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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                   FORM 10-K
                            ------------------------
(MARK ONE)
 
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
     THE SECURITIES EXCHANGE ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
 
                                       OR
 
[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
     THE SECURITIES EXCHANGE ACT OF 1934
 
         FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
 
                        COMMISSION FILE NUMBER 001-14165
 
                                 RIBOGENE, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
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                  DELAWARE                                      94-3095154
       (STATE OR OTHER JURISDICTION OF                       (I.R.S. EMPLOYER
       INCORPORATION OR ORGANIZATION)                       IDENTIFICATION NO.)
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                              26118 RESEARCH ROAD
                           HAYWARD, CALIFORNIA 94545
             (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
 
                                 (510) 732-5551
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
                            ------------------------
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 
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                                                           NAME OF EACH EXCHANGE
             TITLE OF EACH CLASS                            ON WHICH REGISTERED
             -------------------                           ---------------------
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                    NONE
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          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
 
                                (TITLE OF CLASS)
                         COMMON STOCK, $.001 PAR VALUE
 
     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K.  Yes [X]  No [ ]
 
     The aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 28, 1999, was approximately $8.7 million*.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     Portions of Registrant's Definitive Proxy Statement filed with the
Commission pursuant to Regulation 14A in connection with the 1999 Annual Meeting
are incorporated herein by reference into Part III of this Report.
---------------
* Based on a closing price of $2.00 per share of the Registrants' Common Stock
  held by executive officers, directors and stockholders whose ownership exceeds
  5% of the Common Stock outstanding at February 28, 1999. Exclusion of such
  shares should not be construed to indicate that any such person possesses the
  power, direct or indirect, to direct or cause the direction of the management
  or policies of the of the registrant or that such person is controlled by or
  under common control with the Registrant.
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<PAGE>   2
 
                           ANNUAL REPORT ON FORM 10-K
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
 
                               TABLE OF CONTENTS
 
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PART I
 
     Item 1.  Business....................................................     1
     Item 2.  Properties..................................................    26
     Item 3.  Legal Proceedings...........................................    26
     Item 4.  Submission of Matters to a Vote of Security Holders.........    26
 
PART II
 
     Item 5.  Market for Registrant's Common Equity and Related
              Stockholder Matters.........................................    27
     Item 6.  Selected Financial Data.....................................    28
     Item 7.  Management's Discussion and Analysis of Financial Condition
              and Results of Operations...................................    29
              Quantitative and Qualitative Disclosures about Market
    Item7(a)  Risk........................................................    34
     Item 8.  Financial Statements and Supplementary Data.................    35
     Item 9.  Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure....................................    53
 
PART III
 
     Item     Directors and Executive Officers of the Registrant..........
       10.                                                                    53
     Item     Executive Compensation......................................
       11.                                                                    53
     Item     Security Ownership of Certain Beneficial Owners and
       12.    Management..................................................    53
     Item     Certain Relationships and Related Transactions..............
       13.                                                                    53
 
PART IV
 
     Item     Exhibits, Financial Statement Schedules and Reports on Form
       14.    8-K.........................................................    53
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     Except for the historical information contained herein, this report
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed under the heading "Risk Factors" at the end of Item
1 Business.
 
                                     PART I
 
ITEM 1. BUSINESS
 
OVERVIEW
 
     RiboGene, Inc. (the "Company") is a drug discovery company focused on the
identification of novel leads and the development of potential drug candidates
for the treatment of infectious diseases. The Company's drug discovery efforts
target bacterial, fungal and viral infections for which the efficacy of existing
therapies is being threatened by the emergence of drug resistance or for which
existing therapies have had limited effectiveness. The Company's drug discovery
technology is based on the translational control of gene expression. Translation
is the process used by cells to make proteins and is an essential cellular
process for all living organisms, including infectious pathogens. The Company is
using its platform technology to discover compounds that inhibit or interfere
with pathogen specific translation. RiboGene's extensive knowledge of
translation allows the Company to identify components of the translation process
unique to a particular pathogen and essential to its existence. The Company
believes that targeting pathogen specific translation mechanisms may lead to the
discovery of drugs that are effective against either drug-resistant pathogens or
pathogens for which current therapies are not effective.
 
     Infectious diseases have increased significantly during the past 20 years
and are now the third most common cause of death in the United States. Worldwide
sales of antiinfective drugs were approximately $34.0 billion in 1997 and
constituted the third largest pharmaceutical sales category. The antibacterial,
antifungal and antiviral markets are estimated to be approximately $25.0
billion, $4.0 billion and $5.0 billion, respectively, based on 1997 sales. There
are currently four antibacterial drugs that each generate in excess of $1.0
billion in worldwide sales annually and one antifungal drug that generates
nearly $900 million. Of the 100 best selling brand name drugs worldwide in 1997,
22 are antiinfectives addressing bacterial, fungal and viral infections. The
clinical efficacy of many bacterial and fungal antiinfectives is being
threatened by emerging strains of drug-resistant pathogens. In the antiviral
area, there are only a limited number of effective therapeutics currently
marketed.
 
     To compliment its drug discovery efforts, the Company also seeks to
in-license or acquire compounds with demonstrated activity relevant to certain
therapeutic targets. Consistent with this strategy, in 1994 the Company acquired
Emitasol(R), an intranasal form of metoclopramide. Metoclopramide is an approved
antiemetic and is available in oral and intravenous form. The Company and its
partners are developing Emitasol for the treatment of diabetic gastroparesis
(stomach paralysis) and for emesis (nausea and vomiting) associated with cancer
chemotherapy. Emitasol is currently being developed in North America as well as
in certain countries in Europe through corporate partners. Emitasol is intended
to control diabetic gastroparesis and to prevent delayed emesis associated with
cancer chemotherapy. Currently, there are no drugs specifically approved to
treat delayed emesis, and metoclopramide is approved to treat diabetic
gastroparesis and to prevent acute chemotherapy-induced emesis. RiboGene
believes that Emitasol, when given intranasally, may be effective in treating
diabetic gastroparesis and delayed onset emesis. Such advantages may include:
ease of administration, an increased level of efficacy as compared to
alternatives and cost effectiveness. The Company, together with its
collaborative partner, expects to begin Phase III clinical trials of Emitasol
for diabetic gastroparesis in 1999. However, substantial additional development,
clinical testing and investment will be required prior to seeking any regulatory
approval for commercialization of this product. There can be no assurance that
clinical trials of Emitasol will demonstrate the safety and efficacy of such
product to the extent necessary to obtain regulatory approvals for the
indications being studied, or at all. The failure to demonstrate adequately the
safety and efficacy of Emitasol could delay or prevent regulatory approval of
the product.
 
                                        1
<PAGE>   4
 
     In order to accelerate the discovery, development and commercialization of
drugs, and to offset the costs of discovery and development, the Company seeks
to enter into collaborations with major pharmaceutical companies and,
additionally, into research and licensing agreements with biotechnology
companies, combinatorial chemistry companies and universities. These
relationships are intended to provide the Company with funding, research and
development support, access to additional compound libraries and targets, as
well as to provide the Company with preclinical and clinical trial,
manufacturing and marketing capabilities.
 
     In July 1998, the Company entered into an option and license agreement with
Roberts Pharmaceutical Corporation ("Roberts") for the development of Emitasol
(the "Roberts Collaboration"). In connection with the Roberts Collaboration,
Roberts made a $10 million equity investment in RiboGene by purchasing 1,428,572
shares of Series A non-voting convertible preferred stock at $7.00 per share. In
conjunction with the Company, Roberts will develop Emitasol to treat diabetic
gastroparesis and delayed onset emesis caused by cancer chemotherapy.
 
     In January 1998, the Company entered into a collaboration with Dainippon
Pharmaceutical Co. Ltd. ("Dainippon") encompassing the two principal targets in
the Company's antibacterial program (the "Dainippon Collaboration"). As part of
the Dainippon Collaboration, Dainippon agreed to provide the Company with
research support payments ($4.0 million of which has been received, as of
February 1999), and to provide additional research and development support at
Dainippon, over the three-year term of the research program. The Company may be
entitled to receive milestone payments upon the achievement of mostly late-
stage clinical and regulatory milestones. RiboGene also has the right to
co-promote, in Europe and the United States, any products resulting from the
collaboration. In connection with the Dainippon Collaboration, Dainippon made a
$2.0 million equity investment in the Company in February 1998, by purchasing
756,144 shares of the Company's Series G Preferred Stock (the "Dainippon
Shares"), which automatically converted into 53,988 shares of Common Stock upon
the closing of the Company's initial public offering (the "Offering"). In
exchange for an increase in the royalty rate to be received by RiboGene, the
Company issued an additional 230,000 shares of common stock to Dainippon in
September 1998.
 
     The Company also has agreements with ArQule, Inc. ("ArQule"), and EnzyMed,
Inc. ("EnzyMed") to provide the Company with access to additional compound
libraries for its drug discovery programs and with the University of Washington
to acquire the rights to the HCV NS5A/PKR target for its antiviral program.
 
STRATEGY
 
     The Company's objectives are to discover and develop novel drugs to treat
infectious disease and other unmet medical needs. The Company has adopted two
approaches to accomplish these objectives. The first is to discover novel
compounds in a proprietary program based on translation, the process used by
cells to synthesize proteins. However, the Company also recognizes that it will
be a number of years before any potential products reach the market, given the
extensive preclinical and clinical development programs through which each must
proceed. Accordingly, RiboGene's second approach is to acquire rights to drug
candidates that have reached a more advanced stage of development and are thus
more likely to reach the commercial market sooner. The key elements of the
Company's strategy are to:
 
  EXPLOIT EXPERTISE IN PATHOGEN SPECIFIC TRANSLATION MECHANISMS
 
     The Company intends to use its accumulated expertise and know-how in
pathogen specific translation mechanisms to identify novel targets critical for
the survival of bacteria, fungi or viruses. With these targets, the Company
develops assays which are used to identify compounds with desired mechanisms of
action. By using targets which are specific to pathogens, the Company believes
that it may be able to identify small-molecule lead compounds which inhibit
pathogen function and thereby kill or attenuate pathogen growth with minimal
effects on humans. The Company believes that in certain applications these
small-molecule lead compounds may have better safety and efficacy profiles than
those of existing drugs.
 
                                        2
<PAGE>   5
 
  DISCOVER NOVEL ANTIINFECTIVES WHICH TARGET DRUG RESISTANT PATHOGENS
 
     The Company directs its drug discovery programs toward the development of
drugs that target pathogens which have developed resistance to currently
marketed antiinfectives. Because new drugs which inhibit pathogen specific
translation mechanisms may have different molecular targets than those of
existing classes of antiinfectives, the Company believes that potential drug
candidates resulting from its drug discovery programs may be effective against
existing drug resistant pathogens.
 
  IN-LICENSE OR ACQUIRE LATER STAGE COMPOUNDS AND PRODUCTS
 
     The Company believes that by acquiring later stage products, either by
in-licensing, through corporate partnering, or through acquisitions, it can
accelerate the discovery and development of novel drugs to treat infectious
disease or other unmet medical diseases. The Company intends to continue this
approach and it currently is reviewing a number of product acquisition
candidates that are in later stages of development.
 
  ESTABLISH COLLABORATIVE RELATIONSHIPS FOR ITS DRUG DISCOVERY PROGRAM
 
     The Company employs a two-pronged collaborative strategy to accelerate the
discovery, development and commercialization of novel antiinfective drugs. The
Company seeks to enter into collaborations with (i) major pharmaceutical
companies, on entire programs or on specific targets, to provide the Company
with funds, research and development resources, including chemistry
capabilities, access to compound libraries and preclinical and clinical trial,
regulatory, manufacturing and commercialization capabilities, and (ii)
biotechnology and combinatorial chemistry companies and universities to provide
the Company with access to drug discovery and development technologies, compound
libraries and targets.
 
SCIENTIFIC BACKGROUND
 
  INFECTIOUS DISEASE RESISTANCE
 
     The increase in prevalence of infectious diseases caused by bacteria, fungi
and viruses that have developed resistance to existing antiinfective drugs is
well documented in the medical literature. This current situation results in
part from the overuse or incorrect use of antiinfective drugs. Administering
antiinfectives in the presence of resistant pathogens creates a growth advantage
for such pathogens and allows them to multiply preferentially over those that
have not developed resistance. These resistant pathogens can then spread quickly
from infected patients to healthy individuals.
 
     Resistant pathogens have developed multiple mechanisms against certain
approved antiinfective drugs. Mechanisms of resistance include altering the
pathogen target, altering the drug itself or preventing the drug from
interacting with the target. Because traditional antiinfective drug discovery
approaches have used a limited number of biological targets, they have not
adequately addressed this resistance problem. As a result, new generations of
antiinfectives resulting from traditional approaches have been susceptible to
the same resistance mechanisms.
 
  TRADITIONAL APPROACHES TO ANTIINFECTIVE DRUG DISCOVERY
 
     There are two traditional approaches to antiinfective drug discovery.
Biological approaches rely on the use of whole organism based assays to screen
for compounds which kill pathogens. Although antiinfectives have been discovered
using this approach, information on the molecular target or the mechanism of
action of the drug resulting from this approach is minimal. The lack of
information on the target or mechanism of action makes it difficult to
understand the cause of subsequent drug resistance. Chemistry driven approaches
focus on chemical modifications of known antiinfective compounds. This approach
has led to the identification of new drugs which have chemical structures that
are closely related to existing drugs. As a result, these newer drugs are active
at the same molecular targets and eventually encounter the same resistance
problems that were observed for earlier drugs.
 
                                        3
<PAGE>   6
 
THE RIBOGENE APPROACH
 
     The Company believes that its target-based approach is different from, and
provides advantages over, traditional drug discovery techniques. Antiinfective
drug discovery has historically used a limited number of biological targets
which has restricted the ability to discover new drugs effective against drug
resistant pathogens. RiboGene's pathogen specific translation mechanisms
represent a new class of targets for drug discovery. By focusing discovery
efforts on drugs which are effective inhibitors of pathogen specific translation
mechanisms, the Company believes that it may be possible to discover drug
candidates for which pathogens have not already developed resistance. In
addition, because the Company selects only pathogen specific translation
mechanism targets which are essential for the life of the pathogen and appear to
bear little or no resemblance to their human counterpart, such compounds may in
certain applications have better safety and efficacy profiles than existing
therapies, or may provide a therapy where no other therapy currently exists.
 
     The Company's scientists use their extensive knowledge and expertise in the
field of translation to identify targets specific to pathogens and to design and
implement assays to identify selective compounds which demonstrate activity at
the specific translation targets. By developing assays which identify compounds
with mechanisms of action against the desired target, the Company believes that
the compounds which demonstrate activity at the target will be better
characterized and more likely to result in lead candidates for optimization and
further development. Because RiboGene's pathogen specific translation mechanisms
represent new drug targets, the Company believes that antiinfective drugs which
result from its drug discovery programs may also be effective against current
drug resistant pathogens.
 
     Translation and protein synthesis are synonymous terms for the process used
by cells to make proteins from a template known as messenger RNA ("mRNA").
Proteins participate in virtually all cellular functions. All proteins are
assembled from a defined set of building blocks known as amino acids, and it is
the sequence in which the amino acids are assembled which distinguishes one
protein from another. The instructions that determine this sequence are encoded
within the genes of the organism. Typically, each gene contains coded
information for the synthesis of one particular protein. For this protein to be
synthesized, the information in the gene must be decoded. The decoding process
has two primary stages known as transcription and translation. During the first
stage, which is known as transcription, the genetic information is
"transcribed," or copied, and the copies produced are known as mRNA molecules.
During the second stage of gene expression, which is known as translation, the
information is "translated," or utilized, to assemble amino acids into proteins.
During this stage, these mRNA molecules direct the synthesis of the protein by
intracellular structures known as ribosomes. Each ribosome moves along the mRNA
and reads it like a tape, which tells the ribosome which amino acid to add next
as it synthesizes the protein.
 
RIBOGENE'S DRUG DISCOVERY PROCESS.
 
     RiboGene has established antibacterial, antifungal and antiviral drug
discovery programs. Within each program, the Company's drug discovery process
consists of four phases: (i) target identification; (ii) assay development;
(iii) lead discovery; and (iv) lead optimization. In the first phase of the
process, the Company uses its accumulated translation specific expertise and
know-how in combination with functional genetics and microbial genomics to
identify and select the pathogen specific translation mechanism targets for use
in its drug discovery programs. When pathogen specific translation mechanism
targets have been identified and validated, RiboGene scientists use a variety of
techniques to design and implement translation-based assays to identify and
characterize compounds active against such targets. Once a pathogen specific
translation mechanism target has been incorporated into a high-throughput assay,
RiboGene scientists use these assays to screen compound libraries to identify
potential lead compounds suitable for lead optimization. Lead optimization
involves the use of contemporary medicinal and combinatorial chemistry
techniques to enhance the potency, selectivity, pharmacokinetic and other
properties of potential leads identified using the Company's assays. In its
antibacterial program, the Company has two principal targets, deformylase and
ppGpp degradase, for which it conducts research in collaboration with Dainippon.
Deformylase is in the lead optimization phase, and ppGpp degradase is in the
lead discovery phase. The Company has several additional antibacterial targets,
to which it has retained rights to, that are in the assay development phase. In
its antifungal program, several targets, are in the lead discovery phase. In its
antiviral program, which is currently
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focused exclusively on the hepatitis C virus ("HCV"), the Company has one
target, HCV NS5A/PKR, in the assay development phase.
 
THE RIBOGENE RESEARCH PROGRAMS; ANTIBACTERIAL PROGRAM
 
     RiboGene is focusing its antibacterial drug discovery programs on those
pathogens that have a high annual incidence rate worldwide and that have become
resistant to all but a few available antibacterial drugs. The Center for Disease
Control ("CDC") has reported that 47% of the two million hospital-acquired
infections in the United States are caused by four bacteria: staphylococci,
enterococci, pneumococci and pseudomoni. The Company's antibacterial projects
target infections caused by these and other bacteria.
 
     Translation in bacterial cells differs from translation in human cells. In
particular, the translation initiation factors used by bacterial cells are fewer
in number and have little homology with functional counterparts in human cell
types. In addition, bacteria use translational control processes not found in
human cells. RiboGene is exploiting its knowledge of these bacterial pathogen
specific translation mechanisms and is designing and implementing antibacterial
drug discovery systems incorporating these pathogen specific translation
mechanism targets. The Company's bacterial pathogen specific translation
mechanism targets are in various stages of research and development. The Company
has developed assays incorporating certain of these targets and intends to
continue assay development incorporating previously identified and future
bacterial pathogen specific translation mechanism targets. Several of the assays
utilize proprietary strains of bacteria that may allow identification of
inhibitors of the target. Other assays utilize in vitro enzymatic reactions
designed to identify enzyme inhibitors of the target.
 
     The Company has identified several bacterial pathogen specific translation
mechanism targets that are in various stages of research and development. Two of
these targets, deformylase and ppGpp degradase, are the focus of the Company's
most advanced antibacterial projects. The Company believes that bacterial
pathogen specific translation mechanisms such as deformylase and ppGpp degradase
may be excellent selective targets for drug intervention and has therefore
established drug discovery projects based on these targets. The Company entered
into a collaboration with Dainippon in January 1998 to continue the research and
development of antibacterials that have activity against deformylase or ppGpp
degradase. As part of the Dainippon Collaboration, RiboGene is screening both
the RiboGene and Dainippon compound libraries and applying it internal chemistry
resources to these projects. RiboGene has responsibility for assay development
and lead discovery. Both parties have joint responsibility for in vitro testing
and lead optimization. Dainippon generally has responsibility for any
preclinical and clinical development, regulatory submission, manufacturing or
marketing. See "-- Collaborative and Research Agreements."
 
  DEFORMYLASE INHIBITOR PROJECT
 
     Bacteria initiate translation using an amino acid building block called
formyl-methionine. The enzyme deformylase, common to all bacteria, removes the
formyl group from methionine releasing the protein for use by the bacteria. This
formylation-deformylation process is essential for growth of all pathogenic
bacteria. Because there is no mammalian counterpart, the Company believes that
deformylase enzyme inhibition is a useful target to identify selective
inhibitors of bacterial translation. In addition, the Company believes that all
pathogenic bacteria utilize this translation process, and therefore deformylase
inhibitors have the potential to be broad spectrum antibacterial agents.
RiboGene scientists have designed and implemented assays that target the
identification of inhibitors of the deformylase enzyme.
 
     The deformylase inhibitor project is currently in the lead optimization
phase. Through its assay system, the Company has discovered small-molecule
compounds that inhibit deformylase. The Company, in collaboration with
Dainippon, will continue to screen compounds in the deformylase assays to
identify additional novel compounds suitable for lead optimization.
 
  PPGPP DEGRADASE INHIBITOR PROJECT
 
     ppGpp (guanosine tetraphosphate) is an unusual nucleotide, synthesized
during the translation process and regulated by the essential enzyme, ppGpp
degradase. Bacteria carefully regulate ppGpp levels because
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accumulation of this nucleotide is toxic to the organism. Therefore, the Company
believes that inhibitors of the ppGpp degradase enzyme should kill bacteria.
Since this process is not part of the human translation process, yet all
bacteria appear to utilize this process, RiboGene scientists believe that ppGpp
degradase inhibitors have the potential to be antibacterial agents with
selective broad spectrum activity against pathogens and potentially low toxicity
to humans. The Company has developed a high-throughput primary assay around the
ppGpp degradase enzyme. Secondary assays developed by the Company include an
assay which comprises the isolated ppGpp enzyme and an assay which
quantitatively measures the accumulation of ppGpp. These assays are used to
confirm the mechanism of action of the inhibitors identified in the primary
assay.
 
     The ppGpp degradase inhibitor project is in the lead discovery phase. The
Company, in collaboration with Dainippon, will continue to screen compounds in
the ppGpp assays to identify novel lead compounds suitable for lead
optimization.
 
THE RIBOGENE RESEARCH PROGRAMS; ANTIFUNGAL PROGRAM
 
  FUNGAL INFECTIONS
 
     Systemic fungal infections are a serious and growing problem. Infections by
fungi or yeasts are frequently caused by Candida albicans, a yeast which is
commonly found in the intestinal tract and on mucosal linings of healthy
individuals. This yeast also causes thrush (sore throat), vaginitis, and
life-threatening infections, particularly in individuals with weakened immune
systems. Another frequent source of serious fungal infections is the Aspergillus
genus, which the average person is exposed to on a regular basis. Healthy
individuals resist Aspergillus infections, but after a severe illness or injury,
this fungus can cause lung infections which can then spread throughout the body
resulting in death. Many diseases and disease states (e.g., organ transplants,
diabetes, cancer) of an aging and increasingly affluent population correlate
with an increased susceptibility to systemic fungal infections, as do
increasingly common medical practices such as use of broad-spectrum antibiotics,
cancer chemotherapy and intensive-care unit support. C. albicans, the most
common fungal pathogen, now accounts for 8-15% of all hospital-acquired
infections, which represents a 480% increase over the last decade. Infections
caused by C. albicans are a significant cause of morbidity and mortality, with
median increased hospital stays of 30 days and estimates of death rates ranging
from 30% to 80%. Aspergillus, a less common cause of fungal infection, results
in a mortality rate estimated at greater than 50%.
 
  RIBOGENE'S ANTIFUNGAL PROJECTS
 
     Certain fungal translational mechanisms differ from those found in human
cells and therefore provide opportunities for RiboGene scientists to identify
translation targets specific to fungal pathogens. RiboGene believes that it may
be possible to identify substances that interfere in fungal translation without
significantly affecting human translation. The Company has identified several
fungal pathogen specific translation mechanism targets and developed
fungal-specific in vitro and whole cell assays. The hits identified in the
primary high-throughput assays will be analyzed using secondary in vitro
translational assays to confirm that the compounds interfere specifically with
fungal translation without significantly affecting mammalian translation. If any
compounds with the desired potency and selectivity are discovered, they are then
assayed for their effects against pathogenic fungi in cell culture.
 
     The Company has designed and constructed a biochemical assay around certain
targets essential to fungal growth and reproduction and is actively screening
its compounds and those of its collaborative partners in these assays. For
example, the Candida in vitro assay is designed to provide information on fungal
translation by responding to inhibition of several steps within the translation
pathway. The Company uses an in vitro screen to detect for inhibitors of these
translation components. RiboGene has developed and scaled up this assay, as well
as several others incorporating certain fungal targets, for high throughput
screening.
 
     From April 1996 to April 1998, the Company, through a collaboration with
Abbott Laboratories ("Abbott" and the "Abbott Collaboration"), worked towards
the development of novel antifungal drugs. In February 1998, Abbott notified the
Company of its termination of the Abbott Collaboration effective April
 
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1998. The Company is seeking to establish a corporate collaboration for its
antifungal program to replace the Abbott Collaboration.
 
THE RIBOGENE RESEARCH PROGRAMS; ANTIVIRAL PROGRAM
 
  VIRAL INFECTIONS AND HEPATITIS C
 
     Viruses are intracellular parasites that can only reproduce and proliferate
within a living host cell. Viruses are composed of RNA or DNA genetic material
enclosed in a protective viral coat. A virus reproduces by entering a host cell
and releasing the genetic material which utilizes the host cell machinery to
recreate itself. Unlike bacteria and fungi, viruses do not have their own
cellular machinery to reproduce. The Company currently is focusing all of its
antiviral efforts on HCV.
 
     HCV is recognized as a major cause of chronic hepatitis worldwide.
According to the CDC, there are approximately four million HCV infected
individuals in the United States, with up to 180,000 new cases occurring each
year. The World Health Organization estimates that an additional 10 million
individuals are infected with HCV in Europe and a total of 170 million people
are infected worldwide. Hepatitis C accounts for 20% of all cases of acute
hepatitis. Approximately 85% of HCV infected persons will develop chronic
hepatitis, of which 20% will progress to liver cirrhosis. Chronic HCV infection
can also lead to the development of hepatocellular carcinoma and liver failure.
Currently, hepatitis C is responsible for an estimated 8,000 deaths annually,
and without effective intervention that number is estimated to triple in the
next 10 to 20 years. Hepatitis C is also a leading cause for liver
transplantation in the United States.
 
  RIBOGENE'S HCV PROJECTS
 
     RiboGene's antiviral drug discovery program focuses on interfering with
viral translation mechanisms important for viral replication. The Company is
currently focusing its HCV efforts on two HCV pathogen specific translation
mechanism targets, the HCV Internal Ribosome Entry Site ("HCV IRES"), and the
interaction between a viral protein NS5A and a human protein kinase,
RNA-activated enzyme ("PKR"), together known as HCV NS5A/PKR. The Company has
considerable expertise in the area of HCV translation. Two members of the
Company's Scientific Advisory Board ("SAB"), Dr. Nahum Sonenberg and Dr. Michael
Katze, are responsible for certain important discoveries that have significantly
aided the Company's HCV efforts. Dr. Sonenberg was a co-discoverer of the IRES
mechanisms, and Dr. Katze published his findings on the interaction of
interferon-induced PKR and NS5A. Based in part on discoveries made by Dr.
Sonenberg, Company scientists have developed translation-based assays
incorporating certain viral IRES elements, including the HCV IRES. The Company
has screened compounds in these assays. In April 1997, the Company licensed the
rights to the HCV discovery made by Dr. Katze from the University of Washington.
The Company is currently incorporating the findings of Dr. Katze and is
developing an assay designed to identify inhibitors of the interaction between
NS5A and interferon-induced PKR. See "Risk Factors -- Dependence on Patents and
Proprietary Rights."
 
     HCV Internal Ribosome Entry Site (HCV IRES) Project. An IRES is a special
structure within HCV that enables the virus to manipulate a human cell's
translation process. Viruses with defective IRES elements replicate poorly
which, the Company believes, demonstrates that a loss of IRES function is
damaging to virus replication. RiboGene believes that drugs which affect IRES
function may have similarly damaging effects on viruses with minimal side
effects on human protein synthesis because humans do not utilize IRESs to
initiate translation. At the current time, the Company is focusing all of its
HCV efforts on the NS5A/PKR project.
 
     HCV NS5A/PKR Project. PKR plays an important role in defending cells
against many kinds of viral infections. PKR regulates protein synthesis in
infected cells, thereby preventing the production of new viruses. Many viruses,
including HCV, have evolved certain defense mechanisms against PKR. RiboGene
believes that if a drug protects PKR against the HCV defense mechanisms it may
be an effective HCV therapeutic because it will enable the human enzyme to exert
its natural anti-HCV effect. The work published by Dr. Katze suggests that the
HCV protein NS5A confers interferon resistance by blocking the action of PKR.
 
                                        7
<PAGE>   10
 
     The Company is working to discover novel therapeutics that protect PKR from
this viral protein in the belief that such therapeutics could increase the
efficacy of interferon treatment. The Company also believes that it may be
possible that a compound with this activity might even allow the efficacious use
of lower doses of interferon, thereby reducing the side effects of high-dose
interferon therapy or increasing patient compliance to interferon therapy. The
target has undergone validation and is in the assay development stage. RiboGene
scientists are determining the optimal translational assay system to identify
inhibitors of the HCV NS5A/PKR interaction. The Company is currently seeking
corporate partners to continue the development of the HCV targets.
 
THE RIBOGENE DEVELOPMENT PROGRAM
 
  EMITASOL
 
     The Company acquired the rights to Emitasol from Hyline Laboratories, Inc.
in 1994. The Company, in conjunction with Roberts, is developing Emitasol for
two indications; diabetic gastroparesis and delayed onset emesis associated with
chemotherapy. See "-- Collaborative and Research Agreements."
 
     Diabetic gastroparesis. For some diabetics, proper digestion may be
difficult. Variable blood glucose levels may lead to a condition known as
gastroparesis or stomach paralysis. Gastroparesis can result in general loss of
appetite, nausea and vomiting, and in some cases severe dehydration. Many
prescription medications are used to treat gastroparesis, including bethanecal,
cisapride and erythromycin. Each of these drugs has limited effectiveness and
has side effects. Metoclopramide tablets are approved for treating
gastroparesis. The Company believes that the intranasal form of metaclopramide
may provide diabetics with gastroparesis an easier route of administration and
better patient compliance. The Company intends to study the control of diabetic
gastroparesis in a phase III clinical trial which it expects to initiate by mid
1999. Positive results in these trials may allow for the submission of a New
Drug Application ("NDA") to the United States Food and Drug Administration
("FDA"), which the Company expects may occur in 2000.
 
     Delayed onset emesis. Nausea and vomiting (emesis) are common side effects
of cancer chemotherapy. Chemotherapy-induced emesis is considered to occur in
two phases: acute (within 24 hours of the initiation of chemotherapy) and
delayed (on the second and subsequent days). Several drugs have been approved by
the FDA for preventing nausea and vomiting associated with emetogenic
chemotherapy, including injectable forms of ondansetron, granisetron, and
metoclopramide. Ondansetron and granisetron are representatives of a newer class
of drugs called serotonin antagonists or setrons, and are considered highly
effective in controlling acute chemotherapy-induced emesis. There are
conflicting reports, however, about the efficacy of serotonin antagonists in
controlling delayed onset emesis. There are in fact no FDA-approved treatments
specifically for delayed onset emesis. Increasing numbers of these patients are
being treated as outpatients and experience delayed onset emesis when they are
no longer under the immediate care of a medical professional. Any medication for
such emesis should therefore be suitable for self-administration by the patient.
Injectable medications are unlikely to be suitable in this context. It appears
that current practice is to provide patients initially with oral antiemetics in
tablet form. Tablets are not, however, particularly suitable for patients who
are nauseous and may vomit.
 
     Prior clinical trials for Emitasol have demonstrated that metoclopramide is
absorbed and effective when given intranasally. Phase I trials indicated that
the overall amount of metoclopramide which reaches the plasma is very similar
whether the drug is given intranasally, intravenously or orally. Given the
similarity in uptake of the three dosage forms, similarity might also be
expected in their clinical performance. For acute emesis the expected similarity
in performance has been demonstrated for the intranasal and intravenous dosage
forms: in a prior phase III study, Emitasol provided protection against acute
emesis comparable to that previously reported for intravenous metoclopramide.
RiboGene therefore anticipates that intranasal metoclopramide may be effective
for controlling delayed onset emesis, an activity suggested for oral
metoclopramide in the clinical literature.
 
     According to the American Cancer Society, about 1.3 million new patients
are diagnosed with cancer in the United States each year, many of which are
treated with chemotherapy. Chemotherapy is typically
 
                                        8
<PAGE>   11
 
administered as a series of separate courses over a period of several months. In
total, therefore, the number of courses of chemotherapy administered to cancer
patients each year in the United States is estimated to be over a million.
Additionally, according to the Center for Disease Control, there are 16 million
diabetics in the United States, of which 40 to 50 percent may show signs of
gastroparesis.
 
     Although the Company is currently conducting a Phase III clinical trial of
Emitasol for the treatment of diabetic gastroparesis, substantial additional
development, clinical testing and investment will be required prior to seeking
any regulatory approval for commercialization of this product. There can be no
assurance that clinical trials of Emitasol will demonstrate the safety and
efficacy of such product to the extent necessary to obtain regulatory approvals
for the indications being studied, or at all. The failure to demonstrate
adequately the safety and efficacy of Emitasol could delay or prevent regulatory
approval of the product.
 
COLLABORATIVE AND RESEARCH AGREEMENTS
 
  THE DAINIPPON AGREEMENTS
 
     In January 1998, the Company entered into a research agreement with
Dainippon in connection with the Company's two principal antibacterial targets,
deformylase and ppGpp degradase. Pursuant to the research agreement, Dainippon
and the Company agreed to collaborate in a research program directed at
accelerating the discovery of antibacterial drugs that have activity against
either of these two bacterial specific targets. Dainippon has agreed to provide
certain antibacterial research and development support internally at Dainippon
and research reimbursements ($2.0 million of which support was received in 1998
and another $2.0 million for the 1999 research year was received in February
1999) over a three-year period, subject to extension upon mutual agreement by
both parties. Pursuant to the terms of the research agreement, the duties and
responsibilities of Dainippon and RiboGene are determined by a research
committee comprised of representatives from both companies. RiboGene's initial
responsibilities include assay development and lead discovery. Both parties are
responsible for in vitro testing against pathogens and lead optimization.
Dainippon is responsible for in vivo evaluation and preclinical development.
Dainippon may terminate the research agreement at any time after January 27,
1999 upon 180 days' written notice to the Company.
 
     Also in January 1998, the Company entered into a license agreement with
Dainippon. Pursuant to the license agreement, the Company granted Dainippon
exclusive, worldwide rights to develop and market any and all antibacterial
products discovered by the parties during the joint research collaboration to
have activity against deformylase or ppGpp degradase. Under the terms of the
license agreement, Dainippon has responsibility for all development activities
necessary to commercialize potential lead compounds resulting from the Dainippon
Collaboration, including preclinical testing, clinical development, submission
for regulatory approval, manufacturing and marketing. The Company is entitled to
receive milestone payments of up to $10.0 million for each product developed
upon the achievement of mostly late-stage clinical and regulatory milestones,
consisting of up to $5.0 million through approval in Japan and up to $5.0
million through approval in a major market other than Japan, and royalties on
worldwide sales of any products that may result from such collaboration. The
Company also has an option in Europe and the United States to co-promote any
products resulting from the Dainippon Collaboration. If the Company elects to
co-promote, it will receive a co-promotion fee, in addition to royalties on
product sales, equal to at least the fully-burdened cost of each of the
Company's sales representatives that promote the products, plus an additional
co-promotion fee.
 
     In connection with the Dainippon Collaboration, the Company and Dainippon
entered into a stock purchase agreement to purchase shares of Series G preferred
stock, pursuant to which Dainippon made an initial equity investment in the
Company of $2.0 million by purchasing 756,144 shares of the Company's Series G
Preferred Stock, which automatically converted into 53,988 shares of Common
Stock upon the closing of the Company's Offering. Dainippon also received
certain registration rights with respect to the Dainippon Shares. In exchange
for an increase in the royalty rate to be received by RiboGene, the Company
issued an additional 230,000 shares of common stock to Dainippon in September
1998. There can be no assurance that the Company or Dainippon will be successful
in developing or commercializing any drugs or products under the Dainippon
Agreements. As such, there can be no assurance that any milestones will be
achieved or that any royalties contemplated by the Dainippon Agreements will
ever be made. There can be no
 
                                        9
<PAGE>   12
 
assurance that the Dainippon Agreements will not be terminated by Dainippon
prior to their expiration. See "Risk Factors -- Dependence on Collaborative
Relationships; Funding of Programs."
 
  THE ROBERTS AGREEMENT
 
     In July 1998, the Company entered into an option and license agreement with
Roberts for the development of Emitasol, for treatment of diabetic gastroparesis
and delayed onset emesis in cancer chemotherapy patients. In addition, Roberts
made a $10.0 million equity investment in RiboGene by purchasing 1,428,572
shares of Series A non-voting convertible preferred stock at $7.00 per share.
Holders of the Series A non-voting convertible preferred stock are entitled to
non-cumulative dividends, when and if declared by the Board of Directors, and
have a liquidation preference, prior to any declared dividends equal to the
original issue price of $7.00 per share. The Series A non-voting convertible
preferred stock is convertible into common stock on a one-for-one basis,
provide, however, that on or following each of the first three annual
anniversary dates of the stock issuance, the holders of the Series A preferred
stock only convert up to 33%, 50% and 100% of their shares, respectively.
Additionally, Roberts may request that the Company register up to 20% of the
converted shares in any twelve month period. Under the terms of the option and
license agreement, Roberts will conduct clinical trials using Emitasol and, if
those are successful, submit an NDA for Emitasol. If FDA regulatory approval is
obtained, Roberts will have 60 days to exercise an exclusive option for a
license to market Emitasol in North America. Roberts has agreed to make a
payment to RiboGene of up to $10.0 million upon the exercise of the option and
to pay a royalty on product sales. RiboGene will provide up to $7.0 million in
funding for the development of Emitasol through completion of Phase III trials
and the submission of an NDA, with the balance, if any, provided by Roberts.
 
  RESEARCH AGREEMENTS
 
     EnzyMed, Inc. In July 1998, the Company entered into a material transfer,
screening and collaboration agreement with EnzyMed (the "EnzyMed Agreement"), a
chemistry company that specializes in the synthesis, optimization and
identification of pharmaceutical compounds. EnzyMed's proprietary technology
integrates interactive enzymatic and microbial reactions with selected chemical
synthesis to create libraries of diverse compounds. The Company is in the
process of screening the compounds provided by EnzyMed in certain of its assays.
Upon receipt of samples from EnzyMed, the Company has four months to test the
compounds in certain of its assays. In the event RiboGene identifies a compound
that meets certain criteria, the parties will develop a mutually agreed plan for
the development of that compound. Future revenues, if any, resulting from the
sale of any compound discovered as part of this collaboration will be shared by
each party according to a predetermined formula. This agreement may be
terminated at any time upon written notice by either party. Termination would
take effect 30 days after the end of any current four month screening period.
 
     ArQule, Inc. In September 1997, the Company entered into a Material
Transfer and Screening Agreement with ArQule, a combinatorial chemistry company
(the "ArQule Agreement"), which grants the Company access to ArQule's
proprietary combinatorial chemistry libraries (the "ArQule Compounds"). The
Company has screened and intends to continue to screen the ArQule Compounds in
certain of its assays. If the Company detects activity in one or more of the
ArQule Compounds and such compounds have not already been licensed to a
third-party, the Company will have the opportunity to negotiate a collaboration
agreement for such compounds. The ArQule Agreement has an initial six-month term
with automatic six-month renewal periods, unless earlier terminated by either
party. At this point, the Company is not obligated to expend additional funds
for development of compounds under this agreement. The agreement can be
terminated by the Company upon 30 days notice, without any further obligation.
 
     Georgia State University. In March 1995, the Company entered into an
assignment agreement with Georgia State University Research Foundation ("GSU")
for the transfer of rights to certain compounds synthesized at GSU that have
shown activity in certain of the Company's antiviral assays. The agreement
transfers to RiboGene all right, title and ownership to such compounds. In
consideration for these rights, the Company paid to GSU a one-time fee of
$10,000 and agreed to the payment of royalties to GSU from any sales of products
which incorporate the assigned compounds.
 
                                       10
<PAGE>   13
 
  LICENSE AGREEMENTS
 
     Crinos Industria Farmacobiologica SpA ("Crinos"). In January 1994, as part
of its acquisition of Emitasol and certain other intranasal products from Hyline
Laboratories, Inc., RiboGene entered into a license agreement with Crinos. The
agreement grants Crinos an exclusive license to manufacture and market Emitasol
in Italy. The Company will receive a royalty on net sales of Emitasol, if any,
in Italy. The agreement expires 10 years after the first commercial sale in
Italy subject to automatic renewal for three-year periods. In October 1996, the
agreement was amended to grant Crinos a non-exclusive world-wide license to
manufacture Emitasol. The amendment provides that RiboGene will receive
additional royalties on all supply arrangements between Crinos and any licensees
of RiboGene to Emitasol. RiboGene may terminate the license agreement in the
event Crinos fails to pay certain minimum royalties. RiboGene also retains the
right to all data generated by Crinos on Emitasol, including clinical and
manufacturing information.
 
     Crinos has received governmental approval to market Emitasol in Italy.
RiboGene believes that Crinos plans to launch this product under the tradename
Pramidin by the middle of 1999. Pramidin will be marketed in two dosage forms
under the names Pramidin 10 (200 mg of active ingredient) and Pramidin 20 (400
mg of active ingredient).
 
     CSC Pharmaceuticals Handels GmbH ("CSC"). In April 1997, the Company
entered into an agreement with CSC. The agreement grants CSC an exclusive
license to market and sell Emitasol in Austria, Poland, Bulgaria, the Czech
Republic, Slovakia, Hungary, Rumania, the Community of Independent States and
eight other eastern European countries. CSC has agreed to pay a royalty to the
Company based on net sales within the countries listed above. The agreement will
expire on a country-by-country basis 10 years after the first commercial sale in
that country. RiboGene can terminate the license if CSC does not obtain approval
in any country contained in the agreement by April 16, 1999. CSC has filed for
regulatory approval in Austria and the Czech Republic.
 
     University of Washington. In April 1997, the Company entered into an
agreement with the University of Washington, which was amended in October 1997,
pursuant to which RiboGene received an exclusive worldwide license to certain
patent rights and technology relating to the interaction of the hepatitis C
virus NS5A protein and PKR. Under the agreement, the Company paid an upfront
license fee and has agreed to pay a quarterly license maintenance fee and a
milestone payment of $250,000 due upon the approval of an NDA for a compound
developed using the licensed patent rights. See "Risk Factors -- Dependence on
Patents and Proprietary Rights."
 
  THE ABBOTT COLLABORATION
 
     From April 1996 to April 1998, RiboGene had a collaboration with Abbott
Laboratories, Inc. to discover and develop antifungal drugs. Pursuant to the
agreement with Abbott, the Company granted Abbott exclusive worldwide rights to
develop and market any and all antifungal products discovered through the
Abbott-sponsored collaborative research program. From May 1996 to April 1998,
Abbott funded a significant portion of the costs associated with the Company's
antifungal program. As of December 31, 1998, the Company had realized $3.5
million in research support revenues from Abbott. As a result of Abbott's
termination of the Abbott Collaboration, effective April 8, 1998, Abbott
reimbursed the Company an additional $177,000 (included in research support
revenues for 1998) for all irrevocably committed research costs for the project
prior to termination that were not covered by previous research support
payments. In addition, each party to the agreement is obligated to return to the
other proprietary and confidential information and know-how of such other party
in its possession, and each party is entitled to retain copies of any technical
or other information which was solely or jointly generated as a direct result of
the Abbott Collaboration. The Company is seeking to establish a corporate
collaboration for its antifungal program to replace the Abbott Collaboration.
However, there can be no assurance that the Company will be successful in such
efforts.
 
PATENTS AND PROPRIETARY RIGHTS
 
     The Company believes that patents and other proprietary rights are
important to its business. The Company's policy is to file patent applications
to protect technology, inventions and improvements to its
                                       11
<PAGE>   14
 
inventions that are considered important to the development of its business. The
Company's commercial success will depend, in part, on its ability, and the
ability of any licensors, to obtain patent protection for its products and
technologies, both in the United States and in other countries. The patent
positions of pharmaceutical and biotechnology firms can be highly uncertain and
involve complex legal and technical questions for which important legal
principles are largely unresolved issues; thus making it difficult to predict
the breadth of claims which would be found allowable in any particular case.
 
     The Company owns two provisional applications, a pending patent application
and certain corresponding foreign applications relating to its antibacterial
drug discovery program; two issued U.S. patents, and certain corresponding
foreign applications, and an issued Austrian patent relating to its antifungal
drug discovery program; and an issued United States patent, a pending United
States patent application and certain corresponding foreign applications
relating to its antiviral drug discovery program. See "Risk Factors --
Dependence on Patents and Proprietary Rights."
 
     The Company is an assignee, along with McGill University, of an issued U.S.
patent and a pending U.S. patent application generally relating to translational
control of gene expression. The Company is an exclusive licensee under a
University of Washington pending United States application and certain
corresponding foreign applications directed to HCV NS5A/PKR. There can be no
assurance that any of these patent applications, or any patent applications
which the Company may acquire in the future, will issue as patents, that any
such issued patents will afford adequate protection to the Company or not be
challenged, invalidated, circumvented or infringed, or that any rights granted
under such patents will afford competitive advantages to the Company.
 
     In addition to patent protection, the Company also relies to a significant
extent upon trade secret protection for its confidential and proprietary
information, including many of the Company's key discovery technologies. There
can be no assurance that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets or disclose such technology. To protect its trade
secrets, it is RiboGene's policy to require its employees, consultants, SAB
members and parties to collaboration and licensing agreements to execute
confidentiality agreements upon the commencement of employment, the consulting
relationship or the collaboration or licensing arrangement, as the case may be,
with RiboGene. In the case of employees, the agreements also provide that all
inventions resulting from work performed by them while employed by RiboGene will
be the exclusive property of RiboGene. In the case of SAB members, the
agreements also provide that any confidential information that results from work
performed for RiboGene will be the exclusive property of RiboGene. The Company
will continue to require its employees, consultants, SAB members, collaborators
and licensees to execute confidentiality agreements and inventions assignment
agreements (in the case of its employees) upon the commencement of employment,
the consulting relationship or the collaboration or license with the Company.
There can be no assurance, however, that these agreements will not be breached
or that they will provide meaningful protection of the Company's trade secrets
or adequate remedies in the event of unauthorized use or disclosure of such
information, that the Company can meaningfully protect its rights in such
unpatented proprietary technology through other means, that any obligation to
maintain the confidentiality of such proprietary technology will not be breached
by employees, consultants, advisors, collaborators, licensees or others, or that
others will not independently develop the same or substantially equivalent
technology. The loss of trade secret protection of any of the Company's key
discovery technologies would materially and adversely affect the Company's
competitive position and could have a material adverse effect on the Company's
business, financial condition and results of operations. Finally, disputes may
arise as to the ownership of proprietary rights to the extent that outside
collaborators, licensees or consultants apply technology information developed
independently by them or others to Company projects or apply Company technology
to other projects and, if adversely determined, such disputes would have a
material adverse effect on the Company's business, financial condition and
results of operations.
 
     The Company had acquired intellectual property that falls outside the field
of infectious diseases and translational control. These acquired products
include Emitasol, for emesis associated with chemotherapy, Migrastat, for
migraine, and intranasal benzodiazepines for various conditions such as anxiety,
seizures, panic attacks and sleep disorders. The Company has licensed rights to
Emitasol in North America, Italy, Austria
                                       12
<PAGE>   15
 
and certain former Eastern European countries. The Italian licensee received
approval to market Emitasol in Italy. There can be no assurance that the other
foreign licensees, or future licensees, will obtain the necessary regulatory
approvals to market Emitasol, or that, in the event such approvals are obtained,
that Emitasol will achieve market acceptance in such countries, or that the
Company will ever realize royalties on sales of Emitasol in such countries.
 
     In April 1997, the Company entered into an agreement with CSC
Pharmaceuticals Ltd., of Vienna, Austria for the sale and distribution of
Emitasol in Austria, Eastern Europe and the Russian Federation. Under the terms
of the agreement, CSC was obligated and has filed for regulatory approval in
Austria on its behalf. CSC filed for approval in Austria in 1997 and in the
Czech Republic in 1998. In a separate agreement, the Company's Italian License,
Crinos, has agreed to manufacture Emitasol for CSC and any other licensees.
There can be no assurance that CSC will obtain approval in Austria or that if
approval is obtained, CSC will file for and obtain approval in the other
countries.
 
COMPETITION
 
     The biotechnology and pharmaceutical industries are intensely competitive
and subject to rapid and significant technological change. Many of the drugs
which the Company is developing will be competing with existing therapies. In
addition, a number of companies are pursuing the development of pharmaceuticals
which target the same diseases and conditions the Company is targeting, using
technology similar to the RiboGene technology, as well as alternative discovery
technologies, including antisense, gene therapy and genomics. The Company faces
competition from pharmaceutical and biotechnology companies both in the United
States and abroad. Many of the Company's competitors, particularly large
pharmaceutical companies, have substantially greater financial, technical and
human resources than the Company. In addition, unlike the Company, many of these
competitors have experience in undertaking preclinical studies and clinical
trials of new pharmaceutical products, obtaining the necessary regulatory
approvals and manufacturing and marketing products. In addition, academic
institutions, government agencies, and other public and private organizations
conducting research may seek patent protection with respect to potentially
competing products or technologies and may establish exclusive collaborative or
licensing relationships with competitors of the Company.
 
     The Company believes that its ability to compete is dependent, in part,
upon its abilities to create and maintain scientifically advanced technology and
to develop and commercialize pharmaceutical products based on this technology,
as well as its ability to attract and retain qualified personnel, obtain patent
protection or otherwise develop proprietary technology or processes and secure
sufficient capital resources for the expected substantial time period between
technological conception and commercial sales of products based upon the
Company's technology.
 
     There can be no assurance that the Company's competitors will not succeed
in developing technologies and drugs that are more effective or less costly than
any which are being developed by the Company or which would render the Company's
technology and future drugs obsolete and noncompetitive. In addition, the
Company's competitors may succeed in obtaining FDA or other regulatory approvals
for drug candidates more rapidly than the Company. Companies that complete
clinical trials, obtain required regulatory agency approvals and commence
commercial sale of their drugs before their competitors may achieve a
significant competitive advantage, including certain patent and FDA marketing
exclusivity rights that would delay the Company's ability to market certain
products. There can be no assurance that drugs resulting from the Company's
research and development efforts, or from the joint efforts of the Company and
its existing or future collaborative partners, will be able to compete
successfully with competitors' existing products or products under development
or that they will obtain regulatory approval in the United States or elsewhere.
 
GOVERNMENT REGULATION
 
     Regulation by governmental authorities in the United States and other
countries will be a significant factor in the production and marketing of any
pharmaceutical products that ultimately may be developed by the Company. All of
the Company's products will require regulatory approval by governmental agencies
prior to commercialization. Therapeutic drug products intended for human use are
subject to rigorous preclinical
 
                                       13
<PAGE>   16
 
and clinical testing requirements and extensive review and approval procedures
by the FDA in the United States and similar health authorities in other
countries. Various statutes and regulations also govern or affect, among other
things, the clinical testing, safety, efficacy, manufacturing, labeling,
storage, record keeping, advertising and marketing and distribution of such
products. Failure to comply with such regulations could result in, among other
things, delays in obtaining required marketing authorizations, warning letters,
recalls, suspension or termination of production, product seizures, injunctions,
civil penalties and criminal prosecution.
 
     As it relates to its drug discovery efforts, the Company currently is
engaged in the preliminary stages of drug discovery and does not expect to
submit an application for FDA marketing approval of any therapeutic product drug
for a number of years, if ever. Once the Company identifies a pharmaceutical
candidate for potential commercial development, it will be subject to a lengthy
and uncertain regulatory review process. The steps ordinarily required before a
new biopharmaceutical product may be marketed in the United States include: (i)
drug discovery and screening activities; (ii) preclinical testing; (iii) the
submission to the FDA of an investigational new drug application (an "IND")
which must become effective before clinical trials may commence; (iv) adequate
and well-controlled clinical trials to establish the safety and effectiveness of
the drug for its intended use; (v) the submission of an NDA to the FDA; and (vi)
FDA review and approval of the NDA prior to any commercial sale or distribution.
 
     Preclinical testing includes laboratory evaluation of product chemistry and
formulation, as well as animal studies to assess the safety and efficacy of the
product. Preclinical tests must be conducted in compliance with good laboratory
practice regulations. The results of preclinical tests are submitted to the FDA
as part of an IND. Unless the FDA objects to an IND, the IND will become
effective 30 days following its receipt by the FDA. In addition, the FDA may, at
any time, impose a clinical hold on an ongoing trial, requiring the suspension
of the trial until the agency authorizes its re-commencement. There can be no
assurance that submission of an IND will result in FDA authorization to commence
clinical trials or that such authorization will lead to ultimate FDA approval of
a marketing application for the product.
 
     Clinical trials involve the administration of the investigational product
to human subjects under the supervision of qualified principal investigators.
Clinical trials must be conducted in accordance with good clinical practices
under protocols submitted to the FDA as part of the IND. In addition, each
clinical trial must be approved and conducted under the auspices of an
Institutional Review Board ("IRB"), which will consider, among other things,
ethical factors, the safety of the human subjects and the potential liability of
the institution conducting the investigation.
 
     Clinical trials ordinarily are conducted in three sequential phases and
generally take an average of five years, but may take longer. In certain cases
the phases may overlap. Phase I represents the initial introduction of the drug
to a small group of healthy subjects to test for safety, dosage tolerance, and
the essential characteristics of the drug. Phase II involves studies in a
limited number of patients to test the safety and efficacy of the drug at
different dosages. Phase III trials involve large-scale evaluation of safety and
effectiveness, usually (though not necessarily) in comparison with a placebo or
an existing treatment. The results of the preclinical and clinical testing are
submitted to the FDA in the NDA. In some cases, the FDA may require additional
trials to be conducted following marketing approval to confirm safety and/or
effectiveness. There can be no assurance that Phase I, Phase II or Phase III
testing will be completed successfully within any specified time period, if at
all, with respect to any potential products that may be developed by the
Company, its collaborators or future collaborators. Furthermore, the FDA may
suspend clinical trials at any time if it decides that patients are being
exposed to a significant health risk.
 
     All data obtained from a comprehensive development program are submitted as
an NDA to the FDA. Although the FDA is required by law to review applications
within 180 days of their filing, in practice longer times are typically
required. Review generally takes an average of at least 15 months but may take
longer. The FDA frequently requests that additional information be submitted
requiring significant additional review time.
 
     Any potential products of the Company will be subject to demanding and
time-consuming NDA or similar approval procedures in countries where the Company
intends to market its products. Such regulations vary country by country.
 
                                       14
<PAGE>   17
 
     The process of obtaining required FDA marketing approvals, including a
review of manufacturing process and facilities used to produce such products,
can be costly, time consuming and subject to unanticipated delays. The FDA may
refuse to approve an application if it believes that applicable regulatory
criteria are not satisfied. The FDA may also require additional testing of a
drug product as a condition of marketing approval. There can be no assurance
that approvals of any potential products that may be developed by the Company
and its collaborative partners will be granted on a timely basis, if at all.
Even if granted, marketing approval will be limited to specific therapeutic
indications, and the Company and its collaborative partners will be subject to
periodic inspection for compliance with good manufacturing practices and other
applicable regulatory requirements relating to labeling, advertising, record
keeping, and reporting to FDA of adverse experiences and other information.
 
     In order to export any drug outside of the United States prior to FDA
approval to market in the United States, the Company must submit an export
permit application to the FDA. Whether or not FDA approval is obtained, approval
of a potential product by comparable regulatory authorities may be necessary in
other countries prior to marketing such product in such countries. The review
and approval procedures vary from country to country, can involve additional
testing and the time required may differ from that required for FDA approval. In
addition, product licensing, pricing and reimbursement requirements vary widely
from country to country. There can be no assurance that the Company will meet
and sustain any such requirements.
 
     The Company's research and development activities involve the controlled
use of hazardous materials, chemicals and various radioactive materials. The
Company is subject to federal, state and local laws and regulations governing
the use, storage, handling and disposal of such materials and certain waste
products. Although the Company believes that its safety procedures for handling
and disposing of such materials comply with the standards prescribed by state
and federal laws and regulations, the risk of accidental contamination or injury
from these materials cannot be completely eliminated. In the event of such an
accident, the Company could be held liable for any damages that result and any
liability could exceed the resources of the Company. See "Risk
Factors -- Uncertainties Related to Clinical Trials" and "-- Government
Regulation and Need for Product Approvals."
 
SCIENTIFIC ADVISORS
 
     The Company has established an SAB consisting of individuals with expertise
in translational biochemistry, particularly as it relates to bacteria, fungi,
and viruses. The Company is dependent on its SAB members, who conduct research
in cooperation with the Company and provide the Company with access to
technology developed by them. The potential success of the Company's drug
discovery programs depends in part on continued collaborations with these
advisors. The Company and various members of its management and research staff
rely heavily on the SAB for new translation-based targets and for expertise in
translation research. The Company has entered into agreements with its SAB
members which provide for confidentiality of the Company's proprietary
information. The agreements also provide that any confidential information that
results from work performed for the Company is the exclusive property of the
Company. However, the Company may not have rights to developments, publications
or the results of any research conducted by these advisors, which may adversely
affect the Company. See "Risk Factors -- Dependence on Scientific Advisors."
 
     The SAB holds meetings at least twice a year, and SAB members consult with
and meet informally with the Company and with each other on a more frequent
basis. The Company also has entered into independent consulting agreements with
certain of its SAB members pursuant to which such SAB members provide additional
services in the discovery and development of pathogen specific translation
mechanism-targeted therapeutics on a per project basis. In consideration for
services provided to the Company, each independent consultant is paid a retainer
and may receive stock options pursuant to the consulting agreements. The members
of the SAB are as follows:
 
     JOE B. HARFORD, PH.D., Chairman of the SAB, has served on the SAB since
July 1997. Dr. Harford serves as Associate Director of the National Cancer
Institute ("NCI"). In his current position Dr. Harford plays a role in shaping
the course of the NIH in several areas. He is an editor of several books related
to Molecular Biology and has over 100 scientific publications. Prior to joining
the NCI, Dr. Harford was the
 
                                       15
<PAGE>   18
 
Director of New Drug Discovery at RiboGene from 1993 to 1996. Prior to that, Dr.
Harford held various research and managerial positions at the NIH from 1979 to
1993. Dr. Harford holds a B.S. degree in Chemistry from Ohio University, and a
Ph.D. degree in Biochemistry from the University of Maryland School of Medicine.
Dr. Harford has been active in the translation field for over 10 years.
 
     JOHN HERSHEY, PH.D., has served on the SAB since November 1992. Dr.
Hershey, Professor and Chairman, Department of Biological Chemistry, University
of California, Davis. Dr. Hershey has conducted extensive research relating to
translation factors and mechanisms in many species, including humans, bacteria,
fungi, plants and sea urchins. He has 168 scientific publications (30 in the
last five years) and has served on the editorial board of several journals, with
current positions at BioChemie and Gene Expression. Dr. Hershey also is a
co-editor of the book Translational Control (1996), which is a definitive text
in the field. He received his B.S. degree from Haverford College and his Ph.D.
degree from Harvard University. Dr. Hershey has been active in the translation
field for over 35 years.
 
     ALAN HINNEBUSCH, PH.D., has served on the SAB since January 1993. Dr.
Hinnebusch is Chief, Laboratory of Eukaryotic Gene Regulation, National
Institute of Child Health and Human Development. Dr. Hinnebusch's research
interests include translational control mechanisms in fungi and mammals. He has
devised methods for cloning many translation factor genes from fungi and mammals
and this work has led to a much greater understanding of how the translation
initiation process works. Dr. Hinnebusch has 76 scientific publications (28 in
the last five years) and has served on the editorial board of several journals,
with current positions at Molecular & Cellular Biology, Microbiological Reviews
and Genetics. He received his B.S. degree from the University of Dayton and his
Ph.D. degree from Harvard University. Dr. Hinnebusch has been active in the
translation field for over 10 years.
 
     ADAM GEBALLE, M.D., has served on the SAB since December 1992. Dr. Geballe
is an Associate Member in Molecular Medicine and Clinical Research, Fred
Hutchinson Cancer Research Center and Associate Professor of Medicine. Dr.
Geballe's research interests include translational control of viral gene
expression and translation termination in eukaryotes. He has 26 scientific
publications (nine in the last five years) and serves as Associate Editor on the
Journal of Infectious Diseases. Dr. Geballe is certified by the American Board
of Internal Medicine with a Subspecialty of Infectious Disease. He received his
B.A. degree from Stanford University and his M.D. degree from Duke University.
Dr. Geballe has been active in the translation field for over 10 years.
 
     MICHAEL KATZE, PH.D., has served on the SAB since October 1992. Dr. Katze,
Professor, Department of Microbiology, University of Washington and Associate
Director for Scientific Affairs at the Regional Primate Research Center, has
conducted extensive research relating to translational control by several
viruses, including HCV, influenza, and HIV, and regulation of cellular
translation and growth by PKR. Dr. Katze devised the Company's current model of
interferon resistance in HCV. He also was involved in the development of an
alternative animal model for HIV infection. He has 83 scientific publications
(38 in the last five years) and serves on the editorial boards of Interferon and
Cytokine Research. He received his B.A. in Biology from Boston University and
his M.S. degree and Ph.D. degree from Hahnemann Medical College and Hospital.
Dr. Katze has been active in the translation field for over 15 years.
 
     DAVID MORRIS, PH.D., has served on the SAB since October 1992. Dr. Morris,
Professor, Department of Biochemistry, University of Washington, has conducted
extensive research relating to polyamine biochemistry, translational control
mechanisms and growth control regulation of translation in mammalian cells. He
has 113 scientific publications (14 in the last five years). He received his
B.A. degree from the University of California at Los Angeles and his Ph.D.
degree from the University of Illinois. Dr. Morris has been active in the
translation field for over 25 years.
 
     MICHAEL MATHEWS, PH.D., has served on the SAB since April 1993. Dr.
Mathews, Professor and Chairman of the Department of Biochemistry and Molecular
Biology at the New Jersey Medical School, has conducted extensive research
relating to translational control mechanisms by viruses, including HIV,
adenovirus and hepatitis D virus, and regulation of cellular translation and
growth by PKR. He has 152 scientific publications (47 in the last five years),
and has served on the editorial board of several journals, with current
positions at Genes & Development and Journal of Virology. He also is a co-editor
of the book
                                       16
<PAGE>   19
 
Translational Control (1996), which is a definitive text in the field. He
received his B.A. degree and Ph.D. degree from Cambridge University. Dr. Mathews
has been active in the translation field for 30 years.
 
     NAHUM SONENBERG, PH.D., has served on the SAB since October 1992. Dr.
Sonenberg, Professor, Department of Biochemistry and McGill Cancer Center,
McGill University, has conducted extensive research relating to translation
factors and mechanisms in many species, including humans, fungi and viruses.
Most of his work has been focused on translational control of mammalian cell
growth, translational control by viruses, including HCV, HIV and rhinovirus and
the initiation phase of translation. Dr. Sonenberg was one of the co-
discoverers of viral IRES elements. He has 193 scientific publications (68 in
the last five years) and has served on the editorial board of several journals,
with current positions at Molecular & Cellular Biology, Gene Expression, Journal
of Virology and RNA. He is also a co-editor of the book Translational Control
(1996), which is a definitive text in the field. He received his B.Sc. degree
and M.Sc. degree from Tel-Aviv University and his Ph.D. degree from the Weitzman
Institute of Science. Dr. Sonenberg has been active in the translation field for
almost 25 years.
 
     There can be no assurance that the Company will be able to maintain its
consulting arrangements with its SAB members or that such advisors will not
enter into consulting arrangements with competing pharmaceutical or
biotechnology companies, any of which would have a detrimental impact on the
Company's research objectives and could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors -- Dependence on Scientific Advisors."
 
EMPLOYEES
 
     At December 31, 1998, the Company had 40 full-time employees. Twenty-seven
of the Company's employees are engaged in, or directly support, the Company's
research and development activities. Of the employees engaged in research and
development activities, fourteen hold Ph.D. degrees. The Company considers
relations with its employees to be good. None of the Company's employees is
covered by a collective bargaining agreement.
 
     The Company's success will depend in large part on its ability to attract
and retain key employees and scientific advisors. The Company's potential growth
and expansion into areas and activities requiring additional expertise, such as
chemistry, are expected to place increased demands on the Company's management
skills and resources. These demands are expected to require a substantial
increase in management and scientific personnel and the development of
additional expertise by existing management personnel. Accordingly, recruiting
and retaining management and operational personnel and qualified scientific
personnel to perform research and development work in the future will also be
critical to the Company's success. There can be no assurance that the Company
will be able to attract and retain skilled and experienced management,
operational and scientific personnel on acceptable terms given the competition
among numerous pharmaceutical and biotechnology companies, universities and
other research institutions for such personnel. The failure to attract and
retain such personnel or to develop such expertise could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Risk Factors -- Dependence on and Need for Additional Key Personnel" and
"Management."
 
                                       17
<PAGE>   20
 
                                  RISK FACTORS
 
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY.
 
     RiboGene, Inc. is a drug discovery company that has experienced operating
losses every year since its inception. At December 31, 1998, the Company had an
accumulated deficit of approximately $42.3 million. The Company expects to
continue to incur substantial and increasing operating losses for at least the
next several years as it expands its research and development activities, begins
clinical trials of its products and acquires products and technologies.
 
     Neither the Company nor its collaborative partners have, except for
Emitasol, which is approved in Italy and will begin Phase III testing in the
U.S., developed products that have generated any revenues to the Company or
entered clinical trials with any potential products developed with or
in-licensed from the Company that may lead to revenues to the Company, if
successful. To date, substantially all of the Company's revenues have resulted
from payments under research and license agreements, and grants from a
governmental agency. Payments from collaborators, payments under governmental
grants and investment income are expected to be the only sources of revenue for
the foreseeable future. Significant royalties or other revenues from commercial
sales of products, if any, are not expected for a significant number of years,
if ever. To achieve profitable operations, the Company, alone or with others,
must successfully discover and identify or in-licensed drug candidates suitable
for testing in humans and use these discoveries to develop products, conduct
preclinical studies and clinical trials, obtain required regulatory approvals
and successfully manufacture, introduce and market such products. There can be
no assurance that any of these requirements to achieve profitability will be
met.
 
     The aggregate amount of future net losses and the time required by the
Company to reach or sustain profitability are highly uncertain. There can be no
assurance that the Company will ever be able to generate product revenue or
achieve profitability on a sustained basis or at all.
 
EARLY STAGE OF DEVELOPMENT; UNCERTAINTY OF PRODUCT DEVELOPMENT.
 
     RiboGene's drug discovery and development programs are at an early stage of
development. RiboGene does not expect that any drugs resulting from its research
and development efforts will be commercially available for a significant number
of years, if at all. Although the Company was organized in 1989, the Company
only began in January 1993 to focus its research and development efforts on the
identification of novel leads for antiinfective drugs, initially focusing on the
identification of antifungal and antiviral drugs. The Company's research efforts
were expanded in 1996 to include the identification of novel leads for
antibacterial drugs. To date, the Company has conducted only limited research
and development activities and has not completed the selection of any lead
compounds for drug development. None of the Company's potential lead compounds
from its drug discovery efforts has advanced to the stage of preclinical or
clinical trials. The Company's leads for potential drug candidates will be
subject to the risks and failures inherent in the development of pharmaceutical
products based on new technologies. These risks include, but are not limited to,
unanticipated problems relating to product development, testing, regulatory
compliance, manufacturing, third party patents, marketing and competition, and
additional costs and expenses that may exceed current estimates. Products, if
any, resulting from the Company's research and development programs will require
significant additional research and development efforts, and extensive
preclinical studies and clinical trials will be required prior to submission of
any regulatory application for commercial use. There can be no assurance that
the Company, or its current or any future collaborative partners, will be
permitted to undertake clinical trials of any potential products, if developed,
that sufficient numbers of patients can be enrolled for such trials or that such
clinical trials will demonstrate that the products tested are safe and
efficacious. Any or all of the Company's proposed products may prove to have
undesirable and unintended side effects or other characteristics that may limit
or prevent their commercial use.
 
     Even if clinical trials are successful, there can be no assurance that the
Company or any collaborative partner will obtain regulatory approval for any
product, that any approved product can be produced and distributed in commercial
quantities at reasonable costs or gain acceptance for use by physicians and
other
 
                                       18
<PAGE>   21
 
health care providers, or that any potential products will be marketed
successfully at prices that would permit the Company to operate profitably. The
failure of any of these events to occur would have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- The RiboGene Approach," "-- The RiboGene Research Programs,"
"-- The RiboGene Development Program" and "-- Government Regulation."
 
NEED FOR ADDITIONAL CAPITAL; UNCERTAINTY OF ADDITIONAL FUNDING.
 
     The Company expects negative cash flow from operations to continue for the
foreseeable future. The Company will require substantial additional funds to
continue and expand its research and development activities, conduct preclinical
studies and expand administrative capabilities. The Company estimates that at
its planned rate of spending, existing cash and cash equivalents, and short-term
investments, revenue from the research and development collaboration with
Dainippon, and interest income will be sufficient to allow the Company to
maintain its current and planned operations through mid-2001. There can be no
assurance, however, that the Company's assumptions regarding its future level of
expenditures and operating losses will prove to be accurate. The Company's
future funding requirements will depend on many factors, including: any
expansion or acceleration and the breadth of the Company's research and
development programs; the results of research and development, preclinical
studies and clinical trials conducted by the Company or its collaborative
partners or licensees, if any; the acquisition or licensing of technologies or
compounds, if any; the Company's ability to maintain existing and establish new
corporate relationships and research collaborations; the Company's ability to
manage growth; competing technological and market developments; the time and
costs involved in filing, prosecuting, defending and enforcing patent and
intellectual property claims; the receipt of licensing or milestone fees from
its current or future collaborative and license arrangements, if established;
the continued funding of governmental research grants; the timing of regulatory
approvals; and other factors.
 
     The Company will need to raise substantial additional capital to fund its
operations. Initially, the Company intends to seek such additional funding
through collaborative arrangements and through public or private financings,
including equity or debt financings. Any additional equity financing will be
dilutive to existing stockholders, and any debt financing, if available, may
involve restrictions on, among other things, the Company's ability to pay
dividends on its capital stock or the manner in which the Company conducts its
business. In addition, in the event that additional funds are obtained through
arrangements with collaborative partners, such arrangements may require the
Company to relinquish rights to technologies, product candidates or potential
products that the Company would not otherwise relinquish. The Company has no
commitments for any additional collaborations or financings, and there can be no
assurance that any such collaborations or financings will be available to the
Company when needed or, if available, on terms acceptable to the Company. The
inability to obtain sufficient funds when needed may require the Company to
delay, scale back or eliminate some or all of its research and development
programs or cease operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
 
DEPENDENCE ON COLLABORATIVE RELATIONSHIPS; FUNDING OF PROGRAMS.
 
     The Company's strategy for the development, preclinical and clinical
testing, manufacturing and commercialization of new drugs based on its research
and development activities depends upon corporate partners, licensors, licensees
and others. The Company expects to rely upon the performance of these outside
parties to provide funding for its research programs, further develop lead
compounds or potential product candidates, provide access to additional compound
libraries, conduct preclinical studies and clinical trials, obtain regulatory
approvals and manufacture and market any resulting products.
 
     In January 1998, RiboGene entered into the Dainippon Collaboration with
Dainippon to discover and develop antibacterial drugs based on the two principal
targets in the Company's antibacterial program. Pursuant to a license agreement
and research agreement by and between the Company and Dainippon, dated January
27, 1998 Dainippon was granted exclusive, worldwide rights to develop and market
any and all antibacterial products which have activity against either of these
two specific bacterial targets, and which are discovered during the
Dainippon-sponsored collaborative research program. Dainippon has the right to
                                       19
<PAGE>   22
 
terminate the research agreement at any time after January 27, 1999 upon 180
days written notice to the Company. There can be no assurance that Dainippon
will not terminate the research agreement prior to the expiration of its full
three-year term.
 
     In April 1996, RiboGene established a collaboration with Abbott to discover
and develop antifungal drugs. In February 1998, Abbott notified the Company of
its termination of the Abbott Collaboration, effective April 1998. The Company
is seeking to establish a corporate collaboration for its antifungal program to
replace the Abbott Collaboration, however, there can be no assurance that the
Company will be successful in such efforts. If the Company is not able to
establish a corporate collaboration for its antifungal program, the Company may
scale back or eliminate this program. The Company is currently funding the
antifungal program from its own resources.
 
     The Company currently does not have a corporate partner for its antiviral
research. The Company is seeking to establish a corporate collaboration or to
obtain additional funding for its antiviral programs. However, there can be no
assurance that the Company will be successful in such efforts. If the Company is
not able to establish a corporate collaboration for its antiviral program, the
Company may scale back or eliminate this program.
 
     The Company's revenues will be dependent on the success of the lead
compounds and potential drug candidates developed through the Dainippon
Collaboration and the approval and sale of Emitasol in conjunction with Roberts
and the Company's other licenses and on the Company's ability to establish
additional collaborations for its other programs. The failure of the Company to
maintain the Dainippon or Roberts Collaboration or to enter into agreements with
additional collaborators to provide research support, both financial and
technical, and to develop, obtain regulatory approval for, and market products
incorporating, the Company's discoveries would have a material adverse effect on
the Company's business, financial condition and results of operations. There can
be no assurance that any such collaborators will commit sufficient development
resources, technology, regulatory expertise, manufacturing, marketing and other
resources towards developing, promoting and commercializing products
incorporating the Company's discoveries. Further, competitive conflicts may
arise among these third parties that could prevent them from working
cooperatively with the Company. The amount and timing of resources devoted to
these activities by such parties could depend on the achievement of milestones
by the Company and otherwise generally will be controlled by such parties. In
addition, the Company expects that its agreements with future collaborators will
provide such collaborators with the right to terminate their agreements with the
Company upon written notice to the Company. Any such termination would
substantially reduce the likelihood that the applicable research program or any
lead candidate or candidates would be developed into a drug candidate, would
obtain regulatory approvals and would be manufactured and successfully
commercialized. Therefore, any such termination could have a material adverse
effect on the Company's business, financial condition and results of operations.
There can be no assurance that the Dainippon or Roberts Collaboration or any
future collaborations will be successful in developing and commercializing
products or that the Company will receive milestone payments or generate
revenues from royalties sufficient to offset the Company's significant
investment in research and development and other costs. There also can be no
assurance that disputes will not arise in the future with the Company's
collaborators, including with respect to the ownership of rights to any
technology developed pursuant to the collaboration. These and other possible
disagreements between collaborators and the Company could lead to delays or
interruptions in, or termination of, collaborative research, development and
commercialization of certain potential products or could require or result in
litigation or arbitration, which could be time-consuming and expensive and could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "-- Need for Additional Capital; Uncertainty of
Additional Funding" and "Business -- Collaborative and Research Agreements."
 
DEPENDENCE ON A SINGLE TECHNOLOGICAL APPROACH.
 
     The Company's research and development efforts are based solely on its
pathogen specific translation mechanism targeted approach. The Company began to
focus its research and development efforts on its pathogen specific translation
mechanism approach to drug discovery in 1993. To date, the Company has not
developed or commercialized any product or product candidates. While the Company
has demonstrated that
                                       20
<PAGE>   23
 
certain compounds have the ability to inhibit the activity of certain of the
Company's pathogen specific translation mechanism targets, the Company has not
proven that this activity can be utilized clinically as a therapeutic. There can
be no assurance that the inhibitory activity demonstrated in existing screening
will continue to be shown in further screening or drug discovery studies. There
can be no assurance that the Company's technology platform will enable it to
discover compounds that will lead to the development of drugs relevant to the
treatment of infectious diseases. There is limited scientific understanding
relating to the role of genes or translation in diseases. Relatively few
products based on genetic discoveries and no drugs discovered using a
translation-based discovery approach have been developed and commercialized to
date. The Company's pathogen specific translation mechanism technology is still
in early stages and will require significant further research, development and
testing in order to validate translation generally, or pathogen specific
translation mechanism targets specifically, as an effective method to discover
new antiinfectives. In the event that the Company's pathogen specific
translation mechanism approach is unsuccessful, the Company will be required to
identify and license or acquire alternative technologies or compounds in order
to develop leads or product candidates. To date, the Company has not identified,
licensed or acquired alternative technologies or compounds that would allow it
to develop leads or product candidates, and there can be no assurance that the
Company would be able to do so in the future. Even if the Company is successful
in identifying and developing lead compounds associated with specific diseases,
there can be no assurance that the Company will be successful in marketing its
discoveries to biopharmaceutical companies for use in the development of
therapeutic products or that any such resulting products will receive regulatory
approval or be manufactured or marketed successfully or that the Company will
not be precluded from commercialization of drug discoveries by proprietary
rights of third parties. See "-- Dependence on Patents and Proprietary Rights,"
and "Business -- Collaborative and Research Agreements."
 
DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS.
 
     The Company's commercial success will depend, in part, on its ability, and
the ability of any licensor(s), to obtain patent protection for its products and
technologies, both in the United States and in other countries. The patent
positions of pharmaceutical and biotechnology firms can be highly uncertain and
often involve complex legal and technical questions for which important legal
principles are largely unresolved, thus making it difficult to predict the
breadth of claims which would be allowable in any particular case. This
uncertain situation is also affected by revisions to the United States patent
law adopted in recent years to give effect to international accords to which the
United States has become a party. The extent to which such changes in law will
affect the obligations of the Company cannot be ascertained. The Company owns
two provisional applications, a pending patent application and certain
corresponding foreign applications relating to its antibacterial drug discovery
program; two issued United States patents, a pending United States patent
application and certain corresponding foreign applications and an issued
Austrian patent relating to its antifungal drug discovery program; and an issued
United States patent, a pending United States patent application and certain
corresponding foreign applications relating to its antiviral drug discovery
program. One of the coinventors of the Company-owned patent and patent
applications relating to the antiviral drug discovery program is Michael Katze,
Ph.D. Dr. Katze presently is a member of the Company's SAB and, at the time
these applications were filed, was a consultant to the Company and a faculty
member at the University of Washington. The Company has been in discussions with
the University of Washington regarding a potential, partial ownership interest
in the patent and the patent applications that Dr. Katze and the coinventors
assigned to the Company. Such discussions are ongoing and may result in a
determination that the University of Washington is a joint owner of the patent
and patent applications, though the Company believes, after a review of the
information available to date, that Dr. Katze, in his capacity as a consultant
to the Company, properly assigned his rights to the Company. Nevertheless, in
connection with these ongoing discussions, the Company has obtained an option
for an exclusive, worldwide license under the University of Washington's
potential ownership interest. The option is exercisable upon payment of a
$25,000 fee, at which time the Company will have an exclusive license under
terms that will include payments of $250,000 for each new drug application
approval, minor royalty payments on future sales of products developed under the
licensed patent rights and a percentage payment of sublicensing fees received by
the Company, and certain other terms to be negotiated in good faith. The Company
is an assignee, along with McGill University, of an
 
                                       21
<PAGE>   24
 
issued U.S. patent and a pending U.S. patent application generally relating to
translational control of gene expression. The Company is an exclusive licensee
under a University of Washington pending United States application and certain
corresponding foreign applications directed to HCV NS5A/PKR. There can be no
assurance that any of these patent applications, or any patent applications
which the Company may acquire in the future, will be issued as patents, that any
such issued patents will afford adequate protection to the Company and will not
be challenged, invalidated, circumvented or infringed, or that any rights
granted under such patents will afford competitive advantages to the Company. To
protect its rights to its patent applications and/or patents, the Company may be
required to participate in interference proceedings before the United States
Patent and Trademark Office to determine priority of invention and the rights to
a patent. In addition, if patents that cover the Company's activities are is
sued to other companies, there can be no assurance that the Company would be
able to obtain a license to such patents on terms acceptable to the Company, if
at all. The Company also could incur substantial costs in any litigation against
third parties, in which the Company asserts patents to which the Company has
rights. There can be no assurance that the Company's patents or those of its
licensors, if issued, would not be held invalid by a court or that a
competitor's technology or product would be found to infringe such patents.
 
     The Company's success will further depend, in part, on its ability to
operate without infringing the proprietary rights of others. There can be no
assurance that the Company's activities will not infringe patents owned by
others. The Company could incur substantial costs in defending itself in suits
brought against it or any licensor. Should the Company's products or
technologies be found to infringe patents issued to third parties, the
manufacture, use and sale of the Company's products could be enjoined, and the
Company could be required to pay substantial damages. In addition, the Company,
in connection with the development and use of its products and technologies, may
be required to obtain licenses to patents or other proprietary rights of third
parties. No assurance can be given that any licenses required under any such
patents or proprietary rights would be made available on terms acceptable to the
Company, if at all. Failure to obtain such licenses could have a material
adverse effect on the Company.
 
     In addition to patent protection, the Company also relies to a significant
extent upon trade secret protection for its confidential and proprietary
information, including many of the Company's key discovery technologies. There
can be no assurance that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets or disclose such technology. To protect its trade
secrets, RiboGene has required its employees, consultants, SAB members and
parties to collaboration and licensing agreements to execute confidentiality
agreements upon the commencement of employment, the consulting relationship or
the collaboration or licensing arrangement, as the case may be, with RiboGene.
In the case of employees, the agreements also provide that all inventions
resulting from work performed by them while employed by RiboGene will be the
exclusive property of RiboGene. In the case of SAB members, the agreements also
provide that any confidential information that results from work performed for
RiboGene will be the exclusive property of RiboGene. The Company will continue
to require its employees, consultants, SAB members and collaborators and
licensees to execute confidentiality agreements and inventions assignment
agreements (in the case of its employees) upon the commencement of employment,
the consulting relationship or the collaboration or license with the Company.
There can be no assurance, however, that these agreements will provide
meaningful protection of the Company's trade secrets or adequate remedies in the
event of unauthorized use or disclosure of such information, or that the
Company's trade secrets will not otherwise become known or be independently
discovered by its competitors, that the Company can meaningfully protect its
rights in such unpatented proprietary technology through other means, that any
obligation to maintain the confidentiality of such proprietary technology will
not be breached by employees, consultants, advisors, collaborators, licensees or
others or that others will not independently develop the same or substantially
equivalent technology. The loss of trade secret protection of any of the
Company's key discovery technologies would materially and adversely affect the
Company's competitive position and could have a material adverse effect on the
Company's business, financial condition and results of operations. Finally,
disputes may arise as to the ownership of proprietary rights to the extent that
outside consultants, collaborators or licensees apply technological information
developed independently by them or others to Company projects or apply Company
technology to other projects and, if adversely determined, such disputes could
have a material adverse effect on the
                                       22
<PAGE>   25
 
Company's business, financial condition and results of operations. See
"-- Dependence on Scientific Advisors," "-- Dependence on and Need for
Additional Key Personnel" and "Business -- Patents and Proprietary Rights."
 
COMPETITION.
 
     The biotechnology and pharmaceutical industries are intensely competitive
and subject to rapid and significant technological change. Many of the drugs
which the Company is attempting to discover will be competing with existing
therapies. In addition, a number of companies are pursuing the development of
pharmaceuticals which target the same diseases and conditions the Company is
targeting, using technology similar to the RiboGene technology, as well as
alternative discovery technologies. The Company faces competition from
pharmaceutical and biotechnology companies both in the United States and abroad.
Many of the Company's competitors, particularly large pharmaceutical companies,
have substantially greater financial, technical and human resources than the
Company. In addition, unlike the Company, many of these competitors have
experience in undertaking preclinical studies and clinical trials of new
pharmaceutical products and obtaining the necessary regulatory approvals and
manufacturing and marketing products. In addition, academic institutions,
government agencies, and other public and private organizations conducting
research may seek patent protection with respect to potentially competing
products or technologies and may establish exclusive collaborative or licensing
relationships with competitors of the Company.
 
     The Company believes that its ability to compete is dependent, in part,
upon its abilities to create and maintain scientifically advanced technology and
to develop and commercialize pharmaceutical products based on this technology,
as well as its ability to attract and retain qualified personnel, obtain patent
protection or otherwise develop proprietary technology or processes and secure
sufficient capital resources for the expected substantial time period between
technological conception and commercial sales of products based upon the
Company's technology.
 
     There can be no assurance that the Company's competitors will not succeed
in developing technologies and drugs that are more effective or less costly than
any which are being developed by the Company or which would render the Company's
technology and future drugs obsolete and noncompetitive. In addition, the
Company's competitors may succeed in obtaining the approval of the United States
Food and Drug Administration or other regulatory approvals for drug candidates
more rapidly than the Company. Companies that complete clinical trials, obtain
required regulatory agency approvals and commence commercial sale of their drugs
before their competitors may achieve a significant competitive advantage,
including certain patent and FDA marketing exclusivity rights that would delay
the Company's ability to market certain products. There can be no assurance that
drugs resulting from the Company's research and development efforts, or from the
joint efforts of the Company and its existing or future collaborative partners,
will be able to compete successfully with competitors' existing products or
products under development or that they will obtain regulatory approval in the
United States or elsewhere.
 
DEPENDENCE ON AND NEED FOR ADDITIONAL KEY PERSONNEL.
 
     The Company is highly dependent on the services of Charles J. Casamento,
President, Chief Executive Officer and Chairman of the Board. There can be no
assurance that Mr. Casamento will continue to be employed by the Company in the
future. The loss of Mr. Casamento could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company's
potential growth and expansion into areas and activities requiring additional
expertise, such as product development, clinical trials and regulatory affairs,
are expected to place increased demands on the Company's management skills and
resources. These demands are expected to require a substantial increase in
management and scientific personnel and the development of additional expertise
by existing management personnel. Accordingly, recruiting and retaining
management and operational personnel and qualified scientific personnel to
perform research and development work in the future will also be critical to the
Company's success. There can be no assurance that the Company will be able to
attract and retain skilled and experienced management, operational and
scientific personnel on acceptable terms given the competition among numerous
pharmaceutical and biotechnology companies, universities and other research
institutions for such personnel. The failure to
                                       23
<PAGE>   26
 
attract and retain such personnel or to develop such expertise could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Employees" and "Management."
 
UNCERTAINTIES RELATED TO CLINICAL TRIALS.
 
     The Company believes it will be several years, if ever, before any
potential product candidates discovered using its technology would be ready to
begin the regulatory approval process. Before seeking such approval, the Company
or its collaborative partners must demonstrate in extensive preclinical studies
and clinical trials that any such product candidate is safe and effective for
use in each target indication. The results of preclinical studies and early
clinical trials may not be predictive of results that will be obtained in
large-scale testing or use, and there can be no assurance that any such
preclinical studies and clinical trials will demonstrate the safety and efficacy
of any product candidate, if successfully developed, or that, regardless of
preclinical and clinical trial results, FDA approval will be obtained or that
marketable products will result. A number of companies in the pharmaceutical
industry have suffered significant setbacks in advanced clinical trials or have
not received FDA approval, even after promising results in earlier trials.
Clinical trials for any product candidates developed by the Company and its
collaborators may be delayed by many factors. Furthermore, the FDA may suspend
clinical trials at any time if it decides that patients are being exposed to an
unreasonable and significant health risk. In addition, clinical trials are often
conducted with patients having the most advanced stages of disease. During the
course of treatment, these patients can die or suffer other adverse medical
effects for reasons that may not be related to the pharmaceutical agent being
tested, but which can nevertheless affect clinical trial results. Any delays in,
or termination of, the clinical trials of any of the Company's product
candidates, if successfully developed, or the failure of any clinical trials to
meet applicable regulatory standards, could have a material adverse effect on
the Company's business, financial condition and results of operations.
 
GOVERNMENT REGULATION AND NEED FOR PRODUCT APPROVALS.
 
     The manufacture and marketing of any products developed by the Company and
its ongoing research and development activities are subject to regulation by
numerous governmental authorities in the United States and other countries.
Prior to marketing, any drug developed by the Company must undergo rigorous
preclinical and clinical testing and an extensive regulatory approval process
mandated by the FDA and equivalent authorities in other countries. These
processes can take a number of years and require the expenditure of substantial
resources. The time required for completing such testing and obtaining such
approvals is uncertain, and there can be no assurance that such approvals will
be obtained or that marketable products will result. The safety and efficacy of
a therapeutic product under development by the Company must be supported by
extensive data from clinical trials. The results from preclinical studies and
early clinical trials may not be indicative of results that will be obtained in
large-scale testing. In addition, delays or rejections may be encountered in the
regulatory review process or in the event there are changes in FDA policy or the
Company decides to replace the compounds in testing with modified or optimized
compounds. There can be no assurance that even after such time and expenditures,
regulatory approval will be obtained for any products developed by the Company.
Failure by the Company to obtain regulatory approval of any products resulting
from its discovery programs could have a material adverse effect on the
Company's business, financial condition and results of operations. There can be
no assurance that if clinical trials are completed, the Company will submit an
NDA with respect to any potential products or that such applications will be
reviewed and approved by the FDA in a timely manner, if at all.
 
     If regulatory approval of a product is granted, such approval will entail
limitations on the indicated uses for which the product may be marketed.
Further, even if such regulatory approval is obtained, a marketed product, its
manufacturer, and its manufacturing facilities are subject to continual review
and periodic inspections, and later discovery of previously unknown problems
with a product, manufacturer or facility may result in restrictions on such
product, manufacturer or facility, including withdrawal of the product from the
market. Failure to comply with ongoing relevant regulatory requirements may
result in, among other things, warning letters, fines, product recalls or
seizures, suspension or termination of production, injunctions, delays
 
                                       24
<PAGE>   27
 
in obtaining marketing authorization or refusal of the government to grant such
approvals, withdrawals of previously granted approvals, civil penalties and
criminal prosecution, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations.
 
     The Company and its collaborative partners may also be subject to
regulation under state and federal laws, including requirements regarding
occupational safety and laboratory practices, and may be subject to other
present and possible future local, state, federal and foreign regulation. The
impact of such regulation upon the Company cannot be predicted and could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Government Regulation."
 
LACK OF MANUFACTURING, MARKETING AND SALES CAPABILITY AND EXPERIENCE.
 
     RiboGene does not expect to invest in the development of manufacturing,
marketing or sales capabilities in the foreseeable future. If the Company is
unable to contract for manufacturing capabilities on acceptable terms, the
Company's ability to conduct preclinical and clinical trials with any potential
drug candidates would be adversely affected, resulting in delays in the
submission of any drug candidate for regulatory approval and in the initiation
of new development programs, which in turn could materially impair RiboGene's
competitive position and the possibility of achieving profitability.
 
     The Company has no experience in marketing drugs. The Company has granted
marketing rights to Dainippon and under certain circumstances has retained
copromotion rights with respect to antibacterial drugs developed through the
Dainippon Collaboration. The Company has granted an option to Roberts for North
American marketing rights to Emitasol. The Company intends to collaborate with
additional third parties to market any drugs that may result from its other
areas of focus. There can be no assurance that any such collaborative agreement
can be reached on acceptable terms, if at all. There can be no assurance that
the Company will be able to establish or maintain third party relationships to
provide any or all of these capabilities.
 
PRODUCT LIABILITY AND AVAILABILITY OF INSURANCE.
 
     The Company's business will expose it to potential liability risks that are
inherent in the testing, manufacturing and marketing of pharmaceutical products.
The use of any drug candidates ultimately developed by the Company or its
collaborators in clinical trials may expose the Company to product liability
claims and possible adverse publicity. These risks will expand with respect to
the Company's drug candidates, if any, that receive regulatory approval for
commercial sale. Product liability insurance for the biotechnology industry is
generally expensive, if available at all. The Company does not have product
liability insurance but intends to obtain such coverage if and when any drug
candidates are tested in clinical trials. However, such coverage is becoming
increasingly expensive and there can be no assurance that the Company will be
able to obtain insurance coverage at acceptable costs or in a sufficient amount,
if at all, or that a product liability claim would not adversely affect the
Company's business, operating results or financial condition.
 
UNCERTAINTY RELATED TO HEALTH CARE INDUSTRY.
 
     The successful commercialization of any drug candidates developed by the
Company and its current and future collaborators will depend substantially on
reimbursement of the costs of the resulting drugs from government authorities,
private health insurers and other organizations at levels acceptable to the
Company. There can be no assurance that adequate reimbursement will be available
or, if available, will not be decreased in the future, or that reimbursement
amounts will not reduce the demand for, or the price of, any such drugs. Any of
the foregoing could have a material adverse effect on the Company's business,
financial condition and results of operations. If such reimbursement is not
available or is available on a limited basis, the Company may not be able to
retain any collaborative partners to manufacture and commercialize any drugs and
may not be able to obtain a financial return on the manufacture and
commercialization of any future drugs.
 
     Third-party payers are increasingly focusing on the cost-effectiveness
profile of prescription drugs and challenging the prices charged for such
products and services. Also, the trend towards managed health care in the United
States and the concurrent growth of organizations such as health maintenance
organizations, which
                                       25
<PAGE>   28
 
could control or significantly influence the purchase of health care services
and products, as well as legislative proposals to reform health care or
government medical assistance programs, may all result in lower prices or
reduced markets for any products developed by the Company or its current and
future collaborators. The cost containment measures that health care providers
and payers are instituting could adversely affect the Company's or its current
and future collaborators' ability to sell future products and may have a
material adverse effect on the Company. To date, the Company has not conducted
any marketing studies on any of its potential product candidates and has not
undertaken any pharmacoeconomic analysis with respect to any potential products.
The cost containment measures and reforms that government institutions and
third-party payers are considering could result in significant and unpredictable
changes to the marketing and pricing and reimbursement practices of
biopharmaceutical and pharmaceutical companies such as the Company and its
current and future collaborators. The adoption of any such measures or reforms
could have a material adverse effect on the business, financial condition and
results of operations of the Company.
 
ITEM 2. PROPERTIES
 
     RiboGene currently leases approximately 30,000 square feet of laboratory
and office space in Hayward, California under a lease expiring in November 2012.
The Company has sublet 5,000 square feet of this facility through February 28,
2001. In connection with the lease, the Company issued to the landlord a
six-year warrant to purchase 17,850 shares of Common Stock at $31.51 per share.
 
ITEM 3. LEGAL PROCEEDINGS
 
     RiboGene is not a party to any material legal proceedings.
 
ITEM 4. SUBMISSION OF MATTERS OF A VOTE OF SECURITY HOLDERS
 
     None.
 
                                       26
<PAGE>   29
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
 
     (a) Shares of the Company's Common Stock commenced trading on the American
Stock Exchange on May 28, 1998, under the symbol "RBO." The Company has never
paid cash dividends and does not anticipate paying cash dividends in the
foreseeable future. As of February 28, 1999, there were approximately 160
holders of record of the Company's Common Stock.
 
     The following table sets forth quarterly range of high and low sale prices
available reported by the American Stock Exchange
 
<TABLE>
<CAPTION>
                            1998                              HIGH          LOW
                            ----                              ----          ---
<S>                                                           <C>           <C>
Second Quarter (from May 28, 1998)..........................   7 1/8         5 3/8
Third Quarter...............................................   7             2 13/16
Fourth Quarter..............................................   4 1/2         1 13/16
</TABLE>
 
     (b) Use of Proceeds. The effective date of the Company's registration
statement, filed on Form S-1 under the Securities and Exchange Act of 1933, as
amended (File No. 333-38781), was May 28, 1998 (the "Registration Statement").
The class of securities registered was Common Stock and all securities sold were
sold in the offering. The underwriter for the offering was Gruntal & Co., L.L.C.
Pursuant to the Registration Statement, the Company sold 2,300,000 shares of its
Common Stock for an aggregate offering price of $16.1 million.
 
     In connection with the public offering, the Company incurred expenses of
$3.9 million, of which $1.8 million represented underwriting discounts and
commissions and expense reimbursements and $2.1 million represented other
expenses related to the offering. No proceeds were paid directly or indirectly
to directors, officers, general partners of the Company or to persons holding
ten percent or more of any class of equity security issued by the Company, or to
any other affiliate of the Company. The net offering proceeds to the Company
after total expenses was $12.2 million.
 
     The Company has used $3.6 million of the net proceeds from the offering for
operations. The Company has invested the remainder of the net proceeds in
short-term, investment-grade, interest bearing financial instruments. The use of
the proceeds from the offering does not represent a material change in the use
of the proceeds described in the Registration Statement.
 
RECENT SALES OF UNREGISTERED SECURITIES
 
     In December 1998, the Registrant issued to Reedland Capital Partners
("Reedland") a warrant to purchase up to an aggregate of 50,000 shares of Common
Stock in connection with a credit facility arrangement.
 
     The above-listed securities were issued in reliance on Section 4(2) of the
Securities Act of 1933.
 
                                       27
<PAGE>   30
 
ITEM 6. SELECTED FINANCIAL DATA
 
     The selected financial data set forth below have been derived from the
audited financial statements of the Company. The audited financial statements of
the Company as of December 31, 1998 and 1997 and for each of the three years in
the period ended December 31, 1998, together with the notes thereto and the
related report of Ernst & Young LLP, independent auditors, are included
elsewhere herein. The selected financial data set forth below should be read in
conjunction with the Financial Statements of the Company and related Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The Company has not declared or paid cash dividends on
its Common Stock since inception and does not intend to pay any cash dividends
in the foreseeable future.
 
<TABLE>
<CAPTION>
                                                      YEAR ENDED DECEMBER 31,
                                      --------------------------------------------------------
                                        1998        1997        1996        1995        1994
                                      --------    --------    --------    --------    --------
                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                   <C>         <C>         <C>         <C>         <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
  Contract research.................  $  2,569    $  1,668    $  1,112    $     --    $     --
  Grants............................       594       1,303         975         407         238
                                      --------    --------    --------    --------    --------
                                         3,163       2,971       2,087         407         238
Operating expenses:
  Research and development..........     7,296       4,130       4,296       4,663       4,209
  General and administrative........     3,033       1,551       1,372       2,758       2,424
  Financial advisory costs..........        --       1,396          --          --          --
  Acquired in-process research and
     development....................        --          --          --          --       5,000
                                      --------    --------    --------    --------    --------
Total operating expenses............    10,329       7,077       5,668       7,421      11,633
                                      --------    --------    --------    --------    --------
Loss from operations................    (7,166)     (4,106)     (3,581)     (7,014)    (11,395)
Interest income (expense), net......       605          (7)       (282)       (240)        (42)
                                      --------    --------    --------    --------    --------
Net loss............................    (6,561)     (4,113)     (3,863)     (7,254)    (11,437)
Deemed dividend upon conversion of
  preferred stock(2)................    (7,989)         --          --          --          --
                                      --------    --------    --------    --------    --------
Net loss attributable to common
  stockholders......................  $(14,550)   $ (4,113)   $ (3,863)   $ (7,254)   $(11,437)
                                      ========    ========    ========    ========    ========
Basic net loss per common
  share(1)..........................  $  (4.49)   $ (41.13)   $ (52.92)   $(164.86)   $(300.97)
                                      ========    ========    ========    ========    ========
Shares used in computing basic net
  loss per common share(1)..........     3,244         100          73          44          38
                                      ========    ========    ========    ========    ========
</TABLE>
 
<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                      --------------------------------------------------------
                                        1998        1997        1996        1995        1994
                                      --------    --------    --------    --------    --------
                                                           (IN THOUSANDS)
<S>                                   <C>         <C>         <C>         <C>         <C>
BALANCE SHEET DATA:
  Cash, cash equivalents and
     short-term investments.........  $ 29,518    $  2,045    $  1,981    $  1,897    $  4,416
  Working capital (deficit).........    26,261      (1,745)       (954)     (1,762)      2,133
  Total assets......................    31,820       4,312       2,657       2,404       5,105
  Long-term obligations.............     5,718         477       1,494       2,656       3,192
  Accumulated deficit...............   (42,258)    (35,697)    (31,584)    (27,721)    (20,467)
  Total stockholders' equity
     (deficit)......................    22,755        (162)     (1,956)     (4,029)       (504)
</TABLE>
 
---------------
(1) See Note 1 of Notes to Financial Statements for information concerning the
    computation of net loss per share.
 
(2) See Note 6 of Notes to Financial Statements for information concerning the
    deemed dividend upon conversion of preferred stock.
 
                                       28
<PAGE>   31
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
     This Management's Discussion and Analysis of Financial Condition and
Results of Operations contain forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause or
contribute to such a difference include, but are not limited to, those discussed
herein and in "Risk Factors" in Part I.
 
OVERVIEW
 
     RiboGene is a drug discovery company focused on the identification of novel
leads and the development of potential drug candidates for the treatment of
infectious diseases. The Company's drug discovery efforts, which are based on
translational control of gene expression, target bacterial, fungal, and viral
infections. A significant part of the Company's strategy is to enter into
collaborative arrangements with partners to develop pharmaceutical candidates
and to pursue the acquisition of late stage clinical compounds. The Company was
founded in May 1989 to develop laboratory equipment for cell-free protein
synthesis. In January 1993, the Company discontinued development of the lab
equipment and began to focus its research and development efforts on the
identification of novel leads and the development of potential drug candidates
for the treatment of infectious diseases. The Company's research efforts
initially focused on infections caused by fungi and viruses. In 1996, the
Company expanded its research efforts to include infections caused by bacteria.
Simultaneously with the shift in focus to infectious disease drug discovery, in
1993 and later in 1994, the Company in-licensed certain technology not directly
related to its drug discovery efforts. In September 1993, the Company acquired
the rights to a compound known as RG-201. In January 1994, the Company acquired
from Hyline Laboratories, Inc. ("Hyline") certain in-process research and
development (the "Intranasal Product Acquisition"), including certain patents
and other intellectual property, for an aggregate purchase price of $5.0
million, and warrants to purchase 92,820 shares of Common Stock, with an
exercise price of $16.67. As consideration for an amendment to a certain
promissory note issued by RiboGene to Hyline in connection with such purchase,
the Company issued a warrant to Hyline to purchase an additional 13,923 shares
of Common Stock at $16.67 per share. All warrants related to the Intranasal
Product Acquisition and amendment expired in January 1999. The patents and other
intellectual property acquired in connection with the Intranasal Product
Acquisition relate to intranasal formulations and the corresponding
administration of metoclopramide, propranolol and certain benzodiazepines.
Potential products incorporating this technology were under development by
Hyline at the time of acquisition. In connection with the Intranasal Product
Acquisition, the Company also entered into an agreement with the sole
stockholder of Hyline pursuant to which the Company is obligated to pay such
stockholder $50,000 per quarter through December 1999. Such obligation was fully
recognized in the Company's Statement of Operations in 1994 and 1995. One of the
potential products acquired by the Company was Emitasol, an intranasal
formulation of metoclopramide for the treatment of emesis following
chemotherapy. In July 1998, the Company entered into the Roberts Agreement to
develop Emitasol for the treatment of diabetic gastroparesis and the prevention
of delayed onset emesis due to chemotherapy. See "Business -- Patents and
Proprietary Rights" and "Certain Transactions."
 
     In January, 1998, the Company entered into a collaboration with Dainippon
encompassing the two principal targets in the Company's antibacterial program.
As part of the Dainippon Collaboration, Dainippon agreed to provide the Company
with research support payments over three years ($4.0 million of which has been
received to date), and to provide additional research and development at
Dainippon, over the three-year term of the research program. The Company may
also be entitled to receive milestone payments upon the achievement of mostly
late-stage clinical and regulatory milestones in an amount of up to $10.0
million for each product developed through the collaboration, consisting of up
to $5.0 million through approval in Japan and up to $5.0 million through
approval in one additional major market territory. In connection with the
Dainippon Collaboration, Dainippon purchased $2.0 million of the Company's
Series G Preferred Stock, which automatically converted into 53,988 shares of
Common Stock concurrently with the closing of the Company's initial public
offering. In September 1998, the Company issued to Dainippon 230,000 shares of
Common Stock in exchange for an increased royalty interest in the sales from
future products, as defined in the collaboration agreement between the Company
and Dainippon. As a result of this transaction, the
 
                                       29
<PAGE>   32
 
Company recognized a $747,000 one-time non-cash charge to research and
development expense during 1998, representing the fair market value of the
common stock at the date of issuance. From April 1996 to April 1998, the Company
had a collaboration with Abbott for the Company's antifungal program. As of
December 31, 1998, the Company had realized $3.3 million in research support
revenues from Abbott. In connection with the Abbott Collaboration, Abbott made a
$3.5 million equity investment in the Company and purchased an additional $4.0
million of Common Stock directly from the Company in a private placement at
$7.00 per share concurrently with the closing of the Company's initial public
offering. See "Business -- Collaborative and Research Agreements."
 
     The Company has generated no revenue from the sales of products and,
through December 31, 1998, has incurred cumulative net losses of approximately
$42.3 million and, at December 31, 1998, had net stockholders' equity of $22.8
million. The Company expects to incur significant operating losses over the next
several years due primarily to expanded research and development efforts,
preclinical and clinical testing of its product candidates and commercialization
activities. The Company does not anticipate significant revenues from product
sales for a number of years, if ever. The Company's sources of revenues for the
next several years will be payments from strategic collaborations, royalties on
Emitasol sales, if any, in North America and interest income. Certain payments
under collaborations are or will be contingent upon the Company or its
collaborators achieving certain milestones as to which there can be no
assurance. Results of operations may vary significantly from quarter to quarter
depending on, among other factors, the progress of the Company's research and
development efforts, results of clinical testing, the timing of certain
expenses, the establishment of collaborative research agreements and the receipt
of grants or milestone payments, if any. See "Risk Factors -- Need for
Additional Capital; Uncertainty of Additional Funding."
 
RESULTS OF OPERATIONS
 
  FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
 
     For the year ended December 31, 1998, the Company's revenues consisted of
revenues from collaboration agreements and SBIR grants from the National
Institutes of Health. Revenue earned under the Dainippon Agreements, which began
in February 1998, amounted to $1.8 million for the year ended December 31, 1998.
Revenue earned under the Abbott Agreements was $736,000 and $1.7 million for the
years ended December 31, 1998 and 1997, respectively. The Abbott Agreements
ended in April 1998. Revenues from SBIR grants for the year ended December 31,
1998 were $594,000 as compared to $1.3 million in the year ended December 31,
1997. The decrease in grant revenues results from the completion of three grants
during 1997 and four grants during 1998. Revenues earned under research grants
are determined by the timing of the award from the issuing agency and services
performed by the Company. As a result, research grant revenue earned in one
period is not predictive of research grant revenue to be earned in future
periods.
 
     Research and development expenses increased $3.2 million or 77%, to
approximately $7.3 million for the year ended December 31, 1998, from $4.1
million in the year ended December 31, 1997. This increase resulted from
equipment and facility costs associated with the Company's new laboratories and
recruiting and other costs for the addition of research personnel to expand
medicinal chemistry capabilities and the antiinfective drug discovery programs.
The Company also recorded a $747,000 one-time non-cash charge to research and
development expense in 1998 upon the issuance of 230,000 shares of the Company's
common stock to Dainippon. The Company also initiated its development effort
with Roberts on Emitasol in the fall of 1998. Research and development expenses
represented approximately 71% of total operating expenses of $10.3 million in
the year ended December 31, 1998, as compared to 58% of total operating expenses
of $7.1 million in the year ended December 31, 1997.
 
     General and administration expenses increased $1.5 million, or 96%, to $3.0
million for the year ended December 31, 1998, from $1.6 million in the year
period ended December 31, 1997. This increase is due to additional operating
costs associated with the Company's new facility, increased business development
costs, and additional internal staff, legal, accounting, and reporting costs
associated with public company status.
 
                                       30
<PAGE>   33
 
     The Company recognized net interest income of $605,000 for the year ended
December 31, 1998 compared to net interest expense of $7,000 for the year ended
December 31, 1997. This change results from interest income earned on the
short-term investment of the proceeds from the Company's initial public offering
and the equity investment from Roberts.
 
     The net loss for the year ended December 31, 1998 was $6.6 million an
increase of $2.5 million, or 60%, from the net loss of $4.1 million for the year
ended December 31, 1997. The increase resulted from the changes in revenue and
operating expenses discussed above.
 
     The Company recorded a deemed dividend of $8.0 million in 1998 upon
conversion of Series F preferred stock to common stock concurrent with the
closing of the Company's initial public offering. The Series F preferred stock
contained certain anti-dilution provisions that resulted in the Series F
preferred stockholders receiving an additional 1,141,317 shares of common stock
upon conversion.
 
     As of December 31, 1998, the Company had a federal net operating loss
carryforward of approximately $34.8 million available to offset future taxable
income, if any. The Company also had federal and state research and development
tax credit carryforwards of approximately $575,000 and $375,000, respectively.
The net operating loss carryforward will begin to expire incrementally at
various dates beginning from 2004 through 2018, if not utilized. Utilization of
the net operating losses and credits may be subject to substantial annual
limitation due to the "change in ownership" provisions of the Internal Revenue
Code of 1986, as amended, and similar state provisions. The annual limitation
may result in the expiration of net operating losses and credits before
utilization. See Note 7 of Notes to Financial Statements.
 
  YEARS ENDED DECEMBER 31, 1997 AND 1996
 
     For the year ended December 31, 1997, the Company's revenues consisted of
revenues from the Abbott Agreements and SBIR grants from the National Institutes
of Health. Revenues earned under the Abbott Agreements were $1.7 million for the
year ended December 31, 1997, as compared to $1.1 million for the year ended
December 31, 1996. The increase is attributable to the Company's research
support payments beginning in May 1996 and, as a result, the 1996 period
includes only eight months of support revenue as compared to 12 months of
support revenue during 1997. Revenues from the SBIR grants for the year ended
December 31, 1997 were $1.3 million as compared to $975,000 for the year ended
December 31, 1996. The increase in grant revenue results from the funding of two
grants that were awarded in the fourth quarter of 1996. Revenues earned under
research grants are determined by the timing of the award from the issuing
agency. As a result, research grant revenue earned in one period is not
predictive of research grant revenue to be earned in future periods.
 
     Research and development expenses were $4.1 million in 1997 compared to
$4.3 million in 1996. Although the Company discontinued the external activities
involving Emitasol and RG-201 in 1996, research and development expenses in 1997
remained the same as compared to 1996 due to an increase in the Company's
scientific staff to support its infectious disease drug discovery programs.
Research and development expenses represented approximately 58% of total
operating expenses of $7.1 million in 1997 as compared to 76% of total operating
expenses of $5.7 million in 1996.
 
     General and administrative expenses increased $179,000, or 13%, to $1.6
million in 1997, from $1.4 million in 1996. This increase was the result of
additional administrative costs associated with a 1997 increase in the Company's
scientific staff.
 
     Financial advisory costs consist of a one-time, non-cash charge of $1.3
million, and $96,000 of accrued expenses, which were recognized as an expense
upon the signing of a financial advisory agreement in June 1997 with a placement
agent who assisted the Company with the issuance of the Series F Preferred Stock
("the Placement Agent"). The $1.3 million one-time, non-cash charge for
financial advisory costs represents the fair value of options issued to the
Placement Agent pursuant to the financial advisory agreement.
 
     Net interest expense decreased $275,000, or 98%, to $7,000 in 1997, from
$282,000 in 1996. This decrease resulted from the repayment of debt and
conversion of promissory notes issued to certain of the Company's investors in
1996.
                                       31
<PAGE>   34
 
     The net loss for the year ended December 31, 1997 was $4.1 million, an
increase of $250,000, or 6%, from the net loss of $3.9 million for 1996, due to
the changes in revenue and operating expenses discussed above. The net loss of
$4.1 million included the $1.4 million one-time charge ($1.3 million of which is
non-cash) described above for expense associated with the signing of the
financial advisory agreement with the Placement Agent. Exclusive of the $1.4
million charge, the net loss would have decreased by $1.1 million or 30% from
$3.9 million to $2.7 million.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The Company has financed its operations since incorporation primarily
through public offerings and private sales of Common Stock and Preferred Stock,
warrants, SBIR grants, the Roberts, Dainippon and Abbott Collaborations, the
issuance of short-term convertible and long-term notes and equipment financing
arrangements. Through December 31, 1998, the Company has raised approximately
$67.4 million from such sales of Common Stock and Preferred Stock, warrants and
short-term convertible notes, $3.5 million from SBIR grants, and $5.4 million
from the Abbott and Dainippon Collaborations (excluding the initial Abbott and
Dainippon equity investments). The Company's capital expenditures and payments
under capital lease obligations aggregate approximately $2.5 million through
December 31, 1998, and cash used to fund operating activities since
incorporation $30.9 million. In September 1998, the Company entered into $2.0
million line of credit for financing capital purchases. Drawdowns under this
line of credit are collateralized by equipment purchased under this agreement.
At December 31, 1998, the Company had drawn down $620,000 under this line of
credit and anticipates utilizing the remainder in 1999.
 
     In December 1998, the Company received $5.0 million from long-term debt
financing with a bank. The note requires monthly interest payments with the
principal payment due at the end of the three year term. The note earns interest
at 8.75%. The note is collateralized by a perfected security interest in all
unencumbered assets of the Company and requires that the Company maintain its
depository accounts with the bank with a minimum of $5.0 million in aggregate
cash and depository balances. The Company is also required to comply with
financial covenants based on certain ratios.
 
     At December 31, 1998, the Company had cash and cash equivalents and
short-term investments of approximately $29.5 million and working capital of
$26.3 million.
 
     On March 7, 1997, the Company entered into a 15-year lease (with the right
of sublease) for a new facility located in Hayward, California. The lease
provides for an initial annual rent of $531,000, with scheduled increases.
Pursuant to the lease, the Company issued to the landlord a six-year warrant to
purchase 17,850 shares of Common Stock at $31.51 per share. The Company
relocated to the new facility in November 1997. In September 1997, the Company
amended the lease to include additional square footage in the new facility. The
Company has sublet the additional space through February 28, 2001. See
"Business -- Facilities."
 
     The Company is very reliant on the positive results of the clinical trials
of Emitasol and the subsequent royalties derived from sales of Emitasol in North
America, pending approval by the FDA. The Company is also very reliant upon the
continuation of the collaboration with Dainippon. In order to provide additional
products in its research pipeline, the Company has begun to review numerous
in-license opportunities and potential merger and acquisition candidates. In the
event the Company proceeds with the in-license of a clinical stage product or a
merger with a company containing clinical stage products, the Company may elect
to scale back or eliminate some or all of its antifungal and HCV research
efforts.
 
     The Company will require substantial additional funds to continue and
expand its research and development activities, conduct preclinical studies and
expand administrative capabilities. The Company estimates that at its planned
rate of spending, existing cash and cash equivalents and short-term investments,
will be sufficient for the purposes specified herein and to allow the Company to
maintain its current and planned operations through the middle of 2001. There
can be no assurance, however, that the Company's assumptions regarding its
future level of expenditures and operating losses will prove to be accurate. The
Company's future funding requirements will depend on many factors, including:
any expansion or acceleration and the breadth of the Company's research and
development programs; the results of research and
                                       32
<PAGE>   35
 
development, preclinical studies and clinical trials conducted by the Company or
its collaborative partners or licensees, if any; the acquisition and licensing
of technologies or compounds, if any; the Company's ability to maintain existing
and establish new corporate relationships and research collaborations; the
Company's ability to manage growth; competing technological and market
developments; the time and costs involved in filing, prosecuting, defending and
enforcing patent and intellectual property claims; the receipt of licensing or
milestone fees from its current or future collaborative and license
arrangements, if established; the continued funding of governmental research
grants; the timing of regulatory approvals; and other factors. See "Risk
Factors -- Need for Additional Capital; Uncertainty of Additional Funding."
 
IMPACT OF YEAR 2000
 
     The Year 2000 ("Y2K") issue refers to the inability of older computer
hardware and software to accept four-digit codes for the year field in a set of
data (the "Year 2000 Issue"). Beginning in the year 2000, four-digit codes will
be necessary to distinguish between 1900 base-year dates and 2000 base-year
dates. Such inability to recognize a date using "00" as the year 2000 rather
than the year 1900 could result in a system failure or miscalculations causing
disruptions in the Company's research and development efforts. It is possible
that the Company's currently installed computer systems, software products or
other business systems, or those of the Company's suppliers or service
providers, working either alone or in conjunction with other software or
systems, will not accept input of, store, manipulate and output dates for the
years 1999, 2000 or thereafter without error or interruption (commonly known as
the "Year 2000 problem").
 
     The Company has developed a formal plan to address this issue. The
Company's objective is to ensure an uninterrupted transition into Year 2000. The
Company's Year 2000 compliance project addresses the Company's (1) information
systems ("IS") such as software and hardware; (2) non-IS systems or embedded
technology such as microcontrollers contained in various laboratory equipment,
environmental and safety systems, facilities and utilities, and (3) readiness of
key third parties, including suppliers, collaborators, and key financial
institutions.
 
     The plan includes an extensive inventory of systems that are time-date
related, an assessment of each inventoried item to identify uncertainties or
risk items, obtaining statements of year 2000 compliance from key vendors,
defining actions required and prioritizing systems which have been determined to
be non-compliant and would have the greatest impact on operations, and
developing and implementing a remediation process for non-compliant systems.
 
     In conjunction with the above described plan, the Company has completed its
assessment with respect to its critical systems and at this time has not
uncovered any reason for it to believe that such systems critical to the core
business will not function properly with respect to dates in the years 1999,
2000 and thereafter. Additionally, in connection with its move to new facilities
late in 1997, the Company improved, upgraded and replaced many of its systems.
Based on written representations from manufacturers of these systems, the
Company believes that these new systems are Year 2000 compliant.
 
     While the Company believes all systems critical to its core business are
now Y2K compliant, the Company anticipates having the remainder of the internal
systems Year 2000 compliant by the fall of 1999. Currently, however, the Company
has no contingency plans in place in the event it does not fully complete its
Year 2000 readiness program by such time.
 
     To date, the Company has not incurred significant expenses in connection
with assessing, testing and modifying its systems for Year 2000 readiness.
However, because the Company has not fully completed the Year 2000 compliance
plan, the Company is unable to determine the cost of becoming fully Year 2000
ready. To date, the costs of executing the plan have been funded from cash
reserves. The Company believes its formal plan to address Year 2000 readiness is
adequate to identify critical systems and to ensure that these systems, based on
internal testing or certificates from vendors, are Year 2000 compliant. There
can be no assurance that the Company's Year 2000 plan, its internal testing or
the reliance placed on vendor certificates is adequate to determine the impact
on the Company's operations in the event the systems ultimately prove not to be
Year 2000 compliant. While the Company can sustain minor interruptions in
utilities for 48 hours, the Company has no contingency plans in the event it is
unable to carry on operations due to any major failure
                                       33
<PAGE>   36
 
by utility companies or municipalities caused by Year 2000. The Company believes
the greatest risk of failure due to the Year 2000 problem lies with the
financial and social infrastructure necessary for it to continue operations
(e.g., banks, stock exchanges, communications, transportation and utilities). To
the extent that the Company or its key suppliers and providers and the financial
and social infrastructure fail to achieve Year 2000 readiness, there could be a
material adverse effect on the Company's business, results of operation and
financial position.
 
ITEM. 7(A)  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
MARKET RATE RISK
 
     The Company's exposure to market rate risk for changes in interest rates
relates primarily to the Company's investment portfolio and bank borrowings. The
Company does not use derivative financial instruments in its investment
portfolio. The Company places its investment with high quality issuers and
follows internally developed guidelines to limit the amount of credit exposure
to any one issuer. Additionally, in an attempt to limit interest rate risk, the
Company follows guidelines to limit the average and longest single maturity
dates. The Company is averse to principal loss and ensures the safety and
preservation of its invested funds by limiting default, market and reinvestment
risk. The Company's investments include money market accounts, commercial paper
and corporate notes, and all such investments held in the Company's portfolio as
of December 31, 1998, mature in 1999 and 2000. The table below presents the
amounts and related interest rates of the Company's investment portfolio as of
December 31, 1998:
 
<TABLE>
<CAPTION>
                                                                                      FAIR VALUE
                                             1999       2000      2001      TOTAL      12/31/98
                                            -------    ------    ------    -------    ----------
                                                   (IN THOUSANDS, EXCEPT INTEREST RATES)
<S>                                         <C>        <C>       <C>       <C>        <C>
Assets
  Cash and cash equivalents...............  $12,815    $   --    $   --    $12,815     $12,815
  Average Interest Rate...................     4.36%       --        --         --          --
  Short-term investments..................   13,124    $3,605    $   --    $16,729     $16,703
  Average Interest Rate...................     5.59%     5.04%       --         --          --
Liabilities
  Note Payable............................  $    --    $   --    $5,000    $ 5,000     $ 5,000
  Average Interest Rate...................       --        --      8.75%
</TABLE>
 
                                       34
<PAGE>   37
 
ITEM 8. FINANCIAL STATEMENTS
 
                                 RIBOGENE, INC.
 
                         INDEX TO FINANCIAL STATEMENTS
 
                                    CONTENTS
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Ernst & Young LLP, Independent Auditors...........  36
Audited Financial Statements
  Balance Sheets............................................  37
  Statements of Operations..................................  38
  Statement of Stockholders' Equity (Deficit)...............  39
  Statements of Cash Flows..................................  40
  Notes to Financial Statements.............................  41
</TABLE>
 
                                       35
<PAGE>   38
 
               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
 
The Board of Directors and Stockholders
RiboGene, Inc.
 
     We have audited the accompanying balance sheets of RiboGene, Inc. as of
December 31, 1998 and 1997, and the related statements of operations, cash flows
and stockholders' equity (deficit) for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of RiboGene, Inc. at December
31, 1998 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
 
                                                               ERNST & YOUNG LLP
 
Palo Alto, California
February 12, 1999
 
                                       36
<PAGE>   39
 
                                 RIBOGENE, INC.
 
                                 BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              --------------------
                                                                1998        1997
                                                              --------    --------
<S>                                                           <C>         <C>
Current assets:
  Cash and cash equivalents (Note 4)........................  $ 12,815    $  2,045
  Short term investments....................................    16,703         122
  Prepaid expenses and other current assets.................        90          85
                                                              --------    --------
          Total current assets..............................    29,608       2,252
                                                              --------    --------
Property and equipment, net.................................     1,389         471
Deferred offering costs.....................................        --       1,142
Deferred financing costs....................................       622         290
Other assets................................................       201         157
                                                              --------    --------
                                                              $ 31,820    $  4,312
                                                              ========    ========
 
                  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable..........................................  $  1,456    $  1,402
  Accrued liabilities.......................................       206         478
  Deferred revenue -- related parties.......................       167         556
  Accrued development cost -- related party.................       400          --
  Other current liabilities.................................       845         469
  Current portion of capital lease obligations..............       158         174
  Current portion of notes payable..........................       115         918
                                                              --------    --------
          Total current liabilities.........................     3,347       3,997
                                                              --------    --------
Long-term portion of capital lease obligations..............       224         289
Long-term portion of notes payable..........................     5,482          --
Other noncurrent liabilities................................        12         188
Commitments
Stockholders' equity (deficit):
Preferred stock, 5,000,000 shares, $0.001 par value and
  18,932,344 shares, no par value, authorized at December
  31, 1998 and 1997, respectively; issuable in series;
  1,428,572 and 14,377,595 shares issued and outstanding at
  December 31, 1998 and 1997, respectively (aggregate
  liquidation preference of $10,000,000 at December 31,
  1998).....................................................         1      33,533
Common stock, 30,000,000 shares, $0.001 par value, and
  50,000,000 shares, no par value, authorized at December
  31, 1998 and 1997, respectively; 5,774,421 and 103,845
  shares issued and outstanding at December 31, 1998 and
  1997, respectively........................................         6       1,839
Additional paid-in capital..................................    66,990       1,672
Notes receivable from stockholders..........................      (147)       (147)
Accumulated other comprehensive loss........................       (26)         --
Deferred compensation.......................................    (1,811)     (1,362)
Accumulated deficit.........................................   (42,258)    (35,697)
                                                              --------    --------
          Total stockholders' equity (deficit)..............    22,755        (162)
                                                              --------    --------
                                                              $ 31,820    $  4,312
                                                              ========    ========
</TABLE>
 
                            See accompanying notes.
                                       37
<PAGE>   40
 
                                 RIBOGENE, INC.
 
                            STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                1998       1997       1996
                                                              --------    -------    -------
<S>                                                           <C>         <C>        <C>
Revenue:
  Contract research revenue from related parties............  $  2,569    $ 1,668    $ 1,112
  Grant revenue.............................................       594      1,303        975
                                                              --------    -------    -------
          Total revenue.....................................     3,163      2,971      2,087
                                                              --------    -------    -------
Operating expenses:
  Research and development..................................     7,296      4,130      4,296
  General and administrative................................     3,033      1,551      1,372
  Financial advisory costs (Note 6).........................        --      1,396         --
                                                              --------    -------    -------
          Total operating expenses..........................    10,329      7,077      5,668
                                                              --------    -------    -------
Loss from operations........................................    (7,166)    (4,106)    (3,581)
Interest income (expense), net..............................       605         (7)      (282)
                                                              --------    -------    -------
Net loss....................................................    (6,561)    (4,113)    (3,863)
Deemed dividend upon conversion of preferred stock (Note
  6)........................................................    (7,989)        --         --
                                                              --------    -------    -------
Net loss attributable to common stockholders................  $(14,550)   $(4,113)   $(3,863)
                                                              ========    =======    =======
Basic net loss per common share.............................  $  (4.49)   $(41.13)   $(52.92)
                                                              ========    =======    =======
Weighted average shares of common stock outstanding.........     3,244        100         73
                                                              ========    =======    =======
</TABLE>
 
                            See accompanying notes.
                                       38
<PAGE>   41
 
                                 RIBOGENE, INC
 
                  STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
               PERIOD FROM DECEMBER 31, 1995 TO DECEMBER 31, 1998
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
                                                                                                  NOTES
                                      PREFERRED STOCK          COMMON STOCK       ADDITIONAL    RECEIVABLE
                                   ----------------------   -------------------    PAID-IN         FROM         DEFERRED
                                     SHARES       AMOUNT     SHARES     AMOUNT     CAPITAL     SHAREHOLDERS   COMPENSATION
                                   -----------   --------   ---------   -------   ----------   ------------   ------------
<S>                                <C>           <C>        <C>         <C>       <C>          <C>            <C>
Balances at December 31, 1995....    9,441,884   $ 23,571      44,272   $   175    $    --       $   (54)       $     --
Exercise of common stock options
 and purchase rights.............           --         --      39,101       115         --           (57)             --
Issuance of Series E preferred
 stock at $2.25 per share for
 cash and the conversion of notes
 payable and accrued interest,
 net of issuance costs of $92....    2,653,048      5,878          --        --         --            --              --
Net loss -- year ended December
 31, 1996........................           --         --          --        --         --            --              --
                                   -----------   --------   ---------   -------    -------       -------        --------
Balances at December 31, 1996....   12,094,932     29,449      83,373       290         --          (111)             --
Exercise of common stock options
 and purchase rights, net of
 repurchases.....................           --         --      20,472        69         --           (36)             --
Sale of Series F preferred stock
 and common stock warrants at
 $2.25 per unit, net of issuance
 costs of $1,052.................    2,282,663      4,084          --        --         --            --              --
Unit options and warrants
 issued..........................           --         --          --        --      1,672            --              --
Deferred compensation............           --         --          --     1,480         --            --          (1,480)
Amortization of deferred
 compensation....................           --         --          --        --         --            --             118
Net loss -- year ended December
 31, 1997........................           --         --          --        --         --            --              --
                                   -----------   --------   ---------   -------    -------       -------        --------
Balances at December 31, 1997....   14,377,595     33,533     103,845     1,839      1,672          (147)         (1,362)
Sale of Series G preferred stock
 at $2.645 per share, net of
 issuance cost of $19............      756,144      1,981          --        --         --            --              --
Deferred compensation............           --         --          --        --        635            --            (635)
Amortization of deferred
 compensation....................           --         --          --        --         --            --             461
Conversion of preferred stock to
 common stock upon closing of the
 initial public offering and
 reincorporation in Delaware in
 May 1998........................  (15,133,739)   (35,514)  2,385,039    (1,836)    37,350            --              --
Issuance of common stock at $7.00
 per share upon initial public
 offering, net of issuance cost
 of $3,879.......................           --         --   2,871,429         3     16,218            --              --
Exercise of Placement Agent
 Options.........................           --         --      68,759        --         --            --              --
Sale of Series A non-voting,
 convertible preferred stock at
 $7.00 per share.................    1,428,572          1          --        --      9,999            --              --
Common Stock issued to
 collaboration partner...........           --         --     230,000        --        747            --              --
Exercise of common stock options,
 purchase rights and grants of
 restricted stock................           --         --     115,349        --        289            --            (275)
Warrants issued in connection
 with loan.......................           --         --          --        --         80            --              --
Comprehensive loss:
 Net loss-year ended December 31,
   1998..........................           --         --          --        --         --            --              --
 Net unrealized loss on
   investments...................           --         --          --        --         --            --              --
       Total comprehensive
        loss.....................           --         --          --        --         --            --              --
                                   -----------   --------   ---------   -------    -------       -------        --------
Balances at December 31, 1998....    1,428,572   $      1   5,774,421   $     6    $66,990       $  (147)       $ (1,811)
                                   ===========   ========   =========   =======    =======       =======        ========
 
<CAPTION>
                                                  ACCUMULATED       TOTAL
                                                     OTHER       STOCKHOLDERS
                                   ACCUMULATED   COMPREHENSIVE      EQUITY
                                     DEFICIT         LOSS         (DEFICIT)
                                   -----------   -------------   ------------
<S>                                <C>           <C>             <C>
Balances at December 31, 1995....   $(27,721)       $    --        $ (4,029)
Exercise of common stock options
 and purchase rights.............         --             --              58
Issuance of Series E preferred
 stock at $2.25 per share for
 cash and the conversion of notes
 payable and accrued interest,
 net of issuance costs of $92....         --             --           5,878
Net loss -- year ended December
 31, 1996........................     (3,863)            --          (3,863)
                                    --------        -------        --------
Balances at December 31, 1996....    (31,584)            --          (1,956)
Exercise of common stock options
 and purchase rights, net of
 repurchases.....................         --             --              33
Sale of Series F preferred stock
 and common stock warrants at
 $2.25 per unit, net of issuance
 costs of $1,052.................         --             --           4,084
Unit options and warrants
 issued..........................         --             --           1,672
Deferred compensation............         --             --              --
Amortization of deferred
 compensation....................         --             --             118
Net loss -- year ended December
 31, 1997........................     (4,113)            --          (4,113)
                                    --------        -------        --------
Balances at December 31, 1997....    (35,697)            --            (162)
Sale of Series G preferred stock
 at $2.645 per share, net of
 issuance cost of $19............         --             --           1,981
Deferred compensation............         --             --              --
Amortization of deferred
 compensation....................         --             --             461
Conversion of preferred stock to
 common stock upon closing of the
 initial public offering and
 reincorporation in Delaware in
 May 1998........................         --             --              --
Issuance of common stock at $7.00
 per share upon initial public
 offering, net of issuance cost
 of $3,879.......................         --             --          16,221
Exercise of Placement Agent
 Options.........................         --             --              --
Sale of Series A non-voting,
 convertible preferred stock at
 $7.00 per share.................         --             --          10,000
Common Stock issued to
 collaboration partner...........         --             --             747
Exercise of common stock options,
 purchase rights and grants of
 restricted stock................         --             --              14
Warrants issued in connection
 with loan.......................         --             --              80
Comprehensive loss:
 Net loss-year ended December 31,
   1998..........................     (6,561)            --          (6,561)
 Net unrealized loss on
   investments...................         --            (26)            (26)
                                                                   --------
       Total comprehensive
        loss.....................         --             --          (6,587)
                                    --------        -------        --------
Balances at December 31, 1998....   $(42,258)       $   (26)       $ 22,755
                                    ========        =======        ========
</TABLE>
 
                            See accompanying notes.
 
                                       39
<PAGE>   42
 
                                 RIBOGENE, INC.
 
                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                1998       1997       1996
                                                              --------    -------    -------
<S>                                                           <C>         <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss..................................................  $ (6,561)   $(4,113)   $(3,863)
Adjustments to reconcile net loss to net cash used in
  operating activities:
  Depreciation..............................................       251        140        168
  Amortization of warrants and deferred compensation........       509        118         --
  Accrued interest on bridge notes converted to Preferred
     Stock..................................................        --         --         44
  Issuance of common stock to collaboration partner.........       747         --         --
  Non-cash financial advisory costs.........................        --      1,300         --
Changes in assets and liabilities:
  Prepaid expenses and other current assets.................        (5)       (23)       (66)
  Other assets..............................................       (44)        50       (162)
  Accounts payable..........................................        54        903        205
  Deferred revenue -- related party.........................      (389)        --        556
  Accrued expenses and other current and noncurrent
     liabilities............................................       328       (180)       (25)
                                                              --------    -------    -------
Net cash used in operating activities.......................    (5,110)    (1,805)    (3,143)
                                                              --------    -------    -------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment.......................    (1,079)        --        (14)
  Purchases of short-term investments.......................   (18,857)    (4,577)        --
  Maturities of short-term investments......................     2,250      4,577         --
                                                              --------    -------    -------
Net cash provided by (used in) investing activities.........   (17,686)        --        (14)
                                                              --------    -------    -------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from short-term debt.............................        --         --      1,893
  Proceeds from long-term debt..............................     5,632         --         --
  Repayment of short-term debt..............................        --         --     (1,500)
  Repayment of notes payable................................      (953)    (1,000)    (1,000)
  Principal payments on capital lease obligations...........      (171)      (106)      (151)
  Deferred offering costs...................................     1,142     (1,142)        --
  Deferred financing costs..................................      (300)        --         --
  Proceeds from issuances of common stock and warrants, net
     of repurchases and repayment of stockholder notes
     and issuances costs....................................    16,235         33         58
  Net proceeds from issuances of convertible preferred stock
     and warrants...........................................    11,981      4,084      3,941
                                                              --------    -------    -------
Net cash provided by financing activities...................    33,566      1,869      3,241
                                                              --------    -------    -------
Net increase in cash and cash equivalents...................    10,770         64         84
Cash and cash equivalents at beginning of period............     2,045      1,981      1,897
                                                              --------    -------    -------
Cash and cash equivalents at end of period..................  $ 12,815    $ 2,045    $ 1,981
                                                              ========    =======    =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest......................................  $    346    $   210    $   335
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
  ACTIVITIES
Equipment purchased under capital leases....................  $     91    $   326    $    95
                                                              ========    =======    =======
Conversion of debt obligations and accrued interest to
  Preferred Stock...........................................  $     --    $    --    $ 1,937
                                                              ========    =======    =======
Deferred compensation related to stock option grants........  $    635    $ 1,480    $    --
                                                              ========    =======    =======
Warrants issued in connection with lease and borrowing
  transactions..............................................  $     80    $   372    $    --
                                                              ========    =======    =======
</TABLE>
 
                            See accompanying notes.
 
                                       40
<PAGE>   43
 
                                 RIBOGENE, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
                               DECEMBER 31, 1998
 
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Organization and Basis of Presentation
 
     RiboGene, Inc. (the "Company") was incorporated in the State of California
on May 5, 1989. The Company was originally founded to develop laboratory
equipment for cell-free protein synthesis. In January 1993, the Company
discontinued development of the lab equipment and began to focus its research
and development efforts on the identification of novel leads and the development
of potential drug candidates for the treatment of infectious diseases. The
Company's research effort initially focused on infections caused by fungi and
viruses. In 1996, the Company expanded its research efforts to include
infections caused by bacteria. During 1998, the Company was reincorporated in
the State of Delaware and completed an initial public offering (see Note 6).
Also during 1998, the Company significantly expanded its chemistry operations
and established new collaborations. Accordingly, the Company is no longer
classified as a development stage company.
 
     The Company has sustained operating losses since inception and expects such
losses to continue as it furthers its research and development programs. From
inception to December 31, 1998, the Company incurred cumulative net losses of
approximately $42,258,000. The Company will need to obtain additional funds from
outside sources to continue its research and development activities, fund
operating expenses and pursue regulatory approvals for its products under
development. Management believes that sufficient funds are available to support
planned operations through at least mid-2001. The Company may seek to fund its
operations thereafter through collaborative arrangements and through public or
private financings, including debt or equity financings.
 
     All common stock and common per share amounts have been retroactively
restated to reflect a one-for - 14 reverse stock split which was effected in May
1998 (see Note 6). All references to the numbers of shares and share prices
retroactively reflect post-split activity.
 
  Use of Estimates
 
     The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
 
  Cash and Cash Equivalents and Short Term Investments
 
     The Company considers all highly liquid investments with a maturity from
the date of purchase of three months or less to be cash equivalents.
 
     The Company classifies its investments as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, if any, reported in a separate component of stockholders'
equity. As of December 31, 1998, the amortized cost of the Company's investments
approximated their fair value. Realized gains and losses and declines in value
judged to be other-than-temporary on available-for-sale securities are included
in income. The Company has not experienced any realized gains or losses on its
cash equivalents. The cost of securities sold is based on the specific
identification method. Cash and cash
 
                                       41
<PAGE>   44
                                 RIBOGENE, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 1998
 
equivalents and short-term investments at December 31, 1998 and 1997 consists of
the following (in thousands):
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                            -----------------
                                                             1998       1997
                                                            -------    ------
<S>                                                         <C>        <C>
Demand deposits with banks and money market funds.........  $12,815    $2,045
Corporate debt securities and instruments
  - Maturing 1999.........................................   13,133        --
  - Maturing 2000.........................................    3,570        --
                                                            -------    ------
                                                            $29,518    $2,045
                                                            =======    ======
</TABLE>
 
  Deferred Offering Costs
 
     Costs related to offering of the Company's stock were deferred until the
completion of the offering and were offset against proceeds from the offering.
 
  Property and Equipment
 
     Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided on the straight-line method over the estimated useful
lives of the assets which range from four to five years. Assets recorded under
capital leases are amortized using the straight-line method over the shorter of
the useful life or the lease term.
 
  Revenue Recognition
 
     Revenue earned under collaborative research agreements is recognized as the
related services are performed and research expenses are incurred. Amounts
received in advance of services to be performed are recorded as deferred revenue
until the related expenses are incurred. Non-refundable milestone payments,
which do not require the Company to perform additional services, are recognized
as revenue in the period earned. The Company has not received nor recognized as
revenue any milestone payments to date.
 
     The Company has received government grants which support the Company's
research effort in specific research projects. These grants generally provide
for reimbursement of approved costs incurred as defined in the various awards.
 
  Net Loss Per Share
 
     Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128") and the
provisions of Securities and Exchange Commission Staff Accounting Bulletin No.
98. SFAS 128 requires the presentation of basic earnings (loss) per share and
diluted earnings (loss) per share, if more dilutive, for all periods presented.
 
     In accordance with SFAS 128, basic net loss per share has been computed
using the weighted-average number of shares of common stock outstanding during
the period.
 
                                       42
<PAGE>   45
                                 RIBOGENE, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 1998
 
     The following table sets forth the calculation of basic net loss per share
(in thousands, except per share amounts):
 
<TABLE>
<CAPTION>
                                                  YEARS ENDED DECEMBER 31,
                                               ------------------------------
                                                 1998       1997       1996
                                               --------    -------    -------
<S>                                            <C>         <C>        <C>
Net loss attributable to common
  stockholders...............................  $(14,550)   $(4,113)   $(3,863)
                                               ========    =======    =======
Weighted average shares of common stock
  outstanding................................     3,244        100         73
                                               --------    -------    -------
Basic net loss per common share..............  $  (4.49)   $(41.13)   $(52.92)
                                               ========    =======    =======
</TABLE>
 
     Pro forma net loss per share has been computed as described above and also
gives effect to the conversion of the convertible preferred stock that
automatically converted upon completion of the Company's initial public offering
(using the as-if converted method) from the original date of issuance. Pro forma
net loss per share for the year ended December 31, 1998 and 1997 was $3.43 and
$1.95, respectively. Shares used in computing the pro forma net loss per share
were 4,248,000 and 2,109,000 for the years ended December 31, 1998 and 1997,
respectively.
 
     Diluted net loss per share has not been presented separately as, due to the
Company's net loss position, it is anti-dilutive. Had the Company been in a net
income position at December 31, 1998 and 1997, shares used in calculating
diluted earnings per share would have included the effect of an additional
2,410,000 and 1,290,000 shares related to the Company's outstanding stock
options and warrants (prior to the application of the treasury stock method),
respectively.
 
  Accounting for Stock Options and Warrants
 
     As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has elected
to account for stock options and purchase rights granted to employees using the
intrinsic value method and, accordingly, does not recognize compensation expense
for options and purchase rights granted to employees with exercise prices which
are not less than fair value of the underlying Common Stock.
 
     For equity awards to non-employees, including lenders and lessors, the
Company applies the Black-Scholes method to determine the fair value of such
instruments. The value is recognized as expense over the period of services
received or the term of the related financing.
 
  New Accounting Pronouncements
 
     In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), and Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 130
establishes standards for reporting comprehensive income and was adopted by the
Company during 1998. The Company has determined that it operates in a single
segment and the impact of adopting SFAS 131 on its financial statement
disclosures was not material. SFAS 131 establishes standards for annual and
interim disclosures of operating segments, product and services, geographic
areas and major customers.
 
                                       43
<PAGE>   46
                                 RIBOGENE, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 1998
 
 2. PROPERTY AND EQUIPMENT
 
     Property and equipment consists of the following:
 
<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                     -------------------------
                                                        1998           1997
                                                     -----------    ----------
<S>                                                  <C>            <C>
Laboratory equipment...............................  $ 1,538,000    $  734,000
Office and computer equipment......................      615,000       352,000
Furniture and fixtures.............................      312,000       231,000
Leasehold improvements.............................       47,000        52,000
                                                     -----------    ----------
                                                       2,512,000     1,369,000
Less accumulated depreciation and amortization.....   (1,123,000)     (898,000)
                                                     -----------    ----------
Property and equipment, net........................  $ 1,389,000    $  471,000
                                                     ===========    ==========
</TABLE>
 
     Property and equipment includes approximately $2,124,000 and $781,000 of
equipment under capital leases and loans to finance capital purchases for the
years ended December 31, 1998 and 1997, respectively, that are pledged as
security for the related lease obligations. Accumulated amortization related to
financed assets totaled $549,000 and $338,000 for the years ended December 31,
1998 and 1997, respectively.
 
 3. DEVELOPMENT AND COLLABORATION AGREEMENTS
 
     In January 1998, the Company entered into a collaboration with Dainippon
for two of its targets in the antibacterial program. As part of the Dainippon
Collaboration, Dainippon has agreed to provide the Company with research support
payments over three years, and fund additional research and development at
Dainippon. In February 1998, Dainippon made a payment of $2,000,000, of which
$1,833,000 was recognized by the Company as revenue through December 31, 1998,
based on costs incurred during the period. Collaborative research payments from
Dainippon are non-refundable. The Company may also be entitled to receive
milestone payments upon the achievement of mostly late-stage clinical and
regulatory milestones in the amount of up to $10,000,000, consisting of up to
$5,000,000 in milestones through approval in Japan and an additional $5,000,000
through approval in one other major market territory, for each product developed
through the collaboration. RiboGene also has the right to co-promote, in Europe
and the U.S., any products resulting from the collaboration. In connection with
this agreement, Dainippon also purchased 756,144 shares of Series G preferred
stock, which converted to common stock upon the Company's initial public
offering (see Note 6).
 
     In September, 1998, the Company issued Dainippon 230,000 shares of common
stock in exchange for an increased royalty interest in the sales from future
products, as defined in the collaboration agreement between the Company and
Dainippon. As a result of this transaction, the Company recognized a $747,000
one-time non-cash charge to research and development expense during 1998,
representing the fair market value of the common stock at the date of issuance.
 
     In July, 1998, the Company entered into an option and license agreement
with Roberts Pharmaceutical Corporation ("Roberts") for the development of
Emitasol, an intranasally administered drug being developed for the treatment of
diabetic gastroparesis and for the prevention of delayed onset emesis. Roberts
also made a $10,000,000 equity investment in RiboGene by purchasing 1,428,572
shares of Series A non-voting convertible preferred stock (the "Series A
Preferred Stock") at $7.00 per share. Holders of the Series A Preferred Stock
are entitled to non-cumulative dividends, when and if declared by the Board of
Directors, and have a liquidation preference, prior to any declared dividends,
equal to the original issue price of $7.00 per share. The Series A Preferred
Stock is convertible into common stock on a one-for-one basis, provided,
however, that on or following each of the first three annual anniversary dates
of the stock issuance, the holders of the Series A
 
                                       44
<PAGE>   47
                                 RIBOGENE, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 1998
 
Preferred Stock can only convert up to 33%, 50% and 100% of their shares,
respectively. Additionally, holders of the Series A Preferred Stock may request
that the Company register up to 20% of the converted shares in any twelve-month
period.
 
     Under the terms of the option and license agreement, Roberts will conduct
clinical trials using Emitasol and, if those are successful, submit a New Drug
Application ("NDA") for Emitasol. If FDA regulatory approval is obtained,
Roberts will have 60 days to exercise an exclusive option for a license to
market Emitasol in North America. Roberts has agreed to make a payment to
RiboGene of up to $10,000,000 upon the exercise of the option and to pay a
royalty on product sales. RiboGene will provide up to $7,000,000 in funding for
the development of Emitasol through completion of Phase III trials and the
submission of an NDA, with the balance, if any, provided by Roberts. As of
December 31, 1998, the Company had recognized approximately $400,000 of
development expenses for costs incurred by Roberts through that date.
 
     In July, 1998, the Company entered into a material transfer, screening and
collaboration agreement with EnzyMed to screen and test compounds provided by
EnzyMed. The Company and EnzyMed will develop a mutually agreed upon plan for
the development of compounds that meet certain criteria. Future revenues, if
any, resulting from the sale of any compound discovered as part of this
collaboration will be shared by each party by a predetermined formula based on a
percentage of risk taken by each party. The agreement may be terminated at any
time upon written notice which would be effective 30 days after the end of any
current four-month screening period.
 
     In September 1997, the Company entered into a material transfer and
screening agreement with ArQule, Inc. ("ArQule") a combinatorial chemistry
company which grants the Company access to ArQule's proprietary combinatorial
chemistry libraries. The Company is actively screening compounds supplied by
ArQule in certain of its assays. If the Company detects activity with one of
these compounds, the Company will have an opportunity to enter into a
collaboration agreement for such compounds. This agreement can be terminated by
the Company upon 30 days notice without any further obligation.
 
     In April 1996, the Company entered into collaborative research and license
agreements with Abbott Laboratories ("Abbott") to discover and develop
antifungal products identified using the Company's drug discovery technology.
This agreement granted Abbott the exclusive worldwide right to develop and
market antifungal products discovered with the Company. Abbott agreed to make
contract research payments of up to $5,000,000 for the Company's antifungal
research activity over a three-year period. Specifically, the Company's
activities included screening compound samples, the identification of new
targets and the design and implementation of assays incorporating these targets.
The Company had no obligation to incur expenses in excess of the funds provided
by Abbott. During 1996 and 1997, Abbott made payments of $1,668,000 in each year
pursuant to this agreement, of which $1,112,000 and $1,668,000, respectively,
was recognized as revenue based on costs incurred during the period.
Collaborative research payments from Abbott were non-refundable. On February 6,
1998, Abbott notified the Company of its intent to end its research
collaboration with the Company effective April 8, 1998. During 1998, the Company
recognized $736,000 in revenue from Abbott, consisting of $556,000 which had
been deferred at December 31, 1997 and a final additional payment of $180,000.
There are no future performance obligations of either the Company or Abbott.
 
     In April 1997, the Company entered into an agreement with the University of
Washington, which was amended in October 1997, pursuant to which RiboGene
received an exclusive worldwide license to certain patent rights and technology.
Under the agreement, the Company paid an upfront license fee and has agreed to
pay a minimal quarterly license maintenance fee and a milestone payment of
$250,000 upon the approval of an NDA for a compound developed using the licensed
patent rights. Once a compound is selected for development, the Company will be
obligated to complete certain development milestones at its own expense. To
date, no compound has been selected for development.
 
                                       45
<PAGE>   48
                                 RIBOGENE, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 1998
 
 4. NOTES PAYABLE
 
     In December 1998, the Company received $5,000,000 in proceeds from the
issuance of a long-term note payable to a bank. The note requires monthly
interest only payments at prime plus 1.0%. The rate at December 31, 1998 was
8.75%. The principal is due at the end of the three-year term. The loan is
collateralized by a perfected security interest in all the unencumbered assets
of the Company and requires that the Company maintain its depository accounts
with the bank with a minimum of $5,000,000 in aggregate cash and depository
balances. The Company is also required to comply with financial covenants based
on certain ratios. At December 31, 1998, the Company was in compliance with all
required covenants. In connection with this financing arrangement, the Company
issued to the placement agent a warrant to purchase 50,000 shares of common
stock at an exercise price of $2.50 per share. The warrant expires in December
2003. The warrant has been assigned a value of $80,000, which is being amortized
over the term of the loan along with an additional $300,000 in placement and
bank fees paid by the Company. The valuation of the warrant was determined using
the Black-Scholes method with the following assumptions: an expected life of 5
years; an expected volatility factor of 0.7; risk free interest rate of 5%; a
dividend yield of 0%; and an estimated fair value of the underlying Common Stock
at the date of grant of $2.94.
 
     In September 1998, the Company entered into a $2,000,000 arrangement for
financing capital purchases. The loan is collateralized by the underlying
equipment, payable over a four-year term at an interest rate of 7.2% plus an
index rate based on U.S. Treasury Notes. At December 31, 1998, $620,000 was
outstanding under notes from this arrangement at an interest rate of 12.72%.
 
 5. COMMITMENTS
 
     The Company leases certain facilities and laboratory and office equipment.
Future minimum lease payments under such noncancelable leases at December 31,
1998 are as follows:
 
<TABLE>
<CAPTION>
                                                      YEAR ENDED DECEMBER 31
                                                     ------------------------
                                                      CAPITAL      OPERATING
                                                      LEASES        LEASES
                                                     ---------    -----------
<S>                                                  <C>          <C>
1999...............................................  $ 207,000    $   630,000
2000...............................................    226,000        617,000
2001...............................................     33,000        630,000
2002...............................................         --        654,000
2003...............................................         --        672,000
Thereafter.........................................         --      7,211,000
                                                     ---------    -----------
          Total minimum payments required..........    466,000    $10,414,000
                                                                  ===========
Less amount representing interest..................    (84,000)
                                                     ---------
Present value of future lease payments.............    382,000
Less current portion...............................   (158,000)
                                                     ---------
Long-term portion..................................  $ 224,000
                                                     =========
</TABLE>
 
     Rent expense for operating leases was approximately $891,000, $347,000 and
$213,000 in the years ended December 31, 1998, 1997 and 1996, respectively. In
1997, the Company entered into a facility lease which provides for scheduled
rent increases annually over the 15-year term. The rent is being recognized as
expense on a straight-line basis and the actual cash flow is included in the
future minimum lease payment schedule above. In connection with the facility
lease, the Company issued to the landlord a six year warrant to purchase 17,850
shares of Common Stock at $31.51 per share. The warrant was assigned a value of
$290,000 which is being amortized over the vesting period of the warrant. Such
valuation was determined using the Black-Scholes method with the following
assumptions: an expected life of six years; an expected volatility factor of
 
                                       46
<PAGE>   49
                                 RIBOGENE, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 1998
 
0.7; a risk-free interest rate of 6%; a dividend yield of 0%; and an estimated
fair value of the underlying common stock of $30.00.
 
     In January 1994, the Company entered into a five-year consulting agreement
that provides for payments of $50,000 per quarter from January 1995 through
December 1999. In 1995, the Company determined it would no longer require the
services of the consultant at a level commensurate with the amounts payable in
1996 through 1999, and therefore the remaining present value of the unpaid
balance (discounted at 10.5%) amounting to $646,000 was recognized as expense in
the accompanying statement of operations.
 
 6. STOCKHOLDERS' EQUITY
 
  Initial Public Offering
 
     In June 1998, the Company consummated an initial public offering (the
"Offering") with the issuance of 2,300,000 shares of common stock at a price of
$7.00 per share. Concurrently with the closing of the Offering, the Company sold
571,429 additional shares of common stock at $7.00 per share to Abbott in a
private placement. Proceeds from the Offering and private placement net of
issuance costs were $16,221,000.
 
     The Company filed a Certificate of Amendment in the State of Delaware to
effect a one-for-14 reverse stock split of all outstanding shares of common
stock, and common stock options and warrants in May 1998. As a result of the
reverse stock split, each share of Series A through E and G preferred stock
converted into 0.0714 of a share of common stock. Each share of Series F
preferred stock converted into 0.6429 of a share of common stock. The Series F
preferred stock contained certain antidilution provisions that resulted in the
Series F preferred stock holders receiving an additional 1,141,317 shares of
common stock upon conversion. The value of this additional common stock,
$7,989,000, has been deemed to be equivalent of a preferred stock dividend. The
Company recorded the deemed dividend at the time of conversion by offsetting
charges and credits to additional paid in capital, without any effect on total
stockholders' equity. The amount increased the loss allocable to common
stockholders, in the calculation of basic net loss per share for the year ended
December 31, 1998. Following the Offering, the Company filed a Restated
Certificate of Incorporation to reduce the authorized stock of the Company such
that the Company is authorized to issue 5,000,000 shares of $0.001 par value
preferred stock, and 30,000,000 shares of $0.001 par value common stock.
 
  Preferred Stock
 
     At December 31, 1998, 1,428,572 shares of Series A non-voting convertible
preferred stock were issued and outstanding, pursuant to a stock purchase
agreement with Roberts Pharmaceutical Corporation (see Note 3).
 
  Placement Agent Unit Options
 
     In connection with the sale of Series F preferred stock in 1997, the
Company issued the placement agent an option to purchase units (the "Placement
Agent Units") that consisted of one share of Series F preferred stock and one
Class A common stock warrant. In addition, the Company entered into a two-year
Financial Advisory Agreement with the placement agent pursuant to which the
Company issued the placement agent options to purchase additional Placement
Agent Units. As a result of certain anti-dilution provisions upon the closing of
the Company's initial public offering, options to acquire a total of 733,755
shares of common stock and 40,739 Class A Warrants with an aggregate option
exercise price of approximately $708,000 became exercisable. The options to
acquire Placement Agent Units issued pursuant to the Financial Advisory
Agreement have been assigned a value of $1,300,000 which has been expensed and
included in the loss from operations for the year ended December 31, 1997, as
the Company did not believe it would receive future services commensurate with
this amount. The value of the Placement Agent Units was determined at the date
 
                                       47
<PAGE>   50
                                 RIBOGENE, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 1998
 
of issuance using the Black-Scholes method with valuation assumptions as
follows: expected life of 10 years; risk free interest rate of 6%; an expected
volatility factor of .5; a dividend yield of 0%; and a fair value of the
underlying units of $4.34. The fair value of the underlying units was determined
by reference to the price paid by investors in the Series F preferred stock
financing, giving consideration to the fact that each Placement Agent Unit
consisted of two shares of Series F preferred stock and one Class A warrant. The
Company also accrued an additional $96,000 of fees due to the placement agent.
 
  Warrants
 
     From time to time, the Company issued warrants in connection with equity,
financing, debt, and lease arrangements. The Company had outstanding warrants at
December 31, 1998 as follows:
 
<TABLE>
<CAPTION>
                                               WEIGHTED AVERAGE    WEIGHTED AVERAGE
                                                EXERCISE PRICE        REMAINING
                                                 PER SHARE OF      CONTRACTUAL LIFE
          CLASS OF STOCK            SHARES       COMMON STOCK         (IN YEARS)
          --------------            -------    ----------------    ----------------
<S>                                 <C>        <C>                 <C>
Class A common stock warrants.....  162,967         $ 7.00               4.5
Other common stock warrants.......  200,157         $14.44               2.1
                                    -------
          Total...................  363,124         $11.10               3.2
                                    =======
</TABLE>
 
     At December 31, 1997 and 1996, there were outstanding warrants to acquire,
328,224 and 108,348 shares of common stock (on an as-converted to common stock
basis), respectively, at weighted average exercise prices per common share of
$12.22 and $14.64 respectively. During 1998, 15,100 warrants expired, and no
warrants were exercised, cancelled or forfeited in 1996, 1997 or 1998. All
warrants were fully exercisable upon issuance.
 
  Stock Option Plans
 
     For employees and consultants, the Company has three stock option plans
(the "Plans"), the 1993 Stock Plan, the 1997 Equity Incentive Plan and the 1998
Non-Officer Employee Stock Option Plan. Under the terms of the Plans, the Board
of Directors may grant stock purchase rights and stock options. Stock purchase
rights may not be issued at less than 85% of the fair value of the common stock
at the date of grant and generally provide the Company with a repurchase right
in the event of termination of employment which lapses over periods specified by
the Board of Directors. Options granted pursuant to the Plans may be either
incentive stock options or nonstatutory stock options, at the discretion of the
Board of Directors. Incentive stock options may be granted to employees with
exercise prices of no less than the fair market value and nonstatutory options
may be granted to employees or consultants at exercise prices of no less than
85% of the fair value of the common stock on the grant date, as determined by
the Board of Directors. If, at the time the Company grants an option, the
optionee directly or by attribution owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company, the option
price shall be at least 110% of the fair market value and the option shall not
be exercised more than five years after the date of grant. Except as noted
above, options expire no more than 10 years after the date of grant or earlier
if employment is terminated. Options become exercisable as determined by the
Board of Directors, generally over a period of four years. Through December 31,
1998, a total of 1,695,357 shares have been reserved for issuance under the
Plans.
 
     Additionally, the Company has a stock option plan for its Board of
Directors, the 1997 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan"). The Directors' Plan provides for automatic grants of options to purchase
shares of common stock to non-employee directors of the Company. There are
80,000 shares of common stock reserved for issuance under the Directors' Plan.
 
                                       48
<PAGE>   51
                                 RIBOGENE, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 1998
 
     The following table summarizes option activity under the Plans and the
Directors' Plan:
 
<TABLE>
<CAPTION>
                                                                     WEIGHTED-
                                                                      AVERAGE
                                                      NUMBER OF    EXERCISE PRICE
                                                       OPTIONS       PER SHARE
                                                      ---------    --------------
<S>                                                   <C>          <C>
Balance at December 31, 1995......................      157,488        $ 3.22
Granted with exercise prices equal to fair
  value...........................................       11,127        $ 3.22
Granted with exercise prices greater than fair
  value...........................................        2,142        $31.51
Exercised.........................................      (20,823)       $ 2.66
Canceled..........................................      (20,868)       $ 3.36
                                                      ---------
Balance at December 31, 1996......................      129,066        $ 3.78
Granted with exercise prices equal to fair
  value...........................................       73,824        $ 3.15
Exercised.........................................       (6,850)       $ 3.75
Canceled..........................................       (9,540)       $ 3.16
                                                      ---------
Balance at December 31, 1997......................      186,500        $ 3.57
Granted with exercise prices equal to fair
  value...........................................      864,259        $ 2.58
Granted with exercise price below fair value......      579,000        $ 5.56
Exercised.........................................     (115,355)       $ 2.54
Canceled..........................................     (240,668)       $ 5.46
                                                      ---------
Balance at December 31, 1998......................    1,273,736        $ 3.54
                                                      =========
</TABLE>
 
     In December 1998, the Board of Directors authorized the cancellation and
regrant of employee options to purchase 206,900 shares of common stock effective
as of the close of business on December 11, 1998 at an exercise price equal to
the then fair value of the Company's common stock of $2.375 per share. Under the
terms of the option exchange, the new options maintain the same vesting and
expiration terms. The Company's officers did not participate in the option
exchange.
 
     Through December 31, 1998, the Board of Directors granted 56,007 common
stock purchase rights under the Plans, all of which have been exercised for cash
and promissory notes. Of this amount, 5,146 shares have been repurchased through
December 31, 1998 and 14,288 shares are subject to the Company's repurchase
right or vesting at December 31, 1998 which generally lapses over four years.
The promissory notes bear interest at 5.29% to 6.73%. At December 31, 1998,
303,660 shares were available for future grant or sale.
 
     During 1998, the Board of Directors granted the Company's officers, 110,000
shares of restricted stock and 430,000 shares of incentive stock options out of
the 1997 Equity Incentive Plan. 129,000 of such options are subject to
stockholder approval. The incentive stock options have an exercise price equal
to the grant date fair value of the Company's common stock of $2.50 per share.
The restricted stock and the incentive stock options are subject to vesting
based on the performance of the Company's common stock, such that the initial
25% is vested when the target stock price of $5.00 is attained as measured by a
90 day trailing period, and then for each $1.00 further increase in stock price,
an additional 25% of the shares shall vest. The restricted stock and incentive
options will automatically vest after seven years. The Company will record
compensation expense for the restricted stock as the shares vest. All of the
restricted stock is subject to the Company's repurchase right, which lapses over
the vesting period.
 
                                       49
<PAGE>   52
                                 RIBOGENE, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 1998
 
     The following table summarizes information about options outstanding at
December 31, 1998:
 
<TABLE>
<CAPTION>
                       OPTIONS OUTSTANDING           OPTIONS EXERCISABLE
               -----------------------------------   -------------------
                                        WEIGHTED-
                                         AVERAGE
                           WEIGHTED-    REMAINING              WEIGHTED-
                            AVERAGE    CONTRACTUAL              AVERAGE
  EXERCISE                 EXERCISE       LIFE                 EXERCISE
    PRICE       NUMBER       PRICE     (IN YEARS)    NUMBER      PRICE
  --------     ---------   ---------   -----------   -------   ---------
<S>            <C>         <C>         <C>           <C>       <C>
$2.10 - $2.80    732,890    $ 2.38        8.34       418,174    $ 2.30
$3.00 - $3.38    127,908    $ 3.16        8.18        62,723    $ 3.15
$4.20 - $5.63    410,795    $ 5.12        8.61        73,546    $ 3.27
$31.51             2,143    $31.51        7.72         2,143    $31.51
               ---------                             -------
               1,273,736    $ 3.39        8.41       556,586    $ 2.64
               =========                             =======
</TABLE>
 
     At December 31, 1997, 94,916 options were exercisable.
 
     For certain options granted in 1997 and 1998, the Company has recognized
deferred compensation expense of approximately $1,480,000 and $635,000,
respectively. These amounts are being amortized to expense over the vesting
period of the options. A total of $118,000 and $461,000 was amortized to
compensation expense in 1997 and 1998, respectively.
 
     During 1996, the Company adopted SFAS 123. Using the Black-Scholes method
to value options and stock purchase rights granted to employees subsequent to
its initial public offering and the minimum value method prior to the offering
resulted in a pro forma net loss of $14,930,000 and $4,175,000 and a pro forma
net loss per share of $4.60 and $41.75 for the year ended December 31, 1998 and
1997, respectively. The effect on historical net loss and net loss per share
amounts in 1996 was immaterial and has not be presented. In future years, the
applications of SFAS 123 may result in a pro forma net loss which is materially
different from actual reported results. The valuation methods were applied using
the following weighted average assumptions for 1995, 1996, 1997, and 1998
respectively; risk free interest rates of 6.34%, 6.35%, 6.0% and 5.0%, an
expected option life of 5 years and no annual dividends. Since newly public
companies do not have a statistical measure of historical volatility, an
expected volatility factor of 0.7 was used in 1998, which is comparable to
similarly situated companies in the biotechnology industry. The weighted-average
fair value of options and stock purchase rights granted with exercise prices
equal to the fair value of the Company's stock on the date of grant during 1995,
1996, 1997 and 1998 was $0.85, $0.85, $0.80 and $2.58, respectively.
 
  Employee Stock Purchase Plan
 
     In March 1998, the Board of Directors adopted the Employee Stock Purchase
Plan (the "Purchase Plan") covering an aggregate of 600,000 shares of common
stock. The Purchase Plan permits eligible employees to purchase common stock
through payroll deductions at a price equal to the lower of 85% of the fair
market value at the beginning or end of the applicable offering period. No
shares were issued under the Purchase Plan through December 31, 1998.
 
                                       50
<PAGE>   53
                                 RIBOGENE, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 1998
 
  Reserved Shares
 
     The Company has reserved shares of Common Stock for future issuance as
follows:
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                                  1998
                                                              ------------
<S>                                                           <C>
Stock option and purchase plans:
Outstanding options.........................................   1,273,736
Employee Stock Purchase Plan................................     600,000
Convertible preferred stock issued and outstanding..........   1,428,572
Upon exercise of Placement Agent Unit Options...............     733,755
Class A warrants (including Class A warrants underlying
  Placement Agent Unit Options).............................     203,706
Common stock warrants.......................................     200,157
Reserved for future grant or sale...........................     303,660
                                                               ---------
                                                               4,743,586
                                                               =========
</TABLE>
 
 7. INCOME TAXES
 
     Significant components of the Company's deferred tax assets are as follows:
 
<TABLE>
<CAPTION>
                                                          DECEMBER 31
                                                  ----------------------------
                                                      1998            1997
                                                  ------------    ------------
<S>                                               <C>             <C>
Net operating loss carryforward.................  $ 12,100,000    $ 10,430,000
Research and development credit carryforward....     1,100,000         950,000
Capitalized research and development............       600,000       1,050,000
Acquired research and development...............     1,300,000       1,400,000
Other...........................................       600,000         486,000
                                                  ------------    ------------
Gross deferred tax assets.......................    15,700,000      14,316,000
Valuation allowance.............................   (15,700,000)    (14,316,000)
                                                  ------------    ------------
Net Deferred tax assets.........................  $         --    $         --
                                                  ============    ============
</TABLE>
 
     The valuation allowance increased by $1,436,000 and $1,500,000 for the
years ended December 31, 1996 and 1997, respectively.
 
     As of December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $34,800,000. The Company also had federal and
state research and development tax credit carryforwards of approximately
$700,000 and $500,000, respectively. The net operating loss and credit
carryforwards will expire at various dates beginning on 2004 through 2018, if
not utilized.
 
     The Tax Reform Act of 1986 contains provisions that limit the utilization
of net operating loss and tax credit carryforwards if there has been a "change
of ownership" as described in Section 382 of the Internal Revenue Code may limit
the Company's utilization of its net operating loss and tax credit
carryforwards.
 
                                       51
<PAGE>   54
                                 RIBOGENE, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 1998
 
 8. SUBSEQUENT EVENTS
 
  Warrants
 
     In January 1999, the Company entered into an arrangement for services with
a consultant. In connection with this arrangement, the Company agreed to issue
warrants to purchase 125,000 shares of common stock at prices ranging from $3.00
to $4.20 per share based on the completion of certain contractual milestones.
The warrants will generally vest fully six months after the date of grant and be
exercisable for a period of five years from grant date. The Company will record
compensation expense as the services are provided.
 
                                       52
<PAGE>   55
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
     Not Applicable.
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The information required is hereby incorporated by reference from the
information contained in the Company's definitive Proxy Statement with respect
to the Company's Annual Meeting of Stockholders, filed with the Commission
pursuant to Regulation 14A (the "Proxy Statement") under the headings "Nominees"
and "Executive Officers."
 
ITEM 11. EXECUTIVE COMPENSATION
 
     The information required by this item is hereby incorporated by reference
from information contained in the Proxy Statement under the heading "Executive
Compensation."
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The information required by this item is hereby incorporated by reference
contained in the Proxy Statement under the heading of "Security Ownership of
Certain Beneficial Owners and Management."
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     The information required by this item is hereby incorporated by reference
from information contained in the Proxy Statement under the heading "Certain
Transactions" and "Executive Compensation."
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
     (a) The following documents are filed as part of this Report on Form 10-K:
 
     (1) Financial Statements:
        Report of Ernst & Young LLP, Independent Auditors
        Balance Sheets
        Statements of Operations
        Statement of Stockholders' Equity
        Statements of Cash Flows
         Notes to Financial Statements
 
     (2) Financial Statements schedules have been omitted from this report
         because the information is provided in the Financial Statements or is
         not applicable.
 
     (3) Exhibits
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                               EXHIBITS
--------                              --------
<C>         <S>
 (1)3.1     Restated Certificate of Incorporation of the Registrant.
 (1)3.2     Bylaws of the Registrant.
 (1)4.1     Specimen Stock Certificate.
 (1)4.2     Tenth Amended and Restated Rights Agreement among the
            Registrant and the investors named therein, dated January
            27, 1998.
 (1)4.3     Form of Class A Warrant Certificates for Purchase of Common
            Stock, dated June 23, 1997.
 (1)4.4     Unit Purchase Option Warrant for the Purchase of 342,399
            Option Units, issued by the Registrant to Paramount Capital,
            Inc., dated June 23, 1997.
</TABLE>
 
                                       53
<PAGE>   56
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                               EXHIBITS
--------                              --------
<C>         <S>
 (1)4.5     Unit Purchase Option Warrant for the Purchase of 228,266
            Option Units, consisting of Shares of Preferred Stock and
            Warrants, issued by the Registrant to Paramount Capital,
            Inc., dated June 23, 1997.
 (1)4.6     Warrant Agreement between the Registrant and Paramount
            Capital Inc., dated June 23, 1997.
 (1)4.7     Warrant for Common Stock, issued by the Registrant to
            Paramount Capital Inc., dated March 12, 1997.
 (1)4.8     Warrant for Series B Preferred Stock, issued by the
            Registrant to Dominion Ventures, dated August 9, 1991.
 (1)4.9     Warrant for Series C Preferred Stock, issued by the
            Registrant to Dominion Ventures, dated June 18, 1993.
 (1)4.10    Warrant for Series E Preferred Stock, issued by the
            Registrant to Dominion Fund II, dated August 2, 1996.
 (1)4.11    Warrant for Series E Preferred Stock, issued by the
            Registrant to Silicon Valley Bank, dated September 25, 1995.
 (1)4.12    Warrant for Series E Preferred Stock, issued by the
            Registrant to Silicon Valley Bank, dated May 19, 1995.
 (1)4.13    Warrant for Series E Preferred Stock, issued by the
            Registrant to Venture Lending, dated December 23, 1996.
 (1)4.14    Warrant for Common Stock, issued by the Registrant to SBC
            Warburg, dated September 20, 1995.
 (1)4.15    Warrant for Common Stock, issued by the Registrant to Judith
            Donaldson, dated September 20, 1995.
 (1)4.16    Warrant for Series E Preferred Stock, issued by the
            Registrant to Dominion Ventures, dated June 13, 1994.
 (1)4.17    Warrant for Common Stock, issued by the Registrant to Hyline
            Laboratories, dated January 5, 1994.
 (1)4.18    Warrant for Common Stock, issued by the Registrant to Rip
            Grossman and Associates, Inc., dated January 5, 1994.
 (1)4.19    Form of Warrant Agreement (including the Form of Warrant) to
            be entered into among the Registrant and the Representative.
 (1)4.20    Warrant for Common Stock, issued by Registrant to Hyline
            Laboratories, Inc., dated December 31, 1997.
 (1)4.21    Investor Rights Agreement among the Registrant and the
            investors named therein, dated June 23, 1997.
 (1)4.22    Amendment to Unit Purchase Option Warrant to purchase
            342,399 Option Units, issued by the Registrant to Paramount
            Capital, Inc., dated April 6, 1998.
 (1)4.23    Amendment to Unit Purchase Option Warrant to purchase
            228,266 Option Units, issued by the Registrant to Paramount
            Capital, Inc., dated April 6, 1998.
    4.24    Form of Warrant for Common Stock, issued by Registrant to
            Reedland Capital Partners.
(1)10.1     License Agreement between the Registrant and Abbott
            Laboratories, dated April 26, 1996.
(1)10.2     Research Agreement between the Registrant and Abbott
            Laboratories, dated April 26, 1996.
(1)10.3     Series E Preferred Stock Purchase Agreement between the
            Registrant and Abbott, dated April 26, 1996.
</TABLE>
 
                                       54
<PAGE>   57
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                               EXHIBITS
--------                              --------
<C>         <S>
(1)10.4     License Agreement between the Registrant and University of
            Washington, dated April 4, 1997.
(1)10.5     Collaboration Agreement between the Registrant and Houghten
            Pharmaceuticals, dated April 12, 1995, as amended on April
            10, 1997.
(1)10.6     1993 Stock Plan.
(1)10.7     Stock Option Agreement pursuant to 1993 Stock Plan.
(1)10.8     Form of Restricted Stock Purchase Agreement pursuant to 1993
            Stock Plan.
(1)10.9     Employment Agreement between the Registrant and Charles J.
            Casamento, dated May 11, 1993.
(1)10.10    Change of Control Agreement between the Registrant and
            Charles Casamento, dated July 20, 1995.
(1)10.11    Employment Letter Agreement between the Registrant and Laura
            S. L. Gaeta, dated May 6, 1994.
(1)10.12    Change of Control Agreement between the Registrant and Laura
            S. L. Gaeta, dated July 20, 1995.
(1)10.13    Employment Letter Agreement between the Registrant and
            Timothy E. Morris, dated May 31, 1995.
(1)10.14    Change of Control Agreement between the Registrant and
            Timothy E. Morris, dated June 30, 1995.
(1)10.15    Real Property Lease between the Registrant and Hayward Point
            Eden I Limited Partnership, dated March 7, 1997.
(1)10.16    First Amendment to Real Property Lease between the
            Registrant and Hayward Point Eden I Limited Partnership,
            dated September 24, 1997.
(1)10.17    Real Property Lease between the Registrant and Hall
            Properties, Inc., dated February 6, 1992.
(1)10.18    Placement Agency Agreement between the Registrant and
            Paramount Capital, Inc., dated August 1, 1996.
(1)10.19    Subscription Agreement for the Purchase and Sale of Premium
            Preferred Units, dated June 23, 1997.
(1)10.20    Asset Purchase Agreement by and among the Registrant, Hyline
            Laboratories, and Michael Ashkin, dated January 5, 1994.
(1)10.21    Non-Competition Agreement between the Registrant and Michael
            Ashkin, dated January 5, 1994.
(1)10.22    Consulting Agreement between the Registrant and Michael
            Ashkin, dated January 5, 1994.
(1)10.23    Secured Promissory Notes issued to Hyline Laboratories,
            dated January 5, 1994.
(1)10.24    Master Lease Agreement between the Registrant and Dominion
            Ventures, dated August 9, 1991.
(1)10.25    Form of Scientific Advisor Agreement.
(1)10.26    Consulting Agreement between the Registrant and Michael
            Mathews, dated April 13, 1993.
(1)10.27    Consulting Agreement between the Registrant and Joe B.
            Harford, dated July 11, 1997.
(1)10.28    Consulting Agreement between the Registrant and Michael
            Katze, dated February 6, 1997.
(1)10.29    Consulting Agreement between the Registrant and Nahum
            Sonenberg, dated January 29, 1993.
(1)10.30    Approval of Outside Activity by Alan Hinnebusch, dated
            October 15, 1992.
</TABLE>
 
                                       55
<PAGE>   58
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                               EXHIBITS
--------                              --------
<C>         <S>
(1)10.31    Form of Indemnification Agreement between the Registrant and
            the parties identified on Attachment A thereto.
(1)10.32    Financial Advisory Agreement between the Registrant and
            Paramount Capital, Inc., dated June 23, 1997.
(1)10.33    Letter Agreement between the Registrant, Hyline
            Laboratories, Inc. and Michael Ashkin dated December 31,
            1997.
(1)10.34    License Agreement between the Registrant and Dainippon
            Pharmaceutical Co., Ltd. dated January 27, 1998.
(1)10.35    Research Agreement between the Registrant and Dainippon
            Pharmaceutical Co., Ltd. dated January 27, 1998.
(2)10.36    1998 Equity Incentive Plan.
(2)10.37    1998 Non-Employee Directors Stock Option Plan.
(2)10.38    1998 Employee Stock Purchase Plan.
(3)10.39    Stock Purchase Agreement, dated May 29, 1998, between the
            Company and Abbott Laboratories.
(4)10.40    Option and License Agreement by and between the Company and
            Roberts Pharmaceutical Corporation dated July 6, 1998.
(4)10.41    Stock Purchase Agreement by and between the Company and
            Roberts Pharmaceutical Corporation dated July 16, 1998.
(4)10.42    Rights Agreement by and between the Company and Roberts
            Pharmaceutical Corporation dated July 6, 1998.
(4)10.43    Amendment No. 1 to Option and License Agreement by and
            between the Company and Dainippon Pharmaceutical Co. Ltd.
            dated September 18, 1998.
(4)10.44    Common Stock Purchase Agreement by and between the Company
            and Dainippon Pharmaceutical Co. Ltd. dated September 18,
            1998.
   10.45    Loan Agreement by and between the Company and Venture
            Lending Group, dated December 24, 1998.
   23.1     Consent of Ernst & Young LLP, Independent Auditors.
   27.1     Financial Data Schedule.
</TABLE>
 
---------------
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
    (No. 333-38781) and incorporated herein by reference.
 
(2) Filed as an exhibit to the Registrant's Registration Statement on Form S-8
    (No. 333-63751) filed on September 18, 1998 and incorporated herein by
    reference.
 
(3) Filed as an exhibit to the Registrant's Form 10-Q as filed on August 13,
    1998, and incorporated herein by reference.
 
(4) Filed as an exhibit to the Registrant's Form 10-Q as filed on November 12,
    1998, and incorporated herein by reference.
 
(b) The Company has filed no reports on Form 8-K.
 
                                       56
<PAGE>   59
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) 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.
 
Dated: March 22, 1999                     RIBOGENE, INC.
 
                                          By: /s/ CHARLES J. CASAMENTO
                                            ------------------------------------
                                            Charles J. Casamento
                                            President, Chief Executive Officer
                                            and Chairman
 
                               POWER OF ATTORNEY
 
     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Charles J. Casamento and Timothy E.
Morris, and each or any one of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Report, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitutes or substitute, may lawfully do or cause to be
done by virtue hereof.
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
                       SIGNATURE                                      TITLE                   DATE
                       ---------                                      -----                   ----
<C>                                                       <S>                            <C>
 
                /s/ CHARLES J. CASAMENTO                  President, Chief Executive     March 22, 1999
--------------------------------------------------------  Officer and Chairman
                  Charles J. Casamento                    (Principal Executive Officer)
 
                 /s/ TIMOTHY E. MORRIS                    Vice President, Finance &      March 22, 1999
--------------------------------------------------------  Administration and
                   Timothy E. Morris                      Chief Financial Officer
                                                          (Principal Financial and
                                                          Accounting Officer)
 
                  /s/ DIGBY W. BARRIOS                    Director                       March 22, 1999
--------------------------------------------------------
                    Digby W. Barrios
 
                /s/ FRANK J. SASINOWSKI                   Director                       March 22, 1999
--------------------------------------------------------
                  Frank J. Sasinowski
 
                    /s/ JON S. SAXE                       Director                       March 22, 1999
--------------------------------------------------------
                      Jon S. Saxe
 
                    /s/ ROGER STOLL                       Director                       March 22, 1999
--------------------------------------------------------
                      Roger Stoll
</TABLE>
<PAGE>   60
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                               EXHIBITS
--------                              --------
<C>         <S>
 (1)3.1     Restated Certificate of Incorporation of the Registrant.
 (1)3.2     Bylaws of the Registrant.
 (1)4.1     Specimen Stock Certificate.
 (1)4.2     Tenth Amended and Restated Rights Agreement among the
            Registrant and the investors named therein, dated January
            27, 1998.
 (1)4.3     Form of Class A Warrant Certificates for Purchase of Common
            Stock, dated June 23, 1997.
 (1)4.4     Unit Purchase Option Warrant for the Purchase of 342,399
            Option Units, issued by the Registrant to Paramount Capital,
            Inc., dated June 23, 1997.
 (1)4.5     Unit Purchase Option Warrant for the Purchase of 228,266
            Option Units, consisting of Shares of Preferred Stock and
            Warrants, issued by the Registrant to Paramount Capital,
            Inc., dated June 23, 1997.
 (1)4.6     Warrant Agreement between the Registrant and Paramount
            Capital Inc., dated June 23, 1997.
 (1)4.7     Warrant for Common Stock, issued by the Registrant to
            Paramount Capital Inc., dated March 12, 1997.
 (1)4.8     Warrant for Series B Preferred Stock, issued by the
            Registrant to Dominion Ventures, dated August 9, 1991.
 (1)4.9     Warrant for Series C Preferred Stock, issued by the
            Registrant to Dominion Ventures, dated June 18, 1993.
 (1)4.10    Warrant for Series E Preferred Stock, issued by the
            Registrant to Dominion Fund II, dated August 2, 1996.
 (1)4.11    Warrant for Series E Preferred Stock, issued by the
            Registrant to Silicon Valley Bank, dated September 25, 1995.
 (1)4.12    Warrant for Series E Preferred Stock, issued by the
            Registrant to Silicon Valley Bank, dated May 19, 1995.
 (1)4.13    Warrant for Series E Preferred Stock, issued by the
            Registrant to Venture Lending, dated December 23, 1996.
 (1)4.14    Warrant for Common Stock, issued by the Registrant to SBC
            Warburg, dated September 20, 1995.
 (1)4.15    Warrant for Common Stock, issued by the Registrant to Judith
            Donaldson, dated September 20, 1995.
 (1)4.16    Warrant for Series E Preferred Stock, issued by the
            Registrant to Dominion Ventures, dated June 13, 1994.
 (1)4.17    Warrant for Common Stock, issued by the Registrant to Hyline
            Laboratories, dated January 5, 1994.
 (1)4.18    Warrant for Common Stock, issued by the Registrant to Rip
            Grossman and Associates, Inc., dated January 5, 1994.
 (1)4.19    Form of Warrant Agreement (including the Form of Warrant) to
            be entered into among the Registrant and the Representative.
 (1)4.20    Warrant for Common Stock, issued by Registrant to Hyline
            Laboratories, Inc., dated December 31, 1997.
 (1)4.21    Investor Rights Agreement among the Registrant and the
            investors named therein, dated June 23, 1997.
</TABLE>
<PAGE>   61
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                               EXHIBITS
--------                              --------
<C>         <S>
 (1)4.22    Amendment to Unit Purchase Option Warrant to purchase
            342,399 Option Units, issued by the Registrant to Paramount
            Capital, Inc., dated April 6, 1998.
 (1)4.23    Amendment to Unit Purchase Option Warrant to purchase
            228,266 Option Units, issued by the Registrant to Paramount
            Capital, Inc., dated April 6, 1998.
    4.24    Form of Warrant for Common Stock, issued by Registrant to
            Reedland Capital Partners.
(1)10.1     License Agreement between the Registrant and Abbott
            Laboratories, dated April 26, 1996.
(1)10.2     Research Agreement between the Registrant and Abbott
            Laboratories, dated April 26, 1996.
(1)10.3     Series E Preferred Stock Purchase Agreement between the
            Registrant and Abbott, dated April 26, 1996.
(1)10.4     License Agreement between the Registrant and University of
            Washington, dated April 4, 1997.
(1)10.5     Collaboration Agreement between the Registrant and Houghten
            Pharmaceuticals, dated April 12, 1995, as amended on April
            10, 1997.
(1)10.6     1993 Stock Plan.
(1)10.7     Stock Option Agreement pursuant to 1993 Stock Plan.
(1)10.8     Form of Restricted Stock Purchase Agreement pursuant to 1993
            Stock Plan.
(1)10.9     Employment Agreement between the Registrant and Charles J.
            Casamento, dated May 11, 1993.
(1)10.10    Change of Control Agreement between the Registrant and
            Charles Casamento, dated July 20, 1995.
(1)10.11    Employment Letter Agreement between the Registrant and Laura
            S. L. Gaeta, dated May 6, 1994.
(1)10.12    Change of Control Agreement between the Registrant and Laura
            S. L. Gaeta, dated July 20, 1995.
(1)10.13    Employment Letter Agreement between the Registrant and
            Timothy E. Morris, dated May 31, 1995.
(1)10.14    Change of Control Agreement between the Registrant and
            Timothy E. Morris, dated June 30, 1995.
(1)10.15    Real Property Lease between the Registrant and Hayward Point
            Eden I Limited Partnership, dated March 7, 1997.
(1)10.16    First Amendment to Real Property Lease between the
            Registrant and Hayward Point Eden I Limited Partnership,
            dated September 24, 1997.
(1)10.17    Real Property Lease between the Registrant and Hall
            Properties, Inc., dated February 6, 1992.
(1)10.18    Placement Agency Agreement between the Registrant and
            Paramount Capital, Inc., dated August 1, 1996.
(1)10.19    Subscription Agreement for the Purchase and Sale of Premium
            Preferred Units, dated June 23, 1997.
(1)10.20    Asset Purchase Agreement by and among the Registrant, Hyline
            Laboratories, and Michael Ashkin, dated January 5, 1994.
(1)10.21    Non-Competition Agreement between the Registrant and Michael
            Ashkin, dated January 5, 1994.
(1)10.22    Consulting Agreement between the Registrant and Michael
            Ashkin, dated January 5, 1994.
(1)10.23    Secured Promissory Notes issued to Hyline Laboratories,
            dated January 5, 1994.
</TABLE>
<PAGE>   62
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                               EXHIBITS
--------                              --------
<C>         <S>
(1)10.24    Master Lease Agreement between the Registrant and Dominion
            Ventures, dated August 9, 1991.
(1)10.25    Form of Scientific Advisor Agreement.
(1)10.26    Consulting Agreement between the Registrant and Michael
            Mathews, dated April 13, 1993.
(1)10.27    Consulting Agreement between the Registrant and Joe B.
            Harford, dated July 11, 1997.
(1)10.28    Consulting Agreement between the Registrant and Michael
            Katze, dated February 6, 1997.
(1)10.29    Consulting Agreement between the Registrant and Nahum
            Sonenberg, dated January 29, 1993.
(1)10.30    Approval of Outside Activity by Alan Hinnebusch, dated
            October 15, 1992.
(1)10.31    Form of Indemnification Agreement between the Registrant and
            the parties identified on Attachment A thereto.
(1)10.32    Financial Advisory Agreement between the Registrant and
            Paramount Capital, Inc., dated June 23, 1997.
(1)10.33    Letter Agreement between the Registrant, Hyline
            Laboratories, Inc. and Michael Ashkin dated December 31,
            1997.
(1)10.34    License Agreement between the Registrant and Dainippon
            Pharmaceutical Co., Ltd. dated January 27, 1998.
(1)10.35    Research Agreement between the Registrant and Dainippon
            Pharmaceutical Co., Ltd. dated January 27, 1998.
(2)10.36    1998 Equity Incentive Plan.
(2)10.37    1998 Non-Employee Directors Stock Option Plan.
(2)10.38    1998 Employee Stock Purchase Plan.
(3)10.39    Stock Purchase Agreement, dated May 29, 1998, between the
            Company and Abbott Laboratories.
(4)10.40    Option and License Agreement by and between the Company and
            Roberts Pharmaceutical Corporation dated July 6, 1998.
(4)10.41    Stock Purchase Agreement by and between the Company and
            Roberts Pharmaceutical Corporation dated July 16, 1998.
(4)10.42    Rights Agreement by and between the Company and Roberts
            Pharmaceutical Corporation dated July 6, 1998.
(4)10.43    Amendment No. 1 to Option and License Agreement by and
            between the Company and Dainippon Pharmaceutical Co. Ltd.
            dated September 18, 1998.
(4)10.44    Common Stock Purchase Agreement by and between the Company
            and Dainippon Pharmaceutical Co. Ltd. dated September 18,
            1998.
   10.45    Loan Agreement by and between the Company and Venture
            Lending Group, dated December 24, 1998.
   23.1     Consent of Ernst & Young LLP, Independent Auditors.
   27.1     Financial Data Schedule.
</TABLE>
 
---------------
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
    (No. 333-38781) and incorporated herein by reference.
 
(2) Filed as an exhibit to the Registrant's Registration Statement on Form S-8
    (No. 333-63751) filed on September 18, 1998 and incorporated herein by
    reference.
<PAGE>   63
 
(3) Filed as an exhibit to the Registrant's Form 10-Q as filed on August 13,
    1998, and incorporated herein by reference.
 
(4) Filed as an exhibit to the Registrant's Form 10-Q as filed on November 12,
    1998, and incorporated herein by reference.