<PAGE>
                                       
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  FORM 10-Q

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

                For the quarterly period ended March 31, 1998

                                      OR

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

               For the transition period from ________ to _______.

                       Commission File Number: 000-21589

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

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

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

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

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

         As of April 15,  1998,  there were  24,040,538  shares of  Triangle  
Pharmaceuticals,  Inc.  Common  Stock outstanding.

<PAGE>

                         TRIANGLE PHARMACEUTICALS, INC.
                               TABLE OF CONTENTS

Part I.  Financial Information

<TABLE>
                                                                                                    PAGE NO.
<S>                                                                                                   <C>
         Item 1.  Financial Statements

                  Condensed Consolidated Balance Sheets -
                    March 31, 1998 (unaudited) and December 31, 1997...................................3

                  Condensed Consolidated Statements of Operations (unaudited)
                    Three Months Ended March 31, 1998 and March 31, 1997 and
                    Period From Inception (July 12, 1995) Through March 31, 1998.......................4

                  Condensed Consolidated Statements of Cash Flows (unaudited) -
                    Three Months Ended March 31, 1998 and March 31, 1997 and
                    Period From Inception (July 12, 1995) Through March 31, 1998.......................5

                  Condensed Consolidated Statements of Stockholders' Equity
                    Period From Inception (July 12, 1995) Through December 31,
                    1995, 1996 and 1997 and
                    the Three Months Ended March 31, 1998 (unaudited)..................................6

                  Notes to Condensed Consolidated Financial Statements (unaudited)...................7-8

         Item 2.  Management's Discussion and Analysis of Financial
                    Condition and Results of Operations.............................................9-23

Part II. Other Information

         Item 2.  Change in Securities and Use of Proceeds............................................24

         Item 6.  Exhibits and Reports on Form 8-K....................................................25

         Signatures.................................................................................. 26

</TABLE>


                                                   2
<PAGE>
                                       
                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                         TRIANGLE PHARMACEUTICALS, INC.
                         (A DEVELOPMENT STAGE COMPANY)
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                     (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                            MARCH 31,     DECEMBER 31,
                                                                              1998            1997
                                                                            --------        --------
                                                                          (unaudited)
<S>                                                                         <C>             <C>
ASSETS
Current assets:

    Cash and cash equivalents..........................................     $ 29,303        $ 34,698
    Restricted deposits................................................           45              43
    Investments........................................................       12,141          23,098
    Interest receivable................................................          226             300
    Prepaid expenses...................................................          865             791
                                                                            --------        --------
       Total current assets............................................       42,580          58,930
Property, plant and equipment, net.....................................        3,316           2,872
Restricted deposits....................................................           64              76
                                                                            --------        --------

       Total assets....................................................     $ 45,960        $ 61,878
                                                                            --------        --------
                                                                            --------        --------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

    Accounts payable...................................................     $  2,001        $  3,152
    Capital lease obligation--current..................................          119             178
    Long-term debt--current............................................          181             181
    Accrued expenses...................................................        6,816           5,172
                                                                            --------        --------
       Total current liabilities.......................................        9,117           8,683
Capital lease obligation--noncurrent...................................          257             300
Long-term debt.........................................................          112             178
                                                                            --------        --------
       Total liabilities...............................................        9,486           9,161
                                                                            --------        --------
Commitments and contingencies (See note 4).............................           --              --
Stockholders' equity:
    Common Stock, $0.001 par value; 75,000 shares authorized;
       20,015 and 19,995 shares, issued and outstanding, respectively..           20              20
    Warrants...........................................................          114             114
    Additional paid-in capital.........................................      102,411         102,260
    Accumulated deficit during development stage.......................      (65,960)        (49,552)
    Deferred compensation..............................................         (111)           (125)
                                                                            --------        --------
       Total stockholders' equity......................................       36,474          52,717
                                                                            --------        --------

       Total liabilities and stockholders' equity......................     $ 45,960        $ 61,878
                                                                            --------        --------
                                                                            --------        --------
</TABLE>

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


                                       3
<PAGE>

                          TRIANGLE PHARMACEUTICALS, INC.
                           (A DEVELOPMENT STAGE COMPANY)
                  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                      (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                          PERIOD FROM
                                                                                           INCEPTION
                                                THREE MONTHS           THREE MONTHS     (JULY 12, 1995)
                                                    ENDED                 ENDED             THROUGH
                                               MARCH 31, 1998         MARCH 31, 1997     MARCH 31, 1998
                                               ---------------        --------------     --------------
<S>                                             <C>                    <C>                <C>
Operating expenses:

  License fees.............................     $     6,000            $        --        $     9,877
  Development..............................           8,696                  2,749             35,903
  Purchased research and development.......              --                     --             11,261
  General and administrative...............           2,446                  1,521             14,080
                                                -----------            -----------        -----------
Loss from operations.......................         (17,142)                (4,270)           (71,121)
Interest income, net.......................             734                    726              5,161
                                                -----------            -----------        -----------

Net loss...................................     $   (16,408)           $    (3,544)       $   (65,960)
                                                -----------            -----------        -----------
                                                -----------            -----------        -----------

Basic and diluted net loss per common 
   shares..................................     $     (0.82)           $     (0.20)
                                                -----------            -----------
                                                -----------            -----------

Shares used in computing  net loss per
   common share............................          20,007                 17,580
                                                -----------            -----------
                                                -----------            -----------

</TABLE>

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


                                       4
<PAGE>

                                         TRIANGLE PHARMACEUTICALS, INC.
                                          (A DEVELOPMENT STAGE COMPANY)
                                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                    (UNAUDITED)
                                                   (In thousands)

<TABLE>
<CAPTION>
                                                                                                          PERIOD FROM
                                                                                                           INCEPTION
                                                          THREE MONTHS            THREE MONTHS           (JULY 12, 1995)
                                                             ENDED                   ENDED                   THROUGH
                                                         MARCH 31, 1998          MARCH 31, 1997          MARCH 31, 1998
                                                     ---------------------     --------------------   ---------------------
<S>                                                       <C>                      <C>                     <C>
Cash flows from operating activities:
Net loss............................................      $ (16,408)               $  (3,544)              $ (65,960)
Adjustments to reconcile net loss to net
   cash used by operating activities:
   Depreciation and amortization....................            171                       51                     585
   Purchased research and development...............             --                       --                  11,261
   Stock-based compensation: license fees...........             --                       --                     636
   Stock-based compensation: development............             11                       11                     401
   Stock-based compensation: general and
      administrative................................              9                       41                     240
   Change in assets and liabilities:
      Receivables...................................             74                       51                    (226)
      Prepaid expenses..............................            (74)                     205                    (865)
      Accounts payable..............................         (1,151)                    (853)                  2,001
      Accrued expenses..............................          1,638                      712                   6,716
                                                          ---------                ---------               ---------
Net cash used by operating activities...............        (15,730)                  (3,326)                (45,211)
                                                          ---------                ---------               ---------
Cash flows from investing activities:
   Sale (purchase) of restricted deposits...........             10                       27                    (109)
   Purchase of investments..........................         (3,000)                  (7,593)                (65,527)
   Proceeds from sale and maturity of investments...         13,957                    5,908                  53,386
   Purchase of property, plant and equipment........           (615)                    (126)                 (3,726)
   Acquisition of Avid Corporation, net of cash
      acquired......................................             --                       --                  (3,053)
                                                          ---------                ---------               ---------
Net cash provided (used) by investing activities....         10,352                   (1,784)                (19,029)
                                                          ---------                ---------               ---------
Cash flows from financing activities:
   Sale of stock, net of related issuance costs.....            126                       36                  93,019
   Sale of options under salary investment option
      grant program.................................             24                       18                      94
   Proceeds from stock options exercised............              1                        1                      27
   Proceeds from notes payable......................             --                       --                     374
   Equipment financing..............................             --                       --                     354
   Principal payments on capital lease
      obligations and notes payable.................           (168)                     (32)                   (325)
                                                          ---------                ---------               ---------
Net cash (used) provided by financing activities....            (17)                      23                  93,543
                                                          ---------                ---------               ---------
Net (decrease) increase in cash and cash
   equivalents......................................         (5,395)                  (5,087)                 29,303
Cash and cash equivalents at beginning of period....         34,698                   25,255                      --
                                                          ---------                ---------               ---------
Cash and cash equivalents at end of period..........      $  29,303                $  20,168               $  29,303
                                                          ---------                ---------               ---------
                                                          ---------                ---------               ---------
</TABLE>

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


                                       5
<PAGE>

                         TRIANGLE PHARMACEUTICALS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
            CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (In thousands)

<TABLE>
<CAPTION>
                                        CONVERTIBLE PREFERRED                                           
                                               STOCK                     COMMON STOCK    ADDITIONAL              DEFERRED
                                        -------------------            ----------------    PAID-IN   ACCUMULATED  COMPEN-
                                         SHARES     AMOUNT   WARRANTS   SHARES   AMOUNT    CAPITAL     DEFICIT    SATION    TOTAL
                                        --------   --------  --------  -------- -------  ----------  ----------  --------  --------
<S>                                      <C>        <C>      <C>        <C>      <C>     <C>         <C>         <C>       <C>
Initial sale of stock..................     933     $  1     $  --      1,175    $  1    $    710    $     --    $   --    $   712
Additional sale of stock...............   4,249        4        --      1,495       2       3,137          --        --      3,143
Stock-based compensation...............      --       --        --         --      --          12          --       (12)        --
Net loss, July 12 through  
 December 31, 1995.....................      --       --        --         --      --          --        (967)       --       (967)
                                          -----     ----     -----     ------    ----    --------    --------    ------   --------
Balance, December 31, 1995.............   5,182        5        --      2,670       3       3,859        (967)      (12)     2,888

Sale of stock..........................   3,756        4        --      4,943       5      59,506          --        --     59,515
Stock-based compensation...............      --       --       152        700       1       1,127          --      (141)     1,139
Stock options exercised................      --       --        --        317      --          57          --       (26)       31
Conversion of Preferred to Common Stock  (8,938)      (9)       --      8,938       9          --          --        --        --
Net loss...............................      --       --        --         --      --          --     (10,917)       --    (10,917)
                                          -----     ----     -----     ------    ----    --------    --------    ------   --------
Balance, December 31, 1996.............      --       --       152     17,568      18      64,549     (11,884)     (179)    52,656
Sale of stock..........................      --       --        --      2,014       2      29,521          --        --     29,523
Acquisition of Avid Corporation........      --       --        --        400      --       8,117          --        --      8,117
Sale of stock options..................      --       --        --         --      --          70          --        --         70
Stock-based compensation...............      --       --       (38)        --      --          --          --        48         10
Stock options exercised................      --       --        --         13      --           3          --         6          9
Net loss...............................      --       --        --         --      --          --     (37,668)       --    (37,668)
                                          -----     ----     -----     ------    ----    --------    --------    ------   --------
Balance, December 31, 1997.............      --       --       114     19,995      20     102,260     (49,552)     (125)    52,717
     (UNAUDITED)
Sale of stock..........................      --       --        --         13      --         126          --        --        126
Sale of stock options..................      --       --        --         --      --          24          --        --         24
Stock-based compensation...............      --       --        --         --      --          --          --        12         12
Stock options exercised................      --       --        --          7      --           1          --         2          3
Net loss...............................      --       --        --         --      --          --     (16,408)       --    (16,408)
                                          -----     ----     -----     ------    ----    --------    --------    ------   --------
Balance, March 31, 1998................      --     $ --     $ 114     20,015    $ 20    $102,411    $(65,960)   $ (111)  $ 36,474
                                          -----     ----     -----     ------    ----    --------    --------    ------   --------
                                          -----     ----     -----     ------    ----    --------    --------    ------   --------
</TABLE>

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

                                       6
<PAGE>

                           TRIANGLE PHARMACEUTICALS, INC.
                           (A DEVELOPMENT STAGE COMPANY)
                 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                    (UNAUDITED)
                       (In thousands, except per share amounts)

1.       BASIS OF PRESENTATION

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

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

2.       PRINCIPLES OF CONSOLIDATION

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

3.       NET LOSS PER COMMON SHARE

       Basic net loss per common share is computed using the weighted average 
number of shares of Common Stock outstanding during the period. Diluted net 
loss per common share is computed using the weighted average number of shares 
of common and dilutive potential common shares outstanding during the period. 
Potential common shares consist of stock options and warrants using the 
treasury stock method and are excluded if their effect is antidilutive. For 
the three month periods ended March 31, 1998 and 1997, the weighted average 
shares outstanding used in the calculation of net loss per common share do 
not include potential shares outstanding because they have the effect of 
reducing net loss per common share.

         Effective December 31, 1997, the Company adopted Statement of 
Financial Accounting Standards No. 128 ("SFAS 128"), "EARNINGS PER SHARE" 
("EPS"). Pursuant to the adoption of SFAS 128 and Securities and Exchange 
Commission Staff Accounting Bulletin No. 98, the Company has restated its net 
loss per common share for all previously issued periods, including the 
three-month period ending March 31, 1997. Accordingly, all net loss per share 
calculations reflect a historical approach methodology rather than the 
methodology required by the superceded guidance of Accounting Principles 
Board Opinion No. 15 and Staff Accounting Bulletin No. 83 under which amounts 
were previously presented.

                                       7
<PAGE>
                          TRIANGLE PHARMACEUTICALS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)
                     (In thousands, except per share amounts)

4.       LICENSING AGREEMENTS

         The Company's existing license agreements, including the license 
agreement relating to L-FMAU discussed below, require future payments of up 
to $75,750 contingent upon the achievement of certain development milestones 
and up to $30,000 upon the achievement of certain sales milestones. One of 
the Company's licensors has the option to receive $2,000 of such future 
milestone payments in shares of Common Stock (based on the then current 
market price) in lieu of a cash payment. The Company is also obligated to 
issue up to 2,100 shares of Common Stock upon the achievement of certain 
development milestones relating to DMP-450 or another compound acquired in 
the acquisition of Avid Corporation and its wholly-owned subsidiary. 
Additionally, the Company will pay royalties based on a percentage of net 
sales of each licensed product incorporating these drug candidates. 
Substantially all of the agreements require minimum royalty payments 
commencing three years after regulatory approval. Depending on the Company's 
success and timing in obtaining regulatory approval, aggregate annual minimum 
royalties and annual license preservation fees could range from $500 (if only 
a single drug candidate is approved for one indication) to $56,500 (if all 
drug candidates are approved for all indications) under the Company's 
existing license agreements.

         On February 27, 1998, the Company executed a license agreement with 
Bukwang Pharm. Ind. Co., Ltd. ("Bukwang") for L-FMAU, the Company's eighth 
licensed drug candidate, for the treatment of the hepatitis B virus ("HBV") 
and all other human antiviral applications. The Company paid a license 
initiation fee of $6,000 and will be required to make development milestone 
payments of up to $32,500 and sales milestone payments of up to $30,000. The 
Company is also required to make annual minimum royalty payments beginning 
the third year after FDA registration is granted for the first product. The 
license agreement grants Triangle exclusive worldwide rights, except for 
Korea. The Company will be required to meet certain milestone obligations and 
to conduct and fund certain development work with respect to L-FMAU.

5.       ACCOUNTING PRONOUNCEMENTS

         In June 1997, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards No. 130, "REPORTING COMPREHENSIVE 
INCOME" ("SFAS 130"). SFAS 130 establishes standards for reporting and 
display of comprehensive income and its components in a full set of 
general-purpose financial statements. SFAS 130 is effective for financial 
statements for fiscal years beginning after December 31, 1997 and was adopted 
by the Company in the three months ended March 31, 1998. Adoption of SFAS 130 
did not have a material impact on the Company's consolidated financial 
position, results of operations, or cash flows.

6.     STOCK OFFERING

         On April 15, 1998, the Company completed registration of 4,025 
shares of Common Stock at $15.00 per share with the Securities and Exchange 
Commission (the "Commission"). The net proceeds of this offering, after 
underwriting discounts and costs in connection with the sale and distribution 
of the securities, were approximately $55,832. The Company intends to use the 
proceeds for general corporate purposes, including the Company's drug 
development programs such as preclinical testing and clinical trials, the 
payment of license fees, the costs of obtaining patent protection and other 
payments to licensors, the potential acquisition of additional drug 
candidates, the development of computerized systems to support clinical 
trials and general working capital needs. 

                                       8
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
         RESULTS OF OPERATIONS

         THIS QUARTERLY REPORT ON FORM 10-Q MAY CONTAIN CERTAIN PROJECTIONS,
ESTIMATES AND OTHER FORWARD-LOOKING STATEMENTS THAT INVOLVE A NUMBER OF RISKS
AND UNCERTAINTIES, INCLUDING THOSE DISCUSSED BELOW AT "--RISKS AND
UNCERTAINTIES." WHILE THIS OUTLOOK REPRESENTS MANAGEMENT'S CURRENT JUDGMENT ON
THE FUTURE DIRECTION OF THE BUSINESS, SUCH RISKS AND UNCERTAINTIES COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM ANY FUTURE PERFORMANCE SUGGESTED BELOW.
THE COMPANY UNDERTAKES NO OBLIGATION TO RELEASE PUBLICLY THE RESULTS OF ANY
REVISIONS TO THESE FORWARD-LOOKING STATEMENTS OR TO REFLECT EVENTS OR
CIRCUMSTANCES ARISING AFTER THE DATE HEREOF.

         THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" INCLUDED IN THE COMPANY'S 1997 ANNUAL REPORT ON FORM 10-K AS WELL AS
WITH THE COMPANY'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
APPEARING ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q.

OVERVIEW

         Triangle is a pharmaceutical company engaged in the development of new
drug candidates primarily in the antiviral area. Since its inception on July 12,
1995, the Company's operating activities have related primarily to recruiting
personnel, negotiating license and option arrangements for its drug candidates,
raising capital and developing its 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 until at least the year 2000. As of
March 31, 1998, the Company's accumulated deficit was approximately $66.0
million.

         The Company's drug development programs require substantial capital
expenditures, including expenditures for preclinical testing, chemical synthetic
scale-up, manufacture of drug substance for clinical trials and toxicology
studies, 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 will
also require substantial capital expenditures relating to activities many of
which may need to occur prior to, and in anticipation of, the potential
regulatory approval of its drug candidates, including expenditures associated
with the establishment of a sales and marketing organization, the manufacture of
drug substance, the development of a distribution system with outside vendors
and other administrative expenditures necessary to support the Company. Many of
these capital expenditures may be incurred irrespective of whether the Company's
drug candidates are approved when anticipated or at all. The Company expects
that losses will fluctuate from period to period and that such fluctuations may
be substantial. See "--Risks and Uncertainties--History of Operating Losses;
Accumulated Deficit; Uncertainty of Future Profitability."

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

         The operating expenses of the Company will depend on several factors,
including the level of development expenses and the potential commercialization
of its drug candidates. 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. The level of expenses relating to the
establishment of a sales and marketing organization, the manufacture of drug
substance, the development of a distribution system with outside vendors and
other administrative expenditures will depend on the success of the development
of the Company's drug candidates; however, many of these capital expenditures
may be incurred irrespective of whether the Company's drug candidates are
approved when anticipated or at all. As a result of these factors, the Company
believes that period to period comparisons are not necessarily meaningful and
should not be relied upon as an 

                                       9
<PAGE>

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 could be materially adversely affected. See "--Risks and 
Uncertainties--Volatility of Stock Price."

RESULTS OF OPERATIONS

INTEREST INCOME, NET

         The Company had total net interest income of $734,000 for the three 
months ended March 31, 1998, as compared to $726,000 for the same period in 
1997. The relatively little change in interest income corresponds to 
relatively consistent average cash and investment balances, and investment 
return between the two periods. See "--Liquidity and Capital Resources."

LICENSE FEES

         License fees totaled $6.0 million for the three months ended March 31,
1998, as compared to no fees for the same period of 1997. The increase relates
entirely to the in-licensing of L-FMAU, the Company's eighth licensed drug
candidate. L-FMAU was licensed from Bukwang on February 27, 1998 for treatment
of HBV and all other human antiviral applications and resulted in a $6.0 million
license initiation fee payment in the first quarter of 1998.

DEVELOPMENT EXPENSES

         Development expenses totaled $8.7 million for the three months ended
March 31, 1998, as compared to $2.7 million for the same period in 1997.
Development expenses for 1998 consisted primarily of expenses for drug
synthesis, clinical trials, compensation, toxicology studies, and patent related
activities of the Company's drug candidates. The substantial increase in 1998
development expenses, as compared to the three month period ending March 31,
1997, is the result of the Company's continued and more extensive drug
development activities including the addition of drug candidates within its
portfolio and expansion of development personnel. Currently, the Company has
eight licensed drug candidates with an option to license a ninth drug candidate.
The Company expects its development expenses to continue to increase in the
future due to continued expansion of drug development activities, including
preclinical testing and clinical trials. In addition, if the Company in-licenses
or otherwise acquires rights to additional drug candidates, like L-FMAU,
development expenses would increase as a result.

GENERAL AND ADMINISTRATIVE EXPENSES

         General and administrative expenses totaled $2.4 million for the three
months ended March 31, 1998, as compared to $1.5 million for the same period in
1997. General and administrative expenses for 1998 consisted primarily of
compensation expense, rent expense and amounts paid for outside professional
services. The 61% increase in 1998 general and administrative expense, as
compared to the three-month period ending March 31, 1997, is predominantly
attributable to growth of the Company's operations. Specifically, the Company
has increased compensation, benefit, and general operating expenses, as well as
increased rent expense associated with expanding its office and laboratory
facilities, in association with the hiring of additional personnel. The Company
expects that its general and administrative expenses will continue to increase
significantly in future periods.

LIQUIDITY AND CAPITAL RESOURCES

         The Company has financed its operations since inception (July 12, 
1995) through March 31, 1998 primarily with the net proceeds received from 
private placements of equity securities, which provided aggregate net 
proceeds of approximately $51.7 million (net of offering costs), and from the 
Company's initial public offering, which was completed in November 1996 and 
provided aggregate net proceeds of approximately $41.0 million (net of 
offering costs). In addition, the Company has received approximately $2.0 
million as reimbursement of certain development expenses under a license 
agreement for one of its drug candidates.

         At March 31, 1998, the Company had net working capital of $33.5
million, a decrease of approximately $16.8 million over working capital at
December 31, 1997. The decrease is principally the result of increased costs of

                                       10
<PAGE>

development of the Company's drug candidates, the payment of a $6.0 million
license initiation fee for L-FMAU, and an increase of administrative costs as
the Company increases its staff. At March 31, 1998, the Company's principal
source of liquidity was $29.3 million of cash and cash equivalents and $12.1
million of short-term investments which are "available for sale," reflecting an
approximate $16.4 million decrease of cash, cash equivalent and investment
balances over those at December 31, 1997.

         The Company had a note payable and secured equipment lease line
obligations totaling $669,000 at March 31, 1998 as compared to $837,000 at
December 31, 1997. The decrease in these obligations relates to the Company
liquidating its capital lease obligation assumed in the Avid Corporation
acquisition and normal monthly principal payments on its notes payable and other
capital lease obligations.

         On April 15, 1998, the Company completed a public offering of 4,025,000
shares of Common Stock at $15.00 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 $55.8 million. The Company
intends to use the proceeds for general corporate purposes, including the
Company's drug development programs such as preclinical testing and clinical
trials, the payment of license fees, the costs of obtaining patent protection
and other payments to licensors, the potential acquisition of additional drug
candidates, the development of computerized systems to support clinical trials
and general working capital needs.

         The Company expects that its capital requirements will increase 
substantially in future periods as the Company funds its drug development 
programs, develops a sales and marketing organization, acquires drug 
substance from third party manufacturers, develops a distribution system with 
outside vendors and incurs other administrative expenditures necessary to 
support the Company. 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, including L-FMAU, require future cash payments 
of up to $75.8 million contingent upon the achievement of certain development 
milestones, up to $30.0 million upon the achievement of certain sales 
milestones and up to 2,100,000 shares of Common Stock contingent upon the 
achievement of certain development milestones. One of the Company's licensors 
has the option to receive $2.0 million of such future milestone payments in 
shares of Common Stock (based on the then current market price) in lieu of a 
cash payment. 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 
and annual license preservation fees could range from $500,000 (if only a 
single drug candidate is approved for one indication) to $56.5 million (if 
all drug candidates are approved for all indications) under the Company's 
existing license agreements.

         On February 27, 1998, the Company executed a license agreement for
L-FMAU granting Triangle exclusive worldwide rights, except for Korea, for the
treatment of HBV and all other human antiviral applications. The Company paid
$6.0 million in the first quarter as an initial license fee and will be required
to make development milestone payments of up to $32.5 million and sales
milestone payments of up to $30.0 million. The Company is also required to make
annual minimum royalty payments beginning the third year after FDA registration
is granted for the first licensed product. In conjunction with this agreement,
the Company will be required to meet certain milestone obligations and to
conduct and fund certain development work.

         The Company believes that its existing cash, cash equivalents and
investments in conjunction with its recently completed public offering will be
adequate to satisfy its anticipated capital requirements through August 1999.
The Company expects that it will be required to raise substantial additional
funds through equity or debt financings, collaborative arrangements with
corporate partners or from other sources. There can be no assurance that

                                       11
<PAGE>

additional funding will be available on favorable terms from any of these
sources or at all. See "--Risks and Uncertainties--Future Capital Needs;
Uncertainty of Additional Funding."

LITIGATION AND OTHER CONTINGENCIES

         As discussed below in "--Risks and Uncertainties--Uncertainty of 
Patents; Dependence on Patents, Licenses, and Proprietary Rights.", the 
Company is indirectly involved in several opposition and interference 
proceedings and one lawsuit filed in Australia regarding the patent rights 
related to three of its licensed drug candidates, including FTC. Although the 
Company is not a named party in any of these proceedings, it is obligated to 
reimburse its licensors for certain legal expenses associated with these 
proceedings. The Company cannot predict the outcome of these proceedings. The 
Company believes that an adverse judgment would not result in a material 
financial obligation to the Company, nor would the Company have to recognize 
an impairment under Statement of Financial Accounting Standards No. 121 
"ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS" as no amounts have been 
capitalized related to these drug candidates. However, any development in 
these proceedings adverse to the Company's interests, including but not 
limited to any adverse development related to the patent rights licensed to 
the Company for these three drug candidates or the Company's rights or 
obligations related thereto, could have a material adverse effect on the 
Company's future consolidated financial position, results of operations and 
cash flow.

YEAR 2000 COMPLIANCE

         The Company recognizes the need to ensure that Year 2000 hardware and
software issues will not adversely impact its operations. The Company is in the
process of confirming its compliance regarding Year 2000 issues for both
internal and external information systems and it expects to complete the process
by the end of 1998. This process will entail communicating with significant
suppliers, financial institutions, insurance companies and other parties that
provide significant services to the Company. Expenditures required to make the
Company Year 2000 compliant will be expensed as incurred and are not expected to
be material to the Company's consolidated financial position or results of
operations.

RISKS AND UNCERTAINTIES

         IN ADDITION TO THE OTHER INFORMATION CONTAINED HEREIN, THE FOLLOWING 
RISKS AND UNCERTAINTIES SHOULD BE CAREFULLY CONSIDERED IN EVALUATING TRIANGLE 
AND ITS BUSINESS.

DEVELOPMENT STAGE COMPANY; UNCERTAINTY OF PRODUCT DEVELOPMENT

         Triangle 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, many of the Company's drug candidates are
in the early developmental stage and all of the Company's drug candidates will
require significant, time consuming and costly development, testing and
regulatory clearances. The Company does not expect any of its drug candidates to
be commercially available until at least the year 2000. The successful
development of any new drug, including each 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 or market or will not achieve broad market acceptance; that third
parties will hold proprietary rights that will preclude the Company from
marketing the drug candidates; or that third parties will market equivalent or
superior products. The failure of the Company's drug development programs to
result in commercially viable products would have a material adverse effect on
the Company.

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

         The Company has incurred losses since its inception. As of March 31, 
1998, the Company's consolidated accumulated deficit was approximately $66.0 
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 

                                      12
<PAGE>

has not generated any revenue to date from the sale of drugs and does not 
expect to do so until at least the year 2000. The Company will incur 
significant additional operating losses over the next several years and 
expects these 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 and maintain 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 require substantial capital
expenditures, including expenditures for preclinical testing, chemical synthetic
scale-up, manufacture of drug substance for clinical trials and toxicology
studies, 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, costs under
the license and/or option agreements relating to the Company's drug candidates
(including the costs of obtaining patent protection for the Company's drug
candidates), the timing and the terms of the acquisition of any additional drug
candidates, the rate of technological advances, determinations as to the
commercial potential of the Company's drug candidates administrative and legal
expenses, the establishment of internal capacity and third party arrangements
for sales and marketing functions, the establishment of third party arrangements
for manufacturing 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, additional equity
or debt financings will be required in the future to fund the Company's
operations. There can be no assurance that the Company will be able to
consummate any such financings on favorable terms or at all, or that such
financings, if consummated, will be adequate to meet the Company's capital
requirements. Any additional equity or convertible debt financings could result
in substantial dilution to the Company's stockholders. If adequate funds are not
available, the Company may be required to delay, reduce the scope of or
eliminate one or more of its drug development programs or attempt to continue
development by entering into arrangements with collaborative partners or others
that may require the Company to relinquish some or all of its rights to certain
technologies or drug candidates that the Company would not otherwise desire to
relinquish. In addition, from time to time, the Company considers the
acquisition of technologies and drug candidates that, if completed, could
increase the Company's capital requirements. The Company's inability to fund its
capital requirements would have a material adverse effect on the Company.

UNCERTAINTIES RELATED TO CLINICAL TRIALS

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

                                       13
<PAGE>

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
clinical trial. Delays in planned patient enrollment can result in increased
costs or longer development times 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 file any required regulatory
submissions in a timely manner or that any such submissions will be approved by
regulatory agencies. Any failure of the Company to complete successfully its
clinical trials and obtain approvals of corresponding regulatory submissions
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 and has only three patent applications of its own
pending, but has obtained or has an option to obtain licenses to patents, patent
applications and other proprietary rights from third parties with respect to
each of its nine 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 patent
applications or that claims allowed will be sufficient to protect the technology
licensed to or owned by 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 and biotechnology companies, universities
and research institutions have filed patent applications or received patents to
technologies that cover or are similar to the technologies licensed to or owned
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 drug candidates that are successfully
developed. For example, United States patent applications are confidential while
pending in the Patent and Trademark Office ("PTO"), and patent applications
filed in foreign countries are often first published six months or more after
filing. Any conflicts resulting from third party patent applications and patents
could significantly reduce the coverage of the patents licensed to or owned by
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 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 nine compounds comprising the
Company's existing drug candidate portfolio. The Company may not be able to
commercialize FTC, DAPD or CS-92 for human immunodeficiency virus ("HIV") and/or
HBV due to patent rights held by third parties other than the Company's
licensors. The Company is aware of numerous patent applications and issued
patents in the United States and numerous foreign countries held by third
parties other than the Company's licensors that relate to these compounds and
their use alone or coactively 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 

                                       14
<PAGE>

more third parties, which may not be available on acceptable terms or at all. 
In addition, even in the absence of an unfavorable resolution of any of these 
questions, the Company may attempt to obtain licenses from one or more third 
parties in order to reduce or eliminate the risks relating to some or all of 
these matters. There can be no assurance that the Company will elect to 
obtain any such licenses or that such licenses will be available on 
acceptable terms or at all. The Company's inability to commercialize any of 
these compounds could have a material adverse effect on the Company.

FTC

         FTC belongs to the same general class of nucleosides as 3TC, which has
been approved in the United States by the FDA for use in combination with AZT
for the treatment of HIV and by similar regulatory agencies in many other
countries for use in combination with other nucleoside analogues 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"). 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 to FTC and its uses claimed in the
Yale patent applications.

         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 many countries and have issued in a number of countries with claims directed
to FTC and its use to treat HIV. In addition, BioChem Pharma filed a United
States patent application in 1991 specifically directed to a purified form of
FTC that exhibits advantageous properties for the treatment of HIV on which two
patents have issued, one directed to the purified form of FTC and another
directed to a method for treating antiviral diseases with the purified form of
FTC. The PTO has declared an interference between the latter BioChem Pharma
patent and a patent application filed by Emory. There can be no assurance that
Emory will prevail in the interference proceeding, or that the interference
proceeding will not delay the decision of the PTO regarding Emory's patent
application. BioChem Pharma has also filed patent applications in many 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 recent
filing with the 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 many foreign countries before BioChem Pharma filed its foreign
patent applications on that subject matter, BioChem Pharma has been issued
patents in several foreign countries. Further, BioChem Pharma has filed for
patent protection on FTC and its uses in certain countries in which Emory did
not file for patent protection. Emory has opposed or otherwise challenged patent
claims on FTC granted to BioChem Pharma in Australia, Japan and Norway. There
can be no assurance that Emory will initiate opposition proceedings in any other
countries or be successful in any pending or subsequently filed foreign
proceeding attempting to revoke patents issued to BioChem Pharma or 

                                      15
<PAGE>

addressing the relative rights of BioChem Pharma and Emory. BioChem Pharma 
has opposed patent claims on FTC granted to Emory in Japan and Australia. 
There can also be no assurance that BioChem Pharma will not make additional 
challenges to any Emory patents or patent applications, or that Emory will 
succeed in defending any such challenges. There can be no assurance that the 
sale of FTC by the Company for the treatment of HIV would not be held to 
infringe United States and foreign patent rights of BioChem Pharma. Under the 
patent laws of most countries, a product can be found to infringe a third 
party patent either if the third party patent expressly covers the product or 
method of treatment using the product, or in certain circumstances, if the 
third party patent, while not expressly covering the product or method, 
covers subject matter that is substantially equivalent in nature to the 
product or method. If it is determined that the sale of FTC for the treatment 
of HIV infringes a BioChem Pharma patent, the Company would not have the 
right to make, use or sell FTC for the treatment of HIV in one or more 
countries in the absence of a license from BioChem Pharma. There can be no 
assurance that the Company could obtain such a license from BioChem Pharma on 
acceptable terms or at all.

         HBV. Burroughs Wellcome Co. ("Burroughs Wellcome") filed patent
applications in March 1991 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 patent applications were filed in many 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. The PTO has declared an interference between the BioChem
Pharma patent and a patent application filed by Yale. Yale licensed all of its
rights relating to FTC and its uses claimed in this patent application to Emory,
which subsequently licensed these rights to the Company. There can be no
assurance that Yale will prevail in the interference proceeding, or that the
interference proceeding will not delay the decision of the PTO regarding Yale's
patent application. In addition, interference proceedings may be declared with
respect to other patent applications filed by Emory, Burroughs Wellcome's patent
application and BioChem Pharma's issued United States patent. There can be no
assurance that Emory will pursue or succeed in any such proceedings. 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 patent 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, from which several patents have issued
in the United States and many foreign countries. If the Company uses a
manufacturing method that is covered by patents issued 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.

                                       16
<PAGE>

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 three 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
and 1992. BioChem Pharma filed a patent application in the United States in 1988
on a group of nucleosides in the same general class as DAPD and their use to
treat HIV, and has filed corresponding patent applications in foreign countries.
The PTO issued a patent to BioChem Pharma in 1993 covering a class of
nucleosides that includes DAPD and its use to treat HIV. Corresponding patents
have been issued to BioChem Pharma in many foreign countries. Emory has filed an
opposition to BioChem Pharma's granted patent application in the European Patent
Office based, in part, upon Emory's assertion that BioChem Pharma's patent does
not disclose how to make DAPD, and Emory has informed the Company that Emory
intends to challenge BioChem Pharma's patents and patent applications in other
countries. Patent claims granted to Emory on a portion of the DAPD technology by
the Australian Patent Office have been opposed by BioChem Pharma. There can be
no assurance that a court or administrative body would invalidate BioChem
Pharma's patent claims or that a sale of DAPD by the Company would not infringe
BioChem Pharma's patents. If Emory, UGARF and the Company do not challenge, or
are not successful in any challenge to, BioChem Pharma's issued patents or
pending patent applications (or patents that may issue as a result of such
applications), the Company will not be able to manufacture, use or sell DAPD in
the United States and any foreign countries in which BioChem Pharma receives a
patent without a license from BioChem Pharma. There can be no assurance that the
Company would be able to obtain such 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 AZT, and their use to treat HIV infection.
Burroughs Wellcome subsequently filed similar applications in other countries,
including 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. If the use of CS-92 is found to infringe 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 such a license from Glaxo on acceptable terms or at all.

         With respect to any of the Company's drug candidates, litigation, 
opposition and interference proceedings, including the currently pending 
proceedings, could result in substantial cost to the Company. The Company 
expects the costs of the currently pending interference proceedings to 
increase significantly during the next several years. The Company anticipates 
that additional litigation and/or patent interference or opposition 
proceedings will be necessary or may be initiated by the Company's licensors 
or by third parties to enforce any patents to which the Company has rights or 
to determine the scope, validity and enforceability of other parties' 
proprietary rights and the priority of an invention, any of which could 
result in substantial costs and/or delays to the Company. The outcome of any 
of these proceedings 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. As indicated above, 
two interferences have already been declared by the PTO in connection with 
the FTC technology. 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, 
The Regents of the University of California (the "Regents"), The DuPont Merck 
Pharmaceutical Company ("DuPont Merck") and Mitsubishi Chemical Corporation 
("Mitsubishi"), each of these licensors is primarily responsible for any 
patent prosecution activities for the technology licensed to the Company, 
such as litigation, 

                                       17
<PAGE>

interference, opposition or other actions and, except for litigation expenses 
incurred by DuPont Merck and all patent prosecution expenses incurred by 
Mitsubishi, the Company is required to reimburse these licensors for the 
costs they incur in performing these activities. Similarly, Yale and UGARF, 
the licensors of L-FMAU to Bukwang, are primarily responsible for patent 
prosecution activities with respect to L-FMAU at the Company's expense. 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, the 
Regents, DuPont Merck, Mitsubishi and/or Yale do not elect to institute or 
elect to abandon such proceedings. In cases where Emory, UGARF, the Regents, 
DuPont Merck, Mitsubishi and/or Yale elect to institute and prosecute patent 
proceedings, the Company's rights will be dependent in part upon the manner 
in which these licensors conduct the proceedings. These licensors could, in 
any proceedings they elect to initiate and maintain, decide 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 initiation and continuation of any technology related 
litigation or interference proceeding could have a material adverse effect on 
the Company pending resolution of the disputed matters.

         The Company also relies on unpatented trade secrets and know-how to
maintain its competitive position, which it seeks to protect, in part, by
confidentiality agreements with employees, consultants and others. There can be
no assurance that these agreements will not be breached or terminated, that the
Company will have adequate remedies for any breach, or that the Company's trade
secrets will not otherwise become known or be independently discovered by
competitors. The Company relies on certain technologies to which it does not
have exclusive rights or which may not be patentable or proprietary and thus may
be available to competitors. The Company has filed an application for but has
not obtained a trademark registration with respect to its corporate name and its
logo. 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, reporting 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 will be materially 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

                                       18
<PAGE>

result in restrictions on such product or manufacturer, including withdrawal of
the product from the market. The failure to comply with applicable regulatory
requirements can, among other things, result in fines, suspension of regulatory
approvals, refusal to approve pending applications, refusal to permit exports
from the United States, product recalls, seizure of products, injunctions,
operating restrictions and criminal prosecutions. Further, the FDA and/or
foreign regulatory authorities may adopt policy changes or additional government
regulations that could prevent or delay regulatory approval of the Company's
drug candidates.

         The effect of governmental regulation may be to delay the marketing of
new products for a considerable period of time or to prevent such marketing
altogether, to impose costly requirements on the Company's activities or to
provide a competitive advantage to other companies that compete with the
Company. Adverse clinical results by others could have a negative impact on the
regulatory process and timing with respect to the development and approval of
the Company's drug candidates. A delay in obtaining or failure to obtain
regulatory approvals for any of the Company's drug candidates could have a
material adverse effect on the Company. To the extent that the Company's drug
candidates are intended for use as coactive (i.e., combination) therapy with one
or more other drugs, adverse safety, effectiveness or regulatory developments in
connection with such other drugs may also 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.

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, HBV and cancer. 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 any products that are successfully developed by the Company will be more
effective, or more effectively marketed and sold, than any products that may be
developed by the Company's competitors. 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. Many of these companies
also 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, the
availability of supply, marketing and sales capability, reimbursement coverage,
price, patent position and other factors. There can be no assurance that the
Company's competitors will not develop or commercialize more effective or more
affordable technology or products, or obtain more effective patent protection,
than the Company. Accordingly, the 

                                       19
<PAGE>

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, UGARF and Bukwang, the Company
is required to grant to Emory, UGARF and Bukwang 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). Upon termination
of the license agreement with DuPont Merck, the Company is required to transfer
all approved and pending New Drug Applications relating to DMP-450 to DuPont
Merck. In addition, the license and option agreements with Emory, UGARF, the
Regents, DuPont Merck and Mitsubishi provide that each of these licensors is
primarily responsible for any patent prosecution activities for the technology
licensed to the Company, such as litigation, interference, opposition or other
actions and, except for litigation expenses incurred by DuPont Merck and all
patent prosecution expenses incurred by Mitsubishi, the Company is required to
reimburse these licensors for the costs they incur in performing these
activities. Similarly, Yale and UGARF, the licensors of L-FMAU to Bukwang, are
primarily responsible for patent prosecution activities with respect to L-FMAU
at the Company's expense. 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 may increase significantly during the next
several years, 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, which could have a material
adverse effect on the Company.

LACK OF MANUFACTURING CAPABILITIES

         The Company does not have any manufacturing capacity and relies on 
third party manufacturers for the manufacture of all of its clinical trial 
material. The Company currently plans to expand its existing relationships or 
to seek to establish relationships with additional third party manufacturers 
for the commercial production of any products it may develop. There can be no 
assurance that the Company will be able to establish or maintain 
relationships with third party manufacturers on commercially acceptable terms 
or that third party manufacturers will be able to manufacture products in 
commercial quantities under applicable Good Manufacturing Practices 
regulations of 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 or maintain 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 two marketing employees and one sales
employee. 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 whom the Company establishes
marketing, distribution or sales arrangements may have significant control over
important aspects of the commercialization of the Company's products, 

                                       20
<PAGE>

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 AND ACQUISITION OF DRUG CANDIDATES

         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. 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 other third parties will perform all of their obligations under
arrangements with the Company. In the event that the CROs or other third parties
do not perform clinical trials in a satisfactory manner or breach their
obligations to the Company, the development and 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 drug candidates for in-licensing from companies, universities, research
institutions and other organizations. There can be no assurance that the Company
will succeed in acquiring additional drug candidates on acceptable terms or at
all.

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 non-competition
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 pressure on
pharmaceutical pricing. While the Company cannot predict whether legislative or
regulatory proposals will be adopted or what 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 whole or in part on the availability of reimbursement to the consumer from
third party payors, such as government and private insurance plans, and these
third party payors frequently 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.

                                       21
<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 COACTIVE THERAPY

         The Company's success will also depend in large part on the extent to
which coactive 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 coactive treatment regimens for the
treatment of HIV are expensive (published reports indicate the cost per patient
per year can exceed $13,000), and may increase as new combinations are
developed. These costs have resulted in limitations in the reimbursement
available from third party payors for the treatment of HIV infection, and the
Company expects that reimbursement pressures will continue in the future. If
coactive therapy is accepted as a method to treat HBV infection, 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
where HBV is most prevalent. Any failure of coactive therapy to achieve
significant market acceptance for the treatment of HIV or potentially HBV could
have a material adverse effect on the Company.

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

HAZARDOUS MATERIALS

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

CONCENTRATION OF STOCK OWNERSHIP; CONTROL BY MANAGEMENT AND EXISTING 
STOCKHOLDERS

         As of April 15, 1998, the Company's directors, executive officers and
their respective affiliates beneficially owned approximately 37.9% of the
Company's outstanding Common Stock. As a result, these stockholders will be able
to exercise significant influence over all matters requiring stockholder
approval, including the election of directors and the 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.
                                       22
<PAGE>

VOLATILITY OF STOCK PRICE

         The market price of the Company's Common Stock is likely to be 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 could have a material
adverse effect on the prevailing market price of the Common Stock.

         Sales of a substantial number of shares of the Company's Common Stock
in the public market could adversely affect the market price of the Common
Stock. Holders of approximately 10,850,000 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, and the Company has filed a registration statement
to register the resale of 2,789,500 of these shares. Any such sales may have an
adverse effect on the Company's ability to raise needed capital through an
offering of its equity or convertible debt securities and may adversely affect
the prevailing market price of the Common Stock.

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

ANTITAKEOVER EFFECTS OF CHARTER, BYLAWS AND DELAWARE LAW

         The Company's Second Restated Certificate of Incorporation (the
"Certificate") authorizes the Company's Board of Directors (the "Board") to
issue shares of undesignated preferred stock without stockholder approval on
such terms as the Board may determine. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of any such preferred stock that may be issued in the future. Moreover, the
issuance of such preferred stock may make it more difficult for a third party to
acquire, or may discourage a third party from acquiring, a majority of the
voting stock of the Company. The Company's Restated Bylaws (the "Bylaws") divide
the Board into three classes of directors with each class serving a three year
term. These and other provisions of the Certificate and the Bylaws, as well as
certain provisions of Delaware law, could delay or impede the removal of
incumbent directors and could make more difficult a merger, tender offer or
proxy contest involving the Company, even if such events could be beneficial to
the interest of the Company's 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.


                                       23
<PAGE>


                           PART II - OTHER INFORMATION

ITEM 2.  CHANGE IN SECURITIES AND USE OF PROCEEDS

         The effective date of the Company's first registration statement 
(the "Registration Statement") filed on Form S-1 (Registration No. 333-11793) 
under the Securities Act was October 31, 1996.  The class of securities 
registered was Common Stock.  The offering commenced on November 1, 1996 and 
all securities were sold in the offering.  The managing underwriters for the 
offering were Dillon, Read & Co. Inc. and Bear, Stearns & Co. Inc.

         Pursuant to the Registration Statement, the Company registered 
4,830,000 and sold 4,532,652 shares of Common Stock at $10.00 per share 
raising aggregate proceeds from the offering of approximately $45.3 million.

         The Company incurred total expenses in the offering of approximately 
$4.3 million, of which $3.2 million represented underwriting discounts and 
commissions and $1.1 million represented other expenses. All of such expenses 
were direct or indirect payments to others. The net offering proceeds to the 
Company, after deducting the total expenses, were approximately $41.0 million.

         From the effective date of the Registration Statement to March 31, 
1998, the approximate amount of net offering proceeds used were primarily: 
$27.2 million for development expenses, $3.1 million for purchased research 
and development in connection with the acquisition of Avid Corporation, $0.6 
million for the payment of license fees in connection with certain license 
agreements, $7.8 million for general and administrative expenses and $2.3 
million for purchase of property, plant and equipment. All of such payments 
were direct or indirect payments to others. The actual use of proceeds from 
the offering does not represent a material change in the use of proceeds 
described in the prospectus which is part of the Registration Statement.






                                       24
<PAGE>



ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         a.  Exhibits

             11.1     Computation of Net Loss Per Common Share
             27.1     Financial Data Schedule

         b.  Reports on Form 8-K.

             On April 2, 1998, the Company filed a Current Report on Form
             8-K dated April 1, 1998 restating its Financial Data Schedules
             for the period from inception (July 12, 1995) through December
             31, 1995, the six months ended June 30, 1996, the nine months
             ended September 30, 1996, the fiscal year ended December 31,
             1996 and the quarterly periods ended March 31, June 30, and
             September 30, 1997 in accordance with Securities and Exchange
             Commission Staff Accounting Bulletin No. 98 and Statement of
             Financial Accounting Standards No. 128.









                                       25
<PAGE>

                          TRIANGLE PHARMACEUTICALS, INC.
                                   SIGNATURES

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

                                    TRIANGLE PHARMACEUTICALS, INC.

Date:  May 6, 1998                  By:  /s/ David W. Barry
                                       ------------------------------------
                                       David W. Barry
                                       Chairman and Chief Executive Officer


                                    TRIANGLE PHARMACEUTICALS, INC.

Date:  May 6, 1998                  By:  /s/ James A. Klein, Jr.
                                       ------------------------------------
                                       James A. Klein, Jr.
                                       Chief Financial Officer and Treasurer


                                       26