##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

(Mark One)



|[X]   |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2003
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------
|     
|      |  | OR                                                                                                                                   
|     
|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934                                             

For the transition period from      to

Commission file number: 001-16033

ESPERION THERAPEUTICS, INC.(Exact name of registrant as specified in its charter)

|                                  |  |                                             
|--------------------------------- |  | --------------------------------------------
|Delaware
(State of incorporation) |  | 38-3419139
(IRS Employer Identification No.)

3621 S. State Street,
695 KMS Place
Ann Arbor, MI 48108
(734) 332-0506
(Address of principal executive offices, including zip
code, and telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

[X] Yes                       [   ] No

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

[X] Yes                       [   ] No

The number of outstanding shares of the registrants common stock, as of
August 8, 2003, was 33,577,270.





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TABLE OF CONTENTS



|                                                   |                                                                                               |                                                          |  |  |  |  |  | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------------------- |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION                    
|                                                   | Item 1. Financial Statements                                                                 
|                                                   |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS                   
|                                                   |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS         
|                                                   |                                                                                               | NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                                   | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                   | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|                                                   | Item 4. Controls and Procedures                                                              
|PART II  OTHER INFORMATION                       
|                                                   | Item 1. Legal Proceedings                                                                    
|                                                   | Item 2. Changes in Securities and Use of Proceeds                                            
|                                                   | Item 3. Defaults Upon Senior Securities                                                      
|                                                   | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                                                   | Item 5. Other Information                                                                    
|                                                   | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                        
|INDEX TO EXHIBITS                                 
|EX-10.55 Advisory Services Agreement              
|EX-10.56 Employment Agreement - Adeoye Y. Olukotun
|EX-10.57 Amend. No. 1 to 2000 Equity Compensation 
|EX-10.58 Office Lease - State 94 Properties, LLC  
|EX-31.1 Certification Pursuant to Rules 13a-14(a) 
|EX-31.2 Certification Pursuant to Rules 13a-14(a) 
|EX-32.1 Certification Pursuant to 18 USC Sec. 1350
|EX-32.2 Certification Pursuant to 18 USC Sec. 1350



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##### Table of Contents



ESPERION THERAPEUTICS, INC.

FORM 10-Q
TABLE OF CONTENTS

|                               |                                                                                               |                                                                                                                                                           |    |      |   | 
|------------------------------ | --------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------- | -- | ---- | - | 
|                               |                                                                                               |                                                                                                                                                           |    | Page
|                               |                                                                                               |                                                                                                                                                           |    |     
|PART I  FINANCIAL INFORMATION |                                                                                               |                                                                                                                                                           |    |     
|                               | Item 1. Financial Statements                                                                  |                                                                                                                                                           |    |      |  
|                               |                                                                                               | Condensed Consolidated Balance Sheets as of June 30, 2003 and
December 31, 2002                                                                           |    |      | 3 | 
|                               |                                                                                               | Condensed Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2003 and 2002, and the
period from inception to June 30, 2003 |    |      | 4 | 
|                               |                                                                                               | Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2003 and 2002, and the period from
inception to June 30, 2003           |    |      | 5 | 
|                               |                                                                                               | Notes to Condensed Consolidated Financial Statements                                                                                                      |    |      | 6 | 
|                               | Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations |                                                                                                                                                           |    | 10   |  
|                               | Item 3. Quantitative and Qualitative Disclosures about Market Risk                            |                                                                                                                                                           |    | 16   |  
|                               | Item 4. Controls and Procedures                                                               |                                                                                                                                                           |    | 16   |  
|PART II  OTHER INFORMATION    |                                                                                               |                                                                                                                                                           |    |     
|                               | Item 1. Legal Proceedings                                                                     |                                                                                                                                                           |    | 17   |  
|                               | Item 2. Changes in Securities and Use of Proceeds                                             |                                                                                                                                                           |    | 17   |  
|                               | Item 3. Defaults Upon Senior Securities                                                       |                                                                                                                                                           |    | 17   |  
|                               | Item 4. Submission of Matters to a Vote of Security Holders                                   |                                                                                                                                                           |    | 18   |  
|                               | Item 5. Other Information                                                                     |                                                                                                                                                           |    | 18   |  
|                               | Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                                                                           |    | 19   |  
|SIGNATURES                     |                                                                                               |                                                                                                                                                           | 20 |     
|INDEX TO EXHIBITS              |                                                                                               |                                                                                                                                                           | 21 |     

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##### Table of Contents






PART I  FINANCIAL INFORMATION




Item 1. Financial Statements




ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES
(A Company in the Development Stage)
CONDENSED CONSOLIDATED BALANCE SHEETS

|                                           |                                                  |                            |        |             |        |              |        |         |        | 
|------------------------------------------ | ------------------------------------------------ | -------------------------- | ------ | ----------- | ------ | ------------ | ------ | ------- | ------ | 
|                                           |                                                  |                            |        | June 30,    |        | December 31,
|in thousands                               |                                                  | 2003                       |        | 2002       
|                                           |                                                  |                            |        |            
|                                           |                                                  |                            |        | (Unaudited) |        |              |        |        
|Assets:                                    |                                                  |                            |        |             |        |              |        |        
|Current assets:                            |                                                  |                            |        |             |        |              |        |        
|                                           | Cash and cash equivalents                        |                            | $      | 28,206      |        |              | $      | 40,499  |       
|                                           | Short-term investments                           |                            |        | 4,019       |        |              |        | 4,354   |       
|                                           | Prepaid expenses and other                       |                            |        | 378         |        |              |        | 410     |       
|                                           |                                                  |                            |        |             |        |              |        |         |       
|                                           |                                                  | Total current assets       |        |             | 32,603 |              |        |         | 45,263 | 
|                                           |                                                  |                            |        |             |        |              |        |         |       
|Property and equipment, net                |                                                  |                            | 2,432  |             |        |              | 3,001  |        
|Goodwill                                   |                                                  |                            | 3,108  |             |        |              | 3,108  |        
|Deposits and other assets                  |                                                  |                            | 10     |             |        |              | 35     |        
|                                           |                                                  |                            |        |             |        |              |        |         |       
|Total assets                               |                                                  | $                          | 38,153 |             |        | $            | 51,407 |        
|                                           |                                                  |                            |        |             |        |              |        |         |       
|Liabilities and Stockholders Equity:      |                                                  |                            |        |             |        |              |        |        
|Current liabilities:                       |                                                  |                            |        |             |        |              |        |        
|                                           | Current portion of long-term debt                |                            | $      | 1,102       |        |              | $      | 1,061   |       
|                                           | Accounts payable                                 |                            |        | 1,389       |        |              |        | 1,687   |       
|                                           | Accrued liabilities                              |                            |        | 4,041       |        |              |        | 2,185   |       
|                                           |                                                  |                            |        |             |        |              |        |         |       
|                                           |                                                  | Total current liabilities  |        |             | 6,532  |              |        |         | 4,933  | 
|                                           |                                                  |                            |        |             |        |              |        |         |       
|Long-term debt, less current portion       |                                                  |                            | 7,948  |             |        |              | 7,731  |        
|Commitments and contingencies (Note 5)     |                                                  |                            |        |             |        |              |        |        
|Stockholders equity:                      |                                                  |                            |        |             |        |              |        |        
|                                           | Preferred stock                                  |                            |        |            |        |              |        |        |       
|                                           | Common stock                                     |                            |        | 29          |        |              |        | 29      |       
|                                           | Additional paid-in capital                       |                            |        | 133,890     |        |              |        | 133,411 |       
|                                           | Notes receivable                                 |                            |        |            |        |              |        | (3      | )     
|                                           | Accumulated deficit during the development stage |                            |        | (109,887    | )      |              |        | (94,046 | )     
|                                           | Deferred stock compensation                      |                            |        | (295        | )      |              |        | (589    | )     
|                                           | Accumulated other comprehensive loss             |                            |        | (64         | )      |              |        | (59     | )     
|                                           |                                                  |                            |        |             |        |              |        |         |       
|                                           |                                                  | Total stockholders equity |        |             | 23,673 |              |        |         | 38,743 | 
|                                           |                                                  |                            |        |             |        |              |        |         |       
|Total liabilities and stockholders equity |                                                  | $                          | 38,153 |             |        | $            | 51,407 |        
|                                           |                                                  |                            |        |             |        |              |        |         |       

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

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ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

|                                                              |                                               |                              |            |                    |       |                  |            |              |       |      |            |        |        |   |            |        |        |   |           |        |         | 
|------------------------------------------------------------- | --------------------------------------------- | ---------------------------- | ---------- | ------------------ | ----- | ---------------- | ---------- | ------------ | ----- | ---- | ---------- | ------ | ------ | - | ---------- | ------ | ------ | - | --------- | ------ | ------- | 
|                                                              |                                               |                              |            | Three Months Ended |       | Six Months Ended |            |              |       |     
|                                                              |                                               |                              |            | June 30,           |       | June 30,         |            | Inception to
|                                                              |                                               |                              |            |                    |       |                  |            | June 30,    
|in thousands, except share and per share data                 |                                               | 2003                         |            | 2002               |       | 2003             |            | 2002         |       | 2003
|                                                              |                                               |                              |            |                    |       |                  |            |              |       |     
|Operating expenses:                                           |                                               |                              |            |                    |       |                  |            |              |       |      |            |        |        |   |            |        |        |   |           |       
|                                                              | Research and development                      |                              | $          | 6,272              |       |                  | $          | 5,878        |       |      | $          | 11,732 |        |   | $          | 11,583 |        |   | $         | 88,180 |        
|                                                              | General and administrative                    |                              |            | 1,561              |       |                  |            | 1,428        |       |      |            | 3,190  |        |   |            | 3,073  |        |   |           | 20,306 |        
|                                                              | Goodwill amortization                         |                              |            |                   |       |                  |            |             |       |      |            |       |        |   |            |       |        |   |           | 1,089  |        
|                                                              | Purchased in-process research and development |                              |            |                   |       |                  |            |             |       |      |            |       |        |   |            |       |        |   |           | 4,000  |        
|                                                              |                                               |                              |            |                    |       |                  |            |              |       |      |            |        |        |   |            |        |        |   |           |        |        
|                                                              |                                               | Total operating expenses     |            |                    | 7,833 |                  |            |              | 7,306 |      |            |        | 14,922 |   |            |        | 14,656 |   |           |        | 113,575 | 
|                                                              |                                               |                              |            |                    |       |                  |            |              |       |      |            |        |        |   |            |        |        |   |           |        |        
|Loss from operations                                          |                                               |                              | (7,833     | )                  |       |                  | (7,306     | )            |       |      | (14,922    | )      |        |   | (14,656    | )      |        |   | (113,575  | )     
|                                                              |                                               |                              |            |                    |       |                  |            |              |       |      |            |        |        |   |            |        |        |   |           |        |        
|Other income (expense):                                       |                                               |                              |            |                    |       |                  |            |              |       |      |            |        |        |   |            |        |        |   |           |       
|                                                              | Interest income                               |                              |            | 100                |       |                  |            | 284          |       |      |            | 249    |        |   |            | 604    |        |   |           | 7,446  |        
|                                                              | Interest expense                              |                              |            | (318               | )     |                  |            | (278         | )     |      |            | (628   | )      |   |            | (530   | )      |   |           | (3,013 | )      
|                                                              | Other, net                                    |                              |            | (384               | )     |                  |            | (524         | )     |      |            | (540   | )      |   |            | (545   | )      |   |           | (745   | )      
|                                                              |                                               |                              |            |                    |       |                  |            |              |       |      |            |        |        |   |            |        |        |   |           |        |        
|                                                              |                                               | Total other income (expense) |            |                    | (602  | )                |            |              | (518  | )    |            |        | (919   | ) |            |        | (471   | ) |           |        | 3,688   | 
|                                                              |                                               |                              |            |                    |       |                  |            |              |       |      |            |        |        |   |            |        |        |   |           |        |        
|Loss before income taxes                                      |                                               |                              | (8,435     | )                  |       |                  | (7,824     | )            |       |      | (15,841    | )      |        |   | (15,127    | )      |        |   | (109,887  | )     
|Provision for income taxes                                    |                                               |                              |           |                    |       |                  |           |              |       |      |           |        |        |   |           |        |        |   |          |       
|                                                              |                                               |                              |            |                    |       |                  |            |              |       |      |            |        |        |   |            |        |        |   |           |        |        
|Net loss                                                      |                                               |                              | (8,435     | )                  |       |                  | (7,824     | )            |       |      | (15,841    | )      |        |   | (15,127    | )      |        |   | (109,887  | )     
|Beneficial conversion feature on preferred stock              |                                               |                              |           |                    |       |                  |           |              |       |      |           |        |        |   |           |        |        |   | (22,870   | )     
|                                                              |                                               |                              |            |                    |       |                  |            |              |       |      |            |        |        |   |            |        |        |   |           |        |        
|Net loss attributable to common stockholders                  |                                               |                              | ($8,435    | )                  |       |                  | ($7,824    | )            |       |      | ($15,841   | )      |        |   | ($15,127   | )      |        |   | ($132,757 | )     
|                                                              |                                               |                              |            |                    |       |                  |            |              |       |      |            |        |        |   |            |        |        |   |           |        |        
|Basic and diluted net loss per share                          |                                               |                              | ($0.29     | )                  |       |                  | ($0.27     | )            |       |      | ($0.54     | )      |        |   | ($0.52     | )      |        |   |           |       
|                                                              |                                               |                              |            |                    |       |                  |            |              |       |      |            |        |        |   |            |        |        |   |           |       
|Shares used in computing basic and diluted net loss per share |                                               |                              | 29,456,532 |                    |       |                  | 29,237,360 |              |       |      | 29,425,766 |        |        |   | 29,217,352 |        |        |   |           |       
|                                                              |                                               |                              |            |                    |       |                  |            |              |       |      |            |        |        |   |            |        |        |   |           |       

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

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ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

|                                                     |                                                                             |                                                      |                            |                                                     |     |                  |         |              |     |      |         |          |       |        |         |  
|---------------------------------------------------- | --------------------------------------------------------------------------- | ---------------------------------------------------- | -------------------------- | --------------------------------------------------- | --- | ---------------- | ------- | ------------ | --- | ---- | ------- | -------- | ----- | ------ | ------- | -
|                                                     |                                                                             |                                                      |                            |                                                     |     | Six Months Ended |         |              |     |     
|                                                     |                                                                             |                                                      |                            |                                                     |     | June 30,         |         | Inception to
|                                                     |                                                                             |                                                      |                            |                                                     |     |                  |         | June 30,    
|in thousands                                         |                                                                             | 2003                                                 |                            | 2002                                                |     | 2003            
|                                                     |                                                                             |                                                      |                            |                                                     |     |                 
|Cash flows from operating activities:                |                                                                             |                                                      |                            |                                                     |     |                  |         |              |     |      |         |         
|                                                     | Net loss                                                                    |                                                      | $                          | (15,841                                             | )   |                  | $       | (15,127      | )   |      | $       | (109,887 | )    
|                                                     | Adjustments to reconcile net loss to net cash
used in operating activities: |                                                      |                            |                                                     |     |                  |         |              |     |      |         |          |      
|                                                     |                                                                             | Purchased in-process research and development        |                            |                                                     |    |                  |         |              |    |      |         |          | 4,000 |       
|                                                     |                                                                             | Depreciation and amortization                        |                            |                                                     | 636 |                  |         |              | 731 |      |         |          | 5,449 |       
|                                                     |                                                                             | Stock-based compensation expense                     |                            |                                                     | 294 |                  |         |              | 389 |      |         |          | 3,944 |       
|                                                     |                                                                             | Decrease in notes receivable                         |                            |                                                     | 3   |                  |         |              | 6   |      |         |          | 126   |       
|                                                     |                                                                             | Loss on sale of property and equipment               |                            |                                                     | 1   |                  |         |              | 101 |      |         |          | 192   |       
|                                                     |                                                                             | Non-cash interest expense included in long-term debt |                            |                                                     | 240 |                  |         |              | 177 |      |         |          | 1,027 |       
|                                                     |                                                                             | Changes in assets and liabilities:                   |                            |                                                     |     |                  |         |              |     |      |         |          |       |       
|                                                     |                                                                             |                                                      | Prepaid expenses and other |                                                     |     | 34               |         |              |     | 862  |         |          |       | (1,204 | )      
|                                                     |                                                                             |                                                      | Other assets               |                                                     |     | 25               |         |              |     | (17  | )       |          |       | 545    |        
|                                                     |                                                                             |                                                      | Accounts payable           |                                                     |     | (299             | )       |              |     | (647 | )       |          |       | 1,657  |        
|                                                     |                                                                             |                                                      | Accrued liabilities        |                                                     |     | 1,844            |         |              |     | (739 | )       |          |       | 4,026  |        
|                                                     |                                                                             |                                                      |                            |                                                     |     |                  |         |              |     |      |         |          |      
|                                                     |                                                                             |                                                      |                            | Net cash used in operating activities               |     |                  | (13,063 | )            |     |      | (14,264 | )        |       |        | (90,125 | )
|                                                     |                                                                             |                                                      |                            |                                                     |     |                  |         |              |     |      |         |          |      
|Cash flows from investing activities:                |                                                                             |                                                      |                            |                                                     |     |                  |         |              |     |      |         |         
|                                                     | Purchases of property and equipment                                         |                                                      |                            | (65                                                 | )   |                  |         | (698         | )   |      |         | (7,011   | )    
|                                                     | Deposits on equipment                                                       |                                                      |                            |                                                    |     |                  |         |             |     |      |         | (557     | )    
|                                                     | Acquisition of Talaria Therapeutics, Inc.                                   |                                                      |                            |                                                    |     |                  |         |             |     |      |         | (233     | )    
|                                                     | Proceeds from sale of property and equipment                                |                                                      |                            |                                                    |     |                  |         | 2            |     |      |         | 32       |      
|                                                     | Purchases of short-term investments                                         |                                                      |                            | (4,773                                              | )   |                  |         | (34,252      | )   |      |         | (41,988  | )    
|                                                     | Maturities of short-term investments                                        |                                                      |                            | 5,108                                               |     |                  |         | 23,168       |     |      |         | 37,969   |      
|                                                     |                                                                             |                                                      |                            |                                                     |     |                  |         |              |     |      |         |          |      
|                                                     |                                                                             |                                                      |                            | Net cash provided by (used in) investing activities |     |                  | 270     |              |     |      | (11,780 | )        |       |        | (11,788 | )
|                                                     |                                                                             |                                                      |                            |                                                     |     |                  |         |              |     |      |         |          |      
|Cash flows from financing activities:                |                                                                             |                                                      |                            |                                                     |     |                  |         |              |     |      |         |         
|                                                     | Proceeds from issuance of convertible preferred stock                       |                                                      |                            |                                                    |     |                  |         |             |     |      |         | 42,200   |      
|                                                     | Proceeds from issuance of common stock                                      |                                                      |                            | 479                                                 |     |                  |         | 152          |     |      |         | 79,590   |      
|                                                     | Proceeds from long-term debt                                                |                                                      |                            |                                                    |     |                  |         | 1,834        |     |      |         | 10,171   |      
|                                                     | Repayments of long-term debt                                                |                                                      |                            | (521                                                | )   |                  |         | (653         | )   |      |         | (3,318   | )    
|                                                     |                                                                             |                                                      |                            |                                                     |     |                  |         |              |     |      |         |          |      
|                                                     |                                                                             |                                                      |                            | Net cash provided by (used in) financing activities |     |                  | (42     | )            |     |      | 1,333   |          |       |        | 128,643 |  
|                                                     |                                                                             |                                                      |                            |                                                     |     |                  |         |              |     |      |         |          |      
|Effect of exchange rate changes on cash              |                                                                             |                                                      | 542                        |                                                     |     |                  | 103     |              |     |      | 1,476   |         
|                                                     |                                                                             |                                                      |                            |                                                     |     |                  |         |              |     |      |         |          |      
|Net increase (decrease) in cash and cash equivalents |                                                                             |                                                      | (12,293                    | )                                                   |     |                  | (24,608 | )            |     |      | 28,206  |         
|                                                     |                                                                             |                                                      |                            |                                                     |     |                  |         |              |     |      |         |          |      
|Cash and cash equivalents at beginning of period     |                                                                             |                                                      | 40,499                     |                                                     |     |                  | 70,286  |              |     |      |        |         
|                                                     |                                                                             |                                                      |                            |                                                     |     |                  |         |              |     |      |         |          |      
|Cash and cash equivalents at end of period           |                                                                             | $                                                    | 28,206                     |                                                     |     | $                | 45,678  |              |     | $    | 28,206  |         
|                                                     |                                                                             |                                                      |                            |                                                     |     |                  |         |              |     |      |         |          |      
|Supplemental disclosures of cash flow information:   |                                                                             |                                                      |                            |                                                     |     |                  |         |              |     |      |         |         
|                                                     |                                                                             | Cash paid during the period for interest             |                            | $                                                   | 393 |                  |         | $            | 343 |      |         |          |       |       
|                                                     |                                                                             |                                                      |                            |                                                     |     |                  |         |              |     |      |         |          |      

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

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ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements
include the accounts of Esperion Therapeutics, Inc. (Esperion or the
Company) and its subsidiaries, and have been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial information and with Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. The Company believes that all adjustments, consisting of
normal recurring adjustments, considered necessary for a fair presentation,
have been included. The information included in this Form 10-Q should be read
in conjunction with Managements Discussion and Analysis of Financial Condition
and Results of Operations and the consolidated financial statements and
footnotes thereto included in the Companys Annual Report on Form 10-K for the
year ended December 31, 2002.

Operating results for the three- and six-month periods ended June 30, 2003
and 2002 are not necessarily indicative of the results for the full year.

(2) Change in Accounting Policy

Effective April 1, 2003, the Company changed the functional currency for
its foreign subsidiary from Swedish Kronor to U.S. Dollars. The change in
functional currency is based on the ramp-down of the operations of its foreign
subsidiary, the frequent intercompany transactions between the Company and the
subsidiary, the reliance by the subsidiary on the Company to service debt costs
and the limited number and amount of purchases and expenses denominated in
Swedish Kronor. Additionally, the Company determined that intercompany foreign
currency transactions were of a long-term investment nature, as settlement is
not anticipated in the foreseeable future. The change in accounting for
foreign operations results in the financial statements of Esperion AB, a
Swedish subsidiary, being translated using historic exchange rates or exchange
rates in effect at the end of a period for assets and liabilities of a
non-monetary and monetary nature, respectively, and at average rates, during
the period for results of operations. The resulting foreign currency
translation adjustment, excluding the impact of long-term intercompany
transactions, is reflected in other income (expense) on the accompanying
condensed consolidated statements of operations. The change in accounting
policy is reported prospectively from the date of change. The change resulted
in a decrease in accumulated other comprehensive loss of approximately $386,000
as of June 30, 2003 on the accompanying condensed consolidated balance sheets,
and an increase in other expense of approximately $386,000 on the accompanying
condensed consolidated statements of operations during the three and six months
ended June 30, 2003.

(3) Comprehensive Loss

Comprehensive loss is the total of net loss and all other non-owner
changes in equity. The difference between net loss, as reported in the
accompanying condensed consolidated statements of operations, and comprehensive
loss is the foreign currency translation adjustment for the respective periods
and unrealized gain (loss) on short-term investments for the respective
periods. Total comprehensive loss was $8,440,000 and $7,961,000 for the
three-month periods ended June 30, 2003 and 2002, respectively, and $15,846,000
and $15,275,000, for the six-month periods ended June 30, 2003 and 2002,
respectively.

(4) Stock-Based Compensation

The Company accounts for stock-based compensation to employees using the
intrinsic value method prescribed in Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25), and related
interpretations. Accordingly, compensation cost for stock options is measured
as the excess, if any, of the
fair

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value of the Companys common stock as of the date of the grant over
the amount the employee must pay to acquire the stock.

Statement of Financial Accounting Standards No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure (SFAS No. 148) amends
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS No. 123) to provide alternative methods of
transition for an entity that voluntarily changes to the fair value based
method of accounting for stock-based employee compensation. It also amends the
disclosure provisions of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the effects on reported net
income of an entitys accounting policy decisions with respect to stock-based
employee compensation.

Using the intrinsic value method under APB 25, no compensation expense has
been recognized in the accompanying consolidated statements of operations for
options granted to employees at fair value. Had compensation expense been
determined based on the fair value at the date of grant consistent with SFAS
No. 123, the reported net loss would have increased to the following pro forma
amounts, which may not be representative of that to be expected in future years
(in thousands, except loss per share data):

|                                      |                                                                                                                 |   |                             |      |                           |   |        |      |      |   |         |        |   |   |         |        |  
|------------------------------------- | --------------------------------------------------------------------------------------------------------------- | - | --------------------------- | ---- | ------------------------- | - | ------ | ---- | ---- | - | ------- | ------ | - | - | ------- | ------ | -
|                                      |                                                                                                                 |   | Three Months Ended June 30, |      | Six Months Ended June 30,
|                                      |                                                                                                                 |   |                             |      |                          
|                                      |                                                                                                                 |   | 2003                        |      | 2002                      |   | 2003   |      | 2002
|                                      |                                                                                                                 |   |                             |      |                           |   |        |      |     
|Net loss, as reported                 |                                                                                                                 | $ | (8,435                      | )    |                           | $ | (7,824 | )    |      | $ | (15,841 | )      |   | $ | (15,127 | )     
|                                      | Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards |   | $                           | (880 | )                         |   | $      | (623 | )    |   | $       | (1,644 | ) |   | $       | (1,344 | )
|Pro forma net loss                    |                                                                                                                 | $ | (9,315                      | )    |                           | $ | (8,447 | )    |      | $ | (17,485 | )      |   | $ | (16,471 | )     
|Basic and diluted net loss per share: |                                                                                                                 |   |                             |      |                           |   |        |      |      |   |         |        |   |   |         |       
|                                      | As reported                                                                                                     | $ | (0.29                       | )    |                           | $ | (0.27  | )    |      | $ | (0.54   | )      |   | $ | (0.52   | )     
|                                      | Pro forma                                                                                                       | $ | (0.32                       | )    |                           | $ | (0.29  | )    |      | $ | (0.59   | )      |   | $ | (0.56   | )     

The fair value of options was estimated at the date of grant using the
Black Scholes Single Option valuation method under SFAS No. 123 with the
following assumptions as of June 30, 2003 and 2002,
respectively: weighted-average risk free interest rate of 2.50% and 2.82%; dividend yield of 0%;
volatility of 50.29% and 51.69%; and expected life of options of five years.
The weighted-average fair values of options granted during the three months
ended June 30, 2003 and 2002 were $6.66 and $2.37 per share, respectively. The
weighted-average fair values of options granted during the six months ended
June 30, 2003 and 2002 were $3.89 and $2.76 per share, respectively. Option
valuation models require the input of highly subjective assumptions. Because
changes in subjective input assumptions can materially affect the fair value
estimate, in managements opinion, the calculated fair value may not
necessarily be indicative of the actual fair value of the stock options.

(5) Basic and Diluted Loss per Share

Basic and diluted net loss per share amounts have been calculated using
the weighted-average number of shares of common stock outstanding during the
respective periods. Options for the purchase of 1,461,856 and 400,353 shares
of common stock for the three-month periods ended June 30, 2003 and 2002,
respectively, and 929,632 and 482,927 for the six-month periods ended June 30,
2003 and 2002, respectively, were not included in the calculation of diluted
net loss per share, as doing so would have been anti-dilutive. The Company has
an agreement whereby certain milestone payments can be satisfied by issuing
shares of the Companys common stock. The effect of any such payments in stock
has not been included in the calculation of diluted loss per share for
milestones in the agreement that have not yet been achieved.

(6) Goodwill and Other Intangible Assets

Under Statement of Financial Accounting Standard No. 142, Goodwill and
Other Intangible Assets (SFAS No. 142), goodwill and certain
indefinite-lived intangible assets are no longer amortized, but are reviewed at
least

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annually for impairment by comparing the fair value to the carrying value
of net assets. The Company has not recognized any impairment losses since its
adoption of SFAS No. 142 on January 1, 2002.

Goodwill reflects the excess of the purchase price over net assets in the
Companys September 2000 acquisition of Talaria Therapeutics, Inc. (Talaria)
and the milestone payments made to date under the related merger agreement. The
carrying amount of goodwill is approximately $3.1 million as of June 30, 2003
and December 31, 2002. The assets acquired from Talaria relate to one of the
Companys ongoing development projects, ETC-588. This product candidate is
currently in Phase II clinical development for the treatment of cardiovascular
disease.

(7) Commitments and Contingencies

The Company has entered into various agreements with third parties related
to the research and development activities of its existing product candidates
as well as discovery efforts on potential new product candidates. These
agreements include costs related to manufacturing, clinical trials and
toxicology or pharmacology studies performed by third parties. The estimated
amount that may be incurred in the future under these agreements totals
approximately $3.1 million as of June 30, 2003. The amount and timing of these
commitments may change, as they are largely dependent on the rate of enrollment
in and timing of the clinical trials.

The Company has entered into various license and other agreements with
third parties related to some of its products in development. The Company may,
in the future, be obligated to make milestone and license maintenance payments,
as defined in the respective license and other agreements relating to the
Companys proprietary rights, up to an aggregate amount of $30.2 million. Some
of these payments may be fulfilled through the issuance of the Companys common
stock, at the Companys option. Upon reaching certain milestones, the payments
are charged to research and development expenses in the accompanying
consolidated statements of operations. During the three months ended June 30,
2003, the Company accrued for the first milestone under an agreement with Pharmacia
Corporation relating to certain apolipoproteinA-I Milano, or AIM, technology
that is payable upon completion of clinical trials showing preliminary safety
and initial proof-of-concept. As a result, the Company has included $1.0
million in accrued liabilities in the accompanying consolidated balance sheets.
There were no milestone payments made during the first six months of 2003. At
the present time, the Company can give no assurances that any other milestones
will be achieved. In addition to the milestone and license maintenance
payments, the Company may be obligated to make royalty payments on future sales
pursuant to formulae in the agreements.

(8) New Accounting Pronouncement

In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, Consolidation of Variable Interest Entities. This
interpretation addresses the requirements for business enterprises to
consolidate related entities in which they are determined to be the primary
beneficiary as a result of their variable economic interest. The
interpretation is intended to provide guidance in judging multiple economic
interests in an entity and in determining the primary beneficiary. The
interpretation outlines disclosure requirements for Variable Interest Entities
in existence prior to January 31, 2003, and outlines consolidation requirements
for Variable Interest Entities created after January 31, 2003. This
interpretation is not expected to have an impact on the Companys consolidated
financial statements.

(9) Subsequent Events

On August 6, 2003, the Company completed a public offering of 4.0 million
shares of its common stock, raising net proceeds of approximately $60.2
million. The Company invested the net proceeds from the public
offering in investment-grade, interest-bearing securities. These proceeds, as
well as the proceeds from earlier offerings and private placements, are being
used to fund our operations, for working capital and for general corporate
purposes, which may include capital expenditures, clinical development,
manufacturing and/or in-licensing of technology.

On July 25, 2003, the Company was informed that Scott Sacane, Durus
Capital Management, LLC and Durus Capital Management (N.A.), LLC (together, the
Sacane Group) had become the beneficial owners of almost 33%
of

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the Companys then outstanding common stock. The Sacane Group is the
Companys largest stockholder and, on July 29, 2003, filed a Schedule 13D that
reported that it owned 9,726,900 shares of the Companys common stock. In
addition, the Schedule 13D reported purchases and sales of common stock in the
open market between September 3, 2003 and July 24, 2003. The Sacane Group had
not disclosed to the Company any changes in its beneficial ownership after
November 8, 2002 until July 25, 2003, nor had it reported those changes to the
SEC in a timely manner in accordance with federal securities laws.

Upon the Companys receipt of the information about the increase in the
beneficial ownership by the Sacane Group, and, after consideration of the facts
and circumstances, the Company determined that it was in the best interests of
our stockholders to enter into an agreement with the Sacane Group relating to
its holdings of common stock of the Company. As part of this agreement, which
was filed by the Company as an exhibit to a Current Report on Form 8-K on July 29, 2003, the
Sacane Group agreed not to acquire beneficial ownership of more than 33% of the
Companys common stock and not to sell any shares of the Companys common stock
before October 29, 2003. In connection with the Companys public offering, the
Sacane Group agreed not to sell any shares of the Companys common stock before
January 31, 2004. The Sacane Group agreed that any sales of any common stock
would be subject to certain volume restrictions until the amount it
beneficially owned was less than 20%. The Sacane Group also agreed to certain
voting restrictions, which generally require than any shares it beneficially
owns that represent more than 20% of the Companys outstanding voting
securities be voted in proportion to the votes cast by all of our stockholders
other than the Sacane Group. The Company amended its stockholder rights
agreement (Rights Agreement) to provide that the Sacane Group would not be an
Acquiring Person under the Rights Agreement unless and until the earlier of
such time as the Sacane Group, directly or indirectly, becomes the beneficial
owner of more than 33% of the Companys outstanding common stock or ceases to
hold any of the common stock of which it is the beneficial owner without any
intention of changing or influencing control of the Company. As a result of
the Companys issuance of 4,000,000 shares in the completed public offering of its common stock, the Sacane Group
now holds approximately 29% of the Companys outstanding common stock.

On July 29, 2003, the Sacane Groups counsel acknowledged on behalf of the
Sacane Group its liability to the Company under Section 16(b) of the Exchange
Act. No amounts have been recorded in the accompanying financial statements
for the three or six months ended June 30, 2003 related to this matter.

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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

The following discussion provides an analysis of the Companys condensed
financial condition and results of operations, and should be read in
conjunction with the Companys consolidated financial statements and the notes
included in Item 1 of this Form 10-Q.

Forward-Looking Information is Subject to Risk and Uncertainty

The information contained in this report includes forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. These forward-looking statements are often identified by words such as
hope, may, believe, anticipate, plan, expect, require, intend,
assume and similar expressions. We caution readers that forward-looking
statements speak only as of the date of this filing, reflect managements
current expectations, estimations and projections and involve certain factors,
such as risks and uncertainties, that may cause our actual results, performance
or achievements to be far different from those suggested by our forward-looking
statements. These factors include, but are not limited to, risks associated
with: our ability to successfully execute our business strategies, including
entering into strategic partnerships or other transactions; the progress and
cost of development of our product candidates; the extent and timing of market
acceptance of new products developed by us or by our competitors; our
dependence on third parties to conduct clinical trials for our product
candidates; the extent and timing of regulatory approval, as desired or
required, for our product candidates; our dependence on licensing arrangements
and other strategic relationships with third parties; clinical trials;
manufacturing; our dependence on patents and proprietary rights; any
litigation, proceedings or other disruption of managements time resulting from
the acquisition of our common stock by the Sacane Group; the procurement,
maintenance, enforcement and defense of our patents and proprietary rights;
competitive conditions in the industry; business cycles affecting the markets
in which any of our future products may be sold; extraordinary events and
transactions; seeking and consummating business acquisitions, including the
diversion of managements attention to the assimilation of the operations and
personnel of any acquired business; the timing and extent of our financing
needs and our access to funding, including through the equity market,
particularly in light of the impact on the market value of our common stock of
matters outside of our control, such as trading activities by third parties;
fluctuations in foreign exchange rates; and economic conditions generally or in
various geographic areas. Because all of the foregoing factors are difficult to
forecast, you should not place undue reliance on any forward-looking statement.
More detailed information about some of these and other factors is set forth in
our Annual Report on Form 10-K for the year ended December 31, 2002 and other
filings with the Securities and Exchange Commission. We do not intend to update
any of these factors or to publicly announce the results of any revisions to
any of our forward-looking statements other than as required under the federal
securities laws.

Overview

Background

We are a development stage biopharmaceutical company and have not
generated any revenues from any source, including from product sales. We have
devoted substantially all of our resources since we began our operations in May
1998 to the research and development of product candidates for the treatment of
cardiovascular disease. We have incurred a cumulative net loss of approximately
$109.9 million from inception (May 18, 1998) through June 30, 2003. These
losses have resulted principally from costs incurred in research and
development activities and general and administrative expenses. We expect to
incur significant additional operating losses for at least the next several
years, until we generate sufficient revenue to offset expenses, which will only
occur if our product candidates are approved by the FDA and we begin
commercialization of our product candidates, or we generate revenues through
licensing arrangements. Research and development costs relating to product
candidates will continue to increase. Manufacturing, sales and marketing costs
will be incurred and will increase in preparation for the intended
commercialization of our product candidates. Until we generate positive cash
flow, we plan to finance our operations with our existing cash balance, additional
equity or debt offerings and/or payments from potential strategic relationships
that we may enter into with partners in the future.

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Results of Operations

Operating Expenses

|                           |            |      |                             |      |                           |          |       |      |   |      |     |          |  |   |        |      |   |   |        |      |   |  |     |   | 
|-------------------------- | ---------- | ---- | --------------------------- | ---- | ------------------------- | -------- | ----- | ---- | - | ---- | --- | -------- |  | - | ------ | ---- | - | - | ------ | ---- | - |  | --- | - | 
|                           |            |      | Three Months Ended June 30, |      | Six Months Ended June 30,
|                           |            |      |                             |      |                          
|dollars in thousands       |            | 2003 |                             | 2002 |                           | % Change |       | 2003 |   | 2002 |     | % Change
|                           |            |      |                             |      |                           |          |       |      |   |      |     |         
|Research and development   |            | $    | 6,272                       |      |                           | $        | 5,878 |      |   |      | 6.7 | %        |  | $ | 11,732 |      |   | $ | 11,583 |      |   |  | 1.3 | %
|                           | % of total |      |                             | 80.1 | %                         |          |       | 80.5 | % |      |     |          |  |   |        | 78.6 | % |   |        | 79.0 | % |  |     |   | 
|General and administrative |            | $    | 1,561                       |      |                           | $        | 1,428 |      |   |      | 9.3 | %        |  | $ | 3,190  |      |   | $ | 3,073  |      |   |  | 3.8 | %
|                           | % of total |      |                             | 19.9 | %                         |          |       | 19.5 | % |      |     |          |  |   |        | 21.4 | % |   |        | 21.0 | % |  |     |   | 

Three Months Ended June 30, 2003 and 2002

Research and Development Expenses.Research and development expenses
include both internal and external costs related to the research and
development activities for our existing product candidates, as well as
discovery efforts on potential new product candidates. External costs include
costs related to manufacturing, process development, clinical trials,
toxicology or pharmacology studies performed by third parties, milestone
payments under certain license and other agreements and other related expenses.
Internal costs include all payroll and related costs attributable to research
and development activities, as well as an allocation of overhead expenses.

Research and development expenses increased by 6.7% to approximately $6.3
million for the three months ended June 30, 2003 compared to approximately $5.9
million for the three months ended June 30, 2002. This 6.7% increase in
research and development expenses is primarily attributable to the accrual of a
$1.0 million expense relating to the first milestone under our agreement with
Pharmacia Corporation relating to certain AIM technology. The
milestone is payable upon completion of
clinical trials showing preliminary safety and initial proof-of-concept. Also,
contributing to the higher research and development costs is an increase in
clinical trial costs for three of our product candidates that were in active
clinical trials during the three months ended June 30, 2003, including ETC-588
(two Phase II trials), ETC-642 (two Phase I trials) and ETC-1001 (Phase I
trial). In contrast, during the three months ended June 30, 2002, we were
actively enrolling patients in two clinical trials (ETC-216 Phase II trial
and ETC-642 Phase I trial). The increases in 2003 were largely offset by lower
production and toxicology costs for ETC-642. During the three months ended June
30, 2002, we incurred production and toxicology costs for ETC-642 in
preparation for Phase I clinical trials; we did not incur similar costs during
the three months ended June 30, 2003. Also, payroll and related internal and
overhead costs attributable to research and development activities were lower
during the three months ended June 30, 2003 than for the same period last year.
As of June 30, 2003 and 2002, we had 42 and 44 employees, respectively, who
were engaged in research and development.

The magnitude of our operating expenses, particularly research and
development expense, is largely dependent upon the progress, number, timing,
nature and size of clinical trials. As clinical trials continue to progress, we
anticipate that research and development costs will fluctuate as compared to
current quarter levels based on the timing and size of the trials. As our
product candidates progress through development, clinical trial costs will
continue to increase due to the need for later stage clinical trials that
generally require more patients.

General and Administrative Expenses.General and administrative expenses
included the cost of salaries, employee benefits, and other costs associated
with our finance, accounting, human resources, legal, business development,
administrative and executive management functions, as well as an allocation of
overhead expenses. General and administrative expenses increased by 9.3% to
approximately $1.6 million for the three months ended June 30, 2003 compared to
approximately $1.4 million for the three months ended June 30, 2002. This
increase resulted from higher payroll and related internal and overhead costs
in support of advanced stages of research and

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development for certain of our
product candidates as compared to the three months ended June 30, 2002. As of
June 30, 2003 and 2002, we had 24 employees who were engaged in general and
administrative activities.

Other Income (Expense).Other income (expense) consists of interest
income, interest expense, foreign currency translation gain (loss), foreign
currency transaction gain (loss), and other non-operating income and expenses.
Interest income decreased to approximately $100,000 for the three months ended
June 30, 2003 compared to approximately $284,000 for the three months ended
June 30, 2002. The decrease is primarily attributable to lower cash levels
combined with lower yields on our invested assets in 2003 compared to the same
period in 2002. Interest expense for the three months ended June 30, 2003 and
2002 was approximately $318,000 and $278,000, respectively, and represents
interest incurred on equipment financing facilities and a special project loan.

The increase in interest expense resulted from higher outstanding borrowings
in 2003 as compared to the same period in 2002.

During the three months ended June 30, 2003, we recorded approximately
$384,000 of foreign currency losses compared to approximately $413,000 of
foreign currency losses for the three months ended June 30, 2002. These
foreign currency losses result from assets and liabilities denominated in
foreign currencies, primarily the Swedish Kronor and the Euro. As the exchange
rate between the U.S. Dollar and these currencies fluctuates, we record a
corresponding gain (loss). During the first half of 2003 and 2002, the U.S.
Dollar has generally weakened against these foreign currencies, resulting in
these unrealized losses.

Net Loss.Our net loss was approximately $8.4 million for the three
months ended June 30, 2003 compared to approximately $7.8 million for the three
months ended June 30, 2002. The increase in net loss resulted from the
increase in operating expenses, the increase in interest expense and the
decrease in interest income, offset in part by the decrease in foreign currency
losses.

Six Months Ended June 30, 2003 and 2002

Research and Development Expenses.Research and development expenses
increased by 1.3% to approximately $11.7 million for the six months ended June
30, 2003 compared to approximately $11.6 million for the six months ended June
30, 2002. This 1.3% increase in research and development expenses is primarily
attributable to the accrual of a $1.0 million expense relating to the first
milestone under our agreement with Pharmacia Corporation relating to certain
AIM technology. The milestone is payable upon completion of clinical trials showing preliminary safety
and initial proof-of-concept. Also contributing to the higher research and
development costs is an increase in clinical trial-related costs for our
product candidates that were in active clinical trials during the six months
ended June 30, 2003, including ETC-216 (one Phase II trial), ETC-588 (two Phase
II trials), ETC-642 (two Phase I trials) and ETC-1001 (Phase I trial). In
contrast, during the six months ended June 30, 2002, we were actively enrolling
patients in two clinical trials (ETC-216 Phase II trial and ETC-642 Phase I
trial). The increases in 2003 were largely offset by lower production and
toxicology costs for ETC-642. During the six months ended June 30, 2002, we
incurred production and toxicology costs for ETC-642 in preparation for Phase I
clinical trials; we did not incur similar costs during the six months ended
June 30, 2003. Also, payroll and related internal and overhead costs
attributable to research and development activities were lower during the six
months ended June 30, 2003 as compared to the same period last year. As of June
30, 2003 and 2002, we had 42 and 44 employees, respectively, who were engaged
in research and clinical development.

General and Administrative Expenses.General and administrative expenses
increased by 3.8% to approximately $3.2 million for the six months ended June
30, 2003 compared to approximately $3.1 million for the six months ended June
30, 2002. This increase resulted from higher payroll and related internal and
overhead costs in support of advanced stages of research and development for
certain of our product candidates as compared to the six months ended June 30,
2002. As of June 30, 2003 and 2002, we had 24 employees who were engaged in
general and administrative activities.

Other Income (Expense).Interest income decreased to approximately
$249,000 for the six months ended June 30, 2003 compared to approximately
$604,000 for the six months ended June 30, 2002. The decrease is primarily
attributable to lower cash levels combined with lower yields on our invested
assets in 2003 compared to the same

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period in 2002. Interest expense for the
six months ended June 30, 2003 and 2002 was approximately $628,000 and
$530,000, respectively, and represents interest incurred on equipment financing
facilities and a special project loan. The increase in interest expense resulted from higher outstanding
borrowings in 2003 as compared to the same period in 2002.

During the six months ended June 30, 2003, we recorded approximately
$540,000 of foreign currency losses compared to approximately $433,000 of
foreign currency losses for the six months ended June 30, 2002. These foreign
currency losses result from assets and liabilities denominated in foreign
currencies, primarily the Swedish Kronor and the Euro. As the exchange rate
between the U.S. Dollar and these currencies fluctuates, we record a
corresponding gain (loss). During the first half of 2003 and 2002, the U.S.
Dollar has generally weakened against these foreign currencies,
resulting in these
unrealized losses.

Net Loss.Our net loss was approximately $15.8 million for the six
months ended June 30, 2003 compared to approximately $15.1 million for the six
months ended June 30, 2002. The increase in net loss resulted from the
decrease in interest income, the increase in operating expenses, the increase
in interest expense and the increase in foreign currency losses.

Liquidity and Capital Resources

As of June 30, 2003 and 2002, we had cash, cash equivalents and short-term
investments of approximately $32.2 million and $56.8 million, respectively. Our
investment policy emphasizes liquidity and preservation of principal over other
portfolio considerations. We select investments that maximize interest income
while investing cash in investment-grade, interest-bearing securities with
maturities that support our ongoing cash needs for operations.

On August 6, 2003, we completed a public offering of 4.0 million shares of
our common stock, raising net proceeds of approximately $60.2 million. We
believe that our current cash position will be sufficient to fund our currently
planned operations, capital expenditures and debt service at least until the
end of 2005.

During the six months ended June 30, 2003 and 2002, net cash used in
operating activities was approximately $13.1 million and $14.3 million,
respectively. This cash was used to fund our net losses for the periods,
adjusted for non-cash expenses and changes in operating assets and liabilities.

Net cash provided by investing activities for the six months ended June
30, 2003 was approximately $270,000. Net cash used in investing activities for
the six months ended June 30, 2002 was approximately $11.8 million. The net
cash provided by investing activities for the six months ended June 30, 2003
resulted primarily from the maturities of short-term investments, and was
largely offset by the purchases of short-term investments and capital
expenditures. The net cash used in investing activities for the six months
ended June 30, 2002 resulted primarily from the purchases of short-term
investments and capital expenditures offset, in part, by the maturities of
short-term investments.

Net cash used in financing activities was approximately $42,000 for the
six months ended June 30, 2003. Net cash proceeds from financing activities
were $1.3 million for the six months ended June 30, 2002. The net cash used in
financing activities for the six months ended June 30, 2003 resulted primarily
from repayments of borrowings under equipment loans amounting to $521,000. The
net cash used was partially offset by $479,000 received from the issuance of
common stock to employees under our equity compensation plans. The net cash
proceeds from financing activities for the six months ended June 30, 2002
resulted primarily from $1.8 million of additional borrowings on a special
project loan and equipment term loans, and $152,000 received from the issuance
of common stock to employees under our equity compensation plans. These net
cash proceeds were partially offset by $653,000 of cash used to repay
borrowings under equipment loans.

We frequently evaluate opportunities to sell additional equity, obtain
credit from lenders, enter into strategic relationships, or further strengthen
our financial position in other ways. The sale of additional equity, whether
publicly or privately, could result in dilution to our stockholders. In
addition, from time to time, we may consider the acquisition of or investment
in complementary businesses, products or technologies that might affect our
liquidity

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requirements or position or cause us to issue additional securities.
There can be no assurance that financing will be available to us in amounts or
on terms acceptable to us, if at all.

As of June 30, 2003, we had the following credit facilities and
outstanding borrowings:



| |  |  | A credit facility with a U.S. bank to finance purchases of equipment
that is pledged as collateral: Borrowings under this facility bear
interest at the banks prime rate (4.0% at June 30, 2003). Borrowings
outstanding under this facility as of June 30, 2003 amounted to
approximately $864,000 and must be repaid by May 2006. No additional
borrowings are allowed. The terms of this credit facility obligate us
to maintain a minimum tangible net worth of $9.0 million and invest a
minimum of $10.0 million with the U.S. bank.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | An additional credit facility with a U.S. lending institution to
finance purchases of equipment that is pledged as collateral:
Approximately $918,000 was outstanding under this facility at a weighted
average interest rate of 12% as of June 30, 2003. Outstanding amounts
under this facility must be repaid by November 2004, and no additional
borrowings are allowed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  |  | A credit facility with a Swedish entity totaling 50 million Swedish
Kronor ($6.3 million as of June 30, 2003): The proceeds from this
facility may only be used to fund the development of our ETC-216 (AIM)
product candidate. If results achieved by the AIM project show that the
product candidate is not commercially feasible, our obligation to repay
the loan plus a portion of accrued interest may be forgiven. Borrowings
under the loan facility bear interest at 17.0% of which 9.5% is payable
quarterly. The remaining 7.5% of interest together with principal is
payable in five equal annual installments starting in December 2004. The
outstanding borrowings, including accrued interest of 9.4 million
Swedish Kronor ($1.2 million), amounted to 54.4 million Swedish Kronor
($6.8 million) as of June 30, 2003. We have been in discussions with the
Swedish entity regarding the principal amount of 5.0 million Swedish
Kronor remaining under the facility, disbursement of which is related to
completion of the final milestone under the facility. The milestone was
achieved in June 2003; however, the funds may be unavailable to us due
to the ramp down of operations in Sweden during 2002. A condition under
the credit facility is that the project be principally carried out in
Sweden.
|
| |  |  | An agreement with a Michigan non-profit corporation whereby we
borrowed $447,000 for equipment purchases, pledged as collateral, at an
interest rate of 4%. As of June 30, 2003, outstanding borrowings under
this arrangement totaled $447,000 and must be repaid by November 2008.
As required by the agreement, we will begin making principal payments
in August 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

We have
signed a non-binding term sheet with a U.S. bank for a credit facility
that may be used to finance purchases of equipment that will be pledged as
collateral. If final loan documents are signed relating to this facility, the
aggregate borrowings available under the facility would be $750,000. This
facility is subject to execution of the final loan documents and
other terms and conditions.

We anticipate that our capital expenditures for the next twelve months
will be approximately $1.0 million. We expect that these expenditures will
primarily relate to lab and computer equipment as well as leasehold
improvements.

We lease our corporate and research and development facilities under
operating leases expiring beginning December 2003 through June 2006. Total
minimum future payments under these leases through the end of 2003 are
approximately $378,000 as of June 30, 2003.

We have entered into license and other agreements with certain third
parties that require us to make payments upon achievement of the milestones set
forth in such agreements. The remaining payments that we could be obligated to
make under those agreements could over time amount to up to $30.2 million. Some
of these payments may be fulfilled through the issuance of common stock, at our
option. During the three months ended June 30, 2003, we accrued
for the first
milestone under an agreement with Pharmacia Corporation relating to certain AIM
technology that is payable upon completion of clinical trials showing
preliminary safety and initial proof-of-concept. As a result, we

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have included
$1.0 million in accrued liabilities in the accompanying consolidated balance
sheets. There were no milestone payments made under any of these agreements
during the first six months of 2003. If we sell products using technology under the agreements, we would be
obligated to make royalty payments to the third parties pursuant to formulae in
the agreements. There can be no assurance that we will achieve any or all of
the milestones in, or sell any products requiring royalty payments under, these
agreements.

We expect to incur an increase in legal fees and expenses primarily
related to certain matters between the Company and its largest stockholder.
These legal expenses will be expensed as incurred and will be included in
general and administrative expenses beginning in the third quarter of 2003. In
addition, we expect that other operating expenses and capital expenditures will
increase in future periods. We intend to hire additional research and
development, clinical and administrative staff. Our capital expenditure
requirements will depend on numerous factors, including the progress of our
research and development programs, the time required to file and process
regulatory approval applications, the development of commercial manufacturing
capabilities, the ability to obtain additional licensing arrangements, and the
demand for our product candidates, if and when approved by the FDA or other
regulatory authorities.

Income Taxes

As of June 30, 2003, we had net operating loss carryforwards of
approximately $76.8 million. These net operating loss carryforwards expire
beginning in 2013. Additionally, utilization of net operating loss
carryforwards may be limited under Section 382 of the Internal Revenue Code.
These and other deferred income tax assets are fully reserved by a valuation
allowance as the realizability of these assets is not likely at this time.

Employees

As of June 30, 2003, we had 66 full-time employees. Of these employees, 42
were engaged in research, pre-clinical and clinical development, regulatory
affairs and/or manufacturing activities and 24 were engaged in general and
administrative activities.

Critical Accounting Policies

Managements discussion and analysis of the Companys financial condition
and results of operations are based upon our Consolidated Financial Statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these financial
statements requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of any
contingent assets and liabilities as of the date of the financial statements
and reported amounts of revenues and expenses during the reporting period. We
regularly review our estimates and assumptions, which are based on historical
experience and on various other factors and judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates and assumptions.

We believe that the following critical accounting policies are affected by
significant judgments and estimates used in the preparation of our consolidated
financial statements:

We review goodwill, and other intangible long-lived assets for impairment
annually or sooner if events or changes in circumstances indicate that the
carrying amount may not be recoverable. Events or changes in circumstances
that indicate the carrying amount may not be recoverable include, but are not
limited to, a significant decrease in the market value of the business and
asset acquired, a significant adverse change in the extent or manner in which
the business or asset acquired is used or a significant adverse change in the
business climate. If any such event or change in circumstances is present, the
fair value of a reporting unit is compared with its carrying amount, including
goodwill. If the fair value of a reporting unit exceeds its carrying amount,
goodwill of the reporting unit is not considered impaired. If the carrying
amount of a reporting unit exceeds its fair value, the amount of impairment
will be measured in accordance with the guidance of SFAS 142. All of our
goodwill was assigned to a single reporting unit, which is our sole operating
segment.

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We record estimated expenses under the contracts with third parties on a
percentage of completion basis. These contracts cover ongoing clinical trials,
manufacturing and supply agreements and toxicology and pharmacology studies.
These contracts generally have terms ranging from approximately two months to
approximately two years. Expenses are recorded as the work under each contract
is completed, and we may record an accrued liability or prepaid
expense on our
Consolidated Balance Sheet, depending on the payment terms under each contract.
As of June 30, 2003, we had total potential obligations of approximately $11.3
million under contracts accounted for on the percentage of completion basis.
We estimate that approximately $8.3 million of the contract obligations had
been incurred and expensed through June 30, 2003 and approximately $1.7 million
is included in accrued liabilities in the accompanying balance sheet for
expenses under contracts on a percentage of completion basis.




Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our exposure to market risk for changes in interest rates relates
primarily to the increase or decrease in the amount of interest income that we
can earn on our investment portfolio and on the increase or decrease in the
amount of interest expense that we must pay with respect to our various
outstanding debt instruments. Under our current policies, we do not use
interest rate derivative instruments to manage our exposure to interest rate
changes. We ensure the safety and preservation of our invested funds by
limiting default risks, market risk and reinvestment risk. We mitigate default
risk by investing in investment grade securities and limiting our exposure to
any one security. A hypothetical 100 basis point adverse move in interest rates
along the entire interest rate yield curve would not materially affect the fair
value of our interest sensitive financial instruments at June 30, 2003.
Declines in interest rates reduce our interest income as described on page 12
in Managements Discussion and Analysis, under the subcaptions Three Months
Ended June 30, 2003 and 2002, Other Income (Expense) and Six Months Ended
June 30, 2003 and 2002, Other Income (Expense), while increases in interest
rates increase our interest expense.

The functional currency for our foreign operation is the U.S. Dollar. As
such, changes in exchange rates between the Swedish Kronor and the U.S. Dollar
could adversely affect our future net income (loss). Given the level of
activity we currently have with our foreign operations, we consider this
exposure to be minimal. A 10% change in exchange rates would not have a
significant impact on our future net income (loss). Additionally, at June 30,
2003, we had approximately $6.8 million in long-term debt denominated in
Swedish Kronor for which changes in the exchange rate will result in foreign
currency transaction gains or losses that are charged to Other income (expense)
in the accompanying Statements of Operations.




Item 4. Controls and Procedures

(a)  Evaluation of Disclosure Controls and Procedures

Certain
members of the Companys management, with the participation of the Companys Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of
the Companys disclosure controls and procedures as of the end of the period
covered by this report. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer, concluded that the Companys disclosure controls
and procedures as of the end of the period covered by this report were designed
and functioning effectively to provide reasonable assurance that the
information required to be disclosed by the Company in reports filed under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and forms. The Company
believes that a controls system, no matter how well designed and operated,
cannot provide absolute assurance that the objectives of the controls system
are met, and no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within a company have been
detected.

(b)  Change in Internal Control over Financial Reporting

No change in the Companys internal control over financial reporting
occurred during the Companys most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Companys internal
control over financial reporting.

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PART II  OTHER INFORMATION




Item 1. Legal Proceedings

Not applicable.




Item 2. Changes in Securities and Use of Proceeds

On August 6, 2003, the Company completed a public offering of
4.0 million shares of its common stock, raising net proceeds of approximately
$60.2 million. The Company invested the net proceeds from the public
offering in investment-grade, interest-bearing securities. These
proceeds, as well as the proceeds from earlier offerings and private
placements, are being used to fund our operations, for working capital and for
general corporate purposes, which may include capital expenditures, clinical
development, manufacturing and/or in-licensing of technology.

On July 25, 2003, the Company was informed that Scott Sacane, Durus
Capital Management, LLC and Durus Capital Management (N.A.), LLC (together, the
Sacane Group) had become the beneficial owners of almost 33% of the Companys
then outstanding common stock. The Sacane Group had not disclosed to the
Company any changes in its beneficial ownership after November 8, 2002 until
July 25, 2003, nor had it reported those changes to the SEC in a timely manner
in accordance with the federal securities laws. On July 29, 2003, the Company
amended its stockholder rights agreement (the Rights Agreement) to provide
that the Sacane Group would not be considered to be an Acquiring Person, as
defined under the Rights Agreement, provided that the Sacane Group does not
acquire more than 33% of the Companys shares or does not cease to hold the
Companys shares for passive investment purposes. As a result of the
issuance of 4,000,000 shares in the Companys completed public offering of its common stock, the Sacane Group now
holds approximately 29% of the Companys outstanding common stock.




Item 3. Defaults Upon Senior Securities

Not applicable.

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Item 4. Submission of Matters to a Vote of Security Holders

The Annual Meeting of Stockholders of the Company was held on May 30,
2003. At the Annual Meeting, the stockholders of the Company (1) approved the
re-election of Roger S. Newton, Ph.D. and Susan B. Bayh as Directors of the
Company, each to hold office until the Annual Meeting of Stockholders to be
held in 2006 and until their respective successors are elected and qualified;
and (2) approved the amendment to the Companys 2000 Equity Compensation Plan;
and (3) ratified the Board of Directors appointment of PricewaterhouseCoopers
LLP as the independent public accountants of the Company for the fiscal year
ending December 31, 2003. The votes were as follows:

|                                   |                            |  |     |            |            |  |           |           |           |  |  |         |        |  |  |   | 
|---------------------------------- | -------------------------- |  | --- | ---------- | ---------- |  | --------- | --------- | --------- |  |  | ------- | ------ |  |  | - | 
|                                   |                            |  |     |            |            |  | WITHHELD  |           |           |  |  |         | BROKER
|                                   |                            |  | FOR |            | OR AGAINST |  | ABSTAINED |           | NON-VOTES
|                                   |                            |  |     |            |            |  |           |           |          
|(1) Election of Directors:         |                            |  |     |            |            |  |           |           |           |  |  |         |        |  |  |  
|                                   | Roger S. Newton, Ph.D.     |  |     | 24,623,624 |            |  |           |          |           |  |  | 244,808 |        |  |  |  | 
|                                   | Susan B. Bayh              |  |     | 24,246,091 |            |  |           |          |           |  |  | 622,341 |        |  |  |  | 
|(2) Amendment to 2000 Equity       |                            |  |     |            |            |  |           |           |           |  |  |         |        |  |  |  
|                                   | Compensation Plan:         |  |     | 23,607,600 |            |  |           | 1,241,779 |           |  |  | 19,520  |        |  |  | 1 | 
|(3) Ratification of appointment of |                            |  |     |            |            |  |           |           |           |  |  |         |        |  |  |  
|                                   | PricewaterhouseCoopers
LLP |  |     | 24,831,181 |            |  |           | 20,801    |           |  |  | 16,450  |        |  |  |  | 




Item 5. Other Information

Not applicable.

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Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

|       |  |                                                                                                                                                                                                                                                                        
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Exhibit                                                                                                                                                                                                                                                                
|       |  |                                                                                                                                                                                                                                                                        
|10.55* |  | Advisory Services Agreement among Scheer & Company, Inc., David I. Scheer and Esperion
Therapeutics, Inc. dated as of April 28, 2003.                                                                                                                                  
|       |  |                                                                                                                                                                                                                                                                        
|10.56  |  | Employment arrangement between Adeoye Y. Olukotun and Esperion Therapeutics, Inc. dated
June 4, 2003.                                                                                                                                                                  
|       |  |                                                                                                                                                                                                                                                                        
|10.57  |  | Amendment No. 1 to Esperion Therapeutics, Inc. 2000 Equity Compensation Plan (Amended
and Restated, Effective April 18, 2002).                                                                                                                                         
|       |  |                                                                                                                                                                                                                                                                        
|10.58  |  | Office Lease between State 94 Properties, L.L.C. and Esperion Therapeutics, Inc. dated as of
June 28, 2003.                                                                                                                                                            
|       |  |                                                                                                                                                                                                                                                                        
|31.1   |  | Certification pursuant to Rules 13a-14 (a) or 15d-14 (a) promulgated under the Securities
Exchange
Act of 1934, as amended.                                                                                                                                            
|       |  |                                                                                                                                                                                                                                                                        
|31.2   |  | Certification pursuant to Rules 13a-14 (a) or 15d-14 (a) promulgated under the Securities
Exchange
Act of 1934, as amended.                                                                                                                                            
|       |  |                                                                                                                                                                                                                                                                        
|32.1   |  | Certification pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                                      
|       |  |                                                                                                                                                                                                                                                                        
|32.2   |  | Certification pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                                      
|       |  |                                                                                                                                                                                                                                                                        
|*      |  | Confidential treatment requested with respect to portions of the Agreement indicated with
brackets and asterisks [*      *]. A complete copy of this Agreement, including the redacted
portions, has been separately filed with the Securities and Exchange Commission.

(b) Reports on Form 8-K

Not Applicable.

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SIGNATURES

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

|                       |  |     |  |                                         
|---------------------- |  | --- |  | ----------------------------------------
|Dated: August 14, 2003 |  |     |  | ESPERION THERAPEUTICS, INC.
(Registrant)
|                       |  |     |  |                                         
|                       |  | By: |  | /s/ Roger S. Newton                     
|                       |  |     |  | Roger S. Newton                         
|                       |  |     |  | President and Chief Executive Officer   
|                       |  |     |  | (Principal Executive Officer)           
|                       |  |     |  |                                         
|                       |  | By: |  | /s/ Timothy M. Mayleben                 
|                       |  |     |  | Timothy M. Mayleben                     
|                       |  |     |  | Chief Operating Officer                 
|                       |  |     |  | and Chief Financial Officer             
|                       |  |     |  | (Principal Financial Officer)           

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INDEX TO EXHIBITS

|       |  |                                                                                                                                                                                                                                                                        
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Exhibit                                                                                                                                                                                                                                                                
|       |  |                                                                                                                                                                                                                                                                        
|10.55* |  | Advisory Services Agreement among Scheer & Company, Inc., David I. Scheer and Esperion
Therapeutics, Inc. dated as of April 28, 2003.                                                                                                                                  
|       |  |                                                                                                                                                                                                                                                                        
|10.56  |  | Employment arrangement between Adeoye Y. Olukotun and Esperion Therapeutics, Inc. dated
June 4, 2003.                                                                                                                                                                  
|       |  |                                                                                                                                                                                                                                                                        
|10.57  |  | Amendment No. 1 to Esperion Therapeutics, Inc. 2000 Equity Compensation Plan (Amended
and Restated Effective April 18, 2002).                                                                                                                                          
|       |  |                                                                                                                                                                                                                                                                        
|10.58  |  | Office Lease between State 94 Properties, L.L.C. and Esperion Therapeutics, Inc. dated as of
June 28, 2003.                                                                                                                                                            
|       |  |                                                                                                                                                                                                                                                                        
|31.1   |  | Certification pursuant to Rules 13a-14 (a) or 15d-14 (a) promulgated under the Securities
Exchange
Act of 1934, as amended.                                                                                                                                            
|       |  |                                                                                                                                                                                                                                                                        
|31.2   |  | Certification pursuant to Rules 13a-14 (a) or 15d-14 (a) promulgated under the Securities
Exchange
Act of 1934, as amended.                                                                                                                                            
|       |  |                                                                                                                                                                                                                                                                        
|32.1   |  | Certification pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                                      
|       |  |                                                                                                                                                                                                                                                                        
|32.2   |  | Certification pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                                      
|       |  |                                                                                                                                                                                                                                                                        
|*      |  | Confidential treatment requested with respect to portions of the Agreement indicated with
brackets and asterisks [*      *]. A complete copy of this Agreement, including the redacted
portions, has been separately filed with the Securities and Exchange Commission.

21