# UNITED STATES 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, 2003

# OR

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

Commission File Number:
000-26929

# ADOLOR CORPORATION

(Exact Name of
Registrant as Specified in its Charter)

|                                |                       
|------------------------------- | ----------------------
|Delaware                        | 31-1429198            
|(State or other jurisdiction of | (I.R.S. Employer      
|incorporation or organization)  | Identification Number)

700 Pennsylvania Drive Exton, Pennsylvania
19341(Address of Principal
Executive Offices and Zip Code)

484-595-1500(Registrants
Telephone Number, Including Area Code)

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

Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). [X] Yes [_] No



Number of shares outstanding of the
issuers Common Stock, par value $.0001 per share, as of April 28, 2003: 31,566,227
shares.

---

# ADOLOR CORPORATION

# INDEX

|         |                                                                                                                                                       |   
|-------- | ----------------------------------------------------------------------------------------------------------------------------------------------------- | --
|PART I.  | FINANCIAL INFORMATION                                                                                                                                 |   
|ITEM 1.  | Financial Statements (Unaudited):                                                                                                                     |   
|         | Consolidated Balance Sheets at March 31, 2003 and December 31, 2002                                                                                   | 1 
|         | Consolidated Statements of Operations for three months ended March
31, 2003 and 2002 and the period from August 9, 1993 (inception) to March 31, 2003 | 2 
|         | Consolidated Statements of Cash Flows for three months ended March 31, 2003
and 2002 and the period from August 9, 1993 (inception) to March 31, 2003 | 3 
|         | Notes to Consolidated Financial Statements                                                                                                            | 4 
|ITEM 2.  | Management's Discussion and Analysis of Financial Condition and
Results of Operations                                                                 | 8 
|ITEM 3.  | Quantitative and Qualitative Disclosures About Market Risk                                                                                            | 23
|ITEM 4.  | Controls and Procedures                                                                                                                               | 23
|PART II. | OTHER INFORMATION                                                                                                                                     |   
|ITEM 6.  | Exhibits and Reports on Form 8-K                                                                                                                      | 24
|         | Signatures                                                                                                                                            | 25
|         | Certifications                                                                                                                                        | 26

---

# PART I. FINANCIAL
INFORMATION

# ITEM 1. FINANCIAL STATEMENTS

# ADOLOR CORPORATION (A Development Stage
Company)

# Consolidated Balance Sheets  Unaudited March 31, 2003 and
December 31, 2002

|                                                                |  | 
|--------------------------------------------------------------- |  | 
|                                                                |  | 
|Assets                                                          |  | 
|Current assets:                                                 |  | 
|Cash and cash equivalents                                       |  | 
|Short-term investments (Note 3)                                 |  | 
|Accounts receivable from collaboration agreements (Note 4)      |  | 
|Prepaid expenses and other current assets                       |  | 
|                                                                |  | 
|Total current assets                                            |  | 
|Equipment and leasehold improvements, net                       |  | 
|Other assets                                                    |  | 
|                                                                |  | 
|Total assets                                                    |  | 
|                                                                |  | 
|Liabilities and Stockholders' Equity                            |  | 
|Current liabilities:                                            |  | 
|Notes payable                                                   |  | 
|Accounts payable                                                |  | 
|Accrued expenses                                                |  | 
|Deferred licensing fees - current (Note 4)                      |  | 
|                                                                |  | 
|Total current liabilities                                       |  | 
|Deferred licensing fees -non-current (Note 4)                   |  | 
|                                                                |  | 
|Total liabilities                                               |  | 
|                                                                |  | 
|Stockholders' equity:                                           |  | 
|Series A Junior Participating preferred stock, $0.01 par value; |  | 
|35,000 shares authorized, none issued and outstanding           |  | 
|Preferred stock, $0.01 par value; 1,000,000                     |  | 
|shares authorized; none issued and outstanding                  |  | 
|Common stock, par value $.0001 per share;                       |  | 
|99,000,000 shares authorized; 31,532,895                        |  | 
|and 31,494,237 shares issued and outstanding at                 |  | 
|March 31, 2003 and December 31, 2002, respectively              |  | 
|Additional paid-in capital                                      |  | 
|Notes receivable for stock options                              |  | 
|Deferred compensation                                           |  | 
|Unrealized gains on available for sale securities               |  | 
|Deficit accumulated during the development stage                |  | 
|                                                                |  | 
|Total stockholders' equity                                      |  | 
|                                                                |  | 
|Total liabilities and stockholders' equity                      |  | 
|                                                                |  | 

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

---

# ADOLOR CORPORATION (A Development Stage
Company)

# Consolidated
Statements of Operations (Unaudited) Three months ended
March 31, 2003 and 2002 and the period from
August 9, 1993(inception) to March
31, 2003

|                                       |  |  |  
|-------------------------------------- |  |  | -
|                                       |  |  |  
|                                       |  |  |  
|                                       |  |  |  
|                                       |  |  |  
|                                       |  |  |  
|Revenues:                              |  | 
|Grant, contract, license               |  | 
|and milestone revenue (Note 4)         |  |  | $
|                                       |  |  |  
|Operating expenses incurred during the |  | 
|development stage:                     |  | 
|Research and development               |  |  |  
|Marketing, general and                 |  | 
|administrative                         |  |  |  
|                                       |  |  |  
|Total operating expenses               |  |  |  
|                                       |  |  |  
|Loss from operations                   |  |  |  
|Interest income                        |  |  |  
|Interest expense                       |  |  |  
|                                       |  |  |  
|Net loss                               |  |  | $
|                                       |  |  |  
|Basic and diluted net loss per share:  |  |  | $
|                                       |  |  |  
|Shares used in computing basic         |  | 
|and diluted net loss per share:        |  |  |  
|                                       |  |  |  

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

---

# ADOLOR CORPORATION (A Development Stage
Company)

# Consolidated
Statements of Cash Flows (Unaudited)Three months ended
March 31, 2003 and 2002 and the period from August 9,
1993 (inception) to March 31, 2003

|                                                                               |  |                |                    |             |   |                |             |   |   | Period from  |  
|------------------------------------------------------------------------------ |  | -------------- | ------------------ | ----------- | - | -------------- | ----------- | - | - | ------------ | -
|                                                                               |  | August 9, 1993
|                                                                               |  |                | Three months ended |             |   | (inception) to
|                                                                               |  |                | March 31,          |             |   | March 31,      |             |   |  
|                                                                               |  |                |                    | 2003        |   |                | 2002        |   |   | 2003         |  
|                                                                               |  |                |                    |             |   |               
|Cash flows from operating activities:                                          |  |               
|Net loss                                                                       |  |                | $                  | (11,329,498 | ) | $              | (19,592,063 | ) | $ | (166,503,295 | )
|Adjustments to reconcile net loss to net cash used in operating                |  |               
|activities:                                                                    |  |               
|Non-cash compensation expense                                                  |  |                |                    | 637,970     |   |                | 1,239,501   |   |   | 19,043,417   |  
|Non-cash warrant value                                                         |  |                |                    | --          |   |                | --          |   |   | 60,000       |  
|Depreciation and amortization expense                                          |  |                |                    | 372,217     |   |                | 320,401     |   |   | 3,732,475    |  
|Non-cash proceeds from the trade of equipment                                  |  |                |                    | --          |   |                | --          |   |   | 120,000      |  
|Gain on the sale of equipment and leasehold improvements                       |  |                |                    | --          |   |                | --          |   |   | (61,639      | )
|Issuance of common stock for technology license agreements                     |  |                |                    | --          |   |                | --          |   |   | 6,250        |  
|Issuance/ (reversal) of common stock for bonus awards and employment agreement |  |                |                    | (96,537     | ) |                | --          |   |   | 221,598      |  
|Changes in assets and liabilities:                                             |  |               
|Prepaid expenses and other current assets                                      |  |                |                    | 844,426     |   |                | 680,074     |   |   | (2,216,744   | )
|Accounts receivable from collaboration agreements                              |  |                |                    | (5,177,351  | ) |                | --          |   |   | (12,679,730  | )
|Other assets                                                                   |  |                |                    | 38,750      |   |                | 5,470       |   |   | (137,815     | )
|Accounts payable                                                               |  |                |                    | 748,127     |   |                | 72,607      |   |   | 2,318,336    |  
|Deferred licensing fees                                                        |  |                |                    | (1,471,493  | ) |                | (6,579      | ) |   | 46,006,938   |  
|Accrued expenses                                                               |  |                |                    | (827,390    | ) |                | 5,638,799   |   |   | 17,631,979   |  
|                                                                               |  |                |                    |             |   |               
|Net cash used in operating activities                                          |  |                |                    | (16,260,779 | ) |                | (11,641,790 | ) |   | (92,458,230  | )
|                                                                               |  |                |                    |             |   |               
|Cash flows from investing activities:                                          |  |               
|Purchase of equipment and leasehold improvements                               |  |                |                    | (1,006,856  | ) |                | (530,266    | ) |   | (8,102,966   | )
|Proceeds from the sale of equipment and leasehold improvements                 |  |                |                    | --          |   |                | --          |   |   | 144,273      |  
|Purchase of short-term investments                                             |  |                |                    | --          |   |                | (14,325,920 | ) |   | (313,593,557 | )
|Maturities of short-term investments                                           |  |                |                    | 34,102,022  |   |                | 34,956,823  |   |   | 230,722,286  |  
|                                                                               |  |                |                    |             |   |               
|Net cash provided by (used in) investing activities                            |  |                |                    | 33,095,166  |   |                | 20,100,637  |   |   | (90,829,964  | )
|                                                                               |  |                |                    |             |   |               
|Cash flows from financing activities:                                          |  |               
|Net proceeds from issuance of mandatorily redeemable                           |  |               
|convertible preferred stock and Series B warrants                              |  |                |                    | --          |   |                | --          |   |   | 78,501,909   |  
|Proceeds from Series D mandatorily redeemable convertible preferred stock      |  |                |                    | --          |   |                | --          |   |   | 600,000      |  
|subscription                                                                   |  |               
|Net proceeds from issuance of restricted common stock and                      |  |               
|exercise of common stock options                                               |  |                |                    | 49,778      |   |                | 103,664     |   |   | 1,657,504    |  
|Proceeds from notes payable-related parties                                    |  |                |                    | --          |   |                | --          |   |   | 1,000,000    |  
|Payment of notes payable                                                       |  |                |                    | (17,778     | ) |                | (131,986    | ) |   | (1,720,872   | )
|Proceeds received on notes receivable                                          |  |                |                    | 8,259       |   |                | 80,489      |   |   | 423,775      |  
|Interest receivable converted to principal on notes                            |  |                |                    | (10,051     | ) |                | (49,534     | ) |   | (128,924     | )
|Proceeds from notes payable                                                    |  |                |                    | --          |   |                | 176,175     |   |   | 1,738,650    |  
|Net proceeds from IPO                                                          |  |                |                    | --          |   |                | --          |   |   | 95,376,469   |  
|Net proceeds from issuance of newly registered shares of common stock          |  |                |                    | --          |   |                | --          |   |   | 59,362,647   |  
|                                                                               |  |                |                    |             |   |               
|                                                                               |  |                |                   
|Net cash provided by financing activities                                      |  |                |                    | 30,208      |   |                | 178,808     |   |   | 236,820,158  |  
|                                                                               |  |                |                    |             |   |               
|Net increase in cash and cash equivalents                                      |  |                |                    | 16,864,595  |   |                | 8,637,655   |   |   | 53,531,964   |  
|Cash and cash equivalents at beginning of period                               |  |                |                    | 36,667,369  |   |                | 50,017,499  |   |   | --           |  
|                                                                               |  |                |                    |             |   |               
|Cash and cash equivalents at end of period                                     |  |                | $                  | 53,531,964  |   | $              | 58,655,154  |   | $ | 53,531,964   |  
|                                                                               |  |                |                    |             |   |               
|Supplemental disclosure of cash flow information:                              |  |               
|Cash paid for interest                                                         |  |                | $                  | 914         |   | $              | 6,558       |   | $ | 213,193      |  
|Supplemental disclosure of noncash transactions:                               |  |               
|Unrealized gains (losses) on available for sale securities                     |  |                |                    | (13,379     | ) |                | (511,156    | ) |   | 330,568      |  
|Deferred compensation from issuance of common stock,                           |  |               
|restricted common stock and common stock options                               |  |                |                    | --          |   |                | --          |   |   | 23,993,767   |  
|Issuance of common stock for technology license agreements or for services     |  |                |                    | --          |   |                | --          |   |   | 19,589       |  
|Conversion of Series A through H preferred stock for common stock              |  |                |                    | --          |   |                | --          |   |   | 80,383,703   |  
|Conversion of stock subscription to Series D mandatorily redeemable            |  |               
|preferred stock                                                                |  |                |                    | --          |   |                | --          |   |   | 600,000      |  
|Conversion of bridge financing, including accrued interest, to                 |  |               
|Series B mandatorily redeemable preferred stock                                |  |                |                    | --          |   |                | --          |   |   | 1,019,787    |  

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

# Adolor Corporation (A Development Stage
Company)

# Notes to Consolidated
Financial Statements

# March 31, 2003  (Unaudited)

1.    ORGANIZATION AND BUSINESS ACTIVITIES

Adolor
Corporation (together with its subsidiary, Adolor or the Company)
is a development stage biopharmaceutical corporation that was formed in 1993. The Company
discovers, develops and plans to commercialize proprietary pharmaceutical products for the
treatment of pain and the side effects that are caused by current pain treatments. The
Company has a number of small molecule product candidates that are in various stages of
development ranging from preclinical studies to Phase III clinical trials. In April 2002,
the Company entered into a collaboration agreement with Glaxo Group Limited
(Glaxo), an affiliate of GlaxoSmithKline plc, for the exclusive worldwide
development and commercialization of its most advanced product candidate, alvimopan, for
certain indications.

The
Company has not generated any product sales revenues and has not achieved profitable
operations. The Companys deficit accumulated during the development stage through
March 31, 2003 aggregated approximately $166.5 million, and the Company expects to
continue to incur substantial losses in future periods. A significant portion of our
revenue recognized since inception was from reimbursement of expenses from Glaxo under our
collaboration agreement and we expect such revenues to be substantially reduced in future
periods as we expect the related reimbursable expenses to decrease. The Companys
future operations are heavily dependent on the success of the Companys research,
development and licensing efforts and, ultimately, upon regulatory approval and market
acceptance of its proposed future products. There is no assurance that the Company will
ever generate product sales or that profitable operations, if achieved, could be sustained
on a continuing basis. The Company does not expect to generate a positive cash flow from
operations for the next several years, if ever. Prior to exhausting our current cash and
short-term investments, the Company will need to raise additional funds to finance our
operating activities. There are no assurances that the Company will be successful in
obtaining an adequate level of financing for the long-term development and
commercialization of its product candidates.

# Principles of
Consolidation

The
consolidated financial statements include the accounts of Adolor Corporation and its
wholly owned subsidiary. All significant intercompany accounts and transactions have been
eliminated in consolidation. The information at March 31, 2003 and for the three months
ended March 31, 2003 and 2002, is unaudited but includes all adjustments (consisting only
of normal recurring adjustments) which, in the opinion of management, are necessary to
state fairly the financial information set forth in accordance with accounting principals
generally accepted in the United States of America. The interim results are not
necessarily indicative of results to be expected for the full fiscal year. These
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements for the year ended December 31, 2002 included in the
Companys Annual Report on Form 10-K filed with the Securities and Exchange
Commission.

# 2.    COMPREHENSIVE
LOSS

In
the Companys annual consolidated financial statements, comprehensive loss is
presented as a separate financial statement. For interim consolidated financial
statements, the Company is permitted to disclose the information in the footnotes to the
financial statements. The disclosures are required for comparative purposes.

The
following is the reconciliation of net loss to comprehensive loss for the three months
ended March 31, 2003 and March 31, 2002:

|                                                           |  | 
|---------------------------------------------------------- |  | 
|                                                           |  | 
|                                                           |  | 
|Net loss                                                   |  | 
|Other comprehensive income (loss):                         |  | 
|Unrealized gains (losses) on available for sale securities |  | 
|                                                           |  | 
|Comprehensive loss                                         |  | 
|                                                           |  | 

---

# Adolor
Corporation  (A Development Stage
Company)

# 

# Notes to Consolidated
Financial Statements

# March 31, 2003  (Unaudited)

3.    SHORT-TERM INVESTMENTS

Short-term
investments consist of investment-grade fixed income securities with original maturities
of greater than three months including corporate securities and U.S. Treasury obligations.
At March 31, 2003 and December 31, 2002, all short-term investments were carried as
available for sale investments, and all matured within one year.

The
following summarizes the available for sale investments at March 31, 2003 and
December 31, 2002:

|                                       |  |  |   |             |  | Gross      |         |            | Gross  |        |  |   |             | 
|-------------------------------------- |  |  | - | ----------- |  | ---------- | ------- | ---------- | ------ | ------ |  | - | ----------- | 
|                                       |  |  |   |             |  | Unrealized |         | Unrealized
|                                       |  |  |   | Cost        |  | gains      |         |            | losses |        |  |   | Fair value  | 
|                                       |  |  |   |             |  |            |         |           
|Corporate Bonds                        |  |  | $ | 82,871,271  |  | $          | 351,833 |            | $      | 21,265 |  | $ | 83,201,839  | 
|                                       |  |  |   |             |  |            |         |           
|March 31, 2003                         |  |  | $ | 82,871,271  |  | $          | 351,833 |            | $      | 21,265 |  | $ | 83,201,839  | 
|                                       |  |  |   |             |  |            |         |           
|Corporate Bonds                        |  |  | $ | 112,953,120 |  | $          | 381,409 |            | $      | 45,119 |  | $ | 113,289,410 | 
|US Government obligations and agencies |  |  |   | 4,020,173   |  |            | 7,657   |            |        | --     |  |   | 4,027,830   | 
|                                       |  |  |   |             |  |            |         |           
|December 31, 2002                      |  |  | $ | 116,973,293 |  | $          | 389,066 |            | $      | 45,119 |  | $ | 117,317,240 | 
|                                       |  |  |   |             |  |            |         |           

4.    CONTRACT REVENUES

The
following summarizes revenues for the three months ended March 31, 2003 and 2002:

|                                           |  |                            
|------------------------------------------ |  | ---------------------------
|                                           |  | Three month ended March 31,
|                                           |  |                            
|                                           |  | 2003                       
|                                           |  |                            
|Collaborative agreement cost reimbursement |  | $5,177,351                 
|Amortization of up-front license fees      |  | 1,459,715                  
|Grant revenue                              |  | --                         
|License and milestone payments             |  | --                         
|                                           |  |                            
|Total revenue                              |  | $6,637,066                 
|                                           |  |                            

---

# Adolor Corporation  (A Development Stage
Company)

# 

# Notes to Consolidated
Financial Statements

# March 31, 2003(Unaudited)

# 

In
April 2002, the Company entered into a collaboration agreement with Glaxo Group Limited
for the exclusive worldwide development and commercialization of alvimopan for certain
indications. The Company and Glaxo agreed to co-develop alvimopan for a number of
indications, both acute and chronic, which would potentially involve the use of alvimopan
in in-patient and out-patient settings. Under the terms of the agreement, Glaxo paid the
Company a non-refundable and non-creditable signing fee of $50.0 million during the
quarter ended June 30, 2002 and the Company may receive milestone payments of up to $220.0
million over the term of the agreement, upon the successful achievement, if any, of
certain clinical and regulatory objectives. As a result of the application of Staff
Accounting Bulletin (SAB) 101, the $50.0 million signing fee is reflected in deferred
licensing fees and is expected to be recognized as revenue on a straight-line basis
through April 2014, the estimated performance period. Revenue of $1,041,669 was recognized
in the first quarter of 2003 related thereto. The milestone payments relate to substantive
achievements in the development lifecycle and will be recognized as revenue if and when
the milestones are achieved.

In
the United States, the Company and Glaxo will co-develop and intend to co-promote
alvimopan and share development expenses and commercial returns, if any. The Company has
the overall responsibility for development activities for acute-care indications, such as
postoperative ileus (POI), and Glaxo has overall responsibility for
development activities for chronic-care indications, such as opioid bowel dysfunction
(OBD) associated with the chronic use of opioids. Outside the United States,
Glaxo will be responsible for the development and commercialization of alvimopan, and the
Company will receive royalties on sales revenues, if any. Glaxo has certain rights to
terminate the collaboration agreement, as well as certain rights to terminate its rights
and obligations with respect to the acute-care indications and/or chronic-care
indications.

Under
the terms of the collaboration agreement with Glaxo for collaboration products being
developed in the United States, external expenses for research and development and
marketing activities incurred by each company will be shared on an indication by
indication basis. Adolor is primarily responsible for the completion of the POI
development program and receives reimbursement from Glaxo at a defined percentage of
external expenses. Such contract reimbursement
amounts paid to the Company will be recorded gross on its consolidated statements of
operations pursuant to Emerging Issues Task Force (EITF) No. 99-19 and 01-14 as contract
reimbursement revenue. Glaxo is primarily responsible for the completion of the
opioid-induced bowel dysfunction development program and will receive reimbursement from
Adolor at a defined percentage of external expenses. Any amounts owed to Glaxo by the Company will be recorded as research and development
expense or marketing expense, as the case may be, on the Companys consolidated
statements of operations. Although the collaboration agreement was executed in April 2002,
the cost sharing arrangement was retroactive to January 1, 2002. The Company recorded
contract reimbursement revenues of $5,177,351 in the first quarter of 2003 under this
arrangement.

In
April 2000, the Company entered into a license agreement with Santen Pharmaceutical Co.,
Ltd. granting Santen an exclusive royalty bearing license to develop and sell products in
the field of ophthalmic pain in all countries other than South Korea and North Korea. A
$500,000 non-refundable payment was paid to the Company upon execution of the agreement.
Such amount was recorded as deferred revenue and was being recognized over the remaining
patent life. In February 2003, Santen terminated this agreement and as a result, the
Company recognized $418,046 as revenue in the three months ended March 31, 2003.

---

# Adolor Corporation  (A Development Stage
Company)

# 

# Notes to Consolidated
Financial Statements

# March 31, 2003 (Unaudited)

# 

# 5. STOCK-BASED
COMPENSATION

The Company accounts for stock option issuances to employees and members of the Board
of Directors in accordance with the provisions of Accounting Principals Board
(APB) No. 25, Accounting for Stock Issued to Employees, and
related interpretations. The Company does not record compensation expense on options
granted to employees with exercise prices equal to market value at date of grant. Deferred
compensation is recorded only to the extent that the current market value of the
underlying stock exceeds the exercise price of the options on the date of grant. Such
deferred compensation is amortized on a straight-line basis over the respective vesting
periods of such option grants. The Company has adopted the disclosure requirements of
Statement of Financial Accounting Standards (SFAS) No. 123 Accounting
for Stock-Based Compensation which allows entities to continue to apply the
provisions of APB No. 25 for financial reporting purposes and provide pro forma net loss
and pro forma net loss per share footnote disclosures for employee stock option grants.
Transactions with non-employees, in which goods or services are the consideration received
for the issuance of equity instruments, are accounted for on a fair-value basis.

Had
the Company determined compensation cost under SFAS No. 123 for options granted based on the fair value method the Companys net loss and net loss per
share would have been increased to the pro forma amounts indicated below:

|                                                  |  | 
|------------------------------------------------- |  | 
|                                                  |  | 
|                                                  |  | 
|                                                  |  | 
|Net loss, as reported                             |  | 
|Add:  Stock-based employee compensation expense   |  | 
|included in reported net income, net of           |  | 
|related tax effects                               |  | 
|Deduct:  Total stock-based employee compensation  |  | 
|expense determined under fair value based method, |  | 
|net of related tax effects                        |  | 
|                                                  |  | 
|Pro forma net loss                                |  | 
|                                                  |  | 
|Loss per share:                                   |  | 
|Basic and diluted--as reported                    |  | 
|Basic and diluted- pro forma                      |  | 

---

# ITEM 2.
MANANGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

Forward-Looking Statements

This
Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward looking statements
include those which express plan, anticipation, intent, contingency or future development
and/or otherwise are not statements of historical fact. We have based these
forward-looking statements on our current expectations and projections about future events
and they are subject to risks and uncertainties known and unknown which could cause actual
results and developments to differ materially from those expressed or implied in such
statements. These forward-looking statements include statements about the following:

|o | our
product development efforts, including results from clinical trials;
|- | ------------------------------------------------------------------------

|o | anticipated
dates of clinical trial initiation, completion, and announcement of trial results;
|- | ----------------------------------------------------------------------------------------------

|o | anticipated
trial results and regulatory filing dates for our product candidates;
|- | ---------------------------------------------------------------------------------

|o | the
status and anticipated timing of regulatory approval for our product candidates;
|- | ------------------------------------------------------------------------------------

|o | analysis
and interpretation of data by regulatory authorities;
|- | --------------------------------------------------------------

|o | anticipated
operating losses and capital expenditures;
|- | ------------------------------------------------------

|o | our
intentions regarding the establishment of collaborations;
|- | -------------------------------------------------------------

|o | anticipated
efforts of our collaborators;
|- | -----------------------------------------

|o | estimates
of the market opportunity and the commercialization plans for our product candidates,
including our plans for the establishment of a sales force; and
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|o | our
intention to rely on third parties for manufacturing.
|- | ---------------------------------------------------------

In
some cases, you can identify forward-looking statements by terminology such as
may, will, should, could,
would, expect, plan, anticipate,
believe, estimate, target, goal,
continue, or the negative of such terms or other similar expressions. Factors
that might cause or contribute to differences include, but are not limited to, those
discussed elsewhere in this Report in Item 2 Managements Discussion and
Analysis of Financial Condition and Results of Operations, (including a subsection
thereof entitled Certain Risks Related to our Business) and discussed in our
other Securities and Exchange Commission (SEC) filings.

We
urge you to carefully review and consider the disclosures found in these filings, all of
which are available in the SEC EDGAR database at www.sec.gov and from us at
www.adolor.com. Given the uncertainties affecting pharmaceutical companies in the
development stage, you are cautioned not to place undue reliance on any such forward
looking statements, any of which may turn out to be wrong due to inaccurate assumptions,
unknown risks, uncertainties or other factors. We undertake no obligation to (and
expressly disclaim any such obligation to) publicly update or revise the statements made
herein or the risk factors that may relate thereto whether as a result of new information,
future events, or otherwise.

---

# Our Company

We
are a development stage biopharmaceutical corporation that was formed in 1993. We
discover, develop and plan to commercialize proprietary pharmaceutical products for the
treatment of pain and the side effects that are caused by current pain treatments. We have
a number of small molecule product candidates that are in various stages of development
ranging from preclinical studies to Phase III clinical trials. Our lead product candidate,
alvimopan, is designed to selectively block the unwanted effects of opioid analgesics on
the gastrointestinal tract. Our other product candidates are being designed as analgesics
to treat moderate-to-severe pain and itch. Additionally, we are exploring the development
of an analgesic product candidate that would be a combination of alvimopan and an opioid
that would be intended to produce the pain relief of an opioid while reducing side
effects, such as constipation, nausea and vomiting.

Alvimopan
is being evaluated in acute and chronic indications. We have completed three Phase II
clinical trials studying the use of alvimopan for the management of postoperative ileus
(POI) that frequently follows abdominal surgery when opioids are used for pain
relief. Subsequently we initiated our alvimopan POI Phase III program consisting of four
studies. Three of these studies (POI 14CL302, POI 14CL308 and POI 14CL313) are
double-blind, placebo-controlled multi-center studies each designed to enroll
approximately 450 patients scheduled to undergo certain types of major abdominal surgery
and receiving opioids for pain relief. Under the protocols, patients are randomized into
three arms of approximately 150 patients each to receive placebo, 6 mg, or 12 mg doses of
alvimopan. The primary endpoint in these three studies is a composite measure of the time
to recovery of both the upper and lower gastrointestinal functions as defined by time to
tolerability of solid foods and time to first flatus or first bowel movement. Our fourth
POI clinical study in our Phase III program POI 14CL306 is a double-blind
placebo-controlled multi-center study designed to enroll approximately 500 patients
scheduled to undergo total abdominal simple hysterectomy and receiving opioids for pain
relief. Under this protocol, patients are randomized to receive either alvimopan 12 mg
(approximately 400 patients) or placebo (approximately 100 patients). This study was
designed to assess safety and will also assess efficacy in this patient population.

In
April 2003, we announced top-line results of our first Phase III clinical study POI
14CL302 for alvimopan in the management of postoperative ileus. A statistically
significant difference was achieved in the primary endpoint of the study, time to recovery
of gastrointestinal function, in patients in the alvimopan 6 mg treatment group compared
to patients in the placebo group (Cox proportional hazard model hazard ratio = 1.47;
P<0.01). Time to recovery of gastrointestinal function was a composite measure of the
time to recovery of both lower and upper gastrointestinal function as defined by time to
first flatus or first bowel movement and time to tolerability of solid foods, whichever
occurred last. A difference in favor of the alvimopan 6 mg treatment group versus placebo
was observed for all secondary endpoints, including time to hospital discharge order
written. A positive trend was observed in the primary endpoint of the study for the
alvimopan 12 mg treatment group; however, the difference from placebo was not
statistically significant (Cox proportional hazard model, hazard ratio = 1.23; P = 0.11).
The results of this study have not been submitted to or reviewed by the U.S. Food and Drug
Administration (FDA) or any other regulatory agency. The results from this study are not
necessarily indicative of the results that may be obtained in the other Phase III studies
of alvimopan in postoperative ileus, studies POI 14CL313, POI 14CL308 and POI 14CL306,
which have not yet been completed and analyzed.

Enrollment in study POI 14CL313 is expected to be completed in the second quarter of 2003 and this study is expected to enroll
approximately 500 patients.  Enrollment in study POI 14CL308 is expected to be completed in the second half of 2003 and enrollment in
this study is now expected to exceed 500 patients. Enrollment in study POI 14CL306 is complete.

We
have also completed several Phase II and one Phase III clinical trial studying the use of
alvimopan for the reversal of the severe constipating effects associated with chronic use
of opioids.

In
April 2002, we entered into a collaboration agreement with Glaxo Group Limited
(Glaxo) for the exclusive worldwide development and commercialization of
alvimopan for certain indications. The companies have agreed to co-develop alvimopan for a
number of indications, both acute and chronic, which would potentially involve the use of
alvimopan in in-patient and out-patient settings. Under the terms of the collaboration
agreement, Glaxo paid us a non-refundable and non-creditable signing fee of $50.0 million
during the quarter ended June 30, 2002 and we may receive milestone payments of up to
$220.0 million over the term of the agreement upon the successful achievement, if any, of
certain clinical and regulatory objectives.

We
also have other compounds that are being designed to elicit potential analgesic effects by
targeting peripheral opioid receptors, including the kappa receptor. In April,
2003, we initiated two Phase II clinical studies involving two of our kappa agonist
compounds, ADL 10-0101 and ADL 10-0116, in standard pain models, third molar dental
extraction and bunionectomy. These studies have now been terminated following an
assessment of the data generated to date in the studies, which indicated that the balance
between therapeutic effect and safety did not warrant continuing the studies. We plan to
further review this data and evaluate whether to pursue these compounds in other clinical
models, and also evaluate other kappa compounds in our portfolio for consideration
of further study.

Finally,
we have been evaluating ADLR 2-1294, a peripheral mu opioid agonist, in
pre-clinical development for treating a variety of pain conditions. The active ingredient
of ADL 2-1294 is loperamide. We are currently in preclinical development exploring
intra-articular administration of ADLR 2-1294 for relief of pain.

We
have a small marketing organization to support our development efforts. We plan to build a
sales force in the United States and expand our marketing organization to co-promote
alvimopan if regulatory approval is received, along with Glaxo to surgeons, oncologists
and pain management specialists in hospital-care settings. We intend to rely on Glaxo for
sales and marketing of alvimopan outside the United States. As we develop additional
product candidates we may enter into strategic marketing or co-promotion agreements with,
and grant additional licenses to, pharmaceutical companies to gain access to additional
markets both domestically and internationally.

We
have not generated any product sales revenues and have not achieved profitable operations.
Our deficit accumulated during the development stage aggregated approximately
$166.5 million through March 31, 2003, and we expect to continue to incur substantial
losses in future periods. A significant portion of our revenue recognized since inception
was from reimbursement of expenses from Glaxo under our collaboration agreement and we
expect such revenues to be substantially reduced in future periods as we expect the
related reimbursable expenses to decrease. We are highly dependent on the success of our
research, development and licensing efforts and, ultimately, upon regulatory approval and
market acceptance of our proposed future products. We may never become profitable and even
if we become profitable, we may not be able to sustain profitability on a continuing
basis. We do not expect to generate a positive cash flow from operations for the next
several years, if ever. Prior to exhausting our current cash and short-term investments,
we will need to raise additional funds to finance our operating activities. There are no
assurances that we will be successful in obtaining an adequate level of financing for the
long-term development and commercialization of our product candidates.

# Collaboration Agreement
with Glaxo

In
April 2002, we entered into a collaboration agreement with Glaxo for the exclusive
worldwide development and commercialization of alvimopan for certain indications. We and
Glaxo have agreed to co-develop alvimopan for a number of indications, both acute and
chronic, which would potentially involve the use of alvimopan in in-patient and
out-patient settings. Under the terms of the collaboration agreement, Glaxo paid us a
non-refundable and non-creditable signing fee of $50.0 million during the quarter ended
June 30, 2002 and we may receive milestone payments of up to $220.0 million over the term
of the agreement upon the successful achievement, if any, of certain clinical and
regulatory objectives. As a result of the application of Staff Accounting Bulletin (SAB)
101, the $50.0 million signing fee is reflected in deferred licensing fees and is expected
to be recognized on a straight-line basis through April, 2014, the estimated performance
period. The milestone payments relate to substantive achievements in the development
lifecycle and it is anticipated that these will be recognized as revenue if and when the
milestones are achieved. We recognized revenue of $1,041,669 in the first quarter of 2003
related thereto.

In
the United States, we and Glaxo will co-develop and intend to co-promote alvimopan and
share development expenses and commercial returns, if any. We have overall responsibility
for development activities for acute-care indications such as postoperative ileus, and
Glaxo has overall responsibility for development activities for chronic care indications
such as opioid bowel dysfunction associated with the chronic use of opioids. Outside the
United States, Glaxo will be responsible for the development and commercialization of
alvimopan, and we will receive royalties on sales revenues, if any. Glaxo has certain
rights to terminate the collaboration agreement as well as certain rights to terminate its
rights and obligations with respect to the acute-care indications and/or chronic-care
indications.

Under
the terms of our collaboration agreement with Glaxo for collaboration products being
developed in the United States, external expenses for research and development and
marketing activities incurred by each company will be shared on an indication by
indication basis. We are primarily responsible for the completion of the POI development
program and we receive reimbursement from Glaxo at a defined percentage of external
expenses. Such contract reimbursement amounts paid to us will be recorded gross on our
consolidated statements of operations pursuant to Emerging Issues Task Force (EITF) No.
99-19 and 01-14 as contract reimbursement revenue. Glaxo is primarily responsible for
the completion of the OBD development program and will receive reimbursement from us at a
defined percentage of external expenses. We recorded contract reimbursement revenue of
$5,177,351 in the first quarter of 2003 under this arrangement. These revenues represent
reimbursement of expenses incurred primarily in our POI development program. We expect
contract reimbursement revenues to substantially decline in future periods as we expect
the costs of the POI development program to decrease. We also expect that we will incur
expenses in connection with the OBD development program, including payments to Glaxo to
reimburse them for our proportionate share of expenses they incur.

# Liquidity and Capital
Resources

We
have experienced negative operating cash flows since our inception, and we have funded our
operations primarily from the proceeds received from the sale of our common stock and our
mandatorily redeemable convertible preferred stock, as well as, license, milestone and
contract revenues. Cash, cash equivalents and short-term investments were $136,733,803 at
March 31, 2003, and $153,984,609 at December 31, 2002, representing 87.7% and 91.5% of our
total assets, respectively. We invest excess cash in highly liquid investment-grade
marketable securities including corporate and United States government and agency
securities.

We
believe that our current financial resources and sources of liquidity are adequate to fund
operations into early 2005 based on the level of research and development, marketing and
administrative activities necessary to achieve our short-term objectives.

The
following is a summary of selected cash flow information for the three months ended March
31, 2003 and 2002:

|                                          |  | 
|----------------------------------------- |  | 
|                                          |  | 
|                                          |  | 
|                                          |  | 
|Net loss                                  |  | 
|Adjustments for non-cash operating items  |  | 
|                                          |  | 
|Net cash operating loss                   |  | 
|Net change in assets and liabilities      |  | 
|                                          |  | 
|Net cash used in operating activities     |  | 
|                                          |  | 
|Net cash provided by investing activities |  | 
|                                          |  | 
|Net cash provided by financing activities |  | 
|                                          |  | 

# Net Cash Used in
Operating Activities

Net
operating cash outflows for the first quarter of 2003 have resulted primarily from
research and development expenditures associated with our product candidates, including
clinical development and manufacturing costs for alvimopan, and from the compensation of
our employees.

Accounts
receivable from collaboration agreements increased by $5,177,351 in the three months ended
March 31, 2003, relating to our collaboration agreement with Glaxo. In April 2003, we
received $7,502,379 from Glaxo. All amounts billed to Glaxo are subject to review and
verification before payment by Glaxo.

Operating Cash Flow
Requirements Outlook

We
expect to continue to use cash, cash equivalents and short-term investments to fund
operating losses. We expect that our revenue for contract reimbursement under our
collaboration agreement with Glaxo will substantially decline in future periods as we
expect expenses related to the POI program to decrease as we complete our Phase III
trials. However, depending on the outcome of our clinical trials and the results of
regulatory reviews, these expenditures may increase due to the possible need to perform
additional development work. We expect that as Glaxo incurs increasing expenses under our
collaboration related to the OBD program in the United States, we will incur substantial
expenses relating to our reimbursements owed to Glaxo. We expect that other operating
expenses will increase in future periods as a result of manufacturing scale-up efforts and
in preparation for potential commercialization of our product candidates. Further, we may
in-license or acquire product candidates which will require additional cash outlays.

Under
the terms of the Glaxo agreement, we will partially reimburse Glaxo for third party
expenses incurred by them in the development of alvimopan for certain indications in the
United States, pursuant to an agreed upon development plan and budget. We also expect to
incur certain expenses in the development of alvimopan, pursuant to an agreed upon
development plan and budget, for certain other indications in the United States, a portion
of which are reimbursable to us by Glaxo. We expect to record these expenses as incurred.

# Net Cash Provided By
Investing Activities

Cash
provided by investing activities in the first quarter of 2003 relates primarily to
maturities of investments. Our capital expenditures for the three months ended March 31,
2003 were $1,006,856 and were primarily for the purchase of furniture and fixtures and
leasehold improvements in order to further expand our product research and development
capabilities.

Investing Requirements
Outlook

In
December 2002, we entered into a lease for an office and laboratory facility in which we
plan to consolidate all operations. As a result, we are required to expend approximately
$3.0 million for leasehold improvements. In addition, we expect to require additional
investments in information technology, laboratory and office equipment to support the
continued expansion of our research, development, administrative and potential
commercialization activities.

# Net Cash Provided By
Financing Activities

Financing Requirements
Outlook

We
do not expect to generate sales and positive cash flows from operations for at least the
next several years, if ever. We expect to continue to use our cash, cash equivalents and
short-term investments to fund operating and investing activities. We believe that our
existing cash, cash equivalents and short-term investments of approximately $136.7 million
as of March 31, 2003 will be sufficient to meet our currently estimated operating and
investing requirements into mid 2005. Prior to exhausting our current cash reserves, we
will need to raise additional funds to finance our operating activities. If we do not
raise additional cash, we may be required to curtail or limit certain marketing support
and research and development activities. A curtailment of certain activities would delay
or possibly prevent development of certain of our products. We may seek to obtain
additional funds through equity or debt financings or strategic alliances with third
parties. These financings could result in substantial dilution to the holders of our
common stock. Any such required financing may not be available in amounts or on terms
acceptable to us.

The
extent and timing of proceeds from future exercises of stock options, if any, are
primarily dependent upon our common stocks market price, as well as the exercise
prices and expiration dates of the stock options.

# Results of Operations

# Three Months Ended March
31, 2003 and 2002

Contract
revenues.   Our contract revenues were $6,637,066 and $317,339 for the
three months ended March 31, 2003 and 2002, respectively. Revenues recognized for the
three months ended March 31, 2003 consisted of: (a) $5,177,351 for the reimbursement of
expenses from Glaxo in connection with a collaboration agreement executed in April 2002;
(b) $1,041,669 which represents the amortization of the $50,000,000 signing fee received
from Glaxo, which is expected to be amortized into revenue on a straight-line basis
through April 2014; and (c) $418,046 which was recorded as revenue primarily related to
the termination of a license agreement we had with Santen Pharmaceutical Co., Ltd.
Revenues recognized for the three months ended March 31, 2002 consisted of: (a) $200,000,
relating to a patent agreement fee from Toray Industries, Inc.; (b) $6,579, which
represents the amortization of the Santen license fee; and (c) $110,760, relating to Small
Business Innovation Research (SBIR) grants awarded by the National Institutes of Health
(NIH) in September 2001.

In
connection with the collaboration agreement with Glaxo for the development of products in
the United States, we recorded for the three months ended March 31, 2003 as contract
reimbursement revenue the reimbursement of external research and development and marketing
expenses that we incurred. The allocation of the amounts between research and development
and marketing expenses are as follows:

|                               | 
|------------------------------ | 
|                               | 
|Contract reimbursement revenue | 
|Research and development       | 
|Marketing                      | 
|                               | 
|Total                          | 
|                               | 

Research
and development expenses.  Our research and development expenses consist
primarily of salaries and other personnel-related expense, costs of clinical trials, costs
to manufacture product candidates, stock-based compensation and other research expense.
Research and development expenses decreased to approximately $15.1 million for the three
months ended March 31, 2003 from approximately $17.1 million for the three months ended
March 31, 2002. This decrease principally relates to a decrease in the costs of conducting
clinical trials of approximately $4.2 million, offset by an increase in manufacturing
development costs for alvimopan of approximately $1.8 million. Personnel costs increased
by approximately $0.4 million in the three months ended March 31, 2003 compared to the
same period in 2002.

Marketing,
general and administrative expenses.  Our marketing, general and
administrative expenses decreased to approximately $3.6 million for the three months ended
March 31, 2003 from approximately $4.1 million in the three months ended March 31, 2002.
The decrease was primarily due to a decrease in corporate legal and patent fees.

Net
interest income (expense).  Our interest income decreased to approximately
$0.8 million for the three months ended March 31, 2003 from approximately $1.3 million for
the same period in 2002 due to a reduction in investments balances and lower interest
rates in 2003. Our interest expense represents interest incurred on the financing of
insurance premiums.

Net
loss.   Our net loss for the three months ended March 31, 2003 and 2002
was approximately $11.3 million and $19.6 million, respectively. The reduction in the net
loss principally reflects an increase of revenue due to cost reimbursements from Glaxo and
a decrease in costs of our clinical trials programs.

Net Loss Outlook

We
have not generated any product sales revenues and have not achieved profitable operations.
Our deficit accumulated during the development stage through March 31, 2003 aggregated
approximately $166.5 million, and we expect to continue to incur substantial losses in
future periods. We are highly dependent on the success of our research, development and
licensing efforts and, ultimately, upon regulatory approval and market acceptance of our
proposed future products. We may never become profitable and even if we become profitable,
we may not be able to sustain profitability on a continuing basis.

We
expect contract reimbursement revenues from Glaxo to substantially decline in future
periods as we expect the costs of the POI development program to decrease. We also expect
that we will incur substantial expenses in connection with the OBD development program,
including payments to Glaxo to reimburse them for our proportionate share of expenses they
incur.

# Certain Risks Related to
Our Business

As
further described herein, our performance and financial results are subject to risks and
uncertainties including, but not limited to, the following specific risks:

| | We
are highly dependent on achieving success in the clinical testing, regulatory approval and
commercialization of our lead product candidate, alvimopan, which
may never be approved for commercial use. If we are unable to
commercialize alvimopan, our ability to generate revenues will be impaired and our
business will be harmed.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We
have invested a significant portion of our time and financial resources since our
inception in the development of alvimopan, and we anticipate that for the foreseeable
future our potential to achieve revenues from product sales will be dependent on its
successful clinical testing, regulatory approval in the United States and
commercialization. Drug development is a highly uncertain process. We or Glaxo, with whom
we are collaborating to develop alvimopan, may suffer significant setbacks in advanced
clinical trials of alvimopan, even after achieving potentially promising results in
earlier clinical trials. Even if the clinical trials of alvimopan are successful, prior to
commercialization of alvimopan in the United States, we will have to submit, and the
United States Food and Drug Administration (FDA) will have to approve, a New
Drug Application (NDA) for alvimopan. If our NDA, if any, for alvimopan is not
approved by the FDA, or if approval is delayed, our ability to achieve revenues will be
impaired and our stock price will be materially and adversely affected. FDA approval is
contingent on many factors, including clinical test results and the evaluation of those
results.

Our
alvimopan postoperative ileus Phase III program consists of four studies. Three of these
studies (POI 14CL302, POI 14CL308 and POI 14CL313) are double-blind, placebo-controlled
multi-center studies each designed to enroll approximately 450 patients scheduled to
undergo certain types of major abdominal surgery and receiving opioids for pain relief.
Under the protocols, patients are randomized into three arms of approximately 150 patients
each to receive placebo, 6 mg, or 12 mg doses of alvimopan. The primary endpoint in these
three studies is a composite measure of the time to recovery of both the upper and lower
gastrointestinal functions as defined by time to tolerability of solid foods and time to
first flatus or first bowel movement.

In
April 2003, we announced top-line results of our first Phase III clinical study (POI
14CL302) for alvimopan in the management of postoperative ileus. A statistically
significant difference was achieved in the primary endpoint of the study, time to recovery
of gastrointestinal function, in patients in the alvimopan 6 mg treatment group compared
to patients in the placebo group (Cox proportional hazard model hazard ratio = 1.47;
P<0.01). Time to recovery of gastrointestinal function was a composite measure of the
time to recovery of both lower and upper gastrointestinal function as defined by time to
first flatus or first bowel movement and time to tolerability of solid foods, whichever
occurred last. A difference in favor of the alvimopan 6 mg treatment group versus placebo
was observed for all secondary endpoints, including time to hospital discharge order
written. A positive trend was observed in the primary endpoint of the study for the
alvimopan 12 mg treatment group; however, the difference from placebo was not
statistically significant (Cox proportional hazard model, hazard ratio = 1.23; P = 0.11).

The
results of study POI 14CL302 have not been submitted to or reviewed by the FDA or any
other regulatory agency. The results from this study are not necessarily indicative of the
results that may be obtained in the phase III studies of alvimopan in postoperative ileus
which have not yet been completed and analyzed. While the Company believes the results of
study POI 14CL302 support our goal of submitting a New Drug Application for alvimopan,
there can be no assurance that the FDA will concur with that assessment. The difference
from placebo was not statistically significant in the 12 mg treatment group, and there can
be no assurance that this outcome will not occur again in our further clinical testing, or
that the 6 mg treatment group will again achieve a statistically significant difference.
There can also be no assurance that the outcome of study POI 14 CL302 or further studies
will be considered clinically meaningful, and this determination is necessary for approval
of alvimopan for commercial sale.

Enrollment in study POI 14CL313 is expected to be completed in the second quarter of 2003 and this study is expected to enroll
approximately 500 patients.  Enrollment in study POI 14CL308 is expected to be completed in the second half of 2003 and enrollment in
this study is now expected to exceed 500 patients. Enrollment in study POI 14CL306 is complete.

Our
fourth POI clinical study in our Phase III program (POI 14CL306) is a double-blind
placebo-controlled multi-center study designed to enroll approximately 500 patients
scheduled to undergo total abdominal simple hysterectomy and receiving opioids for pain
relief. Under this protocol, patients are randomized to receive either alvimopan 12 mg
(approximately 400 patients) or placebo (approximately 100 patients). Enrollment in this
study has been completed. This study was designed to assess safety and will also assess
efficacy in this POI patient population.

The
results from any one or all of our clinical trials may be negative. Negative results from
one or more of these clinical trials will adversely affect our ability to obtain
regulatory approval for alvimopan. Adverse safety findings from one or more of these
studies will adversely affect our ability to obtain regulatory approval. Even if we
conclude that the results from our preclinical studies and clinical trials are positive,
the FDA may not agree with us because the FDA may evaluate the results by different
methods or conclude that the clinical test results are not clinically meaningful or that
there were human errors in the conduct of the clinical trials or otherwise.

The
results of one or both of the dose comparisons in each study that includes multiple dose comparisons may be negative. Because the
studies are intended to be confirmatory and each study involves multiple comparisons (i.e.
two doses of alvimopan versus placebo), under statistical techniques, statisticians
control the overall study error rate (i.e. the likelihood that the drug response occurred
by chance) by requiring that each of the multiple dose comparisons meet a P-value of P
< 0.05 to show statistical significance. In the event that one of the dose comparisons
in any of these POI Phase III studies does not reach a significance level of P < 0.05,
as was the case in Study POI 14CL302, the other dose comparison in that study will need to
reach a significance level of P < 0.025 to be considered statistically significant. We
may not achieve positive statistical results in these studies.

Clinical
trials in our Phase III program use drug product incorporating active pharmaceutical
ingredient manufactured by two different contract manufacturing facilities, one of which
is no longer in business. Our efforts to obtain regulatory approval may be impaired as a
result of using material from two different contract manufacturing facilities. To receive
regulatory approval for alvimopan, our contract manufacturers will be required to obtain
approval for their manufacturing facilities to manufacture alvimopan. To achieve this
approval, we will also be required to submit, in an NDA, information and data regarding
chemistry, manufacturing and controls which satisfies the FDA that our contract
manufacturers are able to make alvimopan in accordance with extensive regulatory
requirements, commonly known as current good manufacturing practices (cGMPs). FDA approval
for our contract manufacturing facilities to manufacture alvimopan may not be obtained. We
will be required to submit extensive preclinical data in our NDA, if any, which satisfies
the FDA regulatory requirements. We may fail to meet the FDAs standards on any one
of these or other elements required in an NDA.

Even
if we believe we have met the FDA guidelines for submission of data and information to the
NDA, if any, there is a risk that the FDA will require additional data and information
that we are unable to provide.

We
have completed a Phase III clinical trial of alvimopan in patients with OBD caused by
chronic administration of opioids. Under our collaboration agreement with Glaxo, Glaxo has
overall responsibility for development of alvimopan for OBD. We are conducting and plan to
conduct additional long-term animal toxicity studies to support further development of
alvimopan in OBD. Adverse safety findings in these long-term animal toxicity studies could
adversely affect our prospects for alvimopan, including its prospects for use in
postoperative ileus. Results from this study in OBD are not necessarily indicative of the
results that may be reported from the clinical studies in the POI indication. The results
of study OBD 13CL304 have not been submitted to, nor reviewed by, any regulatory agency.
Additional studies for chronic OBD investigating longer duration of patient exposure and
different dosing strategies, as well as preclinical toxicology studies, will be required
prior to initiating the confirming clinical studies required to be successfully completed
before any NDA could be filed for use of alvimopan in OBD.

Our
alvimopan clinical trials are testing whether alvimopan is able to selectively block the
effects of narcotic analgesics on the gastrointestinal tract. As combination clinical
trials, they are subject to the risk that the use of alvimopan with narcotic analgesics
may result in unexpected toxicity, or increase the side effects associated with the
individual products to an unacceptable level, or interfere with the efficacy of the
narcotic analgesic. In addition, assessing clinical trial results of alvimopan in
combination with narcotic analgesics may add to the complexity of interpreting the study
results.

| | Our
stock price may be volatile, and your investment in our stock could decline in value. We
may become involved in securities class action litigation.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------

The
market price for our common stock has been highly volatile and may continue to be highly
volatile in the future. The market price for our common stock is highly dependent on the
results of our clinical trials, in particular our Phase III program clinical trials of
alvimopan in post-operative ileus. Two of these clinical trials have completed accrual and
the other clinical trials are expected to complete accrual over the remainder of 2003.
There can be no assurance that accrual will be completed within the expected timeframe or
that the results of any of these Phase III clinical trials will be positive. Failure of
these results to be positive would adversely impact the market price of our common stock.

The
following factors, in addition to the factors described in the alvimopan risk factor above
and other risk factors contained in this document, may have a significant impact on the
market price of our common stock:

|o | developments
concerning our collaborations, including our collaboration with Glaxo;
|- | -----------------------------------------------------------------------------------

|o | announcements
of technological innovations or new commercial products by our competitors or us;
|- | -----------------------------------------------------------------------------------------------

|o | developments
concerning proprietary rights, including patents;
|- | --------------------------------------------------------------

|o | publicity
regarding actual or potential medical results relating to products under development by
our competitors or us;
|- | ------------------------------------------------------------------------------------------------------------------------

|o | regulatory
developments in the United States and foreign countries;
|- | -------------------------------------------------------------------

|o | litigation;
|- | -----------

|o | economic
and other external factors or other disasters or crises;
|- | -----------------------------------------------------------------

|o | period-to-period
fluctuations in our financial results; and
|- | -----------------------------------------------------------

|o | the general performance of the equity markets and in particular, the
biotechnology sector of the equity markets.
|- | ----------------------------------------------------------------------------------------------------------------

In
the past, following periods of volatility in the market price of a particular
companys securities, securities class action litigation has often been brought
against that company. We may become involved in this type of litigation in the future.
Litigation of this type is often extremely expensive and diverts managements
attention and resources.

| | If we continue to incur operating losses for a period longer than anticipated, we may be
unable to continue our operations.
| | ---------------------------------------------------------------------------------------------------------------------------

We
believe our existing cash, cash equivalents and short-term investments as of March 31,
2003 of approximately $136.7 million will be sufficient to meet our currently estimated
operating and investing requirements into mid 2005. We have generated operating losses
since we began operations in November 1994. We expect to continue to generate such losses
and will need additional funds that may not be available in the future. We have no
products that have generated any revenue, and as of March 31, 2003, we have incurred a
cumulative net loss of approximately $166.5 million. Even if we succeed in developing a
commercial product, we expect to incur substantial losses for at least the next several
years and expect that these losses will increase as we expand our research and development
and sales and marketing activities. If we fail to obtain the capital necessary to fund our
operations, we will be forced to curtail our operations and we will be unable to develop
products successfully. We do not know whether additional financing will be available when
needed, or that, if available, we will obtain financing on terms favorable to our
stockholders or to us. If adequate funds are not available on acceptable terms, our
ability to fund our operations, products or technologies or otherwise respond to
competitive pressures could be significantly delayed or limited, and we may have to reduce
or cease our operations. If additional funds become available there can be no assurance
that we can predict the time and costs required to complete development programs or that
we will not substantially exceed our budgets.

| | We
are dependent on our collaborators to perform their obligations under our collaboration
agreements. If conflicts arise between our collaborators or advisors
and us, they may act in their self-interest.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In
April 2002, we and Glaxo entered into a collaboration agreement for the exclusive
worldwide development and commercialization of alvimopan for certain indications. We and
Glaxo agreed in the collaboration agreement to co-develop alvimopan for a number of
indications, both acute and chronic, which would potentially involve the use of alvimopan
in in-patient and out-patient settings. In the United States, we and Glaxo will co-develop
and intend to co-promote alvimopan and share development expenses and commercial returns,
if any. We have overall responsibility for the development of acute-care indications, such
as postoperative ileus, and Glaxo has overall responsibility for the development of
chronic-care indications, such as opioid bowel dysfunction associated with the chronic use
of opioids. We and Glaxo are required to use commercially reasonable efforts to develop
the indications for which we and they are respectively responsible. We depend on Glaxo to
provide us with substantial assistance and expertise in the development of alvimopan. Any
failure of Glaxo to perform its obligations under our agreement could negatively impact
our product candidate, alvimopan, and could lead to our loss of potential revenues from
product sales and milestones that may otherwise become due under our collaboration
agreement with Glaxo and would delay our achievement, if any, of profitability. In the
near term, our success will depend upon the success of our collaboration with Glaxo to
further develop alvimopan and obtaining regulatory approval to commercialize alvimopan.

Glaxo
has certain rights to terminate the collaboration agreement. Glaxo also has the right to
terminate its rights and obligations with respect to the acute-care indications, or its
rights and obligations for the chronic-care indications. Glaxo has the right to terminate
the collaboration agreement for breach of the agreement by us or for safety related
reasons as defined in the collaboration agreement. Glaxos rights to terminate the
acute-care indications or the chronic-care indications are generally triggered by failure
to achieve certain milestones within certain timeframes, adverse product developments or
adverse regulatory events. If Glaxo terminates the collaboration agreement, our business
will be adversely affected.

We
have obtained, and intend to obtain in the future, license rights to certain proprietary
technologies and compounds from other entities, individuals and research institutions, for
which we may be obligated to pay license fees, make milestone payments and pay royalties.
In addition, we have entered into, and may in the future enter into, collaborative
arrangements, including our arrangement with Glaxo, for the marketing, sales and
distribution of our product candidates, which require, or may require, us to share profits
or revenues. We may be unable to enter into additional collaborative licensing or other
arrangements that we need to develop and commercialize our product candidates. Moreover,
we may not realize the contemplated benefits from such collaborative licensing or other
arrangements. These arrangements may place responsibility on our collaborative partners
for preclinical testing, human clinical trials, the preparation and submission of
applications for regulatory approval, or for marketing, sales and distribution support for
product commercialization. We cannot be certain that any of these parties, including
Glaxo, will fulfill their obligations in a manner consistent with our best interests.
These arrangements may also require us to transfer certain material rights or issue our
equity securities to corporate partners, licensees and others. Any license or sublicense
of our commercial rights may reduce our product revenue. Moreover, we may not derive any
revenues or profits from these arrangements. Collaborators may also pursue alternative
technologies or drug candidates, either on their own or in collaboration with others, that
are in direct competition with us.

Our
corporate collaborators, including Glaxo, may determine not to proceed with one or more of
our drug discovery and development programs. If one or more of our corporate collaborators
reduces or terminates funding, we will have to devote additional internal resources to
product development or scale back or terminate some development programs or seek
alternative corporate collaborators.

Our
quarterly operating results may fluctuate significantly depending on the initiation of new
corporate collaboration agreements, the activities under current corporate collaboration
agreements or the termination of existing corporate collaboration agreements.

| | Because
our product candidates are in development, there is a high risk that further development
and testing will demonstrate that our product candidates are not suitable for
commercialization.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We
have no products that have received regulatory approval for commercial sale. All of our
product candidates, including alvimopan, are in development, and we face the substantial
risks of failure inherent in  developing drugs based on new technologies. Our product
candidates must satisfy rigorous standards of safety and efficacy before the FDA and
foreign regulatory authorities will approve them for commercial use. To satisfy these
standards, we will need to conduct significant additional research, animal testing, or
preclinical testing, and human testing, or clinical trials.

Preclinical
testing and clinical development are long, expensive and uncertain processes. Failure can
occur at any stage of testing. Success in preclinical testing and early clinical trials
does not ensure that later clinical trials will be successful. Based on results at any
stage of clinical trials, we may decide to discontinue development of our product
candidates.

| | We
may suffer significant setbacks in advanced clinical trials, even after promising results
in earlier trials.
| | ---------------------------------------------------------------------------------------------------------------

We
do not know whether our existing or any future clinical trials will demonstrate sufficient
safety and efficacy necessary to obtain the requisite regulatory approvals or will result
in marketable products. Our failure to adequately demonstrate the safety and efficacy of
our product candidates will prevent receipt of FDA and foreign regulatory approvals and,
ultimately, commercialization of our product candidates. Regulatory authorities may refuse
or delay approval as a result of many other factors, including changes in regulatory
policy during the period of product development and regulatory interpretations of clinical
benefit and clinical risk. Regulatory clearance that we may receive for a product
candidate will be limited to those diseases and conditions for which we have demonstrated
in clinical trials that the product candidate is safe and efficacious. Preclinical and
clinical trials of our product candidates, including alvimopan, may not display the safety
and efficacy necessary to obtain regulatory approvals. Drug development is a highly
uncertain process. Pharmaceutical and biotechnology companies have suffered significant
setbacks in advanced clinical trials, even after experiencing promising results in earlier
trials. Data obtained from non-clinical and clinical tests are susceptible to varying
interpretations which may delay, limit or prevent regulatory approval.

Product
candidates that appear to be promising at earlier stages of development may not reach the
market or be marketed successfully for a number of reasons, including, but not limited to,
the following:

|o | researchers
may find during later preclinical testing or clinical trials       that the product
candidate is ineffective or has harmful side effects;
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|o | the
number and types of patients available for extensive clinical trials may vary;
|- | ----------------------------------------------------------------------------------

|o | new
information about the mechanisms by which a drug candidate works may adversely affect its
development;
|- | ----------------------------------------------------------------------------------------------------------

|o | one
or more competing products may be approved for the same or a similar       disease
condition, raising the hurdles to approval of the product candidate;
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|o | the
product candidate may fail to receive necessary regulatory approval or clearance; or
|- | ----------------------------------------------------------------------------------------

|o | competitors
may market equivalent or superior products.
|- | -------------------------------------------------------

| | If
we are unable to contract with third parties to manufacture our products in sufficient
quantities, at an acceptable cost and in compliance with regulatory requirements, we
may be unable to obtain regulatory approvals, orto meet demand for our products.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

To
receive regulatory approval for alvimopan, our contract manufacturers will be required to
obtain approval for their manufacturing facilities to manufacture alvimopan. To achieve
this approval, we will also be required to submit, in an NDA, information and data
regarding chemistry, manufacturing and controls which satisfies the FDA that our contract
manufacturers are able to make alvimopan in accordance with extensive regulatory
requirements, commonly known as good manufacturing practices (cGMPs). FDA approval for our
contract manufacturing facilities to manufacture alvimopan may not be obtained. We are
highly dependent on our current contract manufacturers because we have developed our
manufacturing processes and controls with them. It is difficult and expensive to change
contract manufacturers for pharmaceutical products, particularly when the products are
under regulatory review in an NDA process. Completion of our clinical trials and
commercialization of our product candidates require access to, or development of,
facilities to manufacture a sufficient supply of our product candidates. We have depended
and we continue to depend on our collaborators or third parties for the manufacture of
compounds for preclinical, clinical and commercial purposes in their manufacturing
facilities. These manufacturers are required to adhere to FDA cGMP requirements. Under
cGMPs, our manufacturers will be required to manufacture our products and maintain records
in a prescribed manner with respect to manufacturing, testing and quality control
activities. We are dependent on our third party manufacturers to comply with these
regulations in the manufacture of our products, the failure of any third party
manufacturer to comply with applicable government regulations could substantially harm and
delay or prevent regulatory approval and marketing of alvimopan. If these third party
manufacturers fail to perform in compliance with these regulations, we may be compelled to
delay our development efforts. Our products may be in competition with other products for
access to facilities of third parties and suitable alternatives may be unavailable.
Consequently, our products may be subject to delays in manufacture if outside contractors
give other products greater priority than our products. For this and other reasons, third
parties may not be able to manufacture these products in a cost-effective or timely
manner. If the manufacture of these products does not occur in a timely manner, the
clinical trial development of our product candidates or their submission for regulatory
approval could be delayed, and our ability to deliver products, if any are approved, on a
timely basis could be impaired or precluded. We may not be able to enter into necessary
third-party manufacturing arrangements on acceptable terms, if at all. Our dependence upon
others for the manufacture of our products may adversely affect our future profit margin
and our ability to commercialize products, if any are approved, on a timely and
competitive basis. We do not intend to develop or acquire facilities for the manufacture
of product candidates for clinical trials or commercial purposes in the foreseeable
future.

| | We
have limited experience in conducting and managing the clinical trials necessary to obtain
regulatory approval.
| | ------------------------------------------------------------------------------------------------------------------

We
have limited experience in managing clinical trials, and delays or terminations of
clinical trials we are conducting or may undertake in the future could impair our
development of product candidates. Delay or termination of any clinical trials could
result from a number of factors, including adverse events, stringent enrollment
requirements, slow rate of enrollment, size of patient population, competition with other
clinical trials for eligible patients, geographical considerations and others. We contract
with third parties to conduct our clinical trials including our clinical trials in our
Phase III POI program. We are subject to the risk that these third parties fail to perform
their obligations properly and in compliance with applicable FDA regulations.

| | The
concept of developing peripherally restricted opioid analgesics and narcotic antagonist
drugs is relatively new and may not lead to commercially successful drugs.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

Since
there are no products on the market comparable to our product candidates, we do not have
any historical or comparative sales data to rely upon to indicate that peripherally
restricted opioid analgesic or peripherally acting narcotic antagonist drugs will achieve
commercial success in the marketplace. Market acceptance of our product candidates will
depend on a number of factors, including:

|o | perceptions
by members of the health care community, including physicians, of the safety and efficacy
of our      product candidates;
|- | -------------------------------------------------------------------------------------------------------------------------------------

|o | cost-effectiveness
of our product candidates relative to competing products;
|- | ----------------------------------------------------------------------------

|o | the
availability of government or third-party payor reimbursement for our product candidates;
and
|- | -------------------------------------------------------------------------------------------------

|o | the
effectiveness of marketing and distribution efforts by us, our collaborators and our
licensees and distributors.
|- | --------------------------------------------------------------------------------------------------------------------

Other
products that are currently sold for pain management are already recognized as safe and
effective and have a history of successful sales in the United States and elsewhere. Our
new products in this area, if any, will be competing with drugs that have been approved by
the FDA and have demonstrated commercial success in the United States and elsewhere.

| | Our
product candidate alvimopan is under investigation in POI and OBD for use in patients
taking opioid analgesics and reduction in the use of opioid analgesics would reduce
the potential market for alvimopan.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If
the use of drugs or techniques which reduce the requirement for mu-opioids
increases, the demand for alvimopan would be decreased. Various techniques to reduce the
use of opioids are used in an attempt to reduce the impact of opioid side effects. These
techniques have variable impact on the incidence of side effects because some opioid
effects, such as changes in gastrointestinal function, happen even with a single dose of
opioid. Other opioid effects, such as nausea and vomiting, appear to be related to total
opioid dose and so opioid sparing techniques may have more impact. The use of local
anesthetics in epidural catheters during and after surgery with the continuation of the
epidural into the post-operative period can reduce or eliminate the use of opioids. These
catheters are limited to use in certain types of procedures, are contraindicated in
patients on blood thinning agents, have a higher requirement for maintenance and generally
cannot be continued for more than 3 days, thus limiting their wide adoption. Non-steroidal
inflammatory agents may reduce the total opioid requirement but cannot entirely replace
the use of opioids in moderate to severe pain and are associated with side effects such as
bleeding, decreased bone healing, and adverse renal effects. Continuous infusion of local
anesthetic into a wound or near major nerves can reduce the use of opioids in limited
types of procedures and pain states. Novel analgesics which act at non-mu-opioid
receptors to provide pain relief or to enhance opioid analgesia are under development but
have not yet demonstrated wide clinical applicability in humans.

| | If
competitors develop and market products that are more effective, have fewer side effects,
are less expensive than our product candidates or offer other advantages our
commercial opportunities will be limited.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Other
companies have product candidates in clinical trials to treat the conditions for which we
are seeking to discover and develop product candidates. These competing potential drugs
may result in effective, commercially successful products. Even if our collaborators or we
are successful in developing effective drugs, our products may not compete effectively
with these products or other successful products. Our competitors may succeed in
developing products either that are more effective than those that we may develop, alone
or with our collaborators, or that they market before we market any products we develop.

Our
competitors include fully integrated pharmaceutical companies and biotechnology companies,
universities and public and private research institutions. Many of the organizations
competing with us have substantially greater capital resources, larger research and
development staffs and facilities, greater experience in drug development and in obtaining
regulatory approvals and greater manufacturing and marketing capabilities than we do.
These organizations also compete with us to:

|o | attract
qualified personnel;
|- | ----------------------------

|o | attract
partners for acquisitions, joint ventures or other collaborations; and
|- | ------------------------------------------------------------------------------

|o | license
proprietary technology that is competitive with our technology.
|- | -----------------------------------------------------------------------

The
successful entrance by our competitors into partnering arrangements or license agreements
with academic research institutions will preclude us from pursuing those specific
opportunities. Since each of these opportunities is unique, we may not be able to find an
acceptable substitute.

| | Third
parties are conducting or will conduct many of our product development activities and
almost all of our manufacturing and marketing activities. If these
third parties fail to perform these functions satisfactorily and in
compliance with regulatory requirements, our product development could be delayed.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We
rely, to a significant extent, on third parties to jointly conduct some research and
preclinical testing functions and to manufacture certain of our product candidates. If any
of these third parties breaches or terminates their agreement with us or otherwise fails
to conduct their activities successfully and in a timely manner, their actions could delay
or terminate the preclinical or clinical development or potential commercialization of the
affected product candidates or research program. We cannot control the amount and timing
of resources these third parties devote to our programs or product candidates. The failure
of any third party to comply with any governmental regulations would substantially harm
our development and marketing efforts and delay or prevent regulatory approval of our
product candidates. If these third parties fail to perform their obligations properly and
in compliance with applicable regulations, we may be compelled to delay our development
efforts, and our business could be harmed.

| | Because
we are not certain we will obtain necessary regulatory approvals to market our products
in the United States and foreign jurisdictions, we cannot predict whether or when we
will be permitted to commercialize any of our products.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
pharmaceutical industry is subject to stringent regulation by a wide range of authorities.
We cannot predict whether we will obtain regulatory clearance for any product candidate we
develop. We cannot market a pharmaceutical product in the United States until it has
completed rigorous preclinical testing and clinical trials and the FDAs extensive
regulatory clearance process. Satisfaction of regulatory requirements typically takes many
years, is dependent upon the type, complexity and novelty of the product and requires the
expenditure of substantial resources for research and development, testing, manufacturing,
quality control, labeling and promotion of drugs for human use. Since neither the FDA nor
international regulatory authorities have approved peripherally restricted opioid
analgesics or peripherally restricted narcotic antagonist drugs for marketing, we do not
know whether our research and clinical approaches to developing new products for the pain
management market will lead to drugs that the FDA will consider safe and effective for
indicated uses. Before receiving FDA approval to market a product, we must demonstrate
that the product candidate is safe and effective in the patient population that will be
treated. Outside the United States, our ability to market a product is contingent upon
receiving a marketing authorization from the appropriate regulatory authorities. This
foreign regulatory approval process includes all of the risks associated with FDA
clearance described above.

If
we receive regulatory approval for our product candidates and if we fail to comply with
applicable FDA post marketing regulations or other regulatory requirements, we could be
subject to criminal prosecution, civil penalties, recall or seizure of products, total or
partial suspension of production or injunction, as well as other regulatory actions
against our product or us. In addition, the federal Controlled Substances Act imposes
significant restrictions, licensing and regulatory requirements on the manufacturing,
distribution and dispensing of controlled substances. Therefore, we must determine whether
the DEA would consider any product to be a controlled substance. We believe that it is
unlikely that any of our product candidates other than those acting on the central nervous
system will be subject to regulation as controlled substances.

| | We
may not obtain FDA approval to conduct clinical trials that are necessary to satisfy
regulatory requirements.
| | ----------------------------------------------------------------------------------------------------------------

Clinical
trials are subject to oversight by institutional review boards and the FDA and:

|o | must
conform with the FDA's good clinical practice regulations;
|- | ---------------------------------------------------------------

|o | must
meet requirements for institutional review board oversight;
|- | ----------------------------------------------------------------

|o | must
meet requirements for informed consent;
|- | --------------------------------------------

|o | are
subject to continuing FDA oversight; and
|- | --------------------------------------------

|o | may
require large numbers of test subjects.
|- | -------------------------------------------

Before
commencing clinical trials in humans, we must submit and receive approval from the FDA of
an Investigational New Drug Application, or IND. We, or the FDA, may suspend clinical
trials at any time if the subjects participating in the trials are exposed to unacceptable
health risks, or if the FDA finds deficiencies in the IND application or the conduct of
the trials.

| | Our
business could suffer if we cannot attract, retain and motivate skilled personnel and
cultivate key academic collaborations.
| | --------------------------------------------------------------------------------------------------------------------------------

We
are a small company, and our success depends on our continued ability to attract, retain
and motivate highly qualified management and scientific personnel and on our ability to
develop and maintain important relationships with leading academic institutions and
scientists. Competition for personnel and academic collaborations is intense. In
particular, our product development programs depend on our ability to attract and retain
highly skilled chemists, biologists and clinical development personnel. If we lose the
services of any of these personnel it could impede significantly the achievement of our
research and development objectives. Failure to negotiate additional acceptable
collaborations with academic institutions and scientists, or lack of success with respect
to our existing academic collaborations, may delay our product development programs. In
addition, we will need to hire additional personnel and develop additional academic
collaborations as we continue to expand our research and development activities. We do not
know if we will be able to attract, retain or motivate personnel or maintain
relationships.

| | If
we do not realize value from our retained commercialization rights, we may not achieve
our commercial objectives or profitability.
| | -------------------------------------------------------------------------------------------------------------------------------------

If
we do not effectively exploit the commercialization rights we have retained, we will not
achieve profitability. In our corporate collaborations, we intend to retain various
commercialization rights for our pharmaceutical products, including rights for specific
pharmaceutical indications or in specified geographical regions. The value of these
rights, if any, will largely derive from our ability, directly or with collaborators, to
develop and commercialize drugs, the success of which is also uncertain. The exploitation
of retained commercialization rights requires:

|o | sufficient
capital;
|- | -------------------

|o | significant
technological, product development, manufacturing and regulatory expertise and resources;
and
|- | ---------------------------------------------------------------------------------------------------------

|o | marketing
and sales expertise and resources.
|- | --------------------------------------------

We
may not be able to develop or obtain these resources in sufficient quantity or at a
sufficient quality level to achieve our objectives. We will need to rely on third parties
for many of these resources. Our failure to establish and maintain relationships to obtain
these services cost-effectively could materially reduce or eliminate our ability to
realize value from our retained commercialization rights.

| | Companies
and universities that have licensed product candidates to us for clinical development and
marketing are sophisticated competitors that could develop similar products to compete
with products we hope to develop.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Licensing
product candidates from other companies, universities, or individuals does not prevent
them from developing non-identical but competitive products for their own commercial
purposes, nor from pursuing patent protection in areas that are competitive with us. The
individuals who created these technologies are sophisticated scientists and business
people who may continue to do research and development and seek patent protection in the
same areas that led to the discovery of the product candidates that they licensed to us.
The development and commercialization of successful new drugs from our research program is
likely to attract additional research by our licensors and by other investigators who have
experience in developing products for the pain management market. By virtue of the
previous research that led to the discovery of the drugs or product candidates that they
licensed to us, these companies, universities, or individuals may be able to develop and
market competitive products in less time than might be required to develop a product with
which they have no prior experience.

| | If
we breach our licensing agreements, we will lose significant benefits and may be exposed
to liability for damages.
| | ---------------------------------------------------------------------------------------------------------------------

We
may breach the agreements under which we license commercialization or development rights
and may thereby lose license rights that are important. We license rights to products and
technology that are relevant to our business, including among others our exclusive
worldwide license to alvimopan from Roberts Laboratories, Inc. and our license from Eli
Lilly to license intellectual property rights relating to peripherally selective opioid
antagonists. We are subject to various obligations with respect to these agreements,
including development responsibilities, royalty and other payments and regulatory
obligations. If we fail to comply with these requirements or otherwise breach a license
agreement or contract, the licensor or other contracting party may have the right to
terminate the license or contract in whole or in part or change the exclusive nature of
the arrangement. In such event we would not only lose all or part of the benefit of the
arrangement but also may be exposed to potential liabilities for breach in the form of
damages or other penalties.

| | It
is difficult and costly to protect our intellectual property rights, and we cannot ensure
their protection; we may be sued by others for infringing their intellectual property.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our
commercial success will depend in part on obtaining patent protection on our products and
successfully defending these patents against third party challenges. The patent positions
of pharmaceutical and biotechnology companies can be highly uncertain and involve complex
legal and factual questions. Accordingly, we cannot predict the breadth of claims allowed
in our patents or those of our collaborators.

Others
have filed and in the future are likely to file patent applications covering products and
technologies that are similar, identical or competitive to ours. Others may have patent
applications that may overlap with a patent application that we have in-licensed covering
certain receptors. We cannot assure that any patent application owned by a third party
will not have priority over patent applications filed or in-licensed by us, nor that we or
our licensor will not be involved in interference proceedings before the United States
Patent and Trademark Office.

Although
no third party has asserted a claim of infringement against us, others may hold
proprietary rights that will prevent our product candidates from being marketed unless we
can obtain a license to those proprietary rights. Any patent related legal action against
our collaborators or us claiming damages and seeking to enjoin commercial activities
relating to our products and processes could subject us to potential liability for damages
and require our collaborators or us to obtain a license to continue to manufacture or
market the affected products and processes. We cannot predict whether we or our
collaborators would prevail in any of these actions or that any license required under any
of these patents would be made available on commercially acceptable terms, if at all.
There has been, and we believe that there will continue to be, significant litigation in
the industry regarding patent and other intellectual property rights. If we become
involved in litigation, it could consume a substantial portion of our managerial and
financial resources.

We
rely on trade secrets to protect technology in cases when we believe patent protection is
not appropriate or obtainable. However, trade secrets are difficult to protect. While we
require employees, academic collaborators and consultants to enter into confidentiality
agreements, we may not be able to protect adequately our trade secrets or other
proprietary information. Our research collaborators and scientific advisors have rights to
publish data and information in which we have rights. If we cannot maintain the
confidentiality of our technology and other confidential information in connection with
our collaborations, our ability to receive patent protection or protect our proprietary
information may be imperiled.

Others
may hold proprietary rights that will prevent our product candidates from being marketed
unless we are able to obtain a license to those proprietary rights. We are a party to
various license agreements that give us rights to use specified technologies in our
research and development processes. If we are not able to continue to license this
technology on commercially reasonable terms, our product development and research may be
delayed. In addition, we generally do not fully control the prosecution of in-licensed
technology, and accordingly are unable to exercise the same degree of control over this
intellectual property as we exercise over our internally developed technology.

| | If
we are unable to develop sales, marketing and distribution capabilities or enter into
agreements with third parties to perform these functions, we will not be able to
commercialize products.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We
currently have no sales or distribution capability and limited marketing capabilities. In
order to commercialize products, if any are approved, we must internally develop sales,
marketing and distribution capabilities or make arrangements with third parties to perform
these services. If we obtain FDA approval, we intend to market some products directly and
rely on relationships with one or more pharmaceutical companies with established
distribution systems and direct sales forces to market other products. To market any of
our products directly, we must develop a marketing and sales force with technical
expertise and with supporting distribution capabilities. We may not be able to establish
in-house sales and distribution capabilities or relationships with third parties. To the
extent that we enter into co-promotion or other licensing arrangements, our product
revenues may be lower than if we directly marketed and sold our products, and any revenues
we receive will depend upon the efforts of third parties, which efforts may not be
successful.

| | Our
ability to generate revenues will be diminished if we fail to obtain acceptable prices or
an adequate level of reimbursement for our products from third-party payors.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our
ability to commercialize pharmaceutical products, alone or with collaborators, may depend
in part on the extent to which reimbursement for the products will be available from:

|o | government
and health administration authorities;
|- | -------------------------------------------------

|o | private
health insurers; and
|- | ----------------------------

|o | other
third-party payors.
|- | -------------------------

The
continuing efforts of government and third-party payors to contain or reduce the costs of
health care through various means will limit our commercial opportunity. For example, in
some foreign markets, pricing and profitability of prescription pharmaceuticals are
subject to government control. In the United States, we expect that there will continue to
be a number of federal and state proposals to implement pharmaceutical pricing and cost
control measures under government health care programs such as Medicare and Medicaid. In
addition, increasing emphasis on managed care in the United States will continue to put
pressure on the pricing of pharmaceutical products. Significant uncertainty exists as to
the reimbursement status of newly approved health care products. Cost control initiatives
could decrease the price that any of our collaborators or we would receive for any
products in the future and may impede patients ability to obtain reimbursement under
their insurance program for our products. Further, cost control initiatives could
adversely affect our collaborators ability to commercialize our products, and our
ability to realize royalties from such commercialization.

| | If
we engage in an acquisition or business combination, we will incur a variety of risks
that could adversely affect our business operations or our stockholders.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

From
time to time we have considered, and we will continue to consider in the future, if and
when any appropriate opportunities become available, strategic business initiatives
intended to further the development of our business. These initiatives may include
acquiring businesses, technologies or products or entering into a business combination
with another company. If we do pursue such a strategy, we could, among other things:

|o | issue
equity securities that would dilute our current stockholders' percentage ownership;
|- | -----------------------------------------------------------------------------------------

|o | incur
substantial debt that may place strains on our operations;
|- | ----------------------------------------------------------------

|o | spend
substantial operational, financial and management resources in integrating new
businesses, technologies and products;
|- | ---------------------------------------------------------------------------------------------------------------------------

|o | assume
substantial actual or contingent liabilities; or
|- | -------------------------------------------------------

|o | merge with or otherwise enter into a business combination with, another
company in which our stockholders would receive cash or shares of the other company or a
combination of both on terms that our stockholders may not deem desirable.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We
are not in a position to predict what, if any, collaborations, alliances or transactions
may result or how, when or if they will have a material effect on us or the development of
our business.

| | If
product liability lawsuits are successfully brought against us, we may incur substantial
liabilities and may have to limit or cease commercialization of our products.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
testing and marketing of medical products entail an inherent risk of product liability. If
we cannot successfully defend ourselves against product liability claims, we may incur
substantial liabilities or be required to limit or cease commercialization of our
products. We currently carry clinical trial insurance but do not carry product liability
insurance. Our corporate collaborators or we may not be able to obtain insurance at a
reasonable cost, if at all. If we cannot obtain sufficient product liability insurance at
an acceptable cost to protect against potential product liability claims we may be
prevented from commercializing our products. We enter into indemnification agreements
where we indemnify third parties such as investigators for certain product liability
claims related to our products under investigation. These indemnification obligations may
cause us to pay significant sums of money for claims that are covered by these
indemnifications.

| | If
we use biological and hazardous materials in a manner that causes injury or violates
laws, we may be liable for damages.
| | ---------------------------------------------------------------------------------------------------------------------------



Our
research and development activities involve the controlled use of potentially harmful
biological materials as well as hazardous materials, chemicals and various radioactive
compounds. We cannot completely eliminate the risk of accidental contamination or injury
from the use, storage, handling or disposal of these materials. In the event of
contamination or injury, we could be held liable for damages that result, and any
liability could exceed our resources. We are subject to federal, state and local laws and
regulations governing the use, storage, handling and disposal of these materials and
specified waste products. The cost of compliance with these laws and regulations could be
significant.

| | Anti-takeover
provisions in our charter documents and under Delaware law may make an acquisition of us,
which maybe beneficial to our stockholders, more difficult.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

Provisions
of our amended and restated certificate of incorporation and restated by laws, as well as
provisions of Delaware law, could make it more difficult for a third party to acquire us,
even if doing so would benefit our stockholders.

Our
amended and restated certificate of incorporation provides for our Board of Directors to
be divided into three classes, with the term of one such class expiring each year, and we
have eliminated the ability of our stockholders to consent in writing to the taking of any
action pursuant to Section 228 of the Delaware General Corporation Law.

In
addition, we adopted a shareholder rights plan, the effect of which may be to make an
acquisition of the company more difficult.

Under
our collaboration agreement with Glaxo, Glaxo has certain limitations on its ability to
acquire our securities.

# Recently Issued
Accounting Pronouncements

In
December 2002, the Financial Accounting Standards Board (FASB) issued SFAS No.
148, Accounting for Stock-Based Compensation  Transition and Disclosure, an
amendment of FASB Statement No. 123. This Statement amends FASB Statement No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosures in both annual and interim financial
statements. Certain of the disclosure modifications are required for fiscal years ending
after December 15, 2002, and are included in Note 5.

---

# ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

A
substantial portion of our assets are investment grade debt instruments such as corporate
securities and direct obligations of the U.S. Treasury. The market value of such
investments fluctuates with current market interest rates. In general, as rates increase,
the market value of a debt instrument would be expected to decrease. The opposite is also
true. To minimize such market risk, we have in the past and, to the extent possible, will
continue in the future to hold such debt instruments to maturity at which time the debt
instrument will be redeemed at its stated or face value. Due to the short duration and
nature of these instruments, we do not believe that we have a material exposure to
interest rate risk related to our investment portfolio. The investment portfolio at March
31, 2003 was approximately $83.2 million and the weighted-average interest rate was
approximately 2.48% with maturities from 1 to 12 months.

# ITEM 4. CONTROLS AND
PROCEDURES

For
the quarterly period ending March 31, 2003 we carried out an evaluation, under the
supervision and with the participation of our management, including our President and
Chief Executive Officer and our Senior Vice President, Chief Operating Officer and Chief
Financial Officer (the principal finance and accounting officer), of the effectiveness of
the design and operation of our disclosure controls and procedures pursuant to
Rules 13a-14 and 15d-14 under the Exchange Act. Based upon this evaluation, our
President and Chief Executive Officer and our Senior Vice President, Chief Operating
Officer and Chief Financial Officer concluded that, as of March 31, 2003, our
disclosure controls and procedures have been designed and are being operated in a manner
that provides reasonable assurance that the information required to be disclosed by the
Company in reports filed under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the Commission. A
control system, no matter how well designed and operated, cannot provide assurance that
the objectives of the control system are met, and no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, within a
company have been detected.

Additionally,
our President and Chief Executive Officer and Senior Vice President, Chief Operating
Officer and Chief Financial Officer determined, as of March 31, 2003, that there were no
significant changes in our internal controls or in other factors that could significantly
affect our internal controls subsequent to the date of their evaluation.

---

# PART II. OTHER
INFORMATION

# ITEM 6. EXHIBITS AND
REPORTS ON FORM 8-K:

(a)    
          The following exhibits are filed as part of this Report on Form 10-Q:

| | 99.1
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.1
| | -----------------------------------------------------------------------------------------------------------------------------

| | 99.2  Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act
               of 2002.1
| | ---------------------------------------------------------------------------------------------------------------------------------------------

1 Filed
herewith.

(b)    
               We filed the following Current Reports on Form 8-K during the quarter ended
               March 31, 2003:

|(1) |  | We filed a Current Report on Form 8-K/A on February 19, 2003, to amend the
               Report on Form 8-K filed April 30, 2002 and amended on June 21, 2002 to file as
               Exhibit 10.1 the Collaboration Agreement dated April 14, 2002 by and between the
               Company and Glaxo Group Limited.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | We filed a Current Report on Form 8-K on February 12, 2003, to report, pursuant
               to Item 5, the termination of the Companys agreement with Santen
               Pharmaceutical Co., Ltd. for the development of our product candidate ADL 2-1294
               for ophthalmic pain.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

# SIGNATURES

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

# ADOLOR CORPORATION

|                   |     |                                      
|------------------ | --- | -------------------------------------
|Date: May 14, 2003 | By: | /s/ Bruce A. Peacock                 
|                   |     |                                      
|                   |     | Bruce A. Peacock                     
|                   |     | President and Chief Executive Officer
|                   | By: | /s/ Michael R. Dougherty             
|                   |     |                                      
|                   |     | Michael R. Dougherty                 
|                   |     | Senior Vice President,               
|                   |     | Chief Operating Officer and          
|                   |     | Chief Financial Officer              

---

# CERTIFICATION

I, Bruce A. Peacock, certify that:

|1. |  | I have reviewed this quarterly report on Form 10-Q of Adolor Corporation;
|-- |  | -------------------------------------------------------------------------

|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
               statement of a material fact or omit to state a material fact necessary to make
               the statements made, in light of the circumstances under which such statements
               were made, not misleading with respect to the period covered by this quarterly
               report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | Based on my knowledge, the financial statements, and other financial information
               included in this quarterly report, fairly present in all material respects the
               financial condition, results of operations and cash flows of the registrant as
               of, and for, the periods presented in this quarterly report;
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. |  | The registrants other certifying officer and I are responsible for
               establishing and maintaining disclosure controls and procedures (as defined in
               Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|a) |  | designed such disclosure controls and procedures to ensure that material
               information relating to the registrant, including its consolidated subsidiaries,
               is made known to us by others within those entities, particularly during the
               period in which this quarterly report is being prepared;
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) |  | evaluated the effectiveness of the registrants disclosure controls and
               procedures as of a date within 90 days prior to the filing date of this
               quarterly report (the Evaluation Date); and
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|c) |  | presented in this quarterly report our conclusions about the effectiveness of
               the disclosure controls and procedures based on our evaluation as of the
               Evaluation Date;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. |  | The registrants other certifying officer and I have disclosed, based on
               our most recent evaluation, to the registrants auditors and the audit
               committee of registrants board of directors:
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|a) |  | all significant deficiencies in the design or operation of internal controls
               which could adversely affect the registrants ability to record, process,
               summarize and report financial data and have identified for the
               registrants auditors any material weaknesses in internal controls; and
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) |  | any fraud, whether or not material, that involves management or other employees
               who have a significant role in the registrants internal controls; and
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. |  | The registrants other certifying officer and I have indicated in this
               quarterly report whether or not there were significant changes in internal
               controls or in other factors that could significantly affect internal controls
               subsequent to the date of our most recent evaluation, including any corrective
               actions with regard to significant deficiencies and material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: May 14, 2003

/s/ Bruce A. Peacock Bruce A. Peacock President, Chief
Executive Officer and Director





---

# CERTIFICATION

I, Michael R. Dougherty, certify
that:

|1. |  | I have reviewed this quarterly report on Form 10-Q of Adolor Corporation;
|-- |  | -------------------------------------------------------------------------

|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
               statement of a material fact or omit to state a material fact necessary to make
               the statements made, in light of the circumstances under which such statements
               were made, not misleading with respect to the period covered by this quarterly
               report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | Based on my knowledge, the financial statements, and other financial information
               included in this quarterly report, fairly present in all material respects the
               financial condition, results of operations and cash flows of the registrant as
               of, and for, the periods presented in this quarterly report;
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. |  | The registrants other certifying officer and I are responsible for
               establishing and maintaining disclosure controls and procedures (as defined in
               Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|a. |  | designed such disclosure controls and procedures to ensure that material
               information relating to the registrant, including its consolidated subsidiaries,
               is made known to us by others within those entities, particularly during the
               period in which this quarterly report is being prepared;
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b. |  | evaluated the effectiveness of the registrants disclosure controls and
               procedures as of a date within 90 days prior to the filing date of this
               quarterly report (the Evaluation Date); and
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|c. |  | presented in this quarterly report our conclusions about the effectiveness of
               the disclosure controls and procedures based on our evaluation as of the
               Evaluation Date;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. |  | The registrants other certifying officer and I have disclosed, based on
               our most recent evaluation, to the registrants auditors and the audit
               committee of registrants board of directors:
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|a. |  | all significant deficiencies in the design or operation of internal controls
               which could adversely affect the registrants ability to record, process,
               summarize and report financial data and have identified for the
               registrants auditors any material weaknesses in internal controls; and
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b. |  | any fraud, whether or not material, that involves management or other employees
               who have a significant role in the registrants internal controls; and
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. |  | The registrants other certifying officer and I have indicated in this
               quarterly report whether or not there were significant changes in internal
               controls or in other factors that could significantly affect internal controls
               subsequent to the date of our most recent evaluation, including any corrective
               actions with regard to significant deficiencies and material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: May 14, 2003

/s/ Michael R. DoughertyMichael R. Dougherty  Senior Vice President,
Chief Operating Officer and Chief Financial Officer