<PAGE>



                          SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C.  20549

                                      FORM 10-K

  X           ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
-----         OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE
              REQUIRED)

                       For fiscal year ended December 31, 1996

                                          OR

              TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
-----             SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

    For the transition period from ________ to _______.

                          Commission File Number:  000-21589

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

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


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

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

                 Securities registered pursuant to Section 12(b) of
                                    the Act:  None

                   Securities registered pursuant to Section 12(g)
                      of the Act:  Common Stock, $.001 par value

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

    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 amendment to this
Form 10-K.  [X]

    The aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 28, 1997 was approximately $159 million.  For the
purposes of this calculation, shares owned by officers, directors and 10%
stockholders known to the registrant have been excluded.  Such exclusion is not
intended, nor shall it be deemed, to be an admission that such persons are
affiliates of the registrant.

    The number of shares outstanding of the registrant's Common Stock as of
March 1, 1997 was 17,585,108.


<PAGE>

DOCUMENTS INCORPORATED BY REFERENCE

    Portions of Registrant's Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held on June 24, 1997 (the "Proxy Statement"), are
incorporated by reference as provided in Part III of this Annual Report on Form
10-K.

                                        PART I

    BUSINESS

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

OVERVIEW

    Triangle is a pharmaceutical company engaged in the development of new drug
candidates primarily in the antiviral area, with a particular focus on therapies
for HIV, including AIDS, and HBV. Prior to their employment with the Company,
members of the Company's management team played instrumental roles in the
identification, clinical development and commercialization of several leading
antiviral therapies.

    Triangle has an existing portfolio consisting of five licensed drug
candidates and two drug candidates for which the Company has an option to
acquire a license. In laboratory tests, four of the seven drug candidates
inhibit the growth of HIV, and two of these four also inhibit the growth of HBV.
The other three drug candidates have demonstrated preclinical activity against
certain cancers, herpes infections and psoriasis. All the Company's drug
candidates are in an early phase of development. The Company has completed a
Phase Ia clinical trial and is currently conducting a Phase Ib/IIa clinical
trial with one of its anti-HIV drug candidates. The Company expects to commence
Phase I clinical trials for many of its other existing drug candidates by the
end of 1997. The Company believes that some of its drug candidates may meet the
criteria established by the United States Food and Drug Administration ("FDA")
for accelerated approval. If so, the Company may be able to commercialize these
drug candidates in a shorter time period than has historically been required for
drugs that do not meet the criteria for accelerated approval. There can be no
assurance, however, that the Company's drug candidates will qualify for
accelerated approval or be approved in a time period that is shorter than would
be historically expected.

    Treatment of HIV using combinations of drugs has recently shown significant
clinical benefits including reducing virus levels and increasing patient
longevity. Prior to joining the Company, the Company's management team was
actively engaged for a number of years in the development of combination therapy
for the treatment of HIV. The Company was founded based in part on the
management team's belief that the prolonged use of combination therapy will
generate demand for new anti-HIV drugs with favorable resistance, compliance and
tolerance profiles. The Company believes the use of anti-HIV drugs will increase
because it anticipates that (i) the use of multiple drugs in individual patients
on combination therapy will increase, (ii) large numbers of previously untreated
patients will begin to seek medical care as the benefits of combination therapy
become more widely understood and (iii) patient longevity will increase and thus
lengthen the duration of drug therapy.

    Triangle intends to maintain a limited corporate infrastructure that is
focused on drug development. The Company does not intend to engage in drug
discovery, but instead to focus on drug development, thereby avoiding much of
the significant investment of time and capital that is generally required before
a compound is identified and brought to clinical trials. The Company intends to
use its expertise to perform internally what it believes are the most critical
aspects of the development process, such as the design of clinical trials and
the



                                         -2-

<PAGE>

optimization of drug synthesis. The Company plans to out-source the conduct of
clinical trials and many aspects of the manufacture of drug substance to
carefully selected third parties. The Company believes that the high
concentration of major prescribers of anti-HIV therapies in the United States
will enable the Company to promote most drug candidates that are successfully
developed to these prescribers through a small, direct sales force. The Company
does not currently have a sales force.

    Triangle is a development stage company, has not received any revenues from
the sale of products, and does not expect any of its drug candidates to be
commercially available for at least the next several years. As of December 31,
1996, the Company's accumulated deficit was approximately $11.9 million. There
can be no assurance that the Company will ever achieve profitable operations.

STRATEGY

    Triangle's goal is to create a portfolio of commercialized drugs primarily
for antiviral and anticancer therapies. The Company seeks to achieve its goal
through the following strategies:

    FOCUS ON VIRAL DISEASES AND CANCER.  The expertise of Triangle's management
team lies in identifying, developing and commercializing drugs for the treatment
of viral diseases and cancer. The Company is targeting the viral disease and
cancer markets because the Company believes the significant unmet medical need
and the rapid pace of scientific advances occurring in the treatment of these
diseases give these markets attractive growth potential. In addition, the
relatively high concentration of prescribers that treat HIV and cancer may lend
itself to the use of a small, specialized direct sales force in the United
States.

    APPLY SELECTIVE CRITERIA TO DRUG CANDIDATES.  The Company has in-licensed
drug candidates for which the Company believes there is a higher than average
probability of obtaining regulatory approval. The Company uses its expertise to
identify drug candidates that it judges to have attractive preclinical profiles.
In addition, the Company prefers, where practical, to in-license drug candidates
that have either undergone some testing in humans (E.G., FTC and alanosine) or
share characteristics with drugs that are currently approved for use in humans
(E.G., CS-92, acyclovir monophosphate and 2-CdAP). The Company intends to apply
these selection standards where feasible in evaluating drug candidates for
potential in-licensing.

    LEVERAGE RELATIONSHIPS.  As a result of their instrumental roles in the
identification, clinical development and commercialization of antiviral and
anticancer therapies, members of the Company's management team and Scientific
Advisory Board have extensive contacts in academia and industry. These contacts
were instrumental to the Company's acquisition of its existing drug candidates,
and the Company believes they will be valuable in its efforts to develop and
commercialize its existing and future drug candidates.

    DEVELOP DRUGS FOR USE IN COMBINATION THERAPY.  Combination therapy is
currently a common method to treat certain cancers and the Company believes that
it is becoming an increasingly accepted method to treat viral diseases such as
HIV infection.  The Company seeks to identify and develop drug candidates for
use in combination therapy that have resistance, compliance or tolerance
profiles that are different from but complementary to the profiles of existing
drugs. In addition, in contrast to single drug therapy where drugs are
competitively promoted, the Company believes that the marketing of any drug it
successfully develops as part of an established combination regimen with drugs
produced by major pharmaceutical companies will be enhanced by the promotion of
the other drugs used as part of the combination regimen.

    FOCUS ON SMALL MOLECULE DRUGS.  Members of the Company's management are
well known for their successful development of and expertise in small molecule
drugs generally, and nucleosides in particular. Small molecule drugs have
several advantages over large molecule drugs, such as proteins and
polynucleotides. For example, they are often simpler and easier to scale-up and
manufacture than large molecule drugs. Furthermore, small molecule drugs are
more likely to be orally bioavailable, a significant advantage in treating
long-term chronic illnesses where patients prefer not to be subjected to
injections over extended periods of time.

                                         -3-


<PAGE>


    STRATEGICALLY OUT-SOURCE ROUTINE ASPECTS OF DRUG DEVELOPMENT.  Triangle
intends to maintain a limited corporate infrastructure that is focused on drug
development. Much of the drug development process consists of routine elements
that can be out-sourced to high quality, high capacity contractors. As a result,
the Company intends to focus on the aspects of drug development that require
particular expertise. For example, the Company intends to concentrate on the
design of clinical trials and the optimization of drug synthesis and to
out-source the conduct of clinical trials and many aspects of the manufacture of
drug substance. The Company believes this strategy will enable it to respond
rapidly to certain changing events, such as clinical trial results and the
availability of funds, by increasing or decreasing expenditures on particular
drug development projects or by shifting the Company's emphasis among projects.

PRODUCT DEVELOPMENT PROGRAMS

    The Company is currently focused on the development of drugs for the
treatment of viral diseases to take advantage of the opportunities presented by
the emergence of combination therapy. The Company believes that combination
therapy is now recognized as the most effective available method to treat HIV
and AIDS, and is being used increasingly in the United States.  The Company also
believes that HBV, due to its complexity and demonstrated ability to develop
resistance to therapeutic agents, may also be more effectively treated with
combination therapy. Additionally, the Company believes that there is a
significant opportunity to develop drugs for the treatment of cancer because of
the limited clinical benefits offered by many of the current treatments.

    In evaluating drug candidates for its product development programs, the
Company seeks to in-license drug candidates for which favorable preclinical, and
where possible, clinical data already exist. The Company was able to evaluate
preclinical, and in some cases clinical, data for each of the drug candidates it
is currently developing. Unless otherwise stated, all preclinical tests and
clinical trials discussed below refer to tests and trials conducted by third
parties prior to the time the Company obtained rights to the applicable drug
candidate. In some cases, in its drug development efforts the Company has access
to and will be able to use certain results of these preclinical tests and
clinical trials. The Company will not, however, be able to use or rely on all
data from all preclinical tests and clinical trials conducted by third parties,
and will have to conduct its own studies for many preclinical tests and
virtually all the clinical trials for its drug candidates.

    The Company also performs a variety of tests when evaluating a drug
candidate that are designed to evaluate the potential activity, resistance
profile and toxicity of the drug candidate. For example, anti-HIV drug
candidates are tested in the Company's laboratories against both laboratory and
clinical strains of HIV in several cell lines, individually and in combination
with other compounds. In addition, other resistance and toxicity tests are
sometimes performed on behalf of the Company by carefully selected third
parties.

                                         -4-


<PAGE>

    The following table summarizes the current status of Triangle's drug
candidates in its three product development programs: viral disease, cancer and
psoriasis.

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------
  DRUG CANDIDATE(1)                    INDICATION               STATUS(2)       TERRITORY(3)
----------------------------------------------------------------------------------------------
<S>                          <C>                         <C>               <C>
MKC-442                                HIV               Phase Ib/IIa      Worldwide, except
                                                                           certain East Asian
                                                                              countries

FTC                                HIV and HBV           Preclinical(4)    Worldwide

DAPD                                HIV and HBV          Preclinical       Worldwide

CS-92                                  HIV               Preclinical       Worldwide

Acyclovir Monophosphate        Resistant Herpes and
                                  Herpes Labialis        Preclinical       Worldwide

Alanosine                        Brain, Lung and         IND(5)            Worldwide
                                   other Cancers

2-CdAP                               Psoriasis           Preclinical       Worldwide
----------------------------------------------------------------------------------------------

</TABLE>

 
_____________________________________

(1) Triangle has licensed all drug candidates except MKC-442 and alanosine, for
    which the Company has acquired options to obtain licenses. See "--License
    and Option Agreements."

(2) For a discussion of the terms used in this column, see "--Government
    Regulation."

(3) Indicates the geographic territory in which the Company has the right to
    commercialize products under the applicable license or option agreement.

(4) Phase Ia single dose clinical trials with FTC were completed by Burroughs
    Wellcome Co. ("Burroughs Wellcome") prior to the date Triangle obtained its
    rights to FTC from Emory University ("Emory"). The Company currently does
    not have access to all of the data from those clinical trials, and plans to
    initiate its own Phase Ib/IIa clinical trials that will be based in part on
    the published results of the Burroughs Wellcome Phase Ia clinical trials.
    See "--Viral Disease Program--HIV--Development Status--FTC."

(5) Phase I and Phase II clinical trials with alanosine were completed by the
    National Cancer Institute prior to the date Triangle obtained its rights to
    alanosine from the Regents of the University of California (the "Regents").
    The Company is funding Phase II pilot efficacy studies that are being
    conducted by the University of California, San Diego and are currently open
    for patient enrollment.  See "--Cancer Program--Development Status of
    Alanosine."

                                         -5-


<PAGE>

VIRAL DISEASE PROGRAM

    HIV

    BACKGROUND.  The World Health Organization ("WHO") estimates that, as of
June 30, 1995, approximately one million people were infected with HIV in the
United States and approximately 500,000 people were infected with HIV in Europe.
It is generally believed that, in the absence of therapeutic intervention, the
vast majority of individuals infected with HIV will ultimately develop AIDS,
which currently has a fatality rate approaching 100%.

    It is currently believed that a key factor in whether a person infected
with HIV develops AIDS is the amount of HIV in the body at any one time (the
"viral load" or "viral burden"). The failure of vaccines and other immunotherapy
to control the virus has led current researchers to focus on halting HIV
replication and reducing viral load by blocking one or both of two key enzymes
required for viral replication.

    The first enzyme, reverse transcriptase, is active early in the replication
cycle and allows the virus, which is made of RNA, to transform to its DNA form
necessary for continued replication. This enzyme can be inhibited by two general
classes of drugs defined both by their structure as well as their mechanism of
action. The first general class, nucleoside analogue reverse transcriptase
inhibitors such as AZT, ddI, ddC, d4T and 3TC, bears a strong chemical
resemblance to the natural building blocks (nucleosides) of DNA and interfere
with the function of the enzyme by displacing the natural nucleosides used by
the enzyme. The second general class, non-nucleoside reverse transcriptase
inhibitors such as nevirapine, is composed of an extremely diverse group of
chemicals that act by attaching to the enzyme and modifying it so that it
functions less efficiently. The second enzyme, protease, is required to permit
full virus maturation.  Inhibitors of this enzyme are represented by such drugs
as saquinavir, ritonavir and indinavir.

    The genetic material responsible for the production of both enzymes is
extremely prone to mutations that can produce resistance to drugs targeted at
the enzymes. If antiviral therapy does not halt all viral replication, natural
selection allows the mutant strains of virus that are resistant to the drug the
patient is receiving to continue to replicate. Depending upon the particular
mutations that occur, these virus strains may be resistant to only one of the
drugs used in therapy or may be resistant to some or all of the drugs in the
same chemical or functional class. This latter phenomenon is known as
cross-resistance.

    Initially, HIV was treated only with AZT, a nucleoside analogue reverse
transcriptase inhibitor, first introduced in 1987. Three other nucleoside
analogues--ddI, ddC and d4T--were introduced to the market in the late 1980's.
These drugs, when used alone, provided only short-term clinical benefit, could
be toxic and were often considered expensive relative to their clinical
benefits. As a result, the use of anti-HIV therapy was limited and market
penetration was low (less than 25% of the infected population in the United
States).

    More recently, clinical research in HIV has dramatically improved with the
introduction in the mid-1990's of diagnostic tests that can reliably determine
the viral load in the blood at any given time. As a result, it is now possible
to rapidly evaluate potential therapeutic agents and combinations of agents and
to accurately determine the potency and resistance profiles of these agents.
This has led to the accelerated development of a number of new therapeutic
agents and their use in combination therapy.

    Combination therapy has recently demonstrated improved therapeutic benefits
for the treatment of HIV. It has been shown, for example, that the use of 3TC, a
nucleoside analogue reverse transcriptase inhibitor, in combination with AZT
reduces viral load by 92% to 97% and reverses or limits viral resistance. The
use of protease inhibitors in combination with one or two reverse transcriptase
inhibitors has provided even more benefit, sometimes rendering the virus
undetectable in the blood for as long as six months to a year in certain
patients. Additional combinations may be possible as new compounds are
developed.

                                         -6-


<PAGE>

    In spite of these significant advances, numerous challenges remain in the
treatment of HIV. In the absence of a cure, the disease is lifelong and
significant benefits of combination therapy have been demonstrated for only a
year at most. Although combination therapy has demonstrated the ability to
markedly slow resistance development, resistant mutants are already being
identified to several of the drugs currently used during the course of
combination therapy studies, and cross-resistance among many agents, including
protease inhibitors, is being increasingly recognized. Present combination
treatments are also often complex and expensive (published reports indicate the
cost per patient per year can exceed $13,000). Adverse reactions to many of the
drugs used in combination therapy are common and may limit compliance or even
preclude use in some patients. Even brief instances of non-compliance can reduce
or eliminate the ability of the combination therapy to suppress the virus, and
may thus accelerate the development of resistance. The Company believes that
these challenges present an opportunity to develop additional drugs that have
attractive combinations of tolerance, pharmacokinetic or resistance features.

    DEVELOPMENT STATUS.  The Company is developing four compounds for the
treatment of HIV: MKC-442, FTC, DAPD and CS-92. All four are reverse
transcriptase inhibitors.

    MKC-442.  The Company is currently conducting a Phase Ib/IIa clinical trial
in Europe with MKC-442 in HIV-infected patients to determine safety, optimal
dosing and early indications of efficacy as measured by viral load. MKC-442,
although a nucleoside analogue, functions as a non-nucleoside reverse
transcriptase inhibitor. Triangle recently exercised its option to acquire a
license to this compound from Mitsubishi Chemical Corporation ("Mitsubishi") for
the treatment of HIV, and is currently negotiating the license agreement, which
upon execution will grant Triangle rights to MKC-442 worldwide except in certain
East Asian countries, including Japan, China and Taiwan.  Mitsubishi has agreed
to fund up to $1.6 million of initial development expenses through the end of
the option period.

    Preclinical tests suggest that MKC-442 may possess characteristics that 
address several of the therapeutic challenges of HIV. When tested in cell 
culture assay systems against wild-type and several mutant strains of HIV 
known to be resistant to established non-nucleoside reverse transcriptase 
inhibitors, MKC-442 retained much of its ability to inhibit HIV replication. 
In these studies, MKC-442 displayed greater potency than nevirapine against 
wild-type and mutant strains of HIV. Preclinical studies of MKC-442 in two 
drug combinations with AZT and ddI and in two and three drug combinations 
with certain nucleoside analogue reverse transcriptase inhibitors and 
protease inhibitors suggest that MKC-442 may work well in combination 
therapy, allowing for more effective inhibition of HIV replication than with 
any of the single agents alone.

    Studies in animals suggest a favorable safety and pharmacokinetic profile.
Animal pharmacokinetic analyses showed good oral bioavailability and excellent
penetration into the central nervous system. The brain is a significant site of
HIV replication that is poorly penetrated by many currently marketed anti-HIV
drugs. In rats, for example, the concentration of MKC-442 in the brain was 100%
of that seen in the plasma.

    A Phase Ia study conducted by the Company evaluated the pharmacokinetics
and tolerance of single escalating doses of MKC-442 in HIV-infected volunteers.
The compound was well tolerated, with only a few participants experiencing minor
adverse effects at the higher dose levels. In the groups receiving higher doses,
concentrations of the drug in the plasma reached levels much higher than the
concentration levels required to kill 90% of the virus in culture.

    The Company recently released preliminary data from an ongoing Phase Ib/IIa
double-blind, placebo-controlled trial designed to evaluate the safety and
efficacy of repeated multiple oral doses of MKC-442 in HIV infected patients.  A
total of 26 patients were treated for up to two months.  Doses ranging from 100
mg twice a day to 350 mg twice a day were given to groups of six patients at
each dosage level and additional patients are currently entering the trial to
receive higher doses.  MKC-442 produced a significant reduction in the amount of
HIV in the blood.  The degree of this viral load reduction varied depending on
dosage, with over 90% reduction seen during the first week of therapy at the
highest dose studied to date.  This was followed by varying

                                         -7-


<PAGE>

increases from this nadir over the following three week observation period for
which viral load data were available.  Genetic mutations that may be associated
with resistance were found in the virus obtained from some patients after one
month of therapy, consistent with observations obtained from patients on other
monotherapy regimens.  During the course of over 210 patient-weeks of active
drug exposure, the only significant adverse reaction observed was a rash in one
patient receiving the lowest dose.  The preliminary trial is continuing, and
conclusions about the efficacy and safety profile of  MKC-442 when used alone
will not be possible until more extensive dose escalation has occurred.

    Pharmacokinetic drug interaction studies with protease inhibitors and other
agents are currently ongoing under a United States Investigational New Drug
Exemption Application ("IND").

    FTC.  Triangle currently intends to initiate Phase Ib/IIa clinical trials
with FTC for the treatment of HIV in 1997. FTC is a member of the same
nucleoside series as 3TC. Triangle has licensed its worldwide rights to FTC for
the treatment of HIV and HBV from Emory.

    IN VITRO studies have demonstrated that FTC is three to ten times more
potent than 3TC against HIV and is a potent antiviral agent against HIV strains
obtained from a geographically diverse set of HIV-infected patients. IN VITRO
studies have also shown that FTC shares cross-resistance patterns with 3TC. The
most common resistance mutation to these two agents also increases sensitivity
of the virus to AZT.

    The pharmacokinetics and metabolism of FTC have been investigated in animal
studies that demonstrated that FTC was cleared rapidly from the blood stream
over all doses studied and had good oral bioavailability. FTC was also well
tolerated. Mild anemia in mice was seen only at extremely high doses (3000
mg/kg/day).

    A Phase Ia single dose study evaluated the pharmacokinetics and tolerance
of FTC in [12] HIV-infected volunteers. The volunteers received six single oral
doses of FTC at six day intervals ranging from 100 to 1200 milligrams. FTC was
well tolerated by all subjects in the dose range studied. FTC was absorbed
rapidly into the blood stream following oral administration and was excreted
primarily through the kidneys. Its half-life suggests that it could be given
twice daily. While food intake slightly decreased the rate of absorption, it did
not affect overall oral bioavailability. The absorption, metabolism and
excretion of FTC were generally consistent among the subjects.

    DAPD.  The Company currently intends to initiate Phase I clinical trials 
with DAPD for the treatment of HIV in late 1997 or early 1998. DAPD is a 
member of a different nucleoside series from FTC and CS-92. The Company 
believes that DAPD is currently the only member of the nucleoside series to 
which it belongs in development for the treatment of viral diseases and may 
offer advantages over several nucleosides from other series that are already 
on the market because of its unique structure and pharmacological properties. 
Triangle has licensed worldwide rights to DAPD for the treatment of HIV and 
HBV from Emory and the University of Georgia Research Foundation, Inc. 
("UGARF").

    Laboratory studies indicate that DAPD inhibits the growth of HIV at
submicromolar levels and is synergistic in combination with AZT, 3TC and FTC.
HIV strains that are resistant to AZT, 3TC and FTC are not cross-resistant to
DAPD. Pharmacokinetic studies have been completed in animals and demonstrated
that DAPD is rapidly converted to dioxolane guanosine ("DXG"). Preliminary
analyses of these pharmacokinetic studies indicate that DXG serum concentrations
decline with a terminal half-life ranging from approximately two to eight hours.
The analysis of several urine samples from this study indicate the presence of
DXG with no other metabolites detected.

    CS-92.  Triangle currently intends to initiate Phase I clinical trials with
CS-92 in 1997. CS-92 is a member of the same nucleoside series as AZT. Triangle
has licensed worldwide rights to CS-92 for the treatment of HIV from Emory and
UGARF.

                                         -8-


<PAGE>

    CS-92 has been extensively studied IN VITRO in various cell culture 
systems. CS-92 demonstrated significant antiviral activity IN VITRO against 
HIV and appears to be significantly less toxic than AZT. The levels needed to 
inhibit the virus are one hundred to one thousand times less than the toxic 
levels in cell cultures. CS-92 is also active in HIV-infected human 
macrophages, a significant reservoir of HIV infection in humans. CS-92 is 50 
to 100 times less toxic to human bone marrow cell cultures than AZT. However, 
CS-92 has a resistance profile similar to AZT and a certain amount of CS-92 
is converted intracellularly to AZT.

    In animal studies, CS-92 demonstrated low bone marrow toxicity, lack of
systemic toxicity, reasonable oral bioavailability and a long half-life that
suggest a favorable potential for use in humans. Studies in mice of continuous
oral treatment with CS-92 for 145 days produced no apparent toxicity. A similar
treatment with AZT produced preliminary evidence of red blood cell toxicity as
early as 34 days after treatment commenced. In a separate study conducted by the
Company, when animals were given identical daily doses of either AZT or CS-92,
the animals given AZT developed anemia by day 14 while the animals given CS-92
did not. Pharmacokinetic studies have also been conducted with CS-92 in animals.
Oral bioavailability in rats readily yielded viral inhibitory levels in plasma
for a number of hours after dosing. CS-92 also displayed favorable
pharmacokinetic parameters with good oral bioavailability and a longer half-life
than AZT. More detailed animal  studies are currently underway.

    HBV

    BACKGROUND.  HBV is the causative agent of both the acute and chronic forms
of hepatitis B, a liver disease that is a major cause of illness and death
throughout the world. HBV can lead to cirrhosis and cancer of the liver. In the
United States approximately 300,000 people become acutely infected each year and
approximately one million people currently are chronic hepatitis B carriers. Of
these, as many as 5,000 die each year as a result of the consequences of this
liver damage. Worldwide, over 300 million people are chronically infected.
Presently, there are over 120 million carriers of hepatitis B in Asia, of whom
one-fourth may develop serious illnesses such as cirrhosis and liver cancer.

    A vaccine is currently available that can prevent the transmission of HBV;
however, it has no activity in those already infected with the virus. Alpha
interferon, approved for the treatment of HBV, is administered by injection, is
not always successful in controlling the virus and is associated with
significant side-effects, the most common being severe flu-like symptoms. While
a few compounds under development may have some activity in the treatment of HBV
infection, the Company believes it is likely that additional drugs will be
necessary to effectively treat the disease. For example, clinical trials with
3TC to date have shown good tolerance and effective suppression of HBV
replication during the course of treatment. However, virus replication usually
returns after a six month course of therapy has been completed. Studies of more
prolonged therapy are in progress, but antiviral resistance has already been
observed with certain patients.

    The Company believes that HBV, like HIV, may be treated more effectively
with combination therapy. Therefore, even if other drugs are approved for the
treatment of HBV, the Company believes there will still be a need for additional
safe and effective oral therapies for chronic HBV that can be used in
combination therapies.

    DEVELOPMENT STATUS.  Two of the compounds that the Company is developing
for the treatment of HIV, FTC and DAPD, are also being developed for the
treatment of HBV.

    FTC.  The Company currently intends to initiate Phase I clinical trials
with FTC for the treatment of HBV in 1997. Some of the development activities
the Company plans to undertake with FTC for the treatment of HIV will also be
used by the Company in its development of FTC for the treatment of HBV. See
"--HIV--Development Status--FTC."

    FTC has been shown to be a potent inhibitor IN VITRO of HBV replication,
and is synergistic IN VITRO in combination with several types of interferons
approved for the treatment of HBV. The anti-hepatitis activity of

                                         -9-


<PAGE>

FTC has been demonstrated in a chimeric mouse model and against woodchuck
hepatitis virus ("WHV") in naturally infected woodchucks. The infection of the
woodchuck results in a disease state closely resembling that found in humans
infected with HBV. In the woodchuck model, all treated animals had significantly
reduced levels of WHV DNA in their blood. One week after treatment was stopped,
WHV levels returned to pretreatment levels, as is seen with 3TC.

    DAPD.  The Company currently intends to initiate Phase I clinical trials
with DAPD for the treatment of HBV in late 1997 or early 1998. Some of the
development activities the Company plans to undertake with DAPD for the
treatment of HIV will also be used by the Company in its development of DAPD for
the treatment of HBV. See "--HIV--Development Status--DAPD."

    DAPD has been shown to be a potent inhibitor IN VITRO of HBV replication.
In a woodchuck model, DAPD was found to be as active as 3TC in reducing serum
levels of circulating viral DNA when administered for 12 weeks.

    HERPES SIMPLEX VIRUS

    BACKGROUND.  Herpes labialis (cold sores), caused by Herpes Simplex Virus
Type-1 ("HSV-1"), is a latent viral infection that is found in approximately 90%
of adults over 30.  Once a person is infected, the virus may remain in the body
indefinitely, evading attempts by the immune system to destroy it. In a
recurrent outbreak characterized as "cold sores," the virus reactivates from its
latent state spontaneously or in response to a variety of unpredictable and
unavoidable stimuli, including hormonal changes, stress and exposure to
sunlight. There is no effective cure for HSV-1.

    Genital herpes, caused by Herpes Simplex Virus Type 2 ("HSV-2"), is one of
the most common sexually transmitted diseases. In the United States, it is
estimated that there are between 500,000 and one million new cases annually and
that as many as 60 million individuals show evidence of prior infection of
HSV-2. About one-third of patients infected with HSV-2 have recurring episodes
of painful genital ulcerations, which in most cases heal in three to ten days.
Systemic treatment with acyclovir and, more recently, famciclovir and
valacyclovir, is effective against most strains of HSV-2. However, in patients
with weakened immune systems, such as AIDS patients, the healing of genital
ulcerations may be prolonged, persisting for weeks or even months. Resistance to
acyclovir is common in these patients because the virus has mutated to avoid the
required  biochemical step needed to activate the drug. Approved and
experimental therapies to treat these resistant viruses are either inconvenient
to administer or are associated with potentially significant toxicologic
profiles.

    DEVELOPMENT STATUS OF ACYCLOVIR MONOPHOSPHATE.  The Company is developing a
topical formulation of acyclovir monophosphate ("ACVMP") for acyclovir-resistant
herpes virus infections and for herpes labialis. ACVMP is a monophosphate
derivative of the nucleoside acyclovir. Triangle has licensed worldwide rights
to ACVMP from Dr. Karl Hostetler, a director of the Company and a member of its
Scientific Advisory Board.

    Acyclovir requires the addition of three phosphates to produce the form
active against herpes viruses. Normally, the first phosphate is added
("phosphorylation") by a virus-specific enzyme known as thymidine kinase, which
produces ACVMP. Once ACVMP is produced, non-viral host cell enzymes add two
additional phosphate groups to the molecule to produce acyclovir triphosphate,
which is the active antiviral. Mutations in some herpes viruses, particularly
those in patients with weakened immune systems, result in a virus that either
lacks or has deficient levels of the enzyme thymidine kinase. These viruses do
not perform the critical first phosphorylation and are therefore resistant to
acyclovir. The administration of ACVMP overcomes this resistance because ACVMP
is provided to the cell in an activated form. Before initiating clinical trials
in humans, the Company is currently conducting preclinical and formulation
studies to confirm prior animal model studies which demonstrated the 
advantages of topical ACVMP over topical acyclovir.


                                         -10-


<PAGE>

CANCER PROGRAM

    BACKGROUND.  Cancer, which can occur in almost any part of the body, is a
major cause of death in developed countries. In the United States, approximately
1.3 million new cases of cancer are diagnosed annually, and more than 1,500
people die of cancer each day. Colorectal, breast, prostate and lung cancer
account for approximately half of all diagnoses.

    Treatments currently approved for cancer vary greatly depending on where
the disease originates in the body and the extent of the disease at the time of
treatment. The three conventional modes of treatment are radiation therapy,
chemotherapy and surgery. Radiation therapy and chemotherapy often have
significant negative side effects that may include nausea, hair loss, liver
toxicity, extreme fatigue and lowered resistance to infection. Both forms of
therapy generally require repeated treatments over extended periods of time. If
the disease recurs in a patient following these therapies, it is frequently
impossible to repeat the treatment because the recurring cancer will have
developed resistance to the form of treatment used (either drug or radiation),
or the patient will have received maximum levels of radiation. Surgery does not
cause the same side effects as radiation therapy or chemotherapy and is
considered the treatment of choice for many cancers; however, many patients are
not eligible for surgery because of the location of the cancerous tissue or
their physical condition. Even for those patients who are not subject to these
limits, surgery can be traumatic and can require long recovery periods. For most
advanced stages of cancer, current therapies provide only short-term benefit and
the majority of patients die of their disease within a few months to a few
years.

    Non-small cell lung cancer ("NSCLC") is a highly fatal disease caused
predominately by smoking. Approximately 100,000 people are diagnosed with the
disease in the United States each year and their prognoses are typically very
poor. Surgery and radiation are the treatments of choice for NSCLC, but result
in only about ten percent five-year survival rates. For the 70% of patients
whose tumors are not amenable to surgical removal, median survival rates are
measured in months. Chemotherapeutic agents are marginally effective in
extending survival in the early stages of the disease and are used primarily to
relieve symptoms and sometimes shrink tumors to provide short-term benefit.
Antitumor agents generally do not provide significantly prolonged benefit to
NSCLC patients during their later stages of disease.

    The drug options for treating brain cancer are also limited. Approximately
13,500 patients in the United States develop primary brain tumors each year, and
the currently approved chemotherapeutic agents lack specificity, resulting in
dose-limiting toxicities.

    DEVELOPMENT STATUS OF ALANOSINE.  The Company is funding Phase II pilot
efficacy studies with alanosine that will be conducted by the University of
California, San Diego for the treatment of NSCLC and brain cancers that lack the
enzyme methylthioadenosine phosphorylase ("MTAP"). These clinical trials are
currently open for patient enrollment under a United States IND.

    Alanosine is an amino acid analogue derived from STREPTOMYCES ALANOSINICUS.
Triangle has obtained an option from the Regents that expires in September 1998
(with an option for Triangle to extend the exercise period for one year) for a
worldwide license to use alanosine in treating various cancers lacking the
enzyme MTAP.

    Alanosine has antitumor activity based upon its ability to interfere with
the synthesis of adenosine, a molecule necessary for cellular growth and
activity. Cells have only two methods of making adenosine: by DE NOVO synthesis
and by the "salvage pathway." Alanosine interferes with the DE NOVO synthesis of
adenosine in both malignant and normal cells. In cancer cells that lack the
enzyme MTAP (a required enzyme in the salvage pathway), alanosine will deprive
such cancer cells but not normal cells of all means to make adenosine.

    Alanosine was evaluated in Phase I and Phase II clinical trials at the
National Cancer Institute ("NCI") during the early 1980's. The trials were
discontinued because alanosine caused toxicity typically associated with
chemotherapy and did not produce significant response rates in common tumors
such as breast or colon cancers.

                                         -11-


<PAGE>

Recently, investigators at the University of California, San Diego discovered
that malignant cells from certain cancer patients lack MTAP. The enzyme
deficiency occurs in up to 30% of NSCLCs and up to 75% of primary brain tumors.
It is absent in a lower percentage of patients with leukemias, lymphomas,
melanomas, breast cancer and renal adenocarcinomas. The Company believes that
the growth of these MTAP-deficient tumors should be inhibited by alanosine.

    A laboratory test has been developed and is being perfected to identify in
tumor biopsy tissue those cancers that lack MTAP and therefore are most likely
to respond to therapy with alanosine. The NCI has already conducted
dose-escalating studies and established dose-limiting toxicities. Triangle
intends to attempt to recharacterize alanosine by using advanced molecular
biological techniques to select the patients most likely to respond to
alanosine: those with malignant cancer cells that lack MTAP.

    PSORIASIS PROGRAM

    BACKGROUND.  Psoriasis is a chronic condition of the skin manifested by
scaly patches, which may cause itching. The disease affects an estimated two
percent of the world's population, including approximately five million people
in the United States. It is characterized by spontaneous remissions, but
relapses are common. Although it is not usually a life-threatening condition,
psoriasis causes significant psychological distress to those affected who may
feel ostracized because of their physical appearance. In severe cases, patients
suffer from extensive skin damage and, in some cases, arthritis. There is no
known cure for psoriasis and sufferers are often treated for each recurrent
episode.

    Treatments for psoriasis, though varied, are generally of only short-term
benefit. They range from topical therapy for milder symptoms, including
steroids, Vitamin D derivatives, coal tars and emollients, to phototherapy and
more toxic systemic treatments for more severe cases, such as cyclosporine,
tretinoin and methotrexate.

    DEVELOPMENT STATUS OF 2-CDAP.  The Company currently intends to initiate
Phase I clinical trials with a topical formulation of 2-CdAP for the treatment
of psoriasis in late 1997 or early 1998. 2-CdAP is a derivative of 2-CdA
(cladribine), a potent immunosuppressive and anti-proliferative agent that is
currently an approved drug and the treatment of choice for hairy cell leukemia.
Triangle has licensed worldwide rights to the topical administration of 2-CdAP
from Dr. Karl Hostetler and Dr. Dennis Carson.

    In a recent clinical trial, seven patients with psoriasis enrolled in a
three month study of oral 2-CdA. Of six patients completing therapy, skin
lesions improved in five (two dramatic responses) and joint disease improved in
four. However, immunosuppression occurred in all patients and an opportunistic
infection occurred in one patient.

    Recent experiments have shown that complex polynucleotides administered
topically are absorbed by cells such as keratinocytes and macrophages within the
superficial skin. Based on these findings, the Company believes that topical
mononucleotides such as 2-CdAP will also penetrate the skin. If this occurs, the
Company believes that the therapeutic utility of 2-CdAP in psoriasis would
result from its ability to gain direct access to hyperproliferating
keratinocytes in a form that would be rapidly effective. The Company believes
that 2-CdAP should also penetrate lymphocytes found in the psoriatic skin,
killing them without producing systemic toxicity. The Company believes that
systemic toxicity is unlikely to occur because of the small amount of drug that
would enter the bloodstream.

LICENSE AND OPTION AGREEMENTS

    The Company has entered into an option agreement with Mitsubishi with
respect to the acquisition of certain license rights to MKC-442. The Company has
licensed FTC from Emory and DAPD and CS-92 from Emory and UGARF. The Company has
licensed ACVMP from Dr. Karl Hostetler and 2-CdAP from Dr. Karl Hostetler and
Dr. Dennis Carson. The Company has entered into an option agreement with the
Regents with

                                         -12-


<PAGE>

respect to the acquisition of certain license rights to alanosine. See "--Risks
and Uncertainties--Risks Relating to License and Option Agreements."

MITSUBISHI CHEMICAL CORPORATION

    In December 1995, the Company entered into an option agreement with
Mitsubishi pursuant to which Mitsubishi granted the Company an option through
December 1997 to obtain an exclusive license to MKC-442. The Company recently
exercised its option and is currently negotiating the license agreement.  The
license will include all countries of the world except certain countries in East
Asia, including China, Japan and Korea.  Under the option agreement, Triangle
has agreed to perform preclinical testing and initial Phase I and Phase IIa
clinical trials with MKC-442. Mitsubishi has agreed to fund up to $1.6 million
of the development costs incurred by Triangle through the end of the option
period in connection with engaging an authorized CRO and to supply certain
preclinical testing and clinical trial material used by Triangle at Mitsubishi's
expense. The Company is obligated to hold Mitsubishi harmless against any claims
or losses incurred as a result of the Company's conducting such preclinical
testing and clinical trials. Mitsubishi has the right to terminate the option
agreement upon three months' notice for scientific or clinical reasons after
consultation with the Company. Additional termination events include an uncured
breach of the option agreement by the Company. The termination of the option
agreement could have a material adverse effect on the Company.

    Once executed, the license agreement will require the Company to pay a
license initiation fee and make certain milestone and royalty payments,
including minimum annual payments, to Mitsubishi. At Mitsubishi's option,
certain of these payments may be made in the form of the Company's capital
stock. The Company will also be required to meet certain milestone obligations
and conduct certain development work with respect to MKC-442. Upon the Company's
request, Mitsubishi will supply the Company with MKC-442 for formulation of drug
substance under the terms of a separate supply and purchase agreement to be
separately negotiated, and any purchases of MKC-442 by the Company will be
credited to the Company's minimum annual payment obligation. Mitsubishi will
have the right to terminate the license agreement if the Company does not
satisfy certain milestone obligations or does not cure any material breach of
the license agreement. The failure of the Company to enter into the license
agreement or the termination of the license agreement could have a material
adverse effect on the Company.

    FTC.  In April 1996, the Company entered into a license agreement with
Emory pursuant to which the Company received an exclusive worldwide license to
all of Emory's rights to purified forms of FTC (the "FTC Technology") for use in
the HIV and HBV fields. As consideration for the exclusive license of the FTC
Technology, the Company issued 500,000 shares of Common Stock and agreed to pay
certain license fees, most of which have already been paid. In addition, the
Company agreed to make certain milestone and royalty payments to Emory.
Beginning the third year after the first FDA registration is granted for an
anti-HIV product incorporating the FTC Technology in the United States and after
the first registration is granted for an anti-HBV product incorporating the FTC
Technology in certain major market countries, the Company will be required to
pay Emory minimum annual royalties for the HIV and HBV indications,
respectively. Under the license agreement, Emory is primarily responsible for
prosecuting all patents related to the FTC Technology. The Company agreed to
reimburse Emory for the patent prosecution costs it incurs after December 1996.
The Company has the right to pursue any actions against third parties for
infringement of the FTC Technology at the Company's expense. Upon the conclusion
of any such infringement action, the Company is entitled to offset its
unrecovered expenses incurred in connection with the infringement action against
any milestone payments and royalties that were owing to Emory during the time
the infringement action was pending. In addition, the Company is obligated to
defend, indemnify and hold harmless Emory and certain of its representatives
against any claims or losses incurred as a result of the Company's
manufacturing, testing, design, use and sale of products utilizing the FTC
Technology. Emory has the right to terminate the license agreement or to convert
the exclusive license to a nonexclusive license in the event the Company does
not satisfy certain milestone obligations. Emory may also terminate the license
agreement upon an uncured breach of the agreement by the Company. In the event
of such termination or conversion, the Company will grant Emory certain
nonexclusive, royalty-free license rights in all intellectual property under the
Company's control relating to the FTC Technology

                                         -13-


<PAGE>

necessary for the marketing of products incorporating the FTC Technology. The
termination of the license agreement or the conversion from an exclusive to a
nonexclusive agreement could have a material adverse effect on the Company.

    DAPD.  In March 1996, the Company entered into a license agreement with
Emory and UGARF pursuant to which the Company received an exclusive worldwide
license to all of Emory's and UGARF's rights to a series of nucleoside analogues
including DAPD and DXG (the "DAPD Technology") for use in the HIV and HBV
fields. As consideration for the exclusive license of the DAPD Technology, the
Company issued an aggregate of 150,000 shares of Common Stock to Emory and
UGARF. In addition, the Company agreed to make certain milestone and royalty
payments to Emory and UGARF. The Company is required to pay license maintenance
fees beginning March 1999 in the event certain development milestones have not
been achieved. Beginning the third year after the first FDA registration is
granted for an FDA-approved product incorporating the DAPD Technology, the
Company will be required to pay Emory and UGARF a minimum annual royalty. Under
the license agreement, Emory and UGARF are primarily responsible for prosecuting
all patents related to the DAPD Technology. The Company agreed to reimburse
Emory and UGARF for the patent prosecution costs they incur after the date of
the license agreement. The Company has the right to pursue any actions against
third parties for infringement of the DAPD Technology at the Company's expense.
Upon the conclusion of any such infringement action, the Company is entitled to
offset its unrecovered expenses incurred in connection with the infringement
action against any milestone payments and royalties that were owing to Emory and
UGARF during the time the infringement action was pending. In addition, the
Company is obligated to defend, indemnify and hold harmless Emory, UGARF and
certain of their representatives against any claims or losses incurred as a
result of the Company's manufacturing, testing, design, use and sale of products
utilizing the DAPD Technology. Emory and UGARF have the right to terminate the
license agreement or to convert the exclusive license to a nonexclusive license
in the event the Company does not satisfy certain milestone obligations. Emory
and UGARF may also terminate the license agreement upon an uncured breach of the
agreement by the Company. In the event of such termination or conversion, the
Company will grant Emory and UGARF certain nonexclusive, royalty-free license
rights in all intellectual property under the Company's control relating to the
DAPD Technology necessary for the marketing of products incorporating the DAPD
Technology. The termination of the license agreement or the conversion from an
exclusive to a nonexclusive agreement could have a material adverse effect on
the Company.

    CS-92.  In March 1996, the Company entered into a license agreement with
Emory and UGARF pursuant to which the Company received an exclusive worldwide
license to all of Emory's and UGARF's rights to CS-92 (the "CS-92 Technology")
for use in the HIV field. As consideration for the exclusive license of the
CS-92 Technology, the Company issued an aggregate of 50,000 shares of Common
Stock to Emory, UGARF and Dr. Raymond Schinazi, a co-inventor of the CS-92
Technology. In addition, the Company agreed to make certain milestone and
royalty payments to Emory and UGARF. The Company is required to pay license
maintenance fees beginning March 1999 in the event certain development
milestones have not been achieved. Beginning the third year after the first FDA
registration is granted for an FDA-approved product incorporating the CS-92
Technology, the Company will be required to pay Emory and UGARF a minimum annual
royalty. Under the license agreement, Emory and UGARF are primarily responsible
for prosecuting all patents related to the CS-92 Technology. The Company agreed
to reimburse Emory and UGARF for the patent prosecution costs they incur after
the date of the license agreement. The Company has the right to pursue any
actions against third parties for infringement of the CS-92 Technology at the
Company's expense. Upon the conclusion of any such infringement action, the
Company is entitled to offset its unrecovered expenses incurred in connection
with the infringement action against any milestone payments and royalties that
were owing to Emory and UGARF during the time the infringement action was
pending. In addition, the Company is obligated to defend, indemnify and hold
harmless Emory, UGARF and certain of their representatives against any claims or
losses incurred as a result of the Company's manufacturing, testing, design, use
and sale of products utilizing the CS-92 Technology. Emory and UGARF have the
right to terminate the license agreement or to convert the exclusive license to
a nonexclusive license in the event the Company does not satisfy certain
milestone obligations. Emory and UGARF may also terminate the license agreement
upon an uncured breach of the agreement by the Company. In the event of such
termination or conversion, the Company will grant Emory and UGARF certain
nonexclusive,

                                         -14-


<PAGE>

royalty-free license rights in all intellectual property under the Company's
control relating to the CS-92 Technology necessary for the marketing of products
incorporating the CS-92 Technology. The termination of the license agreement or
the conversion from an exclusive to a nonexclusive agreement could have a
material adverse effect on the Company.

DRS. HOSTETLER AND CARSON

    In November 1995, the Company entered into a license agreement with
Dr. Karl Hostetler and Dr. Dennis Carson pursuant to which Dr. Hostetler granted
the Company an exclusive worldwide license to his rights to ACVMP and
Drs. Hostetler and Carson granted the Company an exclusive worldwide license to
their rights to 2-CdAP (the "ACVMP and 2-CdAP Technologies"). As consideration
for the exclusive license of the ACVMP and 2-CdAP Technologies, the Company sold
shares of Common Stock to Drs. Hostetler and Carson. The interests of
Drs. Hostetler and Carson in the shares of Common Stock vest over time as they
continue to serve as consultants to the Company. The Company also agreed to make
two separate milestone payments of $1.0 million each and to make royalty
payments ranging from 3% to 8% of net sales of products incorporating the ACVMP
and 2-CdAP Technologies to Drs. Hostetler and Carson. The Company is obligated
to hold harmless Drs. Hostetler and Carson against any claims or losses caused
by or arising out of the Company's use of the ACVMP and 2-CdAP Technologies.
Drs. Hostetler and Carson have the right to terminate the license agreement or
convert the exclusive license to a nonexclusive license in the event that the
Company does not satisfy certain development, marketing and milestone
obligations. Additional termination events include the failure of the Company to
pay royalties to Drs. Hostetler and Carson when due. The termination of the
license agreement or the conversion from an exclusive to a nonexclusive
agreement could have a material adverse effect on the Company.

THE REGENTS OF THE UNIVERSITY OF CALIFORNIA

    In September 1996, the Company entered into an option agreement with the
Regents pursuant to which the Regents granted the Company an option through
September 1, 1998 (with an option to extend the exercise period for one year),
to obtain an exclusive worldwide license to all of the Regents' rights to
alanosine and related technologies (the "Alanosine Technology") for use in the
treatment of various cancers lacking the enzyme MTAP. As consideration for the
grant of the option, the Company agreed to pay the Regents certain option fees.
In the event the Company exercises the option, the Company will be required to
pay a license initiation fee and annual license maintenance fees. The Company
will also be required to make certain milestone and royalty payments to the
Regents, including minimum annual royalties. The Regents are primarily
responsible for prosecuting all patents and initiating infringement actions
related to the Alanosine Technology (and will remain primarily responsible for
patent prosecution and infringement actions if the Company exercises the
option). The Company has agreed to reimburse the Regents for all patent
prosecution costs they incur. In addition, the Company is obligated to defend,
indemnify and hold harmless the Regents and certain of their representatives
against any claims or losses incurred as a result of the Company's exercise of
its rights under the option agreement.

    The Company also entered into a sponsored research agreement (the "Research
Agreement") with the Regents whereby the Company has agreed to provide
approximately $450,000 to fund two clinical trials to be conducted by the
University of California, San Diego. The clinical trials will be pilot Phase II
clinical studies to assess the efficacy of alanosine in the treatment of NSCLC
and brain cancers. Either the Regents or the Company may terminate a study upon
the uncured breach of the Research Agreement by the other party. In the event
both studies are terminated under the Research Agreement (other than for reasons
of the uncured breach on the part of the Regents), the Company's rights under
the option agreement would be terminated. The termination of the Company's
rights under the option agreement, the failure of the Company to enter into the
related license agreement or the termination of the license agreement could have
a material adverse effect on the Company.

                                         -15-


<PAGE>

PATENTS AND PROPRIETARY RIGHTS

    The Company's success will depend in large part on the ability of the
Company and its licensors to obtain patent protection with respect to its drug
candidates, defend patents once obtained, maintain trade secrets and operate
without infringing upon the patents and proprietary rights of others and to
obtain appropriate licenses to patents or proprietary rights held by third
parties, with respect to its drug candidates, both in the United States and in
foreign countries. The Company has no patents in its own name or patent
applications of its own pending, but has obtained licenses to patents and other
proprietary rights from third parties with respect to each of the Company's
seven drug candidates.

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

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

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

                                         -16-


<PAGE>

FTC

    The Company obtained its rights to purified forms of FTC under a license
from Emory. In 1990 and 1991, Emory filed in the United States and thereafter in
numerous foreign countries patent applications with claims to composition of
matter and methods to treat HIV and HBV with FTC. Yale University ("Yale") filed
patent applications on FTC and its use to treat HBV in 1991 in the United
States, and subsequently licensed its rights under those patent applications to
Emory. The Company's license arrangement with Emory includes all rights under
the Yale patent applications. FTC belongs to the same general class of
nucleosides as 3TC, which was recently approved in the United States by the FDA
for use in combination with AZT for the treatment of HIV. 3TC is currently being
sold by Glaxo Wellcome plc ("Glaxo") for the treatment of HIV under a license
agreement with BioChem Pharma Inc. ("Biochem Pharma").

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

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

                                         -17-


<PAGE>

in the absence of a license from BioChem Pharma. There can be no assurance that
the Company could obtain a license from BioChem Pharma on acceptable terms or at
all.

    HBV.  Burroughs Wellcome filed patent applications in March and May 1991 in
Great Britain on a method to treat HBV with  FTC. Burroughs Wellcome filed
similar patent applications in other countries, which the Company believes
includes the United States. Glaxo subsequently acquired Burroughs Wellcome's
rights under those patent applications. Those applications were filed in foreign
countries prior to the date Emory filed its patent application on the use of FTC
to treat HBV, and therefore, the foreign patent applications filed by Burroughs
Wellcome have priority over those filed by Emory. In July 1996, Emory instituted
litigation against Glaxo in the United States District Court to obtain ownership
of the patent applications filed by Burroughs Wellcome, alleging that Burroughs
Wellcome converted and misappropriated Emory's invention and property, and that
an Emory employee is the inventor or a co-inventor of the subject matter covered
by the Burroughs Wellcome patent applications. There can be no assurance that
Emory will succeed in its efforts to establish ownership rights. If Emory fails
to establish ownership rights, the Company could not make, use or sell FTC for
the treatment of HBV in countries in which patents are issued to Glaxo without a
license from Glaxo. If Emory establishes only co-ownership rights (and not sole
ownership) to these patents and patent applications, laws in Europe, Korea and
perhaps other countries could prohibit Emory from licensing any co-owned patent
rights without Glaxo's consent. If the Company is required to obtain a license
from Glaxo to sell FTC for the treatment of HBV, there can be no assurance that
the Company would be able to obtain such a license on acceptable terms or at
all.

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

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

DAPD

    The Company obtained its rights to DAPD under a license from Emory and
UGARF. The DAPD portfolio licensed to the Company consists of two issued United
States patents and several United States and foreign patent applications that
cover a method for the synthesis of DAPD and its use to treat HIV and HBV. Emory
and UGARF filed patent applications claiming these inventions in the United
States in 1990, 1992 and 1993, respectively. BioChem Pharma filed a patent
application in the United States in 1988 on a group of nucleosides in the same
general class as DAPD and their use to treat HIV, and has filed corresponding
patent applications in foreign countries. The PTO issued a patent to BioChem
Pharma in 1993 covering a class of nucleosides that includes DAPD and its use to
treat HIV. Corresponding patents have been issued to BioChem Pharma in many
foreign countries. Emory has filed an opposition to BioChem Pharma's granted
patent application in the European Patent Office based, in part, upon Emory's
assertion that BioChem Pharma's patent does not disclose how to make DAPD, and
Emory has informed the Company that Emory intends to challenge

                                         -18-


<PAGE>

BioChem Pharma's patents and patent applications in other countries.  Patent
claims granted to Emory on a portion of the DAPD technology by the Australian
Patent Office have been opposed by BioChem Pharma. There can be no assurance
that a court or administrative body would invalidate BioChem Pharma's patent
claims or that a sale of DAPD by the Company would not infringe BioChem Pharma's
patents. If Emory, UGARF and the Company do not challenge, or are not successful
in any challenge to, BioChem Pharma's issued patents or pending patent
applications (or patents that may issue as a result of such applications), the
Company will not be able to manufacture, use or sell DAPD in the United States
and any foreign countries in which BioChem Pharma receives a patent without a
license from BioChem Pharma. There can be no assurance that the Company would be
able to obtain a license from BioChem Pharma on acceptable terms or at all.

CS-92

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

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


                                         -19-


<PAGE>

    The Company also relies on unpatented trade secrets and know-how to
maintain its competitive position, which it seeks to protect, in part, by
confidentiality agreements with employees, consultants and others. There can be
no assurance that these agreements will not be breached or terminated, that the
Company will have adequate remedies for any breach, or that the Company's trade
secrets will not otherwise become known or be independently discovered by
competitors. The Company relies on certain technologies to which it does not
have exclusive rights or which may not be patentable or proprietary and thus may
be available to competitors. The Company has filed an application for but has
not obtained a trademark registration with respect to its corporate name and its
logo. Another company has filed an application to obtain a trademark
registration for the name "Triangle Coordinated Care," and the Company is aware
that several other companies use trade names that are similar to the Company's
for their businesses. If the Company is not able to obtain any licenses that may
be necessary for the Company to use its corporate name, it may be required to
change its corporate name. The Company's management personnel were previously
employed by other pharmaceutical companies. In many cases, these individuals are
conducting drug development activities for the Company in areas similar to those
in which they were involved prior to joining the Company. As a result, the
Company, as well as these individuals, could be subject to allegations of
violation of trade secrets and other similar claims. See "--Risks and
Uncertainties--Uncertainty of Patents; Dependence on Patents, Licenses and
Proprietary Rights."

GOVERNMENT REGULATION

    The manufacturing and marketing of Triangle's products and its ongoing
development activities are subject to extensive regulation by numerous
governmental authorities in the United States and other countries. See "--Risks
and Uncertainties--Extensive Government Regulation; No Assurance of Regulatory
Approval."

FDA APPROVAL

    In the United States, pharmaceuticals are subject to rigorous FDA
regulation. The Federal Food, Drug and Cosmetic Act governs the testing,
manufacture, approval, labeling, storage, record keeping, advertising and
promotion of Triangle's drug candidates and any products that Triangle may
successfully develop. Product development and approval within this regulatory
framework takes a number of years and involves the expenditure of substantial
resources.

    The steps required before a new prescription drug may be marketed in the
United States include (i) preclinical laboratory and animal tests, (ii) the
submission to the FDA of an IND, which must be evaluated and found acceptable by
the FDA before human clinical trials may commence, (iii) adequate and
well-controlled human clinical trials to establish the safety and effectiveness
of the drug, (iv) the submission of a New Drug Application ("NDA") to the FDA
and (v) FDA approval of the NDA. Prior to obtaining FDA approval of an NDA, the
facilities that will be used to manufacture the drug must undergo a preapproval
inspection to ensure compliance with the FDA's Good Manufacturing Practices
("GMP") regulations. A company must also pay a one-time user fee for each NDA
submission and pay annual user fees for each approved product and manufacturing
establishment.

    Preclinical tests include laboratory evaluation of product chemistry and
animal studies to assess the safety and effectiveness of the product and its
formulation. The results of the preclinical tests are submitted to the FDA as
part of an IND, and unless the FDA objects, the IND will become effective 30
days following its receipt by the FDA. If the FDA has concerns about the
proposed clinical trial, it may delay the trial and require modifications to the
trial protocol prior to permitting the trial to begin. As a result, there can be
no assurance that the FDA will permit a proposed IND to become effective.

    Clinical trials involve the administration of the pharmaceutical product to
healthy volunteers or to patients identified as having the condition for which
the pharmaceutical is being tested. The pharmaceutical is administered under the
supervision of a qualified principal investigator. Clinical trials are conducted
in accordance with protocols previously submitted to the FDA as part of the IND
that detail the objectives of the trial, the parameters used to monitor safety
and the efficacy criteria that are being evaluated. Each clinical trial is

                                         -20-


<PAGE>

conducted under the auspices of an Institutional Review Board ("IRB") at the
institution at which the trial is conducted. The IRB considers, among other
things, ethical factors, the safety of the human subjects and the possible
liability risk for the institution.

    Clinical trials are typically conducted in three sequential phases that may
overlap. In Phase I, the initial introduction of the pharmaceutical into healthy
human volunteers, the emphasis is on testing for safety (adverse effects),
dosage tolerance,  metabolism, distribution, excretion and clinical
pharmacology. Phase II involves trials in a limited patient population to
determine the effectiveness of the pharmaceutical for specific targeted
indications, to determine dosage tolerance and optimal dosage and to identify
possible adverse side effects and safety risks. In serious diseases such as AIDS
or cancer, patients suffering from the disease rather than healthy volunteers
are used in Phase I trials. In addition, Phase I trials may be divided between
Phase Ia, in which single doses of the drug are given, and Phase Ib, in which
multiple doses are given. In the latter instance, some efficacy data may be
obtained if the subjects are patients suffering from the disease rather than
healthy volunteers, and these trials are referred to as "Phase Ib/IIa." After a
compound has been shown in Phase II trials to have an acceptable safety profile
and probable effectiveness, Phase III trials are undertaken to evaluate clinical
effectiveness further and to further test for safety within an expanded patient
population at multiple clinical study sites. The FDA reviews both the clinical
trial plans and the results of the trials at each phase and may discontinue the
trials at any time if there are significant safety issues.

    The results of the preclinical tests and clinical trials are submitted to
the FDA in the form of an NDA for marketing approval. The testing and approval
process is likely to require substantial time and effort and there can be no
assurance that any approval will be granted on a timely basis or at all. The
approval process is affected by a number of factors, including the severity of
the disease, the availability of alternative treatments and the risks and
benefits demonstrated in clinical trials. Additional animal studies or clinical
trials may be requested during the FDA review process and may delay marketing
approval. Upon approval, a drug may be marketed only for the approved
indications in the approved dosage forms. Further clinical trials would be
necessary to gain approval for the use of the product for any additional
indications or dosage forms. The FDA may also require post-marketing testing to
monitor for adverse effects, which can involve significant expense.

    A company may conduct clinical trials outside of the United States, using a
product manufactured outside the country, and in some circumstances manufactured
within the United States, without an IND. The FDA will accept data from foreign
clinical trials to support clinical investigations in the United States and/or
approval of an NDA only if the agency determines that the trials are
well-designed, well-conducted, performed by qualified investigators, and
conducted in accordance with internationally recognized ethical principles. The
Company is currently conducting a Phase Ib/IIa clinical trial in Europe for
MKC-442, for which an IND has not been submitted to FDA. Triangle intends to
conduct clinical trials with some of its other drug candidates in Europe as
well. There can be no assurance that clinical trials conducted in either the
United States or foreign countries will demonstrate that any potential products
under development by the Company are safe and effective, or that the FDA will
not require additional clinical trials to support approval of an NDA.

    The FDA has developed several regulatory procedures to accelerate the
clinical testing and approval of drugs intended to treat serious or
life-threatening illnesses under certain circumstances. For example, in 1988,
the FDA issued regulations to expedite the development, evaluation and marketing
of drugs for life-threatening and severely debilitating illnesses, especially
where no alternative therapy exists (the "1988 Regulations"). These procedures
encourage early consultation between the IND sponsors and the FDA in the
preclinical testing and clinical trial phases to determine what evidence will be
necessary for marketing approval and to assist the sponsors in designing
clinical trials. Under this program, the FDA works closely with the IND sponsors
to accelerate and condense Phase II clinical trials, which may, in some cases,
eliminate the need to conduct Phase III trials or limit the scope of Phase III
trials. Under the 1988 Regulations, the FDA may require postmarketing clinical
trials (Phase IV trials) to obtain additional information on the drug's risks,
benefits and optimal use.

    In 1992, the FDA issued regulations establishing an accelerated NDA
approval procedure for certain drugs under Subpart H of the agency's NDA
approval regulations ("Subpart H Regulations"). The Subpart H Regulations
provide for accelerated NDA approval for new drugs intended to treat serious or
life-threatening diseases where the drugs provide a meaningful therapeutic
advantage over existing treatment. Under this

                                         -21-


<PAGE>

accelerated approval procedure, the FDA may approve a drug based on evidence
from adequate and well-controlled studies of the drug's effect on a surrogate
endpoint that reasonably suggest clinical benefits, or on evidence of the drug's
effect on a clinical endpoint other than survival or irreversible morbidity.
This approval is conditional on the favorable completion of trials to establish
and define the degree of clinical benefits to the patient. Such postmarketing
clinical trials would usually be underway when the product obtains this
accelerated approval. If, after approval, a post-marketing clinical study
establishes that the drug does not perform as expected, or if post-marketing
restrictions are not adhered to or are not adequate to ensure the safe use of
the drug, or other evidence demonstrates that the product is not safe and/or
effective under its conditions of use, the FDA may withdraw approval. The
Subpart H accelerated approval regulation can complement the 1988 Regulations
for expediting the development, evaluation and marketing of drugs. These two
procedures for expediting the clinical evaluation and approval of certain drugs
may shorten the drug development process by as much as two to three years.

    The Company believes that MKC-442, FTC, CS-92, DAPD, ACVMP and alanosine
may be candidates for accelerated development and/or approval under the 1988
Regulations and/or the Subpart H Regulations. However, there can be no assurance
that any of these drug candidates or any future drug candidates the Company may
develop ultimately will be eligible for development and/or approval under these
regulations. In addition, there can be no assurance that these drug candidates
or any future drug candidates (if eligible for development and/or approval under
these regulations) will be approved by the FDA for marketing at all or, if
approved for marketing, will be approved for marketing sooner than would be
traditionally expected.

    Once the sale of a product is approved, the FDA regulates the
manufacturing, marketing and other activities under the Federal Food, Drug, and
Cosmetic Act and the FDA's implementing regulations. The FDA periodically
inspects both domestic and foreign drug manufacturing facilities to ensure
compliance with applicable GMP regulations, NDA conditions and other
requirements. In addition, manufacturers in the United States must register with
the FDA and submit a list of every drug in commercial distribution. Foreign
manufacturers are subject only to the drug listing requirement. The Company does
not have or currently intend to develop the facilities to manufacture its drug
candidates in commercial quantities, and intends to establish relationships with
contract manufacturers for the commercial manufacture of its products. Some of
these contract manufacturers may be located outside the United States. There can
be no assurance that the Company's contract  manufacturers will be able to
attain or maintain compliance with GMP regulations and NDA conditions.
Post-marketing reports are also required to monitor the product's usage and
effects. Product approvals may be withdrawn, or other actions may be ordered, or
sanctions imposed if compliance with regulatory requirements is not maintained.

    Under the Orphan Drug Act, the FDA may grant orphan drug designation to
drugs intended to treat a "rare disease or condition," which generally is a
disease or condition that affects populations of fewer than 200,000 individuals
in the United States. Orphan drug designation must be requested before
submitting an NDA, and after the FDA grants orphan drug designation, the generic
identity of the therapeutic agent and its potential orphan use are publicly
disclosed by the FDA. Under current law, approval of the first NDA for a drug
with orphan drug designation confers United States marketing exclusivity to
market such designated drug for the designated indication for a period of seven
years following approval of the NDA, subject to certain limitations. Orphan drug
designation does not convey any advantage in, or shorten the duration of, the
regulatory approval process.

    The Company believes that alanosine, if successfully developed for the
treatment of NSCLC and/or brain cancers, may qualify for orphan drug
designation. There can be no assurance, however, that alanosine or any future
products the Company may develop will be designated as an orphan drug. In
addition, there can be no assurance that alanosine or any future products will
be approved for marketing at all.

FOREIGN REGULATORY APPROVAL AND SALE

    Many foreign countries also regulate the clinical testing, manufacturing,
marketing and use of pharmaceutical products. The requirements relating to the
conduct of clinical trials, product approval, manufacturing, marketing, pricing
and reimbursement vary widely from country to country and there can be no

                                         -22-


<PAGE>

assurance that the Company or any third parties with which the Company may
establish collaborative relationships will be able to attain or maintain
compliance with such requirements.

    In addition to the import requirements of foreign countries, a company must
also comply with United States laws governing the export of FDA regulated
products. Pursuant to the FDA Export Reform and Enhancement Act of 1996, a drug
that has not obtained FDA approval may be exported to any country in the world
without FDA authorization if the product both complies with the laws of the
importing country and has obtained valid marketing authorization in one of the
following countries: Australia, Canada, Israel, Japan, New Zealand, Switzerland,
South Africa, the European Union, or a country in the European Economic Area.
The FDA is authorized to add countries to this list in the future. Among other
restrictions, a drug that has not obtained FDA approval may be exported under
the new law only if it is not adulterated, accords to the specifications of the
foreign purchaser, complies with the laws of the importing country, is labeled
for export, is manufactured in substantial compliance with GMP regulations and
is not sold in the United States.

OTHER REGULATIONS

    In addition to regulations enforced by the FDA, the Company also is subject
to regulation under the Occupational Safety and Health Act, the Controlled
Substances Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other similar federal, state and local regulations governing
permissible laboratory activities, waste disposal, handling of toxic, dangerous
or radioactive materials and other matters. The Company believes that it is in
substantial compliance, in all material respects, with applicable regulations.
These regulations are subject to change, however, and may, in the future,
require substantial effort and cost to the Company to comply with each of the
regulations, and may possibly restrict the Company's business activities. See
"--Risks and Uncertainties--Hazardous Materials."

COMPETITION

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

    If the Company's drug candidates are successfully developed and approved,
the Company will face competition based on the safety and effectiveness of its
products, the timing and scope of regulatory approvals, availability of supply,
marketing and sales capability, reimbursement coverage, price and patent
position. There

                                         -23-


<PAGE>

can be no assurance that the Company's competitors will not develop more
effective or more affordable technology or products, or achieve earlier patent
protection, product development or product commercialization than the Company.
Accordingly, the Company's competitors may succeed in commercializing products
more rapidly or effectively than the Company, which could have a material
adverse effect on the Company. See "--Risks and Uncertainties--Intense
Competition; Risk of Technological Change."

MANUFACTURING

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

SALES AND MARKETING

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

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

HEALTH CARE REFORM MEASURES AND THIRD PARTY REIMBURSEMENT

    The business and financial condition of pharmaceutical companies will
continue to be affected by the efforts of governments and third party payors to
contain or reduce the cost of health care through various means. A number of
legislative and regulatory proposals aimed at changing the health care system
have been proposed in recent years. In addition, an increasing emphasis on
managed care in the United States has and will continue to increase the pressure
on pharmaceutical pricing. While the Company cannot predict whether legislative
or regulatory proposals will be adopted or the effect such proposals or managed
care efforts may have on its business, the announcement and/or adoption of such
proposals or efforts could have a material adverse effect on the Company. In the
United States and elsewhere, sales of prescription pharmaceuticals are dependent
in part on the availability of reimbursement to the consumer from third party
payors, such as government and private insurance plans that mandate
predetermined discounts from list prices. Third party payors are increasingly

                                         -24-


<PAGE>

challenging the prices charged for medical products and services. If the Company
succeeds in bringing one or more products to the market, there can be no
assurance that these products will be considered cost effective or that
reimbursement to the consumer will be available or will be sufficient to allow
the Company to sell its products on a competitive basis. See "--Risks and
Uncertainties--Uncertainty of Health Care Reform Measures and Third Party
Reimbursement."

HUMAN RESOURCES

    As of March 1, 1997, Triangle had 30 employees, including 16 in development
and 14 in finance and administration. Of these employees, 15 hold advanced
degrees, of which 10 are M.D.s or Ph.D.s. The Company's future success will
depend in large part upon its ability to attract and retain highly qualified
personnel. The Company's employees are not represented by any collective
bargaining agreements, and the Company has never experienced a work stoppage.
The Company believes that its employee relations are good.


RISKS AND UNCERTAINTIES

DEVELOPMENT STAGE COMPANY; UNCERTAINTY OF PRODUCT DEVELOPMENT

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

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

    The Company has incurred losses since its inception. As of December 31,
1996, the Company's accumulated deficit was approximately $11.9 million. Losses
have resulted principally from costs incurred in the acquisition and development
of the Company's drug candidates and general and administrative costs.  These
costs have exceeded the Company's revenues, which to date have been generated
primarily from interest income. The Company has not generated any revenue to
date from the sale of drugs and does not expect to do so for at least the next
several years. The Company expects to incur significant additional operating
losses over the next several years and expects losses to increase as the
Company's drug development efforts expand. The Company's ability to achieve
profitability will depend upon its ability to develop and obtain regulatory
approval for its drug candidates and to develop the capacity (or establish
relationships with third parties) to manufacture, market and sell any drug
candidates it successfully develops. There can be no assurance that the Company
will ever generate significant revenues or achieve profitable operations.

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING

    The Company's drug development programs currently require and will in the
future require substantial capital expenditures, including expenditures for
preclinical testing, chemical synthetic scale-up, clinical trials of drug
candidates and payments to the Company's licensors. The Company's future capital
requirements will depend on many factors, including the progress of the
Company's drug development programs, the magnitude of these programs, the scope
and results of preclinical testing and clinical trials, the cost, timing and
outcome of regulatory reviews, the costs under the license and/or option
agreements relating to the Company's drug

                                         -25-


<PAGE>

candidates, administrative and legal expenses, the establishment of capacity for
sales and marketing functions, the establishment of relationships with third
parties for manufacturing and sales and marketing functions, and other factors.
The Company expects that its capital requirements will increase significantly in
the future.

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

UNCERTAINTIES RELATED TO CLINICAL TRIALS

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

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

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

    The Company's success will depend in large part on the ability of the
Company and its licensors to obtain patent protection with respect to its drug
candidates, defend patents once obtained, maintain trade secrets and operate
without infringing upon the patents and proprietary rights of others and to
obtain appropriate licenses to patents or proprietary rights held by third
parties, both in the United States and in foreign countries. The Company has no
patents in its own name or patent applications of its own pending, but has
obtained licenses to patents and other proprietary rights from third parties
with respect to each of the Company's seven drug candidates.


                                         -26-


<PAGE>

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

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

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

    FTC

    The Company obtained its rights to purified forms of FTC under a license
from Emory.  In 1990 and 1991, Emory filed in the United States and thereafter
in numerous foreign countries patent applications with claims to composition of
matter and methods to treat HIV and HBV with FTC. Yale filed patent applications
on FTC and its use to treat HBV in 1991 in the United States, and subsequently
licensed its rights under those patent applications to Emory. The Company's
license arrangement with Emory includes all rights under the Yale patent
applications. FTC belongs to the same general class of nucleosides as 3TC, which
was recently approved

                                         -27-


<PAGE>

in the United States by the FDA for use in combination with AZT for the
treatment of HIV. 3TC is currently being sold by Glaxo for the treatment of HIV
under a license agreement with BioChem Pharma.

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

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

    HBV. Burroughs Wellcome filed patent applications in March and May 1991 in
Great Britain on a method to treat HBV with FTC. Burroughs Wellcome filed
similar patent applications in other countries, which the Company believes
includes the United States. Glaxo subsequently acquired Burroughs Wellcome's
rights under those patent applications. Those applications were filed in foreign
countries prior to the date Emory filed its patent application on the use of FTC
to treat HBV, and therefore, the foreign patent applications filed by Burroughs
Wellcome have priority over those filed by Emory. In July 1996, Emory instituted
litigation against Glaxo in the United States District Court to obtain ownership
of the patent applications filed by Burroughs

                                         -28-


<PAGE>

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

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

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

    DAPD

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

                                         -29-


<PAGE>

    CS-92

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

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

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

                                         -30-


<PAGE>

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

EXTENSIVE GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL

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

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

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

                                         -31-


<PAGE>

INTENSE COMPETITION; RISK OF TECHNOLOGICAL CHANGE

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

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

RISKS RELATED TO LICENSE AND OPTION AGREEMENTS

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


                                         -32-


<PAGE>

LACK OF MANUFACTURING CAPABILITIES

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

LACK OF SALES AND MARKETING CAPABILITIES

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

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

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

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


                                         -33-


<PAGE>

NO ASSURANCE OF MARKET ACCEPTANCE

    The Company's success will depend in substantial part on the extent to
which any product it develops achieves market acceptance. The degree of market
acceptance will depend upon a number of factors, including the receipt and scope
of regulatory approvals, the establishment and demonstration in the medical
community of the safety and effectiveness of the Company's products and their
potential advantages over existing treatment methods, and reimbursement policies
of government and third party payors. There can be no assurance that physicians,
patients, payors or the medical community in general will accept or utilize any
product that the Company may develop.

RISKS RELATING TO COMBINATION THERAPY

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

DEPENDENCE ON KEY EMPLOYEES

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

UNCERTAINTY OF HEALTH CARE REFORM MEASURES AND THIRD PARTY REIMBURSEMENT

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

                                         -34-


<PAGE>

that reimbursement to the consumer will be available or will be sufficient to
allow the Company to sell its products on a competitive basis.

ABSENCE OF PRODUCT LIABILITY INSURANCE; INSURANCE RISKS

    The Company's business will expose it to potential product liability risks
that are inherent in the testing, manufacturing and marketing of pharmaceutical
products. There can be no assurance that product liability claims will not be
asserted against the Company. The Company currently has only limited product
liability insurance relating to potential claims arising from its clinical
trials. The Company intends to expand its insurance coverage if and when the
Company begins marketing commercial products. There can be no assurance,
however, that the Company will be able to obtain any additional product
liability insurance on commercially acceptable terms or that the Company will be
able to maintain its existing insurance and/or any additional insurance it may
obtain in the future at a reasonable cost or in sufficient amounts to protect
the Company against potential losses. A successful product liability claim or
series of claims brought against the Company could have a material adverse
effect on the Company.

HAZARDOUS MATERIALS

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

CONCENTRATION OF STOCK OWNERSHIP; CONTROL BY MANAGEMENT AND EXISTING
STOCKHOLDERS

    As of March 1, 1997, the Company's directors, executive officers and their
respective affiliates beneficially owned approximately 63% of the Company's
outstanding Common Stock. As a result, these stockholders are able to exercise
significant influence over all matters requiring stockholder approval, including
the election of directors and approval of significant corporate transactions.
Such concentration of ownership may also have the effect of delaying or
preventing a change in control of the Company that may be favored by other
stockholders.

VOLATILITY OF STOCK PRICE

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

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


                                         -35-


<PAGE>

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

ANTITAKEOVER EFFECTS OF CHARTER, BYLAWS AND DELAWARE LAW

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

NO DIVIDENDS

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


Item 2.  PROPERTIES

    As of March 1, 1997 the Company leased and occupied an approximately 29,000
square foot administrative office, laboratory and pilot manufacturing facility
in Durham, North Carolina pursuant to a lease that continues through September
2003.  Under the terms of the lease the Company will occupy approximately an
additional 23,000 square feet beginning in August 1998.  The Company believes
its facilities will be adequate to meet its needs for the foreseeable future.


Item 3.  LEGAL PROCEEDINGS

    From time to time, Triangle may be involved in litigation relating to
claims arising out of its operations in the normal course of business.  As of
the date of this Annual Report on Form 10-K, the Company is not a party to any
legal proceedings.  See "Item 1. Business--Risks and Uncertainties--Uncertainty
of Patents; Dependence on Patents, Licenses and Proprietary Rights."

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    None.

                                         -36-


<PAGE>
                                       PART II


Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

    (a)  Market Price of and Dividends on the Registrant's Common Equity.

    The Company's Common Stock is traded on the over-the-counter market and
prices are quoted on the Nasdaq National Market under the symbol "VIRS."  The
following table sets forth the high and low sale prices for the Common Stock on
the Nasdaq National Market from its initial public offering on November 1, 1996
through December 31, 1996.

YEAR ENDED DECEMBER 31, 1996:                         HIGH      LOW

4th Quarter (November 1 through December 31)          24 1/4     10

    On March 26, 1997, the last reported sale price of the Common Stock was 
$15.75.  As of February 28, 1997, there were approximately 161 holders of 
record of the Common Stock.

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

    (b)  Recent Sales of Unregistered Securities.

    Since January 1, 1996, the Company has sold and issued the following
unregistered securities:

    (1)  On March 19, 1996, the Company issued 60,000 shares of Common Stock to
a certain investor for the consideration of $600.

    (2)  On March 20, 1996, the Company issued 60,000 shares of Common Stock to
a certain investor for the consideration of $600.

    (3)  On April 11, 1996, the Company issued 425,000 shares of Common Stock
to a certain investor for the consideration of $4,250.

    (4)  On April 11, 1996, the Company issued an aggregate of 675,000 shares
of Common Stock to University of Georgia Research Foundation, Inc. and Emory
University in consideration of those parties having entered into certain License
Agreements with the Company.

    (5)  On May 9, 1996, the Company issued 40,000 shares of Common Stock to a
certain investor for an aggregate consideration of $400.

    (6)  On May 9, 1996, the Company issued 10,000 shares of Series A Preferred
Stock to a certain investor for an aggregate consideration of $7,500.

    (7)  On May 10, 1996, the Company issued 171,833 shares of Common Stock to
an officer of the Company upon exercise of a stock option for an aggregate
consideration of $14,176.

    (8)  On May 14, 1996, the Company issued 33,333 shares of Series A
Preferred Stock to a certain investor for an aggregate consideration of $25,000.

                                         -37-


<PAGE>

    (9)  On May 15, 1996, the Company issued 6,667 shares of Series A Preferred
Stock to a certain investor for an aggregate consideration of $5,000.

    (10) On May 21, 1996, the Company issued a warrant to purchase up to
130,000 shares of Series A Preferred Stock (which warrant automatically converts
to the right to purchase shares of Common Stock upon the completion of the
Offerings) at an exercise price of $0.75 per share to Burrill & Craves for the
consideration of $130.

    (11) On June 11, 1996, the Company issued an aggregate of 3,706,234 shares
of Series B Preferred Stock to various investors for an aggregate consideration
of $18,531,170.

    (12) On June 24, 1996, the Company issued 110,000 shares of Common Stock to
an officer of the Company upon exercise of a stock option for an aggregate
consideration of $8,250.

    (13) On August 2, 1996, the Company issued 15,500 shares of Common Stock to
an officer of the Company upon exercise of a stock option for an aggregate
consideration of $1,163.

    (14) On August 8, 1996, the Company issued a warrant to purchase up to
16,000 shares of Series B Preferred Stock (which warrant automatically converted
to the right to purchase shares of Common Stock upon the completion of the
Company's initial public offering) at an exercise price of $5.00 per share to 
Comdisco, Inc. in consideration of the execution of a certain Master Lease 
Agreement by Comdisco.

    (15) On October 25, 1996, the Company issued 20,000 shares of Common Stock
to an employee of the Company upon exercise of a stock option for an aggregate
consideration of $1,500.

    The sales and issuances of securities in the above transactions were deemed
to be exempt under the Securities Act by virtue of Section 4(2) thereof and/or
Regulation D and Rule 701 promulgated thereunder as transactions not involving
any public offering.  The purchasers in each case represented their intention to
acquire the securities for investment only and not with a view to any
distribution thereof.  Appropriate legends were affixed to the stock
certificates issued in such transactions.  Similar representations of investment
intent were obtained and similar legends imposed in connection with any
subsequent transfers of any such securities.  The Company believes that all
recipients had adequate access, either through employment or other
relationships, to information about the Company to make an informed investment
decision.

                                         -38-


<PAGE>

Item 6. SELECTED FINANCIAL DATA

    The selected statement of operations data with respect to the year ended
December 31, 1996 and the period from inception (July 12, 1995) to December 31,
1995 and the balance sheet data at December 31, 1995 and 1996 set forth below
are derived from the financial statements of the Company included in Item 8
below, which have been audited by Price Waterhouse LLP, independent accountants.
The selected financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in Item 7 below and the Company's financial statements and
the notes thereto contained in Item 8 below.






                                                                PERIOD FROM
                                                                  INCEPTION
                                                   YEAR        (JULY 12, 1995)
                                                   ENDED           THROUGH
                                                 DECEMBER 31,     DECEMBER 31,
                                                    1996             1995
                                               --------------  ----------------
STATEMENT OF OPERATIONS DATA:
Operating expenses:
  License fees . . . . . . . . . . . . . .     $  3,267,147            --
  Development. . . . . . . . . . . . . . .        4,966,732            --
  General and administrative . . . . . . .        3,558,041       $  1,004,815
                                               ------------        -----------
                                                 11,791,920          1,004,815
Interest income. . . . . . . . . . . . . .          875,337             37,232
                                               ------------        -----------
Net loss . . . . . . . . . . . . . . . . .     $(10,916,583)       $  (967,583)
                                               ------------        -----------
                                               ------------        -----------

Pro forma net loss per share . . . . . . .     $      (0.75)       $     (0.07)
                                               ------------        -----------
                                               ------------        -----------

Shares used in computing pro forma
 net loss per share (1). . . . . . . . . .       14,478,951         14,277,498
                                               ------------        -----------
                                               ------------        -----------


                                                          DECEMBER 31,
                                                     1996               1995
                                               -------------       ------------
BALANCE SHEET DATA:
Cash and cash equivalents. . . . . . . . .    $  25,255,006       $  3,081,586
Working capital. . . . . . . . . . . . . .       41,348,734          2,867,117
Total investments. . . . . . . . . . . . .       27,946,138            --
Total assets . . . . . . . . . . . . . . .       55,495,242          3,101,985
Capital lease obligation - noncurrent. . .          364,385            --
Accumulated deficit. . . . . . . . . . . .      (11,884,166)          (967,583)
Total stockholders' equity . . . . . . . .       52,655,248          2,887,516

(1) See note 1 of notes to financial statements for information concerning the
    computation of pro forma net loss per share and shares used in computing
    pro forma net loss per share.

                                         -39-


<PAGE>


Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

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

OVERVIEW

  Triangle is a pharmaceutical company engaged in the development of new drug
candidates primarily in the antiviral area. Since its inception on July 12,
1995, the Company's operating activities have related primarily to recruiting
personnel, negotiating license and option arrangements for its drug candidates,
raising capital and developing the Company's drug candidates. The Company has
not received any revenues from the sale of products, and does not expect any of
its drug candidates to be commercially available for at least the next several
years. As of December 31, 1996, the Company's accumulated deficit was
approximately $11.9 million.

  The Company's drug development programs will require substantial capital
expenditures, including expenditures for preclinical testing, chemical synthetic
scale-up, clinical trials of drug candidates and payments to the Company's
licensors. The Company has been unprofitable since its inception and expects to
incur substantial and increasing losses for at least the next several years, due
primarily to the expansion of its drug development programs. The Company expects
that losses will fluctuate from period to period and that such fluctuations may
be substantial. See "Item 1. Business--Risks and Uncertainties-History of
Operating Losses; Accumulated Deficit; Uncertainty of Future Profitability."

  The Company has only a limited operating history upon which an evaluation of
the Company and its prospects can be based. The risks, expenses and difficulties
encountered by companies at an early stage of development must be considered
when evaluating the Company's prospects. To address these risks, the Company
must, among other things, successfully develop and commercialize its drug
candidates, secure all necessary proprietary rights, respond to competitive
developments and continue to attract, retain and motivate qualified persons.
There can be no assurance that the Company will be successful in addressing
these risks. See "Item 1. Business--Risks and Uncertainties-Development Stage
Company; Uncertainty of Product Development."

  The operating expenses of the Company will depend on several factors,
including the level of development expenses. Development expenses will depend on
the progress and results of the Company's drug development efforts, which the
Company cannot predict. Management may in some cases be able to control the
timing of development expenses in part by accelerating or decelerating
preclinical testing and clinical trial activities. As a result of these factors,
the Company believes that period to period comparisons in the future are not
necessarily meaningful and should not be relied upon as an indication of future
performance. Due to all of the foregoing factors, it is possible that the
Company's operating results will be below the expectations of market analysts
and investors. In such event, the prevailing market price of the Common Stock
would likely be materially adversely affected. See "Item 1. Business--Risks and
Uncertainties-Volatility of Stock Price."

RESULTS OF OPERATIONS

  The Company had total interest income of $875,337 for the year ended December
31, 1996 compared to $37,232 in the period from inception (July 12, 1995)
through December 31, 1995 (the "Inception Period"). The increase in interest
income compared to the Inception Period is primarily due to an increase in
investments associated with financing activities and the short length of the
Inception Period. See "--Liquidity and Capital Resources".

  License fees totaled $3,267,147 for the year ended December 31, 1996. Of this
amount, approximately $2,500,000 was paid in cash and $636,000 represents
non-cash charges based on the fair value of Common Stock


                                         -40-


<PAGE>

issued to licensors. All license fees incurred to date related to the execution
of license agreements and certain financing milestones. There were no license
fees in the Inception Period. Future license fees may also consist of milestone
payments under licensing arrangements, the amount of which could be substantial
and the timing of which will depend on a number of factors that the Company
cannot predict. These factors include, among others, the success of the
Company's drug development programs and the extent to which the Company
in-licenses additional drug candidates.

  Development expenses totaled $4,966,732 for the year ended December 31, 1996.
Development expenses consisted primarily of expenses for compensation, drug
synthesis, toxicology studies, patent related activities and preclinical testing
of the Company's drug candidates.  The Company also recognized non-cash charges
of $346,569 relating to the amortization of deferred consulting expenses.
Development expenses were reduced by approximately $832,000 relating to the
reimbursable development expenses under an option agreement for one of the
Company's drug candidates.  There were no development expenses in the Inception
Period. The Company expects its development expenses to increase substantially
in the future due to continued expansion of drug development activities,
including preclinical testing and clinical trials. In addition, if the Company
in-licenses or otherwise acquires rights to additional drug candidates,
development expenses would increase as a result.

  General and administrative expenses totaled $3,558,041 for the year ended
December 31, 1996 compared to $1,004,815 for the Inception Period. General and
administrative expenses for the year ended December 31, 1996 consisted primarily
of compensation expenses, rent expense and amounts paid for outside professional
services and included non-cash charges of $231,272 related to the amortization
of deferred compensation expenses. The increase in general and administrative
expenses compared to the Inception Period is comprised primarily of increases in
compensation expense, rent expenses associated with office and laboratory
facilities and increases in professional fees. The increase is due primarily to
the short length of the Inception Period and growth of the Company's operations.
The Company expects that its general and administrative expenses will increase
in future periods.

LIQUIDITY AND CAPITAL RESOURCES

  The Company has financed its operations since inception (July 12, 1995)
through December 31, 1996 primarily with the net proceeds received from private
placements of equity securities, which provided aggregate proceeds of
approximately $22,300,000. On November 6, 1996, the Company completed an initial
public offering with net proceeds to the Company totaling $39,060,000 before
deducting expenses of the offering of approximately $1,100,000. On December 3,
1996 the U.S. Underwriters exercised their over-allotment option resulting in
additional net proceeds to the Company of approximately $3,100,000. In addition
the Company received approximately $485,000 of $832,000 as reimbursement of
certain development expenses under an option agreement for one of its drug
candidates.  The Company expects to receive the remaining $347,000 during the
first half of 1997.

  At December 31, 1996, the Company's principal source of liquidity was
$25,255,006 in cash and cash equivalents, $17,226,221 in short-term investments
and $10,719,917 in long-term investments which are "available for sale."  On
August 8, 1996 the Company obtained a $1,000,000 secured equipment lease line
facility with an option to increase the facility to $2,000,000. The facility,
which expires on August 9, 1997, was first utilized in October 1996.  At
December 31, 1996 the Company had utilized $470,880 of the facility.

  The Company expects that its capital requirements will increase substantially
in future periods as the Company funds its drug development programs. The
Company's future capital requirements will depend on many factors, including the
progress of the Company's drug development programs, the magnitude of these
programs, the scope and results of preclinical testing and clinical trials, the
cost, timing and outcome of regulatory reviews, the costs under the license
and/or option agreements relating to the Company's drug candidates,
administrative and legal expenses, the establishment of capacity for sales and
marketing functions, the establishment of relationships with third parties for
manufacturing and sales and marketing functions, and other factors. Amounts
payable by the Company in the future under its existing license agreements are
uncertain due to a number of factors, including the progress of the Company's
drug development programs, the Company's ability to obtain

                                         -41-


<PAGE>

approval to commercialize any drug candidate and the commercial success of any
approved drug. The Company's existing license agreements require future payments
of up to $17,750,000 contingent upon the achievement of certain development
milestones.  Additionally, the Company will pay royalties based on a percentage
of net sales of each licensed product incorporating these drug candidates. Most
of the Company's license agreements require minimum royalty payments after
regulatory approval. Depending on the Company's success and timing in obtaining
regulatory approval, aggregate annual minimum royalties could range from
$2,000,000 (if only a single drug candidate is approved for one indication) to
$46,000,000 (if all drug candidates are approved for all indications) under the
Company's existing license agreements.

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

  The Company believes that its existing cash and investments will be adequate
to satisfy its anticipated capital requirements through 1997. The Company
expects that it will be required to raise substantial additional funds through
equity or debt financings, collaborative arrangements with corporate partners or
from other sources. There can be no assurance that additional funding will be
available on favorable terms from any of these sources or at all. See "Item 1.
Business--Risks and Uncertainties--Future Capital Needs; Uncertainty of
Additional Funding."

                                         -42-


<PAGE>

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                            INDEX TO FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                                           Page
                                                                                           ----
<S>                                                                                        <C>
Report of Independent Accountants.........................................................  44
Balance Sheet as of December 31, 1996 and 1995............................................  45
Statement of Operations for the year ended December 31, 1996 and for the periods from
    inception (July 12, 1995) through December 31, 1995 and 1996..........................  47
Statement of Cash Flows for the year ended December 31, 1996 and for the periods from
    inception (July 12, 1995) through December 31, 1995 and 1996..........................  48
Statement of Stockholders' Equity for the periods from inception (July 12, 1995) through
  December 31, 1995 and 1996............................................................. . 49
Notes to Financial Statements.............................................................  50

</TABLE>

                                      -43-
 

<PAGE>

                          Report of Independent Accountants


To the Board of Directors and Stockholders
of Triangle Pharmaceuticals, Inc.

In our opinion, the accompanying balance sheet and the related statements of
operations, of cash flows and of stockholders' equity present fairly, in all
material respects, the financial position of Triangle Pharmaceuticals, Inc. (the
Company), a development stage company, at December 31, 1996 and 1995, and the
results of its operations and its cash flows for the year ended December 31,
1996 and the period from inception (July 12, 1995) through December 31, 1995, in
conformity with generally accepted accounting principles.  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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation.  We
believe that our audits provide a reasonable basis for the opinion expressed
above.





PRICE WATERHOUSE LLP
Raleigh, North Carolina
February 27, 1997


                                         -44-


<PAGE>

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



                                                DECEMBER 31,      DECEMBER 31,
 ASSETS                                            1996               1995
                                                ------------      ------------

 Current assets:
   Cash and cash equivalents . . . . . . . .   $ 25,255,006      $  3,081,586
   Restricted deposits . . . . . . . . . . .         56,067             --
   Investments . . . . . . . . . . . . . . .     17,226,221             --
   Interest receivable . . . . . . . . . . .        272,716             --
   Other receivables . . . . . . . . . . . .        455,910             --
   Prepaid expenses. . . . . . . . . . . . .        558,423             --
                                                 ----------       -----------
    Total current assets . . . . . . . . . .     43,824,343         3,081,586
                                                 ----------       -----------
 Property, plant and equipment, net. . . . .        832,049            20,399
 Investments . . . . . . . . . . . . . . . .     10,719,917             --
 Restricted deposits . . . . . . . . . . . .        118,933             --
                                                 ----------       -----------
    Total assets . . . . . . . . . . . . . .   $ 55,495,242      $  3,101,985
                                                -----------       -----------
                                                -----------       -----------



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

                                         -45-


<PAGE>
                            TRIANGLE PHARMACEUTICALS, INC.
                            (A DEVELOPMENT STAGE COMPANY)
                                    BALANCE SHEET



                                                   DECEMBER 31,   DECEMBER 31,
                                                        1996          1995
                                                   ------------  -------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable. . . . . . . . . . . . . . . .   $  1,584,348   $  122,751
 Accrued license fees. . . . . . . . . . . . . .        150,000          --
 Capital lease obligation-current. . . . . . . .        102,006          --
 Other accrued expenses. . . . . . . . . . . . .        639,255       91,718
                                                    ------------  -----------
    Total current liabilities. . . . . . . . . .      2,475,609      214,469
Capital lease obligation-noncurrent. . . . . . .        364,385           --
                                                    ------------  -----------
    Total liabilities. . . . . . . . . . . . . .      2,839,994      214,469
                                                    ------------  -----------
Commitments and contingencies
   (See notes 2, 5 and 7). . . . . . . . . . . .             --           --
Stockholders' equity:
Convertible Preferred Stock, $0.001 par value; .
  authorized 5,000,000 and 5,200,000 shares;
  issued and outstanding -0- and 5,181,671 shares.           --         5,182
Common Stock, $0.001 par value; authorized
  75,000,000 and 14,800,000 shares; issued and
  outstanding 17,567,890 and 2,670,000 shares. . .       17,568         2,670
 Warrants. . . . . . . . . . . . . . . . . . . .        151,873            --
 Additional paid-in capital. . . . . . . . . . .     64,548,647     3,858,997
 Accumulated deficit during development stage. .    (11,884,166)     (967,583)
 Deferred compensation . . . . . . . . . . . . .       (178,674)      (11,750)
                                                    ------------    ----------
    Total stockholders' equity . . . . . . . . .     52,655,248     2,887,516
                                                    ------------  -----------
    Total liabilities and stockholders' equity .   $ 55,495,242   $ 3,101,985
                                                    ------------   -----------
                                                    ------------   -----------





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

                                         -46-


<PAGE>

                            TRIANGLE PHARMACEUTICALS, INC.
                            (A DEVELOPMENT STAGE COMPANY)
                               STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
                                                       PERIOD FROM       PERIOD FROM
                                                        INCEPTION         INCEPTION
                                           YEAR      (JULY 12, 1995)   (JULY 12, 1995)
                                           ENDED         THROUGH          THROUGH
                                       DECEMBER 31,    DECEMBER 31,     DECEMBER 31,
                                            1996           1995             1996
                                        -----------     ----------      -----------
<S>                                   <C>             <C>              <C>
Operating expenses:
  License fees . . . . . . . . . . .  $  3,267,147             --       $  3,267,147
  Development. . . . . . . . . . . .     4,966,732             --          4,966,732
  General and administrative . . . .     3,558,041    $ 1,004,815          4,562,856
                                        -----------     ----------      -----------
                                        11,791,920      1,004,815         12,796,735
                                        -----------     ----------      -----------

Interest income. . . . . . . . . . .       875,337         37,232            912,569
                                        -----------       ----------      -----------

Net loss . . . . . . . . . . . . . .  $(10,916,583)   $  (967,583)      $(11,884,166)
                                        -----------       ----------      -----------
                                        -----------       ----------      -----------
Pro forma net loss per share . . . .  $      (0.75)   $     (0.07)
                                       -----------       ----------
                                       -----------       ----------
Shares used in computing pro forma
  net loss per share . . . . . . . .    14,478,951       14,277,498
                                       -----------       ----------
                                       -----------       ----------

</TABLE>

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

                                         -47-


<PAGE>

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

 
<TABLE>
<CAPTION>


                                                                               PERIOD FROM         PERIOD FROM
                                                                                INCEPTION           INCEPTION
                                                              YEAR           (JULY 12, 1995)     (JULY 12, 1995)
                                                              ENDED              THROUGH             THROUGH
                                                           DECEMBER 31,         DECEMBER 31,        DECEMBER 31,
                                                               1996                1995                1996
                                                        ---------------       --------------   -----------------
<S>                                                     <C>                   <C>              <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . .      $  (10,916,583)        $  (967,583)    $  (11,884,166)
Adjustments to reconcile net loss to net
  cash used by operating activities:
  Depreciation and amortization. . . . . . . . . .              98,486               2,206            100,692
  Stock-based compensation: license fees . . . . .             636,000                  --            636,000
  Stock-based compensation: development. . . . . .             346,569                  --            346,569
  Stock-based compensation: general and
     administrative. . . . . . . . . . . . . . . .             231,272                 250            231,522
  Change in assets and liabilities:
     Receivables . . . . . . . . . . . . . . . . .            (728,626)                 --           (728,626)
     Prepaid expenses. . . . . . . . . . . . . . .            (558,423)                 --           (558,423)
     Accounts payable. . . . . . . . . . . . . . .           1,461,597             122,751          1,584,348
     Accrued license fees and other expenses . . .             627,746              91,718            719,464
                                                        --------------        ------------      -------------
Net cash used by operating activities. . . . . . .          (8,801,962)           (750,658)        (9,552,620)
                                                        --------------        ------------      -------------
Cash flows from investing activities:
  Purchase of restricted deposits. . . . . . . . .            (175,000)                 --           (175,000)
  Purchase of investments. . . . . . . . . . . . .         (33,267,925)                 --        (33,267,925)
  Proceeds from sale and maturity of investments .           5,321,787                  --          5,321,787
  Purchase of property, plant and equipment. . . .            (793,672)            (22,605)          (816,277)
                                                        --------------        ------------      -------------
Net cash used by investing activities. . . . . . .         (28,914,810)            (22,605)       (28,937,415)
                                                        --------------        ------------      -------------
Cash flows from financing activities:
  Sale of stock, net of related issuance costs . .          59,515,047           3,854,849         63,369,896
  Sale of warrants . . . . . . . . . . . . . . . .                 130                  --                130
  Proceeds from stock options exercised. . . . . .              25,088                  --             25,088
  Equipment financing. . . . . . . . . . . . . . .             354,416                  --            354,416
  Principal payments on capital lease obligation .              (4,489)                 --             (4,489)
                                                        --------------        ------------      -------------
Net cash provided by financing activities. . . . .          59,890,192           3,854,849         63,745,041
                                                        --------------        ------------      -------------
Net increase in cash and cash equivalents. . . . .          22,173,420           3,081,586         25,255,006
Cash and cash equivalents at beginning of period .           3,081,586                  --               --
                                                        --------------        ------------      -------------
Cash and cash equivalents at end of period . . . .      $   25,255,006        $  3,081,586      $  25,255,006
                                                        --------------        ------------      -------------
                                                        --------------        ------------      -------------
</TABLE>
 

Supplemental disclosure of noncash investing and financing activities:

     Noncash investing activities during 1996 of $116,464 relate to the 
     acquisition of laboratory equipment for the assumption of a capital 
     lease obligation.



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

                                         -48-


<PAGE>

                            TRIANGLE PHARMACEUTICALS, INC.
                            (A DEVELOPMENT STAGE COMPANY)

                          STATEMENT OF STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>

                                                CONVERTIBLE                                        
                                              PREFERRED STOCK                      COMMON STOCK      ADDITIONAL
                                             -------------------               --------------------   PAID-IN  
                                             SHARES      AMOUNT     WARRANTS     SHARES     AMOUNT    CAPITAL  
                                             -------------------    --------   --------------------  ----------
<S>                                          <C>        <C>         <C>        <C>          <C>      <C>       
Initial sale of stock. . . . . . . . . . .     933,334  $    933          --    1,175,000   $ 1,175  $  709,642   
Additional sale of stock . . . . . . . . .   4,248,337     4,249          --    1,495,000     1,495   3,137,355   
Stock-based compensation . . . . . . . . .          --        --          --           --        --      12,000   
Net loss, July 12 through
  December 31, 1995. . . . . . . . . . . .          --        --          --           --        --          --  
                                            ---------------------------------------------------------------------
Balance, December 31, 1995 . . . . . . . .   5,181,671     5,182          --    2,670,000     2,670   3,858,997  
       
Sale of stock. . . . . . . . . . . . . . .   3,756,234     3,756          --    4,942,652     4,943  59,506,348   
Sale of warrants . . . . . . . . . . . . .          --        --    $    130           --        --          --   
Stock-based compensation . . . . . . . . .          --        --     151,743      700,000       700   1,126,500   
Stock options exercised. . . . . . . . . .          --        --          --      317,333       317      56,802   
Conversion of Preferred to Common Stock. .  (8,937,905)   (8,938)         --    8,937,905     8,938          --   
Net loss . . . . . . . . . . . . . . . . .           --        --          --           --        --          --  
                                            ----------------------------------------------------------------------

Balance, December 31, 1996 . . . . . . . .          --  $     --    $151,873   17,567,890   $17,568   $64,548,647 
                                            ----------------------------------------------------------------------
                                            ----------------------------------------------------------------------


                                               ACCUMULATED    DEFERRED
                                                 DEFICIT    COMPENSATION       TOTAL
                                              ------------  ------------    ------------
<S>                                          <C>            <C>             <C>
Initial sale of stock. . . . . . . . . . .            --             --     $  711,750 
Additional sale of stock . . . . . . . . .            --             --      3,143,099  
Stock-based compensation . . . . . . . . .            --     $  (11,750)           250 
Net loss, July 12 through 
  December 31, 1995. . . . . . . . . . . .   $  (967,583)            --       (967,583)
                                             -------------------------------------------
      
Balance, December 31, 1995 . . . . . . . .      (967,583)       (11,750)     2,887,516
                                                      
Sale of stock. . . . . . . . . . . . . . .            --             --     59,515,047 
Sale of warrants . . . . . . . . . . . . .            --             --            130 
Stock-based compensation . . . . . . . . .            --       (141,181)     1,137,762 
Stock options exercised. . . . . . . . . .            --        (25,743)        31,376 
Conversion of Preferred to Common Stock. .            --             --             -- 
Net loss                                     (10,916,583)            --    (10,916,583)
                                            -------------------------------------------
                                                                      
Balance, December 31, 1996 . . . . . . . .   $(11,884,166)    $(178,674)   $52,655,248
                                            -------------------------------------------
                                            -------------------------------------------
</TABLE>

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

                                    -49-


<PAGE>


                            TRIANGLE PHARMACEUTICALS, INC.
                            (A DEVELOPMENT STAGE COMPANY)
                                  DECEMBER 31, 1996
                            NOTES TO FINANCIAL STATEMENTS


1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

    Triangle Pharmaceuticals, Inc. (the "Company"), a development stage
company, was formed July 12, 1995 as a Delaware corporation. The Company is
engaged in the development of new drug candidates primarily in the antiviral
area and has not yet generated revenues from operations.

CASH AND CASH EQUIVALENTS

    The Company considers all short-term deposits with an initial maturity at
date of purchase of three months or less to be cash equivalents. The carrying
amount of cash and cash equivalents approximates fair value.

RESTRICTED DEPOSITS

    Restricted deposits consist of cash and cash equivalents which
collateralize a letter of credit and which have been classified as current and
long-term based on the expected release date of such restriction.

INVESTMENTS

    Investments consist primarily of U.S. Treasury securities, obligations of
U.S. government agencies and commercial paper.  Investments with original
maturities at date of purchase beyond three months and less than twelve months
are classified as current.  Investments with a maturity of a year or more are
classified as long-term.  Investments are considered to be available-for-sale
and are carried at fair value.  Recognized and unrecognized gains and losses are
insignificant.

PROPERTY, PLANT AND EQUIPMENT

    Property, plant and equipment are recorded at cost and depreciated using
the straight-line method over the estimated useful life of the assets.
Laboratory equipment has an estimated useful life of 5 years. Office equipment
has estimated useful lives ranging from 4-7 years.  Leasehold improvements are
depreciated over the lease term.

REVENUE RECOGNITION

    Revenue recognition for any products that are developed will be based upon
shipment of products.

LICENSE FEES

    License fees are charged to expense as incurred.

INCOME TAXES

    Income taxes are computed using the asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. In estimating future tax consequences, the
Company generally considers all expected future events other than enactment of
changes in tax law or rates.

                                         -50-


<PAGE>

                            TRIANGLE PHARMACEUTICALS, INC.
                            (A DEVELOPMENT STAGE COMPANY)
                                  DECEMBER 31, 1996
                            NOTES TO FINANCIAL STATEMENTS


If it is "more likely than not" that some portion or all of a deferred tax asset
will not be realized, a valuation allowance is recorded.

PRO FORMA NET LOSS PER SHARE

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

USE OF ESTIMATES

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

STOCK-BASED COMPENSATION

    During 1996 the Company adopted Statement of Financial Accounting Standards
No. 123, "ACCOUNTING FOR STOCK BASED COMPENSATION" (SFAS 123).  As provided by
SFAS 123, the Company has elected to continue to account for its stock-based
compensation programs according to the provisions of Accounting Principles Board
Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES."  Accordingly,
compensation expense has been recognized to the extent of employee or director
services rendered based on the intrinsic value of compensatory options or shares
granted under the plans.  The Company has adopted the disclosure provisions
required by SFAS 123.

2.  PROPERTY, PLANT & EQUIPMENT
                                 1996       1995
                              ---------   ---------

 Laboratory equipment. . . .  $ 642,630      --
 Office equipment. . . . . .    237,420   $  22,605
 Leasehold improvements. . .     52,691      --
                              ---------   ---------
                                932,741      22,605
 Accumulated depreciation. .   (100,692)     (2,206)
                              ---------   ---------
                              $ 832,049   $  20,399
                              ---------   ---------
                              ---------   ----------


                                         -51-


<PAGE>

                            TRIANGLE PHARMACEUTICALS, INC.
                            (A DEVELOPMENT STAGE COMPANY)
                                  DECEMBER 31, 1996
                            NOTES TO FINANCIAL STATEMENTS


    The Company leases office and laboratory facilities and office equipment
under various operating leases.  Rent expense totaled $646,198 for 1996.  The
Company has provided a $175,000 letter of credit, collateralized by an
equivalent amount of cash and cash equivalents, as security for a lessor.
Minimum lease payments under operating leases are as follows:

    YEAR                             AMOUNT
    ----                          ----------

    1997 ....................     $  785,902
    1998 ....................        969,598
    1999 ....................      1,217,536
    2000 ....................      1,230,961
    2001 ....................      1,264,809
    Thereafter...............      2,290,772
                                  ----------
            Total............     $7,759,578
                                  ----------
                                  ----------

    The Company leases certain laboratory equipment under a capital lease
agreement.  Details of the capitalized leased assets are as follows:

                                                 December 31,
                                                     1996
                                                 ----------
          Laboratory equipment.................  $  520,077
          Less: accumulated depreciation.......     (47,465)
                                                 ----------
          Net capitalized leased assets........  $  472,612
                                                 ----------
                                                 ----------

Future minimum lease payments under capital lease obligations at December 31,
1996 were as follows:


    YEAR                                                          AMOUNT
    ----                                                          --------

    1997  ..................................................... $  146,880
    1998  .....................................................    146,965
    1999  .....................................................    146,965
    2000  .....................................................    140,440
    2001  .....................................................         85
                                                                 ---------

    Total  ....................................................    581,335

    Less: amounts representing interest and executory costs....    114,944
                                                                 ---------

    Net present values ........................................ $  466,391
                                                                 ---------
                                                                 ---------

Because the interest rate associated with this lease agreement approximates a
market rate, the obligation's carrying value approximates fair value.

3.  STOCKHOLDERS' EQUITY

    During 1995 and 1996 the Company issued 5,231,671 shares of  Series A
convertible Preferred Stock  with a par value of $0.001 per share for $3.9
million, net of offering costs.  During 1996, the Company issued 3,706,234
shares of Series B convertible Preferred Stock with a par value of $0.001 per
share for $18.4 million, net of offering costs.  Preferred voting and dividend
rights are one vote for each share, and


                                         -52-


<PAGE>

                            TRIANGLE PHARMACEUTICALS, INC.
                            (A DEVELOPMENT STAGE COMPANY)
                                  DECEMBER 31, 1996
                            NOTES TO FINANCIAL STATEMENTS


noncumulative dividends are at an annual rate of $0.05 per share for Series A
and $0.35 for Series B.  No preferred or common dividends were declared or paid
from the date of inception (July 12, 1995) through December 31, 1996.

    In connection with a consulting agreement executed in May 1996, the Company
issued warrants for $130 which entitle the holder to purchase 130,000 shares of
Series A Preferred or Common Stock at a price of $0.75 per share. The shares
represented by the warrants vest over a five year period commencing March 1,
1996. The Company recognized $135,743 of consulting expense during 1996 for the
elapsed portion of the vesting period based on the difference between the fair
value of the warrants on the issue date, $4.00 per share, and the exercise price
per share.

    In connection with an equipment lease line obtained in August 1996, the
Company issued warrants which entitle the holder to purchase 16,000 shares of
Series B Preferred or Common Stock at a price of $5.00 per share. The Company
recognized $16,000 of interest expense during 1996 for this warrant.

    On November 6, 1996, the Company completed an Initial Public Offering
("IPO") of 4,200,000 shares of Common Stock at $10.00 per share. The net
proceeds of this offering, after underwriting discounts and costs in connection
with the sale and distribution of the securities, were approximately $38
million. In addition, on December 3, 1996 the U.S. Underwriters exercised their
over-allotment option and purchased an additional 332,652 shares of Common Stock
at $10.00 per share resulting in additional net proceeds of approximately $3.1
million to the Company. Concurrent with the closing of the IPO, all outstanding
shares of the Company's Series A convertible Preferred Stock and Series B
convertible Preferred Stock were converted on a one-to-one basis into shares of
the Company's Common Stock, $0.001 par value. Additionally, the Company's
certificate of incorporation was amended to modify the number of authorized
capital stock to 75,000,000 shares of Common Stock, $0.001 par value per share,
and 5,000,000 shares of Preferred Stock, $0.001 par value per share.  The
Company's certificate of incorporation authorizes the Board, without further
action by the stockholders, to issue Preferred Stock in one or more series and
to fix the rights, priorities, preferences, qualifications, limitations and
restrictions, including dividend rights, conversion rights, voting rights, terms
of redemption, terms of sinking funds and liquidation preferences.

    Under the terms of various agreements, the Company has the option to
repurchase Common Stock from certain stockholders who were employed by or who
provided services to the Company at the time they acquired those shares. The
Company may repurchase such shares in the event the stockholder discontinues
employment or provision of services. The repurchase price is limited to the
amount the stockholder originally paid for the shares. During 1995 and 1996 the
Company issued shares subject to vesting totaling 2,140,000 and 560,000
respectively.  The number of shares subject to repurchase decreases to zero over
periods ranging from three to four years.  The Company exercised its option to
repurchase all 150,000 shares of Common Stock from an officer upon her departure
from the Company in July 1996.

         The Company accrued $346,569 as of December 31, 1996 for consulting
expense related to the portion of the shares for which the Company's repurchase
option had lapsed based on the differences between fair value and the selling
price per share.  During 1996 and 1995 the Company recognized compensation
expense of $1,213,841 and $250 respectively, related to the portion of the
shares for which the Company's repurchase option had lapsed based on the
differences between fair value and the selling price per share.  Based on the
vesting of all stock-based instruments, the Company expects to recognize
expenses of $162,239 in 1997, $145,906 in 1998, $145,655 in 1999 and $94,414 in
2000.

4.  STOCK OPTION PLANS AND STOCK PURCHASE PLAN

EMPLOYEE STOCK PURCHASE PLAN

    The Company's Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board on August 30, 1996 and was subsequently approved by the
stockholders on September 5, 1996 and became effective November 1, 1996.  The
Purchase Plan is designed to allow eligible employees of the Company to


                                         -53-
<PAGE>

                            TRIANGLE PHARMACEUTICALS, INC.
                            (A DEVELOPMENT STAGE COMPANY)
                                  DECEMBER 31, 1996
                            NOTES TO FINANCIAL STATEMENTS


purchase shares of Common Stock, at semi-annual intervals, through periodic
payroll deductions under the Purchase Plan. A reserve of 300,000 shares of
Common Stock has been established for this purpose. The Purchase Plan will be
implemented in a series of successive offering periods, each with a maximum
duration of twenty-four (24) months.  Payroll deductions may not exceed 10% of
the participant's base salary for each semi-annual period of participation, and
the accumulated payroll deductions will be applied to the purchase of shares on
the participant's behalf on each semi-annual purchase date (the last business
day of February and August each year, with the first purchase date to occur on
the last business day of February, 1997) at a purchase price per share not less
than 85% of the LOWER of (i) the fair market value of the Common Stock on the
participant's entry date into the offering period or (ii) the fair market value
of the Common Stock on the semi-annual purchase date. Should the fair market
value of the Common Stock on any semi-annual purchase date be less than the fair
market value of the Common Stock on the first day of the offering period, then
the current offering period will automatically end and a new twenty-four month
offering period will begin, based on the lower fair market value.

DIRECTOR COMPENSATION

    Beginning with the 1997 annual meeting of stockholders, all eligible
non-employee directors will automatically receive an option to purchase 1,334
shares of Common Stock for the first year of the director's Board term and 1,333
shares of Common Stock for each additional year remaining on the director's
Board term following the automatic option grant. These options will have an
exercise price equal to 100% of the fair market value of the Common Stock on the
grant date and will become exercisable in annual installments after the
completion of each year of service following such grant.

1996 STOCK INCENTIVE PLAN

    The Company's 1996 Stock Incentive Plan (the "1996 Plan") serves as the
successor equity incentive program to the Company's 1996 Stock Option/Stock
Issuance Plan (the "Predecessor Plan"). The 1996 Plan became effective on August
30, 1996 upon adoption by the Board and was subsequently approved by the
stockholders on September 5, 1996. 2,200,000 shares of Common Stock have been
authorized for issuance under the 1996 Plan. This initial share reserve is
comprised of (i) the shares that remain available for issuance under the
Predecessor Plan, including the shares subject to outstanding options
thereunder, plus (ii) an additional increase of 500,000 shares.  However, in no
event may any one participant receive option grants or direct stock issuances
for more than 500,000 shares in the aggregate per calendar year.
Information concerning options granted under these plans is as follows:

 
<TABLE>
<CAPTION>

                                                                          Weighted        Range of
                                                                           average        exercise
             Weighted                        Weighted                      exercise         prices
              average         Weighted        average      Options (#)      price        for options
              exercise       average fair    remaining     exercisable    exercisable    outstanding
 Number of   price per       value price    contractual        at              at             at
 options       share          per share        life         12/31/96       12/31/96        12/31/96
----------------------------------------------------------------------------------------------------------
<S>          <C>              <C>            <C>            <C>            <C>             <C>
 1,120,000   $  0.0762       $  0.2020           9.13           765,260      $  0.0750      $  0.0750
   283,000   $  7.0247       $  7.0247           9.69           283,000      $  7.0247      $  6.0000 -
                                                                                               8.0000
    48,000   $  6.0000       $  7.0000           9.68            48,000      $  6.0000      $  6.0000

</TABLE>
 

    Options generally vest over four to five years.  During 1996, options 
forfeited totaled 37,407 and options exercised totaled 317,333.  The maximum 
term of options is ten years.

    In accordance with the provisions of SFAS 123, the Company has chosen to
continue to account for stock-based compensation using the intrinsic value
method.  If the Company had elected to recognize compensation cost based on the
fair value of the options granted at grant dated as prescribed by SFAS 123, the
Company's results of operations and financial position would not have been
materially impacted.

                                         -54-


<PAGE>

                            TRIANGLE PHARMACEUTICALS, INC.
                            (A DEVELOPMENT STAGE COMPANY)
                                  DECEMBER 31, 1996
                            NOTES TO FINANCIAL STATEMENTS


    To determine the impact of SFAS 123,  the fair value of each option grant
is estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions:

         Expected dividend yield                      0.00%
         Expected stock price volatility              0.00%
         Risk-free interest rate                 6.01-6.07%
         Expected life of options                 4-5 years

5. LICENSING AND OPTION AGREEMENTS

    The Company has entered into five license agreements for drug candidates.
In the aggregate, these agreements required payments of $1,100,000 upon
execution and may require additional payments of up to $17,750,000 contingent
upon the achievement of certain development milestones. Additionally, the
Company will pay royalties based on a percentage of net sales of each licensed
product incorporating these drug candidates. All of the agreements require
minimum royalty payments commencing three years after regulatory approval.
Depending on the Company's success and timing in obtaining regulatory approval,
aggregate annual minimum royalties could range from $2,000,000 (if only a single
drug candidate is approved for one indication) to $46,000,000 (if all drug
candidates are approved for all indications). One agreement required additional
payments totaling $1,500,000 relating to certain financing activities.  Through
December 31, 1996 the Company had paid $2,450,000 relating to these commitments.
Under the terms of certain of these agreements, the Company granted 700,000
shares of Common Stock to the licensors.  License fee expense of $636,000 was
recorded based on the fair value of these shares on the dates of grant.

    In September 1996, the Company entered into a two year option agreement
with the University of California, San Diego, to carry out evaluation and
development of a drug candidate, including clinical trials. During the option
period, the Company has the exclusive right to enter into a license agreement to
acquire rights for the drug candidate, and is obligated to fund certain clinical
costs up to a maximum of approximately $436,000.  Of this amount, the Company
had funded approximately $109,000 through December 31, 1996.

    In December 1995, the Company entered into a two year option agreement with
Mitsubishi Chemical Corporation (Mitsubishi) to carry out evaluation and
development of an anti-HIV drug candidate, including clinical trials. Within the
option period, the Company must inform Mitsubishi whether or not it intends to
enter into a license agreement to acquire exclusive worldwide rights for the
drug candidate, other than in the Far East. Mitsubishi has agreed to reimburse
the Company for up to $1,600,000 of costs associated with development work
during the option period . Development expenses for the year ended December 31,
1996 have been reduced by approximately $832,000  relating to reimbursable costs
under the agreement.

6.  INCOME TAXES

    At December 31, 1996, the Company had a net operating loss carryforward 
of approximately $10.7 million and a research credit carryforward of 
approximately $147,000 which will begin expiring in 2011. The Company's 
ability to utilize its carryforwards may be subject to an annual limitation 
in future periods pursuant to the "change in ownership" provisions under 
Section 382 of the Internal Revenue Code. The Company increased the valuation 
allowance by $4.3 million during 1996.

     Tax effected:                                   1996           1995
                                                 -----------     ----------

     Loss carryforwards. . . . . . . . . . . .  $  4,176,000     $  376,000
     Research tax credit . . . . . . . . . . .       147,000             --
     Non-cash charges - net. . . . . . . . . .       391,000             --
                                                 -----------     ----------
                                                   4,714,000        376,000
     Deferred tax assets valuation allowance .    (4,714,000)      (376,000)
                                                 -----------     ----------
     Net deferred tax asset. . . . . . . . . .  $         --     $       --
                                                 -----------     ----------
                                                 -----------     ----------

                                         -55-
<PAGE>

                            TRIANGLE PHARMACEUTICALS, INC.
                            (A DEVELOPMENT STAGE COMPANY)
                                  DECEMBER 31, 1996
                            NOTES TO FINANCIAL STATEMENTS


7.   SUBSEQUENT EVENTS

401(k) PLAN

    The Company's Employee 401(k) Plan (the "401(k) Plan") was adopted by the
Board on February 14, 1997. The 401(k) Plan is designed to allow eligible
employees of the Company to contribute to a qualified retirement plan as
outlined by Internal Revenue Code Section 401(k).  The Board approved a 50%
Company match of up to 5% of an employee's base pay, with a maximum Company
contribution of $1,000 per employee per year.

SALARY INVESTMENT OPTION GRANT PROGRAM

    The Company's Salary Investment Option Grant Program (the "Investment
Plan") was activated by the Compensation Committee of the Board of Directors 
on December 13, 1996 for the calendar year 1997.  The Investment Plan allows
executive officers and other highly compensated employees of the Company to
reduce their base salary for that calendar year by a specified dollar amount 
not less than $10,000 nor more than $50,000.  Participants are issued a
non-statutory option to purchase that number of shares of Common Stock
determined by dividing the total salary reduction amount by an amount equal to
one-third of the fair market value per share of Common Stock on the grant date.
The option will be exercisable at a price per share equal to the difference
between the amount paid by the optionee for the option and the fair market value
of the option shares on the grant date. As a result, upon exercise of the
options issued under the Investment Plan, the optionee will have paid 100% of
the fair market value of the option shares as of the grant date. The option will
become exercisable in a series of twelve (12) equal monthly installments over
the calendar year for which the salary reduction is in effect and will become
fully exercisable upon certain changes in the ownership or control of the
Company.

MITSUBISHI CHEMICAL CORPORATION

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


                                         -56-


<PAGE>

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
       FINANCIAL DISCLOSURE

    None.


                                         -57-


<PAGE>


                                       PART III


Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    (a)  Identification of Directors.  The information under the heading
"Election of Directors," appearing in the Proxy Statement, is incorporated
herein by reference.

    (b)  Identification of Executive Officers.  The information under the
heading "Executive Officers," appearing in the Proxy Statement, is incorporated
herein by reference.

    (c)  Section 16(a) Beneficial Ownership Reporting Compliance.  Based solely
upon a review of copies of Forms 3, 4 and 5 and amendments thereto furnished to
the Registrant, or written representations that no Form 5s were required, the
Company believes that, during the period from October 1996 (the first period for
which Section 16(a) reports were required to be filed) through December 1996,
all Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% stockholders were satisfied.


Item 11. EXECUTIVE COMPENSATION

    The information under the heading "Executive Compensation and Other
Information," appearing in the Proxy Statement, is incorporated herein by
reference.


Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The information under the headings "Principal Stockholders" and "Common
Stock Ownership of Directors and Management," appearing in the Proxy Statement,
is incorporated herein by reference.


Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The information under the heading "Certain Relationships and Related
Transactions," appearing in the Proxy Statement, is incorporated herein by
reference.

                                         -58-


<PAGE>

                                       PART IV


Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

    (1)  Financial Statements

    The financial statements of the Company are included herein as required
under Item 8 of this Annual Report on Form 10-K.  See Index to Financial
Statements on page 43.

    (2)  Financial Statement Schedules

    All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.

    (b) No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.

    (c) Exhibits

Exhibit
Number    Description
-------  -------------

  + 3.1  Form of Second Restated Certificate of Incorporation of the Company
         (Exhibit 3.2).
  + 3.2  Restated Bylaws of the Company (Exhibit 3.4).
  + 4.1   Form of Certificate for Common Stock.
 + 10.1  Form of Restricted Stock Purchase Agreement.
 + 10.2  Form of Employee Proprietary Information and Inventions Agreement.
 + 10.3  Form of Scientific Advisor Agreement.
 + 10.4  Series A Preferred Stock Purchase Agreement among the Company and the
         investors listed on Schedule A thereto, dated July 19, 1995.
 + 10.5  Series A Preferred Stock Purchase Agreement among the Company and the
         investors listed on Schedule A thereto, dated October 31, 1995.
 + 10.6  Series A Preferred Stock Purchase Agreement among the Company and
         Schroder Venture Managers Limited dated November 8, 1995.
 + 10.7  Series A Preferred Stock Purchase Agreement among the Company and
         Chris Rallis dated November 8, 1995.
 + 10.8  License Agreement between the Company, Karl Hostetler, M.D. and Dennis
         Carson, M.D., dated November 16, 1995.
 + 10.9  Consulting Agreement between the Company and Karl Hostetler, M.D.,
         dated November 16, 1995.
 + 10.10 Consulting Agreement between the Company and Dennis Carson, M.D.,
         dated November 16, 1995.


                                         -59-


<PAGE>

Exhibit
Number    Description
-------  -------------

 + 10.11 Option Agreement between the Company and Mitsubishi Chemical
         Corporation, dated December 20, 1995.
 + 10.12 Sublease between the Company and Eli Lilly and Company, dated January
         18, 1996.
 + 10.13 Letter of Credit from First Union Bank, dated February 28, 1996.
 + 10.14 1996 Stock Option/Stock Issuance Plan.
 + 10.15 1996 Stock Option/Stock Issuance Plan Form of Notice of Grant.
 + 10.16 1996 Stock Option/Stock Issuance Plan Form of Stock Option Agreement.

 + 10.17 1996 Stock Option/Stock Issuance Plan Form of Stock Purchase
         Agreement.
 + 10.18 Sublease Amendment between the Company and Eli Lilly and Company,
         dated March 1, 1996.
 + 10.19 License Agreement among the Company, Emory University and the
         University of Georgia Research Foundation, Inc. for compound DAPD,
         dated March 31, 1996.
 + 10.20 License Agreement among the Company, Emory University and the
         University of Georgia Research Foundation, Inc. for compound CS-92,
         dated March 31, 1996.
 + 10.21 Restricted Stock Purchase Agreement among the Company and the
         stockholders listed on Exhibit A thereto, dated March 31, 1996.
 + 10.22 License Agreement between the Company and Emory University for
         compound FTC, dated April 17, 1996.
 + 10.23 Restricted Stock Purchase Agreement between the Company and Emory
         University, dated April 17, 1996.
 + 10.24 Amended and Restated Investors' Rights Agreement among the Company and
         the investors listed on Schedule A thereto, dated April 17, 1996.
 + 10.25 Series A Preferred Stock Purchase Agreement among the Company and the
         stockholders listed on Schedule A thereto, dated May 9, 1996.
 + 10.26 Stock Purchase Warrant between the Company and Burrill & Craves, dated
         May 21, 1996.
 + 10.27 Investors' Rights Agreement between the Company and Burrill & Craves,
         dated May 21, 1996.
 + 10.28 Series B Preferred Stock Purchase Agreement among the Company and the
         investors listed on Schedule A thereto, dated June 11, 1996.
 + 10.29 Restated Investors' Rights Agreement among the Company and certain
         stockholders of the Company, dated June 11, 1996.
 + 10.30 Restated Co-Sale Agreement among the Company and certain stockholders
         of the Company, dated June 11, 1996.
 + 10.31 Second Amendment to Sublease between the Company and Eli Lilly and
         Company, dated August 2, 1996.
 + 10.32 Master Lease Agreement between the Company and Comdisco, Inc. dated
         August 8, 1996.

                                         -60-


<PAGE>

Exhibit
Number    Description
-------  -------------

 + 10.33 Stock Purchase Warrant between the Company and Comdisco, Inc. dated
         August 8, 1996.
 + 10.34 Option Agreement between the Company and The Regents of the University
         of California, dated September 1, 1996.
 + 10.35 Sponsored Research Agreement between the Company and The Regents of
         the University of California, dated September 1, 1996.
 + 10.36 1996 Stock Incentive Plan.
 + 10.37 1996 Stock Incentive Plan Form of Notice of Grant.
 + 10.38 1996 Stock Incentive Plan Form of Stock Option Agreement.
 + 10.39 Employee Stock Purchase Plan.
 + 10.40 Form of Indemnification Agreement between the Company and each of its
         directors.
 + 10.41 Form of Indemnification Agreement between the Company and each of its
         officers.
 + 10.42 Form of Written Consent of Holders of Series A and Series B Preferred
         Stock to conversion, dated September 5, 1996.
 + 10.43 Form of Waiver of Registration Rights, dated September 5, 1996.
 + 10.44 Employment Agreement between the Company and Dr. David W. Barry, dated
         October 28, 1996.
   11.1  Computation of pro forma net loss per share.
   23.1  Consent of Price Waterhouse LLP, Independent Accountants.
   24.1  Power of Attorney.  (See Page 62)
   27.1  Financial Data Schedule.


+   Incorporated by reference to the same-numbered exhibit (except as otherwise
    indicated) to the Company's Registration Statement on Form S-1 (No.
    333-11793) filed on September 11, 1996, as amended.



SUPPLEMENTAL INFORMATION

    Copies of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held June 24, 1997 and copies of the form of proxy to be used
for such Annual Meeting will be furnished to the Securities and Exchange
Commission prior to the time they are distributed to the Registrant's
stockholders.

                                         -61-


<PAGE>
                                      SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

                                  TRIANGLE PHARMACEUTICALS, INC.


Date:  March 28, 1997             By: /s/ David W. Barry
                                      -------------------------------------
                                       David W. Barry
                                       Chairman and Chief Executive Officer

                                  POWER OF ATTORNEY

    Know all men by these presents, that each person whose signature appears
below constitutes and appoints David W. Barry or James A. Klein, Jr., his or her
attorney-in-fact, with power of substitution in any and all capacities, to sign
any amendments to this Annual Report on Form 10-K, and to file the same with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that the
attorney-in-fact or his or her substitute or substitutes may 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 in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
         SIGNATURE                          TITLE                                        DATE
         ---------                          -----                                        ----
<S>                          <C>                                                     <C>
 /s/ David W. Barry                                                                      March 28, 1997
-------------------------
    (David W. Barry)               Chairman of the Board and
                                     Chief Executive Officer
                                 (Principal Executive Officer)

 /s/ James A. Klein, Jr.                                                                 March 28, 1997
-------------------------
    (James A. Klein, Jr.)    Chief Financial Officer and Treasurer
                             (Principal Financial and Accounting Officer)

 /s/ M. Nixon Ellis                                                                      March 28, 1997
-------------------------
    (M. Nixon Ellis)
                             Director, President and Chief Operating Officer

 /s/ Anthony B. Evnin                                                                    March 28, 1997
-------------------------
    (Anthony B. Evnin)
                                                 Director

 /s/ Standish M. Fleming                                                                 March 28, 1997
-------------------------
    (Standish M. Fleming)
                                                 Director

 /s/ Karl Y. Hostetler                                                                   March 28, 1997
-------------------------
    (Karl Y. Hostetler)
                                                 Director

 /s/ George McFadden                                                                     March 28, 1997
-------------------------
    (George McFadden)
                                                 Director

 /s/ Peter McPartland                                                                    March 28, 1997
-------------------------
    (Peter McPartland)
                                                 Director

</TABLE>


                                         -62-