of 
countries with claims directed to FTC and its use to treat HIV. In addition, 
BioChem Pharma filed a United States patent application in 1991 specifically 
directed to a purified form of FTC that exhibits advantageous properties for 
the treatment of HIV on which two patents have issued. BioChem Pharma filed 
patent applications in a large number of foreign countries based upon its 
1991 United States patent application, and patents have issued in certain 
countries. BioChem Pharma may have additional patent applications pending in 
the United States.

    In the United States, the first to invent a subject matter is entitled to 
patent protection on that invention. With respect to patent applications 
filed prior to January 1, 1996, United States patent law provides that if a 
party invented a technology outside the United States, then for purposes of 
determining the first to invent the technology, that party 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 registration statement filed with the United States Securities and 
Exchange Commission, BioChem Pharma stated that since it conducts 
substantially all of its research activities outside the United States, it is 
at a disadvantage as to inventions made prior to January 1, 1996 with respect 
to obtaining United States patents as compared to companies that maintain 
research facilities in the United States. The Company does not know whether 
Emory or BioChem Pharma was the first to invent the subject matter claimed in 
their respective United States patent applications or patents, or 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 an invention, not the first to invent 
the subject matter, is entitled to patent protection on that invention. While 
the Company believes that Emory's patent applications that disclosed FTC as a 
useful anti-HIV agent were filed in foreign countries before BioChem Pharma 
filed its foreign patent applications on that subject matter, BioChem Pharma 
has been issued patents in several foreign countries. There can be no 
assurance that Emory will initiate or be successful in any foreign proceeding 
attempting to revoke patents issued to BioChem Pharma or addressing the 
relative rights of BioChem Pharma and Emory. BioChem Pharma has opposed 
patent claims on FTC granted to Emory in Japan and Australia. There can be no 
assurance that BioChem Pharma will not make additional challenges to any 
Emory patents or patent applications, or that Emory will succeed in defending 
any such challenges. There can be no assurance that the sale of FTC by the 
Company for the treatment of HIV would not 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 in certain circumstances, if the third party patent, 
while not expressly covering the product or method, covers subject matter 
that is substantially equivalent in nature to the product or method. If it is 
determined that the sale of FTC for the treatment of HIV infringes a BioChem 
Pharma patent, the Company would not have the right to make, use or sell FTC 
for the treatment of HIV in one or more countries in the absence of a license 
from BioChem Pharma. There can be no assurance that the Company could obtain 
a license from BioChem Pharma on acceptable terms or at all.

    HBV. Burroughs Wellcome Co. ("Burroughs Wellcome")  filed patent 
applications in March and May 1991 in Great Britain on a method to treat HBV 
with FTC. Burroughs Wellcome  filed similar patent applications in other 
countries, which the Company believes includes the United States. Glaxo 
subsequently acquired Burroughs Wellcome's rights under those patent 
applications. Those applications were filed in foreign countries prior to the 
date Emory filed its patent application on the use of FTC to treat HBV, and 
therefore, the foreign patent applications filed by Burroughs Wellcome 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

                                       15
<PAGE>

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. There can be no assurance that Emory will succeed in its 
efforts to establish ownership rights. If Emory fails to establish ownership 
rights, the Company could not make, use or sell FTC for the treatment of HBV 
in countries in which patents are issued to Glaxo without a license from 
Glaxo. If Emory establishes only co-ownership rights (and not sole ownership) 
to these patents and patent applications, laws in Europe, Korea and perhaps 
other countries could prohibit Emory from licensing any co-owned patent 
rights without Glaxo's consent. If the Company is required to obtain a 
license from Glaxo to sell FTC for the treatment of HBV, there can be no 
assurance that the Company would be able to obtain such a license on 
acceptable terms or at all.

    BioChem Pharma filed a patent application in May 1991 in Great Britain 
also directed to a method to treat HBV with FTC. BioChem Pharma filed similar 
patent applications in other countries, and in January 1996 was issued a 
patent in the United States. Emory has informed the Company that Emory 
intends to challenge BioChem Pharma's issued United States patent. There can 
be no assurance that Emory will pursue or succeed in any such proceeding. The 
Company cannot sell FTC for the treatment of HBV in the United States unless 
the BioChem Pharma patent is held invalid by a United States court or 
administrative body or unless the Company obtains a license from Biochem 
Pharma. There can be no assurance that the Company would be able to obtain 
such a license on acceptable terms or at all. In July 1991, BioChem Pharma 
was issued a United States patent on the use of 3TC to treat HBV and has 
corresponding applications pending or issued in foreign countries. If it is 
determined that the use of FTC to treat HBV is not substantially different 
from the use of 3TC to treat HBV, a court could hold that the use of FTC to 
treat HBV infringes these BioChem Pharma 3TC patents.

    In addition, BioChem Pharma has filed in the United States and foreign 
countries several patent applications on manufacturing methods relating to a 
class of nucleosides that includes FTC. If the Company uses a manufacturing 
method that is covered by patents issuing on any of these applications, the 
Company would not be able to manufacture FTC without a license from BioChem 
Pharma. There can be no assurance that the Company would be able to obtain 
such a license on acceptable terms or at all.

    DAPD

    The Company obtained its rights to DAPD under a license from Emory and 
University of Georgia Research Foundation, Inc. ("UGARF").  The DAPD 
portfolio licensed to the Company consists of two issued United States 
patents and several United States and foreign patent applications that cover 
a method for the synthesis of DAPD and its use to treat HIV and HBV. Emory 
and UGARF filed patent applications claiming these inventions in the United 
States in 1990, 1992 and 1993, respectively. BioChem Pharma filed a patent 
application in the United States in 1988 on a group of nucleosides in the 
same general class as DAPD and their use to treat HIV, and has filed 
corresponding patent applications in foreign countries. The PTO issued a 
patent to BioChem Pharma in 1993 covering a class of nucleosides that 
includes DAPD and its use to treat HIV. Corresponding patents have been 
issued to BioChem Pharma in many foreign countries. Emory has filed an 
opposition to BioChem Pharma's granted patent application in the European 
Patent Office based, in part, upon Emory's assertion that BioChem Pharma's 
patent does not disclose how to make DAPD, and Emory has informed the Company 
that Emory intends to challenge BioChem Pharma's patents and patent 
applications in other countries.  Patent claims granted to Emory on a portion 
of the DAPD technology by the Australian Patent Office have been opposed by 
BioChem Pharma. There can be no assurance that a court or administrative body 
would invalidate BioChem Pharma's patent claims or that a sale of DAPD by the 
Company would not infringe BioChem Pharma's patents. If Emory, UGARF and the 
Company do not challenge, or are not successful in any challenge to, BioChem 
Pharma's issued patents or pending patent applications (or patents that may 
issue as a result of such applications), the Company will not be able to 
manufacture, use or sell DAPD in the United States and any foreign countries 
in which BioChem Pharma receives a patent without a license from BioChem 
Pharma. There can be no assurance that the Company would be able to obtain a 
license from BioChem Pharma on acceptable terms or at all.

                                       16
<PAGE>
    CS-92

    The Company obtained its rights to CS-92 under a license from Emory and 
UGARF. Emory and UGARF have obtained two United States patents that cover 
CS-92 and its use to treat HIV, and have filed a European patent application 
and a Japanese patent application with claims limited to the use of CS-92 as 
a method for administering AZT, which includes the administration of CS-92 as 
a precursor form of AZT, to treat HIV infection. Burroughs Wellcome filed an 
application with the European Patent Office in September 1986 directed to a 
broad group of nucleosides that includes CS-92, and their use to treat HIV 
infection. Burroughs Wellcome subsequently filed similar applications in 
other countries, and the Company believes Burroughs Wellcome filed a similar 
patent application in the United States. Patents have been issued to 
Burroughs Wellcome in certain countries based upon these patent applications. 
Glaxo now has the rights to these patents and patent applications. There can 
be no assurance that, if challenged, a court would uphold the Emory/UGARF 
patents in light of the disclosures contained in the earlier filed Burroughs 
Wellcome patent applications. In addition, CS-92 is metabolized to AZT in 
cell lines IN VITRO, and based on that, the Company believes that it may 
likewise be converted to AZT IN VIVO. A court could hold that United States 
and foreign patents owned by Glaxo covering the use of AZT to treat HIV 
infection would be infringed by the sale of CS-92 to treat HIV infection. If 
the use of CS-92 is found to infringe the patents owned by Glaxo, then the 
Company would not have the right to sell CS-92 in one or more countries 
without a license from Glaxo. There can be no assurance that the Company 
would be able to obtain a license from Glaxo on acceptable terms or at all.

    Litigation, which could result in substantial cost to the Company, may 
also be necessary to enforce any patents to which the Company has rights or 
to determine the scope, validity and enforceability of other parties' 
proprietary rights, which may affect the Company's drug candidates and 
technology. United States patents carry a presumption of validity and 
generally can be invalidated only through clear and convincing evidence. The 
Company's licensors may also have to participate in interference proceedings 
declared by the PTO to determine the priority of an invention, which could 
result in substantial cost to the Company. There can be no assurance that the 
Company's licensed patents would be held valid by a court or administrative 
body or that an alleged infringer would be found to be infringing. Further, 
with respect to the drug candidates licensed or optioned by the Company from 
Emory, UGARF and the Regents of the University of California ("Regents"), 
Emory, UGARF and the Regents are primarily responsible for any litigation, 
interference, opposition or other action pertaining to patents or patent 
applications related to the licensed technology and the Company is required 
to reimburse them for the costs they incur in performing these activities. As 
a result, the Company generally does not have the ability to institute or 
determine the conduct of any such patent proceedings unless Emory, UGARF 
and/or the Regents do not elect to institute or elect to abandon such 
proceedings. In cases where Emory, UGARF and/or the Regents elect to 
institute and prosecute patent proceedings, the Company's rights will be 
dependent in part upon the manner in which Emory, UGARF and/or the Regents 
conduct the proceedings. Emory, UGARF and/or the Regents could, in any of 
these proceedings they elect to initiate and maintain, elect not to 
vigorously pursue or defend or to settle such proceedings on terms that are 
not favorable to the Company. An adverse outcome in any patent litigation or 
interference proceeding could subject the Company to significant liabilities 
to third parties, require disputed rights to be licensed from third parties 
or require the Company to cease using such technology, any of which could 
have a material adverse effect on the Company. Moreover, the mere uncertainty 
resulting from the institution and continuation of any technology related 
litigation or interference proceeding could have a material adverse effect on 
the Company pending resolution of the disputed matters.

    The Company also relies on unpatented trade secrets and know how to 
maintain its competitive position, which it seeks to protect, in part, by 
confidentiality agreements with employees, consultants and others. There can 
be no assurance that these agreements will not be breached or terminated, 
that the Company will have adequate remedies for any breach, or that the 
Company's trade secrets will not otherwise become known or be independently 
discovered by competitors. The Company relies on certain technologies to 
which it does not have exclusive rights or which may not be patentable or 
proprietary and thus may be available to competitors. The Company has filed 
an application for but has not obtained a trademark registration with respect 
to its corporate name and its logo. Another company has filed an application 
to obtain a trademark registration for the name "Triangle Coordinated Care," 
and the Company is aware that several other companies use trade names that 
are similar to the Company's for their businesses. If the Company is not able 
to obtain any licenses that may be necessary for the Company to use its

                                       17
<PAGE>

corporate name, it may be required to change its corporate name. The 
Company's management personnel were previously employed by other 
pharmaceutical companies. In many cases, these individuals are conducting 
drug development activities for the Company in areas similar to those in 
which they were involved prior to joining the Company. As a result, the 
Company, as well as these individuals, could be subject to allegations of 
violation of trade secrets and other similar claims. 

    EXTENSIVE GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL

    Human pharmaceutical products are subject to rigorous preclinical testing 
and clinical trials and other approval procedures mandated by the FDA and 
foreign regulatory authorities. Various federal and foreign statutes and 
regulations also govern or influence the manufacturing, safety, labeling, 
storage, record keeping and marketing of pharmaceutical products. The process 
of obtaining these approvals and the subsequent compliance with appropriate 
United States and foreign statutes and regulations are time consuming and 
require the expenditure of substantial resources. In addition, these 
requirements and processes vary widely from country to country. The time 
required for completing preclinical testing and clinical trials and obtaining 
regulatory approvals is uncertain. The Company may decide to replace a drug 
candidate in preclinical testing and/or clinical trials with a modified drug 
candidate, thus extending the development period. In addition, the FDA or 
similar foreign regulatory authorities may require additional clinical 
trials, which could result in increased costs and significant development 
delays. Delays or rejections may also be encountered based upon changes in 
FDA policy during the period of product development and FDA review. Similar 
delays or rejections may be encountered in other countries. The Company's 
drug candidates may not qualify for accelerated development and/or approval 
under FDA regulations and, even if some of the Company's drug candidates 
qualify for accelerated development and/or approval, they may not be approved 
for marketing sooner than would be historically expected or at all. There can 
be no assurance that even after substantial time and expenditures, any of the 
Company's drug candidates under development will receive marketing approval 
in any country on a timely basis or at all. If the Company is unable to 
demonstrate the safety and effectiveness of its drug candidates to the 
satisfaction of the FDA or foreign regulatory authorities, the Company will 
be unable to commercialize its drug candidates and would be materially and 
adversely affected. Further, even if regulatory approval of a drug candidate 
is obtained, the approval may entail limitations on the indicated uses for 
which the drug candidate may be marketed. A marketed product, its 
manufacturer and the manufacturer's facilities are subject to continual 
review and periodic inspections, and subsequent discovery of previously 
unknown problems with a product, manufacturer or facility may result in 
restrictions on such 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 fines, suspension of 
regulatory approvals, refusal to approve pending applications, refusal to 
permit exports from the United States, product recalls, seizure of products, 
injunctions, operating restrictions and criminal prosecutions. Further, FDA 
policy may change and additional government regulations may be established 
that could prevent or delay regulatory approval of the Company's drug 
candidates.

    The effect of governmental regulation may be to delay the marketing of 
new products for a considerable period of time or to prevent such marketing 
altogether, to impose costly requirements on the Company's activities or to 
provide a competitive advantage to other companies that compete with the 
Company. Adverse clinical results by others could have a negative impact on 
the regulatory process and timing with respect to the development and 
approval of the Company's drug candidates. A delay in obtaining or failure to 
obtain regulatory approvals could have a material adverse effect on the 
Company. The extent and character of potentially adverse governmental 
regulation that may arise from future legislation or administrative action 
cannot be predicted.

    The Company is also subject to various federal, state and local laws and 
regulations relating to safe working conditions, laboratory and manufacturing 
practices, the experimental use of animals and the use and disposal of 
hazardous or potentially hazardous substances, including radioactive 
compounds and infectious disease agents, used in connection with its 
development work.

                                       18
<PAGE>

    INTENSE COMPETITION; RISK OF TECHNOLOGICAL CHANGE

    The Company is engaged in segments of the pharmaceutical industry that 
are highly competitive and rapidly changing. If successfully developed and 
approved, the drug candidates that the Company is currently developing will 
compete with numerous existing therapies. In addition, a number of companies 
are pursuing the development of novel pharmaceuticals that target the same 
diseases the Company is targeting. The Company believes that a significant 
number of drugs are currently under development and will become available in 
the future for the treatment of HIV. The Company anticipates that it will 
face intense and increasing competition in the future as new products enter 
the market and advanced technologies become available. There can be no 
assurance that existing products or new products developed by the Company's 
competitors will not be more effective, or more effectively marketed and 
sold, than any that may be developed by the Company. Competitive products may 
render the Company's licensed technology and products obsolete or 
noncompetitive prior to the Company's recovery of development or 
commercialization expenses incurred with respect to any such products. The 
development by others of a cure or new treatment methods for the indications 
for which the Company is developing drug candidates could render the 
Company's drug candidates noncompetitive, obsolete or uneconomical. Many of 
the Company's competitors have significantly greater financial, technical and 
human resources than the Company and may be better equipped to develop, 
manufacture and market products. In addition, many of these companies have 
extensive experience in preclinical testing and clinical trials, obtaining 
FDA and other regulatory approvals and manufacturing and marketing 
pharmaceutical products. Many of these competitors also have products that 
have been approved or are in late stage development and operate large, well 
funded research and development programs. Smaller companies may also prove to 
be significant competitors, particularly through collaborative arrangements 
with large pharmaceutical and biotechnology companies. Furthermore, academic 
institutions, governmental agencies and other public and private research 
organizations are becoming increasingly aware of the commercial value of 
their inventions and are more actively seeking to commercialize the 
technology they have developed.

    If the Company's drug candidates are successfully developed and approved, 
the Company will face competition based on the safety and effectiveness of 
its products, the timing and scope of regulatory approvals, availability of 
supply, marketing and sales capability, reimbursement coverage, price and 
patent position. There can be no assurance that the Company's competitors 
will not develop more effective or more affordable technology or products, or 
achieve earlier patent protection, product development or product 
commercialization than the Company. Accordingly, the Company's competitors 
may succeed in commercializing products more rapidly or effectively than the 
Company, which could have a material adverse effect on the Company. 

    RISKS RELATED TO LICENSE AND OPTION AGREEMENTS

    The agreements pursuant to which the Company has in-licensed or obtained 
an option to in-license its drug candidates permit the Company's licensors to 
terminate the agreements under certain circumstances, such as the failure by 
the Company to achieve certain development milestones or the occurrence of an 
uncured material breach by the Company. The termination of any of these 
agreements could have a material adverse effect on the Company. Upon 
termination of the license agreements with Emory and UGARF, the Company is 
required to grant to Emory and UGARF a non-exclusive, royalty free license to 
all of the Company's interest in the licensed technology (including any 
improvements to the technology developed by the Company). In addition, the 
license agreements with Emory, UGARF and the Regents provide that Emory, 
UGARF and the Regents are primarily responsible for any litigation, 
interference, opposition or other action pertaining to the patents related to 
the technology licensed to the Company, and the Company is required to 
reimburse them for the costs they incur in performing these activities. The 
Company believes that these costs as well as other costs under the license 
and option agreements relating to the Company's drug candidates will be 
substantial, and any inability or failure of the Company to pay these costs 
with respect to any drug candidate could result in the termination of the 
license or option agreement for such drug candidate.

    LACK OF MANUFACTURING CAPABILITIES

    The Company does not have any manufacturing capacity and currently plans 
to seek to establish relationships with third party manufacturers for the 
manufacture of clinical trial material and the commercial

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production of any products it may develop. There can be no assurance that the 
Company will be able to establish relationships with third party 
manufacturers on commercially acceptable terms or that third party 
manufacturers will be able to manufacture products in commercial quantities 
under good manufacturing practices mandated by the FDA on a cost effective 
basis. The Company's dependence upon third parties for the manufacture of its 
products may adversely affect the Company's profit margins and its ability to 
develop and commercialize products on a timely and competitive basis. 
Further, there can be no assurance that manufacturing or quality control 
problems will not arise in connection with the manufacture of the Company's 
products or that third party manufacturers will be able to maintain the 
necessary governmental licenses and approvals to continue manufacturing the 
Company's products. Any failure to establish relationships with third parties 
for its manufacturing requirements on commercially acceptable terms would 
have a material adverse effect on the Company.

    LACK OF SALES AND MARKETING CAPABILITIES

    The Company currently has only one marketing employee and no sales 
personnel. The Company will have to develop a sales force or rely on 
marketing partners or other arrangements with third parties for the 
marketing, distribution and sale of any products it develops. The Company 
currently intends to market in the United States most of the drug candidates 
that it successfully develops primarily through a direct sales force and 
outside the United States through a combination of a direct sales force and 
arrangements with third parties. There can be no assurance that the Company 
will be able to establish marketing, distribution or sales capabilities or 
make arrangements with third parties to perform those activities on terms 
satisfactory to the Company or that any internal capabilities or third party 
arrangements will be cost effective.

    In addition, any third parties with which the Company establishes 
marketing, distribution or sales arrangements may have significant control 
over important aspects of the commercialization of the Company's products, 
including market identification, marketing methods, pricing, composition of 
sales force and promotional activities. There can be no assurance that the 
Company will be able to control the amount and timing of resources that any 
third party may devote to the Company's products or prevent any third party 
from pursuing alternative technologies or products that could result in the 
development of products that compete with the Company's products and the 
withdrawal of support for the Company's programs.

    DEPENDENCE ON THIRD PARTIES FOR DEVELOPMENT, MANUFACTURING AND IN-LICENSING

    The Company intends to engage third party contract research organizations 
("CROs") to perform certain functions in connection with the development of 
the Company's drug candidates and third parties to perform many aspects of 
the manufacture of drug substance. The Company intends to design clinical 
trials, but have CROs conduct the clinical trials. The Company will rely on 
the CROs to perform many important aspects of clinical trials. As a result, 
these aspects of the Company's drug development programs will be outside the 
direct control of the Company. In addition, there can be no assurance that 
the CROs or third parties will perform all of their obligations under 
arrangements with the Company. In the event that the CROs or third parties do 
not perform clinical trials or manufacture drug substance in a satisfactory 
manner or breach their obligations to the Company, the commercialization of 
any drug candidate may be delayed or precluded, which would have a material 
adverse effect on the Company. The Company does not intend to engage in drug 
discovery. The Company's strategy for obtaining additional drug candidates is 
to utilize the relationships of its management team and Scientific Advisory 
Board to identify compounds for in-licensing from companies, universities, 
research institutions and other organizations. There can be no assurance that 
the Company will succeed in in-licensing additional drug candidates on 
acceptable terms or at all.

    NO ASSURANCE OF MARKET ACCEPTANCE

    The Company's success will depend in substantial part on the extent to 
which any product it develops achieves market acceptance. 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 the Company's products 
and their potential advantages over existing treatment methods, and 
reimbursement policies of government and third party payors. There can be no 
assurance that physicians,

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<PAGE>

patients, payors or the medical community in general will accept or utilize 
any product that the Company may develop.

    RISKS RELATING TO COMBINATION THERAPY

    The Company's success will also depend in large part on the extent to 
which combination therapy for the treatment of HIV in the United States and 
Europe and for the treatment of HBV in developing areas of the world, 
particularly Asia, achieves market acceptance. Present combination treatment 
regimens for the treatment of HIV are expensive (published reports indicate 
the cost per patient per year can exceed $13,000), and may increase as new 
combinations are developed. These costs have resulted in a limitation of 
reimbursement available from third party payors for the treatment of HIV 
infection, and the Company expects that reimbursement pressures will continue 
in the future. If combination therapy is accepted as a method to treat HBV, 
treatment regimens are also likely to be expensive. The Company expects that 
even the cost of monotherapy for HBV will be considered expensive in 
developing countries. Any failure of combination therapy to achieve 
significant market acceptance for the treatment of HIV or potentially HBV 
could have a material adverse effect on the Company. 

    DEPENDENCE ON KEY EMPLOYEES

    The Company is highly dependent on its senior management and scientific 
staff, including Dr. David Barry, the Company's Chairman and Chief Executive 
Officer. Except for Dr. Barry, the Company has not entered into employment 
agreements with any of its personnel. The loss of the services of any member 
of its senior management or scientific staff may significantly delay or 
prevent the achievement of product development and other business objectives. 
Retaining and attracting qualified personnel, consultants and advisors is 
critical to the Company's success. In order to pursue its drug development 
programs and marketing plans, the Company will be required to hire additional 
qualified scientific and management personnel. Competition for qualified 
individuals is intense and the Company faces competition from numerous 
pharmaceutical and biotechnology companies, universities and other research 
institutions. There can be no assurance that the Company will be able to 
attract and retain such individuals on acceptable terms or at all, and the 
failure to do so would have a material adverse effect on the Company. In 
addition, the Company relies on members of its Scientific Advisory Board to 
assist the Company in formulating its drug development strategy. All of the 
members of the Scientific Advisory Board are employed by other employers and 
each such member may have commitments to or consulting or advisory contracts 
with other entities that may limit his availability to the Company.

    UNCERTAINTY OF HEALTH CARE REFORM MEASURES AND THIRD PARTY REIMBURSEMENT

    The business and financial condition of pharmaceutical companies will 
continue to be affected by the efforts of governments and third party payors 
to contain or reduce the cost of health care through various means. A number 
of legislative and regulatory proposals aimed at changing 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 the pressure on pharmaceutical pricing. While the Company cannot 
predict whether legislative or regulatory proposals will be adopted or the 
effect those proposals or managed care efforts may have on its business, the 
announcement and/or adoption of such proposals or efforts could have a 
material adverse effect on the Company. In the United States and elsewhere, 
sales of prescription pharmaceuticals are dependent in part on the 
availability of reimbursement to the consumer from third party payors, such 
as government and private insurance plans that mandate predetermined 
discounts from list prices. Third party payors are increasingly challenging 
the prices charged for medical products and services. If the Company succeeds 
in bringing one or more products to the market, there can be no assurance 
that these products will be considered cost effective or that reimbursement 
to the consumer will be available or will be sufficient to allow the Company 
to sell its products on a competitive basis.

    ABSENCE OF PRODUCT LIABILITY INSURANCE; INSURANCE RISKS

    The Company's business will expose it to potential product liability 
risks that are inherent in the testing, manufacturing and marketing of 
pharmaceutical products. There can be no assurance that product liability 
claims will not be asserted against the Company. The Company currently has 
only limited product liability insurance

                                       21
<PAGE>

relating to potential claims arising from its clinical trials. The Company 
intends to expand its insurance coverage if and when the Company begins 
marketing commercial products. There can be no assurance, however, that the 
Company will be able to obtain any additional product liability insurance on 
commercially acceptable terms or that the Company will be able to maintain 
its existing insurance and/or any additional insurance it may obtain in the 
future at a reasonable cost or in sufficient amounts to protect the Company 
against potential losses. A successful product liability claim or series of 
claims brought against the Company could have a material adverse effect on 
the Company.

    HAZARDOUS MATERIALS

    The Company's drug development programs involve the controlled use of 
hazardous materials, chemicals, viruses and various radioactive compounds. 
Although the Company believes that its handling and disposing of such 
materials comply with the standards prescribed by state and federal 
regulations, the risk of accidental contamination or injury from these 
materials cannot be completely eliminated. In the event of such an accident, 
the Company could be held liable for any damages or fines that result and any 
such liability could exceed the resources of the Company.

    CONCENTRATION OF STOCK OWNERSHIP; CONTROL BY MANAGEMENT AND EXISTING
     STOCKHOLDERS

    As of April 30, 1997 the Company's directors, executive officers and 
their respective affiliates beneficially owned approximately 54% of the 
Company's outstanding Common Stock. As a result, these stockholders are able 
to exercise significant influence over all matters requiring stockholder 
approval, including the election of directors and approval of significant 
corporate transactions. Such concentration of ownership may also have the 
effect of delaying or preventing a change in control of the Company that may 
be favored by other stockholders.

    VOLATILITY OF STOCK PRICE

    The market price of the Common Stock is likely to be highly volatile and 
could be subject to wide fluctuations in response to factors such as 
announcements of the results of clinical trials, developments with respect to 
patents or proprietary rights, announcements of technological innovations, 
new products or new contracts by the Company or its competitors, actual or 
anticipated variations in the Company's operating results due to a number of 
factors including, among others, the level of development expenses, changes 
in financial estimates by securities analysts, conditions and trends in the 
pharmaceutical and other industries, adoption of new accounting standards 
affecting the industry, general market conditions and other factors. As a 
result, it is possible that the Company's operating results will be below the 
expectations of market analysts and investors, which would likely have a 
material adverse effect on the prevailing market price of the Common Stock.

    Sales of a substantial number of shares of Common Stock in the public 
market could also adversely affect the market price of the Common Stock. In 
addition, holders of approximately 9,800,000 shares of Common Stock 
(including shares issuable upon the exercise of outstanding warrants) are 
entitled to certain rights with respect to registration of such shares of 
Common Stock for offer or sale to the public. Any such sales may have an 
adverse effect on the Company's ability to raise needed capital through an 
offering of its equity or convertible debt securities and may adversely 
affect the prevailing market price of the Common Stock.

    Further, the stock market has experienced extreme price and volume 
fluctuations that have particularly affected the market prices of equity 
securities of many pharmaceutical and biotechnology companies and that often 
have been unrelated or disproportionate to the operating performance of such 
companies. These market fluctuations, as well as general economic, political 
and market conditions such as recessions or international currency 
fluctuations, may adversely affect the market price of the Common Stock. In 
the past, following periods of volatility in the market price of the 
securities of companies in the pharmaceutical and biotechnology industries, 
securities class action litigation has often been instituted against those 
companies. Such litigation, if instituted against the Company, could result 
in substantial costs and a diversion of management attention and resources, 
which would have a material adverse effect on the Company. The realization of 
any of the risks described in these "Risks and Uncertainties" could have a 
dramatic and adverse impact on the market price of the Common Stock.

                                       22
<PAGE>

    ANTITAKEOVER EFFECTS OF CHARTER, BYLAWS AND DELAWARE LAW

    The Company's Second Restated Certificate of Incorporation (the 
"Certificate") authorizes the Company's Board of Directors (the "Board") to 
issue shares of undesignated preferred stock without stockholder approval on 
such terms as the Board may determine. The rights of the holders of Common 
Stock will be subject to, and may be adversely affected by, the rights of the 
holders of any such preferred stock that may be issued in the future. 
Moreover, the issuance of preferred stock may make it more difficult for a 
third party to acquire, or may discourage a third party from acquiring, a 
majority of the voting stock of the Company. The Company's Restated Bylaws 
(the "Bylaws") provide that the Board will be classified into three classes 
of directors beginning at the 1997 annual meeting of stockholders. With a 
classified Board, one class of directors is elected each year with each class 
serving a three year term. These and other provisions of the Certificate and 
the 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 the Company, even if such 
events could be beneficial to the interest of the stockholders. Such 
provisions could limit the price that certain investors might be willing to 
pay in the future for the Common Stock.

    NO DIVIDENDS

    The Company has never declared or paid any cash dividends on its capital 
stock. The Company currently does not intend to pay any cash dividends in the 
foreseeable future and intends to retain its earnings, if any, for the 
operation of its business

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<PAGE>

                        PART II - OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

    a.   Exhibits

         11.1 Computation of Net Loss Per Share and Pro Forma Net Loss Per Share

         27.1 Financial Data Schedule

    b.   Reports on Form 8-K.  None

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<PAGE>


                         TRIANGLE PHARMACEUTICALS, INC.
                                  SIGNATURES

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

                                       TRIANGLE PHARMACEUTICALS, INC.


Date:  May 13, 1997                    By: /s/ David W. Barry
                                           ------------------------------------
                                           David W. Barry
                                           Chairman and Chief Executive Officer


                                       TRIANGLE PHARMACEUTICALS, INC.


Date:  May 13, 1997                    By: /s/ James A. Klein, Jr.
                                           ------------------------------------
                                           James A. Klein, Jr.
                                           Chief Financial Officer and Treasurer


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