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, 1999

                                       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, 2000, was approximately $513 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, 2000, was 37,580,695.

<PAGE>

Documents Incorporated by Reference

      Portions of Registrant's Proxy Statement for the 2000 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 PHARMACEUTICALSTM, 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 five licensed drug candidates and
several drug candidates 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
(coactively) to treat serious diseases.

      Treating HIV infection with coactive 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 coactive therapy will generate demand for new anti-HIV drugs with
favorable 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 coactive therapy will
      continue to increase,

o     previously untreated patients will seek medical care as the benefits of
      coactive 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 coactive therapy. Additionally, we believe there is a significant
need to develop drugs for the treatment of cancer since many current cancer
treatments provide limited clinical benefits.

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

      Drug Candidates to Treat HIV and hepatitis B

            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


                                       2
<PAGE>

            as compared to 3TC (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-infected patients. Laboratory studies have also shown that
            Coviracil shares cross-resistance patterns with 3TC. The most common
            resistance mutation to these two agents also reverses resistance of
            the virus to AZT in some cases. We are currently conducting Phase
            II/III clinical trials with Coviracil for the treatment of HIV.

                  We are currently conducting Phase II clinical trials 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. Against hepatitis B,
            emtricitabine has been shown to be a potent inhibitor of hepatitis B
            virus replication in laboratory studies, and is synergistic in
            laboratory studies in combination with several other compounds
            intended for the treatment of hepatitis B.

            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. We have
            initiated Phase I/II clinical trials with DAPD for the treatment of
            HIV.

      Drug Candidates to Treat HIV

            Coactinon(R) (emivirine), formerly known as MKC-442. A nucleoside
            analogue derivative that functions as 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 III clinical studies in Europe, South Africa, Mexico
            and the United States with Coactinon as part of coactive regimens in
            HIV-infected patients to evaluate safety and efficacy as measured by
            viral load.

                  On December 10, 1999, the Food and Drug Administration, FDA,
            advised us that one or two additional Phase III studies may need to
            be conducted to prove that regimens containing Coactinon are
            equivalent or superior to current first-line regimens. During the
            first half of 2000, Triangle will review results of an ongoing Phase
            III trial comparing Coactinon in combination with stavudine and
            Coviracil, to abacavir in combination with stavudine and Coviracil.
            This study will determine whether the profile of Coactinon justifies
            the initiation of additional studies.

            DMP-450. A protease inhibitor, DMP-450 is a potent, selective
            inhibitor of the HIV-1 protease that belongs to a novel chemical
            class, the cyclic ureas. DMP-450 is currently in Phase II
            pharmacokinetic and tolerance studies in Europe and South America.

                  Data from a Phase I study showed that DMP-450 was generally
            well tolerated following single oral doses that ranged from 60 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 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 DMP-450. 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 3-day dosing with
            DMP-450 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. DMP-450 dosed in healthy volunteers for 28 days appeared
            generally well tolerated. Final analysis of this study is ongoing.
            The Company initiated Phase I/II dose-escalating combination studies
            in HIV-infected patients


                                       3
<PAGE>

            outside the United States in 1999. The initiation of potential
            efficacy studies in the United States awaits the outcome of further
            discussions with the FDA, where DMP-450 remains on partial clinical
            hold.

      Drug Candidate to Treat hepatitis B

            L-FMAU. A pyrimidine nucleoside analogue, L-FMAU 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 L-FMAU.

      The FDA has notified us that two of our drug candidates, Coviracil and
DAPD for the treatment of HIV, 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 believe that certain of our other drug candidates may also meet the
fast track criteria. 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
revenue from the sale of our drug products before the year 2001. As of December
31, 1999, the Company's accumulated deficit was $221.4 million. We may never
achieve profitable operations or generate positive cash flow.

      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 avoiding 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


                                       4
<PAGE>

undergone some testing in humans (e.g., Coviracil and DMP-450) 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 and
anticancer 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 Coactive Therapy. Coactive therapy is the
accepted method to treat viral diseases such as HIV infection. We seek to
identify and develop drug candidates for use in coactive 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 coactive 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, 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 the Company's 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 Laboratories 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.


                                       5
<PAGE>

Drug Candidates in Active Development

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Drug Candidates                      Indication             Status(1),(2)                Territory(3)
----------------------------------------------------------------------------------------------------------------
<S>                                  <C>                    <C>                          <C>
Coviracil(R)(emtricitabine),         HIV                    Phase II/III                 Worldwide
formerly known as FTC                hepatitis B            Phase II                     Worldwide
----------------------------------------------------------------------------------------------------------------
Coactinon(R) (emivirine), formerly
known as MKC-442                     HIV                    Phase III(4)                 Worldwide, except Japan
----------------------------------------------------------------------------------------------------------------
                                     HIV                    Phase I/II                   Worldwide
DAPD                                 hepatitis B            Preclinical                  Worldwide
----------------------------------------------------------------------------------------------------------------
L-FMAU                               hepatitis B            Phase I                      Worldwide, except Korea
----------------------------------------------------------------------------------------------------------------
DMP-450                              HIV                    Phase I/II(5)                Worldwide
----------------------------------------------------------------------------------------------------------------
</TABLE>

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

(2)   "Preclinical" means that we are testing a drug candidate for safety,
      pharmacokinetics and activity in animal or laboratory models. "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, or have an
      option to acquire a license to, the right to commercialize the particular
      product. Coviracil, Coactinon, DAPD and L-FMAU 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 products, we may be unable to
      commercialize our products or to prevent other companies from using our
      technology in competitive products."

(4)   In December 1999, the FDA advised us that we may need to conduct one or
      possibly two additional Phase III studies in order to prove that regimens
      containing Coactinon are equivalent or superior to current first line
      regimens used to treat HIV-infected patients. During the first half of
      2000, we will review the results of an ongoing Phase III study to
      determine whether the profile of Coactinon justifies the initiation of
      additional studies.

(5)   We initiated Phase I/II combination studies outside the United States in
      the second half of 1999. The initiation of potential efficacy studies in
      the United States awaits the outcome of further discussions with the FDA,
      where DMP-450 remains on partial clinical hold. See "--Viral Disease
      Program--HIV--Development Status--DMP-450."


                                       6
<PAGE>

Viral Disease Program

      HIV

      Background. The World Health Organization estimates that through 1999,
33.4 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%.

      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 3TC, 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 coactive therapy. The use of coactive 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
coactive therapy has demonstrated the ability to markedly slow resistance
development, resistant mutants have been identified to the drugs currently used
during the course of coactive therapy studies, and cross-resistance among many
agents, including protease inhibitors, has been increasingly recognized. Present
coactive treatments are also often complex and expensive (published reports
indicate the cost per patient per year can exceed $13,000). Adverse reactions to
many of the drugs used in coactive therapy are common and may limit compliance
or even preclude use in some patients. Even brief instances of non-compliance
can reduce or eliminate the ability of the combination therapy to suppress the
virus, and may thus accelerate the development of resistance. We believe that
these challenges present an opportunity to develop additional drugs that have
attractive safety, pharmacokinetic and/or resistance profiles.


                                       7
<PAGE>

      Development Status. We have a portfolio of four drug candidates for the
treatment of HIV: Coviracil, Coactinon, DAPD, and DMP-450. 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 (DMP-450) is a protease inhibitor.

      Coviracil (emtricitabine), formerly known as FTC. We are currently
conducting Phase II/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 member of the same nucleoside series as 3TC. In laboratory
studies, Coviracil consistently has displayed greater potency than 3TC 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 3TC. 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
ranging from 25 mg twice-a-day to 200 mg twice-a-day were given for 2 weeks. (A
brief duration of monotherapy exposure was selected to limit the development of
patient resistance, but allows 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 mg, 100 mg, or 200 mg) once-a-day or the standard dose of
lamivudine (150 mg twice-a-day). Patients were treated for 10 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 sponsored by an independent third party, preliminary
data has demonstrated that a once-a-day antiretroviral regimen of Coviracil,
didanosine (ddI) and efavirenz had potent antiviral activity and was generally
well tolerated. The 24-week open-label study was designed to examine the
antiviral activity and tolerability of this once-a-day regimen combining
Coviracil, ddI, and efavirenz. Forty HIV-infected patients received once daily
doses of Coviracil (200 mg), ddI (400 mg if they weighed 60 kg or more, or 250
mg if less than 60 kg) and efavirenz (600 mg). Patients had mean baseline
HIV-RNA levels of 4.78 log10 copies/ml and median baseline CD4 counts of 373
cells/mm3. At 24 weeks, 98% (39/40) of patients had a viral load below 400
copies/ml, and 93% (37/40) of patients had viral loads below 50 copies/ml in the
intent-to-treat analysis. However, in the as-treated analysis, 100% (39/39) of
patients who received therapy had viral loads below 400 copies/ml at week 24.

      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 coactive regimens in HIV-infected
patients to evaluate safety and efficacy as measured by viral load. We have
licensed from Mitsubishi Chemical Corporation, Mitsubishi, rights to Coactinon
worldwide, except in Japan, for the treatment of HIV.


                                       8
<PAGE>

      On December 10, 1999, the FDA advised us that one or two additional Phase
III studies may be necessary to prove that regimens containing Coactinon are
equivalent or superior to current first line treatment regimens. In the first
half of 2000, we will review the results of an ongoing Phase III trial (MKC-401)
comparing Coactinon in combination with stavudine and Coviracil, to abacavir in
combination with stavudine and Coviracil in antiretroviral naive patients. This
study will determine whether the profile of Coactinon justifies the initiation
of additional studies.

      Although Coactinon is a nucleoside analogue derivative, it functions as a
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 or reproductive/developmental toxicity.

      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-daily 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.

      In a Phase II study (MKC-202), greater than 70% of patients receiving
Coactinon (either 500 mg twice-a-day or 750 mg twice-a-day) in combination with
stavudine and didanosine had undetectable levels of virus in their plasma at
week 24. This open-label, randomized 24-week study was designed to examine the
antiviral activity, safety and tolerability of two dosage regimens of Coactinon
in combination with two NRTIs, 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. Coactinon was generally well tolerated
in all groups and the most frequent adverse events were mild to moderate,
including nausea, headache, dizziness, vomiting and rash. The initial incidence
and severity of these adverse events was lower at the dose of 500 mg twice-a-day
suggesting that a lead-in dose escalation may enhance the tolerability and
optimize antiviral activity of regimens containing Coactinon.

      Over the past year we have also released data from several Phase II and
II/III studies with Coactinon. In a pilot perinatal transmission study
(MKC-204), Coactinon was used in coactive therapy with zidovudine alone or
combined with lamivudine and results showed a good tolerability in both mothers
and infants. The most common side effects observed in mothers were dizziness,
infection and headache. Coactinon demonstrated a significant passage through the
placenta as measured by plasma levels in the newborn and in addition, passage of
the drug in the colostrum indicated that Coactinon would be present in the
mother's milk.

      Results were also presented from a randomized, double blind 24-week
pivotal Phase II/III trial (MKC-301) designed to examine the antiviral activity,
safety and tolerability of Coactinon in combination with stavudine and
lamivudine as a first-line, protease inhibitor-sparing regimen. 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 24 weeks, 83% had undetectable levels
of virus in their plasma at week 24. Coactinon was


                                       9
<PAGE>

generally well tolerated in all groups with mild to moderate adverse events,
which occurred early in treatment. The most frequent adverse events included
nausea, headache, dizziness, diarrhea and rash.

      The antiviral activity, safety and tolerability of Coactinon in
combination with d4T and ddI has also been examined in a randomized, double
blind 24-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 24 weeks, 56% of patients still receiving Coactinon had undetectable levels
of virus as compared to 40% of patients receiving placebo. Coactinon was
reasonably well tolerated in all groups and 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.

      In addition to trials in treatment-naive patients, Phase II/III studies
were also conducted with Coactinon in patients who were treatment-experienced.
Study MKC-303, was designed to determine whether the addition of Coactinon to a
three drug regimen of two nucleosides and a protease inhibitor, nelfinavir,
would provide additional benefits to patients with advanced HIV infection. In
this study, Coactinon and nelfinavir showed higher than anticipated metabolic
interactions, resulting in a lack of additional clinical benefit to patients and
reduced tolerability of the four-drug regimen. In other trials of Coactinon in
treatment-experienced patients (MKC-304 and MKC-305), 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 HIV virus that remained sensitive to at least one other
NNRTI. Based on data from these preliminary studies, 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, vomiting, dizziness, diarrhea and rash. In the case of nausea, vomiting,
dizziness and diarrhea, these events were typically mild to moderate, transient
and present within the first weeks of initiating therapy. Additional data from
clinical trials suggests that a lead-in dose escalation may help to improve the
initial tolerability of Coactinon. In the case of rash, most cases were mild to
moderate and resolved without discontinuation of Coactinon. In over 1,000
patients treated with Coactinon to date, only three cases of Grade 4 rash have
been observed. 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 750 mg tablets and as a
25 mg/ml suspension permits convenient twice daily dosing in children,
adolescents and adults. At the adult dose of 750 mg twice-a-day, a single 750 mg
tablet of Coactinon will be taken twice daily. 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
advantages over currently marketed nucleosides from other series because of its
unique structural 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, 3TC or Coviracil are not cross-


                                       10
<PAGE>

resistant to DAPD. Studies in animals 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 ranging from approximately two
to eight hours. The analysis of several urine samples from this study indicate
the presence of DXG with no other metabolites detected. Initial results from a
Phase I/II 14-day monotherapy study were recently presented by us. HIV-infected
patients received doses of 25, 100, 200 and 300 mg of DAPD twice-a-day. The
median viral load decrease was 0.45 log10, 1 log10, 1.19 log10 and 1.5 log10,
respectively. Furthermore, at the 300 mg twice-a-day dose, 83% (5/6) of the
patients had a viral load decrease of 1.5 log10 or more (32 fold). At all doses
tested, viral suppression was observed and suggested a dose effect relationship.
In addition, the drug was well tolerated at all doses tested with no significant
or consistent adverse effects during the dosing period. The trial is ongoing.

      DMP-450. DMP-450 is currently in Phase II pharmacokinetic and tolerance
studies in Europe and South America. We obtained worldwide license rights to
DMP-450 through the acquisition of Avid, in 1997. See "--License and Other
Material Agreements--The DuPont Pharmaceuticals Company and Avid Corporation."

      DMP-450 is a potent, selective inhibitor of the HIV-1 protease that
belongs to a novel chemical class, the cyclic ureas. In preclinical laboratory
tests, DMP-450 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. DMP-450 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, formerly The DuPont Merck Pharmaceutical Company, showed that DMP-450
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 DMP-450. 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 DMP-450 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 DMP-450 are reached (i.e., 3 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 conducted a Phase I study
where DMP-450 was given to healthy volunteers for twenty-eight days. Although
analysis of this study is ongoing, it appears the drug was well tolerated at
currently anticipated doses. We also initiated a Phase I/II combination study
outside the United States in the second half of 1999 in HIV-infected patients.
The initiation of potential efficacy studies in the United States awaits the
outcome of further discussions with the FDA as DMP-450 remains on partial
clinical hold.

      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 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


                                       11
<PAGE>

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, 3TC 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 coactive 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
coactive therapies.

      Development Status. We are developing three compounds for the treatment of
hepatitis B, two of which, Coviracil and DAPD, are also being developed for the
treatment of HIV.

      Emtricitabine, formerly known as FTC. We are currently conducting Phase II
clinical trials 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 3TC.

      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-daily for 8 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.

      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 L-FMAU. We have licensed worldwide rights to
L-FMAU, except in Korea, from Bukwang Pharm. Ind. Co., Ltd., Bukwang, for all
human antiviral applications.

      L-FMAU 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 L-FMAU required to inhibit virus growth by 50% (EC50) ranges
from 0.02 to 0.15 uM with a mean of 0.08 uM. The bioavailability of L-FMAU was
59% to 64% in rats and 19% to 29% in woodchucks. The pharmacokinetics of L-FMAU
in rats, woodchucks and monkeys were independent of dose over a range of doses.

      In laboratory studies, the efficacy of L-FMAU 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-daily dose of 10 mg/kg L-FMAU 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 4 and 12 weeks, respectively. Clinical toxicology
studies, 9 months in rats and 1 year in monkeys, have been completed and
supported the initiation of clinical development. Our Phase I dose escalation
study has demonstrated that L-FMAU is orally available. Additionally, at the
limited doses given in the study, it was well tolerated.

      DAPD. In laboratory studies, DAPD has been shown to be a potent inhibitor
of hepatitis B replication. In the woodchuck model, DAPD was found to be as
active as 3TC in reducing serum levels of circulating viral DNA


                                       12
<PAGE>

when administered for 12 weeks. Some of the development activities we have
undertaken with DAPD for the treatment of HIV will be used in the evaluation of
DAPD development for the treatment of hepatitis B. See "--HIV--Development
Status--DAPD."

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 L-FMAU, and Abbott's two HIV
protease inhibitors, Norvir (R) (ritonavir) and ABT-378, currently in Phase III
development. 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 they generate for Abbott's protease inhibitors. In
addition, Abbott will have the right of first discussion to market future
Triangle compounds. 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 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. 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; and L-FMAU from Bukwang. We acquired
license rights to DMP-450 through our acquisition of Avid. Avid licensed DMP-450
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."

Mitsubishi Chemical Corporation

      In December 1995, we entered into an option agreement with Mitsubishi
pursuant to which Mitsubishi granted us an option to obtain an exclusive license
to Coactinon. We exercised this option and, in June 1997, 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 Coviracil 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


                                       13
<PAGE>

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 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 such
termination or conversion, 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 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 Coviracil 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 Coviracil.

      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 are 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
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 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 DMP-450 for use in the HIV field and proprietary assays to screen compounds
for the treatment of hepatitis B. Avid acquired its rights to the DMP-450
technology in December 1996 through an exclusive license


                                       14
<PAGE>

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 DMP-450 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 DMP-450 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 DMP-450 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 DMP-450. The issuance of 1,600,000
of these shares was contingent upon Triangle's initiating pivotal Phase II
clinical trials with DMP-450 before February 28, 1999, the DMP Milestone Date,
or electing on or before the DMP Milestone Date to continue the development of
DMP-450 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 and the registration by June 1, 2000 of a
substantial portion of the 400,000 shares. 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 DMP-450 on or before August 28, 2001 or elects on or before
August 28, 2001 to continue the development of DMP-450 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 DMP-450. 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

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
L-FMAU for use in the hepatitis B field as well as all other human antiviral
applications. Bukwang obtained its rights to L-FMAU 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 L-FMAU 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 L-FMAU
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 L-FMAU technology which they licensed to
Bukwang, at our expense.

      We are primarily responsible for prosecuting all patents related to any
L-FMAU 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 L-FMAU 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 as a result of our breach of the license agreement
or our manufacture, testing, design, use, sale and labeling of products
utilizing the L-FMAU 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 L-FMAU technology
necessary for marketing products which contain L-FMAU. The termination of the
license agreement could adversely affect our business.


                                       15
<PAGE>

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 coactively 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.

      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 two 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,


                                       16
<PAGE>

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
L-FMAU to Bukwang, are primarily responsible for patent prosecution activities
with respect to L-FMAU 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). Moreover, our pending application in the European
Union for the mark Coviracil has been opposed by Orsem, based upon registrations
for the mark Coversyl(R) 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 products, we may be unable to commercialize
our products 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 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 Investigational New Drug
            Application, 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 New Drug Application, NDA, to the FDA,


                                       17
<PAGE>

      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.

      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


                                       18
<PAGE>

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 L-FMAU.
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.

      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 two of our drug candidates, Coviracil and
DAPD for the treatment of HIV, qualify for designation as "fast track" products
under provisions of the Food and Drug Administration Modernization Act of 1997.
We believe that certain of our other drug candidates may also meet the fast
track criteria. We may be able to commercialize our drug candidates which meet
these criteria in a shorter time period


                                       19
<PAGE>

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:

      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."


                                       20
<PAGE>

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 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


                                       21
<PAGE>

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, any such 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 coactive treatment regimens for the
treatment of HIV are expensive; published reports indicate the cost per patient
per year can exceed $13,000, and may increase as new combinations are developed.
These costs have resulted in limitations in the reimbursement available from
third party payors for the treatment of HIV infection, and 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, 1999, Triangle had approximately 175 employees,
including approximately 128 in development and approximately 47 in
administration. Of these employees, 63 hold advanced degrees, of which 36 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
experienced a work stoppage. All of our employees have signed confidentiality
agreements and the Chief Executive Officer, the President and each vice
president 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."


                                       22
<PAGE>

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 products 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 2001. 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
            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, 1999, our accumulated deficit was $221.4
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 2001. In addition, we
expect annual losses to increase over the next several years as we expand 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 would have to
curtail or cease operations.

      Our drug development programs and potential commercialization of our drug
candidates require substantial capital expenditures, including expenses for
preclinical testing, chemical synthetic scale-up, manufacture of drug substance
for clinical trials, toxicology studies and potential commercial launch of our
drug candidates, clinical trials of drug candidates, sales and marketing
expenses and payments to our licensors. We expect our capital requirements to
continue to increase. Our future 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 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,

      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.


                                       23
<PAGE>

      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 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 capital requirements.

Because our products 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 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
DMP-450. These side effects could also result in the FDA or foreign regulatory
authorities refusing to approve the drug candidate for any and all targeted
indications. 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. 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 two of our drug candidates, Coviracil and DAPD for the
treatment of HIV, 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.


                                       24
<PAGE>

If we or our licensors are not able to obtain and maintain adequate patent
protection for our products, we may be unable to commercialize our products 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 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 coactively 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, also known as 3TC. In the United States, the FDA has
approved 3TC 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 3TC for the treatment of hepatitis B in several other countries
and for use in combination with other nucleoside analogues for the treatment of
HIV in a number of other countries. Glaxo currently sells 3TC 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


                                       25
<PAGE>

hepatitis B with Coviracil. In 1991, Yale filed in the United States patent
applications on FTC, including Coviracil 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 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 is a conflict between the latter
BioChem Pharma patent and a patent application filed by Emory because they have
overlapping claims to the same technology. The PTO is conducting an adversarial
proceeding to determine whether BioChem Pharma or Emory is entitled to the
patent claims in dispute. Emory may not prevail in the adversarial proceeding,
and the proceeding 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, Japan and Norway. 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 Coviracil. Burroughs Wellcome


                                       26
<PAGE>

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 Coviracil 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 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 Coviracil 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 Coviracil.

      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 Coviracil. 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 to determine which
parties are entitled to the patent claims in dispute. Yale licensed all of its
rights relating to FTC, including Coviracil, 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 may determine that it will conduct adversarial proceedings
with respect to a patent application filed by Burroughs Wellcome. Emory may not
pursue or succeed in any such proceedings. We will not be able to sell Coviracil
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 3TC to treat hepatitis B
and has corresponding patent applications pending or issued in foreign
countries. If it is determined that the use of Coviracil to treat hepatitis B is
not substantially different from the use of 3TC to treat hepatitis B, a court
could hold that the use of Coviracil to treat hepatitis B infringes these
BioChem Pharma 3TC patents.

      In addition, BioChem Pharma has filed in the United States and foreign
countries several patent applications on manufacturing methods relating to a
class of nucleosides that includes Coviracil, 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 Coviracil 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 informed Triangle that it 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


                                       27
<PAGE>

do 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 a portion of the DAPD technology by
the Australian Patent Office have also been opposed by BioChem Pharma. We cannot
assure you that a court or administrative body would invalidate BioChem Pharma's
patent claims. Further, a sale of DAPD by us may infringe BioChem Pharma's
patents. 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.

      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
two 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, and Mitsubishi 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 L-FMAU to Bukwang, are primarily responsible for patent
prosecution activities with respect to L-FMAU 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). Moreover, our pending application in the European
Union for the mark Coviracil has been opposed by Orsem, based upon registrations
for the mark Coversyl(R) 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.


                                       28
<PAGE>

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 and
reporting of pharmaceutical products. We are also regulated with respect to
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. 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 require 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 coactive 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.

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.


                                       29
<PAGE>

      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 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


                                       30
<PAGE>

parties to perform those activities on favorable terms. In addition, any such
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 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 the President and each vice president of
Triangle. Dr. Barry's employment agreement contains certain non-competition
provisions. In addition, the employment agreements for the President and each of
the vice presidents provide for certain severance payments which are contingent
upon the President's and each vice president'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 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 coactive treatment regimens for the
treatment of HIV are expensive; published reports indicate the cost per patient
per year can exceed $13,000, and may increase as new combinations are developed.
These costs have resulted in limitations in the reimbursement available from
third party payors for the treatment of HIV infection, and we expect that
reimbursement pressures will continue in the future. If we succeed in bringing
one or more products to the market,


                                       31
<PAGE>

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, 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.

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, 2000, our directors, executive officers and their
affiliates, excluding Abbott, owned approximately 16.4% of our outstanding
common stock and Abbott owned approximately 17.5% 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. 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,


                                       32
<PAGE>

      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, 2000, there were 37,580,695 shares of common
stock outstanding, of which approximately 23,000,000 were immediately eligible
for resale in the public market without restriction. Holders of approximately
8,200,000 shares have rights to cause us to register them for sale to the
public. We have filed registration statements to register the sale of
approximately 3,900,000 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 capital through an offering of our equity or convertible debt securities
and may reduce the market price of our common stock.

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.

No Dividends

      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 subject
to certain risks and uncertainties that could cause the actual timing of such
clinical trials, 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 to differ materially from those projected. With
respect to the dates on which we anticipate commencing clinical trials, we have
made certain 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


                                       33
<PAGE>

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. Undue reliance should not be placed 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.


                                       34
<PAGE>

Item 2. Properties

      As of December 31, 1999, 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 December 2000.

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 one
lawsuit 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 products, we may be unable to commercialize our products 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 13 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.


                                       35
<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 March 10, 2000:

                                                         High             Low
                                                      ---------        ---------
Year Ended December 31, 1998:
1st Quarter........................................   $   21.13        $   14.63
2nd Quarter........................................       19.63            14.38
3rd Quarter........................................       18.25             8.38
4th Quarter........................................       13.88            10.25

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 (through March 10, 2000)...............   $   27.25        $   12.75

      On March 10, 2000, the last reported sale price of our common stock was
$15.69 per share. As of January 31, 2000, there were approximately 540 holders
of record, and approximately 4,260 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.


                                       36
<PAGE>

Item 6. Selected Financial Data

      The selected consolidated statement of operations data with respect to the
years ended December 31, 1999, 1998, 1997 and 1996, and with respect to the
period from inception (July 12, 1995) through December 31, 1995, and the
consolidated balance sheet data at December 31, 1999, 1998, 1997, 1996 and 1995,
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>
                                                                                                Period from
                                                                                                 Inception
                                                                                                 (July 12,
                                                                                                   1995)
                                                            Year Ended December 31,               Through
                                             ------------------------------------------------   December 31,
                                                1999         1998         1997         1996        1995
                                             ---------    ---------    ---------    ---------    ---------
                                                     (In thousands, except per share amounts)
Statement of Operations Data:
Operating expenses:
  License fees ...........................   $   9,965    $   6,500    $     610    $   3,267    $      --
  Development ............................      85,336       55,117       22,240        4,967           --
  Purchased research and development (1)         1,247           --       11,261           --           --
  Selling, general and administrative ....      14,638        9,774        7,071        3,558        1,004
                                             ---------    ---------    ---------    ---------    ---------
Loss from operations .....................    (111,186)     (71,391)     (41,182)     (11,792)      (1,004)
Interest income, net .....................       6,565        4,120        3,514          875           37
                                             ---------    ---------    ---------    ---------    ---------

Net loss .................................   $(104,621)   $ (67,271)   $ (37,668)   $ (10,917)   $    (967)
                                             =========    =========    =========    =========    =========

Basic and diluted net loss per common
  share (2) ..............................   $   (3.18)   $   (2.93)   $   (2.00)   $   (1.89)   $   (0.60)
                                             =========    =========    =========    =========    =========
Shares used in computing basic and diluted
  net loss per common share (2) ..........      32,923       22,927       18,871        5,784        1,624
                                             =========    =========    =========    =========    =========

<CAPTION>
                                                                       December 31,
                                             -------------------------------------------------------------
                                                1999         1998         1997         1996         1995
                                             ---------    ---------    ---------    ---------    ---------
                                                                     (In thousands)
Balance Sheet Data:
<S> ......................................         <C>          <C>          <C>          <C>          <C>
Cash and cash equivalents ................   $  58,486    $  77,653    $  34,698    $  25,255    $   3,082
Working capital (3) ......................     123,649       79,807       50,247       41,349        2,868
Investments ..............................      99,265       41,039       23,098       27,946           --
Total assets .............................     166,497      124,313       61,878       55,495        3,102
Capital lease obligation - noncurrent ....           9          153          300          364           --
Long-term debt ...........................          --           --          178           --           --
Deferred revenue .........................      25,000           --           --           --           --
Accumulated deficit during development
  stage ..................................    (221,444)    (116,823)     (49,552)     (11,884)        (967)
Total stockholders' equity ...............     115,273      101,951       52,717       52,656        2,888
</TABLE>

----------
(1)   See note 9 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
      $11.3 million in 1997 and an additional charge of $1.2 million in 1999.
      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.


                                       37
<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 capital and developing
our drug candidates. We have not received any revenues from the sale of products
and do not expect any of our drug candidates to be commercially available until
at least the year 2001. As of December 31, 1999, our accumulated deficit was
$221.4 million.

      We require substantial capital expenditures relating to the development
and potential commercialization of our drug candidates, including expenditures
for preclinical testing, chemical synthetic scale-up, manufacture of drug
substance for clinical trials and toxicology studies, clinical trials of drug
candidates, sales and marketing expenses and payments to our licensors. We have
been unprofitable since our inception and expect to incur substantial and
increasing losses for at least the next several years, due substantially to the
expansion of our drug development programs and the addition of infrastructure
necessary to commercialize our drug candidates. We will require substantial
capital expenditures relating to activities many of which may need to occur
prior to, and in anticipation of, the potential regulatory approval of our drug
candidates, including expenditures associated with the continued establishment
of a sales and marketing organization, the manufacture of drug substance, the
development of a distribution system with outside vendors and other
administrative expenditures. Many of these capital expenditures may be incurred
irrespective of whether our drug candidates are approved when anticipated or at
all. 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."

      We have only a limited operating history upon which an evaluation of
Triangle and our prospects can be based. The risks, expenses and difficulties
encountered by companies at an early stage of development must be considered
when evaluating our prospects. To address these risks, we must, among other
things, successfully develop and commercialize our drug candidates, secure all
necessary proprietary rights, respond to competitive developments, obtain
additional financing and continue to attract, retain and motivate qualified
personnel. There can be no assurance that we will be successful in addressing
these risks. See "Item 1. Business--Risk and Uncertainties-- All of our products
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
would have to curtail or cease operations."

      Our operating expenses will depend on several factors, including the level
of development expenses and the potential commercialization of our drug
candidates. Development expenses will depend on the progress and results of our
drug development efforts, which we cannot predict. Management may in some cases
be able to control the timing of development expenses in part by accelerating or
decelerating preclinical testing and clinical trial activities. The level of
expenses relating to the establishment of a sales and marketing organization,
the manufacture of drug substance and other administrative expenditures will
depend on the success of the development of our drug candidates; however, many
of these capital expenditures may be incurred 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 should not be relied upon 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 the 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."


                                       38
<PAGE>

Results of Operations

Interest Income, Net

      Net interest income totaled $6.6 million in 1999, compared to $4.1 million
in 1998, and to $3.5 million in 1997. The increase in interest income in 1999
compared to 1998, and in 1998 compared to 1997, is due primarily to larger
average investment balances primarily from financing proceeds. Larger average
investment balances in 1999, as compared to 1998, are associated primarily with
proceeds associated with the Abbott Alliance and with financing activities in
December of 1998. See "--Liquidity and Capital Resources."

License Fees

      License fees totaled $10.0 million in 1999, compared to $6.5 million in
1998 and to $610,000 in 1997. License fees in 1999 relate to achievement of
milestone obligations, license fees associated with the license and settlement
agreements with Glaxo on the use of Coviracil to treat hepatitis B, and license
preservation fees for our drug candidate portfolio. License fees in 1998 related
primarily to execution of the L-FMAU license agreement as well as license
preservation fees for our drug candidate portfolio. License fees in 1997 related
mainly to license preservation fees for our drug candidate portfolio. The
increase in 1999 as compared to 1998 and 1997 relates primarily to recognition
of milestone obligations required under license agreements of our drug candidate
portfolio and other fees. 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
in-license additional drug candidates. See "--Liquidity and Capital Resources."

Development Expenses

      Development expenses totaled $85.3 million in 1999, compared to $55.1
million in 1998 and to $22.2 million in 1997. Development expenses in 1999
consisted primarily of expenses for drug synthesis, clinical trials, employee
compensation, preclinical testing and consulting expenses. Development expenses
in 1998 consisted primarily of expenses for drug synthesis, clinical trials,
employee compensation, toxicology studies, preclinical testing and patent
related activities for our drug candidates. Development expenses in 1997
consisted primarily of expenses for drug synthesis, clinical trials, toxicology
studies, employee compensation, preclinical testing and patent related
activities for our drug candidates. The substantial increase in 1999 development
expenses as compared to 1998 and 1997 is due primarily to the continued and more
expansive drug development activities on our drug candidates, including the
addition of development personnel necessary to perform these activities. In 1999
and 1997, development expenses were reduced by approximately $265,000 and $1.2
million, respectively, relating to the reimbursement of certain development
expenses under our license agreements.

      We expect our development expenses to increase in the future due to
continued expansion of drug development activities for our existing portfolio of
drug candidates, including preclinical testing, toxicology studies, clinical
trials and the manufacture of drug substance for preclinical tests, clinical
trials and production of commercial material in anticipation of product launch.
In addition, if we in-license or otherwise acquire rights to additional drug
candidates, development expenses would increase.

Purchased Research and Development

      Purchased research and development expenses totaled $1.2 million in 1999
and $11.3 million in 1997. Purchased research and development expense in 1999
relates to the April 1, 1999 issuance of 100,000 shares of common stock as
consideration to former stockholders of Avid for extending the payment date of
certain contingent consideration from February 28, 1999 to February 28, 2000.
The charge, representing the fair market value of our common stock at the date
on which the extension was granted, was recorded as purchased research and
development as DMP-450 is still at an early stage of clinical development and
has no alternative future use. Purchased research and development expense in
1997 related to our acquisition of Avid in which we issued 400,000 shares of
common stock in exchange for all of the outstanding common stock of Avid and
agreed to issue up to 2,100,000 additional


                                       39
<PAGE>

shares of common stock upon the achievement of certain milestones relating to
DMP-450. The charge represents Avid's in-process research and development
associated with Avid's principal asset, worldwide license rights to DMP-450.

      In March 2000, the payment date of certain contingent consideration was
extended a second time until August 28, 2001. As consideration for the second
extension, we agreed to issue 400,000 shares of common stock and to increase the
remaining number of contingent shares by 50,000. Accordingly, if we initiate
pivotal Phase II clinical trials with DMP-450 on or before August 28, 2001 or
elect on or before August 28, 2001 to continue development of DMP-450 even if
such clinical trials had not been initiated, we would issue 1,150,000 shares of
common stock. Issuance of the 400,000 shares will be recorded as additional
purchase price in the Avid acquisition and will be recorded in 2000 based on the
fair market value of the common stock. Issuance of the remaining 500,000 of the
2,100,000 shares is contingent upon the attainment of other development
milestones with DMP-450. Issuance of any of these 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 ("SG&A") expenses totaled $14.6
million in 1999, compared to $9.8 million in 1998 and $7.1 million in 1997. SG&A
expenses in 1999 consisted primarily of amounts paid for outside professional
services; primarily marketing, legal and investor relations services; employee
compensation and rent expense. SG&A expenses in 1998 consisted primarily of
employee compensation expense; amounts paid for outside professional services;
primarily marketing, legal and investor relations services; and rent expense.
SG&A expenses in 1997 consisted primarily of employee compensation expense, rent
expense and amounts paid for outside professional services. The increases in
1999 compared to 1998 and 1997 are due primarily to increased sales and
marketing expenditures as we develop our sales and marketing infrastructure and
from the growth of our operations and personnel to support clinical and
development activities. SG&A expenses were reduced by approximately $1.5 million
in 1999 for reimbursable sales and marketing expenses as dictated by the Abbott
Alliance profit and loss sharing arrangement. We expect that our SG&A expenses
will continue to increase in future periods as we continue to expand development
activities and continue the development of our sales and marketing organization.

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 (net of
offering costs), and from initial and secondary public offerings, which provided
aggregate net proceeds of approximately $96.8 million (net of offering costs),
as well as net proceeds from the completion of the Abbott Alliance (including
net proceeds from the sale of common stock and non-contingent research and
development reimbursement) of approximately $140.7 million. In addition, we have
received approximately $2.3 million as reimbursement of certain development
expenses under our license agreements. See "--Strategic Alliance with Abbott
Laboratories."

      During 1999, we completed our strategic alliance with Abbott. In addition
to providing global sales, marketing, and manufacturing capabilities, the Abbott
Alliance provided approximately $115.9 million in net proceeds in 1999 from the
sale of approximately 6.57 million shares of common stock, approximately $24.8
million in net reimbursement of research and development expenses, and
approximately $1.5 million in net reimbursed sales and marketing expenses as
dictated by the Abbott Alliance profit and loss sharing arrangement. During
1998, we had three equity offerings which provided aggregate net proceeds of
approximately $115.8 million.

      At December 31, 1999, we had net working capital of $123.6 million, an
increase of $43.8 million over December 31, 1998. The increase in working
capital is principally the result of net proceeds and reimbursement from the
Abbott Alliance partially offset by costs of the continued development of our
drug candidates and other increased operating costs. Our principal source of
liquidity at December 31, 1999, was $58.5 million in cash and cash equivalents
and $99.3 million in investments which are considered "available-for-sale,"
reflecting a $39.1 million increase of cash, cash equivalent and investment
balances over those at December 31, 1998.


                                       40
<PAGE>

      In conjunction with the development of our drug candidates, we outsource
certain aspects of our clinical trials and focus on what we believe are the most
critical aspects of the development process. Accordingly, we have entered into
contractual arrangements with selected third parties regarding clinical and
toxicology studies in the development of our drug candidates. At December 31,
1999, we estimate this contractual commitment to be approximately $17.0 million;
however, this estimate is dependent upon the results of the underlying studies
as well as certain other variable components. Additionally, we have entered into
agreements with selected third parties to provide drug substance to satisfy our
drug development requirements and for the potential commercial launch of our
drug candidates. At December 31, 1999, we estimate this drug substance
commitment to be approximately $9.0 million. The actual obligation underlying
these commitments may differ from our estimates due to a number of variable
components.

      We expect that our capital requirements will continue to increase in
future periods as we fund our drug development programs, pay obligations under
our license and/or option agreements, continue development of our sales and
marketing organization, acquire drug substance from third party manufacturers,
and incur other SG&A expenditures necessary to support our expanding operations.
Our future capital requirements will depend on many factors, including 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, 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, determinations as to the commercial potential of our drug candidates,
administrative and legal expenses, the establishment of internal capacity and
third party arrangements for sales and marketing functions, the establishment of
third party arrangements for manufacturing, including Abbott, and other factors.

      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 any drug
candidate and the commercial success of any approved drug. Our existing license
agreements, as of December 31, 1999, may require future cash payments of up to
$67.3 million contingent upon the achievement of certain development milestones
and up to $30.0 million upon the achievement of certain sales milestones. One of
our licensors has the option to receive $2.0 million of such future milestone
payments in shares of common stock (based on the then current market price) in
lieu of a cash payment. As of December 31, 1999, we are also obligated to issue
up to an additional 2,000,000 shares of common stock upon the achievement of
certain development milestones relating to DMP-450, 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 annual
license preservation fees could range from $50,000 (if only a single drug
candidate is approved for one indication) to $46.5 million (if all drug
candidates are approved for all indications) under our existing license
agreements.

      We believe that our cash, cash equivalents and investments will be
adequate to satisfy our anticipated capital requirements through June 2001, but
expect that we will be required to raise additional funds through equity or debt
financings, or from other sources. There can be no assurance that additional
funding will be available on favorable terms from any of these sources or at
all. See "Item 1. Business--Risk and Uncertainties-- If we need additional funds
and are unable to raise them, we would have to curtail or cease operations."

Foreign Currency Risk Management

      In the ordinary course of business, we are exposed to foreign currency
exchange rate risk. This exposure primarily relates to the purchase of drug
substance and/or services from foreign vendors in contracts for which the
obligation is denominated in a foreign currency. We periodically enter into
foreign exchange contracts to manage these exposures when we consider it
practical to do so.

      We have established a control environment, which includes policies and
procedures for risk assessment and the approval, reporting and monitoring of
derivative financial instrument activities. These policies include only the
hedging of firm commitments and prohibit the holding of derivative instruments
for trading purposes. Specific hedging strategies depend on several factors,
including the magnitude of the exposure, offset through contract terms, cost and
availability of the appropriate instruments, anticipated time horizon, and the
variability of the underlying


                                       41
<PAGE>

commitment. We monitor the effectiveness of our hedging structures on an ongoing
basis. At December 31, 1999, we had no outstanding derivative financial
instruments.

Strategic Alliance with Abbott Laboratories

      In August 1999, we completed a worldwide strategic alliance with Abbott
for six antiviral compounds. Pursuant to terms of the Abbott Alliance, we will
collaborate with Abbott 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 our four drug candidates currently in active
development for HIV and/or hepatitis B, Coviracil, Coactinon, DAPD and L-FMAU,
and Abbott's two HIV protease inhibitors, Norvir (R) (ritonavir) and ABT-378,
currently in Phase III development. Outside the United States, Abbott has
exclusive sales and marketing rights to promote our four antiviral compounds and
their two HIV compounds. Triangle and Abbott will share profits and losses for
our four drug candidates. We 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. The Abbott Alliance provides for non-contingent research and
development reimbursement 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 $185.0 million of contingent development milestone payments and the sharing
of future commercialization costs. In addition, Abbott purchased approximately
6.57 million shares of our common stock at $18.00 per share. 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.

Stockholder Rights Plan

      On January 29, 1999, our 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 percent or more of Triangle's
common stock, at a price of $100.00 per right. The Stockholder Rights Plan is
designed to deter a party from gaining control of Triangle without offering a
fair price to all stockholders and should encourage a party to negotiate with
our Board prior to attempting to acquire us.

Litigation and Other Contingencies

      As discussed in note 13 of the Notes to Consolidated Financial Statements,
we are indirectly involved in several patent opposition and adversarial
proceedings and one lawsuit filed in Australia regarding the patent rights
related to two of our licensed drug candidates, including Coviracil. Although we
are not a named party in any of these proceedings, we are obligated to reimburse
our licensors for certain legal expenses associated with these proceedings. We
cannot predict the outcome of these 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 but not limited to any adverse
development related to the patent rights licensed to us for these two drug
candidates or our rights or obligations related thereto, 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 products, we may be unable to commercialize
our products or to prevent other companies from using our technology in
competitive products."

Year 2000 Compliance

      We suffered no disruption of operations or adverse events in regards to
the Year 2000 date recognition problem on our existing internal systems, and to
our knowledge, there have been no adverse events experienced by


                                       42
<PAGE>

our key business vendors which have impacted our operations or will impact our
future plans. Total incremental expenditures associated with our Year 2000
compliance program were approximately $200,000 and were expensed as incurred.

Recent Accounting Pronouncements

      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. SFAS 133, as
amended and deferred by SFAS 137, is effective for financial statements for all
fiscal quarters of all fiscal years beginning after June 15, 2000. We intend to
adopt SFAS 133 when required; however, SFAS 133 is not expected to have a
material impact on our consolidated financial position, results of operations,
or cash flows.

      In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). We adopted the provisions of SAB 101 in the three month period ending
December 31, 1999 as it significantly impacts revenue recognition associated
with certain terms of our strategic alliance with Abbott. Issuance of SAB 101
changes revenue recognition practices for non-refundable up-front payments such
as the $31.7 million non-contingent research and development reimbursement
stipulated in the Abbott Alliance and requires deferred recognition of these
payments over the anticipated research and development arrangement period.
Accordingly, no revenue was recognized in 1999 associated with the $25.0 million
reimbursement received on December 30, 1999. Revenue recognition for the $31.7
million non-contingent research and development reimbursement will be deferred
over the expected development period for the drug candidates in the Abbott
Alliance.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

      At December 31, 1999, we had no outstanding derivative financial
instruments. 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 and foreign currency exchange rates.

Interest Rate Sensitivity

      Triangle is subject to interest rate risk on our investment portfolio. We
maintain an investment portfolio consisting primarily of high quality government
and corporate bonds with an average maturity of less than one year. 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 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, 1999,
the fair value of the portfolio is expected to decline by an immaterial
aggregate amount primarily due to the short maturity of the portfolio. At
December 31, 1999, our portfolio consisted of approximately $94.6 million of
investments maturing within one year and approximately $4.7 million of
investments maturing after one year but within 18 months. Additionally, we
generally have the ability to hold our fixed income investments to maturity and
therefore do not expect our consolidated operating results or cash flows to be
affected by a significant amount due to a sudden change in interest rates.


                                       43
<PAGE>

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 economically
guarantee, or lock into, exchange rates on firm foreign currency cash outflows
and to minimize the impact of foreign currency fluctuations on our operations.
These policies specifically provide for the hedging of firm commitments and
prohibit the holding of derivative instruments for speculative or trading
purposes.


                                       44
<PAGE>

Item 8. Financial Statements and Supplementary Data

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                               Page
                                                                                               ----
<S>                                                                                              <C>
Report of Independent Accountants..............................................................  46

Consolidated Balance Sheets as of December 31, 1999 and 1998...................................  47

Consolidated Statements of Operations for the years ended December 31, 1999, 1998,
     1997 and the period from inception (July 12, 1995) through December 31, 1999..............  48

Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998,
     1997 and the period from inception (July 12, 1995) through December 31, 1999..............  49

Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998,
     1997 and the period from inception (July 12, 1995) through December 31, 1999..............  50

Notes to Consolidated Financial Statements.....................................................  51
</TABLE>


                                       45
<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 subsidiaries, a development
stage company, (the "Company") at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999 and the period from inception (July 12, 1995) through
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. 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 which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.


PricewaterhouseCoopers LLP

Raleigh, North Carolina
February 22, 2000


                                       46
<PAGE>

                         Triangle Pharmaceuticals, Inc.
                          (A Development Stage Company)
                           Consolidated Balance Sheets
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                     December 31,
                                                              ----------------------
Assets                                                           1999         1998
                                                              ---------    ---------
<S>                                                           <C>          <C>
Current assets:
     Cash and cash equivalents ............................   $  58,486    $  77,653
     Restricted deposits ..................................          27           49
     Investments ..........................................      94,583       22,933
     Interest receivable ..................................       1,307          612
     Receivable from collaborative partner ................       1,156           --
     Prepaid expenses .....................................         555          769
                                                              ---------    ---------
        Total current assets ..............................     156,114      102,016
                                                              ---------    ---------
Property, plant and equipment, net ........................       5,701        4,164
Investments ...............................................       4,682       18,106
Restricted deposits .......................................          --           27
                                                              ---------    ---------
        Total assets ......................................   $ 166,497    $ 124,313
                                                              =========    =========

Liabilities and Stockholders' Equity

Current liabilities:
     Accounts payable .....................................   $  11,495    $  11,778
     Capital lease obligation-current .....................         133          126
     Long-term debt-current ...............................          --          158
     Accrued expenses .....................................      14,587       10,147
     Deferred revenue .....................................       6,250           --
                                                              ---------    ---------
        Total current liabilities .........................      32,465       22,209
                                                              ---------    ---------
Capital lease obligation-noncurrent .......................           9          153
Deferred revenue ..........................................      18,750           --
                                                              ---------    ---------
        Total liabilities .................................      51,224       22,362
                                                              ---------    ---------
Commitments and contingencies (See notes 3, 5, 7, 9 and 13)          --           --
Stockholders' equity:
     Convertible Preferred Stock, $0.001 par value;
        5,000 shares authorized; 0 and 170 shares,
        issued and outstanding, respectively ..............          --           --
     Common Stock, $0.001 par value; 75,000 shares
        authorized; 37,578 and 28,871 shares,
        issued and outstanding, respectively ..............          38           29
     Warrants .............................................          --          114
     Additional paid-in capital ...........................     336,814      218,683
     Accumulated deficit during development stage .........    (221,444)    (116,823)
     Accumulated other comprehensive (loss) income ........        (135)          18
     Deferred compensation ................................          --          (70)
                                                              ---------    ---------
        Total stockholders' equity ........................     115,273      101,951
                                                              ---------    ---------
        Total liabilities and stockholders' equity ........   $ 166,497    $ 124,313
                                                              =========    =========
</TABLE>

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


                                       47
<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
                                           1999         1998         1997          December 31, 1999
                                         ---------    ---------    ---------       -----------------
<S>                                      <C>          <C>          <C>                 <C>
Operating expenses:
  License fees .......................   $   9,965    $   6,500    $     610           $  20,342
  Development ........................      85,336       55,117       22,240             167,660
  Purchased research and development .       1,247           --       11,261              12,508
  Selling, general and administrative       14,638        9,774        7,071              36,046
                                         ---------    ---------    ---------           ---------
Loss from operations .................    (111,186)     (71,391)     (41,182)           (236,556)
Interest income, net .................       6,565        4,120        3,514              15,112
                                         ---------    ---------    ---------           ---------

Net loss .............................   $(104,621)   $ (67,271)   $ (37,668)          $(221,444)
                                         =========    =========    =========           =========

Basic and diluted net loss per common
  share ..............................   $   (3.18)   $   (2.93)   $   (2.00)
                                         =========    =========    =========
Shares used in computing basic and
  diluted net loss per common share ..      32,923       22,927       18,871
                                         =========    =========    =========
</TABLE>

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


                                       48
<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
                                                      1999         1998         1997             December 31, 1999
                                                   ---------    ---------    ---------           -----------------
<S>                                                <C>          <C>          <C>                   <C>
Cash flows from operating activities:
Net loss .......................................   $(104,621)   $ (67,271)   $ (37,668)            $(221,444)
Adjustments to reconcile net loss to net
  cash used by operating activities:
  Depreciation and amortization ................       1,207          889          313                 2,509
  Purchased research and development ...........       1,247           --       11,261                12,508
  Stock-based compensation: license fees .......          --           --           --                   636
  Stock-based compensation: development ........          54           45           43                   489
  Stock-based compensation: general and
    administrative .............................         146           36           --                   414
  Change in assets and liabilities:
    Receivables ................................      (1,851)        (312)         429                (2,463)
    Prepaid expenses ...........................         214           22         (233)                 (555)
    Accounts payable ...........................        (283)       8,626        1,568                11,495
    Accrued expenses ...........................       4,561        4,949        4,358                14,588
    Deferred revenue ...........................      25,000           --           --                25,000
                                                   ---------    ---------    ---------             ---------
Net cash used by operating activities ..........     (74,326)     (53,016)     (19,929)             (156,823)
                                                   ---------    ---------    ---------             ---------
Cash flows from investing activities:
  Sale (purchase) of restricted deposits .......          49           43           56                   (27)
  Purchase of investments ......................    (102,126)     (55,632)     (29,259)             (220,286)
  Proceeds from sale and maturity of investments      43,747       37,709       34,108               120,886
  Purchase of property, plant and equipment ....      (2,744)      (2,181)      (2,295)               (8,035)
  Acquisition of Avid Corporation, net of cash
    acquired ...................................          --           --       (3,053)               (3,053)
                                                   ---------    ---------    ---------             ---------
Net cash used by investing activities ..........     (61,074)     (20,061)        (443)             (110,515)
                                                   ---------    ---------    ---------             ---------
Cash flows from financing activities:
  Sale of stock, net of related issuance costs .     116,218      116,334       29,523               325,445
  Sale of options under salary investment option
    grant program ..............................          95           97           70                   262
  Proceeds from stock options/warrants exercised         215            1            1                   242
  Proceeds from notes payable ..................          --           --          374                   374
  Equipment financing ..........................          --           --           --                   354
Principal payments on capital lease obligations
    and notes payable ..........................        (295)        (400)        (153)                 (853)
                                                   ---------    ---------    ---------             ---------
Net cash provided by financing activities ......     116,233      116,032       29,815               325,824
                                                   ---------    ---------    ---------             ---------
Net (decrease) increase in cash and cash
  equivalents ..................................     (19,167)      42,955        9,443                58,486
Cash and cash equivalents at beginning of year .      77,653       34,698       25,255                    --
                                                   ---------    ---------    ---------             ---------
Cash and cash equivalents at end of year .......   $  58,486    $  77,653    $  34,698             $  58,486
                                                   =========    =========    =========             =========
</TABLE>

Supplemental disclosure of noncash investing and financing activities:

      On April 1, 1999, the Company issued 100 shares of Common Stock valued at
$1,247 in conjunction with the Avid Corporation acquisition.

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

      On August 28, 1997, the Company issued 400 shares of Common Stock, valued
at $8,117, in exchange for all outstanding shares of Avid Corporation.

      Noncash investing activities during 1997 totaled $59 and related to the
acquisition of laboratory equipment for the assumption of a capital lease
obligation.

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


                                       49
<PAGE>

                         Triangle Pharmaceuticals, Inc.
                          (A Development Stage Company)
                 Consolidated Statements of Stockholders' Equity
                                 (In thousands)

<TABLE>
<CAPTION>
                                            Convertible
                                            Preferred Stock                             Common Stock        Additional
                                     --------------------------  ------------     ------------------------    Paid-In
                                        Shares         Amount       Warrants       Shares        Amount       Capital
                                     -----------   ------------  ------------     ---------   ------------  ------------
<S>                                  <C>           <C>           <C>                 <C>      <C>           <C>
Initial sale of stock...........             933   $          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......................              --             --            --            --             --            --
                                     -----------   ------------  ------------     ---------   ------------  ------------
Balance, December 31, 1995......           5,182              5            --         2,670              3         3,859
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......................              --             --            --            --             --            --
                                     -----------   ------------  ------------     ---------   ------------  ------------
Balance, December 31, 1996......              --             --           152        17,568             18        64,549
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......................              --             --            --            --             --            --
                                     -----------   ------------  ------------     ---------   ------------  ------------
Balance, December 31, 1997......              --             --           114        19,995             20       102,260
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             --             --            --            --             --            --
  Net loss......................              --             --            --            --             --            --
                                     -----------   ------------  ------------     ---------   ------------  ------------
Balance, December 31, 1998......             170             --           114        28,871             29       218,683
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..              --             --            --            --             --            --
  Change in unrealized
    gains/(losses) on investments             --             --            --            --             --            --
  Net loss......................              --             --            --            --             --            --
                                     -----------   ------------  ------------     ---------   ------------  ------------
Balance, December 31, 1999......              --   $         --  $         --        37,578   $         38  $    336,814
                                     ===========   ============  ============     =========   ============  ============
<CAPTION>
                                                                      Accumulated
                                                     Comprehensive       Other
                                       Accumulated      Income       Comprehensive       Deferred
                                         Deficit        (Loss)        Income/(Loss)     Compensation       Total
                                      -------------   ------------     ----------        ----------       -------------
<S>                                   <C>             <C>              <C>               <C>              <C>
Initial sale of stock...........      $          --   $         --     $       --        $       --     $         712
Additional sale of stock........                 --             --             --                --             3,143
Stock-based compensation........                 --             --             --               (12)               --
Comprehensive loss:
  Net loss......................               (967)          (967)            --                --              (967)
                                      -------------   ------------     ----------        ----------     -------------
Balance, December 31, 1995......               (967)          (967)            --               (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)       (10,917)            --                --           (10,917)
                                      -------------   ------------     ----------        ----------     -------------
Balance, December 31, 1996......            (11,884)       (10,917)            --              (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)       (37,668)            --                --           (37,668)
                                      -------------   ------------     ----------        ----------     -------------
Balance, December 31, 1997......            (49,552)       (37,668)            --              (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                --                18
  Net loss......................            (67,271)       (67,271)            --                --           (67,271)
                                      -------------   ------------     ----------        ----------     -------------
Balance, December 31, 1998......           (116,823)       (67,253)            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)               --               (21)
  Change in unrealized
    gains/(losses) on investments                --           (132)          (132)               --              (132)
  Net loss......................           (104,621)      (104,621)            --                --          (104,621)
                                      -------------   ------------     ----------        ----------     -------------
Balance, December 31, 1999......      $    (221,444)  $   (104,774)    $     (135)       $       --     $     115,273
                                      =============   ============     ==========        ==========     =============
</TABLE>

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


                                       50
<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 subsidiaries (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 subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.

Cash and cash equivalents

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

Restricted deposits

      Restricted deposits consist of cash and cash equivalents which
collateralize a letter of credit and have been classified as current or
long-term based on the expected release date of such restriction. The carrying
amount of these restricted deposits approximates fair value.

Investments

      Investments consist primarily of United States and municipal government
agency obligations, corporate bonds, notes and commercial paper, 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.

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
- 7 years.

Long-term debt

      The carrying value of the note payable approximates its fair value as the
note bears interest at market rates.

Revenue recognition

      Revenue for any products that are developed will be recognized when such
products are shipped. Non-contingent research and development reimbursement
under the Company's strategic alliance has been deferred and will be recognized
over the anticipated performance of research and development. Milestone payments
under our strategic alliance are earned and recognized upon the completion of
the milestone.


                                       51
<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)

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.

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, 1999 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 34,459.

Comprehensive Income (Loss)

      As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 established new requirements for the reporting and display of
comprehensive income (loss) and its components; the Company has disclosed its
comprehensive income (loss) as a component of 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.


                                       52
<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)

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." 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.

Derivative financial instruments

      Derivative financial instrument contracts are entered into and utilized by
the Company to manage foreign exchange risk by hedging certain transactions
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.

      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. As exchange rates change, gains and losses on
contracts designated as hedges of existing assets or liabilities are recognized
in income. Gains and losses on contracts designated as hedges of identifiable
firm foreign currency commitments are deferred and recognized in the measurement
of the related foreign currency transaction. The Company had no open foreign
currency forward purchase contracts at December 31, 1999. For the year ended
December 31, 1999 and 1998, the Company realized net losses or gains on foreign
currency transactions of approximately ($145) and $25, respectively. The Company
did not enter into any foreign currency forward purchase contracts in 1997.

Recent accounting pronouncements

      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. SFAS 133, as
amended and deferred by SFAS 137, is effective for financial statements for all
fiscal quarters of all fiscal years beginning after June 15, 2000. The Company
intends to adopt SFAS 133 when required; however, SFAS 133 is not expected to
have a material impact on the Company's consolidated financial position, results
of operations, or cash flows.

      In December 1999, the Securities and Exchange Commission (the
"Commission") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" ("SAB 101"). SAB 101 provided broad conceptual discussions
and industry-specific guidance concerning revenue recognition. The Company
adopted SAB 101 in the three month period ending December 31, 1999 and,
accordingly, has reported the impact of the strategic alliance with Abbott
Laboratories ("Abbott") in accordance with SAB 101's guidance.

Reclassifications

      Certain prior year amounts have been reclassified to conform with the
current year presentation.


                                       53
<PAGE>

                         Triangle Pharmaceuticals, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                    (In thousands, except per share amounts)

2. Investments

      A summary of the fair market value of "available-for-sale" securities by
classification is as follows:

                                                                December 31,
                                                            -------------------
                                                              1999        1998
                                                            -------     -------
United States Government obligations .................      $16,441     $20,983
Corporate bonds, notes and commercial paper ..........       75,206      17,358
Municipals ...........................................           --       1,200
Other ................................................        7,618       1,498
                                                            -------     -------
         Total .......................................      $99,265     $41,039
                                                            =======     =======

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

                                                                December 31,
                                                            -------------------
                                                             1999        1998
                                                            -------     -------
Mature in one year or less ...........................      $94,583     $22,933
Mature after one year through five years .............        4,682      18,106
                                                            -------     -------
         Total .......................................      $99,265     $41,039
                                                            =======     =======

      Gross realized and unrealized holding gains and losses for the years ended
December 31, 1999, 1998 and 1997 were not significant.

3. Property, Plant and Equipment

                                                                December 31,
                                                            -------------------
                                                             1999        1998
                                                            -------     -------
Laboratory equipment .................................      $ 4,679     $ 3,315
Office equipment .....................................        2,697       1,829
Leasehold improvements ...............................          254         193
Construction-in-progress (office and laboratory equipment)      580         130
                                                            -------     -------
                                                              8,210       5,467
Accumulated depreciation .............................       (2,509)     (1,303)
                                                            -------     -------
         Property, plant and equipment, net ..........      $ 5,701     $ 4,164
                                                            =======     =======

      The Company leases office and laboratory facilities and office equipment
under various operating leases. Rent expense totaled $1,823, $1,335, and $998
for 1999, 1998, and 1997, respectively. The Company has provided a $175 letter
of credit, collateralized by an equivalent amount of cash and cash equivalents,
as security for a lessor.

      Minimum lease payments under operating leases at December 31, 1999 are as
follows:

Year                                                                   Amount
----                                                                  --------
2000...............................................................   $  2,172
2001...............................................................      2,041
2002...............................................................      1,875
2003...............................................................      1,399
                                                                      --------
         Total.....................................................   $  7,487
                                                                      ========


                                       54
<PAGE>

                         Triangle Pharmaceuticals, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                    (In thousands, except per share amounts)

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,
                                                            -------------------
                                                             1999        1998
                                                            -------     -------
Laboratory equipment .................................      $   567     $   567
Accumulated depreciation .............................         (383)       (270)
                                                            -------     -------
         Net capitalized leased assets ...............      $   184     $   297
                                                            =======     =======

      Future minimum lease payments under capital lease obligations at December
31, 1999 are as follows:

Year                                                                     Amount
----                                                                    -------
2000................................................................    $   142
2001................................................................          7
                                                                        -------
         Total......................................................        149
Less: amounts representing interest and executory costs.............         (7)
                                                                        -------
         Net present value..........................................    $   142
                                                                        =======

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 1999, 1998, and 1997 was
$19, $31 and $40, respectively. Interest expense associated with long-term debt
obligations for 1999, 1998 and 1997 was $5, $20 and $2, respectively.

4. Accrued Expenses

      Accrued expenses consist of the following:

                                                                December 31,
                                                            --------------------
                                                             1999         1998
                                                            -------      -------
Accrued clinical studies .............................      $ 8,160      $ 6,118
Accrued drug substance ...............................        3,849        1,602
Accrued professional fees ............................          965          780
Accrued compensation and benefits ....................          426          332
Accrued duties and taxes .............................          145          297
Other ................................................        1,042        1,018
                                                            -------      -------
         Total .......................................      $14,587      $10,147
                                                            =======      =======

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


                                       55
<PAGE>

                         Triangle Pharmaceuticals, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                    (In thousands, except per share amounts)

5. Stockholders' Equity (Continued)

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 the Commission. 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 Commission. 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 Commission on December 31,
1998.

      On August 3, 1999, the Company completed its worldwide strategic alliance
with Abbott Laboratories (the "Abbott Alliance") resulting in Abbott purchasing
6,571 shares of Common Stock at $18.00 per share. Net proceeds to the Company
were approximately $115,861.

      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, 1999, 55 shares were subject
to repurchase rights. During 1999, 1998, and 1997, the Company recognized
compensation expense of $99, $81 and $43, respectively, related to equity
instruments for which the Company's repurchase option had lapsed based on the
differences between fair value and the selling price per share.


                                       56
<PAGE>

                         Triangle Pharmaceuticals, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                    (In thousands, except per share amounts)

6. 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 1999, 1998 and 1997, the Company issued 39, 33 and 14 shares,
respectively, in conjunction with the Purchase Plan. At December 31, 1999, the
Company held payroll deductions of approximately $177 which will be converted to
shares of Common Stock in 2000. The Purchase Plan had an insignificant impact on
the Company's 1999, 1998 and 1997 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 4,
1997 for calendar year 1998, on December 10, 1998 for the calendar year 1999 and
on December 6, 1999 for the calendar year 2000. 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 become vested and
exercisable in a series of twelve (12) equal monthly installments over the
calendar year for which the salary reduction is in effect and will become fully
exercisable and vested upon certain changes in the ownership or control of the
Company. Options have a maximum term of ten years from the date of grant.

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.


                                       57
<PAGE>

                         Triangle Pharmaceuticals, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                    (In thousands, except per share amounts)

6. Employee Benefit Plans (Continued)

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 $184, $104 and $26 for 1999, 1998 and 1997,
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. The options 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 Accounting Principles Board Opinion No. 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, 1996...               1,096       $  2.129                  --
Granted at fair value....................                 626         21.166            $ 11.682
Exercised................................                 (13)         0.075                  --
Forfeited................................                  --             --                  --
                                                       ------       --------            --------
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                  --
                                                       ======       ========            ========
</TABLE>


                                       58
<PAGE>

                         Triangle Pharmaceuticals, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                    (In thousands, except per share amounts)

6. Employee Benefit Plans (Continued)

      The following table summarizes information concerning options outstanding
at December 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                                           Weighted Average
                                                                                               Remaining
                                                      Number          Weighted Average     Contractual Life
                                                     of Shares         Exercise Price         (In years)
                                                     ---------         --------------      ----------------
Options outstanding-
Price range:
<S>                                                         <C>          <C>                    <C>
     $0.075 - $7.000..........................              778          $     2.416            6.32
     $8.000 - $13.125.........................              373          $    11.280            8.79
     $13.250 - $13.250........................              711          $    13.250            9.96
     $13.406 - $17.063........................              632          $    15.758            8.36
     $17.313 - $23.625........................              639          $    21.224            7.84
                                                          -----          -----------            ----
Options outstanding, December 31, 1999                    3,133          $    12.460            8.16
                                                          =====          ===========            ====

Exercisable options outstanding-
Price range:
     $0.075 - $7.000..........................              778          $     2.416
     $8.000 - $13.125.........................              115          $    10.369
     $13.250 - $13.250........................                0          $     0.000
     $13.406 - $17.063........................              263          $    15.651
     $17.313 - $23.625........................              351          $    21.671
                                                          -----          -----------
Exercisable options outstanding, December
     31, 1999.................................            1,507          $     9.820
                                                          =====          ===========
Exercisable options outstanding, December
     31, 1998.................................            1,339          $     5.840
                                                          =====          ===========
</TABLE>

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

                                                      December 31,
                                       ---------------------------------------
                                          1999          1998           1997
                                       ----------     ---------     ----------
Expected dividend yield.............         0.00%         0.00%          0.00%
Expected stock price volatility.....        80.00%        80.00%         65.00%
Risk-free interest rate.............    6.14-6.19%    4.53-4.54%    5.70%-5.72%
Expected life of options............     4-5 years     4-5 years      4-5 years

      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:

<TABLE>
<CAPTION>
                                               1999           1998           1997
                                          -----------    -----------    -----------
<S>                                       <C>            <C>            <C>
Net loss - as reported ................   $  (104,621)   $   (67,271)   $   (37,668)
Net loss - pro forma ..................   $  (109,078)   $   (70,598)   $   (38,981)
Net loss per common share - as reported   $     (3.18)   $     (2.93)   $     (2.00)
Net loss per common share - pro forma .   $     (3.31)   $     (3.08)   $     (2.07)
</TABLE>


                                       59
<PAGE>

                         Triangle Pharmaceuticals, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                    (In thousands, except per share amounts)

7. Licensing Agreements

      The Company has five license agreements for drug candidates as of December
31, 1999. In the aggregate, these agreements may require future payments of up
to $67,250 contingent upon the achievement of certain development milestones and
up to $30,000 upon the achievement of certain sales milestones. One of the
Company's licensors has the option to receive $2,000 of such future milestone
payments in shares of Common Stock (based on the then current market price) in
lieu of a cash payment. The Company is also obligated to issue up to an
additional 2,000 shares of Common Stock upon the achievement of certain
development milestones relating to DMP-450 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 $46,500 (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 and $1,515 in 1997 associated with certain
development work. Development expenses for the years ended December 31, 1999 and
1997 have been reduced by approximately $265 and $1,168, respectively.
Additionally, under the terms of certain of these agreements, the Company
granted 650 shares of Common Stock to some of the licensors.

8. 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, 1999, 1998, and 1997, the Company had net operating loss
carryforwards of approximately $155,344, $91,866, and $39,776, respectively, and
a research credit carryforward of approximately $8,249, $6,072 and $1,951,
respectively, which will expire in years 2006 to 2019. 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 Triangle's 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.

      The components of deferred taxes are as follows:

                                                           December 31,
                                               --------------------------------
                                                 1999        1998        1997
                                               --------    --------    --------
Loss carryforwards .........................   $ 61,439    $ 36,480    $ 15,982
Deferred revenue ...........................      9,887          --          --
Research tax credit ........................      8,249       6,072       1,951
License fees ...............................      7,347       4,062       1,270
Accrued liabilities and reserves ...........      2,912         481          --
Start-up costs .............................        907       1,253       1,531
                                               --------    --------    --------
Deferred tax assets ........................     90,741      48,348      20,734
Deferred tax assets valuation allowance ....    (90,741)    (48,348)    (20,734)
                                               --------    --------    --------
         Net deferred tax asset ............   $     --    $     --    $     --
                                               ========    ========    ========


                                       60
<PAGE>

                         Triangle Pharmaceuticals, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                    (In thousands, except per share amounts)

9. 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 is contingent upon Triangle initiating pivotal
Phase II clinical trials with DMP-450 before February 28, 1999 (the "DMP
Milestone Date"), or electing on or before that date to continue the development
of DMP-450 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 agreed to extend 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. Issuance of the 100 shares resulted in an additional purchased research
and development charge of $1,247 as the drug candidate was still in an early
stage of development (Phase I/II). The remaining 500 of the 2,000 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 DMP-450, a protease inhibitor for the treatment of human
immunodeficiency virus infection.

10. 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 L-FMAU, and Abbott's two HIV protease inhibitors, Norvir (R)
(ritonavir) and ABT-378. 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 they
generate for Abbott's protease inhibitors. In addition, Abbott will have the
right of first discussion to market future Triangle compounds. The Abbott
Alliance provides for non-contingent research and development reimbursement of
$31,714, $25,000 of which was received on December 30, 1999 and $6,714 was
received on January 14, 2000, and up to $185,000 of contingent development
milestone payments and the sharing of future commercialization costs. In
addition, Abbott 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.
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.

11. Related Party Transactions

      In May 1998, the stockholders of the Company elected an outside director
to the Company's Board. This director 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, 1999 and
1998, the Company had accounts payable outstanding to these companies of
approximately $1,145 and $235, respectively, and incurred approximately $2,763
and $1,475 during 1999 and 1998, respectively, in development expense for
services performed by these companies. The terms and conditions under which
services are provided under these contracts have not been altered from the terms
and conditions under those contracts which existed prior to the related party
relationship.

      In association with the Abbott Alliance, the Company utilizes Abbott for
assistance in drug development and shares expenses under a profit and loss
calculation for the four Triangle products in the Abbott Alliance.


                                       61
<PAGE>

                         Triangle Pharmaceuticals, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                    (In thousands, except per share amounts)

11. Related Party Transactions (Continued)

Accordingly, the Company had accounts payable of $571 at December 31, 1999, and
had incurred approximately $4,676 in 1999 development expense for services
performed by Abbott. Under the profit and loss calculation, the Company had a
receivable of $1,156 at December 31, 1999, and was reimbursed $1,518 of 1999
marketing expense, thereby reducing 1999 selling, general and administrative
expenses. Additionally, the Company was reimbursed $25,000 for prior research
and development expenses which has been recorded as deferred revenue.

12. 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.

13. Commitments and Contingencies

      The Company is indirectly involved in several opposition and interference
proceedings and one lawsuit 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. 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,
1999, the Company estimates its commitment to be approximately $17,000 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, 1999, the Company
estimates its commitment for drug substance to be approximately $9,000. 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.

14. Subsequent Event (Unaudited)

      Pursuant to the merger agreement executed in connection with the 1997
acquisition of Avid, the Company agreed to issue up to 2,100 additional shares
of Common Stock to the former Avid stockholders upon the achievement of certain
milestones related to DMP-450. The issuance of 1,600 of these shares was
contingent upon the Company's initiating pivotal Phase II clinical trials with
DMP-450 before February 28, 1999 (the "DMP Milestone Date"), or electing on or
before the DMP Milestone Date to continue the development of DMP-450 even if
such clinical trials had not been initiated. In February 1999, the Company and
representatives of the former Avid stockholders agreed to extend the DMP
Milestone Date to February 28, 2000 in exchange for issuance of 100 of the


                                       62
<PAGE>

                         Triangle Pharmaceuticals, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                    (In thousands, except per share amounts)

14. Subsequent Event (Unaudited) (Continued)

1,600 contingent shares of Common Stock. In March 2000, these representatives
further agreed to extend the DMP Milestone Date until August 28, 2001. As
consideration for the second extension, the Company agreed to issue 400 of the
1,500 contingent shares in 2000, and to increase the remaining number of
contingent shares by 50. Accordingly, if Triangle initiates pivotal Phase II
clinical trials with DMP-450 on or before August 28, 2001 or elects on or before
August 28, 2001 to continue development of DMP-450 even if such clinical trials
had not been initiated, the Company would issue 1,150 shares of Common Stock.
Issuance of the 400 shares will be recorded as additional purchase price in the
Avid acquisition and will be recorded in 2000 based on the fair market value of
the Common Stock. The remaining 500 of the 2,100 additional shares are
contingent upon the obtainment of additional development milestones and have not
been affected by these extensions.


                                       63
<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.


                                       64
<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 45.

      (2) Financial Statement Schedules

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

(b) Reports on Form 8-K

      On December 17, 1999, the Company filed a Current Report on Form 8-K dated
December 10, 1999 announcing the Company had issued a press release announcing
the Food and Drug Administration advised us that we would need to conduct one or
possibly two additional Phase III studies regarding our drug candidate,
Coactinon.

(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.


                                       65
<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.

  10.9(a)         Consulting Agreement between the Company and Karl Hostetler,
                  M.D., dated November 16, 1995.

  10.10(a)        Consulting Agreement between the Company and Dennis Carson,
                  M.D., dated November 16, 1995.

  10.11(a)        Option Agreement between the Company and Mitsubishi Chemical
                  Corporation, dated December 20, 1995.

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

  10.13(a)        Letter of Credit from First Union National Bank, dated
                  February 28, 1996.

  10.14(a)        1996 Stock Option/Stock Issuance Plan.

  10.15(a)        1996 Stock Option/Stock Issuance Plan Form of Notice of Grant.

  10.16(a)        1996 Stock Option/Stock Issuance Plan Form of Stock Option
                  Agreement.

  10.17(a)        1996 Stock Option/Stock Issuance Plan Form of Stock Purchase
                  Agreement.

  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.

  10.21(a)        Restricted Stock Purchase Agreement among the Company and the
                  stockholders listed on Exhibit A thereto, dated March 31,
                  1996.

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

  10.23(a)        Restricted Stock Purchase Agreement between the Company and
                  Emory University, dated April 17, 1996.

  10.24(a)        Amended and Restated Investors' Rights Agreement among the
                  Company and the Investors listed on Schedule A thereto, 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.

  10.26(a)        Stock Purchase Warrant between the Company and Burrill &
                  Craves, dated May 21, 1996.


                                       66
<PAGE>

  10.27(a)        Investors' Rights Agreement between the Company and Burrill &
                  Craves, dated May 21, 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.

  10.30(a)        Restated Co-Sale 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.

  10.35(a)        Sponsored Research Agreement between the Company and The
                  Regents of the University of California, dated September 1,
                  1996.

  10.36(a)        1996 Stock Incentive Plan.

  10.37(a)        1996 Stock Incentive Plan Form of Notice of Grant.

  10.38(a)        1996 Stock Incentive Plan Form of Stock Option Agreement.

  10.39(a)        1996 Stock Incentive Plan Form of Stock Purchase Agreement.

  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.

  10.45           Employment Agreement between the Company and Dr. David W.
                  Barry, dated October 28, 1996 (filed as Exhibit 10.44 to the
                  Company's Form 10-K filed March 28, 1997).

  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).



                                       67
<PAGE>

  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).

  10.60           Employment Agreement between the Company and Dr. David W.
                  Barry dated November 23, 1998. (filed as Exhibit 10.60 to the
                  Company's Form 10-K filed March 19, 1999).

  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).

  10.63           Form of Employment Agreement among the Company and the
                  President and each Vice President 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).


                                       68
<PAGE>

  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).

  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).

  11.1            Computation of Net Loss Per Common Share.

  23.1            Consent of PricewaterhouseCoopers LLP, Independent
                  Accountants.


                                       69
<PAGE>

  24.1            Power of Attorney (see page 71).

  27.1            Financial Data Schedule.

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

Supplemental Information

Copies of the Registrant's Proxy Statement for the 2000 Annual Meeting of
Stockholders and copies of the form of proxy to be used for such Annual Meeting
will be furnished to the Securities and Exchange Commission prior to the time
they are distributed to the Registrant's stockholders.


                                       70
<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: March 24, 2000            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>
                                          Chairman of the Board and
/s/ David W. Barry                         Chief Executive Officer
--------------------------------        (Principal Executive Officer)              March 24, 2000
(David W. Barry)


/s/ Chris A. Rallis                  Director, President, Chief Operating
--------------------------------          Officer and General Counsel              March 24, 2000
(Chris A. Rallis)


/s/ Thomas R. Staab, II           Acting Chief Financial Officer and Treasurer
--------------------------------  (Principal Financial and Accounting Officer)     March 24, 2000
(Thomas R. Staab, II)


/s/ Anthony B. Evnin
--------------------------------
(Anthony B. Evnin)                                 Director                        March 24, 2000


/s/ Standish M. Fleming
--------------------------------
(Standish M. Fleming)                              Director                        March 24, 2000


/s/ Dennis B. Gillings
--------------------------------
(Dennis B. Gillings)                               Director                        March 24, 2000


/s/ Arthur J. Higgins
--------------------------------
(Arthur J. Higgins)                                Director                        March 24, 2000


/s/ Henry G. Grabowski
--------------------------------
(Henry G. Grabowski)                               Director                        March 24, 2000


--------------------------------
George McFadden                                    Director                                , 2000
</TABLE>


                                       71