<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

                     For fiscal year ended December 31, 2000

                                       OR

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

                 For the transition period from _____ to _____.

                        Commission File Number: 000-21589

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

             DELAWARE                                     56-1930728
  (State or other jurisdiction                         (I.R.S. Employer
of 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. | |

         The aggregate market value of the voting stock held by non-affiliates
of the registrant as of January 31, 2001, was approximately $210 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 of the registrant's Common Stock outstanding as of
January 31, 2001, was 38,639,938.


<PAGE>

DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------

         Portions of Registrant's Proxy Statement for the 2001 Annual Meeting of
Stockholders (the "Proxy Statement") are incorporated by reference as provided
in Part III of this Annual Report on Form 10-K.

         TRIANGLE PHARMACEUTICALS(TM), TRIANGLE PHARMACEUTICALS (AND DESIGN)(R),
COACTINON(R) AND COVIRACIL(R) ARE TRADEMARKS OF THE REGISTRANT. THIS ANNUAL
REPORT ALSO INCLUDES NAMES AND TRADEMARKS OF COMPANIES OTHER THAN THE
REGISTRANT.

                                     PART I
                                     ------

ITEM 1.  BUSINESS
         --------

         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 "RISK AND UNCERTAINTIES."
WHILE THIS OUTLOOK REPRESENTS OUR CURRENT JUDGMENT ON THE FUTURE DIRECTION OF
THE BUSINESS, SUCH RISK AND UNCERTAINTIES COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM ANY FUTURE PERFORMANCE SUGGESTED BELOW. WE UNDERTAKE 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. SEE "--RISK AND UNCERTAINTIES" AND "--RISK AND
UNCERTAINTIES--FORWARD-LOOKING STATEMENTS".

OVERVIEW

         We develop new drug candidates primarily in the antiviral area, with a
particular focus on therapies for HIV, including AIDS, and the hepatitis B
virus. We have an existing portfolio of six licensed drug candidates in clinical
trials and several drug candidates that are in a pre-clinical stage or for which
we have an option to acquire a license. Members of our senior management team,
prior to joining Triangle, played instrumental roles in developing and
commercializing several leading antiviral therapies. Our goal is to capitalize
on our management team's expertise, as well as on advances in virology and
immunology, to identify, develop and commercialize new drug candidates that can
be used alone or in combination to treat serious diseases.

         Treating HIV infection with combination therapy has shown significant
clinical benefits, including reduced virus levels and increased patient
longevity. Triangle was founded based in part on our belief that the prolonged
use of combination therapy will generate demand for new anti-HIV drugs with
favorable activity, resistance, compliance and/or tolerance profiles. We believe
the use of anti-HIV drugs will increase because:

         o  the use of multiple drugs by individual patients on combination
            therapy will continue to increase,

         o  previously untreated patients will seek medical care as the benefits
            of combination therapy become more widely understood, and

         o  the number of patients and the duration of drug therapy will
            increase as patient mortality continues to decrease.

         We believe that hepatitis B, like HIV, due to its complexity and
demonstrated ability to develop resistance, may be more effectively and safely
treated with combination therapy.

         We are actively developing the following drug candidates which we
believe may become valuable tools in the combination treatment of serious viral
diseases:

         DRUG CANDIDATES TO TREAT HIV

                  COVIRACIL(R) (EMTRICITABINE), FORMERLY KNOWN AS FTC. A
                  nucleoside analogue, Coviracil has been shown to be a potent
                  inhibitor of HIV and hepatitis B virus replication in
                  laboratory studies. Against HIV, preclinical studies have
                  consistently shown a greater antiviral potency of Coviracil as
                  compared to lamivudine, a member of the same nucleoside series
                  as Coviracil. Coviracil is a potent antiviral agent against
                  HIV strains obtained from a geographically diverse set of
                  HIV-


                                       2
<PAGE>

                  infected patients. Laboratory studies have also shown that
                  Coviracil shares cross-resistance patterns with lamivudine.
                  The most common resistance mutation to these two agents also
                  reverses resistance of the virus to AZT in some cases. We have
                  recently completed two Phase III clinical studies comparing
                  once-a-day dosage of Coviracil to twice-a-day dosage of
                  lamivudine in combination with other antiviral agents in the
                  treatment of HIV. One of these studies, FTC-302, has been
                  placed on clinical hold by the Food and Drug Administration,
                  FDA, but was completed in South Africa in January 2001. See
                  "Risk and Uncertainties--Because our product candidates may
                  not successfully complete clinical trials required for
                  commercialization, our business may never achieve
                  profitability."

                  COACTINON(R) (EMIVIRINE), FORMERLY KNOWN AS MKC-442. A
                  non-nucleoside reverse transcriptase inhibitor, NNRTI,
                  Coactinon has demonstrated a favorable safety profile in a
                  comprehensive package of preclinical studies in animals,
                  including a series of reproductive and developmental
                  toxicology studies. These reproductive and developmental
                  toxicology studies have demonstrated that Coactinon is not
                  associated with teratogenecity (birth defects) or
                  reproductive/developmental toxicity. We are currently
                  conducting Phase II and Phase III studies in Europe, South
                  Africa, Mexico and the United States with Coactinon as part of
                  combination regimens in HIV-infected patients to evaluate
                  safety and efficacy as measured by viral load.

                  On August 10, 2000, we announced our continued development of
                  Coactinon in support of a New Drug Application, NDA, filing.
                  This action followed notification from the FDA in December
                  1999 that additional Phase III studies may need to be
                  conducted to prove that regimens containing Coactinon are
                  equivalent or superior to current first-line regimens. A Phase
                  III study, MKC-401, was ongoing at that time to compare
                  Coactinon to abacavir, each in combination with Coviracil and
                  stavudine. Following a review of interim results from MKC-401
                  in the first half of 2000, together with other available data,
                  we decided to proceed with the clinical development of
                  Coactinon to support approval. MKC-401 is currently ongoing
                  and was amended to enroll approximately 280 additional
                  patients at a reduced dose of 500 mg of Coactinon twice-a-day.

                  DAPD. A purine dioxolane nucleoside, we believe DAPD is the
                  only drug candidate in its chemical series currently in
                  development for the treatment of viral diseases. DAPD may
                  offer advantages over other nucleosides in development because
                  of its activity against drug resistant virus as exhibited in
                  laboratory studies and now supported in one short-term
                  clinical trial, DAPD-101. DAPD-101 was a two-week dose ranging
                  study of DAPD either alone or added to the antiviral
                  medications the patient was already receiving. Both drug naive
                  patients and multiple drug failure patients were enrolled in
                  DAPD-101. In treatment naive patients, DAPD produced maximum
                  decreases in plasma HIV RNA ranging from 0.54 log to 1.9 log10
                  at doses ranging from 25 mg twice-a-day to 500 mg twice-a-day.
                  In patients who had received multiple antiviral therapies, a
                  maximal viral suppression of 1.9 log10 was observed when DAPD
                  500 mg twice-a-day was added to the failing antiretroviral
                  regimen.

                  MOZENAVIR DIMESYLATE, FORMERLY KNOWN AS DMP-450. A protease
                  inhibitor, mozenavir dimesylate is a potent, selective
                  inhibitor of the HIV-1 protease that belongs to a novel
                  chemical class, the cyclic ureas.

                  Data from a Phase I study showed that mozenavir dimesylate was
                  generally well tolerated following single oral doses that
                  ranged from 60 mg to 1,250 mg. A Phase I/II trial, initiated
                  by Avid Corporation, Avid, and ongoing at the time we acquired
                  Avid, was put on partial clinical hold by the FDA in October
                  1997 because of the FDA's concerns regarding
                  electrocardiographic abnormalities observed in animals exposed
                  to high doses of mozenavir dimesylate. The patients in this
                  Phase I/II study were administered oral doses that ranged from
                  500 mg to 750 mg three times-a-day and experienced no
                  significant adverse reactions. In January 1998, Triangle
                  initiated a Phase I safety and tolerance study in Europe to
                  determine whether any electrocardiographic abnormalities could
                  be observed in humans during three-day dosing with mozenavir
                  dimesylate with doses at or above those planned to be used in
                  efficacy studies. This Phase I study has been completed and no
                  such abnormalities were observed. A subsequent Phase I study
                  was conducted. Mozenavir dimesylate dosed in healthy
                  volunteers for 28 days was generally well tolerated. Final


                                       3
<PAGE>

                  analysis of this study demonstrated no difference in the
                  electrocardiographic abnormalities (QT interval) of volunteers
                  randomized to mozenavir dimesylate or indinavir. We are
                  completing a Phase I/II dose-escalating combination study in
                  HIV-infected patients outside the United States. Further
                  development of mozenavir dimesylate awaits outcome of
                  discussions with the FDA, as mozenavir dimesylate remains on
                  partial clinical hold in the United States.

         DRUG CANDIDATES TO TREAT HEPATITIS B

                  EMTRICITABINE, FORMERLY KNOWN AS FTC. We are currently
                  conducting a Phase III clinical trial with emtricitabine for
                  the treatment of hepatitis B. Some of the development
                  activities we plan to undertake with Coviracil for the
                  treatment of HIV will also be used in the development of
                  emtricitabine for the treatment of hepatitis B. Emtricitabine
                  has been shown to be a potent inhibitor of hepatitis B virus
                  replication in patients chronically infected with this virus.

                  Study FTCB-102 is an on-going, randomized, double blind, dose
                  comparison trial where 98 patients were randomized to receive
                  25, 100 or 200 mg of emtricitabine once-a-day for 48 weeks.
                  Hepatitis B DNA suppression in plasma was measured by Digene
                  Hybrid Capture II Assay. Following 36 weeks of treatment,
                  preliminary results show viral suppression was 1.7 log10 at
                  the 25 mg dose, 3.1 log10 at the 100 mg dose and 3.2 log10 at
                  the 200 mg dose. In addition, the percentage of patients with
                  plasma hepatitis B DNA below the limit of detection of the
                  assay (4,700 copies/mL) was 31%, 24%, and 64%, respectively,
                  at the doses of 25, 100, and 200 mg once-a-day. Accordingly, a
                  200 mg once-a-day dose was selected for our Phase III studies.
                  The first Phase III clinical trial was initiated in October
                  2000 and compares emtricitabine to placebo.

                  CLEVUDINE, FORMERLY KNOWN AS L-FMAU. A pyrimidine nucleoside
                  analogue, clevudine has been shown to be a potent inhibitor of
                  hepatitis B virus replication in laboratory studies, having an
                  EC50 value (the concentration required to inhibit virus by
                  50%) ranging from 0.02 to 0.15 uM with a mean of 0.08 uM. We
                  have completed nine and 12 month toxicology studies,
                  pharmacokinetic and efficacy preclinical studies, as well as a
                  single-dose, dose escalation Phase I study with clevudine. In
                  2000, a Phase I/II one-month monotherapy trial was initiated
                  in France, Canada and South Korea.

                  IMMUNOSTIMULATORY SEQUENCES CANDIDATE. We are supporting an
                  ongoing Phase I study of immunostimulatory sequences, ISS,
                  being given with hepatitis B surface antigen. Dynavax
                  Technologies Corporation, Dynavax, is conducting the study in
                  healthy volunteers in Canada. This is a first step in the
                  development of a potential therapeutic intervention in
                  hepatitis B infection.

         The FDA has notified us that three of our drug candidates for the
treatment of HIV, Coviracil, Coactinon and DAPD, qualify for designation as
"fast track" products under provisions of the Food and Drug Administration
Modernization Act of 1997. The fast track provisions are designed to expedite
the review of new drugs intended to treat serious or life-threatening conditions
and essentially codified the criteria previously established by the FDA for
accelerated approval. We may be able to commercialize our drug candidates which
meet these criteria in a shorter time period than has historically been required
for drugs that do not meet the criteria for expedited review. We cannot assure
you, however, that any of our drug candidates will retain their designation for
fast track development or will qualify or continue to qualify for expedited
review or that any of our drug candidates will be approved or will be approved
in a time period that is shorter than other drugs that do not qualify for this
review. See "--Government Regulation."

         We have not generated any revenue from sales of our drug products and,
therefore, are a development stage company. We do not expect to generate any
significant revenue from the sale of our drug products until at least the year
2002. As of December 31, 2000, our accumulated deficit was $331.0 million. We
may never achieve profitable operations or generate positive cash flow.


                                       4
<PAGE>

         Triangle was incorporated in Delaware in July 1995. Our principal
executive offices are located at 4 University Place, 4611 University Drive,
Durham, North Carolina 27707, and our telephone number is (919) 493-5980.

STRATEGY

         Our goal is to create a portfolio of commercialized drugs primarily for
serious viral diseases. We intend to achieve this goal through the following
strategies:

         FOCUS ON VIRAL DISEASES. The expertise of our management team lies in
identifying, developing and commercializing drugs for the treatment of viral
diseases. We are targeting the viral disease markets because we believe the
significant unmet medical need and the rapid pace of scientific advances
occurring in the treatment of these diseases give these significant markets
attractive growth potential. We also believe that the relatively high
concentration of prescribers that treat HIV and hepatitis B will enable us to
promote most drug candidates through a small, specialized direct sales force.

         FOCUS ON DRUG DEVELOPMENT, NOT DRUG DISCOVERY. We do not intend to
engage in a significant level of basic drug discovery, thereby we expect to
avoid much of the significant investment of time and capital that is generally
required before a compound is identified and brought to clinical trials. We
intend to use our expertise to perform internally what we believe are the most
critical aspects of the drug development process, such as the design of clinical
trials and the optimization of drug synthesis. We out-source many aspects of our
clinical trials and the manufacture of drug substance to carefully selected
third parties.

         APPLY SELECTIVE CRITERIA TO DRUG CANDIDATES. When we evaluate drug
candidates for our product development programs, we seek to in-license drug
candidates for which favorable preclinical, and where possible, clinical data
already exist. We intend to use our expertise to identify drug candidates that
we judge to have attractive preclinical profiles. In addition, we prefer, where
practical, to in-license drug candidates that have either undergone some testing
in humans (e.g., Coviracil and mozenavir dimesylate) or share characteristics
with drugs that are currently approved for use in humans. We intend to apply
these selection standards where feasible in evaluating potential drug candidates
for in-licensing.

         LEVERAGE RELATIONSHIPS. As a result of our instrumental roles in the
identification, clinical development and commercialization of antiviral
therapies, our management team and scientific consultants have extensive
contacts in academia and industry. These contacts were instrumental in the
acquisition of our existing drug candidates, and we believe they will be
valuable in our efforts to develop and to commercialize existing and future drug
candidates.

         DEVELOP DRUGS FOR USE IN COMBINATION THERAPY. Combination therapy is
the accepted method to treat viral diseases such as HIV infection. We seek to
identify and develop drug candidates for use in combination therapy that have
resistance, compliance and/or tolerance profiles that are complementary to the
profiles of existing drugs. In addition, in contrast to the competitive
marketing of single drug regimens, we believe that any drug we develop as part
of a combination regimen will benefit from the promotional efforts of the
marketers of the other drugs in the regimen.

         FOCUS ON SMALL MOLECULE DRUGS. Our management team is well known for
its successful development of and expertise in small molecule drugs, and
nucleosides in particular. Small molecule drugs have several advantages over
large molecule drugs such as proteins, polypeptides and polynucleotides. For
example, small molecule drugs are often simpler to scale-up and manufacture than
large molecule drugs, and are more likely to be orally bioavailable (taken by
mouth) which is a significant advantage in treating long-term chronic illnesses
where patients prefer not to be subjected to injections over extended periods of
time.

         STRATEGICALLY OUT-SOURCE ROUTINE ASPECTS OF DRUG DEVELOPMENT. Our
strategy is to remain focused on drug development. Much of the drug development
process consists of routine elements that may be out-sourced to high quality,
high capacity contractors. Accordingly, we intend to focus our corporate
resources on the aspects of drug development that require particular expertise.
For example, we intend to concentrate on the design of clinical trials and the
optimization of drug synthesis, and to out-source many aspects of the conduct of
clinical trials and the manufacture of drug substance. We believe this strategy
enables us to respond rapidly to certain changing events,


                                       5
<PAGE>

such as clinical trial results and the availability of funds, by increasing or
decreasing expenditures on particular drug development projects or by shifting
our emphasis among projects.

         LEVERAGE STRATEGIC ALLIANCE ADVANTAGES. Since our inception, our
strategy has been to develop third party relationships to enhance our drug
development process and to commercialize our drug candidates thereby reducing
the amount of internal infrastructure to develop and successfully commercialize
our drug candidates. Our worldwide strategic alliance with Abbott Laboratories,
Abbott, provides us with access to Abbott's international and domestic
infrastructure to market and distribute products receiving regulatory approval,
global manufacturing capability, drug development assistance, United States
co-promotion rights to two Abbott compounds, as well as financial support to
help fund the continued development of our portfolio of drug candidates. We
believe that the high concentration of major prescribers of anti-HIV and
anti-hepatitis B therapies in the United States will enable us to promote most
drug candidates that we may successfully develop to these prescribers through a
small, direct sales force. In the United States, we intend to market our drug
candidates covered by the Abbott strategic alliance, Abbott Alliance, in
collaboration with Abbott and to market other drug candidates we may
successfully develop, that do not become part of the Abbott Alliance, through a
small, direct sales force. Outside of the United States, we expect Abbott to
market drug candidates covered by the Abbott Alliance and, for any other drug
candidates we successfully develop that do not become part of the Abbott
Alliance, we intend to market and sell through arrangements or collaborations
with third parties. As part of the ordinary course of our business, we may
consider arrangements or collaborations with third parties associated with the
acquisition, development, marketing and sales of our products both within and
outside of the United States.


                                       6
<PAGE>

DRUG CANDIDATES IN CLINICAL DEVELOPMENT

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------
DRUG CANDIDATES                     INDICATION            STATUS(1,2)                 TERRITORY(3)
------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                   <C>                         <C>
Coviracil(R)(emtricitabine),        HIV                   Phase II and Phase III(4)   Worldwide
FORMERLY KNOWN AS FTC               hepatitis B           Phase III                   Worldwide
------------------------------------------------------------------------------------------------------------------
Coactinon(R)(emivirine),            HIV                   Phase II and Phase III(5)   Worldwide, except Japan
FORMERLY KNOWN AS MKC-442
------------------------------------------------------------------------------------------------------------------
DAPD                                HIV                   Phase I/II                  Worldwide
------------------------------------------------------------------------------------------------------------------
Clevudine, FORMERLY KNOWN AS        hepatitis B           Phase I and Phase I/II      Worldwide, except Korea
L-FMAU
------------------------------------------------------------------------------------------------------------------
Mozenavir dimesylate, FORMERLY      HIV                   Phase I/II(6)               Worldwide
KNOWN AS DMP-450
------------------------------------------------------------------------------------------------------------------
Immunostimulatory sequences         hepatitis B           Phase I                     Worldwide
candidate
------------------------------------------------------------------------------------------------------------------
</TABLE>


(1)   Neither the FDA nor any foreign regulatory agencies have approved our drug
      candidates for commercial sale.

(2)   "Phase I" means that we are testing a drug candidate for preliminary
      indications of safety, pharmacokinetics and tolerance in a limited number
      of patients or volunteers. "Phase I/II" means that we are testing a drug
      candidate for safety, tolerance and preliminary indications of efficacy in
      a limited number of patients. "Phase II" means that we are testing a drug
      candidate for safety, efficacy and, in some cases, optimal dosage in a
      limited number of patients. "Phase II/III" means that we are testing a
      drug candidate for safety and efficacy in an expanded number of patients
      at geographically dispersed clinical sites. "Phase III" means that we are
      conducting expanded clinical studies intended to support a submission for
      regulatory approval of a drug candidate. See "--Government Regulation."

(3)   Indicates the geographic territory in which we have licensed the right to
      commercialize the particular product. Coviracil, Coactinon, DAPD and
      clevudine are drug candidates under our strategic alliance with Abbott.
      See "--License and Other Material Agreements--Abbott Laboratories." Our
      ability to commercialize products in each country in the licensed
      territory may be limited by proprietary rights of third parties other than
      our licensors. See "--Risk and Uncertainties -- If we or our licensors are
      not able to obtain and maintain adequate patent protection for our
      product candidates, we may be unable to commercialize our product
      candidates or to prevent other companies from using our technology in
      competitive products."

(4)   One of these studies, FTC-302, has been placed on clinical hold by the
      FDA but was completed in South Africa in January 2001.

(5)   On August 10, 2000, we announced our continued development of Coactinon in
      support of an NDA filing. This action followed notification from the FDA
      in December 1999 that additional Phase III studies may need to be
      conducted to prove that regimens containing Coactinon are equivalent or
      superior to current first-line regimens. A Phase III study, MKC-401, was
      ongoing at that time to compare Coactinon to abacavir, each in combination
      with Coviracil and stavudine. Following a review of interim results from
      MKC-401 in the first half of 2000, together with other available data, we
      decided to proceed with the clinical development of Coactinon to support
      approval. MKC-401 is currently ongoing and was amended to enroll
      approximately 280 additional patients at a reduced dose of 500 mg of
      Coactinon twice-a-day.

(6)   We have conducted all Phase I/II combination studies outside the United
      States. The initiation of potential efficacy studies in the United States
      awaits the outcome of further discussions with the FDA, where mozenavir
      dimesylate remains on partial clinical hold. See "--Viral Disease
      Program--HIV--Development Status-- Mozenavir dimesylate, formerly known
      as DMP-450."


                                       7
<PAGE>

VIRAL DISEASE PROGRAM

         HIV

         BACKGROUND. The World Health Organization estimates that as of the end
of 2000, 36.1 million people worldwide were living with HIV or AIDS. It is
generally believed that, in the absence of therapeutic intervention, the vast
majority of individuals infected with HIV will ultimately develop AIDS, which if
untreated has a mortality rate approaching 100%. There are an estimated 900,000
persons living with HIV/AIDS in North America with nearly 40,000 new infections
annually in the United States, and approximately 33% are receiving antiviral
therapy. Sales of antiretroviral therapies in the United States for the 12
months ended December 2000 totaled over $3.3 billion, which represents an 11%
increase as compared to 1999.

         Experts believe a key factor in how quickly 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, NRTIs, such as AZT, ddI, ddC, d4T and lamivudine,
bears a strong chemical resemblance to the natural building blocks (nucleotides)
of DNA and interferes with the function of the enzyme by displacing the natural
nucleotides used by the enzyme. The second general class, NNRTIs such as
nevirapine, delavirdine and efavirenz, is composed of an extremely diverse group
of chemicals that act by attaching to the reverse transcriptase 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 drugs such as saquinavir, ritonavir, indinavir and nelfinavir.

         The genetic material responsible for the production of both enzymes is
extremely prone to mutations that can produce resistance to drugs targeted at
these enzymes. If antiviral therapy does not halt all viral replication, then
mutant strains of virus 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 NRTI, which was first
introduced in 1987. Three other NRTIs--ddI, ddC and d4T --were introduced to the
market in the early 1990'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 been facilitated by the
introduction in the mid-1990's of tests that can reliably determine the viral
load in the blood at any given time. As a result, it became possible to rapidly
evaluate potential therapeutic agents and combinations of agents and to
determine accurately 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. The use of combination therapy, including
combinations of protease inhibitors or NNRTIs with two NRTIs, has demonstrated
significant therapeutic benefit, sometimes rendering the virus undetectable in
the blood of certain patients for over three years to date. Additional
combinations may be possible as new therapeutic agents are developed.

         In spite of these significant advances, numerous challenges remain in
the treatment of HIV. In the absence of a cure, the disease is life long.
Although combination therapy has demonstrated the ability to markedly slow
resistance development, mutants have been identified which are resistant to the
drugs currently used during the course of combination therapy studies, and
cross-resistance among many agents, including protease inhibitors, has been
increasingly recognized. Present combination treatments are also often complex
and expensive. Adverse reactions to many of the drugs used in combination
therapy are common and may limit adherence to the therapeutic regimen or even
preclude use in some patients. Even brief instances of non-adherence can reduce
or eliminate the


                                       8
<PAGE>

ability of the combination therapy to suppress the virus, and may thus
accelerate the development of resistance. We believe that these challenges
present an opportunity to develop additional drugs that have attractive safety,
pharmacokinetic and/or resistance profiles.

         DEVELOPMENT STATUS. We have a portfolio of four drug candidates for the
treatment of HIV: Coviracil, Coactinon, DAPD, and mozenavir dimesylate.
Triangle's HIV portfolio includes at least one drug candidate in each of the
three classes of drugs currently approved for the treatment of HIV. Three are
reverse transcriptase inhibitors, although one of these (Coactinon) functions as
a NNRTI, and one (mozenavir dimesylate) is a protease inhibitor.

         COVIRACIL (EMTRICITABINE), FORMERLY KNOWN AS FTC. We are currently
conducting Phase II and Phase III clinical trials with Coviracil for the
treatment of HIV. We have licensed worldwide rights to Coviracil for the
treatment of HIV and hepatitis B from Emory University, Emory.

         Coviracil is a fluorinated nucleoside analog and is a member of the
same nucleoside series as lamivudine. In laboratory studies, Coviracil
consistently has displayed greater potency than lamivudine against HIV and is a
potent antiviral agent against HIV strains obtained from a geographically
diverse set of HIV-infected patients. Laboratory studies have also shown that
Coviracil shares cross-resistance patterns with lamivudine. In some cases, the
most common resistance mutation to these two agents also reverses resistance of
HIV to AZT.

         A Phase I single dose study evaluated the pharmacokinetics and
tolerance of Coviracil in 12 HIV-infected volunteers. The volunteers received
six single oral doses of Coviracil at six-day intervals ranging from 100 mg to
1,200 mg. Coviracil was well tolerated by all subjects in the dose range
studied. Coviracil was absorbed rapidly into the blood stream following oral
administration and was excreted primarily through the kidneys. While food intake
slightly delayed absorption, it did not affect the overall oral bioavailability.
The absorption, metabolism and excretion of Coviracil were generally consistent
among the subjects.

         In a Phase I/II monotherapy study in 41 HIV-infected patients, doses of
Coviracil ranging from 25 mg twice-a-day to 200 mg twice-a-day were given for
two weeks. A brief duration of monotherapy exposure was selected to limit the
development of viral resistance, but allowed a preliminary assessment of drug
candidate tolerance and antiviral activity. At each dose regimen containing
doses of 200 mg/day or more, a 98% (1.75 log10) or greater viral suppression was
observed. A single, once-a-day, 200 mg dose reduced the viral load by an average
of 99% (1.92 log10). The drug was generally well tolerated, with the most
frequently observed adverse experiences being headache, nausea/vomiting, and
diarrhea.

         In an additional monotherapy study used to determine the optimum dose
of Coviracil, 80 patients were randomized to receive one of three doses of
Coviracil, 25, 100 or 200 mg, once-a-day or the standard dose of lamivudine, 150
mg twice-a-day. Patients were treated for ten days and followed for an
additional two days after the completion of dosing. All regimens were active,
but the dose of 200 mg of Coviracil exhibited superior antiviral suppression.
This effect was determined by a number of variables including calculations of
absolute changes in viral load, average area under the curve minus baseline, and
the slope of viral RNA decay. Of those receiving 200 mg of Coviracil, at the end
of therapy 58% (11/19) had either a 2 log10 drop in viral load or a reduction in
virus below the level of detection and, of these, 21% (4/19) had both. Even two
days after the completion of this short course of therapy, the absolute decrease
in viral load was 1.63 log10 (43-fold decrease).

         In a Phase II study, known as the Montana Study, sponsored by the
Agence Nationale de Recherches sur le Sida, ANRS, in France, 40 antiretroviral
naive HIV-infected patients received a once-a-day regimen of Coviracil (200 mg),
ddI and efavirenz. The median plasma HIV RNA level at baseline was approximately
60,000 copies/mL. The once-a-day combination was generally well tolerated and
demonstrated strong antiviral and immunologic effects that were sustained during
the 64-week observation period to date. After 64 weeks of therapy, 90% of
patients (36/40) maintained plasma HIV RNA levels below 400 copies/mL on an
intent-to-treat basis. The median baseline CD4 count was 373 cell/mL, increasing
by a median of 219 cells/mL at week 64. The most common treatment-related
adverse events were reported during the first 24 weeks of the study. Two
patients developed elevated triglycerides that may have been treatment related;
only two patients stopped trial treatment because of adverse events.


                                       9
<PAGE>

         We also completed two Phase III studies entitled FTC-302 and
FTC-303. Both FTC-302 and FTC-303 were randomized, controlled trials
comparing Coviracil (200 mg once-a-day) to lamivudine (150 mg twice-a-day) in
triple therapy combination regimens. FTC-302, a double-blind study, compared
Coviracil to lamivudine in a background of stavudine (d4T) and either
nevirapine (in patients with baseline HIV-1 RNA levels less than or equal to
100,000 copies/mL) or efavirenz (in patients with baseline HIV-1 RNA levels
greater than 100,000 copies/mL) in 468 antiretroviral treatment naive
HIV-infected patients. In April 2000, the South African Medicines Control
Council, MCC, terminated the enrollment in FTC-302 and the FDA issued a
clinical hold on study FTC-302. Study FTC-302 was being conducted under a
U.S. Investigational New Drug Application, IND, at sites in South Africa. The
FDA indicated that study FTC-302 may not be adequate to provide pivotal data
in support of an NDA, although discussions with the FDA are continuing. The
study was completed subsequent to discussions with the South African
regulatory authorities. FTC-303 was an open-label switch study of 440
HIV-infected patients in the United States whose viremia had been
fully-suppressed with a lamivudine-containing regimen for a median of 35
months. Patients were randomly selected to switch in a 2 to 1 ratio from
twice-a-day lamivudine to once-a-day Coviracil or remain on lamivudine.

         Antiviral effect was measured in both studies by a number of different
analyses. Preliminary, unaudited data from study FTC-302 indicate that 61% and
65% of patients in the Coviracil and lamivudine groups, respectively, had fewer
than 50 copies/mL of HIV RNA in their plasma at week 48 on an intent-to-treat,
missing equals failure basis. The incidence of virologic failure associated with
resistance development was similar in both groups: 3.6% for Coviracil and 4.3%
for lamivudine). There was a higher incidence of virologic failure not
associated with resistance in the Coviracil arm of 5.3% compared to 1.3% for the
lamivudine arm. The cause of this disparity is being examined but may have been
the result of less than optimal adherence to the experimental regimen, as there
was little difference in overall virologic failure noted in women (11.1% vs.
9.3%) or in patients with high viral load (8.3% vs. 7.9%) in the Coviracil and
lamivudine arms, respectively. In study FTC-303, loss of virologic suppression
at any time during the 48-week observation period occurred in only 8% of
patients in each treatment arm.

         Both Coviracil and lamivudine were generally well tolerated by the
majority of patients in both studies. Adverse reactions were predominately mild
to moderate in both groups with the exception of some episodes of severe liver
toxicity in study FTC-302. In this study, severe liver toxicity was seen in 17%
of the patients receiving nevirapine (14% in the Coviracil arm and 19% in the
lamivudine arm), whereas none of the patients receiving efavirenz concomitantly
with Coviracil or lamivudine developed such hepatotoxicity. The overall rate of
liver toxicity observed in study FTC-302 is consistent with the frequency
observed in other published studies with nevirapine, including those where
neither Coviracil nor lamivudine was part of the regimen.

         COACTINON (EMIVIRINE), FORMERLY KNOWN AS MKC-442. We are currently
conducting Phase II and III clinical studies in Europe, South Africa, Mexico and
the United States with Coactinon as part of combination regimens in HIV-infected
patients to evaluate safety and efficacy as measured by viral load. We have
licensed from Mitsubishi-Tokyo Pharmaceuticals, Inc. (formerly Mitsubishi
Chemical Corporation), Mitsubishi, rights to Coactinon worldwide, except in
Japan, for the treatment of HIV.

         On August 10, 2000, we announced our continued development of Coactinon
in support of an NDA filing. This action followed notification from the FDA in
December 1999 that additional Phase III studies may need to be conducted to
prove that regimens containing Coactinon are equivalent or superior to current
first-line regimens. A Phase III study, MKC-401, was ongoing at that time to
compare Coactinon to abacavir, each in combination with Coviracil and stavudine.
Following a review of interim results from MKC-401 in the first half of 2000,
together with other available data, we decided to proceed with the clinical
development of Coactinon to support approval. MKC-401 is currently ongoing and
was amended to enroll approximately 280 additional patients at a reduced dose of
500 mg of Coactinon twice-a-day.

         Coactinon is a NNRTI and has demonstrated a favorable safety profile in
a comprehensive package of preclinical studies in animals, including a series of
reproductive and developmental toxicology studies. These reproductive and
developmental toxicology studies have demonstrated that Coactinon is not
associated with teratogenecity or reproductive/developmental toxicity.


                                       10
<PAGE>

         The pharmacokinetic profile and tissue distribution properties of
Coactinon have been examined in Phase I and II clinical studies. Coactinon is
well absorbed following oral administration with a plasma half-life of eight to
ten hours that allows for convenient twice-a-day dosing. Coactinon has been
shown to readily cross the placenta as determined in a pilot perinatal
transmission study. In this study, plasma levels of Coactinon in newborns were
approximately 78% of plasma levels seen in their mothers who had been
administered Coactinon. Coactinon also distributed into amniotic fluid,
umbilical cord blood and colostrum. As part of additional studies to examine the
tissue distribution of Coactinon, Coactinon has been shown to distribute into
cerebrospinal fluid and seminal fluid.

         Coactinon is metabolized by the cytochrome P450 enzyme system in the
liver. This same system is responsible for the metabolism of other
antiretrovirals including protease inhibitors. Through a series of Phase I
pharmacokinetic interaction studies, Coactinon has been shown to have no
significant effect on the pharmacokinetics of NRTIs. In contrast, when combined
with Coactinon, the pharmacokinetics of protease inhibitors such as indinavir
and nelfinavir are significantly reduced precluding the use of Coactinon with
these protease inhibitors. In general, combination of Coactinon with drugs that
are metabolized by the cytochrome P450 system results in lower levels of these
drugs that in some cases may prohibit their use with Coactinon.

         Over the past year we released additional, longer term data from
several Phase II and Phase II/III studies with Coactinon. This data focused
specifically on the recommended clinical dose, durability of antiviral activity,
safety and resistance profile of Coactinon.

         Results through 48 weeks were presented from the open-label, randomized
Phase II study, MKC-202, that examined the antiviral activity, safety and
tolerability of Coactinon at a dose of either 500 mg twice-a-day or 750 mg
twice-a-day in combination with stavudine and didanosine. The study also looked
at two lead-in dose escalation strategies for their potential to improve the
initial tolerability of Coactinon. Patients enrolled in the trial were NNRTI-
and protease inhibitor-naive with median baseline HIV-1 RNA levels of 4.5 log10
copies/mL and median baseline CD4+ counts of 328 cells/mm3. Coactinon, in
combination with stavudine and didanosine, demonstrated potent anti-HIV activity
at doses of 500 mg or 750 mg twice-a-day. However, the percentage of patients
(on an intent to treat basis) with undetectable levels of virus in their plasma
was greater in patients who received Coactinon 500 mg twice-a-day in combination
with stavudine and didanosine (58%) as compared to patients who received
Coactinon 750 mg twice-a-day in combination with stavudine and didanosine (45%).
The most frequent adverse events were mild to moderate, including nausea,
headache, dizziness, vomiting and rash. None of the patients who received 500 mg
Coactinon twice-a-day discontinued Coactinon due to an adverse event in contrast
to 9% of patients who received 750 mg Coactinon twice-a-day. Neither of the two
lead-in dose escalation strategies led to improved tolerability of 750 mg
Coactinon twice-a-day compared to 500 mg twice-a-day. Based on these data, the
dose of 500 mg Coactinon twice-a-day is being studied further in MKC-401.

         Results were also presented from a randomized, double blind 48-week
pivotal Phase II/III trial (MKC-301) designed to examine the antiviral activity,
safety and tolerability of 750 mg Coactinon twice-a-day in combination with
stavudine and lamivudine as a first-line, protease inhibitor-sparing regimen
versus stavudine and lamivudine alone. The patients were treatment-naive with
median baseline HIV-1 RNA levels of 4.3 log10 copies/mL and median baseline CD4+
counts of 418 cells/mm3. The combination produced a rapid and significant
suppression of HIV-1 RNA replication as shown in those patients receiving
Coactinon at 48 weeks, 54 % (intent to treat) had undetectable levels of virus
in their plasma at week 48, compared to only 32% (intent to treat) in patients
who did not receive Coactinon. The most frequent adverse events included nausea,
headache, dizziness, diarrhea and rash.

         The antiviral activity, safety and tolerability of 750 mg Coactinon
twice-a-day in combination with d4T and ddI has also been examined in a
randomized, double blind 48-week pivotal Phase II/III trial (MKC-302). Patients
enrolled in this trial were NNRTI- and protease inhibitor-naive with median
baseline HIV-1 RNA levels of 5.0 log10 copies/mL and median baseline CD4+ counts
of 338 cells/mm3. At 48 weeks, 25% (intent to treat) of patients randomized to
Coactinon had undetectable levels of virus as compared to 18% (intent to treat)
of patients randomized to d4T and ddI. The most frequent adverse events were
mild to moderate, including nausea, headache, dizziness, vomiting and rash. A
higher incidence of some adverse events (nausea and vomiting) was observed in
combination with stavudine and didanosine in this trial as compared to when
Coactinon was combined with stavudine and lamivudine.


                                       11
<PAGE>

         In addition to trials in treatment-naive patients, Phase II/III studies
have also been conducted with Coactinon in patients who were
treatment-experienced. In these trials, the combination of Coactinon with NRTIs
or NRTIs and protease inhibitors did not demonstrate significant benefit as
measured by suppression of HIV levels in plasma after six months to one year.
The overall findings from these trials indicate that Coactinon, if approved,
will most likely be useful as initial therapy in protease-sparing regimens.

         In parallel with analysis of the activity and safety of Coactinon in
clinical trials, analyses of clinical samples indicated that Coactinon may have
a resistance profile that is distinct from other NNRTIs. The resistance profiles
of NNRTI therapies currently available are similar, and the development of
resistance to one NNRTI therapy has often precluded the use of subsequent NNRTI
therapies. In these laboratory studies, HIV isolated from patients who
experienced loss of viral suppression while on Coactinon has revealed that up to
59% of the patients had virus that remained sensitive to at least one other
NNRTI. Less than 10% of patients who experienced loss of viral suppression while
on Coactinon and lamivudine and stavudine had virus that was resistant to other
NNRTIs. In contrast, approximately 60% of patients who experienced loss of viral
suppression while on Coactinon and didanosine and stavudine had virus that was
cross-resistant with other NNRTIs. These data suggest that the background NRTI
used in combination with d4T may be an important determinant in the resistance
profile that develops with Coactinon at the time of virological failure. Based
on these results, we are conducting a clinical study to determine whether
patients who develop resistance to Coactinon can benefit from the subsequent use
of other NNRTIs.

         Overall, results from Phase II and III studies have shown Coactinon to
be generally well tolerated with a very low incidence of severe toxicities. The
most common adverse events that have been observed with Coactinon include
nausea, headache, diarrhea, dizziness, asthenia, vomiting and rash. In the case
of nausea, headache, diarrhea, dizziness, asthenia and vomiting, these events
were typically mild to moderate, transient and presented within the first weeks
of initiating therapy. The majority of these adverse events have occurred in
trials where Coactinon was used at the 750 mg twice-a-day dose. Based on results
from MKC-202, it appears that the incidences of these adverse events may be
lower at the Coactinon dose of 500 mg twice-a-day. In the case of rash, most
cases were mild to moderate and resolved without discontinuation of Coactinon.
In over 1,200 patients treated with Coactinon to date, less than 2% of patients
have experienced Grade 3 or 4 rash, and to date only one of case of Stevens
Johnson Syndrome has been observed. Likewise, the incidence of clinical
laboratory toxicities and particularly, hepatic toxicity (hypersensitivity),
with Coactinon has been low and was not significantly different from that
observed in patients who received placebo. To date, a significant number of
women have participated in these studies and preliminary analyses indicate that
the safety and activity of Coactinon is not different between men and women.

         The current formulation of Coactinon as 250 mg and 500 mg tablets and
as a 25 mg/mL suspension permits convenient twice-a-day dosing in children,
adolescents and adults. At the adult dose of 500 mg twice-a-day, a single 500 mg
tablet of Coactinon will be taken twice-a-day. A Phase II study is ongoing in
HIV-infected children to define the dose and safety profile of Coactinon in the
pediatric population.

         DAPD. We have initiated Phase I/II clinical trials with DAPD for the
treatment of HIV. We have licensed worldwide rights to DAPD for the treatment of
HIV and hepatitis B from Emory and the University of Georgia Research
Foundation, Inc., University of Georgia.

         We believe that DAPD is currently the only member of its chemical
series which is in development for the treatment of viral diseases, and may
offer benefit to patients because of its unique structure which leads to
activity in the laboratory against certain resistant strains of HIV. DAPD is
synergistic with a number of antivirals in laboratory studies. HIV strains
that are resistant to AZT, lamivudine or Coviracil are not cross-resistant to
DAPD. Studies in animals and humans have demonstrated the majority of DAPD is
rapidly converted to dioxolane guanosine, DXG, the active anti-HIV agent.
Preliminary analyses of these pharmacokinetic studies indicate that DXG serum
concentrations decline with a terminal half-life of seven to nine hours. The
analysis of several urine samples from this study indicate the presence of
DXG with no other metabolites detected. Initial results from a Phase I/II
14-day monotherapy study were recently presented by us. Thirty-four antiviral
drug-naive patients received monotherapy doses of 25, 100, 200, 300 and 500
mg of DAPD twice-a-day. The maximum median viral load decrease was 0.54
log10, 1.0 log10, 1.14 log10, 1.49 log10 and 1.9 log10, respectively. At all
doses tested, viral suppression was observed and suggested a dose effect
relationship. The drug was well tolerated at all doses tested with no
significant or consistent

                                       12
<PAGE>

adverse effects during the dosing period. In addition, 26 patients with
extensive prior antiretroviral therapy (5.8 - 6.5 prior drugs for 3.7 - 4.6
years) received monotherapy doses of 200, 300 and 500 mg twice-a-day. The
maximum median viral load decreases were 0.5 log10, 0.5 log10, and 1.1 log10,
respectively. In five patients who had experienced multiple drug failure, DAPD
when added to the failing regimen at 500 mg twice-a-day, produced a median viral
load decrease of 1.9 log10.

         MOZENAVIR DIMESYLATE, FORMERLY KNOWN AS DMP-450. Mozenavir dimesylate
is currently in a Phase I/II study in Europe and South America. We obtained
worldwide license rights to mozenavir dimesylate through the acquisition of
Avid, in 1997. See "--License and Other Material Agreements --The DuPont
Pharmaceuticals Company and Avid Corporation."

         Mozenavir dimesylate is a potent, selective inhibitor of the HIV-1
protease that belongs to a novel chemical class, the cyclic ureas. In
preclinical laboratory tests, mozenavir dimesylate showed a dose-dependent
inhibition of HIV replication in three different cell types and reduced the
yield of virus by more than 99.9% at concentrations as low as 0.5 uM. Resistance
to the compound is conferred by the V82A or I84V mutation, consistent with
mutations observed with several other protease inhibitors. Mozenavir dimesylate
is synergistic with a number of antiretrovirals in laboratory studies. Long-term
toxicology studies have been completed in animals.

         Data from a Phase I study conducted by The DuPont Pharmaceuticals
Company, DuPont, showed that mozenavir dimesylate was generally well tolerated
following single oral doses that ranged from 60 mg to 1,250 mg in normal,
healthy male volunteers for up to four days. A Phase I/II trial, initiated by
Avid and ongoing at the time of its acquisition, was put on clinical hold by the
FDA in October 1997 because of the FDA's concerns regarding toxicity and
electrocardiographic abnormalities observed in animals exposed to high doses of
mozenavir dimesylate. The patients in the Phase I/II study were administered
oral doses that ranged from 500 mg to 750 mg three times-a-day and experienced
no significant adverse reactions. After discussions with the FDA, we initiated a
Phase I pharmacokinetic study for mozenavir dimesylate in the United States. We
also initiated a Phase I safety and tolerance study in Europe in January 1998.
The Phase I safety and tolerance study was designed to determine whether any
electrocardiographic abnormalities could be observed in humans (when
steady-state blood levels of mozenavir dimesylate are reached (i.e., three
days)) with doses at or above those planned to be used in efficacy studies. Both
studies have been completed and no electrocardiographic abnormalities were
observed in the Phase I safety and tolerance study. Additionally, we have
completed a Phase I study (DMP-104) where healthy volunteers were randomized to
receive mozenavir dimesylate 1,500 mg twice-a-day or indinavir 800 mg three
times-a-day for 28 days. Intensive electrocardiograph measurements and analysis
showed no difference in electrocardiographic abnormalities between the
volunteers receiving mozenavir dimesylate and those receiving indinavir. In the
same study, we also identified a maximum tolerated dose. At the dose of 2,000 mg
twice-a-day, 69% of the volunteers developed liver function test abnormalities
which resolved quickly once the daily dose was reduced to 1,500 mg twice-a-day.

         We are currently conducting a Phase I/II combination dose escalation,
indinavir controlled study (DMP-102), in HIV-infected patients outside the
United States. In study DMP-102, patients were randomized and received mozenavir
750 mg three times-a-day or 1,250 twice-a-day or 1,250 three times-a-day or
indinavir 800 mg three times-a-day in combination with d4T and lamivudine for
one year. Interim results of this study have shown that all doses of mozenavir
dimesylate had potent antiviral effect and all doses were generally well
tolerated. No differences were observed in activity and tolerability between the
three doses of mozenavir dimesylate and the indinavir group. We did not observe
any electrocardiographic abnormalities in DMP-102, replicating the results of
the healthy volunteer studies. Further development of mozenavir dimesylate
awaits outcome of discussions with the FDA, as mozenavir dimesylate remains on
partial clinical hold in the United States.

         HEPATITIS B

         BACKGROUND. Hepatitis B virus 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 the ninth leading cause of death throughout the world. It is
estimated that over two billion individuals worldwide have been infected with
hepatitis B virus, of which approximately 300-350 million are considered chronic
carriers of the disease. Many chronic carriers of the virus show no signs of
disease; however 25-30% experience symptomatic disease, which may lead to the
development of cirrhosis or liver cancer. Hepatitis B virus infection is
prevalent in Southern Europe, Africa, South America, and


                                       13
<PAGE>

particularly, Asia. Over two-thirds of the world's chronic carriers are thought
to reside in Asia, with China representing over half of these infections. In the
United States, it is estimated that over one million individuals are chronic
carriers of hepatitis B virus, and despite the availability and aggressive use
of vaccines against the virus, the number of infected individuals continues to
grow, with 1.7 million chronic carriers projected by the year 2010.

         Vaccines are currently available that can prevent the transmission of
hepatitis B virus; however, these vaccines have no efficacy in those already
infected. Alpha interferon (a commercially available drug approved for the
treatment of hepatitis B) 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 other compounds have some
activity in the treatment of hepatitis B virus infection, we believe additional
drugs will be necessary to effectively treat the disease. For example,
lamivudine (a commercially available drug approved for the treatment of
hepatitis B) has shown good tolerance and effective suppression of hepatitis B
virus replication during the course of treatment. However, virus replication can
return during prolonged therapy. Studies of more prolonged therapy are in
progress, and antiviral resistance has been observed with certain patients.

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

         EMTRICITABINE, FORMERLY KNOWN AS FTC. We are currently conducting a
Phase III clinical trial with emtricitabine for the treatment of hepatitis B.
Some of the development activities we plan to undertake with Coviracil for the
treatment of HIV will also be used in the development of emtricitabine for the
treatment of hepatitis B. See "--HIV--Development Status--Coviracil
(emtricitabine), formerly known as FTC."

         Emtricitabine has been shown to be a potent inhibitor of hepatitis B
replication in laboratory studies, and is synergistic in laboratory studies in
combination with several other compounds intended for the treatment of hepatitis
B. The anti-hepatitis activity of emtricitabine has been demonstrated in a
chimeric mouse model and against woodchuck hepatitis virus, WHV, in naturally
infected woodchucks. The hepatitis infection of the woodchuck results in a
disease state closely resembling that found in humans infected with hepatitis B.
In the woodchuck model at doses above 3 mg/kg, 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
lamivudine.

         A Phase I/II dose-response trial of emtricitabine has been completed in
patients with chronic hepatitis B infection from the United States and Hong
Kong. Patients received non-randomized, escalating doses of emtricitabine of 25
mg to 300 mg once-a-day for eight weeks. Emtricitabine was generally well
tolerated throughout the trial. At 56 days of treatment, median plasma hepatitis
B DNA ranged from 6.9 to 4.1 log10 across the doses. Similarly, median change
from baseline in plasma hepatitis B DNA ranged from -1.8 to -3.4 log10.

         Study FTCB-102 is an ongoing, randomized, double blind, dose comparison
trial where 98 patients were randomized to receive 25, 100 or 200 mg of
emtricitabine once-a-day for 48 weeks. Hepatitis B DNA suppression in plasma was
measured by Digene Hybrid Capture II Assay. Following 36 weeks of treatment,
preliminary results show viral suppression was 1.7 log10 at the 25 mg dose, 3.1
log10 at the 100 mg dose and 3.2 log10 at the 200 mg dose. In addition, the
percentage of patients with plasma hepatitis B DNA below the limit of detection
of the assay (4,700 copies/mL) was 31%, 24%, and 64%, respectively, at the doses
of 25, 100, and 200 mg once-a-day. Accordingly, a 200 mg once-a-day dose was
selected for our Phase III studies. The first Phase III clinical trial was
initiated in October 2000 and compares emtricitabine to placebo.

         CLEVUDINE, FORMERLY KNOWN AS L-FMAU. We have completed nine and 12
month toxicology studies, pharmacokinetic and efficacy preclinical studies, as
well as a single-dose, dose escalation Phase I study with clevudine. We have
licensed worldwide rights to clevudine, except in Korea, from Bukwang Pharm.
Ind. Co., Ltd., Bukwang, for all human antiviral applications.

         Clevudine is a pyrimidine nucleoside analogue that has been shown to be
a potent inhibitor of hepatitis B replication in laboratory studies. The
effective concentration of clevudine required to inhibit virus growth by 50%


                                       14
<PAGE>

(EC50) ranges from 0.02 to 0.15 uM with a mean of 0.08 uM. The bioavailability
of clevudine was 59% to 64% in rats and 19% to 29% in woodchucks. The
pharmacokinetics of clevudine in rats, woodchucks and monkeys were independent
of dose over a range of doses.

         In laboratory studies, the efficacy of clevudine has been demonstrated
in woodchucks chronically infected with WHV. Within seven days of initial
treatment, large reductions in serum WHV DNA were observed over a range of
doses. A once-a-day dose of 10 mg/kg clevudine decreased WHV DNA by 8 logs; the
virus did not return for 26 and 68 weeks after cessation of dosing in the
majority of animals dosed for four and 12 weeks, respectively. Clinical
toxicology studies, nine months in rats and one year in monkeys, have been
completed and supported the initiation of clinical development. Our Phase I dose
escalation study has demonstrated that clevudine is orally bioavailable.
Additionally, at the limited doses given in the study, it was well tolerated. In
2000, a Phase I/II one month monotherapy trial was initiated in France, Canada
and South Korea.

         IMMUNOSTIMULATORY SEQUENCES CANDIDATE. We are supporting an ongoing
Phase I study of ISS being given with hepatitis B surface antigen. Dynavax is
conducting the study in healthy volunteers in Canada. This is a first step in
the development of a potential therapeutic intervention in hepatitis B
infection.

         ISS are short sequences of synthetic single-strand DNA which induce the
immune system to fight pathogens and counterbalance allergic responses. Dynavax
is currently using ISS in three ways to exploit their numerous therapeutic
applications: linked to allergens for the treatment of allergies and asthma,
linked to antigens to enhance prophylactic and therapeutic vaccines and cancer
immunotherapy, and administered in an unlinked form as a drug for therapeutic
intervention in infection and inflammatory diseases.


LICENSE AND OTHER MATERIAL AGREEMENTS

         ABBOTT LABORATORIES. In August 1999, we completed a worldwide strategic
alliance with Abbott for six antiviral compounds. Pursuant to terms of the
Abbott Alliance, Triangle and Abbott will collaborate with respect to the
clinical development, registration, distribution and marketing of various
proprietary pharmaceutical products for the prevention and treatment of HIV and
hepatitis B virus. In the United States, Triangle and Abbott will co-promote
four Triangle drug candidates currently in active development for HIV and/or
hepatitis B, Coviracil, Coactinon, DAPD and clevudine, and Abbott's two HIV
protease inhibitors, Norvir(R) (ritonavir) and Kaletra(TM)
(lopinavir/ritonavir). Outside the United States, Abbott has exclusive sales and
marketing rights to promote the four Triangle antiviral compounds and Abbott's
two HIV compounds. Triangle and Abbott will share profits and losses for the
four Triangle drug candidates. Triangle will receive detailing fees and
commissions on incremental sales we generate for Abbott's protease inhibitors.
In addition, Abbott will have the right of first discussion to market future
Triangle compounds until 2005. The Abbott Alliance provides for non-contingent
research funding of $31.7 million, $25.0 million of which was received on
December 30, 1999 and $6.7 million was received on January 14, 2000, and up to
$185 million of contingent development milestone payments and the sharing of
future commercialization costs. In addition, Abbott initially purchased
approximately 6.57 million shares of Triangle common stock at $18.00 per share
with net proceeds to us of approximately $115.9 million. Pursuant to the terms
of the Abbott Alliance, Abbott has the right to purchase additional amounts of
our common stock up to a maximum aggregate percentage of 21% of our outstanding
common stock and has certain rights to purchase shares directly from us in order
to maintain its existing level of ownership and has subsequently purchased an
additional 66,816 shares with net proceeds to us of approximately $407,000. The
Abbott Alliance provides us with access to Abbott's international and domestic
infrastructure to market and distribute products receiving regulatory approval,
global manufacturing capabilities, drug development assistance, United States
co-promotion rights to two Abbott compounds, as well as financial support to
help fund the continued development of our portfolio of drug candidates.

         We have licensed Coactinon from Mitsubishi; Coviracil from Emory; DAPD
from Emory and the University of Georgia; clevudine from Bukwang; and the
immunostimulatory sequences candidate from Dynavax. We acquired license rights
to mozenavir dimesylate through our acquisition of Avid. Avid licensed mozenavir
dimesylate from DuPont. See "--Risk and Uncertainties--Because we face risks
related to our license and option agreements, we could lose our rights to our
drug candidates."


                                       15
<PAGE>

MITSUBISHI-TOKYO PHARMACEUTICALS, INC. (FORMERLY MITSUBISHI CHEMICAL
CORPORATION)

         In June 1997, we entered into a license agreement with Mitsubishi
pursuant to which we received an exclusive license to all of Mitsubishi's rights
to Coactinon for use in the HIV field. The license includes all countries of the
world except Japan. As consideration for the exclusive license, we paid a
license initiation fee and agreed to make certain milestone and royalty
payments, including minimum annual royalty payments to Mitsubishi. We are also
required to meet certain milestone obligations and conduct certain development
work with respect to Coactinon. Under the license agreement, we have agreed to
perform preclinical testing and clinical trials with Coactinon. Mitsubishi is
primarily responsible for prosecuting all patents related to the Coactinon
technology at its own expense. We are obligated to indemnify Mitsubishi against
any claims or losses incurred as a result of our breach of the license agreement
or our manufacture, testing, design, use, sale and labeling of products
utilizing the Coactinon technology. Mitsubishi has the right to terminate the
license if we do not satisfy certain milestone obligations or if we do not cure
any material breach of the license agreement. The termination of the license
agreement would adversely affect our business.

EMORY UNIVERSITY AND UNIVERSITY OF GEORGIA RESEARCH FOUNDATION, INC.

         COVIRACIL. In April 1996, we entered into a license agreement with
Emory pursuant to which we received an exclusive worldwide license to all of
Emory's rights to purified forms of emtricitabine for use in the HIV and the
hepatitis B fields. As consideration for the exclusive license of the
emtricitabine technology, we issued 500,000 shares of common stock and agreed to
pay certain license fees, all of which have been paid to Emory. In addition, we
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 emtricitabine technology in the United States and the third
year after the first registration is granted for an anti-hepatitis B product
incorporating the emtricitabine technology in certain major market countries, we
will be required to pay Emory minimum annual royalties for the HIV and hepatitis
B indications, respectively. Under the license agreement, Emory is primarily
responsible for prosecuting all patents related to the emtricitabine technology.
We agreed to reimburse Emory for the patent prosecution costs it incurs after
December 1996. We have the right to pursue any actions against third parties for
infringement of the emtricitabine technology at our expense. Upon the conclusion
of any such infringement action we pursue, we are entitled to offset unrecovered
expenses incurred in connection with the infringement action against a
percentage of the aggregate milestone payments and royalties owed to Emory
during the time the infringement action was pending. In addition, we are
obligated to defend, indemnify and hold harmless Emory and certain of its
representatives against any claims or losses incurred as a result of our
manufacturing, testing, design, use and sale of products utilizing the
emtricitabine technology. Emory has the right to terminate the license agreement
or to convert the exclusive license to a nonexclusive license in the event we do
not satisfy certain milestone obligations. Emory may also terminate the license
agreement upon an uncured breach of the agreement by us. In the event of a
termination or conversion for our breach or failure to meet milestone
obligations, we will grant Emory certain nonexclusive, royalty-free license
rights in all intellectual property under our control relating to the
emtricitabine technology necessary for the marketing of products incorporating
the emtricitabine technology. The termination of the license agreement or the
conversion from an exclusive to a nonexclusive agreement would adversely affect
our business.

         In May 1999, Emory and GlaxoSmithKline plc, formerly Glaxo Wellcome
plc, Glaxo, settled their litigation pending in the United States District Court
relating to Coviracil, and Triangle became the exclusive licensee of the United
States and all foreign patent applications and patents filed by Burroughs
Wellcome Co, Burroughs Wellcome, on the use of emtricitabine to treat hepatitis
B. Pursuant to the license and settlement agreements, Emory and Triangle were
also given access to development and clinical data and drug substance held by
Glaxo relating to emtricitabine.

         DAPD. In March 1996, we entered into a license agreement with Emory and
University of Georgia pursuant to which we received an exclusive worldwide
license to all of Emory's and University of Georgia's rights to a series of
nucleoside analogues including DAPD and DXG (i.e., the active anti-HIV agent)
for use in the HIV and hepatitis B fields. As consideration for the exclusive
license of the DAPD technology, we issued an aggregate of 150,000 shares of
common stock to Emory and University of Georgia. In addition, we agreed to
make certain milestone and royalty payments to Emory and University of Georgia.
In March 1999, we began paying license maintenance fees because certain
development milestones had not yet been achieved. Beginning the third year after


                                       16
<PAGE>

the first FDA registration is granted for an FDA-approved product incorporating
the DAPD technology, we will be required to pay Emory and University of Georgia
a minimum annual royalty. Under the license agreement, Emory and University of
Georgia are primarily responsible for prosecuting all patents related to the
DAPD technology. We agreed to reimburse Emory and University of Georgia for the
patent prosecution costs they incur after the date of the license agreement. We
have the right to pursue any actions against third parties for infringement of
the DAPD technology at our expense. Upon the conclusion of any such infringement
action we bring, we are entitled to offset unrecovered expenses incurred in
connection with the infringement action against a percentage of the aggregate
milestone payments and royalties owed to Emory and University of Georgia during
the time the infringement action was pending. In addition, we are obligated to
defend, indemnify and hold harmless Emory, University of Georgia and certain of
their representatives against any claims or losses incurred as a result of our
manufacturing, testing, design, use and sale of products utilizing the DAPD
technology. Emory and University of Georgia have the right to terminate the
license agreement or to convert the exclusive license to a nonexclusive license
in the event we do not satisfy certain milestone obligations. Emory and
University of Georgia may also terminate the license agreement upon an uncured
breach of the agreement by us. In the event of such termination or conversion,
we will grant Emory and University of Georgia certain nonexclusive, royalty-free
license rights in all intellectual property under our 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 adversely affect our business.

THE DUPONT PHARMACEUTICALS COMPANY AND AVID CORPORATION

         We completed our acquisition of Avid on August 28, 1997, pursuant to
the terms of a merger agreement among Triangle, a wholly-owned subsidiary of
Triangle and Avid. Avid's principal assets consist of worldwide license rights
to mozenavir dimesylate for use in the HIV field and proprietary assays to
screen compounds for the treatment of hepatitis B. Avid acquired its rights to
the mozenavir dimesylate technology in December 1996 through an exclusive
license from DuPont. Pursuant to the license agreement, we are required to make
certain milestone and royalty payments and to pay license preservation fees to
DuPont, which began in 1998, in the event other payments do not equal certain
annual amounts. Under the license agreement, DuPont is primarily responsible for
prosecuting all patents related to the mozenavir dimesylate technology. We are
required to reimburse DuPont for the patent prosecution costs it incurs after
the date of the license agreement, other than any litigation expenses incurred
by DuPont. In certain circumstances, we have the right to pursue any actions
against third parties for infringement of the mozenavir dimesylate technology at
our expense. In addition, we are obligated to indemnify DuPont against any
claims or losses incurred as a result of our production, manufacture, use, sale,
lease, consumption, or advertisement of products utilizing the mozenavir
dimesylate technology. DuPont may terminate the license agreement upon an
uncured breach of the agreement by us. The termination of the license agreement
could adversely affect our business.

         Pursuant to the terms of the merger agreement, we issued 400,000 shares
of common stock in exchange for all outstanding capital stock of Avid. We also
agreed to issue up to 2,100,000 additional shares of common stock upon the
achievement of certain milestones relating to mozenavir dimesylate. The issuance
of 1,600,000 of these shares was contingent upon Triangle's initiating pivotal
Phase II clinical trials with mozenavir dimesylate before February 28, 1999, the
DMP Milestone Date, or electing on or before the DMP Milestone Date to continue
the development of mozenavir dimesylate even if such clinical trials had not
been initiated. In February 1999, representatives of the former Avid
stockholders agreed to extend the DMP Milestone Date until February 28, 2000, in
exchange for Triangle's issuance of 100,000 of the 1,600,000 contingent shares
in 1999. In March 2000, these representatives further agreed to extend the DMP
Milestone Date until August 28, 2001 in exchange for Triangle's issuance of an
additional 400,000 of the 1,600,000 contingent shares in 2000. As part of the
second extension, Triangle also agreed to increase the remaining number of the
1,600,000 contingent shares by 50,000 shares so that 1,150,000 shares, instead
of 1,100,000 shares, would be issuable if Triangle initiates pivotal Phase II
clinical trials with mozenavir dimesylate on or before August 28, 2001 or elects
on or before August 28, 2001 to continue the development of mozenavir dimesylate
even if such clinical trials had not been initiated. The issuance of the
remaining 500,000 of the 2,100,000 shares is contingent upon the attainment of
other development milestones with mozenavir dimesylate. In connection with the
acquisition, we also assumed operating and other liabilities of Avid totaling
approximately $1.3 million and certain development liabilities totaling
approximately $1.0 million.


                                       17
<PAGE>

BUKWANG PHARM. IND. CO., LTD.

         In February 1998, we entered into a license agreement with Bukwang
pursuant to which we received an exclusive license to all of Bukwang's rights to
clevudine for use in the hepatitis B field as well as all other human antiviral
applications. Bukwang obtained its rights to clevudine through an exclusive
license from Yale University, Yale, and University of Georgia. Our license
includes all countries of the world except Korea. As consideration for the
exclusive license of the clevudine technology, we paid a license initiation fee
and agreed to pay development and sales milestones. We also agreed to pay a
royalty on the net sales of any licensed products. Beginning the third year
after the first FDA registration is granted for an FDA-approved product
incorporating the clevudine technology, we will be required to pay an annual
minimum royalty. Under the license agreement, Yale and University of Georgia are
primarily responsible for prosecuting all patents related to the clevudine
technology which they licensed to Bukwang, at our expense.

         We are primarily responsible for prosecuting all patents related to
any clevudine technology that may be acquired by Bukwang or us at our own
expense. In addition, Yale and University of Georgia have the first right to
pursue any actions against third parties for infringement of the clevudine
technology, either jointly with us (with expenses shared equally) or, if not
jointly with us, solely at their expense. Upon the conclusion of any such
infringement action brought solely by us, we are entitled to offset
unrecovered expenses incurred in connection with the infringement action
against a percentage of the aggregate milestone payments and royalties owed
to Bukwang during the time the infringement action is pending. We are
obligated to indemnify Bukwang against any claims or losses incurred in
connection with our breach of the license agreement or our manufacture,
testing, design, use, sale and labeling of products utilizing the clevudine
technology. Bukwang has the right to terminate the license agreement in the
event we do not achieve certain milestone obligations or upon an uncured
breach of the agreement by us. In the event of such termination, we will
grant Bukwang certain nonexclusive, royalty free license rights in all
intellectual property under our control relating to the clevudine technology
necessary for marketing products which contain clevudine. The termination of
the license agreement could adversely affect our business.

DYNAVAX TECHNOLOGIES CORPORATION

         In April 2000, our licensing and collaborative agreement with Dynavax
to develop immunostimulatory pharmaceutical candidates for the prevention and/or
treatment of serious viral diseases, became effective. In association with this
agreement, we purchased $2.0 million of Dynavax Series T Preferred Stock. The
license grants Triangle exclusive worldwide rights to Dynavax' ISS for the
treatment of HIV and the prevention and treatment of hepatitis B infection
and hepatitis C infection. We will collaborate with Dynavax in the
development of immunostimulatory pharmaceutical candidates and we will be
responsible for funding specific development activities, as well as paying
development milestones and royalty payments. Under the agreement, we agreed
to indemnify Dynavax against any claim or loss resulting from our
manufacture, testing, design, use, sale or labeling of products which use the
technology licensed from Dynavax, except for claims or losses resulting from
Dynavax' negligence, intentional misconduct or breach of contract. We and
Dynavax have agreed to indemnify each other against any claims or losses
resulting from a breach of our respective representations and warranties
contained in the licensing and collaborative agreement. If Dynavax does not
terminate an infringement by a third party of the licensed technology or does
not bring suit to do so, we may pursue action for infringement. We may offset
our expenses in bringing suit against a percentage of the royalty payments
due to Dynavax under the agreement. Either party may terminate the agreement
if the other party has not corrected, or where correction in such timeframe
is impossible, taken reasonable steps to correct a material breach or default
within 60 days of written notice of the breach or default from the other
party.

ARROW THERAPEUTICS LIMITED

         In July 2000, we entered into a licensing and collaborative agreement
with Arrow Therapeutics Limited, Arrow, to identify and develop novel anti-viral
agents for the treatment of hepatitis C virus. Under the terms of the agreement,
Arrow will provide Triangle with access to Arrow's high throughput screening
technology and its compound library. The initial research period is two years,
though we may extend it for an additional two years.


                                       18
<PAGE>

Triangle will be responsible for funding the screening program, as well as
paying development milestones and royalty payments on sales of any products
which result from the collaboration. We have the initial responsibility to file
patent applications with respect to joint inventions.

         We have an exclusive license to make, use and sell products
containing compounds developed with Arrow during the term of the agreement.
If we breach the agreement, Arrow may terminate our exclusive license and
Arrow will have the exclusive right to commercialize products containing
active ingredients developed under the licensing and collaboration agreement.
Under the agreement, we are obligated to conduct a development program for at
least one product containing a compound developed with Arrow. While we have
discretion with respect to the development program, Arrow may terminate the
agreement if we fail to meet our diligence requirements. Either party may
terminate the agreement after a breach by the other party that is not
corrected within 60 days. We have agreed to indemnify Arrow against any
claims or losses arising out of the development program, our sale of products
we develop under the agreement (excluding liability resulting from the
negligence or willful misconduct of Arrow), and for any breaches of our
representations and warranties under the agreement. Arrow has agreed to
indemnify us against any claims or losses arising out of the research program
and for any breaches of its representations and warranties under the
agreement.

PATENTS AND PROPRIETARY RIGHTS

         Our success will depend on our ability and the ability of our licensors
to obtain and maintain patents and proprietary rights for our drug candidates
and to avoid infringing the proprietary rights of others, both in the United
States and in foreign countries. We have no patents in our own name and we have
a small number of patent applications of our own pending. One of our patent
applications is a joint application with co-inventors from another institution.
We have, however, licensed or we have an option to license patents, patent
applications and other proprietary rights from third parties for each of our
drug candidates. If we breach our licenses, we may lose rights to important
technology and drug candidates.

         Our patent position, like that of many pharmaceutical companies, is
uncertain and involves complex legal and factual questions for which important
legal principles are unresolved. We may not develop or obtain rights to products
or processes that are patentable. Even if we do obtain patents, they may not
adequately protect the technology we own or have in-licensed. In addition,
others may challenge, seek to invalidate, infringe or circumvent any patents we
own or in-license, and rights we receive under those patents may not provide
competitive advantages to us. Further, the manufacture, use or sale of our
products or processes may infringe the patent rights of others.

         Several pharmaceutical and biotechnology companies, universities and
research institutions have filed patent applications or received patents that
cover our technologies or technologies similar to ours. Others have filed patent
applications and received patents that conflict with patents or patent
applications we own or have in-licensed, either by claiming the same methods or
compounds or by claiming methods or compounds that could dominate those owned by
or licensed to us. In addition, we may not be aware of all patents or patent
applications that may impact our ability to make, use or sell any of our drug
candidates. For example, United States patent applications are confidential
while pending in the Patent and Trademark Office, PTO, and patent applications
filed in foreign countries are often first published six months or more after
filing. Any conflicts resulting from third party patent applications and patents
could significantly reduce the coverage of our patents and limit our ability to
obtain meaningful patent protection. If other companies obtain patents with
conflicting claims, we may be required to obtain licenses to these patents or to
develop or obtain alternative technology. We may not be able to obtain any such
license on acceptable terms or at all. Any failure to obtain such licenses could
delay or prevent us from pursuing the development or commercialization of our
drug candidates, which would adversely affect our business.

         There are significant risks regarding the patent rights of two of our
in-licensed drug candidates. We may not be able to commercialize Coviracil or
DAPD due to patent rights held by third parties other than our licensors. Third
parties have filed numerous patent applications and have received numerous
issued patents in the United States and many foreign countries that relate to
these drug candidates and their use alone or in combination to treat HIV and
hepatitis B. As a result, our patent position regarding the use of Coviracil and
DAPD to treat HIV and/or hepatitis B is highly uncertain and involves 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 us, we would
not have the right


                                       19
<PAGE>

to commercialize Coviracil and/or DAPD 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 if any of these questions is favorably resolved, we may still
attempt to obtain licenses from one or more third parties to reduce or eliminate
the risks relating to some or all of these matters. Such licenses may not be
available on acceptable terms or at all. Our inability to commercialize either
of these drug candidates could adversely affect our business.

         With respect to any of our drug candidates, litigation, patent
opposition and adversarial proceedings, including the currently pending
proceedings, could result in substantial costs to us. We expect the costs of the
currently pending proceedings to be significant during the next several years.
We anticipate that additional litigation and/or proceedings will be necessary or
may be initiated to enforce any patents we own or in-license, or to determine
the scope, validity and enforceability of other parties' proprietary rights and
the priority of an invention. Any of these activities could result in
substantial costs and/or delays to us. The outcome of any of these proceedings
may significantly affect our drug candidates and technology. United States
patents carry a presumption of validity and generally can be invalidated only
through clear and convincing evidence. The PTO is conducting three adversarial
proceedings in connection with the emtricitabine technology. We cannot assure
you that a court or administrative body would hold our in-licensed patents valid
or would find an alleged infringer to be infringing. Further, the license and
option agreements with Emory, University of Georgia, the Regents, DuPont, and
Mitsubishi provide that each of these licensors is primarily responsible for any
patent prosecution activities, such as litigation, patent conflict proceedings,
patent opposition or other actions, for the technology licensed to us. These
agreements also provide that in general we are required to reimburse these
licensors for the costs they incur in performing these activities. Similarly,
Yale and University of Georgia, the licensors of clevudine to Bukwang, are
primarily responsible for patent prosecution activities with respect to
clevudine at our expense. As a result, we generally do not have the ability to
institute or determine the conduct of any such patent proceedings unless our
licensors elect not to institute or to abandon such proceedings. If our
licensors elect to institute and prosecute patent proceedings, our rights will
depend in part upon the manner in which these licensors conduct the proceedings.
In any proceedings they elect to initiate and maintain, these licensors may not
vigorously pursue or defend or may decide to settle such proceedings on terms
that are unfavorable to us. An adverse outcome of these proceedings could
subject us to significant liabilities to third parties, require disputed rights
to be licensed from third parties or require us to cease using such technology,
any of which could adversely affect our business. Moreover, the mere uncertainty
resulting from the initiation and continuation of any technology related
litigation or adversarial proceeding could adversely affect our business pending
resolution of the disputed matters.

         We also rely on unpatented trade secrets and know-how to maintain our
competitive position, which we seek to protect, in part, by confidentiality
agreements with employees, consultants and others. These parties may breach or
terminate these agreements, and we may not have adequate remedies for any
breach. Our trade secrets may also be independently discovered by competitors.
We rely on certain technologies to which we do not have exclusive rights or
which may not be patentable or proprietary and thus may be available to
competitors. We have filed applications for, but have not obtained, trademark
registrations for various marks in the United States and other jurisdictions. We
have received U.S. trademark registrations for our corporate name and logo,
Coactinon(R) and Coviracil(R). We have also received registrations in the
European Union for the mark Coactinon(R) and our corporate logo. Our pending
application in the European Union for the mark CoviracilTM has been opposed by
Orsem, based upon registrations for the mark Coversyl in various countries, and
Les Laboratories Serveir, based on a French registration for the mark Coversyl.
We do not believe that the marks Coviracil and Coversyl are confusingly similar,
but, in the event they are found to be confusingly similar, we may need to adopt
a different product name for emtricitabine in the applicable jurisdictions.
Several other companies use trade names that are similar to our name for their
businesses. If we are unable to obtain any licenses that may be necessary for
the use of our corporate name, we may be required to change our name. Our
management personnel were previously employed by other pharmaceutical companies.
The prior employers of these individuals may allege violations of trade secrets
and other similar claims relating to their drug development activities for us.
See -- "Risk and Uncertainties--If we or our licensors are not able to obtain
and maintain adequate patent protection for our product candidates, we may be
unable to commercialize our product candidates or to prevent other companies
from using our technology in competitive products."

GOVERNMENT REGULATION

         The development of our drug candidates and the manufacturing and
marketing of any drug candidates we successfully develop are subject to
extensive regulation by numerous governmental authorities in the United States


                                       20
<PAGE>

and other countries. See "--Risk and Uncertainties--We are subject to extensive
government regulation and may fail to receive regulatory approval which could
prevent or delay the commercialization of our products."

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, reporting, advertising
and promotion of our drug candidates and any products that we 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:

         o    preclinical laboratory and animal tests,
         o    the submission to the FDA of an IND, which must be evaluated and
              found acceptable by the FDA before human clinical trials may
              commence,
         o    adequate and well-controlled human clinical trials to establish
              the safety and effectiveness of the drug,
         o    the submission of an NDA to the FDA,
         o    FDA review of the NDA, which usually includes review by an
              Advisory Committee to the FDA, and
         o    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 good manufacturing practices 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 the drug candidate
and animal studies to assess the safety and effectiveness of the drug candidate
and its formulation. Preclinical test results 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. If the FDA has concerns about a proposed clinical trial,
it may delay the trial and require modifications to the trial protocol before
permitting the trial to begin. There are no guarantees that the FDA will permit
a proposed IND to become effective.

         Clinical trials involve administering a drug candidate to normal,
healthy volunteers or to patients identified as having the condition for which
the drug candidate is being tested. The drug candidate 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.
These protocols detail the objectives of the trial, the parameters used to
monitor safety and the efficacy criteria that are being evaluated. Each clinical
trial is conducted under the auspices of a local Institutional Review Board
which considers among other things:

         o    the clinical trial plan,
         o    ethical factors,
         o    safety of the human subjects, and
         o    possible liability risk for the institution.

         Clinical trials are typically conducted in three sequential phases that
may overlap.

         o    Phase I involves the initial introduction of the drug candidate in
              normal, healthy volunteers, where the emphasis is on testing for
              safety (adverse effects), dosage tolerance, metabolism,
              distribution, excretion, clinical pharmacology and early evidence
              of effectiveness. In serious diseases such as AIDS or cancer,
              patients suffering from the disease as well as normal, healthy
              volunteers may be enrolled in Phase I trials.

         o    Phase II involves trials in a limited patient population to
              determine the effectiveness of the drug candidate for specific
              targeted indications, to determine dosage tolerance and optimal
              dosage and to identify possible short-term side effects and safety
              risks. After a drug candidate demonstrates an acceptable safety
              profile and probable effectiveness, Phase III trials are
              initiated.


                                       21
<PAGE>

         o    Phase III trials are undertaken to further evaluate clinical
              effectiveness and to further test for safety within an expanded
              patient population at multiple clinical study sites.

         Pivotal clinical trials are those expanded studies intended to support
a submission for regulatory approval of a drug candidate. Pilot clinical trials
are those involving a small number of patients. The FDA reviews both the
clinical trial plans and the results of the trials at each phase, and any safety
reports and other information submitted during the clinical trial. The FDA 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 requires substantial time and effort and approvals may not 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 are required to gain approval for the use of the product
for any additional indications or dosage forms. The FDA may also require
post-marketing testing, such as monitoring 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 and
any applicable foreign requirements. We initiated Phase I/II clinical trials in
Europe for Coactinon prior to submitting an IND in the United States. We may, in
the future, conduct clinical trials with other drug candidates in various
foreign countries without an IND and have done so in the case of clevudine.
Clinical trials we conduct in either the United States or foreign countries may
not demonstrate that any of our drug candidates under development are safe and
effective, and the FDA may require additional clinical trials to support
approval of an NDA.

         As part of its IND regulations, the FDA has developed several
regulatory procedures to accelerate the clinical testing and approval of drugs
intended to treat life-threatening or seriously debilitating 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. 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, either eliminate the need to conduct Phase III trials or
limit the scope of Phase III trials. Under these regulations, the FDA may
require post-marketing (Phase IV) clinical trials to obtain additional
information on the drug's risks, benefits and optimal use.

         The FDA has also issued regulations establishing an accelerated NDA
approval procedure for certain drugs under Subpart H of the agency's NDA
approval 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 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 is reasonably likely to predict 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 post-marketing (Phase IV) trials to establish and define the
degree of clinical benefits to the patient. These clinical trials would usually
be underway when the product obtains this accelerated approval. The FDA may also
impose distribution restrictions where necessary to assure safe use of the drug.
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
regulations can complement other accelerated approval regulations. 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.


                                       22
<PAGE>

         The Food and Drug Administration Modernization Act of 1997 also
contains statutory provisions designed to expedite the review of new drugs
intended to treat serious or life-threatening conditions. This Act amended the
Federal Food, Drug, and Cosmetic Act to provide for the designation of a "fast
track" product. This Act also establishes procedures to facilitate development
and expedite FDA review of a drug intended for treatment of a serious or
life-threatening condition that demonstrates the potential to address unmet
medical needs. Approval of a fast track product may be subject to conditions,
including requirements to conduct post-approval clinical trials and to presubmit
promotional materials. Approval of a fast track product can be withdrawn, using
expedited procedures, for reasons similar to those specified in the Subpart H
Regulations.

         The FDA has notified us that three of our drug candidates for the
treatment of HIV, Coviracil, Coactinon and DAPD, qualify for designation as
"fast track" products under provisions of the Food and Drug Administration
Modernization Act of 1997. We may be able to commercialize our drug candidates
which meet these criteria in a shorter time period than has historically been
required for drugs that do not meet the criteria for expedited review. We cannot
assure you, however, that any of our drug candidates will retain their
designation for fast track development or will qualify or continue to qualify
for expedited review or that any of our drug candidates will be approved or will
be approved in a time period that is shorter than other drugs that do not
qualify for this review.

         Once the sale of a product is approved, the FDA regulates the
manufacturing, marketing, safety reporting and other activities. The FDA
periodically inspects both domestic and foreign drug manufacturing facilities to
ensure compliance with applicable good manufacturing practice regulations, NDA
conditions of approval and other requirements. In addition, manufacturers must
register with the FDA and submit a list of every drug in commercial
distribution. We do not have or currently intend to develop the facilities to
manufacture our drug candidates in commercial quantities and, therefore, we
intend to establish relationships with contract manufacturers for the commercial
manufacture of any products that we successfully develop. Some of these contract
manufacturers may be located outside the United States. Our contract
manufacturers may not be able to attain or maintain compliance with good
manufacturing practice regulations and NDA conditions. Changes in contract
manufacturers may result in the need for new NDA submissions or delays in the
availability of product. Post-marketing reports are also required, for purposes
such as monitoring the product's usage and any adverse effects. Product
approvals may be withdrawn, or other actions may be ordered, or criminal or
other sanctions imposed if we do not maintain compliance with regulatory
requirements.

FOREIGN REGULATORY APPROVAL AND SALE

         Many foreign countries also regulate the clinical testing,
manufacturing, reporting, 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 we can give no assurance that Triangle or any third parties with
whom we 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, we are also subject to
regulation under:


                                       23
<PAGE>

         o    the Occupational Safety and Health Act,
         o    the Controlled Substances Act,
         o    the Toxic Substances Control Act,
         o    the Resource Conservation and Recovery Act, and
         o    other similar federal, state and local regulations governing
              permissible laboratory activities, waste disposal, handling of
              toxic, dangerous or radioactive materials and other matters.

         We believe we are in compliance, in all material respects, with all
applicable regulations. These regulations are subject to change and may in the
future require substantial effort and cost to us to comply with each of the
regulations, and may possibly restrict our business activities. See "--Risk and
Uncertainties--We may incur substantial costs related to our use of hazardous
materials."


COMPETITION

         We are engaged in segments of the drug industry that are highly
competitive and rapidly changing. Any of our current drug candidates that we
successfully develop will compete with numerous existing therapies. In addition,
many companies are pursuing novel drugs that target the same diseases we are
targeting. We believe that a significant number of drugs are currently under
development and will become available in the future for the treatment of HIV and
hepatitis B. We anticipate that we will face intense and increasing competition
as new products enter the market and advanced technologies become available. Our
competitors' products may be more effective, or more effectively marketed and
sold, than any of our products. Competitive products may render our products
obsolete or noncompetitive before we can recover the expenses of developing and
commercializing our drug candidates. Furthermore, the development of a cure or
new treatment methods for the diseases we are targeting could render our drug
candidates noncompetitive, obsolete or uneconomical. Many of our competitors:

         o    have significantly greater financial, technical and human
              resources than we have and may be better equipped to develop,
              manufacture and market products,
         o    have extensive experience in preclinical testing and clinical
              trials, obtaining regulatory approvals and manufacturing and
              marketing pharmaceutical products, and
         o    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. Academic institutions, governmental agencies and other
public and private research organizations are also becoming increasingly aware
of the commercial value of their inventions and are more actively seeking to
commercialize the technology they have developed.

         If we successfully develop and obtain approval for our drug candidates,
we will face competition based on the safety and effectiveness of our products,
the timing and scope of regulatory approvals, the availability of supply,
marketing and sales capability, reimbursement coverage, price, patent position
and other factors. Our competitors may develop or commercialize more effective
or more affordable products, or obtain more effective patent protection, than we
do. Accordingly, our competitors may commercialize products more rapidly or
effectively than we do, which could hurt our competitive position and adversely
affect our business. See "--Risk and Uncertainties--Intense competition may
render our drug candidates noncompetitive or obsolete."

MANUFACTURING

         We do not have any internal manufacturing capacity and we rely on third
party manufacturers for the manufacture of all of our clinical trial material.
We plan to expand our existing relationships or to establish relationships with
additional third party manufacturers for products that we successfully develop.
The terms of the Abbott Alliance provide that Abbott will manufacture all or a
portion of our product requirements for those products that are or become
covered by the Abbott Alliance. We may be unable to maintain our relationship
with Abbott or to establish or maintain relationships with other third party
manufacturers on acceptable terms, and third party


                                       24
<PAGE>

manufacturers may be unable to manufacture products in commercial quantities on
a cost effective basis. Our dependence upon third parties for the manufacture of
our products may adversely affect our profit margins and our ability to develop
and commercialize products on a timely and competitive basis. Further, third
party manufacturers may encounter manufacturing or quality control problems in
connection with the manufacture of our products and may be unable to maintain
the necessary governmental licenses and approvals to continue manufacturing our
products. Our business could be adversely affected if we fail to establish or
maintain relationships with third parties for our manufacturing requirements on
acceptable terms. See "--Risk and Uncertainties--Because we may be unable to
successfully manufacture our drug candidates, our business may never achieve
profitability" and "--Government Regulation."

SALES AND MARKETING

         In the United States, we currently intend to market the drug candidates
covered by the Abbott Alliance in collaboration with Abbott and to market other
drug candidates that we successfully develop, that do not become part of the
Abbott Alliance, through a small, direct sales force. Outside of the United
States, we expect Abbott to market drug candidates covered by the Abbott
Alliance and, for any other drug candidates that we successfully develop that do
not become part of the Abbott Alliance, we intend to market and sell through
arrangements or collaborations with third parties. In addition, we expect Abbott
to handle the distribution and sale of drug candidates covered by the Abbott
Alliance both inside and outside the United States. With respect to the United
States, our ability to market the drug candidates that we successfully develop
will be contingent upon recruitment, training and deployment of a sales and
marketing force as well as the performance of Abbott under the Abbott Alliance.
We may be unable to establish marketing or sales capabilities or to maintain
arrangements or enter into new arrangements with third parties to perform those
activities on favorable terms. In addition, third parties may have significant
control or influence over important aspects of the commercialization of our drug
candidates, including market identification, marketing methods, pricing,
composition of sales force and promotional activities. We also may have limited
control over the amount and timing of resources that a third party may devote to
our drug candidates. Our business may never achieve profitability if we fail to
establish or maintain a sales force and marketing, sales and distribution
capabilities. See "--Risk and Uncertainties--We may be unable to successfully
market, sell or distribute our drug candidates."

HEALTH CARE REFORM MEASURES AND THIRD PARTY REIMBURSEMENT

         The efforts of governments and third party payors to contain or reduce
the cost of health care will continue to affect the business and financial
condition of drug companies. A number of legislative and regulatory proposals to
change the health care system have been proposed in recent years. In addition,
an increasing emphasis on managed care in the United States has and will
continue to increase pressure on drug pricing. While we cannot predict whether
legislative or regulatory proposals will be adopted or what effect those
proposals or managed care efforts may have on our business, the announcement
and/or adoption of such proposals or efforts could have an adverse effect on our
profit margins and financial condition. Sales of prescription drugs depend
significantly on the availability of reimbursement to the consumer from third
party payors, such as government and private insurance plans. These third party
payors frequently require that drug companies give them predetermined discounts
from list prices, and they are increasingly challenging the prices charged for
medical products and services. Present combination treatment regimens for the
treatment of HIV are expensive and may increase as new combinations are
developed. These costs have resulted in limitations in the reimbursement
available from third party payors for the treatment of HIV infection, and we
expect that reimbursement pressures will continue in the future. If we succeed
in bringing one or more products to the market, these products may not be
considered cost effective and reimbursement to the consumer may not be available
or sufficient to allow us to sell our products on a competitive basis. See
"--Risk and Uncertainties--Health care reform measures and third party
reimbursement practices are uncertain and may adversely impact the
commercialization of our products."

HUMAN RESOURCES

         As of December 31, 2000, Triangle had approximately 170 employees,
including approximately 130 in development and approximately 40 in
administration. Of these employees, 59 hold advanced degrees, of which 33 are
M.D.s or Ph.D.s. Our future success will depend in large part upon our ability
to attract and retain highly qualified personnel. Our employees are not
represented by any collective bargaining agreements, and we have never


                                       25
<PAGE>

experienced a work stoppage. All of our employees have signed confidentiality
agreements and all of our officers have entered into employment agreements. See
"--Risk and Uncertainties--Because we may not be able to attract and retain key
personnel and advisors, we may not successfully develop our products or achieve
our other business objectives."

RISK AND UNCERTAINTIES

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

ALL OF OUR PRODUCT CANDIDATES ARE IN DEVELOPMENT AND MAY NEVER BE SUCCESSFULLY
COMMERCIALIZED WHICH WOULD HAVE AN ADVERSE IMPACT ON YOUR INVESTMENT AND OUR
BUSINESS.

         Some of our drug candidates are at an early stage of development and
all of our drug candidates will require expensive and lengthy testing and
regulatory clearances. None of our drug candidates has been approved by
regulatory authorities. We do not expect any of our drug candidates to be
commercially available until at least the year 2002. There are many reasons that
we may fail in our efforts to develop our drug candidates, including that:

         o    our drug candidates will be ineffective, toxic or will not receive
              regulatory clearances,
         o    our drug candidates will be too expensive to manufacture or market
              or will not achieve broad market acceptance,
         o    third parties will hold proprietary rights that may preclude us
              from developing or marketing our drug candidates, or
         o    third parties will market equivalent or superior products.

         The success of our business depends upon our ability to successfully
develop and market our drug candidates.

WE HAVE INCURRED LOSSES SINCE INCEPTION AND MAY NEVER ACHIEVE PROFITABILITY.

         We formed Triangle in July 1995 and we have only a limited operating
history for you to review in evaluating our business. We have incurred losses
since our inception. At December 31, 2000, our accumulated deficit was $331.0
million. Our historical costs relate primarily to the acquisition and
development of our drug candidates and selling, general and administrative
costs. We have not generated any revenue from the sale of our drug candidates to
date, and do not expect to do so until at least the year 2002. In addition, we
expect annual losses to increase over the next several years as a result of our
drug development and commercialization efforts. To become profitable, we must
successfully develop and obtain regulatory approval for our drug candidates and
effectively manufacture, market and sell any products we develop. We may never
generate significant revenue or achieve profitable operations.

IF WE NEED ADDITIONAL FUNDS AND ARE UNABLE TO RAISE THEM, WE WILL HAVE TO
CURTAIL OR CEASE OPERATIONS.

         Our drug development programs and potential commercialization of our
drug candidates require substantial working capital, including expenses for
preclinical testing, chemical synthetic scale-up, manufacture of drug substance
for clinical trials, toxicology studies, clinical trials of drug candidates,
sales and marketing expenses, payments to our licensors and potential commercial
launch of our drug candidates. Our future working capital needs will depend on
many factors, including:

         o    the progress and magnitude of our drug development programs,
         o    the scope and results of preclinical testing and clinical trials,
         o    the cost, timing and outcome of regulatory reviews,
         o    the costs under current and future license and option agreements
              for our drug candidates, including the costs of obtaining patent
              protection for our drug candidates,
         o    the costs of acquiring any additional drug candidates,


                                       26
<PAGE>

         o    the rate of technological advances,
         o    the commercial potential of our drug candidates,
         o    the magnitude of our administrative and legal expenses,
         o    the costs of establishing sales and marketing functions, and
         o    the costs of establishing third party arrangements for
              manufacturing.

         We have incurred negative cash flow from operations since we
incorporated Triangle and do not expect to generate positive cash flow from our
operations for at least the next several years. Although the Abbott Alliance
provided us with significant additional funding, we cannot assure you that such
funding, combined with other available sources of funds, will be sufficient to
meet our future needs. In addition, we cannot assure you that we will receive
the contingent future research funding payments under the Abbott Alliance.
Therefore, we may need additional future financings to fund our operations. We
may not be able to obtain adequate financing to fund our operations, and any
additional financing we obtain may be on terms that are not favorable to us. In
addition, any future financings could substantially dilute our stockholders. If
adequate funds are not available, we will be required to delay, reduce or
eliminate one or more of our drug development programs, to enter into new
collaborative arrangements or to modify the Abbott Alliance on terms that are
not favorable to us. These collaborative arrangements or modifications could
result in the transfer to third parties of rights that we consider valuable. In
addition, we often consider the acquisition of technologies and drug candidates
that would increase our working capital requirements.

         To facilitate our ability to raise additional equity capital, on
November 1, 2000, we entered into a Firm Underwritten Equity Facility, the
Facility, described below under "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources," pursuant to which we may be able to issue and sell up to $100.0
million of our common stock over the next three years. There are conditions
and limitations on Ramius Securities, LLC's, Ramius', obligation to sell
shares under the underwriting agreement and Ramius Capital Group, LLC's,
Ramius Capital's, obligation to purchase shares under the purchase agreement.
In particular, Ramius' and Ramius Capital's obligations are subject to
certain share price and trading volume limitations which could curtail the
number of shares of common stock they are obligated to sell or purchase, as
the case may be, regardless of the number of shares of common stock we
request to be sold. In some circumstances, such as an average trading price
of less than $4.00 per share, they will have no obligation to sell or
purchase our common stock, even if we request them to do so. In addition, we
may elect not to sell shares of common stock if we believe that market
conditions are unfavorable.

         For a period of 90 days from the effective date of our registration
statement filed in connection with our pending private placement described below
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources," we will not, without the prior
written consent of Banc of America Securities LLC be allowed to sell, contract
to sell or otherwise dispose of or issue any of our securities, except pursuant
to previously issued options, any agreements providing for anti-dilution or
other share issuance rights, existing contractual obligations, any employee
benefits or similar plans, any issuances to license holders, or any strategic
alliances or joint ventures we may enter into. In addition, we will cause each
of our officers and directors not to dispose of any of their equity securities
of Triangle Pharmaceuticals, Inc. (other than securities acquired in the private
placement) for a period of 90 days from the effective date of the registration
statement without the prior written consent of Banc of America Securities LLC.
We will not be issuing any securities pursuant to our Facility for a period of
90 days from the effective date of the registration statement.

         On January 30, 2001, we entered into definitive purchase agreements
with a limited number of qualified institutional buyers and large
institutional accredited investors for the sale of 7.7 million shares of
common stock at $6.00 per share for gross proceeds totaling $46.2 million.
The closing of the common stock sale will occur within three business days of
the date the Securities and Exchange Commission, SEC, confirms its
willingness to declare effective the resale registration statement filed in
connection with the financing. We do not know when the registration statement
will be declared effective and consequently cannot assure you when we will
receive the proceeds of the private offering.

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<PAGE>

BECAUSE OUR PRODUCT CANDIDATES MAY NOT SUCCESSFULLY COMPLETE CLINICAL TRIALS
REQUIRED FOR COMMERCIALIZATION, OUR BUSINESS MAY NEVER ACHIEVE PROFITABILITY.

         To obtain regulatory approvals needed for the sale of our drug
candidates, we must demonstrate through preclinical testing and clinical
trials that each drug candidate is safe and effective. The clinical trial
process is complex and uncertain and the regulatory environment varies widely
from country to country. Positive results from preclinical testing and early
clinical trials do not ensure positive results in pivotal clinical trials.
Many companies in our industry have suffered significant setbacks in pivotal
clinical trials, even after promising results in earlier trials. Any of our
drug candidates may produce undesirable side effects in humans. These side
effects could cause us or regulatory authorities to interrupt, delay or halt
clinical trials of a drug candidate, as occurred with mozenavir dimesylate,
or could result in regulatory authorities refusing to approve the drug
candidate for any and all targeted indications. In April 2000, the MCC
terminated the enrollment in FTC-302 and the FDA issued a clinical hold on
clinical study FTC-302 for our drug candidate Coviracil. Study FTC-302 was
being conducted under a U.S. IND at sites in South Africa. The FDA indicated
that study FTC-302 may not be adequate to provide pivotal data in support of
an NDA, although, discussions with the FDA are continuing. In February 2001,
we were notified by the FDA that the study would remain on clinical hold even
though the study has been completed. Due to these circumstances, the planned
submission of an U.S. NDA for Coviracil may be significantly delayed. We, the
FDA, or foreign regulatory authorities may suspend or terminate clinical
trials at any time if we or they believe the trial participants face
unacceptable health risks. Clinical trials may not demonstrate that our drug
candidates are safe or effective.

         Clinical trials are lengthy and expensive. They require adequate
supplies of drug substance and sufficient patient enrollment. Patient enrollment
is a function of many factors, including:

         o    the size of the patient population,
         o    the nature of the protocol,
         o    the proximity of patients to clinical sites, and
         o    the eligibility criteria for the clinical trial.

         Delays in patient enrollment can result in increased costs and longer
development times. Even if we successfully complete clinical trials, we may not
be able to file any required regulatory submissions in a timely manner and we
may not receive regulatory approval for the drug candidate.

         In addition, if the FDA or foreign regulatory authorities require
additional clinical trials, we could face increased costs and significant
development delays, as occurred with Coactinon and which may occur with
Coviracil. In December 1999, we were advised by the FDA that additional Phase
III studies would be required to support an NDA submission for Coactinon. In
August 2000, we announced our decision to continue the development of Coactinon.
Based upon discussions with the FDA and an analysis of clinical data from two
clinical studies, we began enrolling an additional 280 patients in an ongoing
Phase III clinical study in an effort to generate clinical results that would
help support an NDA submission for Coactinon. Changes in regulatory policy or
additional regulations adopted during product development and regulatory review
of information we submit could also result in delays or rejections. The FDA has
notified us that three of our drug candidates for the treatment of HIV,
Coviracil, Coactinon and DAPD, qualify for designation as "fast track" products
under provisions of the Food and Drug Administration Modernization Act of 1997.
The fast track provisions are designed to expedite the review of new drugs
intended to treat serious or life-threatening conditions and essentially
codified the criteria previously established by the FDA for accelerated
approval. These drug candidates may not, however, continue to qualify for
expedited review and our other drug candidates may fail to qualify for fast
track development or expedited review. Even though some of our drug candidates
have qualified for expedited review, the FDA may not approve them at all or any
sooner than other drug candidates that do not qualify for expedited review.

IF WE OR OUR LICENSORS ARE NOT ABLE TO OBTAIN AND MAINTAIN ADEQUATE PATENT
PROTECTION FOR OUR PRODUCT CANDIDATES, WE MAY BE UNABLE TO COMMERCIALIZE OUR
PRODUCT CANDIDATES OR TO PREVENT OTHER COMPANIES FROM USING OUR TECHNOLOGY IN
COMPETITIVE PRODUCTS.

         Our success will depend on our ability and the ability of our licensors
to obtain and maintain patents and proprietary rights for our drug candidates
and to avoid infringing the proprietary rights of others, both in the United


                                       28
<PAGE>

States and in foreign countries. We have no patents in our own name and we have
a small number of patent applications of our own pending. One of our patent
applications is a joint application with co-inventors from another institution.
We have, however, licensed or we have an option to license patents, patent
applications and other proprietary rights from third parties for each of our
drug candidates. If we breach our licenses, we may lose rights to important
technology and drug candidates.

         Our patent position, like that of many pharmaceutical companies, is
uncertain and involves complex legal and factual questions for which important
legal principles are unresolved. We may not develop or obtain rights to products
or processes that are patentable. Even if we do obtain patents, they may not
adequately protect the technology we own or have in-licensed. In addition,
others may challenge, seek to invalidate, infringe or circumvent any patents we
own or in-license, and rights we receive under those patents may not provide
competitive advantages to us. Further, the manufacture, use or sale of our
products or processes may infringe the patent rights of others.

         Several pharmaceutical and biotechnology companies, universities and
research institutions have filed patent applications or received patents that
cover our technologies or technologies similar to ours. Others have filed patent
applications and received patents that conflict with patents or patent
applications we own or have in-licensed, either by claiming the same methods or
compounds or by claiming methods or compounds that could dominate those owned by
or licensed to us. In addition, we may not be aware of all patents or patent
applications that may impact our ability to make, use or sell any of our drug
candidates. For example, 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 our patents and limit our ability to obtain meaningful patent
protection. If other companies obtain patents with conflicting claims, we may be
required to obtain licenses to these patents or to develop or obtain alternative
technology. We may not be able to obtain any such license on acceptable terms or
at all. Any failure to obtain such licenses could delay or prevent us from
pursuing the development or commercialization of our drug candidates, which
would adversely affect our business.

         There are significant risks regarding the patent rights of two of our
in-licensed drug candidates. We may not be able to commercialize Coviracil or
DAPD due to patent rights held by third parties other than our licensors. Third
parties have filed numerous patent applications and have received numerous
issued patents in the United States and many foreign countries that relate to
these drug candidates and their use alone or in combination to treat HIV and
hepatitis B. As a result, our patent position regarding the use of Coviracil and
DAPD to treat HIV and/or hepatitis B is highly uncertain and involves 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 us, we would
not have the right to commercialize Coviracil and/or DAPD 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 if any of these questions is favorably
resolved, we may still attempt to obtain licenses from one or more third parties
to reduce or eliminate the risks relating to some or all of these matters. Such
licenses may not be available on acceptable terms or at all. Our inability to
commercialize either of these drug candidates could adversely affect our
business.

         COVIRACIL (EMTRICITABINE)

         Coviracil, a purified form of FTC, belongs to the same general class of
nucleosides as lamivudine. In the United States, the FDA has approved lamivudine
for the treatment of hepatitis B and for use in combination with zidovudine,
also known as AZT, for the treatment of HIV. Regulatory authorities have
approved lamivudine for the treatment of hepatitis B and for use in combination
with other nucleoside analogues for the treatment of HIV in a number of other
countries. Glaxo currently sells lamivudine for the treatment of HIV and
hepatitis B under a license agreement with BioChem Pharma, Inc., BioChem Pharma.
We obtained rights to Coviracil 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 compositions of matter and methods to treat
HIV and hepatitis B with Coviracil. In 1991, Yale filed in the United States
patent applications on FTC, including emtricitabine and its use to treat
hepatitis B, and subsequently licensed its rights under those patent
applications to Emory. Our license arrangement with Emory includes all rights to
Coviracil and its uses claimed in the Yale patent applications.

         HIV. Emory received a United States patent in 1993 covering a method to
treat HIV with Coviracil. Emory has also received United States and European
patents containing composition of matter claims that cover


                                       29
<PAGE>

Coviracil. BioChem Pharma filed a patent application in the United States in
1989 and received a patent in 1991 covering a group of nucleosides in the same
general class as Coviracil, but which did not include Coviracil. BioChem Pharma
filed foreign patent applications in 1990, which expanded upon its 1989 United
States patent application to include FTC among a large class of nucleosides. The
foreign patent applications are pending in many countries and have issued in a
number of countries with claims directed to FTC that may cover Coviracil and its
use to treat HIV. In addition, BioChem Pharma filed a United States patent
application in 1991 specifically directed to Coviracil. BioChem Pharma has
received two patents in the United States based on this patent application, one
directed to Coviracil and the other directed to a method for treating viral
diseases with Coviracil. The PTO has determined that there are conflicts between
both BioChem Pharma patents and patent applications filed by Emory because they
have overlapping claims to the same technology. The PTO is conducting two
adversarial proceedings, interferences, to determine whether BioChem Pharma or
Emory is entitled to the patent claims in dispute regarding BioChem Pharma's two
issued patents. Emory may not prevail in the adversarial proceedings, and the
proceedings may also delay the decision of the PTO regarding Emory's patent
application. BioChem Pharma also filed patent applications in many foreign
countries based upon its 1991 United States patent application and has received
patents in certain countries. BioChem Pharma may have additional patent
applications pending in the United States.

         In the United States, the first to invent a technology is entitled to
patent protection on that technology. For patent applications filed prior to
January 1, 1996, United States patent law provides that a party who invented a
technology outside the United States 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 filing with the SEC, BioChem
Pharma stated that prior to January 1, 1996, it conducted substantially all of
its research activities outside the United States. BioChem Pharma also stated
that it considered this to be a disadvantage in obtaining United States patents
based on patent applications filed before January 1, 1996 as compared to
companies that mainly conducted research in the United States. We do not know
whether Emory or BioChem Pharma was the first to invent the technology claimed
in their respective United States patent applications or patents. We also do not
know 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 a
technology, not the first to invent the technology, is entitled to patent
protection on that technology. We believe that Emory filed patent applications
disclosing Coviracil as a useful anti-HIV agent in many foreign countries before
BioChem Pharma filed its foreign patent applications on that technology.
However, BioChem Pharma has received patents in several foreign countries. In
addition, BioChem Pharma has filed patent applications on Coviracil and its uses
in certain countries in which Emory did not file patent applications. Emory has
opposed or otherwise challenged patent claims on Coviracil granted to BioChem
Pharma in Australia and Europe. Emory may not initiate patent opposition
proceedings in any other countries or be successful in any foreign proceeding
attempting to prevent the issuance of, revoke or limit the scope of patents
issued to BioChem Pharma. BioChem Pharma has opposed patent claims on Coviracil
granted to Emory in Europe, Japan, Australia and South Korea. BioChem Pharma may
make additional challenges to Emory patents or patent applications, which Emory
may not succeed in defending. Our sales, if any, of Coviracil for the treatment
of HIV may 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 if the third
party patent covers subject matter that is substantially equivalent in nature to
the product or method, even if the patent does not expressly cover the product
or method. If it is determined that the sale of Coviracil for the treatment of
HIV infringes a BioChem Pharma patent, we would not have the right to make, use
or sell Coviracil for the treatment of HIV in one or more countries in the
absence of a license from BioChem Pharma. We may be unable to obtain such a
license from BioChem Pharma on acceptable terms or at all.

         HEPATITIS B. Burroughs Wellcome filed patent applications in March 1991
and May 1991 in Great Britain on a method to treat hepatitis B with FTC and
purified forms of FTC, that include emtricitabine. Burroughs Wellcome filed
similar patent applications in other countries, including the United States.
Glaxo subsequently acquired Burroughs Wellcome's rights under those patent
applications. Those patent applications were filed in foreign countries prior to
the date Emory filed its patent application on the use of emtricitabine to treat
hepatitis B. Burroughs Wellcome's foreign patent applications, therefore, 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


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<PAGE>

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. In May 1999, Emory and Glaxo settled the
litigation, and we became the exclusive licensee of the United States and all
foreign patent applications and patents filed by Burroughs Wellcome on the use
of emtricitabine to treat hepatitis B. Under the license and settlement
agreements, Emory and we were also given access to development and clinical data
and drug substance held by Glaxo relating to emtricitabine.

         BioChem Pharma filed a patent application in May 1991 in Great Britain
also directed to a method to treat hepatitis B with FTC. BioChem Pharma filed
similar patent applications in other countries. In January 1996, BioChem Pharma
received a patent in the United States, which included a claim to treat
hepatitis B with emtricitabine. The PTO has determined that there is a conflict
between the BioChem Pharma patent and patent applications filed by Yale and
Emory. The PTO is conducting an adversarial proceeding, an interference, to
determine which party is entitled to the patent claims in dispute. Yale licensed
all of its rights relating to FTC, including emtricitabine, and its uses claimed
in this patent application to Emory, which subsequently licensed these rights to
us. Neither Emory nor Yale may prevail in the adversarial proceeding, and the
proceeding may delay the decision of the PTO regarding Yale's and Emory's patent
applications. In addition, the PTO has recently added the U.S. patent
application filed by Burroughs Wellcome to this interference. Emory may not
pursue or succeed in any such proceedings. We will not be able to sell
emtricitabine for the treatment of hepatitis B in the United States unless a
United States court or administrative body determines that the BioChem Pharma
patent is invalid or unless we obtain a license from BioChem Pharma. We may be
unable to obtain such a license on acceptable terms or at all. In July 1991,
BioChem Pharma received a United States patent on the use of lamivudine to treat
hepatitis B and has corresponding patent applications pending or issued in
foreign countries. If it is determined that the use of emtricitabine to treat
hepatitis B is not substantially different from the use of lamivudine to treat
hepatitis B, a court could hold that the use of emtricitabine to treat hepatitis
B infringes these BioChem Pharma lamivudine 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 emtricitabine, from which BioChem Pharma has
received several patents in the United States and many foreign countries. If we
use a manufacturing method that is covered by patents issued on any of these
applications, we will not be able to manufacture emtricitabine without a license
from BioChem Pharma. We may not be able to obtain such a license on acceptable
terms or at all.

         DAPD

         We obtained our rights to DAPD under a license from Emory and the
University of Georgia. Our rights to DAPD include a number of issued United
States patents that cover composition of matter, a method for the synthesis of
DAPD, methods for the use of DAPD alone or in combination with certain other
agents for the treatment of hepatitis B, and a method to treat HIV with DAPD. We
also have rights to several foreign patents and patent applications that cover
methods for the use of DAPD alone or in combination with certain other
anti-hepatitis B agents for the treatment of hepatitis B. Additional foreign
patent applications are pending which contain claims for the use of DAPD to
treat HIV. Emory and the University of Georgia filed patent applications
claiming these inventions in the United States in 1990 and 1992. BioChem Pharma
filed a patent application in the United States in 1988 on a group of
nucleosides in the same general class as DAPD and their use to treat HIV, and
has filed corresponding patent applications in foreign countries. The PTO issued
a patent to BioChem Pharma in 1993 covering a class of nucleosides that includes
DAPD and its use to treat HIV. Corresponding patents have been issued to BioChem
Pharma in many foreign countries. Emory has filed an opposition to patent claims
granted to BioChem Pharma by the European Patent Office based, in part, upon
Emory's assertion that BioChem Pharma's patent does not disclose how to make
DAPD. In a patent opposition hearing held at the European Patent Office on March
4, 1999, the Opposition Division ruled that the BioChem Pharma European patent
covering DAPD is valid. Emory has appealed this decision to the European Patent
Office Technical Board of Appeal. If the Technical Board of Appeal affirms the
decision of the Opposition Division, or if Emory or Triangle does not pursue the
appeal, we would not be able to sell DAPD in Europe without a license from
BioChem Pharma, which may not be available on acceptable terms or at all. Patent
claims granted to Emory on both DAPD (the administered drug) and DXG (the parent
drug into which DAPD is converted in the body) have also been opposed by BioChem
Pharma in the Australian Patent Office. In a decision dated November 8, 2000,
the Australian Patent Office held that Emory's


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<PAGE>

patent claims directed to DAPD are not patentable over an earlier BioChem Pharma
patent. Emory has appealed this decision of the Australian Patent Office to the
Australian Federal Court. If Emory, the University of Georgia or Triangle is
unsuccessful in the appeal, then we will not be able to sell DAPD in Australia
without a license from BioChem Pharma, which may not be available on reasonable
terms or at all. BioChem Pharma's opposition to Emory's patent claims on DXG in
Australia is ongoing. If Emory, the University of Georgia and we do not
challenge, or are not successful in any challenge to, BioChem Pharma's issued
patents, pending patent applications, or patents that may issue from such
applications, we 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. We may not be able to obtain such a
license from BioChem Pharma on acceptable terms or at all.

         IMMUNOSTIMULATORY SEQUENCE PRODUCT CANDIDATES

         In March 2000, we entered into a licensing and collaborative agreement
with Dynavax to develop immunostimulatory polynucleotide sequence product
candidates for the prevention and/or treatment of serious viral diseases, which
became effective in April 2000. ISS are polynucleotides which stimulate the
immune system, and could potentially be used in combination with our small
molecule product candidates to increase the body's ability to defend against
viral infection. ISS can be stabilized for use through internal linkages that
do not occur in nature, including phosphorothioate linkages.

         There are a number of companies which have patent applications and
issued patents, both in the United States and in other countries, that cover
ISS and their uses. Coley Pharmaceuticals, Inc. has filed several patent
applications in this area and has in addition exclusively licensed a number
of patent applications on this subject from the University of Iowa and Isis
Pharmaceuticals, Inc. A number of these patent applications have been issued.
A number of companies have also filed patent applications and have or are
expected to receive patents on certain polynucleotides and methods for their
use and manufacture. We could be prevented from making, using or selling any
immunostimulatory sequence that is covered by a patent issued to a third
party company, unless we obtain a license from that company, which may not be
available on reasonable terms or at all.

         With respect to any of our drug candidates, litigation, patent
opposition and adversarial proceedings, including the currently pending
proceedings, could result in substantial costs to us. We expect the costs of the
currently pending proceedings to increase significantly during the next several
years. We anticipate that additional litigation and/or proceedings will be
necessary or may be initiated to enforce any patents we own or in-license, or to
determine the scope, validity and enforceability of other parties' proprietary
rights and the priority of an invention. Any of these activities could result in
substantial costs and/or delays to us. The outcome of any of these proceedings
may significantly affect our drug candidates and technology. United States
patents carry a presumption of validity and generally can be invalidated only
through clear and convincing evidence. As indicated above, the PTO is conducting
three adversarial proceedings in connection with the emtricitabine technology.
We cannot assure you that a court or administrative body would hold our
in-licensed patents valid or would find an alleged infringer to be infringing.
Further, the license and option agreements with Emory, the University of
Georgia, The Regents of the University of California, DuPont, Mitsubishi, and
Dynavax provide that each of these licensors is primarily responsible for any
patent prosecution activities, such as litigation, patent conflict proceeding,
patent opposition or other actions, for the technology licensed to us. These
agreements also provide that in general we are required to reimburse these
licensors for the costs they incur in performing these activities. Similarly,
Yale and the University of Georgia, the licensors of clevudine to Bukwang, are
primarily responsible for patent prosecution activities with respect to
clevudine at our expense. As a result, we generally do not have the ability to
institute or determine the conduct of any such patent proceedings unless our
licensors elect not to institute or to abandon such proceedings. If our
licensors elect to institute and prosecute patent proceedings, our rights will
depend in part upon the manner in which these licensors conduct the proceedings.
In any proceedings they elect to initiate and maintain, these licensors may not
vigorously pursue or defend or may decide to settle such proceedings on terms
that are unfavorable to us. An adverse outcome of these proceedings could
subject us to significant liabilities to third parties, require disputed rights
to be licensed from third parties or require us to cease using such technology,
any of which could adversely affect our business. Moreover, the mere uncertainty
resulting from the initiation and continuation of any technology related
litigation or adversarial proceeding could adversely affect our business pending
resolution of the disputed matters.


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<PAGE>

         We also rely on unpatented trade secrets and know-how to maintain our
competitive position, which we seek to protect, in part, by confidentiality
agreements with employees, consultants and others. These parties may breach or
terminate these agreements, and we may not have adequate remedies for any
breach. Our trade secrets may also be independently discovered by competitors.
We rely on certain technologies to which we do not have exclusive rights or
which may not be patentable or proprietary and thus may be available to
competitors. We have filed applications for, but have not obtained, trademark
registrations for various marks in the United States and other jurisdictions. We
have received U.S. trademark registrations for our corporate name and logo,
Coactinon(R) and Coviracil(R). We have also received registrations in the
European Union for the mark Coactinon(R) and our corporate logo. Our pending
application in the European Union for the mark CoviracilTM has been opposed by
Orsem, based upon registrations for the mark Coversyl in various countries, and
Les Laboratories Serveir, based on a French registration for the mark Coversyl.
We do not believe that the marks Coviracil and Coversyl are confusingly similar,
but, in the event they are found to be confusingly similar, we may need to adopt
a different product name for emtricitabine in the applicable jurisdictions.
Several other companies use trade names that are similar to our name for their
businesses. If we are unable to obtain any licenses that may be necessary for
the use of our corporate name, we may be required to change our name. Our
management personnel were previously employed by other pharmaceutical companies.
The prior employers of these individuals may allege violations of trade secrets
and other similar claims relating to their drug development activities for us.

WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION AND MAY FAIL TO RECEIVE
REGULATORY APPROVAL WHICH COULD PREVENT OR DELAY THE COMMERCIALIZATION OF OUR
PRODUCTS.

         In addition to preclinical testing, clinical trials and other approval
procedures for human pharmaceutical products, we are subject to numerous other
regulations covering the development of pharmaceutical products. These
regulations include, for example, domestic and international regulations
relating to the manufacturing, safety, labeling, storage, record keeping,
reporting, marketing and promotion of pharmaceutical products. We are also
regulated with respect to non-clinical and clinical laboratory practices, safe
working conditions, and the use and disposal of hazardous substances, including
radioactive compounds and infectious disease agents used in connection with our
development work. The requirements vary widely from country to country and some
requirements may vary from state to state in the United States. We expect the
process of obtaining these approvals and complying with appropriate government
regulations to be time consuming and expensive. Even if our drug candidates
receive regulatory approval, we may still face difficulties in marketing and
manufacturing those drug candidates. Further, any approval may be contingent on
postmarketing studies or other conditions. The approval of any of our drug
candidates may limit the indicated uses of the drug candidate. A marketed
product, its manufacturer and the manufacturer's facilities are subject to
continual review and periodic inspections. The discovery of previously unknown
problems with a product, manufacturer or facility may result in restrictions on
the 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:

         o    fines,
         o    suspended regulatory approvals,
         o    refusal to approve pending applications,
         o    refusal to permit exports from the United States,
         o    product recalls,
         o    seizure of products,
         o    injunctions,
         o    operating restrictions, and
         o    criminal prosecutions.

         In addition, adverse clinical results by others could negatively impact
the development and approval of our drug candidates. Some of our drug candidates
are intended for use as combination therapy with one or more other drugs, and
adverse safety, effectiveness or regulatory developments in connection with such
other drugs will also have an adverse effect on our business.


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<PAGE>

INTENSE COMPETITION MAY RENDER OUR DRUG CANDIDATES NONCOMPETITIVE OR OBSOLETE.

         We are engaged in segments of the drug industry that are highly
competitive and rapidly changing. Any of our current drug candidates that we
successfully develop will compete with numerous existing therapies. In addition,
many companies are pursuing novel drugs that target the same diseases we are
targeting. We believe that a significant number of drugs are currently under
development and will become available in the future for the treatment of HIV and
hepatitis B. We anticipate that we will face intense and increasing competition
as new products enter the market and advanced technologies become available. Our
competitors' products may be more effective, or more effectively marketed and
sold, than any of our products. Competitive products may render our products
obsolete or noncompetitive before we can recover the expenses of developing and
commercializing our drug candidates. Furthermore, the development of a cure or
new treatment methods for the diseases we are targeting could render our drug
candidates noncompetitive, obsolete or uneconomical. Many of our competitors:

         o    have significantly greater financial, technical and human
              resources than we have and may be better equipped to develop,
              manufacture and market products,
         o    have extensive experience in preclinical testing and clinical
              trials, obtaining regulatory approvals and manufacturing and
              marketing pharmaceutical products, and
         o    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. Academic institutions, governmental agencies and other
public and private research organizations are also becoming increasingly aware
of the commercial value of their inventions and are more actively seeking to
commercialize the technology they have developed.

         If we successfully develop and obtain approval for our drug candidates,
we will face competition based on the safety and effectiveness of our products,
the timing and scope of regulatory approvals, the availability of supply,
marketing and sales capability, reimbursement coverage, price, patent position
and other factors. Our competitors may develop or commercialize more effective
or more affordable products, or obtain more effective patent protection, than we
do. Accordingly, our competitors may commercialize products more rapidly or
effectively than we do, which could hurt our competitive position.

BECAUSE WE FACE RISKS RELATED TO OUR LICENSE AND OPTION AGREEMENTS, WE COULD
LOSE OUR RIGHTS TO OUR DRUG CANDIDATES.

         We have in-licensed or obtained an option to in-license our drug
candidates under agreements with our licensors. These agreements permit our
licensors to terminate the agreements under certain circumstances, such as our
failure to achieve certain development milestones or the occurrence of an
uncured material breach by us. The termination of any of these agreements could
result in the loss of our rights to a drug candidate. Upon termination of most
of our license agreements, we are required to return the licensed technology to
our licensors. In addition, most of these agreements provide that our licensors
are primarily responsible for any patent prosecution activities, such as
litigation, patent conflict, patent opposition or other actions, for the
technology licensed to us. These agreements also provide that in general we are
required to reimburse our licensors for the costs they incur in performing these
activities. We believe that these costs as well as other costs under our license
and option agreements will be substantial and may increase significantly during
the next several years. Our inability or failure to pay any of these costs with
respect to any drug candidate could result in the termination of the license or
option agreement for the drug candidate.

BECAUSE WE MAY BE UNABLE TO SUCCESSFULLY MANUFACTURE OUR DRUG CANDIDATES, OUR
BUSINESS MAY NEVER ACHIEVE PROFITABILITY.

         We do not have any internal manufacturing capacity and we rely on third
party manufacturers for the manufacture of all of our clinical trial material.
We plan to expand our existing relationships or to establish relationships with
additional third party manufacturers for products that we successfully develop.
The terms of the Abbott Alliance provide that Abbott will manufacture all or a
portion of our product requirements for those products that are or become
covered by the Abbott Alliance. We may be unable to maintain our relationship
with Abbott or


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<PAGE>

to establish or maintain relationships with other third party manufacturers on
acceptable terms, and third party manufacturers may be unable to manufacture
products in commercial quantities on a cost effective basis. Our dependence upon
third parties for the manufacture of our products may adversely affect our
profit margins and our ability to develop and commercialize products on a timely
and competitive basis. Further, third party manufacturers may encounter
manufacturing or quality control problems in connection with the manufacture of
our products and may be unable to maintain the necessary governmental licenses
and approvals to continue manufacturing our products.

WE MAY BE UNABLE TO SUCCESSFULLY MARKET, SELL OR DISTRIBUTE OUR DRUG CANDIDATES.

         In the United States, we currently intend to market the drug candidates
covered by the Abbott Alliance in collaboration with Abbott and to market other
drug candidates that we successfully develop, that do not become part of the
Abbott Alliance, through a direct sales force. Outside of the United States, we
expect Abbott to market drug candidates covered by the Abbott Alliance and, for
any other drug candidates that we successfully develop that do not become part
of the Abbott Alliance, we intend to market and sell through arrangements or
collaborations with third parties. In addition, we expect Abbott to handle the
distribution and sale of drug candidates covered by the Abbott Alliance both
inside and outside the United States. With respect to the United States, our
ability to market the drug candidates that we successfully develop will be
contingent upon recruitment, training and deployment of a sales and marketing
force as well as the performance of Abbott under the Abbott Alliance. We may be
unable to establish marketing or sales capabilities or to maintain arrangements
or enter into new arrangements with third parties to perform those activities on
favorable terms. In addition, third parties may have significant control or
influence over important aspects of the commercialization of our drug
candidates, including market identification, marketing methods, pricing,
composition of sales force and promotional activities. We also may have limited
control over the amount and timing of resources that a third party may devote to
our drug candidates. Our business may never achieve profitability if we fail to
establish or maintain a sales force and marketing, sales and distribution
capabilities.

BECAUSE WE DEPEND ON THIRD PARTIES FOR THE DEVELOPMENT AND ACQUISITION OF DRUG
CANDIDATES, WE MAY NOT BE ABLE TO SUCCESSFULLY ACQUIRE ADDITIONAL DRUG
CANDIDATES OR COMMERCIALIZE OR DEVELOP OUR CURRENT DRUG CANDIDATES.

         We have engaged and intend to continue to engage third party contract
research organizations and other third parties to help us develop our drug
candidates. Although we have designed the clinical trials for our drug
candidates, the contract research organizations have conducted many of the
clinical trials. As a result, many important aspects of our drug development
programs have been and will continue to be outside of our direct control. In
addition, the contract research organizations may not perform all of their
obligations under arrangements with us. If the contract research organizations
do not perform clinical trials in a satisfactory manner or breach their
obligations to us, the development and commercialization of any drug candidate
may be delayed or precluded. We do not currently intend to engage in drug
discovery. Our strategy for obtaining additional drug candidates is to utilize
the relationships of our management team and scientific consultants to identify
drug candidates for in-licensing from companies, universities, research
institutions and other organizations. We may not succeed in acquiring additional
drug candidates on acceptable terms or at all.

BECAUSE WE MAY NOT BE ABLE TO ATTRACT AND RETAIN KEY PERSONNEL AND ADVISORS, WE
MAY NOT SUCCESSFULLY DEVELOP OUR PRODUCTS OR ACHIEVE OUR OTHER BUSINESS
OBJECTIVES.

         We are highly dependent on our senior management and scientific staff,
including Dr. David Barry, our Chairman and Chief Executive Officer. We have
entered into employment agreements with each officer of Triangle. Dr. Barry's
employment agreement contains certain non-competition provisions. In addition,
the employment agreements for each officer provide for certain severance
payments which are contingent upon each officer's refraining from competition
with Triangle. The loss of the services of any member of our senior management
or scientific staff may significantly delay or prevent the achievement of
product development and other business objectives. Our ability to attract and
retain qualified personnel, consultants and advisors is critical to our success.
In order to pursue our drug development programs and marketing plans, we will
need to hire additional qualified scientific and management personnel.
Competition for qualified individuals is intense and we face


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<PAGE>

competition from numerous pharmaceutical and biotechnology companies,
universities and other research institutions. We may be unable to attract and
retain these individuals, and our failure to do so would have an adverse effect
on our business.

HEALTH CARE REFORM MEASURES AND THIRD PARTY REIMBURSEMENT PRACTICES ARE
UNCERTAIN AND MAY ADVERSELY IMPACT THE COMMERCIALIZATION OF OUR PRODUCTS.

         The efforts of governments and third party payors to contain or reduce
the cost of health care will continue to affect the business and financial
condition of drug companies. A number of legislative and regulatory proposals to
change the health care system have been proposed in recent years. In addition,
an increasing emphasis on managed care in the United States has and will
continue to increase pressure on drug pricing. While we cannot predict whether
legislative or regulatory proposals will be adopted or what effect those
proposals or managed care efforts may have on our business, the announcement
and/or adoption of such proposals or efforts could have an adverse effect on our
profit margins and financial condition. Sales of prescription drugs depend
significantly on the availability of reimbursement to the consumer from third
party payors, such as government and private insurance plans. These third party
payors frequently require that drug companies give them predetermined discounts
from list prices, and they are increasingly challenging the prices charged for
medical products and services. Present combination treatment regimens for the
treatment of HIV are expensive and may increase as new combinations are
developed. These costs have resulted in limitations in the reimbursement
available from third party payors for the treatment of HIV infection, and we
expect that reimbursement pressures will continue in the future. If we succeed
in bringing one or more products to the market, these products may not be
considered cost effective and reimbursement to the consumer may not be available
or sufficient to allow us to sell our products on a competitive basis.

IF OUR DRUG CANDIDATES DO NOT ACHIEVE MARKET ACCEPTANCE, OUR BUSINESS MAY NEVER
ACHIEVE PROFITABILITY.

         Our success will depend on the market acceptance of any products we
develop. 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 our
products and their potential advantages over existing treatment methods, and
reimbursement policies of government and third party payors. Physicians,
patients, payors or the medical community in general may not accept or utilize
any product that we may develop.

WE MAY NOT HAVE ADEQUATE INSURANCE PROTECTION AGAINST PRODUCT LIABILITY.

         Our business exposes us to potential product liability risks that are
inherent in the testing of drug candidates and the manufacturing and marketing
of drug products and we may face product liability claims in the future. We
currently have only limited product liability insurance. We may be unable to
maintain our existing insurance and/or obtain additional insurance in the future
at a reasonable cost or in sufficient amounts to protect against potential
losses. A successful product liability claim or series of claims brought against
us could require us to pay substantial amounts that would decrease our
profitability, if any.

WE MAY INCUR SUBSTANTIAL COSTS RELATED TO OUR USE OF HAZARDOUS MATERIALS.

         We use hazardous materials, chemicals, viruses and various radioactive
compounds in our drug development programs. Although we believe that our
handling and disposing of these materials comply with state and federal
regulations, the risk of accidental contamination or injury still exists. In the
event of such an accident, we could be held liable for any damages or fines that
result and any such liability could exceed our resources.

OUR CONTROLLING STOCKHOLDERS MAY MAKE DECISIONS WHICH YOU DO NOT CONSIDER TO BE
IN YOUR BEST INTEREST.

         As of January 31, 2001, our directors, executive officers and their
affiliates, excluding Abbott, owned approximately 12.2% of our outstanding
common stock and Abbott owned approximately 17.2% of our outstanding common
stock. Pursuant to the terms of the Abbott Alliance, Abbott has the right to
purchase additional amounts of our common stock up to a maximum aggregate
percentage of 21% of our outstanding common stock and has certain rights to
purchase shares directly from us in order to maintain its existing level of
ownership, also known as antidilution protection. Abbott elected to exercise its
right in connection with our pending private placement by


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<PAGE>

committing to purchase 1,300,000 shares of our common stock. One Abbott designee
serves as a member of our Board of Directors. As a result, our controlling
stockholders are able to significantly influence all matters requiring
stockholder approval, including the election of directors and the approval of
significant corporate transactions. This concentration of ownership could also
delay or prevent a change in control of Triangle that may be favored by other
stockholders.

THE MARKET PRICE OF OUR STOCK MAY BE ADVERSELY AFFECTED BY MARKET VOLATILITY.

         The market price of our common stock is likely to be volatile and could
fluctuate widely in response to many factors, including:

         o    announcements of the results of clinical trials by us or our
              competitors,
         o    developments with respect to patents or proprietary rights,
         o    announcements of technological innovations by us or our
              competitors,
         o    announcements of new products or new contracts by us or
              our competitors,
         o    actual or anticipated variations in our operating results due to
              the level of development expenses and other factors,
         o    changes in financial estimates by securities analysts and whether
              our earnings meet or exceed such estimates,
         o    conditions and trends in the pharmaceutical and other industries,
         o    new accounting standards,
         o    general economic, political and market conditions and other
              factors, and
         o    the occurrence of any of the risks described in these "Risk
              Factors."

         In the past, following periods of volatility in the market price of the
securities of companies in our industry, securities class action litigation has
often been instituted against those companies. If we face such litigation in the
future, it would result in substantial costs and a diversion of management
attention and resources, which would negatively impact our business.

         In addition, if our stockholders sell a substantial number of shares of
our common stock in the public market, the market price of our common stock
could be reduced. As of January 31, 2001, there were 38,639,938 shares of common
stock outstanding, of which approximately 25,000,000 were immediately eligible
for resale in the public market without restriction. Holders of approximately
7,100,000 shares have rights to cause us to register their shares for sale to
the public. We have filed registration statements to register the sale of
approximately 3,850,000 of these shares. In addition, Abbott will have the right
on or after June 30, 2002 to cause us to register for resale in the public
market the 6,571,428 shares of common stock purchased at the closing of the
Abbott Alliance. Any such sales may make it more difficult for us to raise
needed working capital through an offering of our equity or convertible debt
securities and may reduce the market price of our common stock.

         Declines in our stock price might harm our ability to issue equity
under various financing arrangements including our Facility or other
transactions. The price at which we issue shares in such transactions is
generally based on the market price of our common stock and a decline in our
stock price would result in our needing to issue a greater number of shares to
raise a given amount of funds or acquire a given amount of goods or services.
For this reason, a decline in our stock price might also result in increased
ownership dilution to our stockholders. A low stock price might impair our
ability to raise capital under the Facility described below under "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" because the underwriter is not obligated to
sell our common stock under the Facility on a given day if our average stock
price during such day is less than $4.00 per share (or less than any higher
floor price specified by us).

OUR STOCK PRICE COULD DECLINE AND OUR STOCKHOLDERS COULD EXPERIENCE SIGNIFICANT
OWNERSHIP DILUTION DUE TO OUR ABILITY TO ISSUE SHARES UNDER THE FIRM
UNDERWRITTEN EQUITY FACILITY.

         Pursuant to the Facility described under "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources," we may sell, subject to various restrictions, up to $100.0
million of common stock over a three-year period. The aggregate number of shares
that may be issued under


                                       37
<PAGE>

the Facility depends on a number of factors, including the market price and
trading volume of our common stock during each 15-trading day selling period.

         Because the price of any shares we choose to sell under the Facility is
based on the market price of the common stock on the date of sale, both the
number of shares we would have to sell in order to raise any given amount of
funding and the associated ownership dilution experienced by our stockholders
will be greater if the price of our common stock declines. The lowest price at
which common stock may be sold under the Facility is $4.00 per share.

         The perceived risk associated with the possible sale of a large number
of shares under the terms of the Facility could cause some of our stockholders
to sell their stock, thus causing the price of our stock to decline. In
addition, actual or anticipated downward pressure on our stock price due to
actual or anticipated sales of our common stock under the Facility could cause
some institutions or individuals to engage in short sales of our common stock,
which may itself cause the price of our stock to decline.


ANTITAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD DELAY,
DEFER OR PREVENT A TENDER OFFER OR TAKEOVER ATTEMPT THAT YOU CONSIDER TO BE IN
YOUR BEST INTEREST.

         We have adopted a number of provisions that could have antitakeover
effects. On January 29, 1999, our Board of Directors, the Board, adopted a
preferred stock purchase rights plan, commonly referred to as a "poison pill."
The rights plan is intended to deter an attempt to acquire Triangle in a manner
or on terms not approved by the Board. Thus, the rights plan will not prevent an
acquisition of Triangle which is approved by the Board. Our charter authorizes
the Board to issue shares of undesignated preferred stock without stockholder
approval on terms as the Board may determine. 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, voting control of Triangle. Our bylaws
divide the Board into three classes of directors with each class serving a three
year term. These and other provisions of our charter and our 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 Triangle, even if the events could be beneficial to our
stockholders. These provisions could also limit the price that investors might
be willing to pay for our common stock.

WE HAVE NOT DECLARED OR PAID ANY DIVIDENDS ON OUR COMMON STOCK.

         We have never declared or paid any cash dividends on our common stock,
and we currently do not intend to pay any cash dividends on our common stock in
the foreseeable future. We intend to retain our earnings, if any, for the
operation of our business.

FORWARD-LOOKING STATEMENTS

         Statements in this Annual Report on Form 10-K regarding the dates on
which we anticipate commencing clinical trials with, or commercializing, our
drug candidates, anticipated developments in the markets for anti-HIV and
anti-hepatitis B drugs and estimates of the date through which we believe our
working capital will satisfy our capital requirements constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These statements are only
predictions and reflect


                                       38
<PAGE>

our current beliefs and expectations. Actual events, results and timing may
differ materially. With respect to the dates on which we anticipate commencing
clinical trials, we have made assumptions regarding, among other things, the
successful and timely completion of preclinical tests, the approval to conduct
clinical trials by the FDA or other regulatory authorities, the availability of
adequate supplies of drug substance, the pace of patient enrollment and the
availability of the capital resources necessary to complete preclinical tests
and conduct clinical trials. With respect to commercialization, we have made
assumptions regarding, among other things, the timing of our receipt of FDA
marketing approval. With respect to future developments in the markets for
anti-HIV and anti-hepatitis B drugs, our assumptions include, among other
things, that the number of individuals infected with HIV and hepatitis B will
continue to increase, that current therapies will continue to have only limited
effectiveness in controlling the viruses, and that additional drugs with
improved safety or effectiveness will be developed. Our estimate of the date
through which our working capital will satisfy our capital requirements is based
on assumptions regarding, among other things, the progress of our drug
development programs, the magnitude of these programs, the scope and results of
preclinical testing and clinical trials, the cost, timing and outcome of
regulatory reviews, costs under the license and/or option agreements relating to
our drug candidates (including the costs of obtaining patent protection for our
drug candidates), the timing and the terms of the acquisition of any additional
drug candidates, the magnitude of administrative and legal expenses, the costs
of establishing internal capacity and third party arrangements for sales and
marketing functions, the costs of establishing third party arrangements for
manufacturing, changes in interest rates and foreign currency exchange rates,
and losses on our investment portfolio. Our ability to commence clinical trials
on the dates anticipated, commercialization, developments in the markets for
anti-HIV and anti-hepatitis B drugs and the date through which our working
capital will satisfy our capital requirements are subject to numerous risks,
including the risks discussed under the caption "Risk and Uncertainties"
contained herein. You should not place undue reliance on the dates on which we
anticipate commencing clinical trials with respect to any of our drug
candidates, anticipated commercialization dates, anticipated increases in the
markets for anti-HIV and anti-hepatitis B drugs or our estimate of the date
through which our working capital will satisfy our capital requirements. These
estimates are based on our current expectations, which may change in the future
due to a large number of potential events, including unanticipated future
developments.


                                       39
<PAGE>

ITEM 2.  PROPERTIES
         ----------

         As of December 31, 2000, we occupied an approximately 101,000 square
foot administrative office, laboratory and pilot manufacturing facility
encompassed in two adjacent buildings in Durham, North Carolina pursuant to a
lease that continues through September 2003. We believe our facilities will be
adequate to meet our needs through March 2002.

ITEM 3.  LEGAL PROCEEDINGS
         -----------------

         From time to time, we may be involved in litigation relating to claims
arising out of our operations in the normal course of business. As of the date
of this Annual Report on Form 10-K, we are not a party to any legal proceedings.
Emory, from which we have licensed several of our drug candidates, including
Coviracil, is a party to several interference and opposition proceedings and two
lawsuits in Australia regarding certain of the patents and patent applications
related to these drug candidates. We cannot assure you that Emory will prevail
in any of these proceedings and any significant adverse development with respect
to Emory's claims could have a material adverse effect on us and our ability to
commercialize these drug candidates. Any development adverse to our interests
could have a material adverse effect on our future consolidated financial
position, results of operations and cash flow. In addition, we are obligated to
reimburse Emory for certain expenses related to these proceedings and these
expenses could be substantial. See "Item 1. Business--Risk and Uncertainties--If
we or our licensors are not able to obtain and maintain adequate patent
protection for our product candidates, we may be unable to commercialize our
product candidates or to prevent other companies from using our technology in
competitive products" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations." See also Note 14 to Notes to
Consolidated Financial Statements included in Item 8 of this Annual Report on
Form 10-K.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
         ---------------------------------------------------

         None.


                                       40
<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.

         Our common stock is traded 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 in the last two fiscal years and
through February 23, 2001:

<TABLE>
<CAPTION>

                                                           HIGH           LOW
                                                           ----           ---
<S>                                                    <C>           <C>
YEAR ENDED DECEMBER 31, 1999:
1st Quarter......................................      $   16.75     $   10.25
2nd Quarter......................................          19.38         10.50
3rd Quarter......................................          23.63         14.88
4th Quarter......................................          21.50         10.31

YEAR ENDED DECEMBER 31, 2000:
1st Quarter......................................      $   27.25     $   11.50
2nd Quarter......................................          15.00          4.88
3rd Quarter......................................          11.06          5.00
4th Quarter......................................           9.44          4.50

YEAR ENDED DECEMBER 31, 2001:
1st Quarter (through February 23, 2001)..........      $    8.75     $    4.50
</TABLE>

         On February 23, 2001, the last reported sale price of our common stock
was $6.25 per share. As of January 31, 2001, there were approximately 500
holders of record, and approximately 5,500 beneficial holders of our common
stock. We have never declared or paid any cash dividends on our capital stock.
We currently do not intend to pay any cash dividends on our common stock in the
foreseeable future.


                                       41
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA
         -----------------------

         The selected consolidated statement of operations data with respect to
the years ended December 31, 2000, 1999, 1998, 1997 and 1996, and the
consolidated balance sheet data at December 31, 2000, 1999, 1998, 1997 and 1996,
set forth below are derived from our consolidated financial statements which
have been audited by PricewaterhouseCoopers LLP, independent accountants. The
selected consolidated 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 our consolidated
financial statements and the notes thereto contained in Item 8 below. Historical
results are not necessarily indicative of our future consolidated results.

<TABLE>
<CAPTION>


                                                                      YEAR ENDED DECEMBER 31,
                                             ------------------------------------------------------------------
                                                  2000          1999          1998          1997         1996
                                             ------------- ------------- ------------- -------------  ---------
                                                            (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

STATEMENT OF OPERATIONS DATA:
Revenue:
<S>                                          <C>           <C>           <C>           <C>            <C>
  Collaborative revenue..................    $    7,294    $       --    $       --    $       --     $       --

Operating expenses:
  License fees...........................         4,530         9,965         6,500           610          3,267
  Development............................       101,364        85,336        55,117        22,240          4,967
  Purchased research and development (1).         5,350         1,247            --        11,261             --
  Selling, general and administrative....        12,900        14,638         9,774         7,071          3,558
                                             ------------- ------------- ------------- -------------  ----------
    Total operating expenses.............       124,144       111,186        71,391        41,182         11,792
                                             ------------- ------------- ------------- -------------  ----------
Loss from operations.....................      (116,850)     (111,186)      (71,391)      (41,182)       (11,792)

Interest income, net.....................         7,325         6,565         4,120         3,514            875
                                             ------------- ------------- ------------- -------------  ----------

Net loss.................................    $ (109,525)   $ (104,621)   $  (67,271)   $  (37,668)    $  (10,917)
                                             ============= ============= ============= =============  ===========

Basic and diluted net loss per common
  share (2)..............................    $   (2.87)    $    (3.18)   $    (2.93)   $    (2.00)    $    (1.89)
                                             ============= ============= ============= =============  ===========

Shares used in computing basic and diluted
  net loss per common share (2)..........        38,118        32,923        22,927        18,871          5,784
                                             ============= ============= ============= =============  ==========

<CAPTION>

                                                                           DECEMBER 31,
                                             ------------------------------------------------------------------
                                                  2000          1999          1998          1997           1996
                                             ------------- ------------- ------------- -------------  ---------
                                                                         (IN THOUSANDS)
<S>                                          <C>           <C>           <C>           <C>            <C>
BALANCE SHEET DATA:
Cash and cash equivalents................    $   14,055    $   58,486    $   77,653    $   34,698     $   25,255
Working capital (3)......................        15,727       123,649        79,807        50,247         41,349
Investments..............................        48,876        99,265        41,039        23,098         27,946
Total assets.............................        71,061       166,497       124,313        61,878         55,495
Capital lease obligation - noncurrent....            --             9           153           300            364
Long-term debt...........................            --            --            --           178             --
Deferred revenue.........................        24,420        25,000            --            --             --
Accumulated deficit during development
  stage..................................      (330,969)     (221,444)     (116,823)      (49,552)       (11,884)
Total stockholders' equity...............        13,781       115,273       101,951        52,717         52,656
</TABLE>


----------
(1)      See note 10 of notes to consolidated financial statements for
         information concerning our acquisition of Avid on August 28, 1997. As a
         result of the acquisition, we recorded an in-process research and
         development charge of approximately $11.3 million in 1997, an
         additional charge of $1.2 million in 1999 and an additional charge of
         $5.4 million in 2000. The operating results of Avid have been included
         in our consolidated financial statements from the date of the
         acquisition.

(2)      See note 1 of notes to consolidated financial statements for
         information concerning the computation of basic and diluted net loss
         per common share and shares used in computing net loss per common
         share.

(3)      Working capital represents the difference between our current assets
         and current liabilities.


                                       42
<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 "ITEM 1. BUSINESS--RISK AND
UNCERTAINTIES" AND "ITEM 1. BUSINESS--RISK AND UNCERTAINTIES--FORWARD-LOOKING
STATEMENTS." 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.
WE UNDERTAKE 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 engaged in the development of new drug candidates primarily
for serious viral diseases. Since our inception on July 12, 1995, our operating
activities have related primarily to recruiting personnel, negotiating license
and option arrangements for our drug candidates, raising working capital and
developing our drug candidates. We have not received any revenues from the sale
of products and do not believe it likely that any of our drug candidates will be
commercially available until at least the year 2002. As of December 31, 2000,
our accumulated deficit was approximately $331.0 million.

         We require substantial working capital to fund the development and
potential commercialization of our drug candidates. We will require significant
expenditures to fund pre-clinical testing, clinical research studies, drug
synthesis and manufacturing, license obligations, development of a sales and
marketing infrastructure and ongoing administrative support before receiving
regulatory approvals for our drug candidates. These approvals may be delayed or
not granted at all. We have been unprofitable since our inception and expect to
incur substantial losses for at least the next several years. Because of the
nature of our business, we expect that losses will fluctuate from period to
period and that such fluctuations may be substantial. See "Item 1.
Business--Risk and Uncertainties-- We have incurred losses since inception and
may never achieve profitability."

         You should consider the operating and financial risks associated with
drug development activities when evaluating our prospects. To address these
risks, we must, among other things, successfully develop and commercialize our
drug candidates, secure and maintain all necessary proprietary rights, respond
to a rapidly changing competitive market, obtain additional financing and
continue to attract, retain and motivate qualified personnel. We cannot assure
you that we will be successful in addressing these risks. See "Item 1.
Business--Risk and Uncertainties-- All of our product candidates are in
development and may never be successfully commercialized which would have an
adverse impact on your investment and our business" and "--Risk and
Uncertainties-- If we need additional funds and are unable to raise them, we
will have to curtail or cease operations."

         Our operating expenses are difficult to predict and will depend on
several factors. Development expenses, including expenses for drug synthesis and
manufacturing, pre-clinical testing and clinical research activities, will
depend on the ongoing requirements of our drug development programs and
direction from regulatory agencies, which are difficult to predict. Management
may in some cases be able to control the timing of development expenses in part
by accelerating or decelerating pre-clinical testing and clinical trial
activities, but many of these expenditures will occur irrespective of whether
our drug candidates are approved when anticipated or at all. As a result of
these factors, we believe that period to period comparisons are not necessarily
meaningful and you should not rely on them as an indication of future
performance. Due to all of the foregoing factors, it is possible that our
consolidated operating results will be below the expectations of market analysts
and investors. In such event, the prevailing market price of our common stock
could be materially adversely affected. See "Item 1. Business--Risk and
Uncertainties-- The market price of our stock may be adversely affected by
market volatility."


                                       43
<PAGE>

RESULTS OF OPERATIONS

COLLABORATIVE REVENUE

         Collaborative revenue totaled $7.3 million in 2000 as compared to no
revenue in 1999 and 1998. Revenue in 2000 is solely related to $31.7 million of
non-contingent research and development expense reimbursements associated with
the Abbott Alliance, which are being amortized over the anticipated research and
development arrangement period. See "--Liquidity and Capital Resources."

LICENSE FEES

         License fees totaled $4.5 million in 2000, compared to $10.0 million in
1999 and to $6.5 million in 1998. License fees in 2000 related to the
recognition of milestone obligations and preservation fees under our license
agreements and license or option agreement initiation and/or preservation fees
for several of our drug candidates. License fees in 1999 related to achievement
of milestone obligations, license fees associated with the license and
settlement agreements with Glaxo on the use of emtricitabine to treat hepatitis
B, and license preservation fees for our drug candidate portfolio. License fees
in 1998 related primarily to execution of the clevudine license agreement as
well as license preservation fees for our drug candidate portfolio. The decrease
in 2000, as compared to 1999 and 1998, is related to the timing of milestone
obligations, the magnitude of license or option preservation payments, and the
timing of license initiation fees associated with our portfolio of drug
candidates. Future license fees may consist of milestone payments or annual
preservation payments under existing licensing arrangements, the amount of which
could be substantial and the timing of which will depend on a number of factors
that we cannot predict. These factors include, among others, the success of our
drug development programs and the extent to which we may in-license additional
drug candidates. See "--Liquidity and Capital Resources."

DEVELOPMENT EXPENSES

         Development expenses totaled $101.4 million in 2000, compared to
$85.3 million in 1999 and to $55.1 million in 1998. Development expenses in
2000 were primarily for drug synthesis and manufacturing, clinical trials,
employee compensation, pre-clinical testing and consulting. Development
expenses in 1999 were primarily for drug synthesis and manufacturing,
pre-clinical testing, clinical trials, employee compensation and consulting
expenses. Development expenses in 1998 were primarily for drug synthesis and
manufacturing, pre-clinical testing, employee compensation and patent-related
activities for our drug candidates. The substantial increase in 2000
development expenses as compared to 1999 and 1998 is due primarily to the
more advanced development stage of some of our drug candidates and increased
manufacturing costs. A large percentage of these 2000 expenses were for the
development of our drug candidate Coviracil. We are also continuing the
development of Coactinon, including the initiation of the enrollment of an
additional 280 patients in an ongoing Phase III clinical study. Our decision
to continue the development of Coactinon will result in additional future
development costs for this drug candidate.

         We expect our development expenses to increase in the future due to
increased manufacturing, pre-clinical and clinical testing for our existing
portfolio of drug candidates as they enter later stages of development and in
anticipation of commercial launch. In addition, if we in-license or otherwise
acquire rights to additional drug candidates, development expenses would
increase.

PURCHASED RESEARCH AND DEVELOPMENT EXPENSE

         Purchased research and development expense totaled $5.4 million in
2000, $1.2 million in 1999 and there was no purchased research and development
expense in 1998. Purchased research and development expense in 2000 relates to
the March 2000 issuance of 400,000 shares of our common stock to Avid. These
400,000 shares were part of the then remaining 2,000,000 contingent shares
associated with our acquisition of Avid as consideration to the former Avid
stockholders for extending the payment date of contingent consideration from
February 28, 2000 to August 28, 2001 (the second DMP-450 milestone date
extension). We also increased the remaining number of contingent shares by
50,000 in consideration for extending the second DMP-450 milestone date.
Purchased research and development expense in 1999 related to the April 1999
issuance of 100,000 shares of common stock as consideration to the former Avid
stockholders for extending the payment date of contingent consideration from
February 28, 1999 to February 28, 2000 (the first DMP-450 milestone date
extension). These in-process research


                                       44
<PAGE>

and development charges are based upon the fair market value of our common
stock at the date on which the extensions were granted and relate to
mozenavir dimesylate, which is at an early stage of clinical development and
has no alternative future use. Accordingly, if we initiate pivotal Phase II
clinical trials with mozenavir dimesylate on or before August 28, 2001 or
elect on or before August 28, 2001 to continue development of mozenavir
dimesylate even if such clinical trials have not been initiated, we would
issue 1,150,000 shares of common stock. Issuance of the remaining 500,000 of
the then remaining 1,650,000 contingent shares is dependent upon the
attainment of other development milestones with mozenavir dimesylate.
Issuance of any additional contingent shares will be recorded as additional
purchase price and will be allocated upon resolution of the underlying
contingency.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general and administrative expenses totaled $12.9 million
in 2000, compared to $14.6 in 1999 and $9.8 million in 1998. Selling, general
and administrative expenses in 2000 consisted primarily of employee
compensation, third party marketing, legal, investor relations and other
professional services and rent expense. Selling, general and administrative
expenses in 1999 and 1998 consisted primarily of amounts paid for employee
compensation, marketing, legal, investor relations and other professional
services and rent expense. The decrease in 2000 as compared to 1999, is due
primarily to a reduction in 2000 sales and marketing expenses. The increase
in 1999 and 2000 selling, general and administrative expenses, as compared to
1998, relates to an overall increase in administrative expenses and the
infrastructure necessary to support expanding corporate and development
operations. Our selling, general and administrative expenses may increase in
future periods as we expand our sales and marketing infrastructure to support
the commercial launch of our drug candidates.

INTEREST INCOME, NET

         Net interest income totaled $7.3 million in 2000, compared to $6.6
million in 1999 and $4.1 million in 1998. The increase in interest income in
2000, as compared to 1999, is due to larger average investment balances and
higher low-risk, short-term interest rates in 2000. The increase in interest
income in 1999 as compared to 1998 was due to larger average investment balances
in 1999 created by the proceeds received from the Abbott Alliance in September
1999 and from other equity financings in December 1998. See "--Liquidity and
Capital Resources."

LIQUIDITY AND CAPITAL RESOURCES

         We have financed our operations since inception (July 12, 1995),
primarily with the net proceeds received from private placements of equity
securities, which provided aggregate net proceeds of approximately $111.9
million, and from initial and secondary public offerings, which provided
aggregate net proceeds of approximately $96.8 million, as well as net
proceeds from the Abbott Alliance, including net proceeds from the sale of
common stock and non-contingent research and development reimbursement, of
approximately $147.7 million. In addition, we have received approximately
$2.3 million as reimbursement of certain development expenses under our
license agreements.

         During 1999, we completed our strategic alliance with Abbott. In
addition to providing global sales, marketing, and manufacturing
capabilities, the Abbott Alliance has provided approximately $115.9 million
in net proceeds from the sale of approximately 6.57 million shares of common
stock, approximately $31.7 million of non-contingent research and development
expense reimbursements, and approximately $1.5 million in reimbursed sales
and marketing expenses under the Abbott Alliance profit and loss sharing
arrangement.

         At December 31, 2000, we had net working capital of $15.7 million, a
decrease of approximately $107.9 million from December 31, 1999. The decrease
in working capital is primarily the result of providing funds for our normal
operating expenses. Our principal source of liquidity at December 31, 2000,
was $14.1 million in cash and cash equivalents, $46.9 million in investments
which are considered "available-for-sale," and approximately $2.0 million of
strategic corporate investments, reflecting a $94.8 million decrease of total
cash, cash equivalent and investment balances from those at December 31, 1999.

                                       45
<PAGE>


         In 2000, we entered into the Facility, pursuant to which we are able
to issue and sell up to $100.0 million of our common stock over the next
three years in the public market. During a 15-day selling period in December
2000, we sold 215,100 shares of our common stock for net cash proceeds of
approximately $807,000 under the Facility. See "--Firm Underwritten Equity
Facility."

         As part of our drug development strategy, we outsource significant
amounts of our pre-clinical and clinical programs and the manufacture of drug
substance used in those programs. Accordingly, we have entered into
contractual arrangements with selected third parties to provide these
services. At December 31, 2000, we estimate the contractual commitment
related to pre-clinical and clinical testing to be approximately $39.5
million and the contractual commitment to provide drug manufacturing to be
approximately $14.5 million. These estimates may change in the future
depending on the outcome of several project-related variables.

         Our working capital requirements may continue to increase in future
periods as we fund our drug development programs, pay obligations under our
license and/or option agreements, continue the future development of our sales
and marketing organization, acquire drug substance from third party
manufacturers, and incur other selling, general and administrative expenditures
necessary to support our operations. The amount of our future working capital
requirements will depend on many factors, including the efficiency of
manufacturing processes developed on our behalf by third parties, the cost of
drugs supplied by third party contractors, including Abbott, the success of our
drug development programs, the magnitude and scope of these programs, the cost,
timing and outcome of regulatory reviews, changes in regulatory requirements,
the costs under the license and/or option agreements relating to our drug
candidates (including the costs of obtaining patent protection for our drug
candidates), the timing and the terms of the acquisition of any additional drug
candidates, the rate of technological advances relevant to our operations,
determinations as to the commercial potential of our drug candidates, the level
of required administrative and legal support, the potential expansion of
required facility space and the potential use of third party sales contractors.

         Amounts payable by us in the future under our existing license
agreements are uncertain due to a number of factors, including the progress of
our drug development programs, our ability to obtain approval to commercialize
drug candidates and the commercial success of certain approved drugs. Our
existing license agreements, as of December 31, 2000, may require future cash
payments of up to $91.0 million contingent upon the achievement of development
milestones, up to $30.0 million upon the achievement of sales milestones, and
$5.5 million of future research and development payments. One of our licensors
has the option to receive $2.0 million of future milestone payments in shares of
common stock, based on the then current market price, in lieu of a cash payment.
As of December 31, 2000, we are also obligated to issue up to an additional
1,650,000 shares of common stock upon the achievement of development milestones
relating to mozenavir dimesylate, which was acquired in the acquisition of Avid.
Additionally, we will pay royalties based on a percentage of net sales of each
licensed product incorporating these drug candidates. Most of our license
agreements require minimum royalty payments commencing three years after
regulatory approval. Depending on our success and timing in obtaining regulatory
approval, aggregate annual minimum royalties and license preservation fees under
our existing license agreements could range from $50,000 if only a single drug
candidate is approved for one indication, to $54.5 million if all drug
candidates are approved for all indications.

         We believe that our existing cash, cash equivalents and investments,
and expected net proceeds raised under the Facility will be adequate to satisfy
our anticipated working capital requirements through at least the first quarter
of 2002, but expect that we will be required to raise additional capital to fund
our future operations from remaining availability under the Facility, through
our pending private offering or through equity or debt financings from other
sources. See "Pending Private Placement of 7.7 Million Shares of Common Stock."
We cannot assure you that additional funding will be available on favorable
terms from any of these sources or at all. See "Item 1. Business--Risk and
Uncertainties-- If we need additional funds and are unable to raise them, we
will have to curtail or cease operations."


                                       46
<PAGE>

FIRM UNDERWRITTEN EQUITY FACILITY

         On November 1, 2000, we entered into the Facility with Ramius
consisting of a Common Stock Underwriting Agreement and a Stand-By Purchase
Agreement. Ramius, as underwriter, has agreed to sell, on a best efforts
basis, up to $100.0 million of registered common stock over a three-year
period. Under the Facility, we may initiate 15-trading day selling periods
during which Ramius will purchase shares from us at a fixed percentage of the
volume weighted average price of our common stock on each trading day. We
will establish a dollar amount to be raised during each selling period and a
minimum selling price. Ramius will sell, on a best efforts basis, the number
of shares required to raise that amount. The total number of shares sold
during a selling period is limited to 15% of the average daily trading volume
during the selling period. We are not obligated to sell any shares of our
common stock, and a selling period will not begin except upon our
instruction. In connection with the Facility, we have agreed to pay Ramius a
commission of 4.25% of gross proceeds and granted Ramius the right to
purchase 300,000 shares of our common stock at $13.00 a share. In connection
with our pending private placement, we have agreed not to sell any common
stock under the Facility for a period of 90 days from the effective date of
the resale registration statement filed in connection with our pending
private placement.

INTELLIGENT THERAPEUTIC SOLUTIONS

         In the first quarter of 2000, we contributed intellectual property
and other assets to Intelligent Therapeutic Solutions, Inc., ITS, in exchange
for 3,300,000 shares of ITS Series A Preferred Stock. On March 15, 2000, two
outside investors purchased a non-controlling ownership interest in ITS
through a Series B Preferred Stock investment for $10.0 million with a binding
commitment to invest an additional $5.0 million. ITS is a health information
technology company formed to provide solutions in the management of patients
with chronic and complex diseases, focusing primarily at the point-of-care on
the provider-patient relationship. We do not expect that the future
development costs of ITS's health information technology will impact our
future consolidated financial position, results of operations, and cash flow
since Triangle has no continuing obligation to ITS.

DYNAVAX TECHNOLOGIES CORPORATION

         In April 2000, our licensing and collaborative agreement with
Dynavax to develop immunostimulatory pharmaceutical candidates for the
prevention and/or treatment of serious viral diseases became effective. In
association with this agreement, we purchased $2.0 million of Dynavax Series
T Preferred Stock. The license grants Triangle exclusive worldwide rights to
Dynavax' proprietary ISS for the treatment of HIV and the prevention and
treatment of hepatitis B and hepatitis C. This alliance represents another
element of Triangle's strategy to leverage strategic alliances with carefully
selected partners. We will collaborate with Dynavax in the development of
immunostimulatory pharmaceutical candidates and we will be responsible for
funding development activities, as well as paying development milestones and
royalty payments.

ARROW THERAPEUTICS LIMITED

         In July 2000, we entered into a licensing and collaborative agreement
with Arrow to identify and develop novel anti-viral agents for the treatment of
hepatitis C virus. Under the terms of the agreement, Arrow will provide Triangle
with access to Arrow's high throughput screening technology and its compound
library. Triangle will be responsible for funding the screening program, as well
as paying development milestones and royalty payments on sales of any products
which result from the collaboration.

PENDING PRIVATE PLACEMENT OF 7.7 MILLION SHARES OF COMMON STOCK

         On January 30, 2001, we entered into definitive purchase agreements
with a limited number of qualified institutional buyers and large institutional
accredited investors for the sale of 7.7 million shares of common stock at $6.00
per share for gross proceeds totaling $46.2 million. The closing of the common
stock sale will occur within three business days of the date the SEC confirms
its willingness to declare effective the resale registration statement,
initially filed on February 2, 2001, in connection with the financing. Net
proceeds are expected to be approximately $43.5 million.


                                       47
<PAGE>

LITIGATION AND OTHER CONTINGENCIES

         As discussed in note 14 of the Notes to Consolidated Financial
Statements, we are indirectly involved in several patent opposition and
adversarial proceedings and two lawsuits filed in Australia regarding the patent
rights related to two of our licensed drug candidates, Coviracil and DAPD.
Although we are not a named party in any of these proceedings, we are obligated
to reimburse our licensors for legal expenses associated with these proceedings.
In one of these patent opposition proceedings, on November 8, 2000, the
Australian Patent Office held that several patent claims of Emory directed to
DAPD are not patentable over an earlier BioChem Pharma patent. Emory has
appealed this decision of the Australian Patent Office to the Australian Federal
Court. If Emory, the University of Georgia, or Triangle is unsuccessful in the
appeal, then we will not be able to sell DAPD in Australia without a license
from BioChem Pharma, which may not be available on reasonable terms or at all.
We cannot predict the outcome of this or any of the other proceedings. We
believe that an adverse judgment rendered against us would not result in a
material financial obligation, nor would we have to recognize an impairment
under Statement of Financial Accounting Standards No. 121 "ACCOUNTING FOR
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF" as no
amounts have been capitalized related to our drug candidates. However, any
development in these proceedings adverse to our interests, including any adverse
development related to the patent rights licensed to us for these two drug
candidates or our related rights or obligations, could have a material adverse
effect on our business and future consolidated financial position, results of
operations and cash flow. See "Item 1. Business--Risk and Uncertainties--If we
or our licensors are not able to obtain and maintain adequate patent protection
for our product candidates, we may be unable to commercialize our product
candidates or to prevent other companies from using our technology in
competitive products."

RECENT ACCOUNTING PRONOUNCEMENTS

         In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"REVENUE RECOGNITION IN FINANCIAL STATEMENTS," SAB 101. SAB 101, as amended by
SAB 101A and 101B, provided broad conceptual discussions and industry-specific
guidance concerning revenue recognition. We adopted SAB 101 in 1999 and,
accordingly, reported the impact of the Abbott Alliance in accordance with SAB
101's conceptual guidance. Adoption of SAB 101 resulted in all non-contingent
research and development reimbursement to be amortized as collaborative revenue
over the anticipated research and development arrangement period and will
require the recognition of any contingent development milestone payments to be
deferred and amortized beyond their actual receipt.

         In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES," SFAS 133. SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities, and requires us to recognize all derivatives as either
assets or liabilities on the balance sheet and measure them at fair value. We
adopted SFAS 133 in 2000. Its adoption did not have a material impact on our
consolidated financial position, results of operations, or cash flow.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
           ----------------------------------------------------------

         Triangle is exposed to various market risks, including changes in
foreign currency exchange rates, investment market value and interest rates.
Market risk is the potential loss arising from adverse changes in market
rates and prices, such as foreign currency exchange and interest rates. At
December 31, 2000, we had approximately $1.2 million of forward foreign
currency contracts to hedge foreign currency firm commitments. We have,
however, established policies and procedures for market risk assessment and
the approval, reporting and monitoring of derivative financial instrument
activities. The following discusses our exposure to market risk related to
changes in interest rates, foreign currency exchange rates and investment
market value.

INTEREST RATE SENSITIVITY

         Triangle is subject to interest rate risk on its investment portfolio.
We maintain an investment portfolio consisting primarily of high quality
government and corporate bonds. Our portfolio has a current average maturity of
less than 12 months. We attempt to mitigate default risk by investing in high
credit quality securities and by monitoring the credit rating of investment
issuers. Our investment portfolio includes only marketable securities with


                                       48
<PAGE>

active secondary or resale markets to help ensure portfolio liquidity and we
have implemented guidelines limiting the duration of investments. These
available-for-sale securities are subject to interest rate risk and will
decrease in value if market interest rates increase. If market rates were to
increase by 10 percent from levels at December 31, 2000, we expect that the fair
value of our investment portfolio would decline by an immaterial aggregate
amount primarily due to the relatively short maturity of the portfolio. At
December 31, 2000, our portfolio consisted of approximately $39.4 million of
investments maturing within one year and approximately $7.4 million of
investments maturing after one year but within 30 months. Additionally, we
generally have the ability to hold our fixed income investments to maturity and
therefore do not expect that our consolidated operating results, financial
position or cash flows will be affected by a significant amount due to a sudden
change in interest rates.

FOREIGN CURRENCY EXCHANGE RISK

         The majority of our transactions occur in U.S. dollars and we do not
have subsidiaries or investments in foreign countries. Therefore, we are not
subject to significant foreign currency exchange risk. We have, however,
established policies and procedures for market risk assessment, including a
foreign currency-hedging program. The goal of our hedging program is to
establish fixed exchange rates on firm foreign currency cash outflows and to
minimize the impact to Triangle of foreign currency fluctuations. These
policies specifically provide for the hedging of firm commitments and
prohibit the holding of derivative instruments for speculative or trading
purposes. At December 31, 2000, Triangle had purchased approximately $1.2
million of forward foreign currency contracts in currencies participating in
the European Monetary Union to hedge firm commitments. The hypothetical loss
associated with a 10 percent devaluation of the Euro would not materially
affect our consolidated operating results, financial position or cash flow.

STRATEGIC INVESTMENT RISK

         In addition to our normal investment portfolio, we also have a
strategic investment in Dynavax for $2.0 million. This investment represents
unregistered preferred stock and is subject to higher investment risk than our
normal investment portfolio due to the lack of an active resale market for the
investment.


                                       49
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
         -------------------------------------------

                                    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                                                                          PAGE
                                                                                                          ----

<S>                                                                                                         <C>
Report of Independent Accountants.........................................................................  51

Consolidated Balance Sheets as of December 31, 2000 and 1999..............................................  52

Consolidated Statements of Operations for the years ended December 31, 2000, 1999,
     1998 and the period from inception (July 12, 1995) through December 31, 2000.........................  53

Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999,
     1998 and the period from inception (July 12, 1995) through December 31, 2000.........................  54

Consolidated Statements of Stockholders' Equity for the period
     from inception (July 12, 1995) through December 31, 2000.............................................55-56

Notes to Consolidated Financial Statements................................................................  57
</TABLE>


                                       50
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

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

         In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of
stockholders' equity present fairly, in all material respects, the financial
position of Triangle Pharmaceuticals, Inc. and its subsidiary, a development
stage company, (the "Company") at December 31, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000 and the period from inception (July 12, 1995) through
December 31, 2000, in conformity with accounting principles generally accepted
in the United States of America. 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 auditing standards generally
accepted in the United States of America 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 our opinion.


/s/PricewaterhouseCoopers LLP

Raleigh, North Carolina
February 9, 2001


                                       51
<PAGE>

                         TRIANGLE PHARMACEUTICALS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                           CONSOLIDATED BALANCE SHEETS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                                                            DECEMBER 31,
                                                                               -----------------------------------
ASSETS                                                                                2000                1999
------                                                                         -----------------   ---------------
<S>                                                                            <C>                 <C>
Current assets:
     Cash and cash equivalents.............................................    $        14,055     $        58,486
     Restricted deposits...................................................                 --                  27
     Investments...........................................................             39,472              94,583
     Interest receivable...................................................              1,081               1,307
     Receivable from collaborative partner.................................                413               1,156
     Prepaid expenses......................................................                543                 555
                                                                               -----------------   ---------------
        Total current assets...............................................             55,564             156,114
                                                                               -----------------   ---------------
Property, plant and equipment, net.........................................              6,093               5,701
Investments................................................................              9,404               4,682
                                                                               -----------------   ---------------

        Total assets.......................................................    $        71,061     $       166,497
                                                                               =================   ===============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Current liabilities:
     Accounts payable......................................................    $         9,580     $        10,924
     Payable to collaborative partner......................................              6,005                 571
     Capital lease obligation-current......................................                  7                 133
     Accrued expenses......................................................             17,268              14,587
     Deferred revenue......................................................              6,977               6,250
                                                                               -----------------   ---------------
        Total current liabilities..........................................             39,837              32,465
                                                                               -----------------   ---------------
Capital lease obligation-noncurrent........................................                 --                   9
Deferred revenue...........................................................             17,443              18,750
                                                                               -----------------   ---------------
        Total liabilities..................................................             57,280              51,224
                                                                               -----------------   ---------------
Commitments and contingencies (See notes 1, 3, 5, 6, 8, 10 and 14).........                 --                  --
Stockholders' equity:
     Convertible Preferred Stock, $0.001 par value; 5,000 shares
        authorized; 0 shares  issued and outstanding.......................                 --                  --
     Common Stock, $0.001 par value; 75,000 shares authorized;
        38,529 and 37,578 shares  issued and outstanding, respectively.....                 39                  38
     Additional paid-in capital............................................            344,550             336,814
     Accumulated deficit during development stage..........................           (330,969)           (221,444)
     Accumulated other comprehensive income (loss).........................                161                (135)
                                                                               -----------------   ----------------
        Total stockholders' equity.........................................             13,781             115,273
                                                                               -----------------   ---------------

        Total liabilities and stockholders' equity.........................    $        71,061     $       166,497
                                                                               =================   ===============
</TABLE>


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


                                       52
<PAGE>

                         TRIANGLE PHARMACEUTICALS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                                                                       PERIOD FROM
                                                                                                        INCEPTION
                                                           YEAR ENDED DECEMBER 31,                   (JULY 12, 1995)
                                         --------------------------------------------------------        THROUGH
                                                2000                1999               1998        DECEMBER 31, 2000
                                         -----------------   -----------------  -----------------  -----------------

<S>                                      <C>                 <C>                <C>                <C>
Revenue:
  Collaborative revenue...............   $         7,294     $            --    $            --    $         7,294

Operating expenses:
  License fees........................             4,530               9,965              6,500             24,872
  Development.........................           101,364              85,336             55,117            269,024
  Purchased research and development..             5,350               1,247                 --             17,858
  Selling, general and administrative.            12,900              14,638              9,774             48,945
                                         -----------------   -----------------  -----------------  ---------------
    Total operating expenses..........           124,144             111,186             71,391            360,699
                                         -----------------   -----------------  -----------------  ---------------

Loss from operations..................          (116,850)           (111,186)           (71,391)          (353,405)
Interest income, net..................             7,325               6,565              4,120             22,436
                                         -----------------   -----------------  -----------------  ---------------

Net loss..............................   $      (109,525)    $      (104,621)   $       (67,271)   $      (330,969)
                                         =================   =================  =================  ================

Basic and diluted net loss per common
  share...............................   $        (2.87)     $        (3.18)    $        (2.93)
                                         =================   =================  ===============

Shares used in computing basic and
  diluted net loss per common share...            38,118              32,923             22,927
                                         =================   =================  ===============
</TABLE>


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


                                       53
<PAGE>

                         TRIANGLE PHARMACEUTICALS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                                                    PERIOD FROM
                                                                                                     INCEPTION
                                                             YEAR ENDED DECEMBER 31,              (JULY 12, 1995)
                                                 ---------------------------------------------        THROUGH
                                                       2000            1999            1998      DECEMBER 31, 2000
                                                 --------------  --------------  --------------  -----------------
<S>                                              <C>             <C>             <C>            <C>
Cash flows from operating activities:
Net loss......................................   $  (109,525)    $  (104,621)    $   (67,271)   $     (330,969)
Adjustments to reconcile net loss to net
  cash used by operating activities:
  Depreciation and amortization...............         1,733           1,207             889             4,242
  Purchased research and development..........         5,350           1,247              --            17,858
  Stock-based compensation....................           348             200              81             1,886
  Change in assets and liabilities:
    Receivables...............................           969          (1,851)           (312)           (1,494)
    Prepaid expenses..........................            12             214              22              (543)
    Accounts payable..........................         4,090            (283)          8,626            15,585
    Accrued expenses..........................         2,681           4,561           4,949            17,268
    Deferred revenue..........................          (580)         25,000              --            24,420
                                                 -------------   -------------   -------------  --------------
Net cash used by operating activities.........       (94,922)        (74,326)        (53,016)         (251,747)
                                                 -------------   -------------   -------------  ---------------
Cash flows from investing activities:
  Sale of restricted deposits.................            27              49              43                --
  Purchase of investments.....................       (90,223)       (102,126)        (55,632)         (310,509)
  Proceeds from sale and maturity of
    investments...............................       140,908          43,747          37,709           261,794
  Purchase of property, plant and equipment...        (2,125)         (2,744)         (2,181)          (10,159)
  Acquisition of Avid Corporation, net of cash
    acquired..................................            --              --              --            (3,053)
                                                 -------------   -------------   -------------  ---------------
Net cash provided (used) by investing
  activities..................................        48,587         (61,074)        (20,061)          (61,927)
                                                 -------------   -------------   -------------  ---------------
Cash flows from financing activities:
  Sale of stock, net of related issuance
  costs.......................................         1,609         116,218         116,334           327,053
  Sale of options under salary investment option
    grant program.............................            52              95              97               315
  Proceeds from stock options/warrants exercised         378             215               1               620
  Proceeds from notes payable.................            --              --              --               374
  Equipment financing.........................            --              --              --               354
  Principal payments on capital lease
  obligations and notes payable...............          (135)           (295)           (400)             (987)
                                                 -------------   -------------   -------------  ---------------

Net cash provided by financing activities.....         1,904         116,233         116,032           327,729
                                                 -------------   -------------   -------------  --------------
Net (decrease) increase in cash and cash
  equivalents.................................       (44,431)        (19,167)         42,955            14,055
Cash and cash equivalents at beginning of year        58,486          77,653          34,698                --
                                                 -------------   -------------   -------------  --------------
Cash and cash equivalents at end of year......   $    14,055     $    58,486     $    77,653    $       14,055
                                                 =============   =============   =============  ==============
</TABLE>

Supplemental disclosure of noncash investing and financing activities:

     On November 1, 2000, the Company granted a purchase right to acquire 300
shares of Common Stock at $13.00 per share.

     On April 1, 1999 and March 27, 2000, the Company issued 100 shares and 400
shares, respectively, of Common Stock valued at $1,247 and $5,350, respectively,
in conjunction with the Avid Corporation acquisition.

     In 1999, 6 shares of Common Stock were issued to an officer of the Company
as compensation.

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


                                       54
<PAGE>

                         TRIANGLE PHARMACEUTICALS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>


                                     CONVERTIBLE
                                     PREFERRED STOCK                       COMMON STOCK      ADDITIONAL              COMPREHENSIVE
                               -----------------------              -----------------------    PAID-IN   ACCUMULATED     INCOME
                                 SHARES      AMOUNT      WARRANTS     SHARES      AMOUNT      CAPITAL     DEFICIT       (LOSS)
                               ----------- -----------  ----------- ----------- -----------  ----------- ------------ -------------

<S>                                   <C>  <C>          <C>              <C>    <C>          <C>         <C>          <C>
Initial sale of stock.......          933  $        1   $       --       1,175  $        1   $      710  $        --
Additional sale of stock....        4,249           4           --       1,495           2        3,137           --
Stock-based compensation....           --          --           --          --          --           12           --
Comprehensive loss:
  Net loss..................           --          --           --          --          --           --         (967) $      (967)
                               ----------- -----------  ----------- ----------- -----------  ----------- ------------ -------------
Balance, December 31, 1995..        5,182           5           --       2,670           3        3,859         (967)        (967)
Sale of stock...............        3,756           4           --       4,943           5       59,506           --
Stock-based compensation....           --          --          152         700           1        1,127           --
Stock options exercised.....           --          --           --         317          --           57           --
Conversion of Preferred to
  Common Stock..............       (8,938)         (9)          --       8,938           9           --           --
Comprehensive loss:
  Net loss..................           --          --           --          --          --           --      (10,917)     (10,917)
                               ----------- -----------  ----------- ----------- -----------  ----------- ------------ -------------
Balance, December 31, 1996..           --          --          152      17,568          18       64,549      (11,884)     (10,917)
Sale of stock...............           --          --           --       2,014           2       29,521           --
Acquisition of Avid Corp....           --          --           --         400          --        8,117           --
Sale of stock options.......           --          --           --          --          --           70           --
Stock-based compensation....           --          --          (38)         --          --           --           --
Stock options exercised.....           --          --           --          13          --            3           --
Comprehensive loss:
  Net loss..................           --          --           --          --          --           --      (37,668)     (37,668)
                               ----------- -----------  ----------- ----------- -----------  ----------- ------------ -------------
Balance, December 31, 1997..           --          --          114      19,995          20      102,260      (49,552)     (37,668)
Sale of stock...............          170          --           --       8,868           9      116,325           --
Sale of stock options.......           --          --           --          --          --           97           --
Stock-based compensation....           --          --           --          --          --           --           --
Stock options exercised.....           --          --           --           8          --            1           --
Comprehensive loss:
  Change in unrealized
   gains/(losses) on
  investments...............           --          --           --          --          --           --           --           18
  Net loss..................           --          --           --          --          --           --      (67,271)     (67,271)
                               ----------- -----------  ----------- ----------- -----------  ----------- ------------ -------------
Balance, December 31, 1998..          170          --          114      28,871          29      218,683     (116,823)     (67,253)
Sale of stock...............           --          --           --       6,605           7      116,211           --
Sale of stock options.......           --          --           --          --          --           95           --
Stock-based compensation....           --          --           --           6          --          101           --
Stock options/warrants
  exercised.................           --          --         (114)        296          --          479           --
Conversion of Preferred to
  Common Stock..............         (170)         --           --       1,700           2           (2)          --
Purchased in-process research
  and development costs.....           --          --           --         100          --        1,247           --

Comprehensive loss:
  Reclassification adjustment
   for gains/(losses) in net loss      --          --           --          --          --           --           --          (21)
  Change in unrealized
   gains/(losses) on
   investments..............           --          --           --          --          --           --           --         (132)
  Net loss..................           --          --           --          --          --           --     (104,621)    (104,621)
                               ----------- -----------  ----------- ----------- -----------  ----------- ------------ -------------
Balance, December 31, 1999..           --  $       --   $       --      37,578  $       38   $  336,814  $  (221,444) $  (104,774)

<CAPTION>

                                ACCUMULATED
                                   OTHER
                               COMPREHENSIVE      DEFERRED
                               INCOME/(LOSS)    COMPENSATION     TOTAL
                               --------------  -------------- -----------

<S>                             <C>            <C>            <C>
Initial sale of stock.......    $        --    $        --    $       712
Additional sale of stock....             --             --          3,143
Stock-based compensation....             --            (12)            --
Comprehensive loss:
  Net loss..................             --             --           (967)
                                -------------  -------------  ------------
Balance, December 31, 1995..             --            (12)         2,888
Sale of stock...............             --             --         59,515
Stock-based compensation....             --           (141)         1,139
Stock options exercised.....             --            (26)            31
Conversion of Preferred to
  Common Stock..............             --             --             --
Comprehensive loss:
  Net loss..................             --             --        (10,917)
                                -------------  -------------  ------------
Balance, December 31, 1996..             --           (179)        52,656
Sale of stock...............             --             --         29,523
Acquisition of Avid Corp....             --             --          8,117
Sale of stock options.......             --             --             70
Stock-based compensation....             --             48             10
Stock options exercised.....             --              6              9
Comprehensive loss:
  Net loss..................             --             --        (37,668)
                                -------------  -------------  ------------
Balance, December 31, 1997..             --           (125)        52,717
Sale of stock...............             --             --        116,334
Sale of stock options.......             --             --             97
Stock-based compensation....             --             48             48
Stock options exercised.....             --              7              8
Comprehensive loss:
  Change in unrealized
   gains/(losses) on
   investments..............             18             --             18
  Net loss..................             --             --        (67,271)
                                -------------  -------------  ------------
Balance, December 31, 1998..             18            (70)       101,951
Sale of stock...............             --             --        116,218
Sale of stock options.......             --             --             95
Stock-based compensation....             --             58            159
Stock options/warrants
  exercised.................             --             12            377
Conversion of Preferred to
  Common Stock..............             --             --             --
Purchased in-process research
  and development costs.....             --             --          1,247
Comprehensive loss:
  Reclassification adjustment
    for gains/(losses) in net
    loss....................            (21)            --            (21)
  Change in unrealized
   gains/(losses) on
   investments..............           (132)            --           (132)
  Net loss..................             --             --       (104,621)
                                -------------  -------------  ------------
Balance, December 31, 1999..    $      (135)   $        --    $   115,273
(CONTINUED)
</TABLE>

<PAGE>


                         TRIANGLE PHARMACEUTICALS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                     CONVERTIBLE
                                     PREFERRED STOCK                      COMMON STOCK       ADDITIONAL               COMPREHENSIVE
                               -----------------------              -----------------------    PAID-IN   ACCUMULATED     INCOME
                                 SHARES      AMOUNT      WARRANTS     SHARES      AMOUNT      CAPITAL     DEFICIT        (LOSS)
                               ----------- -----------  ----------- ----------- -----------  ----------- ------------ -------------
<S>                            <C>         <C>          <C>                <C>  <C>          <C>         <C>          <C>
(CONTINUED)
Sale of stock...............           --  $       --   $       --         326  $        1   $    1,608  $        --
Sale of stock options.......           --          --           --          --          --           52           --
Stock-based compensation....           --          --           --          --          --          348           --
Stock options/warrants
  exercised.................           --          --           --         225          --          378           --
Purchased in-process research
  and development costs.....           --          --           --         400          --        5,350           --
Comprehensive loss:
  Reclassification adjustment
   for gains/(losses) in net
   loss.....................           --          --           --          --          --           --           --  $       133
  Change in unrealized
   gains/(losses) on
   investments..............           --          --           --          --          --           --           --          163
  Net loss..................           --          --           --          --          --           --     (109,525)    (109,525)
                               ----------- -----------  ----------- ----------- -----------  ----------- ------------ -------------
Balance, December 31, 2000..           --  $       --   $       --      38,529  $       39   $  344,550  $  (330,969) $  (109,229)
                               =========== ===========  =========== =========== ===========  =========== ============ =============

<CAPTION>


                                ACCUMULATED
                                   OTHER
                               COMPREHENSIVE      DEFERRED
                               INCOME/(LOSS)    COMPENSATION     TOTAL
                               --------------  -------------- -----------

<S>                             <C>            <C>            <C>
Sale of stock...............    $        --    $        --    $     1,609
Sale of stock options.......             --             --             52
Stock-based compensation....             --             --            348
Stock options/warrants
  exercised.................             --             --            378
Purchased in-process research
  and development costs.....             --             --          5,350
Comprehensive loss:
  Reclassification adjustment
   for gains/(losses) in net
   loss.....................            133             --            133
  Change in unrealized
   gains/(losses) on
   investments..............            163             --            163
  Net loss..................             --             --       (109,525)
                                -------------  -------------  ------------
Balance, December 31, 2000..    $       161    $        --    $    13,781
                                =============  =============  ===========
</TABLE>


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


                                       56
<PAGE>

                         TRIANGLE PHARMACEUTICALS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


1.       ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND PRINCIPLES OF CONSOLIDATION

         Triangle Pharmaceuticals, Inc. and its wholly-owned subsidiary (the
"Company" or "Triangle"), 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. The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary. All significant intercompany
accounts and transactions have been eliminated in consolidation.

         The accompanying consolidated financial statements have been
prepared on a basis which assumes that the Company will continue as a going
concern and which contemplates the realization of assets and the satisfaction
of liabilities and commitments in the normal course of business. The Company
has incurred losses and negative cash flows from operations since its
inception. Management's plans with regard to these matters include seeking
additional financing arrangements, which include the sale of Common Stock as
discussed in Notes 6 and 16. If such available sources of financing are not
sufficient, management believes that is has the intent and the ability to
reduce expenses so that it can continue to meet its obligations. The
consolidated financial statements do not include any adjustments should
management's plans prove to be unsuccessful.

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.

INVESTMENTS

         Investments consist primarily of United States and municipal
government agency obligations, corporate bonds, notes and commercial paper,
preferred stock and other fixed or variable income investments. The Company
invests in high-credit quality investments in accordance with its investment
policy which minimizes the possibility of loss. Investments with original
maturities at date of purchase beyond three months and which mature at or
less than twelve months from the balance sheet date are classified as
current. Investments with a maturity beyond twelve months from the balance
sheet date are classified as long-term. Investments are considered to be
available-for-sale and are carried at fair value with unrealized gains and
losses recognized in comprehensive income/(loss). Realized gains and losses
are determined using the specific identification method and transactions are
recorded on a settlement date basis.

         The Company has equity investments in non-public entities for which
fair values are not readily determinable. For those investments in which the
Company does not have significant influence and owns less than 20% of the
entity, the investments are carried at cost and are subject to a write-down
for impairment whenever events or changes in circumstance indicate that the
carrying value may not be recoverable. Investments for which the Company has
the ability to exercise significant influence are accounted for using the
equity method.

PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment are recorded at cost and depreciated
using the straight-line method over the estimated useful lives as follows:
laboratory equipment - 5 years; office equipment - 4 to 7 years; and leasehold
improvements - the shorter of 7 years or lease-term.

REVENUE RECOGNITION

         Revenue for any products that are developed will be recognized when
such products are shipped. Collaborative revenue is related to non-contingent
research and development reimbursement received under the Company's strategic
alliance and is being recognized over the anticipated performance of research
and development.

LICENSE FEES

         Upon execution and continuation of license agreements, license
initiation and preservation fees are evaluated as to whether the underlying drug
candidate has alternative use, and if none, have been recorded as an expense at
fair value. License milestone criteria are continuously evaluated and when
criterion achievement is probable, the Company records expense at fair value, or
will capitalize the fair value if marketing approval is obtained for the
licensed compound or if the compound has an alternate future use. License
preservation fees are recorded when payment is probable and the Company records
expense, at fair value, ratably over the period for which the payment pertains.


                                       57
<PAGE>


                         TRIANGLE PHARMACEUTICALS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1.       ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ACCRUED EXPENSES

         The carrying value of accrued expenses approximates fair value because
of their short-term maturity.

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
consolidated 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. 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.

NET LOSS PER COMMON SHARE

         Basic net loss per common share is computed using the weighted average
number of shares of Common Stock outstanding during the period. Diluted net loss
per common share is computed using the weighted average number of shares of
common and dilutive potential common shares outstanding during the period.
Potential common shares consist of stock options, warrants and convertible
preferred stock using the treasury stock method and are excluded if their effect
is antidilutive. At December 31, 2000 had such potential common shares not been
antidilutive, their effect would be to increase the shares used in computing
diluted net loss per common share to 38,793.

COMPREHENSIVE INCOME (LOSS)

         The Company calculates and discloses comprehensive income in accordance
with Statement of Financial Accounting Standards No. 130, "REPORTING
COMPREHENSIVE INCOME." The Company discloses comprehensive income (loss) as a
component in its consolidated statements of stockholders' equity.

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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

STOCK-BASED COMPENSATION

         The Company records stock-based compensation in accordance with
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" ("APB 25"). 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.

         In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, ("FIN 44"), "ACCOUNTING FOR CERTAIN TRANSACTIONS
INVOLVING STOCK COMPENSATION-AN INTERPRETATION OF APB 25." This
interpretation clarifies: the definition of employee for purposes of applying
APB 25, the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various modifications to
the terms of a previously fixed stock option or award, and the accounting for
an exchange of stock

                                       58
<PAGE>


                         TRIANGLE PHARMACEUTICALS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1.       ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

compensation awards in a business combination. FIN 44 was effective and the
Company adopted the interpretation on July 1, 2000. The adoption did not have a
material impact on the Company's consolidated results of operations.

DERIVATIVE FINANCIAL INSTRUMENTS

         The Company records its derivative financial instruments in accordance
with Statement of Financial Accounting Standards No. 133, "ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" ("SFAS 133") as deferred and
amended by SFAS 137 and SFAS 138. SFAS 133, 137 and 138 establish accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities, and require
the Company to recognize all derivatives as either assets or liabilities on the
balance sheet and measure them at fair value. Gains and loses resulting from
changes in fair value would be accounted for based on the intended use of the
derivative and whether it is designated and qualifies for hedge accounting.

         Derivative financial instrument contracts are entered into and utilized
by the Company to manage foreign exchange risk by hedging certain transactions,
or firm commitments, which are denominated in a foreign currency. The Company
has established a control environment which includes policies and procedures for
risk assessment and the approval, reporting and monitoring of derivative
financial instrument activities. The Company's derivative activities are subject
to the management direction and control of the Risk Management Committee (the
"RMC"). The RMC is composed of the Chief Financial Officer and the Treasurer.

         To qualify for hedge accounting, the contracts must meet defined
correlation and effectiveness criteria, be designated as hedges and result in
cash flows and financial statement effects which substantially offset those
of the position being hedged. The Company formally documents all
relationships between hedging instruments and hedge items, as well as its
risk-management objective and strategy for undertaking various hedge
transactions. This process includes linking all derivatives that are
designated as fair-value hedges to specific assets or liabilities or to
specific firm commitments or forecasted transactions. The Company also
formally assesses, both at the hedge's inception and on an ongoing basis,
whether the derivatives used in hedging transactions are highly effective in
offsetting changes in fair values of hedged items. The Company records these
foreign exchange contracts at fair value in its consolidated balance sheet
and the related gains or losses on these contracts as an offset to the hedged
item. At December 31, 2000, Triangle had $1,234 of European Monetary Union
foreign currency forward contracts to hedge firm foreign currency
commitments. For the year ended December 31, 2000, 1999 and 1998, the Company
realized net losses or gains on foreign currency transactions of
approximately $46, ($145) and $25, respectively.

OTHER RECENT ACCOUNTING PRONOUNCEMENTS

         In December 1999, the Securities and Exchange Commission (the "SEC")
issued Staff Accounting Bulletin No. 101, "REVENUE RECOGNITION IN FINANCIAL
STATEMENTS" ("SAB 101"). SAB 101, as amended by SAB 101A and 101B, provided
broad conceptual discussions and industry-specific guidance concerning
revenue recognition. The Company adopted SAB 101 in 1999 and, accordingly,
has reported the impact of the strategic alliance with Abbott Laboratories in
accordance with SAB 101's conceptual guidance. Adoption of SAB 101 resulted
in all non-contingent research and development reimbursement to be amortized
as collaborative revenue over the anticipated research and development
arrangement period and will require the recognition of any contingent
development milestone payments to be deferred and amortized beyond their
actual receipt.

                                       59
<PAGE>

                         TRIANGLE PHARMACEUTICALS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

2.       INVESTMENTS

<TABLE>
<CAPTION>

         A summary of the fair market value of investments securities by
classification is as follows:

                                                                                            DECEMBER 31,
                                                                             -------------------------------------
                                                                                     2000                 1999
                                                                             -------------------  ----------------
<S>                                                                          <C>                  <C>
United States Government obligations...................................      $         10,684     $         16,441
Corporate bonds, notes and commercial paper............................                29,934               75,206
Preferred stock........................................................                 2,000                   --
Other..................................................................                 6,258                7,618
                                                                             -------------------  ----------------
         Total.........................................................      $         48,876     $         99,265
                                                                             ===================  ================
</TABLE>

     The Company owns 3,300 shares of Intelligent Therapeutic Solutions, Inc.
("ITS") Series A Preferred Stock and is accounting for its investment using
the equity method. At December 31, 2000, the carrying value of this
investment was $0 and the Company has no obligation to fund future ITS
operations.

     Maturities of debt securities at fair market value are as follows:

<TABLE>
<CAPTION>

                                                                                            DECEMBER 31,
                                                                             -------------------------------------
                                                                                     2000                 1999
                                                                             -------------------  ----------------
<S>                                                                          <C>                  <C>
Mature in one year or less.............................................      $         39,472     $         94,583
Mature after one year through five years...............................                 7,404                4,682
                                                                             -------------------  ----------------
         Total.........................................................      $         46,876     $         99,265
                                                                             ===================  ================

</TABLE>

         Gross realized and unrealized holding gains and losses for the years
ended December 31, 2000, 1999 and 1998 were not significant.

3.       PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>

                                                                                            DECEMBER 31,
                                                                             -------------------------------------
                                                                                     2000                 1999
                                                                             -------------------  ----------------
<S>                                                                          <C>                  <C>
Laboratory equipment...................................................      $          5,791     $          4,679
Office equipment.......................................................                 3,253                2,697
Leasehold improvements.................................................                   465                  254
Construction-in-progress (office and laboratory equipment).............                   826                  580
                                                                             -------------------  ----------------
                                                                                       10,335                8,210
Accumulated depreciation...............................................                (4,242)              (2,509)
                                                                             -------------------  -----------------
         Property, plant and equipment, net............................      $          6,093     $          5,701
                                                                             ===================  ================

</TABLE>





         The Company leases office and laboratory facilities and office
equipment under various operating leases. Rent expense totaled $2,233, $1,823
and $1,335 for 2000, 1999 and 1998, respectively.

         Future minimum lease payments under operating leases at December 31,
2000 are as follows:

<TABLE>
<CAPTION>

YEAR                                                                                                     AMOUNT
----                                                                                              ------------------
<S>                                                                                               <C>
2001........................................................................................      $          1,999
2002........................................................................................                 1,975
2003........................................................................................                 1,399
                                                                                                  ----------------
         Total..............................................................................      $          5,373
                                                                                                  ================
</TABLE>


                                       60
<PAGE>

                         TRIANGLE PHARMACEUTICALS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

3.       PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

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

                                                                                            DECEMBER 31,
                                                                             --------------------------------------
                                                                                     2000                 1999
                                                                             -------------------  -----------------
<S>                                                                          <C>                  <C>
Laboratory equipment...................................................      $            567     $            567
Accumulated depreciation...............................................                  (497)                (383)
                                                                             -------------------  ----------------
         Net capitalized leased assets.................................      $             70     $            184
                                                                             ===================  ================

<CAPTION>

         At December 31, 2000, the Company had $7 remaining in future minimum
lease payments under its capital lease obligations. Because the interest rates
associated with these lease agreements approximate a market rate, the carrying
value of these obligations approximates fair value. Interest expense under
capital lease obligations for 2000, 1999, and 1998 was $5, $19, and $31,
respectively.

4.       ACCRUED EXPENSES

         Accrued expenses consist of the following:

                                                                                            DECEMBER 31,
                                                                             -------------------------------------
                                                                                     2000                 1999
                                                                             -------------------  ----------------
<S>                                                                          <C>                  <C>
Accrued clinical studies...............................................      $         13,233     $          8,160
Accrued drug substance.................................................                 1,088                3,849
Accrued professional fees..............................................                 1,031                  965
Accrued compensation and benefits......................................                   664                  426
Accrued duties and taxes...............................................                    95                  145
Other..................................................................                 1,157                1,042
                                                                             -------------------  ----------------
         Total.........................................................      $         17,268     $         14,587
                                                                             ===================  ================
</TABLE>

5.       STOCKHOLDERS' EQUITY

         During 1996 and 1995, the Company issued 5,232 shares of convertible
Series A Preferred Stock with a par value of $0.001 per share for $3,900, net of
offering costs. During 1996, the Company issued 3,706 shares of convertible
Series B Preferred Stock with a par value of $0.001 per share for $18,400, net
of offering costs. No preferred dividends were declared or paid from the date of
inception (July 12, 1995) through the date of conversion of all Preferred Stock
into Common Stock on a one-for-one basis in connection with the closing of the
Company's initial public offering (the "IPO").

         On November 6, 1996, the Company completed its IPO of 4,533 shares of
Common Stock (including the exercise of the U.S. Underwriters over-allotment
option) 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 $41,000. Prior to the closing of the IPO, the
Company's certificate of incorporation was amended to modify the number of
authorized capital stock to 75,000 shares of Common Stock, $0.001 par value per
share, and 5,000 shares of Preferred Stock, $0.001 par value per share.

         On June 6, 1997, the Company issued 2,000 shares of Common Stock for
$30,000, or a price of $15.00 per share (a discount of approximately 15% from
the average closing price of the Common Stock over the 30 trading days prior to
the date of the transaction). Net proceeds to the Company from this private
offering were approximately $29,400. Pursuant to the purchase agreement, these
shares were registered on January 23, 1998 with


                                       61
<PAGE>


                         TRIANGLE PHARMACEUTICALS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

5.       STOCKHOLDERS' EQUITY (CONTINUED)

the SEC. The Company was introduced to the purchaser of these shares by one
of the Company's outside directors. The director received a finders fee of
$500 in connection with the transaction which was recorded as an offering
cost.

         On April 15, 1998, the Company completed registration of 4,025
shares of Common Stock (including the exercise of the Underwriters
over-allotment options) at $15.00 per share with the SEC. The total proceeds
of this public offering, net of offering costs, were approximately $55,800.

         On December 24, 1998, the Company issued 170 shares of convertible
Series A Preferred Stock with a par value of $0.001 per share for $100.00 per
share in a private offering to accredited institutional investors. The total
proceeds of this offering, net of offering costs, were approximately $15,600. On
May 14, 1999, all 170 shares were converted to 1,700 shares of Common Stock upon
the approval of the issuance of preferred shares by the stockholders of the
Company. The Company's certificate of incorporation authorizes the Board of
Directors (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 of each series of Preferred Stock issued.

         On December 30, 1998, the Company issued 4,800 shares of Common
Stock for $10.00 per share in a private offering to accredited investors. The
total proceeds of this offering, net of offering costs, were approximately
$44,400. Pursuant to the terms of this offering, a registration statement
covering the resale of these shares was declared effective by the SEC on
December 31, 1998.

         On August 3, 1999, the Company completed its worldwide strategic
alliance (the "Abbott Alliance") with Abbott Laboratories ("Abbott")
resulting in Abbott purchasing 6,571 shares of Common Stock at $18.00 per
share. Net proceeds to the Company were approximately $115,861. On May 24,
2000, Abbott purchased 67 shares of Common Stock at $6.10 per share pursuant
to the terms of a stockholder rights agreement between the Company and
Abbott. Net proceeds to the Company were approximately $407. Pursuant to the
terms of the Abbott Alliance, Abbott has the right to purchase additional
amounts of our Common Stock up to a maximum aggregate percentage of 21% and
has certain rights to purchase shares directly from the Company in order to
maintain a certain ownership interest in Triangle, also known as antidilution
protection.

         Under the terms of various agreements, the Company has the option to
repurchase shares of 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 1996 and 1995, the
Company issued shares subject to vesting totaling 560 and 2,140, respectively.
The number of shares subject to repurchase decreases to zero over periods
ranging from three to four years. At December 31, 2000, approximately 6 shares
were subject to repurchase rights. During 2000, 1999 and 1998, the Company
recognized compensation expense of $348, $200 and $81, respectively, related to
the issuance of equity instruments.

6.       EQUITY FACILITY

         On November 1, 2000, the Company closed a Firm Underwritten Equity
Facility (the "Facility") consisting of a Common Stock Underwriting Agreement
and a Stand-By Purchase Agreement. The Facility enables the Company to sell up
to a $100,000 of registered Common Stock over a three-year period in the public
market. Sales of Common Stock will occur when the Company initiates a 15-trading
day selling period and shares are sold at a fixed percentage of the volume
weighted average price ("VWAP") for each trading day. Pursuant to the Facility,
the underwriter has no obligation to sell shares beyond 15% of the average daily
trading volume during the selling


                                       62
<PAGE>

                         TRIANGLE PHARMACEUTICALS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

6.       EQUITY FACILITY (CONTINUED)

period, nor to sell Common Stock if the VWAP is below $4.00 per share.
Underwriter commission is equal to 4.25% of gross proceeds derived from the
Facility. In addition, the underwriter was granted a purchase right to
acquire 300 shares of Common Stock at $13.00 per share. This right was
valued, using the Black-Scholes valuation model, at approximately $1,275. In
December 2000, the Company initiated its first selling period under the
Facility selling 215 shares of Common Stock with gross proceeds of $1,261.
Net cash proceeds received were approximately $807.

7.       EMPLOYEE BENEFIT PLANS

EMPLOYEE STOCK PURCHASE PLAN

         The Company's Employee Stock Purchase Plan (the "Purchase Plan") became
effective November 1, 1996. The Purchase Plan is designed to allow eligible
employees of the Company to purchase shares of Common Stock, at semi-annual
intervals, through periodic payroll deductions under the Purchase Plan. A
reserve of 300 shares of Common Stock has been established for this purpose. The
Purchase Plan is 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, 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. The shares vest immediately upon issuance.

         During 2000, 1999 and 1998, the Company issued 45, 39 and 33 shares,
respectively, under the Purchase Plan. At December 31, 2000, the Company held
payroll deductions of approximately $81 which will be used to purchase shares of
Common Stock in 2001. The Purchase Plan had an insignificant impact on the
Company's 2000, 1999 and 1998 pro forma fair value disclosure as required under
SFAS 123.

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 on December 10,
1998 for the calendar year 1999, on December 6, 1999 for the calendar year 2000,
and on December 11, 2000 for the calendar year 2001. 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 nor more than $50. 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 vest and 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 vest and
become fully exercisable on specified changes in the ownership or control of the
Company. Options have a maximum term of ten years from the date of grant.


                                       63
<PAGE>

                         TRIANGLE PHARMACEUTICALS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

7.       EMPLOYEE BENEFIT PLANS (CONTINUED)

DIRECTOR COMPENSATION

         All eligible non-employee directors received an option to purchase two
shares of Common Stock for each year of the director's Board term plus an
additional two shares for those directors who have not served previously. These
options 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.
Options vest on the day immediately preceding the next annual Board meeting and
have a maximum term of ten years from the date of grant, or one year from the
cessation of Board service.

401(K) PENSION PLAN

         The Company sponsors a qualified defined contribution pension plan
which is available to substantially all permanent employees. This 401(k) plan
provides for employer matching contributions based on employee participation.
The total expense under this plan was $260, $184 and $104 for 2000, 1999 and
1998, respectively.

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 1996 Plan became effective on August 30, 1996 and 2,200
options of Common Stock were authorized for issuance. On May 15, 1998, an
additional 1,000 options were authorized for issuance with an automatic increase
provision whereby on January 1, 1999, 2000 and 2001 four percent of the total
number of shares of Common Stock issued and outstanding, as of December 31 of
the preceding year, will be authorized for issuance up to an annual maximum
limitation of 1,000. In no event may any one participant receive option grants
or direct stock issuances for more than 500 shares in the aggregate per calendar
year. Options generally vest over a four or five year period and have a maximum
term of ten years from the date of grant.

         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 required by APB 25.

         The following table summarizes the stock option activity for the
Company's plans:

<TABLE>
<CAPTION>

                                                    NUMBER OF            WEIGHTED AVERAGE        WEIGHTED AVERAGE
                                                      SHARES               EXERCISE PRICE           FAIR VALUE
                                             ----------------------   ----------------------   -------------------
<S>                                                     <C>           <C>                      <C>
Options outstanding, December 31, 1997...               1,709         $          9.121                       --
Granted at fair value....................                 802                   14.809         $          9.612
Exercised................................                  (8)                   0.075                       --
Forfeited................................                 (22)                  19.352                       --
                                             ----------------------   ----------------------   ----------------
Options outstanding, December 31, 1998...               2,481                   10.895                       --
Granted at fair value....................                 991                   13.774         $          9.146
Exercised................................                (256)                   0.754                       --
Forfeited................................                 (83)                  17.406                       --
                                             ----------------------   ----------------------   ----------------
Options outstanding, December 31, 1999...               3,133                   12.460                       --
Granted below fair value.................                  24                    8.865         $          1.858
Granted at fair value....................               1,321                    7.563         $          5.362
Granted above fair value.................                 213                   16.712         $          0.936
Exercised................................                (225)                   1.683                       --
Forfeited................................                (621)                  14.853                       --
                                             ----------------------   ----------------------   ----------------
Options outstanding, December 31, 2000...               3,845         $         11.234                       --
                                             ======================   ======================   ================
</TABLE>


                                       64
<PAGE>

                         TRIANGLE PHARMACEUTICALS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

7.       EMPLOYEE BENEFIT PLANS (CONTINUED)

         The following table summarizes information concerning options
outstanding at December 31, 2000 and 1999:

                                                                                           WEIGHTED AVERAGE
                                                                                               REMAINING
                                                      NUMBER         WEIGHTED AVERAGE     CONTRACTUAL LIFE
                                                     OF SHARES         EXERCISE PRICE         (IN YEARS)
                                                ------------------   ------------------   ------------------
<S>                                                       <C>        <C>                             <C>
Options outstanding-
Price range:
     $0.075 - $5.563.......................                 618      $         2.780                 7.52
     $5.813 - $9.938.......................                 945                6.429                 8.18
     $10.000 - $13.250.....................               1,102               12.274                 8.68
     $13.406 - $17.375.....................                 594               15.845                 7.19
     $17.500 - $23.625.....................                 586               21.267                 6.62
                                                ------------------   ------------------   ---------------
Options outstanding, December 31, 2000.....               3,845      $        11.234                 7.83
                                                ==================   ==================   ===============

Exercisable options outstanding-
Price range:
     $0.075 - $5.563.......................                 313      $         0.075
     $5.813 - $9.938.......................                 302                6.825
     $10.000 - $13.250.....................                 357               12.552
     $13.406 - $17.375.....................                 423               15.840
     $17.500 - $23.625.....................                 447               21.549
                                                ------------------   ---------------
Exercisable options outstanding, December
     31, 2000..............................               1,842      $        12.428
                                                ==================   ===============
Exercisable options outstanding, December
     31, 1999..............................               1,507      $         9.820
                                                ==================   ===============

<CAPTION>

         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 valuation
model with the following assumptions:

                                                                                       DECEMBER 31,
                                                                   --------------------------------------------------
                                                                         2000              1999              1998
                                                                   ---------------   ---------------   --------------
<S>                                                                   <C>               <C>               <C>
Expected dividend yield.......................................              0.00%             0.00%             0.00%
Expected stock price volatility...............................             92.00%            80.00%            80.00%
Risk-free interest rate.......................................        5.17%-5.22%        6.14-6.19%        4.53-4.54%
Expected life of options......................................          4-5 years         4-5 years         4-5 years

<CAPTION>

         For purposes of pro forma disclosures, the estimated fair value of
equity instruments is amortized to expense over their respective vesting period.
If the Company had elected to recognize compensation expense based on the fair
value of stock-based instruments at the grant date, as prescribed by SFAS 123,
its pro forma net loss and net loss per common share would have been as follows:

                                                                         2000              1999              1998
                                                                   ---------------   ---------------   ----------
<S>                                                                <C>               <C>               <C>
Net loss - as reported........................................     $    (109,525)    $    (104,621)    $     (67,271)
Net loss - pro forma..........................................     $    (117,238)    $    (109,078)    $     (70,598)
Net loss per common share - as reported.......................     $       (2.87)    $       (3.18)    $       (2.93)
Net loss per common share - pro forma.........................     $       (3.08)    $       (3.31)    $       (3.08)
</TABLE>


                                       65
<PAGE>

                         TRIANGLE PHARMACEUTICALS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

8.       LICENSING AGREEMENTS

         As of December 31, 2000, the Company has multiple license agreements
for its drug candidates as well as collaborative agreements with specific
third parties to assist in the identification and development of other novel
drug candidates. In the aggregate, these agreements may require future
payments of up to $91,000 contingent upon the achievement of certain
development milestones, up to $30,000 upon the achievement of certain sales
milestones, and $5,469 of future research and development payments. One of
the Company's licensors has the option to receive $2,000 of such future
milestone payments in shares of Common Stock (based on the then current
market price) in lieu of a cash payment. The Company is also obligated to
issue up to an additional 1,650 shares of Common Stock upon the achievement
of certain development milestones relating to mozenavir dimesylate acquired
in the acquisition of Avid Corporation ("Avid"). 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 commencing three years after
regulatory approval. Depending on the Company's success and timing in
obtaining regulatory approval, aggregate annual minimum royalties and annual
license preservation fees could range from $50 (if only a single drug
candidate is approved for one indication) to $54,500 (if all drug candidates
are approved for all indications) under the Company's existing license
agreements. Under the terms of the Company's license agreements, the Company
was reimbursed $265 in 1999 associated with certain development work. In
addition, the Company has option agreements that allow it to obtain licenses
on additional drug candidates in the future.

9.       INCOME TAXES

         There is no current income tax provision or benefit recorded in any
period as the Company has generated net operating losses for income tax
purposes. There is no deferred income tax provision or benefit recorded in any
period as the Company is in a net deferred tax asset position for which a full
valuation allowance has been recorded due to the uncertainty of its realization.

         At December 31, 2000, 1999 and 1998, the Company had net operating
loss carryforwards of approximately $265,279, $155,344 and $91,866,
respectively, and research credit carryforwards of approximately $10,895,
$8,249 and $6,072, respectively, which will expire in years 2006 to 2020. 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.

         In connection with the acquisition of Avid, the Company acquired
transferable net operating loss carryforwards, research and development credits
and capitalized start-up costs which may be used to offset certain future
income. Net operating loss carryforwards associated with Avid will have an
annual limitation on the amount available to reduce certain future taxable
income.

<TABLE>
<CAPTION>

         The components of deferred taxes are as follows:

                                                                                    DECEMBER 31,
                                                              -----------------------------------------------------
                                                                    2000                1999               1998
                                                              ----------------    ----------------   --------------
<S>                                                           <C>                 <C>                <C>
Loss carryforwards..........................................  $      104,918      $       61,439     $       36,480
Deferred revenue............................................           9,658               9,887                 --
Research tax credit.........................................          10,895               8,249              6,072
License fees................................................           7,805               7,347              4,062
Accrued liabilities and reserves............................           3,181               2,912                481
Start-up costs..............................................             567                 907              1,253
                                                              ----------------    ----------------   --------------
Deferred tax assets.........................................         137,024              90,741             48,348
Deferred tax assets valuation allowance.....................        (137,024)            (90,741)           (48,348)
                                                              ----------------    ----------------   ---------------
         Net deferred tax asset.............................  $           --      $           --     $           --
                                                              ================    ================   ==============
</TABLE>


                                       66
<PAGE>


                         TRIANGLE PHARMACEUTICALS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

10.      AVID ACQUISITION

         On August 28, 1997, the Company acquired Avid in a merger accounted for
as a purchase transaction. Pursuant to the merger agreement, Triangle issued 400
shares of Common Stock in exchange for all outstanding capital stock of Avid.
Triangle also agreed to issue up to 2,100 additional shares of Common Stock, the
issuance of 1,600 shares of which was contingent upon Triangle initiating
pivotal Phase II clinical trials with mozenavir dimesylate before February 28,
1999 (the "DMP Milestone Date"), or electing on or before that date to continue
the development of mozenavir dimesylate even if such clinical trials have not
been initiated. In connection with the acquisition, the Company incurred a
charge of $11,261 for acquired in-process research and development. In February
1999, the Company and representatives of the former stockholders of Avid
extended the DMP Milestone Date until February 28, 2000. As consideration for
this extension, the Company agreed to issue 100 of the 1,600 contingent shares
of Common Stock in 1999 and recorded an additional purchased research and
development charge of $1,247. In March 2000, the Company and representatives of
the former stockholders of Avid agreed to further extend the DMP Milestone Date
until August 28, 2001. As consideration for this extension, the Company agreed
to issue 400 of the then remaining 1,600 contingent shares of Common Stock in
2000, and to increase the remaining number of contingent shares by 50. Issuance
of the 400 shares resulted in an additional purchased research and development
charge of $5,350 as the drug candidate remained at an early stage of development
(Phase I/II). The remaining 500 of the 1,650 shares are contingent upon the
obtainment of additional development milestones. Issuance of any of these
contingent shares will be recorded as additional purchase price and will be
allocated upon resolution of the underlying contingency. The operating results
of Avid have been included in the Company's consolidated financial statements
from its acquisition. Avid's principal asset consisted of worldwide license
rights to mozenavir dimesylate, a protease inhibitor for the treatment of human
immunodeficiency virus infection.

11.      STRATEGIC ALLIANCE WITH ABBOTT LABORATORIES

         In August 1999, the Company completed a worldwide strategic alliance
with Abbott for six antiviral compounds. Pursuant to terms of the Abbott
Alliance, Triangle and Abbott will collaborate with respect to the clinical
development, registration, distribution and marketing of various proprietary
pharmaceutical products for the prevention and treatment of HIV and hepatitis
B virus. In the United States, Triangle and Abbott will co-promote four
Triangle products currently in active development for HIV and/or hepatitis B,
Coviracil, Coactinon, DAPD and clevudine, and Abbott's two HIV protease
inhibitors, Norvir (R) (ritonavir) and Kaletra(TM) (lopinavir/ritonavir).
Outside the United States, Abbott will have exclusive sales and marketing
rights for the four Triangle antiviral compounds. Triangle and Abbott will
share profits and losses for the four Triangle drug candidates. Triangle will
receive detailing fees and commissions on incremental sales we generate for
Abbott's protease inhibitors. In addition, Abbott has the right of first
discussion to market future Triangle compounds. The Abbott Alliance provided
for non-contingent research and development reimbursement of $31,714, $25,000
of which was received in December 1999 and $6,714 was received in January
2000, and up to $185,000 of contingent development milestone payments and the
sharing of future commercialization costs. In addition, Abbott initially
purchased approximately 6,571 shares of Triangle Common Stock at $18.00 per
share which resulted in net proceeds to the Company of $115,861, as has
subsequently purchased another 67 shares which resulted in net proceeds of
$407. The Abbott Alliance provides access to Abbott's international and
domestic infrastructure to market and distribute products receiving
regulatory approval, global manufacturing capabilities, drug development
assistance, United States co-promotion rights to two Abbott compounds, as
well as financial support to help fund the continued development of our
portfolio of drug candidates.

12.      RELATED PARTY TRANSACTIONS

         The Company has two outside directors on its Board which are affiliated
with companies with which Triangle conducts business operations. One director is
affiliated with Abbott and the other has an ownership interest in various
companies that Triangle has utilized, and continues to utilize, in the
completion of its clinical and preclinical studies. As of December 31, 2000 and
1999, the Company had accounts payable outstanding to these


                                       67
<PAGE>

                         TRIANGLE PHARMACEUTICALS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

12.      RELATED PARTY TRANSACTIONS (CONTINUED)

companies performing clinical and pre-clinical services of approximately $1,631
and $1,145, respectively, and incurred approximately $5,012, $2,763 and $1,475
during 2000, 1999 and 1998, respectively, in development expense for services.

         In association with the Abbott Alliance, the Company utilizes Abbott
for assistance primarily in drug development and manufacture and shares expenses
under a profit and loss calculation for the four Triangle products in the Abbott
Alliance. Accordingly, the Company had accounts payable of $6,005 and $571 at
December 31, 2000 and 1999, respectively, and had incurred approximately $18,388
and $4,676 during 2000 and 1999, respectively, for development services
performed by Abbott. Under the profit and loss calculation, the Company had a
receivable of $413 and $1,156 at December 31, 2000 and 1999, respectively, and
accordingly 2000 and 1999 marketing expense was reduced by $1,416 and $1,518,
respectively, thereby reducing selling, general and administrative expenses. The
Company recognized $7,294 of collaborative revenue during the year ended
December 31, 2000.

13.      STOCKHOLDER RIGHTS PLAN

         On January 29, 1999, the Board adopted a "Stockholder Rights Plan" in
which Preferred Stock Purchase Rights were distributed as a dividend at the rate
of one right per share of Common Stock and ten rights per share of Series A
Preferred Stock (i.e., the equivalent of one right per share of Common Stock
issuable upon the conversion of the Series A Preferred Stock), held as of
February 16, 1999. Each right entitles the holder to acquire one-thousandth of a
share of $0.001 par value Series B Junior Participating Preferred Stock, upon a
third party acquiring beneficial ownership of 15% or more of the Company's
Common Stock, at a price of $100.00 per right. The Company can redeem the rights
for $0.001 per right at the discretion of the Board. The Stockholder Rights Plan
is designed to deter a party from gaining control of the Company without
offering a fair price to all stockholders and should encourage a party to
negotiate with the Board prior to attempting to acquire the Company.

14.      COMMITMENTS AND CONTINGENCIES

         The Company is indirectly involved in several opposition and
interference proceedings and two lawsuits filed in Australia regarding the
patent rights related to two of its licensed drug candidates. Although the
Company is not a named party in any of these proceedings, it is obligated to
reimburse its licensors for certain legal expenses associated with these
proceedings. In one of these patent opposition proceedings, on November 8,
2000, the Australian Patent Office held that several patent claims of Emory
University directed to DAPD are not patentable over an earlier opposing
patent. Emory University has appealed this decision of the Australian Patent
Office to the Australian Federal Court. If Emory University and the Company
are unsuccessful in the appeal, then the Company will not be able to sell
DAPD in Australia without a license, which may not be available on reasonable
terms or at all. The Company cannot predict the outcome of these proceedings.
The Company believes that an adverse judgment would not result in a material
financial obligation to the Company, nor would the Company have to recognize
an impairment under Statement of Financial Accounting Standards No. 121
"ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF" as no amounts have been capitalized related to these drug
candidates. However, any development in these proceedings adverse to the
Company's interests could have a material adverse effect on the Company's
future consolidated financial position, results of operations and cash flow.

         The Company enters into contractual arrangements regarding clinical and
toxicology studies in the development of its drug candidates. At December 31,
2000, the Company estimates its commitment to be approximately $39,500 under
these agreements; however, this estimate is dependent upon the results of the
underlying studies and certain other variable components. Additionally, the
Company has entered into agreements with third parties to provide drug substance
to satisfy its drug development requirements and to provide for the potential
commercial launch of its drug candidates. At December 31, 2000, the Company
estimates its commitment for drug substance to be approximately $14,500. Similar
to the clinical and toxicology studies commitment, this estimate is subject to a
number of variables that may result in the actual obligation differing from
management's estimate.


                                       68
<PAGE>

                         TRIANGLE PHARMACEUTICALS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

15.      SUMMARY QUARTERLY FINANCIAL DATA (UNAUDITED)


                                             2000                                             1999
                       -----------------------------------------------  -----------------------------------------------
                         FIRST       SECOND       THIRD       FOURTH      FIRST       SECOND       THIRD       FOURTH
                         QUARTER     QUARTER     QUARTER      QUARTER     QUARTER     QUARTER     QUARTER     QUARTER
                         -------     -------     -------      -------     -------     -------     -------     -------
<S>                    <C>         <C>         <C>          <C>         <C>         <C>         <C>          <C>
Revenues...........    $   1,982   $   1,824   $   1,744    $   1,744   $      --   $      --   $      --    $      --
Loss from .........
   Operations......      (33,662)    (28,752)    (27,780)     (26,656)    (19,901)    (33,509)    (24,510)     (33,266)
Net Loss...........      (31,386)    (26,758)    (26,057)     (25,325)    (18,431)    (32,429)    (22,563)     (31,198)
Basic and Diluted
   Loss per
   Common Share....       (0.83)      (0.70)      (0.68)       (0.66)      (0.64)      (1.08)      (0.64)       (0.83)
</TABLE>


16.      SUBSEQUENT EVENT (UNAUDITED)

         In January 2001, the Company entered into definitive purchase
agreements with a limited number of qualified institutional buyers and large
institutional accredited investors for the sale of 7,700 shares of Common
Stock at $6.00 per share for gross proceeds totaling $46,200. The closing of
the Common Stock sale will occur within three business days of the date the
SEC confirms its willingness to declare effective the resale registration
statement, initially filed February 2, 2001, in connection with the
financing. Net proceeds are expected to be approximately $43,475. Abbott and
another related party are participating in this financing and have agreed to
purchase 1,300 and 1,500 shares of Common Stock, respectively.

                                       69
<PAGE>

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

         None.

                                    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)      Business Expenses.  The information under the heading "Business
Expenses," appearing in the Proxy Statement, is incorporated herein by
reference.

(d)      Section 16(a) Beneficial Ownership Reporting Compliance.  The
information under the heading "Section 16(a) Beneficial Ownership Reporting
Compliance," appearing in the Proxy Statement, is incorporated herein by
reference.

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.


                                       70
<PAGE>

                                     PART IV
                                     -------

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

(a)      (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 Consolidated
Financial Statements on page 50.

         (2)      Financial Statement Schedules

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

(b)      Reports on Form 8-K

         On November 3, 2000, we filed a current report on Form 8-K dated
November 2, 2000 announcing our completion of an equity financing agreement with
Ramius Securities, LLC. This Facility enables Triangle to periodically issue and
sell up to $100.0 million of our Common Stock during 15-trading day selling
periods over a three-year term.

(c)      Exhibits

EXHIBIT
NUMBER        DESCRIPTION
------        -----------

2.1           Agreement and Plan of Reorganization among the Company, Project Z
              Corporation and Avid Corporation dated June 30, 1997 (filed as
              Exhibit 2.1 to the Company's Form 10-Q filed August 14, 1997).

3.1(a)        Restated Certificate of Incorporation of the Company.

3.2(a)        Second Restated Certificate of Incorporation of the Company.

3.3(a)        Bylaws of the Company, as amended.

3.4(a)        Restated Bylaws of the Company.

3.5           Certificate of Designations, Preferences and Rights of the
              Series A Preferred Stock, as filed with the Secretary of State
              of the State of Delaware (filed as Exhibit 4.1 to the
              Company's Form 8-K filed December 30, 1998).

3.6           Certificate of Designations, Preferences and Rights of the Series
              B Junior Participating Preferred Stock, as filed with the
              Secretary of State of the State of Delaware (filed as Exhibit 3.6
              to the Company's Form 10-K filed March 19, 1999).

4.1(a)        Form of Certificate for Common Stock.

4.2(a)        Form of Restricted Stock Purchase Agreement.

10.2(a)       Form of Employee Proprietary Information Agreement.

10.3(a)       Form of Scientific Advisor Agreement.


                                       71
<PAGE>

10.4(a)       Series A Preferred Stock Purchase Agreement among the Company and
              the investors listed on Schedule A thereto, dated July 19, 1995.

10.5(a)       Series A Preferred Stock Purchase Agreement among the Company and
              the investors listed on Schedule A thereto, dated October 31,
              1995.

10.6(a)       Series A Preferred Stock Purchase Agreement among the Company and
              Schroder Venture Managers Limited dated November 8, 1995.

10.7(a)       Series A Preferred Stock Purchase Agreement among the Company and
              Chris Rallis dated November 8, 1995.

10.8(a)       License Agreement between the Company, Karl Hostetler, M.D. and
              Dennis Carson, M.D., dated November 16, 1995.

10.12(a)      Sublease between the Company and Eli Lilly, dated
              January 18, 1996.

10.18(a)      Sublease Amendment between the Company and Eli Lilly, dated
              March 1, 1996.

10.19(a)      License Agreement among the Company, Emory University and the
              University of Georgia Research Foundation, Inc. for compound DAPD,
              dated March 31, 1996.

10.22(a)      License Agreement between the Company and Emory University for
              Coviracil (FTC), dated April 17, 1996.

10.25(a)      Series A Preferred Stock Purchase Agreement among the Company and
              the stockholders listed on Schedule A thereto, dated May 9, 1996.

10.28(a)      Series B Preferred Stock Purchase Agreement among the Company and
              the investors listed on Schedule A thereto, dated June 11, 1996.

10.29(a)      Restated Investors' Rights Agreement among the Company and certain
              stockholders of the Company, dated June 11, 1996.

10.31(a)      Second Amendment to Sublease between the Company and Eli Lilly and
              Company, dated August 2, 1996.

10.32(a)      Master Lease Agreement between the Company and Comdisco Ventures
              dated August 8, 1996.

10.33(a)      Stock Purchase Warrant between the Company and Comdisco Ventures
              dated August 8, 1996.

10.34(a)      Option Agreement between the Company and The Regents of the
              University of California, dated September 1, 1996.

10.40(a)      Employee Stock Purchase Plan.

10.41(a)      Form of Indemnification Agreement between the Company and each of
              its directors.

10.42(a)      Form of Indemnification Agreement between the Company and each of
              its officers.

10.43(a)      Form of Written Consent of Holders of Series A and Series B
              Preferred Stock to conversion, dated September 5, 1996.

10.44(a)      Form of Waiver of Registration Rights, dated September 5, 1996.

                                       72
<PAGE>

10.46         License Agreement dated as of December 18, 1996 between Avid
              Corporation and The DuPont Merck Pharmaceutical Company (filed as
              Exhibit 10.1 to the Company's Form 10-Q filed November 14, 1997).

10.47         Common Stock Purchase Agreement among the Company and the
              investors listed on Exhibit A thereto dated June 6, 1997 (filed as
              Exhibit 10.1 to the Company's Form 10-Q filed August 14, 1997).

10.48         First Amendment to Restated Investors' Rights Agreement among the
              Company and certain stockholders of the Company dated June 6, 1997
              (filed as Exhibit 10.2 to the Company's Form 10-Q filed August 14,
              1997).

10.49         License Agreement between the Company and Mitsubishi Chemical
              Corporation dated June 17, 1997 (filed as Exhibit 10.3 to the
              Company's Form 10-Q filed August 14, 1997).

10.50         First Amendment to License Agreement between Avid Corporation and
              The DuPont Merck Pharmaceutical Company, dated as of August 26,
              1997 (filed as Exhibit 10.2 to the Company's Form 10-Q filed
              November 14, 1997).

10.51         License Agreement dated as of February 27, 1998, between the
              Company and Bukwang Pharm. Ind. Co., Ltd. (filed as Exhibit
              10.51 to the Company's Form 10-K filed March 10, 1998).

10.52         Amended and Restated 1996 Stock Incentive Plan (as amended and
              restated through March 27, 1998) (filed as Exhibit 99.1 to the
              Company's Form S-8 filed June 5, 1998).

10.53         Amended and Restated 1996 Stock Incentive Plan - Form of Stock
              Option Agreement (filed as Exhibit 99.3 to the Company's Form S-8
              filed June 5, 1998).

10.54         Amended and Restated 1996 Stock Incentive Plan - Form of Addendum
              to Stock Option Agreement (Involuntary Termination Following
              Corporate Transaction) (filed as Exhibit 99.4 to the Company's
              Form S-8 filed June 5, 1998).

10.55         Amended and Restated 1996 Stock Incentive Plan - Form of Addendum
              to Stock Option Agreement (Involuntary Termination Following
              Change in Control) (filed as Exhibit 99.5 to the Company's Form
              S-8 filed June 5, 1998).

10.56         Amended and Restated 1996 Stock Incentive Plan - Form of Stock
              Issuance Agreement (filed as Exhibit 99.6 to the Company's Form
              S-8 filed June 5, 1998).

10.57         Amended and Restated 1996 Stock Incentive Plan - Form of Automatic
              Stock Option Agreement (filed as Exhibit 99.8 to the Company's
              Form S-8 filed June 5, 1998).

10.58         Amended and Restated 1996 Stock Incentive Plan - Form of Salary
              Investment Stock Option Agreement (filed as Exhibit 99.11 to the
              Company's Form S-8 filed June 5, 1998).

10.59         Form of Stock Purchase Agreement with respect to the Series A
              Preferred Stock (filed as Exhibit 10.1 to the Company's Form 8-K
              filed December 30, 1998).

10.61         Form of Stock Purchase Agreement with respect to Common Stock
              placed with certain investors on December 30, 1998. (filed as
              Exhibit 10.61 to the Company's Form 10-K filed March 19, 1999).

10.62         Rights Agreement, dated as of February 1, 1999, between the
              Company and American Stock Transfer & Trust Company, which
              includes the form of Rights Certificate as Exhibit B and the
              Summary of Rights to Purchase Series B Preferred Shares as Exhibit
              C (filed as Exhibit 4 to the Company's Form 8-K filed February 10,
              1999).

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<PAGE>

10.63         Form of Employment Agreement among the Company and each officer of
              the Company. (filed as Exhibit 10.63 to the Company's Form 10-K
              filed March 19, 1999).

10.64         Third Amendment to Sublease between the Company and Eli Lilly and
              Company, dated as of February 11, 1998. (filed as Exhibit 10.64 to
              the Company's Form 10-K filed March 19, 1999).

10.65         Collaboration Agreement between the Company and Abbott
              Laboratories dated as of June 2, 1999 (filed as Exhibit 2.1 to
              the Company's Form 8-K/A filed November 3, 1999).

10.66         Co-Promotion Agreement between the Company and Abbott Laboratories
              dated as of June 2, 1999 (filed as Exhibit 2.2 to the Company's
              Form 8-K/A filed November 3, 1999).

10.67         Triangle Pharmaceuticals, Inc. Common Stock Purchase Agreement
              between the Company and Abbott Laboratories dated as of June 2,
              1999 (filed as Exhibit 99(a)(1) to Abbott Laboratories' Schedule
              13D filed June 11, 1999).

10.68         Triangle Pharmaceuticals, Inc. Stockholder Rights Agreement
              between the Company and Abbott Laboratories dated as of June 2,
              1999 (filed as Exhibit 99(a)(2) to Abbott Laboratories' Schedule
              13D filed June 11, 1999).

10.69         Amendment to Rights Agreement between the Company and Abbott
              Laboratories dated as of June 2, 1999 (filed as Exhibit 4.1 to
              the Company's Form 8-K filed June 18, 1999).

10.70         Amendment to Rights Agreement between the Company and American
              Stock Transfer & Trust Company dated as of June 2, 1999 (filed as
              Exhibit 1 to the Company's Form 8-A12G/A filed June 18, 1999).

10.71         Exclusive License Agreement among the Company, Glaxo Group
              Limited, The Wellcome Foundation Limited, Glaxo Wellcome Inc. and
              Emory University dated May 6, 1999 (filed as Exhibit 10.1 to the
              Company's Form 10-Q/A filed November 3, 1999).

10.72         Settlement Agreement among the Company, Emory University,
              Dr. David W. Barry, Glaxo Wellcome plc, Glaxo Wellcome Inc.,
              Glaxo Group Limited and The Wellcome Foundation Limited dated
              May 6, 1999 (filed as Exhibit 10.2 to the Company's Form
              10-Q/A filed November 3, 1999).

10.73         Amendment to License Agreement between the Company and Bukwang
              Pharm. Ind. Co., Ltd. dated April 1, 1999 (filed as Exhibit
              10.3 to the Company's Form 10-Q/A filed November 3, 1999).

10.74         First Amendment to License Agreement between the Company and Emory
              University dated May 6, 1999 (filed as Exhibit 10.4 to the
              Company's Form 10-Q/A filed November 3, 1999).

10.75         Amendment Number One to the Agreement and Plan of Merger among the
              Company, Avid Corporation, Forrest H. Anthony, Alan G. Walton
              and Marcia T. Bates dated February 28, 1999 (filed as Exhibit
              10.5 to the Company's Form 10-Q filed August 13, 1999).

10.76         Amendment Number One to the Agreement and Plan of Reorganization
              among the Company, Avid Corporation, Forrest H. Anthony, Alan
              G. Walton and Marcia T. Bates dated February 28, 1999 (filed
              as Exhibit 10.6 to the Company's Form 10-Q filed August 13, 1999).

10.77         Supply and Manufacturing Agreement by and between Abbott
              Laboratories and the Company dated August 3, 1999 (filed as
              Exhibit 10.1 to the Company's Form 10-Q filed November 12, 1999).

10.78         First Amendment to Option Agreement by and between The Regents of
              the University of California and the Company dated June 9, 1999
              (filed as Exhibit 10.2 to the Company's Form 10-Q filed November
              12, 1999).

                                       74
<PAGE>

10.79         Second Amendment to Option Agreement by and between The Regents of
              the University of California and the Company dated August 31, 1999
              (filed as Exhibit 10.3 to the Company's Form 10-Q filed November
              12, 1999).

10.80         Amendment Number Two to the Agreement and Plan of Reorganization
              by and among the Company, Avid Corporation and Forrest H. Anthony,
              Alan G. Walton and Marcia T. Bates as Securityholder Agent, dated
              as of March 24, 2000 (filed as Exhibit 10.1 to the Company's Form
              10-Q filed May 15, 2000).

10.81         Amendment Number Two to the Agreement and Plan of Merger by and
              among the Company, Avid Corporation and Forrest H. Anthony, Alan
              G. Walton and Marcia T. Bates as Securityholder Agent, dated as of
              March 24, 2000 (filed as Exhibit 10.2 to the Company's Form 10-Q
              filed May 15, 2000).

10.82         Amendment Number One to Declaration of Registration Rights by and
              among the Company, Avid Corporation and Forrest H. Anthony,
              Alan G. Walton and Marcia T. Bates as Securityholder Agent,
              dated as of March 24, 2000 (filed as Exhibit 10.3 to the
              Company's Form 10-Q filed May 15, 2000).

10.83         Declaration of Registration Rights, dated as of June 30, 1997
              (filed as Exhibit 10.4 to the Company's Form 10-Q filed May 15,
              2000).

10.84         License Agreement between Dynavax Technologies Corporation and the
              Company, dated as of March 31, 2000 (filed as Exhibit 10.5 to the
              Company's Form 10-Q filed May 15, 2000).

10.85         Stand-by Purchase Agreement between Ramius Capital Group, LLC and
              the Company dated as of November 1, 2000 (filed as Exhibit 10.1 to
              the Company's Form 8-K filed on November 3, 2000).

10.86         Common Stock Underwriting Agreement between Ramius Securities, LLC
              and the Company dated as of November 1, 2000 (filed as Exhibit 1.1
              to the Company's Form 8-K filed on November 3, 2000).

10.87         First Amendment to License Agreement between Emory University, the
              University of Georgia Research Foundation, Inc. and the Company,
              dated July 10, 2000 (filed as Exhibit 10.1 to the Company's Form
              10-Q filed November 14, 2000).

10.88         Second Amendment to License Agreement between Emory University and
              the Company, dated July 10, 2000 (filed as Exhibit 10.2 to the
              Company's Form 10-Q filed November 14, 2000).

10.89         Collaboration and License Agreement between Arrow Therapeutics
              Limited and the Company, dated July 15, 2000 (filed as Exhibit
              10.3 to the Company's Form 10-Q filed November 14, 2000).

10.90         Amendment to License Agreement between Bukwang Pharm. Ind. Co.,
              Ltd. and the Company, dated September 5, 2000 (filed as Exhibit
              10.4 to the Company's Form 10-Q filed November 14, 2000).

10.91         First Amendment to Employment Agreement between Carolyn Underwood
              and the Company, dated April 12, 2000.

10.92         Employment Agreement between Dr. David W. Barry and the Company,
              dated November 23, 2000.

+10.93        Amendment to License Agreement between Mitsubishi-Tokyo
              Pharmaceuticals, Inc. and the Company, dated January 1, 2001.

10.94         Form of Common Stock Purchase Agreement, dated January 30, 2001.

+10.95        Amendment to Co-Promotion Agreement between Abbott Laboratories
              and the Company, dated February 12, 2001.

11.1          Computation of Net Loss Per Common Share.

                                       75
<PAGE>

23.1          Consent of PricewaterhouseCoopers LLP, Independent Accountants.

24.1          Power of Attorney.  Reference is made to page 77.


----------


(a)           Incorporated by reference to the same-numbered exhibit to the
              Company's Registration statement on Form S-1 filed September 9,
              1996.

(+)           Certain confidential portions of this Exhibit were omitted by
              means of marking such portions with an asterisk (the "Mark"). This
              Exhibit has been filed separately with the Secretary of the
              SEC without the Mark pursuant to the Company's Application
              Requesting Confidential Treatment under Rule 24b-2 under the
              Securities Exchange Act of 1934.

SUPPLEMENTAL INFORMATION

Copies of the Registrant's Proxy Statement for the 2001 Annual Meeting of
Stockholders and copies of the form of proxy to be used for such Annual
Meeting will be furnished to the SEC prior to the time they are distributed
to the Registrant's stockholders.

                                       76
<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.

Date: February 26, 2001                 TRIANGLE PHARMACEUTICALS, INC.


                                        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 Chris A. Rallis, 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                                 Chairman of the Board and                February 26, 2001
--------------------------------                    Chief Executive Officer
David W. Barry                                   (Principal Executive Officer)


/s/ Chris A. Rallis                     Director, President and Chief Operating Officer     February 26, 2001
--------------------------------
Chris A. Rallis


/s/ Robert F. Amundsen, Jr.                       Executive Vice President and              February 26, 2001
--------------------------------                    Chief Financial Officer
Robert F. Amundsen, Jr.                   (Principal Financial and Accounting Officer)


/s/ Anthony B. Evnin                                        Director                        February 26, 2001
--------------------------------
Anthony B. Evnin


/s/ Standish M. Fleming                                     Director                        February 26, 2001
--------------------------------
Standish M. Fleming


/s/ Dennis B. Gillings                                      Director                        February 26, 2001
--------------------------------
Dennis B. Gillings


/s/ Arthur J. Higgins                                       Director                        February 26, 2001
--------------------------------
Arthur J. Higgins


/s/ Henry G. Grabowski                                      Director                        February 26, 2001
--------------------------------
Henry G. Grabowski


/s/ George McFadden                                         Director                        February 26, 2001
--------------------------------
George McFadden
</TABLE>


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