SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

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

     For the quarterly period ended September 30, 1996

                                       OR

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

                        Commission file number 000-21589

                         Triangle Pharmaceuticals, Inc.

             (Exact name of registrant as specified in its charter)

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |_|  No |X|

As of December 5, 1996, there were 17,567,890 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, 1995 and September 30, 1996..............     3

              Condensed Statement of Operations - Period From
                Inception (July 12, 1995) Through September 30,
                1995, Three and Nine Months Ended September 30,
                1996 and Period From Inception (July 12, 1995)
                Through September 30, 1996............................     4

              Condensed Statement of Cash Flows - Period From
                Inception (July 12, 1995) Through September 30,
                1995, Nine Months Ended September 30, 1996 and
                Period From Inception (July 12, 1995) Through
                September 30, 1996....................................     5

              Condensed Statement of Stockholder's Equity -
                Period From Inception (July 12, 1995) Through
                December 31, 1995 and the Nine Months Ended
                September 30, 1996 (unaudited)........................     6

              Notes to Condensed Financial Statements ................    7-8

     Item 2.  Management's Discussion and Analysis of Financial
                Condition and Results of Operations ..................    9-22

Part II.  Other Information

     Item 6.  Exhibits and Reports on Form 8-K .......................    23

Signatures ...........................................................    24


                                       2
<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

                         Triangle Pharmaceuticals, Inc.
                         (A Development Stage Company)

                            Condensed Balance Sheet

<TABLE>
<CAPTION>
                                                              December 31,   September 30,
                                                                 1995            1996
                                                              ------------   -------------
                                                                              (Unaudited)
<S>                                                           <C>            <C>         
Assets                                                                 
Current assets:
  Cash and cash equivalents ................................  $  3,081,586   $  4,687,353
  Restricted deposits ......................................          --           46,012
  Investments ..............................................          --        9,558,127
  Interest receivable ......................................          --          139,065
  Other receivables ........................................          --          383,984
  Prepaid expenses .........................................          --          686,348
                                                              ------------   ------------
     Total current assets ..................................     3,081,586     15,500,889
                                                              ------------   ------------
Laboratory and office equipment ............................        22,605        768,059   
Less accumulated depreciation ..............................        (2,206)       (53,241)  
                                                              ------------   ------------   
                                                                    20,399        714,818   
                                                              ------------   ------------   
Restricted deposits ........................................          --          128,988 
                                                              ------------   ------------   
     Total assets ..........................................  $  3,101,985   $ 16,344,695   
                                                              ============   ============   
                                                                                            
                                                                                            
Liabilities and Stockholders' Equity 
   Current liabilities:
   Accounts payable .......................................   $    122,751   $    352,619    
   Accrued license fees ....................................          --          800,000    
   Accrued vacation pay ....................................          --           91,006    
   Other accrued expenses ..................................        91,718        644,191    
                                                              ------------   ------------   
     Total current liabilities .............................       214,469      1,887,816    
                                                              ------------   ------------   
     Total liabilities .....................................       214,469      1,887,816    
                                                              ------------   ------------   
Commitments and contingencies ..............................  

Stockholders' equity:                                                                        
   Series A convertible preferred stock, $ 0.001 par                                         
     value; authorized 5,400,000 shares; issued and           
     outstanding 5,181,671 and 5,231,671 shares ............         5,182          5,232    
   Series B convertible preferred stock, $0.001 par                                          
     value; authorized 4,000,000 shares; issued and                                          
     outstanding -0- and 3,706,234 shares ..................          --            3,706    
   Warrants ................................................          --          110,894     
   Common stock, $0.001 par value; authorized                                                 
     30,000,000 shares; issued and outstanding 2,670,000 and                                  
     4,077,333 shares ......................................         2,670          4,077     
   Additional paid-in-capital ..............................     3,858,997     23,531,393 
   Accumulated deficit during development stage ............      (967,583)    (9,005,860)

   Deferred compensation ...................................       (11,750)      (192,563)
                                                              ------------   ------------ 
     Total stockholders' equity ............................     2,887,516     14,456,879 
                                                              ------------   ------------ 
     Total liabilities and stockholders' equity ............  $  3,101,985   $ 16,344,695 
                                                              ============   ============ 
</TABLE>


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


                                       3
<PAGE>

                         Triangle Pharmaceuticals, Inc.
                          (A Development Stage Company)

                        Condensed Statement of Operations
                                   (Unaudited)

<TABLE>
<CAPTION>
                                              Period From                                        Period From
                                               Inception          Three            Nine           Inception
                                            (July 12, 1995)      Months           Months       (July 12, 1995)
                                                Through           Ended            Ended           Through
                                             September 30,    September 30,    September 30,    September 30,
                                                 1995             1996             1996             1996
                                             ------------     ------------     ------------     ------------
<S>                                          <C>              <C>              <C>              <C>          
Operating expenses:                                                                           
  License  fees ...........................          --       $    494,397     $  3,246,226     $  3,246,226
  Development .............................          --          1,270,731        2,613,322        2,613,322
  General and administrative ..............  $    381,849          998,528        2,488,684        3,493,499
                                             ------------     ------------     ------------     ------------
                                                  381,849        2,763,656        8,348,232        9,353,047
                                             ------------     ------------     ------------     ------------
                                                                                              
Interest Income ...........................         6,593          224,797          309,955          347,187
                                             ------------     ------------     ------------     ------------
Net loss ..................................  $   (375,256)    $ (2,538,859)    $ (8,038,277)    $ (9,005,860)
                                             ============     ============     ============     ============
                                                                                              
Pro forma net loss per share ..............  $      (0.03)    $      (0.19)    $      (0.58)  
                                             ============     ============     ============   
                                                                                              
Shares used in computing pro forma net loss                                                   
   per share ..............................    14,277,498       13,045,548       13,863,850   
                                             ============     ============     ============   
</TABLE>


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


                                       4
<PAGE>

                         Triangle Pharmaceuticals, Inc.
                          (A Development Stage Company)

                        Condensed Statement of Cash Flows
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                           Period From
                                                            Inception                        Period From 
                                                            (July 12,                         Inception
                                                              1995)         Nine Months    (July 12, 1995)
                                                             Through           Ended           Through
                                                          September 30,    September 30,    September 30,
                                                              1995             1996             1996
                                                          -------------    -------------    -------------
<S>                                                       <C>              <C>              <C>          
Cash flows from operating activities:                                                      
Net loss ...............................................  $   (375,256)    $ (8,038,277)    $ (9,005,860)
Adjustments to reconcile net loss to net cash                                              
  used by operating activities:                                                            
  Depreciation and amortization ........................           784           51,035           53,241
  Stock-based compensation: license fees ...............          --            636,000          636,000
  Stock-based compensation: development ................          --            332,135          332,135
  Stock-based compensation: general and administrative .          --            185,286          185,536
  Change in assets and liabilities:                                                        
    Receivables ........................................          (157)        (523,049)        (523,049)
    Prepaid expenses ...................................       (15,000)        (686,348)        (686,348)
    Accounts payable ...................................        42,939          229,868          352,619
    Accrued license fees, vacation pay and other                                           
      expenses .........................................       154,016        1,377,141        1,468,859
                                                          ------------     ------------     ------------ 
Net cash used by operating activities ..................      (192,674)      (6,436,209)      (7,186,867)
                                                          ------------     ------------     ------------ 
Cash flows from investing activities:                                                      
  Purchase of restricted deposits ......................          --           (175,000)        (175,000)
  Purchase of investments ..............................          --         (9,558,127)      (9,558,127)
  Purchase of laboratory and office equipment ..........       (18,689)        (745,454)        (768,059)
                                                          ------------     ------------     ------------ 
Net cash used by investing activities ..................       (18,689)     (10,478,581)     (10,501,186)
                                                          ------------     ------------     ------------ 
Cash flows from financing activities:                                                      
  Sale of stock, net of related expenses ...............       703,750       18,496,839       22,351,688
  Sale of warrants .....................................          --                130              130
  Proceeds from stock options exercised ................          --             23,588           23,588
                                                          ------------     ------------     ------------ 
Net cash provided by financing activities ..............       703,750       18,520,557       22,375,406
                                                          ------------     ------------     ------------ 
Net increase in cash ...................................       492,387        1,605,767        4,687,353
Cash and cash equivalents at beginning of period .......          --          3,081,586             --   
                                                          ------------     ------------     ------------ 
Cash and cash equivalents at end of period .............  $    492,387     $  4,687,353     $  4,687,353
                                                          ============     ============     ============
</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 Stockholders' Equity

<TABLE>
<CAPTION>
                                       Series A                   Series B                                Common Stock
                                      Convertible                Convertible                              ------------
                                    Preferred Stock            Preferred Stock                                                
                                    ---------------            ---------------                                          
                                  Shares       Amount        Shares        Amount      Warrants        Shares       Amount    
                                  ------       ------        ------        ------      --------        ------       ------    
<S>                             <C>          <C>            <C>          <C>           <C>            <C>          <C>        
Initial sale of stock             933,334    $      933          --            --            --       1,175,000    $   1,175  
Additional sale of stock        4,248,337         4,249          --            --            --       1,495,000        1,495  
Stock-based compensation             --            --            --            --            --            --           --    
Net loss, July 12 through                                                                                                     
  December 31, 1995                  --            --            --            --            --            --           --    
                                --------------------------------------------------------------------------------------------
Balance, December 31, 1995      5,181,671         5,182          --            --            --       2,670,000        2,670  
(Unaudited)                                                                                                                   
Sale of stock                      50,000            50     3,706,234    $    3,706          --         410,000          410  
Sale of warrants                     --            --            --            --      $      130          --           --    
Stock-based compensation             --            --            --            --         110,764       700,000          700  
Stock options exercised              --            --            --            --            --         297,333          297  
Net loss                             --            --            --            --            --            --           --    
                                --------------------------------------------------------------------------------------------
Balance, September 30, 1996     5,231,671    $    5,232     3,706,234    $    3,706    $  110,894     4,077,333    $   4,077
                                ============================================================================================

<CAPTION>
                                   Additional                                                   
                                     Paid         Accumulated       Deferred                    
                                    Capital         Deficit       Compensation       Total      
                                    -------         -------       ------------       -----      
<S>                               <C>             <C>            <C>              <C>           
Initial sale of stock             $    709,642            --               --     $    711,750  
Additional sale of stock             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           3,858,997        (967,583)         (11,750)     2,887,516  
(Unaudited)                                                                                     
Sale of stock                       18,492,673            --               --       18,496,839  
Sale of warrants                          --              --               --              130  
Stock-based compensation             1,126,500            --           (155,865)     1,082,099  
Stock options exercised                 53,223            --            (24,948)        28,572  
Net loss                                  --        (8,038,277)            --       (8,038,277) 
                                  ------------------------------------------------------------
Balance, September 30, 1996       $ 23,531,393    $ (9,005,860)  $     (192,563)  $ 14,456,879  
                                  ============================================================
</TABLE>

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


                                       6

<PAGE>

                         Triangle Pharmaceuticals, Inc.
                          (A Develpment 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 the Company's registration statement on Form S-1 (Commission
No. 333-11793) initially filed with the Commission on September 11, 1996, as
amended. 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.   Obligations Under Capital Lease

On August 8, 1996 the Company obtained a $1,000,000 secured equipment lease line
facility with an option to increase the facility to $2,000,000. The Company may
draw on the facility through August 9, 1997. The agreement requires monthly
repayment of such draws in installments over a four year period.

3.   Stockholder's Equity

On November 6, 1996, the Company completed an Initial Public Offering ("IPO") of
4,200,000 shares of Common Stock at $10.00 per share. The net proceeds of this
offering, after underwriting discounts and costs in connection with the sale and
distribution of the securities, were approximately $38 million. In addition, on
December 3, 1996 the U.S. Underwriters exercised their over-allotment option and
purchased an additional 332,652 shares of Common Stock at $10.00 per share
resulting in additional net proceeds of approximately $3.1 million to the
Company. Concurrent with the closing of the IPO all outstanding shares of the
Company's Series A convertible preferred stock and Series B convertible
preferred stock were converted into shares of the Company's common stock, $0.001
par value. Additionally, the Company's certificate of incorporation was amended
to modify the number of authorized capital stock to 75,000,000 shares of Common
Stock, $0.001 par value per share, and 5,000,000 shares of Preferred Stock,
$0.001 par value per share.

The Company's Employee Stock Purchase Plan (the "Purchase Plan") was adopted by
the Board on August 30, 1996 and was subsequently approved by the stockholders
on September 5, 1996. The Purchase Plan is designed to allow eligible employees
of the Company to purchase shares of Common Stock, at semi-annual intervals,
through periodic payroll deductions under the Purchase Plan. A reserve of
300,000 shares of Common Stock has been established for this purpose.

The Company's 1996 Stock Incentive Plan (the "1996 Plan") will serve as the
successor equity incentive program to the Company's 1996 Stock Option/Stock
Issuance Plan (the "Predecessor Plan"). The 1996 Plan became effective on August
30, 1996 upon adoption by the Board and was subsequently approved by the
stockholders on September 5, 1996. 2,200,000 shares of Common Stock have been
authorized for issuance under the 1996 Plan. This initial share reserve is
comprised of (i) the shares that remain available for issuance under the
Predecessor Plan, including the shares subject to outstanding options
thereunder, plus (ii) an additional increase of 500,000 shares.


                                       7
<PAGE>

                         Triangle Pharmaceuticals, Inc.
                          (A Development Stage Company)

                     Notes to Condensed Financial Statements
                                   (Unaudited)

4.   Net Loss Per Share

The weighted average shares outstanding used in the calculation of net loss per
share includes the effect of the conversion of convertible preferred stock
described above 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 have been included in
the calculation as if outstanding from July 12, 1995 through June 30, 1996
pursuant to the requirements of the Securities and Exchange Commission. The
common stock equivalents have been excluded from the calculation subsequent to
June 30, 1996 because they have the effect of reducing net loss per share.


                                       8
<PAGE>

Item 2. Management's Discussion And Analysis Of Financial Condition And Results
        of Operations

The following should be read in conjunction with the Company's condensed
financial statements.

Overview

     Triangle Pharmaceuticals, Inc. ("Triangle" or the "Company") 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 the 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 September 30, 1996, the Company's accumulated deficit was
approximately $9.0 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 quarter to quarter and that such fluctuations
may be substantial. See "Risk 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 "Risk 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 "Risk and
Uncertainties-Volatility of Stock Price".

Results of Operations

Three Months Ended September 30, 1996

     The Company had total interest income of $224,797 in the three months ended
September 30, 1996 compared to $6,593 during the period from inception (July 12,
1995) through September 30, 1995 (the "Inception Period"). The increase in
interest income is primarily due to an increase in investments associated with
financing activities. See "Liquidity and Capital Resources".

     License fees totaled $494,397 for the three months ended September 30, 1996
primarily relating to one of the Company's license agreements. There were no
license fees in the Inception Period. Future license fees may also consist of
milestone payments under licensing arrangements, the amount of which could be
substantial and the timing of which will depend on a number of factors that the
Company cannot predict. These factors include, among 


                                       9
<PAGE>

others, the success of the Company's drug development programs and the extent to
which the Company in-licenses additional drug candidates.

     Development expenses totaled $1,270,731 for the three months ended
September 30, 1996. Development expenses consisted primarily of expenses for the
preclinical testing of certain of the Company's drug candidate and included
non-cash charges of $18,808 related to the amortization of deferred consulting
expenses. There were no development expenses for the Inception Period. 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 additional
drug candidates, development expenses would increase as a result.

     General and administrative expenses totaled $998,528 for the three months
ended September 30, 1996 compared to $381,849 for the Inception Period. General
and administrative expenses for the three months ended September 30, 1996
consisted primarily of compensation expenses, rent expense and amounts paid for
outside professional services and included non-cash charges of $113,056 related
to the amortization of deferred compensation expenses. The increase in general
and administrative expenses compared to the Inception Period is comprised
primarily of increases in compensation expense, rent expenses associated with
office and laboratory facilities and increases in professional fees. The Company
expects that its general and administrative expenses will increase in future
periods.

Nine Months Ended September 30, 1996

     The Company had total interest income of $309,955 in the nine months ended
September 30, 1996 compared to $6,593 in the Inception Period. The increase in
interest income compared to the Inception Period is primarily due to an increase
in investments associated with financing activities and the short length of the
Inception Period. See "Liquidity and Capital Resources".

     License fees totaled $3,246,226 for the nine months ended September 30,
1996. Of this amount, approximately $1,800,000 was paid and $636,000 represents
non-cash charges based on the fair value of Common Stock issued to licensors.
All license fees incurred to date related to the execution of license
agreements. There were no license fees in the Inception Period. Future license
fees may also consist of milestone payments under licensing arrangements, the
amount of which could be substantial and the timing of which will depend on a
number of factors that the Company cannot predict. These factors include, among
others, the success of the Company's drug development programs and the extent to
which the Company in-licenses additional drug candidates.

     Development expenses totaled $2,613,322 for the nine months ended September
30, 1996. Development expenses consisted primarily of expenses for the
preclinical testing of certain of the Company's drug candidates, compenstion
expenses, and patent related expense and included non-cash charges of $332,135
related to the amortization of deferred consulting expenses. There were no
development expenses in the Inception Period. 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 additional drug
candidates, development expenses would increase as a result.

     General and administrative expenses totaled $2,488,684 for the nine months
ended September 30, 1996 compared to $381,849 for the Inception Period. General
and administrative expenses for the nine months ended September 30, 1996
consisted primarily of compensation expenses, rent expense and amounts paid for
outside professional services and included non-cash charges of $185,286 related
to the amortization of deferred compensation expenses. The increase in general
and administrative expenses compared to the Inception Period 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 short length of the Inception Period and 
growth of the Company's operations. The Company expects that its general and
administrative expenses will increase in future periods.


                                       10
<PAGE>

Liquidity and Capital Resources

     The Company has financed its operations since inception through September
30, 1996 primarily with the net proceeds received from private placements of
equity securities, which provided aggregate proceeds of approximately
$22,400,000. On November 6, 1996, the Company completed on initial public
offering with net proceeds to the Company totaling $39,060,000 before deducting
expenses of the offering of approximately $700,000. In addition, on December 3,
1996 the U.S. Underwriters exercised their over-allotment option resulting in
additional net proceeds to the Company of approximately $3,100,000. The Company
believes that the net proceeds of the initial public offering together with its
existing cash and short-term 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
financing, 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 "Risk and
Uncertainties-Future Capital Needs; Uncertainty of Additional Funding".

     At September 30, 1996, the Company's principal source of liquidity was
$4,687,353 in cash and cash equivalents and $9,558,127 in short-term
investments. On August 8, 1996 the Company obtained a $1,000,000 secured
equipment lease line facility with an option to increase the facility to
$2,000,000. The facility, which expires on August 9, 1997, was first utilized in
October 1996.

     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. One of the Company's license agreements requires
additional payments totaling $2,600,000 of which $1,800,000 has been paid as of
December 5, 1996.

RISKS AND UNCERTAINTIES

     This Quarterly Report contains predictions, estimates and other
forward-looking statements that involve risks and uncertainties. While this
Quarterly Report represents management's current judgment on the future
direction of the Company's business, such risks and uncertainties could cause
actual results to differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below, as well as those discussed elsewhere
in this Quarterly Report. The Company undertakes no obligation to release
publicly revisions to the forward-looking statements to reflect events or 
circumstances arising after the date hereof.

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 


                                       11
<PAGE>

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 September 30,
1996, the Company's accumulated deficit was approximately $9.0 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 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. 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 


                                       12
<PAGE>

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 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 immunodificiency 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 


                                       13
<PAGE>

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. 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
includes all rights under the Yale patent applications. FTC belongs to the same
general class of nucleosides as 3TC, which was recently 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. 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 recently 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 recently 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 


                                       14
<PAGE>

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 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 the
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. However, there can be no assurance that a court
or administrative body would 


                                       15
<PAGE>

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.

     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 (the "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 


                                       16
<PAGE>

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 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, 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, 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.


                                       17
<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 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


                                       18
<PAGE>

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.


                                       19
<PAGE>

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,
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.


                                       20
<PAGE>

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 relating to potential claims arising from its United States
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 December 5, 1996, the Company's directors, executive officers and
their respective affiliates beneficially own approximately 65% 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 "Risk Factors" could have a dramatic and adverse impact on the market
price of the Common Stock.


                                       21
<PAGE>

Antitakeover Effects of Charter, Bylaws and Delaware Law

     The Company's Second Restated Certificate of Incorporation 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 provide that the Company's 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 Second Restated Certificate of Incorporation and the Restated 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.


                                       22
<PAGE>

Part II - Other Information

Item 1    Legal Proceedings.  None

Item 2    Change in Securities.  None

Item 3    Defaults Upon Senior Securities.  None

Item 4    Submission of Matters to a Vote of Securities Holders.  None

Item 5    Other Information.  None

Item 6    Exhibits and Reports on Form 8-K.

          a.  Exhibits
              11.1 Computation of Pro Forma Net Loss Per Share
              27.1 Financial Data Schedule

          b.  Reports on form 8-K.  None


                                       23


<PAGE>


                         Triangle Pharmaceuticals, Inc.

                                   Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                       Triangle Pharmaceuticals, Inc.

Date:  December 11, 1996               By: /s/ David W. Barry
                                          --------------------------------------
                                           David W. Barry
                                           Chief Executive Officer
                                           (Duly Authorized Officer)

Date:  December 11, 1996              By: /s/ James A. Klein Jr.
                                          --------------------------------------
                                           James A. Klein Jr.
                                           Chief Financial Officer and Treasurer
                                           (Principal Financial and Accounting 
                                           Officer)


                                       24